UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended JuneSeptember 30, 2009

or

For the transition period from            to            

Commission File Number: 2-64559

NATIONWIDE LIFE INSURANCE COMPANY

(Exact name of registrant as specified in its charter)

(614) 249-7111

(Registrant’s telephone number, including area code)

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.

Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

Yes  ¨    No  x

No established published trading market exists for the registrant’s common stock, par value $1.00 per share. As of July 31,November 3, 2009, 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.

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNESEPTEMBER 30, 2009

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

ITEM 1 Condensed Consolidated Financial Statements

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Condensed Consolidated Statements of (Loss) Income

(Unaudited)

(in millions)

See accompanying notes to condensed consolidated financial statements.

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Condensed Consolidated Balance Sheets

(in millions, except for share and per share amounts)

See accompanying notes to condensed consolidated financial statements.

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Condensed Consolidated Statements of Changes in Equity

SixNine Months Ended JuneSeptember 30, 2009 and 2008

(Unaudited)

(in millions)

See accompanying notes to condensed consolidated financial statements.

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in millions)

See accompanying notes to condensed consolidated financial statements.

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Condensed Consolidated Financial Statements (Unaudited)

JuneSeptember 30, 2009 and 2008

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 (U.S. GAAP)(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, 2008 included in the Company’s 2008 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.

The Company evaluated subsequent events through July 31,November 3, 2009, the date the condensed consolidated financial statements were filed.filed with the United States Securities and Exchange Commission (SEC).

NLIC entered into a Plan and Agreement of Merger with its affiliate, Nationwide Life Insurance Company of America (NLICA), effective as of August 28, 2009, providing for the merger of NLICA with and into NLIC, with NLIC as the surviving entity. In addition, NLIC’s subsidiary, Nationwide Life and Annuity Insurance Company (NLAIC), entered into a Plan and Agreement of Merger with a subsidiary of NLICA, Nationwide Life and Annuity Company of America (NLACA), dated effective as of August 28, 2009, providing for the merger of NLACA with and into NLAIC, with NLAIC as the surviving entity. The closing of these mergers are subject to satisfaction of customary closing conditions, including receipt of all required regulatory approvals (including from the Commissioners of Insurance for the states of Ohio, Delaware and California and the Commonwealth of Pennsylvania), and any necessary exemptions, approvals or non-disapprovals of the Securities and Exchange Commission. The mergers are expected to close on or about December 31, 2009. The mergers are being completed to streamline the enterprise’s capital structure and create operational efficiencies.

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 2008 Annual Report on Form 10-K. There have been no material changes to these policies since December 31, 2008 except as noted below.

As a result of the Company’s adoption of FSP FAS 115-2guidance impacting Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 320-10,Investments – Debt and FAS 124-2,Recognition and Presentation of Other-Than-Temporary ImpairmentsEquity Securities, (FSP FAS 115-2 and SFAS 124-2) in the first quarter of 2009, for all debt securities evaluated for other-than-temporary impairment (for which the Company does not have the intent to sell and it is not more likely than not that it will be required to sell the security before the recovery of its amortized cost basis), the Company considers the timing and amount of the cash flows. The Company evaluates its intent to sell on an individual security basis.

Additionally, debt securities that become other-than-temporarily impaired (where the Company does not intend to sell the security and it is not more likely than not that it will be required to sell the security prior to recovery of the security’s amortized cost) are bifurcated with the credit portion of the impairment loss being recognized in earnings and the non-credit loss portion of the impairment being recognized in other comprehensive income, net of applicable taxes and other offsets.

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

September 30, 2009 and 2008

The Company’s practice is to disclose as part of the separate component of accumulated other comprehensive income both the non-credit portion of the other-than-temporary impairment recognized in other comprehensive income and any subsequent changes in the fair value of those debt securities.

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

June 30, 2009 and 2008

In September 2009, the FASB issued guidance under FASB ASC 820-10,Fair Value Measurements and Disclosures. This guidance applies to measuring the fair value of investments in investment companies that do not have a readily determinable fair value and calculate net asset values (NAV) consistent with the American Institute of Certified Public Accountants Audit and Accounting Guide, which generally requires these investments to be measured at fair value. For these investments, this update allows, as a practical expedient, the use of NAV as the basis to estimate fair value as long as it is not probable, as of the measurement date, that the investment will be sold and NAV is not the value that will be used in the sale. This guidance is effective for interim and annual periods ending after December 15, 2009 with early adoption permitted. The Company will adopt this guidance effective the period ending December 31, 2009 and is currently evaluating the impact of adoption.

In August 2009, the FASB issued guidance under FASB ASC 820-10,Fair Value Measurements and Disclosures. This guidance clarifies how the fair value of a liability should be determined. It reiterates that fair value is the price that would be paid to transfer the liability in an orderly transaction between market participants at the measurement date. It notes that the liability should reflect the company’s nonperformance and credit risk and should not reflect restrictions on the transfer of the liability. To determine the exit price, the guidance permits companies to look to the identical liability traded as an asset, similar liabilities traded as assets, or another valuation technique to measure the price the company would pay to transfer the liability. This guidance is effective for the first reporting period beginning after issuance. The Company will adopt this guidance effective the reporting period ending December 31, 2009 and is currently evaluating the impact of adoption.

In June 2009, the FinancialFASB issued guidance under FASB ASC 105,Generally Accepted Accounting Standards Board (FASB) issued StatementPrinciples (Statement of Financial Accounting Standard (SFAS) No. 168,The FASB Accounting Standards Codification™Codification^TM and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162 (SFAS(SFAS 168)). SFAS 168This guidance establishes the FASB Accounting Standards Codification™ (Codification)ASC as the single source of authoritative U.S. generally accepted accounting principles (U.S. GAAP)GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the United States Securities and Exchange Commission (SEC)SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. SFAS 168 and the CodificationASC are effective for financial statements issued for interim and annual periods ending after September 15, 2009. When effective, the Codification will supersedeThe ASC supersedes all existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification willASC have become non-authoritative. Following SFAS 168, the FASB will notno longer issue new standards in the form of Statements, FASB Staff Positions (FSP),FSPs, or Emerging Issues Task Force (EITF)EITF Abstracts. Instead, the FASB will issue Accounting Standards Updates, which will serve only to: (a)to update the Codification; (b)ASC, provide background information about the guidance;guidance, and (c) provide the bases for conclusions on the change(s) in the Codification.ASC. The Company will adoptadopted SFAS 168 effective September 30, 2009. The adoption of SFAS 168this guidance will not have an impact on ourthe Company’s consolidated financial statements but will alter the references to accounting literature within the consolidated financial statements.

In June 2009, the FASB issued guidance under SFAS No. 167,Amendments to FASB Interpretation No. 46(R), (SFAS 167). SFAS 167This guidance changes the consolidation guidance applicable to a variable interest entity (VIE). It also amends the guidance governing the determination of whether an enterpriseentity is the VIE’s primary beneficiary (the reporting entity that must consolidate the VIE) by requiring a qualitative analysis rather than a quantitative analysis. The qualitative analysis will include, among other things, consideration of who has the power to direct the activities of the entity that most significantly impact the entity’s economic performance and who has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. SFAS 167This guidance also requires continuous reassessment of whether an enterprise is the primary beneficiary of a VIE. Before this standard,guidance, FASB Interpretation No. 46(R) required reconsideration of whether an enterprise was the primary beneficiary of a VIE only when specific events had occurred. SFAS 167 also requires enhanced disclosures about an enterprise’s involvement with a VIE. SFAS 167This guidance is effective for fiscal and interim reporting periods beginning after November 15, 2009. The Company will adopt SFAS 167this guidance effective January 1, 2010. The Company currently is evaluating the provisions of SFAS 167this guidance to determine the impact of adoption on its consolidated financial statements.

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

September 30, 2009 and 2008

In June 2009, the FASB issued guidance under SFAS No. 166,Accounting for Transfers of Financial Assets – an amendment of FASB Statement No. 140 (SFAS 166). SFAS 166This guidance eliminates the concept of a qualifying special-purpose entity (QSPE) from SFAS No. 140 and clarifies and amends the derecognition criteria for a transfer to be accounted for as a sale and the unit of account eligible for sale accounting. Additionally, SFAS 166 requires a transferor to initially measure and recognize all assets obtained (including a transferor’s beneficial interest) and liabilities incurred as a result of a transfer of financial assets accounted for as a sale at fair value. Additionally, on and after the effective date, existing QSPEs (as defined under previous accounting standards) must be evaluated for consolidation in accordance with the applicable consolidation guidance. SFAS 166This guidance also establishes new requirements for reporting a transfer of a portion of a financial asset as a sale. SFAS 166This guidance requires enhanced disclosures about, among other things, a transferor’s continuing involvement with transfers of financial assets accounted for as sales, the risks inherent in the transferred financial assets that have been retained, and the nature and financial effect of restrictions on the transferor’s assets that continue to be reported in the consolidated balance sheets. SFAS 166This guidance is effective for fiscal and interim reporting periods beginning after November 15, 2009. The Company will adopt SFAS 166this guidance effective January 1, 2010. The Company currently is evaluating the provisions of SFAS 166the guidance to determine the impact of adoption on its consolidated financial statements.

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

June 30, 2009 and 2008

In May 2009, the FASB issued SFASguidance under FASB ASC 855,Subsequent Events, (SFAS No. 165,Subsequent Events (SFAS 165)). SFAS 165This guidance establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. In particular, SFAS 165this guidance sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures an entity should make about events or transactions that occurred after the balance sheet date. SFAS 165This guidance is effective for fiscal years and interim periods ending after June 15, 2009. The Company adopted SFAS 165this guidance effective June 30, 2009. The adoption of this standardguidance did not have a material impact on the consolidated financial statements of the Company. The Company evaluated subsequent events through November 3, 2009 the date that the condensed consolidated financial statements were issued. See Note 1 for the date through which the Company evaluated subsequent events.required disclosure.

In April 2009, the FASB issued FSP FAS 115-2guidance under FASB ASC 320,Investments – Debt and SFAS 124-2. FSP FASEquity Securities, (FASB Staff Position (FSP) Financial Accounting Standard (FAS) 115-2 and FAS 124-2, providesRecognition and Presentation of Other-Than-Temporary Impairments). This guidance is designed to create greater clarity and consistency in accounting for and presentingpresentation of impairment losses on debt and equity securities. FSP FAS 115-2 and FAS 124-2This guidance is effective for interim and annual periods ending after June 15, 2009 with early adoption permitted for interim and annual periods ending after March 15, 2009.permitted. As of the beginning of the interim period of adoption, FSP FAS 115-2 and FAS 124-2this guidance requires a cumulative-effect adjustment to reclassify the non-credit component of previously recognized other-than-temporary impairment losses from retained earnings to beginning balance of accumulated other comprehensive income.income(AOCI). The Company elected to early adoptadopted this guidance as of January 1, 2009. The adoption of FSP FAS 115-2 and FAS 124-2 as of the period ending March 31, 2009. The adoption of FSP SFAS 115-2 and SFAS 124-2 resulted in a cumulative-effect adjustment of $235.0 million, net of taxes, as an adjustment to the opening balance of retained earnings with a corresponding adjustment to accumulated other comprehensive income (AOCI).the opening balance of AOCI.

In April 2009, the FASB issued guidance under FASB ASC 820,Fair Value Measurements and Disclosures,(FSP FAS 157-4,Determining “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly(FSP FAS 157-4)Orderly”). FSP FAS 157-4This guidance provides guidelines for making fair value measurements more consistent with the principles presented in the previous standard SFAS No. 157,Fair Value Measurements,(SFAS 157). FSP SFAS 157-4This guidance is effective for interim and annual periods ending after June 15, 2009 with early adoption permitted for interim and annual periods ending after March 15, 2009.permitted. The Company elected to early adopt FSP FAS 157-4 as of the period ending March 31, 2009.

In April 2009, the FASB issued guidance under FASB ASC 825-10,Financial Instruments(FSP FAS 107-1 and APBAccounting Principles Bulletin (APB) 28-1,Interim Disclosures about Fair Value of Financial Instruments, (FSP FAS 107-1 and APB 28-1)). FSP FAS 107-1 and APB 28-1 amendsThe guidance amended FASB Statement No. 107,Disclosures about Fair Value of Financial Instruments (SFAS 107), to require disclosures about fair value of financial instruments within the scope of SFAS 107 for interim reporting periods of publicly traded companies as well as in annual financial statements. FSP FAS 107-1 and APB 28-1The guidance is effective for interim periods ending after June 15, 2009, with early adoption permitted for interim periods ending after March 15, 2009. The Company adopted FSP FAS 107-1 and APB 28-1this guidance for the period ending June 30, 2009 and included the required disclosures in Note 4.

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

September 30, 2009 and 2008

In November 2008, the FASB Board ratified the EITF consensus issued guidance under FASB ASC 350-30,Intangibles – Goodwill and Other, General Intangibles Other than Goodwill(EITF 08-7,Accounting for Defensive Intangible Assets(EITF 08-7)). EITF 08-7This guidance requires defensive intangible assets acquired in a business combination or asset acquisition to be accounted for as a separate unit of accounting. In doing so, the asset should not be included as part of the cost of an entity’s existing intangible asset(s) because the defensive intangible asset is separately identifiable. EITF 08-7This guidance is effective for intangible assets acquired on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company adopted EITF 08-7this guidance effective January 1, 2009. On the date of adoption, there was no impact to the Company’s financial position or results of operations. The Company will apply EITF 08-7this guidance prospectively for intangible assets acquired on or after January 1, 2009.

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

June 30, 2009 and 2008

In November 2008, the FASB Board ratified the EITF’s consensus issued guidance under FASB ASC 323-10,Investments – Equity Method and Joint Ventures(EITF 08-6,Equity Method Investment Accounting Considerations (EITF 08-6)). EITF 08-6This guidance clarifies how to account for certain transactions and impairment considerations involving equity method investments. Specifically, EITF 08-6this guidance notes: 1) an entity shall measure its equity method investment initially at cost; 2) an equity method investor is required to recognize other-than-temporary impairments of an equity method investment in accordance with paragraph 19(h) of APB 1835-32A and an equity method investor shall not separately test an investee’s underlying indefinite-lived intangible asset(s) for impairment; and 3) an equity method investor shall account for a share issuance by an investee as if the investor had sold a proportionate share of its investment and any gain or loss to the investor resulting from an investee’s share issuance shall be recognized in earnings. This EITFguidance is effective on a prospective basis in fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years. The Company adopted EITF 08-6 effectivethis guidance prospectively beginning January 1, 2009. On the date of adoption, there was no impact to the Company’s financial position or results of operations. The Company will apply EITF 08-6 prospectively as is required.

In April 2008, the FASB issued FSPguidance under FASB ASC 350-30,General Intangibles other than Goodwill, (FSP FAS 142-3,Determination of the Useful Life of Intangible Assets (FSP FAS 142-3)). FSP FAS 142-3This guidance amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under previous SFAS No. 142,Goodwill and Other Intangible Assets (SFAS 142). FSP FAS 142-3FASB ASC 350-30 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. The amended factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142 are to be applied prospectively to intangible assets acquired after the effective date. The Company adopted FSP 142-3this guidance effective January 1, 2009. On the date of adoption, there was no impact to the Company’s financial position or results of operations. The Company will apply FSP FAS 142-3this guidance prospectively to intangible assets acquired after January 1, 2009.

In March 2008, the FASB issued SFASguidance under FASB ASC 815,Derivatives and Hedging, (SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133(SFAS 161)). SFAS 161This guidance amends and expands the disclosure requirements of previous SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities, (SFAS 133), with the intent to provide users of financial statements with an enhanced understanding of how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations,FASB ASC 815, and how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. SFAS 161This guidance requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about derivative instrument fair values and related gains and losses, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161This guidance is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company adopted SFAS 161this guidance effective March 31,January 1, 2009.

In February 2008, the FASB issued FSPguidance under FASB ASC 820,Fair Value Measurements and Disclosures, (FSP FAS 157-2,Effective Date of FASB Statement No. 157 (FSP FAS 157-2)). This FSP delaysguidance delayed the effective date of SFAS 157 for nonfinancial assets and liabilities until fiscal years and interim periods beginning after November 15, 2008. FSP FAS 157-2FASB ASC 820 applies to nonfinancial assets and liabilities, except for items recognized or disclosed at fair value in the Company’s financial statements on a recurring basis (at least annually), and is effective upon issuance. The Company adopted FSP FAS 157-2this guidance effective January 1, 2009. On the date of adoption, there was no impact to the Company’s financial position or results of operations.

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

JuneSeptember 30, 2009 and 2008

In December 2007, the FASB issued guidance under FASB ASC 805,Business Combinations,(SFAS No. 141 (revised 2007),Business Combinations(SFAS 141(R)), (SFAS 141R)) which replacesreplaced SFAS No. 141,Business Combinations(SFAS (SFAS 141). The objective of SFAS 141(R)this guidance is to improve the relevance, representational faithfulness, and comparability of the information a reporting entity provides in its financial reports about a business combination and its effects. Accordingly, SFAS 141(R)this guidance establishes principles and requirements for how the acquirer: 1)acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; 2) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and 3) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141(R)This guidance applies to all transactions or other events in which an entity obtains control of one or more businesses and retains the fundamental requirements in SFASthe previous SFAS. 141 that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. SFAS 141(R)This guidance defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date the acquirer achieves control. SFAS 141(R)This guidance is applicable prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Earlier application is prohibited. The Company adopted SFAS 141(R)this guidance effective January 1, 2009. The Company will apply SFAS 141(R)this guidance prospectively to any business combination on or after January 1, 2009.

In April 2009, the FASB issued FSPguidance under FASB ASC 805-20,Business Combinations – Identifiable Assets and Liabilities, and Any Noncontrolling Interest, (FSP FAS 141R-1,Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies (FSP FAS 141R-1)). FSP FAS 141R-1This guidance amends the guidance of FASprevious SFAS 141R related to contingencies. First, FSP FAS 141R-1this guidance requires the acquirer to recognize the contingency at fair value, at the acquisition date, if the acquisition-date fair value of that asset or liability can be determined during the measurement period. Second, if the first criteria is not applicable as the fair value of the asset or liability cannot be determined during the measurement period, then the contingency shall be recognized if both A) Information(a) information available before the end of the measurement period indicates it is probable an asset existed or a liability had been incurred at the acquisition date and B)(b) the amount of the asset or liability can be reasonably estimated. If neither of these acquisition date recognition criterion apply, the acquirer shall not recognize an asset or liability as of the acquisition date. In periods after the acquisition date, the acquirer shall account for an asset or a liability arising from a contingency that does not meet the recognition criteria at the acquisition date in accordance with other applicable GAAP, including Statement 5,FASB ASC 450,Accounting for Contingencies, as appropriate. The Company will apply SFAS 141R-1this guidance prospectively to any business combination on or after January 1, 2009.

In December 2007, the FASB issued SFASguidance under FASB ASC 810-10,Consolidation, (SFAS No. 160,Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51(SFAS 160)). The objective of SFAS 160this guidance is to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160This guidance also amends certain consolidation procedures prescribed by previous Accounting Research Bulletin No. 51,Consolidated Financial Statements, for consistency with the requirements of previous SFAS 141R. SFAS 160No. 141 (revised 2007). This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The Company adopted SFAS 160this guidance effective January 1, 2009. The required presentation of noncontrolling interests is reflected in the consolidated financial statements. As a result of the adoption of SFAS 160, the Company reclassified $416.6 million from other liabilities to equity as of December 31, 2008, representing the noncontrolling interest of low-income-housing tax credit funds (LIHTC Funds). See Note 1215 for further discussion on the LIHTC Funds. The accounting requirements of SFAS 160 will be applied to any acquisitions or dispositions oftransactions involving noncontrolling interests on or after January 1, 2009.

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

JuneSeptember 30, 2009 and 2008

Fair Value Option

The Company adopted SFAS 159,The Fair Value Option for Financial Assets and Liabilities, including an amendment of FASB Statement No. 115(SFAS 159), effectiveEffective January 1, 2008, andthe Company elected fair value treatment for commercial mortgage loans held for sale. Accordingly, the Company now records in earnings all market fluctuations associated with this portfolio. The Company previously recorded such loans at the lower of cost or market value. Balances for these loans will beare measured at fair value prospectively with unrealized gains and losses included as a component of net realized investment gains and losses. The Company will assess the fair value option election for new financial assets or liabilities on a prospective basis.

Fair Value Hierarchy

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various methods including market, income and cost approaches. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

The Company categorizes its financial instruments into a three level hierarchy based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument in its entirety.

The Company categorizes financial assets and liabilities recorded at fair value in the condensed consolidated balance sheets as follows:

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

June 30, 2009 and 2008

CertainFor certain residential mortgage-backed securities backed by Prime, Sub-prime and Alt-A collateral, which are included in Level 3 financial assets, utilizethe Company utilizes internal pricing models to assist in determining the estimated fair values. As of December 31, 2008, these investments were priced solely with the assistance of independent pricing services. As a result of continued declines in the levellow levels of activity in these markets during the first and secondthree quarters of 2009, in accordance with FSP FAS 157-4, management believes that prices were no longer representative of the investments’ fair value, which is the price that would be received upon the sale of the investment in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date. The Company believes that a weighting of internal pricing models and independent pricing services represents a better estimate of the investments’ fair value and complies with FSP FAS 157-4.FASB ASC 820,Fair Value Measurements and Disclosures.

Therefore, management determined that the use of multiple valuation techniques, considering both an income approach that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs and a market approach that observes quotes provided by independent pricing services produces a result more representative of an investment’s fair value.

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

September 30, 2009 and 2008

The income approach incorporates cash flows for each investment adjusted for expected losses in different interest rate and housing scenarios. The adjusted cash flows are then discounted using a risk premium that market participants would demand because of the risk in the cash flows. The risk premium is reflective of an orderly transaction between market participants at the measurement date under current market conditions and includes items such as liquidity and structure risk. The income approach also includes a weighting of external third party values. As sufficient information is often not available to conclude whether such prices are based on orderly transactions, this weighting methodology is designed to incorporate external prices into the Company’s internal valuation process.

In addition to weighting external prices in developing the internal values, the Company further calibrates those values to market indications through obtaining pricing determined from two independent pricing services (the market approach). The Company calibrates the prices obtained from the independent pricing services and the price developed internally by utilizing the median value to determine the estimated fair value.

In addition, certain of the Company’s investments in corporate debt securities, mortgage-backed securities and other asset-backed securities were valued with the assistance of independent pricing services and non-binding broker quotes. The Company’s policy is to use the pricing obtained from our primary independent pricing service even in cases where a price is obtained from both an independent pricing service and a broker. In the event that pricing information is not available from an independent pricing service, non-binding broker quotes are used to assist in the valuation of the investments. In many cases, only one broker quote is available. The Company’s policy is generally not to adjust the values obtained from brokers.

Broker quotes are considered unobservable inputs as only one broker quote is ordinarily obtained, the investment is not traded on an exchange, the pricing is not available to other entities and the transaction volume in the same or similar investments has decreased such that generally only one quotation is available. As the brokers often do not provide the necessary transparency into their quotes and methodologies, the Company periodically performs reviews and tests to ensure that quotes are a reasonable estimate of the investments’ fair value.

For investments valued with the assistance of independent pricing services, the Company obtained the pricing service’sservices’ methodologies and classified these investments accordingly in the fair value hierarchy. The Company periodically reviews and tests the pricing and related methodologies obtained from these independent pricing services against secondary sources to ensure that management can validate the investment’s fair value and related categorization. If large variances are observed between the price obtained from the independent pricing serviceservices and secondary sources, the Company analyzes the causes driving the variance and resolves any differences.

As of JuneSeptember 30, 2009, 63% of the prices of fixed maturity securities were valued with the assistance of independent pricing services, 11% were valued with assistance of the Company’s pricing matrices, 5% were valued with assistance of broker quotes, 18%19% were valued with the assistance of the Company’s internal pricing processes, 11% were valued with the assistance of the Company’s pricing matrices, 4% were valued with the assistance of broker quotes and 3% were valued from other sources compared to 78%, 4%, 12%, 5%, 4% and 1%, respectively, as of December 31, 2008.

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

JuneSeptember 30, 2009 and 2008

The following table summarizes assets and liabilities measured at fair value on a recurring basis as of JuneSeptember 30, 2009:

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

JuneSeptember 30, 2009 and 2008

The following table summarizes assets and liabilities measured at fair value on a recurring basis as of December 31, 2008:

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly-owned subsidiary of Nationwide Financial Services, Inc.)

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

JuneSeptember 30, 2009 and 2008

The following tables summarize financial instruments for which the Company used significant unobservable inputs (Level 3) to determine fair value measurements for the three and sixnine months ended JuneSeptember 30, 2009: