1933 Act File No. 333-229802
United States
Securities and Exchange Commission
Washington, D.C. 20549
Form S-1
Registration Statement
Under
The Securities Act of 1933
Nationwide Life Insurance Company
(Exact name of registrant as specified in its charter)
OHIO | 6311 | 31-4156830 | ||
(State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification Number) |
One Nationwide Plaza, Columbus, Ohio 43215
(Address, including zip code, and telephone number, including area code, of registrant'sregistrant’s principal executive offices)
Denise L. Skingle
Vice President – Corporate Governance and Secretary
One Nationwide Plaza
Columbus, Ohio 43215
Telephone: (614) 249-7111
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Approximate date of commencement of proposed sale to the public:As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large”large accelerated filer," "accelerated filer"filer”, "smaller“accelerated filer”, “smaller reporting company"company” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.
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Non-accelerated filer | ☒ (Do not check if a smaller reporting company) | |||||||||
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Emerging growth company | ☐ |
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities to be Registered | Amount to be Registered | Proposed Maximum Offering Price Per Unit | Proposed Offering Price, | Amount of including fee paid | ||||
Single Purchase Payment Deferred Index-Linked Annuity Contract | N/A | N/A | $1,446,723.002 | $168.113 | ||||
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1 | The amount to be registered and the proposed maximum offering price per unit are not applicable in that these contracts are not issued in predetermined amounts or units. The proposed maximum aggregate offering price is estimated solely for the purpose of determining the registration fee. |
2 | This registration statement includes unsold securities previously registered under the Securities Act of 1933 (“Securities Act“)on Form S-1 (File No. 333-203062) filed by the Registrant on March 27, 2015. Pursuant to Rule 415(a)(6) under the Securities Act, unsold securities were added to a registration statement on Form S-1 (File No. 333-223955) filed by the Registrant on March 27, 2018 (“Prior Registration Statement”). Pursuant to Rule 415(a)(6) under the Securities Act, all unsold securities from the Prior Registration Statement will be added to this Registration Statement and the offering of securities under the Prior Registration Statement will be deemed terminated as of the date of effectiveness of this Registration Statement. As of February 28, 2021, there were $1,446,723 of unsold securities registered pursuant to the Prior Registration Statement. |
3 | Pursuant to Rule 415(a)(6) under the Securities Act, $168.11 (calculated at the rate in effect at the time the Prior Registration Statement was filed) of filing fees paid in connection with the unsold securities shall continue to apply to the unsold securities, and no additional filing fee is due hereunder. |
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
This prospectus describes Select Retirement, individual supplemental immediate fixed income annuity contracts (referred to as "Contracts") issued by Nationwide Life Insurance Company ("Nationwide"), which are offered to investors with Morgan Stanley Smith Barney LLC, its affiliates, or any successors (collectively, "MSSB"). The informationContract provides for guaranteed income for the life of a designated person based on the Contract Owner's account at MSSB, provided all conditions specified in this prospectus is not complete and may be changed. We may not sell these securities untilare met, regardless of the registration statement filed withactual performance or value of the Securities and Exchange Commission is effective.
Preliminary Prospectus Dated January 28, 2019
Nationwide Defined ProtectionSM Annuity
Individual Single Purchase Payment Deferred Annuity Contract with Index-Linked Strategies
Issued by
NATIONWIDE LIFE INSURANCE COMPANY
Prospectus Dated, 2019
This prospectus describes the Nationwide Defined ProtectionSM Annuity Contract (the “Contract”), including all material rights and obligations under the Contract.investments in Your Account.
The Contract has no cash surrender value and does not provide a death benefit. |
The Contract is issued by us, Nationwide Life Insurance Company. The Contract is designed to help you invest on a tax-deferred basis and meet long-term financial goals. You may select one or more investment options, each linking to the performance of a specific market index and including a defined level of protection against loss.
We refer to these investment options as “Strategies.” Currently, each Strategy is linked to one of the following indexes:
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Each Strategy has a start date and an end date, and we refer to the duration between those two dates as the “Strategy Term.” At the end of a Strategy Term, you may reinvest in the same Strategy or transfer your money to another Strategyno longer available for investment. You cannot transfer between Strategies until the end of a Strategy Term.
Your Contract will gain or lose value based on the performance of your Strategies. Your gains and losses depend on the application of important factors that make up the Strategy. In addition to the linked index, the length of the Strategy Term, and the defined downside protection, these factors include a “Participation Rate” and “Strategy Spread.”
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Gains or losses related to the performance of a Strategy, which we refer to as “Strategy Earnings,” are applied to your Contract at certain times during the Strategy Term.Strategy Earnings may be positive, negative, or equal to zero.We will apply Strategy Earnings to your Contract on the last day of the Strategy Term. We will also apply Strategy Earnings to your Contract when you take a withdrawal prior to the end of a Strategy Term, and when we calculate the death benefit. Strategy Earnings are independent of any contingent deferred sales charges or market value adjustments under the Contract.
Before you purchase the Contract, you should carefully consider the consequences of taking withdrawals. Each year under the Contract, a certain percentage of your contract value may be withdrawn and will receive preferred treatment. We refer to these withdrawals as “Preferred Withdrawals.” If you take a Preferred Withdrawal prior to the end of a Strategy Term, we calculate your rate of return in the same way that we would calculate your rate of return at the end of the Strategy Term. Upon a Preferred Withdrawal, any losses will be limited by the Strategy’s defined downside protection.
If you have taken the maximum amount of Preferred Withdrawals, any excess amounts withdrawn will be treated as “Non-Preferred Withdrawals.” Non-Preferred Withdrawals may have a more negative impact to the performance of your Contract when compared to Preferred Withdrawals.
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Each Strategy includes a Lock-In feature. If you decide to exercise the Lock-In feature for a Strategy, the performance of the Index as of a certain date will be fixed for the remainder of the Strategy Term.
You should understand that while the Contract provides some protection against loss, you can lose money under the Contract. It is possible to lose a substantial amount of your principal investment. You should not buy the Contract if you are not willing to assume the risks associated with the Contract. See “Risk Factors” beginning on page 19.
An investment in a Strategy does not represent an investment in the linked index or any securities or other assets included in the linked index.
Prospective purchasers may obtain an application to purchase the Contract through broker-dealers that have been appointed by us as insurance agents and that have selling agreements with Nationwide Investment Services Corporation (“NISC”), the principal underwriter for the Contracts. NISC will use its best efforts to sell the Contracts, but is not required to sell any number or dollar amount of Contracts. We may stop offering the Contracts at any time.
Index-linked annuity contracts are complicated investments. You should speak with a financial professional about the Contract’s features, benefits, and risks, and whether the Contract is appropriate for you based on your financial situation and objectives.
This prospectus does not constitute an offering in any jurisdiction in which the Contract may not lawfully be sold.
All guarantees under the Contract are subject to our creditworthiness and claims-paying ability.
The Contract is not a bank deposit, is not FDIC insured, and is not insured or endorsed by any bank or government agency. The Contract may not be available in every state.
purchase.
• | Is not a bank deposit |
• | Is not FDIC insured |
• | Is not insured or endorsed by a bank or any government agency |
• | Is not available in every state |
For information on how to contact Nationwide, seeContacting the |
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Available Information
Additional information about Nationwide
Provided belowback of this prospectus, there is a listDefinitions provision containing definitions of special terms used throughout this prospectus. Certain other special terms are defined in context where they first appear in this prospectus.
Adjusted Index Performance (AIP) – A percent that represents the Index Performance adjusted for a Strategy���s Participation Rate and Strategy Spread. The AIP is the Index Performance multiplied by the Participation Rate and then reduced by the productall of the Strategy Spread multiplied by the Elapsed Term. The AIP isterms used in the Strategy Earnings Percentage and Non-Preferred Strategy Earnings Percentage calculations.
Annuitant- prospectus.
• | "We," "us," "our," "Nationwide" or the "Company" means Nationwide Life Insurance Company. |
• | "You" or "yours," "Owner" or "Contract Owner" means the owner of the Contract. If more than one Owner is named, each Owner may also be referred to as a "joint owner." Joint owners are permitted only when they are spouses as recognized by applicable Federal law. |
• | "Your Account" means the unified managed account you own. As described further below, "Select UMA" is a unified managed account investment advisory program offered by MSSB. MSSB offers Your Account through registered representatives and investment advisor representatives ("Financial Advisors") of MSSB. You must purchase a Contract with the assistance of these Financial Advisors. Financial Advisors assist clients in analyzing whether the investment options are appropriate for the client. If your Financial Advisor recommends a MSSB account to you, upon your request, MSSB will open Your Account. MSSB acts as introducing broker to Citigroup Global Markets Inc. ("CGMI"), an indirect wholly-owned subsidiary of Citigroup Inc., which acts as clearing broker for Your Account. The assets in Your Account are custodied at CGMI. |
Annuitization Date - The date on which annuity payments begin.
Annuity Commencement Date - The date on which annuity payments are scheduled to begin.
Beneficiary- A person designated by the Contract Owner who may receive certain benefits under the Contract, including the Death Benefit.
Business Day - Each day that the New York Stock Exchange is open for regular trading. A Business Day ends at the same time that regular trading on the New York Stock Exchange closes (typically 4:00 p.m. Eastern Time).
Cash Withdrawal- The dollar amount paid to the Contract Owner upon a partial withdrawal or full surrender. A Cash Withdrawal is equal to the Gross Withdrawal minus any applicable CDSC and deducted taxes, and reflects the application of any MVA.
Charitable Remainder Trust - A trust meeting the requirements of Section 664 of the Code.
Code - The Internal Revenue Code of 1986, as amended.
Contingent Annuitant- The person who becomes the Annuitant if the Annuitant dies before the Annuitization Date.
Contingent Beneficiary - The person or entity designated by the Contract Owner to receive any benefits accorded to a Beneficiary if there are no surviving Beneficiaries when the Annuitant dies.
Contingent Deferred Sales Charge (CDSC)- A charge that may be assessed if you take a Non-Preferred Withdrawal during the first six Contract Years.
Contract - The Nationwide Defined ProtectionSM Annuity Contract, the individual single purchase payment deferred annuity contract with index-linked strategies described in this prospectus.
Contract Accumulation Value - The sum of your Strategy Accumulation Values as of a given date.
Contract Anniversary - Each recurring twelve-month anniversary of the Date of Issue while the Contract remains in force.
Contract Owner (you) - The person possessing all rights under the Contract prior to the Annuitization Date, along with any Joint Owner. As the context requires, “you” refers to a potential or existing Contract Owner.
Contract Value - The sum of your Strategy Values as of a given date.
Contract Year - The twelve-month period starting on the Date of Issue and each Contract Anniversary. A Contract Year ends on the day prior to a Contract Anniversary.
Crediting Factors - For any Strategy, the Index, Strategy Term, Protection Level, Participation Rate, and Strategy Spread. See “Crediting Factors” for a description of each Crediting Factor.
Date of Issue - The date we issue the Contract. Your Purchase Payment is applied to the Contract on the Date of Issue.
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Death Benefit- The benefit triggered upon the death of the Annuitant, provided such death occurs before the Annuitization Date while the Contract is in force and there is no Contingent Annuitant.
Elapsed Term- The number of calendar days that have elapsed during a Strategy Term divided by 365.
Gross Withdrawal - A value that we calculate each time you take a partial withdrawal or full surrender representing the impact of the withdrawal. When you take a partial withdrawal or full surrender, the Gross Withdrawal equals the reduction in your Modified Contract Value and related Modified Strategy Value. A Gross Withdrawal equals the related Cash Withdrawal plus any applicable CDSC and deducted taxes, and minus any applicable MVA (which can be positive or negative).
Index - The market index associated with a Strategy.
Index Performance - The change in the value of an Index, expressed as a percentage, between the first day of a Strategy Term (or another date for a substitute Index) and a specific future day during that Strategy Term. The Index Performance may be positive, negative, or equal to zero.
Index Value- On a Business Day, the closing value of an Index published for that day. On a day other than a Business Day, the Index Value will be the closing value of the Index for the previous Business Day.
Individual Retirement Account - An account that qualifies for favorable tax treatment under Section 408(a) of the Code but does not include Roth IRAs.
Individual Retirement Annuity (IRA) - An annuity contract that qualifies for favorable tax treatment under Section 408(b) of the Code, but does not include Roth IRAs or Simple IRAs.
Interim Strategy Earnings- The amount applied to your Strategy when you take a partial withdrawal or full surrender on a day other than the Strategy Term End Date.
Investment-Only Contract - A Contract purchased by a qualified pension, profit-sharing, or stock bonus plan as defined by Section 401(a) of the Code.
Joint Owner - The person, if any, designated as a second person (in addition to the Contract Owner) to possess an undivided interest in the Contract. If therefollowing is a Joint Owner, references to Contract Owner and Joint Owner will apply to both of them, or either of them, unless the context requires otherwise.
Lock-In -The feature under the Contract that allows an Index Value as of a certain date to be locked-in for purposes of calculating the Index Performance for a Strategy for the remainder of the Strategy Term.
Lock-In Date -The date as of which the Index Value for a Strategy is locked in under the Lock-In feature.
Market Value Adjustment (MVA)- The adjustment that may be applied if you take a Non-Preferred Withdrawal during the MVA Period.
Modified Contract Value- The sum of your Modified Strategy Values as of a given date, which equals the maximum Gross Withdrawal that can be taken from the Contract on any given date.
Modified Strategy Value - The maximum Gross Withdrawal that may be taken from a Strategy as of a given date during a Strategy Term. On a Strategy Term End Date, the Modified Strategy Value is equal to your Strategy Value plus any Term Strategy Earnings. On any day other than the Strategy Term End Date, the Modified Strategy Value is equal to your Strategy Value plus any Interim Strategy Earnings that would be applied if you withdrew your entire Strategy Value.
MVA Period -The period of time during which Nationwide may apply the MVA to partial withdrawals and a full surrender. The MVA Period begins on the Date of Issue and ends after the sixth Contract Year.
Nationwide (we, us, our) - Nationwide Life Insurance Company.
Non-Preferred Strategy Earnings Percentage (NSEP)- A rate of interest (which may be positive, negative, or equal to zero) used to calculate Interim Strategy Earnings applied to a Strategy when a Non-Preferred Withdrawal is taken prior to the Strategy Term End Date.
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Non-Preferred Withdrawal - Any portion of a Gross Withdrawal from the Contract that is in excess of the Remaining Preferred Withdrawal Amount. Interim Strategy Earnings for a Non-Preferred Withdrawal are calculated using the Non-Preferred Strategy Earnings Percentage (or NSEP). Non-Preferred Withdrawals may also be subject to CDSCs and MVAs. All or a portion of any withdrawal may be subject to federal income taxes, and Contract Owners taking withdrawals before age 591⁄2 may be subject to a 10% penalty tax.
Non-Preferred Withdrawal Adjustment Percentage – A percent that can reduce your Interim Strategy Earnings if you take a Non-Preferred Withdrawal. It is part of the NSEP calculation.
Non-Qualified Contract - A Contract which does not qualify for favorable tax treatment as a Qualified Plan, IRA, Roth IRAs, SEP IRA, or Simple IRA.
Participation Rate - The proportion of the Index Performance that is reflected in the Strategy’s performance.
Preferred Withdrawal - Any portion of a Gross Withdrawal from the Contract that is less than or equal to the Remaining Preferred Withdrawal Amount. Preferred Withdrawals are not subject to any CDSC or MVA. In addition, Interim Strategy Earnings for a Preferred Withdrawal are calculated using the Strategy Earnings Percentage (SEP). All or a portion of any withdrawal may be subject to federal income taxes, and Contract Owners taking withdrawals before age 591⁄2 may be subject to a 10% penalty tax.
Preferred Withdrawal Amount - The dollar amount of Gross Withdrawals that you can take during a given Contract Year without taking a Non-Preferred Withdrawal.
Preferred Withdrawal Percentage – the percentage of your Contract Value that you can withdraw each Contract Year as a Preferred Withdrawal.
Protection Level - An amount of downside protection under a Strategy for a Strategy Term.
Purchase Payment - Money paid into the Contract by the Contract Owner.
Qualified Plan- A retirement plan that receives favorable tax treatment under Section 401 of the Code, including Investment-Only Contracts. In this prospectus, all provisions applicable to Qualified Plans also apply to Investment-Only Contracts unless specifically stated otherwise.
Remaining Preferred Withdrawal Amount - The Preferred Withdrawal Amount for a Contract Year minus the total dollar amount of all Preferred Withdrawals from the Contract already taken that Contract Year. The Remaining Preferred Withdrawal Amount will never be less than zero.
Roth IRA - An annuity contract which qualifies for favorable tax treatment under Section 408A of the Code.
Simplified Employee Pension IRA (SEP IRA) - An annuity contract which qualifies for favorable tax treatment under Section 408(k) of the Code. A SEP IRA is unrelated to the Strategy Earnings Percentage (SEP) described throughout this prospectus, which is a rate of return used to calculate Strategy Earnings.
Solutions Center - The department of Nationwide responsible for receiving all service and transaction requests relating to the Contract. For service and transaction requests submitted other than by telephone (including fax requests), the Solutions Center is Nationwide’s mail and document processing facility. For service and transaction requests communicated by telephone, the Solutions Center is Nationwide’s operations processing facility. Information on how to contact the Solutions Center may be found under “Contacting the Solutions Center.”
Simple IRA- An annuity contract which qualifies for favorable tax treatment under Section 408(p) of the Code.
Strategy - Each investment option to which you may allocate your Purchase Payment or Contract Value.
Strategy Accumulation Value - The value of a Strategy if unrealized Strategy Earnings were to be applied to the Strategy Value using only the SEP as of a given date during a Strategy Term. It is the daily value expressed in dollars that is provided to show how the Strategy is performing throughout a Strategy Term.
Strategy Earnings- The amount applied to a Strategy, including Term Strategy Earnings and/or Interim Strategy Earnings, on a given date or over a period of time. Strategy Earnings may be positive, negative, or equal to zero. Strategy Earnings may be negative when the Index Performance decreases or when the Index Performance increases but does not increase enough to offset the impact of any applicable Strategy Spread.
Strategy Earnings Percentage (SEP) - A rate of interest (which may be positive, negative, or equal to zero) used to calculate Term Strategy Earnings applied to a Strategy on the Strategy Term End Date, as well as any Interim Strategy Earnings applied to a Strategy when a Preferred Withdrawal is taken prior to the Strategy Term End Date. The SEP is also used in the calculation of the Death Benefit.
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Strategy Spread- An annualized percentage used as a deduction in the calculation of a Strategy’s performance. The Strategy Spread, when greater than zero, reduces Strategy Earnings. To calculate the Strategy Spread’s impact at any point in time, it is multiplied by the Elapsed Term (e.g., a 2% Strategy Spread on a 3-year Strategy Term will reduce earnings calculated at the end of the Strategy Term by 6% (subject to the downside protection of the Protection Level)).
Strategy Term - The duration of a Strategy, expressed in years.
Strategy Term End Date - The last day of a Strategy Term.
Strategy Value- The value of a Strategy without taking into account any potential gains or losses caused by future Strategy Earnings.
Surrender Value - The amount available upon full surrendersummary of the Contract. The Surrender Value is equal toUnless otherwise noted, this prospectus assumes that you are the Modifiedsole Contract Value minus any applicable CDSC and after any applicable MVA. We may deduct taxes from the Surrender Value.
Term Strategy Earnings- Strategy Earnings applied to a Strategy upon the maturity of a Strategy on the Strategy Term End Date.
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This summary provides a brief overview of the Contract.Owner. You should carefully read the entire prospectus before you decide whetherin addition to purchase the Contract. The Contract may not be currently available in all states, may vary in your state, or may not be available from all selling firms or from all financial professionals.
Who is Nationwide?Nationwide is the issuer of the Contract. Nationwide is a stock life insurance company organized under Ohio law, with its home office located at One Nationwide Plaza, Columbus, Ohio 43215. Nationwide is a provider of life insurance, annuities, and retirement products. It is admitted to do business in all states, the District of Columbia, Guam, the U.S. Virgin Islands, and Puerto Rico.
this summary.
Each Strategy includes a defined level of downside protection that limits the amount of loss you can experience during a strategy term. We refer to this defined downside protection as a “Protection Level.” Each strategy also includes a percentage that determines the proportion of the index performance you receive over the course of a strategy term, whichadvisory program is referred to as a “Participation Rate.” Some strategies also have an annualized percentage that is deducted from earnings called a “Strategy Spread.”
You may access your money at any time prior to annuitization by taking partial withdrawals or fully surrendering your Contract. When you take a withdrawal or full surrender, you are withdrawing a portion or all of the value of your investment(s) in one or more Strategies, which is referred to as your “Strategy Value(s).”appropriate for you. The Contract allowsis an optional feature available on Your Account for those investors who intend to use the assets in their account to provide income payments for retirement or other long-term purposes.
Non-preferred withdrawals taken in the first six yearsconditions of the Contract are subject to contingent deferred sales charges and may be subject to a negative market value adjustment, both of which will negatively impact the performance of your Contract. All or a portion of any withdrawal may be subject to federal income taxes, and Contract Owners taking withdrawals before age 591⁄2 may be subject to a 10% penalty tax.
The Contract has a Death Benefit that may be triggered prior to the Annuitization Date upon the death of the Annuitant. See “Death Benefit and Succession Rights.”
Once you reach the Annuitization Date, we pay guaranteed income in the form of annuity payments. The duration and dollar amount of the annuity payments will depend on the dollar amount that you annuitize and the annuity payment option that you select. See “Annuitization.”
All payments under the Contract are subject to our financial strength and claims-paying ability, as well as the terms and conditions described in this prospectus.
You should not buy the Contract if you are looking for a short-term investment or if you plan on taking withdrawals in excess of the permitted amount of Preferred Withdrawals in any Contract Year, as described in this prospectus. You should understand that whileIf, or when, you are eligible and elect to take withdrawals ("Guaranteed Lifetime Withdrawals") from Your Account, and if, or when, the Contract provides some protection against loss,value of the assets in Your Account ("Your Account Value") falls below a certain amount or you can lose money underlive to a certain age, you will receive Guaranteed Lifetime Income Payments from us for the Contract. It is possible to lose a substantialrest of your life (the "Guarantee"). The amount of your principal investment. You should not buyGuaranteed Lifetime Withdrawals will be based on a percentage of the Contract ifvalue of Your Account when you are not willing to assume the risks associated with the Contract. See “Risk Factors.”
How can the Contract be categorized under the Code? The Contract can be categorized under the Code as a:
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If youfirst purchase the Contract (with adjustments for additions and withdrawals, the "Guaranteed Lifetime Withdrawal Base") and will vary based on Your Account Value and other actions you take with regard to Your Account, as described in this prospectus.
• | The Spousal Continuation Option allows, upon your death, your surviving spouse to continue the Contract and receive all the rights and benefits associated with the Contract (see Spousal Continuation Option). |
• | The Contract's potential 5% roll-up is calculated based on your original Guaranteed Lifetime Withdrawal Base and may increase the Guaranteed Lifetime Withdrawal Base. This feature is only available during the Accumulation Phase (see Can the Guaranteed Lifetime Withdrawal Base change during the Accumulation Phase?). |
See “Contract Types and Federal Tax Considerations” for additional detail.
How do I purchase the Contract? You may purchase the Contract by completing an application and submitting a Purchase Payment of at least $25,000 to our Solutions Center. Only one Purchase Payment is allowed under the Contract. We may agree to accept multiple payments as part of a single Purchase Payment.
What are the investment options under the Contract?You may allocate your money under the Contract to one or more of the index-linked Strategies that are available for investment under the Contract. If you are simultaneously invested in the same Strategy for Strategy Terms that began on different dates, those investments will be considered separate Strategies. You may be invested in no more than five Strategies at any given time. There is no minimum dollar amount that can be allocated to a Strategy. Allocations to Strategies must be the Annuitant, and if you elect the Spousal Continuation Option (discussed later in whole percentages.
The Contract currently offers the following Strategies*:
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*See“What are the Crediting Factors for a Strategy?” for information on the Participation Ratethis prospectus), you and Strategy Spread for each Strategy. Each Strategy has its own Minimum Participation Rate that will neveryour spouse must be less than 5%,Co-Annuitants and each Strategy has its own Maximum Strategy Spread that will neveryour spouse must be greater than the initial Strategy Spread identified in your Contract at the Date of Issue plus 2%. When a Strategy has both a Participation Rate less than 100% and a Strategy Spread greater than zero, the Participation Rate and Strategy Spread combine to reduce gains when Index Performance is positive. Additionally, when a Strategy has both a Participation Rate greater than 100% and a Strategy Spread greater than zero, the Participation Rate and Strategy Spread combine to increase losses when Index Performance is negative.
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Each Index is described in more detail under “Strategies – Indexes” and “Risk Factors – Index Risk.” We reserve the right to make Strategies available for investment that use Indexes other than those listed above. There is no guarantee that a Strategy using any of the Indexes listed above will always be available for investment.
Once you reach the Annuitization Date, the Strategies are not available for investment.
You should understand that Index Performance is important, but it is not the only factor used to calculate gains or losses under the Contract. Each Strategy has multiple components that impact your Strategy Earnings, either by adjusting the Index Performance or otherwise increasing or decreasing gain or loss.
What factors will affect my investment gains and losses under the Contract? Each Strategy has the following five Crediting Factors: an Index, a Strategy Term, a Protection Level, a Participation Rate, and a Strategy Spread. The Index, Strategy Term and Protection Level will not change for as long as we continue to offer the Strategy, while the Participation Rate and Strategy Spread can change for future Strategy Terms.
Any decrease to a Strategy’s Participation Rate in a future Strategy Term will lower future gains when the Index Performance is positive and lessen future losses when Index Performance is negative, while an increase to the Participation Rate will increase future losses when the Index Performance is negative and increase future gains when Index Performance is positive. Any increase to a Strategy’s Strategy Spread in a future Strategy Term will lower future gains when the Index Performance is positive and increase future losses when the Index Performance is negative.
When selecting a Strategy for investment, you should not select a Strategy based on any single Crediting Factor in isolation. While one Crediting Factor for a Strategy may be more or less favorable or attractive to you, the other Crediting Factors also impact whether that Strategy is appropriate for you based on your financial needs and goals. You should consult a financial professional prior to selecting a Strategy for investment.
The following provides a brief description of the five Crediting Factors. See “Crediting Factors” for additional information.
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The Index is the market index to which a Strategy is linked. The different Indexes under the Contract provide exposure to different markets and asset classes, all of which may perform differently compared to each other and during different time periods. When we calculate Strategy Earnings, if the Index Performance is negative, you will lose money under your Contract unless the Strategy’s downside protection protects you from the loss. When the Index Performance is positive, you may or may not gain money under your Contract, depending on the impact of the Strategy Spread.
We calculate the Index Performance on a point-to-point basis, which is done by comparing:
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The result of this comparison will be the percentage change in the value of the Index between those two points in time. We refer to that change as the “Index Performance.” For example, if the Index Value on the first and last daybeneficiary of a Strategy Term equals 1,000 and 1,100, respectively, the Index Performance between those two dates equals +10% (i.e., (10% = (1,100 – 1,000) / 1000). Conversely, if the Index Value on the first and last dayYour Account.
Because we calculate Index Performance by comparing the value of the Index between two specific points in time, Index Performance may be negative or flat even if the Index performed positively for certain time periods between those two specific points in time. This is true even for Strategies with Strategy Terms longer than one year.
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Please note that there are certain exceptions to the manner in which we calculate Index Performance:
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For example, if the Index Value on the Strategy Term Start Date equals 1,000, and then on a given day during the Strategy Term, you lock-in an Index Value of 1,100, your Index Performance will be +10% for the remainder of the Strategy Term. This would be true even if the Index later increases in value above 1,100 or decreases in value below 1,100.
Index Performance may not equate to Strategy Earnings depending on the other Crediting Factors applicable to the Strategy. You should fully understand the operation and impact of the Lock-In feature prior to purchasing the Contract or exercising the Lock-In feature. See “Lock-In Risk” and “Lock-In” for additional information.
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For example, assume that we substitute the Index for a Strategy on a date during the Strategy Term. Also assume that the Index Performance for the old Index between the Strategy Term Start Date and the substitution date was +10%, and that the Index Performance for the new Index between the substitution date and the Strategy Term End Date was -5%. In this scenario, the Index Performance between the Strategy Term Start Date and the Strategy Term End Date would be +4.5%, i.e. (1+10%) x (1 + -5%) -1.
Certain Indexes available under this Contract do not include income from any dividends paid by component companies. The exclusion of dividends from an Index will lower the Index Performance, particularly over the course of time. Certain Indexes are comprised of foreign issuers and include exchange rate methodologies that may lower a Strategy’s returns. See “Crediting Factors – Indexes.”
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The Strategy Term represents the duration of the Strategy, expressed in years. Currently, the Strategies offered under the contract have Strategy Terms of either 1 or 3 years. If you select a one-year Strategy Term, the performance of your investment will depend on the performance of the Index for up to a one-year period. If you select a three-year Strategy Term, the performance of your investment will depend on the performance of the Index for up to a three-year period.
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The Protection Level represents an amount of downside protection under a Strategy for a Strategy Term. The Protection Level is presented as a percentage (e.g., 100%, 95%, 90%). A higher Protection Level provides more protection against loss than a lower Protection Level.For example, if you select a Strategy with a 90% Protection Level, your rate of return that is calculated at the end of the Strategy Term cannot be lower than -10%. If you select a Strategy with a 100% Protection level, your rate of return that is calculated at the end of the Strategy Term cannot be lower than 0%.
The Protection Level only applies when we apply Strategy Earnings to your Contract at the end of a Strategy Term or when you take a Preferred Withdrawal prior to the end of a Strategy Term. Even when the Protection Level applies, unless the Protection Level is 100%, the Protection Level provides only limited protection against loss.
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The Protection Level’s defined downside protection does not apply to a Non-Preferred Withdrawal. There is some downside protection provided for Non-Preferred Withdrawals, but the Protection Level’s defined downside protection may be reduced by certain negative adjustments associated with the Non-Preferred Withdrawal. This means thatyour risk of loss increases when you take a Non-Preferred Withdrawalprior to the end of a Strategy Term.
It is possible to lose a substantial amount of your principal investment under this Contract. The CDSC and MVA may also result in a loss of principal and related earnings if you take a Non-Preferred Withdrawal from your Contract during the first six Contract Years. This risk exists even if you are invested in a Strategy with an Index that is performing positively as of the date of your withdrawal.
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The Participation Rate represents the proportion of the Index Performance that is reflected in the Strategy’s performance. The Participation Rate is presented as a percentage greater or less than, or equal to, 100% (e.g., 50% or 150%). The Participation Rate may have the effect of increasing or decreasing gains or losses as follows:
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A Participation Rate greater than 100% also increases your downside risk. For example, if your Participation Rate is 150%, we will multiply any negative Index Performance by 150% (subject to any applicable defined downside protection).
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A Participation Rate lower than 100% also decreases your downside risk when Index Performance is negative. For example, if your Participation Rate is 90%, we will only apply 90% of the negative Index Performance (subject to any applicable defined downside protection).
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We declare a new Participation Rate at the start of each Strategy Term, which may be different than the prior Participation Rate for the same Strategy. A Participation Rate may be set as low as 5%. A low Participation Rate would cause a Strategy to participate in the performance of the linked index to only a small extent. A Strategy’s Participation Rate for a particular Strategy Term may be different for newly issued Contracts than for existing Contracts.
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The Strategy Spread is an annualized percentage used as a deduction in the calculation of a Strategy’s performance. A Strategy Spread greater than 0% always has the effect of reducing a Strategy’s performance. A Strategy will never have a Strategy Spread lower than 0%.
The impact of a Strategy Spread increases over the course of the Strategy Term, reaching its full potential impact on the Strategy Term End Date. For instance, if a Strategy with a 1-year Strategy Term has a Strategy Spread of 2%, the potential impact of the Strategy Spread will not reach 2% until the Strategy Term End Date. If a Strategy with a 3-year Strategy Term has a Strategy Spread of 2%, the potential impact of the Strategy Spread will not reach 6% (2% per year) until the Strategy Term End Date.
A Strategy Spread can result in negative Strategy Earnings even if you have positive Index performance.
We declare a new Strategy Spread at the start of each new Strategy Term, which may be different than the prior Strategy Spread for the same Strategy. Each Strategy has its own Maximum Strategy Spread that will never be greater than the initial Strategy Spread plus 2%. A Strategy’s Strategy Spread for a particular Strategy Term may be different for newly issued Contracts than for existing Contracts.
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How do I know what the Crediting Factors are for a Strategy that I want to invest in? As long as we continue to offer any Strategy listed above under “What arethe investment options under the Contract,” its Index, Strategy Term, and Protection Level will not change.
The Participation Rate and Strategy Spread for each Strategy will be declared prior to the beginning of each Strategy Term and are subject to change from Strategy Term to Strategy Term. Such changes will be subject to the following conditions and considerations:
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When the Participation Rate increases from one Strategy Term to the next, your upside potential will increase, but your risk of loss also increases.
When the Participation Rate decreases from one Strategy Term to the next, your upside potential decreases, but your risk of loss also decreases.
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When the Strategy Spread increases from one Strategy Term to the next, the Strategy Spread will have a greater impact on your gains and losses, decreasing gains and potentially increasing losses.
Before purchasing this Contract, you should contact the Solutions Center or your financial representative for information on the available Strategies and the current Participation Rates and Strategy Spreads. For existing contract owners, at least 30 days prior to the end of the Strategy Term, we will send you a notice stating (i) the Strategies that will be available for investment at the end of the Strategy Term, (ii) their respective Crediting Factors, including the Participation Rate and Strategy Spread that we declared for the upcoming Strategy Term, and (iii) how to communicate your instructions to us regarding what to do with your money invested in the maturing Strategy.
When selecting a Strategy for investment, you should understand that your gains and losses for a Strategy will not equal the gains and losses in the Index you choose. Each Strategy has multiple components that impact your Strategy Earnings, either by adjusting the Index Performance or otherwise increasing or decreasing gain or loss. You should not select a Strategy based on any single Crediting Factor in isolation. While one Crediting Factor for a Strategy may be more or less favorable or attractive to you, the other Crediting Factors also impact whether that Strategy is appropriate for you based on your financial needs and goals. You should consult a financial professional prior to selecting a Strategy for investment.
When are gains and losses applied to my Contract? Strategy Earnings are applied to your Contract at the end of a Strategy Term. Strategy Earnings are also applied to your Contract if you take a withdrawal prior to the end of a Strategy Term. Depending on the amount of your withdrawal, when you take a withdrawal prior to the end of a Strategy Term, we may calculate your Strategy Earnings differently than at the end of a Strategy Term. See,How are my gains and losses calculated when I take a Preferred Withdrawal prior to the end of a Strategy Term? and How are my gains and losses calculated when I take a Non-Preferred Withdrawal prior to the end of a Strategy Term?
How does the point-to-point calculation of Index Performance impact my gains and losses?Each Strategy uses a point-to-point calculation to determine the Index Performance. Under a point-to-point calculation, the Index Performance will be the percentage change in the value of the Index between the first day of the Strategy Term and the Strategy Term End Date (unless the Lock-In feature has been exercised). If a withdrawal is taken, the Index Performance will be the percentage change in the value of the Index between the first day of the Strategy Term and the date of the withdrawal (unless the Lock-In feature has been exercised prior to the withdrawal).
Use of a point-to-point calculation results in Index Performance being calculated at a single point in time, even for a Strategy with a three-year Strategy Term. As a result, you may experience negative or flat performance even when the Index experienced gains through some, or most, of the Strategy Term or prior to a withdrawal.
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How are gains and losses calculated at the end of a Strategy Term?We calculate your Strategy Earnings at the end of a Strategy Term using the following process:
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The formula for calculating the Adjusted Index Performance is as follows: (Index Performance x Participation Rate) – (Strategy Spread x Elapsed Term). At the end of the Strategy Term, “Elapsed Term” will equal the length of the Strategy Term expressed in years, currently, 1 or 3.
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The table below provides examples of how your Strategy Earnings are calculated at the end of a Strategy Term. It assumes:
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The examples above assume a Participation Rate of 100%, which means that the Participation Rate neither increased nor decreased upside potential or downside risk. The table below compares how the Strategy Earnings in Example – Table 1 would change if the Participation Rate was increased to 110% or decreased to 90% and all other assumptions remained the same.
Example – Table 2 | ||||||
Index Performance | Strategy Earnings applied at end of a Strategy Term using different Participation Rates based on stated assumptions | |||||
100% Participation Rate (Example – Table 1) |
110% Participation Rate |
90% Participation Rate | ||||
Index Performance = 10% | +$800 | +$900 | +$700 | |||
Index Performance = -5% | -$700 | -$750 | -$650 | |||
Index Performance = -15% | -$1,000 | -$1,000 | -$1,000 |
As illustrated in the table above, compared to Example – Table 1 which assumed a 100% Participation Rate:
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When is a withdrawal a Preferred Withdrawal or Non-Preferred Withdrawal, and what is the difference?Whenever you take a withdrawal, including at the end of a Strategy Term, the withdrawal will be treated as either a “Preferred Withdrawal” or a “Non-Preferred Withdrawal.” The Contract allows you to take a certain amount of Preferred Withdrawals each Contract Year, which we refer to as the “Preferred Withdrawal Amount.” Any withdrawals in excess of the Preferred Withdrawal Amount will be Non-Preferred Withdrawals. If a given withdrawal exceeds the limit on Preferred Withdrawals, the non-excess portion will be treated as a Preferred Withdrawal and the excess portion will be treated as a Non-Preferred Withdrawal.
Each Contract year, we track your “Remaining Preferred Withdrawal Amount” for each Strategy, which is the remaining amount of Preferred Withdrawals that may be taken from that Strategy. If you are invested in multiple Strategies, your Strategies will have different Remaining Preferred Withdrawal Amounts. As a result, a partial withdrawal or full surrender will not result in the same level of Preferred Withdrawals across your Strategies.
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Preferred Withdrawal Amount. At the beginning of each Contract Year prior to annuitization, your Preferred Withdrawal Amount for that Contract Year is equal to the greater of:
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The table below includes the Preferred Withdrawal Percentages under the Contract. As reflected in the table, the Preferred Withdrawal Percentage increases from 7.00% to 10.00% after you have completed six Contract Years.
Number of Completed Contract Years | Preferred Withdrawal Percentage | |
0 | 7.00% | |
1 | 7.00% | |
2 | 7.00% | |
3 | 7.00% | |
4 | 7.00% | |
5 | 7.00% | |
6+ | 10.00% |
Below we summarize the differences between Preferred Withdrawals and Non-Preferred Withdrawals under the Contract:
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How are my gains and losses calculated when I take a Preferred Withdrawal prior to the end ofa Strategy Term?If you take a Preferred Withdrawalprior to the end of a Strategy Term, we will calculate Strategy Earnings using the same rate of return calculation that we use to calculate Strategy Earnings at the end of a Strategy Term (the Strategy Earnings Percentage), although you should understand how that process operates in the context of a withdrawal.
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The table below provides examples of how your gains and losses are calculated when you take a Preferred Withdrawal prior to the end of a Strategy Term. It assumes the following:
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All or a portion of any withdrawal may be subject to federal income taxes, and Contract Owners taking withdrawals before age 591⁄2 may be subject to a 10% penalty tax.
How are my gains and losses calculated when I take a Non-Preferred Withdrawal prior to the end of a Strategy Term?If you take a Non-Preferred Withdrawal prior to the end of a Strategy Term, we calculate the Strategy Earnings applied to your Contract using a process that differs (except as otherwise noted below) from the process we would use if you were taking a Preferred Withdrawal.
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When we calculate the Non-Preferred Strategy Earnings Percentage, the calculation proportionately reduces your gains based on the amount of time remaining in the Strategy Term (i.e., any gains are pro-rated). The calculation also may increase losses. Losses may be increased due to the application of the “Non-Preferred Withdrawal Adjustment Percentage,” which reduces your downside protection and exposes you to a greater risk of loss.
The negative impacts of taking a Non-Preferred Withdrawal prior to the end of a Strategy Term can be magnified or reduced depending on the length of the Strategy Term and the amount of time that has elapsed during a Strategy Term. See “Risk Factors – Non-Preferred Withdrawal Risk.”
See “Appendix C: Non-Preferred Strategy Earnings Percentage” for a detailed explanation of how we calculate the Non-Preferred Strategy Earnings Percentage.
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How do Gains and Losses compare for a Preferred Withdrawal and a Non-Preferred Withdrawal based on the same withdrawal assumptions? The table below compares how your Strategy Earning would change if the $1,000 Preferred Withdrawal reflected in Example – Table 3 above was instead a $1,000 Non-Preferred Withdrawal, also taken at the midpoint of the Strategy Term. For the Non-Preferred Withdrawal, the table below assumes a Non-Preferred Withdrawal Adjustment Percentage of 2%. All other assumptions are the same as in Table 3.
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Example – Table 4
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Index Performance | Gains and Losses on a Preferred Withdrawal (Example – Table 3) | Gains and Losses on a Non-Preferred Withdrawal* | ||
Index Performance = 10% | +$82.57 | +$43.06 | ||
Index Performance = -5% | -$63.83 | -$63.83 | ||
Index Performance = -15% | -$111.11
In this scenario, the Protection Level limited the amount of negative Strategy Earnings applied to the Contract. If there was no downside protection, the Strategy Earnings would have been -$190.48. | -$123.60
In this scenario, the Protection Level did not apply, but the amount of negative Strategy Earnings was limited by the reduced downside protection. If there was no downside protection, the Strategy Earnings would have been -$190.48. |
As illustrated in the table above, other than gains calculated at the end of a Strategy Term, any gain that you realize on a Non-Preferred Withdrawal will be less than the gain you would have realized on a Preferred Withdrawal. While the loss that you realize on a Non-Preferred Withdrawal may be equal to the loss you would have realized on a Preferred Withdrawal, your downside protection will be lower, exposing you to a greater risk of loss.
If taken during the first six Contract Years, the Non-Preferred Withdrawal would also be subject to a contingent deferred sales charge as well as a market value adjustment that may be negative. See “How and why are Contingent Deferred Sales Charges (CDSCs) and Market Value Adjustments (MVAs) applied to Non-Preferred Withdrawals?” below. The table above does not include the reduction in Strategy Value due to such a contingent deferred sales charge or market value adjustment.Contingent deferred sales charges and negative market value adjustments will further reduce the value of your Contract when you take a Non-Preferred Withdrawal (perhaps significantly) and they are not subject to any downside protection under the Contract.
Additionally, all or a portion of any withdrawal may be subject to federal income taxes, and Contract Owners taking withdrawals before age 591⁄2 may be subject to a 10% penalty tax.
What is the downside protection when I take a Non-Preferred Withdrawal prior to the end of a Strategy Term?When you take a Non-Preferred Withdrawal prior to the end of a Strategy Term, the defined downside protection provided by the Protection Level does not apply to the Non-Preferred Withdrawal. The Contract still provides downside protection to the withdrawal, but the downside protection is reduced.
For comparison purposes, when you take a Preferred Withdrawal prior to the end of a Strategy Term, your rate of return will be no lower than the Protection Level minus 100%. For example, if your Strategy has a 90% Protection Level, your rate of return will be no lower than -10%. When you take a Non-Preferred Withdrawal prior to the end of a Strategy Term, your rate of return will be no lower than the Protection Level minus 100%,minus an additionalamount related to the Non-Preferred Withdrawal Adjustment Percentage. The Non-Preferred Withdrawal Adjustment Percentage therefore operates to reduce your downside protection when you take a Non-Preferred Withdrawal prior to the Strategy Term End Date.
The Non-Preferred Withdrawal Adjustment Percentage for all Strategies is 2% on an annualized basis. See “Calculation of Strategy Earnings – Non-Preferred Withdrawal Adjustment Percentage” for more information on the purpose of the Non-Preferred Withdrawal Adjustment Percentage.
The negative impact of the Non-Preferred Withdrawal Adjustment Percentage on downside protection decreases as the Strategy Term elapses. This is because the impact of the Non-Preferred Withdrawal Adjustment Percentage is calculated by multiplying the Non-Preferred Withdrawal Adjustment Percentage by a factor that decreases as time elapses, nearly reaching zero on the day prior to the Strategy Term End Date. At the beginning of the Strategy Term, the impact of Non-Preferred Withdrawal Adjustment Percentage is at its greatest, resulting in the least possible downside protection. On the day prior to the Strategy Term End Date, the impact of the Non-Preferred Withdrawal Adjustment Percentage is at its least, only slightly decreasing your downside protection that would otherwise apply under the Protection Level.
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For example, assuming a one-year Strategy Term and a Protection Level of 90%:
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Because the Non-Preferred Withdrawal Percentage is annualized, its impact is magnified for Strategy Terms longer than one year.
For example, assuming a three-year Strategy Term and a Protection Level of 90%:
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You should understand that any reduced downside protection associated with Non-Preferred Withdrawals is in addition to any applicable contingent deferred sales charges or negative market value adjustments.
How and why are Contingent Deferred Sales Charges (CDSCs) and Market Value Adjustments (MVAs) applied to Non-Preferred Withdrawals?
Contingent Deferred Sales Charges.During the first six Contract Years, if you take a Non-Preferred Withdrawal (including at the end of a Strategy Term), the Non-Preferred Withdrawal will be subject to a CDSC. After the sixth Contract Year, no withdrawals are subject to CDSCs. CDSCs are not subject to any downside protection under the Contract and are in addition to any applicable MVA.
The Contract is designed to be a long-term investment. We charge the CDSC during the first six Contract Years to offset costs associated with the distribution of the Contract.
When a CDSC is imposed, the charge will equal the applicable “CDSC Percentage” multiplied by the dollar amount of the Non-Preferred Withdrawal. The CDSC Percentage will depend on the number of Contract Years you have completed when you take a Non-Preferred Withdrawal. The CDSC Percentage schedule is set forth below. The CDSC Percentage schedule starts at 6.00% and declines with each completed Contract Year until it reaches 0% after six completed Contract Years.
Number of Completed Contract Years | CDSC Percentage | |
0 | 6.00% | |
1 | 5.00% | |
2 | 4.00% | |
3 | 3.00% | |
4 | 2.00% | |
5 | 1.00% | |
6+ | 0.00% |
There are circumstances under which a CDSC may be waived.See“Waiver or Reduction of the CDSC or MVA” and “Increase in Remaining Preferred Withdrawal Amount after a Long-Term Care and Terminal Illness or Injury (CDSC and MVA Waiver).”
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Market Value Adjustments.During the first six Contract Years, if you take a Non-Preferred Withdrawal (including at the end of a Strategy Term), the Non-Preferred Withdrawal will be subject to an MVA. After the sixth Contract Year, no withdrawals are subject to MVAs. MVAs may be positive or negative. Negative MVAs are not subject to any downside protection under the Contract and are in addition to any applicable CDSC.
The Contract is designed to be a long-term investment. When you take a withdrawal, we may be required to liquidate interest rate sensitive fixed-income assets that we hold in order to satisfy our payment obligations under the Contract. The MVA is intended to approximate, without duplicating, our investment experience when we liquidate those assets. When interest rates have increased, the MVA will be negative. Conversely, when interest rates have decreased, the MVA will be positive.
When an MVA is imposed, the MVA will equal the calculated “MVA Factor” multiplied by the dollar amount of the Non-Preferred Withdrawal. See “Contingent Deferred Sales Charges and Market Value Adjustment—Market Value Adjustment” for an explanation of how we calculate the MVA Factor, as well as “Appendix E: MVA Examples” for examples of how we calculate an MVA.
There are circumstances under which an MVA may be waived.See“Waiver or Reduction of the CDSC or MVA” and “Increase in Remaining Preferred Withdrawal Amount after a Long-Term Care and Terminal Illness or Injury (CDSC and MVA Waiver).”
Example Impact of CDSC and Negative MVA.If applicable, a CDSC and negative MVA will reduce your return on the Contract (perhaps significantly). For example, assume that you take a $1,000 Non-Preferred Withdrawal. Further, assume a 6% CDSC and a 3% negative MVA. In addition to the $1,000 withdrawal, an additional $90 would be deducted from the value of your Contract as a result of the CDSC and the MVA (i.e., (6% x $1,000) + (3% x $1,000) = $90). The CDSC and MVA are applied independently of any Strategy Earnings that may be applied to your Contract, either on a Strategy Term End Date or upon taking a Non-Preferred Withdrawal prior to a Strategy Term End Date.
What may I do at the end of a Strategy Term?A Strategy Term begins on the first day of the Strategy Term and ends on its Strategy Term End Date. Prior to the close of business on the Strategy Term End Date, you may take any one or more of the permissible actions listed below.
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If you do not take any action prior to the close of business on a Strategy Term End Date, your Strategy Value will be reinvested in the same Strategy, but with the Participation Rate and Strategy Spread that we declare for the upcoming Strategy Term. If the same Strategy is no longer available for investment, the Strategy Value will be transferred to the Strategy that is specified in your Contract as the “default option” for the upcoming Strategy Term.
Does the Contract provide a death benefit?Yes. Prior to the Annuitization Date, the Death Benefit is triggered on the death of the Annuitant, provided that (i) the death occurs prior to the Annuitization Date; (ii) the Contract is in force at the time of the death; and (iii) there is no Contingent Annuitant. Except as otherwise provided in this prospectus, the Death Benefit will equal the Contract Accumulation Value (which may be more, less, or equal to your Contract Value).
What annuity payment options are available once I reach the Annuitization Date?Subject to certain restrictions described in this prospectus, you may select from the following three annuity payment options under the Contract:
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Other annuity payments options may be available. If no annuity payment option is selected prior to the latest possible Annuitization Date, we will automatically select the single life annuity with a 20-year term certain for you. Once an annuity payment option is selected—whether by you or automatically by us—it may not be changed. All annuity payments are paid on a fixed basis.
How do I contact Nationwide?If you need more information, or you wish to submit a request, you should contact us at our Solutions Center:
The purchase and continued ownership of the Contract involves certain risks. You should carefully consider the following factors, in addition to the matters set forth elsewhere in this prospectus, prior to purchasing the Contract or deciding whether to maintain the Contract.
We designed the Contract to be a long-term investment, not a short-term investment. You may take partial withdrawals or a full surrender at any time while your Contract is invested in one or more Strategies, but there may be negative consequences for doing so if the withdrawal amount exceeds the Remaining Preferred Withdrawal Amount. Withdrawals in excess of the Remaining Preferred Withdrawal Amount will be calculated in a different manner than if the withdrawal were a Preferred Withdrawal, and it may be subject to a CDSC and a negative MVA, which will negatively impact the performance of your Contract.
It’s important to note that while the CDSC and MVA are only applicable for the first six Contract Years, withdrawals will always be treated as either Preferred Withdrawals or Non-Preferred Withdrawals, even after the first six Contract Years. This means there is no “surrender period” after which all withdrawals will be treated the same. See “Non-Preferred Withdrawal Risk” below. In addition, any partial withdrawal or full surrender may also be subject to a 10% additional federal tax if taken before age 591⁄2. If you plan on taking Non-Preferred Withdrawals, or if you plan to take partial withdrawals or a full surrender prior to age 591⁄2, this Contract may not be appropriate for you.
We may defer payment for a partial withdrawal or full surrender under this Contract for up to six months if the insurance regulatory authority of the state in which we issued the Contract approves such deferral. There are other circumstances under which we may delay the payment of partial withdrawals or full surrenders, as described in this prospectus. See “Withdrawals – General.”
It is not possible to take withdrawals or surrender your Contract once you reach the Annuitization Date.
When you invest in a Strategy, you are not directly participating in the performance of any stocks or other assets. Instead, the performance of the Strategy depends (in part) on the performance of its Index. The performance of an Index is based on changes in the values of the securities or other assets that comprise or define the Index. The securities comprising or defining the Indexes are subject to a variety of investment risks, many of which are complicated and interrelated. These risks may affect capital markets generally, specific market segments, or specific issuers.The performance of the Indexes may fluctuate, sometimes rapidly and unpredictably. Negative Index performance may cause you to realize investment losses. Your investment losses may be significant.
The historical performance of an Index or a Strategy does not guarantee future results. It is impossible to predict whether an Index or a Strategy will perform positively or negatively over the course of a Strategy Term.
While it is not possible to invest directly in an Index under the Contract or otherwise, when you invest in a Strategy, you are indirectly exposed to the investment risks associated with its Index. If you invest in a Strategy that has an Index with higher investment risks, your investment in that Strategy indirectly exposes you to those higher investment risks.
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Because the Indexes under the Contract are all comprised or defined (at least in part) by a collection of equity securities, each Index is exposed to market risk and issuer risk. Market risk is the risk that market fluctuations may cause the value of a security or asset to fluctuate, sometimes rapidly and unpredictably. Issuer risk is the risk that the value of an issuer’s securities may decline for reasons directly related to the issuer, as opposed to the market generally.
We calculate Index Performance by comparing the value of the Index between two specific points in time which means Index Performance may be negative or flat even if the Index performed positively for certain time periods between those two specific points in time. This is true even for Strategies with three-year Strategy Terms.
Certain Indexes available under this Contract do not include income from any dividends paid by component companies. The exclusion of dividends from an Index will lower the Index Performance, particularly over the course of time. Additionally, certain Indexes are comprised of foreign issuers and include exchange rate methodologies that may lower a Strategy’s returns. See, “Strategies – Indexes” for a summary of other important investment risks to which each Index under the Contract is exposed.
LIMITED GROWTH POTENTIAL RISK (STRATEGY SPREAD AND PARTICIPATION RATE RISK)
When you invest in a Strategy, the growth (or upside) potential of your investment is not capped, but if your Strategy has a Strategy Spread greater than 0%, it will reduce the upside potential of your investment. In addition, if the Participation Rate is less than 100%, the Participation Rate will also dampen the upside potential of your investment.
As part of the process for calculating Strategy Earnings, we calculate the AIP, which is then used to calculate the Strategy Earnings Percentage (SEP) and Non-Preferred Strategy Earnings Percentage (NSEP). See “Calculation of Strategy Earnings.” The AIP is the Index Performance after the application of the Strategy Spread and the Participation Rate.
The Strategy Spread represents an annualized percentage rate that always has the effect of reducing the Index Performance. The effect of the Strategy Spread gradually increases over the course of the Strategy Term, reaching its full impact on the Strategy Term End Date.
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The Participation Rate represents the proportion of Index Performance that is reflected in the AIP, and may have the effect of amplifying or dampening the Index Performance.
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When selecting a Strategy for investment, you should not select a Strategy based on any single Crediting Factor, including the Participation Rate or the Strategy Spread. While one Crediting Factor for a Strategy may be more or less favorable or attractive to you, the other Crediting Factors also impact whether that Strategy is appropriate for you based on your financial needs and goals. You should consult with a financial professional prior to selecting a Strategy for investment.
Except in the limited circumstances under which we may substitute an Index, the Index, Strategy Term and Protection Level will not change for as long as we offer a Strategy. However, the Participation Rate and Strategy Spread may change from Strategy Term to Strategy Term. You do not have the right to reject any Participation Rate or Strategy Spread that we declare for a future Strategy Term. If you do not wish to invest in any of the Strategies at some point in the future, your only option will be to fully surrender your Contract. A full surrender may be subject to a CDSC and an MVA, and may also have negative tax consequences.
The extent to which you may transfer Strategy Value among the Strategies is restricted. Strategy Value in a Strategy cannot be transferred until the end of the Strategy Term, even if we substitute an Index during the Strategy Term, and you cannot transfer Strategy Value into a Strategy while its Strategy Term is ongoing. This restricts your ability to react to changes in market conditions during a Strategy Term other than through withdrawals and by exercising the Lock-In feature, which also has risks. You should consider whether the inability to reallocate Strategy Value at any time is consistent with your financial needs.
At least 30 days prior to the end of the Strategy Term, we will send you a notice stating (i) the Strategies that will be available for investment at the end of the Strategy Term, (ii) their respective Crediting Factors, including the Participation Rate and Strategy Spread that we declared for the upcoming Strategy Term, and (iii) how to communicate your instructions to us regarding what to do with your money invested in the maturing Strategy. In order to transfer Strategy Value from a Strategy on the Strategy Term End Date to another Strategy that is available for investment, we must receive your transfer request prior to the close of business on the Strategy Term End Date (or if the Strategy Term End Date is not a Business Day, then at least one Business Day prior to the Strategy Term End Date). If we do not receive such a transfer request, your Strategy Value will be treated in the following manner:
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If you are reinvested in the same Strategy or transferred into the default option because we did not receive a transfer request from you, and you do not wish to be invested in that Strategy or the default option and want to make a change before the end of the new Strategy Term, your only option will be to fully surrender the Contract. You can take a partial withdrawal to mitigate your unwanted investment exposure, but if you are invested in multiple Strategies, you cannot instruct us to take the partial withdrawal solely from the undesired Strategy. Instead, your partial withdrawal will be allocated among all of your Strategies.
In addition, taking a partial withdrawal or full surrender may result in adjustments and charges, and may result in loss of principal or related earnings even if the Index was performing positively at the time of the partial withdrawal or full surrender. See “Non-Preferred Withdrawal or Excessive Risk” below. Taking a partial withdrawal or a full surrender may also have negative tax consequences.
NON-PREFERRED OR EXCESSIVE WITHDRAWAL RISK
To the extent possible, you should carefully manage the amount of your partial withdrawals, and the timing of any full surrender, to avoid taking withdrawals greater than the Preferred Withdrawal Amount (Non-Preferred Withdrawals).
Non-Preferred Withdrawals are subject to applicable CDSCs. The amount of a CDSC, if any, will depend on the amount of a Non-Preferred Withdrawal and the number of Contract Years that you have completed when you take a Non-Preferred Withdrawal. The CDSC schedule starts at 6.00% and declines with each completed Contract Year until it reaches 0% after six completed Contract Years. When a CDSC applies to a Non-Preferred Withdrawal, the CDSC will reduce the amount of your Cash Withdrawal. Preferred Withdrawals are not subject to CDSCs.
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Non-Preferred Withdrawals are subject to MVAs during the MVA Period, which lasts until you have completed six Contract Years. An MVA—which may be positive, negative, or equal to zero—is assessed as a percentage of the Non-Preferred Withdrawal. If an MVA is negative, the MVA will reduce the amount of your Cash Withdrawal. Preferred Withdrawals are not subject to MVAs.
When you take a Non-Preferred Withdrawal prior to the Strategy Term End Date, we use the NSEP rather than the SEP to calculate earnings. The NSEP formula is typically less advantageous to you than the SEP formula, which is used to calculate any earnings when you take a Preferred Withdrawal. The NSEP formula is less advantageous to you than the SEP formula under the following conditions:
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(a) | The current Guaranteed Lifetime Withdrawal Base, adjusted for transactions in the previous Contract Year that affected the Guaranteed Lifetime Withdrawal Base; |
(b) | Your Account Value as of that Contract Anniversary; or |
(c) | The original Guaranteed Lifetime Withdrawal Base with a 5% roll-up. This is equal to the original Guaranteed Lifetime Withdrawal Base plus 5% of the original Guaranteed Lifetime Withdrawal Base for each Contract Anniversary that has been reached. An adjustment will be made to the calculations for transactions that increase or decrease the Guaranteed Lifetime Withdrawal Base. |
• | Your Account Value, after the Withdrawal Start Date, falls below the greater of $10,000 or the Guaranteed Lifetime Withdrawal Amount (the "Minimum Account Value"); or |
• | Your Account Value is invested in the Minimum Account Value Eligible Portfolio, as discussed in the "Suspension and Termination Provisions" section later in this prospectus, and you reach the age of 55; or |
• | You, after the Withdrawal Start Date, affirmatively elect to begin the Income Phase by submitting the appropriate administrative forms. |
Maximum Recurring Contract Fees | |
(assessed on the first day of each calendar quarter against the Guaranteed Lifetime Withdrawal Base as of the last day of the previous calendar quarter) | |
Contract Fee | 1.45% 1 |
Spousal Continuation Option Fee | 0.30% 2 |
Total Contract Fee (including the Spousal Continuation Option) | 1.75% 3 |
1 | The current Contract Fee is 1.00%. |
2 | The current Spousal Continuation Option Fee is 0.20%. |
3 | The current Total Contract Fee is 1.20%. |
no longer eligible as an investment option, you may remain in the Former Eligible Portfolio as indicated in the Terms and Conditions of the Contract section.
Capital Preservation oriented. Total return oriented, but may have higher current income. Suitable for short time horizon (3 to 5 years). | Capital appreciation oriented. Minimal income needs. Increasing equity exposure. Longer time horizon – at least a market cycle (5 years or more). | Aggressive growth oriented. No current income consideration. Greater volatility than broad stock market. Longest time horizon (10+ years). |
Eligible Portfolio | Target Allocations | ||||||
U.S. Equity | |||||||
Select UMA Model 1 w/o Municipal Bonds | U.S. Large Cap Value Equity | U.S. Large Cap Growth Equity | U.S. Mid Cap Value Equity | U.S. Mid Cap Growth Equity | U.S. Small Cap Value Equity | U.S. Small Cap Growth Equity | |
0% | 0% | 0% | 0% | 0% | 0% | ||
Composition | International Equity | U.S. Fixed Income | International Fixed Income | Cash | |||
Developed International Equity | Emerging Markets Equity | U.S. Core Fixed Income | U.S. High Yield Fixed Income | International Fixed Income | Cash/U.S. Short Duration Bond | ||
100% Fixed | 0% | 0% | 40 - 60% | 0 - 20% | 5 - 25% | 20 - 40% | |
Investment Strategy: Fixed Income- An all fixed income model for a most conservative investor that seeks conservative risk investments with minimal market volatility. This investment strategy is most appropriate for investors with an investment time horizon of 1 to 3 years. | |||||||
Investment Objective: The investment objective for this Model has a primary emphasis on capital preservation. This Model is classified to have low volatility. It is most suitable for an investor that is comfortable with minimal fluctuations in their portfolio, and the possibility of larger declines in value, in order to grow their portfolio over time. | |||||||
Investment Risk: Fixed income is historically considered less risky than equities. Model 1 has 100% of the assets in fixed income or cash. Therefore, of all of the Eligible Portfolios, this portfolio provides the most conservative investment risk. | |||||||
Benchmark: 70% BC Aggregate Bond (Fixed Income)/30% 90-Day T-Bills (Cash) |
Eligible Portfolio | Target Allocations | ||||||
U.S. Equity | |||||||
Select UMA Model 2 w/o Municipal Bonds | U.S. Large Cap Value Equity | U.S. Large Cap Growth Equity | U.S. Mid Cap Value Equity | U.S. Mid Cap Growth Equity | U.S. Small Cap Value Equity | U.S. Small Cap Growth Equity | |
0 - 20% | 0 - 20% | 0 - 10% | 0 - 10% | 0 - 10% | 0 - 10% | ||
Composition | International Equity | U.S. Fixed Income | International Fixed Income | Cash | |||
Developed International Equity | Emerging Markets Equity | U.S. Core Fixed Income | U.S. High Yield Fixed Income | International Fixed Income | Cash/U.S. Short Duration Bond | ||
25% Equity 75% Fixed | 0 - 20% | 0 - 10% | 30 - 50% | 0 - 20% | 0 - 20% | 5 - 25% | |
Investment Strategy: Global Balanced- A global balanced model with a higher emphasis on income for a conservative investor that seeks long term growth through achieving a balance between income and capital growth globally. This investment strategy is most appropriate for investors with an investment time horizon of 3 to 5 years. | |||||||
Investment Objective: The investment objective for this Model has a primary emphasis on income with some capital growth. This Model is classified to have low volatility. It is most suitable for an investor that is comfortable with minimal fluctuations in their portfolio, and the possibility of larger declines in value, in order to grow their portfolio over time. | |||||||
Investment Risk: Fixed income is historically considered less risky than equities. Model 2 has 75% of the assets in fixed income or cash and 25% in equities. Therefore, of all of the Eligible Portfolios, this portfolio provides a more aggressive investment risk than Model 1 and less aggressive than Models 3 and 4. | |||||||
Benchmark: 18% Russell 1000 (U.S Equity)/7% MSCI EAFE (International Equity)/60% BC Aggregate Bond (U.S. Fixed Income)/15% 90-Day T-Bills (Cash) |
Eligible Portfolio | Target Allocations | ||||||
U.S. Equity | |||||||
Select UMA Model 3 w/o Municipal Bonds | U.S. Large Cap Value Equity | U.S. Large Cap Growth Equity | U.S. Mid Cap Value Equity | U.S. Mid Cap Growth Equity | U.S. Small Cap Value Equity | U.S. Small Cap Growth Equity | |
0 - 20% | 0 - 20% | 0 - 15% | 0 - 15% | 0 - 10% | 0 - 10% | ||
Composition | International Equity | U.S. Fixed Income | International Fixed Income | Cash | |||
Developed International Equity | Emerging Markets Equity | U.S. Core Fixed Income | U.S. High Yield Fixed Income | International Fixed Income | Cash/U.S. Short Duration Bond | ||
40% Equity 60% Fixed | 0 - 20% | 0 - 10% | 25 - 45% | 0 - 15% | 0 - 20% | 0 - 20% | |
Investment Strategy: Global Balanced- A global balanced model utilizing equities, fixed income, and cash seeking some growth and moderate level of income for a moderate investor that seeks long term growth through achieving a balance between income and capital growth globally. This investment strategy is most appropriate for investors with an investment time horizon of 3 to 5 years. | |||||||
Investment Objective: The investment objective for this Model has a primary emphasis on capital growth and income. This Model is classified to have medium volatility. It is most suitable for an investor that is comfortable with fluctuations in their portfolio, and the possibility of larger declines in value, in order to grow their portfolio over time. | |||||||
Investment Risk: Fixed income is historically considered less risky than equities. Model 3 has 60% of the assets in fixed income or cash and 40% in equities. Therefore, of all of the Eligible Portfolios, this portfolio provides a more aggressive investment risk than Models 1 and 2 and less aggressive than Model 4. | |||||||
Benchmark: 28% Russell 3000 (U.S Equity)/12% MSCI EAFE (International Equity)/50% BC Aggregate Bond (Fixed Income)/10% 90-Day T-Bills (Cash) |
Eligible Portfolio | Target Allocations | ||||||
U.S. Equity | |||||||
Select UMA Model 4 w/o Municipal Bonds | U.S. Large Cap Value Equity | U.S. Large Cap Growth Equity | U.S. Mid Cap Value Equity | U.S. Mid Cap Growth Equity | U.S. Small Cap Value Equity | U.S. Small Cap Growth Equity | |
0 - 20% | 0 - 20% | 0 - 15% | 0 - 15% | 0 - 15% | 0 - 15% | ||
Composition | International Equity | U.S. Fixed Income | International Fixed Income | Cash | |||
Developed International Equity | Emerging Markets Equity | U.S. Core Fixed Income | U.S. High Yield Fixed Income | International Fixed Income | Cash/U.S. Short Duration Bond | ||
50% Equity 50% Fixed | 0 - 20% | 0 - 15% | 25 - 45% | 0 - 15% | 0 - 20% | 0 - 15% | |
Investment Strategy: Global Balanced- A global balanced model utilizing equities, fixed income, and cash seeking a moderate level of growth and income for a moderate investor that seeks long term growth through achieving a balance between income and capital growth globally. This investment strategy is most appropriate for investors with an investment time horizon of 5 to 7 years. | |||||||
Investment Objective: The investment objective for this Model has a primary emphasis on capital growth with some focus on income. This Model is classified to have medium volatility. It is most suitable for an investor that is comfortable with fluctuations in their portfolio, and the possibility of larger declines in value, in order to grow their portfolio over time. | |||||||
Investment Risk: Fixed income is historically considered less risky than equities. Model 4 has 50% of the assets in fixed income or cash and 50% in equities. Therefore, of all of the Eligible Portfolios, this portfolio provides the most aggressive investment risk. | |||||||
Benchmark: 35% Russell 3000 (U.S. Equity)/15% MSCI AC World x U.S. (International Equity)/50% BC Aggregate Bond (U.S. Fixed Income) |
Eligible Portfolio | Target Allocations | ||||||
U.S. Equity | |||||||
Select UMA Model 1 w/ Municipal Bonds | U.S. Large Cap Value Equity | U.S. Large Cap Growth Equity | U.S. Mid Cap Value Equity | U.S. Mid Cap Growth Equity | U.S. Small Cap Value Equity | U.S. Small Cap Growth Equity | |
0% | 0% | 0% | 0% | 0% | 0% | ||
Composition | International Equity | U.S. Fixed Income | International Fixed Income | Cash | |||
Developed International Equity | Emerging Markets Equity | U.S. Municipal Bond Fixed Income | U.S. High Yield Fixed Income | International Fixed Income | Cash/U.S. Short Duration Bond | ||
100% Fixed | 0% | 0% | 40 - 60% | 0 - 20% | 5 - 25% | 20 - 40% | |
Investment Strategy: Fixed Income- An all fixed income model for a most conservative investor that seeks conservative risk investments, with minimal market volatility. This investment strategy is most appropriate for investors with an investment time horizon of 1 to 3 years. | |||||||
Investment Objective: The investment objective for this Model has a primary emphasis on capital preservation. This Model is classified to have low volatility. It is most suitable for an investor that is comfortable with minimal fluctuations in their portfolio, and the possibility of larger declines in value, in order to grow their portfolio over time. One of the primary reasons municipal bonds are considered separately from other types of bonds is their special ability to provide tax-exempt income. Interest paid by the issuer (i.e., the municipality, state or local government) to bond holders is often exempt from all federal taxes, as well as state or local taxes depending on the state in which the issuer is located, subject to certain restrictions. Therefore, for taxable accounts, it can be a tax advantage to invest in municipal bonds in lieu of core fixed income investments. | |||||||
Investment Risk: Fixed income is historically considered less risky than equities. Model 1 has 100% of the assets in fixed income or cash. Therefore, of all of the Eligible Portfolios, this portfolio provides the most conservative investment risk. | |||||||
Benchmark: 70% BC Municipal Bond (U.S. Fixed Income)/30% 90-Day T-Bills (Cash) |
Eligible Portfolio | Target Allocations | ||||||
U.S. Equity | |||||||
Select UMA Model 2 w/ Municipal Bonds | U.S. Large Cap Value Equity | U.S. Large Cap Growth Equity | U.S. Mid Cap Value Equity | U.S. Mid Cap Growth Equity | U.S. Small Cap Value Equity | U.S. Small Cap Growth Equity | |
0 - 20% | 0 - 20% | 0 - 10% | 0 - 10% | 0 - 10% | 0 - 10% | ||
Composition | International Equity | U.S. Fixed Income | International Fixed Income | Cash | |||
Developed International Equity | Emerging Markets Equity | U.S. Municipal Bond Fixed Income | U.S. High Yield Fixed Income | International Fixed Income | Cash/U.S. Short Duration Bond | ||
25% Equity 75% Fixed | 0 - 20% | 0 - 10% | 30 - 50% | 0 - 20% | 0 - 20% | 5 - 25% | |
Investment Strategy: Global Balanced- A global balanced model with a higher emphasis on income for a conservative investor that seeks long term growth through achieving a balance between income and capital growth globally. This investment strategy is most appropriate for investors with an investment time horizon of 3 to 5 years. | |||||||
Investment Objective: The investment objective for this Model has a primary emphasis on income with some capital growth. This Model is classified to have low volatility. It is most suitable for an investor that is comfortable with minimal fluctuations in their portfolio, and the possibility of larger declines in value, in order to grow their portfolio over time. One of the primary reasons municipal bonds are considered separately from other types of bonds is their special ability to provide tax-exempt income. Interest paid by the issuer (i.e., the municipality, state or local government) to bond holders is often exempt from all federal taxes, as well as state or local taxes depending on the state in which the issuer is located, subject to certain restrictions. Therefore, for taxable accounts, it can be a tax advantage to invest in municipal bonds in lieu of core fixed income investments. | |||||||
Investment Risk: Fixed income is historically considered less risky than equities. Model 2 has 75% of the assets in fixed income or cash and 25% in equities. Therefore, of all of the Eligible Portfolios, this portfolio provides a slightly more aggressive investment risk than Model 1. | |||||||
Benchmark: 18% Russell 1000 (U.S. Equity)/7% MSCI EAFE (International Equity)/ 60% BC Municipal Bond (U.S. Fixed Income)/15% 90-Day T-Bills (Cash) |
Eligible Portfolio | Target Allocations | ||||||
U.S. Equity | |||||||
Select UMA Model 3 w/ Municipal Bonds | U.S. Large Cap Value Equity | U.S. Large Cap Growth Equity | U.S. Mid Cap Value Equity | U.S. Mid Cap Growth Equity | U.S. Small Cap Value Equity | U.S. Small Cap Growth Equity | |
0 - 20% | 0 - 20% | 0 - 15% | 0 - 15% | 0 - 10% | 0 - 10% | ||
Composition | International Equity | U.S. Fixed Income | International Fixed Income | Cash | |||
Developed International Equity | Emerging Markets Equity | U.S. Municipal Bond Fixed Income | U.S. High Yield Fixed Income | International Fixed Income | Cash/U.S. Short Term Bond | ||
40% Equity 60% Fixed | 0 - 20% | 0 - 10% | 25 - 45% | 0 - 15% | 0 - 20% | 0 - 20% | |
Investment Strategy: Global Balanced- A global balanced model utilizing equities, fixed income, and cash seeking some growth and moderate level of income for a moderate investor that seeks long term growth through achieving a balance between income and capital growth globally. This investment strategy is most appropriate for investors with an investment time horizon of 3 to 5 years. | |||||||
Investment Objective: The investment objective for this Model has a primary emphasis on capital growth and income. This Model is classified to have medium volatility. It is most suitable for an investor that is comfortable with fluctuations in their portfolio, and the possibility of larger declines in value, in order to grow their portfolio over time. One of the primary reasons municipal bonds are considered separately from other types of bonds is their special ability to provide tax-exempt income. Interest paid by the issuer (i.e., the municipality, state or local government) to bond holders is often exempt from all federal taxes, as well as state or local taxes depending on the state in which the issuer is located, subject to certain restrictions. Therefore, for taxable accounts, it can be a tax advantage to invest in municipal bonds in lieu of core fixed income investments. | |||||||
Investment Risk: Fixed income is historically considered less risky than equities. Model 3 has 60% of the assets in fixed income or cash and 40% in equities. Therefore, of all of the Eligible Portfolios, this portfolio provides a more aggressive investment risk than Models 1 and 2 and less aggressive than Model 4. | |||||||
Benchmark: 28% Russell 3000 (U.S. Equity)/12% MSCI EAFE (International Equity)/50% BC Municipal Bond (U.S. Fixed Income)/10% 90-Day T-Bills (Cash) |
Eligible Portfolio | Target Allocations | ||||||
U.S. Equity | |||||||
Select UMA Model 4 w/ Municipal Bonds | U.S. Large Cap Value Equity | U.S. Large Cap Growth Equity | U.S. Mid Cap Value Equity | U.S. Mid Cap Growth Equity | U.S. Small Cap Value Equity | U.S. Small Cap Growth Equity | |
0 - 20% | 0 - 20% | 0 - 15% | 0 - 15% | 0 - 15% | 0 - 15% | ||
Composition | International Equity | U.S. Fixed Income | International Fixed Income | Cash | |||
Developed International Equity | Emerging Markets Equity | U.S. Municipal Bond Fixed Income | U.S. High Yield Fixed Income | International Fixed Income | Cash/U.S. Short Term Bond | ||
50% Equity 50% Fixed | 0 - 20% | 0 - 15% | 25 - 45% | 0 - 15% | 0 - 20% | 0 - 15% | |
Investment Strategy: Global Balanced- A global balanced model utilizing equities, fixed income, and cash seeking a moderate level of growth and income for a moderate investor that seeks long term growth through achieving a balance between income and capital growth globally. This investment strategy is most appropriate for investors with an investment time horizon of 5 to 7 years. | |||||||
Investment Objective: The investment objective for this Model has a primary emphasis on capital growth with some focus on income. This Model is classified to have medium volatility. It is most suitable for an investor that is comfortable with fluctuations in their portfolio, and the possibility of larger declines in value, in order to grow their portfolio over time. One of the primary reasons municipal bonds are considered separately from other types of bonds is their special ability to provide tax-exempt income. Interest paid by the issuer (i.e., the municipality, state or local government) to bond holders is often exempt from all federal taxes, as well as state or local taxes depending on the state in which the issuer is located, subject to certain restrictions. Therefore, for taxable accounts, it can be a tax advantage to invest in municipal bonds in lieu of core fixed income investments. | |||||||
Investment Risk: Fixed income is historically considered less risky than equities. Model 4 has 50% of the assets in fixed income or cash and 50% in equities. Therefore, of all of the Eligible Portfolios, this portfolio provides the most aggressive investment risk. | |||||||
Benchmark: 35% Russell 3000 (U.S. Equity)/15% MSCI AC World x U.S. (International Equity)/ 50% BC Municipal Bond (U.S. Fixed Income). |
• | advising us and MSSB that you want to terminate the Contract; or |
• | liquidating all of the investments in Your Account; or |
• | terminating Your Account. |
CHANGES TO PARTICIPATION RATE AND STRATEGY SPREAD RISK
Exceptconfident in the limited circumstances under which we may substitute an Index, the Crediting Factors for a Strategy will not change for the duration of an ongoing Strategy Term. Also, except in the limited circumstances under which we may substitute an Index, the Index, Strategy Term and Protection Level will not change for as long as we offer a Strategy. However, the Participation Rate and Strategy Spread may change from Strategy Term to Strategy Term. Other than the guaranteed minimums and maximums associated with a Strategy’s Participation Rate and Strategy Spread, which will not change for the entire time that the Strategy is offered under the Contract, there is no guarantee that a Strategy’s current Participation Rate and Strategy Spread will remain the same while you own the Contract.
You do not have the right to reject any Participation Rate or Strategy Spread that we declare for a future Strategy Term. If you do not wish to invest inany of the Strategies at some point in the future, your only option will be to fully surrender your Contract. A full surrender may be subject to a CDSC and an MVA, and any earnings on a Non-Preferred Withdrawal would be calculated using the Non-Preferred Strategy Earnings Percentage (NSEP). A full surrender may also have negative tax consequences.
You should evaluate whether ourits ability to changemanage the Participation Ratefinancial risks related to COVID-19, the extent and Strategy Spread, and your inability to reject such changes, is consistent with your investment goals. When such changes occur, you should also evaluate whether those changes are appropriate for you based on your investment goals and, if not, you should evaluate your options underduration or the Contract, which may be limited and may have negative consequences associated with them, as described throughout this prospectus.
Under the Lock-In feature, you may lock in an Index Value for a Strategy prior to the Strategy Term End Date. If you exercise the Lock-In feature, the Index Value that is next calculated after we receive your request will be locked in for purposes of calculating the Index Performance for the remainder of the Strategy Term. You should consider the following risks related to the Lock-In feature:
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The Index for a Strategy generally will not change for the duration of an ongoing Strategy Term. However, we may substitute the Index during a Strategy Term in limited circumstances. Subject to regulatory approval, we may substitute the Index if (a) the Index is discontinued or (b) there is a substantial change to the calculation of the Index. If we substitute an Index, the new Index will be similar in composition to the old Index. We will seek to notify you at least 30 days prior to substituting an Index for any Strategy in which you are invested. However, in the event that it is necessary to substitute on less than 30 days’ notice due to circumstances outside of our control, we will provide notice of the substitution as soon as practicable.
You will have no right to reject the substitution of an Index. If we substitute the Index for a Strategy in which you are invested, you will not be permitted to transfer your Strategy Value until the end of the Strategy Term. See “Reinvestment Risk” above.
If we substitute the Index for a Strategy in which you are invested, the performance of the new Index may differ significantly from the performance of the old Index. This may negatively affect the Strategy Earnings applied to your Strategy and the Index Values that you can lock-in under the Lock-In feature.
Under state insurance laws, you have the right, during a limited period of time, to examine the Contract and decide if you want to keep it or cancel it. This right is referred to as a “free look” right. The length of this time period depends on state law and may vary depending on whether the purchase is a replacement of another annuity contract. For ease of administration, Nationwide will honor any free look cancellation request that is in good order and received at the Solutions Center or postmarked within 30 days after the Date of Issue.
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Where state law requires the return of purchase payments for free look cancellations, Nationwide will return the Purchase Payment applied to the Contract, less any withdrawals from the Contract and any applicable federal and state income tax withholding. Where state law requires the return of contract value for free look cancellations, Nationwide will return the Contract Accumulation Value as of the date of the cancellation, less any withdrawals from the Contract and any applicable federal and state income tax withholding. It is possible that your Contract Accumulation Value may be less than your Purchase Payment.
NATIONWIDE’S FINANCIAL STRENGTH AND CLAIMS-PAYING ABILITY RISK
Our general account assets support our guarantees under the Contract and are subject to claims by our creditors. As such, our guarantees under the Contract are subject to ourthese risks could impact Nationwide’s financial strength and claims-paying ability. There are many factors beyond Nationwide’s control that cannot be mitigated or foreseen that could have a negative impact on Nationwide and the operation of the contract. Nationwide continues to monitor the economic situation and assess its impact on its business operations closely.
Our general account assets do not include the assets in the Index-Linked Annuity Separate Account, an insulated separate account where we hold assets to support future Strategy Earnings. Our general account assets also do not includeevent of a natural or man-made disaster, relies upon the assets in any other insulated Nationwide separate accounts. The Index-Linked Annuity Separate Account is a non-unitized separate accountsuccessful implementation and is not registered with the U.S. Securities and Exchange Commission under the Investment Company Act of 1940. We own and control the assets in the Index-Linked Annuity Separate Account, and you do not have any interest in or claim to the assets in the Index-Linked Annuity Separate Account. Unlike some variable annuities that utilize separate accounts, you do not share in the investment performanceexecution of the assets inbusiness continuity planning of such entities. While Nationwide closely monitors the Index-Linked Annuity Separate Account. The assets inbusiness continuity activities of these third parties, successful implementation and execution of their business continuity strategies are largely beyond Nationwide’s control. If one or more of the Index-Linked Annuity Separate Account are not subjectthird parties to claims by our creditors or subjectwhom Nationwide outsources such critical business functions experience operational failures, Nationwide’s ability to liabilities arising from any of our other businesses. For more information onadminister the general account and separate account, see “General Account and Separate Accounts.”
To request additional information about Nationwide, contact the Solutions Center.
contract could be impaired.
Cyber-attacks may negatively affect your investment in the Contract.
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GENERAL INFORMATION ABOUT THE CONTRACTagreement between Nationwide and you,individual supplemental immediate fixed income annuity contract. That means that the Contract Owner or Joint Owner.you are purchasing entitles you to an immediate fixed income annuity contract if, and only if, one of the triggering events discussed earlier in this prospectus occurs. The Contract is designed for investors in Select UMA Models approved as Eligible Portfolios who intend to helpuse the assets in their Account as the basis for periodic withdrawals to provide income for retirement or for other purposes.tax-deferred basisFormer Eligible Portfolio. We require MSSB to provide data to us to monitor the Eligible Portfolios or Former Eligible Portfolio and meet long-term financial goals, such as retirement funding. Underto alert us of any changes to the allocations within them.
(1) | The Annual Benefit Base Review. On each Contract Anniversary during the Accumulation Phase, we do an Annual Benefit Base Review to see if you are eligible for an increase to your Guaranteed Lifetime Withdrawal Base. We will examine the following three items and Your Guaranteed Lifetime Withdrawal Base will be set equal to the greatest of: |
(a) | the current Guaranteed Lifetime Withdrawal Base, adjusted for transactions in the previous Contract Year that affected the Guaranteed Lifetime Withdrawal Base; |
(b) | Your Account Value as of the Contract Anniversary; or |
(c) | the original Guaranteed Lifetime Withdrawal Base with a 5% roll-up. This is equal to the original Guaranteed Lifetime Withdrawal Base plus 5% of the original Guaranteed Lifetime Withdrawal Base for each Contract Anniversary that has been reached. An adjustment will be made to the calculations for transactions that increase or decrease the Guaranteed Lifetime Withdrawal Base. |
(2) | Additional Deposits to Your Account in the Accumulation Phase. The Contract permits you to make Additional Deposits to Your Account during the Accumulation Phase. Additional Deposits will result in an immediate increase to your Guaranteed Lifetime Withdrawal Base equal to the dollar amount of the Additional Deposit. |
(3) | Early Withdrawals from Your Account. An Early Withdrawal is any withdrawal you take from Your Account prior to your elected Withdrawal Start Date (discussed later in this provision). Early Withdrawals will result in a decrease to your Guaranteed Lifetime Withdrawal Base. The amount of that decrease will be the greater of (a) or (b), where: |
(a) | = | the dollar amount of the Early Withdrawal; and | ||
(b) | = | a "proportional amount" derived from the following calculation: (A ÷ B) × C, where: | ||
A | = | the dollar amount of the Early Withdrawal; | ||
B | = | Your Account Value on the date of the Early Withdrawal; and | ||
C | = | your Guaranteed Lifetime Withdrawal Base on the date of the Early Withdrawal. |
Example Early Withdrawal Calculations | ||||||
In this example, the Account Value is greater than the Guaranteed Lifetime Withdrawal Base. | In this example, the Account Value is less than the Guaranteed Lifetime Withdrawal Base: | |||||
At the time of the Early Withdrawal: | At the time of the Early Withdrawal: | |||||
Account Value | = | $500,000 | Account Value | = | $400,000 | |
Guaranteed Lifetime Withdrawal Base | = | $450,000 | Guaranteed Lifetime Withdrawal Base | = | $450,000 | |
Withdrawal Amount | = | $15,000 | Withdrawal Amount | = | $15,000 | |
Guaranteed Lifetime Withdrawal Base reduction calculations: | Guaranteed Lifetime Withdrawal Base reduction calculations: | |||||
Dollar amount | = | $15,000 | Dollar amount | = | $15,000 | |
Proportional amount ($15,000 ÷ $500,000) x $450,000 | = | $13,500 | Proportional amount ($15,000 ÷ $400,000) x $450,000 | = | $16,875 | |
After the Early Withdrawal: | After the Early Withdrawal: | |||||
Account Value ($500,000 - $15,000) | = | $485,000 | Account Value ($400,000 - $15,000) | = | $385,000 | |
Guaranteed Lifetime Withdrawal Base ($450,000 - $15,000) | = | $435,000 | Guaranteed Lifetime Withdrawal Base ($450,000 - $16,875) | = | $433,125 |
Your Age (or in the case of a Co-Annuitant, the age of the younger Co-Annuitant) at the time of the withdrawal | Guaranteed Lifetime Withdrawal Percentage | |
55 – 64 | 4% | |
65 or older | 5% |
Guaranteed Lifetime Withdrawal Amount | = | Guaranteed Lifetime Withdrawal Base | X | Guaranteed Lifetime Withdrawal Percentage |
(1) | The Annual Benefit Base Review. On each Contract Anniversary during the Withdrawal Phase, we do an Annual Benefit Base Review to see if you are eligible for an increase to your Guaranteed Lifetime Withdrawal Base. We will examine the following two items and your Guaranteed Lifetime Withdrawal Base will be set equal to the greater of: |
(a) | the current Guaranteed Lifetime Withdrawal Base, adjusted for transactions in the previous Contract Year that affected the Guaranteed Lifetime Withdrawal Base; or |
(b) | Your Account Value as of the Contract Anniversary. |
(2) | Additional Deposits to Your Account in the Withdrawal Phase. Just as in the Accumulation Phase, the Contract permits you to make Additional Deposits to Your Account during the Withdrawal Phase, which will result in an immediate increase to your Guaranteed Lifetime Withdrawal Base equal to the dollar amount of the Additional Deposit. |
(3) | Excess Withdrawals from Your Account. Excess Withdrawals are any withdrawals taken after your Withdrawal Start Date that, during any calendar year, exceed the Guaranteed Lifetime Withdrawal Amount. Excess Withdrawals will result in a decrease to your Guaranteed Lifetime Withdrawal Base. The amount of that decrease will be the greater of (a) or (b), where: |
(a) | = | the dollar amount of the Excess Withdrawal (the amount withdrawn during any calendar year in excess of the Guaranteed Lifetime Withdrawal Amount); and | ||
(b) | = | a "proportional amount" derived from the following calculation: (A ÷ B) × C, where: | ||
A | = | the dollar amount of the Excess Withdrawal; | ||
B | = | Your Account Value (which will be reduced by any Guaranteed Lifetime Withdrawal Amount taken) on the date of the Excess Withdrawal; and | ||
C | = | your Guaranteed Lifetime Withdrawal Base on the date of the Excess Withdrawal |
Example Excess Withdrawal Calculations | ||||||
In this example, the Account Value is greater than the Guaranteed Lifetime Withdrawal Base: | In this example, the Account Value is less than the Guaranteed Lifetime Withdrawal Base: | |||||
At the time of the Excess Withdrawal: | At the time of the Excess Withdrawal: | |||||
Account Value | = | $500,000 | Account Value | = | $400,000 | |
Guaranteed Lifetime Withdrawal Base | = | $450,000 | Guaranteed Lifetime Withdrawal Base | = | $450,000 | |
Guaranteed Lifetime Withdrawal Amount | = | $22,500 | Guaranteed Lifetime Withdrawal Amount | = | $22,500 | |
Withdrawal Amount | = | $30,000 | Withdrawal Amount | = | $30,000 | |
Excess Withdrawal Amount ($30,000 - $22,500) | = | $7,500 | Excess Withdrawal Amount ($30,000 - $22,500) | = | $7,500 | |
Guaranteed Lifetime Withdrawal Base reduction calculations: | Guaranteed Lifetime Withdrawal Base reduction calculations: | |||||
Dollar amount | = | $7,500 | Dollar amount | = | $7,500 | |
Proportional amount ($7,500 ÷ $477,500) x $450,000 | = | $7,068 | Proportional amount ($7,500 ÷ $377,500) x $450,000 | = | $8,940 | |
After the Excess Withdrawal: | After the Excess Withdrawal: | |||||
Account Value ($500,000 - $30,000) | = | $470,000 | Account Value ($400,000 - $30,000) | = | $370,000 | |
Guaranteed Lifetime Withdrawal Base ($450,000 - $7,500) | = | $442,500 | Guaranteed Lifetime Withdrawal Base ($450,000 - $8,940) | = | $441,060 |
• | Your Account Value, after your Withdrawal Start Date, falls below the greater of $10,000 or the Guaranteed Lifetime Withdrawal Amount (the "Minimum Account Value"); |
• | Your Account Value is invested in the Minimum Account Value Eligible Portfolio, as discussed in the Suspension and Termination Provisions section, and you reach your Withdrawal Start Date; or |
• | You, after your Withdrawal Start Date, affirmatively elect to begin the Income Phase by submitting the appropriate administrative forms. |
On the Annuitization Date, if it occurs, we promise to begin paying annuity paymentsmost recent Guaranteed Lifetime Withdrawal Amount. However, your first Guaranteed Lifetime Income Payment will be prorated based on the amount annuitized andpreviously withdrawn during the annuity payment option selected. You may not invest in the Strategies once you reach the Annuitization Date. See “Annuitization” for information on annuitizing the Contract.
The Contract has a Death Benefit that may be triggeredcalendar year prior to beginning the Annuitization Date uponIncome Phase. No Additional Deposits and no Guaranteed Lifetime Withdrawals are permitted.
All payments underconditions are: determination of which Select UMA Models are Eligible Portfolios and changes to the Contract are subjectFee Percentages associated with the Eligible Portfolios.
The Contract is available as a Non-Qualified Contract, whichconditions associated with the Contract. At the time of the terms and conditions change, we will provide you with certain tax deferral features under the Code. Oninformation necessary to make this determination. Specifically, we will provide: Your Account Value; the other hand, ifcurrent Guaranteed Lifetime Withdrawal Base; the current terms and conditions associated with the Contract; and instructions on how to communicate your election to Nationwide.
This prospectus describesother terms and conditions change or reinstate your Annual Benefit Base Review.
(1) | The Spousal Continuation Option must be elected at the time of application, and the younger spouse must be between 45 and 80 and the older spouse must be 84 or younger. |
(2) | Both spouses (or a revocable trust of which either or both of the spouses is/are grantor(s)) must be named as owners of Your Account and the Annuitant(s) of Your Contract. For Contracts issued to IRAs and Roth IRAs, you and your spouse must be Co-Annuitants, and the person for whom the IRA or Roth IRA was established must name their spouse the sole beneficiary of Your Account. |
(3) | If, prior to the Withdrawal Start Date, your marriage terminates due to divorce, dissolution, or annulment, or a Co-Annuitant dies, we will remove the Spousal Continuation Option from your Contract after you submit to the Service Center a written request and evidence of the marriage termination or death that is satisfactory to Nationwide. After removal of the Spousal Continuation Option, we will not charge you the Spousal Continuation Option Fee Percentage. Once the Spousal Continuation Option is removed from the Contract, the option may not be re-elected or added to cover a subsequent spouse. |
(4) | If, on or after the Withdrawal Start Date, your marriage terminates due to divorce, dissolution, or annulment, or a Co-Annuitant dies, you may not remove the Spousal Continuation Option from the Contract. The remaining Owner of the Contract will continue to be charged the Spousal Continuation Option Fee Percentage, and after the remaining Owner of the contract submits to the Service Center a written request in a form acceptable to Nationwide, the remaining Owner of the Contract's former spouse will no longer be eligible to receive withdrawals. |
(5) | For Contracts with non-natural owners (other than IRAs), one spouse must be the Annuitant and the other spouse must be the Co-Annuitant. |
(6) | Upon either Co-Annuitant's death, the surviving spouse must keep Your Account open and comply with all of the requirements of this Contract. |
(7) | If you enter the Income Phase of the Contract, both you and your spouse must be named primary beneficiaries of the Contract at that time to ensure the Guaranteed Lifetime Income Payments will continue for both lives. |
Contract Fee Percentage: | 1.00% |
Number of days in calendar quarter: | 90 |
Number of days in the calendar year: | 365 |
Guaranteed Lifetime Withdrawal Base (as of the end of the previous quarter): | $ 500,000 |
Contract Fee Calculation: $500,000 x [1.00% x (90 ÷ 365)] = | $1,232.87 |
First: | Early Withdrawals and Excess Withdrawals will reduce your Guaranteed Lifetime Withdrawal Base. The reduction may be substantial, especially if Your Account Value is significantly lower than it was when the Guaranteed Lifetime Withdrawal Base was last computed or adjusted. |
Second: | Once you are ready to begin taking withdrawals of the Guaranteed Lifetime Withdrawal Amount from Your Account, consider setting up a quarterly, monthly or other systematic withdrawal program. Doing so may help limit the risk that you will make an Excess Withdrawal. |
Third: | Consider the timing of your withdrawals. Because your Guaranteed Lifetime Withdrawal Base can increase on your Contract Anniversary via the automatic Annual Benefit Base Review, the higher Your Account Value is on your Contract Anniversary, the more likely you will be to receive an increase in your Guaranteed Lifetime Withdrawal Base. You might have a higher Guaranteed Lifetime Withdrawal Base if you defer withdrawals until after your Contract Anniversary. |
Fourth: | Consider that the longer you wait to begin taking withdrawals of the Guaranteed Lifetime Withdrawal Amount, the less likely it is that you will receive any Guaranteed Lifetime Income Payments. Taking withdrawals reduces Your Account Value. If you wait to begin taking withdrawals, you are likely to reach the Minimum Account Value later in your life, and at the same time, your remaining life expectancy will be shorter. |
Annuitant's Death in Accumulation or Withdrawal Phase | Annuitant's Death in Income Phase | ||
Sole Contract Owner | Sole Annuitant (no Spousal Continuation Option) | The Contract terminates and we will make no payments under the Contract. We will return that portion of the current quarter's Contract Fee attributable to the time period between your death and the end of the current calendar quarter. | We will calculate the remaining amount of transferred Account Value that has not yet been paid to you in the form of Guaranteed Lifetime Income Payments. We will make payments to your beneficiary in the same frequency as the Withdrawal Phase in the amount equal to your Guaranteed Lifetime Withdrawals until that amount has been paid. If all remaining transferred Account Value has already been paid to you at the time of your death in the form of Guaranteed Lifetime Income Payments, we will make no further payments. |
Co-Annuitants (spouses with the Spousal Continuation Option) | If the Contract Owner/Co-Annuitant of the Contract dies, the Contract will continue with the surviving Co-Annuitant as the sole Contract Owner and sole Annuitant. | • If the Contract Owner/Co-Annuitant of the Contract dies, we will continue to make Guaranteed Lifetime Income Payments to the surviving Contract Owner/Co-Annuitant for the duration of his or her lifetime. • Upon the surviving Contract Owner/Co-Annuitant's death, we will calculate the remaining amount of transferred Account Value that has not yet been paid in the form of Guaranteed Lifetime Income Payments. We will make payments to your beneficiary in the same frequency as the Withdrawal Phase in the amount equal to the Guaranteed Lifetime Withdrawals until that amount has been paid. |
Annuitant's Death in Accumulation or Withdrawal Phase | Annuitant's Death in Income Phase | ||
Joint Contract Owners (spouses) | Sole Annuitant (no Spousal Continuation Option) | If a Joint Owner who is the Annuitant dies, the Contract terminates and we will make no payments under the Contract. We will return that portion of the current quarter's Contract Fee attributable to the time period between your death and the end of the current calendar quarter. | If a Joint Owner who is the Annuitant dies, we will calculate the remaining amount of transferred Account Value that has not yet been paid to you in the form of Guaranteed Lifetime Income Payments. We will make payments to your beneficiary in the same frequency as the Withdrawal Phase in the amount equal to your Guaranteed Lifetime Withdrawals until that amount has been paid. If all remaining transferred Account Value has already been paid to you at the time of your death in the form of Guaranteed Lifetime Income Payments, we will make no further payments. |
If a Joint Owner who is not the Annuitant dies, the Contract will continue with the surviving Joint Owner/Annuitant as the sole Contract Owner. | If a Joint Owner who is not the Annuitant dies, the Contract will continue with the surviving Joint Owner/Annuitant as the sole Contract Owner receiving Guaranteed Lifetime Income Payments. | ||
Co-Annuitants (spouses with the Spousal Continuation Option) | If a Joint Owner/Co-Annuitant dies, the Contract will continue with the surviving Joint Owner/Co-Annuitant as the sole Contract Owner and sole Annuitant. | • If a Joint Owner/Co-Annuitant dies, we will continue to make Guaranteed Lifetime Income Payments to the surviving Joint Owner/Co-Annuitant for the duration of his or her lifetime. • Upon the surviving Joint Owner/Co-Annuitant's death, we will calculate the remaining amount of transferred Account Value that has not yet been paid in the form of Guaranteed Lifetime Income Payments. We will make payments to your beneficiary in the same frequency as the Withdrawal Phase in the amount equal to the Guaranteed Lifetime Withdrawals until that amount has been paid. |
• | If you remain the sole owner of Your Account, there will be no change to the Contract. |
• | If your former spouse becomes the sole owner of Your Account, the Contract will be issued as a new Contract, with a new Guaranteed Lifetime Withdrawal Base (calculated as of the date the new Contract is issued) with your former spouse as Contract Owner and Annuitant, and the Contract will terminate upon the death of the Annuitant. Alternately, the former spouse may elect to terminate the Contract. |
• | If Your Account is divided between you and your former spouse, the Contract will be reissued as two Contracts (one to each of the former spouses). The Guarantee will not carry over and a new Guaranteed Lifetime Withdrawal Base will be established based on the value of each new account as of the date the new Contracts are issued. Each former spouse will be the named Contract Owner and Annuitant of their respective reissued Contract, and each Contract will terminate upon the death of the respective Annuitant. Alternately, each former spouse may elect to terminate their respective Contract. |
• | If Your Account is taken over solely by one of the Joint Owners (the "Receiving Joint Owner"), the Receiving Joint Owner may elect whether to have the Contract reissued with him/her as the sole Contract Owner and Annuitant, or continue the Contract with both former spouses remaining as Joint Owners and the Receiving Joint Owner as the annuitant. In either situation, the Contract will terminate upon the death of the Annuitant. Alternately, the Receiving Joint Owner may elect to terminate the Contract. |
• | If Your Account is divided between the Joint Owners (the former spouses), the Contract will be reissued as two Contracts (one to each of the former spouses), with the contractual Guarantee divided in proportion to the division of the assets in Your Account and a new Guaranteed Lifetime Withdrawal Base will be established for each Contract based on the value of each account as of the date the new Contracts are issued. The Joint Owners may remain as Joint Owners on each reissued Contract, with one former spouse named as Annuitant on each of the Contracts, or each may become the sole Contract Owner and Annuitant on their respective reissued Contract. In either situation, the Contract will terminate upon the death of the Annuitant. Alternately, each former spouse may elect to terminate their respective Contract. |
• | You do not comply with any provision of this prospectus, including, but not limited to, the requirement that you maintain Your Account at MSSB and invest the assets as required by an Eligible Portfolio or a Former Eligible Portfolio, and the requirement that you execute an agreement that provides for the deduction and remittance of the Contract Fee; |
• | Your Account Value falls below the Minimum Account Value; |
• | MSSB no longer manages any Eligible Portfolios or Former Eligible Portfolios; or |
• | You make an Additional Deposit to Your Account when Your Account already exceeds $2,000,000 in Total Gross Deposits, or you make an Additional Deposit to Your Account that causes Your Account to exceed $2,000,000 in Total Gross Deposits. |
(1) | Make Additional Deposits to Your Account to bring Your Account Value above the Minimum Account Value; |
(2) | Transfer Your Account Value to the Minimum Account Value Eligible Portfolio. The Minimum Account Value Eligible Portfolio is only available to Contract Owners whose Account Value falls below the Minimum Account Value before the Withdrawal Start Date; or |
(3) | Terminate the Contract. |
Eligible Portfolio | Target Allocations | ||||||
U.S. Equity | |||||||
Minimum Account Value Eligible Portfolio | U.S. Large Cap Value Equity | U.S. Large Cap Growth Equity | U.S. Mid Cap Value Equity | U.S. Mid Cap Growth Equity | U.S. Small Cap Value Equity | U.S. Small Cap Growth Equity | |
0% | 0% | 0% | 0% | 0% | 0% | ||
Composition | International Equity | U.S. Fixed Income | International Fixed Income | Cash | |||
Developed International Equity | Emerging Markets Equity | U.S. Core Fixed Income | U.S. High Yield Fixed Income | International Fixed Income | Cash/U.S. Short Duration Bond | ||
100% Fixed | 0% | 0% | 40 - 60% | 0 - 20% | 5 - 25% | 20 - 40% | |
Investment Strategy: Fixed Income- An all fixed income model for a most conservative investor that seeks conservative risk investments with minimal market volatility. In order to accommodate a lower account value, the portfolio is only comprised of exchange traded funds (ETFs) which have lower minimum investment requirements. | |||||||
Investment Objective: The investment objective for this Model has a primary emphasis on capital preservation. This Model is classified to have low volatility. It is most suitable for an investor that is comfortable with minimal fluctuations in their portfolio, and the possibility of larger declines in value, in order to grow their portfolio over time. | |||||||
Investment Risk: Fixed income is historically considered less risky than equities. The Minimum Account Value Eligible Portfolio has 100% of the assets in fixed income or cash. Therefore, of all of the Eligible Portfolios, this portfolio provides the most conservative investment risk. | |||||||
Benchmark: 70% BC Aggregate Bond (U.S. Fixed Income)/30% 90-Day T-Bills (Cash) | |||||||
For a summary of the asset categories and benchmark indices, please refer to the Eligible Portfolios summary earlier in the prospectus. | |||||||
If you do not notify us of your election by the end of the suspension period, we will assume that you intend to terminate the Contract. |
We will charge against your Contract any premium taxes levied by a state or other government entity in connection with your Contract. Premium tax rates currently range from 0% to 5.0%. This range is subject to change. The methodan annuity contract that we, useor one of our affiliates, offer.
❍ | The charges for those products may be higher than the Contract Fee Percentage assessed in connection with your Contract; |
❍ | You will not be charged any transfer fees by us other than the termination fees imposed by your custodian consistent with your custodial agreement; and |
❍ | The value transferred for the Guarantee will be equal to the Guaranteed Lifetime Withdrawal Base on the Valuation Day of the transfer (a Valuation Day is any day the New York Stock Exchange is open for trading). |
• | If you decide to transfer Your Account Value to an annuity contract that we, or one of our affiliates, offer, the amount transferred to the new annuity contract will be equal to the value of Your Account on the Valuation Day of the transfer, and the basis for your Guarantee will be equal to the Guaranteed Lifetime Withdrawal Base on the Valuation Day of the transfer. |
• | If you choose not to transfer Your Account Value, or fail to transfer Your Account Value before the end of the suspension period, the Contract and the Guarantee will terminate. |
The Contract is non-participating, meaning that the Contract will not share in our profits or surplus.
To the extent allowed by state law,increase. Therefore, we reserve the right to refuse to accept an Additional Deposit made into Your Account for your Guaranteed Lifetime Withdrawal Base that brings your Total Gross Deposits above $2,000,000. Our decision to accept your Additional Deposit for your Guaranteed Lifetime Withdrawal Base will be based on one or more factors, including but not limited to: age, spouse age (if applicable), Annuitant age, state of issue, total Account Value, election of the Spousal Continuation Option, current market conditions, and current hedging costs. All such decisions will be based on internally established actuarial guidelines and will be applied in a nondiscriminatory manner. Note: If you have more than one MSSB account with this Guarantee, the $2,000,000 limit in Total Gross Deposits applies to the aggregate account value of Your Accounts.
❍ | If we permit the application of all or a portion of an Additional Deposit to the Guaranteed Lifetime Withdrawal Base calculation, that amount will be reflected in your Guaranteed Lifetime Withdrawal Base at the time you deposit the Additional Deposit to Your Account, provided such deposit is made within 5 days of our notification of approval and provided that such deposit does not exceed the amount evaluated in the pre-deposit inquiry. If you make such Additional Deposit after the expiration of the permitted time period, or it is for an amount greater than that submitted in the pre-deposit inquiry, we will treat the Additional Deposit as if no pre-deposit inquiry was made (see "No Pre-Deposit Inquiry" below) and will immediately suspend your Contract. |
❍ | If we exercise our right to refuse to accept all or a portion of an Additional Deposit for the Guaranteed Lifetime Withdrawal Base (and you have not made the Additional Deposit), we will not suspend your Contract. If however, you proceed to make the Additional Deposit after our notification of our refusal to accept the Additional Deposit for your Guaranteed Lifetime Withdrawal Base, we will treat the Additional Deposit as if no pre-deposit inquiry was made (see "No Pre-Deposit Inquiry" below) and will immediately suspend your Contract. |
event of multiple Additional Deposits that cause Total Gross Deposits to exceed $2,000,000, each deposit will have its own suspension period and review determination. Multiple Additional Deposits will be evaluated in the order they are deposited. |
❍ | If we permit the application of all or a portion of an Additional Deposit to the Guaranteed Lifetime Withdrawal Base calculation, that amount will be reflected in your Guaranteed Lifetime Withdrawal Base as of the date you deposited the Additional Deposit to Your Account and we will immediately remove the Contract's suspension. We will notify you that the suspension has been removed. |
❍ | If we exercise our right to refuse to accept all or a portion of an Additional Deposit for the Guaranteed Lifetime Withdrawal Base, your Contract will continue to be suspended (as of the date of the Additional Deposit). We will notify you and your Financial Advisor immediately of the Contract's suspended status and will request that you remove the Additional Deposit(s) from Your Account. The notification will indicate that the Contract will remain suspended until you remove the Additional Deposit(s) that caused your Total Gross Deposits to exceed $2,000,000 from Your Account, and that if you do not withdraw the necessary amount from Your Account before the end of the suspension period, the Contract will terminate and you will not be eligible for any of the benefits associated with the Contract. During the suspension period, any withdrawal will not constitute an Early Withdrawal or an Excess Withdrawal. |
❍ | The charges for those products may be higher than the Contract Fee Percentage assessed in connection with your Contract; |
❍ | You will not be charged any transfer fees by us other than the termination fees imposed by your custodian consistent with your custodial agreement; |
❍ | The value transferred for the Guarantee will be equal to the Guaranteed Lifetime Withdrawal Base on the Valuation Day of the transfer. |
If we consent to an assignment, the assignment takes effect on the date it is signed, unless otherwise specified by the request. We are not responsiblereturn any fees except for the validityportion of an assignment, any tax consequencesthe current quarter's Fees paid in advance.
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Upon assignment or a change inhow ownership of the Contract may affect the Death Benefittaxation of transactions within Your Account. Any relevant authorities are susceptible to numerous interpretations, some of which may cause the IRS to disagree with our interpretations. If the IRS were to successfully challenge the tax treatment described herein, it could have a material and adverse effect on the tax consequences of the acquisition, owning, and disposition of investments in Your Account. In addition, it is possible that, due to changes in your circumstances in future years, the tax consequences under the qualified dividend and straddle rule could change. For example, losses may be realized when it has become likely that the value of Your Account has been reduced to the greater of $10,000 or your Guaranteed Lifetime Withdrawal Amount. You should consult with your own tax advisors regarding the potential tax implications of purchasing and/or owning a Contract, willbased on your individual circumstances.
The Contract is issued in consideration of the single Purchase Payment paid by the Contract Owner. Only one Purchase Payment is allowed under the Contract. The minimum Purchase Payment is $25,000.
Your Purchase Payment should be made payable to Nationwide Life Insurance Company and submitted to our Solutions Center. Your Purchase Payment must be made in U.S. dollars and must be in a form acceptable to us. You may choose to make your Purchase Payment by personal check, Electronic Funds Transfer (EFT), or wire transfer. We will not accept a Purchase Payment in cash, by credit card, or by money order or travelers check. We reserve the right not to accept third-party checks.
We reserve the right to reject a Purchase Payment that is comprised of multiple payments paid to us over a period of time. If we permit you to make multiple payments as part of your Purchase Payment, the Contract will not be issued until all such payments are received. We reserve the right to hold such multiple payments in a non-interest bearing account until the Date of Issue.
Unless we agree in writing, we will not accept your Purchase Payment if your Purchase Payment plus any other purchase payments for any other annuity contracts issued by Nationwidesimilar to the Contract Owner, Annuitant,in Private Letter Rulings 200939018, 200949007, 200949036, 201001016, and 201105004. Pursuant to §6110(k)(3) of the Internal Revenue Code, private letter rulings may not be used or Contingent Annuitant exceeds $1,000,000.
We reserve the right to refuse any application for the Contract. If we refuse your application, we will return your Purchase Payment.
We maycited as precedent, and therefore cannot be required to provide information about your Contract to government regulators. If mandated under applicable law, we may be required to reject a Purchase Payment and to refuse to process transaction requests under the Contract until instructed otherwiserelied upon as authoritative rulings by the appropriate regulator.
The Date of Issue is the date we issue your Contract. Your Purchase Payment is appliedIRS. With respect to the Contractarrangements described in those private letter rulings, the IRS concluded that: (a) the annuity contract would be treated as an annuity within the meaning of §72 of the Internal Revenue Code; (b) the annuity would not create a right of reimbursement for losses realized on the Date of Issue. The Date of Issue will be the date as of which we have both received your Purchase Payment and approved your Contract application.
ALLOCATING YOUR PURCHASE PAYMENT
You tell us how to apply your Purchase Payment by specifying in the Contract application your desired allocation among the Strategies that are available for investment on the Date of Issue. You may invest your Purchase Payment in a single Strategy or in multiple Strategies. You may be invested in no more than five Strategies at any given time. If you are simultaneously invested in the same Strategy for Strategy Terms that began on different dates, those investments are considered separate Strategiesaccount assets for purposes of §165 and therefore would not prevent a current deduction for such losses; (c) the maximum numberannuity would not be treated as diminishing the account owner's risk of Strategies that you can haveloss on account assets for purposes of applying the holding period requirements of §1(h)(11); and for calculating(d) the valuesannuity contract and Strategy Earnings under this Contract. There is no minimum dollar amount that canthe account assets would not, either at the time of the issuance of the contract or subsequently, be allocated toviewed as components of a Strategy. Allocations to Strategies must be in whole percentages.
You havestraddle within the right to examine and cancelmeaning of §1092.
Where state law requires the return of purchase payments for free look cancellations, Nationwide will return the Purchase Payment applied to the Contract, less any withdrawalsGuaranteed Lifetime Income Payments made from the Contract are expected to be substantially equal periodic payments, paid no less frequently than annually, and any applicable federal and state income tax withholding. Where state law requiresare to be paid while the return of contract value for free look cancellations, Nationwide will return the Contract Accumulation Value as of the date of the cancellation, less any withdrawals from the Contract and any applicable federal and state income tax withholding.
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PARTIAL NON-PREFERRED WITHDRAWAL TREATED AS A FULL SURRENDER
Nationwide may treat a request for a partial withdrawal as a request for a full surrender of the ContractAnnuitant is living (or, if the following three criteria exist: (i) any portion of the partial withdrawalSpousal Continuation Option is a Non-Preferred Withdrawal; (ii) the partial withdrawal would reduce the Contract Value to an amount less than $5,000;elected, while either Co-Annuitant is living), and (iii) the Purchase Payment minus the sum of any Gross Withdrawals since the Date of Issue is less than $5,000.
PARTIES TO THE CONTRACT AND RELATED PERSONS
Nationwide and the Contract Owner (including any Joint Owner) are the parties to the Contract. Other related persons—including any Annuitant, Contingent Annuitant, Beneficiary, and Contingent Beneficiary—have certain rights under the Contract. If the person purchasing the Contract names someone else as the Contract Owner, the purchaser will have no rights under the Contract unless he or she is named under the Contract as one of the other related persons listed above.
Nationwide issues the Contract to the Contract Owner (and any Joint Owner). Nationwide assumes certain risks and promises to make certain payments under the Contract, as described in this prospectus.
The Contract Owner has all rights under the Contract before the Annuitization Date, unless a Joint Owner is named, in which case the Contract Owner and the Joint Owner have equal rights under the Contract before the Annuitization Date. If you are purchasing the Contract for someone else and you will not be a Contract Owner, then you will have no rights under the Contract.
As of the Annuitization Date, the Annuitant(s) exercise all remaining rights under the Contract. See “Annuitization.”
If a Contract has a Joint Owner, the Contract Owner and the Joint Owner have an undivided interest in the Contract.
Non-Qualified Contract Owners can name a Joint Owner at any time before the Annuitization Date. However, Joint Owners must be spouses at the time joint ownership is requested, unless state law requires Nationwide to allow non-spousal Joint Owners. Joint ownership is not permitted for Contracts owned by a non-natural Contract Owner.
Generally, the exercise of any ownership rights under the Contract must be in writing and signed by both Joint Owners. However, if a written election, signed by both Contract Owners, authorizing Nationwide to allow the exercise of ownership rights independently by either Joint Owner is submitted, Nationwide will permit Joint Owners to act independently. If such an authorization is submitted, Nationwide will not be liable for any loss, liability, cost, or expense for acting in accordance with the instructions of either Joint Owner.
If either Joint Owner dies before the Annuitization Date, the Contract continues with the surviving Joint Owner as the remaining Contract Owner.
ANNUITANT AND CONTINGENT ANNUITANT
Annuitant
The Annuitant is the person who will receive annuity payments once you reach the Annuitization Date. The Annuitant is also the person whose death prior to the Annuitization Date triggers payment of the Death Benefit.
On the Date of Issue, the Annuitant must be age 85 or younger unless we approve a request to name an older Annuitant.
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Only a Non-Qualified Contract Owner may name someone other than himself/herself as the Annuitant. The Contract Owner may not name a new Annuitant without Nationwide’s consent.
Contingent Annuitant
If a Contingent Annuitant is named and the Annuitant dies before the Annuitization Date, the Contingent Annuitant becomes the Annuitant. If the Contingent Annuitant becomes the Annuitant, all provisions of the Contract which are based onterminate upon the death of the Annuitant will become based on(or, if the Spousal Continuation Option is elected, upon the death of the Contingent Annuitant. In addition, once the Contingent Annuitant becomes the Annuitant, a new Contingent Annuitant cannot be named.
Only Non-Qualified Contract Owners may name a Contingent Annuitant.
On the Date of Issue, the Contingent Annuitant must be age 85 or younger unless we approve a request to name an older Contingent Annuitant.
BENEFICIARIES AND CONTINGENT BENEFICIARIES
The Beneficiary is the person who is entitled to the Death Benefit if the Annuitant (and Contingent Annuitant, if applicable) dies before the Annuitization Date and there is no Joint Owner. The Contract Owner can name more than one Beneficiary. Multiple Beneficiaries will share the Death Benefit equally, unless otherwise specified.
A Contingent Beneficiary will succeed to the rights of the Beneficiary if no Beneficiary is alive when a Death Benefit is paid. The Contract Owner can name more than one Contingent Beneficiary. Multiple Contingent Beneficiaries will share the Death Benefit equally, unless otherwise specified.
Unless otherwise directed by the Contract Owner, the following applies with respect to Beneficiaries and Contingent Beneficiaries under the Contract:
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If there is more than one Beneficiary under the Contract, they share equally in any payment or rights under the Contract to which they are entitled.
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CHANGES TO PERSONS NAMED UNDER THE CONTRACT
To the extent allowed by state law, we reserve the right to refuse our consent to any request to change the Contract Owner at any time on a non-discriminatory basis if the change would violate or result in noncompliance with any applicable state orsurviving Co-Annuitant). For federal law or regulation. Prior to the Annuitization Date (and subject to any existing assignments), the Contract Owner may request to change the following:
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The Contract Owner must submit the request to Nationwide in writing and Nationwide must receive the request at the Solutions Center before the Annuitization Date. Once Nationwide receives and records the change request, the change will be effective as of the date the written request was signed (unless otherwise specified by the Contract Owner), whether or not the Contract Owner or Annuitant is living at the time it was recorded. The change will not affect any action taken by Nationwide before the change was recorded.
Any request to change the Contract Owner must be signed by the existing Contract Owner and the person designated as the new Contract Owner. Nationwide may require a signature guarantee.
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If the Contract Owner is not a natural person and there is a change of the Annuitant, distributions will be made as if the Contract Owner died at the time of the change, regardless of whether the Contract Owner named a Contingent Annuitant.
Nationwide reserves the right to reject any change request that would alter the nature of the risk that Nationwide assumed when it originally issued the Contract.
Certain features under the Contract may have specific requirements as to who can be named as the Contract Owner, Annuitant, and/or Beneficiary in order to receive the benefit of the feature. Changes to the parties to the Contract may result in the termination or loss of benefit of these features.
If we permit an assignment or a change in ownership of the Contract, the Death Benefit under the Contract will be the Surrender Value (rather than the Contract Accumulation Value) unless the requirements specified under “Death Benefit and Succession Rights – Calculation of the Death Benefit” are satisfied.
You may invest in one or more of the Strategies offered under the Contract. When you invest in a Strategy, you remain invested in that Strategy for the length of the Strategy Term. The total amount of Strategy Earnings applied over the life of your Contract, if any, will depend on the Strategies that you select for investment and the actions that you take under the Contract.
You may have no more than five Strategies at any given time. Strategy Earnings are calculated separately for each Strategy. If you are simultaneously invested in the same Strategy for Strategy Terms that began on different dates, those investments are considered separate Strategies forincome tax purposes, of the maximum number of Strategies that you can have and for calculating the values and Strategy Earnings under the Contract.
The amount of Strategy Earnings applied to a Strategy during and at the end of a Strategy Term depends on several factors, including:
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We reserve the right to add or remove Strategies, subject to any necessary regulatory approval. We will not remove a Strategy during an ongoing Strategy Term.
The Contract currently offers the following Strategies*:
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*See“What are the Crediting Factors for a Strategy?” for information on the Participation Rate and Strategy Spread for each Strategy. Each Strategy has its own Minimum Participation Rate which will never be less than 5%, and each Strategy has its own Maximum Strategy Spread that will never be greater than the initial Strategy Spread identified in your Contract at the Date of Issue plus 2%. When a Strategy has both a Participation Rate less than 100% and a Strategy Spread greater than zero, the Participation Rate and Strategy Spread combine to reduce gains when Index Performance is positive. Additionally, when a Strategy has both a Participation Rate greater than 100% and a Strategy Spread greater than zero, the Participation Rate and Strategy Spread combine to increase losses when Index Performance is negative.
We credit Strategy Earnings to a Strategy on the Strategy Term End Date. We refer to this form of Strategy Earnings as “Term Strategy Earnings.” Term Strategy Earnings represent Strategy Earnings paid on the Strategy Value of a Strategy as of the Strategy Term End Date. Term Strategy Earnings take into account the performance of the Strategy’s Index over the course of the entire Strategy Term (except when the Lock-In feature has been exercised or in the event that the Index has been substituted).
We also credit Strategy Earnings to a Strategy when you take a partial withdrawal or full surrender prior to the Strategy Term End Date. We refer to this form of Strategy Earnings as “Interim Strategy Earnings.” Interim Strategy Earnings represent both (i) any Strategy Earnings paid on any portion of the partial withdrawal or full surrender that is a Preferred Withdrawal and (ii) any Strategy Earnings paid on any portion of the partial withdrawal or full surrender that is a Non-Preferred Withdrawal. Interim Strategy Earnings take into account the performance of the Strategy’s Index between the beginning of the Strategy Term and the date on which the partial withdrawal or full surrender was taken (except when the Lock-In feature has been exercised or in the event that the Index has been substituted). Interim Strategy Earnings are not applied on a Strategy Term End Date, because only Term Strategy Earnings are applied on a Strategy Term End Date.
If you exercise the Lock-In feature for a Strategy, Term Strategy Earnings and Interim Strategy Earnings will take into account the performance of the Strategy’s Index from the beginning of the Strategy Term until the Lock-In Date. See “Calculation of Strategy Earnings – Lock-In.”
See “Calculation of Strategy Earnings” for information about how Term Strategy Earnings and Interim Strategy Earnings are calculated.
ACTIONS ON STRATEGY TERM END DATES
At the end of a Strategy Term, you may take any one or more of the permissible actions listed below.
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Transfer – You may transfer some or all of your Strategy Value to another Strategy that is available for investment for a Strategy Term (with the Participation Rate and Strategy Spread that we declare for the upcoming Strategy Term).
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For each of your Strategies, at least 30 days prior to the end of the Strategy Term, we will send you a notice stating (i) the Strategies that will be available for investment at the end of the Strategy Term, (ii) their respective Crediting Factors, including the Participation Rate and Strategy Spread that we declared for the upcoming Strategy Term, and (iii) how to communicate your instructions to us regarding what to do with the Strategy Value invested in the maturing Strategy.
If we do not receive instructions from you prior to the close of business on the Strategy Term End Date (or if the Strategy Term End Date is not a Business Day, then at least one Business Day prior to the Strategy Term End Date), your Strategy Value in the maturing Strategy willGuaranteed Lifetime Income Payments should be treated as follows:
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If your Strategy Value is investedamounts received as an annuity, and should be taxed in accordance with the same Strategy orrules applicable to annuity payments. As amounts received as an annuity, the default option as described above, and you do not wish to be invested in that Strategy or the default option, your only option will be to fully surrender the Contract. You can take a partial withdrawal to mitigate your unwanted investment exposure, but if you are invested in multiple Strategies, you cannot instruct us to take the partial withdrawal solely from the undesired Strategy. Instead, your partial withdrawal will be allocated among allportion of your Strategies.
As described above, if you have Strategy Value invested in a Strategy that will not be available for reinvestment for the next Strategy Term, and if we do not receive instructions from you prior to the close of business on the Strategy Term End Date (or if the Strategy Term End Date is not a Business Day, then at least one Business Day prior to the Strategy Term End Date), your entire Strategy Value in the maturing Strategy will be transferred to the default option specified in your Contract.
If you have Strategy Value invested in a Strategy that will not be available for reinvestment for the next Strategy Term, we will send you the default option’s Participation Rate and Strategy Spread for the next Strategy Term at least 30 days prior to the end of the Strategy Term End Date.
We will not change the Index for the default option unless the Index of the default option is discontinued or there is a substantial change to the calculation of the Index as described in “Crediting Factors – Indexes.”
On a Strategy Term End Date, you may transfer free of charge some or all of your Strategy Value in the maturing Strategy to another Strategythese payments that is available for investment.
You are not permittedallocable to transfer Strategy Value from a Strategy other than on its Strategy Term End Date. Nor are you permitted to transfer Strategy Value into a Strategy if its Strategy Term is ongoing.
If your Strategy Term End Date is a Business Day, a transfer request mustincome should be received by our Solutions Center prior to the close of business on that Business Day. If we do not receive a transfer request from you prior to the close of business on that Business Day, the transfer will not occur. If your Strategy Term End Date is not a Business Day, a transfer request must be received by our Solutions Center at least one Business Day prior to the Strategy Term End Date. If we do not receive a transfer request from you at least one Business Day prior to the Strategy Term End Date, the transfer will not occur. Transfer requests may be submitted in writing to our Solutions Center and must be signed by the Contract Owner. At our discretion, we may accept transfer requests by telephone or, if available, by Internet.
Your transfer request will not be deemed to be received by our Solutions Center until it is in good order. To be in good order, the transfer request must identify:
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Each Strategy has Crediting Factors that serve different purposes and impact your investment differently. We use the Crediting Factors to calculate the Strategy Earnings for each Strategy.
Each Strategy has the following five Crediting Factors:
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When selecting a Strategy for investment, you should not select a Strategy based on any single Crediting Factor in isolation. While one Crediting Factor for a Strategy may be more or less favorable or attractivetaxable to you the other Crediting Factors also impact whether that Strategy is appropriate for you based on your financial needs and goals. You should consult with a financial professional prior to selecting a Strategy for investment.
Except in the limited circumstances under which we may substitute an Index (see “Index” below), the Crediting Factors for a Strategy will not change for the duration of a given Strategy Term. The Index, Strategy Term and Protection Level will not change for as long as we continue offering a Strategy. However, the Participation Rate and Strategy Spread may change from Strategy Term to Strategy Term, subject to guaranteed minimums and maximums. More specifically:
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A Strategy’s Participation Rate and Strategy Spread for a particular Strategy Term may be different for newly issued Contracts than for existing Contracts.
The remainder of this section provides information about the Crediting Factors and the purposes that they serve under the Contract.
The Strategies are index-linked investment options. This means that the performance of a Strategy will depend, in part, on the performance of a particular market index over the course of a Strategy Term. The Indexes among the Strategies may vary.
The different Indexes under the Contract provide exposure to different markets and asset classes, all of which may perform differently compared to each other and during different time periods. When we calculate Strategy Earnings, if the Index Performance is negative, you will lose money under your Contract unless the Strategy’s downside protection protects you from the loss. When the Index Performance is positive, you may or may not gain money under your Contract, depending on the impact of the Strategy Spread.
We calculate the Index Performance on a point-to-point basis, which is done by comparing:
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The Indexes for the Strategies that we are offering for investment currently include:
S&P 500® Index – The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization. The S&P 500® Index does not include dividends declared by any of the companies in this Index.
In general, large-capitalization companies may be unable to respond quickly to new competitive challenges, and may not be able to attain the high growth rate of successful smaller companies.
J.P. Morgan Mozaic IISM Index – The J.P. Morgan Mozaic IISM Index (“J.P. Morgan Index”) tracks futures contracts referencing a diversified group of equity and fixed income assets, and indexes referencing commodities futures. The index is an “excess return” (rather than “total return”) index as it tracks the value and rolls returns on its component futures contracts and indexes, but not does include any notional interest earned on cash deposited as collateral for the purchase of the corresponding futures contracts.
A futures contract is a financial instrument in which a party agrees to pay a fixed price for the delivery of an asset at a specified future date. The market value of a futures contract is affected by the price or value of the underlying asset referenced by the contract. In general, while the value of a futures contract may or may not track the price or value of the referenced asset, as the price or value of the referenced asset rises (or falls), the market value of the futures contract will generally rise (or fall)). The market value of a futures contract is affected by other factors in addition to the referenced asset’s price or value, including but not limited to changing supply and demand relationships, interest rates, governmental and regulatory policies, and the policies of exchanges on which futures contracts trade. In addition, futures markets are subject to disruptions due to various factors, including lack of liquidity, participation of speculators, and government regulation and intervention. These factors and others can cause the price of futures contracts to be volatile and could adversely affect the value of the index. The index is currently comprised solely of futures contracts (or indexes referencing futures contracts) traded on regulated futures exchanges, but the index may in the future include over-the-counter contracts traded through facilities that are subject to lesser degrees of regulation or no substantive regulation.
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The index’s exposure to its fixed income components may be greater, perhaps significantly greater, than its exposure to its equity or commodities components. If the index has greater exposure to its fixed income components, a change in the value of the index’s fixed income futures contracts may have a greater impact on the index’s return than a change in the value of the index’s equity or commodities components.
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The J.P. Morgan Index utilizes a rules-based methodology based on momentum and smoothing volatility. The index’s methodology identifies market directions in trending markets. As such, the index may not perform well in markets characterized by short-term volatility.
On a monthly basis, the index is rebalanced to strategically adjust its composition to include the equity, fixedordinary income, and commodities components with the greatest returns over the previous six months, and those components are weighted based on the index’s target annualized volatility. There can be no assurance that the index’s methodology will generate positive performance or achieve its target volatility. As part of its methodology for seeking the target volatility, the index may not be fully exposed to its equity, fixed income, or commodity components at all times. Any portion of the index without market exposure will not participate in positive market movements.
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The J.P. Morgan Index also includes a “stop-loss” feature. If on any day the overall index’s weekly return is less than -3%, the index removes its market exposure entirely. After one week, the index re-establishes its market exposure. The stop-loss feature may reduce the risk of potential short-term loss in the index during a period of significant market distress but may also cause the index to miss a potential recovery in the underlying asset classes.
Use of the J.P. Morgan Index in connection with annuity contracts has been exclusively licensed to Nationwide.
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In general, large-capitalization companies may be unable to respond quickly to new competitive challenges, and may not be able to attain the high growth rate of successful smaller companies. Generally, the securities of mid-capitalization companies may be more volatile and may involve more risk than the securities of larger companies. Mid-capitalization companies are also more likely to fail than larger companies. Securities issued by non-U.S. companies are subject to the risks related to investments in foreign markets (e.g., increased price volatility; changes in currency exchange rates; and greater political, regulatory, and economic uncertainty).
NYSE® Zebra Edge® Index – The NYSE® Zebra Edge® Index is an equally-weighted index that uses a rules-based contrarian methodology favoring “cool” stocks over “hot” stocks within the universe of the 500 stocks included in the NYSE® U.S. Large Cap Equal Weight IndexTM. Cool stocks are stocks that have experienced lower trading frequency over the last two years and lower volatility over the last three months and one year. Hot stocks are stocks that have experienced the highest trading frequency over the last two years and the highest volatility over the last three months and one year. The index rebalances quarterly based on its methodology. There can be no assurance that the index’s methodology will generate positive performance.
The index also rebalances daily as part of its risk control process designed to mitigate volatility. When certain volatility thresholds are triggered, the index moves a portion of its equity allocation to U.S. Treasury futures or cash. The index’s exposure to U.S. Treasury futures and cash is adjusted on a daily basis. To the extent that the index reduces its exposure to the equity markets, the index will not be fully participating in any equity market growth. The risk control overlay strategies may not successfully manage volatility.
The NYSE® Zebra Edge® Index is primarily comprised of stocks of large-capitalization U.S. companies. In general, large-capitalization companies may be unable to respond quickly to new competitive challenges, and may not be able to attain the high growth rate of successful smaller companies. The index may also include U.S. Treasury bond futures. Fixed income investments like U.S. Treasury bonds are subject to investment risks such as interest rate risk (i.e., negative fluctuations in market value due to changes in interest rates) and credit risk (i.e., the risk of default). To the extent that the index includes U.S. Treasury bond futures, it is exposed to the risks associated with fixed income investments. U.S. Treasury bonds and futures may not experience (and historically have not experienced) the growth rate of equity investments.
We reserve the right to add or remove any Index in the future. There is no guarantee that a Strategy using any of the Indexes listed above will always be available for investment.
The Index for a Strategy generally will not change for the duration of an ongoing Strategy Term. However, we also reserve the right to substitute the Index during a Strategy Term at any time, in limited circumstances. Subject to regulatory approval, we may substitute the Index if (a) the Index is discontinued or (b) there is a substantial change to the calculation of the Index. If we substitute an Index, the new Index will be similar in composition to the old Index. We will seek to notify you at least 30 days prior to substituting an Index for any Strategy in which you are invested. However, in the event that it is necessary to substitute on less than 30 days’ notice due to circumstances outside of our control, we will provide notice of the substitution as soon as practicable.
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The Strategy Term represents the duration of the Strategy, expressed in years. Each Strategy has its own Strategy Term. The lengths of Strategy Terms may vary among Strategies. The length of a Strategy Term will not change for as long as we continue to offer that Strategy. Currently, the Strategies offered under the contract have Strategy Terms of either 1 or 3 years.
A Strategy Term may begin on the Date of Issue or a Contract Anniversary. A Strategy Term ends on its Strategy Term End Date, which will always be a Contract Anniversary.
Because you are not permitted to transfer Contract Value during a Strategy Term, you should understand that a Strategy with a longer Strategy Term provides less flexibility to allocate your Contract Value than a Strategy with a shorter Strategy Term. This means if you invest in Strategies with longer Strategy Terms, you will have fewer opportunities to transfer Contract Value among the Strategies.
The Protection Level represents an amount of downside protection under a Strategy for a Strategy Term. The Protection Level is presented as a percentage (e.g., 100%, 95%, 90%). A higher Protection Level provides more protection against loss than a lower Protection Level. For example, if you select a Strategy with a 90% Protection Level, your rate of return that is calculated at the end of the Strategy Term cannot be lower than -10%. If you select a Strategy with a 100% Protection level, your rate of return that is calculated at the end of the Strategy Term cannot be lower than 0%. The Protection Level for a Strategy will not change for as long as we offer that Strategy.
The maximum amount of loss that you may realize on a Strategy Term End Date, or when you take a Preferred Withdrawal, is your Protection Level minus 100% (e.g. a 100% Protection Level minus 100% protects you from all market loss; a 90% Protection Level minus 100% protects you from loss in excess of -10%; etc.). In those circumstances, we use the Strategy Earnings Percentage (SEP) to calculate your Strategy Earnings.
The Protection Level’s defined downside protection does not apply to a Non-Preferred Withdrawal. There is some downside protection provided for Non-Preferred Withdrawals, but the maximum amount of loss that you may realize is greater when you take a Non-Preferred Withdrawal. In that circumstance, we use the Non-Preferred Strategy Earnings Percentage (NSEP) to calculate your Strategy Earnings. For the NSEP, the maximum amount of loss that you may realize is greater than the maximum amount of loss under the SEP due to the Non-Preferred Withdrawal Adjustment Percentage.
You should understand that the Protection Level provides only limited protection against downside potential. The Protection Level does not provide absolute protection against negative Strategy Earnings. You may lose money, and it is possible to lose a substantial amount of your principal investment under this Contract. When comparing Strategies with different Protection Levels, a higher Protection Level provides more protection against loss than a lower Protection Level.
You should also understand that the downside protection provided by a Strategy’s Protection Level only applies to a single Strategy Term. If you remain invested in the Strategy over multiple Strategy Terms, you can experience losses up to the downside protection (and more, if you take a Non-Preferred Withdrawal) each Strategy Term. In effect, the cumulative losses over multiple Strategy Terms could significantly exceed the level of downside protection provided by the Protection Level for one Strategy Term.
Example
The table below illustrates the impact of the Protection Level on the SEP and the NSEP. See “Calculation of Strategy Earnings – Strategy Earnings Percentage (SEP) and Non-Preferred Strategy Earnings Percentage (NSEP).”
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Protection Level | Your Maximum Amount of Loss using the SEP for 1 and 3 Year Strategy Terms | Your Maximum Amount of 1-Year Strategy Term | Your Maximum Amount of Loss using the NSEP* for 3-Year Strategy Term | |||
100% | 0% | -2% | -6% | |||
95% | -5% | -7% | -11% | |||
90% | -10% | -12% | -16% | |||
* Assumes a withdrawal on the first day of the Strategy Term and therefore the highest possible impact of the Non-Preferred Withdrawal Adjustment Percentage of 2%. The potential impact of the Non-Preferred Withdrawal Adjustment Percentage on the NSEP gradually decreases over the course of a Strategy Term, reaching its least potential impact on the day prior to the Strategy Term End Date. As a result, your maximum amount of loss using the NSEP will gradually decrease as the Strategy Term elapses. |
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The Participation Rate represents the portion of the Index Performancepayments that is usedallocable to calculateyour after tax payments of premiums for the AIP.Contract, or basis, should be treated as the nontaxable return of basis. The Participation Rate is presented as a percentage greater or less than, or equal to, 100% (e.g., 50% or 150%). The Participation Rate may haveamount excludable from each Guaranteed Lifetime Withdrawal in the effect of increasing gains or losses (or neither) as follows:
Excludable Amount | Guaranteed Lifetime Withdrawal |
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A Participation Rate greater than 100% also increases your downside risk. For example, if your Participation Rate is 150%, we will multiply any negative Index Performance by 150% (subject to any applicable defined downside protection).
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A Participation Rate lower than 100% also decreases your downside risk when Index Performance is negative. For example, if your Participation Rate is 90%, we will only apply 90% of the negative Index Performance (subject to any applicable defined downside protection).
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The Participation Rate for a Strategy will not change for the duration of a Strategy Term. However, we may change a Strategy’s Participation Rate for future Strategy Terms. The Participation Rate for a Strategy is guaranteed to never be lower than the applicable “Minimum Participation Rate.” Each Strategy has its own Minimum Participation Rate, which will never be less than 5%.
Example
The table below illustrates the impact of the Participation Rate on the AIP. The Participation Rate is used to calculate the AIP, which is an adjusted Index Performance. The formula for the AIP may be found under “Calculation of Strategy Earnings – Adjusted Index Performance.”
Index Performance | Participation Rate | Adjusted Index Performance (Assuming 0% Strategy Spread) | ||
+10% | 125% | +12.5% | ||
+10% | 100% | +10% | ||
+10% | 50% | +5% | ||
+10% | 15% | 1.5% | ||
-10% | 125% | -12.5% | ||
-10% | 100% | -10% | ||
-10% | 50% | -5% | ||
-10% | 15% | -1.5% |
The Strategy Spread is an annualized percentage used as a deduction in the calculation of a Strategy’s performance. A Strategy Spread greater than 0% always has the effect of reducing a Strategy’s performance. A Strategy will never have a Strategy Spread lower than 0%. With all other Crediting Factors being equal, a Strategy Spread allows Nationwide to offer a higher Participation Rate for a Strategy than what would be offered on the same Strategy without the Strategy Spread.
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The Strategy Spread will not change for the duration of a Strategy Term. However, we may change a Strategy’s Strategy Spread for future Strategy Terms. The Strategy Spread is guaranteed to never be greater than the applicable “Maximum Strategy Spread.” Each Strategy has its own Maximum Strategy Spread that will never be greater than the initial Strategy Spread at Date of Issue plus 2%.
To calculate the Strategy Spread’s impact at any point in time, it is multiplied by the Elapsed Term. As an annualized percentage, the Strategy Spread’s potential impact increases over the course of the Strategy Term, reaching its full impact on the Strategy Term End Date. For instance, if a Strategy has a one-year Strategy Term and a Strategy Spread of 2%, the impact of the Strategy Spread will not reach 2% until the Strategy Term End Date. Further, if a Strategy has a three-year Strategy Term and a Strategy Spread of 2%, the impact of the Strategy Spread will not reach 6% until the Strategy Term End Date.
During a leap year there may be an additional day of accrual of the Strategy Spread if leap day is part of the Strategy Term (e.g. for a 1-year Strategy Term, in non-leap years the Elapsed Term at the end of the Strategy Term would be 1, but in a leap year the Elapsed Term would be 1.0027.)
A Strategy Spread can result in negative Strategy Earnings even if you have positive Index performance. See “Limited Growth Potential Risk (Strategy Spread and Participation Rate Risk)” for additional risk information about the Strategy Spread.
Examples
The table below illustrates the impact of the Strategy Spread on a Strategy with a one-year Strategy Term. The Strategy Spread is used to calculate the Adjusted Index Performance (AIP), which is effectively the Index Performance adjusted for the Participation Rate and Strategy Spread. The table assumes the AIP is calculated at the end of the Strategy Term. See “Calculation of Strategy Earnings – Adjusted Index Performance.”
Index Performance | Strategy Spread* | Adjusted Index Performance* (Assuming 100% Participation Rate) | ||
+10% | 2% | +8.0% | ||
+5% | 2% | +3.0% | ||
+1% | 2% | -1.0% | ||
-5% | 2% | -7.0% | ||
-10% | 2% | -12.0% |
*This column assumes that the Strategy has a Strategy Spread of 2%.
As reflected in the table below, there are various values associated with each of your Strategies, and there are related values associated with your entire Contract. This section provides additional detail about each of these values.
In addition to the values included in the table above, your Contract also has a Surrender Value. The Surrender Value is the amount available upon full surrender of the Contract. The Surrender Value is equal to the Modified Contract Value minus any applicable CDSC and after any applicable MVA. We may deduct taxes from the Surrender Value.
See “Appendix B: Modified Strategy Value Formula and Examples” for examples of the Surrender Value calculation.
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STRATEGY VALUE AND CONTRACT VALUE
Strategy Value
The Strategy Value represents, as of a given date during a Strategy Term, the value of a Strategy without taking into account any unrealized Strategy Earnings. The Strategy Value is not a cash value that can be withdrawn. Instead, it is a value that we use to calculate your Term Strategy Earnings, the Strategy Accumulation Value, and the Modified Strategy Value. A Strategy’s Strategy Value only changes when we apply Term Strategy Earnings on a Strategy Term End Date, or when you take a partial withdrawal or transfer amounts in or out of the Strategy.
If the first day of a Strategy Term is the Date of Issue, the Strategy Value equals the portion of the Purchase Payment allocated to the Strategy. If the first day of a Strategy Term is a Contract Anniversary, the Strategy Value is the Strategy Value for the Strategy Account on the previous Strategy Term End Date (if any), minus transfers to other Strategy(s) plus transfers from other Strategy(s).
Each subsequent day during the Strategy Term, the Strategy Value equals:
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Contract Value
Your Contract Value always equals the sum of all your Strategy Values. Like your Strategy Value(s), your Contract Value is not a cash value that can be withdrawn.
STRATEGY ACCUMULATION VALUE AND CONTRACT ACCUMULATION VALUE
Strategy Accumulation Value
The Strategy Accumulation Value is the value of a Strategy if unrealized Strategy Earnings were to be applied to the entire Strategy Value using the Strategy Earnings Percentage (or SEP) as of a given date. The Strategy Accumulation Value is not a cash value that can be withdrawn. The Strategy Accumulation Value is a daily value expressed in dollars that is provided to show how a Strategy is performing throughout a Strategy Term.
Each day during a Strategy Term, the Strategy Accumulation Value is equal to the Strategy Value x (1 + SEP).
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Contract Accumulation Value
Your Contract Accumulation Value always equals the sum of your Strategy Accumulation Values as of a given date. Like your Strategy Accumulation Value(s), your Contract Accumulation Value is not a cash value that may be withdrawn.
MODIFIED STRATEGY VALUE AND MODIFIED CONTRACT VALUE
Modified Strategy Value
The Modified Strategy Value is the maximum Gross Withdrawal that may be taken from a Strategy as of a given date during a Strategy Term. On a Strategy Term End Date, the Modified Strategy Value is equal to your Strategy Value plus any Term Strategy Earnings. On any day other than the Strategy Term End Date, the Modified Strategy Value is equal to your Strategy Value plus any Interim Strategy Earnings that would be applied if you withdrew your entire Strategy Value. You should understand the following:
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On the Strategy Term End Date, your Strategy Value and your Modified Strategy Value will always be the same.
See “Appendix B: Modified Strategy Value Formula and Examples” for the formula we use when calculating the Modified Strategy Value and for examples of the calculation.
Modified Contract Value
Your Modified Contract Value always equals the sum of your Modified Strategy Values as of a given date. Your Modified Contract Value represents the maximum Gross Withdrawal that you may take from your Contract as of a given date.
In order to take the maximum Gross Withdrawal from the Contract, you must fully surrender your Contract. Afull surrender will terminate the Contract.
The Surrender Value is the amount available upon full surrender of the Contract. The Surrender Value is equal to the Modified Contract Value minus any applicable CDSC and plus any applicable MVA. We may deduct taxes from the Surrender Value.
CALCULATION OF STRATEGY EARNINGS
We credit Strategy Earnings to a Strategy on the Strategy Term End Date. We refer to this form of Strategy Earnings as “Term Strategy Earnings.” Term Strategy Earnings represent Strategy Earnings paid on the Strategy Value of a Strategy as of the Strategy Term End Date. Term Strategy Earnings take into account the performance of the Strategy’s Index (except when the Lock-In feature has been exercised or in the event that the Index has been substituted) and the other Crediting Factors over the course of the entire Strategy Term.
We also apply Strategy Earnings to a Strategy when you take a partial withdrawal or full surrender prior to the Strategy Term End Date. We refer to this form of Strategy Earnings as “Interim Strategy Earnings.”
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Interim Strategy Earnings take into account the performance of the Strategy’s Index between the beginning of the Strategy Term and the date on which the partial withdrawal or full surrender was taken (except when the Lock-In feature has been exercised or in the event that the Index has been substituted) and other Crediting Factors.
If you exercise the Lock-In feature for a Strategy, Term Strategy Earnings and Interim Strategy Earnings will take into account the performance of the Strategy’s Index from the beginning of the Strategy Term until the Lock-In Date. See “Calculation of Strategy Earnings – Lock-In.”
All Strategy Earnings may be positive, negative, or equal to zero.
On a Strategy Term End Date, the Term Strategy Earnings that will be applied to a Strategy are equal to the Strategy Value multiplied by the Strategy Earnings Percentage (SEP).
Term Strategy Earnings are always calculated using only the SEP, which differs from Interim Strategy Earnings, which may be calculated using the SEP and/or the Non-Preferred Strategy Earnings Percentage (NSEP), depending on whether or not your gross withdrawal amount exceeds the Remaining Preferred Withdrawal Amount.
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Interim Strategy Earnings represent both:
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As reflected in the three-step process below, Interim Strategy Earnings may be calculated using either the SEP, the NSEP, or both. For a particular Strategy:
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Upon taking a partial withdrawal or full surrender prior to the Strategy Term End Date, we calculate Interim Strategy Earnings (your gains or losses) using the following three-step process:
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Interim Strategy Earnings on a Preferred Withdrawal = SEP x amount of the Preferred Withdrawal attributable to the Strategy / (1 + SEP)
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Interim Strategy Earnings on a Non-Preferred Withdrawal = NSEP x amount of the Non-Preferred Withdrawal attributable to the Strategy / (1 + NSEP)
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Interim Strategy Earnings will impact the amount of Strategy Value that we deduct from your Contract in order to satisfy a withdrawal. When you have a gain, we will deduct less Strategy Value than the amount of the Gross Withdrawal that you requested. When you have a loss, we will deduct more Strategy Value than the amount of the Gross Withdrawal that you requested. In either case, the amount of the Gross Withdrawal that you requested does not change based on the Interim Strategy Earnings. A withdrawal’s impact to the Strategy Value is called the “Net Withdrawal”, which is equal to the amount of the Gross Withdrawal requested minus the Interim Strategy Earnings calculated under the three-step process above.
If you take a withdrawal on the Strategy Term End Date, the withdrawal is processed after any Term Strategy Earnings are applied to your Contract and there will be no Interim Strategy Earnings calculated on the withdrawal. This is because the SEP and NSEP will always equal zero immediately after the Term Strategy Earnings are applied on the Strategy Term End Date.
The three-step process described above is applied on a Strategy by Strategy basis. If you are invested in multiple Strategies, your Strategies will likely have different Remaining Preferred Withdrawal Amounts attributable to each Strategy. As a result, it is unlikely that a partial withdrawal or full surrender will result in the same level of Preferred Withdrawals across your Strategies. A Preferred Withdrawal is proportionately allocated among the Strategies based on the Strategy Accumulation Values at the time of the withdrawal. A Non-Preferred Withdrawal is proportionately allocated among the Strategies based on the Modified Strategy Values at the time of the withdrawal, or if the withdrawal is part Preferred Withdrawal and part Non-Preferred Withdrawal, a Non-Preferred Withdrawal is proportionately allocated among the Strategies based on the Modified Strategy Values that remain after the Preferred Withdrawal is taken.
Examples
The tables below illustrate the calculation of Interim Strategy Earnings applied to a Strategy. In these examples, the partial withdrawal from a Strategy is greater than the Remaining Preferred Withdrawal Amount. A portion of the Gross Withdrawal is a Preferred Withdrawal, and a portion is a Non-Preferred Withdrawal.
Positive Strategy Earnings
Preferred Withdrawal | Interim Strategy (Step One)* | Non- Preferred Withdrawal | Interim Strategy (Step Two)** | Total Interim (Step Three) | ||||
$7,000 | $913 | $4,000 | $364 | $1,277 |
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Negative Strategy Earnings
Preferred Withdrawal | Interim Strategy (Step One)* | Non- Preferred Withdrawal | Interim Strategy (Step Two)** | Total Interim (Step Three) | ||||
$7,000 | -$778 | $4,000 | -$545 | -$1,323 |
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STRATEGY EARNINGS PERCENTAGE (SEP) AND NON-PREFERRED STRATEGY EARNINGS PERCENTAGE (NSEP)
On each day during a Strategy Term, we calculate the SEP and the NSEP for each Strategy. The SEP and NSEP generally change on a day-to-day basis. Neither the SEP nor the NSEP will impact the performance of your Strategy until Strategy Earnings are applied.
SEP
The SEP is the rate of return used to calculate Strategy Earnings when you receive Term Strategy Earnings and when you receive Interim Strategy Earnings on a Preferred Withdrawal. The SEP compares the Adjusted Index Performance to the amount of downside protection provided by a Strategy’s Protection Level, and applies whichever is greater, resulting in gains based on the full AIP or losses subject to the downside protection provided by the Strategy’s Protection Level.
More specifically, the SEP for a Strategy is the greater of (a) the Adjusted Index Performance or (b) the Protection Level minus 100%.
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NSEP
The NSEP is the rate of return used to calculate Strategy Earnings upon a Non-Preferred Withdrawal. Like the SEP, the NSEP compares the AIP to the amount of downside protection provided by the Strategy’s Protection Level; however, the NSEP is different because it prorates (reduces) positive earnings and includes the Non-Preferred Withdrawal Adjustment Percentage when the AIP would result in a loss that exceeds the amount of downside protection provided by the Strategy’s Protection Level.
The NSEP calculation effectively works as follows:
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It’s important to note that while the NSEP can be less than the downside protection provided by a Strategy’s Protection Level, the Protection Level does limit how negative the NSEP can be. The most negative the NSEP could be for a Strategy is: (the Strategy’s Protection Level – 100%) – (Non-Preferred Withdrawal Adjustment Percentage x Strategy Term).
Importantly, your potential maximum amount of loss under the SEP and the NSEP are not the same. Your potential maximum amount of loss under the NSEP will be greater due to the assessment of the Non-Preferred Withdrawal Adjustment Percentage. See “Calculation of Strategy Earnings – Non-Preferred Withdrawal Adjustment Percentage” for additional information.
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The Non-Preferred Withdrawal Adjustment Percentage will only be applicable if the AIP is less than the downside protection provided by the Protection Level (Protection Level minus 100%) when you take a Non-Preferred Withdrawal.
See “Appendix C: Non-Preferred Strategy Earnings Percentage” for the NSEP formula and examples of the NSEP calculation.
NON-PREFERRED WITHDRAWAL ADJUSTMENT PERCENTAGE
The Non-Preferred Withdrawal Adjustment Percentage is a factor in the NSEP formula (see “Appendix C: Non-Preferred Strategy Earnings Percentage” for the NSEP formula). The assessment of the Non-Preferred Withdrawal Adjustment Percentage is the reason why your potential maximum amount of loss under the NSEP is greater than under the SEP. The Non-Preferred Withdrawal Adjustment Percentage is 2%.
We buy various assets to support our obligation to pay the strategy earnings under the contract. When you take a withdrawal before a Strategy’s Strategy Term End Date, we may realize costs associated with changes in the market value of these assets and any unamortized expenses from purchasing these assets. We use the Non-Preferred Withdrawal Adjustment Percentage, when applicable, to take into account the approximate current market value of assets in tandem with the unamortized cost of the purchase of these assets.
The potential impact of the Non-Preferred Withdrawal Adjustment Percentage on the NSEP gradually decreases over the course of a Strategy Term, reaching its least potential impact on the day prior to the Strategy Term End Date. As a result, your maximum amount of loss under the NSEP will gradually decrease as the Strategy Term elapses. Nonetheless, your maximum amount of loss under the NSEP will never be equal to or less than your maximum amount of loss under the SEP.
Based on the NSEP formula, the potential impact of a Non-Preferred Withdrawal Adjustment Percentage within the NSEP formula is directly related to the length of a Strategy Term. For example, if one Strategy has a one-year Strategy Term and another Strategy has a three-year Strategy Term, the potential impact of the Non-Preferred Withdrawal Adjustment Percentage for the three-year Strategy Term is three times greater than for the one-year Strategy Term.
If you do not take any Non-Preferred Withdrawals, the Non-Preferred Withdrawal Adjustment Percentage will not affect your Contract.
ADJUSTED INDEX PERFORMANCE (AIP)
Each day during a Strategy Term, including the Strategy Term End Date, we calculate the AIP. The AIP is calculated for each Strategy using the Index Performance, the Participation Rate, and the Strategy Spread. The AIP generally changes on a day-to-day basis. The AIP does not directly affect your Strategy Earnings. Rather the AIP is used in the calculation of the Strategy Earnings Percentage (or SEP) and the Non-Preferred Strategy Earnings Percentage (or NSEP).
The AIP for a Strategy is calculated as follows: (Index Performance x Participation Rate) – (Strategy Spread x Elapsed Term).
For example, if a Strategy with a 1-year Strategy Term has a Participation Rate of 120% and a Strategy Spread of 2%:
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You should understand that the AIP does not equal the percentage change in the value of Strategy’s Index between the beginning of a Strategy Term and a future date during the Strategy Term. Instead, the AIP represents an adjusted Index Performance since it reflects the impact of the Participation Rate and the Strategy Spread.
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Each day during a Strategy Term, including the Strategy Term End Date, we calculate the Index Performance. We calculate the Index Performance for a Strategy on a point-to-point basis, and the Index Performance generally fluctuates day to day. Use of a point-to-point calculation results in Index Performance being calculated at a single point in time, even for a Strategy with a three-year Strategy Term. As a result, you may experience negative or flat performance even when the Index experienced gains through some, or most, of the Strategy Term or prior to a withdrawal.
While the Index Performance is important to the amount of Strategy Earnings that are ultimately applied to a Strategy, you should understand that we do not calculate Strategy Earnings based solely on the Index Performance. Rather, the Index Performance is used in the calculation of the AIP.
We calculate the Index Performance for a Strategy as follows:
Index Performance = (A – B) / B, where:
A = Index Value on that specific date during the Strategy Term
B = Index Value on the first day of a Strategy Term
For example, if the Index Value on the first and last day of a Strategy Term equals 1,000 and 1,100, respectively, the Index Performance between those two dates equals +10% (i.e., (1,100 – 1,000) / 1,000). Conversely, if the Index Value on the first and last day of a Strategy Term equals 1,000 and 900, respectively, the Index Performance between those two dates equals -10% (i.e., ((900 –1,000) / 1,000).
If an Index Value is not provided to us by an Index provider or is otherwise unavailable on a Business Day, the Index Value will be the closing value of the Index for the previous Business Day.
As described under “Crediting Factors – Indexes,” there are circumstances under which we may substitute an Index during a Strategy Term. If we substitute an Index during a Strategy Term, we will calculate the Index Performance for the old Index between the first day of the Strategy Term (or the first day on which the old Index was used, whichever is later) until the date of substitution. After the date of substitution, we will calculate the Index Performance for the new Index from the date of substitution until the calculation date. We will then add the Index Performance for the old Index (which may be positive, negative, or equal to zero) to the Index Performance of the new Index (which may be positive, negative, or equal to zero).
For any Strategy, on any Business Day prior to the Strategy Term End Date, you may lock in the Index Value for that Strategy. The locked-in Index Value will be used for purposes of calculating the Index Performance for the remainder of the Strategy Term. As a result, the Index Performance will not change for the remainder of the Strategy Term. If you are simultaneously invested in the same Strategy for Strategy Terms that began on different dates, those investments will be considered separate Strategies.
For example, if the Index Value on the first day of a Strategy Term equals 1,000, and then on a given day during the Strategy Term, you lock-in an Index Value of 1,100, your Index Performance will be +10% for the remainder of the Strategy Term, even if the Index is later valued during the Strategy Term at an amount greater than 1,100 or less than 1,100.
For each Strategy, the Lock-In feature may be exercised only once during a Strategy Term. If you have multiple Strategies, you may exercise the Lock-In feature for any, all, or none of the Strategies during their respective Strategy Terms, and you may exercise the Lock-In feature at different times during the Strategies’ respective Strategy Terms. Exercise of the Lock-In feature is irrevocable.
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To exercise the Lock-In feature for a Strategy, you must submit a request to our Solutions Center. If we receive your request prior to the close of business on a Business Day, we will lock-in the Index Value for that Strategy calculated on that Business Day as of the close of business. If we receive your request on a non-Business Day, or after the close of a Business Day, we will lock in the Index Value for that Strategy calculated on the next Business Day as of the close of business.
If the Index for a Strategy is substituted after you exercise the Lock-In feature for that Strategy, as described under “Crediting Factors – Index,” changes in the value of the new Index will not impact your Strategy. We will use the Index Performance for the old Index as of the Lock-In Date for purposes of calculating your Strategy Earnings. That Index Performance will not change under any circumstances for the remainder of the Strategy Term.
You should fully understand the risks associated with the Lock-In feature. See “Risk Factors – Lock-In Risk.”
At any time prior to the Annuitization Date, you may take a partial withdrawal or fully surrender the Contract.
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If you are invested in multiple Strategies at the time that you request a partial withdrawal, you cannot select the specific Strategy(s) from which a partial withdrawal is to be taken. The withdrawal is allocated so that after the withdrawal is processed, the Strategy Values are allocated in the same proportion as before the withdrawal. This is described under “Preferred Withdrawals and Non-Preferred Withdrawals” below.
You should carefully consider the consequences of taking withdrawals greater than the Preferred Withdrawal Amount (referred to as Non-Preferred Withdrawals) before you purchase the Contract, as they may be subject to CDSCs and MVAs, and the earnings calculation applicable to these withdrawals is less advantageous to you than the earnings calculation applicable to Preferred Withdrawals.
You must submit a request for a partial withdrawal or full surrender to our Solutions Center. We will not process a request until it is received by us in good order. We will not consider the request to be in good order unless the request (i) is in writing or another form that we deem acceptable and (ii) includes all the information necessary for us to process the request.
We reserve the right to:
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If you wish to fully surrender the Contract, you will receive the Surrender Value. The Surrender Value equals your Modified Contract Value minus any applicable CDSC and after the application of any MVA. We may also deduct taxes from the amount payable to you.
Nationwide may treat a request for a partial withdrawal as a request for a full surrender of the Contract if the following three criteria exist: (i) any portion of the partial withdrawal is a Non-Preferred Withdrawal; (ii) the partial withdrawal would reduce the Contract Value to an amount less than $5,000; and (iii) the Purchase Payment minus the sum of any Gross Withdrawals since the Date of Issue is less than $5,000.
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GROSS WITHDRAWALS, NET WITHDRAWALS, AND CASH WITHDRAWALS
When you take a partial withdrawal or full surrender, we calculate the Gross Withdrawal(s), Net Withdrawal(s), and Cash Withdrawal(s) associated with that transaction.
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When you take a partial withdrawal, you must indicate the dollar amount of the withdrawal. You must also indicate whether that dollar amount should be taken in the form of a Gross Withdrawal or a Cash Withdrawal under the Contract.
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PREFERRED WITHDRAWALS AND NON-PREFERRED WITHDRAWALS
General
Preferred Withdrawals are not subject to any CDSC or MVA, and Interim Strategy Earnings for a Preferred Withdrawal are calculated using the Strategy Earnings Percentage (SEP).
Non-Preferred Withdrawals may be subject to CDSCs and MVAs, and Interim Strategy Earnings for a Non-Preferred Withdrawal are calculated using the Non-Preferred Strategy Earnings Percentage (or NSEP).
Each Contract Year, your total Gross Withdrawals (if any) up to your Preferred Withdrawal Amount will be treated as Preferred Withdrawals. Any Gross Withdrawal in excess of your Preferred Withdrawal Amount will be treated as a Non-Preferred Withdrawal.
At any given time during a Contract Year, your Remaining Preferred Withdrawal Amount represents the total amount of Gross Withdrawals that may be taken from your Contract during the remainder of the Contract Year as Preferred Withdrawals. If only a portion of a Gross Withdrawal exceeds your Remaining Preferred Withdrawal Amount, the amounts up to the Remaining Preferred Withdrawal Amount will be treated as a Preferred Withdrawal and the excess portion will be treated as a Non-Preferred Withdrawal.
You should carefully consider the consequences of taking Non-Preferred Withdrawals, as these withdrawals may be subject to CDSCs and MVAs. In addition, when you take a Non-Preferred Withdrawal prior to the Strategy Term End Date, we use the NSEP rather than the SEP to calculate Interim Strategy Earnings. The NSEP formula is typically less advantageous to you than the SEP formula, which is used to calculate any Interim Strategy Earnings when you take a Preferred Withdrawal.
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Calculating the Preferred Withdrawal Amount and the Remaining Preferred Withdrawal Amount
At the beginning of each Contract Year prior to the Annuitization Date, your Preferred Withdrawal Amount for that Contract Year will be the greater of (1) your Contract Value at the beginning of the Contract Year (immediately prior to any partial withdrawal or full surrender on such day) multiplied by the applicable Preferred Withdrawal Percentage, or (2) the amount required to meet minimum distribution requirements for this Contract under the Code. The table below sets forth the Preferred Withdrawal Percentages under the Contract. The applicable Preferred Withdrawal Percentage will depend on the number of completed Contract Years. As reflected in the table below, the Preferred Withdrawal Percentage increases after you have completed six Contract Years.
Number of Completed Contract Years | Preferred Withdrawal Percentage | |
0 | 7.00% | |
1 | 7.00% | |
2 | 7.00% | |
3 | 7.00% | |
4 | 7.00% | |
5 | 7.00% | |
6+ | 10.00% |
On any day during a Contract Year, your Remaining Preferred Withdrawal Amount equals the Preferred Withdrawal Amount for that Contract Yearminus the total dollar amount of all Gross Withdrawals already taken during the Contract Year. The Remaining Preferred Withdrawal Amount will never be less than zero.
Each Contract Year’s Preferred Withdrawal Amount is non-cumulative. If you have a Remaining Preferred Withdrawal Amount greater than zero at the end of a Contract Year, that Remaining Preferred Withdrawal Amount will not be added to your Preferred Withdrawal Amount for the next Contract Year or any later Contract Year. Each Gross Withdrawal during a Contract Year will decrease your Preferred Withdrawal Amount dollar-for-dollar.
Preferred Withdrawals and Non-Preferred Withdrawals at a Strategy Level
When you take a withdrawal, we determine how the Gross Withdrawal is allocated among your Strategies based on whether the withdrawal is a Preferred Withdrawal and/or Non-Preferred Withdrawal. A Preferred Withdrawal is proportionately allocated among the Strategies based on the Strategy Accumulation Values at the time of the withdrawal. A Non-Preferred Withdrawal is proportionately allocated among the Strategies based on the Modified Strategy Values at the time of the withdrawal, or if the withdrawal is part Preferred Withdrawal and part Non-Preferred Withdrawal, a Non-Preferred Withdrawal is proportionately allocated among the Strategies based on the Modified Strategy Values that remain after the Preferred Withdrawal is taken.
Withdrawals are proportioned differently among the Strategies for Preferred Withdrawals and Non-Preferred Withdrawals as a result of the different Interim Strategy Earnings calculations used for Preferred Withdrawals and Non-Preferred Withdrawals. Interim Strategy Earnings on a Preferred Withdrawal use the SEP, and Interim Strategy Earnings on Non-Preferred Withdrawals use the NSEP.
After a withdrawal is processed, the Strategy Values will be allocated in the same proportion as before the withdrawal.
More specifically, when you take a withdrawal, we determine the Preferred Withdrawal and Non-Preferred Withdrawal amounts attributable to each Strategy using the following two-step process:
Step One– We first determine the portion of the Preferred Withdrawal attributable to each Strategy as follows:
Portion of a Preferred Withdrawal attributable to a Strategy = A x B / C, where:
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Step Two– We next determine the portion of the Non-Preferred Withdrawal attributable to each Strategy as follows:
Portion of a Non-Preferred Withdrawal attributable to a Strategy = A x (B – C) / (D – E), where:
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See “Appendix D: Withdrawal Examples” for examples of Preferred Withdrawals and Non-Preferred Withdrawals.
CONTINGENT DEFERRED SALES CHARGE AND MARKET VALUE ADJUSTMENT
CONTINGENT DEFERRED SALES CHARGE
When you take a Non-Preferred Withdrawal under the Contract during the first six Contract Years, the Non-Preferred Withdrawal will be subject to a Contingent Deferred Sales Charge (CDSC). After the sixth Contract Year, no withdrawals will be subject to a CDSC. A CDSC always has the effect of reducing your Cash Withdrawal. We will never apply a CDSC to a Preferred Withdrawal.
When a CDSC is imposed, the CDSC will equal the CDSC Base x CDSC Percentage.
The CDSC Base will equal the dollar amount of the Non-Preferred Withdrawal. If only a portion of a Gross Withdrawal is treated as a Non-Preferred Withdrawal, the CDSC Base will equal the portion of the Gross Withdrawal that is a Non-Preferred Withdrawal.
The CDSC Percentage will depend on the number of Contract Years you have completed when you take a Non-Preferred Withdrawal. The CDSC Percentage schedule is set forth below. The CDSC Percentage schedule starts at 6.00% and declines with each completed Contract Year until it reaches 0% after six completed Contract Years.
Number of Completed Contract Years | CDSC Percentage (as a percentage of the CDSC Base) | |
0 | 6.00% | |
1 | 5.00% | |
2 | 4.00% | |
3 | 3.00% | |
4 | 2.00% | |
5 | 1.00% | |
6+ | 0.00% |
No CDSC is charged on the payment of the Death Benefit, any partial withdrawals or full surrender after the Death Benefit is paid, or annuity payments made after Annuitization Date.
CDSCs are intended to reimburse us for expenses that we incur in connection with the sale of the Contract.
When you take a Non-Preferred Withdrawal during the MVA Period, which is the first six Contract Years, the Non-Preferred Withdrawal will be subject to a Market Value Adjustment (MVA). After the sixth Contract Year, Non-Preferred Withdrawals will not be subject to MVAs. We will never apply an MVA to a Preferred Withdrawal.
An MVA, when applied, may be positive, negative, or equal to zero. If an MVA is negative, it will decrease your Cash Withdrawal. If an MVA is positive, it will increase your Cash Withdrawal. If an MVA is equal to zero, it will have no effect on your Cash Withdrawal.
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The MVA is intended to approximate, without duplicating, our experience when we liquidate fixed-income assets in order to satisfy our payment obligations under the Contract. We utilize a market value reference rate to determine this approximation. When liquidating assets, Nationwide may realize either a gain or a loss. If the market value reference rate has increased relative to the market value reference rate on the Date of Issue, the MVA will be negative. Conversely, if the market value reference rate has decreased relative to the market value reference rate on the Date of Issue, the MVA will be positive.
When an MVA is imposed, the MVA will equal the MVA Base x MVA Factor.
In the formula above, the MVA Base equals the dollar amount of the Non-Preferred Withdrawal. If only a portion of a Gross Withdrawal is treated as a Non-Preferred Withdrawal, the MVA Base will equal the portion of the Gross Withdrawal that is a Non-Preferred Withdrawal.
We calculate the MVA Factor using the following formula:
MVA Factor = MVA Scaling Factor x (A – B) x N/12, where:
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In the formula above, the MVA Scaling Factor will be greater or less than, or equal to, 1.0. The MVA Scaling Factor is declared by Nationwide and is included in your Contract. Within the formula, the MVA Scaling Factor serves to amplify or dampen the MVA Factor for purposes of the MVA calculation. An MVA Scaling Factor greater than 1.0 increases the magnitude of the MVA, an MVA Scaling Factor less than 1.0 dampens the magnitude of the MVA. An MVA Scaling Factor equal to 1 has no effect on the MVA.
The Market Value Reference Rate refers to the yield of the MVA Index, which is the Bloomberg Barclays U.S. Corporate Index. The Market Value Reference Rate of the MVA Index as of the Date of Issue (the Initial Market Value Reference Rate) is included in your Contract. The daily Market Value Reference Rate may be obtained thereafter by contacting the Solutions Center. If the daily Market Value Reference Rate is not available on any day on which the value is needed, we will use the Market Value Reference Rate for the previous Business Day.
If the Market Value Reference Rate is no longer available, or if we at our sole discretion determine that the Market Value Reference Rate is no longer appropriate for purposes of calculating the MVA, we will substitute another method for determining the MVA, subject to any required regulatory approval. We will notify you of any such change.
See “Appendix E: MVA Examples” for examples of the MVA calculation.
WAIVER OR REDUCTION OF THE CDSC OR MVA
Nationwide may waive (or reduce) any applicable CDSC and waive some or part of the MVA for the following transactions:
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INCREASE IN REMAINING PREFERRED WITHDRAWAL AMOUNT AFTER A LONG-TERM CARE AND TERMINAL ILLNESS OR INJURY (CDSC AND MVA WAIVER)
General
After the occurrence of a Long-Term Care Event (“LTC Event”) or Terminal Illness or Injury Event (“TI Event”) all partial withdrawals and any full surrender will be treated entirely as Preferred Withdrawals (thereby requiring us to waive any otherwise applicable CDSCs and MVAs). This CDSC and MVA waiver is only available if the Contract Owner and Annuitant are the same person, and as of the Date of Issue that person is no older than 80 years old.
In addition, for purposes of this CDSC and MVA waiver, if the Contract Owner is not a natural person, we will treat the Annuitant as the Contract Owner.
There are no charges associated with these waivers.
Long-Term Care Event
An LTC Event occurs if at any time after the first Contract Anniversary, the Contract Owner (or Annuitant if the Contract Owner is not a natural person) is confined to a Long-Term Care Facility or Hospital beginning after the Date of Issue and is confined for a continuous period of 90 days or more. If there is a Joint Owner, the confinement of the Contract Owner or Joint Owner may qualify as an LTC Event. An LTC Event waiver claim (including written proof of confinement) must be received by us while the confinement is ongoing or within 90 days after the confinement ends. If it was not reasonably possible to give written proof of confinement in the time required, we will not reduce or deny the waiver if such proof is given as soon as reasonably possible. In any event, the written proof required must be given no later than one year from after the confinement ends unless the Contract Owner was legally incapacitated.
A “Hospital” is defined as a state licensed facility which is operated as a hospital according to the law of the jurisdiction in which it is located; operates primarily for the care and treatment of sick or injured persons as inpatients; provides continuous 24 hours a day nursing service by or under the supervision of a registered graduate professional nurse (R.N.) or a licensed practical nurse (L.P.N.); is supervised by a staff of physicians; and has medical and diagnostic facilities.
A “Long-Term Care Facility” is defined as a state licensed skilled nursing facility or intermediate care facility that does not include: a home for the aged or mentally ill, a community living center, or a place that primarily provides domiciliary, residency, or retirement care; or a place owned or operated by a member of the Contract Owner’s immediate family.
Terminal Illness or Injury Event
A TI Event occurs if at any time after the first Contract Anniversary, the Contract Owner (or Annuitant if the Contract Owner is not a natural person) is diagnosed by a physician (who is not a party to the Contract nor an immediate family member of a party to the Contract) as having a Terminal Illness or Injury beginning after the Date of Issue. If there is a Joint Owner, the Terminal Illness or Injury of the Contract Owner or Joint Owner may qualify as a TI Event.
A “Terminal Illness or Injury” is defined as an illness or injury diagnosed after the Date of Issue by a physician that is expected to result in death within 12 months of diagnosis.
DEATH BENEFIT AND SUCCESSION RIGHTS
Death of Contract Owner who is not the Annuitant
If the deceased Contract Owner (or Joint Owner) is not an Annuitant, and the deceased Contract Owner (or Joint Owner) dies before the Annuitization Date while the Contract is in force, no Death Benefit is payable. Under such circumstances, contractual rights under the Contract will succeed as follows:
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Death of Contract Owner who is the Annuitant
If the deceased Contract Owner (or Joint Owner) is an Annuitant, and the deceased Contract Owner (or Joint Owner) dies before the Annuitization Date while the Contract is in force, the Death Benefit may or may not become payable depending on whether there is a Contingent Annuitant.
If there is Contingent Annuitant, the Contingent Annuitant takes the place of the deceased Annuitant under the Contract and no Death Benefit is payable. There will no longer be a Contingent Annuitant under the Contract.
If there is no Contingent Annuitant, the Death Benefit becomes payable. Rights to the Death Benefit will be as follows:
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Death of Annuitant who is not the Contract Owner
If the deceased Annuitant is not the Contract Owner (or Joint Owner), and the deceased Annuitant dies before the Annuitization Date while the Contract is in force, the Death Benefit may or may not become payable depending on whether there is a Contingent Annuitant.
If there is a Contingent Annuitant, the Contingent Annuitant takes the place of the deceased Annuitant under the Contract and no Death Benefit is payable. The Contract otherwise continues without interruption and there will no longer be a Contingent Annuitant under the Contract.
If there is no Contingent Annuitant, the Death Benefit becomes payable. Rights to the Death Benefit will be as follows:
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After the Annuitization Date, under no circumstances will the Death Benefit become payable. All payments under the Contract depend on the annuity payment option selected.
When the Death Benefit becomes payable, we will not pay the Death Benefit until we receive in writing at our Solutions Center each of the following:
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Proper proof of death includes:
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The methods of distribution depend on the person (or people) to whom the Death Benefit will be paid. Under all circumstances, the method of distribution selected must comply with any applicable requirements under the Code.
The following applies to the payment of the Death Benefit:
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If the Contract has more than one Beneficiary entitled to the Death Benefit, the Contract Value will continue to be allocated to the applicable Strategies until the first Beneficiary provides Nationwide with all the information necessary to pay that Beneficiary’s portion
If any Beneficiary entitled to receive the Death Benefit elects to continue the Contract as the new owner or becomes a beneficial owner of the Contract, the Beneficiary’s entire portion of the Death Benefit will be automatically reallocated to the default option identified in the Contract. This reallocation to the default option will occur on the date the Beneficiary’s election is received in good order. The default option’s Strategy Term will begin on the date the Beneficiary’s portion of the Death Benefit is reallocated to the default option. The Crediting Factors applicable to the default option will be the new business Crediting Factors in effect on the date the Beneficiary’s portion of the Death Benefit is reallocated to the default option. Thereafter, any partial withdrawal or full surrender is treated as a Preferred Withdrawal.
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The Transition Account is a short-term liquid investment account. We establish interest rates for all amounts in the Transition Account on a monthly basis, but we do not guarantee any specific minimum rate. The Transition Account is not designed for long-term investing. The Contract Owner cannot elect to allocate Contract Value to the Transition Account. Withdrawals from the Transition Account are not subject to any CDSCs or MVAs. The value in the Transition Account will equal the amount of the Death Benefit transferred into the Transition Account plus any interest credited to the Transition Account minus any amounts withdrawn from the Transition Account.
ContentsCALCULATION OF THE DEATH BENEFIT
Except as provided below, the Death Benefit will equal the Contract Accumulation Value as of the date the Death Benefit becomes payable. The Strategy Value for each Strategy is adjusted to equal its Strategy Accumulation Value on that date, and as a result, the Contract Value is adjusted to equal the Contract Accumulation Value on that date. The Contract Accumulation Value may be less than, greater than, or equal to your Contract Value.
If the Contract Owner is changed, or if the Contract is assigned, prior to the Death Benefit becoming payable, the Death Benefit will equal the Surrender Value rather than the Contract Accumulation Value, except in any of the following circumstances:
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Taxes may be deducted from the Death Benefit in all circumstances.
Annuity Commencement Date
The Annuity Commencement Date is the date on which annuity payments are scheduled to begin. Generally, the Contract Owner designates the Annuity Commencement Date at the time of application. If no Annuity Commencement Date is designated at the time of application, Nationwide will establish the Annuity Commencement Date as the date the Annuitant reaches age 90. The Contract Owner may initiate a change to the Annuity Commencement Date at any time. Additionally, Nationwide will notify the Contract Owner approximately 90 days before the impending Annuity Commencement Date of the opportunity to change the Annuity Commencement Date or annuitize the contract.
Any request to change the Annuity Commencement Date must meet the following requirements:
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Generally, Nationwide will not initiate annuitization until specifically directed to do so. However, for Non-Qualified Contracts only, Nationwide will automatically initiate annuitization within 45 days after the Annuity Commencement Date (whether default or otherwise), unless (1) Nationwide has had direct contact with the Contract Owner (indicating that the contract is not abandoned); or (2) the Contract Owner has taken some type of action which is inconsistent with the desire to annuitize.
Annuitization
Annuitization is the period during which annuity payments are received. Annuitization is irrevocable once annuity payments have begun. Upon Annuitization Date, the Annuitant must elect an annuity payment option.
Annuity purchase rates are used to determine the amount of the annuity payments based upon the annuity payment option elected. Actual purchase rates used to determine annuity payments will be those in effect on the Annuitization Date. Annuity benefits at the time of their commencement will not be less than those that would be provided by the application of the Surrender Value to purchase a single premium immediate annuity contract at purchase rates offered by Nationwide at the time to the same class of annuitants.
Fixed Annuity Payments
Fixed annuity payments provide for level annuity payments. Premium taxes are deducted prior to determining fixed annuity payments. The fixed annuity payments will remain level unless the annuity payment option provides otherwise.
Frequency and Amount of Payments
Annuity payments are based on the annuity payment option elected.
If the net amount to be annuitized is less than $2,000, Nationwide reserves the right to pay this amount in a lump sum instead of periodic annuity payments.
Nationwide reserves the right to change the frequency of payments if the amount of any payment becomes less than $100. The payment frequency will be changed to an interval that will result in payments of at least $100. Nationwide will send annuity payments no later than 10 Business Days after each annuity payment date.
Annuity Payment Options
The Annuitant must elect an annuity payment option before the Annuitization Date. If the Annuitant does not elect an annuity payment option, the fixed single life annuity with 240 monthly payments guaranteed annuity payment option will be assumed as the automatic form of payment upon annuitization. Once elected or assumed, the annuity payment option may not be changed.
Not all of the annuity payment options may be available in all states. Additionally, the annuity payment options available may be limited based on the Annuitant’s age (and the joint annuitant’s age, if applicable) or requirements under the Code.
Nationwide reserves the right to refuse any purchase payment that would result in the cumulative total for all contracts issued by Nationwide on the life of any one Annuitant or owned by any one Contract Owner to exceed $1,000,000. If a Contract Owner does not submit purchase payments in excess of $1,000,000, or if Nationwide has refused to accept purchase payments in excess of $1,000,000, the references in this provision to purchase payments in excess of $1,000,000 will not apply. If the Contract Owner is permitted to submit purchase payments in excess of $1,000,000, additional restrictions apply, as follows.
Annuity Payment Options for Contracts with Total Purchase Payments and/or Surrender Value Annuitized Less Than or Equal to $2,000,000
If, at the Annuitization Date, the total of the purchase payment made to the contract and/or the Surrender Value annuitized is less than or equal to $2,000,000, the annuity payment options available are:
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Each of the annuity payment options is discussed more thoroughly below.
Single Life
The single life annuity payment option provides for annuity payments to be paid during the lifetime of the Annuitant. This option is not available if the Annuitant is 86 or older on the Annuitization Date.
Payments will cease with the last payment before the Annuitant’s death. For example, if the Annuitant dies before the second annuity payment date, the Annuitant will receive only one payment. The Annuitant will only receive two annuity payments if he or she dies before the third payment date, and so on. No death benefit will be paid.
No withdrawals other than the scheduled annuity payments are permitted.
Joint and Survivor
The joint and survivor annuity payment option provides for annuity payments to continue during the joint lifetimes of the Annuitant and joint annuitant. After the death of either the Annuitant or joint annuitant, payments will continue for the life of the survivor. This option is not available if the Annuitant or joint annuitant is 86 or older on the Annuitization Date.
Payments will cease with the last payment due prior to the death of the last survivor of the Annuitant and joint annuitant. As is the case of the single life annuity payment option, there is no guaranteed number of payments. Therefore, it is possible that if the Annuitant dies before the second annuity payment date, the Annuitant will receive only one annuity payment. No death benefit will be paid.
No withdrawals other than the scheduled annuity payments are permitted.
Single Life with a 10 or 20 Year Term Certain
The single life with a 10 or 20 year term certain annuity payment option provides that monthly annuity payments will be paid during the Annuitant’s lifetime or for the term selected, whichever is longer. The term may be either 10 or 20 years.
If the Annuitant dies before the end of the 10 or 20 year term, payments will be paid to the beneficiary for the remainder of the term.
No withdrawals other than the scheduled annuity payments are permitted.
Any Other Option
Annuity payment options not set forth in this provision may be available. Any annuity payment option not set forth in this provision must be approved by Nationwide.
Annuity Payment Options for Contracts with Total Purchase Payments and/or Surrender Value Annuitized Greater Than $2,000,000
If, at the Annuitization Date, the total of the purchase payment made to the contract and/or the Surrender Value to be annuitized is greater than $2,000,000, Nationwide may limit the annuity payment option to the longer of:
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Annuitization of Amounts Greater than $5,000,000
Additionally, Nationwide may limit the amount that may be annuitized on a single life to $5,000,000. If the total amount to be annuitized is greater than $5,000,000 under this contract and/or for all Nationwide issued annuity contracts with the same Annuitant, the Contract Owner must:
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CONTRACT TYPES AND FEDERAL TAX CONSIDERATIONS
Types of Contracts
The contracts described in this prospectus are classified according to the tax treatment to which they are subject under the Code. Following is a general description of the various contract types. Eligibility requirements, tax benefits (if any), limitations, and other features of the contracts will differ depending on contract type.
Non-Qualified Contracts
A Non-Qualified Contract is a contract that does not qualify for certain tax benefits under the Code, such as deductibility of purchase payments, and which is not an IRA, Roth IRA, SEP IRA, or Simple IRA.
Upon the death of the owner of a Non-Qualified Contract, mandatory distribution requirements are imposed to ensure distribution of the entire balance in the contract within a required period.
Non-Qualified Contracts that are owned by natural persons allow the deferral of taxation on the income earned in the contract until it is distributed or deemed to be distributed. Non-Qualified Contracts that are owned by non-natural persons, such as trusts, corporations, and partnerships are generally subject to current income tax on the income earned inside the contract, unless the non-natural person owns the contract as an agent of a natural person.
Charitable Remainder Trusts
Charitable Remainder Trusts are trusts that meet the requirements of Section 664 of the Code. Non-Qualified Contracts that are issued to Charitable Remainder Trusts will differ from other Non-Qualified Contracts in three respects:
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While these provisions are intended to facilitate a Charitable Remainder Trust’s ownership of this contract, the rules governing Charitable Remainder Trusts are numerous and complex. A Charitable Remainder Trust that is considering purchasing this contract should seek the advice of a qualified tax and/or financial advisor prior to purchasing the contract. An annuity that has a Charitable Remainder Trust endorsement is not a Charitable Remainder Trust; the endorsement is merely to facilitate ownership of the contract by a Charitable Remainder Trust.
Individual Retirement Annuities (IRAs)
IRAs are contracts that satisfy the provisions of Section 408(b) of the Code, including the following requirements:
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Depending on the circumstance of the owner, all or a portion of the contributions made to the account may be deducted for federal income tax purposes.
IRAs may receive rollover contributions from other individual retirement accounts, other individual retirement annuities, tax sheltered annuities, certain 457 governmental plans, and qualified retirement plans (including 401(k) plans).
When the owner of an IRA attains the age of 701⁄2, the Code requires that certain minimum distributions be made. In addition, upon the death of the owner of an IRA, mandatory distribution requirements are imposed by the Code to ensure distribution of the entire contract value within the required statutory period. Due to recent changes in Treasury Regulations, the amount used to compute the mandatory distributions may exceed the contract value.
Failure to make the mandatory distributions can result in an additional penalty tax of 50% of the excess of the amount required to be distributed over the amount that was actually distributed.
For further details regarding IRAs, refer to the disclosure statement provided when the IRA was established and the annuity contract’s IRA endorsement.
As used herein, the term _individual retirement plans_ shall refer to both individual retirement annuities and individual retirement accounts that are described in Section 408 of the Code.
One-Rollover-Per-Year Limitation
A contract owner can receive a distribution from an IRA and roll it into another IRA within 60 days from the date of the distribution and not have the amount of the distribution included in taxable income. Only one rollover per year from a contract owner’s IRA is allowed. The one year period begins on the date the contract owner receives the IRA distribution, and not on the date the IRA was rolled over. The Internal Revenue Service (IRS) has interpreted this one-rollover-per-year limitation as applying separately to each IRA a contract owner owns.
However, on March 20, 2014, the IRS issued Announcement 2014-15 in which it decided to follow the Tax Court’s interpretation of the one rollover per year rule in the Bobrow case. In Bobrow, the Tax Court interpreted the one-rollover-per-year limitation as applying in the aggregate to all the IRAs that a taxpayer owns. This means that a contract owner cannot make an IRA rollover distribution if, within the previous one year period, an IRA rollover distribution was taken from any other IRAs owned. Also, rollovers between an individual’s Roth IRAs would prevent a separate rollover within the 1-year period between the individual’s traditional IRAs, and vice versa. The IRS began applying this new interpretation to any IRA rollover distribution that occurs on or after January 1, 2015.
Direct transfers IRA funds between IRA trustees are not subject to the one rollover per year limitation because such transfers are not considered rollover distributions. Also, a rollover from a traditional IRA to a Roth IRA (a conversion) is not subject to the one roll over per year limitation, and such a rollover is disregarded in applying the one rollover per year limitation to other rollovers.
Roth IRAs
Roth IRA contracts are contracts that satisfy the provisions of Section 408A of the Code, including the following requirements:
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A Roth IRA can receive a rollover from an individual retirement plan or another eligible retirement plan; however, the amount rolled over from the individual retirement plan or other eligible retirement plan to the Roth IRA is required to be included in the owner’s federal gross income at the time of the rollover, and will be subject to federal income tax. However, a rollover or conversion of an amount from an IRA or eligible retirement plan after December 31, 2017 cannot be recharacterized back to an IRA.
For further details regarding Roth IRAs, please refer to the disclosure statement provided when the Roth IRA was established and the annuity contract’s IRA endorsement.
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Simplified Employee Pension IRAs (SEP IRA)
A SEP IRA is a written plan established by an employer for the benefit of employees which permits the employer to make contributions to an IRA established for the benefit of each employee.
An employee may make deductible contributions to a SEP IRA subject to the same restrictions and limitations as an IRA. In addition, the employer may make contributions to the SEP IRA, subject to dollar and percentage limitations imposed by both the Code and the written plan.
A SEP IRA plan must satisfy:
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In addition, the plan cannot restrict withdrawals of non-elective contributions, and must restrict withdrawals of elective contributions before March 15th of the following year.
When the owner of a SEP IRA attains the age of 701⁄2, the Code requires that certain minimum distributions be made. Due to recent changes in Treasury Regulations, the amount used to compute the minimum distributions may exceed the contract value. In addition, upon the death of the owner of a SEP IRA, mandatory distribution requirements are imposed by the Code to ensure distribution of the entire contract value within the required statutory period.
Simple IRAs
A Simple IRA is an Individual Retirement Annuity that is funded exclusively by a qualified salary reduction arrangement and satisfies:
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The funds contributed to a Simple IRA cannot be commingled with funds in other individual retirement plans or SEP IRAs.
A Simple IRA cannot receive rollover distributions except from another Simple IRA.
When the owner of a Simple IRA attains the age of 701⁄2, the Code requires that certain minimum distributions be made. Due to recent changes in Treasury Regulations, the amount used to compute the minimum distributions may exceed the contract value. In addition, upon the death of the owner of a Simple IRA, mandatory distribution requirements are imposed by the Code to ensure distribution of the entire contract value within the required statutory period.
Investment Only (Qualified Plans)
Contracts that are owned by Qualified Plans are not intended to confer tax benefits on the beneficiaries of the plan; they are used as investment vehicles for the plan. The income tax consequences to the beneficiary of a Qualified Plan are controlled by the operation of the plan, not by operation of the assets in which the plan invests.
Beneficiaries of Qualified Plans should contact their employer and/or trustee of the plan to obtain and review the plan, trust, summary plan description and other documents for the tax and other consequences of being a participant in a Qualified Plan.
Federal Tax Considerations
The tax consequences of purchasing a contract described in this prospectus will depend on:
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SeeSynopsis of the Contracts for a brief description of the various types of contracts and the different purposes for which the contracts may be purchased.
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Existing tax rules are subject to change, and may affect individuals differently depending on their situation. Nationwide does not guarantee the tax status of any contracts or any transactions involving the contracts.
If the contract is purchased as an investment of certain retirement plans (such as qualified retirement plans, IRAs, and custodial accounts as described in Sections 401, 408(a), and 403(b)(7) of the Internal Revenue Code), the tax advantages enjoyed by the contract owner and/or annuitant may relate to participation in the plan rather than ownership of the annuity contract. Such plans are permitted to purchase investments other than annuities and retain tax-deferred status.
The following is a brief summary of some of the federal income tax considerations related to the contracts. In addition to the federal income tax, distributions from annuity contracts may be subject to state and local income taxes. The tax rules across all states and localities are not uniform and therefore will not be discussed in this prospectus. Tax rules that may apply to contracts issued in U.S. territories such as Puerto Rico and Guam are also not discussed. Nothing in this prospectus should be considered to be tax advice. Contract owners and prospective contract owners should consult a financial consultant, tax advisor or legal counsel to discuss the taxation and use of the contracts.
The Internal Revenue Code sets forth different income tax rules for the following types of annuity contracts:
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IRAs, SEP IRAs and Simple IRAs
Distributions from IRAs, SEP IRAs and Simple IRAs are generally taxed when received. If any portion of the amount contributed to the IRA was nondeductible for federal income tax purposes, then a portion of each distribution is excludable from income.
If distributions of income from an IRA are made prior to the date that the owner attains the age of 591⁄2 years, the income is subject to both the regular income tax and an additional penalty tax of 10%. (For Simple IRAs, the 10% penalty is increased to 25% if the distribution is made during the two year period beginning on the date that the individual first participated in the Simple IRA.) The 10% penalty tax can be avoided if the distribution is:
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If the contract owner dies before the contract is completely distributed, the balance will be included in the contract owner’s gross estate for estate tax purposes.
One-Rollover-Per-Year-Limitation
A contract owner can receive a distribution from an IRA and roll it into another IRA within 60 days from the date of the IRA distribution and not have the amount of the distribution included in your taxable income. Only one rollover per year from a contract owner’s IRA is allowed. The one year period begins on the date the contract owner receives the IRA distribution and not on the date that it was rolled over. The IRS has interpreted this one rollover per year limitation as applying separately to each IRA that a contract owner owns.
However, on March 20, 2014, the IRS issued Announcement 2014-15 in which it decided to follow the Tax Court’s interpretation of the one rollover per year rule in the Bobrow case. In Bobrow, the Tax Court interpreted the one rollover per year limitation as applying in the aggregate to all the IRAs that a taxpayer owns. This means that a contract owner cannot make an IRA rollover distribution from his or her IRA if within the previous one year period he or she has made an IRA rollover distribution from any other IRA that the he owns. Also, rollovers between an individual’s Roth IRAs would prevent a separate rollover within the 1-year period between the individual’s traditional IRAs, and vice versa. The IRS began applying this new interpretation to any IRA rollover distribution that occurs on or after January 1, 2015.
Direct transfers IRA funds between IRA trustees are not subject to the one rollover per year limitation because such transfers are not considered rollover distributions and are therefore not subject to the one rollover per year limitation. Also, a rollover from a traditional IRA to a Roth IRA (a conversion) is not subject to the one-rollover-per-year limitation, and such a rollover is disregarded in applying the one-rollover-per year limitation to other rollovers.
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Roth IRAs
Distributions of earnings from Roth IRAs are taxable or non-taxable depending upon whether they are “qualified distributions” or “nonqualified distributions.” A “qualified distribution” is one that is made after the Roth IRA has satisfied the five-year rule and meets one of the following requirements:
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The five year rule is satisfied if a five-taxable year period has passed. The five taxable-year period begins with the first taxable year in which a contribution is made to any Roth IRA established for the owner.
A qualified distribution is not included in gross income for federal income tax purposes.
A non-qualified distribution is not includable in gross income to the extent that the distribution, when added to all previous distributions, does not exceed the total amount of contributions made to the Roth IRA. Any non-qualified distribution in excess of the total contributions is includable in the contract owner’s gross income in the year that is distributed to the contract owner.
Special rules apply for Roth IRAs that have proceeds received from an IRA prior to January 1, 1999 if the owner elected the special four-year income averaging provisions that were in effect for 1998.
If non-qualified distributions of income from a Roth IRA are made prior to the date that the owner attains the age of 591⁄2 years, the income is subject to both the regular income tax and an additional penalty tax of 10%. The penalty tax can be avoided if the distribution is:
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If the contract owner dies before the contract is completely distributed, the balance will be included in the contract owner’s gross estate for tax purposes.
Non-Qualified Contracts - Natural Persons as Contract Owners
Generally, the income earned inside a Non-Qualified Annuity Contract that is owned by a natural person is not taxable until it is distributed from the contract.
Distributions before the Annuitization Date are taxable to the contract owner to the extent that the cash value of the contract exceeds the contract owner’s investment at the time of the distribution. In general, the investment in the contract is equal to the purchase payments made with after-tax dollars, reduced by any nontaxable distributions. Distributions, for this purpose, include partial surrenders, any portion of the contract that is assigned or pledged; or any portion of the contract that is transferred by gift. For these purposes, a transfer by gift may occur upon annuitization if the contract owner and the annuitant are not the same individual.
With respect to annuity distributions on or after the Annuitization Date, a portion of each annuity payment is excludable from taxable income. The amount excludable is based on the ratio between the contract owner’s investment in the contract and the expected return on the contract. Once the entire investment in the contract is recovered, all distributions are fully includable in income.
Commencing after December 31, 2010, the Internal Revenue Code providesContract Owner's last taxable year.
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In determining the taxable amount of a distribution that is made prior to the annuitization date, all annuity contracts issued after October 21, 1988 by the same company to the same contract owner during the same calendar year will be treated as one annuity contract.
A special rule applies to distributions from contracts that have investments that were made prior to August 14, 1982. For those contracts, distributions that are made prior to the Annuitization Date are treated first as the nontaxable recovery of the investment in the contract asContract will be equal to all amounts paid to us from Your Account. However, it is possible that the IRS could take the position that a portion or all of such payments are nondeductible expenses that date. A distributionare not includible in excess of the amount of theyour investment in the contractContract.
The Internal Revenue Code imposes a penalty tax if a distribution is made before the contract owner reaches age 591⁄2. The amount of the penalty is 10% of the portion of any distribution that is includable in gross income. The penalty tax does not apply if the distribution is:
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If the contract owner dies before the contract is completely distributed, the balance will be included in the contract owner’s gross estate for estate tax purposes.
Non-Qualified Contracts - Non-Natural Persons as Contract Owners
The previous discussion related to the taxation of Non-Qualified Contracts owned by individuals. Different rules (the so-called “non-natural persons” rules) apply if the contract owner is not a natural person.
Generally, contracts owned by corporations, partnerships, trusts, and similar entities are not treated as annuity contracts under the Internal Revenue Code. Therefore, income earned under a Non-Qualified Contract that is owned by a non-natural person is taxed as ordinary income during the taxable year that it is earned. Taxation is not deferred, even if the income is not distributed out of the contract. The income is taxable as ordinary income, not capital gain.
The non-natural persons rules do not apply to all entity-owned contracts. For purposes of the rule that annuity contracts that are owned by non-natural persons are not treated as annuity contracts for tax purposes, a contract that is owned by a non-natural person as an agent of an individual is treated as owned by the individual. This would cause the contract to be treated as an annuity under the Internal Revenue Code, allowing tax deferral. However, this exception does not apply when the non-natural person is an employer that holds the contract under a non-qualified deferred compensation arrangement for one or more employees.
The non-natural persons rules also do not apply to contracts that are:
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If the annuitant, who is the individual treated as owning the contract, dies before the contract is completely distributed, the balance may be included in the annuitant’s gross estate for estate tax purposes, depending on the obligations that the non-natural owner may have owed to the annuitant.
Exchanges
As a general rule, federal income tax law treats exchanges of propertyevent, in the same manner as if the assets were sold for any other purpose. Payments of the Contract Fee for your Contract are not on a tax-free basis and are not deductible.
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In June, 2011deferred. To date, there have been no binding published authorities on this matter, and the IRS issued Rev. Proc. 2011-38,may seek to impose the straddle tax rules to your Eligible Portfolio or Former Eligible Portfolio, which addressescould result in adverse tax consequences (such as the deferral of the income tax consequences of the direct transfer of a portion of the cash value of an annuity contractdeduction for losses incurred in exchange for the issuance of a second annuity contract. Rev. Proc. 2011-38 modified and superseded prior guidance that was contained in Rev. Proc. 2008-24. A direct transfer that satisfies the revenue procedure will be treated as a tax-free exchange under Section 1035 of the Code if, for a period of at least 180 from the date of the direct transfer, there are no distributions or surrenders from either annuity contract involved in the exchange. In addition, the 180 day period will be deemedYour Account) to have been satisfied with respect to amounts received as an annuity for a period of 10 years or more, or as an annuity for the life of one or more persons. The taxation of distributions (other than distributions described in the immediately preceding sentence) received from either contract within the 180 day period will be determined using general tax principles to determine the substance of those payments. For example, they could be treated as taxable “boot” in an otherwise tax-free exchange, or as a distribution from the new contract. Rev. Proc. 2011-38 also removed numerous exceptions to the 180 waiting period that Rev. Proc. 2008-11 provided for its 12 month waiting period. Please discuss any tax consequences concerning any contemplated or completed transactions with a professional tax advisor. See, also,Non-Qualified Contracts - Natural Persons as Contract Owners, above.
you.
Tax.
$7,500.
Relationships.
Finally, the regulations adopts
Withholding
Pre-death
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• | if |
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Aliens.
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Another exemption
• | sufficient evidence that the distribution is connected to the non-resident |
• | sufficient evidence that the distribution is includable in the non-resident |
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This prospectus does not address any tax matters that may arise by reason of application of the laws of a non-resident alien’s country of citizenship and/or country of residence. Purchasers and prospective purchasers should consult a financial consultant, tax advisor or legal counsel to discuss the applicability of laws of those jurisdictions to the purchase or ownership of a contract.
Federal Estate, Gift,
Guaranteed Lifetime Withdrawals under the Contract.The following transfers mayWithdrawal Exception differs from your Maximum Contract Fee Percentage because the 3% Withdrawal Exception is based on Account Value, while your Maximum Contract Fee Percentage is based on your Guaranteed Lifetime Withdrawal Base. If you pay advisory or service fees for a Contract issued to your IRA from other assets in your IRA, that payment will not be considered a gift for federal gift tax purposes:
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Upon the contract owner’s death, the value of the contract may subject to estate taxes, even if all or a portion of the value is also subject to federal income taxes.
Section 2612 of"distribution" from your IRA under the Internal Revenue Code may require NationwideCode. If you pay advisory or service fees for a Contract issued to determine whether a death benefit oryour IRA from other distribution is a “direct skip” and the amountassets held outside your IRA, these fees would generally be treated as an additional contribution to your IRA, would be subject to all of the resulting generation skipping transferrestrictions and limitations that any other contribution to an IRA would be subject to and, depending on your individual circumstances, may not be a permissible contribution. Such payment may also have other tax if any. A direct skip is when property is transferredconsequences to oryou, and you should consult a death benefit or other distribution is made to:
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If the contract owner is not an individual, thentax advisor for this purpose only, “contract owner” refers to any person:
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If a transfer is a direct skip, Nationwide will deduct the amountfurther information.
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Charge for Tax
Nationwideissues and is not required to maintain a capital gain reserve liability on Non-Qualified Contracts. If tax laws change requiring a reserve, Nationwide may implement and adjust a tax charge.
Tax Changes
The foregoing tax information is based on Nationwide’s understanding of federal tax laws. It is NOT intended as tax advice. All information isAnything less than full compliance with the applicable rules, all of which are subject to change, without notice.may have adverse tax consequences. Any person considering the purchase of a Contract in connection with an IRA should first consult a qualified tax advisor with regard to the suitability of a Contract for the IRA.
In 2001,and legal advisors before purchasing the Economic Growth and Tax Relief Reconciliation Act (“EGTRRA”) was enacted. EGTRRA made numerous changes to the Internal Revenue Code, including the following:
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In 2006, the Pension Protection Act of 2006 made permanent the EGTRRA provisions noted above that increase the amounts that may be contributed to various retirement plans and that expanded the portability of various retirement plans. However, allContract.
State Taxation
The tax rules across the various states and localities are not uniform and therefore are not discussed in this prospectus. Tax rules that may apply to contracts issued in U.S. territories such as Puerto Rico and Guam are also not discussed. Contract owners and prospective contract owners should consult a financial consultant, tax advisor or legal counsel to discuss the taxation and use of the contracts.
The Internal Revenue Code requires that certain distributions be made from the contracts issued in conjunction with this prospectus. Followingeach Owner is an overview of the required distribution rules applicable to each type of contract. Please consult a qualified tax or financial advisor for more specific required distribution information.
Required Distributions - General Information
In general, a beneficiary is an individual or other entity that the contract owner designates to receive death proceeds upon the contract owner’s death. The distribution rules in the Internal Revenue Code make a distinction between “beneficiary” and “designated beneficiary” when determining the life expectancy that may be used for payments that are made from IRAs, SEP IRAs, Simple IRAs, and Roth IRAs after the death of the annuitant, or that are made from Non-Qualified Contracts after the death of the contract owner. A designated beneficiary is a natural person who is designated by the contract owner as the beneficiary under the contract. Non-natural beneficiaries (e.g. charities or certain trusts) are not designated beneficiaries for the purpose of required distributions and the life expectancy of such a beneficiary is zero.
Life expectancies and joint life expectancies will be determined in accordance with the relevant guidance provided by the Internal Revenue Service and the Treasury Department, including but not limited to Treasury Regulation 1.72-9 and Treasury Regulation 1.401(a)(9)-9.
Required distributions paid upon the death of the contract owner are paid to the beneficiary or beneficiaries stipulated by the contract owner. How quickly the distributions must be made may be determined with respect to the life expectancies of the beneficiaries. For Non-Qualified Contracts, the beneficiaries used in the determination of the
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distribution period are those in effect on the date of the contract owner’s death. For contracts other than Non-Qualified Contracts, the beneficiaries used in the determination of the distribution period do not have to be determined until September 30th ofnamed as a Contract Owner. If the year following the contract owner’s death. If thereOwner is more than one beneficiary, the life expectancy of the beneficiary with the shortest life expectancy is used to determine the distribution period. Any beneficiary that is not a designated beneficiary has a life expectancy of zero.
Required Distributions for Non-Qualified Contracts
Internal Revenue Code Section 72(s) requires Nationwide to make certain distributions when a contract owner dies. The following distributions will be made in accordance with the following requirements:
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In the event that the contract owner is not a natural person (e.g., a trust or corporation), for purposes ofother non-natural person, an individual must be named as Annuitant.
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These distribution provisions do not applyconfirmation statements more frequently than annually at no additional charge. For more information, please contact the Service Center.
Required Distributions for IRAs, SEP IRAs, Simple IRAs, and Roth IRAs
Distributions from an IRA, SEP IRA or Simple IRA must begin no later than April 1 ofCo-Annuitant is misstated, any Contract benefits will be re-determined using the calendar year following the calendar year in which the contract owner reaches age 701⁄2correct age(s). Distributions mayIf any overpayments have been made, future payments will be adjusted. Any underpayments will be paid in full.
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For IRAs, SEP IRAs,broker-dealer under the Securities Exchange Act of 1934 ("1934 Act") and Simple IRAs, required distributionsis a member of the Financial Industry Regulatory Authority ("FINRA"). NISC's address is One Nationwide Plaza, Columbus, Ohio 43215. In Michigan only, NISC refers to Nationwide Investment Svcs. Corporation. NISC is a wholly owned subsidiary of Nationwide. We do not havepay commissions to be withdrawn from this contract if they are being withdrawn from another IRA, SEP IRA,NISC or Simple IRAto unaffiliated broker-dealers for the promotion and sale of the contract owner.
IfContracts.
Due to recent changes in Treasury Regulations, the amount used to compute the minimum distribution requirement may exceed the Contract Value.
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If the contract owner dies before the required beginning date (in the case of an IRA, SEP IRA, or Simple IRA) or before the entire Contract Value is distributed (in the case of Roth IRAs), any remaining interest in the contract must be distributedreceived by December 31 of the fifth year following the contract owner’s death or over a period not exceeding the applicable distribution period, which is determined as follows:
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If the contract owner dies on or after the required beginning date, the interest in the IRA, SEP IRA, or Simple IRA must be distributed over a period not exceeding the applicable distribution period, which is determined as follows:
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If distribution requirements are not met, a penalty tax of 50% is levied on the difference between the amount that should have been distributed for that year and the amount that actually was distributed for that year.
For IRAs, SEP IRAs, and Simple IRAs, all or a portion of each distribution will be included in the recipient’s gross income and taxed at ordinary income tax rates. The portion of a distribution that is taxable is based on the ratio between the amount by which non-deductible purchase payments exceed prior non-taxable distributions and total account balances at the time of the distribution. The owner of an IRA, SEP IRA, or Simple IRA must annually reportNationwide, the amount of non-deductible purchaseexpenses you pay under the Contract will not vary because of such payments to or from such selling firms. Nationwide will not pass sales expenses through to the amountContract Owner.
Distributions from Roth IRAs maystates, the District of Columbia, Guam, the U.S. Virgin Islands, and Puerto Rico.
CONTACTING THE SOLUTIONS CENTER
otherwise required under the 1934 Act.
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We may be required to provide information about your Contract to government regulators. If mandated under applicable law,
DISTRIBUTION
Nationwide Investment Services Corporation (“NISC”), acts as the national distributor of the contracts sold through this prospectus. NISC is registered as a broker-dealer under the Securities Exchange Act of 1934 (“1934 Act”), and is a member of the Financial Industry Regulatory Authority (“FINRA”). NISC’s address is One Nationwide Plaza, Columbus, Ohio 43215. In Michigan only, NISC refers to Nationwide Investment Svcs. Corporation. NISC is a wholly owned subsidiary of Nationwide.
Contracts sold through this prospectus can be purchased through registered representatives, appointed by Nationwide, of FINRA broker-dealer firms. Nationwide pays broker-dealers compensation for promoting, marketing and selling the contracts it sponsors. In turn, the broker-dealers pay a portion of the compensation to their registered representatives, under their own arrangements.
Nationwide does not expect the compensation paid to such broker-dealers (including NISC) to exceed 8% of Purchase Payments (on a present value basis) for sales of the contracts described in this prospectus.
ABOUT NATIONWIDE
Nationwide is a stock life insurance company organized under Ohio law in March 1929, with its home office at One Nationwide Plaza, Columbus, Ohio 43215. Nationwide is a provider of life insurance, annuities and retirement products. It is admitted to do business in all states, the District of Columbia, Guam, the U.S. Virgin Islands, and Puerto Rico.
Nationwide is a member of the Nationwide group of companies. Nationwide Mutual Insurance Company and Nationwide Mutual Fire Insurance Company (the “Companies”) are the ultimate controlling persons of the Nationwide group of companies. The Companies were organized under Ohio law in December of 1925 and 1933 respectively. The Companies engage in a general insurance and reinsurance business, except life insurance.
To request additional information about Nationwide, contact the Solutions Center.
See “Nationwide Life Insurance Company as of December 31, 2020 and Subsidiaries”2019, and for additional information.
Nationwide may useeach of the proceeds from this offering for any legitimate corporate purpose.
GENERAL ACCOUNT AND SEPARATE ACCOUNTS
The assets in our general account are chargeable with claims by any of our contract owners and creditors, and are subject to the liabilities arising from any of our businesses. Our general account assets do not include the assetsyears in the Index-Linked Annuity Separate Account, an insulated separate account where we hold assets to support future Strategy Earnings. Our general account assets also dothree-year period ended December 31, 2020, have been included herein in reliance upon the report of KPMG LLP, independent registered public accounting firm, and upon the authority of said firm as experts in accounting and auditing. KPMG LLP is located at 191 West Nationwide Blvd., Columbus, Ohio 43215.
We exercise sole discretion over the investment of our general account assets, and we bear the associated investment risk. You will not share in the investment experience of our general account assets. We invest our general account assetspresented fairly in accordance with state insurance law.
The Index-Linked Annuity Separate Account is a non-unitized separate accountU.S. generally accepted accounting principles and is not registeredfurther states that those statements are presented fairly, in all material respects, in accordance with the U.S. Securities and Exchange Commission under the Investment Company Act of 1940. We own and control the assets in the Index-Linked Annuity Separate Account and you do not have any interest instatutory accounting practices prescribed or claim to the assets in the Index-Linked Annuity Separate Account. Unlike some variable annuities that utilize separate accounts, you do not share in the investment performance of the assets in the Index-Linked Annuity Separate Account. The Index-Linked Annuity Separate Account was established under the laws of Ohio. The assets in the Index-Linked Annuity Separate Account are not subject to claims by our creditors or subject to liabilities arising from any of our other businesses.
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We may invest the assets of the Index-Linked Annuity Separate Account in any asset permitted under state law, including hedging instruments such as derivative contracts. We may move assets between the Index-Linked Annuity Separate Account and the general account. Where permitted by applicable law, we reserve the right to make certain changes to the structure and operationOhio Department of the Index-Linked Annuity Separate Account. We will not make any such changes without receiving any necessary approvalInsurance.
EXEMPTION FROM PERIODIC REPORTING
Nationwide is relyingCommission Position on the exemption provided by Rule 12h-7 under the 1934 Act. In reliance on that exemption, Nationwide does not file periodic reports that would be otherwise required under the 1934 Act.
STATEMENTS TO CONTRACT OWNERS
Prior to the Annuitization Date, statements will be sent to the Contract Owner’s last known address. You should promptly notify the Solutions Center of any address change.
We will mail the following statements to you:
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You can receive information from Nationwide faster and reduce the amount of mail they receive by signing up for Nationwide’s eDelivery program. Nationwide will notify you by email when important documents (statements, prospectuses and other documents) are ready for you to view, print, or download from Nationwide’s secure server. To choose this option, go to nationwide.com/login.
You should review statements carefully. All errors or corrections must be reported to Nationwide immediately to assure proper crediting to the Contract. Unless Nationwide is notified within 30 days of receipt of the statement, Nationwide will assume statements are correct.
MISTATEMENTS OF AGE OR SEX
If the age or sex of the Contract Owner, Joint Owner, Annuitant, Contingent Annuitant, Beneficiary or Contingent Beneficiary is misstated, all payments and benefits under the Contract will be adjusted. Payments and benefits will be based on the correct age or sex. Proof of age of any of these individuals may be required at any time, in a form satisfactory to Nationwide. When the age or sex of any individual named in the application, including any supplemental applications, has been misstated, the dollar amount of any overpayment will be deducted from the next payment or payments due under the Contract.
The dollar amount of any underpayment made by Nationwide as a result of an age or sex misstatement will be paid in full with the next payment due under the Contract. The dollar amount of any overpayment made by Nationwide as a result of an age or sex misstatement will reduce the next payment due under the Contract, and will continue to reduce subsequent payments under the Contract, until all of the overpayment is recouped. Any adjustment for overpayment or underpayment will include interest charged or credited, as applicable, at the rate required by law, but not exceeding 6%.
EXPERTS
To be filed by a subsequent Pre-Effective Amendment.
LEGAL OPINION
Legal matters in connection with federal laws and regulations affecting the issue and sale of the Contracts described in this prospectus and the organization of Nationwide, its authority to issue the contracts under Ohio law, and the validity of the contracts under Ohio law have been passed on by Nationwide’s Office of General Counsel.
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LEGAL PROCEEDINGS
To be filed by a subsequent Pre-Effective Amendment.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
Indemnification
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APPENDIX A: ADDITIONAL INDEX DISCLOSURES
S&P 500 INDEX
The “S&P 500”
Accumulation Phase – The phase of the Contract from the time the Contract is issued until the Withdrawal Phase. |
Account Value – The value of the assets in Your Account, as determined as of the close of business on a Valuation Day. |
Additional Deposit(s) – Payments applied to Your Account after the Contract is issued. |
Annuitant – The person whose life span is used to measure the Guarantee during the Accumulation, Withdrawal and Income Phases under the Contract. |
Annuity – The supplemental immediate fixed income annuity contract issued to you when you begin the Income Phase of the Contract. |
Annuity Commencement Date – The date the Annuity is issued. |
Client Agreement – The agreement you sign that authorizes MSSB and the Overlay Manager to provide the specified services to you regarding Your Account. |
Co-Annuitant – If the Contract is jointly owned and you elect the Spousal Continuation Option, you must name a spouse as Co-Annuitant, which is the second person whose life span is used to measure the Guarantee during the Accumulation, Withdrawal and Income Phases under the Contract. |
Contract – The Guarantee and supplemental immediate fixed income annuity issued by Nationwide, including any endorsements or riders. |
Contract Anniversary – The anniversary of the date we issue your Contract. |
Contract Fee or Fee – The fee that is assessed quarterly from Your Account during the Accumulation Phase and Withdrawal Phase and remitted to us by MSSB. |
Contract Fee Percentage – The percentage that is multiplied by your Guaranteed Lifetime Withdrawal Base to determine your Contract Fee. |
Contract Owner or you – The person, entity and/or Joint Owner that maintains all rights under the Contract, including the right to direct who receives Guaranteed Lifetime Income Payments. |
Contract Year – The one-year period starting on the date we issue the Contract and each Contract Anniversary thereafter. |
Early Withdrawal – Any withdrawal you take from Your Account prior to the Withdrawal Start Date. |
Excess Withdrawal – The portion of a withdrawal taken after the Withdrawal Start Date that is in excess of the Guaranteed Lifetime Withdrawal Amount. |
General Account – An account that includes Nationwide's assets, which are available to our creditors. |
Guarantee – Our obligation to pay you Guaranteed Lifetime Income Payments for the rest of your life, provided that you comply with the terms of the Contract. |
Guaranteed Lifetime Income Payments – Payments you receive during the Income Phase from Nationwide. |
Guaranteed Lifetime Withdrawals – Withdrawals you make after the Withdrawal Start Date during the Withdrawal Phase. The amount of each Guaranteed Lifetime Withdrawal will be equal to your most recent Guaranteed Lifetime Withdrawal Amount. |
Guaranteed Lifetime Withdrawal Amount – The amount that you can withdraw from Your Account each calendar year during the Withdrawal Phase without reducing your Guaranteed Lifetime Withdrawal Base. This amount is non-cumulative, meaning that withdrawals not taken cannot be carried over from one year to the next. |
Guaranteed Lifetime Withdrawal Base – The amount multiplied by the Guaranteed Lifetime Withdrawal Percentage to determine the Guaranteed Lifetime Withdrawal Amount. The Guaranteed Lifetime Withdrawal Base may increase or decrease, as described in this prospectus. |
Guaranteed Lifetime Withdrawal Percentage – The percentage multiplied by the Guaranteed Lifetime Withdrawal Base to determine the Guaranteed Lifetime Withdrawal Amount, and varies based on age and the time of the withdrawal. |
Income Phase – The phase of the Contract during which we are obligated to make Guaranteed Lifetime Income Payments to the Annuitant. |
Individual Retirement Account or IRA – An account that qualifies for favorable tax treatment under Section 408(a) of the Internal Revenue Code, but does not include Roth IRAs. |
Joint Owner – One of two Contract Owners, each of which owns an undivided interest in the Contract. Joint Owners must be spouses as recognized under applicable federal law. |
MSSB – Morgan Stanley Smith Barney, LLC, its affiliates, or any successors. |
Nationwide, we or us – Nationwide Life Insurance Company. |
Non-Qualified Contract – A Contract that does not qualify for favorable tax treatment under the Internal Revenue Code as an IRA, Roth IRA, SEP IRA, or Simple IRA. |
Roth IRA – An account that qualifies for favorable tax treatment under Section 408A of the Internal Revenue Code. |
SEC or Commission – Securities and Exchange Commission. |
SEP IRA – An account that qualifies for favorable tax treatment under Section 408(k) of the Internal Revenue Code. |
Service Center – The department of Nationwide responsible for receiving all service and transaction requests relating to the contract. For service and transaction requests submitted other than by telephone (including fax requests), the Service Center is Nationwide's mail and document processing facility. For service and transaction requests communicated by telephone, the Service Center is Nationwide's operations processing facility. Information on how to contact the Service Center is in the "Contacting the Service Center" provision. |
Simple IRA – An account that qualifies for favorable tax treatment under Section 408(p) of the Internal Revenue Code. |
Total Gross Deposits – The total of all deposits, including your initial deposit and excluding any withdrawals, made into Your Account. |
Valuation Date or Day – Each day the New York Stock Exchange is open for business. The value of Your Account is determined at the end of each Valuation Date, which is generally at 4:00 pm EST, but may be earlier on certain days when the New York Stock Exchange is closed early. |
Withdrawal Phase – The phase of the Contract during which you take Guaranteed Lifetime Withdrawals from Your Account. |
Withdrawal Start Date – The date we receive at the Service Center your completed Withdrawal Phase election form indicating your eligibility (and the Co-Annuitant's eligibility, if applicable) and desire to enter the Withdrawal Phase and begin taking annual withdrawals of the Guaranteed Lifetime Withdrawal Amount from Your Account. |
You – In this prospectus, "you" means the Contract Owner and/or Joint Owners. |
Your Account – The Select UMA account you own. |
December 31, | ||||||
(in millions) | 2020 | 2019 | 2018 | |||
Total revenues | $834 | $883 | $895 | |||
Pre-tax operating earnings | $ (12) | $ 10 | $ 28 |
December 31, | ||||||
(in millions) | 2020 | 2019 | 2018 | |||
Total revenues | $5,247 | $6,010 | $5,656 |
December 31, | ||||||
(in millions) | 2020 | 2019 | 2018 | |||
Pre-tax operating earnings | $355 | $434 | $375 |
December 31, | ||||||
(in millions) | 2020 | 2019 | 2018 | |||
Total revenues | $7,132 | $5,470 | $5,181 | |||
Pre-tax operating earnings | $ 115 | $ 128 | $ 118 |
December 31, | ||||||
(in millions) | 2020 | 2019 | 2018 | |||
Total revenues | $1,903 | $2,089 | $2,263 | |||
Pre-tax operating earnings | $ 608 | $ 461 | $ 489 |
S&P DOW JONES INDICES DOES NOT GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE S&P 500 OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES INDICES SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES INDICES MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR
J.P. MORGAN MOZAIC II INDEX
• | Bonds are generally stated at amortized cost, except those with an NAIC designation of "6", which are stated at the lower of amortized cost or fair value. Changes in fair value of bonds stated at fair value are charged to capital and surplus. |
• | Loan-backed and structured securities, which are included in bonds in the statutory financial statements, are stated in a manner consistent with the bond guidelines, but with additional consideration given to the special valuation rules implemented by the NAIC applicable to residential mortgage-backed securities that are not backed by U.S. government agencies, commercial mortgage-backed securities and certain other structured securities. Under these guidelines, an initial and adjusted NAIC designation is determined for each security. The initial NAIC designation, which takes into consideration the security’s amortized cost relative to an NAIC-prescribed valuation matrix, is used to determine the reporting basis (i.e., amortized cost or lower of amortized cost or fair value). |
• | Preferred stocks are generally stated at amortized cost, except those with an NAIC designation of "4" through "6", which are stated at the lower of amortized cost or fair value. Common stocks are stated at fair value. Changes in fair value of stocks stated at fair value are charged to capital and surplus. |
• | The investment in the Company’s wholly-owned insurance subsidiaries, NLAIC and Eagle, and wholly-owned noninsurance subsidiaries, NISC and NIA, are carried using the equity method of accounting. The Company’s investment in JNF, an unaudited downstream noninsurance holding company, is based on the individual audited subsidiary, controlled and affiliated entities owned by the holding company in accordance with the "look through" provisions of Statements of Statutory Accounting Principles ("SSAP") No. 97, Investments in Subsidiary, Controlled and Affiliated Entities. Investments in NLAIC, JNF and NISC are included in stocks, and the investment in Eagle is included in other invested assets on the statutory statements of admitted assets, liabilities, capital and surplus. |
• | Commercial mortgage loans are recorded at unpaid principal balance, adjusted for premiums and discounts, less a valuation allowance. |
• | Policy loans, which are collateralized by the related insurance policy, are carried at the outstanding principal balance and do not exceed the cash surrender value of the policy. As such, no valuation allowance for policy loans is required. |
• | Cash equivalents include highly liquid investments with original maturities of less than three months and, effective December 31, 2020, amounts on deposit in internal qualified cash pools. |
• | Short-term investments consist primarily of government agency discount notes with maturities of twelve months or less at acquisition and are carried at amortized cost, which approximates fair value. Prior to December 31, 2020, included amounts on deposit in internal qualified cash pools. |
• | Alternative investments are generally reported based on the equity method of accounting. |
• | The Company’s investment portfolio (and, specifically, the valuations of investment assets held) has been, and may continue to be, adversely affected as a result of market developments from the COVID-19 pandemic and uncertainty regarding its outcome. Moreover, changes in interest rates, reduced liquidity or a continued slowdown in the U.S. or in global economic conditions may also adversely affect the values and cash flows of these assets. The Company’s investments in mortgages and mortgage-backed securities could be negatively affected by delays or failures of borrowers to make payments of principal and interest when due or delays or moratoriums on foreclosures or enforcement actions with respect to delinquent or defaulted mortgages imposed by governmental authorities. Further, extreme market volatility may leave the Company unable to react to market events in a prudent manner consistent with the Company’s historical investment practices in dealing with more orderly markets; |
• | The Company provided COVID-19 hardship assistance to its customers including suspending cancellation of certain policies, deferring premium payment deadlines and waiving certain late fees and may elect to do so again in the future as a result of the COVID-19 pandemic. |
• | Potential state or federal legislation and regulation intended to ease the impact of the COVID-19 pandemic on consumers that could mandate waiver of late fees and/or limit or eliminate the ability to cancel policies for non-payment of premiums; |
• | Potential impacts to financial product revenues due to the overall economic slowdown, including the decline in economic activity, reductions in the sale of financial products due to the current market conditions, a reduction in fees collected from assets under management, a reduction in new sales, and an increased number of customers experiencing difficulty in paying premiums; |
• | While the Company has implemented risk management and contingency plans and taken preventive measures and other precautions, no predictions of specific scenarios can be made with respect to the COVID-19 pandemic and such measures may not adequately predict the impact on the Company’s business from such events. An extended period of remote work arrangements could introduce operational risk and impair the Company’s ability to manage its business. |
• | The Company also outsources certain critical business activities to third parties. As a result, the Company relies upon the successful implementation and execution of the business continuity planning of such entities in the current environment. While the Company closely monitors the business continuity activities of these third parties, successful implementation and execution of their business continuity strategies are largely outside the Company’s control. If one or more of the third parties to whom the Company outsources certain critical business activities experience operational failures as a result of the impacts from the spread of COVID-19, or claim that they cannot perform due to a force majeure, it may have a material adverse effect on the Company’s business, financial condition, results of operations, liquidity and cash flows; and |
• | Potential impacts to the cost and availability of reinsurance. |
Year ended or as of December 31, | ||||||||||
(in millions) | 2020 | 2019 | 2018 | 2017 | 2016 | |||||
Statutory Statements of Operations Data | ||||||||||
Total revenues | $ 15,116 | $ 14,452 | $ 13,995 | $ 14,802 | $ 14,213 | |||||
Total benefits and expenses | $ 14,050 | $ 13,419 | $ 12,985 | $ 13,817 | $ 13,245 | |||||
Net income | $ 487 | $ 629 | $ 711 | $ 1,039 | $ 751 | |||||
Statutory Statements of Admitted Assets, Liabilities, Capital and Surplus Data | ||||||||||
Total invested assets | $ 50,281 | $ 48,044 | $ 45,020 | $ 42,507 | $ 41,115 | |||||
Total admitted assets | $166,217 | $155,133 | $139,341 | $145,670 | $133,345 | |||||
Total liabilities | $157,112 | $146,311 | $132,496 | $139,721 | $128,137 | |||||
Total capital and surplus | $ 9,105 | $ 8,822 | $ 6,845 | $ 5,949 | $ 5,208 |
(a) | fluctuations in the results of operations or financial condition; |
(b) | actual claims losses exceeding reserves for claims; |
(c) | difficult economic and business conditions, including financial, capital and credit market conditions as a result of changes in interest rates or prolonged periods of low interest rates, equity prices, volatility, yields and liquidity in the equity and credit markets, as well as geopolitical conditions and the impact of political, regulatory, judicial, economic or financial events, including terrorism, epidemics or pandemics (such as the COVID-19 pandemic), impacting financial markets generally and companies in the Company’s investment portfolio specifically; |
(d) | the degree to which the Company chooses not to hedge risks, or the potential ineffectiveness or insufficiency of hedging or risk management strategies the Company does implement; |
(e) | changes in certain accounting and/or financial reporting standards issued by the Financial Accounting Standards Board ("FASB"), SEC, NAIC or other standard-setting bodies; |
(f) | the inability to maintain the availability of systems and facilities in the event of a disaster, natural or man-made catastrophe (such as the COVID-19 pandemic), blackout, terrorist attack or war; |
(g) | heightened competition that affects the cost of, and demand for, the Company’s products, specifically including the intensification of price competition, the entry of new competitors, consolidation, technological innovation and the development of new products by new and existing competitors; |
(h) | adverse state and federal legislation and regulation, including in response to the COVID-19 pandemic, with respect to, among other things, tax law changes impacting the federal estate tax and tax treatment of life insurance and investment products; limitations on premium levels; restrictions on product approval and policy issuance; increases in minimum capital and reserves and other financial viability requirements; restrictions on mutual fund service fee payments; changes affecting sales practices, including investigations and/or claims handling and escheat investigations; and regulatory actions of the DOL under ERISA, in particular proposed rule-making with respect to |
fiduciary obligations, rule-making adopted by regulatory authorities under the Dodd-Frank Act and the Federal Deposit Insurance Act, including SEC comprehensive rulemaking and guidance regarding standards of conduct for broker dealers and investment advisers; | |
(i) | the inability to mitigate the capital impact associated with statutory reserving and capital requirements; |
(j) | failure to maintain or expand distribution channels; |
(k) | possible difficulties in executing, integrating and realizing projected results of acquisitions, divestitures and restructurings; |
(l) | loss of key vendor relationships or failure of a vendor to protect confidential and proprietary information or otherwise perform (including as a result of the COVID-19 pandemic); |
(m) | changes in interest rates and the equity markets causing a reduction in the market value of the Company’s investment portfolio, investment income and/or asset fees; an acceleration of other expenses; a reduction in separate account assets or a reduction in the demand for the Company’s products; increased liabilities related to living benefits and death benefit guarantees; or an impact on ultimate realizability of deferred tax assets; |
(n) | outlook changes and downgrades in the financial strength and claims-paying ability ratings of the Company assigned by NRSROs; |
(o) | competitive, regulatory or tax changes that affect the cost of, or demand for, products; |
(p) | fluctuations in RBC levels; |
(q) | settlement of tax liabilities for amounts that differ significantly from those recorded on the balance sheets; |
(r) | deviations from assumptions regarding future persistency, mortality and morbidity rates (including as a result of natural and man-made catastrophes, pandemics, including the COVID-19 pandemic, epidemics, malicious acts, terrorist acts and climate change), and interest rates used in calculating reserve amounts and in pricing products; |
(s) | adverse results and/or resolution of litigation, arbitration, regulatory investigation and/or inquiry; |
(t) | the availability, pricing and effectiveness of reinsurance; |
(u) | the effectiveness of policies and procedures for managing risk; |
(v) | interruption in telecommunication, information technology or other operational systems or failure to maintain the security, confidentiality or privacy of sensitive data on such systems; |
(w) | adverse consequences, including financial and reputational costs, regulatory problems and potential loss of customers resulting from a breach of information security, a failure to meet privacy regulations, or inability to secure and maintain the confidentiality of proprietary or customers’ personal information; |
(x) | the inability to protect intellectual property and defend against claims of infringement; |
(y) | realized losses with respect to impairments of assets in the investment portfolio of the Company; |
(z) | exposure to losses related to variable annuity guarantee benefits, including from downturns and volatility in equity markets; |
(aa) | statutory reserve requirements associated with term and universal life insurance policies under Regulation XXX, Guideline AXXX and principles-based reserving requirements; |
(ab) | lack of liquidity in certain investments, access to credit facilities, or other inability to access capital; and |
(ac) | defaults on commercial mortgages and volatility in their performance. |
December 31, | ||||||
(in millions) | 2020 | 2019 | Change | |||
Revenues | ||||||
Premiums and annuity considerations | $10,637 | $10,168 | 5% | |||
Net investment income | 2,107 | 1,974 | 7% | |||
Amortization of interest maintenance reserve | - | (2) | 100% | |||
Other revenues | 2,372 | 2,312 | 3% | |||
Total revenues | $15,116 | $14,452 | 5% | |||
Benefits and expenses | ||||||
Benefits to policyholders and beneficiaries | $15,013 | $14,782 | 2% | |||
Increase in reserves for future policy benefits and claims | 1,627 | 1,501 | 8% | |||
Net transfers from separate accounts | (3,544) | (3,747) | 5% | |||
Commissions | 646 | 674 | (4%) | |||
Dividends to policyholders | 36 | 38 | (5%) | |||
Reserve adjustment on reinsurance assumed | (172) | (246) | 30% | |||
Other expenses | 444 | 417 | 6% | |||
Total benefits and expenses | $14,050 | $13,419 | 5% | |||
Income before federal income tax expense and net realized capital losses on investments | $ 1,066 | $ 1,033 | 3% | |||
Federal income tax expense (benefit) | 4 | (73) | 105% | |||
Income before net realized capital losses on investments | $ 1,062 | $ 1,106 | (4%) | |||
Net realized capital losses on investments, net of tax and transfers to the interest maintenance reserve | (575) | (477) | (21%) | |||
Net income | $ 487 | $ 629 | (23%) |
December 31, | ||||||
(in millions) | 2019 | 2018 | Change | |||
Revenues | ||||||
Premiums and annuity considerations | $10,168 | $ 9,829 | 3% | |||
Net investment income | 1,974 | 1,927 | 2% | |||
Amortization of interest maintenance reserve | (2) | (1) | (100%) | |||
Other revenues | 2,312 | 2,240 | 3% | |||
Total revenues | $14,452 | $13,995 | 3% | |||
Benefits and expenses | ||||||
Benefits to policyholders and beneficiaries | $14,782 | $13,961 | 6% | |||
Increase in reserves for future policy benefits and claims | 1,501 | 736 | 104% | |||
Net transfers from separate accounts | (3,747) | (2,468) | (52%) | |||
Commissions | 674 | 670 | 1% | |||
Dividends to policyholders | 38 | 40 | (5%) | |||
Reserve adjustment on reinsurance assumed | (246) | (352) | 30% | |||
Other expenses | 417 | 398 | 5% | |||
Total benefits and expenses | $13,419 | $12,985 | 3% | |||
Income before federal income tax expense and net realized capital losses on investments | $ 1,033 | $ 1,010 | 2% | |||
Federal income tax (benefit) expense | (73) | 64 | (214%) | |||
Income before net realized capital losses on investments | $ 1,106 | $ 946 | 17% | |||
Net realized capital losses on investments, net of tax and transfers to the interest maintenance reserve | (477) | (235) | (103%) | |||
Net income | $ 629 | $ 711 | (12%) |
December 31, | ||||||
(in millions) | 2020 | 2019 | Change | |||
Results of Operations | ||||||
Revenues | ||||||
Premiums and annuity considerations | $394 | $ 413 | (5%) | |||
Net investment income | 247 | 262 | (6%) | |||
Other revenues | 193 | 208 | (7%) | |||
Total revenues | $834 | $ 883 | (6%) | |||
Benefits and expenses | ||||||
Benefits to policyholders and beneficiaries | $689 | $ 756 | (9%) | |||
Increase in reserves for future policy benefits and claims | 62 | 21 | 195% | |||
Net transfers from separate accounts | (85) | (105) | 19% | |||
Commissions | 21 | 30 | (30%) | |||
Dividends to policyholders | 36 | 38 | (5%) | |||
Other expenses | 123 | 133 | (8%) | |||
Total benefits and expenses | $846 | $ 873 | (3%) | |||
Pre-tax operating earnings | $ (12) | $ 10 | (220%) |
December 31, | ||||||
(in millions) | 2019 | 2018 | Change | |||
Results of Operations | ||||||
Revenues | ||||||
Premiums and annuity considerations | $ 413 | $410 | 1% | |||
Net investment income | 262 | 270 | (3%) | |||
Amortization of interest maintenance reserve | - | 1 | (100%) | |||
Other revenues | 208 | 214 | (3%) | |||
Total revenues | $ 883 | $895 | (1%) | |||
Benefits and expenses | ||||||
Benefits to policyholders and beneficiaries | $ 756 | $713 | 6% | |||
Increase in reserves for future policy benefits and claims | 21 | 4 | 425% | |||
Net transfers from separate accounts | (105) | (71) | (48%) | |||
Commissions | 30 | 27 | 11% |
December 31, | ||||||
(in millions) | 2019 | 2018 | Change | |||
Dividends to policyholders | 38 | 40 | (5%) | |||
Other expenses | 133 | 154 | (14%) | |||
Total benefits and expenses | $873 | $867 | 1% | |||
Pre-tax operating earnings | $ 10 | $ 28 | (64%) |
December 31, | ||||||
(in millions) | 2020 | 2019 | Change | |||
Results of Operations | ||||||
Revenues | ||||||
Premiums and annuity considerations | $ 3,407 | $ 4,202 | (19%) | |||
Net investment income | 338 | 319 | 6% | |||
Amortization of interest maintenance reserve | 4 | 1 | 300% | |||
Other revenues | 1,498 | 1,488 | 1% | |||
Total revenues | $ 5,247 | $ 6,010 | (13%) | |||
Benefits and expenses | ||||||
Benefits to policyholders and beneficiaries | $ 7,140 | $ 7,993 | (11%) | |||
(Decrease) increase in reserves for future policy benefits and claims | (78) | 25 | (412%) | |||
Net transfers from separate accounts | (2,490) | (2,695) | 8% | |||
Commissions | 437 | 442 | (1%) | |||
Reserve adjustment on reinsurance assumed | (172) | (246) | 30% | |||
Other expenses | 55 | 57 | (4%) | |||
Total benefits and expenses | $ 4,892 | $ 5,576 | (12%) | |||
Pre-tax operating earnings | $ 355 | $ 434 | (18%) |
December 31, | ||||||
(in millions) | 2019 | 2018 | Change | |||
Results of Operations | ||||||
Revenues | ||||||
Premiums and annuity considerations | $ 4,202 | $ 3,868 | 9% | |||
Net investment income | 319 | 319 | 0% | |||
Amortization of interest maintenance reserve | 1 | 1 | 0% | |||
Other revenues | 1,488 | 1,468 | 1% | |||
Total revenues | $ 6,010 | $ 5,656 | 6% | |||
Benefits and expenses | ||||||
Benefits to policyholders and beneficiaries | $ 7,993 | $ 7,980 | 0% | |||
Increase (decrease) in reserves for future policy benefits and claims | 25 | (211) | 112% | |||
Net transfers from separate accounts | (2,695) | (2,618) | (3%) | |||
Commissions | 442 | 434 | 2% | |||
Reserve adjustment on reinsurance assumed | (246) | (352) | 30% | |||
Other expenses | 57 | 48 | 19% | |||
Total benefits and expenses | $ 5,576 | $ 5,281 | 6% | |||
Pre-tax operating earnings | $ 434 | $ 375 | 16% |
December 31, | ||||||
(in millions) | 2020 | 2019 | Change | |||
Results of Operations | ||||||
Revenues | ||||||
Premiums and annuity considerations | $ 5,939 | $ 4,324 | 37% | |||
Net investment income | 843 | 824 | 2% | |||
Amortization of interest maintenance reserve | (4) | (4) | 0% | |||
Other revenues | 354 | 326 | 9% | |||
Total revenues | $ 7,132 | $ 5,470 | ||||
Benefits and expenses | ||||||
Benefits to policyholders and beneficiaries | $ 6,582 | $ 5,308 | 24% | |||
Increase in reserves for future policy benefits and claims | 1,582 | 1,135 | 39% | |||
Net transfers from separate accounts | (1,372) | (1,319) | (4%) | |||
Commissions | 94 | 96 | (2%) | |||
Other expenses | 131 | 122 | 7% |
December 31, | ||||||
(in millions) | 2020 | 2019 | Change | |||
Total benefits and expenses | $7,017 | $5,342 | 31% | |||
Pre-tax operating earnings | $ 115 | $ 128 | (10%) |
December 31, | ||||||
(in millions) | 2019 | 2018 | Change | |||
Results of Operations | ||||||
Revenues | ||||||
Premiums and annuity considerations | $ 4,324 | $4,095 | 6% | |||
Net investment income | 824 | 798 | 3% | |||
Amortization of interest maintenance reserve | (4) | (3) | (33%) | |||
Other revenues | 326 | 291 | 12% | |||
Total revenues | $ 5,470 | $5,181 | 6% | |||
Benefits and expenses | ||||||
Benefits to policyholders and beneficiaries | $ 5,308 | $4,685 | 13% | |||
Increase in reserves for future policy benefits and claims | 1,135 | 876 | 30% | |||
Net transfers from separate accounts | (1,319) | (725) | (82%) | |||
Commissions | 96 | 95 | 1% | |||
Other expenses | 122 | 132 | (8%) | |||
Total benefits and expenses | $ 5,342 | $5,063 | 6% | |||
Pre-tax operating earnings | $ 128 | $ 118 | 8% |
December 31, | ||||||
(in millions) | 2020 | 2019 | Change | |||
Results of Operations | ||||||
Revenues | ||||||
Premiums and annuity considerations | $ 897 | $1,229 | (27%) | |||
Net investment income | 679 | 569 | 19% | |||
Amortization of interest maintenance reserve | - | 1 | 0% | |||
Other revenues | 327 | 290 | 13% | |||
Total revenues | $1,903 | $2,089 | (9%) | |||
Benefits and expenses | ||||||
Benefits to policyholders and beneficiaries | $ 602 | $ 725 | (17%) | |||
Increase in reserves for future policy benefits and claims | 61 | 320 | (81%) | |||
Net transfers to separate accounts | 403 | 372 | 8% | |||
Commissions | 94 | 106 | (11%) | |||
Other expenses | 135 | 105 | 29% | |||
Total benefits and expenses | $1,295 | $1,628 | (20%) | |||
Pre-tax operating earnings | $ 608 | $ 461 | 32% |
December 31, | ||||||
(in millions) | 2019 | 2018 | Change | |||
Results of Operations | ||||||
Revenues | ||||||
Premiums and annuity considerations | $1,229 | $1,456 | (16%) | |||
Net investment income | 569 | 540 | 5% | |||
Amortization of interest maintenance reserve | 1 | - | 0% | |||
Other revenues | 290 | 267 | 9% | |||
Total revenues | $2,089 | $2,263 | (8%) | |||
Benefits and expenses | ||||||
Benefits to policyholders and beneficiaries | $ 725 | $ 583 | 24% | |||
Increase in reserves for future policy benefits and claims | 320 | 67 | 378% | |||
Net transfers to separate accounts | 372 | 946 | (61%) | |||
Commissions | 106 | 114 | (7%) | |||
Other expenses | 105 | 64 | 64% |
December 31, | ||||||
(in millions) | 2019 | 2018 | Change | |||
Total benefits and expenses | $1,628 | $1,774 | (8%) | |||
Pre-tax operating earnings | $ 461 | $ 489 | (6%) |
Payments due by period | ||||||||||
(in millions) | Less than 1 year | 1-3 years | More 3-5 years | than 5 years | Total | |||||
Future policy benefits and claims1,2,3,4 | $5,710 | 8,878 | 7,987 | 82,011 | 104,586 | |||||
Policyholders dividends accumulation5 | 430 | - | - | - | 430 | |||||
Short-term debt6 | 3 | - | - | - | 3 | |||||
Securities lending payable7 | 102 | 102 | ||||||||
Surplus notes8 | 71 | 141 | 141 | 2,029 | 2,382 | |||||
Total | $6,316 | $9,019 | $8,128 | $84,040 | $107,503 |
1 | A significant portion of policy contract benefits and claims to be paid do not have stated contractual maturity dates and may not result in any ultimate payment obligation. Amounts reported represent estimated undiscounted cash flows out of the Company’s general account related to death, surrender, annuity and other benefit payments under policy contracts in force as of December 31, 2020. Separate account payments are not reflected due to the matched nature of these obligations and because the contract owners bear the investment risk of such deposits. Estimated payment amounts were developed based on the Company’s historical experience and related contractual provisions. Significant assumptions incorporated in the reported amounts include future policy lapse rates (including the impact of customer decisions to make future premium payments to keep the related policies in force); coverage levels remaining unchanged from those provided under contracts in force as of December 31, 2020; future interest crediting rates; and estimated timing of payments. Actual amounts will vary, potentially by a significant amount, from the amounts indicated due to deviations between assumptions and actual results and the addition of new business in future periods. |
2 | Contractual provisions exist which could adjust the amount and/or timing of those obligations reported. Key assumptions related to payments due by period include customer lapse and withdrawal rates (including timing of death), exchanges to and from the fixed and separate accounts of the variable annuities, claim experience with respect to guarantees, and future interest crediting levels. Assumptions for future interest crediting levels were made based on processes consistent with the Company’s past practices, which are at the discretion of the Company, subject to guaranteed minimum crediting rates in many cases and/or subject to contractually obligated increases for specified time periods. Many of the contracts with potentially accelerated payments are subject to surrender charges, which are generally calculated as a percentage of deposits made and are assessed at declining rates during the first seven years after a deposit is made. Amounts disclosed include an estimate of those accelerated payments, net of applicable surrender charges. See Note 2 to the audited statutory financial statements included in the F pages of this report for a description of the Company’s method for establishing life and annuity reserves. |
3 | Certain assumptions have been made about mortality experience and retirement patterns in the amounts reported. Actual deaths and retirements may differ significantly from those projected, which could cause the timing of the obligations reported to vary significantly. In addition, contractual surrender provisions exist on an immaterial portion of these contracts that could accelerate those obligations presented. Amounts disclosed do not include an estimate of those accelerated payments. Most of the contracts with potentially accelerated payments are subject to surrender charges, which are generally calculated as a percentage of the commuted value of the remaining term certain benefit payments and are assessed at declining rates during the first seven policy years. |
4 | Contractual provisions exist that could increase those obligations presented. The process for determining future interest crediting rates, as described in Note 2 above, was used to develop the estimates of payments due by period. |
5 | The provision for policyholders' dividends payable represents the liabilities related to dividends payable in the following year on participating policies. As such, the obligations related to these liabilities are presented in the table above in the less than one year category in the amounts of the liabilities presented in the Company's Statement of Admitted Assets, Liabilities, Capital and Surplus. |
6 | No contractual provisions exist that could create, increase or accelerate those obligations presented. The amount presented includes interest accrued based on rates in effect during 2020. See Note 9 to the audited statutory financial statements, included in the F pages of this report for more details. |
7 | Since the timing of the return is uncertain, these obligations have been reflected in payments due in less than one year. |
8 | See Note 10 to the audited statutory financial statements included in the F pages of this report for a discussion of the Company’s surplus notes. |
December 31, 2020 | December 31, 2019 | |||||||
(in millions) | Carrying value | % of total | Carrying value | % of total | ||||
Invested assets: | ||||||||
Bonds | $37,207 | 74% | $35,124 | 73% | ||||
Stocks | 2,835 | 6% | 2,622 | 6% | ||||
Mortgage loans, net of allowance | 7,783 | 15% | 7,655 | 16% | ||||
Policy loans | 888 | 2% | 903 | 2% | ||||
Derivative assets | 51 | 0% | 94 | 0% | ||||
Cash, cash equivalents and short-term investments | 461 | 1% | 556 | 1% | ||||
Securities lending collateral assets | 101 | 0% | 132 | 0% | ||||
Other invested assets | 955 | 2% | 958 | 2% | ||||
Total invested assets | $50,281 | 100% | $48,044 | 100% |
(in millions) | December 31, 2020 | December 31, 2019 | ||||||||||
NAIC designation | Carrying value | Fair value | % of total statement value | Carrying value | Fair value | % of total statement value | ||||||
1 | $20,212 | $22,806 | 54% | $19,561 | $21,185 | 55% | ||||||
2 | 14,886 | 16,833 | 40% | 13,933 | 14,919 | 40% | ||||||
3 | 1,635 | 1,695 | 5% | 1,115 | 1,119 | 3% | ||||||
4 | 353 | 347 | 1% | 296 | 299 | 1% | ||||||
5 | 113 | 109 | 0% | 199 | 170 | 1% | ||||||
6 | 8 | 20 | 0% | 20 | 43 | 0% | ||||||
7 | $ 37,20 | $41,810 | 100% | $35,124 | $37,735 | 100% |
(in millions) | December 31, 2020 | December 31, 2019 | ||||||||||
NAIC designation | Statement Value | Fair Value | % of total statement value | Statement Value | Fair Value | % of total statement value | ||||||
1 | $6,759 | 7,024 | 95% | $5,035 | 5,200 | 94% | ||||||
2 | 191 | 223 | 3% | 231 | 260 | 4% | ||||||
3 | 111 | 105 | 2% | 67 | 62 | 1% | ||||||
4 | 55 | 51 | 0% | 63 | 60 | 1% | ||||||
5 | 20 | 19 | 0% | 19 | 18 | 0% | ||||||
6 | 5 | 18 | 0% | 18 | 40 | 0% | ||||||
$7,141 | $7,440 | 100% | $5,433 | $5,640 | 100% |
December 31, | ||||
(in millions) | 2020 | 2019 | ||
Alternative investments: | ||||
Private equity funds | $321 | $267 | ||
Real estate partnerships | 366 | 299 | ||
Tax credit funds | 177 | 192 | ||
Investment in Eagle | 52 | 65 | ||
Total alternative investments | $916 | $823 | ||
Derivatives collateral and receivables | 39 | 135 | ||
Total other invested assets | $955 | $958 |
Life Insurance1 | Annuities 2 | Retirement Solutions3 | Corporate Solutions and Other | |||||||||||||
(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 | ||||||||
December 31, 2020 | ||||||||||||||||
Minimum guaranteed crediting rate of 3.51% or greater | $594 | 4.00% | $ - | -% | $ 38 | 3.95% | $ - | -% | ||||||||
Minimum guaranteed crediting rate of 3.01% to 3.50% | $ - | -% | $ 210 | 3.64% | $ 6,346 | 3.42% | $ - | -% | ||||||||
Minimum guaranteed crediting rate of 2.01% to 3.00% | $575 | 3.05% | $1,451 | 3.04% | $ 4,172 | 2.83% | $2,306 | 3.04% | ||||||||
Minimum guaranteed crediting rate of 0.01% to 2.00% | $ 55 | 2.56% | $ 553 | 1.12% | $10,548 | 2.92% | $ 979 | 3.07% | ||||||||
No minimum guaranteed crediting rate4 | $ - | -% | $ 56 | 0.55% | $ 1,246 | 2.39% | $ - | -% | ||||||||
December 31, 2019 | ||||||||||||||||
Minimum guaranteed crediting rate of 3.51% or greater | $607 | 4.00% | $ - | -% | $ 280 | 3.66% | $ - | -% | ||||||||
Minimum guaranteed crediting rate of 3.01% to 3.50% | $ - | -% | $ 203 | 3.54% | $13,800 | 3.31% | $ - | -% | ||||||||
Minimum guaranteed crediting rate of 2.01% to 3.00% | $562 | 3.13% | $1,459 | 3.01% | $ 2,195 | 2.80% | $2,336 | 3.12% | ||||||||
Minimum guaranteed crediting rate of 0.01% to 2.00% | $ 37 | 2.79% | $ 539 | 1.22% | $ 1,610 | 2.47% | $ 919 | 3.25% | ||||||||
No minimum guaranteed crediting rate4 | $ - | -% | $ 10 | 2.27% | $ 2,882 | 2.29% | $ - | -% |
1 | Includes universal life products and the fixed investment options selected within variable life products. |
2 | Includes individual fixed annuity products and the fixed investment options selected within variable annuity and indexed products. |
3 | Includes group fixed annuity products. |
4 | Includes certain products with a stated minimum guaranteed crediting rate of 0%. |
Name | Age | Date Service Began | ||
John L. Carter | 58 | February 2013 | ||
Timothy G. Frommeyer | 56 | January 2009 | ||
Steven A. Ginnan | 53 | June 2018 | ||
Eric S. Henderson | 58 | March 2012 | ||
Mark R. Thresher | 64 | January 2009 | ||
Kirt A. Walker | 57 | November 2009 |
Name | Age | Position with NLIC | ||
Gale V. King | 64 | Executive Vice President-Chief Administrative Officer | ||
Mark R. Thresher | 64 | Executive Vice President | ||
James R. Fowler | 49 | Executive Vice President-Chief Information Officer | ||
Tina Ambrozy | 50 | Senior Vice President-NF Strategic Customer Solutions | ||
Ann S. Bair | 58 | Senior Vice President-Marketing Management-Financial Services | ||
Pamela A. Biesecker | 59 | Senior Vice President-Head of Taxation | ||
John L. Carter | 58 | President and Chief Operating Officer | ||
Joel L. Coleman | 55 | Senior Vice President-Chief Investment Officer | ||
Rae Ann Dankovic | 53 | Senior Vice President-Nationwide Financial Services Legal | ||
Steven M. English | 46 | Senior Vice President-External Affairs | ||
Timothy G. Frommeyer | 56 | Senior Vice President-Chief Financial Officer | ||
Steven A. Ginnan | 53 | Senior Vice President-Chief Financial Officer-Nationwide Financial | ||
Mia S. Hairston | 52 | Senior Vice President-Human Resources – NF | ||
Craig A. Hawley | 53 | Senior Vice President-Annuity Distribution | ||
Eric S. Henderson | 58 | Senior Vice President-Nationwide Annuity | ||
David LaPaul | 55 | Senior Vice President and Treasurer | ||
Kevin G. O’Brien | 52 | Senior Vice President-IT Chief Financial Officer, Procurement & BTO | ||
Juan J. Perez | 40 | Senior Vice President-Corporate Solutions | ||
Scott Ramey | 49 | Senior Vice President-Retirement Plan Sales | ||
Sandra L. Rich | 60 | Senior Vice President | ||
Michael A. Richardson | 52 | Senior Vice President-Chief Technology Officer - Nationwide Financial | ||
Kristi L. Rodriquez | 47 | Senior Vice President-Nationwide Retirement Institute | ||
Denise L. Skingle | 50 | Senior Vice President-Finance & Strategy Legal and Corporate Secretary | ||
Holly R. Snyder | 53 | Senior Vice President-Nationwide Life | ||
Michael S. Spangler | 55 | Senior Vice President-Investment Management Group |
Name and address of beneficial owner | Amount and nature of beneficial ownership | Percent of class | ||
Nationwide Financial Services, Inc. 1 Nationwide Plaza Columbus, Ohio 43215 | 3,814,779 shares | 100% |
• | using position at Nationwide or affiliation with any Nationwide company for personal gain or advantage; and |
• | any interest or association that interferes with independent exercise of judgment in the best interest of Nationwide. |
NATIONWIDE LIFE INSURANCE COMPANY
FOR THE YEAR ENDED DECEMBER 31, 2020
Audit Committee of the Board of Directors Nationwide Life Insurance Company:
We have audited the accompanying financial statements of Nationwide Life Insurance Company (the “Licensee”Company), which comprise the statutory statements of admitted assets, liabilities, capital and surplus as of December 31, 2020 and 2019, and the related statutory statements of operations, changes in capital and surplus, and cash flow for each of the years in the three-year period ended December 31, 2020, and the related notes to the statutory financial statements (“statutory financial statements”).
Management’s Responsibility for the Licensee’s benefit. NeitherFinancial Statements
Management is responsible for the Licensee norpreparation and fair presentation of these financial statements in accordance with statutory accounting practices prescribed or permitted by the ContractOhio Department of Insurance (the “Product”)Department). Management is sponsored, operated, endorsed, soldalso responsible for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or promotederror.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by J.P. Morgan Securities LLC (“JPMS”)management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.
Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles
As described in Note 2 to the financial statements, the financial statements are prepared by the Company using statutory accounting practices prescribed or anypermitted by the Department, which is a basis of accounting other than U.S. generally accepted accounting principles. Accordingly, the financial statements are not intended to be presented in accordance with U.S. generally accepted accounting principles.
The effects on the financial statements of the variances between the statutory accounting practices described in Note 2 and U.S. generally accepted accounting principles, although not reasonably determinable, are presumed to be material.
Adverse Opinion on U.S. Generally Accepted Accounting Principles
In our opinion, because of the significance of the variances between statutory accounting practices and U.S. generally accepted accounting principles discussed in the Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles paragraph, the financial statements referred to above do not present fairly, in accordance with U.S. generally accepted accounting principles, the financial position of the Company as of December 31, 2020 and 2019, or the results of its affiliates (together and individually, “J.P. Morgan”). J.P. Morgan makes no representation and no warranty, expressoperations or implied, to investors in or ownersits cash flows for each of the Product (or any person taking exposureyears in the three-year period ended December 31, 2020.
Opinion on Statutory Basis of Accounting
In our opinion, the financial statements referred to it) or any memberabove present fairly, in all material respects, the admitted assets, liabilities, capital and surplus of the public in any other circumstances (each a “Contract Owner”): (a) regardingCompany as of December 31, 2020 and 2019, and the advisabilityresults of investing in securities or other financial or insurance products generally orits operations and its cash flow for each of the years in the Product particularly;three-year period ended December 31, 2020, in accordance with statutory accounting practices prescribed or (b)permitted by the suitability or appropriatenessDepartment described in Note 2.
Other Matter
Our audits were conducted for the purpose of forming an exposureopinion on the financial statements as a whole. The supplementary information included in Schedule I Consolidated Summary of Investments – Other Than Investments in Related Parties, Schedule III Supplementary Insurance Information, Schedule IV Reinsurance and Schedule V Valuation and Qualifying Accounts is presented for purposes of additional analysis and is not a required part of the financial statements but is supplementary information required by the Securities and Exchange Commission’s Regulation S-X. Such information is the responsibility of management and was derived from and relates directly to the J.P. Morgan Index in seekingunderlying accounting and other records used to achieve any particular objective. It is for those taking an exposureprepare the financial statements. The information has been subjected to the Product and/orauditing procedures applied in the J.P. Morgan Index to satisfy themselves of these matters and such persons should seek appropriate professional advice before making any investment. J.P. Morgan is not responsible for and does not have any obligation or liability in connection with the issuance, administration, marketing or tradingaudits of the Product. The publication offinancial statements and certain additional procedures, including comparing and reconciling such information directly to the J.P. Morgan Indexunderlying accounting and other records used to prepare the referencing of any assetfinancial statements or to the financial statements themselves, and other factor of any kindadditional procedures in accordance with auditing standards generally accepted in the J.P. Morgan Index do not constitute any formUnited States of investment recommendation or adviceAmerica. In our opinion, the information is fairly stated in respect of any such asset or other factor by J.P. Morgan and no person should rely upon it as such. J.P. Morgan does not act as an investment adviser or investment manager in respect of the J.P. Morgan Index or the Product and does not accept any fiduciary dutiesall material respects in relation to the J.P. Morgan Index, the Licensee, the Product or any Contract Owner.financial statements as a whole.
Columbus, Ohio
March 19, 2021
71F-2
The J.P. Morgan Index has been designedNATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Statutory Statements of Admitted Assets, Liabilities, Capital and is compiled, calculated, maintained and sponsored by J.P. Morgan without regardSurplus
December 31, | ||||||||
(in millions, except share amounts) | 2020 | 2019 | ||||||
Admitted assets | ||||||||
Invested assets | ||||||||
Bonds | $ | 37,207 | $ | 35,124 | ||||
Stocks | 2,835 | 2,622 | ||||||
Mortgage loans, net of allowance | 7,783 | 7,655 | ||||||
Policy loans | 888 | 903 | ||||||
Derivative assets | 51 | 94 | ||||||
Cash, cash equivalents and short-term investments | 461 | 556 | ||||||
Securities lending collateral assets | 101 | 132 | ||||||
Other invested assets | 955 | 958 | ||||||
Total invested assets | $ | 50,281 | $ | 48,044 | ||||
Accrued investment income | 692 | 573 | ||||||
Deferred federal income tax assets, net | 642 | 601 | ||||||
Federal income tax receivable | 11 | 108 | ||||||
Other assets | 184 | 152 | ||||||
Separate account assets | 114,407 | 105,655 | ||||||
Total admitted assets | $ | 166,217 | $ | 155,133 | ||||
Liabilities, capital and surplus | ||||||||
Liabilities | ||||||||
Future policy benefits and claims | $ | 41,002 | $ | 39,139 | ||||
Policyholders dividend accumulation | 430 | 452 | ||||||
Short-term debt | 3 | 203 | ||||||
Asset valuation reserve | 466 | 479 | ||||||
Payable for securities | 177 | 113 | ||||||
Derivative liabilities | 87 | 23 | ||||||
Securities lending payable | 101 | 132 | ||||||
Other liabilities | 1,929 | 1,682 | ||||||
Accrued transfers from separate accounts | (1,490 | ) | (1,567 | ) | ||||
Separate account liabilities | 114,407 | 105,655 | ||||||
Total liabilities | $ | 157,112 | $ | 146,311 | ||||
Capital and surplus | ||||||||
Capital shares ($1 par value; authorized - 5,000,000 shares, issued and outstanding - 3,814,779 shares) | $ | 4 | $ | 4 | ||||
Surplus notes | 1,100 | 1,100 | ||||||
Additional paid-in capital | 1,998 | 1,998 | ||||||
Unassigned surplus | 6,003 | 5,720 | ||||||
Total capital and surplus | $ | 9,105 | $ | 8,822 | ||||
Total liabilities, capital and surplus | $ | 166,217 | $ | 155,133 |
See accompanying notes to the Licensee, the Product or any Contract Owner. The ability of the Licensee to make use of the J.P. Morgan Index may be terminated on short notice and it is the responsibility of the Licensee to provide for the consequences of that in the design of the Product. J.P. Morgan does not accept any legal obligation to take the needs of any person who may invest in a Product into account in designing, compiling, calculating, maintaining or sponsoring the J.P. Morgan Index or in any decision to cease doing so.
J.P. Morgan does not give any representation, warranty or undertaking, of any type (whether express or implied, statutory or otherwise) in relation to the J.P. Morgan Index, as to condition, satisfactory quality, performance or fitness for purpose or as to the results to be achieved by an investment in the Product or any data included in or omissions from the J.P. Morgan Index, or the use of the J.P. Morgan Index in connection with the Product or the veracity, currency, completeness or accuracy of the information on which the J.P. Morgan Index is based (and without limitation, J.P. Morgan accepts no liability to any Contract Owner for any errors or omissions in that information or the results of any interruption to it and J.P. Morgan shall be under no obligation to advise any person of any such error, omission or interruption). To the extent any such representation, warranty or undertaking could be deemed to have been given by J.P. Morgan, it is excluded save to the extent that such exclusion is prohibited by law. To the fullest extent permitted by law, J.P. Morgan shall have no liability or responsibility to any person or entity (including, without limitation, to any Contract Owners) for any losses, damages, costs, charges, expenses or other liabilities howsoever arising, including, without limitation, liability for any special, punitive, indirect or consequential damages (including loss of business or loss of profit, loss of time and loss of goodwill), even if notified of the possibility of the same, arising in connection with the design, compilation, calculation, maintenance or sponsoring of the J.P. Morgan Index or in connection with the Product.”
The J.P. Morgan Index is the exclusive property of J.P. Morgan. J.P. Morgan is under no obligation to continue compiling, calculating, maintaining or sponsoring the J.P. Morgan Index and may delegate or transfer to a third party some or all of its functions in relation to the J.P. Morgan Index.
J.P. Morgan may independently issue or sponsor other indices or products that are similar to and may compete with the J.P. Morgan Index and the Product. J.P. Morgan may also transact in assets referenced in the J.P. Morgan Index (or in financial instruments such as derivatives that reference those assets). It is possible that these activities could have an effect (positive or negative) on the value of the J.P. Morgan Index and the Product.
No actual investment which allowed tracking of the performance of the Index was possible before December 2016. Any hypothetical “back-tested” information provided is illustrative only and derived from proprietary models designed with the benefit of hindsight based on certain data (which may or may not correspond with the data that someone else would use to back-test the Indices) and assumptions and estimates (not all of which may be specified herein and which are subject to change without notice). The results obtained from different models, assumptions, estimates and/or data may be materially different from the results presented herein and such hypothetical “back-tested” information should not be considered indicative of the actual results that might be obtained from an investment or participation in a financial instrument or transaction referencing the Indices. J.P. Morgan expressly disclaims any responsibility for (i) the accuracy or completeness of the models, assumptions, estimates and data used in deriving the hypothetical “back-tested” information, (ii) any errors or omissions in computing or disseminating the hypothetical “back-tested” information, and (iii) any uses to which the hypothetical “back-tested” information may be put by any recipient of such information.
Each of the above paragraphs is severable. If the contents of any such paragraph is held to be or becomes invalid or unenforceable in any respect in any jurisdiction, it shall have no effect in that respect, but without prejudice to the remainder of this notice.
MSCI EAFE INDEX
The product referred to herein is not sponsored, endorsed, or promoted by MSCI, and MSCI bears no liability with respect to any such product or any index on which such product is based. The Contract contains a more detailed description of the limited relationship MSCI has with Nationwide and any related funds.
THIS PRODUCT IS NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY MSCI INC.(“MSCI”), ANY OF ITS AFFILIATES, ANY OF ITS INFORMATION PROVIDERS OR ANY OTHER THIRD PARTY INVOLVED IN, OR RELATED TO, COMPILING, COMPUTING OR CREATING ANY MSCI INDEX (COLLECTIVELY, THE“MSCI PARTIES”). THE MSCI INDEXES ARE THE EXCLUSIVE PROPERTY OF MSCI. MSCI AND THE MSCI INDEXstatements.
72F-3
NAMES ARE SERVICE MARK(S) OF MSCI OR ITS AFFILIATES AND HAVE BEEN LICENSED FOR USE FOR CERTAIN PURPOSES BY NATIONWIDE. NONE OF THE MSCI PARTIES MAKES ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO THE ISSUER OR OWNERS OF THIS PRODUCT OR ANY OTHER PERSON OR ENTITY REGARDING THE ADVISABILITY OF INVESTING IN PRODUCTS GENERALLY OR IN THIS PRODUCT PARTICULARLY OR THE ABILITY OF ANY MSCI INDEX TO TRACK CORRESPONDING STOCK MARKET PERFORMANCE. MSCI OR ITS AFFILIATES ARE THE LICENSORS OF CERTAIN TRADEMARKS, SERVICE MARKS AND TRADE NAMES AND OF THE MSCI INDEXES WHICH ARE DETERMINED, COMPOSED AND CALCULATED BY MSCI WITHOUT REGARD TO THIS PRODUCT OR THE ISSUER OR OWNERS OF THIS PRODUCT OR ANY OTHER PERSON OR ENTITY. NONE OF THE MSCI PARTIES HAS ANY OBLIGATION TO TAKE THE NEEDS OF THE ISSUER OR OWNERS OF THIS PRODUCT OR ANY OTHER PERSON OR ENTITY INTO CONSIDERATION IN DETERMINING, COMPOSING OR CALCULATING THE MSCI INDEXES. NONE OF THE MSCI PARTIES IS RESPONSIBLE FOR OR HAS PARTICIPATED IN THE DETERMINATION OF THE TIMING OF, PRICES AT, OR QUANTITIES OF THIS PRODUCT TO BE ISSUED OR IN THE DETERMINATION OR CALCULATION OF THE EQUATION BY OR THE CONSIDERATION INTO WHICH THIS PRODUCT IS REDEEMABLE. FURTHER, NONE OF THE MSCI PARTIES HAS ANY OBLIGATION OR LIABILITY TO THE ISSUER OR OWNERS OF THIS PRODUCT OR ANY OTHER PERSON OR ENTITY IN CONNECTION WITH THE ADMINISTRATION, MARKETING OR OFFERING OF THIS FUND.NATIONWIDE LIFE INSURANCE COMPANY
ALTHOUGH MSCI SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN THE CALCULATION OF THE MSCI INDEXES FROM SOURCES THAT MSCI CONSIDERS RELIABLE, NONE OF THE MSCI PARTIES WARRANTS OR GUARANTEES THE ORIGINALITY, ACCURACY AND/OR THE COMPLETENESS OF ANY MSCI INDEX OR ANY DATA INCLUDED THEREIN. NONE OF THE MSCI PARTIES MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE ISSUER OF THE PRODUCT, OWNERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY, FROM THE USE OF ANY MSCI INDEX OR ANY DATA INCLUDED THEREIN. NONE OF THE MSCI PARTIES SHALL HAVE ANY LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS OF OR IN CONNECTION WITH ANY MSCI INDEX OR ANY DATA INCLUDED THEREIN. FURTHER, NONE OF THE MSCI PARTIES MAKES ANY EXPRESS OR IMPLIED WARRANTIES OF ANY KIND, AND THE MSCI PARTIES HEREBY EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO EACH MSCI INDEX AND ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL ANY OF THE MSCI PARTIES HAVE ANY LIABILITY FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY OTHER DAMAGES (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Statutory Statements of Operations
Year ended December 31, | ||||||||||||
(in millions) | 2020 | 2019 | 2018 | |||||||||
Revenues | ||||||||||||
Premiums and annuity considerations | $ | 10,637 | $ | 10,168 | $ | 9,829 | ||||||
Net investment income | 2,107 | 1,974 | 1,927 | |||||||||
Amortization of interest maintenance reserve | - | (2 | ) | (1 | ) | |||||||
Other revenues | 2,372 | 2,312 | 2,240 | |||||||||
Total revenues | $ | 15,116 | $ | 14,452 | $ | 13,995 | ||||||
Benefits and expenses | ||||||||||||
Benefits to policyholders and beneficiaries | $ | 15,013 | $ | 14,782 | $ | 13,961 | ||||||
Increase in reserves for future policy benefits and claims | 1,627 | 1,501 | 736 | |||||||||
Net transfers from separate accounts | (3,544 | ) | (3,747 | ) | (2,468 | ) | ||||||
Commissions | 646 | 674 | 670 | |||||||||
Dividends to policyholders | 36 | 38 | 40 | |||||||||
Reserve adjustment on reinsurance assumed | (172 | ) | (246 | ) | (352 | ) | ||||||
Other expenses | 444 | 417 | 398 | |||||||||
Total benefits and expenses | $ | 14,050 | $ | 13,419 | $ | 12,985 | ||||||
Income before federal income tax expense and net realized capital losses on investments | $ | 1,066 | $ | 1,033 | $ | 1,010 | ||||||
Federal income tax expense (benefit) | 4 | (73 | ) | 64 | ||||||||
Income before net realized capital losses on investments | $ | 1,062 | $ | 1,106 | $ | 946 | ||||||
Net realized capital (losses) on investments, net of federal income tax (benefit) expense of $(26), $7 and $8 in 2020, 2019 and 2018, respectively, and excluding $(4), $0 and $(1) of net realized capital (losses) transferred to the interest maintenance reserve in 2020, 2019 and 2018, respectively | (575 | ) | (477 | ) | (235 | ) | ||||||
Net income | $ | 487 | $ | 629 | $ | 711 |
See accompanying notes to statutory financial statements.
F-4
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Statutory Statements of Changes in Capital and Surplus
(in millions) | Capital shares | Surplus notes | Additional paid-in capital | Unassigned surplus | Capital and surplus | |||||||||||||||
Balance as of December 31, 2017 | $ | 4 | $ | 700 | $ | 963 | $ | 4,282 | $ | 5,949 | ||||||||||
Net income | - | - | - | 711 | 711 | |||||||||||||||
Change in asset valuation reserve | - | - | - | (12 | ) | (12 | ) | |||||||||||||
Change in deferred income taxes | - | - | - | 72 | 72 | |||||||||||||||
Change in net unrealized capital gains and losses, net of tax expense of $88 | - | - | - | (304 | ) | (304 | ) | |||||||||||||
Change in nonadmitted assets | - | - | - | (6 | ) | (6 | ) | |||||||||||||
Capital contribution from Nationwide | ||||||||||||||||||||
Financial Services, Inc. | - | - | 435 | - | 435 | |||||||||||||||
Balance as of December 31, 2018 | $ | 4 | $ | 700 | $ | 1,398 | $ | 4,743 | $ | 6,845 | ||||||||||
Net income | - | - | - | 629 | 629 | |||||||||||||||
Change in asset valuation reserve | - | - | - | (107 | ) | (107 | ) | |||||||||||||
Change in deferred income taxes | - | - | - | (29 | ) | (29 | ) | |||||||||||||
Change in net unrealized capital gains and losses, net of tax (benefit) of ($29) | - | - | - | 426 | 426 | |||||||||||||||
Change in nonadmitted assets | - | - | - | 59 | 59 | |||||||||||||||
Change in surplus notes | - | 400 | - | - | 400 | |||||||||||||||
Capital contribution from Nationwide Financial Services, Inc. | - | - | 600 | - | 600 | |||||||||||||||
Other, net | - | - | - | (1 | ) | (1 | ) | |||||||||||||
Balance as of December 31, 2019 | $ | 4 | $ | 1,100 | $ | 1,998 | $ | 5,720 | $ | 8,822 | ||||||||||
Change in reserve on account of change in valuation basis | - | - | - | 78 | 78 | |||||||||||||||
Cumulative effect of change in accounting principle | - | - | - | 5 | 5 | |||||||||||||||
Balance as of January 1, 2020 | $ | 4 | $ | 1,100 | $ | 1,998 | $ | 5,803 | $ | 8,905 | ||||||||||
Net income | - | - | - | 487 | 487 | |||||||||||||||
Change in asset valuation reserve | - | - | - | 13 | 13 | |||||||||||||||
Change in deferred income taxes | - | - | - | 41 | 41 | |||||||||||||||
Change in net unrealized capital gains and losses, net of tax (benefit) of ($3) | - | - | - | (313 | ) | (313 | ) | |||||||||||||
Change in nonadmitted assets | - | - | - | (21 | ) | (21 | ) | |||||||||||||
Other, net | - | - | - | (7 | ) | (7 | ) | |||||||||||||
Balance as of December 31, 2020 | $ | 4 | $ | 1,100 | $ | 1,998 | $ | 6,003 | $ | 9,105 |
See accompanying notes to statutory financial statements.
F-5
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Statutory Statements of Cash Flow
Years ended December 31, | ||||||||||||
(in millions) | 2020 | 2019 | 2018 | |||||||||
Cash flows from operating activities: | ||||||||||||
Premiums collected, net of reinsurance | $ | 10,648 | $ | 10,184 | $ | 9,812 | ||||||
Net investment income | 2,034 | 1,825 | 2,041 | |||||||||
Other revenue | 2,664 | 2,708 | 2,329 | |||||||||
Policy benefits and claims paid | (14,886 | ) | (14,778 | ) | (13,947 | ) | ||||||
Commissions, operating expenses and taxes, other than federal income tax paid | (885 | ) | (847 | ) | (710 | ) | ||||||
Net transfers from separate accounts | 3,620 | 3,805 | 2,606 | |||||||||
Policyholders’ dividends paid | (38 | ) | (40 | ) | (45 | ) | ||||||
Federal income taxes recovered | 121 | 87 | 74 | |||||||||
Net cash provided by operating activities | $ | 3,278 | $ | 2,944 | $ | 2,160 | ||||||
Cash flows from investing activities: | ||||||||||||
Proceeds from investments sold, matured or repaid: | ||||||||||||
Bonds | $ | 3,404 | $ | 3,547 | $ | 3,366 | ||||||
Stocks | 37 | 58 | 1 | |||||||||
Mortgage loans | 640 | 910 | 580 | |||||||||
Derivative assets | - | 4 | 560 | |||||||||
Other assets | 905 | 381 | 190 | |||||||||
Total investment proceeds | $ | 4,986 | $ | 4,900 | $ | 4,697 | ||||||
Cost of investments acquired: | ||||||||||||
Bonds | $ | (5,527 | ) | $ | (6,327 | ) | $ | (4,499 | ) | |||
Stocks | (517 | ) | (454 | ) | (608 | ) | ||||||
Mortgage loans | (769 | ) | (800 | ) | (762 | ) | ||||||
Derivative assets | (580 | ) | (687 | ) | - | |||||||
Other assets | (837 | ) | (340 | ) | (610 | ) | ||||||
Total investments acquired | $ | (8,230 | ) | $ | (8,608 | ) | $ | (6,479 | ) | |||
Net decrease in policy loans | 15 | 2 | 36 | |||||||||
Net cash used in investing activities | $ | (3,229 | ) | $ | (3,706 | ) | $ | (1,746 | ) | |||
Cash flows from financing activities and miscellaneous sources: | ||||||||||||
Surplus notes | $ | - | $ | 400 | $ | - | ||||||
Capital contribution from Nationwide Financial Services, Inc. | - | 600 | 435 | |||||||||
Net change in deposits on deposit-type contract funds and other insurance liabilities | 160 | (714 | ) | 228 | ||||||||
Net change in short-term debt | (200 | ) | (162 | ) | 365 | |||||||
Derivative liabilities | 65 | 2 | (135 | ) | ||||||||
Other cash (used) provided | (169 | ) | 93 | (172 | ) | |||||||
Net cash (used in) provided by financing activities and miscellaneous | $ | (144 | ) | $ | 219 | $ | 721 | |||||
Net (decrease) increase in cash, cash equivalents and short-term investments | $ | (95 | ) | $ | (543 | ) | $ | 1,135 | ||||
Cash, cash equivalents and short-term investments at beginning of year | 556 | 1,099 | (36 | ) | ||||||||
Cash, cash equivalents and short-term investments at end of year | $ | 461 | $ | 556 | $ | 1,099 | ||||||
Supplemental disclosure of non-cash activities: | ||||||||||||
Exchange of bond investments | $ | 799 | $ | 592 | $ | 573 | ||||||
Intercompany transfer of securities | $ | - | $ | 6 | $ | 108 | ||||||
Intercompany transfer of mortgages | $ | - | $ | - | $ | 155 |
See accompanying notes to statutory financial statements.
F-6
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
NYSE® ZEBRA EDGE® INDEXNotes to December 31, 2020, 2019 and 2018 Statutory Financial Statements
The mark NYSE® is a registered trademark of NYSE Group, Inc., Intercontinental Exchange, Inc. or their affiliates and is being utilized by ICE Data Indices, LLC under license and agreement. The marks Zebra® and Zebra Edge® are registered trademarks of Zebra Capital Management, LLC, may not be used without prior authorization from Zebra Capital Management, LLC, and are being utilized by ICE Data Indices, LLC under license and agreement.
ICE Data Indices, LLC owns all intellectual and other property rights to the NYSE® Zebra Edge® Index (the “Index”), including the composition and the calculation of the Index, excluding the methodology and formula for the Index. Zebra Capital Management, LLC owns all intellectual and other property rights to the methodology and formula for the Index, which are being used by ICE Data Indices, LLC under license from Zebra Capital Management, LLC (together with its subsidiaries and affiliates, “Zebra”).
(1) | Nature of Operations |
The Index has been licensed by ICE Data Indices, LLC (together with its subsidiaries and affiliates, “IDI”) to UBS AG and sub-licensed by UBS AG (together with its subsidiaries and affiliates, “UBS”) to Nationwide Life Insurance Company (“NLIC” or “the Company”) was incorporated in 1929 and is an Ohio domiciled stock life insurance company. The Company is a member of the Nationwide group of companies (“Nationwide”), which is comprised of Nationwide Mutual Insurance Company (“NMIC”) and all of its subsidiaries and affiliates.
All of the outstanding shares of 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.
The Company is a leading provider of long-term savings and retirement products in the United States of America (“U.S.”). Neither Nationwide norThe Company develops and sells a wide range of products and services, which include fixed and variable individual annuities, private and public sector group retirement plans, life insurance, investment advisory services and other investment products. The Company is licensed to conduct business in all fifty states, the Contract (the “Product”) is sponsored, operated, endorsed, recommended, sold or promoted by Zebra, IDI or UBS. Neither Zebra, IDI nor UBS makes any representation or gives any warranty, express or implied, regardingDistrict of Columbia, Guam, Puerto Rico and the advisability or possible benefits of purchasingU.S. Virgin Islands.
The Company sells its products through a diverse distribution network. Unaffiliated entities that sell the Product or any other financial product. Clients should undertakeCompany’s products to their own due diligencecustomer bases include independent broker-dealers, financial institutions, wirehouses and seek appropriate professional advice before purchasing any financial product, includingregional firms, pension plan administrators, life insurance agencies, life insurance specialists and registered investment advisors. Representatives of affiliates who market products directly to a customer base include Nationwide Retirement Solutions, Inc. and Nationwide Financial Network producers, which includes the Product.
The Index and other information disseminated by IDI are for informational purposes only, are provided on an “as is” basis, and are not intended for trading purposes. Neither Zebra nor IDI makes any warranty, express or implied, as to, without limitation, (i) the correctness, accuracy, reliability or other characteristicsagency distribution force of the Index, (ii)Company’s ultimate parent company, NMIC. NMIC completed the resultstransition away from utilizing the exclusive agent model in 2020. The Company believes its broad range of competitive products, strong distributor relationships and diverse distribution network position it to be obtained by any person or entity from the usecompete effectively under various economic conditions.
Wholly-owned subsidiaries of the Index for any purpose, or (iii) relating to the useNLIC as of the IndexDecember 31, 2020 include Nationwide Life and other information covered by the Product, including, but not limited to, express or implied warranties of merchantability, fitness for a particular purpose or use, title or non-infringement. IDI does not warrant that the Index will be uninterrupted and is under no obligation to continue compiling, calculating, maintaining or sponsoring the Index.
73
The Index (including the methodology(ies) and formula(s) therefor) has been designed and is compiled, calculated, maintained and sponsored without regard to any financial products that reference the Index (including the Product), any licensee, sub-licensor or sub-licensee of the Index, any client or any other person. Zebra, IDI and UBS may independently issue and/or sponsor other indices and products that are similar to and/or may compete with the Index and the Product. Zebra, IDI and UBS may also transact in assets referenced in the Index (or in financial instruments such as derivatives that reference those assets), including those which could have a positive or negative effect on the value of the Index and the Product.
None of Zebra, IDI or UBS shall bear any responsibility or liability, whether for negligence or otherwise, with respect to (i) any inaccuracies, omissions, mistakes or errors in the methodology(ies) and formula(s) for, or computation of, the Index (and shall not be obligated to advise any person of and/or to correct any such inaccuracies, omissions, mistakes or errors), (ii) the use of and/or reference to the Index by Zebra, IDI, UBS or any other person in connection with any financial product or otherwise, or (iii) any economic or other loss which may be directly or indirectly sustained by any client or other person dealing with any such financial product or otherwise. Any client or other person dealing with such financial products does so, therefore, in full knowledge of this disclaimer and can place no reliance whatsoever on Zebra, IDI or UBS nor bring claims, actions or legal proceedings in any manner whatsoever against any of them.
Bloomberg Barclays U.S. Corporate Index
BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. BARCLAYS® is a trademark and service mark of Barclays Bank Plc, used under license. Bloomberg Finance L.P.Annuity Insurance Company (“NLAIC”) and its affiliates, including Bloomberg Index Services Limitedwholly-owned subsidiaries, Olentangy Reinsurance, LLC (“BISL”Olentangy”) (collectively, “Bloomberg”and Nationwide SBL, LLC (“NWSBL”), or Bloomberg’s licensors own all proprietary rights in the “Bloomberg Barclays U.S. Corporate Index.”
Neither Barclays Bank PLC, Barclays Capital Inc., nor any affiliate (collectively “Barclays”Jefferson National Financial Corporation (“JNF”) nor Bloomberg is the issuer or producer of Nationwide Defined ProtectionSM Annuity and neither Bloomberg nor Barclays has any responsibilities, obligations or duties to purchasers in Nationwide Defined ProtectionSM Annuity. The Bloomberg Barclays U.S. Corporate Index is licensed for use by Nationwideits wholly-owned subsidiaries, Jefferson National Securities Corporation (“JNSC”) and Jefferson National Life Insurance Company (“Nationwide”JNLIC”), and its wholly-owned subsidiary, Jefferson National Life Insurance Company of New York (“JNLNY”), Eagle Captive Reinsurance, LLC (“Eagle”), Nationwide Investment Services Corporation (“NISC”) asand Nationwide Investment Advisor, LLC (“NIA”). NLAIC primarily offers fixed indexed annuity contracts and individual annuity contracts, universal life insurance, variable universal life insurance, term life insurance and corporate-owned life insurance on a non-participating basis. Olentangy is a Vermont domiciled special purpose financial captive insurance company. NWSBL offers a securities-based lending product and is an Ohio limited liability company and nonadmitted subsidiary. JNF is a distributor of tax-advantaged investing solutions for registered investment advisors, fee-based advisors and the Issuerclients they serve. JNSC is a registered broker-dealer. JNLIC and JNLNY are licensed to underwrite both fixed and variable annuity products. Eagle is an Ohio domiciled special purpose financial captive insurance company. NISC is a registered broker-dealer. NIA is a registered investment advisor.
The Company is subject to regulation by the insurance departments of Nationwide Defined ProtectionSM Annuity. states in which it is domiciled and/or transacts business and undergoes periodic examinations by those departments.
As of December 31, 2020 and 2019, the Company did not have a significant concentration of financial instruments in a single investee, industry or geographic region. Also, the Company did not have a concentration of business transactions with a particular customer, lender, distribution source, market or geographic region in which a single event could cause a severe impact on the Company’s financial position after considering insurance risk that has been transferred to external reinsurers.
(2) | Summary of Significant Accounting Policies |
Use of Estimates
The only relationship of Bloomberg and Barclays with the Issuer in respect of Bloomberg Barclays U.S. Corporate Index is the licensingpreparation of the Bloomberg Barclays U.S. Corporate Index, which is determined, composedstatutory financial statements requires the Company to make estimates and calculated by BISL, or any successor thereto, without regard toassumptions that affect the Issueramounts reported in the statutory financial statements and accompanying notes. Significant estimates include legal and regulatory reserves, certain investment and derivative valuations, future policy benefits and claims, provision for income taxes and valuation of Nationwide Defined ProtectionSM Annuity or the ownersdeferred tax assets. Actual results could differ significantly from those estimates.
Basis of Nationwide Defined ProtectionSM Annuity.Presentation
Additionally, Nationwide may for itself execute transaction(s) with Barclays in or relating to Bloomberg Barclays U.S. Corporate Index in connection with Nationwide Defined ProtectionSM Annuity. Purchasers acquire Nationwide Defined ProtectionSM Annuity from Nationwide and purchasers neither acquire any interest in Bloomberg Barclays U.S. Corporate Index nor enter into any relationship of any kind whatsoever with Bloomberg or Barclays upon making a purchase in Nationwide Defined ProtectionSM Annuity. Nationwide Defined ProtectionSM Annuity is not sponsored, endorsed, sold or promoted by Bloomberg or Barclays. Neither Bloomberg nor Barclays makes any representation or warranty, express or implied, regarding the advisabilityThe statutory financial statements of the purchase of Nationwide Defined ProtectionSM Annuity or the advisability of purchasing securities generally or the ability of the Bloomberg Barclays U.S. Corporate Index to track corresponding or relative market performance. Neither Bloomberg nor Barclays has passedCompany are presented on the legalitybasis of accounting practices prescribed or suitabilitypermitted by the Ohio Department of Nationwide Defined ProtectionSM Annuity with respectInsurance (“the Department”). Prescribed statutory accounting practices are those practices incorporated directly or by reference in state laws, regulations and general administrative rules applicable to any person or entity. Neither Bloomberg nor Barclays is responsible for or has participatedall insurance enterprises domiciled in a particular state. Permitted statutory accounting practices include practices not prescribed by the determination ofdomiciliary state, but allowed by the timing of, prices at, or quantities of Nationwide Defined ProtectionSM Annuity to be issued. Neither Bloomberg nor Barclays has any obligation to take the needs of the Issuer or the owners of Nationwide Defined ProtectionSM Annuity or any other third party into consideration in determining, composing or calculating the Bloomberg Barclays U.S. Corporate Index. Neither Bloomberg nor Barclays has any obligation or liability in connection with administration, marketing or trading of Nationwide Defined ProtectionSM Annuity.domiciliary state regulatory authority.
The licensing agreement between Bloomberg and Barclays is solely for the benefit of Bloomberg and Barclays and not for the benefit of the owners of Nationwide Defined ProtectionSM Annuity, investors or other third parties. In addition, the licensing agreement between Nationwide Financial Services, Inc. and Bloomberg is solely for the benefit
F-7
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2020, 2019 and Bloomberg and not for the benefit of the owners of Nationwide Defined ProtectionSM Annuity, investors or other third parties.2018 Statutory Financial Statements
74The Company’s subsidiary, Eagle, applies a prescribed practice which values assumed guaranteed minimum death benefits (“GMDB”) and guaranteed lifetime withdrawal benefits (“GLWB”) risks on variable annuity contracts from NLIC and GLWB risks on fixed indexed annuity contracts from NLAIC using separate alternative reserving bases from the Statutory Accounting Principles detailed within the National Association of Insurance Commissioners (“NAIC”) Accounting Practices and Procedures manual (“NAIC SAP”) pursuant to Ohio Revised Code Chapter 3964 and approved by the Department. The prescribed practice related to NLIC guaranteed risks decreased the Company’s subsidiary valuation of Eagle, included in other invested assets on the statutory statements of admitted assets, liabilities, capital and surplus, by $711 million and $411 million as of December 31, 2020 and 2019, respectively. The prescribed practice related to NLAIC guaranteed risks, increased the Company’s subsidiary valuation of Eagle, included in other invested assets on the statutory statements of admitted assets, liabilities, capital and surplus, by $523 million and $226 million as of December 31, 2020 and 2019, respectively.
NEITHER BLOOMBERG NOR BARCLAYS SHALL HAVE ANY LIABILITY TO THE ISSUER, INVESTORS OR OTHER THIRD PARTIES FOR THE QUALITY, ACCURACY AND/OR COMPLETENESS OF THE BLOOMBERG BARCLAYS U.S. CORPORATE INDEX OR ANY DATA INCLUDED THEREIN OR FOR INTERRUPTIONS IN THE DELIVERY OF THE BLOOMBERG BARCLAYS U.S. CORPORATE INDEX. NEITHER BLOOMBERG NOR BARCLAYS MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE ISSUER, THE INVESTORS OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE BLOOMBERG BARCLAYS U.S. CORPORATE INDEX OR ANY DATA INCLUDED THEREIN. NEITHER BLOOMBERG NOR BARCLAYS MAKES ANY EXPRESS OR IMPLIED WARRANTIES, AND EACH HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FORThere was no difference in the Company’s net income as a result of prescribed or permitted practices. If the prescribed or permitted practices were not applied, the Company’s risk-based capital would continue to be above regulatory action levels. A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE BLOOMBERG BARCLAYS U.S. CORPORATE INDEX OR ANY DATA INCLUDED THEREIN. BLOOMBERG RESERVES THE RIGHT TO CHANGE THE METHODS OF CALCULATION OR PUBLICATION, OR TO CEASE THE CALCULATION OR PUBLICATION OF THE BLOOMBERG BARCLAYS U.S. CORPORATE INDEX, AND NEITHER BLOOMBERG NOR BARCLAYS SHALL BE LIABLE FOR ANY MISCALCULATION OF OR ANY INCORRECT, DELAYED OR INTERRUPTED PUBLICATION WITH RESPECT TO ANY OF THE BLOOMBERG BARCLAYS U.S. CORPORATE INDEX. NEITHER BLOOMBERG NOR BARCLAYS SHALL BE LIABLE FOR ANY DAMAGES, INCLUDING, WITHOUT LIMITATION, ANY SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES, OR ANY LOST PROFITS, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH, RESULTING FROM THE USE OF THE BLOOMBERG BARCLAYS U.S. CORPORATE INDEX OR ANY DATA INCLUDED THEREIN OR WITH RESPECT TO NATIONWIDE DEFINED PROTECTIONSM ANNUITY.
Nonereconciliation of the information supplied by Bloomberg or BarclaysCompany’s capital and used in this publication may be reproduced in any manner without the prior written permission of both Bloombergsurplus between NAIC SAP and Barclays Capital, the investment banking division of Barclays Bank PLC. Barclays Bank PLCprescribed and permitted practices is registered in England No. 1026167, registered office 1 Churchill Place London E14 5HP.
(in millions) | | SSAP # | | F/S Page | | State of domicile | | | As of December 31, 2020 |
| | As of December 31, 2019 |
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Capital and Surplus | ||||||||||||||||||||
Statutory Capital and Surplus | OH | $ | 9,105 | $ | 8,822 | |||||||||||||||
State Prescribed Practice: | ||||||||||||||||||||
Subsidiary valuation - Eagle: NLIC risks ceded | 52 | 3 | OH | 711 | 411 | |||||||||||||||
Subsidiary valuation - Eagle: NLAIC risks ceded | 52 | 3 | OH | (523 | ) | (226 | ) | |||||||||||||
State Permitted Practice: | ||||||||||||||||||||
Subsidiary valuation - Olentangy | 20 | 3 | VT | (67 | ) | (67 | ) | |||||||||||||
Statutory Capital and Surplus, NAIC SAP | $ | 9,226 | $ | 8,940 | ||||||||||||||||
75
APPENDIX B: MODIFIED STRATEGY VALUE FORMULA AND EXAMPLES
MODIFIED STRATEGY VALUE FORMULA AND EXAMPLES
The Modified Strategy Value is the maximum Gross Withdrawal that may be takenStatutory accounting practices vary in some respects from a Strategy as of a given date during a Strategy Term. On a Strategy Term End Date, the Modified Strategy Value is equal to your Strategy Value plus any Term Strategy Earnings. On any day other than the Strategy Term End Date, the Modified Strategy Value is equal to your Strategy Value plus any Interim Strategy Earnings that would be applied if you withdrew your entire Strategy Value. The maximum Gross Withdrawal from a Strategy would be subject to any applicable CDSC and MVA.
Each day during a Strategy Term, we calculate the Modified Strategy Value for a Strategy usingU.S. generally accepted accounting principles (“GAAP”), including the following formula:practices:
Modified Strategy Value = Lesser of A or B, where:
A = Strategy Accumulation Value;
B = C + D, where:
C = The portion of the Remaining Preferred Withdrawal Amount attributable to the Strategy
D = E x (F - G), but never less than 0, where:
E = 1 + NSEP
F = Strategy Value
G = C / (1 + SEP)
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APPENDIX C: NON-PREFERRED STRATEGY EARNINGS PERCENTAGE
The following is the Non-Preferred Strategy Earnings Percentage (NSEP) formula that we use to calculate Interim Strategy Earnings for Non-Preferred Withdrawals:
NSEP = Greater of A or B, where:
A = C x D, where:
C = Adjusted Index Performance
D = 1 if C is less than 0, or (ET / ST) if C is greater than or equal to zero
ET = Elapsed Term(i.e., the number of calendar days elapsed in the Strategy Term divided by 365)
ST = Strategy Term(in whole years, e.g., 1, 2, 3)
B = E – F x (ST – ET), where:
E = Protection Level – 100%
F = Non-Preferred Withdrawal Adjustment Percentage
ST = Strategy Term in years(in whole years,e.g., 1, 2, 3)
ET = Elapsed Term(i.e., the number of calendar days elapsed in the Strategy Term divided by 365)
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APPENDIX D: WITHDRAWAL EXAMPLES
A contract owner makes a Purchase Payment of $100,000 and allocates it all to a single Strategy. On the date of the Purchase Payment the Strategy Value is $100,000. The Strategy has the following Crediting Factors:
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EVENT 1: PREFERRED AND NON-PREFERRED WITHDRAWAL WITH POSITIVE INTERIM STRATEGY EARNINGS
● | accounting for contingencies requires recording a liability at the midpoint of a range of estimated possible outcomes when no better estimate in the range exists; |
● | surplus notes are accounted for as a component of capital and surplus; |
● | costs related to successful policy acquisitions are charged to operations in the year incurred; |
● | negative cash balances are reported as negative assets; |
Assume the contract owner takes F-8
NATIONWIDE LIFE INSURANCE COMPANY
(a Gross Withdrawalwholly owned subsidiary of $14,000 after 219 days have elapsed since the start of the Strategy Term. Assume the following values apply on the date of the withdrawal:Nationwide Financial Services, Inc.)
Notes to December 31, 2020, 2019 and 2018 Statutory Financial Statements
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The table below illustrates the calculation of the SEP and NSEP on that date.
SEP and NSEP
Step One | Step Two | Step Three | Step Four | Step Five | Step Six | Step Seven | Step Eight | |||||||
Elapsed Term | Adjusted Index Performance (AIP) | Downside for SEP | Downside for NSEP | Elapsed Term / Term | Factor to use in NSEP | Strategy Earnings Percentage (SEP) | Non-Preferred Strategy Earnings Percentage (NSEP) | |||||||
0.60 | 25.00% | -10.00% | -14.80% | 0.20 | 0.20 | 25.00% | 5.00% |
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The table below illustrates the calculation of Interim Strategy Earnings applied to the Strategy as a result of the withdrawal.
79
Strategy EarningsFuture Policy Benefits and Claims
Step One | Step Two | Step Three | Step Four | Step Five | ||||
Dollar Amount of Preferred Withdrawal | Interim Strategy Withdrawal | Dollar Amount of Non-Preferred | Interim Strategy Non-Preferred
| Total Interim Strategy Earnings | ||||
$7,000 | $1,400 | $7,000 | $333 | $1,733 |
where:
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The table below illustrates the calculation of the Contract Value after the withdrawal.
Contract ValueReinsurance Ceded
Contract Value before Withdrawal | Gross Withdrawal | Total Strategy Earnings | Contract Value after Withdrawal | |||
$100,000 | $14,000 | $1,733 | $87,733 |
where:
Contract Value after Withdrawal: $87,733 = $100,000 - $14,000 + $1,733
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The table below illustrates the calculation of the Cash Withdrawal received by the owner as a result of the withdrawal.
Cash Withdrawal
Step One | Step Two | Step Three | Step Four | Step Five | ||||
Gross Withdrawal | CDSC Base/MVA Base | CDSC | MVA | Cash Withdrawal | ||||
$14,000 | $7,000 | $420 | $228 | $13,808 |
where:
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EVENT 2: PREFERRED AND NON-PREFERRED WITHDRAWAL WITH NEGATIVE INTERIM STRATEGY EARNINGSInvestments
Assume the contract owner takes a Gross Withdrawal of $14,000 after 400 days (i.e. 1 year and 35 days) have elapsed since the start of the Strategy Term. Assume the following values apply on the date of the withdrawal:
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The table below illustrates the calculation of the SEP and NSEP on that date.
SEP and NSEP
Step One | Step Two | Step Three | Step Four | Step Five | Step Six | Step Seven | Step Eight | |||||||
Elapsed Term | Adjusted Index Performance (AIP) | Downside for SEP | Downside for NSEP | Elapsed Term / Term | Factor to use in NSEP | Strategy Earnings Percentage (SEP) | Non-Preferred Strategy Earnings Percentage (NSEP) | |||||||
1.096 | -25.10% | -10.00% | -13.81% | 0.365 | 1.00 | -10.00% | -13.81% |
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The table below illustrates the calculation of Interim Strategy Earnings applied to the Strategy as a result of the withdrawal.
Strategy EarningsSeparate Accounts
Step One | Step Two | Step Three | Step Four | Step Five | ||||
Dollar Amount of Preferred Withdrawal | Interim Strategy Withdrawal | Dollar Amount of Non-Preferred | Interim Strategy Non-Preferred | Total Interim Strategy Earnings | ||||
$6,141 | -$682 | $7,859 | -$1,259 | -$1,941 |
where:
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The table below illustrates the calculation of the Contract Value as a result of the withdrawal.
81
Contract ValueDerivative Instruments
Contract Value before Event | Gross Withdrawal | Total Strategy Earnings | Contract Value after Event | |||
$87,733 | $14,000 | -$1,941 | $71,792 |
where:
Contract Value after Event: $71,792 = $87,733 - $14,000 + (-$1,941)
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The table below illustrates the calculation of the Cash Withdrawal received by the owner as a result of the withdrawal.
Cash Withdrawal
Step One | Step Two | Step Three | Step Four | Step Five | ||||
Gross Withdrawal | CDSC Base/MVA Base | CDSC | MVA | Cash Withdrawal | ||||
$14,000 | $7,859 | $393 | $255 | $13,862 |
where:
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EVENT 3: NON-PREFERRED WITHDRAWAL WITH POSITIVE INTERIM STRATEGY EARNINGS
Assume the contract owner takes F-9
NATIONWIDE LIFE INSURANCE COMPANY
(a Gross Withdrawalwholly owned subsidiary of $10,000 after 600 days (i.e. 1 yearNationwide Financial Services, Inc.)
Notes to December 31, 2020, 2019 and 235 days) have elapsed since the start of the Strategy Term. On that date the Preferred Withdrawal Amount is now zero because the full Preferred Withdrawal Amount for the contract year was taken in Event 2 described above. Assume the following values apply to that date:2018 Statutory Financial Statements
Goodwill
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The table below illustrates the calculation of the SEP and NSEP on that date.
SEP and NSEP
Step One | Step Two | Step Three | Step Four | Step Five | Step Six | Step Seven | Step Eight | |||||||
Elapsed Term | Adjusted Index Performance (AIP) | Downside for SEP | Downside for NSEP | Elapsed Term / Term | Factor to use in NSEP | Strategy Earnings Percentage (SEP) | Non-Preferred Strategy Earnings Percentage (NSEP) | |||||||
1.644 | 10.95% | -10.00% | -12.71% | 0.548 | 0.548 | 10.95% | 6.00% |
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The table below illustrates the calculation of Interim Strategy Earnings applied to the Strategy as a result of the withdrawal.
Strategy EarningsFederal Income Taxes
Step One | Step Two | Step Three | Step Four | Step Five | ||||
Dollar Amount of Preferred Withdrawal | Interim Strategy Withdrawal | Dollar Amount of Non-Preferred | Interim Strategy Non-Preferred | Total Interim Strategy Earnings | ||||
$0 | $0 | $10,000 | $566 | $566 |
where:
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The table below illustrates the calculation of the Contract Value as a result of the withdrawal.
Contract ValueNonadmitted Assets
Contract Value before Event | Gross Withdrawal | Total Strategy Earnings | Contract Value after Event | |||
$71,792 | $10,000 | $566 | $62,358 |
where:
Contract Value after Event: $62,358 = $71,792 - $10,000 + $566
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The table below illustrates the calculation of the Cash Withdrawal received by the owner as a result of the withdrawal.
Cash Withdrawal
Step One | Step Two | Step Three | Step Four | Step Five | ||||
Gross Withdrawal | CDSC Base/MVA Base | CDSC | MVA | Cash Withdrawal | ||||
$10,000 | $10,000 | $500 | -$150 | $9,350 |
83
where:
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The financial information included herein is prepared and presented in accordance with SAP prescribed or permitted by the Department. Certain differences exist between SAP and GAAP, which are presumed to be material.
Revenues and Benefits
Life insurance premiums are recognized as revenue over the premium paying period of the related policies when due. Annuity considerations are recognized as revenue when received. Health insurance premiums are earned ratably over the terms of the related insurance and reinsurance contracts or policies. Policy benefits and claims that are expensed include interest credited to policy account balances, benefits and claims incurred in the period in excess of related policy reserves and other changes in future policy benefits.
Future Policy Benefits and Claims
Future policy benefits for traditional products are based on statutory mortality and interest requirements without consideration of withdrawals. The principal statutory mortality tables and interest assumptions used on policies in force are the 1958 Commissioner’s Standard Ordinary (“CSO”) table at interest rates of 2.5%, 3.0%, 3.5%, 4.0% and 4.5%, the 1941 CSO table at an interest rate of 2.5%, the 1980 CSO table at interest rates of 4.0%, 4.5%, 5.0% and 5.5%, the 2001 CSO table at an interest rate of 4.0% and 3.5% and the 2017 CSO table at an interest rate of 3.5% and 4.5%. Beginning January 1, 2020, the Company has applied principles-based reserving to all new individual life business. For business subject to principles-based reserving, additional reserves may be held where the deterministic and/or stochastic reserves are in excess of net premium reserves, as defined by Valuation Manual 20, Requirements for Principle-Based Reserves for Life Products (“VM-20”).
Future policy benefits for universal life and variable universal life contracts have been calculated based on participants’ contributions plus interest credited on any funds in the fixed account less applicable contract charges. These policies have been adjusted for possible future surrender charges in accordance with the Commissioner’s Reserve Valuation Method (“CRVM”). For business subject to principles-based reserving, the Company has calculated reserves under VM-20.
Future policy benefits for annuity products have been established based on contract term, interest rates and various contract provisions. Individual deferred annuity contracts issued in 1990 and after have been adjusted for possible future surrender charges in accordance with the Commissioner’s Annuity Reserve Valuation Method (“CARVM”).
As of 2019, the Company calculated its reserves for variable annuity products with guaranteed minimum death, accumulation and withdrawal benefits and other contracts involving guaranteed benefits similar to those offered with variable annuities under the standard scenario of Actuarial Guideline XLIII “CARVM for Variable Annuities”, which exceeded the stochastic 70th percentile Conditional Tail Expectations scenario. Effective January 1, 2020, the Company changed its reserve valuation basis for variable annuities due to changes to Valuation Manual 21, Requirements for Principle-Based Reserves for Variable Annuities (“VM-21”) and as a result, the Company calculated its reserves using a stochastic reserve, which is floored at the cash surrender value.
The aggregate reserves for individual accident and health policies consist of active life reserves, disabled life reserves and unearned premium reserves. The active life reserves for disability income are reserved for on the net level basis, at a 3.0% interest rate, using either the 1964 Commissioner’s Disability Table (for policies issued prior to 1982) or the 1985 Commissioner’s Individual Disability Table A (for policies issued after 1981). The active life reserves for major medical insurance (both scheduled and unscheduled benefits) are based on the benefit ratio method for policies issued after 1981.
F-10
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2020, 2019 and 2018 Statutory Financial Statements
The active life reserves for accident and health policies are reserved for on the net level basis, at a 3.0% interest rate, using either the 1956 Inter-Company Hospital-Surgical tables, the 1974 Medical Expense tables or the 1959 Accidental Death Benefits table.
The disabled life reserves for accident and health policies are calculated using the 1985 Commissioner’s Individual Disability Table A at a 3.0% interest rate. Unearned premium reserves are based on the actual gross premiums and actual days.
The aggregate reserves for group accident and health and franchise accident and health policies consist of disabled life reserves and unearned premium reserves. Reserves for benefits payable on disabled life claims are based on the 2012 Group Long-Term Disability (GLTD) Valuation Table, at varying interest rates of 2.75% - 6.0%, for group policies and the 1987 Commissioner’s Group Disability Table, at varying interest rates of 2.75% - 10.25%, for franchise policies.
Future policy benefits and claims for group long-term disability policies are the present value (discounted between 2.75% and 6.00%) of amounts not yet due on reported claims and an estimate of amounts to be paid on incurred but unreported claims. Future policy benefits and claims on other group health policies are not discounted.
The Company issues fixed and floating rate funding agreements to the Federal Home Loan Bank of Cincinnati (“FHLB”). The liabilities for such funding agreements are treated as annuities under Ohio law for life insurance companies and recorded in future policy benefits and claims. Refer to Note 9 for additional details.
Separate Accounts
Separate account assets represent contractholders’ funds that have been legally segregated into accounts with specific investment objectives. Separate account assets are primarily recorded at fair value, with the value of separate account liabilities set to equal the fair value of separate account assets. Separate account assets are primarily comprised of public, privately-registered and non-registered mutual funds, whose fair value is primarily based on the funds’ net asset value. Other separate account assets are recorded at fair value based on the methodology that is applicable to the underlying assets. In limited circumstances, other separate account assets are recorded at book value when the policyholder does not participate in the underlying portfolio experience.
Separate account liabilities, in conjunction with accrued transfers from separate accounts, represent contractholders’ funds adjusted for possible future surrender charges in accordance with the CARVM and the CRVM, respectively. The difference between full account value and CARVM/CRVM is reflected in accrued transfers to separate accounts, as prescribed by the NAIC, in the statutory statements of admitted assets, liabilities, capital and surplus. The annual change in the difference between full account value and CARVM/CRVM and its applicable federal income tax is reflected in the statutory statements of operations as part of the net transfers to separate accounts and federal income tax, respectively.
Retained Assets
The Company does not retain beneficiary assets. During a death benefit claim, the death benefit settlement method is payment to the beneficiary in the form of a check or electronic funds transfer.
Investments
Bonds and stocks of unaffiliated companies. Bonds are generally stated at amortized cost, except those with an NAIC designation of “6”, which are stated at the lower of amortized cost or fair value. Preferred stocks are generally stated at amortized cost, except those with an NAIC designation of “4” through “6”, which are stated at the lower of amortized cost or fair value. Common stocks are stated at fair value. Changes in the fair value of bonds and stocks stated at fair value are charged to capital and surplus.
Loan-backed and structured securities, which are included in bonds in the statutory financial statements, are stated in a manner consistent with the bond guidelines, but with additional consideration given to the special valuation rules implemented by the NAIC applicable to residential mortgage-backed securities that are not backed by U.S. government agencies, commercial mortgage-backed securities and certain other structured securities. Under these guidelines, an initial and adjusted NAIC designation is determined for each security. The initial NAIC designation, which takes into consideration the security’s amortized cost relative to an NAIC-prescribed valuation matrix, is used to determine the reporting basis (i.e., amortized cost or lower of amortized cost or fair value).
Interest income is recognized when earned, while dividends are recognized when declared. The Company nonadmits investment income due and accrued when amounts are over 90 days past due.
F-11
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2020, 2019 and 2018 Statutory Financial Statements
For investments in loan-backed and structured securities, the Company recognizes income and amortizes discounts and premiums using the effective-yield method based on prepayment assumptions, generally obtained using a model provided by a third-party vendor, and the estimated economic life of the securities. When actual prepayments differ significantly from estimated prepayments, the effective-yield is recalculated to reflect actual payments to date and anticipated future payments. Any resulting adjustment is included in net investment income in the period the estimates are revised. All other investment income is recorded using the effective-yield method without anticipating the impact of prepayments.
Purchases and sales of bonds and stocks are recorded on the trade date, with the exception of private placement bonds, which are recorded on the funding date. Realized gains and losses are determined on a specific identification method on the trade date.
Independent pricing services are most often utilized, and compared to pricing from additional sources, to determine the fair value of bonds and stocks for which market quotations or quotations on comparable securities are available. For these bonds and stocks, the Company obtains the pricing services’ methodologies and classifies the investments accordingly in the fair value hierarchy.
A corporate pricing matrix is used in valuing certain corporate bonds. The corporate pricing matrix was developed using publicly available spreads for privately-placed corporate bonds with varying weighted average lives and credit quality ratings. The weighted average life and credit quality rating of a particular bond to be priced using the corporate pricing matrix are important inputs into the model and are used to determine a corresponding spread that is added to the appropriate U.S. Treasury yield to create an estimated market yield for that bond. The estimated market yield and other relevant factors are then used to estimate the fair value of the particular bond.
Non-binding broker quotes are also utilized to determine the fair value of certain bonds when deemed appropriate or when valuations are not available from independent pricing services or a corporate pricing matrix. These bonds are classified with the lowest priority in the fair value hierarchy as only one broker quote is ordinarily obtained, the investment is not traded on an exchange, the pricing is not available to other entities and/or the transaction volume in the same or similar investments has decreased. Inputs used in the development of prices are not provided to the Company by the brokers as the brokers often do not provide the necessary transparency into their quotes and methodologies. At least annually, the Company performs reviews and tests to ensure that quotes are a reasonable estimate of the investments’ fair value. Price movements of broker quotes are subject to validation and require approval from the Company’s management. Management uses its knowledge of the investment and current market conditions to determine if the price is indicative of the investment’s fair value.
For all bonds, the Company considers its ability and intent to hold the security for a period of time sufficient to allow for the anticipated recovery in value, the expected recovery of principal and interest and the extent to which the fair value has been less than amortized cost. If the decline in fair value to below amortized cost is determined to be other-than-temporary, a realized loss is recorded equal to the difference between the amortized cost of the investment and its fair value.
The Company periodically reviews loan-backed and structured securities in an unrealized loss position by comparing the present value of cash flows, including estimated prepayments, expected to be collected from the security to the amortized cost basis of the security. If the present value of cash flows expected to be collected, discounted at the security’s effective interest rate, is less than the amortized cost basis of the security, the impairment is considered other-than-temporary and a realized loss is recorded.
All other bonds in an unrealized loss position are periodically reviewed to determine if a decline in fair value to below amortized cost is other-than-temporary. Factors considered during this review include timing and amount of expected cash flows, ability of the issuer to meet its obligations, financial condition and future prospects of the issuer, amount and quality of any underlying collateral and current economic and industry conditions that may impact an issuer.
Stocks may experience other-than-temporary impairment based on the prospects for full recovery in value in a reasonable period of time and the Company’s ability and intent to hold the stock to recovery. If a stock is determined to be other-than-temporarily impaired, a realized loss is recorded equal to the difference between the cost basis of the investment and its fair value.
F-12
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2020, 2019 and 2018 Statutory Financial Statements
Investments in subsidiaries. The investment in the Company’s wholly-owned insurance subsidiaries, NLAIC and Eagle, are carried using the equity method of accounting applicable to U.S. insurance subsidiary, controlled and affiliated (“SCA”) entities. This requires the investment to be recorded based on the value of its underlying audited statutory surplus. Furthermore, the equity method of accounting would be discontinued if the investment is reduced to zero, unless the Company has guaranteed obligations of the subsidiary or otherwise committed to provide further financial support. In accordance with the “look through” provisions of Statements of Statutory Accounting Principles (“SSAP”) No. 97, Investments in Subsidiary, Controlled and Affiliated Entities, the valuation of JNF, an unaudited downstream noninsurance holding company, is based on the individual audited SCA entities owned by the holding company. Additionally, all non-affiliated liabilities, commitments, contingencies, guarantees or obligations of the holding company are reflected in the determination of the carrying value of the investments. The Company’s investment in NISC and NIA, wholly-owned non-insurance subsidiaries, are carried using the equity method of accounting applicable to U.S. non-insurance subsidiary, controlled and affiliated entities. This requires the investment to be recorded based on its underlying audited GAAP equity. Investments in NLAIC, JNF and NISC are included in stocks, and the investment in Eagle is included in other invested assets on the statutory statements of admitted assets, liabilities, capital and surplus.
Mortgage loans, net of allowance.The Company holds commercial mortgage loans that are collateralized by properties throughout the U.S. Mortgage loans are held at unpaid principal balance adjusted for premiums and discounts, less a valuation allowance. The Company also holds commercial mortgage loans of these property types that are under development. Mortgage loans under development are collateralized by the borrower’s common stock.
As part of the underwriting process, specific guidelines are followed to ensure the initial quality of a new mortgage loan. Third-party appraisals are obtained to support loaned amounts as the loans are collateral dependent or guaranteed.
The collectability and value of a mortgage loan is based on the ability of the borrower to repay and/or the value of the underlying collateral. Many of the Company’s mortgage loans are structured with balloon payment maturities, exposing the Company to risks associated with the borrowers’ ability to make the balloon payment or refinance the property. Loans are considered delinquent when contractual payments are 90 days past due.
Mortgage loans require a loan-specific reserve when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. When management determines that a loan requires a loan-specific reserve, a provision for loss is established equal to the difference between the carrying value and the fair value of the collateral less costs to sell. Loan-specific reserve charges are recorded in net realized capital gains and losses. In the event a loan-specific reserve charge is reversed, the recovery is also recorded in net realized capital gains and losses.
In addition to the loan-specific reserves, the Company maintains a non-specific reserve based primarily on loan surveillance categories and property type classes, which reflects management’s best estimates of probable credit losses inherent in the portfolio of loans without specific reserves as of the date of the statutory statements of admitted assets, liabilities, capital and surplus. Management’s periodic evaluation of the adequacy of the non-specific reserve is based on past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect a group of borrowers’ ability to repay, the estimated value of the underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. Non-specific reserve changes are recorded directly in capital and surplus as net unrealized capital gains and losses.
Management evaluates the credit quality of individual mortgage loans and the portfolio as a whole through a number of loan quality measurements, including, but not limited to, loan-to-value (“LTV”) and debt service coverage (“DSC”) ratios. The LTV ratio is calculated as a ratio of the amortized cost of a loan to the estimated value of the underlying collateral. DSC is the amount of cash flow generated by the underlying collateral of the mortgage loan available to meet periodic interest and principal payments of the loan. These loan quality measurements contribute to management’s assessment of relative credit risk in the mortgage loan portfolio. Based on underwriting criteria and ongoing assessment of the properties’ performance, management believes the amounts, net of valuation allowance, are collectible. This process identifies the risk profile and potential for loss individually and in the aggregate for the commercial mortgage loan portfolios. These factors are updated and evaluated at least annually. Due to the nature of the collateral underlying mortgage loans under development, these loans are not evaluated using the LTV and DSC ratios described above.
Interest income on performing mortgage loans is recognized in net investment income over the life of the loan using the effective-yield method. Loans in default or in the process of foreclosure are placed on non-accrual status. Interest received on non-accrual status mortgage loans is included in net investment income in the period received. Loans are restored to accrual status when the principal and interest is current and it is determined the future principal and interest payments are probable or the loan is modified.
Policy loans. Policy loans, which are collateralized by the related insurance policy, are held at the outstanding principal balance and do not exceed the net cash surrender value of the policy. As such, no valuation allowance for policy loans is required.
F-13
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2020, 2019 and 2018 Statutory Financial Statements
Cash and cash equivalents. Cash and cash equivalents include highly liquid investments with original maturities of less than three months and, effective December 31, 2020, amounts on deposit in internal qualified cash pools. The Company and various affiliates maintain agreements with Nationwide Cash Management Company (“NCMC”), an affiliate, under which NCMC acts as a common agent in handling the purchase and sale of short-term securities for the respective accounts of the participants in the internal qualified cash pool.
Short-term investments. Short-term investments consist primarily of government agency discount notes with maturities of twelve months or less at acquisition. Short-term investments also include outstanding promissory notes with initial maturity dates of one-year or less with certain affiliates. The Company carries short-term investments at amortized cost, which approximates fair value. As of December 31, 2019, short-term investments also included amounts on deposit with NCMC.
Other invested assets. Other invested assets consist primarily of alternative investments in private equity funds, private debt funds, tax credit funds, real estate partnerships and the investment in Eagle. Except for investments in certain tax credit funds, these investments are recorded using the equity method of accounting. Changes in carrying value as a result of the equity method are reflected as net unrealized capital gains and losses as a direct adjustment to capital and surplus. Gains and losses are generally recognized through income at the time of disposal or when operating distributions are received. Partnership interests in tax credit funds are held at amortized cost with amortization charged to net investment income over the period in which the tax benefits, primarily credits, are earned. Tax credits are recorded as an offset to tax expense in the period utilized.
The Company has sold $2.3 billion, $2.2 billion and $2.0 billion in Tax Credit Funds to unrelated third parties with outstanding guarantees as of December 31, 2020, 2019 and 2018, respectively. The Company has guaranteed after-tax benefits to the third-party investors through periods ending in 2037. These guarantees are in effect for periods of approximately 15 years each. The Tax Credit Funds provide a stream of tax benefits to the investors that will generate a yield and return of capital. If the tax benefits are not sufficient to provide these cumulative after-tax yields, the Company must fund any shortfall. The maximum amount of undiscounted future payments that the Company could be required to pay the investors under the terms of the guarantees is $1.4 billion, but the Company does not anticipate making any material payments related to the guarantees. The Company’s risks are mitigated in the following ways: (1) the Company has the right to buyout the equity related to the guarantee under certain circumstances, (2) the Company may replace underperforming properties to mitigate exposure to guarantee payments, (3) the Company oversees the asset management of the deals and (4) changes in tax laws are explicitly excluded from the Company’s guarantees of after-tax benefits.
Securities Lending. The Company has entered into securities lending agreements with a custodial bank whereby eligible securities are loaned to third parties, primarily major brokerage firms. These transactions are used to generate additional income in the securities portfolio. The Company is entitled to receive from the borrower any payments of interest and dividends received on loaned securities during the loan term. The agreements require a minimum of 102% of the fair value of the loaned securities to be held as collateral. Cash collateral is invested by the custodial bank in investment-grade securities, which are included in the total invested assets of the Company. Periodically, the Company may receive non-cash collateral, which would be recorded off-balance sheet. The Company recognizes loaned securities in bonds. A securities lending payable is recorded in other liabilities for the amount of cash collateral received. If the fair value of the collateral received (cash and/or securities) is less than the fair value of the securities loaned, the shortfall is nonadmitted. Net income received from securities lending activities is included in net investment income. Because the borrower or the Company may terminate a securities lending transaction at any time, if loans are terminated in advance of the reinvested collateral asset maturities, the Company would repay its securities lending obligations from operating cash flows or the proceeds of sales from its investment portfolio, which includes significant liquid securities.
Derivative Instruments
The Company uses derivative instruments to manage exposures and mitigate risks primarily associated with interest rates, equity markets and foreign currency. These derivative instruments primarily include interest rate swaps, cross-currency swaps, futures and options.
Derivative instruments used in hedging transactions considered to be effective hedges are reported in a manner consistent with the hedged items. Derivative instruments used in hedging transactions that do not meet or no longer meet the criteria of an effective hedge are accounted for at fair value with changes in fair value recorded in capital and surplus as unrealized gains or losses.
The fair value of derivative instruments is determined using various valuation techniques relying predominantly on observable market inputs. These inputs include interest rate swap curves, credit spreads, interest rates, counterparty credit risk, equity volatility and equity index levels.
F-14
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2020, 2019 and 2018 Statutory Financial Statements
The Company’s derivative transaction counterparties are generally financial institutions. To reduce the credit risk associated with open contracts, the Company enters into master netting agreements which permit the closeout and netting of transactions with the same counterparty upon the occurrence of certain events. In addition, the Company attempts to reduce credit risk by obtaining collateral from counterparties. The determination of the need for and the levels of collateral vary based on an assessment of the credit risk of the counterparty. The Company accepts collateral in the forms of cash and marketable securities. Non-cash collateral received is recorded off-balance sheet.
Cash flows and payment accruals on derivatives are recorded in net investment income.
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources while unobservable inputs reflect the Company’s view of market assumptions in the absence of observable market information. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. In determining fair value, the Company uses various methods, including market, income and cost approaches.
The Company categorizes its financial instruments into a three-level hierarchy based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument in its entirety.
The Company categorizes assets and liabilities held at fair value in the statutory statements of admitted assets, liabilities, capital and surplus as follows:
Level 1. Unadjusted quoted prices accessible in active markets for identical assets or liabilities at the measurement date and mutual funds where the value per share (unit) is determined and published daily and is the basis for current transactions.
Level 2.Unadjusted quoted prices for similar assets or liabilities in active markets or inputs (other than quoted prices) that are observable or that are derived principally from or corroborated by observable market data through correlation or other means. Primary inputs to this valuation technique may include comparative trades, bid/asks, interest rate movements, U.S. Treasury rates, London Interbank Offered Rate (“LIBOR”), prime rates, cash flows, maturity dates, call ability, estimated prepayments and/or underlying collateral values.
Level 3. Prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Inputs reflect management’s best estimates of the assumptions market participants would use at the measurement date in pricing the asset or liability. Consideration is given to the risk inherent in both the method of valuation and the valuation inputs. Primary inputs to this valuation technique include broker quotes and comparative trades.
The Company reviews its fair value hierarchy classifications for assets and liabilities quarterly. Changes in observability of significant valuation inputs identified during these reviews may trigger reclassifications. Reclassifications are reported as transfers at the beginning of the period in which the change occurs.
Asset Valuation Reserve
The Company maintains an AVR as prescribed by the NAIC for the purpose of offsetting potential credit related investment losses on each invested asset category, excluding cash, policy loans and income receivable. The AVR contains a separate component for each category of invested assets. The change in AVR is charged or credited directly to capital and surplus.
F-15
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2020, 2019 and 2018 Statutory Financial Statements
Interest Maintenance Reserve
The Company records an IMR as prescribed by the NAIC, which represents the net deferral for interest-related gains or losses arising from the sale of certain investments, such as bonds, mortgage loans and loan-backed and structured securities sold. The IMR is applied as follows:
for bonds, the designation from the NAIC Capital Markets and Investments Analysis Office must not have changed more than one designation between the beginning of the holding period and the date of sale;
the bond must never have been classified as a default security;
for mortgage loans, during the prior two years, they must not have had interest more than 90 days past due, been in the process of foreclosure or in the course of voluntary conveyance, nor had restructured terms; and
for loan-backed and structured securities, all interest-related other-than-temporary impairments and interest-related realized gains or losses on sales of the securities.
The realized gains or losses, net of related federal income tax, from the applicable bonds and mortgage loans sold, have been removed from the net realized gain or loss amounts and established as a net liability. This liability is amortized into income such that the amount of each capital gain or loss amortized in a given year is based on the excess of the amount of income which would have been reported that year, if the asset had not been disposed of over the amount of income which would have been reported had the asset been repurchased at its sale price. In the event the unamortized IMR liability balance is negative, the balance is reclassified as an asset and fully nonadmitted. The Company utilizes the grouped method for amortization. Under the grouped method, the liability is amortized into income over the remaining period to expected maturity based on the groupings of the individual securities into five-year bands.
Goodwill
For companies whose operations are primarily insurance related, goodwill is the excess of the cost to acquire a company over the Company’s share of the statutory book value of the acquired entity. Goodwill is recorded in stocks in the statutory statements of admitted assets, liabilities and surplus. Goodwill is amortized on a straight-line basis over the period of economic benefit, not to exceed ten years, with a corresponding charge to surplus.
Unamortized goodwill totaled $100 million and $116 million as of December 31, 2020 and 2019, respectively. All unamortized goodwill as of December 31, 2020 and 2019, is related to the acquisition of JNF, which represents 55% and 69%, respectively, of JNF’s gross SCA value. All goodwill was admitted as of December 31, 2020 and 2019. Amortization of goodwill totaled $16 million for the years ended December 31, 2020, 2019 and 2018. No goodwill was impaired during these periods.
Federal Income Taxes
The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred tax assets, net of any nonadmitted portion and statutory valuation allowance, and deferred tax liabilities, are recognized for the expected future tax consequences attributable to differences between the statutory financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income or loss in the years in which those temporary differences are expected to be recovered or settled. The change in deferred taxes, excluding the impact of taxes on unrealized capital gains or losses and nonadmitted deferred taxes, is charged directly to surplus.
The Company provides for federal income taxes based on amounts the Company believes it ultimately will owe. Inherent in the provision for federal income taxes are estimates regarding the deductibility of certain items and the realization of certain tax credits. In the event the ultimate deductibility of certain items or the realization of certain tax credits differs from estimates, the Company may be required to change the provision for federal income taxes recorded in the statutory financial statements, which could be significant.
Tax reserves are reviewed regularly and are adjusted as events occur that the Company believes impact its liability for additional taxes, such as lapsing of applicable statutes of limitations, conclusion of tax audits or substantial agreement with taxing authorities on the deductibility/nondeductibility of uncertain items, additional exposure based on current calculations, identification of new issues, release of administrative guidance or rendering of a court decision affecting a particular tax issue. The Company believes its tax reserves reasonably provide for potential assessments that may result from Internal Revenue Service (“IRS”) examinations and other tax-related matters for all open tax years.
The Company is included in the NMIC consolidated federal income tax return.
F-16
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2020, 2019 and 2018 Statutory Financial Statements
Reinsurance Ceded
The Company cedes insurance to other companies in order to limit potential losses and to diversify its exposures. Such agreements do not relieve the Company of its primary obligation to the policyholder in the event the reinsurer is unable to meet the obligations it has assumed. Reinsurance premiums ceded and reinsurance recoveries on benefits and claims incurred are deducted from the respective income and expense accounts. Assets and liabilities related to reinsurance ceded are reported in the statutory statements of admitted assets, liabilities, capital and surplus on a net basis within the related future policy benefits and claims of the Company.
Participating Business
Participating business, which refers to policies that participate in profits through policyholder dividends, represented approximately 4% of the Company’s life insurance in force in 2020 and 2019, and 50% of the number of life insurance policies in force in 2020 and 2019. The provision for policyholder dividends was based on the respective year’s dividend scales, as approved by the Board of Directors. Policyholder dividends are recognized when declared. No additional income was allocated to participating policyholders during 2020 and 2019.
Accounting Changes and Corrections of Errors
During 2020, the Company identified and corrected an error in the variable annuity ceded premium calculation under the intercompany 100% coinsurance agreement with Eagle. The error resulted in an understatement of ceded premiums for the years ended December 31, 2019 and 2018. In accordance with SSAP No. 3, Accounting Changes and Corrections of Errors, the total prior period correction of $9 million was reported in 2020 as a negative adjustment to unassigned funds (surplus) and consisted of $11 million of ceded premiums, offset by $2 million of taxes.
Effective January 1, 2020, the Company changed its reserve valuation basis for variable annuities due to changes to VM-21. As a result of this change, the Company records stochastic reserves, floored at the cash surrender value, instead of reserves using the standard scenario previously required under Actuarial Guideline XLIII “CARVM for Variable Annuities”. The impacts of the valuation basis change were recognized as of January 1, 2020, resulting in an increase to statutory capital and surplus of $78 million. In addition, the Company changed its reserve valuation basis for stable value wraps covering certain group life insurance policies from Separate Accounts Funding Guaranteed Minimum Benefits Under Group Contracts, to VM-21. There was no impact to statutory capital and surplus as a result of this change.
During 2020, the Company modified its approach used to schedule the reversals of its deferred tax assets for policyholder reserves under SSAP No. 101, Income Taxes (“SSAP No. 101”). Prior to 2020 the Company scheduled the reversals of its deferred tax assets for policyholder reserves by estimating the reserve reversal using the aggregate policyholder reserve. As of January 1, 2020, the Company is now taking a disaggregate approach and calculates reversal of the deferred tax assets for policyholder reserves on a product-by-product basis. The new method is more precise and better reflects how the deferred tax assets for policyholder reserves moves with the underlying reserve liability. SSAP No. 101 permits a company to modify its scheduling method so long as the modification is treated as change in accounting principle. The impact of the change increases the Company’s net admitted deferred tax asset $6 million and $5 million as of December 31, 2020 and January 1, 2020, respectively, with a commensurate increase in capital and surplus. There was no impact on net income.
Recently Adopted Accounting Standard
In December 2020, the Company adopted revisions to SSAP No. 2R, Cash, Cash Equivalents, Drafts and Short-Term Investments (“SSAP No. 2R”). The adopted revisions require internal cash pooling arrangements to meet certain criteria to be considered qualified cash pools, with investments in qualifying pools reported as cash equivalents on the statutory statements of admitted assets, liabilities, capital and surplus. The Company’s cash pool meets the criteria to be considered a qualified cash pool under SSAP No. 2R. The internal cash pooling arrangement with NCMC was historically classified as short-term investments, resulting in a change in classification to cash equivalents.
COVID-19
On March 11, 2020, the World Health Organization declared the novel coronavirus (“COVID-19”) a pandemic. The COVID-19 pandemic conditions create financial market volatility and uncertainty regarding whether and when certain customer behaviors will return to historical patterns, including sales of new and retention of existing policies, life insurance mortality and credit allowance exposure. Although impacting certain sales and revenues, none of the aforementioned items have had a material impact on the overall financial condition of the Company. The extent to which the COVID-19 pandemic may impact the Company’s ongoing operations and financial condition will depend on future developments that are evolving and uncertain.
F-17
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2020, 2019 and 2018 Statutory Financial Statements
Subsequent Events
The Company evaluated subsequent events through March 19, 2021, the date the statutory financial statements were issued.
The Department is in the process of implementing Ohio Administrative Code 3901-1-67, Alternative Derivative and Reserve Accounting Practices (“the Rule”). Once adopted and implemented, the Rule will constitute a prescribed practice as contemplated by the NAIC SAP. The prescribed practice is to allow Ohio-domiciled insurance companies to utilize certain alternative derivative and reserve accounting practices for eligible derivative instruments and indexed products, respectively, in order to better align the measurement of indexed product reserves and the derivatives that hedge them. Effective March 15, 2021, the Department allows Ohio-domiciled insurance companies the option to immediately utilize the alternative derivative and reserve accounting practices contemplated by the Rule. The Company plans to adopt the prescribed practice allowed under the Rule effective January 1, 2021. The Company continues to evaluate the impact of the adoption.
On March 9, 2021, the Company’s Board of Directors declared an ordinary dividend of up to $550 million payable to NFS on or around March 24, 2021.
F-18
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2020, 2019 and 2018 Statutory Financial Statements
(3) | Analysis of Actuarial Reserves and Deposit Liabilities by Withdrawal Characteristics |
The following table summarizes the analysis of individual annuities actuarial reserves by withdrawal characteristics, as of the dates indicated:
(in millions) | General account | Separate account with guarantees | Separate account non- guaranteed | Total | % of Total | |||||||||||||||
December 31, 2020 | ||||||||||||||||||||
Subject to discretionary withdrawal: | ||||||||||||||||||||
With market value adjustment | $ | 190 | $ | 162 | $ | - | $ | 352 | 0 | % | ||||||||||
At book value less current surrender charge of 5% or more | 219 | - | - | 219 | 0 | % | ||||||||||||||
At fair value | - | - | 65,990 | 65,990 | 92 | % | ||||||||||||||
Total with market value adjustment or at fair value | $ | 409 | $ | 162 | $ | 65,990 | $ | 66,561 | 92 | % | ||||||||||
At book value without adjustment (minimal or no charge or adjustment) | 3,480 | - | 8 | 3,488 | 5 | % | ||||||||||||||
Not subject to discretionary withdrawal | 1,755 | - | 62 | 1,817 | 3 | % | ||||||||||||||
Total, gross | $ | 5,644 | $ | 162 | $ | 66,060 | $ | 71,866 | 100 | % | ||||||||||
Less: Reinsurance ceded | (112 | ) | - | - | (112 | ) | ||||||||||||||
Total, net | $ | 5,532 | $ | 162 | $ | 66,060 | $ | 71,754 | ||||||||||||
Amount included in ‘Subject to discretionary withdrawal at book value less current surrender charge of 5% or more’ that will move to ‘Subject to discretionary withdrawal at book value without adjustment (minimal or no charge or adjustment)’ | $ | 67 | $ | - | $ | - | $ | 67 | ||||||||||||
December 31, 2019 | ||||||||||||||||||||
Subject to discretionary withdrawal: | ||||||||||||||||||||
With market value adjustment | $ | 19 | $ | 181 | $ | 29 | $ | 229 | 0 | % | ||||||||||
At book value less current surrender charge of 5% or more | 270 | - | - | 270 | 1 | % | ||||||||||||||
At fair value | - | - | 61,535 | 61,535 | 91 | % | ||||||||||||||
Total with market value adjustment or at fair value | $ | 289 | $ | 181 | $ | 61,564 | $ | 62,034 | 92 | % | ||||||||||
At book value without adjustment (minimal or no charge or adjustment) | 3,587 | - | 11 | 3,598 | 5 | % | ||||||||||||||
Not subject to discretionary withdrawal | 1,761 | - | 56 | 1,817 | 3 | % | ||||||||||||||
Total, gross | $ | 5,637 | $ | 181 | $ | 61,631 | $ | 67,449 | 100 | % | ||||||||||
Less: Reinsurance ceded | (104 | ) | - | - | (104 | ) | ||||||||||||||
Total, net | $ | 5,533 | $ | 181 | $ | 61,631 | $ | 67,345 | ||||||||||||
Amount included in ‘Subject to discretionary withdrawal at book value less current surrender charge of 5% or more’ that will move to ‘Subject to discretionary withdrawal at book value without adjustment (minimal or no charge or adjustment)’ | $ | 128 | $ | - | $ | - | $ | 128 |
F-19
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2020, 2019 and 2018 Statutory Financial Statements
The following table summarizes the analysis of group annuities actuarial reserves by withdrawal characteristics, as of the dates indicated:
(in millions) | General account | Separate account with guarantees | Separate account non- guaranteed | Total | % of Total | |||||||||||||||
December 31, 2020 | ||||||||||||||||||||
Subject to discretionary withdrawal: | ||||||||||||||||||||
With market value adjustment | $ | 17,393 | $ | 2,483 | $ | - | $ | 19,876 | 43 | % | ||||||||||
At book value less current surrender charge of 5% or more | 3 | - | - | 3 | 0 | % | ||||||||||||||
At fair value | - | - | 19,670 | 19,670 | 43 | % | ||||||||||||||
Total with market value adjustment or at fair value | $ | 17,396 | $ | 2,483 | $ | 19,670 | $ | 39,549 | 86 | % | ||||||||||
At book value without adjustment (minimal or no charge or adjustment) | 6,000 | - | - | 6,000 | 13 | % | ||||||||||||||
Not subject to discretionary withdrawal | 591 | - | 3 | 594 | 1 | % | ||||||||||||||
Total, gross | $ | 23,987 | $ | 2,483 | $ | 19,673 | $ | 46,143 | 100 | % | ||||||||||
Less: Reinsurance ceded | (58 | ) | - | - | (58 | ) | ||||||||||||||
Total, net | $ | 23,929 | $ | 2,483 | $ | 19,673 | $ | 46,085 | ||||||||||||
Amount included in ‘Subject to discretionary withdrawal at book value less current surrender charge of 5% or more’ that will move to ‘Subject to discretionary withdrawal at book value without adjustment (minimal or no charge or adjustment)’ | $ | 3 | $ | - | $ | - | $ | 3 | ||||||||||||
December 31, 2019 | ||||||||||||||||||||
Subject to discretionary withdrawal: | ||||||||||||||||||||
With market value adjustment | $ | 16,485 | $ | 2,166 | $ | - | $ | 18,651 | 44 | % | ||||||||||
At book value less current surrender charge of 5% or more | 1 | - | - | 1 | 0 | % | ||||||||||||||
At fair value | - | - | 18,284 | 18,284 | 43 | % | ||||||||||||||
Total with market value adjustment or at fair value | $ | 16,486 | $ | 2,166 | $ | 18,284 | $ | 36,936 | 87 | % | ||||||||||
At book value without adjustment (minimal or no charge or adjustment) | 5,354 | - | - | 5,354 | 12 | % | ||||||||||||||
Not subject to discretionary withdrawal | 584 | 2 | - | 586 | 1 | % | ||||||||||||||
Total, gross | $ | 22,424 | $ | 2,168 | $ | 18,284 | $ | 42,876 | 100 | % | ||||||||||
Less: Reinsurance ceded | (60 | ) | - | - | (60 | ) | ||||||||||||||
Total, net | $ | 22,364 | $ | 2,168 | $ | 18,284 | $ | 42,816 | ||||||||||||
Amount included in ‘Subject to discretionary withdrawal at book value less current surrender charge of 5% or more’ that will move to ‘Subject to discretionary withdrawal at book value without adjustment (minimal or no charge or adjustment)’ | $ | 1 | $ | - | $ | - | $ | 1 |
F-20
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2020, 2019 and 2018 Statutory Financial Statements
The following table summarizes the analysis of deposit-type contracts and other liabilities without life or disability contingencies by withdrawal characteristics, as of the dates indicated:
(in millions) | General account | Separate account non- guaranteed | Total | % of Total | ||||||||||||
December 31, 2020 | ||||||||||||||||
Subject to discretionary withdrawal: | ||||||||||||||||
With market value adjustment | $ | 2 | $ | - | $ | 2 | 0 | % | ||||||||
At fair value | 12 | - | 12 | 0 | % | |||||||||||
Total with market value adjustment or at fair value | $ | 14 | $ | - | $ | 14 | 0 | % | ||||||||
At book value without adjustment (minimal or no charge or adjustment) | 728 | 3 | 731 | 22 | % | |||||||||||
Not subject to discretionary withdrawal | 2,540 | 13 | 2,553 | 78 | % | |||||||||||
Total, gross | $ | 3,282 | $ | 16 | $ | 3,298 | 100 | % | ||||||||
Less: Reinsurance ceded | - | - | - | |||||||||||||
Total, net | $ | 3,282 | $ | 16 | $ | 3,298 | ||||||||||
December 31, 2019 | ||||||||||||||||
Subject to discretionary withdrawal: | ||||||||||||||||
With market value adjustment | $ | 3 | $ | - | $ | 3 | 0 | % | ||||||||
At fair value | 13 | - | 13 | 0 | % | |||||||||||
Total with market value adjustment or at fair value | $ | 16 | $ | - | $ | 16 | 0 | % | ||||||||
At book value without adjustment (minimal or no charge or adjustment) | 775 | 4 | 779 | 25 | % | |||||||||||
Not subject to discretionary withdrawal | 2,331 | 12 | 2,343 | 75 | % | |||||||||||
Total, gross | $ | 3,122 | $ | 16 | $ | 3,138 | 100 | % | ||||||||
Less: Reinsurance ceded | - | - | - | |||||||||||||
Total, net | $ | 3,122 | $ | 16 | $ | 3,138 |
The following table is a reconciliation of total annuity actuarial reserves and deposit fund liabilities, as of the dates indicated:
December 31, | ||||||||
(in millions) | 2020 | 2019 | ||||||
Life, accident and health annual statement: | ||||||||
Annuities, net (excluding supplemental contracts with life contingencies) | $ | 29,445 | $ | 27,880 | ||||
Supplemental contracts with life contingencies, net | 16 | 17 | ||||||
Deposit-type contracts | 3,282 | 3,122 | ||||||
Subtotal | $ | 32,743 | $ | 31,019 | ||||
Separate accounts annual statement: | ||||||||
Annuities, net (excluding supplemental contracts with life contingencies) | $ | 88,378 | $ | 82,264 | ||||
Other contract deposit funds | 16 | 16 | ||||||
Subtotal | $ | 88,394 | $ | 82,280 | ||||
Total annuity actuarial reserves and deposit fund liabilities, net | $ | 121,137 | $ | 113,299 |
F-21
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2020, 2019 and 2018 Statutory Financial Statements
The following table summarizes the analysis of life actuarial reserves by withdrawal characteristics, as of the dates indicated:
General account | Separate account - nonguaranteed1 | |||||||||||||||||||||||
(in millions) | Account value | Cash value | Reserve | Account value | Cash value | Reserve | ||||||||||||||||||
December 31, 2020 | ||||||||||||||||||||||||
Subject to discretionary withdrawal, surrender values or policy loans: | ||||||||||||||||||||||||
Term policies with cash value | $ | - | $ | 11 | $ | 11 | $ | - | $ | - | $ | - | ||||||||||||
Universal life | 2,585 | 2,600 | 2,764 | - | - | - | ||||||||||||||||||
Universal life with secondary guarantees | 360 | 288 | 720 | - | - | - | ||||||||||||||||||
Indexed universal life with secondary guarantees | 179 | 130 | 191 | - | - | - | ||||||||||||||||||
Other permanent cash value life insurance | - | 1,300 | 2,607 | - | - | - | ||||||||||||||||||
Variable life | 1,887 | 1,965 | 2,060 | 24,591 | 24,581 | 24,582 | ||||||||||||||||||
Miscellaneous reserves | - | - | - | - | - | 9 | ||||||||||||||||||
Subtotal | $ | 5,011 | $ | 6,294 | $ | 8,353 | $ | 24,591 | $ | 24,581 | $ | 24,591 | ||||||||||||
Not subject to discretionary withdrawal or no cash value: | ||||||||||||||||||||||||
Term policies without cash value | - | - | 275 | - | - | - | ||||||||||||||||||
Accidental death benefits | - | - | 1 | - | - | - | ||||||||||||||||||
Disability - active lives | - | - | 13 | - | - | - | ||||||||||||||||||
Disability - disabled lives | - | - | 58 | - | - | - | ||||||||||||||||||
Miscellaneous reserves | - | - | 30 | - | - | - | ||||||||||||||||||
Total, gross | $ | 5,011 | $ | 6,294 | $ | 8,730 | $ | 24,591 | $ | 24,581 | $ | 24,591 | ||||||||||||
Less: reinsurance ceded | (10 | ) | (10 | ) | (240 | ) | - | - | - | |||||||||||||||
Total, net | $ | 5,001 | $ | 6,284 | $ | 8,490 | $ | 24,591 | $ | 24,581 | $ | 24,591 |
1 | In 2020, the classification of certain group life insurance policies was changed from separate accounts with guarantees to separate accounts nonguaranteed as a result of a change in the reserve valuation basis, as described in Note 2. |
F-22
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2020, 2019 and 2018 Statutory Financial Statements
General account | Separate account - nonguaranteed | |||||||||||||||||||||||
(in millions) | Account value | Cash value | Reserve | Account value | Cash value | Reserve | ||||||||||||||||||
December 31, 2019 | ||||||||||||||||||||||||
Subject to discretionary withdrawal, surrender values or policy loans: | ||||||||||||||||||||||||
Term policies with cash value | $ | - | $ | 11 | $ | 11 | $ | - | $ | - | $ | - | ||||||||||||
Universal life | 2,549 | 2,561 | 2,728 | - | - | - | ||||||||||||||||||
Universal life with secondary guarantees | 335 | 265 | 613 | - | - | - | ||||||||||||||||||
Indexed universal life with secondary guarantees | 140 | 99 | 146 | - | - | - | ||||||||||||||||||
Other permanent cash value life insurance | - | 1,328 | 2,676 | - | - | - | ||||||||||||||||||
Variable life | 1,903 | 1,992 | 2,080 | 21,853 | 21,840 | 19,596 | ||||||||||||||||||
Subtotal | $ | 4,927 | $ | 6,256 | $ | 8,254 | $ | 21,853 | $ | 21,840 | $ | 19,596 | ||||||||||||
Not subject to discretionary withdrawal or no cash value: | ||||||||||||||||||||||||
Term policies without cash value | - | - | 299 | - | - | - | ||||||||||||||||||
Accidental death benefits | - | - | 1 | - | - | - | ||||||||||||||||||
Disability - active lives | - | - | 12 | - | - | - | ||||||||||||||||||
Disability - disabled lives | - | - | 57 | - | - | - | ||||||||||||||||||
Miscellaneous reserves | - | - | 36 | - | - | - | ||||||||||||||||||
Total, gross | $ | 4,927 | $ | 6,256 | $ | 8,659 | $ | 21,853 | $ | 21,840 | $ | 19,596 | ||||||||||||
Less: reinsurance ceded | (10 | ) | (10 | ) | (272 | ) | - | - | - | |||||||||||||||
Total, net | $ | 4,917 | $ | 6,246 | $ | 8,387 | $ | 21,853 | $ | 21,840 | $ | 19,596 |
The following table is a reconciliation of life actuarial reserves, as of the dates indicated:
December 31, | ||||||||
(in millions) | 2020 | 2019 | ||||||
Life, accident and health annual statement: | ||||||||
Life Insurance, net | $ | 8,400 | $ | 8,292 | ||||
Accidental death benefits, net | 1 | 1 | ||||||
Disability - active lives, net | 12 | 10 | ||||||
Disability - disabled lives, net | 51 | 52 | ||||||
Miscellaneous reserves, net | 26 | 32 | ||||||
Subtotal | $ | 8,490 | $ | 8,387 | ||||
Separate accounts annual statement: | ||||||||
Life insurance1 | $ | 24,884 | $ | 22,138 | ||||
Miscellaneous reserves | 9 | 5 | ||||||
Subtotal | $ | 24,893 | $ | 22,143 | ||||
Total life actuarial reserves, net | $ | 33,383 | $ | 30,530 |
1 | In 2020, life insurance account value, cash value and reserve includes separate accounts with guarantees of $302 million for universal life. In 2019, life insurance account value, cash value and reserve includes separate accounts with guarantees of $297 million and $2.2 billion for universal life and variable life, respectively. |
F-23
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2020, 2019 and 2018 Statutory Financial Statements
Direct Premium Written by Managing General Agents and Third Party Administrators
The following table summarizes direct premium written by managing general agents and third party administrators as of December 31, 2020:
(in millions) | ||||||||||||||
Managing general agent/ third party reserve | FEIN number | Exclusive contract | Types of written | Types of authority granted1 | Total Direct Premium | |||||||||
Meridian Management Group, LLC | 22-3713596 | Not Exclusive | Accident & health | U / P / B | $ | 42 | ||||||||
RMTS - Manufacturers & Traders Trust Co. | 20-1049240 | Not Exclusive | Accident & health | C / CA / B / P / U | 26 | |||||||||
Fringe Insurance Benefits, Inc. | 74-2616364 | Not Exclusive | Accident & health | B / P / U | 41 | |||||||||
Star Line Group | 04-3499188 | Not Exclusive | Accident & health | C / CA / B / P / U | 7 | |||||||||
AccuRisk Solutions, LLC | 31-1777676 | Not Exclusive | Accident & health | C / CA / B / P /U | 90 | |||||||||
Merchants Benefit Administration, Inc. | 86-0875918 | Exclusive | Accident & health | B / C / CA / P | 14 | |||||||||
Roundstone Management, Ltd. | 27-0371422 | Not Exclusive | Accident & health | C / CA / B / P / U | 75 | |||||||||
Gilsbar, Inc. | 72-0519951 | Not Exclusive | Accident & health | B / P / U | 75 | |||||||||
Matrix | 01-0544915 | Not Exclusive | Accident & health | C / CA / B / P / U | 19 | |||||||||
IRC | 74-2824053 | Not Exclusive | Accident & health | C / CA / B / P / U | 28 | |||||||||
TMS RE Inc | 65-0644164 | Not Exclusive | Accident & health | C / CA / B / P / U | 70 | |||||||||
United Group Programs Inc. | 59-1896277 | Not Exclusive | Accident & health | C / CA / B / P / U | 9 | |||||||||
USMGU | 46-4619917 | Not Exclusive | Accident & health | C / CA / B / P / U | 1 | |||||||||
Total Direct Premiums Written and Produced | $ | 497 |
1 | Authority code key includes: C– claims payment, CA– claims adjustment, B- binding authority, P-premium collection, U- underwriting. |
F-24
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2020, 2019 and 2018 Statutory Financial Statements
(4) | Separate Accounts |
The Company’s separate account statement includes assets legally insulated from the general account as of the dates indicated, attributed to the following product lines:
December 31, 2020 | December 31, 2019 | |||||||||||||||
(in millions) | Separate assets | Separate assets (not legally | Separate assets | Separate assets (not legally | ||||||||||||
Product / Transaction: | ||||||||||||||||
Individual annuities | $ | 71,875 | $ | - | $ | 67,222 | $ | - | ||||||||
Group annuities | 17,550 | - | 16,187 | - | ||||||||||||
Life insurance | 24,982 | - | 22,246 | - | ||||||||||||
Total | $ | 114,407 | $ | - | $ | 105,655 | $ | - |
The following table summarizes amounts paid towards separate account guarantees by the general account and related risk charges paid by the separate account for the years ended:
(in millions) | Total paid toward separate account guarantees | Risk charges paid to general account | ||||||
2020 | $ | 26 | $ | 631 | ||||
2019 | $ | 58 | $ | 612 | ||||
2018 | $ | 18 | $ | 594 | ||||
2017 | $ | 13 | $ | 559 | ||||
2016 | $ | 36 | $ | 507 |
The Company does not engage in securities lending transactions within its separate accounts.
Most separate accounts held by the Company relate to individual and group variable annuity and variable universal life insurance contracts of a non-guaranteed return nature. The net investment experience of the separate accounts is credited directly to the contract holder and can be positive or negative. The individual variable annuity contracts generally provide an incidental death benefit of the greater of account value or premium paid (net of prior withdrawals). However, many individual variable annuity contracts also provide death benefits equal to (i) the most recent fifth-year anniversary account value, (ii) the highest account value on any previous anniversary, (iii) premiums paid increased 5% or certain combinations of these, all adjusted for prior withdrawals. The death benefit and cash value under the variable universal life policies may vary with the investment performance of the underlying investments in the separate accounts. The assets and liabilities of these separate accounts are carried at fair value and are non-guaranteed.
Certain other separate accounts offered by the Company contain groups of variable universal life policies wherein the assets supporting account values on the underlying policies reside in Private Placement Separate Accounts. They provide a quarterly interest rate based on a crediting formula that reflects the market value to book value ratio of the investments, investment portfolio yield and a specified duration.
Certain other separate accounts relate to a guaranteed term option, which provides a guaranteed interest rate that is paid over certain maturity durations ranging from three to ten years, so long as certain conditions are met. If amounts allocated to the guaranteed term option are distributed prior to the maturity period, a market value adjustment can be assessed. The assets and liabilities of these separate accounts are carried at fair value.
Another separate account offered by the Company contains a group of universal life policies wherein the assets supporting the account values on the underlying policies reside in a Private Placement Separate Account. It provides an annual interest rate guarantee, subject to a minimum guarantee of 3%. The interest rate declared each year reflects the anticipated investment experience of the account. The business has been included as a nonindexed guarantee less than or equal to 4%.
F-25
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2020, 2019 and 2018 Statutory Financial Statements
The following tables summarize the separate account reserves of the Company, as of the dates indicated:
(in millions) | Indexed | Nonindexed guarantee less than or equal to 4% | Nonindexed guarantee more than 4% | Nonguaranteed separate accounts | Total | |||||||||||||||
December 31, 2020 | ||||||||||||||||||||
Premiums, considerations or deposits | $ | - | $ | 417 | $ | - | $ | 5,392 | $ | 5,809 | ||||||||||
Reserves | ||||||||||||||||||||
For accounts with assets at: | ||||||||||||||||||||
Fair value | $ | - | $ | 2,480 | $ | 166 | $ | 110,340 | $ | 112,986 | ||||||||||
Amortized cost | - | 302 | - | - | 302 | |||||||||||||||
Total reserves | $ | - | $ | 2,782 | $ | 166 | $ | 110,340 | $ | 113,288 | ||||||||||
By withdrawal characteristics: | ||||||||||||||||||||
With market value adjustment | $ | - | $ | 2,480 | $ | 166 | $ | - | $ | 2,646 | ||||||||||
At book value without market value adjustment and with current surrender charge of 5% or more | - | - | - | - | - | |||||||||||||||
At fair value | - | - | - | 110,252 | 110,252 | |||||||||||||||
At book value without market value adjustment and with current surrender charge less than 5% | - | 302 | - | 11 | 313 | |||||||||||||||
Subtotal | $ | - | $ | 2,782 | $ | 166 | $ | 110,263 | $ | 113,211 | ||||||||||
Not subject to discretionary withdrawal | - | - | - | 77 | 77 | |||||||||||||||
Total reserves1 | $ | - | $ | 2,782 | $ | 166 | $ | 110,340 | $ | 113,288 |
1 | The total reserves balance does not equal the liabilities related to separate accounts of $114.4 billion in the statutory statements of admitted assets, liabilities, capital and surplus by $1.1 billion, due to an adjustment for CARVM/CRVM reserves and other liabilities that have not been allocated to the categories outlined above. |
F-26
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2020, 2019 and 2018 Statutory Financial Statements
Nonindexed | Nonindexed | |||||||||||||||||||
guarantee | guarantee | Nonguaranteed | ||||||||||||||||||
less than or | more than | separate | ||||||||||||||||||
(in millions) | Indexed | equal to 4% | 4% | accounts | Total | |||||||||||||||
December 31, 2019 | ||||||||||||||||||||
Premiums, considerations or deposits | $ | - | $ | 135 | $ | - | $ | 6,007 | $ | 6,142 | ||||||||||
Reserves | ||||||||||||||||||||
For accounts with assets at: | ||||||||||||||||||||
Fair value | $ | - | $ | 2,202 | $ | 146 | $ | 99,612 | $ | 101,960 | ||||||||||
Amortized cost | - | 2,463 | - | - | 2,463 | |||||||||||||||
Total reserves | $ | - | $ | 4,665 | $ | 146 | $ | 99,612 | $ | 104,423 | ||||||||||
By withdrawal characteristics: | ||||||||||||||||||||
With market value adjustment | $ | - | $ | 2,202 | $ | 146 | $ | 29 | $ | 2,377 | ||||||||||
At book value without market value adjustment and with current surrender charge of 5% or more | - | - | - | - | - | |||||||||||||||
At fair value | - | - | - | 99,499 | 99,499 | |||||||||||||||
At book value without market value adjustment and with current surrender charge less than 5% | - | 2,463 | - | 13 | 2,476 | |||||||||||||||
Subtotal | $ | - | $ | 4,665 | $ | 146 | $ | 99,541 | $ | 104,352 | ||||||||||
Not subject to discretionary withdrawal | - | - | - | 71 | 71 | |||||||||||||||
Total reserves1 | $ | - | $ | 4,665 | $ | 146 | $ | 99,612 | $ | 104,423 |
1 | The total reserves balance does not equal the liabilities related to separate accounts of $105.7 billion in the statutory statements of admitted assets, liabilities, capital and surplus by $1.2 billion, due to an adjustment for CARVM/CRVM reserves and other liabilities that have not been allocated to the categories outlined above. |
The following table is a reconciliation of net transfers to (from) separate accounts, as of the dates indicated:
December 31, | ||||||||||||
(in millions) | 2020 | 2019 | 2018 | |||||||||
Transfers as reported in the statutory statements of operations of the separate accounts: | ||||||||||||
Transfers to separate accounts | $ | 5,809 | $ | 6,142 | $ | 6,392 | ||||||
Transfers from separate accounts | (8,921) | (9,470) | (8,461) | |||||||||
Net transfers from separate accounts | $ | (3,112) | $ | (3,328) | $ | (2,069) | ||||||
Reconciling adjustments: | ||||||||||||
Exchange accounts offsetting in the general account | (337) | (321) | (303) | |||||||||
Fees not included in general account transfers | (67) | (68) | (58) | |||||||||
Other miscellaneous adjustments not included in the general account balance | (28) | (30) | (38) | |||||||||
Transfers as reported in the statutory statements of operations | $ | (3,544) | $ | (3,747) | $ | (2,468) |
F-27
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2020, 2019 and 2018 Statutory Financial Statements
(5) | Investments |
Bonds and Stocks
The following table summarizes the carrying value, the excess of fair value over carrying value, the excess of carrying value over fair value and the fair value of bonds and stocks, as of the dates indicated:
(in millions) | Carrying value | Fair value in excess of carrying value | Carrying value in excess of fair value | Fair value | ||||||||||||
December 31, 2020 | ||||||||||||||||
Bonds: | ||||||||||||||||
U.S. Government | $ | 7 | $ | - | $ | - | $ | 7 | ||||||||
States, territories and possessions | 370 | 59 | - | 429 | ||||||||||||
Political subdivisions | 343 | 71 | - | 414 | ||||||||||||
Special revenues | 2,763 | 564 | - | 3,327 | ||||||||||||
Industrial and miscellaneous | 26,583 | 3,656 | 46 | 30,193 | ||||||||||||
Loan-backed and structured securities | 7,141 | 336 | 37 | 7,440 | ||||||||||||
Total bonds | $ | 37,207 | $ | 4,686 | $ | 83 | $ | 41,810 | ||||||||
Common stocks unaffiliated | $ | 142 | $ | - | $ | - | $ | 142 | ||||||||
Preferred stocks unaffiliated | 97 | 12 | - | 109 | ||||||||||||
Total unaffiliated stocks1 | $ | 239 | $ | 12 | $ | - | $ | 251 | ||||||||
Total bonds and unaffiliated stocks1 | $ | 37,446 | $ | 4,698 | $ | 83 | $ | 42,061 | ||||||||
December 31, 2019 | ||||||||||||||||
Bonds: | ||||||||||||||||
U.S. Government | $ | 7 | $ | - | $ | - | $ | 7 | ||||||||
States, territories and possessions | 398 | 42 | 1 | 439 | ||||||||||||
Political subdivisions | 344 | 52 | 1 | 395 | ||||||||||||
Special revenues | 2,702 | 370 | 5 | 3,067 | ||||||||||||
Industrial and miscellaneous | 26,240 | 2,012 | 65 | 28,187 | ||||||||||||
Loan-backed and structured securities | 5,433 | 238 | 31 | 5,640 | ||||||||||||
Total bonds | $ | 35,124 | $ | 2,714 | $ | 103 | $ | 37,735 | ||||||||
Common stocks unaffiliated | $ | 181 | $ | - | $ | - | $ | 181 | ||||||||
Preferred stocks unaffiliated | 55 | 4 | - | 59 | ||||||||||||
Total unaffiliated stocks1 | $ | 236 | $ | 4 | $ | - | $ | 240 | ||||||||
Total bonds and unaffiliated stocks1 | $ | 35,360 | $ | 2,718 | $ | 103 | $ | 37,975 |
1 | Excludes affiliated common stocks with a carrying value of $2.6 billion and $2.4 billion as of December 31, 2020 and 2019, respectively. Affiliated common stocks includes investment in NLAIC and JNF of $2.4 billion and $180 million as of December 31, 2020, respectively, and $2.2 billion and $169 million as of December 31, 2019, respectively. |
The carrying value of bonds on deposit with various states as required by law or special escrow agreement was $3 million as of December 31, 2020 and 2019.
F-28
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2020, 2019 and 2018 Statutory Financial Statements
The following table summarizes the carrying value and fair value of bonds, by contractual maturity, as of December 31, 2020. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without early redemption penalties:
(in millions) | Carrying value | Fair value | ||||||
Bonds: | ||||||||
Due in one year or less | $ | 1,314 | $ | 1,331 | ||||
Due after one year through five years | 7,925 | 8,441 | ||||||
Due after five years through ten years | 9,450 | 10,557 | ||||||
Due after ten years | 11,377 | 14,041 | ||||||
Total bonds excluding loan-backed and structured securities | $ | 30,066 | $ | 34,370 | ||||
Loan-backed and structured securities | 7,141 | 7,440 | ||||||
Total bonds | $ | 37,207 | $ | 41,810 |
The following table summarizes the fair value and unrealized losses on bonds and stocks (amount by which cost or amortized cost exceeds fair value), for which other-than-temporary declines in value have not been recognized, based on the amount of time each type of bond or stock has been in an unrealized loss position, as of the dates indicated:
Less than or equal to one year | More than one year | Total | ||||||||||||||||||||||
(in millions) | Fair value | Unrealized losses | Fair value | Unrealized losses | Fair value | Unrealized losses | ||||||||||||||||||
December 31, 2020 | ||||||||||||||||||||||||
Bonds: | ||||||||||||||||||||||||
States, territories and possessions | $ | 1 | $ | - | $ | - | $ | - | $ | 1 | $ | - | ||||||||||||
Special revenues | 14 | - | - | - | 14 | - | ||||||||||||||||||
Industrial and miscellaneous | 636 | 27 | 408 | 38 | 1,044 | 65 | ||||||||||||||||||
Loan-backed and structured securities | 1,454 | 15 | 870 | 23 | 2,324 | 38 | ||||||||||||||||||
Total bonds | $ | 2,105 | $ | 42 | $ | 1,278 | $ | 61 | $ | 3,383 | $ | 103 | ||||||||||||
Common stocks unaffiliated | 21 | 4 | - | - | 21 | 4 | ||||||||||||||||||
Preferred stocks unaffiliated | 9 | - | - | - | 9 | - | ||||||||||||||||||
Total bonds and stocks | $ | 2,135 | $ | 46 | $ | 1,278 | $ | 61 | $ | 3,413 | $ | 107 | ||||||||||||
December 31, 2019 | ||||||||||||||||||||||||
Bonds: | ||||||||||||||||||||||||
States, territories and possessions | $ | 23 | $ | 1 | $ | - | $ | - | $ | 23 | $ | 1 | ||||||||||||
Political subdivisions | 65 | 1 | - | - | 65 | 1 | ||||||||||||||||||
Special revenues | 397 | 5 | - | - | 397 | 5 | ||||||||||||||||||
Industrial and miscellaneous | 852 | 9 | 911 | 103 | 1,763 | 112 | ||||||||||||||||||
Loan-backed and structured securities | 704 | 6 | 1,124 | 28 | 1,828 | 34 | ||||||||||||||||||
Total bonds | $ | 2,041 | $ | 22 | $ | 2,035 | $ | 131 | $ | 4,076 | $ | 153 | ||||||||||||
Common stocks unaffiliated | 32 | - | 16 | 1 | 48 | 1 | ||||||||||||||||||
Preferred stocks unaffiliated | 1 | - | - | - | 1 | - | ||||||||||||||||||
Total bonds and stocks | $ | 2,074 | $ | 22 | $ | 2,051 | $ | 132 | $ | 4,125 | $ | 154 |
As of December 31, 2020, management evaluated securities in an unrealized loss position and all non-marketable securities for impairment. As of the reporting date, the Company has the intent and ability to hold these securities until the fair value recovers, which may be maturity, and therefore, does not consider the securities to be other-than-temporarily impaired.
There was no intent to sell other-than-temporary impairments on loan-backed and structured securities for the years ended December 31, 2020 and 2019.
F-29
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2020, 2019 and 2018 Statutory Financial Statements
Mortgage Loans, Net of Allowance
The following table summarizes the amortized cost of mortgage loans by method of evaluation for credit loss, and the related valuation allowances by type of credit loss, as of the dates indicated:
December 31, | ||||||||
(in millions) | 2020 | 2019 | ||||||
Amortized cost: | ||||||||
Loans with non-specific reserves | $ | 7,819 | $ | 7,675 | ||||
Loans with specific reserves | 12 | 14 | ||||||
Total amortized cost | $ | 7,831 | $ | 7,689 | ||||
Valuation allowance: | ||||||||
Non-specific reserves | $ | 45 | $ | 31 | ||||
Specific reserves | 3 | 3 | ||||||
Total valuation allowance1 | $ | 48 | $ | 34 | ||||
Mortgage loans, net of allowance | $ | 7,783 | $ | 7,655 |
1 | Changes in the valuation allowance are due to current period provisions. These changes in the valuation allowance for the years ended December 31, 2020, 2019, and 2018 were immaterial. |
As of December 31, 2020 and 2019, the Company’s mortgage loans classified as delinquent and/or in non-accrual status were immaterial in relation to the total mortgage loan portfolio.
The following table summarizes the LTV ratio and DSC ratio of the mortgage loan portfolio as of the dates indicated:
LTV ratio | DSC ratio | |||||||||||||||||||||||||||||||
(in millions) | Less than 90% | 90% or greater | Total | Greater than 1.00 | Less than or equal to 1.00 | Total | ||||||||||||||||||||||||||
December 31, 2020 | ||||||||||||||||||||||||||||||||
Apartment | $ | 2,988 | $ | 25 | $ | 3,013 | $ | 2,993 | $ | 20 | $ | 3,013 | ||||||||||||||||||||
Industrial | 1,026 | - | 1,026 | 1,005 | 21 | 1,026 | ||||||||||||||||||||||||||
Office | 1,307 | - | 1,307 | 1,304 | 3 | 1,307 | ||||||||||||||||||||||||||
Retail | 2,155 | 27 | 2,182 | 2,169 | 13 | 2,182 | ||||||||||||||||||||||||||
Other | 218 | - | 218 | 218 | - | 218 | ||||||||||||||||||||||||||
Total1 | $ | 7,694 | $ | 52 | $ | 7,746 | $ | 7,689 | $ | 57 | $ | 7,746 | ||||||||||||||||||||
Weighted average DSC ratio | 2.21 | 1.52 | 2.20 | 2.21 | 0.91 | 2.20 | ||||||||||||||||||||||||||
Weighted average LTV ratio | 57 | % | 98 | % | 57 | % | 57 | % | 65 | % | 57% | |||||||||||||||||||||
December 31, 2019 | ||||||||||||||||||||||||||||||||
Apartment | $ | 2,906 | $ | 124 | $ | 3,030 | $ | 3,018 | $ | 12 | $ | 3,030 | ||||||||||||||||||||
Industrial | 906 | - | 906 | 905 | 1 | 906 | ||||||||||||||||||||||||||
Office | 1,306 | - | 1,306 | 1,291 | 15 | 1,306 | ||||||||||||||||||||||||||
Retail | 2,162 | 9 | 2,171 | 2,151 | 20 | 2,171 | ||||||||||||||||||||||||||
Other | 205 | - | 205 | 205 | - | 205 | ||||||||||||||||||||||||||
Total1 | $ | 7,485 | $ | 133 | $ | 7,618 | $ | 7,570 | $ | 48 | $ | 7,618 | ||||||||||||||||||||
Weighted average DSC ratio | 2.13 | 1.19 | 2.11 | 2.12 | 0.90 | 2.11 | ||||||||||||||||||||||||||
Weighted average LTV ratio | 54 | % | 95 | % | 54 | % | 54 | % | 72 | % | 54% |
1 | Excludes $85 million and $71 million of commercial mortgage loans that were under development as of December 31, 2020 and 2019, respectively. |
As of December 31, 2020 and 2019, the Company has a diversified mortgage loan portfolio with no more than 24% and 23%, respectively, in a geographic region in the U.S. and no more than 1% with any one borrower. The maximum and minimum lending rates for mortgage loans originated or acquired during 2020 were 4.3% and 1.9%, respectively, and for those originated or acquired during 2019 were 12.0% and 3.1%, respectively. As of December 31, 2020 and 2019, the maximum LTV ratio of any one loan at the time of loan origination was 80% and 82%, respectively. As of December 31, 2020 and 2019, the Company did not hold mortgage loans with interest 90 days or more past due. Additionally, there were no taxes, assessments or any amounts advanced and not included in the mortgage loan portfolio.
F-30
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2020, 2019 and 2018 Statutory Financial Statements
Securities Lending
The fair value of loaned securities was $244 million and $306 million as of December 31, 2020 and 2019, respectively. The Company held $101 million and $132 million of cash collateral on securities lending as of December 31, 2020 and 2019, respectively. As of December 31, 2020, the carrying value and fair value of reinvested collateral assets was $101 million. As of December 31, 2019, the carrying value and fair value of reinvested collateral assets was $133 million. The fair value of bonds acquired with reinvested collateral assets was $103 million and $134 million as of December 31, 2020 and 2019, respectively. There are no securities lending transactions that extend beyond one year as of the reporting date.The Company received $148 million and $180 million of non-cash collateral on securities lending as of December 31, 2020 and 2019, respectively.
Net Investment Income
The following table summarizes net investment income by investment type, for the years ended:
December 31, | ||||||||||||
(in millions) | 2020 | 2019 | 2018 | |||||||||
Bonds | $ | 1,419 | $ | 1,408 | $ | 1,378 | ||||||
Mortgage loans | 339 | 353 | 335 | |||||||||
Other invested assets | 384 | 225 | 228 | |||||||||
Policy loans | 43 | 45 | 54 | |||||||||
Other | 41 | 51 | 41 | |||||||||
Gross investment income | $ | 2,226 | $ | 2,082 | $ | 2,036 | ||||||
Investment expenses | (119) | (108) | (109) | |||||||||
Net investment income | $ | 2,107 | $ | 1,974 | $ | 1,927 |
There was no investment income due and accrued that was nonadmitted as of December 31, 2020 and 2019.
Net Realized Capital Gains and Losses
The following table summarizes net realized capital gains and losses for the years ended:
December 31, | ||||||||||||
(in millions) | 2020 | 2019 | 2018 | |||||||||
Gross gains on sales | $ | 36 | $ | 71 | $ | 22 | ||||||
Gross losses on sales | (42) | (21) | (16) | |||||||||
Net realized (losses) gains on sales | $ | (6) | $ | 50 | $ | 6 | ||||||
Net realized derivative losses | (521) | (515) | (226) | |||||||||
Other-than-temporary impairments | (78) | (5) | (8) | |||||||||
Total net realized losses on sales | $ | (605) | $ | (470) | $ | (228) | ||||||
Tax (benefit) expense on net losses | (26) | 7 | 8 | |||||||||
Net realized capital losses, net of tax | $ | (579) | $ | (477) | $ | (236) | ||||||
Less: Realized losses transferred to the IMR | (4) | - | (1) | |||||||||
Net realized capital losses, net of tax and transfers to the IMR | $ | (575) | $ | (477) | $ | (235) |
For the year ended December 31, 2020, gross realized gains and gross realized losses on sales of bonds were $26 million and $38 million, respectively. For the year ended December 31, 2019, gross realized gains and gross realized losses on sales of bonds were $56 million and $19 million, respectively. For the year ended December 31, 2018, gross realized gains and gross realized losses on sales of bonds were $15 million and $13 million, respectively.
The Company did not enter into any material repurchase transactions that would be considered wash sales during the years ended December 31, 2020 and 2019.
Investment Commitments
The Company had unfunded commitments related to its investment in limited partnerships and limited liability companies totaling $483 million and $496 million as of December 31, 2020 and 2019, respectively. As of December 31, 2020 and 2019, there were $21 million and $45 million of commitments to purchase private placement bonds and $114 million and $147 million of outstanding commitments to fund mortgage loans, respectively.
F-31
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2020, 2019 and 2018 Statutory Financial Statements
(6) | Derivative Instruments |
The Company is exposed to certain risks related to its ongoing business operations which are managed using derivative instruments.
Interest rate risk management. In the normal course of business, the Company enters into transactions that expose it to interest rate risk arising from mismatches between assets and liabilities. The Company may use interest rate swaps and futures to reduce or alter interest rate exposure.
Interest rate contracts are used by the Company in association with fixed and variable rate investments to achieve cash flow streams that support certain financial obligations of the Company and to produce desired investment returns. As such, interest rate contracts are generally used to convert fixed rate cash flow streams to variable rate cash flow streams or vice versa.
Equity market risk management. The Company issues a variety of insurance products that expose it to equity risks. To mitigate these risks, the Company enters into a variety of derivatives including equity index futures and options.
Other risk management. As part of its regular investing activities, the Company may purchase foreign currency denominated investments. These investments and the associated income expose the Company to volatility associated with movements in foreign exchange rates. As foreign exchange rates change, the increase or decrease in the cash flows of the derivative instrument are intended to mitigate the changes in the functional-currency equivalent cash flows of the hedged item. To mitigate this risk, the Company uses cross-currency swaps.
Credit risk associated with derivatives transactions. The Company periodically evaluates the risks within the derivative portfolios due to credit exposure. When evaluating this risk, the Company considers several factors which include, but are not limited to, the counterparty credit risk associated with derivative receivables, the Company’s own credit as it relates to derivative payables, the collateral thresholds associated with each counterparty and changes in relevant market data in order to gain insight into the probability of default by the counterparty. The Company also considers the impact credit exposure could have on the effectiveness of the Company’s hedging relationships. As of December 31, 2020 and 2019, the impact of the exposure to credit risk on the fair value measurement of derivatives and the effectiveness of the Company’s hedging relationships was immaterial.
The following table summarizes the fair value, carrying value and related notional amounts of derivative instruments, as of the dates indicated:
(in millions) | Notional amount | Net Carrying Value | Fair value asset | Fair value liability | Average fair value | |||||||||||||||
December 31, 2020 | ||||||||||||||||||||
Interest rate swaps | $ | 7 | $ | (1) | $ | - | $ | (1) | $ | (1) | ||||||||||
Options | - | - | - | - | - | |||||||||||||||
Cross currency swaps | 1,524 | (36) | 75 | (49) | - | |||||||||||||||
Futures | 3,342 | - | - | - | - | |||||||||||||||
Total | $ | 4,873 | $ | (37) | $ | 75 | $ | (50) | $ | (1) | ||||||||||
December 31, 2019 | ||||||||||||||||||||
Interest rate swaps | $ | 7 | $ | (1) | $ | - | $ | (1) | $ | - | ||||||||||
Options | 202 | 6 | 6 | - | 1 | |||||||||||||||
Cross currency swaps | 1,537 | 66 | 99 | (19) | 1 | |||||||||||||||
Futures | 3,153 | - | - | - | - | |||||||||||||||
Total | $ | 4,899 | $ | 71 | $ | 105 | $ | (20) | $ | 2 |
Of the $75 million and $105 million of fair value of derivative assets as of December 31, 2020 and 2019, $24 million and $14 million were subject to master netting agreements as of December 31, 2020 and 2019, the Company received $35 million and $68 million of cash collateral and $22 million and $45 million in pledged securities, respectively, resulting in an immaterial uncollateralized position as of December 31, 2020 and 2019. Of the $50 million and $20 million of fair value of derivative liabilities as of December 31, 2020 and 2019, $24 million and $14 million were subject to master netting agreements as of December 31, 2020 and 2019, the Company posted $28 million and $3 million of cash collateral, respectively, resulting in an immaterial uncollateralized position as of December 31, 2020 and 2019. Securities received as collateral are recorded off-balance sheet and exclude initial margin posted on derivatives of $280 million and $128 million as of December 31, 2020 and 2019, respectively.
F-32
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2020, 2019 and 2018 Statutory Financial Statements
The following table summarizes net gains and losses on derivatives programs by type of derivative instrument, as of the dates indicated:
Net realized (losses) gains recorded in operations | Unrealized (losses) gains recorded in capital and surplus | |||||||||||||||||||||||
December 31, | December 31, | |||||||||||||||||||||||
(in millions) | 2020 | 2019 | 2018 | 2020 | 2019 | 2018 | ||||||||||||||||||
Interest rate swaps | $ | - | $ | - | $ | (5) | $ | - | $ | - | $ | 35 | ||||||||||||
Options | - | 3 | (313) | (1) | 4 | 244 | ||||||||||||||||||
Cross currency swaps | 4 | (1) | - | (102) | (13) | 65 | ||||||||||||||||||
Futures | (525) | (517) | 92 | 1 | (169) | 132 | ||||||||||||||||||
Total | $ | (521) | $ | (515) | $ | (226) | $ | (102) | $ | (178) | $ | 476 |
(7) | Fair Value Measurements |
The following table summarizes assets and liabilities held at fair value as of December 31, 2020:
(in millions) | Level 1 | Level 2 | Level 3 | Net Asset Value (NAV) | Total | |||||||||||||||
Assets | ||||||||||||||||||||
Bonds | $ | - | $ | 4 | $ | 1 | $ | - | $ | 5 | ||||||||||
Common stocks unaffiliated | 53 | 88 | 1 | - | 142 | |||||||||||||||
Separate account assets | 109,265 | 2,047 | 58 | 2,720 | 114,090 | |||||||||||||||
Assets at fair value | $ | 109,318 | $ | 2,139 | $ | 60 | $ | 2,720 | $ | 114,237 | ||||||||||
Liabilities | ||||||||||||||||||||
Derivative liabilities | $ | - | $ | 1 | $ | - | $ | - | $ | 1 | ||||||||||
Liabilities at fair value | $ | - | $ | 1 | $ | - | $ | - | $ | 1 |
The following table presents the rollforward of Level 3 assets and liabilities held at fair value during the year ended December 31, 2020:
(in millions) | Bonds | Common stocks | Derivative assets1 | Separate account assets | Assets at fair | |||||||||||||||
Balance as of December 31, 2019 | $ | 6 | $ | 1 | $ | 6 | $ | 87 | $ | 100 | ||||||||||
Net gains (losses): | ||||||||||||||||||||
In operations | (2) | - | - | - | (2) | |||||||||||||||
In surplus | 5 | - | (1) | (17) | (13) | |||||||||||||||
Purchases | 2 | - | - | - | 2 | |||||||||||||||
Sales | (9) | - | (5) | (12) | (26) | |||||||||||||||
Transfers into Level 3 | 1 | - | - | - | 1 | |||||||||||||||
Transfers out of Level 3 | (2) | - | - | - | (2) | |||||||||||||||
Balance as of December 31, 2020 | $ | 1 | $ | 1 | $ | - | $ | 58 | $ | 60 |
1 | Non-binding broker quotes are utilized to determine fair value of all Level 3 derivative assets. |
Bonds transfers into and/or out of Level 3 during the year ended December 31, 2020 are due to the changes in observability of pricing inputs and changes resulting from application of the lower of amortized cost or fair value rules based on the security’s NAIC designation.
F-33
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2020, 2019 and 2018 Statutory Financial Statements
The following table summarizes assets and liabilities held at fair value as of December 31, 2019:
(in millions) | Level 1 | Level 2 | Level 3 | Net Asset Value (NAV) | Total | |||||||||||||||
Assets | ||||||||||||||||||||
Bonds | $ | - | $ | 3 | $ | 6 | $ | - | $ | 9 | ||||||||||
Common stocks unaffiliated | 68 | 112 | 1 | - | 181 | |||||||||||||||
Derivative assets | - | - | 6 | - | 6 | |||||||||||||||
Separate account assets | 101,312 | 1,857 | 87 | 2,091 | 105,347 | |||||||||||||||
Assets at fair value | $ | 101,380 | $ | 1,972 | $ | 100 | $ | 2,091 | $ | 105,543 | ||||||||||
Liabilities | ||||||||||||||||||||
Derivative liabilities | $ | - | $ | 1 | $ | - | $ | - | $ | 1 | ||||||||||
Liabilities at fair value | $ | - | $ | 1 | $ | - | $ | - | $ | 1 |
The following table presents the rollforward of Level 3 assets and liabilities held at fair value during the year ended December 31, 2019:
(in millions) | Bonds | Common stocks | Derivative assets1 | Separate account assets | Assets at fair value | |||||||||||||||
Balance as of December 31, 2018 | $ | 8 | $ | 1 | $ | 2 | $ | 80 | $ | 91 | ||||||||||
Net gains (losses): | ||||||||||||||||||||
In operations | - | - | 3 | - | 3 | |||||||||||||||
In surplus | (4) | - | 4 | 7 | 7 | |||||||||||||||
Purchases | 3 | - | 6 | - | 9 | |||||||||||||||
Sales | (5) | - | (9) | - | (14) | |||||||||||||||
Transfers into Level 3 | 24 | - | - | - | 24 | |||||||||||||||
Transfers out of Level 3 | (20) | - | - | - | (20) | |||||||||||||||
Balance as of December 31, 2019 | $ | 6 | $ | 1 | $ | 6 | $ | 87 | 100 |
1 | Non-binding broker quotes are utilized to determine fair value of all Level 3 derivative assets. |
Bond transfers into and/or out of Level 3 during the year ended December 31, 2019 are due to the changes in observability of pricing inputs and changes resulting from application of the lower of amortized cost or fair value rules based on the security’s NAIC designation.
F-34
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2020, 2019 and 2018 Statutory Financial Statements
The following table summarizes the carrying value and fair value of the Company’s assets and liabilities not held at fair value as of the dates indicated. The valuation techniques used to estimate these fair values are described below or in Note 2.
Fair Value | ||||||||||||||||||||
(in millions) | Level 1 | Level 2 | Level 3 | Total fair value | Carrying value | |||||||||||||||
December 31, 2020 | ||||||||||||||||||||
Assets: | ||||||||||||||||||||
Bonds1 | $ | 1,366 | $ | 39,072 | $ | 1,367 | $ | 41,805 | $ | 37,202 | ||||||||||
Preferred stocks unaffiliated | - | 104 | 5 | 109 | 97 | |||||||||||||||
Mortgage loans, net of allowance | - | - | 7,952 | 7,952 | 7,783 | |||||||||||||||
Policy loans | - | - | 888 | 888 | 888 | |||||||||||||||
Derivative assets | - | 75 | - | 75 | 51 | |||||||||||||||
Cash, cash equivalents and short-term investments | (90 | ) | 551 | - | 461 | 461 | ||||||||||||||
Securities lending collateral assets | 101 | - | - | 101 | 101 | |||||||||||||||
Separate account assets | 7 | 368 | - | 375 | 317 | |||||||||||||||
Total assets | $ | 1,384 | $ | 40,170 | $ | 10,212 | $ | 51,766 | $ | 46,900 | ||||||||||
Liabilities: | ||||||||||||||||||||
Investment contracts | $ | - | $ | - | $ | 1,249 | $ | 1,249 | $ | 2,076 | ||||||||||
Derivative liabilities | - | 48 | - | 48 | 86 | |||||||||||||||
Total liabilities | $ | - | $ | 48 | $ | 1,249 | $ | 1,297 | $ | 2,162 | ||||||||||
December 31, 2019 | ||||||||||||||||||||
Assets: | ||||||||||||||||||||
Bonds1 | $ | 1,494 | $ | 35,302 | $ | 930 | $ | 37,726 | $ | 35,115 | ||||||||||
Preferred stocks unaffiliated | - | 59 | - | 59 | 55 | |||||||||||||||
Mortgage loans, net of allowance | - | - | 7,856 | 7,856 | 7,655 | |||||||||||||||
Policy loans | - | - | 903 | 903 | 903 | |||||||||||||||
Derivative assets | - | 99 | - | 99 | 88 | |||||||||||||||
Short-term investments | 7 | 615 | - | 622 | 622 | |||||||||||||||
Securities lending collateral assets | 132 | - | - | 132 | 132 | |||||||||||||||
Separate account assets | 3 | 334 | - | 337 | 308 | |||||||||||||||
Total assets | $ | 1,636 | $ | 36,409 | $ | 9,689 | $ | 47,734 | $ | 44,878 | ||||||||||
Liabilities: | ||||||||||||||||||||
Investment contracts² | $ | - | $ | - | $ | 953 | $ | 953 | $ | 1,801 | ||||||||||
Derivative liabilities | - | 19 | - | 19 | 22 | |||||||||||||||
Total liabilities | $ | - | $ | 19 | $ | 953 | $ | 972 | $ | 1,823 |
1 | Level 3 is primarily composed of industrial and miscellaneous bonds. |
2 |
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EVENT 4: PREFERRED AND NON-PREFERRED WITHDRAWAL WITH MINIMAL INDEX PERFORMANCEMortgage loans, net of allowance. The fair values of mortgage loans are estimated using discounted cash flow analyses based on interest rates currently being offered for similar loans to borrowers with similar credit ratings.
Policy loans. The contract owner takes carrying amount reported in the statutory statements of admitted assets, liabilities, capital and surplus approximates fair value as policy loans are fully collateralized by the cash surrender value of underlying insurance policies.
Securities lending collateral assets. These assets are comprised of bonds and short-term investments and the respective fair values are estimated based on the fair value methods described in Note 2.
F-35
NATIONWIDE LIFE INSURANCE COMPANY
(a Gross Withdrawalwholly owned subsidiary of $8,730 after 800 days (i.e. 2 yearsNationwide Financial Services, Inc.)
Notes to December 31, 2020, 2019 and 70 days) have elapsed since2018 Statutory Financial Statements
Investment contracts. For investment contracts without defined maturities, fair value is the startamount payable on demand, net of surrender charges. For investment contracts with known or determined maturities, fair value is estimated using discounted cash flow analysis. Interest rates used in this analysis are similar to currently offered contracts with maturities consistent with those remaining for the Strategy Term. Assume the following values apply to that date:contracts being valued. The fair value of adjustable rate contracts approximates their carrying value.
(8) |
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The table below illustratesfollowing tables summarize the calculationnet admitted deferred tax assets, as of the SEP and NSEP on that date.
SEP and NSEPdates indicated:
Step One | Step Two | Step Three | Step Four | Step Five | Step Six | Step Seven | Step Eight | |||||||
Elapsed Term | Adjusted Index Performance (AIP) | Downside for SEP | Downside for NSEP | Elapsed Term / Term | Factor to use in NSEP | Strategy Earnings Percentage (SEP) | Non-Preferred Strategy Earnings Percentage (NSEP) | |||||||
2.192 | -0.39% | -10.00% | -11.62% | 0.731 | 1.00 | -0.39% | -0.39% |
December 31, 2020 | ||||||||||||
(in millions) | Ordinary | Capital | Total | |||||||||
Total gross deferred tax assets | $ | 770 | $ | 16 | $ | 786 | ||||||
Statutory valuation allowance adjustment | - | - | - | |||||||||
Adjusted gross deferred tax assets | $ | 770 | $ | 16 | $ | 786 | ||||||
Less: Deferred tax assets nonadmitted | (41 | ) | - | (41) | ||||||||
Net admitted deferred tax assets | $ | 729 | $ | 16 | $ | 745 | ||||||
Less: Deferred tax liabilities | (94 | ) | (9 | ) | (103) | |||||||
Net admitted deferred tax assets | $ | 635 | $ | 7 | $ | 642 | ||||||
December 31, 2019 | ||||||||||||
(in millions) | Ordinary | Capital | Total | |||||||||
Total gross deferred tax assets | $ | 730 | $ | 44 | $ | 774 | ||||||
Statutory valuation allowance adjustment | - | - | - | |||||||||
Adjusted gross deferred tax assets | $ | 730 | $ | 44 | $ | 774 | ||||||
Less: Deferred tax assets nonadmitted | (13 | ) | (24 | ) | (37) | |||||||
Net admitted deferred tax assets | $ | 717 | $ | 20 | $ | 737 | ||||||
Less: Deferred tax liabilities | (134 | ) | (2 | ) | (136) | |||||||
Net admitted deferred tax assets | $ | 583 | $ | 18 | $ | 601 |
The following table summarizes components of the change in deferred income taxes reported in capital and surplus before consideration of nonadmitted assets and changes from the prior year, as of the dates indicated:
December 31, | ||||||||||||
(in millions) | 2020 | 2019 | Change | |||||||||
Adjusted gross deferred tax assets | $ | 786 | $ | 774 | $ | 12 | ||||||
Total deferred tax liabilities | (103 | ) | (136 | ) | 33 | |||||||
Net deferred tax assets | $ | 683 | $ | 638 | $ | 45 | ||||||
Less: Tax effect of unrealized gains | 3 | |||||||||||
Change in deferred income tax | $ | 42 |
F-36
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2020, 2019 and 2018 Statutory Financial Statements
The following tables summarize components of the admitted deferred tax assets calculation, as of the dates indicated:
December 31, 2020 | ||||||||||||
(in millions) | Ordinary | Capital | Total | |||||||||
Federal income taxes recoverable through loss carryback | $ | - | $ | 7 | $ | 7 | ||||||
Adjusted gross deferred tax assets expected to be realized1 | 633 | 2 | 635 | |||||||||
Adjusted gross deferred tax assets offset against existing gross deferred tax liabilities | 96 | 7 | 103 | |||||||||
Admitted deferred tax assets | $ | 729 | $ | 16 | $ | 745 |
December 31, 2019 | ||||||||||||
(in millions) | Ordinary | Capital | Total | |||||||||
Federal income taxes recoverable through loss carryback | $ | - | $ | 6 | $ | 6 | ||||||
Adjusted gross deferred tax assets expected to be realized1 | 583 | 12 | 595 | |||||||||
Adjusted gross deferred tax assets offset against existing gross deferred tax liabilities | 134 | 2 | 136 | |||||||||
Admitted deferred tax assets | $ | 717 | $ | 20 | $ | 737 |
1 |
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The table below illustrates the calculation of Interim Strategy Earnings applied to the Strategycalculated as a result of the withdrawal.
Strategy Earnings
Step One | Step Two | Step Three | Step Four | Step Five | ||||
Dollar Amount of Preferred Withdrawal | Interim Strategy Earnings on the Preferred Withdrawal | Dollar Amount of Non-Preferred | Interim Strategy Non-Preferred | Total Interim Strategy Earnings | ||||
$4,365 | -$17 | $4,365 | -$17 | -$34 |
84
where:
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The table below illustratesadjusted capital and surplus used to determine the calculationrecovery period and adjusted gross deferred tax assets allowed per the limitation threshold was $8.4 billion and $8.1 billion as of December 31, 2020 and 2019, respectively. The ratio percentage used to determine the recovery period and adjusted gross deferred tax assets allowed per the limitation threshold was 1,176% and 1,296% as of December 31, 2020 and 2019, respectively.
The following tables summarize the impact of tax planning strategies, as of the Contract Value as dates indicated:
December 31, 2020 | ||||||||||||
Ordinary | Capital | Total | ||||||||||
Adjusted gross deferred tax assets | 0.00 | % | 0.00 | % | 0.00 | % | ||||||
Net admitted adjusted gross deferred tax assets | 32.64 | % | 0.00 | % | 32.64 | % |
December 31, 2019 | ||||||||||||
Ordinary | Capital | Total | ||||||||||
Adjusted gross deferred tax assets | 0.00 | % | 0.00 | % | 0.00 | % | ||||||
Net admitted adjusted gross deferred tax assets | 35.23 | % | 0.00 | % | 35.23 | % |
The Company’s tax planning strategies included the use of affiliated reinsurance for the years ended December 31, 2020 and 2019.
There are no temporary differences for which deferred tax liabilities are not recognized for the years ended December 31, 2020 and 2019.
F-37
NATIONWIDE LIFE INSURANCE COMPANY
(a resultwholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2020, 2019 and 2018 Statutory Financial Statements
The following table summarizes the tax effects of temporary differences and the change from the prior year, for the years ended:
December 31, | ||||||||||||
(in millions) | 2020 | 2019 | Change | |||||||||
Deferred tax assets | ||||||||||||
Ordinary: | ||||||||||||
Future policy benefits and claims | $ | 108 | $ | 108 | $ | - | ||||||
Investments | 116 | 88 | 28 | |||||||||
Deferred acquisition costs | 202 | 201 | 1 | |||||||||
Policyholders’ dividends accumulation | 5 | 5 | - | |||||||||
Compensation and benefits accrual | 10 | 10 | - | |||||||||
Tax credit carry-forward | 316 | 303 | 13 | |||||||||
Other | 13 | 15 | (2 | ) | ||||||||
Subtotal | $ | 770 | $ | 730 | $ | 40 | ||||||
Nonadmitted | (41 | ) | (13 | ) | (28 | ) | ||||||
Admitted ordinary deferred tax assets | $ | 729 | $ | 717 | $ | 12 | ||||||
Capital: | ||||||||||||
Investments | 16 | 44 | (28 | ) | ||||||||
Subtotal | $ | 16 | $ | 44 | $ | (28 | ) | |||||
Nonadmitted | - | (24 | ) | 24 | ||||||||
Admitted capital deferred tax assets | $ | 16 | $ | 20 | $ | (4 | ) | |||||
Admitted deferred tax assets | $ | 745 | $ | 737 | $ | 8 | ||||||
Deferred tax liabilities | ||||||||||||
Ordinary: | ||||||||||||
Investments | $ | (2 | ) | $ | (26 | ) | $ | 24 | ||||
Deferred and uncollected premium | (6 | ) | (6 | ) | - | |||||||
Future policy benefits and claims | (57 | ) | (58 | ) | 1 | |||||||
Deferred acquisition costs | (28 | ) | (43 | ) | 15 | |||||||
Other | (1 | ) | (1 | ) | - | |||||||
Subtotal | $ | (94 | ) | $ | (134 | ) | $ | 40 | ||||
Capital: | ||||||||||||
Investments | (9 | ) | (2 | ) | (7 | ) | ||||||
Subtotal | $ | (9 | ) | $ | (2 | ) | $ | (7 | ) | |||
Deferred tax liabilities | $ | (103 | ) | $ | (136 | ) | $ | 33 | ||||
Net deferred tax assets | $ | 642 | $ | 601 | $ | 41 |
In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion of the withdrawal.
Contract Valuetotal deferred tax assets will not be realized. Valuation allowances are established when necessary to reduce the deferred tax assets to amounts expected to be realized. Based on the Company’s analysis, it is more likely than not that the results of future operations and the implementation of tax planning strategies will generate sufficient taxable income to enable the Company to realize all deferred tax assets. Therefore, no valuation allowances have been established as of December 31, 2020 and 2019.
Contract Value before Event | Gross Withdrawal | Total Strategy Earnings | Contract Value after Event | |||
$62,358 | $8,730 | -$34 | $53,594 |
where:F-38
Contract Value after Event: $53,594 = $62,358 - $8,730 + (-$34)
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2020, 2019 and 2018 Statutory Financial Statements
The following table summarizes the Company’s income tax incurred and change in deferred income tax. The total income tax and change in deferred income tax differs from the amount obtained by applying the federal statutory rate to income (loss) before tax as follows, for the years ended:
December 31, | ||||||||||||
(in millions) | 2020 | 2019 | 2018 | |||||||||
Current income tax (benefit) expense | $ | (22 | ) | $ | (66 | ) | $ | 73 | ||||
Change in deferred income tax (without tax on unrealized gains and losses) | (41 | ) | 29 | (72 | ) | |||||||
Total income tax (benefit) expense reported | $ | (63 | ) | $ | (37 | ) | $ | 1 | ||||
Income before income and capital gains taxes | $ | 465 | $ | 563 | $ | 783 | ||||||
Federal statutory tax rate | 21 | % | 21 | % | 21 | % | ||||||
Expected income tax expense at statutory tax rate | $ | 98 | $ | 118 | $ | 164 | ||||||
Decrease in actual tax reported resulting from: | ||||||||||||
Dividends received deduction | (117 | ) | (101 | ) | (99 | ) | ||||||
Change in tax reserves | 16 | - | 16 | |||||||||
Tax credits | (48 | ) | (53 | ) | (51 | ) | ||||||
Tax (benefit) expense related to the Tax Cuts and Jobs Act1 | - | - | (26 | ) | ||||||||
Loss carryback rate differential | (10 | ) | - | - | ||||||||
Other | (2 | ) | (1 | ) | (3 | ) | ||||||
Total income tax (benefit) expense reported | $ | (63 | ) | $ | (37 | ) | $ | 1 |
|
The Company incurred $6 million in federal income tax expense in 2019 which is available for recoupment in the event of future net losses.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law and includes certain income tax provisions relevant to businesses. The Company is required to recognize the effect on the financial statements in the period the law was enacted. For year ended December 31, 2020, the CARES Act did not have a material impact on the Company’s financial statements.
The CARES Act amended the Tax Cuts and Jobs Act, to accelerate the ability of companies to fully recover AMT credits in 2020 versus 2021. The Company had $159 million of an income tax receivable that was previously AMT credit carryforwards as of December 31, 2019. In 2020, the Company received a refund of $158 million of its AMT credits.
The following table below illustrates the calculationsummarizes operating loss or tax credit carry-forwards available as of the Cash Withdrawal received by the owner as a result of the withdrawal.
Cash WithdrawalDecember 31, 2020:
Step One | Step Two | Step Three | Step Four | Step Five | ||||
Gross Withdrawal | CDSC Base/MVA Base | CDSC | MVA | Cash Withdrawal | ||||
$8,730 | $4,365 | $175 | $87 | $8,642 |
(in millions) | Amount | Origination | Expiration | |||||||||
Business credits | $ | 5 | 2011 | 2031 | ||||||||
Business credits | $ | 9 | 2012 | 2032 | ||||||||
Business credits | $ | 6 | 2013 | 2033 | ||||||||
Business credits | $ | 39 | 2014 | 2034 | ||||||||
Business credits | $ | 47 | 2015 | 2035 | ||||||||
Business credits | $ | 62 | 2016 | 2036 | ||||||||
Business credits | $ | 62 | 2017 | 2037 | ||||||||
Business credits | $ | 30 | 2018 | 2038 | ||||||||
Business credits | $ | 27 | 2019 | 2039 | ||||||||
Business credits | $ | 29 | 2020 | 2040 |
where:
F-39
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2020, 2019 and 2018 Statutory Financial Statements
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EVENT 5: TERM STRATEGY EARNINGS
At the end of the 3-year Strategy Term, Term Strategy Earnings are calculated and applied to the Strategy and then the contract owner surrenders the contract.
Assume the following values apply to that date:
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The table below illustrates the calculation of the SEP on that date.
85
SEP
Step One | Step Two | Step Three | Step Four | |||
Elapsed Term | Adjusted Index Performance (AIP) | Downside Protection for SEP | Strategy Earnings Percentage (SEP) | |||
3.00 | 11.88% | -10.00% | 11.88% |
where:
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The table below illustratesCompany is included in the calculation of Interim Strategy Earnings applied toNMIC consolidated federal income tax return which includes the Strategy as a result of the withdrawal.
Strategy Earnings
Strategy Value | Term Strategy Earnings | |
$53,594 | $6,367 |
Term Strategy Earnings: $6,367 = $53,594 x 11.88%
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The table below illustrates the calculation of the Contract Value as a result of the withdrawal.
Contract Value
Contract Value before Event | Total Strategy Earnings | Contract Value after Event | ||
$53,594 | $6,367 | $59,961 |
where:
Contract Value after Event: $59,961 = $53,594 + $6,367
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The table below illustrates the calculation of the Cash Withdrawal received by the owner as a result of the surrender.
Cash Withdrawal
Step One | Step Two | Step Three | Step Four | Step Five | ||||
Gross Withdrawal | CDSC Base/MVA Base | CDSC | MVA | Cash Withdrawal | ||||
$59,961 | $55,764 | $1,673 | $558 | $58,846 |
where:
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86
APPENDIX E: MVA EXAMPLESfollowing entities:
AGMC Reinsurance, Ltd
Allied Holding (Delaware), Inc.
Allied Property & Casualty Insurance Company
AMCO Insurance Company
Crestbrook Insurance Company
DVM Insurance Agency, Inc. Eagle Captive Reinsurance, LLC Freedom Specialty Insurance Company Harleysville Group Inc. Harleysville Insurance Co. of Harleysville Insurance Company
Harleysville Lake States Insurance Company
Harleysville Preferred Insurance Company
Jefferson National Financial Corporation
Lone Star General Agency, Inc.
Nationwide Advantage Mortgage Company
Nationwide Agent Risk Purchasing Group. Inc.
Nationwide Assurance Company
| Nationwide Corporation Nationwide Financial Assignment Company
Nationwide Financial Services, Inc.
Nationwide Global Holdings, Inc.
Nationwide Insurance Company of America Nationwide Insurance Company of Florida Nationwide Investment Services Corporation Nationwide Life and Annuity Ins. Company Nationwide Life Insurance Company Nationwide Lloyds Nationwide Property & Casualty Ins. Company Nationwide Retirement Solutions, Inc. Nationwide Sales Solutions, Inc. Nationwide Trust Company, FSB NBS Insurance Agency, Inc. NFS Distributors, Inc. NWD Investment Management, Inc. Registered Investment Advisors Services, Inc. Scottsdale Indemnity Company Scottsdale Insurance Company Scottsdale Surplus Lines Insurance Company THI Holdings (Delaware), Titan Insurance Company
Veterinary Pet Insurance Company
Victoria National Insurance Company
VPI Services, Inc. |
The method of allocation among the companies is based upon separate return calculations with current benefit for tax losses and credits utilized in the consolidated return.
The Company did not have any protective tax deposits under Section 6603 of the Internal Revenue Code as of December 31, 2020 and 2019.
The Company does not have any tax loss contingencies for which it is reasonably possible that the total liability will significantly increase within twelve months of the reporting date.
87F-40
NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2020, 2019 and 2018 Statutory Financial Statements
(9) | Short-Term Debt and Federal Home Loan Bank Funding Agreement |
Short-Term Debt
Information requiredThe following table summarizes the carrying value of short-term debt and weighted average annual interest rates, as of the dates indicated:
December 31, | ||||||||
(in millions) | 2020 | 2019 | ||||||
$750 million commercial paper program (0.00%) | $ | - | $ | 200 | ||||
Accrued interest payable | 3 | 3 | ||||||
Total short-term debt | $ | 3 | $ | 203 |
The Company participates in a commercial paper program with a limit of $750 million. The rating agency guidelines recommend that the Company maintain minimum liquidity backup, which includes cash and liquid assets, as well as committed bank lines, equal to 50% of any amounts outstanding under Item 11the commercial paper program. The commercial paper will not be redeemed prior to maturity or be subject to voluntary prepayment. Proceeds from the sale of Form S-1the commercial paper will be filedused to meet working capital requirements and for general corporate purposes, including the funding of acquisitions.
As of December 31, 2019, the Company had access to borrow up to $300 million from the FHLB to provide financing for operations that expired on March 22, 2020. In March 2020, the Company renewed the agreement with the FHLB until March 19, 2021. The Company had $4.3 billion and $4.0 billion in eligible collateral and no amounts outstanding under the agreement as of December 31, 2020 and 2019, respectively. In February 2021, the Company terminated this agreement and entered into a new agreement with the FHLB, which expires February 4, 2022, that allows the Company and NLAIC access to collectively borrow up to $1.1 billion in the aggregate, which would be collateralized by subsequent Pre-Effective Amendment.pledged securities.
The Company has entered into an agreement with its custodial bank to borrow against the cash collateral that is posted in connection with its securities lending program. The maximum amount available under the agreement is $350 million. The borrowing rate on this program is equal to one-month U.S. LIBOR. The Company had no amounts outstanding under this agreement as of December 31, 2020 and 2019.
The terms of certain debt instruments contain various restrictive covenants, including, but not limited to, minimum statutory surplus defined in the agreements. The Company was in compliance with all covenants as of December 31, 2020 and 2019.
The amount of interest paid on short-term debt was immaterial in 2020, 2019 and 2018.
Federal Home Loan Bank Funding Agreements
The Company is a member of the FHLB. Through its membership, the FHLB established the Company’s capacity for short-term borrowings and cash advances under the funding agreement program at up to 50% of total admitted assets.
The Company’s Board of Directors has authorized the issuance of funding agreements up to $4.0 billion to the FHLB, shared between the Company and NLAIC, in exchange for cash advances, which are collateralized by pledged securities. The Company uses these funds in an investment spread strategy, consistent with its other investment spread operations. As such, the Company applies SSAP No. 52, Deposit-Type Contracts, accounting treatment to these funds, consistent with its other deposit-type contracts. It is not part of the Company’s strategy to utilize these funds for operations, and any funds obtained from the FHLB for use in general operations would be accounted for consistent with SSAP No. 15, Debt and Holding Company Obligations, as borrowed money. Membership requires the Company to purchase and hold a minimum amount of FHLB capital stock plus additional stock based on outstanding advances. The Company has $30 million in membership stock as of December 31, 2020 and 2019. As part of the agreement, the Company purchased and held an additional $58 million and $53 million in activity stock as of December 31, 2020 and 2019, respectively, which is included in the general account in stocks on the statutory statements of admitted assets, liabilities, capital and surplus. The Company’s liability for advances from the FHLB was $2.1 billion and $1.8 billion as of December 31, 2020 and 2019, respectively, which is included in future policy benefits and claims on the statutory statements of admitted assets, liabilities, capital and surplus. The advances were collateralized by bonds and mortgage loans with carrying values of $2.4 billion (1.5% of total admitted assets) as of December 31, 2020 and $2.2 billion (1.4% of total admitted assets) as of December 31, 2019, which are included in the general account in bonds and mortgage loans on the statutory statements of admitted assets, liabilities, capital and surplus.
F-41
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2020, 2019 and 2018 Statutory Financial Statements
(10) | Surplus Notes |
The following table summarizes the carrying value of surplus notes issued by the Company to NFS, as of the dates indicated:
(in millions) | ||||||||||||||||||||||||||||
Date issued | Interest rate | Par value | Carrying value | Interest and/ or principal paid in current year | Total interest and/ or principal paid | Unapproved interest and/ or principal | Date of maturity | |||||||||||||||||||||
December 31, 2020 | ||||||||||||||||||||||||||||
12/19/2001 | 7.50 | % | $ | 300 | $ | 300 | $ | 22 | $ | 428 | $ | - | 12/31/2031 | |||||||||||||||
6/27/2002 | 8.15 | % | 300 | 300 | 25 | 448 | - | 6/27/2032 | ||||||||||||||||||||
12/23/2003 | 6.75 | % | 100 | 100 | 7 | 112 | - | 12/23/2033 | ||||||||||||||||||||
12/20/2019 | 4.21 | % | 400 | 400 | 17 | 17 | - | 12/19/2059 | ||||||||||||||||||||
Total | $ | 1,100 | $ | 1,100 | $ | 71 | $ | 1,005 | $ | - | ||||||||||||||||||
December 31, 2019 | ||||||||||||||||||||||||||||
12/19/2001 | 7.50 | % | $ | 300 | $ | 300 | $ | 23 | $ | 406 | $ | - | 12/31/2031 | |||||||||||||||
6/27/2002 | 8.15 | % | 300 | 300 | 24 | 423 | - | 6/27/2032 | ||||||||||||||||||||
12/23/2003 | 6.75 | % | 100 | 100 | 7 | 105 | - | 12/23/2033 | ||||||||||||||||||||
12/20/2019 | 4.21 | % | 400 | 400 | - | - | - | 12/19/2059 | ||||||||||||||||||||
Total | $ | 1,100 | $ | 1,100 | $ | 54 | $ | 934 | $ | - |
The surplus notes were issued in accordance with Section 3901.72 of the Ohio Revised Code. The principal and interest on these surplus notes shall not be a liability or claim against NLIC, or any of its assets, except as provided in Section 3901.72 of the Ohio Revised Code. The Department must approve interest and principal payments before they are paid.
(11) | Reinsurance |
The Company has a 100% coinsurance agreement with funds withheld with Eagle to cede specified GMDB and GLWB obligations provided under substantially all of the variable annuity contracts issued and to be issued by NLIC. While the GMDB and GLWB contract riders are ceded by NLIC to Eagle, the base annuity contracts and any non-reinsured risks will be retained by NLIC.
Amounts ceded to Eagle during 2020, 2019 and 2018 included premiums of $627 million, $529 million and $506 million, respectively, benefits and claims, net of third party reinsurance recoveries of $23 million, $17 million, and $14 million respectively, net investment earnings on funds withheld assets of $49 million, $33 million and $20 million, respectively, and an expense allowance for third party reinsurance premiums of $1 million, $1 million and $1 million, respectively. As of December 31, 2020 and 2019, the carrying value of the funds withheld assets was $965 million and $795 million, respectively, which consists of bonds and short-term investments that had a carrying value of $856 million and $722 million, respectively, and mortgage loans that had a carrying value of $108 million and $73 million, respectively. As of December 31, 2020 and 2019, the Company’s reserve credit for guaranteed benefits ceded under the reinsurance agreement was $65 million and $275 million, respectively. Amounts payable to Eagle related to the reinsurance agreement were $402 million and $248 million as of as of December 31, 2020 and December 31, 2019, respectively.
The Company has a reinsurance agreement with NMIC whereby nearly all of the Company’s accident and health business not ceded to unaffiliated reinsurers is ceded to NMIC on a modified coinsurance basis. Either party may terminate the agreement on January 1 of any year with prior notice. Under a modified coinsurance agreement, the ceding company retains invested assets, and investment earnings are paid to the reinsurer. Under the terms of the Company’s agreement, the investment risk associated with changes in interest rates is borne by the reinsurer. Risk of asset default is retained by the Company, although a fee is paid to the Company for the retention of such risk. The ceding of risk does not discharge the Company, as the original insurer, from its primary obligation to the policyholder. Amounts ceded to NMIC include revenues of $281 million, $279 million and $257 million for the years ended December 31, 2020, 2019 and 2018, respectively, while benefits, claims and expenses ceded were $260 million, $273 million and $237 million, respectively.
F-42
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2020, 2019 and 2018 Statutory Financial Statements
88The Company has an intercompany reinsurance agreement with NLAIC whereby certain inforce and subsequently issued fixed individual deferred annuity contracts are assumed on a modified coinsurance basis. Under modified coinsurance agreements, the ceding company retains invested assets and investment earnings are paid to the reinsurer. Under terms of the agreement, the Company bears the investment risk associated with changes in interest rates. Risk of asset default remains with NLAIC, and the Company pays a fee to NLAIC for the retention of such risk. The agreement will remain inforce until all contract obligations are settled. The ceding of risk does not discharge the original insurer from its primary obligation to the contractholder. Amounts assumed from NLAIC are included in the Company’s statutory statement of operations for 2020, 2019 and 2018 and include premiums of $12 million, $14 million and $14 million, respectively, net investment income of $46 million, $49 million and $58 million, respectively, and benefits, change in reserves and other expenses of $171 million, $251 million and $358 million, respectively. The reserve adjustment for 2020, 2019 and 2018 of $(172) million, $(246) million and $(352) million, respectively, represents changes in reserves related to this fixed block of business, offset by investment earnings on the underlying assets. Policy reserves assumed under this agreement totaled $1.1 billion and $1.2 billion as of December 31, 2020 and 2019, respectively, and amounts payable related to this agreement were $8 million and $0.4 million, respectively.
The Company has an intercompany reinsurance agreement with NLAIC whereby certain variable universal life insurance, whole life insurance and universal life insurance policies are assumed on a modified coinsurance basis. Total policy reserves under this treaty were $37 million and $39 million as of December 31, 2020 and 2019, respectively. Total premiums assumed under this treaty were $8 million, $11 million and $8 million during 2020, 2019 and 2018, respectively.
The Company has an intercompany reinsurance agreement with NLAIC whereby a certain life insurance contract is assumed on a 100% coinsurance basis. Policy reserves assumed under this agreement totaled $158 million and $157 million as of December 31, 2020 and 2019, respectively.
The Company has entered into reinsurance contracts to cede a portion of its individual annuity and life insurance business to unrelated reinsurers. Total reserve credits taken as of December 31, 2020 and 2019 were $420 million and $438 million, respectively. The three largest contracts are with Security Benefit Life Insurance Company (“SBL”), SCOR Global Life Americas Reinsurance (“SGLAR”), and Security Life of Denver Insurance Company (“SLD”) as of December 31, 2020. Total reserve credits taken on these contracts as of December 31, 2020 and 2019 totaled $100 million and $90 million for each year, from SBL, $44 million and $0, respectively, from SGLAR and $36 million and $41 million, respectively, from SLD. The ceding of risk does not relieve the Company, as the original insurer, from its primary obligation to the policyholder. Under the terms of the contracts, SBL has established a trust as collateral for the recoveries, whereby the trust assets are invested in investment grade securities, the fair value of which must at all times be greater or equal to 100% of the reinsured reserves.
F-43
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2020, 2019 and 2018 Statutory Financial Statements
(12) | Transactions with Affiliates |
The Company has entered into significant, recurring transactions and agreements with NMIC, other affiliates and subsidiaries as a part of its ongoing operations. These include annuity and life insurance contracts, office space cost sharing arrangements, and agreements related to reinsurance, cost sharing, tax sharing, administrative services, marketing, intercompany loans, intercompany repurchases, cash management services and software licensing. In addition, several benefit plans sponsored by NMIC are available to Nationwide employees, for which the Company has no legal obligations. Measures used to determine the allocation among companies includes individual employee estimates of time spent, special cost studies, the number of full-time employees and other methods agreed to by the participating companies.
In addition, Nationwide Services Company, LLC (“NSC”), a subsidiary of NMIC, provides data processing, systems development, hardware and software support, telephone, mail and other services to the Company, based on specified rates for units of service consumed pursuant to the Enterprise Cost Sharing Agreement. For the years ended December 31, 2020, 2019 and 2018, the Company was allocated costs from NMIC and NSC totaling $281 million, $220 million and $235 million, respectively.
The Company has issued group annuity and life insurance contracts and performs administrative services for various employee benefit plans sponsored by NMIC or its affiliates. Total account values of these contracts were $3.7 billion, $3.5 billion and $3.4 billion as of December 31, 2020, 2019 and 2018, respectively. Total revenues from these contracts were $122 million, $120 million and $119 million for the years ended December 31, 2020, 2019 and 2018, respectively, and include policy charges, net investment income from investments backing the contracts and administrative fees. Total interest credited to the account balances were $115 million, $112 million and $107 million for the years ended December 31, 2020, 2019 and 2018, respectively.
The Company may underwrite insurance policies for its officers, directors, and/or other personnel providing services to the Company. The Company may offer discounts on certain products that are subject to applicable state insurance laws and approvals.
Under the Enterprise Cost Sharing Agreement, the Company has a cost sharing arrangement with NMIC to occupy office space. For the years ended December 31, 2020, 2019 and 2018, the Company was allocated costs from NMIC of $13 million, $11 million and $10 million, respectively.
The Company receives an annual fee payable from the Tax Credit Funds, for which it is a guarantor and Managing Member, for its services in connection with the oversight of the performance of the Investee Partnerships and the compliance by their managing members and managing agents thereof with the provisions of the various operating level agreements and applicable laws. The Company earned $2 million for the years ended December 31, 2020, 2019 and 2018.
Funds of Nationwide Funds Group (“NFG”), a group of Nationwide businesses that develops, sells and services mutual funds, are offered to the Company’s customers as investment options in certain of the Company’s products. As of December 31, 2020, 2019 and 2018, customer allocations to NFG funds totaled $69.2 billion, $66.8 billion and $60.7 billion, respectively. For the years ended December 31, 2020, 2019 and 2018, NFG paid the Company $229 million, $227 million and $227 million, respectively, for the distribution and servicing of these funds.
Amounts on deposit with NCMC for the benefit of the Company were $551 million and $616 million as of December 31, 2020 and 2019, respectively. As of December 31, 2020, amounts on deposit with NCMC were comprised of $547 million of cash equivalents, with remaining amounts in short-term investments.
Certain annuity products are sold through affiliated companies, which are also subsidiaries of NFS. Total commissions and fees paid to these affiliates for the years ended December 31, 2020, 2019 and 2018 was $69 million, $71 million and $72 million, respectively.
The Company provides financing to Nationwide Realty Investors, LTD, a subsidiary of NMIC with interest rates ranging from 3.3% to 5.0% and maturity dates ranging from January 2022 to June 2041. As of December 31, 2020 and 2019, the Company had mortgage loans outstanding of $414 million and $348 million, respectively.
The Company also participates in intercompany repurchase agreements with affiliates whereby the seller transfers securities to the buyer at a stated value. Upon demand or after a stated period, the seller repurchases the securities from the buyer at the original sales price plus interest. As of December 31, 2020 and 2019, the Company had no outstanding borrowings from affiliated entities under such agreements. During 2020 and 2019, there was no outstanding borrowings from affiliated entities at any given time. The amount the Company incurred for interest expense on intercompany repurchase agreements during 2020, 2019 and 2018 were immaterial.
During 2020, 2019 and 2018, the Company received capital contributions of $0, $600 million and $435 million, respectively, from NFS.
F-44
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2020, 2019 and 2018 Statutory Financial Statements
During 2020, the Company sold securities of $59 million to Nationwide Mutual Fire Insurance Company for cash, which resulted in a realized loss of $2 million.
During 2020, 2019 and 2018, the Company paid capital contributions of $500 million, $400 million and $565 million, respectively, to NLAIC.
On February 11, 2020, the Company entered into an unsecured promissory note and revolving line of credit with JNLNY whereby JNLNY can borrow up to $5 million. As of December 31, 2020, no amounts were drawn on the note.
On November 21, 2019, NFS and the Company entered into a promissory note, where the Company borrowed $386 million from NFS at 1-month LIBOR plus 0.785%. This note was fully repaid on December 20, 2019.
During 2018, NLAIC borrowed $340 million from the Company at interest rates ranging from 3-month LIBOR plus 0.785% to 3.57% with maturity dates ranging from January 16, 2019 to March 21, 2019. During 2019, NLAIC made payments of principal and interest and, as of March 21, 2019, the promissory notes were repaid in full.
Pursuant to financial support agreements, the Company has agreed to provide NLAIC and JNLIC with the minimum capital and surplus required by each state in which NLAIC and JNLIC does business. These agreements do not constitute the Company as guarantor of any obligation or indebtedness of NLAIC or JNLIC or provide any creditor of NLAIC or JNLIC with recourse to or against any of the assets of the Company.
Eagle’s surplus position is evaluated quarterly to determine if an additional surplus contribution is required from the Company or if a distribution to the Company can be declared as of each quarter end.
During 2020 and 2019, the Company made surplus contributions to Eagle. On March 31, 2020 and April 17, 2020, the Company made surplus contributions to Eagle of $555 million and $50 million, respectively. On October 17, 2019, the Company made a surplus contribution to Eagle of $9 million.
During 2020 and 2019 Eagle declared distributions to the Company based on their earned surplus position. On February 10, 2021, the Company received a dividend distribution of $292 million from Eagle that was declared on December 31, 2020. The dividend receivable was recorded in accrued investment income on the December 31, 2020 statutory statement of admitted assets, liabilities, capital and surplus. On November 10, 2020 the Company received a total distribution of $267 million from Eagle that was declared on September 30, 2020 and consisted of a return of contributed surplus of $184 million and a dividend of $83 million. On August 10, 2020 the Company received a return of contributed surplus distribution of $421 million from Eagle that was declared on June 30, 2020. On February 10, 2020, the Company received a total distribution of $180 million from Eagle that was declared on December 31, 2019 and consisted of a return of contributed surplus of $9 million and a dividend of $171 million. The return of contributed surplus was recorded in other assets and the dividend receivable was recorded in accrued investment income on the December 31, 2019 statutory statement of admitted assets, liabilities, capital and surplus. On August 9, 2019, the Company received a dividend distribution of $41 million from Eagle that was declared on June 28, 2019. On May 10, 2019, the Company received a total distribution of $212 million from Eagle that was declared on March 26, 2019 and consisted of a return of contributed surplus of $190 million and a dividend of $22 million.
The Company utilizes the look-through approach in valuing its investment in Nationwide Real Estate Investors (NLIC), LLC (“NW REI (NLIC)”), a subsidiary of NMIC, at $90 million and $69 million as of December 31, 2020 and 2019, respectively. NW REI (NLIC)’s financial statements are not audited and the Company has limited the value of its investment in NW REI (NLIC) to the value contained in the audited statutory financial statements of the underlying investments. All liabilities, commitments, contingencies, guarantees or obligations of the NW REI (NLIC), which are required under applicable accounting guidance, are reflected in the Company’s determination of the carrying value of the investment in NW REI (NLIC), if not already recorded in the financial statements of NW REI (NLIC).
(13) Contingencies
Legal and Regulatory Matters
The Company is subject to legal and regulatory proceedings in the ordinary course of its business. These include proceedings specific to the Company and proceedings generally applicable to business practices in the industries in which the Company operates. The outcomes of these proceedings cannot be predicted due to their complexity, scope, and many uncertainties. The Company believes, however, that based on currently known information, the ultimate outcome of all pending legal and regulatory proceedings is not likely to have a material adverse effect on the Company’s financial condition.
F-45
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Notes to December 31, 2020, 2019 and 2018 Statutory Financial Statements
The various businesses conducted by the Company are subject to oversight by numerous federal and state regulatory entities, including but not limited to the Securities and Exchange Commission, the Financial Industry Regulatory Authority, the Department of Labor, the IRS, the Office of the Comptroller of the Currency and state insurance authorities. Such regulatory entities may, in the normal course of business, be engaged in general or targeted inquiries, examinations and investigations of the Company and/or its affiliates. With respect to all such scrutiny directed at the Company or its affiliates, the Company is cooperating with regulators.
Guarantees
In accordance with SSAP No. 5R, Liabilities, Contingencies and Impairments of Assets, for all guarantees made to or on behalf of wholly-owned subsidiaries, no initial liability recognition has been made and there is no net financial statement impact related to these guarantees.
The contractual obligations under NLAIC’s single premium deferred annuity (“SPDA”) contracts in force and issued before September 1, 1988 are guaranteed by the Company. Total SPDA contracts affected by this guarantee in force as of December 31, 2020 and 2019 were approximately $8 million and $9 million, respectively.
The Company has guaranteed the obligations and liabilities of NISC, including, without limitation, the full and prompt payment of all accounts payable to any party now or in the future. If for any reason NISC fails to satisfy any of its obligations, the Company will cause such obligation, loss or liability to be fully satisfied.
Indemnifications
In the normal course of business, the Company provides standard indemnifications to contractual counterparties. The types of indemnifications typically provided include breaches of representations and warranties, taxes and certain other liabilities, such as third-party lawsuits. The indemnification clauses are often standard contractual terms and are entered into in the normal course of business based on an assessment that the risk of loss would be remote. The terms of the indemnifications vary in duration and nature. In many cases, the maximum obligation is not explicitly stated, and the contingencies triggering the obligation to indemnify have not occurred and are not expected to occur. Consequently, the amount of the obligation under such indemnifications is not determinable. Historically, the Company has not made any material payments pursuant to these obligations.
(14) | Regulatory Risk-Based Capital, Dividend Restrictions and Unassigned Surplus |
The NAIC Risk-Based Capital (“RBC”) model law requires every insurer to calculate its total adjusted capital and RBC requirement to ensure insurer solvency. Regulatory guidelines provide for an insurance commissioner to intervene if the insurer experiences financial difficulty, as evidenced by a company’s total adjusted capital falling below established relationships to required RBC. The model includes components for asset risk, liability risk, interest rate exposure and other factors. The State of Ohio, where the Company is domiciled, imposes minimum RBC requirements that are developed by the NAIC. The formulas in the model for determining the amount of RBC specify various weighting factors that are applied to financial balances or various levels of activity based on the perceived degree of risk. Regulatory compliance is determined by a ratio of total adjusted capital to authorized control level RBC, as defined by the NAIC. Companies below specific trigger points or ratios are classified within certain levels, all of which require specified corrective action. The Company exceeded the minimum RBC requirements for all periods presented.
The State of Ohio insurance laws require insurers to seek prior regulatory approval to pay a dividend or distribution of cash or other property if the fair market value thereof, together with that of other dividends or distributions made in the preceding twelve months, exceeds the greater of (i) 10% of statutory-basis capital and surplus as of the prior December 31 or (ii) the statutory-basis net income of the insurer for the prior year. During the years ended December 31, 2020, 2019 and 2018, the Company did not pay any dividends to NFS. The Company’s statutory capital and surplus as of December 31, 2020, was $9.1 billion and statutory net income for 2020 was $487 million. As of January 1, 2021, the Company has the ability to pay dividends to NFS totaling $911 million without obtaining prior approval.
The State of Ohio insurance laws also require insurers to seek prior regulatory approval for any dividend paid from other than earned capital and surplus. Earned capital and surplus is defined under the State of Ohio insurance laws as the amount equal to the Company’s unassigned funds as set forth in its most recent statutory financial statements, including net unrealized capital gains and losses or revaluation of assets. Additionally, following any dividend, an insurer’s policyholder capital and surplus must be reasonable in relation to the insurer’s outstanding liabilities and adequate for its financial needs. The payment of dividends by the Company may also be subject to restrictions set forth in the insurance laws of the State of New York that limit the amount of statutory profits on the Company’s participating policies (measured before dividends to policyholders) available for the benefit of the Company and its stockholders.
The Company currently does not expect such regulatory requirements to impair the ability to pay operating expenses and dividends in the future.
F-46
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Schedule I Summary of Investments – Other Than Investments in Related Parties
As of December 31, 2020:
(in millions) | Column A | Column B | Column C | Column D | ||||||||||
Type of investment | Cost | Fair value | Amount at which is shown in the assets, liabilities, capital and surplus | |||||||||||
Bonds: | ||||||||||||||
U.S. Treasury securities and obligations of U.S. government corporations | $ | 2 | $ | 2 | $ | 2 | ||||||||
U.S. government and agencies | 120 | 150 | 120 | |||||||||||
Obligations of states and political subdivisions | 3,323 | 3,988 | 3,323 | |||||||||||
Foreign governments | 63 | 71 | 63 | |||||||||||
Public utilities | 3,784 | 4,280 | 3,790 | |||||||||||
All other corporate, mortgage-backed and asset-backed securities | 29,876 | 33,319 | 29,909 | |||||||||||
Total fixed maturity securities | $ | 37,168 | $ | 41,810 | $ | 37,207 | ||||||||
Equity securities: | ||||||||||||||
Common Stocks: | ||||||||||||||
Banks, trust and insurance companies | 30 | 33 | 33 | |||||||||||
Industrial, miscellaneous and all other | 113 | 109 | 109 | |||||||||||
Nonredeemable preferred stocks | 97 | 109 | 97 | |||||||||||
Total equity securities1 | $ | 240 | $ | 251 | $ | 239 | ||||||||
Mortgage loans2 | 7,831 | 7,783 | ||||||||||||
Short-term investments | 461 | 461 | ||||||||||||
Policy loans | 888 | 888 | ||||||||||||
Other long-term investments3 | 950 | 950 | ||||||||||||
Total invested assets | $ | 47,538 | $ | 47,528 |
1 | Amount does not agree to the statutory statements of admitted assets, liabilities, capital and surplus as investments in related parties of $2.6 billion are excluded. |
2 | Difference from Column B is attributable to valuation allowances on mortgage loans (see Note 5 to the audited statutory financial statements). |
3 | Includes derivatives, securities lending reinvested collateral assets and other invested assets. Amount does not agree to the statutory statements of admitted assets, liabilities, capital and surplus as investments in related parties of $157 million are excluded. |
See accompanying notes to statutory financial statements and report of independent registered public accounting firm.
F-47
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Schedule III Supplementary Insurance Information
As of December 31, 2020, 2019 and 2018 and for each of the years then ended (in millions):
Column A | Column B | Column C | Column D | Column E | Column F | |||||||||||||||
Year: Segment | Deferred policy acquisition costs1 | Future policy benefits, loss | Unearned premiums2 | Other policy and benefits | Premium revenue | |||||||||||||||
2020 | ||||||||||||||||||||
Life Insurance | $ | 5,204 | $ | 394 | ||||||||||||||||
Annuities | 7,837 | 3,443 | ||||||||||||||||||
Retirement Solutions | 22,362 | 5,939 | ||||||||||||||||||
Corporate Solutions and Other | 5,599 | 861 | ||||||||||||||||||
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Total | $41,002 | $10,637 | ||||||||||||||||||
2019 | ||||||||||||||||||||
Life Insurance | $ | 5,125 | $ | 413 | ||||||||||||||||
Annuities | 7,955 | 4,202 | ||||||||||||||||||
Retirement Solutions | 20,781 | 4,324 | ||||||||||||||||||
Corporate Solutions and Other | 5,278 | 1,229 | ||||||||||||||||||
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Total | $ | 39,139 | $ | 10,168 | ||||||||||||||||
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2018 | ||||||||||||||||||||
Life Insurance | $ | 5,087 | $ | 410 | ||||||||||||||||
Annuities | 7,934 | 3,868 | ||||||||||||||||||
Retirement Solutions | 19,646 | 4,095 | ||||||||||||||||||
Corporate Solutions and Other | 5,670 | 1,456 | ||||||||||||||||||
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Total | $ | 38,337 | $ | 9,829 | ||||||||||||||||
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Column A | Column G | Column H | Column I | Column J | Column K | |||||||||||||||
Year: Segment | Net investment income3 | Benefits, claims, losses and settlement expenses4 | Amortization of deferred policy acquisition costs1 | Other operating expenses | Premiums written | |||||||||||||||
2020 | ||||||||||||||||||||
Life Insurance | $ | 247 | $ | 772 | $ | 123 | ||||||||||||||
Annuities | 338 | 7,539 | 55 | |||||||||||||||||
Retirement Solutions | 843 | 8,258 | 131 | |||||||||||||||||
Corporate Solutions and Other | 679 | 717 | 135 | |||||||||||||||||
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Total | $ | 2,107 | $ | 17,286 | $ | 444 | ||||||||||||||
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2019 | ||||||||||||||||||||
Life Insurance | $ | 262 | $ | 807 | $ | 133 | ||||||||||||||
Annuities | 319 | 8,460 | 57 | |||||||||||||||||
Retirement Solutions | 824 | 6,539 | 122 | |||||||||||||||||
Corporate Solutions and Other | 569 | 1,151 | 105 | |||||||||||||||||
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Total | $ | 1,974 | $ | 16,957 | $ | 417 | ||||||||||||||
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2018 | ||||||||||||||||||||
Life Insurance | $ | 270 | $ | 744 | $ | 154 | ||||||||||||||
Annuities | 319 | 8,203 | 48 | |||||||||||||||||
Retirement Solutions | 798 | 5,656 | 132 | |||||||||||||||||
Corporate Solutions and Other | 540 | 764 | 64 | |||||||||||||||||
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Total | $ | 1,927 | $ | 15,367 | $ | 398 | ||||||||||||||
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1 | Deferred policy acquisition costs and amortization of deferred policy acquisition costs are not applicable for statutory basis of accounting. |
2 | Unearned premiums and other policy claims and benefits payable are included in Column C amounts. |
3 | Allocations of net investment income and certain operating expenses are based on numerous assumptions and estimates and reported segment operating results would change if different methods were applied. |
4 | Benefits to policyholders and beneficiaries, reserves for future policy benefits and claims and commissions are included in Column H amounts. |
See accompanying notes to statutory financial statements and report of independent registered public accounting firm.
F-48
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
As of December 31, 2020, 2019 and 2018 and each of the years then ended:
(in millions) | ||||||||||||||||
Column A | Column B | Column C | Column D | Column E | ||||||||||||
Ceded to | Assumed | |||||||||||||||
Gross | other | from other | Net | |||||||||||||
amount | companies | companies | amount | |||||||||||||
2020 | ||||||||||||||||
Life insurance in force | $ | 146,855 | $ | (31,055 | ) | $ | 686 | $ | 116,486 | |||||||
Premiums: | ||||||||||||||||
Life Insurance1 | $ | 1,378 | $ | (133 | ) | $ | 8 | $ | 1,253 | |||||||
Accident and health insurance | 441 | (440 | ) | - | 1 | |||||||||||
Total | $ | 1,819 | $ | (573 | ) | $ | 8 | $ | 1,254 | |||||||
2019 | ||||||||||||||||
Life insurance in force | $ | 146,044 | $ | (31,691 | ) | $ | 728 | $ | 115,081 | |||||||
Premiums: | ||||||||||||||||
Life Insurance1 | $ | 1,761 | $ | (661 | ) | $ | 10 | $ | 1,110 | |||||||
Accident and health insurance | 444 | (445 | ) | 2 | 1 | |||||||||||
Total | $ | 2,205 | $ | (1,106 | ) | $ | 12 | $ | 1,111 | |||||||
2018 | ||||||||||||||||
Life insurance in force | $ | 141,650 | $ | (32,380 | ) | $ | 788 | $ | 110,058 | |||||||
Premiums: | ||||||||||||||||
Life Insurance1 | $ | 1,985 | $ | (130 | ) | $ | 8 | $ | 1,863 | |||||||
Accident and health insurance | 289 | (373 | ) | 85 | 1 | |||||||||||
Total | $ | 2,274 | $ | (503 | ) | $ | 93 | $ | 1,864 |
1 | Primarily represents premiums from traditional life insurance and life-contingent immediate annuities and excludes deposits on investment and universal life insurance products. |
See accompanying notes to statutory financial statements and report of independent registered public accounting firm.
F-49
NATIONWIDE LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Nationwide Financial Services, Inc.)
Schedule V Valuation and Qualifying Accounts
Years ended December 31, 2020, 2019 and 2018:
(in millions) | ||||||||||||||||
Column A | Column B | Column C | Column D | Column E | ||||||||||||
Balance at | Charged to | Balance at | ||||||||||||||
beginning | costs and | end of | ||||||||||||||
Description | of period | expenses | Deductions1 | period | ||||||||||||
2020 | ||||||||||||||||
Valuation allowances - mortgage loans | $ | 34 | $ | 14 | $ | - | $ | 48 | ||||||||
2019 | ||||||||||||||||
Valuation allowances - mortgage loans | $ | 25 | $ | 9 | $ | - | $ | 34 | ||||||||
2018 | ||||||||||||||||
Valuation allowances - mortgage loans | $ | 23 | $ | 2 | $ | - | $ | 25 |
1 | Amounts generally represent recoveries, payoffs and sales. |
See accompanying notes to statutory financial statements and report of independent registered public accounting firm.
F-50
89
Item 13. | Other Expenses of Issuance and Distribution |
Item 14. | Indemnification of Directors and Officers |
• | any threatened, pending or completed civil action, suit or proceeding; |
• | any threatened, pending or completed criminal action, suit or proceeding; |
• | any threatened, pending or completed administrative action or proceeding; |
• | any threatened, pending or completed investigative action or proceeding. |
Item 15. | Recent Sales of Unregistered Securities. |
Item 16. | Exhibits and Financial Statement Schedules |
Exhibits | |
Financial Statement Schedules |
Item 17. | Undertakings |
(1) | To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: |
(a) | To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; |
(b) | To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; |
(c) | To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. |
(2) | That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
(3) | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
(4) | That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. |
(5) | That, for the purpose of determining liability of the Registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned Registrant undertakes that in a primary offering of securities of the undersigned Registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: |
(a) | Any preliminary prospectus or prospectus of the undersigned Registrant relating to the offering required to be filed pursuant to Rule 424; |
(b) | Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned Registrant or used or referred to by the undersigned Registrant; |
(c) | The portion of any other free writing prospectus relating to the offering containing material information about the undersigned Registrant or its securities provided by or on behalf of the undersigned Registrant; and |
(d) | Any other communication that is an offer in the offering made by the undersigned Registrant to the purchaser. |
(B) | Insofar as indemnification for liabilities arising under the Securities Act of 1933 ("Act") may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officers or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. |
NATIONWIDE LIFE INSURANCE COMPANY |
(Registrant) |
By: /s/ JAMIE RUFF CASTO |
Jamie Ruff Casto Attorney-in-Fact |
JOHN L. CARTER | |
John L. Carter, President and Chief Operating Officer, and Director | |
MARK R. THRESHER | |
Mark R. Thresher, Executive Vice President and Director | |
TIMOTHY G. FROMMEYER | |
Timothy G. Frommeyer, Senior Vice President-Chief Financial Officer and Director | |
ERIC S. HENDERSON | |
Eric S. Henderson, Senior | |
STEVEN A. GINNAN | |
Steven A. Ginnan, Senior Vice President-Chief Financial Officer-Nationwide Financial and Director | |
KIRT A. WALKER | |
Director | |
By /s/ Jamie Ruff Casto | |
Jamie Ruff Casto Attorney-in-Fact |