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|Includes: National Western Life Insurance (NWLI)

NWLI ($164)

Northwestern Life has hidden assets. Book value is $375/shr. The company has flowed through $70/shr in unrealized gains but has not flowed through $140/shr in unrealized gains. These gains are the fixed income portfolio at mark to market economic accounting. Therefore real book value is $515. On the asset side are significant annuity obligations.

The duration of the portfolio is about 5. As rates rise two things occur-- the reserve of unrealiazed gains declines from $140/shr to a lower number while at the same time interest income rises as turnover and new contracts cause new bond purchases. If rates were to rise quickly, new rate realizations would lag the unrealized gain reserve decline. Book value would not change until the $525 million reserve is exhausted.

The private company valuation is about book value of $375. While NWLI is not for sale, the founder is 77 years old and a liquidity event may occur upon his death. In the meantime, book value is growing at $20/shr per year. I do not think there is any downside in NWLI and may trend back to $250 where it was in 2007.

It is not followed and it is controlled through the Class B shares which have 2/3 of the vote. Management is aligned with us they are the majority shareholder.

Disclosure: I am long NWLI, UFPT, IPAS, ORBC, MRLN.