Nationwide Financial Reports Fourth Quarter Results

COLUMBUS, Ohio, Feb. 8 /PRNewswire-FirstCall/ -- Nationwide Financial Services, Inc. , a leading provider of long-term savings and retirement products, today reported fourth quarter 2004 net income of $141.8 million, or $0.93 per diluted share, compared with fourth quarter 2003 net income of $103.7 million, or $0.69 per diluted share.

Nationwide Financial analyzes operating performance using a non-GAAP financial measure called "net operating earnings," which we believe enhances understanding and comparability of our performance by highlighting the results from continuing operations and the underlying profitability drivers of our business. See Exhibit 3 for a description of non-GAAP financial measures included in this earnings announcement, a reconciliation of non-GAAP financial measures to GAAP financial measures and the substantive reasons why we believe presentation of these non-GAAP financial measures provides useful information to investors regarding the Company's financial condition and results of operations. The following table reconciles net operating earnings to net income, including the related per diluted share amounts, for the periods indicated:

Three months ended December 31, 2004 2003 Per Per diluted diluted (in millions, except per share data) Amount share Amount share Net operating earnings $131.6 $0.86 $119.9 $0.79 Net realized gains (losses) on investments, hedging instruments and hedged items, net of taxes* 10.2 0.07 (15.6) (0.10) Cumulative effect of adoption of accounting principals, net of taxes - - (0.6) - Net income $141.8 $0.93 $103.7 $0.69 * Excluding periodic net coupon settlements on non-qualifying derivatives

The quarter's net operating earnings were $131.6 million, or $0.86 per diluted share, compared to net operating earnings of $119.9 million, or $0.79 per diluted share, a year ago. The 10 percent year-over-year increase in net operating earnings was driven by improved operating results in all three business segments. In individual protection, pre-tax operating earnings increased 16 percent compared to a year ago, while retirement plans and individual investments reported pre-tax operating earnings increases of 14 and 9 percent, respectively. Additionally, return on average allocated capital improved in all three business segments compared to a year ago.

"Our fourth quarter results concluded a solid year of financial performance, as we continue to make good progress toward our long-term goal of increasing returns and creating value for our shareholders," said Jerry Jurgensen, chief executive officer. "As we enter 2005, we will continue to focus on maintaining the necessary balance between operating efficiency and making strategic investments to enhance our risk management infrastructure and our brand presence. These investments will be critical as we seek to deliver the packaged solutions that meet the needs of consumers as they save for and enter retirement."

Highlights from the quarter: - Sales totaled $3.9 billion, with $1.6 billion, or 41 percent, of sales from affiliated distribution and $2.3 billion, or 59 percent, from non- affiliated distribution. - Affiliated distribution sales increased 14 percent compared to the fourth quarter of 2003, while non-affiliated distribution sales declined 11 percent. The increase in affiliated distribution sales was driven by higher retirement plans sales from Nationwide Retirement Solutions, The 401(k) Company and Nationwide Financial Network, combined with an increase in corporate-owned life insurance (COLI) sales through TBG Financial. - The decline in non-affiliated sales was driven by the combination of lower individual fixed annuity sales through financial institutions and lower variable annuity sales through independent broker/dealers and wirehouses. - Total net inflows, or customer deposits net of withdrawals, were $649.2 million in the fourth quarter of 2004 compared to $958.2 million in the fourth quarter of 2003. - Individual investments reported net outflows in the fourth quarter of $341.1 million, compared to net inflows of $163.1 million a year ago. The combination of lower sales of both individual fixed and variable annuities and slightly higher withdrawals led to the decline in net flows. - Retirement plans net inflows declined to $465.6 million in the quarter compared to $566.8 million a year ago. The 11 percent increase in sales in the quarter was more than offset by a 60 basis point increase in lapse rate compared to a year ago, driven primarily by higher withdrawals in the private sector business. - Individual protection net inflows of $524.7 million more than doubled compared to the $228.3 million of net inflows reported a year ago. During the quarter we completed the sale of a large bank-owned life insurance (BOLI) case that drove net flows higher. - Total revenues increased 10 percent to $1.1 billion compared to $997.0 million in the fourth quarter of 2003. Higher asset-based revenues from favorable market experience and net realized gains on investments, hedging instruments and hedged were the primary factors driving the increase. - Total assets as of December 31, 2004 were $116.9 billion, up 5 percent from $111.0 billion as of year-end 2003. - Included in the current period's total assets were $64.9 billion in assets held in separate accounts, an increase of 7 percent compared to $60.9 billion as of year-end 2003. - General account assets were $52.0 billion, up 4 percent from $50.1 billion as of year-end 2003. - Shareholders' equity was $5.2 billion, or $34.20 per share, as of December 31, 2004, compared to $4.9 billion, or $32.10 per share, as of year-end 2003. - Excluding accumulated other comprehensive income (AOCI), shareholders' equity was $4.8 billion, or $31.36 per share, versus $4.4 billion, or $28.77 per share, as of year-end 2003. - Operating return on average equity excluding AOCI, as defined in Exhibit 3, was 11.2 percent for the quarter, compared to 11.1 percent in the fourth quarter of 2003.

"During 2004 we implemented many changes within Nationwide Financial, putting into place a new management team and operating structure," said Mark Thresher, president and chief operating officer. "It is a sign of the quality of our associates that this year of transition did not become a distraction as we posted strong earnings and improving returns, indicating progress toward our long-range targets."

Highlights from the year - Full-year 2004 net income increased 26 percent to $502.0 million, or $3.28 per diluted share, compared to $397.8 million, or $2.61 per diluted share, for the full-year 2003. - Net operating earnings in 2004 increased 17 percent to $531.1 million, or $3.47 per diluted share, compared to $453.8 million, or $2.98 per diluted share. - Total revenues increased 6 percent to $4.2 billion in 2004 from $3.9 billion in 2003. - While total sales of $16.9 billion for 2004 were flat compared to 2003, there was a significant change in sales mix as increased sales of retirement plans offset lower sales of individual annuities. - Affiliated distribution sales grew 12 percent, primarily attributable to strong retirement plans sales growth through Nationwide Retirement Solutions and The 401(k) Company. - Non-affiliated distribution sales were lower by 6 percent as strong increases in private-sector retirement plan sales were more than offset by lower individual annuity sales. - Operating return on average equity excluding AOCI was 11.6 percent for the year, compared to 10.8 percent in 2003. Operating Segment Fourth Quarter Financial Highlights

Nationwide Financial reports its results in three primary operating segments: individual investments, retirement plans and individual protection. Financial highlights and a discussion of the results for each segment follow:

Three months ended December 31, (in millions) 2004 2003 Change Individual Investments Sales $1,073.9 $1,419.4 (24%) Net flows (deposits less withdrawals) (341.1) 163.1 (309%) Operating revenues 385.7 360.4 7% Pre-tax operating earnings 59.7 54.8 9% Account values as of period end 52,481.9 49,333.9 6% Interest spread on average general account values 1.78% 1.71% Pre-tax operating earnings to average account values 0.47% 0.46% Return on average allocated capital 10.7% 9.8% Retirement Plans Sales $2,389.1 $2,145.3 11% Net flows (deposits less withdrawals) 465.6 566.8 (18%) Operating revenues 256.3 242.2 6% Pre-tax operating earnings 40.8 35.7 14% Account values as of period end 76,661.2 64,224.3 19% Interest spread on average general account values 1.81% 1.97% Pre-tax operating earnings to average account values 0.22% 0.23% Return on average allocated capital 16.7% 16.2% Individual Protection Sales $396.8 $397.0 (0%) Net flows (deposits less withdrawals) 524.7 228.3 130% Operating revenues 347.1 335.5 3% Pre-tax operating earnings 59.9 51.8 16% Policy reserves as of period end 15,683.0 13,897.1 13% Life insurance in-force as of period end 109,225.7 107,820.3 1% Pre-tax operating earnings to operating revenues 17.3% 15.4% Return on average allocated capital 9.4% 8.2% Individual Investments Segment

Fourth quarter individual investments sales of $1.1 billion were 24 percent below a year ago and 19 percent below last quarter. Individual fixed annuity sales of $106.6 million decreased 65 percent compared to both a year ago and the third quarter of 2004. Market conditions and price competition in the fixed annuities market continue to create an environment in which it is difficult to sell fixed annuities while earning a return above our cost of capital. As we continue to adhere to our pricing discipline in this environment, sales of this product will be pressured.

Individual variable annuity sales of $852.8 million were down 20 percent compared to a year ago and 7 percent versus last quarter. Our decision not to participate in the more aggressive forms of guaranteed withdrawal benefits, combined with signs of an industry slowdown in variable annuity sales in the quarter, drove this decline.

"During the first quarter of 2005, we will launch Capital Preservation Plus with Lifetime Income, an innovative, hybrid form of living benefit that will be offered on our variable annuity contracts," Thresher added. "This product offers a guaranteed accumulation period followed by a withdrawal stream that is guaranteed for life and is targeted at accumulators who have begun to think about retirement, but are at least five years away from retiring. We believe this product will offer tremendous customer value, flexibility and control, with a risk and return profile that is desirable to both our shareholders and us."

The advisory services program reported solid growth this quarter, with sales of $64.2 million, an increase of 28 percent compared to the third quarter of 2004. In retirement product sales increased 5 percent versus the third quarter of 2004 and 46 percent versus the fourth quarter of 2003.

Pre-tax operating earnings grew 9 percent compared to the fourth quarter of 2003, driven by increased policy charges and reduced benefit expenses, partially offset by higher amortization of deferred acquisition costs (DAC), trail-based commissions on variable annuities and operating expenses.

Interest spread income grew 6 percent, or $4.1 million, versus the year ago quarter. Our effective management of crediting rates on fixed annuities and the fixed option of variable annuities drove this increase. Interest spread margins were 178 basis points in the fourth quarter, compared to 171 basis points a year ago and 188 basis points in the third quarter of 2004. Included in the current quarter were 8 basis points, or $3.2 million, of income from prepayment penalties on commercial mortgage loans and bond call premiums, compared to 4 basis points, or $1.7 million, a year ago and 17 basis points, or $7.0 million, in the third quarter of 2004.

The individual investments segment operating margin, defined as the ratio of pre-tax operating earnings to average account values, was 47 basis points for the quarter, compared to 46 basis points in both the fourth quarter of 2003 and the third quarter of 2004. Return on average allocated capital was 10.7 percent for the quarter, compared to 9.8 percent reported for the fourth quarter of 2003 and 10.1 percent in the third quarter of 2004.

Retirement Plans Segment

Sales in this segment grew 11 percent compared to the fourth quarter of 2003. Private sector sales were driven by strong year-over-year growth in large plan sales from The 401(k) Company as well as solid growth in sales on our trust product platform. Strong flows from several of our large state cases drove the sales growth in public sector.

Pre-tax operating earnings increased 14 percent compared to a year ago as higher other income was partially offset by increased trail commissions, lower prepayment penalty income and higher operating expenses. Other income, which includes administrative fees from non-insurance retirement and deferred compensation plans, in addition to asset-based fees from our trust product platform, increased $15.2 million, or 41 percent, compared to fourth quarter 2003. The increase in operating expenses was due to several large private sector plan conversions at The 401(k) Company in the fourth quarter, as well as investments being made to consolidate technology platforms in this business.

Interest spread income was $1.6 million lower than a year ago, driven by the lower level of prepayment penalty income in the current quarter. Interest spread margins were 181 basis points in the fourth quarter of 2004, compared to 197 basis points in the fourth quarter of 2003 and 204 basis points in the third quarter of 2004. Included in the current quarter were 11 basis points, or $2.8 million, of prepayment penalty income, compared to 29 basis points, or $7.1 million, a year ago, and 30 basis points, or $7.6 million, last quarter.

The operating margin, defined as the ratio of pre-tax operating earnings to average account values, was 22 basis points for the quarter. This compares to 23 basis points for the fourth quarter a year ago and 26 basis points for the third quarter of 2004. Return on average allocated capital was 16.7 percent in the quarter, up from 16.2 percent a year ago and down from 18.5 percent in the third quarter of 2004.

Individual Protection Segment

The individual protection segment reports results from two businesses: investment life, which includes individual variable and corporate- and bank- owned life insurance (COLI/BOLI), and fixed life, which includes our universal, whole and term life products.

This segment reported total pre-tax operating earnings of $59.9 million for the quarter, an increase of 16 percent over $51.8 million a year ago. Pre-tax operating earnings growth of 34 percent from investment life products was partially offset by a 7 percent decline in pre-tax operating earnings from fixed life products.

The operating margin for the segment, defined as the ratio of pre-tax operating earnings to operating revenues, was 17.3 percent for the quarter, compared to 15.4 percent in the fourth quarter of 2003 and 19.9 percent in the third quarter of 2004. Return on average allocated capital for the quarter of 9.4 percent represented an increase from 8.2 percent in the same quarter last year and a decrease from 10.5 percent in the third quarter of 2004.

Highlights from the two life insurance businesses include: Investment life: Individual variable life sales were $172.3 million for the fourth quarter of 2004 compared to $177.4 million a year ago. We recently completed the redesign of our flagship variable universal life contract, Next Generation. We will introduce that re-priced product in early 2005 and expect the new product to accelerate sales growth in 2005. COLI sales were up 11 percent compared to last year, with a 12 percent increase in first-year sales. Investment life pre-tax operating earnings were $38.1 million compared to $28.4 million in the fourth quarter of 2003. This increase was driven by the combination of increased policy fees and other income related to the COLI business, partially offset by increased amortization of DAC and higher operating expenses related to premium taxes on a large BOLI case issued in the quarter. Fixed life: Individual fixed life sales decreased $4.2 million versus the prior year, driven by a $7.2 million reduction in first-year sales, partially offset by a $3.0 million increase in renewal premium. While sales decreased compared to a year ago when our new universal life products were launched, fixed life sales increased 13 percent versus the third quarter of 2004. Fourth quarter fixed life pre-tax operating earnings decreased 7 percent to $21.8 million versus $23.4 million in the fourth quarter of 2003. Increased policy charges and interest-spread income were offset by higher DAC and value of business acquired (VOBA) amortization. During the quarter, we completed our annual review of the assumptions that support the amortization of VOBA. The result of that review, and related assumption updates, resulted in the higher amortization. Corporate and Other Segment

Corporate and other segment pre-tax operating earnings were $11.9 million in the fourth quarter of 2004, compared to $16.0 million in the fourth quarter of 2003 and $20.9 million in the third quarter of 2004. The decrease versus a year ago was driven by lower structured products income and an increase in legal expenses related to the current regulatory environment. Lower spreads on our medium-term notes business and the above normal investment income received on a private equity investment in the third quarter of 2004 drove the sequential decrease.

In structured products, the closing of two low-income-housing securitization transactions and two commercial mortgage-backed securities transactions during the fourth quarter of 2004 was the primary contributor to $4.7 million of pre-tax operating earnings for the quarter. This compares to $11.7 million of pre-tax operating earnings from structured products in the fourth quarter of 2003 and $1.9 million in the third quarter of 2004.

During the quarter, $423.1 million of medium-term notes matured. The interest-spread margin for the medium-term notes business was 103 basis points, compared to 133 basis points in the same quarter last year and 148 basis points last quarter. Lower prepayment penalty income and reinvestment rates due to the tight interest-spread environment contributed to the decrease in interest-spread margins.

Business Outlook

The information provided below includes certain forward-looking statements, is based on current business conditions and incorporates a range of possible results that are intended to illustrate the sensitivity of our revenues and earnings to these factors.

To the extent that equity-market performance varies from levels indicated in our business outlook, our results will vary accordingly. Additionally, our ability to meet the indicated outlook is subject to the factors described in the forward-looking information section found on the following page.

The table below outlines the Company's expectations for its full-year earnings drivers and is based on the performance of the equity markets and the related performance of our separate account assets achieving a return of 0 to 1-1/2 percent during each quarter of 2005.

2005 Business Outlook Individual Investments Segment Interest-spread margin 170-175 bps Pre-tax operating earnings to average account values 43-48 bps Retirement Plans Segment Interest-spread margin 180-185 bps Pre-tax operating earnings to average account values 20-25 bps Individual Protection Segment Investment Life Pre-tax operating earnings to operating revenues 20-22% Fixed Life Pre-tax operating earnings to operating revenues 12-14% Corporate and Other Segment Medium-term notes interest-spread margin 95-100 bps Nationwide Financial Operating return on average equity 11-11.5% Earnings Conference Call

Nationwide Financial will host a conference call from 10 a.m. to 11 a.m. ET on Wednesday, February 9, 2005, to discuss fourth quarter 2004 results. To participate in the call, dial 1-706-679-3234 and provide your name and company name to the operator. Please dial into the call 10-15 minutes early to facilitate a timely connection. A simultaneous webcast of the call will also be available from the investor relations section of our Web site at http://www.nationwidefinancial.com/ . Anyone unable to participate in the call can listen to a replay starting at 2 p.m. EDT time February 9, 2005, through midnight ET February 16, 2005 by dialing 1-706-645-9291, conference ID 3306517. An audio archive and transcript of the call will be posted to the investor relations section of the Company's Web site within 48 hours of the call.

Quiet Period

Toward the end of each quarter, the Company has a quiet period when it no longer publishes or updates its current outlook, and Company representatives will not comment on financial results or expectations. The quiet period will extend until the day when the next earnings announcement is published. For the first quarter of 2005, the quiet period will be April 13, 2005 through May 4, 2005.

Columbus-based Nationwide Financial is the holding company for the domestic retirement savings operations of Nationwide, which owns 62.7 percent of the outstanding common shares of Nationwide Financial. The major operating subsidiary of Nationwide Financial is Nationwide Life Insurance Company. To obtain investor materials, including the Company's 2003 annual report to shareholders, 2003 Annual Report on Form 10-K and other corporate announcements, please visit the investor relations section of our Web site at http://www.nationwidefinancial.com/ .

Forward-Looking Information

The information included herein contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the results of operations and businesses of the Nationwide Financial Services, Inc. and subsidiaries (NFS or collectively, the Company). These forward-looking statements involve certain risks and uncertainties. Factors that may cause actual results to differ materially from those contemplated or projected, forecast, estimated or budgeted in such forward-looking statements include, among other, the following possibilities: (i) change in Nationwide Corporation's control of the Company through its beneficial ownership of 94.4% of the combined voting power of all the outstanding common stock and 62.7% of the economic interest in the Company; (ii) the Company's primary reliance, as a holding company, on dividends from its subsidiaries to meet debt service obligations and the applicable regulatory restrictions on the ability of the Company's subsidiaries to pay such dividends; (iii) the potential impact on the Company's reported net income that could result from the adoption of certain accounting and/or financial reporting standards issued by the Financial Accounting Standards Board, Public Company Accounting Oversight Board or other standard-setting bodies; (iv) tax law changes impacting the tax treatment of life insurance and investment products; (v) repeal of the federal estate tax; (vi) heightened competition, including specifically the intensification of price competition, the entry of new competitors and the development of new products by new and existing competitors; (vii) adverse state and federal legislation and regulation, including limitations on premium levels, increases in minimum capital and reserves , and other financial viability requirements; restrictions on mutual fund distribution payment arrangements such as revenue sharing and 12b-1 payments; and regulation changes resulting from industry practice investigations; (viii) failure to expand distribution channels in order to obtain new customers or failure to retain existing customers; (ix) inability to carry out marketing and sales plans, including, among others, development of new products and/or changes to certain existing products and acceptance of the new and/or revised products in the market; (x) changes in interest rates and the equity markets causing a reduction of investment income and/or asset fees, an acceleration of the amortization of deferred policy acquisition costs (DAC) and/or value of business acquired (VOBA), reduction in the value of the Company's investment portfolio or separate account assets, or a reduction in the demand for the Company's products; (xi) general economic and business conditions which are less favorable than expected; (xii) competitive, regulatory or tax changes that affect the cost of, or demand for, the Company's products; (xiii) unanticipated changes in industry trends and ratings assigned by nationally recognized rating organizations; (xiv) deviations from assumptions regarding future persistency, mortality, morbidity and interest rates used in calculating reserve amounts and in pricing the Company's products; and (xv) adverse litigation results and/or resolution of litigation and/or arbitration or investigation results.

Investor Contact: Mark Barnett Vice President, Investor Relations 614 677-5331 Media Contact: Bryan Haviland Public Relations Officer 614 677-7767 Exhibit 1 to Fourth Quarter 2004 Earnings Announcement Nationwide Financial Services, Inc. and Subsidiaries Consolidated Statements of Income Three months ended Year ended ($ in millions, except per December 31, December 31, share data) 2004 2003 2004 2003 (Unaudited)(Unaudited)(Unaudited) Revenues: Policy charges $314.8 $285.1 $1,235.0 $1,126.8 Life insurance premiums 104.5 102.7 402.7 426.2 Net investment income 567.3 558.4 2,265.7 2,226.5 Net realized gains (losses) on investments, hedging instruments and hedged items 16.9 (20.6) (30.8) (69.4) Other 88.5 71.4 307.6 234.1 Total revenues 1,092.0 997.0 4,180.2 3,944.2 Benefits and Expenses: Interest credited to policyholder account values 345.6 345.0 1,352.5 1,391.4 Other benefits and claims 130.4 138.4 526.9 563.5 Policyholder dividends on participating policies 28.0 24.7 101.4 105.7 Amortization of deferred policy acquisition costs 120.4 109.7 442.1 399.5 Amortization of value of business acquired 10.3 7.9 52.3 46.4 Interest expense on debt 25.8 24.6 102.2 96.2 Other operating expenses 243.5 212.2 928.2 823.7 Total benefits and expenses 904.0 862.5 3,505.6 3,426.4 Income from continuing operations before federal income tax expense 188.0 134.5 674.6 517.8 Federal income tax expense 46.2 30.2 169.2 119.4 Income from continuing operations 141.8 104.3 505.4 398.4 Cumulative effect of adoption of accounting principles, net of taxes - (0.6) (3.4) (0.6) Net income $141.8 $103.7 $502.0 $397.8 Earnings per common share: Basic $0.93 $0.69 $3.30 $2.62 Diluted $0.93 $0.69 $3.28 $2.61 Weighted average common shares outstanding: Basic 152.3 151.8 152.1 151.8 Diluted 153.1 152.6 152.9 152.3 Cash dividends declared per common share $0.18 $0.13 $0.72 $0.52 Exhibit 2 to Fourth Quarter 2004 Earnings Announcement Nationwide Financial Services, Inc. and Subsidiaries Consolidated Balance Sheets December 31, December 31, (in millions) 2004 2003 (Unaudited) Assets Investments: Securities available-for-sale, at fair value: Fixed maturity securities $31,516.8 $30,787.1 Equity securities 87.0 128.7 Trading assets, at fair value 15.9 4.9 Mortgage loans on real estate, net 9,267.5 8,964.7 Real estate, net 108.3 123.4 Policy loans 987.2 963.2 Other long-term investments 604.2 194.6 Short-term investments, including amounts managed by a related party 2,009.9 1,970.3 Total investments 44,596.8 43,136.9 Cash 52.4 11.5 Accrued investment income 428.7 439.6 Deferred policy acquisition costs 3,561.1 3,329.9 Value of business acquired 480.4 523.0 Other intangible assets 48.7 52.3 Goodwill 382.3 406.7 Other assets 2,424.4 2,189.8 Assets held in separate accounts 64,903.2 60,937.6 Total assets $116,878.0 $111,027.3 Liabilities and Shareholders' Equity Liabilities: Future policy benefits and claims $41,004.6 $39,988.4 Short-term debt 230.8 205.3 Long-term debt 1,406.0 1,405.6 Other liabilities 4,118.3 3,615.0 Liabilities related to separate accounts 64,903.2 60,937.6 Total liabilities 111,662.9 106,151.9 Shareholders' equity: Class A common stock 0.7 0.6 Class B common stock 1.0 1.0 Additional paid-in capital 1,634.6 1,614.3 Retained earnings 3,400.0 3,006.4 Accumulated other comprehensive income 432.2 504.9 Treasury stock (251.4) (247.6) Other, net (2.0) (4.2) Total shareholders' equity 5,215.1 4,875.4 Total liabilities and shareholders' equity $116,878.0 $111,027.3 Exhibit 3 to Fourth Quarter 2004 Earnings Announcement Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures The following tables reconcile non-GAAP financial measures used in the accompanying Nationwide Financial earnings announcement to the most comparable GAAP financial measures for each of the periods indicated. Page one of the earnings announcement includes a reconciliation of net operating earnings to net income, including per diluted share information. This table has not been repeated in this exhibit. Also, a reconciliation of the forward-looking non-GAAP financial measure net operating earnings per diluted share to net income per diluted share has not been provided because Nationwide Financial does not regularly project realized gains and losses on investments, hedging instruments and hedged items(2) (realized gains and losses). Realized gains and losses represented ($0.17) per weighted average diluted share in 2004 and ranged from ($0.08) to ($0.44) per weighted average diluted share over the past five full years. The results of past accounting periods, including quarterly and annual results, are not necessarily indicative of the results to be expected for any future accounting period. Operating revenues to revenues Three months ended Year ended December 31, December 31, (in millions) 2004 2003 2004 2003 Operating revenues (losses) $1,076.3 $1,020.8 $4,219.7 $4,029.3 Net realized gains on investments, hedging instruments and hedged items (2) 15.7 (23.8) (39.5) (85.1) Revenues $1,092.0 $997.0 $4,180.2 $3,944.2 Operating net realized gains to net realized gains (losses) on investments, hedging instruments and hedged items Three months ended Year ended December 31, December 31, (in millions) 2004 2003 2004 2003 Operating net realized gains (1) $1.2 $3.2 $8.7 $15.7 Net realized gains (losses) on investments, hedging instruments and hedged items (2) 15.7 (23.8) (39.5) (85.1) Net realized gains (losses) on investments, hedging instruments and hedged items $16.9 $(20.6) $(30.8) $(69.4) Pre-tax operating earnings to income from continuing operations before federal income taxes Three months ended Year ended December 31, December 31, (in millions) 2004 2003 2004 2003 Pre-tax operating earnings $172.3 $158.3 $714.1 $602.9 Net realized gains (losses) on investments, hedging instruments and hedged items (2) 15.7 (23.8) (39.5) (85.1) Income from continuing operations before federal income taxes $188.0 $134.5 $674.6 $517.8 Operating return on average equity and return on average equity Three months ended December 31, 2004 2003 Ratio (annualized) Ratio (annualized) (in millions) Amount Ex AOCI w/AOCI Amount Ex AOCI w/AOCI Net operating earnings $131.6 11.2% 10.2% $119.9 11.1% 9.8% Net realized gains (losses) on investments, hedging instruments and hedged items, net of taxes (2) 10.2 0.9% 0.8% (15.6) (1.4%) (1.3%) Cumulative effect of adoption of accounting principle, net of taxes - 0.0% 0.0% (0.6) (0.1%) 0.0% Net income $141.8 12.1% 11.0% $103.7 9.6% 8.5% Average equity, excluding accumulated other comprehensive income (AOCI) $4,720.4 $4,326.2 Average AOCI 455.8 566.0 Average equity $5,176.2 $4,892.2 Year ended December 31, 2004 2003 Ratio Ratio (in millions) Amount Ex AOCI w/AOCI Amount Ex AOCI w/AOCI Net operating earnings $531.1 11.6% 10.5% $453.8 10.8% 9.5% Net realized losses on investments, hedging instruments and hedged items, net of taxes (2) (25.7) (0.6%) (0.5%) (55.4) (1.3%) (1.2%) Cumulative effect of adoption of accounting principle, net of taxes (3.4) 0.0% 0.0% (0.6) 0.0% 0.0% Net income $502.0 11.0% 10.0% $397.8 9.5% 8.3% Average equity, excluding AOCI $4,565.1 $4,229.7 Average AOCI 475.2 560.4 Average equity $5,040.3 $4,790.1 Book value per share excluding AOCI and book value per share As of December 31, As of December 31, (in millions, except 2004 2003 per share data) Amount Per share Amount Per share Total equity, excluding AOCI $4,782.9 $31.36 $4,370.5 $28.77 AOCI 432.2 2.84 504.9 3.33 Total equity $5,215.1 $34.20 $4,875.4 $32.10 Shares outstanding 152.5 151.9 (1) Prior periods reflect reclassification of periodic net coupon settlements on non-qualifying derivatives, from net investment income and interest credited to operating net realized gains. (2) Excluding periodic net coupon settlements on non-qualifying derivatives. Exhibit 3 to Fourth Quarter 2004 Earnings Announcement

Non-GAAP Measures Used in this Earnings Announcement by Nationwide Financial

Nationwide Financial prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP). In addition to using the GAAP consolidated financial statements, Nationwide Financial also analyzes operating performance using the following non-GAAP financial measures. The non-GAAP financial measures below appear in the accompanying earnings announcement.

Operating revenues are calculated by adjusting total revenues to exclude net realized gains and losses on investments not related to securitizations and periodic net coupon settlements on non-qualifying derivatives, hedging instruments and hedged items. Operating realized gains (losses) include net realized gains (losses) on investments related to securitizations and period net coupon settlements on non-qualifying derivatives, hedging instruments and hedged items. Pre-tax operating earnings are calculated by adjusting earnings from continuing operations before federal income taxes and cumulative effect of adoption of accounting principles, if any, to exclude net realized gains and losses on investments, hedging instruments and hedged items, except for periodic net coupon settlements on non-qualifying derivatives and realized gains and losses related to securitizations, if any. Pre- tax operating earnings are a GAAP financial measure as it relates to the individual investments, retirement plans, individual protection and corporate and other segments, as this is the level at which management evaluates operating results for these segments. Net operating earnings are calculated by adjusting net income to exclude non-operating net realized gains and losses on investments, hedging instruments and hedged items, discontinued operations and cumulative effect of adoption of accounting principles, if any, all net of tax. Net operating earnings per diluted share are calculated by dividing net operating earnings by the number of weighted average diluted shares outstanding for the period indicated. Operating return on average equity is calculated by annualizing net operating earnings and dividing by average shareholders' equity excluding accumulated other comprehensive income. Book value per share excluding accumulated other comprehensive income is calculated by dividing total shareholders' equity less accumulated other comprehensive income by the number of shares outstanding as of the date indicated. Use of Non-GAAP Measures in Practice

Operating revenues, operating realized gains (losses), pre-tax operating earnings, net operating earnings, net operating earnings per diluted share, operating return on average equity, book value per share excluding accumulated other comprehensive income or similar measures are commonly used in the insurance industry as measures of ongoing earnings performance.

Excluded Items and Cautionary Information

The excluded items are important in understanding Nationwide Financial's overall results of operations, and Nationwide Financial's definition of these non-GAAP financial measures may differ from those used by other companies. None of these non-GAAP financial measures should be viewed as substitutes for any GAAP financial measures.

Specifically, operating revenues, operating realized gains (losses), pre- tax operating earnings, net operating earnings, net operating earnings per diluted share, operating return on average equity and book value per share excluding accumulated other comprehensive income should not be viewed as substitutes for total revenues, net realized gains (losses) on investments, hedging instruments and hedged items, income from continuing operations before federal income taxes, net income, earnings per diluted share, return on average equity and book value per share, respectively, determined in accordance with GAAP. Nationwide Financial believes that the presentation of these non-GAAP financial measures as they are measured for management purposes enhances the understanding of Nationwide Financial's results of operations by highlighting the results from continuing operations, on a pre- and post-tax basis as applicable, and the underlying profitability drivers of Nationwide Financial's business.

Nationwide Financial excludes net realized gains and losses on investments not related to securitizations and periodic net coupon settlements on non- qualifying derivatives, hedging instruments and hedged items, net of tax, from these non-GAAP financial measures because such items are often the result of a series of independent event-driven activities, the timing of which may or may not be at Nationwide Financial's discretion. Excluding the fluctuating effects of these transactions helps to depict trends in the underlying profitability of Nationwide Financial's business without consideration of these items. Nationwide Financial also excludes discontinued operations and the cumulative effect of adoption of accounting principles from net operating earnings, if any, as such adjustments are not reflective of the continuing operations of Nationwide Financial's business.