Nationwide Financial Services Inc. posted a sharp increase in second-quarter profits despite large cash outflows at its annuity operations.[@@]

Nationwide, Columbus, Ohio, is reporting $141 million in net income for the latest quarter on $1.1 billion in revenue, up from $104 million in net income on $993 million in revenue for the second quarter of 2004.

But the company reports that $519 million more cash flowed out of the company’s fixed and variable annuities than came in. The $519 million net outflow for the second quarter compares with net inflow of $50 million for the second quarter of 2004.

Sales of new individual fixed annuities fell 71%, sales of new individual variable annuities fell 18%, and many contracts in an old block of variable annuity business lapsed during the quarter, Nationwide says.

This coincides with individual variable annuity sales declining 18% compared to a year ago and individual fixed annuity sales decreasing 71% compared to a year ago.

The average spread individual investments, or the gap between what Nationwide earned on the assets backing individual investment product guarantees and the rates Nationwide paid customers, widened to 1.95 percentage points, from 1.81 percentage points during the second quarter of 2004.

Net inflows fell to $145 million, from $265 million, in the individual protection unit because of surrenders of corporate-owned life insurance policies, but sales of pension plan services to government agencies increased, Nationwide says.

In related news, the Nationwide board has authorized a $300 million share repurchase program.

The share repurchase program “underscores the strength of our capital position and our confidence in the long-term future of Nationwide Financial,” says Jerry Jurgensen, the company’s chief executive.