Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒
☐
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2020
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File No. 001-39369
American National Group, Inc.
(Exact name of registrant as specified in its charter)
(formerly American National Insurance Company)
Delaware
(State or other jurisdiction of
incorporation or organization)
30-1221711
(I.R.S. Employer
Identification No.)
One Moody Plaza
Galveston, Texas 77550-7999
(Address of principal executive offices) (Zip Code)
(409) 763-4661
(Registrant’s telephone number, including area code)
Title of Each Class
Common Stock, par value $0.01
Securities registered pursuant to Section 12(b) of the Act:
Trading Symbol
ANAT
Name of Each Exchange on which Registered
NASDAQ
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☒ Yes ☐ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. ☐ Yes ☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer
Non-accelerated filer
Emerging growth company
☐
☐
☐
Accelerated filer
Smaller reporting company
☒
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
The aggregate market value on June 30, 2020 (the last business day of the registrant’s most recently completed second fiscal quarter) of the voting stock held by non-affiliates
of the registrant was approximately $530.5 million. For purposes of the determination of the above-stated amount, only directors, executive officers and 10% shareholders are
presumed to be affiliates, but neither the registrant nor any such person concedes that they are affiliates of registrant.
As of February 25, 2021, there were 26,887,200 shares of the registrant’s voting common stock, $0.01 par value per share, outstanding.
Information called for in Part III of this Form 10-K is incorporated by reference to the registrant’s Definitive Proxy Statement to be filed within 120 days of the close of the
registrant’s fiscal year in conjunction with the registrant’s annual meeting of shareholders.
DOCUMENTS INCORPORATED BY REFERENCE
Table of Contents
AMERICAN NATIONAL GROUP, INC.
TABLE OF CONTENTS
PART I
BUSINESS
RISK FACTORS
UNRESOLVED STAFF COMMENTS
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
PART II
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
SELECTED FINANCIAL DATA
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
CONTROLS AND PROCEDURES
OTHER INFORMATION
PART III
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART IV
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBITS INDEX
FORM 10-K SUMMARY
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
ITEM 15.
ITEM 16.
SIGNATURES
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PART I
ITEM 1. BUSINESS
Company Overview
We have conducted business from our headquarters in Galveston, Texas since 1905. Our core business segments are life
insurance, annuities, and property and casualty insurance. We also offer limited health insurance. We provide personalized
service to approximately six million policyholders throughout the United States, the District of Columbia, and Puerto Rico. In
addition, as of December 31, 2020, we have over $128 billion of life insurance in-force.
On July 1, 2020, American National Insurance Company, a Texas insurance company (“ANICO”), completed its previously
announced holding company reorganization, which was approved by its shareholders at its Annual Meeting of Shareholders
held on April 23, 2020. As a result of such reorganization, ANICO became a wholly owned subsidiary of American National
Group, Inc., a Delaware corporation (“ANAT”), and ANAT replaced ANICO as the publicly held company. Consequently, all
filings with the Securities and Exchange Commission from July 2, 2020 forward will be filed by ANAT under CIK No.
0001801075. For purposes of filing this Form 10-K, the accompanying consolidated financial statements and notes thereto have
been titled “American National Group, Inc.” to reflect the current name of the public registrant, with the parenthetical notation
“formerly American National Insurance Company” to reflect the reporting entity for the periods covered therein.
In this document, we refer to American National Group, Inc. and its subsidiaries as "American National," the "Company,”
“we,” “our,” and “us.”
Our vision is to be a leading provider of financial products and services for current and future generations. For more than a
century, we have maintained a conservative business approach and corporate culture. We have an unwavering commitment to
serve our policyholders, agents, and shareholders by providing excellent service and competitively priced products and services
through a diversified network of distribution channels. We are committed to profitable growth, which enables us to remain
financially strong. Acquisitions that are strategic or offer synergies may be considered, but they are not our primary source of
growth. We invest regularly in our distribution channels, technology, and our human resources to fuel our capacity for
profitable growth.
We are committed to excellence and maintaining high ethical standards in all our business dealings. Disciplined adherence to
our values has allowed us to deliver consistently high levels of service through talented people, who are at the heart of our
business. We define our values with the acronym FIRST, which stands for Financial strength, Integrity, Respect, Service, and
Teamwork. Additionally, we describe our culture as ACE which stands for Agility, Collaboration, and Engagement; three
characteristics that describe how we want to operate as a team dedicated to the success of our stakeholders. In 2021, we are
initiating ACE Culture 2.0 with additional emphasis on diversity, equity, and inclusion.
Business Segments
Our family of companies includes five life insurance companies, eight property and casualty insurance companies, and
numerous non-insurance subsidiaries. We organize and operate our businesses in the following business segments: Life,
Annuity, Property and Casualty, Health, and Corporate and Other. The following discussion provides an overview of the
products we offer within these segments.
Life Segment
Whole Life. Whole life products provide a guaranteed benefit upon the death of the insured in return for the periodic payment of
a fixed premium over a predetermined period. Premium payments may be required for the entire life of the contract, to a
specified age or a fixed number of years, and may be level or change in accordance with a predetermined schedule. Whole life
insurance includes some policies that provide a participation feature in the form of dividends. Policyholders may receive
dividends in cash or apply them to increase death benefits or cash values available upon surrender, or reduce the premiums
required to maintain the contract in-force.
Term Life. Term life products provide a guaranteed benefit upon the death of the insured for a specified time period in return for
the periodic payment of premiums. Coverage periods typically range from one to thirty years, but in no event longer than the
period over which premiums are paid.
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ITEM 1. BUSINESS — (Continued)
Universal Life. Universal life insurance products provide coverage through a contract that gives the policyholder flexibility in
premium payments and coverage amounts. Universal life products may allow the policyholder, within certain limits, to increase
or decrease the amount of death benefit coverage over the term of the contract and to adjust the frequency and amount of
premium payments. Universal life products are interest rate sensitive, and we determine the interest crediting rates during the
contract period, subject to policy specific minimums.
An equity-indexed universal life product is credited with interest using a return that is based, in part, on changes in an index,
such as the Standard & Poor’s 500 Index (“S&P 500”), subject to a specified minimum.
Variable Universal Life. Variable universal life products provide insurance coverage on a similar basis as universal life, except
that the policyholder bears the investment risk because the value of the policyholder’s account balance varies with the
investment experience of the securities selected by the policyholder held in the separate account.
Credit Life Insurance. Credit life insurance products are sold in connection with a loan or other credit account. Credit life
insurance products are designed to pay to the lender the borrower’s remaining debt on a loan or credit account if the borrower
dies during the coverage period.
Annuity Segment
Deferred Annuity. A deferred annuity is an asset accumulation product. Deposits are received as a single premium deferred
annuity or in a series of payments for a flexible premium deferred annuity. Deposits are credited with interest at our determined
rates subject to policy minimums. For certain limited periods of time, usually from one to ten years, interest rates are guaranteed
not to change. Deferred annuities usually have surrender charges that begin at issue and reduce over time and may have market
value adjustments that can increase or decrease any surrender value.
An equity-indexed deferred annuity is credited with interest using a return that is based, in part, on changes in an index, such as
the S&P 500, subject to a specified minimum.
Single Premium Immediate Annuity (“SPIA”). A SPIA is purchased with one premium payment, providing periodic (usually
monthly or annual) payments to the annuitant for a specified period, such as for the remainder of the annuitant’s life. Return of
the original deposit may or may not be guaranteed, depending on the terms of the annuity contract.
Variable Annuity. With a variable annuity, the policyholder bears the investment risk because the value of the policyholder’s
account balance varies with the investment experience of the separate account investment options selected by the policyholder.
Our variable annuity products have no guaranteed minimum withdrawal benefits.
Health Segment
Medicare Supplement. Medicare Supplement insurance is a type of private health insurance designed to supplement or pay the
costs of certain medical services not covered by Medicare.
Supplemental Insurance. Supplemental insurance is designed to provide supplemental coverage for specific events or illnesses
such as cancer, accidental injury or death, or disability for short periods of time.
Stop-Loss. Stop-loss coverage is used by employers to limit their exposure under self-insured medical plans. Two coverages,
which are usually offered concurrently, are available. Specific stop-loss provides coverage when claims for an individual reach
a threshold; after the threshold is reached, the policy reimburses claims paid by the employer up to a coverage limit for each
individual. Aggregate stop-loss reimburses the employer once the group’s total paid claims reach a threshold.
Credit Disability. Credit disability (also called credit health) insurance pays a limited number of monthly payments on a loan or
credit account if the borrower becomes disabled during the coverage period.
Medical Expense. Medical expense insurance covers most health expenses including hospitalization, surgery, and outpatient
services (excluding dental and vision costs). We no longer market these products and existing contracts are in run-off.
Short Term Medical Insurance. Short Term Medical provides temporary medical expense coverage for policyholders between
jobs, waiting for other coverages to begin, or currently without other medical expense coverage. Under current federal
regulation, Short Term Medical may be renewed up to a period not exceeding 36 months.
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ITEM 1. BUSINESS — (Continued)
Property and Casualty Segment
Personal Lines. Personal lines include insurance policies sold to individuals for auto, homeowners, and other similar exposures.
Auto insurance covers specific risks involved in owning and operating an automobile. Homeowner insurance provides coverage
that protects the insured owner’s property against loss from perils. Other personal insurance provides coverage for property
such as boats, motorcycles and recreational vehicles, and umbrella protection coverage.
Commercial Lines. Commercial lines are primarily focused on providing insurance to agricultural related operations and small
to midsize businesses. This includes property and casualty coverage tailored for a farm, ranch, or other agricultural-related
businesses. Commercial auto insurance is typically issued in conjunction with the sale of our policies covering farms, ranches,
and businesses and covers specific risks involved in owning and operating motor vehicles. Business owners' property and
liability insurance, workers' compensation insurance, and other commercial insurance encompassing umbrella protection
coverage and other liability coverages, are also offered.
Specialty Markets. Specialty Markets products include renters, mortgage security, aviation, private flood, and credit insurance.
Credit insurance provides protection to borrowers and the creditors that extend credit to them against unpaid indebtedness as a
result of death, disability, involuntary unemployment, or untimely loss to the collateral securing a personal or mortgage loan.
•
•
Collateral or Creditor Protection Insurance (“CPI”). CPI provides insurance against loss, expense to recover, or
damage to personal property pledged as collateral (typically automobiles and homes) resulting from fire, burglary,
collision, or other loss occurrence that would either impair a creditor’s interest or adversely affect the value of the
collateral. The coverage is purchased from us by the lender according to the terms of the credit obligation and charged
to the borrower by the lender when the borrower fails to provide the required insurance.
Guaranteed Auto Protection or Guaranteed Asset Protection (“GAP”). GAP insures the excess outstanding
indebtedness over the primary property insurance benefits that may occur when there is a total loss to or an
unrecovered theft of the collateral. GAP can be written on a variety of assets that are used as collateral to secure credit;
however, it is most commonly written on automobiles.
Corporate and Other Segment
Our Corporate and Other segment includes our noninsurance subsidiaries and other invested assets not matched with insurance
activities.
Marketing Channels
Our diversified product distribution network is designed to satisfy the needs of the markets we serve.
Career Sales and Service Division (“CSSD”) — can be traced to the Company's founding in 1905, and offers life insurance,
annuities, and limited benefit health insurance products through employee agents primarily to the lower and middle-income
market. CSSD's business model is structured to enable agents located throughout the United States to efficiently distribute new
products and provide personalized service to the customer. CSSD has evolved its operations to offer a wider variety of products
and electronic processing to meet the ever-changing needs of the customer and the agents that serve them.
Independent Marketing Group (“IMG”) — distributes our life insurance and annuity products and solutions through
independent agents, financial institutions, large marketing organizations, employee benefit firms, broker-dealers and brokers.
IMG provides these products and services to clients in need of wealth protection, accumulation, distribution, and transfer. IMG
also markets to individuals who favor purchasing life insurance directly from an insurance company, through call centers.
Multiple Line Agencies — offers life insurance, annuities, and property and casualty insurance and a limited amount of health
insurance primarily through agents, who, for the most part, primarily or exclusively represent the Company. This distribution
channel serves individuals, families, farmers, ranchers, other agricultural clients, and small business owners across the country.
Policyholders can generally obtain all their insurance solutions through our multiple line agents, which has been identified as an
important driver to client satisfaction.
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ITEM 1. BUSINESS — (Continued)
Health Insurance Division — serves the needs of a variety of markets including middle-income seniors, self-insured employers,
and the special needs of individuals with supplemental products which are sold direct to consumer, and by independent agents,
brokers, and Managing General Underwriters (“MGU”). The Health Insurance Division primarily offers health insurance
products, supplemental health insurance products, health reinsurance, and traditional Medicare Supplement products.
Specialty Markets Group ("SMG") — primarily offers property and casualty products, including some credit property and
casualty products. Credit product distribution includes general agents who market to financial institutions, automobile dealers,
and furniture dealers. Our SMG distribution channel also provides property and casualty products for renters, mortgage
security, aviation for small hull aircraft, self-storage contents, and private flood insurance through general agents and managing
general agents. Some of the products distributed by SMG, including aviation and private flood, are fully reinsured. In addition,
SMG sells some credit life and credit disability products.
Policyholder Liabilities
We record the amounts for policyholder liabilities in accordance with U.S. Generally Accepted Accounting Principles
(“GAAP”) and the standards of practice of the American Academy of Actuaries. We carry liabilities for future policy benefits
associated with base policies and riders, unearned mortality charges and future disability benefits, for other policyholder
liabilities associated with unearned premiums and claims payable, and for unearned revenue from front-end fees. We also
establish liabilities for unpaid claims and claim adjustment expenses, including those that have been incurred but not yet
reported. In addition, we carry liabilities for secondary guarantees relating to certain life policies and fair value reserves
associated with embedded derivatives on equity indexed products.
Additional information regarding our policyholder liabilities may be found in Part II, Item 7, Management’s Discussion and
Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates — Reserves section, Note 11,
Liability for Future Policy Benefits and Policyholder Account Balances, and Note 12, Liability for Unpaid Claims and Claim
Adjustment Expenses.
Risk Management
A conservative operating philosophy was a founding principle for our Company and continues to be a guiding principle for us.
We manage risks across the Company by employing controls throughout our business operations. These controls are designed
to both place limits on activities and provide internal reporting information that helps us monitor our businesses and shape
decisions and actions. The Company’s Board of Directors oversees a formal enterprise risk management program to coordinate
risk management efforts and to provide reasonable assurance that risk taking activities are aligned with strategic objectives. The
Board Audit Committee assists the Board in its risk management oversight. The risk management program includes a Corporate
Risk Officer who chairs an Enterprise Risk Management Committee intended to ensure consistent application of the enterprise
risk management process across all business segments. The Enterprise Risk Management Committee is supported by three sub-
committees, one focusing on life and annuity business risks, one focusing on property and casualty business risks, and another
focusing on health and credit life business risks. In addition, several other senior management committees support the
discussion and enforcement of risk controls in the management of the Company.
Our insurance products are designed to balance features desired by the marketplace with provisions that mitigate our risk
exposures across our insurance products portfolio. We employ underwriting standards to help ensure proper rates are charged to
different classes of risks. In our life insurance and annuity products, we seek to mitigate disintermediation risk with surrender
charges and market value adjustment features.
The process of linking the timing and the amount of payment obligations related to our insurance and annuity contracts and the
cash flows and valuations of the invested assets supporting those obligations is commonly referred to as asset-liability
management (“ALM”). Our ALM Committee, including many of our Company's senior executive officers, regularly monitors
the level of risk in the interaction of assets and liabilities and helps shape actions intended to attain our desired risk-return
profile. Investment allocations and duration targets are also intended to manage the risk exposure in our annuity products by
setting the credited rate within a range supported by our investments. Tools that help shape investment decisions include
deterministic and stochastic interest rate scenario analyses using a licensed third-party economic scenario generator and detailed
insurance ALM models. These models also use experience related to surrenders and claims.
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ITEM 1. BUSINESS — (Continued)
We also manage risk by purchasing reinsurance to limit exposure in our Life, Health, and Property and Casualty segments. In
our Life segment, we currently retain 100% of newly developed permanent and term products up to our retention limit and cede
the excess exposure to reinsurers that are evaluated for their credit strength. Consistent with our corporate risk management
strategy, we periodically adjust our Life reinsurance program and retention limits as market conditions warrant. In our Health
segment, we use reinsurance on an excess of loss basis for our MGU stop-loss business. In our Property and Casualty segment,
our reinsurance program provides coverage for some individual risks with exposures above certain amounts as well as exposure
to catastrophes including hurricanes, tornadoes, wind and hail events, earthquakes, fires following earthquakes, winter storms,
and wildfires. In all segments, we purchase reinsurance from many providers and regularly review the financial strength ratings
of our reinsurers. Reinsurance does not remove our liability to pay our policyholders, and we remain liable to our policyholders
for the risks we insure. See Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of
Operations for retention limits.
In our Property and Casualty segment, the use of catastrophic event models is an important element of risk management. These
models assist us in the measurement and management of exposure concentrations and the amount and structure of reinsurance
purchases. In addition to reinsurance, we manage exposure to catastrophic risk by limiting property exposure in areas with
heightened brush fire risks and exposures and in coastal areas, implementing hurricane, wind and hail deductible requirements
where appropriate, and not renewing coverage in regions where we believe exposure to risky events exceeds our risk appetite.
Pricing
We establish premium rates for life, annuity, and health products using assumptions as to future mortality, morbidity,
persistency, investments, and expenses, all of which are estimates generally based on our experience, industry data, projected
investment earnings, competition, regulation and legislation. These assumptions are also considered when setting crediting rates
for interest sensitive life and annuity products. Premium rates for property and casualty insurance are influenced by many
factors, including the estimated frequency and severity of claims, expenses, state regulation and legislation, and general
business and economic conditions, including market interest rates and inflation. Profitability is affected to the extent actual
experience deviates from our pricing assumptions.
Payments we receive for certain annuity and life products are not recognized as revenues, but are deposits added to policyholder
account balances. Revenues from these products result from charges to the account balances for the cost of insurance risk and
administrative fees and, in some cases, surrender fees. Profits are earned to the extent these revenues exceed actual costs. Profits
are also earned from investment income on assets invested from the deposits in excess of the amounts credited to policyholders.
Premiums for health policies with medical expense components must take into account the rising utilization and cost of medical
care. The annual rate of medical cost inflation has historically been higher than the general rate of inflation, requiring frequent
rate increases, most of which are subject to approval by state regulatory agencies.
Credit life and health rates are set by each state. These rates are the maximum amounts that may be charged. We may charge a
lower rate to reflect a variety of factors including better than expected experience, compensation adjustments, and competitive
forces. If an account's experience is poor and less than our pricing assumptions, we may request a rate increase from the
applicable state.
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ITEM 1. BUSINESS — (Continued)
Competition
We compete principally on the breadth of our product offerings, reputation, the overall ease of doing business with us,
marketing expertise and support, the scope of our distribution systems, financial strength and ratings, product features and
prices, customer service, claims handling, and in the case of producers, service as well as compensation. The market for
insurance, retirement and investment products continues to be highly fragmented and competitive. We compete with a large
number of domestic and foreign insurance companies, many of which offer one or more similar products. In addition, for
products that include an asset accumulation component, our competition includes domestic and foreign securities firms,
investment advisors, mutual funds, banks, and other financial institutions.
Several competing insurance carriers are larger than we are, have brands that are more commonly known, and spend
significantly more on advertising than we do. We endeavor to remain competitive with these commonly known brands by
managing costs, providing attractive coverage and service, maintaining positive relationships with our agents and our
policyholders, and by maintaining our financial strength.
Ratings
Rating agencies provide independent opinions or ratings. These ratings are based on each rating agency’s quantitative and
qualitative evaluation of a company. The rating agencies do not provide ratings as a recommendation to purchase insurance or
annuities, nor as a guarantee of an insurer’s current or future ability to meet contractual obligations. Each agency’s rating
should be evaluated independently of any other rating. Ratings may be changed, suspended, or withdrawn at any time.
ANICO's current insurer financial strength rating from two of the most widely referenced rating organizations as of the date of
this filing are as follows:
•
•
A.M. Best Company: A (Excellent) (1)
Standard & Poor’s (“S&P”): A (Strong) (2)
(1)
(2)
A.M. Best's active company rating scale consists of thirteen ratings ranging from A++ (Superior) to D (poor).
S&P’s active company ratings scale ‘AAA’ to ‘R’ may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the
major rating categories.
Regulations Applicable to Our Business
Our insurance operations are subject to extensive regulation, primarily at the state level. Such regulation varies by state but
generally has its source in statutes that establish requirements for the business of insurance and that grant broad regulatory
authority to a state agency. Insurance regulation has a substantial effect on us and governs a wide variety of matters, such as
insurance company licensing, agent and adjuster licensing, policy benefits, price setting, accounting practices, product
suitability, the payment of dividends, the nature and amount of investments, underwriting practices, reserve requirements, sales
and advertising practices, privacy practices, information systems security, policy forms, reinsurance reserve requirements, risk
and solvency assessments, mergers and acquisitions, corporate governance practices, capital adequacy, transactions with
affiliates, participation in shared markets and guaranty associations, claims practices, the remittance of unclaimed property, and
enterprise risk management requirements. The models for state laws and regulations often emanate from the National
Association of Insurance Commissioners (“NAIC”). While it is not mandatory for insurers to comply with an NAIC model law,
nor for states to adopt a model law, state and federal legislators and regulators are likely to look to the model law for guidance
in proposing new legislation and regulation.
State insurance departments monitor compliance with regulations through periodic reporting procedures and examinations. At
any given time, financial, market conduct or other examinations of our insurance companies may be occurring.
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ITEM 1. BUSINESS — (Continued)
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) expanded the U.S. federal government
presence in insurance oversight. Dodd-Frank also established the Federal Insurance Office within the U.S. Department of
Treasury, which is authorized to, among other things, gather data and information to monitor aspects of the insurance industry,
identify certain issues in the regulation of insurers, and preempt state insurance measures under certain circumstances.
Provisions of Dodd-Frank are or may become applicable to us, our competitors, or certain entities with which we do business.
For example, it is possible that regulations issued by the Consumer Financial Protection Bureau (“CFPB”) may extend, or be
interpreted to extend, to the sale of certain insurance products by covered financial institutions, which could adversely affect
sales of such products. The Federal Insurance Office, as a result of various studies it conducts, may also recommend changes in
laws or regulations that affect our business. There may be further federal involvement in the business of insurance in the future,
which may add significant legal complexity and associated costs to our business.
Regulatory matters having the most significant effects on our insurance operations and financial reporting are described further
below. In addition, Item 1A, Risk Factors, Litigation and Regulation Risk Factors, below discusses significant risks presented to
our business by extensive regulation and describes certain other laws and regulations that are or may become applicable to us.
Holding Company Regulation. We are an insurance holding company system under the insurance laws of the states where we
do business. Our insurance companies are organized under the laws of Texas, Missouri, New York, Louisiana, and California.
Insurance holding company system laws and regulations in such states generally require periodic reporting to state insurance
regulators of various business, enterprise risk management, corporate governance, and financial matters, as well as advance
notice to, and in some cases approval by, such regulators prior to certain transactions between insurers and their affiliates.
These laws also generally require regulatory approval prior to the acquisition of a controlling interest in an insurance company.
These requirements may deter or delay certain transactions considered desirable by management or our stockholders.
Limitations on Dividends by Insurance Subsidiaries. Dividends received from ANICO are the sole source of cash for ANAT.
ANICO's insurance subsidiaries’ ability to pay dividends is generally limited by state law and is also impacted by federal
income tax considerations. Our insurance subsidiaries' ability to pay dividends is important to ANAT's ability to pay dividends
to shareholders.
Rate Regulation. Nearly all states have laws that require life, health, credit, and property and casualty insurers to file rate
schedules and require most insurers to file policy or coverage forms and other information with the state’s regulatory authority.
In many cases these must be approved prior to use. The objectives of rate laws vary, but generally a price cannot be excessive,
inadequate, or unfairly discriminatory. Prohibitions on discriminatory underwriting practices apply in the context of certain
products as well.
Our ability to adjust prices, particularly with certain property and casualty and health insurance products, is often dependent on
the applicable pricing law and our ability to demonstrate to the particular regulator that current or proposed pricing complies
with such law. Rate increases that we believe are necessary for our profitability may be delayed or denied as a result of such
laws. We manage our risk of loss by charging a price that reflects the cost and expense of providing insurance products and by
being selective in underwriting. When a state has significant underwriting and pricing restrictions, it becomes more difficult to
manage our risk of loss, which can adversely impact our ability to market products profitably in such states.
Guaranty Associations and Involuntary Markets. State laws allow insurers to be assessed, subject to prescribed limits, insurance
guaranty fund fees to pay certain obligations of insolvent insurance companies. In addition, to maintain our licenses to write
property and casualty insurance in various states, we are required to participate in assigned risk plans, reinsurance facilities, and
joint underwriting associations that provide various insurance coverages to purchasers that otherwise are unable to obtain
coverage from private insurers.
Investment Regulation. Insurance company investment regulations require investment portfolio diversification and limit the
amount of investment in certain asset categories. Failure to comply with these regulations leads to the treatment of non-
conforming investments as non-admitted assets for measuring statutory surplus. In some instances, these rules require the sale
of non-conforming investments.
Exiting Geographic Markets, Canceling and Non-Renewing Policies. Most states regulate an insurer’s ability to exit a market
by limiting the ability to cancel and non-renew policies. Some states prohibit an insurer from withdrawing one or more types of
insurance business from the state, except pursuant to an approved plan. These regulations could restrict our ability to exit
unprofitable markets.
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ITEM 1. BUSINESS — (Continued)
Statutory Accounting. Financial reports to state insurance regulators utilize statutory accounting practices as defined in the
Accounting Practices and Procedures Manual of the NAIC, which are different from GAAP. Statutory accounting practices, in
keeping with the intent to assure the protection of policyholders, are generally based on a solvency concept, while GAAP is
based on a going-concern concept. While not a substitute for GAAP performance measures, statutory information is used by
industry analysts and reporting sources to compare the performance of insurance companies and impacts the ability of insurance
subsidiaries to pay dividends to ANAT. Maintaining both GAAP and statutory financial records increases our business costs.
Pursuant to state insurance laws, we establish statutory reserves, which are reported as liabilities in the separate stand-alone
statutory-basis financial statements of ANAT's insurance subsidiaries, and which generally differ from future policy benefits
determined using GAAP on our respective policies. These statutory reserves are established in amounts sufficient to meet
policy and contract obligations, when taken together with expected future premiums and interest at prescribed rates.
Insurance Reserves. State insurance laws require life and property and casualty insurers to annually analyze the adequacy of
statutory reserves. Our appointed actuaries must submit opinions annually for our insurance companies that policyholder and
claim reserves are adequate.
Risk-Based Capital and Solvency Requirements. The NAIC has a formula for analyzing capital levels of insurance companies
called Risk-Based Capital (“RBC”). The RBC formula has minimum capital thresholds that vary with the size and mix of a
company’s business and assets. It is designed to identify companies with capital levels that may require regulatory attention. At
December 31, 2020, each of our insurance company subsidiaries exceeded the minimum RBC requirements.
Own Risk and Solvency Assessment ("ORSA"). ORSA requires insurers to maintain a framework for identifying, assessing,
monitoring, managing, and reporting on the “material and relevant risks” associated with the insurers' (or insurance groups')
current and future business plans. ORSA, which has been adopted by the state insurance regulators of our insurance companies,
requires companies to file an internal assessment of their solvency with insurance regulators annually. Although no specific
capital adequacy standard is currently articulated in ORSA, it is possible that such standard will be developed over time and
may increase insurers' minimum capital requirements, which could adversely impact our growth and return on equity.
Securities Regulation. The sale and administration of variable life insurance and variable annuities are subject to extensive
regulation at the federal and state level, including by the Securities and Exchange Commission (“SEC”) and the Financial
Industry Regulatory Authority (“FINRA”). Our variable annuity contracts and variable life insurance policies, other than group
unallocated, were issued through separate accounts that are registered with the SEC as investment companies under the
Investment Company Act of 1940. Each registered separate account is generally divided into sub-accounts, each of which
invests in an underlying mutual fund that is itself a registered investment company under such act. In addition, the variable
annuity contracts and variable life insurance policies issued by the separate accounts generally are registered with the SEC
under the Securities Act of 1933. The U.S. federal and state regulatory authorities and FINRA, from time to time, make
inquiries and conduct examinations regarding our compliance with securities and other laws and regulations.
In addition, our periodic reports and proxy statements to stockholders are subject to the requirements of the Securities Exchange
Act of 1934 and corresponding rules of the SEC, and our corporate governance processes are subject to regulation by the SEC
and the National Association of Securities Dealers Automated Quotations ("NASDAQ") Stock Market. Our registered
wholesale broker-dealer and registered investment adviser subsidiaries are subject to regulation and supervision by the SEC,
FINRA and, in some cases, state securities administrators.
Suitability. FINRA rules require broker-dealers selling variable insurance products to determine that transactions in such
products are “suitable” to the circumstances of the particular customer. In addition, most states have enacted the NAIC’s
Suitability in Annuity Transactions Model Regulation that, in adopting states, places suitability responsibilities on insurance
companies in the sale of fixed and indexed annuities, including responsibilities for training agents. The NAIC has adopted
revisions to this model regulation that would further elevate the standard of care for annuity sales and align it with the SEC's
new Regulation Best Interest. Three states have adopted the revised model regulation, and several other states have proposed
adoption. We anticipate that the revised model will be adopted in some form by many of the states in which we do business.
New York has already taken further action, through the adoption by the New York Department of Financial Services
("NYDFS") of a regulation that requires in part that life insurance policies and annuity contracts delivered or issued for delivery
in New York be in the best interest of the consumer.
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ITEM 1. BUSINESS — (Continued)
Protection of Consumer Information. U.S. federal laws, such as the Gramm-Leach-Bliley Act, and the laws of some states
regulate disclosures of certain customer information and require us to protect the security and confidentiality of such
information. Such laws also require us to notify customers about our policies and practices relating to the collection, protection
and disclosure of confidential customer information. State and federal laws, such as the federal Health Insurance Portability and
Accountability Act ("HIPAA"), regulate our use, protection, and disclosure of certain personal health information. In addition,
most states have laws or regulations that require us to notify regulators and affected customers in the event of a data breach, and
some of these laws and regulations are becoming more stringent by requiring faster notifications and creating private causes of
action for violations.
On June 28, 2018, California enacted a sweeping new privacy law known as the California Consumer Privacy Act of 2018
(“CCPA”). The CCPA requires enhanced customer disclosure about how a business collects and uses personal data, how such
data is used in business processes, and with and to whom customer data is shared or sold. In addition, the CCPA also affords a
consumer a “right to request deletion” in certain circumstances. On August 31, 2018, the California State Legislature passed
SB-1121, a bill that delayed enforcement of the CCPA until July 1, 2020, and made other amendments and clarifications to the
law. Such clarifications include exempting from certain requirements of the CCPA information that is collected, processed, sold
or disclosed pursuant to the California Financial Information Privacy Act, the federal Gramm-Leach-Bliley Act, the federal Fair
Credit Reporting Act ("FCRA"), HIPAA, or the federal Driver’s Privacy Protection Act. The revisions, however, do not exempt
such information from the CCPA’s private right of action provision in all instances. Additionally, the definition of “personal
information” in the CCPA is broad and may encompass other information that we maintain in our California business beyond
that excluded under the Gramm-Leach-Bliley Act, FCRA, HIPAA, the Driver’s Privacy Protection Act, or the California
Financial Information Privacy Act exemption. In addition, in November 2020, California enacted the Consumer Privacy Rights
Act, which is effective January 1, 2023 and grants new consumer rights regarding personal information and strengthens certain
provisions of the CCPA.
We anticipate further efforts at the federal and state levels to strengthen the protection of consumer information, and such
efforts will continue to have a significant impact on our information practices.
In addition, FCRA is a federal law that governs the use and sharing of consumer credit information provided by a consumer
reporting agency. Requirements under FCRA apply to an insurer if such insurer obtains and uses consumer credit information
to underwrite insurance. Such requirements may include obtaining the consumer’s consent and providing various notices to the
consumer. While the use of consumer credit information in the underwriting process is expressly authorized by FCRA, various
states have issued regulations that limit or prohibit the use of consumer credit information by insurers, and some consumer
groups continue to criticize the use of credit-based insurance scoring in underwriting and rating processes. There may be
additional efforts at the federal or state level to regulate the use of credit-based information by insurers. Any such regulation
could force changes in our underwriting practices and impact our profitability.
Cybersecurity. In recent years, millions of consumers and businesses have been impacted by data breaches of companies in
various industries, increasing the regulatory focus on consumer information protection and data privacy. With the August 28,
2017, effectiveness of new regulations applicable to certain financial institutions, New York became the first state to adopt
minimum cybersecurity standards. Other states have followed by adopting the NAIC's Data Security Model Law, which is
patterned after the New York regulation. The NYDFS requires financial institutions authorized to do business under New York
banking, insurance, or other financial services laws, including certain of our subsidiaries, to develop a cybersecurity program
and policy based on an assessment of the institution’s cybersecurity risks, designate a Chief Information Security Officer,
maintain written policies and procedures with respect to third-party service providers, limit who has access to data or systems,
use qualified cybersecurity personnel to manage cybersecurity risks, notify the NYDFS of a cybersecurity event within seventy-
two hours, maintain a written incident response plan, and provide the NYDFS with an annual certification of compliance.
In addition, the NAIC has adopted the Cybersecurity Bill of Rights, a set of directives aimed at protecting consumer data, and
the Insurance Data Security Model Law. The data security model law establishes standards for data security in the insurance
industry, including standards for investigating a data breach and requiring certain notifications to regulators, producers and
consumers. South Carolina became the first state to adopt the data security model law in May 2018. Several other states have
adopted or are considering adopting this model law or versions thereof. As explained above, it is not mandatory for insurers to
comply with an NAIC model law, nor for states to adopt a model law; however, state and federal legislators and regulators are
likely to look to the model law, as well as the NYDFS regulation, for guidance in proposing new legislation and regulation. The
NAIC model law could also become a standard to which insurance companies are held accountable in decisions on whether to
bring enforcement actions. The NAIC has also strengthened and enhanced the cybersecurity guidance included in its handbook
for state insurance examiners. We expect a continuing focus at the state and federal levels on the privacy and security of
personal information.
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ITEM 1. BUSINESS — (Continued)
Anti-Money Laundering. Federal law and regulation requires us to take certain steps to help prevent and detect money
laundering activities. The USA PATRIOT Act of 2001 contains anti-money laundering and financial transparency requirements
applicable to certain financial services companies, including insurance companies. The Bank Secrecy Act requires insurers to
implement a risk-based compliance program to detect, deter and (in some cases) report financial or other illicit crimes
including, but not limited to, money laundering and terrorist financing. The Office of Foreign Assets Control (“OFAC”), a
division of the U.S. Treasury Department, administers and enforces economic and trade sanctions. For certain transactions, an
insurer may be required to search policyholder, agent, vendor and employee databases for specially designated nationals or
suspected terrorists, in order to comply with OFAC obligations.
Healthcare Regulation. We are subject to various conditions and requirements of the Patient Protection and Affordable Care
Act of 2010 (the “Healthcare Act”). The Healthcare Act affects the small blocks of business we have offered or acquired over
the years that are, or are deemed to be, health insurance. The Healthcare Act also influences the design of products sold by our
Health segment, which may influence consumer acceptance of such products and the cost of monitoring compliance with the
Healthcare Act. Moreover, the Healthcare Act affects the benefit plans we sponsor for employees, retirees and their dependents,
our expense to provide such benefits, our tax liabilities in connection with the provision of such benefits, and our ability to
attract or retain employees. Any repeal, replacement or amendment of the Healthcare Act could have similar effects on us.
Additionally, on December 18, 2019, the Fifth Circuit Court of Appeals affirmed a district court finding that the Healthcare
Act’s individual mandate is unconstitutional but sent the case back to the district court to reconsider how much, if any, of the
remainder of the Healthcare Act should be invalidated. Several states, led by California, appealed the Fifth Circuit’s ruling to
the U.S. Supreme Court, which heard oral arguments regarding the case on November 10, 2020. A decision from the Supreme
Court regarding the constitutionality of the individual mandate and the Healthcare Act as a whole is expected during 2021. Such
litigation creates further uncertainty regarding the future of the Healthcare Act. We are unable to predict how these events will
ultimately be resolved and what the potential impact may be on the Healthcare Act and our business.
Environmental Considerations. As an owner and operator of real property, we are subject to extensive federal, state and local
environmental laws and regulations. Inherent in such ownership and operation is the risk that there may be potential
environmental liabilities and costs in connection with any required remediation of such properties. We routinely have
environmental assessments performed with respect to real estate being acquired for investment or through foreclosure, but we
cannot provide assurance that unexpected environmental liabilities will not arise. In addition, we hold equity interests in
companies that could potentially be subject to environmental liabilities. Based on information currently available to us,
management believes that any costs associated with compliance with environmental laws and regulations or any required
remediation will not have a material adverse effect on our business, results of operations or financial condition.
Other types of regulations that affect us include insurable interest laws, employee benefit plan laws, antitrust laws, employment
and labor laws, and federal and state tax laws. Failure to comply with federal and state laws and regulations may result in
censure; the issuance of cease-and-desist orders; reputational damage; suspension, termination or limitation of the activities of
our operations and/or our employees and agents; or the obligation to pay fines, penalties, assessments, interest, or additional
taxes and wages. In some cases, severe penalties may be imposed for breach of these laws. We cannot predict the impact of
these actions on our business, results of operations or financial condition.
Human Capital Resources
As of December 31, 2020, we employed approximately 4,600 employees in 45 states. Most employees work from one of our
four primary office locations in Galveston, Texas, Springfield, Missouri, League City, Texas, and Glenmont, New York. We do
have employees working remotely, primarily employees of our CSSD division, which has 57 district offices operating in 22
states. Approximately 1,000 of our employees are covered under a collective bargaining agreement, the majority of which are
within CSSD.
In addition to our employees, we have approximately 132,000 non-employee producers who are appointed by the Company to
market specific products and insurance solutions to the various markets we serve. These non-employee producers are
considered vital to our long-term success in the financial services industry, which is a human-capital intensive business. As
such, we support and monitor these relationships through our commitment to attracting, developing, and retaining producers
who are client focused and align with our company values.
During 2020, the Company’s total employee voluntary turnover was less than 8%. We believe that we have good relationships
with our employees. We consider our employees to be the foundation for our continued growth and success through
demonstration of our FIRST values and Code of Business Conduct and Ethics, which speak to who we are and define the
expectation for how we conduct ourselves.
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ITEM 1. BUSINESS — (Continued)
Diversity, Equity and Inclusion. American National is committed to fostering a culture that welcomes diverse talents and
perspectives and uses varied insights to make us better. We believe our company is strongest when each member of our team is
respected, treated fairly, and comfortable to be who they are in a professional environment. We value the creativity and vitality
that an inclusive workforce creates, and strive to embrace what makes each of us unique, including: race, ethnicity, culture,
sexual orientation, gender, religion, age, personal style, and physical ability, as well as diverse opinions, perspectives, lifestyles,
and ideas.
We have steadily increased our efforts in recent years to attract, retain, develop and promote qualified women, and diverse
candidates in our company. Females constitute approximately 60% of our workforce. The percentage of women in leadership
grew from 25% to 32% with an additional growth in supervisory positions from 55% to 56% in the past four years. Diversity in
officer positions grew from 6% to 10% and in leadership positions grew from 16% to 18% in the past four years.
Through our “ACE” (Agility, Collaboration and Engagement) culture efforts, we promote diverse discussion and value ideas
from all employees on how to work more effectively. Our corporate values drive who we are, which is directly related to the
high marks for ethics we received in our biannual employee survey managed through a third-party vendor.
Our Women’s Leadership Forum was created in 2018 for female leaders to discuss important issues and share advice for
working and advancing within American National. We were an early member of Texas Competes, which is a partnership of
business leaders that is welcoming to people in the LGBTQIA+ community.
In our recruiting, we strive to use a variety of opportunities and programs to reach a broader range of applicants and talented
individuals. Our talent acquisition team attends job fairs, provides internships, and visits with several colleges and universities,
including certain historically black institutions to find exceptional talent. We also participate in the U.S. Army Partnership for
Youth Success to help honorably discharged soldiers find a civilian career.
Compensation and Benefits. We invest in our employees’ development and well-being and place a focus on providing a
competitive total rewards package. Our total rewards package includes the following:
•
•
Base salaries that are consistent with position, skill level, experience, and location. Base salaries are reviewed annually
and may be increased based on performance;
Employees are eligible for health benefits, health savings/flexible spending accounts, paid and unpaid leaves –
including tenure based paid time off and floating holidays, a 401(k) plan that includes a 4% company match, company
paid life insurance and disability/accident coverage, and dental and vision insurance;
• We believe that our employees’ personal well-being and professional development is critical to our long-term success
as a company. We provide all employees with the opportunity for paid volunteer time, a strong Employee Assistance
Program (EAP) to support our team with a variety of topics impacting them, access to wellness coaching, health risk
assessments, access to and cost sharing for weight loss programs, as well as onsite fitness classes and gyms.
Development and Training. American National is committed to supporting the advancement of our employees through both
formal and informal learning opportunities, all of which are driven by our company goals, values, and culture initiatives.
Our leadership development program, Ascend, is targeted to our people leaders and currently consists of a series of 10 hybrid
(eLearning and virtual/classroom) courses designed to address and sharpen those skills that we believe engage and retain
employees.
Engagement. A biennial employee survey managed through a third-party vendor is used to capture the voice of our employees,
to provide current data on the level of employee engagement, and to identify strengths as well as opportunities for
improvement.
Employee Health and Welfare. During the COVID-19 pandemic, American National has devoted key resources to make
employee health and safety a top priority. These efforts are having a positive impact as reflected in recent employee
engagement survey results. As we proceed through the pandemic, we believe employee safety, productivity and retention are
vital to meeting important business goals and objectives. Refer to Management’s Discussion and Analysis of Financial
Condition and Results of Operations for additional discussion on management’s response to COVID-19.
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ITEM 1. BUSINESS — (Continued)
Succession Planning. Succession planning is part of a larger talent management process which feeds organizational strategy to
capitalize on the full potential of American National leaders. The talent management process touches on all key human resource
areas of the employee life cycle and is aimed at retaining and growing high potential leaders, increasing performance and
engagement, supporting internal mobility and future organizational structure.
Available Information
We file periodic and current reports, proxy statements and other information with the SEC. The SEC maintains a website
(www.sec.gov) that contains reports, proxy statements, and other information regarding issuers that file electronically with the
SEC, including us.
Our press releases, financial information and reports filed with the SEC (for example, Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those forms) are also available online at
www.americannational.com. The reference to our website does not constitute the incorporation by reference of information
contained at such website into this, or any other, report. Copies of any documents on our website are available without charge,
and reports filed with or furnished to the SEC will be available as soon as reasonably practicable after they are filed with or
furnished to the SEC.
ITEM 1A. RISK FACTORS
We are exposed to numerous risk factors that individually or in the aggregate could cause actual results to differ materially from
recent results or anticipated future results. The following discussion details the material risk factors to our Company. While our
enterprise risk management framework contains various strategies, processes, policies and procedures to address these risks and
uncertainties, we cannot be certain that these measures will be implemented successfully in all circumstances. In addition, we
could experience risks that we failed to identify, or risks of a magnitude greater than expected. Readers are advised to consider
all of these factors along with the other information included in this 2020 Annual Report, including the factors set forth under
the caption "Caution Regarding Forward-Looking Statements" in Part II, Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations and to consult any further disclosures we make on related subjects in our filings
with the SEC.
Economic and Investment Market Risk Factors
Our results of operations are materially affected by economic and political conditions in the U.S. and elsewhere. The
strength and sustainability of economic activity is inherently uncertain. Factors such as unemployment, workforce participation
levels, consumer prices, domestic political uncertainty and strife, geopolitical and international trade issues, energy prices,
stagnant or declining family incomes, consumer confidence and spending, and increased student and consumer debt can
adversely affect the economy and demand for our products. Unfavorable economic developments could adversely affect us if
our customers have less need for insurance coverage, cancel existing insurance policies, modify coverage, or choose not to
renew with us. Challenging economic conditions may impair the ability of our customers to pay premiums as they come due.
These risks are exacerbated by the ongoing COVID-19 pandemic.
Interest rates have a significant impact on our business and on consumer demand for our products. When interest rates rise, the
value of our investment portfolio may decline due to decreases in the fair value of our fixed maturity securities. In addition,
increasing rates on other insurance or investment products offered by competitors can lead to higher surrenders by our
customers at a time when fixed maturity investment asset values are lower. We may react to market conditions by increasing
crediting rates, which narrows our “spread,” or the difference between the amounts we earn on investments and the amount we
must pay under our contracts. Decreasing interest rates also can adversely affect our spreads, particularly with interest-sensitive
life insurance and fixed annuities. An environment of persistently low (or lower) interest rates, as in recent years, compounds
this spread compression. Further, when market interest rates decrease or remain at relatively low levels, prepayments and
redemptions affecting our investment securities and mortgage loan investments may increase as issuers and borrowers seek to
refinance at a lower rate. Proceeds from maturing, prepaid or sold bonds or mortgage loan investments may be reinvested at
lower yields, reducing our spread. Our ability to decrease product crediting rates in response may be limited by market and
competitive conditions and by regulatory or contractual minimum rate guarantees. While we use ALM processes to mitigate the
effect on our spreads of changes in interest rates, they may not be fully effective. See the Risk Management discussion in Part I,
Item 1, Business above and Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of
Operations — General Trends below for further details about interest rates and our ALM processes.
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ITEM 1A. RISK FACTORS — (Continued)
The low-interest rate environment is a challenge for life and annuity insurers as the spreads on deposit-type contracts
remain narrow, especially as interest rates have approached minimum crediting rates. Low market interest rates reduce
the spreads between the amounts we credit to fixed annuity and individual life policyholders and the amounts we earn on the
investments that support these obligations. Our ALM Committee actively manages the profitability of these in-force blocks of
business. In previous years, we reduced the guaranteed minimum crediting rates on new fixed annuity contracts, which has
afforded us the flexibility to respond to the unusually low-interest rate environment. We have also reduced crediting rates on in-
force contracts, where permitted to do so. These actions help mitigate the adverse impact of low interest rates on the
profitability of these products, although sales volume may be negatively impacted as a result. We also maintain assets with
various maturities to support product liabilities and ensure liquidity. A gradual increase in longer-term interest rates relative to
short-term rates generally will have a favorable effect on the profitability of our products. Rapidly rising interest rates could
result in reduced persistency of our spread-based products if contract holders shift assets into higher yielding investments. We
believe our ability to react quickly to the changing marketplace will help us manage this risk.
The interest rate environment affects estimated future profit projections, which could impact the amortization of our deferred
policy acquisition costs ("DAC") assets and the estimates of policyholder liabilities. Significantly lower future estimated profits
may cause us to accelerate the amortization of DAC or require us to establish additional policyholder liabilities, thereby
reducing earnings. We periodically review assumptions with respect to future earnings to ensure they remain appropriate
considering the current interest rate environment.
Low interest rates are also challenging for property and casualty insurers. Investment income is an important element in earning
an acceptable return on capital. Lower interest rates resulting in lower investment income require us to achieve better
underwriting results. We have adjusted policy prices to help mitigate the adverse impact of low interest rates on our property
and casualty business.
Fluctuations in the markets for fixed maturity securities, equity securities, and commercial real estate could adversely
affect our business. Investment returns are an important part of our profitability. Substantially all investments, including our
fixed maturity, equity, real estate, and mortgage loan investment portfolios, are subject to market and credit risks, including
market volatility and deterioration in the credit or prospects of companies or governmental entities in which we invest. We
could incur significant losses from such risks, particularly during extreme market events. The concentration of our investments
in any particular industry, group of related industries or government issuers, or geographic area can compound these risks.
Moreover, the Board of Governors of the Federal Reserve System may move further towards normalizing monetary policy from
the programs of recent years that have fostered a historically low interest rate environment. In addition to resulting in higher
interest rates, such a move may generate volatility in debt and equity markets.
In addition to negatively affecting investment returns, equity market downturns and volatility can have other adverse effects on
us. First, equity market downturns and volatility may discourage new purchases of our products that have returns linked to the
performance of the equity market and may cause some existing customers to withdraw cash values or reduce investments in
such products, in turn reducing our fee revenues. Second, the guarantees provided under certain products may cost more than
expected in volatile or declining equity market conditions, which could negatively affect our earnings. Third, our estimates of
liabilities and expenses for pension and other postretirement benefits incorporate assumptions regarding the rate used to
discount estimated future liabilities and the long-term rate of return on plan assets. Declines in the discount rate or the rate of
return on plan assets, both of which are influenced by potential investment returns, could increase our required cash
contributions or pension-related expenses in future periods.
Some of our investments are relatively illiquid. Investments in privately placed securities, mortgage loans, and real estate,
including real estate joint ventures and other equity interests, are relatively illiquid. If we suddenly require significant amounts
of cash in excess of ordinary cash requirements, it may be difficult or not possible to sell these investments in an orderly
manner for a favorable price.
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ITEM 1A. RISK FACTORS — (Continued)
Risk Factors Relating to Our Business and Industry
Major public health issues, such as the novel coronavirus COVID-19, could have an adverse impact on our business and
results of operations. We are closely monitoring developments related to the COVID-19 pandemic to assess its impact on our
business; however, due to the wide-ranging and highly uncertain nature of this event, it currently is not possible to estimate the
ultimate direct and indirect impact of COVID-19 on our business, results of operations, financial condition, or liquidity with
reasonable certainty. The COVID-19 pandemic has resulted in, and is expected to continue to result in, significant disruptions
in economic activity and financial markets. COVID-19 has impacted us, as discussed below and elsewhere in the report, and
COVID-19 or other major public health issues may further impact us in a number of ways.
As a result of COVID-19, we may face increased costs associated with claims under our life, health, and commercial property
and casualty insurance products. COVID-19 has directly and indirectly increased mortality. The cost of reinsurance to us for
these coverages has increased and could increase further, and we may encounter decreased availability of reinsurance. With
respect to our commercial property and casualty insurance business, reinsurers have excluded reinsurance coverage for losses
attributable to COVID-19 and other communicable diseases beginning January 1, 2021. Our commercial property and casualty
policies generally exclude coverage for losses attributable to communicable diseases. However, courts, legislatures or state
insurance regulators could invalidate or refuse to give effect to such exclusions, forcing us to extend coverage beyond our
policy language and underwriting intent. Without adequate reinsurance coverage available for such losses, the resulting impact
on our commercial property and casualty business could be significant. In particular, there is much litigation in the industry
regarding whether losses from business closures attributable to the COVID-19 pandemic are insured under the business
interruption coverages of many commercial property and casualty insurance policies. As of February 10, 2021, we have
received 318 business interruption claims related to COVID-19; one claim remains open, and the remainder have been closed
without payment based on applicable exclusions. See Part II, Item 7, Management’s Discussion and Analysis of Financial
Condition and Results of Operations for additional information regarding the impact of COVID-19.
Our investment portfolio has been and may continue to be adversely affected by market volatility, changes in interest rates,
reduced liquidity, deteriorating capacity of our mortgage loan borrowers to meet their obligations to us, possible declining
values of collateral securing our mortgage loan portfolio, and by a U.S. and global economic slowdown caused by the
COVID-19 pandemic and the uncertainty of its outcome. Extreme market volatility may leave us unable to react to market
events in a prudent manner consistent with our historical practices in dealing with more orderly markets. For additional
information regarding the impact of COVID-19 to mortgage loans, see Note 5, Mortgage Loans, of the Notes to the
Consolidated Financial Statements.
Our workforce, and the workforces of our vendors, service providers and counterparties, could be materially affected by
COVID-19, which could result in an adverse impact on our ability to conduct business. We are taking precautions to protect the
safety and well-being of our employees while striving to provide uninterrupted service to our policyholders and claimants.
Since the onset of the pandemic, we have continued to support our business operations. However, no assurance can be given
that these actions will be sufficient, nor can we predict the level of disruption that will occur to our employees' ability to
continue to provide customer support and service as many continue to work remotely. In addition, the increase in the number of
our employees working remotely has increased certain risks to our business, including increased demand on our information
technology resources and systems, greater potential for phishing and other cybersecurity attacks, and an increase in the number
of points of potential attack. Any failure to manage these risks effectively and to identify and respond to any cyberattacks on a
timely basis may adversely affect our business. Our internal controls over financial reporting could be adversely impacted by
the large number of our employees working remotely. New processes, procedures, and controls may be required to respond to
this change in our business environment. Further, should any key employees become ill from COVID-19 and unable to work,
our ability to operate our internal controls may be adversely impacted.
The efforts of governmental and non-governmental organizations in combating the spread and severity of COVID-19 or other
major public health issues may not be effective. Further, we cannot predict how legal and regulatory responses to concerns
about COVID-19 or other major public health issues, will impact our business. For example, state insurance regulators across
the country have restricted our ability to cancel certain policies for non-payment, which has impacted and will continue to
impact our cash flows from these policies. In addition, some state insurance regulators are restricting the introduction of new
communicable disease exclusions by property and casualty insurers.
The extent to which COVID-19 impacts our business, results of operations, financial condition, or liquidity will depend on
future developments which are highly uncertain and cannot be predicted, including new information which may emerge
concerning the severity of COVID-19 and the actions taken to contain or treat its impact.
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ITEM 1A. RISK FACTORS — (Continued)
Our actual experience could differ from our estimates and assumptions. Our product pricing includes long-term
assumptions such as investment returns, mortality, morbidity (the rate of incidence of illness), persistency (the rate at which
policies remain in-force), and operating expenses. Our profitability substantially depends on actual experience being consistent
with or better than these assumptions. If we fail to appropriately price our insured risks, or if claims experience is more severe
than we assumed, our earnings and financial condition may be negatively affected. Conversely, significantly overpriced risks
may negatively impact new business sales and retention of existing business.
Our loss reserves are estimates of amounts needed to pay and administer incurred claims and, as such, are inherently uncertain;
they do not and cannot represent exact measures of liability. Inflationary events, especially events outside of historical norms,
or regulatory changes that affect the assumptions underlying our estimates can cause variability. For example, increases in costs
for auto parts and repair services, construction costs, and commodities (whether as a result of market forces, tariffs or other
conditions or events) result in higher losses for property damage claims. Accordingly, our loss reserves could prove to be
inadequate to cover our actual losses and related expenses. See Part II, Item 7, Management’s Discussion and Analysis of
Financial Condition and Results of Operations — Critical Accounting Estimates — Reserves for additional information.
With respect to our investments, the determination of estimates for allowances and impairments varies by investment type and
is based upon our periodic evaluation of known and inherent risks associated with the respective asset class. Historical trends
and assumed changes may not be indicative of future impairments or allowances. See Note 2, Summary of Significant
Accounting Policies and Practices, of the Notes to the Consolidated Financial Statements for further description of our
evaluation of impairments.
Assumptions regarding the future realization of deferred tax assets are dependent upon estimating the generation of sufficient
future taxable income, including capital gains. If future events differ from our current forecasts and it is determined that
deferred tax assets cannot be realized, a deferred tax valuation allowance must be established, with a charge to tax expense.
Interest rate fluctuations and other events may require us to accelerate the amortization of DAC. When interest rates rise,
life and annuity surrenders and withdrawals may increase as policyholders seek to buy products with higher or perceived higher
returns, impacting estimates of future profits. Significantly lower future profits may cause us to accelerate DAC amortization,
and such acceleration could adversely affect our results of operations to the extent such amortization exceeds any surrender or
other charges earned as income upon surrender and withdrawal. See also Part II, Item 7, Management’s Discussion and
Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates, and Part II, Item 8, Financial
Statements and Supplementary Data — Note 2, Summary of Significant Accounting Policies and Practices, and Note 10,
Deferred Policy Acquisition Costs, of the Notes to the Consolidated Financial Statements for additional information.
Our business operations depend on our ability to appropriately distribute, execute and administer our policies and
claims. Our primary business is writing and servicing life, annuity, property and casualty, and health insurance for individuals,
families and businesses. Any problems or discrepancies that arise in our pricing, underwriting, billing, processing, claims
handling or other practices, whether as a result of employee error, vendor error, or technological problems, could have a
negative effect on operations and reputation, particularly if such problems or discrepancies are replicated through multiple
policies.
Our financial strength ratings could be downgraded. Various Nationally Recognized Statistical Rating Organizations
(“NRSROs”) publish financial strength ratings as their opinion of an insurance company’s creditworthiness and ability to meet
policyholder and contractholder obligations. As with other rated companies, our ratings could be downgraded at any time and
without any notice by any NRSRO. A downgrade or an announced potential downgrade of our financial strength ratings could
have multiple adverse effects on us including:
•
•
•
•
reducing new sales of insurance and annuity products or increasing the number or amount of surrenders and
withdrawals;
affecting our relationships with our sales force, independent sales intermediaries, and credit counterparties;
requiring us to offer higher crediting rates or greater policyholder guarantees on our insurance products in order to
remain competitive; and
affecting our ability to obtain reinsurance at reasonable prices.
It is likely that the NRSROs will continue to apply a high level of scrutiny to financial institutions, including us and our
competitors, and may adjust the capital, risk management and other requirements employed in the NRSRO models for
maintenance of certain ratings levels.
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ITEM 1A. RISK FACTORS — (Continued)
Advances in medical technology may adversely affect our business. Genetic testing and diagnostic imaging technology is
advancing rapidly. Increases in the prevalence, availability (particularly in the case of direct to consumer genetic testing) and
accuracy of such testing may increase our adverse selection risk, as people who learn that they are predisposed to certain
medical conditions associated with reduced life expectancy may be more likely to purchase and maintain life insurance.
Conversely, people who learn that they lack genetic predisposition to conditions associated with reduced life expectancy may
forego the purchase of life insurance, or permit existing policies to lapse, and may be more likely to purchase certain annuity
products. Our access to and ability to use medical information, including the results of genetic and diagnostic testing, that is
known to our prospective policyholders is important to our underwriting of life insurance and annuities. Some states restrict
insurers’ access and use of genetic information, and similar additional regulations and legislation may be adopted. Such
regulation and legislation likely would exacerbate adverse risk selection related to genetic and diagnostic testing.
In addition to earlier diagnosis and knowledge of disease risk, medical advances may increase overall health and longevity. If
this were to occur, the duration of payments made under certain of our annuity products would be extended beyond our
actuarial assumptions, reducing the profitability of such business. This may require us to modify our assumptions, models or
reserves.
Information Technology Risk Factors
We may be unable to maintain the availability and performance of our systems and to safeguard our data and our
customers' confidential information and privacy. We rely on the availability, reliability, and security of internet
technologies, our internal networks, information-processing infrastructure, system platforms, business applications and third-
party providers (collectively “systems”) to operate our businesses. We use these systems to receive, store, process, retrieve,
calculate and evaluate customer and company information, including to provide insurance quotes, process premium payments,
administer our products, provide customer support, process claims and make changes to existing policies, among many other
functions. We also rely on systems for investment management, financial reporting and data analysis to support our
policyholder reserves and other actuarial estimates.
We have strategies and processes to secure, maintain and enhance our existing internal networks, technology and processing
infrastructure and our information systems, including updating or replacing certain information systems to keep pace with
advancing technology, changing customer preferences and expectations, and increasingly stringent industry and regulatory
standards. However, despite these efforts, we still may experience system failures, extended unavailability or other outages, or
damage or destruction to internal or external networks or systems, whether caused by intentional or unintentional acts or events,
as well as difficulties arising from the implementation of system-security vulnerability patches, third-party system upgrades,
and new systems and technologies, any of which could compromise our ability to perform critical functions on a timely basis.
For instance, if these systems were inaccessible or inoperable, or if they fail to function properly, the resulting disruptions may
impede or interrupt our business operations, cause misstated or unreliable financial data, or impact the effectiveness of our
internal controls over financial reporting.
In certain lines of our business, our information technology and telecommunication systems interface with and rely upon third-
party services, over which we have no direct control, including providers of computing infrastructure platforms or externally
hosted systems commonly known as the “cloud.” We are highly dependent on our ability to access these external services for
necessary business functions, such as acquiring new business, managing existing business, paying claims, and ensuring timely
and accurate financial reporting. If we do not effectively develop, implement and monitor these relationships, if third-party
providers do not perform as anticipated, if technological or other problems are incurred with a transition, or if outsourcing
relationships relevant to our business process functions are terminated or otherwise interrupted, we may not realize expected
productivity improvements or cost-efficiencies, and we may experience operational difficulties, increased costs and a loss of
business.
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ITEM 1A. RISK FACTORS — (Continued)
We receive and transmit legally protected information with and among customers, agents, financial institutions and selected
third-party vendors and service providers, including personally identifiable information and non-public information. We have
invested significant time and resources towards preventing and mitigating the risks associated with unauthorized access to this
data through security penetration and vulnerability assessments, vulnerability patching processes and several layers of data
intrusion and detection protection technologies, designs and authentication capabilities. However, because the techniques used
to obtain unauthorized access, disable or degrade service, deposit ransomware or sabotage systems constantly evolve and may
be difficult to detect for long periods of time, we may be unable to implement adequate preventive measures. In addition,
hardware, software or applications we develop or procure from third parties may contain vulnerability defects in design or
manufacture or other problems that could unexpectedly compromise information security or access thereto. Consequently, our
cybersecurity efforts may not be effective against all security threats and breach attempts in light of increasingly complex and
advanced persistent threat techniques and the evolving sophistication of individual and nation state-sponsored cyber-attacks. A
breach, whether from external or internal sources, or from the theft or loss of equipment, can result in access, viewing,
misappropriation, altering or deleting information in our or a third-party’s systems on which we rely, including customers’,
agents’ and employees’ sensitive personal and financial information and our proprietary business information.
Like other companies, we have experienced threats to our data and systems through phishing campaigns, malware, ransomware
and other fraudulent and deceptive activities, and we have experienced certain incidents of unauthorized access to our data and
systems. In addition, spoofing attacks have been carried out by individuals impersonating customers, which have resulted in
unauthorized withdrawals from a limited number of customer accounts. Such withdrawals have been refunded by us, and we
believe we have implemented appropriate business process changes to help mitigate the impact of any future attacks. We have
also implemented technology to further assist in the identification of these bad actors. These various threats, attacks and
incidents that have occurred to date have not been material to our operations and are not expected to be material to our
operations based on information presently known to management. However, any significant attacks, unauthorized access or
disclosures, disruptions or other security breaches, whether affecting us or third parties, could result in substantial business
disruption and consequences, including without limitation, costs of repairing or replacing systems, increased security costs,
costs of customer notifications and credit monitoring services, lost revenues, litigation, regulatory action, fines and penalties,
and harm to customer and producer confidence and our reputation. While we have purchased cybersecurity risk insurance and
intend to assess the adequacy of this insurance annually, this insurance may not be sufficient in scope or amount to cover all of
our losses from breaches of our data.
Our failure to complete and implement technology initiatives in a timely manner could result in the loss of business and
incurrence of software development costs that may not be recoverable. Data and analytics play an increasingly important
role in the insurance industry. We may initiate multi-year technology projects from time to time to enhance operations or
replace aging systems. While technology developments can enhance the utility and value of data and analytics, streamline
business processes and ultimately reduce the cost of operations, technology initiatives can also present significant economic and
organizational challenges, short-term costs and implementation risks. In addition, projections of expenses and implementation
schedules could change materially and costs could escalate over time, while the ultimate utility of a technology initiative could
deteriorate over time.
Due to the highly-regulated nature of the insurance industry, we also face increasing costs and competing time constraints in
adapting technology to meet compliance requirements of new and proposed regulations. The costs to develop and implement
systems to replace our aging systems and to comply with new regulatory requirements as needed over time are expected to be
significant. Due to the complexities involved, there can be no assurances that new multi-year projects will be successful and
that the costs incurred to develop and implement replacement systems will be recoverable. Furthermore, failure to implement
replacement systems in a timely manner could result in loss of business from our delay or inability to design and introduce new
insurance products that meet emerging consumer needs and competitive trends.
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ITEM 1A. RISK FACTORS — (Continued)
Catastrophic Event Risk Factors
We may incur significant losses resulting from catastrophic events. Our property and casualty operations are exposed to
catastrophes caused by natural events, such as hurricanes, tornadoes, wildfires, droughts, earthquakes, snow, hail and
windstorms, and manmade events, such as terrorism, riots, explosions, hazardous material releases, and utility outages. Our life
and health insurance operations are exposed to the risk of catastrophic mortality or illness, such as a pandemic, an outbreak of
an easily communicable disease, or another event that causes a large number of deaths or high morbidity. Our investment
operations are exposed to catastrophes as a result of direct investments and mortgages related to real estate. Our operating
results may vary significantly from one period to the next since the likelihood, timing, severity, number or type of catastrophe
events cannot be accurately predicted. Our losses in connection with catastrophic events are primarily a function of the severity
of the event and the amount of our exposure in the affected area.
Climate change may adversely impact our results of operations. There are concerns that the increased frequency and
severity of weather-related catastrophes and other losses, such as wildfires, incurred by the industry in recent years is indicative
of changing weather patterns, whether as a result of global climate change caused by human activities or otherwise, which could
cause such events to persist. Increased weather-related catastrophes would lead to higher overall losses, which we may not be
able to recoup, particularly in a highly regulated and competitive environment, and higher reinsurance costs. Certain catastrophe
models assume an increase in frequency and severity of certain weather or other events, which could result in a disproportionate
impact on insurers with certain geographic concentrations of risk. This would also likely increase the risks of writing property
insurance in coastal areas or areas susceptible to wildfires or flooding, particularly in jurisdictions that restrict pricing and
underwriting flexibility. The threat of rising seas or other catastrophe losses as a result of climate change may also cause
property values in coastal or such other communities to decrease, reducing the total amount of insurance coverage that is
required.
In addition, climate change could have an impact on assets in which we invest, resulting in realized and unrealized losses in
future periods that could have a material adverse impact on our results of operations and/or financial position. It is not possible
to foresee which, if any, assets, industries or markets will be materially and adversely affected, nor is it possible to foresee the
magnitude of such effect. Moreover, we cannot predict how legal, regulatory and social responses to concerns about global
climate change will impact our business or the value of our investments.
Marketplace Risk Factors
Our future results are dependent in part on successfully operating in insurance and annuity industries that are highly
competitive with regard to customers, employees and producers. Strong competition for customers has led to increased
marketing and advertising by our competitors, many of whom have well-established national reputations and greater financial
and marketing resources, as well as the introduction of new insurance products and aggressive pricing. These competitive
pressures could result in increased pricing pressures on a number of our products and services, particularly as competitors seek
to win market share, and may limit our ability to maintain or increase our profitability. Because of its relatively low cost of
entry, the Internet has emerged as a significant place of new competition, both from existing competitors and new
competitors. In addition, product development and life-cycles have shortened in many product segments, leading to intense
competition with respect to product features.
We compete for customers’ funds with a variety of investment products offered by financial services companies other than
insurance companies, such as banks, investment advisors, mutual fund companies and other financial institutions. Moreover,
customer expectations are evolving as technology advances and consumers become accustomed to enjoying tailored, easy to-
use-services and products from various industries. This is reshaping and raising consumer expectations when dealing with
insurance. We are addressing these changing consumer expectations by investing in technology with a particular focus on
consumer-facing sales and service platforms, by internally promoting a strategically-focused innovative culture initiative, and
by creating internal forums to drive next generation solutions based on consumer insights. However, if we cannot effectively
respond to increased competition and such increased consumer expectations, we may not be able to grow our business or we
may lose market share.
We compete with other insurers for producers primarily on the basis of our financial position, reputation, stable ownership,
support services, compensation, product features and pricing. We may be unable to compete for producers with insurers that
adopt more aggressive pricing or compensation, that offer a broader array of products or packages of products, or that have
extensive promotional and advertising campaigns. Attracting qualified individuals and retaining existing employees continues
to be a challenge for employers. Businesses have become extremely competitive in the ever-changing landscape of the talent
marketplace. As a result, it is an increasing challenge to distinguish us as an employer of choice.
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ITEM 1A. RISK FACTORS — (Continued)
Our supplemental health business could be negatively affected by alternative healthcare providers or changes in federal
healthcare policy. Our Medicare Supplement business is impacted by market trends in the senior-aged healthcare industry that
provide alternatives to traditional Medicare such as HMO and other managed care or private plans. The success of these
alternative healthcare solutions for seniors could negatively affect the sales and premium growth of traditional Medicare
Supplement and impact our ability to offer such products. Additionally, other supplemental products in our portfolio, including
Short-Term Care and Limited Benefit plans could be impacted by future federal and state legislation. These products are
excluded from coverage requirements in the Healthcare Act. They are designed to fill the niche for consumers unable to get full
coverage at any given time. State and federal legislation, either through Congress or the U.S. Department of Health & Human
Services ("HHS"), could impact marketing by enacting laws and regulations restricting these products in the market. Changes to
healthcare policy could limit the ability to renew/rewrite, impose limitations on the length of coverage periods or limit benefit
amounts available in plans.
Litigation and Regulation Risk Factors
Litigation may result in significant financial losses and harm our reputation. Plaintiffs have brought and may bring
lawsuits, including class actions, against us relating to, among other things, sales or underwriting practices, alleged agent
misconduct, product design, product disclosure, product administration, fees charged, denial or delay claims and benefits,
product suitability, claims-handling practices (including the permitted use of aftermarket, non-original equipment manufacturer
auto parts), loss valuation methodology, refund practices, employment and producer contracting matters, and breaches of duties
to customers. Plaintiffs may seek very large or indeterminate amounts, including punitive and treble damages, and our
reputation could be harmed. The damages claimed and the amount of any probable and estimable liability, if any, may remain
unknown for substantial periods of time. Even when successful in the defense of such actions, we incur significant attorneys’
fees, direct litigation costs and substantial amounts of management time that otherwise would be devoted to our business.
We are subject to extensive regulation, and potential further regulation may increase our operating costs, restrict our
ability to innovate and limit our growth. We are subject to extensive insurance laws and regulations that affect nearly every
aspect of our business. We are also subject to additional laws and regulations administered and enforced by a number of
different governmental authorities, such as state securities and workforce regulators, the SEC, the Internal Revenue Service
(“IRS”), FINRA, the U.S. Department of Justice, the U.S. Department of Labor (“DOL”), the U.S. Department of Housing and
Urban Development (“HUD”), HHS, the Federal Trade Commission and state attorneys general, each of which exercises a
degree of interpretive latitude. We face the risk that any particular regulator’s or enforcement authority’s interpretation of a
legal issue may conflict with that of another regulator or enforcement authority or may change over time to our detriment.
Regulatory investigations and examinations, which can be broad and unpredictable, may raise issues not identified previously
and could result in new legal actions against us and industry-wide regulations that could adversely affect us. Further, we are
experiencing increasing information requests from regulators without corresponding direct regulation being applicable to us, on
issues such as climate change, diversity and our investments in certain companies or industries. Responding to such requests
adds to our compliance burden.
The laws and regulations applicable to us are complex and subject to change, and compliance is time consuming and personnel-
intensive. Changes in these laws and regulations, or interpretations by courts or regulators, may materially increase our costs of
doing business and may result in changes to our practices that may limit our ability to grow and improve our profitability.
Regulatory developments or actions against us could have material adverse financial effects and could harm our reputation.
Among other things, we could be fined, prohibited from engaging in some or all of our business activities, or made subject to
limitations or conditions on our business activities.
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ITEM 1A. RISK FACTORS — (Continued)
As insurance industry practices and legal, judicial, social, and other conditions outside of our control change, unexpected issues
related to claims and coverage may emerge. These changes may include modifications to long established business practices or
policy interpretations, which may adversely affect us by extending coverage beyond our underwriting intent or by increasing
the type, number, or size of claims. For example, in January 2019, the NYDFS issued Circular Letter No. 1, in which the
department set out its views concerning the use of external consumer data sources in the underwriting of life insurance. The
NYDFS contends that external data sources can be unreliable and that many are not subject to regulatory oversight. Circular
Letter No. 1 further highlights two particular areas of immediate concern for the NYDFS involving the use of external data
sources by life insurers. First, the department states that the use of external data sources has a significant potential to negatively
impact protected classes of consumers in violation of state and federal anti-discrimination laws, and that insurers should not use
an external data source unless the insurer can prove that such source does not violate anti-discrimination laws. Second, the
NYDFS contends that an insurer’s use of external data sources is often accompanied by a lack of transparency to consumers,
which may implicate unfair trade practice law. Such guidance, or similar guidance adopted by other states, may significantly
hinder our use of technological and innovative advances to underwrite and price life insurance accurately. This guidance may
also deter the use of what is commonly called “big data” in the underwriting of property and casualty insurance. Moreover, in
response to the demonstrations and social unrest that occurred this past summer, the NAIC formed a committee on race and
insurance and is focused on underwriting practices that may be unintentional proxy for discrimination. There is a great deal of
uncertainty whether traditional underwriting criteria will be restricted by new state laws or regulations.
Federal regulatory changes and initiatives have a growing impact on us. For example, certain federal regulation may impact our
property and casualty operations. In 2013, under the Obama Administration, HUD finalized a regulation under the Fair Housing
Act that applies to home lenders, landlords and other housing providers. Such regulation prohibits lending and housing
practices having a disparate impact against protected classes, even if there is no intent to discriminate. Various legal challenges
to this regulation were pursued, culminating in a decision of the U.S. Supreme Court in 2015 generally viewed as favorable to
the regulation. More recently, the Trump Administration sought delay and reconsideration of the 2013 regulation. In September
2020, HUD adopted a regulation that substantially revises the 2013 regulation making it more difficult for plaintiffs to bring
disparate impact claims under the Fair Housing Act. Nevertheless, there is still concern among property and casualty insurers
that the revised regulation could be applied in a manner that adversely impacts price differentiation for homeowners’ policies
using traditional risk selection analysis. Further, it is uncertain to what extent the regulation may impact property and casualty
industry underwriting practices, particularly given the potential for further changes to the regulation under the Biden
Administration. The regulation, whether or not further revised, could increase litigation costs, force changes in underwriting
practices, and impair our ability to write homeowners business profitably. In addition, Congress or states may enact legislation
affecting insurers’ ability to use credit-based insurance scores as part of the property and casualty underwriting or rating
process, which could force changes in underwriting practices and impair our property and casualty operations’ ability to write
homeowners business profitably.
There have been federal efforts to change the standards of care applicable to broker-dealers and investment advisers. We have
previously reported that in April 2016, under the Obama Administration, the U.S. Department of Labor (“DOL”) issued a
regulation that significantly expanded the range of activities considered to be fiduciary investment advice under the Employee
Retirement and Income Security Act of 1974 ("ERISA") and the Internal Revenue Code of 1986 (the “fiduciary rule”). The
fiduciary rule would have applied ERISA’s fiduciary standard to many insurance agents, broker-dealers, advisers and others not
previously subject to the standard when they sell annuities to IRA’s and qualified retirement plans. The fiduciary rule ultimately
was vacated on June 21, 2018, by the U.S. Court of Appeals for the Fifth Circuit ending the rule's effectiveness. In response to
this ruling, in June 2020, the DOL took administrative action that generally reinstates the regulatory text existing before the
2016 fiduciary rule was enacted. Nevertheless, there are indications that the DOL may propose an alternative fiduciary rule
under the Biden Administration.
In addition, the SEC adopted "Regulation Best Interest," which was effective June 1, 2020 and addresses the standards of care
applicable to broker-dealers and investment advisers. Regulation Best Interest requires a broker-dealer to act in the best interest
of a retail customer when making a recommendation of any securities transaction or investment strategy involving securities.
The rule also requires broker-dealers and investment advisers to provide retail customers a Client Relationship Summary
(“Form CRS”) to disclose certain information about the nature of the customer’s relationship with their investment professional,
including fees and costs associated with services and conflicts of interest the firm may have.
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ITEM 1A. RISK FACTORS — (Continued)
There have also been state efforts to change the standards of care applicable to broker-dealers, investment advisers and
insurance producers, including through the NAIC's Suitability in Annuity Transactions Model Regulation and the “Suitability
and Best Interests in Life Insurance and Annuity Transactions” regulation adopted by the NYDFS. The NAIC model regulation
places suitability responsibilities on insurance companies in the sale of fixed and indexed annuities, including responsibilities
for training agents. The NAIC recently has adopted revisions to this model regulation that would further elevate the standard of
care for annuity sales and harmonize it with the SEC's new Regulation Best Interest. We anticipate that the revised model will
be adopted in some form by many of the states in which we do business. The NYDFS regulation addresses the duties and
obligations of insurers and their producers and provides that any transactions with respect to life insurance policies and annuity
contracts delivered or issued for delivery in New York must be in the best interest of the consumer and appropriately address
the insurance needs and financial objectives of the consumer at the time of the transaction. It further requires that any
recommendation must be based on an evaluation of the suitability information of the consumer and reflect the care, skill,
prudence and diligence that a prudent person acting in a like capacity and familiar with such matters would use under the
prevailing circumstances. Further, a producer’s compensation and other incentives must not influence his or her
recommendations. The New York regulation became effective for annuity products on August 1, 2019 and for life insurance
products on February 1, 2020.
All or any of the above-described federal and state efforts to address the standards of care applicable to broker-dealers,
investment advisers and insurance producers could materially affect how our life insurance and annuity products are designed,
marketed and serviced. We may find it necessary to change our producer compensation practices, limit the assistance producers
can provide to contract owners, replace or engage additional producers, or otherwise change how we design and support sales
of our annuities. Any of these regulatory or legislative measures, or judicial rulings regarding the same, or consumer and
producer reaction to such measures, could have a material adverse impact on our ability to sell annuities and certain other
products and to retain in-force business.
Lastly, international standards continue to emerge in response to the globalization of the insurance industry and evolving
standards of regulation, privacy, solvency measurement and risk management. Any international conventions or mandates that
directly or indirectly impact or influence the nature of U.S. regulation or industry operations could negatively affect us.
For further discussions of the kinds of regulation applicable to us, see Part I, Item 1, Business, Regulations Applicable to Our
Business section.
Changes in tax laws could adversely affect our business. Under current U.S. federal and state income tax laws, certain
products we offer, primarily life insurance and annuities, receive tax treatment designed to encourage consumers to purchase
these products. This treatment may encourage some consumers to select our products over non-insurance products. The U.S.
Congress from time to time may consider legislation that would change the taxation of insurance products and/or reduce the
taxation of competing products. Such legislation, if adopted, could materially change consumer behavior, which may harm our
ability to sell such products and result in the surrender of some existing contracts and policies. In addition, changes in the U.S.
federal and state estate tax laws could negatively affect the demand for the types of life insurance used in estate planning.
Uncertainty regarding the tax structure in the future may also cause some current or future purchasers to delay or indefinitely
postpone the purchase of products we offer.
New accounting rules or changes to existing accounting rules could negatively impact our business. We are required to
comply with GAAP. A number of organizations are instrumental in the development and interpretation of GAAP, such as the
SEC, the Financial Accounting Standards Board (“FASB”), and the American Institute of Certified Public Accountants. GAAP
is subject to review by these organizations and others and is, therefore, subject to change in ways that could change the current
accounting treatments we apply.
We also must comply with Statutory Accounting Principles (“SAP”) in our insurance operations. SAP and various components
of SAP (such as actuarial reserving methodology) are subject to review by the NAIC and its taskforces and committees, as well
as state insurance departments.
Future changes to GAAP or SAP could impact our product profitability, reserve and capital requirements, financial condition or
results of operations. See Note 3, Recently Issued Accounting Pronouncements, of the Notes to the Consolidated Financial
Statements for a detailed discussion regarding the impact of the recently issued accounting pronouncements and the future
adoption of new accounting standards on the Company.
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ITEM 1A. RISK FACTORS — (Continued)
Reinsurance and Counterparty Risk Factors
Reinsurance may not be available, affordable, adequate or collectible to protect us against losses. As part of our risk
management strategy, we purchase reinsurance for certain risks that we underwrite. Market conditions, catastrophes, significant
public health events (such as the COVID-19 pandemic) and geo-political events beyond our control, including the continued
threat of terrorism, influence the availability and cost of reinsurance for new business. In certain circumstances, the price of
existing reinsurance contracts may also increase. Reinsurance does not relieve us of our direct liability to our policyholders,
even when the reinsurer is liable to us. Our reinsurers may not pay the reinsurance recoverables owed to us or they may not pay
these balances on a timely basis.
The counterparties to derivative instruments we use to hedge our business risks could default or fail to perform. We
enter into derivative contracts, such as options, with a number of counterparties to hedge various business risks. If our
counterparties fail or refuse to honor their obligations, our economic hedges of the related risks will be ineffective. Such
counterparty failures could have a material adverse effect on us. See Note 7, Derivative Instruments, of the Notes to the
Consolidated Financial Statements for additional details.
Risk Factors Relating to Our Corporate Structure and Ownership of Our Common Stock
We depend on dividends from our operating subsidiaries to pay dividends to our stockholders. The amount of dividends
paid by our insurance subsidiaries is limited by law. ANAT is a Delaware holding company with no business operations of
its own. Its only significant assets are the capital stock of its subsidiaries. As a result, ANAT relies on funds from its current
subsidiaries and any subsidiaries that it may form or acquire in the future to pay dividends to stockholders and to meet its
obligations.
The amount of dividends that ANAT’s insurance company subsidiaries can pay is restricted under applicable insurance law and
regulations. These restrictions are based, in part, on the prior year’s statutory income and surplus. In general, dividends up to
specified levels are considered ordinary and may be paid without prior regulatory approval. Dividends in larger amounts, or
extraordinary dividends, are subject to approval by the insurance commissioner of the relevant state of domicile. For example,
restrictions applicable to Texas-domiciled life insurance companies like ANICO limit the payment of dividends to the greater of
the prior year’s statutory net income from operations, or 10% of prior year statutory surplus, in each case determined in
accordance with statutory accounting principles.
From time to time, the NAIC has considered, and may in the future consider, proposals to further limit dividend payments that
an insurance company may make without regulatory approval. No assurance is given that more stringent restrictions will not be
adopted from time to time by the State of Texas or other states in which our insurance subsidiaries are domiciled, and such
restrictions could have the effect, under certain circumstances, of significantly reducing dividends or other amounts payable to
ANAT by its insurance company subsidiaries without prior approval from regulatory authorities.
We are controlled by a small number of stockholders. As of December 31, 2020, the Moody Foundation, a charitable trust,
beneficially owned approximately 22.75% of our common stock. In addition, Moody National Bank, in its capacity as trustee or
agent of various accounts, had the power to vote approximately 47.67% of our common stock as of such date. As a result,
subject to applicable legal and regulatory requirements, these institutions have the ability to exercise a controlling influence
over matters submitted for stockholder approval, including the composition of our Board of Directors, and through the Board of
Directors any determination with respect to our business direction and policies. This concentration of voting power could deter
a change of control or other business combination that might be beneficial or preferable to other stockholders. It may also
adversely affect the trading price of our common stock if controlling stockholders sell a significant number of shares or if
investors perceive disadvantages in owning stock in a company controlled by a small number of stockholders.
Anti-takeover provisions in our Certificate of Incorporation and Amended and Restated Bylaws (“Bylaws”) and under
Delaware law may delay or prevent a third-party from acquiring us, which could decrease the value of our common
stock. ANAT’s Certificate of Incorporation and Bylaws contain provisions that could make it more difficult for a third-party to
acquire us, even if such an acquisition may be beneficial to our stockholders. For example, such provisions authorize our Board
of Directors, without stockholder approval, to issue up to 5,000,000 shares of “blank check” preferred stock that could be issued
to increase the number of outstanding shares and prevent a takeover attempt; limit the business at special meetings of the
stockholders to the purpose stated in the notice of the meeting; and establish advance notice requirements for submitting
nominations for election to the Board of Directors and for proposing matters that can be acted upon by stockholders at a
meeting, including requirements as to the content and timely provision of such a notice. These provisions, as well as other
provisions in our Certificate of Incorporation, our Bylaws, and Delaware law could delay or make more difficult transactions
involving a change in control of us or our management.
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ITEM 1A. RISK FACTORS — (Continued)
Our Certificate of Incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive
forum for substantially all disputes between our stockholders and us, to the fullest extent permitted by law. Such
provision could limit the ability of our stockholders to obtain a favorable judicial forum for disputes with us or our
directors, officers, stockholders, employees or agents. ANAT’s Certificate of Incorporation provides that, to the fullest extent
permitted by law, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for the following: any
derivative action or proceeding brought on behalf of ANAT; any action asserting a claim of breach of a fiduciary duty owed to
ANAT or ANAT’s stockholders by any of ANAT’s directors, officers or other employees; any action asserting a claim against
ANAT arising pursuant to any provision of the Delaware General Corporation Law or ANAT’s organizational documents; or
any action asserting a claim against ANAT that is governed by the internal affairs doctrine.
This exclusive forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for
disputes with us or any of our directors, officers, or other employees, which may discourage lawsuits and increase the costs
with respect to such claims. With respect to the federal securities laws and the rules and regulations thereunder, this provision
does not apply to suits brought to enforce a duty or liability created by the Securities Exchange Act of 1934, as amended, which
provides for the exclusive jurisdiction of the federal courts with respect to such claims. This provision could apply, however, to
a suit that falls within one or more of the categories enumerated in the exclusive forum provision and asserts claims under the
Securities Act of 1933, as amended (the “Securities Act”), because Section 22 of the Securities Act creates concurrent
jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by such act or the rules and
regulations thereunder. There is uncertainty as to whether a court would enforce the exclusive forum provision with respect to
claims under the Securities Act, and our stockholders will not be deemed to have waived our compliance with the federal
securities laws and the rules and regulations thereunder. If a court were to find the exclusive forum provision contained in our
Certificate of Incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with
resolving such action in other jurisdictions, which could harm our business, results of operations and financial condition.
General Risk Factors
Employee and agent error and misconduct may be difficult to detect and prevent and may result in significant losses.
The actions or inaction of our employees, agents, producers, managing general agents, managing general underwriters and
third-party administrators could result in losses arising from, among other things, fraud, errors, failure to properly document
transactions, failure to obtain proper internal authorization, failure to maintain effective internal controls, or failure to comply
with underwriting guidelines or regulatory requirements. It is not always possible to deter or prevent misconduct, and the
precautions we take to prevent and detect this activity may not be effective in all cases.
If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial
results, which may adversely impact our Company. It is necessary for us to maintain effective internal controls over
financial reporting to prevent fraud and errors and to maintain effective disclosure controls and procedures to provide timely
and reliable financial and other information. However, we cannot be certain that we will be able to prevent future material
weaknesses or that there are no existing, but as yet undiscovered, weaknesses that we need to address. A failure to maintain
adequate internal controls may adversely affect our ability to provide information that accurately reflects our financial condition
on a timely basis. This could cause an adverse effect on our business, results of operations and the market price of our stock if
investors, customers, rating agencies, regulators or others lose confidence in our reported financial and other information, if we
become subject to SEC or other regulatory review and sanctions, or if we become subject to litigation that results in substantial
fines, penalties or liabilities.
The occurrence of events that are unanticipated in our business continuity and disaster recovery planning could impair
our ability to conduct business effectively. Our corporate headquarters are located in Galveston, Texas, on the coast of the
Gulf of Mexico and in the past has been impacted by hurricanes. Our League City, Texas offices are designed to support our
operations and service our policyholders in the event of a hurricane or other natural disaster affecting Galveston. The primary
offices of our property and casualty insurance companies are in Springfield, Missouri and Glenmont, New York, which helps to
insulate these facilities and their operations from coastal catastrophes. While we periodically test our business continuity and
disaster recovery plans, the severity, timing, duration or extent of an event may be unanticipated by such plans, which could
result in an adverse impact on our ability to conduct business. In the event a significant number of our employees or agents
were unavailable or unable to work following such a disaster, or if our computer-based data processing, transmission, storage
and retrieval systems were affected, our ability to effectively conduct our business could be compromised.
See also Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, for additional details regarding certain
risks that we face.
25
Table of Contents
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2. PROPERTIES
We own and occupy our corporate headquarters in Galveston, Texas. We also own and occupy the following properties that are
materially important to our operations:
•
•
Three buildings in League City, Texas, which are used primarily by our Life, Health, and Corporate and Other
segments.
Five buildings, four in Springfield, Missouri and the other in Glenmont, New York, which are used primarily by our
Property and Casualty segment.
We believe our properties are adequate and suitable for our business as currently conducted and are adequately maintained. The
above does not include properties we own only for investment purposes.
ITEM 3. LEGAL PROCEEDINGS
Information required for Item 3 is incorporated by reference to the discussion under the heading “Litigation” in Note 19,
Commitments and Contingencies, of the Notes to the Consolidated Financial Statements.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Stockholder Information
Our common stock is traded on the NASDAQ Global Select Market under the symbol “ANAT.”
On December 31, 2020, our year-end closing stock price was $96.12 per share, and there were 621 holders of record of our
issued and outstanding shares of common stock.
Securities Authorized for Issuance under Equity Compensation Plans
The following table provides information regarding securities issued under American National’s 1999 Stock and Incentive Plan
as of December 31, 2020. The term for granting additional awards under such plan expired in 2019.
Equity Compensation Plan Information
Number of securities to be issued
upon exercise of outstanding
options, warrants and rights
Weighted-
average exercise price
outstanding options, warrants
and rights
Number of securities remaining
available for future issuance under
equity compensation plans
(excluding securities reflected in
column (a))
(a)
(b)
(c)
Plan category
Equity compensation plans
Approved by security holders
Not approved by security holders
Total
— $
—
— $
80.05
—
80.05
—
—
—
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ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES — (Continued)
Performance Graph
The following graph compares the cumulative stockholder return for our common stock for the last five years with the
performance of the NASDAQ Stock Market and a NASDAQ Insurance Stock index using NASDAQ OMX Global Indexes. It
shows the cumulative changes in value of an initial $100 investment on December 31, 2015, with all dividends reinvested.
Value at each year-end of a $100 initial investment made on December 31, 2015:
American National (ANAT)
NASDAQ Total OMX
NASDAQ Insurance OMX
December 31,
2015
2016
2017
2018
2019
2020
$
100.00 $
124.19 $
130.99 $
133.33 $
127.39 $
100.00
100.00
113.01
120.44
137.17
140.85
129.71
131.37
170.14
160.36
109.83
206.33
159.45
This performance graph shall not be deemed to be incorporated by reference into our SEC filings or to constitute soliciting
material or otherwise be considered filed under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934,
as amended.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable
27
YEARSDOLLARSAmerican National (ANAT)NASDAQ Total OMXNASDAQ Insurance OMX201520162017201820192020$100$200$75$125$150$175$225
Table of Contents
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This MD&A should be read in conjunction with our consolidated financial statements and related notes included in Part II, Item
8, Financial Statements and Supplementary Data. For comparison of 2019 to 2018, see Part II, Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations in the Company's Annual Report on Form 10-K for
the year ended December 31, 2019, filed with the SEC on February 28, 2020.
Caution Regarding Forward-Looking Statements
Certain statements made in this report, including but not limited to the accompanying consolidated financial statements, and the
notes thereto appearing in Part II, Item 8, Financial Statements and Supplementary Data herein, Management's Discussion and
Analysis of Financial Condition and Results of Operations in this Item 7 ("MD&A"), and the exhibits and financial statement
schedules filed as a part hereof or incorporated by reference herein, may contain or incorporate by reference information that
includes or is based upon forward-looking statements within the meaning of the “safe harbor” provisions of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements generally are indicated by words such as “expects,”
“intends,” “anticipates,” “plans,” “believes,” “estimates,” “will” or words of similar meaning, and include, without limitation,
statements regarding the outlook of our business and expected financial performance, and statements relating to the COVID-19
pandemic and its effects on the Company. These forward-looking statements are subject to changes and uncertainties which are,
in many instances, beyond our control and have been made based upon our assumptions, expectations and beliefs concerning
future developments and their potential effect upon us. There can be no assurance that future developments will be in
accordance with our expectations, that the effect of future developments on us will be as anticipated, or that our risk
management policies and procedures will be effective, particularly given the uncertainty relating to the COVID-19 pandemic.
We do not make public specific projections relating to future earnings, and we do not endorse any projections regarding future
performance made by others. Additionally, we do not publicly update or revise forward-looking statements based on the
outcome of various foreseeable or unforeseeable events. Forward-looking statements are not guarantees of future performance
and involve various risks and uncertainties. There are certain important factors that could cause actual results to differ, possibly
materially, from expectations or estimates reflected in such forward-looking statements, including without limitation risks,
uncertainties and other factors discussed in Part I, Item 1A, Risk Factors and elsewhere in this report.
Many of these risks and uncertainties have been exacerbated by the COVID-19 pandemic, particularly those described in the
Economic and Investment Risk Factors, Litigation and Regulation Risk Factors, and Reinsurance and Counterparty Risk
Factors.
COVID-19 Response and Update
On March 11, 2020, the World Health Organization formally declared the outbreak of the novel coronavirus COVID-19 to be a
pandemic. The spread of COVID-19 has caused illness, quarantines, cancellation of events and travel, alternative arrangements
and shutdowns for business and schools, reduction in business activity, widespread unemployment, and overall economic and
financial market instability. Through the fourth quarter of 2020, American National is for the most part conducting its normal
business operations. However, because of the impact of COVID-19 we have approximately 80% of our back-office employees
working remotely.
Below is a summary of significant actions we have taken through the date of this report to manage the risks of disruption to
business operation from COVID-19:
• We have taken steps to protect employees with the goals of maintaining their health and sustaining an adequate
workforce, including directing as many employees as possible to work from home and offering flexibility for
employees negotiating scheduling conflicts due to the impacts of COVID-19, such as caring for family, alternative
arrangements and shutdowns for business and schools, self-isolation or personal illness, including granting additional
paid time off to address these hardships.
• We are communicating with our board of directors, senior management and employees regarding the ongoing
developments of the COVID-19 pandemic. We are communicating through email, company intranet, videos, posters
and other signage, an HR email hotline, teleconferences, and online MS Teams meetings.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
• We have implemented multiple communication avenues to keep our customers, vendors and producers informed,
including:
•
•
•
Provide regular communications to producers with updates on our operations and service, contacts for
support, available resources, and expectations;
Engage in ongoing communications with critical vendors related to their business continuity plans; and
Provide an overview of our response to COVID-19 on our corporate website.
•
During 2020, we offered leniency and flexibility on premium payments and other deadlines, in some cases pursuant to
regulatory requirements for customers impacted by the COVID-19 outbreak, as discussed elsewhere in this report.
• We also reduced premiums for some of our property and casualty policies by providing policy credits or exposure
adjustments to personal automobile insurance, workers compensation or other commercial policies, in some cases
pursuant to regulatory requirements.
• We have assessed our facilities, systems, policies and procedures and have implemented plans to continue critical
operations and services while many employees are working off-site. The implementation of these plans across all
locations was addressed simultaneously in accordance with standards and procedures for remote access that existed
prior to the current challenges COVID-19 has introduced. We also have plans for increasing capacity in critical
operations should employees in any of our locations become unavailable to work due to COVID-19 health issues. We
are continuing to evaluate our cybersecurity program for the next challenges that COVID-19 might cause.
• We have provided our employees education and training with respect to cybersecurity issues that may arise relating to
COVID-19 and working remotely.
• We have provided our managers resources on leading virtually, virtual meeting tips and transitioning back to the
office.
• We deferred salary merit and promotional increases which are traditionally effective in May 2020 to September 15,
2020. Promotions were effective in May, however there were no corresponding compensation adjustments until
September 15, 2020. During the third quarter, the board of directors approved the salary actions that had previously
been deferred. Salary merit and promotional increases were paid to employees effective September 15, 2020. The pay
was not retroactive.
• We have suspended our summer Internship Program for 2020 and plan to resume these efforts in 2021.
• We developed return-to-office programs as we transition through the different reopening situations at our locations.
During the fourth quarter of 2020, viral infections in the general population had begun to increase again resulting in
resumption of restrictions in certain areas in which we operate. As a result, we have temporarily paused further return-
to-office plans at our locations until May 2021.
• We have provided alternatives to employees who are working remotely who wish to receive a free flu shot.
• We have taken numerous steps to promote the safety of our employees in keeping current with the local and state
mandates and health expert recommendations including:
•
•
•
•
•
Enhanced cleaning protocols by increasing the cleaning rounds per day and focusing on high touch areas,
including door handles, elevator knobs, etc.
Practice social distancing and promote safe interactions by not congregating in general areas such as
workrooms, breakrooms and copier rooms, refraining from shaking hands, staying 6 feet apart, and keeping
in-person meetings short and opting for teleconference, email and phone calls.
Require all employees to wear face coverings when they enter our buildings, in common areas and whenever
they are away from their workspace.
Provide face masks to all employees, primarily those who are unable to work remotely and those returning to
the office.
Placed signs regarding social distancing guidelines, wearing of face masks, and washing hands around high
traffic areas.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
•
•
•
•
•
•
Posted social distancing markers and additional signage throughout the buildings as reminders to remain six
feet apart.
Procured and maintained sufficient supply of hand sanitizer and sanitizing wipes for use at entry points and
common areas.
Arranged chairs in reception areas and other communal seating areas by removing chairs to maintain social
distancing.
Installed transparent shields in work areas where social distancing cannot be practiced.
Adjusted air fan/filtration systems, where possible, to help enhance air flow by letting more fresh air into the
buildings, while maintaining adequate comfort levels.
Approved procedures for suspected and confirmed employee cases of COVID-19 that include notification,
quarantine and cleaning practices that are in line with the current CDC guidelines.
No assurance can be given that these actions will be successful, nor can we predict the level of disruption that will occur should
the COVID-19 pandemic and its related macroeconomic risks continue for an extended period of time. Given this uncertainty,
we are unable to quantify with reasonable confidence the expected impact of the COVID-19 pandemic on our future operations,
financial condition, liquidity and results of operations. The wide-ranging social, economic and financial consequences of the
COVID-19 pandemic and the possible effects of ongoing and future governmental action in response to COVID-19 compound
this uncertainty. Additional information regarding risks and uncertainties related to the COVID-19 pandemic are set forth in
Part I, Item 1A, Risk Factors.
This MD&A should be read in conjunction with our consolidated financial statements and related notes included in Part II, Item
8, Financial Statements and Supplementary Data.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
Overview
American National Insurance Company ("ANICO"), founded in 1905 and headquartered in Galveston, Texas, and other
American National ("ANAT") subsidiaries offer a broad spectrum of products and services, which include life insurance,
annuities, property and casualty insurance, health insurance, credit insurance, and pension products. The American National
companies operate in all 50 states, the District of Columbia and Puerto Rico. In addition to American National Insurance
Company, major subsidiaries include American National Life Insurance Company of Texas, American National Life Insurance
Company of New York, American National Property and Casualty Company, Garden State Life Insurance Company, Standard
Life and Accident Insurance Company, Farm Family Casualty Insurance Company and United Farm Family Insurance
Company.
Our business has been and will continue to be influenced by several industry-wide, segment or product-specific trends and
conditions. In our discussion below, we first outline the broad macro-economic or industry trends (General Trends) that we
expect to impact our overall business. Second, we discuss certain segment-specific trends we believe may impact individual
segments or specific products within these segments.
Segments
Our insurance segments do not directly own assets. Rather, assets are allocated to support the liabilities and capital allocated to
each segment. The mix of assets allocated to each of the insurance segments is intended to support the characteristics of the
insurance liabilities within each segment including expected cash flows and pricing assumptions, and is intended to be
sufficient to support each segment’s business activities. We have utilized this methodology consistently over all periods
presented.
The Corporate and Other segment acts as the owner of all invested assets of the Company. The investment income from the
invested assets is allocated to the insurance segments in accordance with the assets allocated to each insurance segment.
Earnings of the Corporate and Other segment are derived from income related to invested assets not allocated to the insurance
segments and from our non-insurance subsidiaries. All realized investment gains and losses, which includes other-than-
temporary impairments (“OTTI”) and credit losses, are recorded in this segment.
General Trends
Our business, financial condition and results of operations are materially affected by economic and financial market conditions.
The U.S. and global economies, as well as the capital markets, continue to show mixed signals, and uncertainties continue to be
significant factors in the markets in which we operate. Factors such as consumer spending, business investment, the volatility of
the capital markets, the level of interest rates, unemployment, the level of participation in the workforce and the risk of inflation
or deflation will affect the business and economic environment and, in turn, impact the demand for the type of financial and
insurance products we offer. Adverse changes in the economy could have a material adverse effect on us. However, we believe
those risks are somewhat mitigated by our financial strength, active enterprise risk management and disciplined underwriting
for our products. Our diverse product mix and distribution channels across insurance segments is a strength that we expect will
help us adapt to the volatile economic environment and give us the ability to serve the changing needs of our customers.
Additionally, through our long-term business approach, we believe we are financially strong, and we are committed to
providing a steady and reliable source of financial protection for policyholders.
Interest Rates: The low-interest rate environment is a challenge for life and annuity insurers as the spreads on deposit-type
contracts remain narrow, especially as interest rates have approached minimum crediting rates. Low market interest rates reduce
the spreads between the amounts we credit to fixed annuity and individual life policyholders and the amounts we earn on the
investments that support these obligations. Our ALM Committee actively manages the profitability of these blocks of business.
In previous years, we reduced the guaranteed minimum crediting rates on new fixed annuity contracts, which has afforded us
the flexibility to respond to the unusually low-interest rate environment. We have also reduced crediting rates on in-force
contracts, where permitted to do so. These actions help mitigate the adverse impact of low interest rates on the profitability of
these products, although sales volume may be negatively impacted as a result. We also maintain assets with various maturities
to support product liabilities and ensure liquidity. A gradual increase in longer-term interest rates relative to short-term rates
generally will have a favorable effect on the profitability of our products. Rapidly rising interest rates could result in reduced
persistency of our spread-based products, if contract holders shift assets into higher yielding investments. We believe our ability
to react quickly to the changing marketplace will help us manage this risk.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
The interest rate environment affects estimated future profit projections, which could impact the amortization of our DAC
assets and the estimates of policyholder liabilities. Significantly lower future estimated profits may cause us to accelerate the
amortization of DAC or require us to establish additional policyholder liabilities, thereby reducing earnings. We periodically
review assumptions with respect to future earnings to ensure they remain appropriate considering the current interest rate
environment.
Low interest rates are also challenging for property and casualty insurers. Investment income is an important element in earning
an acceptable return on capital. Lower interest rates resulting in lower investment income require us to achieve better
underwriting results. We have adjusted policy prices to help mitigate the adverse impact of low interest rates on our property
and casualty business.
Changing Regulatory Environment: The insurance industry is primarily regulated at the state level, although some life and
annuity products and services are also subject to U.S. federal regulation. We are regularly subjected to additional or changing
regulation that requires us to update systems, change product structure, increase the amount of reporting or adopt changes to
distribution. These changes may increase the capital requirements for us and the industry, increase operating costs, change our
operating practices and change our ability to provide products with pricing attractive to the marketplace.
Importance of Operating Efficiencies: The volatile economic environment and costs associated with greater regulation create a
further need for operating efficiencies. We manage our cost base while maintaining our commitment to provide superior
customer service to policyholders and agents. Investments in technology are coordinated through a disciplined project
management process. We anticipate continuous improvement in our use of technology to enhance our policyholders’ and
agents’ experience and increase our overall operating effectiveness.
Increased Role of Advanced Technology: The use of mobile technology has changed the way consumers want to conduct their
business, including real-time access to information. Many customers expect to complete transactions in a digital format instead
of traditional methods that require a phone call or submission of paper forms. Social media and other customer-facing
technologies also reshape the way companies communicate and collaborate with key stakeholders, and new tools exist to better
collect and analyze information for potential business opportunities and better management of risks. For example, we have
mobile-enabled all internet-based access and leveraged social media channels to reach out to potential customers to promote
awareness of the company, including the products and services offered. We expect that technology will continue to evolve,
offering new and more effective ways to reach and service our customers and shareholders. We evaluate available and evolving
technologies and incorporate those we believe offer appropriate benefits to the company and its customers.
Continued Challenges of Talent Attraction and Retention: Attracting qualified individuals and retaining existing employees
continues to be a challenge for employers. Businesses have become extremely competitive in the ever-changing landscape of
the talent marketplace. As a result, it is an increasing challenge to distinguish us as an employer of choice.
To address these challenges, we continue to seek out new and expanded uses for technology and social media that enhance our
employer brand and educate candidates on the many benefits of working for us. Our planning and outreach efforts to develop a
more diverse and inclusive workplace continue and help to strengthen the engagement of current employees as well as attract
future employees. We continue to amplify the voice of our employees with regular surveys which help us grow and innovate.
We actively value the perspectives that each employee brings and encourage broader employee influence on how decisions are
made. As a result, we continue to experience increase in overall employee engagement. Providing robust career development
conversations and career paths, personal growth opportunities and effective succession planning are also important elements of
our retention and employee development efforts.
During the COVID-19 pandemic, the Company has devoted key resources to make employee health and safety a top priority.
These efforts are having a positive impact as reflected in recent employee engagement survey results. Additionally, as we speak
with candidates during the talent acquisition process, our precautions and protocols to ensure employee safety have been
important to them when making the decision to join us. As we proceed though the pandemic, employee safety, productivity and
retention are vital to meeting business goals and objectives.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
Life and Annuity
Life insurance and annuity are mainstay segments, as they have been during our long history.
Effective management of invested assets and associated liabilities using crediting rates and, where applicable, financial hedging
instruments (which we use as economic hedges of equity-indexed life and annuity products), is important to the success of our
Life and Annuity segments. Asset “disintermediation,” the risk of large outflows of cash at times when it is disadvantageous to
us to dispose of invested assets, is a risk associated with these segments as are rates of mortality and surrenders that exceed our
assumptions.
Demographics: We believe a key driver shaping the actions of the life insurance industry is the rising income protection, wealth
accumulation and insurance needs of an increasing number of retirees. As a result of increasing longevity and uncertainty
regarding the Social Security System and an ongoing transition from defined benefit pension plans to 401(k) type retirement
plans, retirees will need to accumulate sufficient savings to support retirement income requirements.
We believe we are well positioned to address the increasing need for savings tools and income protection. We believe our
overall financial strength and broad distribution channels position us to respond with a variety of products for individuals
approaching retirement age, who seek information to plan for and manage their retirement needs. We believe our products that
offer guaranteed income flows are well suited to serve this market.
Competitive Pressures: In recent years, the competitive landscape of the U.S. life insurance industry has shifted. Established
insurers are competing against each other and also against new market entrants that are developing products to attract the
interest of the growing number of retirees. Competition exists in terms of retaining and acquiring consumers’ business and also
in terms of access to producers and distributors. Consolidation among distributors coupled with the aging sales force remains a
challenge among insurers. In addition, the increased technological sophistication of consumers necessitates that insurers and
distributors invest significant resources in technology to adapt to consumer expectations. We believe we possess sufficient
scale, financial strength, resources and flexibility to compete effectively.
We believe we will continue to be competitive in the life and annuity markets through our broad line of products, diverse
distribution channels, and consistent high level of customer service. We modify our products to meet customer needs and to
expand our reach where we believe we can obtain profitable growth.
Health
As a result of the Healthcare Acts of 2010 new opportunities were created in the limited benefit and supplemental product
markets. In recent years, we built a portfolio of such products to be sold in the worksite market as well as to individuals. We
believe that changes to the Healthcare Acts that removed the tax consequences for not having health coverage and the removal
of limitations on Short Term Medical products could significantly increase our production. We also continue to expand our
presence in the worksite market to generate new opportunities in the broker market, as well as developing and implementing a
captive sales force.
We expect our Managing General Underwriter (“MGU”) business to remain stable during 2021. We generally retain only 10%
of the premiums and risks produced by MGUs. The majority of the revenue generated from this business is fee income included
in “Other income” of the Health segment’s operating results.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
Property and Casualty
We offer our personal and commercial property and casualty lines of business primarily through our multiple line agencies. We
favor a balanced, focused and collaborative approach to both growth and profitability through the development of successful
agencies.
To acquire and retain profitable business, we use sophisticated pricing models and risk segmentation, along with a focused
distribution force. We believe this approach allows us to make product enhancements and offer programs that are charging an
appropriate premium for the risk.
Demand for property and casualty credit-related insurance products continues to increase. We continue to update credit-related
insurance product offerings and pricing to meet changing market needs, as well as adding new agents to expand market share in
the credit-related insurance market. We are reviewing and implementing procedures to enhance customer service while,
simultaneously, looking for efficiencies to reduce administrative costs.
Competitive Pressures: The property and casualty insurance industry remains highly competitive. Despite the competitive
environment, we expect to identify profitable opportunities through our strong distribution channels, expanding geographic
coverage, marketing efforts, new product development and pricing sophistication.
Critical Accounting Estimates
The preparation of financial statements in accordance with GAAP requires estimates and assumptions that often involve a
significant degree of judgment. These estimates and judgments include expectations of current and future mortality, morbidity,
persistency, claims and claim adjustment expenses, recoverability of receivables, investment returns and interest rates which
extend well into the future. In developing these estimates there is inherent uncertainty, and material changes to facts and
circumstances may develop. Although variability is inherent in these estimates, we believe the amounts as reported are
appropriate based upon the facts available upon compilation of the consolidated financial statements.
On an ongoing basis, management reviews the estimates and assumptions used in preparing the financial statements. If current
facts and circumstances warrant modifications in estimates and assumptions, our financial position and results of operations as
reported in the consolidated financial statements could change significantly.
A description of these critical accounting estimates is presented below. Also, see the Notes to the Consolidated Financial
Statements for additional information.
Future Policy Benefits
Life and Annuity Reserves
Life Reserving—Principal assumptions used in the determination of the reserves for future policy benefits are mortality, policy
lapse rates, investment return, inflation, expenses and other contingent events as appropriate to the respective product type.
Reserves for incurred but not reported (“IBNR”) claims on life policies are calculated using historical claims information.
Reserves for interest-sensitive and variable universal life insurance policies are equal to the current account value calculated for
the policyholder. Some of our universal life policies contain secondary guarantees, for which additional reserves are recorded
based on the term of the policy.
Annuity Reserving—Reserves for payout annuities with more than insignificant amounts of mortality risk are calculated in
accordance with the applicable accounting guidance for limited pay insurance contracts. Benefit and maintenance expense
reserves are calculated by using assumptions reflecting our expectations of future costs, including an appropriate margin for
adverse deviation. These assumptions are locked-in at issue and generally reflect pricing assumptions from that period. If the
resulting reserve would otherwise cause profits to be recognized at the issue date, additional reserves are recorded. The
resulting recognition of profits would be gradual over the expected life of the contract.
34
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
Reserves for fixed deferred annuities are established equivalent to the account value held on behalf of the policyholder.
Reserves for indexed annuities are calculated in accordance with derivative accounting guidance which defines a host liability
for return of principal and guaranteed interest, and an embedded derivative liability for funded benefits in excess of the host
guarantee. Additional reserves for benefits that can exceed contract fund value, such as lifetime income riders, are determined
as needed in accordance with the applicable accounting guidance. The profit recognition on deferred annuity contracts is
gradual over the expected life of the contract. No immediate profit is recognized on the sale of the contract.
Key Assumptions—The following assumptions reflect our best estimates and may impact our life and annuity reserves:
•
Future lapse rates will remain reasonably consistent with our current expectations;
• Mortality rates will remain reasonably consistent within standard industry mortality table ranges; and
•
Future interest spreads will remain reasonably consistent with our current expectations.
Recoverability—At least annually, we test the adequacy of the net benefit reserves (policy benefit reserves less DAC) recorded
for life insurance and annuity products. To perform the tests, we use our current best-estimate assumptions as to policyholder
mortality, persistency, maintenance expenses and invested asset returns.
For interest-sensitive business, best-estimate assumptions are updated to reflect observed changes based on experience studies
and current economic conditions. We reflect the effect of such assumption changes in DAC and reserve balances accordingly.
Due to the long-term nature of many of the liabilities, small changes in certain assumptions may cause large changes in
profitability. In particular, changes in estimates of the future invested asset return have a large effect on the degree of reserve
adequacy and DAC recoverability.
For traditional business, a “lock-in” principle applies, whereby the assumptions used to calculate the benefit reserves and DAC
are set when a policy is issued and do not change with changes in actual experience. These include margins for adverse
deviation in the event that actual experience differs from the original assumptions.
Health Liability for Unpaid Claims
Health liabilities for unpaid claims are established using the following methods:
Completion Factor Approach—This method assumes that the historical claim patterns will be an accurate representation of
unpaid claim liabilities. An estimate of the unpaid claims is calculated by subtracting period-to-date paid claims from an
estimate of the ultimate “complete” payment for all incurred claims in the period. Completion factors are calculated which
“complete” the current period-to-date payment totals for each incurred month to estimate the ultimate expected payout.
Tabular Claims Reserves—This method is used to calculate the reserves for long-term care and disability income blocks of
business. These reserves rely on published valuation continuance tables created using industry experience regarding
assumptions of continued morbidity and subsequent recovery. Reserves are calculated by applying these continuance tables,
along with appropriate company experience adjustments, to the stream of contractual benefit payments. These expected benefit
payments are discounted at the required interest rate.
Future Policy Benefits—Reserves are equal to the aggregate of the present value of expected future benefit payments, less the
present value of expected future premiums. Morbidity and termination assumptions are based on our experience or published
valuation tables when available and appropriate.
Premium Deficiency Reserves—Deficiency reserves are established when the expected future claim payments and expenses for
a classification of policies are in excess of the expected premiums for these policies. The determination of a deficiency reserve
takes into consideration the likelihood of premium rate increases, the timing of these increases, future net investment income,
and the expected benefit utilization patterns. We have established premium deficiency reserves for portions of the major
medical business and the long-term care business that are in run-off. The assumptions and methods used to determine the
deficiency reserves are reviewed periodically for reasonableness, and the reserve amount is monitored against emerging losses.
35
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
Property and Casualty Liability for Unpaid Claims and Claim Adjustment Expenses
Liability for unpaid claims and Claim Adjustment Expense (“CAE”)—Property and casualty liability for unpaid claims and
CAE are established to provide for the estimated cost of settling and paying both reported as well as IBNR claims. The two
major categories of CAE are defense and cost containment expense, and adjusting and other expense. The details of property
and casualty liability for unpaid claims are shown below (in thousands):
Case
IBNR
Total
December 31, 2020
December 31, 2019
Gross
Ceded
Net
Gross
Ceded
Net
$
628,729 $
60,081 $
568,648 $
656,367 $
62,543 $
593,824
518,358
32,926
485,432
449,718
25,826
423,892
$
1,147,087 $
93,007 $
1,054,080 $
1,106,085 $
88,369 $
1,017,716
Case Reserves—Reserves for reported losses are determined on either a judgment or a formula basis, depending on the timing
and type of the loss. The formula reserve is a fixed amount for each claim of a given type based on historical paid loss data for
similar claims with a provision for claim inflation. Judgment reserve amounts replace initial formula reserves and are set for
each loss based on facts and circumstances of each case and the expectation of damages. We regularly monitor the adequacy of
reserves on a case-by-case basis and change the amount of such reserves as necessary.
IBNR—IBNR liabilities are estimated based on many variables including historical statistical information, inflation, legal
environment, economic conditions, trends in claim severity and frequency as well as other factors affecting the adequacy of
claim reserves. Loss and premium data is aggregated by exposure class and by accident year. IBNR liabilities are estimated by
projecting ultimate losses on each class of business and subtracting paid losses and case reserves. Our overall reserve practice
provides for ongoing claims evaluation and adjustment based on the development of related data and other relevant information
pertaining to claims. Adjustments in aggregate reserves, if any, are included in the results of operations for the period during
which such adjustments are made.
The property and casualty liabilities for unpaid claims are established to recognize future development on reported losses for
each line of business. The estimation of these amounts is subject to significant uncertainty due to the volatile nature of property
and casualty insurance liabilities. The estimation process is based significantly on the assumption that past developments are an
appropriate predictor of future events and involves a variety of actuarial techniques that analyze experience, trends and other
relevant factors. See the following paragraphs as well as Note 12, Liability for Unpaid Claims and Claim Adjustment Expenses,
of the Notes to the Consolidated Financial Statements for additional information.
The evaluation process to determine liability for unpaid claims involves the collaboration of underwriting, claims and actuarial
departments. The process also includes consultation with independent actuarial firms as part of our process of gaining
reassurance that claims and CAE liability estimate sufficiently, all obligations arising from all losses incurred as of year-end.
Premium Deficiency Reserve—Deficiency reserves are recorded when the expected claims payments and policy maintenance
costs for a product line exceed the expected premiums for that product line. The estimation of a deficiency reserve considers the
current profitability of a product line using anticipated claims, CAE, and policy maintenance costs. The assumptions and
methods used to determine the need for deficiency reserves are reviewed periodically for reasonableness. There were no
reserves of this type at December 31, 2020 and December 31, 2019, respectively.
36
Table of Contents
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
Property and Casualty Reserving Methodology—The following methods are utilized:
•
•
•
•
•
•
Initial Expected Loss Ratio—This method calculates an estimate of ultimate losses by applying an estimated loss
ratio to actual earned premium for each calendar/accident year. This method is appropriate for classes of business
where the actual paid or reported loss experience is not yet mature enough to influence initial expectations of the
ultimate loss ratios.
Pegged Frequency and Severity—This method uses actual claims count data and emergence patterns of older
accident periods to project the ultimate number of reported claims for a given accident year. A similar process projects
the ultimate average severity per claim so that the product of the two projections results in a projection of ultimate loss
for a given accident year.
Bornhuetter-Ferguson—This method uses, as a starting point, either an assumed Initial Expected Loss Ratio Method
or Pegged Frequency and Severity method and blends in the loss ratio or frequency and severity implied by the claims
experience to date by using loss development patterns based on our historical experience. This method is generally
appropriate where there are few reported claims and an unstable pattern of reported losses.
Loss or Expense Development (Chain Ladder)—This method uses actual loss or defense and cost containment
expense data and the historical development profiles on older accident periods to project more recent, less developed
periods to their ultimate total. This method is appropriate when there is a relatively stable pattern of loss and expense
emergence and a relatively large number of reported claims.
Ratio of Paid Defense and Cost Containment Expense to Paid Loss Development—This method uses the ratio of
paid defense and cost containment expense to paid loss data and the historical development profiles on older accident
periods to project more recent, less developed periods to their ultimate total. In this method, an ultimate ratio of paid
defense and cost containment expense to paid loss is selected for each accident period. The selected paid defense and
cost containment expense to paid loss ratio is then applied to the selected ultimate loss for each accident period to
estimate the ultimate defense and cost containment expense. Paid defense and cost containment expense is then
subtracted from the ultimate defense and cost containment expense to calculate the unpaid defense and cost
containment expense for that accident period.
Calendar Year Paid Adjusting and Other Expense to Paid Loss—This method uses a selected prior calendar years’
paid expense to paid loss ratio to project ultimate loss adjustment expenses for adjusting and other expense. A
percentage of the selected ratio is applied to the case reserves (depending on the line of insurance) and 100% to the
indicated IBNR reserves. These ratios assume that a percentage of the expense is incurred when a claim is opened and
the remaining percentage is paid throughout the claim's life.
The basis of our selected single point best estimate on a particular line of business is often a blended result from two or more
methods (e.g. weighted averages). Our estimate is highly dependent on actuarial and management judgment as to which
method(s) is most appropriate for a particular accident year and class of business. Our methodology changes over time, as new
information emerges regarding underlying loss activity and other factors.
37
Table of Contents
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
Key Assumptions—The following assumptions reflect our best estimates and may impact our property and casualty reserves:
•
•
•
•
•
The expected loss development patterns, estimated primarily using our historical loss experience;
The expected loss ratios, claim frequency and severity, estimated primarily using our historical loss experience;
Consistent claims handling, reserving and payment processes;
No unusual growth patterns or unexpected changes in the mix of business; and
No significant prospective changes in laws that would significantly affect future payouts.
Management believes our reserves at December 31, 2020 are adequate. New information, regulation, events or circumstances
unknown at the original valuation date, however, may result in future development resulting in ultimate losses being
significantly greater or less than the recorded reserves at December 31, 2020.
Deferred Policy Acquisition Costs
We had a DAC asset of approximately $1.4 billion and $1.4 billion at December 31, 2020 and 2019, respectively. See Note 10,
Deferred Policy Acquisition Costs, of the Notes to the Consolidated Financial Statements for additional details.
We believe the estimates used in our DAC calculations provide insight into how variations in assumptions and estimates would
affect our business. The following table displays the sensitivity of reasonably likely changes in assumptions in the DAC
amortization for our long-duration business at December 31, 2020 (in thousands):
Increase in future investment margins of 25 basis points
Decrease in future investment margins of 25 basis points
Decrease in future life mortality by 1%
Increase in future life mortality by 1%
Reinsurance
Increase (Decrease) in DAC
$
47,856
(54,304)
1,768
(1,702)
We manage our insurance underwriting risk exposures by purchasing reinsurance. We manage counterparty risk by entering
into agreements with reinsurers we consider creditworthy, generally measured by the individual entity or entities’ financial
strength rating. However, we do require a specified minimum rating by a NRSRO. We monitor the concentrations of the
reinsurers and reduce the participation percentage of lower-rated and unrated companies when appropriate in our judgment.
While we believe we currently have no significant credit risk related to reinsurance counterparties, we continue to monitor their
financial condition.
Some of our reinsurance contracts contain clauses that allow us to terminate the participation with reinsurers whose ratings are
downgraded. Information used in our risk assessment is comprised of industry ratings, recent news and reports, and a limited
review of financial statements. We also may require reinsurers not licensed in our state of domicile or with whom we have
limited experience, to provide letters of credit, trust agreements, or cash advances to fund their share of reserves.
38
Table of Contents
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
Allowance for Credit Losses
On January 1, 2020, we adopted ASC 326, Financial Instruments—Credit Losses, accounting guidance related to the allowance
for credit losses. Refer to Note 3, Recently Issued Accounting Pronouncements, of the Notes to the Consolidated Financial
Statements in Item 8. The new standard significantly changes how entities measure credit losses for most financial assets and
reinsurance recoverables that are not measured at fair value through net income. The guidance replaces the current “incurred
loss” approach with an “expected loss” model for instruments measured at amortized cost. Refer to Note 4, Investment in
Securities, and Note 5, Mortgage Loans, of the Notes to the Consolidated Financial Statements in Item 8 for further discussion
of the accounting policies and methodologies for establishing the allowance for credit losses.
The accounting estimates relating to the allowance for credit losses over financial assets held at amortized cost have been
evaluated and monitored since adoption and management has deemed these estimates to be critical for the following reasons:
•
•
•
Changes in the provision for credit losses can be material to the financial position and results of operations for the
Company;
Estimates relating to the allowance for credit losses require us to project future cash flows, delinquencies, collateral
values, occupancy rates, prepayments based on a reasonable and supportable forecast in order to estimate probability
of default and the loss given default;
The allowance for credit losses is also affected by factors outside of our control including, but not limited to, market
volatility, deterioration in the credit or prospects of companies and governmental entities, political uncertainty,
industry trends, pandemics, and trends in interest rates; and
• Management judgment is required to determine which models, methodologies, and scenario conditions are used to
calculate the allowance for credit losses to produce a reasonable estimate that encompasses the expected lifetime credit
losses.
Since our estimate for the allowance for credit losses relies on management judgment and is sensitive to factors outside of our
control, as noted above, there are inherent uncertainties within the estimates. As a result, the changes in the allowance for credit
losses could materially impact our consolidated financial statements.
Valuation of Financial Instruments
The fair value of available-for-sale fixed maturity and equity securities is determined by management using one of the three
primary sources of information: the quoted prices in active markets; third-party pricing services; or independent broker
quotations. Estimated fair value of securities based on quoted prices in active markets is readily and regularly available;
therefore, valuation of these securities generally does not involve management judgment. For securities without quoted prices,
fair value measurement is determined using third-party pricing services’ proprietary pricing applications. Typical inputs used by
the models are relevant market information, benchmark curves, benchmark pricing of like securities, sector groupings and
matrix pricing. Any securities remaining unpriced after utilizing the first two pricing methods are submitted to independent
brokers for prices. We have analyzed the third-party pricing services and independent brokers’ valuation methodologies and
related inputs, and have evaluated the various types of securities in our investment portfolio to determine an appropriate fair
value hierarchy level based upon trading activity and the observability of market inputs. Management completes certain tests
throughout the year and at year-end to determine that prices provided by our pricing services are reasonable.
39
Table of Contents
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
The Company sells equity-indexed universal life and equity-indexed deferred annuity contracts with guaranteed minimum
benefits, some of which contain embedded derivatives that are required to be bifurcated from a host reserve, separately
accounted for, and measured at fair value. We utilize over-the-counter equity options to hedge our exposure to equity-indexed
universal life and equity-indexed deferred annuity benefits, and the fair values for these options are sourced from broker
quotations. Accounting guidance requires a fair value calculation as part of equity-indexed policy reserves. This is called the
value of embedded derivative ("VED") and the other part of the indexed policy reserve is called the host reserve. The embedded
derivative represents future benefit cash flows in excess of the minimum guarantee cash flows. The host covers the minimum
guarantee cash flows. Both the VED and the host reserve are calculated by a vendor-sourced reserve valuation system. The
VED calculation model incorporates assumptions related to current option pricing (such as implied volatility and interest rates),
future policyholder behavior (such as surrenders and withdrawals), and factors affecting the value of future indexed interest
periods (such as option budgets). These assumptions are evaluated annually by management with any changes in the estimated
fair value resulting in a cumulative charge or credit to income from operations.
Pension and Postretirement Benefit Plans
The Company has frozen each of its defined benefit pension plans. Our pension and postretirement benefit obligations and
related costs covering our employees are estimated using actuarial concepts in accordance with the relevant accounting
guidance. The discount rate and the expected return on plan assets are important elements of expense and/or liability
measurements. Each year, these key assumptions are reevaluated to determine whether they reflect the best estimates for the
current period. Changes in the methodology used to determine the best estimates are made when facts or circumstances change.
Other assumptions involve demographic factors such as retirement age, mortality and turnover. The expected long-term rate of
return on plan assets is determined by a modeling method utilizing several factors which is described further in Item 8,
Financial Statements and Supplementary Data, Notes to the Consolidated Financial Statements, Note 2, Summary of Significant
Accounting Policies and Practices, Pension and Postretirement Benefit Plans. See Item 8, Financial Statements and
Supplementary Data, Notes to the Consolidated Financial Statements, Note 18, Pension and Postretirement Benefits for
additional details.
Litigation Contingencies
Based on information currently available, we believe that amounts ultimately paid, if any, arising from existing and currently
potential litigation would not have a material effect on our results of operations and financial condition. However, it should be
noted that the frequency of large damage awards, which bear little or no relation to the economic damages incurred by
plaintiffs, continues to create the potential for an unpredictable judgment in any given lawsuit. It is possible that, if the defenses
in these lawsuits are not successful, and the judgments are greater than we anticipate, the resulting liability could have a
material impact on the consolidated financial statements.
40
19,707
219,039
13,820
—
529,723
6,871
743,761
(40,485)
(20,493)
196,315
(31,420)
27,877
58,748
190,542
553,219
Table of Contents
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
Consolidated Results of Operations
The following sets forth the consolidated results of operations (in thousands):
PREMIUMS AND OTHER REVENUES
Premiums
Other policy revenues
Net investment income
Net realized investment gains
Change in investment credit loss
Net gains (losses) on equity securities
Other income
Years ended December 31,
Change over prior year
2020
2019
2018
2020
2019
$
2,218,074 $
2,182,794 $
2,228,193 $
35,280 $
(45,399)
310,746
933,685
35,660
(102,603)
356,281
40,556
305,256
1,077,406
30,751
—
422,535
51,401
285,549
858,367
16,931
5,490
(143,721)
4,909
—
(102,603)
(107,188)
44,530
(66,254)
(10,845)
Total premiums and other revenues
3,792,399
4,070,143
3,326,382
(277,744)
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits
Claims incurred
Interest credited to policyholders’ account balances
Commissions for acquiring and servicing policies
Other operating expenses
Change in deferred policy acquisition costs (1)
Total benefits, losses and expenses
748,083
667,828
708,313
1,121,742
1,151,166
1,171,659
321,042
553,600
515,413
511,999
532,634
524,888
315,684
564,054
497,011
(5,678)
(12,749)
(71,497)
80,255
(29,424)
(190,957)
20,966
(9,475)
7,071
3,254,202
3,375,766
3,185,224
(121,564)
Income before federal income taxes and other items
$
538,197 $
694,377 $
141,158 $
(156,180) $
(1)
A negative amount of change indicates more expense was deferred than amortized and represents a decrease to expenses in the period indicated.
Comparison of the years ended December 31, 2020 to 2019
Earnings decreased primarily due to the following:
•
•
A decrease in net gains on equity securities resulting from less favorable market conditions
An increase in the allowance for credit losses due to the economic disruptions caused by the COVID-19 pandemic
The decrease in earnings was partially offset by the following:
•
An improvement in earnings from our Property and Casualty segment primarily from our personal auto products
41
Table of Contents
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
Life
Life segment financial results for the periods indicated were as follows (in thousands):
PREMIUMS AND OTHER REVENUES
Premiums
Other policy revenues
Net investment income
Other income
Total premiums and other revenues
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits
Interest credited to policyholders’ account balances
Commissions for acquiring and servicing policies
Other operating expenses
Change in deferred policy acquisition costs (1)
Total benefits, losses and expenses
Years ended December 31,
Change over prior year
2020
2019
2018
2020
2019
$
396,099 $
359,419 $
350,012 $
36,680 $
295,263
261,389
2,084
954,835
533,925
75,943
167,548
182,395
(53,756)
906,055
288,061
263,788
1,967
913,235
449,252
80,950
162,203
190,104
(26,036)
856,473
270,839
233,181
2,266
856,298
417,702
54,249
158,657
190,835
(33,893)
787,550
7,202
(2,399)
117
41,600
84,673
(5,007)
5,345
(7,709)
(27,720)
49,582
9,407
17,222
30,607
(299)
56,937
31,550
26,701
3,546
(731)
7,857
68,923
Income before federal income taxes and other items
$
48,780 $
56,762 $
68,748 $
(7,982) $
(11,986)
(1)
A negative amount of change indicates more expense was deferred than amortized and represents a decrease to expenses in the period indicated.
Comparison of the years ended December 31, 2020 to 2019
Earnings for our Life segment decreased primarily due to the following:
•
An overall increase in mortality primarily from deaths we believe are directly and indirectly attributable to COVID-19
The decrease in earnings was partially offset by the following:
•
•
Better persistency, resulting in an increase in premiums and other policy revenues
Lower DAC amortization driven by better persistency
42
Table of Contents
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
Life Insurance Sales
The following table presents life insurance sales as measured by annualized premium, a statistical measure used by the
insurance industry, which allows a comparison of new policies sold by an insurance company during the period (in thousands):
Traditional Life
Universal Life
Indexed UL
Total Recurring
Single and excess (1)
Credit life (1)
Years ended December 31,
Change over prior year
2020
2019
2018
2020
2019
$
62,044 $
56,681 $
57,714 $
5,363 $
(1,033)
28,900
30,643
121,587
1,509
8,140
28,673
36,906
122,260
2,193
10,723
25,270
33,543
116,527
3,336
8,076
227
(6,263)
(673)
(684)
(2,583)
3,403
3,363
5,733
(1,143)
2,647
7,237
Total annualized premium
$
131,236 $
135,176 $
127,939 $
(3,940) $
(1)
These are weighted amounts representing 10% of single and excess premiums.
Life insurance sales are based on the total yearly premium that insurance companies would expect to receive if all recurring
premium policies would remain in-force, plus 10% of single and excess premiums. Life insurance sales measure activity
associated with gaining new insurance business in the current period, and includes deposits received related to interest sensitive
life and universal life-type products. Whereas GAAP premium revenues are associated with policies sold in current and prior
periods, and deposits received related to interest sensitive life and universal life-type products are recorded in a policyholder
account which is reflected as a liability. Therefore, a reconciliation of premium revenues and insurance sales is not meaningful.
Total Life sales decreased during the twelve months ended December 31, 2020 compared to 2019 primarily due to lower
Indexed Universal Life and Credit Life sales which we believe was due to the economic uncertainty from COVID-19 and social
distancing practices related to the pandemic.
Policy In-force Information
The following table summarizes changes in the Life segment’s in-force amounts (in thousands):
Life insurance in-force
Traditional life
Interest-sensitive life
December 31,
Change over prior year
2020
2019
2018
2020
2019
$ 91,920,577 $ 84,129,193 $ 78,872,533 $
7,791,384 $
5,256,660
36,326,621
33,975,092
31,483,582
2,351,529
2,491,510
Total life insurance in-force
$ 128,247,198 $ 118,104,285 $ 110,356,115 $ 10,142,913 $
7,748,170
The following table summarizes changes in the Life segment’s number of policies in-force:
Number of policies in-force
Traditional life
Interest-sensitive life
Total number of policies in-force
December 31,
Change over prior year
2020
2019
2018
2020
2019
1,832,536
1,911,305
2,016,170
269,668
256,146
243,447
2,102,204
2,167,451
2,259,617
(78,769)
13,522
(65,247)
(104,865)
12,699
(92,166)
Life insurance in-force increased despite a reduction of policies in-force due to an increase in sales of higher face amount
policies.
43
Table of Contents
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
Change in Deferred Policy Acquisition Costs
The change in DAC represents acquisition costs capitalized less the amortization of existing DAC. The following shows the
components of the change in DAC (in thousands):
Acquisition cost capitalized
Amortization of DAC
Change in DAC
Years ended December 31,
Change over prior year
2020
2019
2018
2020
2019
$
$
(148,142) $
(139,336) $
(131,156) $
(8,806) $
(8,180)
94,386
113,300
97,263
(18,914)
(53,756) $
(26,036) $
(33,893) $
(27,720) $
16,037
7,857
The reduction in DAC amortization relates to lower actual gross profits on the universal block due to an increase in claims and
better persistency on the traditional life block.
Reinsurance
The table below summarizes reinsurance reserves and premium amounts assumed and ceded (in thousands):
Reinsurance assumed
Reinsurance ceded
Total
Reserves
Premiums
Years ended December 31,
Years ended December 31,
2020
2019
2018
2020
2019
2018
$
$
1,067 $
1,103 $
1,922 $
1,419 $
507 $
389
(195,251)
(203,011)
(248,688)
(77,444)
(86,017)
(103,749)
(194,184) $
(201,908) $
(246,766) $
(76,025) $
(85,510) $
(103,360)
We use reinsurance to mitigate certain risks to the Life segment. During 2020, our retention limits were $5.0 million for issue
ages 75 and under, and $2.0 million for issue ages 76 through 80, and $1.0 million for issue ages 81 and older for traditional
and universal life. In our Life segment, we currently retain 100% of newly developed permanent and term products up to our
retention limit and cede the excess. American National utilizes facultative reinsurance when a case requires support that does
not follow the Company’s standard underwriting guidelines. Accidental death and premium waiver benefits are mostly retained
on new business. The reduction in reinsurance ceded is due to a change in retention limits effective January 1, 2019.
For 2020, the companies to whom we have ceded reinsurance for the Life segment are shown below (in thousands, except
percentages):
Reinsurer
Swiss Re Life & Health of America Inc.
SCOR Global Life Reinsurance Company of Delaware
Munich American Reassurance Company
Canada Life Reinsurance
Reinsurance Group of America
General Re Life Corporation
Other Reinsurers with no single company with greater than 5% of the total ceded
premium
Total life reinsurance ceded
(1)
A.M. Best rating as of the most current information available February 10, 2021.
A.M. Best
Rating (1)
Ceded
Premium
Percentage of
Gross Premium
A+
A+
A+
A+
A+
A++
$
$
23,271
15,500
14,117
8,881
5,437
5,102
5,136
77,444
30.1 %
20.0
18.2
11.5
7.0
6.6
6.6
100.0 %
In addition, reinsurance is used in the credit life business primarily to provide producers of credit-related insurance products the
opportunity to participate in the underwriting risk through producer-owned captive reinsurance companies often domiciled
outside of the United States. A majority of the treaties entered into by our Specialty Markets Group are written on a 100%
coinsurance basis with benefit limits of $0.1 million on credit life.
44
Table of Contents
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
Annuity
Annuity segment financial results for the periods indicated were as follows (in thousands):
PREMIUMS AND OTHER REVENUES
Premiums
Other policy revenues
Net investment income
Other income
Total premiums and other revenues
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits
Interest credited to policyholders’ account balances
Commissions for acquiring and servicing policies
Other operating expenses
Change in deferred policy acquisition costs (1)
Years ended December 31,
Change over prior year
2020
2019
2018
2020
2019
$
92,866 $
147,139 $
231,027 $
(54,273) $
(83,888)
15,483
570,003
2,716
681,068
214,158
245,099
55,910
48,359
48,298
17,195
663,895
2,727
830,956
218,576
431,049
71,350
50,507
9,474
14,710
467,788
2,611
716,136
290,611
261,435
94,879
46,859
(35,135)
658,649
(1,712)
(93,892)
(11)
2,485
196,107
116
(149,888)
114,820
(4,418)
(185,950)
(15,440)
(2,148)
38,824
(169,132)
(72,035)
169,614
(23,529)
3,648
44,609
122,307
Total benefits, losses and expenses
611,824
780,956
Income before federal income taxes and other items
$
69,244 $
50,000 $
57,487 $
19,244 $
(7,487)
(1)
A positive amount of change indicates less expense was deferred than amortized and represents an increase to expenses in the period indicated.
Comparison of the years ended December 31, 2020 to 2019
Earnings for our Annuity segment increased primarily due to the following:
•
Due to a change in estimate in the fourth quarter of 2020 related to our equity indexed annuity products, policyholder
benefits increased by $47.1 million and deferred policy acquisition costs increased by $26.3 million. Offsetting these
increases, interest credited to policyholders' account balances was reduced by $96.4 million. The net impact of this
change in estimate was an increase of $23.0 million to earnings from our annuity segment in 2020
The increase in earnings was partially offset by the following:
•
An increase in reserves for indexed annuity products due to mark-to-market based adjustments attributable to lower
interest rates
Annuity premium and deposit amounts received are shown below (in thousands):
Fixed deferred annuity
Single premium immediate annuity
Equity-indexed deferred annuity
Variable deferred annuity
Total premium and deposits
Less: Policy deposits
Total earned premiums
Years ended December 31,
Change over prior year
2020
2019
2018
2020
2019
$
366,384 $
944,128 $
399,102 $
(577,744) $
545,026
125,175
394,178
60,279
946,016
853,150
203,314
330,744
69,178
1,547,364
1,400,225
278,402
858,283
64,907
1,600,694
1,369,667
(78,139)
63,434
(8,899)
(601,348)
(547,075)
(75,088)
(527,539)
4,271
(53,330)
30,558
$
92,866 $
147,139 $
231,027 $
(54,273) $
(83,888)
Annuity premiums and deposits decreased primarily for fixed deferred products during the year ended December 31, 2020
compared to 2019. The low interest rate environment and choices we made on setting crediting rates, coupled with the
economic impact attributable to COVID-19 resulted in lower sales of fixed deferred annuities during the year ended December
31, 2020.
45
Table of Contents
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
Change in Deferred Policy Acquisition Costs
The change in DAC represents acquisition costs capitalized less the amortization of existing DAC, which is calculated in
proportion to expected gross profits. The following shows the components of the change in DAC (in thousands):
Acquisition cost capitalized
Amortization of DAC
Change in DAC
Years ended December 31,
Change over prior year
2020
2019
2018
2020
2019
$
$
(55,411) $
(70,272) $
(92,602) $
14,861 $
103,709
79,746
57,467
23,963
48,298 $
9,474 $
(35,135) $
38,824 $
22,330
22,279
44,609
The change in amortization was primarily due to a change in estimates related to our equity indexed annuities. As mentioned
above, the change in estimate related to our equity indexed annuities resulted in a $26.3 million increase in the amortization of
DAC. The change in acquisition costs capitalized strongly correlated with the change in commissions, which declined due to
lower sales.
Shown below are the changes in reserves (in thousands):
Fixed deferred annuity
Reserve, beginning of period
Premiums
Death and other benefits
Surrenders
Fees
Interest and mortality
Reserve, end of period
Equity-indexed annuity
Reserve, beginning of period
Premiums
Death and other benefits
Surrenders
Fees
Interest and mortality
Reserve, end of period
Single premium immediate annuity
Reserve, beginning of period
Premiums
Payments
Interest and mortality
Reserve, end of period
Variable deferred annuity
Account value, beginning of period
Premiums
Other flows
Surrenders
Fees
Change in market value and other
Reserve, end of period
Total reserve, end of period
Years ended December 31,
2020
2019
2018
$
6,893,174 $
6,773,603 $
7,108,254
366,384
(215,330)
(594,253)
(968)
186,196
944,128
(237,346)
(787,617)
(2,616)
203,022
399,102
(304,721)
(622,436)
(2,980)
196,384
6,635,203
6,893,174
6,773,603
3,985,165
3,668,645
2,934,430
394,178
(48,451)
330,744
(40,670)
858,283
(40,678)
(331,359)
(193,957)
(140,742)
(2,990)
100,469
(3,640)
224,043
(3,843)
61,195
4,097,012
3,985,165
3,668,645
1,874,942
1,826,137
1,691,502
125,175
203,314
278,402
(218,469)
(216,782)
(204,067)
70,307
62,273
60,300
1,851,955
1,874,942
1,826,137
385,735
60,279
1,356
(87,068)
(4,479)
62,685
418,508
332,898
69,178
(97)
(85,994)
(4,703)
74,453
385,735
381,903
64,907
562
(92,198)
(4,431)
(17,845)
332,898
$ 13,002,678 $ 13,139,016 $ 12,601,283
46
Table of Contents
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
Interest and Mortality Margin
Equity indexed annuity change in estimates during the fourth quarter of 2020 resulted in a reduction of interest credited to
policyholder's by $96.4 million partially offset by a $47.1 million increase in policyholder benefits, combining for a net
increase of $49.3 million in interest and mortality margin. The following table summarizes the interest margin due to the impact
of the investment performance, net of interest credited to policyholder’s and the net cost of mortality related reserves (in
thousands):
Fixed annuity
Fixed investment income
Interest credited and mortality
Interest and mortality margin
Equity-indexed annuity
Fixed investment income
Option return
Interest credited and mortality
Interest and mortality margin
Variable annuity
Separate account management fees
Interest and mortality margin
Years ended December 31,
Change over prior year
2020
2019
2018
2020
2019
$
369,795 $
384,700 $
380,806 $
(14,905) $
(256,503)
113,292
(265,295)
119,405
(256,684)
124,122
160,271
39,937
(100,469)
99,739
152,101
127,094
(224,043)
55,152
4,164
4,164
4,122
4,122
135,595
(48,613)
(61,195)
25,787
4,164
4,164
8,792
(6,113)
8,170
(87,157)
123,574
44,587
42
42
3,894
(8,611)
(4,717)
16,506
175,707
(162,848)
29,365
(42)
(42)
Total interest and mortality margin
$
217,195 $
178,679 $
154,073 $
38,516 $
24,606
47
Table of Contents
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
Health
Health segment financial results for the periods indicated were as follows (in thousands):
PREMIUMS AND OTHER REVENUES
Premiums
Net investment income
Other income
Total premiums and other revenues
BENEFITS, LOSSES AND EXPENSES
Claims incurred
Commissions for acquiring and servicing policies
Other operating expenses
Change in deferred policy acquisition costs (1)
Total benefits, losses and expenses
Years ended December 31,
Change over prior year
2020
2019
2018
2020
2019
$
168,805 $
165,035 $
180,414 $
3,770 $
(15,379)
8,637
19,598
197,040
116,122
30,182
39,265
(307)
9,467
20,762
195,264
9,376
24,185
213,975
109,013
122,547
31,624
41,475
1,382
32,516
41,819
2,846
185,262
183,494
199,728
(830)
(1,164)
1,776
7,109
(1,442)
(2,210)
(1,689)
1,768
91
(3,423)
(18,711)
(13,534)
(892)
(344)
(1,464)
(16,234)
(2,477)
Income before federal income taxes and other items
$
11,778 $
11,770 $
14,247 $
8 $
(1)
A negative amount of change indicates more expense was deferred than amortized and represents a decrease to expenses in the period indicated.
Comparison of the years ended December 31, 2020 to 2019
Earnings for our Health segment remained consistent; however, there were offsetting variances as follows:
•
•
•
An increase in Worksite premium driven by the addition of a large group
A reduction in other operating expenses primarily attributable to a reduction in travel and related marketing costs
Increased Supplemental claim severity on the legacy master cancer plan
48
Table of Contents
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
Health earned premiums for the periods indicated were as follows (in thousands):
Medicare Supplement
MGU
Supplemental insurance
Credit Health
Medical expense
Worksite
Group health
All other
Total
Years ended December 31,
Change over prior year
2020
2019
2018
2020
2019
$
85,201 $
78,779 $
71,357 $
6,422 $
7,422
22,166
18,586
14,576
8,541
14,594
1,809
3,332
27,205
21,633
17,938
9,496
4,817
1,964
3,203
46,133
24,119
17,948
11,127
2,513
3,063
4,154
(5,039)
(3,047)
(3,362)
(955)
9,777
(155)
129
(18,928)
(2,486)
(10)
(1,631)
2,304
(1,099)
(951)
$
168,805 $
165,035 $
180,414 $
3,770 $
(15,379)
Competitive premium rates were the primary driver behind the increase in sales for Medicare Supplement in late 2019.
Similarly, Worksite premium increased due to the addition of a large group. The decline in MGU premium is driven by the
completion of prior treaties for a large MGU program that is inactive for 2020.
Health claims incurred for the periods indicated were as follows (in thousands):
Medicare Supplement
MGU
Supplemental insurance
Credit Health
Medical expense
Worksite
Group health
All other
Total
Years ended December 31,
Change over prior year
2020
2019
2018
2020
2019
$
66,492 $
63,705 $
55,416 $
2,787 $
8,289
19,657
23,498
38,930
(3,841)
(15,432)
9,945
3,501
7,212
6,732
1,142
1,441
8,508
3,400
5,857
1,958
639
1,448
7,516
4,819
8,785
1,598
2,227
3,256
1,437
101
1,355
4,774
503
(7)
992
(1,419)
(2,928)
360
(1,588)
(1,808)
$
116,122 $
109,013 $
122,547 $
7,109 $
(13,534)
Generally, the fluctuation in claims correlate with fluctuations in premium; however, increases in Supplemental insurance claim
severity for the legacy master cancer plan and the increase in Medical expense claims for this closed block of business do not
follow this trend.
Change in Deferred Policy Acquisition Costs
The following table presents the components of the change in DAC (in thousands):
Acquisition cost capitalized
Amortization of DAC
Change in DAC
Years ended December 31,
Change over prior year
2020
2019
2018
2020
2019
$
$
(15,926) $
(19,940) $
(12,590) $
4,014 $
15,619
21,322
15,436
(5,703)
(307) $
1,382 $
2,846 $
(1,689) $
(7,350)
5,886
(1,464)
49
Table of Contents
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
Reinsurance
We cede or retrocede the majority of the premium and risk associated with our stop-loss and other MGU programs. We
maintain reinsurance on a quota share basis for our long-term care and long-term disability income business.
For 2020, the companies to which we have ceded reinsurance for the Health segment are shown below (in thousands, except
percentages):
Reinsurer
Roundstone Insurance, Ltd.
RGA Reinsurance Company
Transatlantic Reinsurance Company
PartnerRe America Insurance Company
Navigators Insurance Company
AXIS Insurance Company
Other reinsurers with no single company with greater than 5.0% of the total ceded
premium
Total health reinsurance ceded
(1)
(2)
A.M. Best rating as of the most current information available February 10, 2021.
N/A reflects no A.M. Best rating available.
A.M. Best
Rating (1)
N/A(2)
A+
A+
A+
A+
A
Ceded
Premium
Percentage of
Gross Premium
$
$
46,274
33,719
26,648
17,862
15,443
14,034
107,752
261,732
17.7 %
12.9
10.2
6.8
5.9
5.4
41.1
100.0 %
Reinsurance is also used in the credit health business. In certain cases, we may also reinsure the policy written through non-U.S.
producer-owned captive reinsurers to allow the dealer to participate in the performance of these credit health contracts. A
majority of the treaties entered into by our Specialty Markets Group are written on a 100% coinsurance basis with benefit limits
of $1,000 per month.
50
Table of Contents
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
Property and Casualty
Property and Casualty segment financial results for the periods indicated were as follows (in thousands, except percentages):
Years ended December 31,
Change over prior year
2020
2019
2018
2020
2019
PREMIUMS AND OTHER REVENUES
Net premiums written
Net premiums earned
Net investment income
Other income
$ 1,590,740
$ 1,546,144
$ 1,514,563
$ 1,560,304
$ 1,511,201
$ 1,466,740
$
$
63,949
12,779
64,263
11,897
62,320
10,628
Total premiums and other revenues
1,637,032
1,587,361
1,539,688
BENEFITS, LOSSES AND EXPENSES
Claims incurred
Commissions for acquiring and servicing policies
Other operating expenses
Change in deferred policy acquisition costs (1)
Total benefits, losses and expenses
1,005,620
1,042,153
1,049,112
299,960
202,503
87
267,457
201,580
2,431
278,002
186,019
(5,315)
1,508,170
1,513,621
1,507,818
$
$
44,596
49,103
(314)
882
49,671
(36,533)
32,503
923
(2,344)
(5,451)
31,581
44,461
1,943
1,269
47,673
(6,959)
(10,545)
15,561
7,746
5,803
Income before federal income taxes and other items
$
128,862
$
73,740
$
31,870
$
55,122
$
41,870
Loss and loss adjustment expense ratio
Underwriting expense ratio
Combined ratio
Impact of catastrophe events on combined ratio
Combined ratio without impact of catastrophe events
64.5 %
32.2
96.7 %
9.2
87.5 %
69.0 %
31.2
100.2 %
5.9
94.3 %
71.5 %
31.3
102.8 %
7.1
95.7 %
(4.5) %
1.0
(3.5) %
3.3
(6.8) %
(2.5) %
(0.1)
(2.6) %
(1.2)
(1.4) %
Gross catastrophe losses
Net catastrophe losses
$
$
176,824
140,512
$
$
91,265
89,063
$
$
103,890
105,670
$
$
85,559
51,449
$
$
(12,625)
(16,607)
(1)
A negative amount of change indicates more expense was deferred than amortized and represents a decrease to expenses in the period indicated.
Comparison of the years ended December 31, 2020 to 2019
Earnings for our Property and Casualty segment increased primarily due to the following:
•
•
Earnings from our personal and specialty market products increased. The biggest increase came from our personal auto
products attributable to fewer miles driven by policyholders and favorable claim development somewhat offset by
approximately $16.8 million of COVID-19 relief policy credits we issued to policyholders
Earnings from our specialty market products increased primarily due to rate actions as well as strong persistency and
growth in the number of policies
The increase in earnings was partially offset by the following:
•
Significantly higher catastrophe losses, which had the greatest impact on our homeowners loss ratio
Additional information:
•
•
Net premiums written and earned for the year were reduced by COVID-19 relief policy credits for auto policyholders
totaling $17.7 million; $16.8 million for personal auto policies and $0.9 million for commercial auto policies. The
policy credits were based on 10%-15% of monthly premiums
The increase in commissions expense for the year was primarily due to the increase in premiums written and an
increase in contingent commissions due to the improvement in the loss ratios for the Specialty Markets Group products
51
Table of Contents
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
Products
Our Property and Casualty segment consists of: (i) Personal products, marketed primarily to individuals, representing 55% of
net premiums written; (ii) Commercial products, focused primarily on agricultural and other business related markets,
representing 30% of net premiums written; and (iii) Specialty Markets Group products, marketed through independent
managing general agents and managing general underwriters, representing 15% of net premiums written.
Personal Products
Personal Products results for the periods indicated were as follows (in thousands, except percentages):
Net premiums written
Automobile
Homeowner
Other Personal
Years ended December 31,
Change over prior year
2020
2019
2018
2020
2019
$
540,645
$
569,675
$
564,833
$
(29,030)
$
4,842
286,560
52,290
266,849
50,834
247,203
47,925
19,711
1,456
19,646
2,909
Total net premiums written
$
879,495
$
887,358
$
859,961
$
(7,863)
$
27,397
Net premiums earned
Automobile
Homeowner
Other Personal
$
536,376
$
559,524
$
543,163
$
(23,148)
$
16,361
274,350
51,552
251,228
49,475
241,208
47,026
23,122
2,077
2,051
10,020
2,449
$
28,830
Total net premiums earned
$
862,278
$
860,227
$
831,397
$
Loss and loss adjustment expense ratio
Automobile
Homeowner
Other Personal
Personal line loss and loss adjustment expense ratio
Combined Ratio
Automobile
Homeowner
Other Personal
Personal line combined ratio
Comparison of the years ended December 31, 2020 to 2019
59.5 %
87.7 %
62.0 %
68.6 %
83.9 %
118.9 %
94.4 %
95.7 %
72.7 %
79.2 %
58.0 %
73.8 %
95.9 %
112.1 %
99.1 %
100.8 %
81.4 %
80.6 %
62.1 %
80.1 %
104.3 %
112.1 %
98.5 %
106.2 %
(13.2) %
8.5 %
4.0 %
(5.2) %
(12.0) %
6.8 %
(4.7) %
(5.1) %
(8.7) %
(1.4) %
(4.1) %
(6.3) %
(8.4) %
— %
0.6 %
(5.4) %
Automobile: COVID-19 relief policy credits decreased net premiums written and earned by $16.8 million, as previously
discussed, as well as exposure changes primarily caused by fewer miles driven due to the impact of COVID-19. The loss and
loss adjustment expense and combined ratios improved primarily due to a decrease in claim frequency as policyholders drove
fewer miles and favorable claim development.
Homeowners: Net premiums written and earned increased primarily due to rate increases. The loss and loss adjustment expense
and combined ratios increased due to increased net catastrophe losses caused by multiple wind and hailstorms. Catastrophe
losses, net of reinsurance, increased by $32.2 million, to $91.2 million in 2020 compared to $59.0 million in 2019.
Other Personal: These products include coverages for individuals seeking to protect their personal property and liability not
covered within their home and auto policies, such as coverages for watercraft, personal umbrella, and rental owners. The loss
and loss adjustment ratio increased due to the increase in non-catastrophe losses incurred and the combined ratio decreased due
to decreased commissions and operating expenses.
52
Table of Contents
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
Commercial Products
Commercial Products results for the periods indicated were as follows (in thousands, except percentages):
Net premiums written
Agricultural Business
Automobile
Business Owner
Workers Compensation
Other Commercial
Years ended December 31,
Change over prior year
2020
2019
2018
2020
2019
$
165,112
$
154,408
$
146,460
$
10,704
$
7,948
128,701
122,938
110,259
80,383
69,092
33,205
72,008
74,077
36,454
66,583
76,107
34,964
5,763
8,375
(4,985)
(3,249)
12,679
5,425
(2,030)
1,490
Total net premiums written
$
476,493
$
459,885
$
434,373
$
16,608
$
25,512
Net premiums earned
Agricultural Business
Automobile
Business Owner
Workers Compensation
Other Commercial
Total net premiums earned
Loss and loss adjustment expense ratio
Agricultural Business
Automobile
Business Owner
Workers Compensation
Other Commercial
Commercial line loss and loss adjustment expense ratio
Combined ratio
Agricultural Business
Automobile
Business Owner
Workers Compensation
Other Commercial
Commercial line combined ratio
Comparison of the years ended December 31, 2020 to 2019
$
161,450
$
150,632
$
142,996
$
10,818
$
126,365
116,329
106,718
76,920
70,179
32,919
69,109
75,648
35,603
63,453
75,946
34,473
10,036
7,811
(5,469)
(2,684)
7,636
9,611
5,656
(298)
1,130
$
467,833
$
447,321
$
423,586
$
20,512
$
23,735
56.4 %
76.6 %
86.1 %
51.7 %
70.2 %
67.0 %
93.9 %
99.0 %
120.8 %
68.5 %
109.9 %
97.0 %
63.4 %
84.5 %
54.8 %
55.6 %
50.8 %
65.2 %
101.2 %
109.3 %
93.6 %
73.4 %
92.8 %
96.8 %
62.7 %
89.0 %
62.4 %
45.5 %
34.4 %
63.9 %
101.2 %
113.4 %
100.5 %
63.7 %
75.8 %
95.4 %
(7.0) %
(7.9) %
31.3 %
(3.9) %
19.4 %
1.8 %
(7.3) %
(10.3) %
27.2 %
(4.9) %
17.1 %
0.2 %
0.7 %
(4.5) %
(7.6) %
10.1 %
16.4 %
1.3 %
— %
(4.1) %
(6.9) %
9.7 %
17.0 %
1.4 %
Agricultural Business: Our agricultural business product allows policyholders to customize and cover their agriculture exposure
using a package policy, which includes coverage for residences and household contents, farm and ranch buildings and building
contents, personal and commercial liability and personal property. Net premiums written and earned increased primarily due to
rate increases and an increase in policies in-force. The loss and loss adjustment expense and combined ratios improved
primarily due to fewer non-catastrophe claims as well as favorable prior year claim severity development.
Commercial Automobile: Net premiums written and earned increased primarily due to rate increases and an increase in policies
in-force. The loss and loss adjustment expense and combined ratios improved primarily due to a decrease in claim frequency as
policyholders drove fewer miles.
Business Owner: Our business owner product allows policyholders to customize and cover their property and liability exposures
using a package policy. Net premiums written and earned increased primarily due to rate increases and an increase in policies
in-force. The loss and loss adjustment expense and combined ratios increased primarily due to unfavorable prior year claim
development.
53
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
Workers Compensation: Net premiums written and earned decreased primarily due to the rate decreases. The loss and loss
adjustment expense and combined ratios improved primarily due to favorable prior year claim development.
Other Commercial: Other commercial products primarily provide umbrella and other liability coverages. Net premiums written
and earned decreased primarily due to an increase in ceded premiums for reinsurance coverage. The loss and loss adjustment
expense and combined ratios increased primarily due to an increase in claim severity and frequency.
Specialty Markets Products
Specialty Markets products results for the periods indicated were as follows (in thousands, except percentages):
Net premiums written
Net premiums earned
Loss and loss adjustment expense ratio (1)
Combined ratio (1)
(1)
Ratio does not include fee income.
Years ended December 31,
Change over prior year
2020
2019
2018
2020
2019
$
234,752
$
198,901
$
220,229
$
35,851
$
(21,328)
230,192
203,653
211,757
26,539
(8,104)
43.7 %
99.7 %
56.8 %
104.7 %
53.1 %
104.4 %
(13.1) %
(5.0) %
3.7 %
0.3 %
Specialty Markets products provide protection to borrowers and the creditors that extend credit to them. Products offer coverage
against unpaid indebtedness as a result of death, disability, involuntary unemployment or untimely loss to the collateral
securing a personal or mortgage loan. Specialty Markets products also include renters, mortgage security, aviation, and private
flood insurance.
Net written and earned premiums increased primarily due to the addition of new accounts related to mortgage security and
collateral protection products. The loss and loss adjustment expense and combined ratios decreased primarily due to the
improvement of loss ratios on products that provide collateral protection related to automobiles, also known as auto GAP
business, and mortgage security products.
Reinsurance
We reinsure a portion of the risks that we underwrite to manage our loss exposure. In return for ceded premiums, reinsurers
assume a portion of the claims incurred. In addition to our reinsurance coverage, we are partially protected by the Terrorism
Risk Insurance Program Reauthorization Act of 2015 and its predecessors. We participate in the National Flood Insurance
Program administered by the Federal Emergency Management Agency.
During 2020, we retained the first $1.0 million for workers’ compensation risks and the first $1.5 million of loss per risk for
non-workers’ compensation risks. Our catastrophe reinsurance retention covering property and casualty companies in total is
$17.5 million.
The following table summarizes the Company’s catastrophe reinsurance coverage effective during 2020:
Layer of Loss
Less than $17.5 million
Catastrophe Reinsurance Coverage In-Force
100% of loss retained except for certain losses covered by the Catastrophe Aggregate and Second and Third
Event Property Catastrophe Excess cover (coverage described below)
$17.5 million - $25 million
20% of multiple peril losses covered by Corporate Program (1)
(all perils)
$25 million - $35 million
100% of multiple peril losses covered by Corporate Program (1) (all perils)
$35 million - $500 million
95% of multiple peril losses covered by Corporate Program (1) (all perils)
(1)
The Corporate Program covers all non-credit property and casualty business, subject to certain limits and is not specific to the Company or any of its
subsidiaries or any state or region. The program also covers the renters, mortgage security, investor protection, and auto GAP business written by the
Specialty Markets Group.
54
Table of Contents
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
Each per-event coverage above includes one automatic reinstatement except for a 11.6% portion of the Corporate Program
(11.6% of $35 million to $500 million). The automatic reinstatement requires us to pay additional reinsurance premium for any
losses into each reinsurance layer. The reinstatement premium is prorated by the percentage of actual loss to the coverage, with
the exception of 37.5% of losses from $35 million to $100 million, that reflects a 50% reduction on the prorated amount. The
11.6% placement of non-reinstateable coverage reduces the amount of reinstatement premium we are obligated to pay.
We purchase a Catastrophe Aggregate reinsurance coverage that provides for $30 million of limit excess of $104 million of
aggregated catastrophe losses. Qualifying losses include amounts of retained losses net of other reinsurance below $25 million
on Property Claims Services (“PCS”) declared catastrophe events and internally declared catastrophe events exceeding $5
million. The Catastrophe Aggregate reinsurance coverage has been placed at 100% for 2020 and does not include a
reinstatement.
A Second and Third Event Property Catastrophe Excess cover was placed in 2020. This cover provides $15 million of
protection excess of a $10 million retention per catastrophe. The reinsurance protection follows satisfaction of a $13.5 million
Annual Aggregate Deductible ("AAD"). This cover acts to reduce the retention on large second and third catastrophe events to
$10 million following a first large catastrophe and includes one automatic reinstatement at 100%.
We use multiple reinsurers with each reinsurer absorbing part of the overall risk ceded. The primary reinsurers in the 2020
programs and the coverage each provides are shown in the following table:
Reinsurer
Lloyd’s Syndicates
Swiss Re
Safety National Casualty Corporation
Hannover Ruckversicherung-Aktiengesellschaft, Germany
Renaissance Reinsurance
Other Reinsurers with no single company with greater than a 5.9% share
Total reinsurance coverage
(1)
A.M. Best rating as of the most current information available February 10, 2021.
A.M. Best
Rating (1)
Percent of Risk Covered
Non–Catastrophe
Catastrophe
A
A+
A++
A+
A+
42.8 %
41.3 %
2.3
15.2
11.1
6.0
22.6
100.0 %
6.8
—
2.2
1.1
48.6
100.0 %
Reinsurance is used to reduce risks associated with our credit related specialty market products primarily to provide producers
of these products the opportunity to participate in the underwriting risk through various entities, such as producer-owned
captive reinsurance companies or other insurance companies. A majority of the treaties entered into by our Specialty Markets
Group are written on a 100% coinsurance basis without benefit limits. We also place a corporate catastrophe reinsurance
program which covers P&C business written by the Specialty Markets Group as well as personal and commercial business
written by our Multiple Line agents.
Reserve Development
While we believe that our claims reserves at December 31, 2020 are adequate, new information, events or circumstances,
unknown at the original valuation date, may lead to future developments in ultimate losses in amounts significantly greater or
less than the reserves currently recorded. The actual final cost of settling both claims outstanding at December 31, 2020 and
claims expected to arise from unexpired periods of risk is uncertain. There are many other possible changes that would cause
losses to increase or decrease, which include but are not limited to claim severity; the expected level of reported claims; judicial
action changing the scope or liability of coverage; the regulatory, social and economic environment; and unexpected changes in
loss inflation. For additional information regarding prior year development of our claims and CAE reserves, refer to Note 12,
Liability for Unpaid Claims and Claim Adjustment Expenses, of the Notes to the Consolidated Financial Statements.
55
Table of Contents
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
Corporate and Other
Corporate and Other segment financial results for the periods indicated were as follows (in thousands):
OTHER REVENUES
Net investment income
Net realized investment gains
Change in investment credit loss*
Net gains (losses) on equity securities
Other income
Total other revenues
BENEFITS, LOSSES AND EXPENSES
Other expenses
Total benefits, losses and expenses
Years ended December 31,
Change over prior year
2020
2019
2018
2020
2019
$
29,707 $
75,993 $
85,702 $
(46,286) $
35,660
(102,603)
356,281
3,379
322,424
42,891
42,891
30,751
—
422,535
14,048
543,327
41,222
41,222
16,931
4,909
—
(102,603)
(107,188)
4,840
285
31,479
31,479
(66,254)
(10,669)
(220,903)
1,669
1,669
(9,709)
13,820
—
529,723
9,208
543,042
9,743
9,743
Income (loss) before federal income taxes and other items
$
279,533 $
502,105 $
(31,194) $
(222,572) $
533,299
*
Effective January 1, 2020, the Company adopted ASU No. 2016-13. Adoption of this guidance resulted in an allowance for credit losses primarily on the
commercial mortgage loans and related off-balance sheet unfunded loan commitments, held-to-maturity bonds and reinsurance recoverables. Prior
periods have not been restated to conform to the current presentation. See Note 3, Recently Issued Accounting Pronouncements.
Comparison of the years ended December 31, 2020 to 2019
Earnings attributable to our Corporate and Other segment decreased primarily due to the following:
•
•
•
An increase in the S&P 500 of 16.3% for the twelve months ended December 31, 2020 compared to a 28.9%
increase for the same period in 2019 resulting in lower net gains on equity securities
A decrease in net investment income earned and allocated to this segment
Change in investment credit loss due to the economic disruptions caused by the COVID-19 pandemic
Investments
We manage our investment portfolio to optimize the rate of return commensurate with sound and prudent asset selection and to
maintain a well-diversified portfolio in support of our products and capital. Our investment operations are regulated primarily
by the state insurance departments where our insurance companies are domiciled. Investment activities, including setting
investment policies and defining acceptable risk levels, are subject to oversight by our Board of Directors, which is assisted by
our Finance Committee, ALM Committee and Enterprise Risk Management Committee.
Our insurance and annuity products are generally supported by investment-grade bonds and commercial mortgage loans. We
also invest in equity options as a hedge for our indexed products. We purchase fixed maturity securities and designate them as
either held-to-maturity or available-for-sale considering our estimated future cash flow needs. We also monitor the composition
of our fixed maturity securities classified as held-to-maturity and available-for-sale and adjust the mix within the portfolio as
investments mature or new investments are purchased.
We invest in commercial mortgage loans when the yield and credit risk compare favorably with fixed maturity securities.
Individual residential mortgage loans including sub-prime or Alt-A mortgage loans have not been and are not expected to be
part of our investment portfolio. We purchase real estate and equity investments based on a risk and reward analysis where we
believe there are opportunities for enhanced returns.
56
Table of Contents
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
The following summarizes the carrying values of our invested assets (other than investments in unconsolidated affiliates) by
asset class (in thousands, except percentages):
Fixed maturity, bonds held-to-maturity, at amortized cost
$
7,354,970
30.3 % $
8,631,261
36.6 %
December 31, 2020
December 31, 2019
Fixed maturity, bonds available-for-sale, at fair value
Equity securities, at fair value
Mortgage loans on real estate, net of allowance
Policy loans
Investment real estate, net of accumulated depreciation
Short-term investments
Other invested assets
Total investments
7,597,180
2,070,766
5,242,531
373,014
517,293
1,028,379
94,415
31.3
8.5
21.6
1.5
2.1
4.2
0.5
6,725,085
1,700,960
5,097,017
379,657
551,219
425,321
76,569
28.5
7.2
21.6
1.6
2.3
1.8
0.4
$ 24,278,548
100.0 % $ 23,587,089
100.0 %
The increase in our total investments at December 31, 2020 compared to December 31, 2019 was primarily a result of an
increase in short-term investments and bonds available-for-sale.
Bonds—We allocate most of our fixed maturity securities to support our insurance business. At December 31, 2020, our fixed
maturity securities had an estimated fair value of $15.6 billion, which was $1.2 billion, or 8.0%, above amortized cost. At
December 31, 2019, our fixed maturity securities had an estimated fair value of $15.7 billion, which was $0.6 billion, or 4.2%,
above amortized cost. The estimated fair value for securities due in one year or less was $1.1 billion as of December 31, 2020
and $1.2 billion as of December 31, 2019. For additional information regarding total bonds by credit quality rating refer to Note
4, Investments in Securities, of the Notes to the Consolidated Financial Statements.
Equity Securities—We invest in the equity securities of companies traded on national U.S. stock exchanges. See Note 4,
Investments in Securities, of the Notes to the Consolidated Financial Statements for the unrealized and realized gains and losses
of equity securities.
Mortgage Loans—We invest in commercial mortgage loans that are diversified by property-type and geography. Generally,
mortgage loans are secured by first liens on income-producing real estate with a loan-to-value ratio of up to 75%. Mortgage
loans are generally carried at outstanding principal balances, adjusted for any unamortized premium or discount, deferred fees
or expenses, and net of allowances. The weighted average coupon yield on the principal funded for mortgage loans was 4.8% at
December 31, 2020 and 2019. For additional information regarding mortgage loans refer to Note 5, Mortgage Loans, of the
Notes to the Consolidated Financial Statements.
Policy Loans—For certain life insurance products, policyholders may borrow funds using the policy’s cash value as collateral.
The maximum amount of the policy loan depends upon the policy’s surrender value. As of December 31, 2020, we had
$373.0 million in policy loans with a loan to surrender value of approximately 56%, and at December 31, 2019, we had
$379.7 million in policy loans with a loan to surrender value of approximately 56%. Interest rates on policy loans primarily
range from 3.0% to 12.0% per annum. Policy loans may be repaid at any time by the policyholder and have priority to any
claims on the policy. If the policyholder fails to repay the policy loan, funds are withdrawn from the policy’s benefits.
Investment Real Estate—We invest in commercial real estate where positive cash flows and/or appreciation in value is
expected. Real estate may be owned directly by our insurance companies or non-insurance affiliates or indirectly in joint
ventures with real estate developers or investors we determine share our perspective regarding risk and return relationships. The
carrying value of real estate is stated at cost, less accumulated depreciation and impairments, if any. Depreciation is provided
over the estimated useful lives of the properties.
Short-Term Investments—Short-term investments are primarily commercial paper rated A2 or P2 or better by Standard &
Poor’s and Moody’s, respectively. The amount fluctuates depending on our view of the desirability of investing in the available
long-term investment opportunities and our liquidity needs, including mortgage investment-funding commitments.
57
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
Other Invested Assets—Other invested assets are comprised primarily of pooled loans to mid-sized businesses which are
initiated and administered by third-party managers, these loans are carried at fair value. Other invested assets also include
equity-indexed options, carried at fair value, net of collateral provided by counterparties; such collateral is restricted to the
Company’s use. Additionally, other invested assets include FHLB capital stock, mineral rights, mezzanine loans and lease
financing arrangements all of which are carried at cost.
Net Investment Income and Net Realized Gains (Losses)
Net investment income decreased $143.7 million during 2020 compared to 2019 primarily due to lower gains on options from a
decline in the S&P 500.
Interest income on mortgage loans is accrued on the principal amount of the loan at the contractual interest rate. Accretion of
discounts is recorded using the effective yield method. Interest income, accretion of discounts and prepayment fees are reported
in net investment income. Interest is not accrued on loans generally more than 90 days past due or when the collection of
interest is not considered probable. Loans in 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.
Net realized investment gains decreased $2.1 million during 2020 compared to 2019 primarily attributable to decreased sales of
real estate. Net realized investment gains (losses) are shown below (in thousands):
Bonds
Mortgage loans
Real estate
Other invested assets
Total
Net Unrealized Gains and Losses
December 31, 2020
2020
2019
2018
23,318 $
16,361 $
—
12,401
(59)
(2,412)
25,555
(1,785)
35,660 $
37,719 $
10,903
(4,798)
12,076
(7)
18,174
$
$
The unrealized gains and losses of our fixed maturity securities investment portfolio are shown below (in thousands):
Held-to-maturity
Gains
Losses
Net gains
Available-for-sale
Gains
Losses
Net gains
Total
December 31,
2020
2019
Change
$
639,648 $
345,463 $
(11,437)
628,211
548,996
(17,476)
531,520
(8,034)
337,429
302,426
(13,011)
289,415
$
1,159,731 $
626,844 $
294,185
(3,403)
290,782
246,570
(4,465)
242,105
532,887
The net change in the unrealized gains on fixed maturity securities between December 31, 2020 and December 31, 2019 is
primarily attributable to the decrease in benchmark ten-year interest rates which were 0.9% and 1.9% respectively. The
Company does not currently intend to sell nor does it expect to be required to sell any of the securities in an unrealized loss
position.
58
Table of Contents
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
Liquidity
As a result of the holding company reorganization, ANICO became the wholly owned subsidiary of ANAT. ANAT's source of
liquidity is solely derived from dividends received from ANICO.
We are monitoring our liquidity needs closely. In April 2020, the Company borrowed $500 million from the Federal Home
Loan Bank of Dallas' COVID-19 Relief Advance Program. As of December 31, 2020, one advance totaling $250 million was
outstanding and expected to be repaid on its maturity date of April 28, 2021. The available liquidity at February 22, 2021 was
approximately $775.2 million.
As a result of the impacts of COVID-19, state insurance departments across the country issued regulations that required us not
to cancel policies for non-payment for varying amounts of time but generally for at least 90-day periods which began in March
and early April 2020. The cancellation and grace periods have been lifted in most states.
The primary use of cash has been and is expected to continue to be payment of policyholder benefits and claims incurred.
Current and expected patterns of claim frequency and severity may change from period to period but continue to be within
historical norms. Management currently considers our current liquidity position to be sufficient to meet anticipated demands
over the next twelve months. Our contractual obligations are not expected to have a significant negative impact to cash flows
from operations.
Our defined benefit plans are frozen and currently adequately funded; however, low interest rates, increased longevity of
participants, and rising Pension Benefit Guaranty Corporation (“PBGC”) premiums may cause us to increase our funding of the
plans.
We are currently evaluating the renovation and modernization of our home office facilities. This could result in aggregate
capital expenditures of approximately $100 million over a three-year period beginning in 2021. However, current uncertainties
relating to the COVID-19 pandemic could cause us to lower or delay anticipated spending on capital investment projects. There
are no other unusually large capital expenditures expected in the next 12-24 months.
We have paid dividends to stockholders for over 110 consecutive years and expect to continue this tradition. There are no other
known trends or uncertainties regarding product pricing, changes in product lines or rising costs that are expected to have a
significant impact to cash flows from operations, although uncertainties relating to the COVID-19 pandemic could still
significantly impact one or more of these items.
Funds received as premium payments and deposits that are not used for liquidity requirements are generally invested in bonds
and commercial mortgages. Funds are invested with the intent that income from the investments and proceeds from the
maturities will meet our ongoing cash flow needs. We historically have not had to liquidate invested assets in order to cover
cash flow needs. While our investment portfolio has been significantly impacted by volatility associated with COVID-19, and
likely will continue to be, at this time, we believe our portfolio of highly liquid available-for-sale investment securities,
including equity securities, coupled with our ability to borrow funds through the FHLB, are sufficient to meet future liquidity
needs as necessary.
As a result of the economic disruption caused by COVID-19, we modified 93 mortgage loans with a total balance of $1.6
billion. These modifications primarily relate to hotels, retail and parking operations. The terms of the modifications of these
loans include forbearance of principal and interest payments for a period of up to six months, extensions of maturity dates, and/
or provision of interest only payments. Prior to December 31, 2020, eight loans totaling $230 million which had been modified
earlier in the year were modified again and as of February 23, 2021 an additional 17 loans totaling $446 million were also
remodified. The terms of these modifications were for additional forbearance of up to six months and extensions of interest only
payments for up to twelve month and generally included a requirement for the payment of at least 20% of the total interest due
during the modification period.
The Company holds collateral of $241.5 million at December 31, 2020 to offset exposure from its derivative counterparties.
Cash flows associated with collateral received from counterparties change as the market value of the underlying derivative
contract changes.
59
Table of Contents
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
Our cash and cash equivalents and short-term investment position increased from $877.3 million at December 31, 2019 to $1.4
billion at December 31, 2020. The increase in cash is a result of reduced investment in long-term securities due to market
uncertainty.
A downgrade or a potential downgrade in our financial strength ratings could result in a loss of business and could adversely
affect our cash flows from operations.
Further information regarding additional sources or uses of cash is described in Note 19, Commitments and Contingencies, of
the Notes to the Consolidated Financial Statements.
Capital Resources
Our capital resources are summarized below (in thousands):
American National stockholders’ equity, excluding accumulated other comprehensive income
(“AOCI”), net of tax
Accumulated other comprehensive income (loss)
Total American National stockholders’ equity
December 31,
2020
2019
2018
$
$
6,236,100 $
5,890,231 $
5,356,986
222,170
99,518
(99,738)
6,458,270 $
5,989,749 $
5,257,248
We have notes payable relating to borrowings by real estate joint ventures that we consolidate into our financial statements that
are not part of our capital resources. The lenders for the notes payable generally have no recourse against us in the event of
default by the joint ventures. Therefore, the liability we have for these notes payable is limited to our investment in the
respective ventures, which totaled $3.0 million and $4.3 million at December 31, 2020 and 2019, respectively.
The changes in our capital resources are summarized below (in thousands):
Years ended
2020
Accumulated
Other
Comprehensive
Income (Loss)
Capital and
Retained
Earnings
Capital and
Retained
Earnings
Total
2019
Accumulated
Other
Comprehensive
Income (Loss)
Total
Net income attributable to American National
$
467,505 $
— $
467,505 $
620,363 $
— $
620,363
Dividends to shareholders
Change in net unrealized gains on debt
securities
Foreign currency transaction and translation
adjustment
Defined benefit pension plan adjustment
Cumulative effect of accounting changes (1)
Other
Total
(88,190)
—
(88,190)
(88,243)
—
(88,243)
—
134,315
134,315
—
—
(33,500)
54
235
(11,898)
—
—
235
(11,898)
(33,500)
54
—
—
—
785
340
184,156
184,156
390
15,495
(785)
—
390
15,495
—
340
$
345,869 $
122,652 $
468,521 $
533,245 $
199,256 $
732,501
(1)
Result of adoption of ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. See
Note 3, Adoption of New Accounting Standards.
Statutory Capital and Surplus and Risk-based Capital
Statutory capital and surplus is the capital of our insurance companies reported in accordance with accounting practices
prescribed or permitted by the applicable state insurance departments. RBC is calculated using formulas applied to certain
financial balances and activities that consider, among other things, investment risks related to the type and quality of
investments, insurance risks associated with products and liabilities, interest rate risks and general business risks. Insurance
companies that do not maintain capital and surplus at a level of at least 200% of the authorized control level RBC are required
to take certain actions. At December 31, 2020 and December 31, 2019, ANICO’s statutory capital and surplus was $3.6 billion
and $3.5 billion, respectively. ANICO and each of our insurance subsidiaries had statutory capital and surplus at December 31,
2020 and December 31, 2019, above 200% of the authorized control level, except for ANPAC Louisiana Insurance Company
("ANPLA") at December 31, 2020.
60
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
At December 31, 2020 and December 31, 2019, ANPLA's statutory capital and surplus was $68.5 million and $77.0 million,
which resulted in an RBC level of 194% and 280% of the authorized control level, respectively. This decrease in RBC of
ANPLA is primarily driven by an increase in homeowners catastrophe losses during 2020. We are actively managing our
homeowners exposure of ANPLA, will continue to monitor the surplus levels and will be addressing rate adequacy through
future planned rate and underwriting actions.
The achievement of long-term growth will require growth in our insurance subsidiaries’ statutory capital and surplus. Our
subsidiaries may obtain additional statutory capital through various sources, such as retained statutory earnings or equity
contributions from us.
Contractual Obligations
The following summarizes our contractual obligations as of December 31, 2020 (in thousands):
Life insurance obligations (1)
Annuity obligations (1)
Property and casualty insurance obligations (2)
Health insurance obligations (3)
Purchase obligations
Commitments to purchase and fund investments
Mortgage loan commitments
Operating leases
Defined benefit pension plans (4)
Notes payable (5)
Total
Payments Due by Period
Total
Less than
1 year
1-3 years
3-5 years
More than
5 years
$
3,550,229 $
(83,339) $
(152,848) $
(31,679) $
3,818,095
14,793,341
1,230,657
2,422,851
2,357,051
8,782,782
1,035,236
249,141
640,756
534,515
7,391
63,097
153,703
447,925
157,496
209,121
373,621
3,137
16,934
—
364,686
30,232
371,295
160,894
3,460
15,912
10,819
127,672
13,181
56,994
—
698
11,349
64,319
94,953
48,232
3,346
—
96
18,902
78,565
$
21,027,409 $
2,355,552 $
3,227,301 $
2,599,585 $
12,844,971
(1)
(2)
(3)
(4)
(5)
Life and annuity obligations include undiscounted estimated claim, benefit, surrender and commission obligations offset by expected future premiums and
deposits on in-force insurance policies and annuity contracts. All amounts are gross of any reinsurance recoverable. Estimated claim, benefit and
surrender obligations are based on mortality and lapse assumptions comparable with historical experience. Estimated payments on interest-sensitive life
and annuity obligations include interest credited to those products. The interest crediting rates are derived by deducting current product spreads from a
constant investment yield. As a result, the estimated obligations for insurance liabilities included in the table exceed the liabilities recorded in the liability
for future policy benefits and policy and contract claims. Due to the significance of the assumptions used, the amounts presented could materially differ
from actual payments. Separate account obligations have not been included in the table since those obligations are not part of the general account
obligations and will be funded by cash flows from separate account assets. The general account obligations for insurance liabilities will be funded by cash
flows from general account assets and future premiums and deposits. Participating policyholder dividends payable consists of liabilities related to
dividends payable in the following calendar year and are presented in the less than one-year category. All estimated cash payments are net of estimated
future premiums on policies currently in-force net of future policyholder dividends payable. The participating policyholders’ share obligation included in
other policyholder funds and the timing and amount of the ultimate participating policyholder obligation is subject to significant uncertainty and the
amount of the participating policyholder obligation is based upon a long-term projection of the performance of the participating policy block.
Includes undiscounted case reserves for reported claims and reserves for IBNR with the timing of future payments based on our historical payment
patterns. The timing of these payments may vary significantly from the pattern shown in the preceding table. The ultimate losses may vary materially
from the recorded amounts, which are our best estimates.
Reflects estimated future claim payments for claims incurred based on mortality and morbidity assumptions that are consistent with historical claims
experience. These are not discounted with interest and will exceed the liabilities recorded in reserves for future claim payment, which are discounted with
interest. Due to the significance of the assumptions used, the amounts presented could materially differ from actual payments.
Estimated payments through continuing operations for benefit obligations of the non-qualified defined benefit pension plan. A liability has been
established for the full amount of benefits accrued.
The estimated payments due by period for notes payable reflect the contractual maturities of principal for amounts borrowed by real estate joint ventures
and collateralized by real-estate owned by the respective entity. Our liability is limited to its investment in the respective joint venture. See Note 6, Real
Estate and Other Investments, of the Notes to the Consolidated Financial Statements for additional details.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
Off-Balance Sheet Arrangements
We have off-balance sheet arrangements relating to third-party marketing operation bank loans as discussed in Note 19,
Commitments and Contingencies, of the Notes to the Consolidated Financial Statements. We could be exposed to a liability for
these loans, which are supported by the cash value of the underlying insurance contracts. The cash value of the life insurance
policies is designed to always equal or exceed the balance of the loans. Accordingly, management does not foresee any material
loss related to these arrangements.
Related-Party Transactions
We have various agency, consulting and service arrangements with individuals and entities considered to be related parties.
Each of these arrangements has been reviewed and approved by our Audit Committee, which retains final decision-making
authority for these transactions. The amounts involved, both individually and in the aggregate, with these arrangements are not
material to any segment or to our overall operations. For additional details see Note 20, Related Party Transactions, of the Notes
to the Consolidated Financial Statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our investments and some of our products are subject to various market risks associated with changes in interest rates, credit
spreads, issuer defaults, equity prices and market indices. Adverse changes due to these market risks may occur as a result of
various factors, including changes in market liquidity, risk tolerances and market perceptions of creditworthiness.
We emphasize prudent risk management throughout all our operations. Our enterprise risk management procedures help us to
identify, prioritize and manage various risks including market risk. Under the leadership of our Board of Directors and
Corporate Risk Officer, we have instituted a framework based on the principles of enterprise risk management designed to
provide reasonable assurance regarding the achievement of our strategic objectives. Related activities include:
•
identifying evolving and potential risks and events that may affect us;
• managing risks within our risk profile;
•
•
appropriate escalation of risks and disclosure of any risk limit breaches within the enterprise, along with the
correction method if appropriate;
tracking actual risk levels against predetermined thresholds; and
• monitoring our capital adequacy.
We expect ongoing enterprise risk management efforts will expand the management tools used to support an efficient allocation
of capital and enhance the measurement of possible diversification benefits across business segments and risk classes.
A key component of our risk management program is our ALM Committee. The ALM Committee monitors the level of our risk
exposure in managing our assets and liabilities to attain the desired risk-return profile for our diverse mix of assets and
liabilities and their resultant cash flows. This process includes maintaining adequate reserves, monitoring claims and surrender
experience, managing interest rate spreads, evaluation of alternate investment strategies and protecting against
disintermediation risk for life insurance and annuity products.
As a part of the ALM process, we have asset portfolios for each major line of business, which represent the investment
strategies used to fund liabilities within acceptable levels of risk. We monitor these strategies through regular review of
portfolio metrics, such as effective duration, yield curve sensitivity and liquidity. In executing these ALM strategies, we
regularly reevaluate the estimates used in determining the approximate amounts and timing of payments to or on behalf of
policyholders for insurance liabilities. Many of these estimates are inherently subjective and could impact our ability to achieve
our ALM goals and objectives. Our Finance Committee and ALM Committee also review the risks associated with evaluation
of alternate investment strategies and the specific investments made to support our business and for consistency with our overall
investment strategy.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK — (Continued)
Interest Rate Risk
Interest rate risk is the risk that the value of our interest sensitive assets or liabilities will change with changes in market interest
rates. The fair market value of fixed maturity securities is inversely related to changes in market interest rates. As interest rates
fall, the cash flow from the interest coupon and dividend streams of existing fixed rate investments become more valuable and
the market values of fixed maturity securities rise. As interest rates rise, the reverse occurs and the market value of fixed
maturity securities falls. These general assumptions hold all other variables influencing the values of fixed maturity securities
constant and would not fully reflect any prepayment to the portfolio, changes in corporate spreads or non-parallel changes in
interest rates for different maturities, or changes in credit quality, any of which could cause changes in the values of fixed
maturity securities that differ materially from our assumptions and estimates.
The carrying values of our investment in fixed maturity securities, which comprise 61.6% of our portfolio, are summarized
below (in thousands, except percentages):
Fixed maturity, bonds held-to-maturity
Fixed maturity, bonds available-for-sale
Net unrealized gains on available-for-sale bonds
December 31,
2020
2019
Amount
Percent
Amount
Percent
$
7,354,970
49.2 % $
8,631,261
7,597,180
531,520
50.8
7.0
6,725,085
289,415
56.2 %
43.8
4.3
The unrealized gain on available-for-sale bonds was primarily the result of an increase in unrealized gains on corporate debt
securities. Information regarding our unrealized gains or losses is disclosed in Note 4, Investments in Securities, of the Notes to
the Consolidated Financial Statements. Our exposure to cash flow changes is discussed further in the Liquidity and Capital
Resources section of the MD&A.
Our mortgage loans also have interest rate risk. As of December 31, 2020, these mortgage loans have fixed rates ranging from
3.5% to 10.0%. Most of the mortgage loan contracts require periodic payments of both principal and interest, and have
amortization periods of three to 30 years. Many of our mortgage loans contain prepayment restrictions or fees or both that
reduce the risk of payment before maturity or compensate us for all or a portion of the investment income lost through early
payment of the loan principal.
Rising interest rates can cause increases in policy loans associated with life insurance policies and surrenders relating to life
insurance or annuities. Policyholders may move their assets into new products offering higher rates if there were sudden or
significant changes in interest rates. We may have to sell assets earlier than anticipated to pay for these withdrawals. Our life
insurance and annuity product designs reduce the financial impact of early surrenders through the use of restrictions on
withdrawal, surrender charges and market value adjustment features. ALM guidelines, including duration targets and asset
allocation tolerances, help ensure this risk is managed within the constraints of established criteria. Consistent monitoring of
and periodic changes to our product pricing help us to better match the duration of assets and liabilities.
Falling interest rates can have an adverse impact on our general account annuities. We aim to manage interest margin, which is
the difference between yields on investments supporting our liabilities and amounts credited to policyholder account balances
and reserves. As portfolio yields decline, we can reduce crediting rates on some deferred annuities, to a limit defined by
contractual minimum guarantees, but we cannot adjust immediate annuity benefits and reserves. Assuming a 10 basis point
decline in current portfolio yield, our annual interest margin would decline $9.6 million.
Interest Rate sensitivity analysis: The table below shows the estimated change in pre-tax market values of our investments in
fixed maturity securities caused by instantaneous, one time parallel shifts in the corresponding year-end U.S. Treasury yield
curves of +/- 100bps and +/- 50bps (in thousands):
December 31, 2020
December 31, 2019
Increase (Decrease) in Market Value Given an Interest Rate
Increase (Decrease) of Basis Points
(100)
(50)
50
100
$
703,957 $
345,427 $
(333,613) $
644,144
318,400
(316,290)
(658,118)
(630,051)
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK — (Continued)
Credit Risk
We are exposed to credit risk, which is the uncertainty of whether a counterparty will honor its obligation under the terms of a
security, loan or contract. To help manage credit risk, we have an Investment Plan approved by our Board of Directors. This
plan provides issuer and geographic concentration limits, investment size limits, mortgage loan-to-value guidelines and other
applicable investment parameters. Investment activity, including the setting of investment policies and defining acceptable risk
levels, is subject to review by our Board of Directors, Finance Committee and Enterprise Risk Management Committee.
We are also exposed to risks created by changes in market prices and cash flows associated with fluctuations in the credit
spread or the market’s perception of the relative risk and reward to hold fixed maturity securities of borrowers with different
credit characteristics or credit ratings. Credit spread widening will reduce the fair value of our existing investment portfolio and
will increase investment income on new purchases. Credit spread tightening would have the opposite effect. Information
regarding the credit quality of our fixed maturity securities can be found in Part II, Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations, Investments section of the MD&A.
We are subject to credit risk associated with our reinsurance agreements. While we believe our reinsurers are reputable and
have the financial strength to meet their obligations to us, reinsurance does not eliminate our liability to pay our policyholders,
and we remain primarily liable to our policyholders for the risks we insure. We regularly monitor the financial strength of our
reinsurers and the levels of concentration to individual reinsurers to verify they meet established thresholds.
The Company’s use of derivative instruments exposes it to credit risk in the event of non-performance by the counterparties.
The Company has a policy of only dealing with counterparties it believes are creditworthy and obtaining sufficient collateral
where appropriate, as a means of mitigating the financial loss from defaults. The Company holds collateral in cash and notes
secured by U.S. government backed assets. The non-performance risk is the net counterparty exposure based on the fair value
of the open contracts, less the fair value of collateral held. For additional information regarding counterparties used and
collateral received, see Note 7, Derivative Instruments, of the Notes to the Consolidated Financial Statements.
We are exposed to risks on our mortgage loans when there are economic disruptions, such as the COVID-19 pandemic. The
challenging economic conditions impair borrowers' ability to meet loan terms. The Company granted concessions to certain
mortgage loan borrowers during 2020. For additional information regarding the impact of COVID-19 to mortgage loans, see
Note 5, Mortgage Loans, of the Notes to the Consolidated Financial Statements.
Equity Risk
Equity risk is the risk that we will incur realized or unrealized losses due to changes in the overall equity investment markets or
specific investments within our portfolio. As a result of FASB issued guidance, the change in fair value of equity securities is
recognized in earnings, which could increase the level of volatility in our consolidated statements of operations. At
December 31, 2020, we held approximately $2.1 billion of equity investments, which are subject to equity risk. Our exposure to
the equity markets is managed by sector and individual security and is intended to track the S&P 500 with minor variations. We
mitigate our equity risk by diversification of the investment portfolio.
We also have equity risk associated with the equity-indexed life and annuity products we issue. We have entered into derivative
transactions, primarily over-the-counter equity call options, to hedge our exposure to equity index changes.
Changes in Accounting Principles
Refer to Note 3, Recently Issued Accounting Pronouncements, of the Notes to the Consolidated Financial Statements for a
discussion of recently issued accounting pronouncements not yet adopted.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Annual Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Financial Position as of December 31, 2020 and 2019
Consolidated Statements of Operations for the years ended December 31, 2020, 2019, and 2018
Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019, and 2018
Consolidated Statements of Changes in Equity for the years ended December 31, 2020, 2019, and 2018
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019, and 2018
Notes to the Consolidated Financial Statements
66
70
71
72
73
74
76
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Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of
American National Group, Inc.
Galveston, Texas
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statement of financial position of American National Group, Inc. and
subsidiaries (the "Company") as of December 31, 2020, the related consolidated statements of operations, comprehensive
income, changes in equity, and cash flows for the year ended December 31, 2020, and the related notes and the schedules listed
in the Index at Item 15 (collectively referred to as the "financial statements"). We also have audited the Company’s internal
control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of
December 31, 2020, and the results of its operations and its cash flows for the year ended December 31, 2020, in conformity
with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established
in Internal Control — Integrated Framework (2013) issued by COSO.
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Item 9A, Controls and Procedures. Our responsibility is to express an opinion on these financial statements and
an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audit of the financial statements included performing procedures to assess the risks of material misstatement of the
financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and
we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on
the accounts or disclosures to which they relate.
Policyholders’ Account Balances – Valuation of embedded derivative liabilities for equity-indexed contracts — Refer to
Notes 7 and 9 to the financial statements
Critical Audit Matter Description
The Company sells equity-indexed universal life and equity-indexed deferred annuity contracts with guaranteed minimum
benefits, some of which contain embedded derivatives that are required to be bifurcated from a host reserve, separately
accounted for, and measured at fair value. The embedded derivative represents future benefit cash flows in excess of the
minimum guarantee cash flows. As of December 31, 2020, the fair value of the embedded derivative liabilities was $705
million. Management utilizes various assumptions in order to measure the fair value of the embedded derivatives including
assumptions related to lapse rate and equity volatility. These assumptions are evaluated annually by management with any
changes in the estimated fair value resulting in a cumulative charge or credit to income from operations.
Given the valuation of the embedded derivative liabilities is sensitive to changes in these assumptions, the related audit effort in
evaluating management’s selection of the assumptions related to the lapse rate and equity volatility required a high degree of
auditor judgment and an increased extent of effort, including involvement of our actuarial and fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our principal audit procedures related to the lapse rate and equity volatility assumptions selected by management for the
valuation of embedded derivative liabilities included the following, among others:
• We tested the effectiveness of management’s controls over the valuation of embedded derivative liabilities, including
those over the development, selection, and implementation of the assumptions related to lapse rate and equity
volatility.
• With the assistance of our fair value specialists, we tested the completeness and accuracy of the underlying data used
to determine the equity volatility assumptions.
• We tested the completeness and accuracy of the historical company experience used to determine the lapse rate
assumptions.
• With the assistance of our actuarial specialists, we evaluated the appropriateness of the assumptions, evaluated the
consistency of the selected assumptions used in the Company’s valuation model, and tested the mathematical accuracy
of the valuation model.
Policy and Contract Claims – Property and casualty liability for unpaid claims and claim adjustment expenses — Refer to
Notes 2 and 12 to the financial statements
Critical Audit Matter Description
The Company establishes a liability for unpaid claims and claim adjustment expenses to provide for the estimated costs of
paying claims under property and casualty insurance policies written by the Company. The property and casualty liability for
unpaid claims is included within Policy and Contract Claims in the statements of financial position, which had a balance of $1.6
billion as of December 31, 2020. This liability, which includes estimates for both claims that have been reported and claims that
have been incurred but not reported, represents the estimate of all claim and claim adjustment expenses associated with
processing and settling the claims. The liability for unpaid claims is estimated using actuarial assumptions for loss development
patterns that are based upon the Company’s historical experience and consider the effects of current developments, anticipated
trends and risk management programs.
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Given the subjectivity of estimating the ultimate cost to settle the liability for property and casualty insurance reported and
incurred but not reported claims, the related audit effort in evaluating the assumptions for loss development patterns required a
high degree of auditor judgment and an increased extent of effort, including involvement of our actuarial specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our principal audit procedures related to the assumptions for loss development patterns selected by management to estimate the
property and casualty liability for unpaid claims and claim adjustment expenses included the following, among others:
• We tested the effectiveness of management’s controls over the property and casualty liability for unpaid claims and
claim adjustment expenses, including those over the development, selection, and implementation of the assumptions
for loss development patterns used in the actuarial estimates.
• With the assistance of our actuarial specialists, we tested the completeness and accuracy of the underlying data,
including historical claims, used to determine the assumptions for loss development patterns, evaluated the
appropriateness of the assumptions, evaluated the consistency of the selected assumptions used in the Company’s
valuation model, and tested the mathematical accuracy of the valuation model.
• We evaluated the reasonableness of the Company’s estimated property and casualty liability for unpaid losses and loss
adjustment expenses by comparing to those independently derived by our actuarial specialists.
Mortgage Loans on Real Estate – Allowance for Credit Losses — Refer to Notes 2, 3, and 5 to the financial statements
Critical Audit Matter Description
The Company measures credit losses for instruments measured at amortized cost, including its portfolio of commercial
mortgage loans. The allowance for credit losses for mortgage loans, which was recorded on a net basis within Mortgage Loans
on Real Estate in the statements of financial position, had a balance of $126 million as of December 31, 2020. The value of the
allowance for credit losses on mortgage loans is estimated by management using the current expected credit loss model, which
considers quantitative and qualitative allowance factors based on past loss experience, current economic conditions, and
reasonable and supportable forecasts of future conditions. The qualitative allowance factors are developed quarterly based on
the pooling of assets with similar risk characteristics and historical loss experience adjusted for the expected trend in the current
market environment.
Given the subjectivity of estimating the qualitative allowance factors applied in developing the allowance for credit losses,
performing audit procedures to evaluate whether the allowance for credit losses on mortgage loans was appropriately valued
required a high degree of auditor judgment and an increased extent of effort, including involvement of our credit specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our principal audit procedures related to the assumptions surrounding qualitative allowance factors used by management to
estimate the allowance for credit losses on mortgage loans included the following, among others:
• We tested the effectiveness of management’s controls over the allowance for credit losses on mortgage loans,
including those over the development, selection, and implementation of the assumptions related to the qualitative
allowance factors.
• With the assistance of our credit specialists, we evaluated the appropriateness of the model methodology, which
includes the application of the qualitative allowance factors. We also evaluated the appropriateness of these
assumptions and the consistency of the selected assumptions used in the Company’s valuation model.
• We evaluated management’s qualitative allowance factors by comparing them to current market data to identify
potential bias in the determination of the allowance for credit losses on mortgage loans.
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
March 4, 2021
We have served as the Company's auditor since 2020.
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Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
American National Group, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statement of financial position of American National Group, Inc. (formerly
American National Insurance Company) and subsidiaries (the Company) as of December 31, 2019, the related consolidated
statements of operations, comprehensive income, changes in equity, and cash flows for each of the years in the two-year period
ended December 31, 2019, and the related notes and financial statement schedules I to IV (collectively, the consolidated
financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2019, and the results of its operations and its cash flows for each of the years in
the two-year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a
reasonable basis for our opinion.
/s/ KPMG LLP
We served as the Company’s auditor from 2000 to 2020.
Houston, Texas
February 28, 2020
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AMERICAN NATIONAL GROUP, INC.
(formerly AMERICAN NATIONAL INSURANCE COMPANY)
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands, except share data)
ASSETS
Fixed maturity, bonds held-to-maturity, at amortized cost, net of allowance for credit losses of $12,442 in 2020
(Fair value $7,983,181 in 2020 and $8,968,690 in 2019)
$
7,354,970 $
8,631,261
December 31,
2020
2019
Fixed maturity, bonds available-for-sale, at fair value (Allowance for credit losses of $7,482 in 2020)
(Amortized cost $7,073,142 in 2020 and $6,435,670 in 2019)
Equity securities, at fair value (Cost $754,625 in 2020 and $663,058 in 2019)
Mortgage loans on real estate, net of allowance for credit losses of $125,703 in 2020 and allowance for loan loss
of $19,160 in 2019
Policy loans
Investment real estate, net of accumulated depreciation of $269,626 in 2020 and $256,757 in 2019
Short-term investments
Other invested assets
Total investments
Cash and cash equivalents
Investments in unconsolidated affiliates
Accrued investment income
Reinsurance recoverables, net of allowance for credit losses of $14,353 in 2020 and allowance for recoverable
loss of $8,220 in 2019
Prepaid reinsurance premiums
Premiums due and other receivables
Deferred policy acquisition costs
Property and equipment, net of accumulated depreciation of $281,738 in 2020 and $257,907 in 2019
Prepaid pension
Other assets
Separate account assets
Total assets
LIABILITIES
Future policy benefits
Life
Annuity
Health
Policyholders’ account balances
Policy and contract claims
Unearned premium reserve
Other policyholder funds
Liability for retirement benefits
Notes payable
Deferred tax liabilities, net
Current tax payable
Federal Home Loan Bank advance
Other liabilities
Separate account liabilities
Total liabilities
EQUITY
American National Group, Inc. stockholders’ equity:
Common stock, $0.01 par value in 2020 and $1.00 in 2019; 50,000,000 shares authorized, 26,887,200 shares
issued and outstanding in 2020 and 30,832,449 shares issued and 26,887,200 outstanding in 2019
Additional paid-in capital
Accumulated other comprehensive income
Retained earnings
Treasury stock, at cost
Total American National stockholders’ equity
Noncontrolling interest
Total stockholders' equity
Total liabilities and stockholders' equity
See accompanying notes to the consolidated financial statements.
70
7,597,180
2,070,766
5,242,531
373,014
517,293
1,028,379
94,415
24,278,548
339,947
920,414
216,389
414,359
42,804
351,972
6,725,085
1,700,960
5,097,017
379,657
551,219
425,321
76,569
23,587,089
452,001
705,721
200,856
411,830
44,669
341,924
1,360,211
1,423,007
121,578
80,526
155,600
106,303
78,990
171,285
1,185,467
1,073,891
$
29,467,815 $
28,597,566
$
3,149,067 $
1,617,774
49,658
12,812,155
1,575,288
956,343
358,601
70,254
153,703
478,347
10,372
250,000
335,219
3,087,578
1,571,263
49,886
12,957,989
1,489,979
933,559
361,059
67,435
157,997
394,528
9,757
—
446,882
1,185,467
23,002,248
1,073,891
22,601,803
269
47,683
222,170
6,188,148
—
6,458,270
7,297
6,465,567
30,832
21,011
99,518
5,946,857
(108,469)
5,989,749
6,014
5,995,763
$
29,467,815 $
28,597,566
Table of Contents
AMERICAN NATIONAL GROUP, INC.
(formerly AMERICAN NATIONAL INSURANCE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
Years ended December 31,
2020
2019
2018
PREMIUMS AND OTHER REVENUES
Premiums
Life
Annuity
Health
Property and casualty
Other policy revenues
Net investment income
Net realized investment gains
Other-than-temporary impairments
Change in investment credit loss
Net gains (losses) on equity securities
Other income
Total premiums and other revenues
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits
Life
Annuity
Claims incurred
Health
Property and casualty
Interest credited to policyholders’ account balances
Commissions for acquiring and servicing policies
Other operating expenses
Change in deferred policy acquisition costs
Total benefits, losses and expenses
Income before federal income tax and other items
Less: Provision (benefit) for federal income taxes
Current
Deferred
Total provision for federal income taxes
Income after federal income tax
Equity in earnings of unconsolidated affiliates
Other components of net periodic pension benefit (costs), net of tax
Net income
Less: Net income attributable to noncontrolling interest, net of tax
Net income attributable to American National
Amounts available to American National common stockholders
Earnings per share
Basic
Diluted
Weighted average common shares outstanding
Weighted average common shares outstanding and dilutive potential common shares
See accompanying notes to the consolidated financial statements.
$
$
71
$
396,099 $
359,419 $
92,866
168,805
1,560,304
310,746
933,685
35,660
—
(102,603)
356,281
40,556
3,792,399
533,925
214,158
116,122
1,005,620
321,042
553,600
515,413
(5,678)
3,254,202
538,197
57,697
58,910
116,607
421,590
42,467
4,456
468,513
1,008
147,139
165,035
1,511,201
305,256
1,077,406
37,719
(6,968)
—
422,535
51,401
4,070,143
449,252
218,576
109,013
1,042,153
511,999
532,634
524,888
(12,749)
3,375,766
694,377
87,032
78,385
165,417
528,960
103,501
(684)
631,777
11,414
467,505 $
620,363 $
350,012
231,027
180,414
1,466,740
285,549
858,367
18,174
(1,243)
—
(107,188)
44,530
3,326,382
417,702
290,611
122,547
1,049,112
315,684
564,054
497,011
(71,497)
3,185,224
141,158
24,044
(22,599)
1,445
139,713
21,281
(572)
160,422
1,427
158,995
17.39 $
17.38
23.08 $
23.07
26,878,679
26,887,125
26,882,691
26,891,243
5.91
5.91
26,886,357
26,916,643
Table of Contents
AMERICAN NATIONAL GROUP, INC.
(formerly AMERICAN NATIONAL INSURANCE COMPANY)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income
Other comprehensive income (loss), net of tax
Change in net unrealized gains (losses) on securities
Foreign currency transaction and translation adjustments
Defined benefit pension plan adjustment
Total other comprehensive income (loss), net of tax
Total comprehensive income
Less: Comprehensive income attributable to noncontrolling interest
Years ended December 31,
2020
2019
2018
$
468,513 $
631,777 $
160,422
134,315
235
(11,898)
122,652
591,165
1,008
184,156
390
15,495
200,041
831,818
11,414
(136,261)
(900)
22,326
(114,835)
45,587
1,427
44,160
Total comprehensive income attributable to American National
$
590,157 $
820,404 $
See accompanying notes to the consolidated financial statements.
72
Table of Contents
AMERICAN NATIONAL GROUP, INC.
(formerly AMERICAN NATIONAL INSURANCE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except per share data)
Common
Stock
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Treasury
Stock
Noncontrolling
Interest
Total Equity
Balance at December 31, 2017
$
30,832 $
19,193 $
642,216 $ 4,656,134 $ (101,616) $
9,012 $
5,255,771
Reissuance (purchase) of treasury
shares
Amortization of restricted stock
Cumulative effect of accounting
change
Other comprehensive loss
Net income attributable to
American National
Cash dividends to common
stockholders (declared per share
of $3.28)
Contributions
Distributions
Net income attributable to
noncontrolling interest
—
—
—
—
—
—
—
—
—
1,173
328
—
—
—
—
—
—
—
—
—
—
—
(627,119)
(114,835)
687,051
—
—
158,995
—
—
—
—
(88,228)
—
—
—
(6,876)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
6,182
(2,354)
(5,703)
328
59,932
(114,835)
158,995
(88,228)
6,182
(2,354)
1,427
1,427
Balance at December 31, 2018
$
30,832 $
20,694 $
(99,738) $ 5,413,952 $ (108,492) $
14,267 $
5,271,515
Reissuance of treasury shares
Amortization of restricted stock
Cumulative effect of accounting
change
Other comprehensive income
Net income attributable to
American National
Cash dividends to common
stockholders (declared per share
of $3.28)
Contributions
Distributions
Net income attributable to
noncontrolling interest
—
—
—
—
—
—
—
—
—
237
80
—
—
—
—
—
—
—
—
—
(785)
200,041
—
—
785
—
—
620,363
—
—
—
—
(88,243)
—
—
—
23
—
—
—
—
—
—
—
—
—
—
—
—
—
—
388
(20,055)
260
80
—
200,041
620,363
(88,243)
388
(20,055)
11,414
11,414
Balance at December 31, 2019
$
30,832 $
21,011 $
99,518 $ 5,946,857 $ (108,469) $
6,014 $
5,995,763
Reclassification of par value due to
reorganization
Retirement of treasury shares
Amortization of restricted stock
Cumulative effect of accounting
change
Other comprehensive income
Net income attributable to
American National
Cash dividends to common
stockholders (declared per share
of $3.28)
Contributions
Distributions
Net income attributable to
noncontrolling interest
(26,618)
(3,945)
—
—
—
—
—
—
—
—
26,618
—
54
—
—
—
—
—
—
—
—
—
(104,524)
108,469
—
—
—
—
122,652
—
(33,500)
—
—
467,505
—
—
—
—
(88,190)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
856
(581)
—
—
54
(33,500)
122,652
467,505
(88,190)
856
(581)
1,008
1,008
Balance at December 31, 2020
$
269 $
47,683 $
222,170 $ 6,188,148 $
— $
7,297 $
6,465,567
See accompanying notes to the consolidated financial statements.
73
Table of Contents
AMERICAN NATIONAL GROUP, INC.
(formerly AMERICAN NATIONAL INSURANCE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized investment gains
Other-than-temporary impairments
Change in investment credit loss
Accretion of premiums, discounts and loan origination fees
Net capitalized interest on policy loans and mortgage loans
Depreciation
Interest credited to policyholders’ account balances
Charges to policyholders’ account balances
Deferred federal income tax expense (benefit)
Equity in earnings of unconsolidated affiliates
Distributions from unconsolidated affiliates
Changes in:
Policyholder liabilities
Deferred policy acquisition costs
Reinsurance recoverables
Premiums due and other receivables
Prepaid reinsurance premiums
Accrued investment income
Current tax payable
Liability for retirement benefits
Fair value of option securities
Fair value of equity securities
Other, net
Net cash provided by operating activities
INVESTING ACTIVITIES
Proceeds from sale/maturity/prepayment of:
Held-to-maturity securities
Available-for-sale securities
Equity securities
Investment real estate
Mortgage loans
Policy loans
Other invested assets
Disposals of property and equipment
Distributions from unconsolidated affiliates
Payment for the purchase/origination of:
Held-to-maturity securities
Available-for-sale securities
Equity securities
Investment real estate
Mortgage loans
Policy loans
Other invested assets
Additions to property and equipment
Contributions to unconsolidated affiliates
Change in short-term investments
Change in collateral held for derivatives
Other, net
Net cash used in investing activities
74
Years ended December 31,
2020
2019
2018
$
468,513 $
631,777 $
160,422
(35,660)
—
102,603
9,479
(30,367)
52,551
321,042
(310,746)
58,910
(42,467)
82,045
210,397
(5,678)
(2,529)
(10,048)
1,865
(15,533)
339
(13,765)
(51,931)
(356,281)
(100,276)
332,463
1,615,811
977,051
117,866
61,548
522,900
52,767
148,101
268
73,229
(37,719)
6,968
—
(4,394)
(34,081)
53,160
511,999
(305,256)
78,385
(103,501)
111,848
145,396
(12,749)
15,645
3,780
8,952
(12,227)
18,893
(8,454)
(144,978)
(422,535)
5,503
506,412
864,481
500,724
294,798
66,725
837,732
48,079
120,455
69
91,325
(498,149)
(1,473,808)
(1,468,253)
(528,495)
(131,238)
(31,518)
(752,244)
(22,338)
(98,371)
(39,863)
(351,286)
(603,058)
(15,648)
2,657
(445,323)
(49,016)
(24,163)
(784,408)
(27,722)
(109,074)
(21,402)
(262,569)
(190,511)
107,133
10,369
(523,723)
(18,174)
1,243
—
(6,163)
(39,262)
52,049
315,684
(285,549)
(22,599)
(21,281)
21,453
288,065
(71,497)
(8,886)
(31,360)
10,003
(960)
35,315
(69,762)
54,951
107,188
24,630
495,510
629,359
451,292
214,737
11,577
812,239
52,606
118,846
—
58,287
(1,349,008)
(680,477)
(79,514)
(71,732)
(1,173,189)
(26,147)
(75,233)
(17,670)
(151,261)
452,005
(68,565)
7,087
(884,761)
Table of Contents
AMERICAN NATIONAL GROUP, INC.
(formerly AMERICAN NATIONAL INSURANCE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
FINANCING ACTIVITIES
Policyholders’ account deposits
Policyholders’ account withdrawals
Proceeds from Federal Home Loan Bank borrowings
Repayment of Federal Home Loan Bank borrowings
Change in notes payable
Dividends to stockholders
Payments to noncontrolling interest
Net cash provided by financing activities
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at beginning of the period
Cash and cash equivalents at end of the period
Supplemental cash flow information:
Interest paid
Income taxes paid, net
See accompanying notes to the consolidated financial statements.
Years ended December 31,
2020
2019
2018
1,232,520
(1,388,649)
1,770,646
(1,481,234)
1,717,153
(1,345,498)
500,000
(250,000)
(4,294)
(88,190)
(581)
806
(112,054)
452,001
—
—
20,034
(88,243)
(20,055)
201,148
183,837
268,164
339,947 $
452,001 $
—
—
505
(88,228)
(2,354)
281,578
(107,673)
375,837
268,164
805 $
50,800
— $
86,440
—
22,234
$
$
75
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Nature of Operations
On July 1, 2020, American National Insurance Company, a Texas insurance company (“ANICO”), completed its previously
announced holding company reorganization. As a result of such reorganization, ANICO became a wholly owned subsidiary of
American National Group, Inc., a Delaware corporation (“ANAT”), and ANAT replaced ANICO as the publicly held company.
Consequently, all filings with the Securities and Exchange Commission from July 2, 2020 forward will be filed by ANAT
under CIK No. 0001801075. For purposes of filing this Form 10-K for the year ended December 31, 2020, the accompanying
consolidated financial statements and notes thereto have been titled “American National Group, Inc.” to reflect the current name
of the public registrant, with the parenthetical notation “formerly American National Insurance Company” to reflect the
reporting entity for the prior periods covered therein. Upon the effective date of the holding company reorganization, ANAT
retired 3,945,249 shares of common stock that were held in treasury at ANICO prior to the reorganization. The amount of
retired treasury stock in excess of par value was charged to retained earnings. Before and after the reorganization, the issuer had
50,000,000 authorized shares of common stock and 26,887,200 common shares outstanding. As a result of the reorganization,
each share of ANICO common stock, par value $1.00 per share, was automatically converted into one duly issued, fully paid
and non-assessable share of ANAT common stock, par value $0.01 per share. As a result of the reorganization, the directors and
officers of ANICO became directors and officers of ANAT. There is no change in the ultimate ownership of the organization
and business operations will continue from our current office locations and companies. ANAT, through its consolidated
subsidiaries (collectively “American National” or the "Company”) offers a broad portfolio of insurance products, including
individual and group life insurance, annuities, health insurance, and property and casualty insurance. Business is conducted in
all 50 states, the District of Columbia, and Puerto Rico.
Note 2 – Summary of Significant Accounting Policies and Practices
The consolidated financial statements and notes thereto have been prepared in conformity with GAAP and are reported in U.S.
currency. American National consolidates entities that are wholly-owned and those in which American National owns less than
100% but controls the voting rights, as well as variable interest entities in which American National is the primary beneficiary.
Intercompany balances and transactions with consolidated entities have been eliminated. Investments in unconsolidated
affiliates are accounted for using the equity method of accounting. Certain amounts in prior years have been reclassified to
conform to current year presentation.
The preparation of the consolidated financial statements in conformity with GAAP requires the use of estimates and
assumptions that affect the reported consolidated financial statement balances. Actual results could differ from those estimates.
Investments
Investment securities are comprised of bonds classified as held-to-maturity that are carried at amortized cost net of credit loss
allowance and bonds classified as available-for-sale that are carried at fair value. In addition, equity investments, other than
those accounted for under the equity method or those that result in consolidation of the investee, are measured at fair value with
changes in fair value recognized in earnings.
Mortgage loans on real estate are stated at unpaid principal balance, adjusted for any unamortized discount, deferred
expenses, and allowances. Accretion of discounts is recorded using the effective yield method. Interest income, prepayment
fees, and accretion of discounts and origination fees are reported in “Net investment income” in the consolidated statements of
operations. Interest income earned is accrued on the principal amount of the loan based on contractual interest rate. However,
interest ceases to accrue for loans on which interest is more than 90 days past due, when the collection of interest is not
probable, or when a loan is in foreclosure. Income on past due loans is reported on a cash basis. When a loan becomes current,
it is placed back into accrual status. Cash receipts on impaired loans are recorded as a reduction of principal, interest income,
expense reimbursement, or other manner in accordance with the loan agreement. In the consolidated statements of operations,
gains and losses from the sale of loans are reported in “Net realized investment gains,” and changes in allowances are reported
in "Change in investment credit loss."
76
Table of Contents
Note 2 – Summary of Significant Accounting Policies and Practices — (Continued)
Mortgage loans are presented net of the Company's recorded allowance for expected credit loss, which represents the portion of
amortized cost basis on mortgage loans that the Company does not expect to collect. In determining the Company’s allowance
for credit losses, management: (i) pools and evaluates mortgage loans with similar risk characteristics, (ii) considers expected
lifetime credit losses adjusted for prepayments and extensions, and (iii) considers past events, current economic conditions and
forecasts of future economic conditions. The allowance is calculated quarterly for each property type based on inputs unique to
each loan property type.
On an ongoing basis, mortgage loans with dissimilar risk characteristics (i.e., loans with significant declines in credit quality),
collateral dependent mortgage loans (i.e., when the borrower is experiencing financial difficulty, including when foreclosure is
reasonably possible or probable), and reasonably expected troubled debt restructurings (i.e., the Company grants concessions to
borrower that is experiencing financial difficulties) may be evaluated individually for credit loss. The allowance for credit
losses for loans evaluated individually is established using the same methodologies for the overall commercial portfolio
segment except for collateral dependent loans. The allowance for a collateral dependent loan is established as the excess of
amortized cost over the estimated fair value of the loan’s underlying collateral, less selling cost when foreclosure is probable.
Accordingly, the change in the estimated fair value of collateral dependent loans is recorded as a change in the allowance for
credit losses which is recorded on a quarterly basis as a charge or credit to earnings.
Policy loans are carried at the outstanding balance plus any accrued interest which approximates fair value.
Investment real estate including related improvements are stated at cost less accumulated depreciation. Depreciation is
provided on a straight-line basis over the estimated useful life of the asset (typically 15 to 50 years). Rental income is
recognized on a straight-line basis over the term of the respective lease. American National classifies a property as held-for-sale
if it commits to a plan to sell a property within one year and actively markets the property in its current condition for a price that
is reasonable in comparison to its estimated fair value. Real estate held-for-sale is stated at the lower of depreciated cost or
estimated fair value less expected disposition costs and is not depreciated while it is classified as held-for-sale. American
National periodically reviews its investment real estate for impairment and tests properties for recoverability whenever events
or changes in circumstances indicate the carrying amount of the asset may not be recoverable and the carrying value of the
property exceeds its estimated fair value. Properties whose carrying values are greater than their undiscounted cash flows are
written down to their estimated fair value, with the impairment loss included as an adjustment to “Net realized investment
gains” in the consolidated statements of operations. Impairment losses are based upon the estimated fair value of real estate,
which is generally computed using the present value of expected future cash flows from the real estate discounted at a rate
commensurate with the underlying risks as well as other appraisal methods. Real estate acquired upon foreclosure is recorded at
the lower of its cost or its estimated fair value at the date of foreclosure.
Real estate joint ventures and other limited partnership interests in which the Company has more than a minor interest or
influence over the investee’s operations, but it does not have a controlling interest and is not the primary beneficiary, are
accounted for using the equity method. These investments are reported as “Investments in unconsolidated affiliates” in the
consolidated statements of financial position. For certain joint ventures, American National records its share of earnings using a
lag methodology of one to three months when timely financial information is not available, and the contractual right does not
exist to receive such financial information. In addition to the investees’ impairment analysis of their underlying investments,
American National routinely evaluates its investments in those investees for impairments. American National considers
financial and other information provided by the investee, other known information, and inherent risks in the underlying
investments, as well as future capital commitments, in determining whether impairment has occurred. When an impairment is
deemed to have occurred at the joint venture level, American National recognizes its share as an adjustment to “Equity in
earnings of unconsolidated affiliates” to record the investment at its fair value. When an impairment results from American
National’s separate analysis, an adjustment is made through “Net realized investment gains” to record the investment at its fair
value.
Short-term investments comprised of commercial paper are carried at amortized cost, which approximates fair value. Short-
term investments have a maturity of less than one year.
Other invested assets comprised primarily of equity-indexed options are carried at fair value and may be collateralized by
counterparties; such collateral is restricted to the Company’s use. Separately managed accounts and Federal Home Loan Bank
stock are also included in other invested assets and are carried at cost or market value if available from the account manager.
Other invested assets also include tax credit partnerships and mineral rights less allowance for depletion, where applicable.
77
Table of Contents
Note 2 – Summary of Significant Accounting Policies and Practices — (Continued)
Credit losses on fixed maturity securities, held-to-maturity, receive a lifetime expected credit loss allowance upon initial
recognition of the security representing the net amount expected to be collected. Expected credit losses are measured on a
collective (pool) basis by major security type with the credit loss allowance determined based on the difference between the net
present value of the expected cash flows from those pooled securities with the amortized cost basis. The expected cash flows
are discounted at the effective interest rate of the security and consider historical credit loss information that is adjusted for
current market conditions and reasonable and supportable economic forecasts based upon a third-party valuation model. The
valuation model calculates expected cash flows based on scenario conditioned probability of default and loss given default.
Probability of default measures the likelihood of default over a specified time period, and the loss given default measures the
amount that the Company could lose in the event of a counterparty default.
For fixed maturity securities, available-for-sale, in unrealized loss positions which American National does not intend to sell
and for which it is not more-likely-than-not that it will be required to sell before its anticipated recovery, American National
assesses whether the amortized cost basis of securities will be recovered by comparing the net present value of the expected
cash flows from those securities with its amortized cost basis. Management estimates the expected cash flows using a third-
party valuation model similar to that used for held-to-maturity securities. The net present value of the expected cash flows is
calculated by discounting management’s best estimate of expected cash flows at the effective interest rate implicit in the fixed
maturity security when acquired. If the net present value of the expected cash flows is less than the amortized cost, a credit loss
allowance is recorded. The credit loss is recorded as the excess of amortized cost over the net present value of the expected cash
flows limited by the amount the fair value is less than the amortized cost (fair-value floor). If the fair value is less than the net
present value of its expected cash flows at the impairment measurement date, a non-credit loss exists which is recorded in other
comprehensive income (loss) for the difference between the fair value and the net present value of the expected cash flows.
Additions to or releases of the allowance on all fixed maturity securities are reported in “Change in investment credit loss” in
the consolidated statements of operations.
Prior to January 1, 2020, an other-than-temporary impairment (“OTTI”) loss was recorded when management believed the
carrying value would not be realized. After the recognition of a credit loss, fixed maturity securities were accounted for as if
they had been purchased on the OTTI measurement date, with a cost basis equal to their previous amortized cost less the related
OTTI losses recognized in earnings. The new cost basis of an other-than-temporarily impaired security was not adjusted for
subsequent increases in estimated fair value. Should there have been a significant increase in the estimate of cash flows
expected to be collected from previously impaired securities, the increase would have been accounted for prospectively by
accreting it as interest income over its remaining life.
Derivative instruments are purchased to hedge against future interest rate increases in liabilities indexed to market rates and
are recorded in the consolidated statements of financial position at fair value net of collateral provided by counterparties. The
change in fair value of derivative assets and liabilities is reported in the consolidated statements of operations as “Net
investment income” and “Interest credited to policyholders’ account balances,” respectively. American National does not apply
hedge accounting treatment to its derivative instruments. The Company uses derivative instruments to hedge its business risk
and holds collateral to offset exposure from its counterparties. Collateral that supports credit risk is reported in the consolidated
statements of financial position as an offset to “Other invested assets” with an associated payable to “Other liabilities” for
excess collateral.
Cash and cash equivalents have durations that do not exceed 90 days at the date of acquisition, include cash on-hand and in
banks, as well as amounts invested in money market funds, and are reported as “Cash and cash equivalents” in the consolidated
statements of financial position.
Property and equipment consist of buildings occupied by American National, data processing equipment, software, furniture
and equipment, and automobiles which are carried at cost, less accumulated depreciation. Depreciation is calculated using the
straight-line method over the estimated useful life of the asset (typically 3 to 50 years).
78
Table of Contents
Note 2 – Summary of Significant Accounting Policies and Practices — (Continued)
Insurance specific assets and liabilities
Deferred policy acquisition costs (“DAC”) are capitalized costs related directly to the successful acquisition of new or
renewal insurance contracts. Significant costs are incurred to acquire insurance and annuity contracts, including commissions
and certain underwriting, policy issuance, and processing expenses.
DAC on traditional life, including limited-pay contracts, and health products is amortized with interest over the anticipated
premium-paying period of the related policies in proportion to the ratio of annual premium revenue expected to be received
over the life of the policies. Expected premium revenue is estimated by using the same mortality, morbidity, and withdrawal
assumptions used in computing liabilities for future policy benefits. DAC is reduced by a provision for possible inflation of
maintenance and settlement expenses determined by means of grading interest rates.
DAC on universal life and investment-type contracts is amortized as a level percentage of the present value of anticipated gross
profits from investment yields, mortality, and surrender charges. The effect of the realization of unrealized gains (losses) on
DAC is recognized within AOCI in the consolidated statements of financial position as of the reporting date. A change in
interest rates could have a significant impact on DAC calculated for these contracts.
DAC associated with property and casualty business is amortized over the coverage period of the related policies, in relation to
premiums earned.
For short-duration and long-duration contracts, DAC is grouped consistent with the manner in which insurance contracts are
acquired, serviced, and measured for profitability and is reviewed for recoverability based on the profitability of the underlying
insurance contracts. Investment income is anticipated in assessing the recoverability of DAC for short-duration contracts.
Liabilities for future policy benefits for traditional products have been provided on a net level premium method based on
estimated investment yields, withdrawals, mortality, and other assumptions that were appropriate at the time the policies were
issued. Estimates are based on historical experience adjusted for possible adverse deviation. These estimates are periodically
reviewed and compared with actual experience. When it is determined that future expected experience differs significantly from
existing assumptions, the estimates are revised for current and future issues.
Policyholders’ account balances represent the contract value that has accrued to the benefit of the policyholders related to
universal-life and investments-type contracts. For fixed products, these are generally equal to the accumulated deposits plus
interest credited, reduced by withdrawals, payouts, and accumulated policyholder assessments. Indexed product account
balances are equal to the sum of host and embedded derivative reserves computed per derivative accounting guidance.
Liabilities for unpaid claims and claim adjustment expenses (“CAE”) are established to provide for the estimated costs of
paying claims. These reserves include estimates for both case reserves and IBNR claim liabilities. Case reserves include the
liability for reported but unpaid claims. IBNR liabilities include a provision for potential development on case reserves, losses
on claims currently closed which may reopen in the future, as well as IBNR claims. These liabilities also include an estimate of
the expense associated with settling claims, including legal and other fee, and the general expenses of administering the claims
adjustment process.
Reinsurance recoverables are estimated amounts due to American National from reinsurers related to paid and unpaid ceded
claims and CAE and are presented net of a reserve for collectability. Recoveries of gross ultimate losses under our non-
catastrophe reinsurance are estimated by a review of individual large claims and the ceded portion of IBNR using assumed
distribution of loss by percentage retained. Recoveries of gross ultimate losses under our catastrophe reinsurance are estimated
by applying reinsurance treaty terms to estimates of gross ultimate losses. The most significant assumption is the average size
of the individual losses for those claims that have occurred but have not yet been reported and our estimate of gross ultimate
losses. The ultimate amount of the reinsurance ceded recoverable is unknown until all losses settle.
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Table of Contents
Note 2 – Summary of Significant Accounting Policies and Practices — (Continued)
Separate account assets and liabilities
Separate account assets and liabilities are funds that are held separate from the general assets and liabilities of American
National. Separate account assets include funds representing the investments of variable insurance product contract holders,
who bear the investment risk of such funds. Investment income and investment gains and losses from these separate funds
accrue to the benefit of the contract holders. American National reports separately, as assets and liabilities, investments held in
such separate accounts and liabilities of the separate accounts if (i) such separate accounts are legally recognized; (ii) assets
supporting the contract liabilities are legally insulated from American National’s general account liabilities; (iii) investments are
directed by the contract holder; and (iv) all investment performance, net of contract fees and assessments, is passed through to
the contract holder. In addition, American National's qualified pension plan assets are included in separate accounts. The assets
of these accounts are carried at fair value. Deposits, net investment income and realized investment gains and losses for these
accounts are excluded from revenues, and related liability increases are excluded from benefits and expenses in the consolidated
statements of operations. Separate accounts are established in conformity with insurance laws and are not chargeable with
liabilities that arise from any other business of American National.
Premiums, benefits, claims incurred, and expenses
Traditional ordinary life and health premiums are recognized as revenue when due. Benefits and expenses are associated
with earned premiums to result in recognition of profits over the term of the insurance contracts.
Annuity premiums received on limited-pay and supplemental annuity contracts involving a significant life contingency are
recognized as revenue when due. Deferred annuity premiums are recorded as deposits rather than recognized as revenue.
Revenues from deferred annuity contracts are principally surrender charges and, in the case of variable annuities, administrative
fees assessed to contract holders.
Universal life and single premium whole life revenues represent amounts assessed to policyholders including mortality
charges, surrender charges actually paid, and earned policy service fees. Amounts included in expenses are benefits in excess of
account balances returned to policyholders.
Property and casualty premiums are recognized as revenue over the period of the contract in proportion to the amount of
insurance protection, which is generally evenly over the contract period, net of reinsurance ceded. Claims incurred consist of
claims and CAE paid and the change in reserves, net of reinsurance received and recoverable.
Participating insurance policies
Participating business comprised approximately 4.2% of the life insurance in-force at December 31, 2020 and 15.8% of life
premiums in 2020.
For the majority of this participating business, profits earned are reserved for the payment of dividends to policyholders, except
for the stockholders’ share of profits on participating policies, which is limited to the greater of 10% of the profit on
participating business, or 50 cents per thousand dollars of the face amount of participating life insurance in-force. Participating
policyholders’ interest includes the accumulated net income from participating policies reserved for payment to such
policyholders in the form of dividends (less net income allocated to stockholders as indicated above) as well as a pro rata
portion of unrealized investment gains (losses) net of tax. Dividends to participating policyholders were $7.0 million, $8.4
million, and $7.6 million for the years ended 2020, 2019, and 2018, respectively. Additional income of $5.8 million, $34.0
million, and $4.2 million was allocated to participating policyholders for the years ended 2020, 2019, and 2018, respectively.
For all other participating business, the allocation of dividends to participating policyowners is based upon a comparison of
experienced rates of mortality, interest and expenses, as determined periodically for representative plans of insurance, issue
ages and policy durations, with the corresponding rates assumed in the calculation of premiums.
Federal income taxes
American National files a consolidated life and non-life federal income tax return. Certain subsidiaries that are consolidated for
financial reporting are not eligible to be included in the consolidated federal income tax return; accordingly, they file separate
returns.
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Table of Contents
Note 2 – Summary of Significant Accounting Policies and Practices — (Continued)
Deferred income tax assets and liabilities are recognized to reflect the future tax consequences attributable to differences
between the financial statement amounts of assets and liabilities and their respective tax bases. Deferred taxes are measured
using enacted tax rates expected to apply in the years in which those temporary differences are expected to be recovered or
settled.
American National recognizes tax benefits on uncertain tax positions if it is “more-likely-than-not” the position based on its
technical merits will be sustained by taxing authorities. American National recognizes the largest benefit that is greater than
50% likely of being ultimately realized upon settlement. Tax benefits not meeting the “more-likely-than-not” threshold, if
applicable, are included with “Other liabilities” in the consolidated statements of financial position. American National
recognizes interest expense and penalties related to uncertain tax positions, if applicable, as income tax expense in the
consolidated statements of operations. Accrued interest expense and penalties related to uncertain tax positions are reported as
"Other liabilities" in the consolidated statements of financial position.
Pension and postretirement benefit plans
Pension and postretirement benefit obligations and costs for our frozen benefit plans are estimated using assumptions including
demographic factors such as retirement age and mortality.
American National uses a discount rate to determine the present value of future benefits on the measurement date. The
guideline for setting this rate is a high-quality long-term corporate bond rate. For this purpose, a hypothetical bond portfolio to
match the expected monthly benefit payments under the pension plan was constructed with the resulting yield of the portfolio
used as a discount rate.
In developing the investment return assumption, we relied on a model that utilizes the following factors:
•
•
•
•
•
Current yield to maturity of fixed income securities
Forecasts of inflation, GDP growth, and total return for each asset class
Historical plan performance
Target asset allocation
Standard deviations and correlations related to historical and expected future returns of each asset class and inflation
The resulting assumption is the assumed rate of return for the plans’ target asset allocation, net of investment expenses, and
reflects anticipated returns of the plans’ current and future assets.
Using this approach, the calculated return will fluctuate from year to year; however, it is American National’s policy to hold
this long-term assumption relatively constant.
Stock-based compensation
Stock Appreciation Rights (“SARs”) liability and compensation cost is based on the fair value of the grants and is remeasured
each reporting period through the settlement date. The fair value of the SARs is calculated using the Black-Scholes-Merton
option-pricing model. The key assumptions used in the model include: the grant date and remeasurement date stock prices,
expected life of the SARs, and the risk-free rate of return. The compensation liability related to the SAR award is reported as
“Other liabilities” in the consolidated statements of financial position.
Restricted Stock (“RS”) equity and compensation cost is based on the fair value of the underlying stock at grant date. The
compensation cost accrued is reported as “Additional paid-in capital” in the consolidated statements of financial position.
Restricted Stock Units (“RSUs”) are settled in cash, resulting in classifying RSUs as a liability award. The liability is
remeasured each reporting period through the vesting date and is adjusted for changes in fair value. The compensation liability
related to the RSUs is reported as “Other Liabilities” in the consolidated statements of financial position.
Litigation contingencies
Existing and potential litigation is reviewed quarterly to determine if any adjustments to liabilities for possible losses are
necessary. Reserves for losses are established whenever they are probable and reasonably estimable. If no one estimate within
the range of possible losses is more probable than any other, a reserve is recorded based on the lowest amount of the range.
81
Table of Contents
Note 3 – Recently Issued Accounting Pronouncements
Adoption of New Accounting Standards
Standard
Description
ASU 2016-13, Financial
Instruments—Credit Losses
(Topic 326): Measurement of
Credit Losses on Financial
Instruments
ASU 2018-13, Fair Value
Measurement (Topic 820):
Disclosure Framework—
Changes to the Disclosure
Requirements for Fair Value
Measurement
The new standard significantly changes how entities
measure credit losses for most financial assets,
reinsurance recoverables and certain other
instruments that are not measured at fair value
through net income. The guidance replaces the
current “incurred loss” approach with an “expected
loss” model for instruments measured at amortized
cost. The measurement of credit losses for available-
for-sale debt securities measured at fair value is not
affected except that credit losses recognized are
limited to the amount by which the fair value is below
amortized cost, and the credit loss is recognized
through a valuation allowance. Previously, the credit
loss adjustments for available-for-sale debt securities
were recognized through a direct write down of the
investment under the other-than-temporary
impairment model. The standard also requires
additional disclosures.
The new guidance modifies the disclosure
requirements on fair value measurements. Certain
disclosure requirements are removed, modified, or
added to improve the relevancy of the fair value
measurement disclosures.
ASU 2018-14, Compensation
—Retirement Benefits—
Defined Benefit Plans—
General (Subtopic 715-20):
Disclosure Framework—
Changes to the Disclosure
Requirements for Defined
Benefit Plans
The new standard modifies the disclosure
requirements for employers that sponsor defined
benefit pension or other postretirement plans. The
guidance removes certain defined benefit pension or
other postretirement plan disclosures that are no
longer cost beneficial, clarifies the specific
requirements for each disclosure, and adds disclosure
requirements.
ASU 2018-15, Intangibles—
Goodwill and Other—Internal-
Use Software (Subtopic
350-40): Customer’s
Accounting for
Implementation Costs Incurred
in a Cloud Computing
Arrangement That Is a Service
Contract
The new standard aligns the requirements for
capitalizing implementation costs incurred in a cloud
computing arrangement that is a service contract with
the requirements for capitalizing implementation
costs incurred to develop or obtain internal-use
software. Current GAAP does not specifically
address the implementation costs of a cloud
computing arrangement that is service contract.
Effective Date and Method of
Adoption
The Company adopted this
standard on its required
effective date of January 1,
2020 using a modified
retrospective transition.
Impact on Financial Statements
Adoption of this guidance resulted in
an allowance for credit losses primarily
on the commercial mortgage loans and
related off-balance sheet unfunded loan
commitments, held-to-maturity bonds,
and reinsurance recoverables. The
Company recorded a cumulative effect
adjustment to retained earnings of
$33.5 million, net of tax, which
reduced stockholders' equity. The
impact is attributable to a $42.4 million
allowance for credit losses on the
aforementioned financial assets. See
table below for additional detail.
The Company adopted this
standard on its required
effective date of January 1,
2020 using a prospective
transition for certain
amendments and retrospective
transition for all other
amendments.
The adoption of this standard did not
have a material impact to the
Company’s Notes to the Consolidated
Financial Statements.
The Company adopted this
standard on its required
effective date of December 31,
2020, using a retrospective
transition.
The adoption of this standard did not
have a material impact to the
Company’s Consolidated Financial
Statements or Notes to the
Consolidated Financial Statements.
The Company adopted this
standard on its required
effective date of January 1,
2020 using a prospective
transition.
The adoption of this standard did not
have a material impact to the
Company’s Consolidated Financial
Statements or Notes to the
Consolidated Financial Statements.
As of January 1, 2020, changes related to the adoption of ASU 2016-13, Financial Instruments—Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments ("ASC 326"), had the following effect on assets and liabilities:
Pre-ASC 326
Adoption
Adjustment to
Adopt ASC 326
Balance as of
January 1, 2020
Assets:
Allowance for credit losses
Fixed maturity, bonds held-to-maturity, at amortized cost
$
— $
(21,664) $
(19,160)
(8,220)
(11,216)
(7,920)
(21,664)
(30,376)
(16,140)
Mortgage loans on real estate
Reinsurance recoverables
Liabilities:
Allowance for credit losses
Other policyholder funds
Other liabilities
Total
—
—
1,518
(3,126)
1,518
(3,126)
$
(27,380) $
(42,408) $
(69,788)
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Table of Contents
Note 3 – Recently Issued Accounting Pronouncements — (Continued)
Future Adoption of New Accounting Standards — The FASB issued the following accounting guidance relevant to American
National:
Standard
Description
ASU 2018-12, Financial
Services—Insurance (Topic
944): Targeted Improvements
to the Accounting for Long-
Duration Contracts
The guidance will improve the timeliness of
recognizing changes in the liability for future policy
benefits for traditional and limited payment long-
duration contracts and will modify the rate used to
discount future cash flows. The guidance will also
simplify the accounting for certain market-based
options or guarantees associated with deposit (or
account balance) contracts (market risk benefits),
simplify the amortization of deferred acquisition
costs, and add significant qualitative and quantitative
disclosures.
ASU 2019-12, Income Taxes
(Topic 740): Simplifying the
Accounting for Income Taxes
The amendments simplify the accounting for income
taxes by removing certain exceptions in the existing
guidance including those related to intra-period tax
allocation when there is a loss from continuing
operations and income or a gain from other items.
The amendments require that an entity recognize a
franchise tax (or similar tax) that is partially based on
income as an income-based tax and account for any
incremental amount incurred as a non-income-based
tax as well as other minor changes.
Effective Date and Method of
Adoption
This standard will become
effective for the Company for
all annual and interim periods
beginning January 1, 2023,
which was extended from the
previous effective date of
January 1, 2022 through the
issuance of ASU 2020-11. The
guidance allows for one of two
adoption methods, a modified
retrospective transition or a
full retrospective transition,
except for the changes to
accounting for market risk
benefits which will require a
retrospective transition.
This standard became effective
for the Company for all annual
and interim periods beginning
January 1, 2021. The new
guidance specifies which
amendments should be applied
prospectively, retrospective to
all periods presented, or on a
modified retrospective basis
through a cumulative-effect
adjustment to retained earnings
as of the beginning of the year
of adoption.
ASU 2020-04, Reference Rate
Reform (Topic 848):
Facilitation of the Effects of
Reference Rate Reform on
Financial Reporting
The amendments in this Update provide optional
expedients and exceptions for applying GAAP to
contracts, hedging relationships, and other
transactions affected by reference rate reform if
certain criteria are met. The guidance only applies to
contracts, hedging relationships, and other
transactions that reference LIBOR or another
reference rate expected to be discontinued because of
reference rate reform.
The amendments in this
Update are effective for all
entities as of March 12, 2020
and will sunset through
December 31, 2022, at which
time the application of
exceptions and optional
expedients will no longer be
permitted.
Impact on Financial Statements
We are currently evaluating the impact
of the amendment to the Company.
Based on the nature of the standard, we
expect the impact to be material to our
Consolidated Financial Statements and
Notes to the Consolidated Financial
Statements.
The adoption of this standard did not
have a material impact to the
Company's Consolidated Financial
Statements or Notes to the
Consolidated Financial Statements.
The inventory of LIBOR exposures has
been completed and is primarily
limited to floating rate bonds,
alternative investments, and
borrowings within joint venture
investments. Some of the contracts
included in these categories will
mature prior to December 31, 2021, the
start of LIBOR rates cessations. The
transition from LIBOR is expected to
result in an immaterial impact to the
Company.
83
Table of Contents
Note 4 – Investment in Securities
The cost or amortized cost and fair value of investments in securities are shown below (in thousands):
Cost or
Amortized
Cost
Gross
Unrealized
Gains
December 31, 2020
Gross
Unrealized
(Losses)
Allowance for
Credit Losses
Fair Value
Fixed maturity, bonds held-to-maturity
U.S. states and political subdivisions
$
109,445 $
4,101 $
(11) $
Foreign governments
Corporate debt securities
Residential mortgage-backed securities
Collateralized debt securities
Other debt securities
3,851
6,992,095
114,579
139,709
7,733
374
623,233
5,065
6,864
11
—
(9,117)
(1,464)
(845)
—
— $
—
(7,475)
(452)
(4,515)
—
113,535
4,225
7,598,736
117,728
141,213
7,744
Total bonds held-to-maturity
7,367,412
639,648
(11,437)
(12,442)
7,983,181
Fixed maturity, bonds available-for-sale
U.S. treasury and government
U.S. states and political subdivisions
Foreign governments
Corporate debt securities
Residential mortgage-backed securities
Collateralized debt securities
Total bonds available-for-sale
28,766
1,066,627
14,995
5,887,756
20,544
54,454
7,073,142
418
73,976
1,393
471,205
964
1,040
548,996
(1)
(145)
—
(17,207)
(29)
(94)
(17,476)
—
—
—
(7,275)
(188)
(19)
(7,482)
29,183
1,140,458
16,388
6,334,479
21,291
55,381
7,597,180
Total investments in fixed maturity
$
14,440,554 $
1,188,644 $
(28,913) $
(19,924) $
15,580,361
Cost or
Amortized
Cost
Gross
Unrealized
Gains
December 31, 2019
Gross
Unrealized
(Losses)
Allowance for
Credit Losses
Fair Value
Fixed maturity, bonds held-to-maturity
U.S. states and political subdivisions
$
165,109 $
5,005 $
Foreign governments
Corporate debt securities
Residential mortgage-backed securities
Collateralized debt securities
Total bonds held-to-maturity
Fixed maturity, bonds available-for-sale
U.S. treasury and government
U.S. states and political subdivisions
Foreign governments
Corporate debt securities
Residential mortgage-backed securities
Collateralized debt securities
Total bonds available-for-sale
3,907
8,099,098
237,516
125,631
8,631,261
29,505
1,030,309
5,000
5,338,007
23,405
9,444
6,435,670
442
332,410
6,460
1,146
345,463
441
47,865
1,287
251,408
739
686
302,426
— $
—
(6,539)
(1,148)
(347)
(8,034)
(5)
(9)
—
(12,795)
(201)
(1)
(13,011)
— $
—
—
—
—
—
—
—
—
—
—
—
—
170,114
4,349
8,424,969
242,828
126,430
8,968,690
29,941
1,078,165
6,287
5,576,620
23,943
10,129
6,725,085
Total investments in fixed maturity
$
15,066,931 $
647,889 $
(21,045) $
— $
15,693,775
84
Table of Contents
Note 4 – Investment in Securities — (Continued)
The amortized cost and fair value, by contractual maturity, of fixed maturity securities are shown below (in thousands):
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Total
December 31, 2020
Bonds Held-to-Maturity
Bonds Available-for-Sale
Amortized Cost
Fair Value
Amortized Cost
Fair Value
$
672,904 $
681,748 $
416,924 $
2,901,055
2,842,667
950,786
3,115,358
3,171,376
1,014,699
3,259,188
2,295,372
1,101,658
$
7,367,412 $
7,983,181 $
7,073,142 $
421,798
3,481,552
2,517,433
1,176,397
7,597,180
Actual maturities differ from contractual maturities because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties. Residential and commercial mortgage-backed securities, which are not due at a single
maturity, have been presented based on the year of final contractual maturity.
Proceeds from sales of bonds available-for-sale, with the related gross realized gains and losses, are shown below (in
thousands):
Proceeds from sales of fixed maturity, bonds available-for-sale
$
164,372 $
45,017 $
Gross realized gains
Gross realized losses
624
(4,145)
250
(1,124)
85,590
376
(2,298)
Years ended December 31,
2020
2019
2018
Gains and losses are determined using specific identification of the securities sold. During 2020 and 2019, bonds below
investment grade with a carrying value of $142.7 million and $157.9 million, respectively, were transferred from held-to-
maturity to available-for-sale after a deterioration in the issuers’ creditworthiness.
In accordance with various regulations, American National has bonds on deposit with regulating authorities with a carrying
value of $47.7 million and $48.0 million at December 31, 2020 and 2019, respectively. In addition, American National has
pledged bonds in connection with agreements and transactions, such as financing and reinsurance agreements. The carrying
value of bonds pledged was $111.0 million and $162.2 million at December 31, 2020 and 2019, respectively.
The components of the change in net unrealized gains (losses) on debt securities are shown below (in thousands):
Bonds available-for-sale: change in unrealized gains (losses)
$
242,105 $
335,473 $
(233,465)
Years ended December 31,
2020
2019
2018
Adjustments for
Deferred policy acquisition costs
Participating policyholders’ interest
Deferred federal income tax benefit (expense)
(68,474)
(3,010)
(36,306)
(87,003)
(16,056)
(48,258)
51,920
11,157
34,127
Change in net unrealized gains (losses) on debt securities, net of tax
$
134,315 $
184,156 $
(136,261)
The components of the change in net gains on equity securities are shown below (in thousands):
Unrealized gains on equity securities
Net gains on equity securities sold
Net gains on equity securities
Years ended December 31,
2020
2019
$
$
349,999 $
6,282
356,281 $
375,395
47,140
422,535
85
Table of Contents
Note 4 – Investment in Securities — (Continued)
The gross unrealized losses and fair value of bonds available-for-sale, aggregated by investment category and length of time
individual securities have been in a continuous unrealized loss position due to market factors are shown below (in thousands,
except number of issues):
Less than 12 months
December 31, 2020
12 months or more
Number of
Issues
Gross
Unrealized
(Losses)
Fair
Value
Number of
Issues
Gross
Unrealized
(Losses)
Fair
Value
Number of
Issues
Total
Gross
Unrealized
(Losses)
Fair
Value
Fixed maturity, bonds
available-for-sale
U.S. treasury and
government
U.S. states and political
subdivisions
Corporate debt securities
Residential mortgage-
backed securities
Collaterized debt securities
1 $
(1) $
2,868
— $
— $
2
43
1
3
(145)
10,205
(8,507)
270,249
(21)
(93)
1,391
12,752
—
8
3
1
—
—
—
(8,700)
13,270
(8)
(1)
593
158
1 $
(1) $
2,868
2
51
4
4
(145)
10,205
(17,207)
283,519
(29)
(94)
1,984
12,910
Total
50 $
(8,767) $ 297,465
12 $
(8,709) $
14,021
62 $
(17,476) $ 311,486
Less than 12 months
December 31, 2019
12 months or more
Number of
Issues
Gross
Unrealized
(Losses)
Fair
Value
Number of
Issues
Gross
Unrealized
(Losses)
Fair
Value
Number of
Issues
Total
Gross
Unrealized
(Losses)
Fair
Value
Fixed maturity, bonds
available-for-sale
U.S. treasury and
government
U.S. states and political
subdivisions
Corporate debt securities
Residential mortgage-
backed securities
Collateralized debt securities
— $
— $
—
5 $
(5) $
8,299
5 $
(5) $
8,299
2
22
1
1
(9)
(5,257)
(9)
(1)
1,733
94,942
10,169
159
—
25
3
—
—
—
(7,538)
132,626
(192)
—
722
—
2
47
4
1
(9)
1,733
(12,795)
227,568
(201)
10,891
(1)
159
Total
26 $
(5,276) $ 107,003
33 $
(7,735) $ 141,647
59 $
(13,011) $ 248,650
Unrealized losses on bonds available-for-sale where an allowance for credit loss was not recorded are due to noncredit related
factors caused by market liquidity events related to COVID-19 and the related economic downturn. A number of assumptions
and estimates are inherent in evaluating whether an allowance for credit loss is necessary, which include the financial condition,
near term and long-term prospects of the issue or issuer, including relevant industry conditions and trends and implications of
rating agency actions and offering prices.
Equity securities by market sector distribution are shown below, based on fair value:
Consumer goods
Energy and utilities
Finance
Healthcare
Industrials
Information technology
Other
Total
86
December 31,
2020
2019
19.3 %
18.9 %
5.2
21.6
15.0
7.4
27.1
4.4
8.0
18.0
13.0
7.6
25.0
9.5
100.0 %
100.0 %
Table of Contents
Note 4 – Investment in Securities — (Continued)
Allowance for Credit Losses
Held-to-Maturity Securities—Management measures expected credit losses on bonds held-to-maturity on a qualitative
adjustment basis by major security type: corporate bonds, structured products, municipals, specialty products and treasuries.
Accrued interest receivable on held-to maturity debt securities are excluded from the estimate of credit losses. The estimate of
expected credit losses considers historical credit loss information that is adjusted for current market conditions and reasonable
and supportable economic forecasts based upon a third-party valuation model.
Available-for-Sale Securities—For bonds available-for-sale in an unrealized loss position, the Company first assesses whether
it intends to sell the security or will be required to sell the security before recovery of its amortized cost basis. If either of these
criteria is met, the security’s amortized cost basis is written down to fair value through income. For bonds available-for-sale that
do not meet either indicated criteria, the Company evaluates whether the decline in fair value has resulted from credit events or
market factors. In making this assessment, management first calculates the extent to which fair value is less than amortized cost,
and then may consider any changes to the rating of the security by a rating agency, and any specific conditions related to the
security. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the
security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is
less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded through income, limited to
the amount fair value is less than amortized cost. Any remaining unrealized loss is recognized in other comprehensive income.
When the discounted cash flow method is used to determine the allowance for credit losses, management's estimates
incorporate expected prepayments, if any. Model inputs are considered reasonable and supportable for three years. A mean
reversion is applied in years four and five. Credit loss allowance is not measured on accrued interest receivable because the
balance is written off to net investment income in a timely manner, within 90 days. Changes in the allowance for credit losses
are recognized through the consolidated statement of operations as changes in estimated credit loss.
No accrued interest receivables were written off as of December 31, 2020.
The rollforward of the allowance for credit losses for bonds held-to-maturity is shown below (in thousands):
Foreign
Governments
Corporate Debt
Securities
Collateralized
Debt Securities
Residential
Mortgage Backed
Securities
Total
Allowance for credit losses*
Cumulative adjustment at January 1, 2020 $
Purchases
Disposition
Provision
Balance at March 31, 2020
Purchases
Disposition
Provision
Balance at June 30, 2020
Purchases
Disposition
Provision
Balance at September 30, 2020
Purchases
Disposition
Provision
Balance at December 31, 2020
$
*
Quarterly amounts in the table above are unaudited
4
—
—
1
5
—
—
(5)
—
—
—
—
—
—
—
—
—
$
(18,563)
$
(2,968) $
(137) $
(21,664)
(323)
106
199
(2,986)
—
—
454
(2,532)
(6)
—
(408)
(2,946)
—
694
(2,263)
(4,515) $
—
134
—
(3)
—
—
3
—
—
—
(35)
(35)
—
—
(417)
(945)
7,141
(5,917)
(21,385)
(116)
200
(1,113)
(22,414)
(10)
1,607
(674)
(21,491)
(41)
1,487
7,603
(452) $
(12,442)
(622)
6,901
(6,117)
(18,401)
(116)
200
(1,565)
(19,882)
(4)
1,607
(231)
(18,510)
(41)
793
10,283
$
(7,475)
$
87
Table of Contents
Note 4 – Investment in Securities — (Continued)
The rollforward of the allowance for credit losses for available-for-sale debt securities is shown below (in thousands):
Allowance for credit losses*
Beginning balance at January 1, 2020
$
— $
— $
—
$
—
Corporate Debt
Securities
Collateralized
Debt Securities
Residential
Mortgage Backed
Securities
Total
Allowance on securities that had an allowance recorded in a
previous period
Balance at March 31, 2020
Increase in allowance related to purchases
Reduction in allowance related to disposition
Allowance on securities that had an allowance recorded in a
previous period
Allowance on securities where credit losses were not
previously recorded
Balance at June 30, 2020
Increase in allowance related to purchases
Reduction in allowance related to disposition
Allowance on securities that had an allowance recorded in a
previous period
Allowance on securities where credit losses were not
previously recorded
Balance at September 30, 2020
Increase in allowance related to purchases
Reduction in allowance related to disposition
Allowance on securities that had an allowance recorded in a
previous period
(12,499)
(12,499)
(73)
7
10,017
(1,276)
(3,824)
(28)
33
1,153
(4,771)
(7,437)
(116)
23
255
Balance at December 31, 2020
$
(7,275) $
*
Quarterly amounts in the table above are unaudited
(236)
(236)
—
—
155
—
(81)
—
—
74
—
(7)
—
6
(18)
(19) $
(130)
(130)
—
3
(83)
—
(210)
—
—
16
—
(194)
—
—
6
(188)
$
(12,865)
(12,865)
(73)
10
10,089
(1,276)
(4,115)
(28)
33
1,243
(4,771)
(7,638)
(116)
29
243
(7,482)
The allowance fluctuated from quarter to quarter in 2020 reflecting market volatility during the year. The impact of COVID-19,
the oil price shocks, and the elevated unemployment rate were variables that increased default risk for borrowers in North
America and globally. During 2020, energy, retail, construction and transportation sectors were most impacted by the market
conditions leading to increased loss allowances; however, in the last quarter of 2020, the default risk forecast had shown that
government policies and vaccine development succeeded in mitigating the credit risk to a certain extent. As a result, the
expected loss on U.S. corporate debt securities classified as held-to-maturity decreased with the recovery in the market by the
end of the year. The outcome drove held-to-maturity allowances to become more in line with available-for-sale results.
88
Table of Contents
Note 4 – Investment in Securities — (Continued)
Credit Quality Indicators
The Company monitors the credit quality of bonds held-to-maturity through the use of credit ratings, which are updated on a
monthly basis. The two traditional metrics for assessing interest rate risks are interest-coverage ratios and capitalization ratios
which can also be used in the assessment of credit risk. These risks are fairly mitigated through the diversification of all bond
investments. Categories of diversification include credit ratings, geographic locations, maturities, and market sector.
The credit quality indicators for the amortized cost of bonds held-to-maturity are shown below (in thousands):
Fixed maturity, bonds held-to-maturity
AAA
AA
A
BBB
BB and below
Total
Amortized cost of held-to-maturity debt securities by credit rating
December 31, 2020
U.S. state and political subdivisions
$
25,831
$
43,964
$
34,893
$
Foreign governments
Corporate debt securities
Collateralized debt securities
Residential mortgage backed securities
Other debt securities
Total
—
1,956
—
—
—
2,820
262,830
—
112,995
7,733
1,031
2,976,571
107,795
—
—
— $
—
3,647,496
31,914
—
—
4,757 $
109,445
—
3,851
103,242
6,992,095
—
1,584
—
139,709
114,579
7,733
$
27,787
$
430,342
$
3,120,290
$
3,679,410 $
109,583 $
7,367,412
Amortized cost of held-to-maturity debt securities by credit rating
December 31, 2019
Fixed maturity, bonds held-to-maturity
AAA
AA
A
BBB
BB and below
Total
U.S. state and political subdivisions
$
58,539
$
76,542
$
24,260
$
500 $
5,268 $
165,109
Foreign governments
Corporate debt securities
Residential mortgage backed securities
Collateralized debt securities
—
2,729
87,003
—
2,861
407,070
—
—
1,046
—
3,637,144
4,031,931
51,771
109,233
—
16,398
—
20,224
98,742
—
3,907
8,099,098
237,516
125,631
Total
$
148,271
$
486,473
$
3,823,454
$
4,048,829 $
124,234 $
8,631,261
Note 5 – Mortgage Loans
Generally, commercial mortgage loans are secured by first liens on income-producing real estate. American National attempts
to maintain a diversified portfolio by considering both the location of the underlying collateral as well as the type of mortgage
loan. The geographic categories come from the U.S. Census Bureau's "Census Regions and Divisions of the United States." The
distribution based on carrying amount of mortgage loans by location is as follows (in thousands, except percentages):
East North Central
East South Central
Mountain
Pacific
South Atlantic
West South Central
Other
Total
December 31,
2020
2019
$
$
783,614
146,052
1,284,555
806,426
619,405
1,313,848
288,631
5,242,531
14.9 % $
2.8
24.5
15.4
11.8
25.1
5.5
100.0 % $
667,150
144,887
1,200,434
852,574
621,875
1,272,522
337,575
5,097,017
13.1 %
2.8
23.6
16.7
12.2
25.0
6.6
100.0 %
89
Table of Contents
Note 5 – Mortgage Loans — (Continued)
As of December 31, 2020 and 2019, loans in foreclosure and loans foreclosed are as follows (in thousands, except number of
loans):
Foreclosure and foreclosed
In foreclosure
Filed for bankruptcy*
Total in foreclosure
Foreclosed
December 31,
2020
2019
Number of
Loans
Recorded
Investment
Number of
Loans
Recorded
Investment
1 $
1
2 $
5,168
9,230
14,398
2 $
13,345
—
—
2 $
13,345
2 $
8,603
2 $
16,008
*
Borrower filed for bankruptcy after foreclosure proceedings had begun.
The age analysis of past due loans is shown below (in thousands, except percentages):
December 31, 2020
30-59 Days
Past Due
60-89 Days
Past Due
More Than
90 Days
Past Due
Total
Current
Amount
Percent
Total
Apartment
Hotel
Industrial
Office
Parking
Retail
Storage
Other
Total
Allowance for loan losses
Total, net of allowance
December 31, 2019
Apartment
Hotel
Industrial
Office
Parking
Retail
Storage
Other
Total
Allowance for loan losses
Total, net of allowance
$
— $
— $
30,315
14,930
24,804
48,825
4,991
—
—
30,158
—
—
29,355
—
—
—
— $
—
5,168
9,230
—
25,779
—
—
— $
60,473
20,098
34,034
78,180
30,770
—
—
557,159 $
853,522
836,105
1,522,197
286,107
760,907
165,561
163,121
557,159
913,995
856,203
1,556,231
364,287
791,677
165,561
163,121
10.5 %
17.0
15.9
29.0
6.8
14.7
3.1
3.0
$
123,865 $
59,513 $
40,177 $
223,555 $
5,144,679 $
5,368,234
100.0 %
(125,703)
$
5,242,531
$
— $
—
—
— $
—
13,076
22,870
—
—
—
11,759
—
—
—
—
—
— $
—
— $
—
4,091
—
—
4,122
—
—
17,167
22,870
—
4,122
—
11,759
385,630 $
901,044
589,722
385,630
901,044
606,889
1,587,591
1,610,461
284,866
843,466
148,402
319,538
284,866
847,588
148,402
331,297
7.5 %
17.6
11.9
31.5
5.6
16.6
2.9
6.4
$
34,629 $
13,076 $
8,213 $
55,918 $
5,060,259 $
5,116,177
100.0 %
(19,160)
$
5,097,017
As a result of the economic impact associated with COVID-19, as of December 31, 2020, 93 loans with a total balance of
$1.6 billion primarily related to hotels, retail and parking operations were modified. The terms of the modifications of these
loans include forbearance of principal and interest payments for a period of up to six months, extensions of maturity dates, and/
or provision for interest only payments. Of these modified loans, three loans totaling $60.5 million are over 60 days past due
and one loan totaling $25.8 million is over 90 days past due. Prior to December 31, 2020, eight loans totaling $230 million
which had been modified earlier in the year were modified again. The terms of these modifications were for additional
forbearance of up to six months and extensions of interest only payments for up to twelve month and generally included a
requirement for the payment of at least 20% of the total interest due during the modification period. The remaining loans are
current under their modified terms. The modified loans are presented according to their referenced status under their modified
terms in the aging table above. The modified loans had an aggregate deferred interest of $18.3 million as of December 31,
2020.
There were no unamortized purchase discounts as of December 31, 2020 and 2019. Total mortgage loans were net of
unamortized origination fees of $26.1 million and $29.3 million at December 31, 2020 and 2019, respectively. No unearned
income is included in these amounts.
90
Table of Contents
Note 5 – Mortgage Loans — (Continued)
Troubled Debt Restructurings
American National has granted concessions to certain mortgage loan borrowers. Concessions are generally one of, or a
combination of, a delay in payment of principal or interest, a reduction of the contractual interest rate or an extension of the
maturity date. Loans that have these concessions could be classified as troubled debt restructurings. The carrying value after the
allowance, before and after modification in a troubled debt restructuring, may not change significantly, or may increase if the
expected recovery is higher than the pre-modification recovery assessment. Loan modifications executed due to COVID-19
resulting in a total delay of more than six months were evaluated for troubled debt restructured status under current GAAP
guidance.
Troubled debt restructuring mortgage loan information is as follows (in thousands, except number of loans):
2020
Recorded
Investment
Pre-Modification
Number of Loans
Years ended December 31,
2019
Recorded
Investment
Post Modification Number of Loans
Recorded
Investment
Pre-Modification
Recorded
Investment
Post Modification
7 $
76,220 $
6
2
34
16
2
79,943
11,565
811,131
248,465
40,097
76,220
79,943
11,565
811,131
248,465
40,097
2 $
21,211 $
1
—
—
—
—
38,248
—
—
—
—
21,211
38,248
—
—
—
—
67 $
1,267,421 $
1,267,421
3 $
59,459 $
59,459
Office
Retail
Industrial
Hotel
Parking
Apartment
Total
American National considers the amount, timing and extent of concessions in determining credit loss allowances for loan losses
recorded in connection with a troubled debt restructuring.
There were 67 loans determined to be a troubled debt restructuring for the year ended December 31, 2020. There are
$3.9 million of commitments to lend additional funds to debtors whose loans have been modified in a troubled debt
restructuring during the periods presented. The increase in loans determined to be a troubled debt restructuring in 2020 is
attributable to COVID-19 related loan modifications where the concessions granted were in excess of six-months in duration.
91
Table of Contents
Note 5 – Mortgage Loans — (Continued)
Allowance for Credit Losses
Mortgage loans on real estate are stated at unpaid principal balance, adjusted for any unamortized discount, deferred expenses
and allowances. The allowance for current expected losses per ASU No. 2016-13 Financial Instruments—Credit Losses (Topic
326): Measurement of Credit Losses on Financial Instruments ("ASC 326"), at the effective date, January 1, 2020, was based
upon the current expected credit loss model. Refer to Note 3, Recently Issued Accounting Pronouncements. The model
considers past loss experience, current economic conditions, and reasonable and supportable forecasts of future conditions.
Reversion for the allowance calculation is implicit in the models used to determine the allowance. The methodology uses a
discounted cash flow approach based on expected cash flows.
The rollforward of the allowance for credit losses for mortgage loans is shown below (in thousands):
Balance at December 31, 2017
Change in allowance
Balance at December 31, 2018
Change in allowance
Balance at December 31, 2019
Cumulative adjustment at January 1, 2020*
Provision
Balance at March 31, 2020
Provision
Balance at June 30, 2020
Provision
Balance at September 30, 2020
Provision
Balance at December 31, 2020
Commercial
Mortgage Loans**
$
$
(18,866)
(2,467)
(21,333)
2,173
(19,160)
(11,216)
(29,069)
(59,445)
(52,035)
(111,480)
(1,436)
(112,916)
(12,787)
(125,703)
*
Effective January 1, 2020, the Company adopted ASU No. 2016-13. Adoption of this guidance resulted in an allowance for credit losses primarily on the
commercial mortgage loans and related off-balance sheet unfunded loan commitments, held-to-maturity bonds and reinsurance recoverables. Prior
periods have not been restated to conform to the current presentation. See Note 3, Recently Issued Accounting Pronouncements.
** Quarterly amounts in the table above are unaudited
The change in allowance for December 31, 2020 was driven by the economic disruption caused by COVID-19.
The asset and allowance balances for credit losses for mortgage loans by property-type are shown below (in thousands):
Apartment
Hotel
Industrial
Office
Retail
Parking
Storage
Other
Total
December 31, 2020
Asset Balance
Allowance
$
557,159 $
913,995
856,203
1,556,231
791,677
364,287
165,561
163,121
(8,845)
(45,596)
(2,516)
(33,373)
(10,856)
(18,178)
(2,509)
(3,830)
$
5,368,234 $
(125,703)
92
Table of Contents
Note 5 – Mortgage Loans — (Continued)
Credit Quality Indicators
Mortgage loans are segregated by property-type and quantitative and qualitative allowance factors are applied. Qualitative
factors are developed quarterly based on the pooling of assets with similar risk characteristics and historical loss experience
adjusted for the expected trend in the current market environment. Credit losses are pooled by collateral type as it represents the
most similar and reliable risk characteristics in our portfolio. The amortized cost of mortgage loans by year of origination by
property-type are shown below (in thousands):
Apartment
Hotel
Industrial
Office
Retail
Parking
Storage
Other
Total
Allowance for loan losses
Total, net of allowance
Amortized Cost Basis by Origination Year
2020
2019
2018
2017
2016
Prior
Total
$
43,000 $ 179,817 $
48,316 $ 180,073 $
68,465 $
37,488 $ 557,159
4,697
278,401
31,904
69,501
28,678
21,659
—
63,538
157,808
58,938
38,977
13,791
63,313
32,111
204,103
134,076
199,428
100,607
27,243
54,562
59,418
219,655
46,544
343,178
80,207
8,650
17,095
2,235
148,130
122,587
293,625
161,460
169,521
8,932
21,274
273,872
116,787
913,995
856,203
629,158
1,556,231
340,925
116,404
—
48,083
791,677
364,287
165,561
163,121
$ 477,840 $ 608,293 $ 827,753 $ 897,637 $ 993,994 $ 1,562,717 $ 5,368,234
(125,703)
$ 5,242,531
Generally, mortgage loans are secured by first liens on income-producing real estate with a loan-to-value ratio of up to 75%. It
is the Company's policy to not accrue interest on loans that are 90 days delinquent and where amounts are determined to be
uncollectible. At December 31, 2020, commercial loans of $40.2 million were past due over 90 days and are in non-accrual
status.
Off-Balance Sheet Credit Exposures
The Company has off-balance sheet credit exposures related to non-cancellable unfunded commitment amounts on commercial
mortgage loans. We estimate the allowance for these exposures by applying the allowance rate we computed for each property
type to the related outstanding commitment amounts. As of December 31, 2020, we have included an $11.8 million liability in
other liabilities on the consolidated statements of financial position based on unfunded loan commitments of $686.5 million.
93
Table of Contents
Note 6 – Real Estate and Other Investments
The carrying amount of investment real estate, net of accumulated depreciation, by property-type and geographic distribution
are as follows (in thousands, except percentages):
Industrial
Office
Retail
Other
Total
East North Central
East South Central
Mountain
Pacific
South Atlantic
West South Central
Other
Total
December 31, 2020
December 31, 2019
Carrying Amount
Percent
Carrying Amount
Percent
$
$
37,764
237,246
199,232
43,051
517,293
7.3 % $
45.9
38.5
8.3
100.0 % $
68,809
219,490
215,800
47,120
551,219
12.5 %
39.8
39.1
8.6
100.0 %
December 31, 2020
December 31, 2019
Carrying Amount
Percent
Carrying Amount
Percent
$
$
49,921
32,630
65,862
42,537
72,305
236,987
17,051
517,293
9.7 % $
6.3
12.7
8.2
14.0
45.8
3.3
100.0 % $
32,539
34,248
68,498
40,462
83,552
278,833
13,087
551,219
5.9 %
6.2
12.4
7.3
15.2
50.6
2.4
100.0 %
American National regularly invests in real estate partnerships and joint ventures. American National frequently participates in
the design of these entities with the sponsor, but in most cases, its involvement is limited to financing. Through analysis
performed by American National, some of these partnerships and joint ventures have been determined to be variable interest
entities (“VIEs”). In certain instances, in addition to an economic interest in the entity, American National holds the power to
direct the most significant activities of the entity and is deemed the primary beneficiary or consolidator of the entity. The assets
of the consolidated VIEs are restricted and must first be used to settle their liabilities. Creditors or beneficial interest holders of
these VIEs have no recourse to the general credit of American National, as American National’s obligation is limited to the
amount of its committed investment. American National has not provided financial or other support to the VIEs in the form of
liquidity arrangements, guarantees, or other commitments to third-parties that may affect the fair value or risk of its variable
interest in the VIEs in 2020 or 2019.
The assets and liabilities relating to the VIEs included in the consolidated financial statements are as follows (in thousands):
Investment real estate
Short-term investments
Cash and cash equivalents
Other receivables
Other assets
Total assets of consolidated VIEs
Notes payable
Other liabilities
Total liabilities of consolidated VIEs
December 31,
2020
2019
$
131,405 $
134,534
500
8,070
3,484
13,796
157,255 $
153,703 $
8,490
162,193 $
500
11,155
3,673
15,355
165,217
157,997
9,731
167,728
$
$
$
The notes payable in the consolidated statements of financial position pertain to the borrowings of the consolidated VIEs. The
liability of American National relating to notes payable of the consolidated VIEs is limited to the amount of its direct or indirect
investment in the respective ventures, which totaled $3.0 million and $4.3 million at December 31, 2020 and 2019, respectively.
94
Table of Contents
Note 6 – Real Estate and Other Investments — (Continued)
The total long-term notes payable of the consolidated VIE’s consists of the following (in thousands):
Interest rate
LIBOR
4% fixed
4.18% fixed
Total
Maturity
2021
2022
2024
December 31,
2020
2019
$
$
10,819 $
78,565
64,319
10,836
81,709
65,452
153,703 $
157,997
For other VIEs in which American National is a partner, it is not the primary beneficiary, and these entities are not
consolidated, as the major decisions that most significantly impact the economic activities of the VIE require consent of all
partners. The carrying amount and maximum exposure to loss relating to unconsolidated VIEs follows (in thousands):
December 31,
2020
2019
Carrying
Amount
Maximum
Exposure
to Loss
Carrying
Amount
Maximum
Exposure
to Loss
Investment in unconsolidated affiliates
$
368,588 $
368,588 $
332,742 $
Mortgage loans
Accrued investment income
722,917
4,980
722,917
4,980
657,528
2,198
332,742
657,528
2,198
As of December 31, 2020, one real estate investment with a carrying value of $3.4 million met the criteria as held-for-sale.
The Company’s equity in earnings of unconsolidated affiliates is the Company’s share of operating earnings and realized gains
from fixed income and equity funds and investments in real estate joint ventures (“joint ventures”) using the equity method of
accounting. In 2020 and 2019 certain joint ventures took advantage of market opportunities to generate realized gains on the
sale of real estate held or developed by the ventures.
Fixed income and equity funds are primarily comprised of senior secured and second lien private loans that are secured by
assets, revenues, or credit/balance sheet lending.
The Company’s income from and investment in each joint venture did not exceed 20% and therefore no separate financial
disclosure is required. The Company’s income from, assets held, and investment in each joint venture did not exceed 10% of
operating income before tax. Additionally, the Company’s investment in joint ventures is less than 3% of the Company’s total
assets, and investments in individual joint ventures is not considered to be material to the Company in relation to its financial
position or ongoing results of operations. Therefore, summarized financial information of equity method investees has not been
included.
The Company’s total investment in and equity in earnings of unconsolidated affiliates, of which substantially all are limited
liability companies ("LLCs") or limited partnerships, were comprised of the following (in thousands):
Fixed income and equity funds
Real estate joint ventures
Other
Total investments in unconsolidated affiliates
Income from operations
Net gain on sales
Equity in earnings of unconsolidated affiliates
December 31,
2020
2019
$
$
458,776 $
443,279
18,359
920,414 $
278,611
402,780
24,330
705,721
Years ended December 31,
2020
2019
2018
$
$
14,958 $
27,509
7,407 $
96,094
42,467 $
103,501 $
7,595
13,686
21,281
95
Table of Content
Note 7 – Derivative Instruments
American National purchases over-the-counter equity-indexed options as economic hedges against fluctuations in the equity
markets to which equity-indexed products are exposed. These options are not designated as hedging instruments for accounting
purposes under GAAP. Equity-indexed contracts include a fixed host universal-life insurance or annuity contract and an equity-
indexed embedded derivative. The detail of derivative instruments is shown below (in thousands, except number of
instruments):
December 31,
2020
2019
Derivatives Not Designated as
Hedging Instruments
Location in the Consolidated
Statements of Financial Position
Number of
Instruments
Notional
Amounts
Estimated
Fair Value
Number of
Instruments
Notional
Amounts
Estimated
Fair Value
Equity-indexed options
Other invested assets
455 $ 2,867,600 $ 242,201
473 $ 2,654,600 $ 256,005
Equity-indexed embedded derivative
Policyholders’ account balances
112,103
2,748,540
705,013
101,950
2,527,205
731,552
Derivatives Not Designated as
Hedging Instruments
Location in the Consolidated Statements of Operations
2020
2019
2018
Gains (Losses) Recognized in Income on Derivatives
Years ended December 31,
Equity-indexed options
Net investment income
$
51,931 $
144,980 $
Equity-indexed embedded derivative
Interest credited to policyholders’ account balances
(22,977)
(162,011)
(54,951)
17,862
The Company’s use of derivative instruments exposes it to credit risk in the event of non-performance by the counterparties.
The Company has a policy of only dealing with counterparties it believes are creditworthy and obtaining sufficient collateral
where appropriate, as a means of mitigating the financial loss from defaults. The Company holds collateral in cash and notes
secured by U.S. government backed assets. The non-performance risk is the net counterparty exposure based on the fair value
of the open contracts, less the fair value of collateral held. The Company maintains master netting agreements with its current
active trading partners. As such, a right of offset has been applied to collateral that supports credit risk and has been recorded in
the consolidated statements of financial position as an offset to “Other invested assets” with an associated payable to “Other
liabilities” for excess collateral.
Information regarding the Company’s exposure to credit loss on the options it holds is presented below (in thousands):
Moody/S&P
Rating
Options Fair
Value
Collateral
Held in Cash
December 31, 2020
Collateral
Held in
Invested
Assets
Total
Collateral
Held
Collateral
Amounts used
to Offset
Exposure
Excess
Collateral
Exposure Net
of Collateral
Baa2/BBB
$
51,489 $
31,513 $
18,100 $
49,613 $
49,613 $
— $
Counterparty
Barclays
Credit Suisse
Baa1/BBB+
Goldman-Sachs
ING
Morgan Stanley
NATIXIS*
Truist
Wells Fargo
Total
A3/BBB+
Baa1/A-
A2/BBB+
A1/A+
A3/A-
A2/BBB+
9,447
1,227
20,606
37,406
30,567
52,127
8,680
1,170
10,450
30,616
30,720
43,960
—
—
10,300
5,700
—
11,000
8,680
1,170
20,750
36,316
30,720
54,960
8,680
1,170
20,606
36,316
30,567
52,127
39,332
242,201 $
29,370
186,479 $
$
9,900
55,000 $
39,270
241,479 $
39,270
238,349 $
—
—
144
—
153
2,833
—
3,130 $
Moody/S&P
Rating
Options Fair
Value
Collateral
Held in Cash
December 31, 2019
Collateral
Held in
Invested
Assets
Total
Collateral
Held
Collateral
Amounts used
to Offset
Exposure
Excess
Collateral
Exposure Net
of Collateral
Baa3/BBB
$
54,583 $
27,343 $
28,000 $
55,343 $
54,583 $
760 $
Counterparty
Barclays
Credit Suisse
Baa2/BBB+
Goldman-Sachs
ING
Morgan Stanley
NATIXIS*
SunTrust
Wells Fargo
Total
A3/BBB+
Baa1/A-
A3/BBB+
A1/A+
A3/A-
A2/A-
7,117
1,053
30,330
34,988
29,918
60,360
37,656
7,390
930
14,940
25,926
30,200
41,720
24,110
—
—
16,000
9,000
—
17,000
15,000
7,390
930
30,940
34,926
30,200
58,720
39,110
7,009
930
30,330
34,926
29,918
58,645
37,656
381
—
610
—
282
75
1,454
$
256,005 $
172,559 $
85,000 $
257,559 $
253,997 $
3,562 $
*
Collateral is prohibited from being held in invested assets.
96
1,876
767
57
—
1,090
—
—
62
3,852
—
108
123
—
62
—
1,715
—
2,008
Table of Contents
Note 8 – Net Investment Income and Net Realized Investment Gains (Losses)
Net investment income (loss) is shown below (in thousands):
Bonds
Equity securities
Mortgage loans
Real estate
Equity-indexed options
Other invested assets
Total
Net realized investment gains (losses) are shown below (in thousands):
Bonds
Mortgage loans
Real estate
Other invested assets
Total
Years ended December 31,
2020
2019
2018
$
560,811 $
602,054 $
31,325
251,414
5,797
51,931
32,407
33,502
254,720
8,849
144,980
33,301
$
933,685 $
1,077,406 $
566,513
39,193
258,102
13,533
(54,951)
35,977
858,367
Years ended December 31,
2020
2019
2018
$
23,318 $
16,361 $
—
12,401
(59)
(2,412)
25,555
(1,785)
$
35,660 $
37,719 $
10,903
(4,798)
12,076
(7)
18,174
Net realized investment gains (losses) by transaction type are shown below (in thousands):
Sales
Calls and maturities
Paydowns
Impairments
Loss allowance*
Others
Total
Other-than-temporary impairment losses are shown below (in thousands):
Bonds*
Years ended December 31,
2020
2019
2018
$
10,249 $
27,161 $
26,948
(108)
(1,276)
—
(153)
17,372
(156)
(6,505)
21
(174)
$
35,660 $
37,719 $
13,279
12,893
(209)
(3,717)
(2,547)
(1,525)
18,174
Years ended December 31,
2020
2019
2018
$
— $
(6,968) $
(1,243)
*
Effective January 1, 2020, the Company adopted ASU No. 2016-13. Adoption of this guidance resulted in an allowance for credit losses primarily on the
commercial mortgage loans and related off-balance sheet unfunded loan commitments, held-to-maturity bonds and reinsurance recoverables. Prior
periods have not been restated to conform to the current presentation. See Note 3, Recently Issued Accounting Pronouncements.
97
Table of Contents
Note 9 – Fair Value of Financial Instruments
The carrying amount and fair value of financial instruments are shown below (in thousands):
Financial assets
Fixed maturity, bonds held-to-maturity
Fixed maturity, bonds available-for-sale
Equity securities
Equity-indexed options
Mortgage loans on real estate, net of allowance
Policy loans
Short-term investments
Separate account assets ($1,153,702 and $1,049,938 included in fair value hierarchy)
Separately managed accounts
Total financial assets
Financial liabilities
Investment contracts
Embedded derivative liability for equity-indexed contracts
Notes payable
Federal Home Loan Bank advance
Separate account liabilities ($1,153,702 and $1,049,938 included in fair value
hierarchy)
Total financial liabilities
December 31,
2020
2019
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
$ 7,354,970 $ 7,983,181 $ 8,631,261 $ 8,968,690
7,597,180
2,070,766
242,201
7,597,180
2,070,766
242,201
6,725,085
1,700,960
256,005
6,725,085
1,700,960
256,005
5,242,531
5,451,152
5,097,017
5,309,005
373,014
1,028,379
1,185,467
64,424
373,014
1,028,379
1,185,467
64,424
379,657
425,321
379,657
425,321
1,073,891
1,073,891
50,503
50,503
$ 25,158,932 $ 25,995,764 $ 24,339,700 $ 24,889,117
$ 10,101,764 $ 10,101,764 $ 10,254,959 $ 10,254,959
731,552
731,552
705,013
705,013
153,703
250,000
153,703
250,227
157,997
157,997
—
—
1,185,467
1,185,467
1,073,891
1,073,891
$ 12,395,947 $ 12,396,174 $ 12,218,399 $ 12,218,399
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability. A fair value hierarchy is
used to determine fair value based on a hypothetical transaction at the measurement date from the perspective of a market
participant. American National has evaluated the types of securities in its investment portfolio to determine an appropriate
hierarchy level based upon trading activity and the observability of market inputs. The classification of assets or liabilities
within the fair value hierarchy is based on the lowest level of significant input to its valuation. The input levels are defined as
follows:
Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2
Level 3
Quoted prices in markets that are not active or inputs that are observable directly or indirectly. Level 2 inputs
include quoted prices for similar assets or liabilities other than quoted prices in Level 1; quoted prices in markets
that are not active; or other inputs that are observable or can be derived principally from or corroborated by
observable market data for substantially the full term of the assets or liabilities.
Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the
assets or liabilities. Unobservable inputs reflect American National’s own assumptions about the assumptions that
market participants would use in pricing the asset or liability. Level 3 assets and liabilities include financial
instruments whose values are determined using pricing models and third-party evaluation, as well as instruments for
which the determination of fair value requires significant management judgment or estimation.
98
Table of Contents
Note 9 – Fair Value of Financial Instruments — (Continued)
Valuation Techniques for Financial Instruments Recorded at Fair Value
Fixed Maturity Securities and Equity Options—American National utilizes a pricing service to estimate fair value
measurements. The estimates of fair value for most fixed maturity securities, including municipal bonds, provided by the
pricing service are disclosed as Level 2 measurements as the estimates are based on observable market information rather than
market quotes. The pricing service utilizes market quotations for fixed maturity securities that have quoted prices in active
markets. Since fixed maturity securities generally do not trade on a daily basis, the pricing service prepares estimates of fair
value measurements for these securities using its proprietary pricing applications, which include available relevant market
information, benchmark curves, benchmarking of like securities, sector groupings and matrix pricing. Additionally, an option
adjusted spread model is used to develop prepayment and interest rate scenarios.
The pricing service evaluates each asset class based on relevant market information, credit information, perceived market
movements and sector news. The market inputs utilized in the pricing evaluation, listed in the approximate order of priority,
include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids,
offers, reference data, and economic events. The extent of the use of each market input depends on the asset class and the
market conditions. Depending on the security, the priority of the use of inputs may change or some market inputs may not be
relevant. For some securities, additional inputs may be necessary.
American National has reviewed the inputs and methodology used and the techniques applied by the pricing service to produce
quotes that represent the fair value of a specific security. The review confirms that the pricing service is utilizing information
from observable transactions or a technique that represents a market participant’s assumptions. American National does not
adjust quotes received from the pricing service. The pricing service utilized by American National has indicated that they will
only produce an estimate of fair value if there is objectively verifiable information available.
American National holds a small amount of private placement debt and fixed maturity securities that have characteristics that
make them unsuitable for matrix pricing. For these securities, a quote from an independent broker (typically a market maker) is
obtained. Due to the disclaimers on the quotes that indicate the price is indicative only, American National includes these fair
value estimates in Level 3.
For securities priced using a quote from an independent broker, such as the equity-indexed options and certain fixed maturity
securities, American National uses a market-based fair value analysis to validate the reasonableness of prices received. Price
variances above a certain threshold are analyzed further to determine if any pricing issue exists. This analysis is performed
quarterly.
Equity Securities—For publicly-traded equity securities, prices are received from a nationally recognized pricing service that
are based on observable market transactions, and these securities are classified as Level 1 measurements. For certain preferred
stock, current market quotes in active markets are unavailable. In these instances, an estimated fair value is received from the
pricing service. The service utilizes similar methodologies to price preferred stocks as it does for fixed maturity securities. If
applicable, these estimates would be disclosed as Level 2 measurements. American National tests the accuracy of the
information provided by reference to other services annually.
Short-Term Investments—Short-term investments are primarily commercial paper rated A2 or P2 or better by Standard &
Poor's and Moody's, respectively. Commercial paper is carried at amortized cost which approximates fair value. These
investments are classified as Level 2 measurements.
99
Table of Contents
Note 9 – Fair Value of Financial Instruments — (Continued)
Separate Account Assets and Liabilities—Separate account assets and liabilities are funds that are held separate from the
general assets and liabilities of American National. Separate account assets include funds representing the investments of
variable insurance product contract holders, who bear the investment risk of such funds. Investment income and investment
gains and losses from these separate funds accrue to the benefit of the contract holders. American National reports separately,
as assets and liabilities, investments held in such separate accounts and liabilities of the separate accounts if (i) such separate
accounts are legally recognized; (ii) assets supporting the contract liabilities are legally insulated from American National’s
general account liabilities; (iii) investments are directed by the contract holder; and (iv) all investment performance, net of
contract fees and assessments, is passed through to the contract holder. In addition, American National's qualified pension plan
assets are included in separate accounts. The assets of these accounts are carried at fair value. Deposits, net investment income
and realized investment gains and losses for these accounts are excluded from revenues, and related liability increases are
excluded from benefits and expenses in the consolidated statements of operations. Separate accounts are established in
conformity with insurance laws and are not chargeable with liabilities that arise from any other business of American National.
The separate account assets included on the quantitative disclosures fair value hierarchy table are comprised of short-term
investments, equity securities, and fixed maturity bonds available-for-sale. Equity securities are classified as Level 1
measurements. Short-term investments and fixed maturity securities are classified as Level 2 measurements. These
classifications for separate account assets reflect the same fair value level methodologies as listed above as they are derived
from the same vendors and follow the same process.
The separate account assets also include cash and cash equivalents, investments in unconsolidated affiliates, accrued investment
income, and receivables for securities. These are not financial instruments and are not included in the quantitative disclosures of
fair value hierarchy table.
No gains or losses were recognized on assets transferred to separate accounts for the years ended December 31, 2020, 2019, and
2018.
Embedded Derivative—The amounts reported within policyholder contract deposits include equity linked interest crediting
rates based on the S&P 500 within indexed annuities and indexed life. The following unobservable inputs are used for
measuring the fair value of the embedded derivatives associated with the policyholder contract liabilities:
•
Lapse rate assumptions are determined by company experience. Lapse rates are generally assumed to be lower during a
contract’s surrender charge period and then higher once the surrender charge period has ended. Decreases to the
assumed lapse rates generally increase the fair value of the liability as more policyholders persist to collect the crediting
interest pertaining to the indexed product. Increases to the lapse rate assumption decrease the fair value.
• Mortality rate assumptions vary by age and gender based on company and industry experience. Decreases to the
assumed mortality rates increase the fair value of the liabilities as more policyholders earn crediting interest. Increases
to the assumed mortality rates decrease the fair value as higher decrements reduce the potential for future interest
credits.
•
Equity volatility assumptions begin with current market volatilities and grow to long-term values. Increases to the
assumed volatility will increase the fair value of liabilities, as future projections will produce higher increases in the
linked index. At December 31, 2020 and 2019, the one-year implied volatility used to estimate embedded derivative
value was 17.6% and 11.3%, respectively.
Fair values of indexed life and annuity liabilities are calculated using the discounted cash flow technique. Shown below are the
significant unobservable inputs used to calculate the Level 3 fair value of the embedded derivatives within policyholder contract
deposits (in millions, except range percentages):
Fair Value
December 31,
Range
December 31,
2020
2019
Unobservable Input
2020
2019
Indexed Annuities
$
670.8 $
706.5 Lapse Rate
Indexed Life
34.2
25.0 Equity Volatility
Mortality Multiplier
Equity Volatility
1-50%
100 %
16-69%
16-69%
1-70%
90-100%
11-46%
11-46%
100
Table of Contents
Note 9 – Fair Value of Financial Instruments — (Continued)
Quantitative Disclosures
The fair value hierarchy measurements of the financial instruments are shown below (in thousands):
Assets and Liabilities Carried at Fair Value by Hierarchy Level at December 31, 2020
Total
Fair Value
Level 1
Level 2
Level 3
Financial assets
Fixed maturity, bonds available-for-sale
U.S. treasury and government
$
29,183 $
— $
29,183 $
U.S. states and political subdivisions
Foreign governments
Corporate debt securities
Residential mortgage-backed securities
Collateralized debt securities
Total bonds available-for-sale
Equity securities
Common stock
Preferred stock
Total equity securities
Options
Short-term investments
Separate account assets
Separately managed accounts
Total financial assets
Financial liabilities
Embedded derivative for equity-indexed contracts
Notes payable
Separate account liabilities
Total financial liabilities
1,140,458
16,388
6,334,479
21,291
55,381
7,597,180
2,055,229
15,537
2,070,766
242,201
1,028,379
1,153,702
64,424
—
—
—
—
—
—
2,054,789
14,909
2,069,698
—
—
309,425
—
1,140,458
16,388
6,224,042
21,291
55,381
7,486,743
—
—
—
—
1,028,379
844,277
—
$
$
$
12,156,652 $
2,379,123 $
9,359,399 $
705,013 $
153,703
1,153,702
2,012,418 $
— $
—
309,425
309,425 $
— $
—
844,277
844,277 $
—
—
—
110,437
—
—
110,437
440
628
1,068
242,201
—
—
64,424
418,130
705,013
153,703
—
858,716
Assets and Liabilities Carried at Fair Value by Hierarchy Level at December 31, 2019
Total
Fair Value
Level 1
Level 2
Level 3
Financial assets
Fixed maturity, bonds available-for-sale
U.S. treasury and government
$
29,941 $
— $
29,941 $
U.S. states and political subdivisions
Foreign governments
Corporate debt securities
Residential mortgage-backed securities
Collateralized debt securities
Total bonds available-for-sale
Equity securities
Common stock
Preferred stock
Total equity securities
Options
Short-term investments
Separate account assets
Separately managed accounts
Total financial assets
Financial liabilities
Embedded derivative for equity-indexed contracts
Notes payable
Separate account liabilities
Total financial liabilities
1,078,165
6,287
5,576,620
23,943
10,129
6,725,085
1,682,149
18,811
1,700,960
256,005
425,321
1,049,938
50,503
—
—
—
—
—
—
1,681,686
18,811
1,700,497
—
—
271,575
—
1,078,165
6,287
5,531,776
23,943
10,129
6,680,241
—
—
—
—
425,321
778,363
—
$
$
$
10,207,812 $
1,972,072 $
7,883,925 $
731,552 $
157,997
1,049,938
1,939,487 $
101
— $
—
271,575
271,575 $
— $
—
778,363
778,363 $
—
—
—
44,844
—
—
44,844
463
—
463
256,005
—
—
50,503
351,815
731,552
157,997
—
889,549
Table of Contents
Note 9 – Fair Value of Financial Instruments — (Continued)
For financial instruments measured at fair value on a recurring basis using Level 3 inputs during the period, a reconciliation of
the beginning and ending balances is shown below (in thousands):
Balance at December 31, 2017
$
— $
220,190 $
— $
512,526
Level 3
Assets
Investment
Securities
Equity-Indexed
Options
Separately
Managed Accounts
Liability
Embedded
Derivative
Net loss for derivatives included in net investment income
Net change included in interest credited
Purchases, sales and settlements or maturities
Purchases
Sales
Settlements or maturities
Premiums less benefits
Balance at December 31, 2018
Net gain for derivatives included in net investment income
Net change included in interest credited
Net fair value change included in other comprehensive income
Purchases, sales and settlements or maturities
Purchases
Sales
Settlements or maturities
Premiums less benefits
Gross transfers out of Level 3
Balance at December 31, 2019
Net gain for derivatives included in net investment income
Net change included in interest credited
Net fair value change included in other comprehensive income
Purchases, sales and settlements or maturities
Purchases
Sales
Settlements or maturities
Premiums less benefits
Gross transfers out of Level 3
Balance at December 31, 2020
—
—
4,346
—
—
—
4,346
—
—
—
45,307
(113)
—
—
(4,233)
45,307
—
—
80
191,960
(70,842)
—
—
(55,000)
(55,093)
—
72,033
(18)
(89,106)
—
148,006
144,980
—
—
75,163
(13,396)
(98,748)
—
—
256,005
51,931
—
—
80,705
(8,063)
(138,377)
—
—
—
—
16,532
—
—
—
16,532
—
—
60
33,911
—
—
—
—
50,503
—
—
(312)
25,343
(11,110)
—
—
—
—
(17,862)
—
—
—
101,411
596,075
—
162,011
—
—
—
—
(26,534)
—
731,552
—
22,977
—
—
—
—
(49,516)
—
$
111,505 $
242,201 $
64,424 $
705,013
Within the net gain (loss) for derivatives included in net investment income were unrealized losses of $11.2 million, unrealized
gains of $113.3 million, and unrealized losses of $94.9 million relating to assets still held at December 31, 2020, 2019, and
2018, respectively.
The associated embedded derivative decrease is largely driven by classification changes to declared funds within indexed
products and by changes to the embedded derivative discount rate.
There were no transfers between Level 1 and Level 2 fair value hierarchies during the periods presented. Unless information is
obtained from the brokers that indicates observable inputs were used in their pricing, there are not enough observable inputs to
enable American National to classify the securities priced by the brokers as other than Level 3. American National’s valuation
of these securities involves judgment regarding assumptions market participants would use including quotes from independent
brokers. The inputs used by the brokers include recent transactions in the security, similar bonds with same name, ratings,
maturity and structure, external dealer quotes in the security, Bloomberg evaluated pricing and prior months pricing. None of
these inputs were observable to American National as of December 31, 2020. The transfers out of Level 3 during the years
ended December 31, 2020 and 2019 were the result of securities being priced by the third-party service at the end of the period,
using inputs that were observable or derived from market data, which resulted in classification of these assets as Level 2.
102
Table of Contents
Note 9 – Fair Value of Financial Instruments — (Continued)
Fair Value Information About Financial Instruments Not Recorded at Fair Value
Information about fair value estimates for financial instruments not measured at fair values is discussed below:
Fixed Maturity Securities—The fair value of bonds held-to-maturity is determined to be consistent with the disclosure under
Valuation Techniques for the Financial Instrument Recorded at Fair Value section.
Mortgage Loans—The fair value of mortgage loans is estimated using discounted cash flow analyses on a loan by loan basis
by applying a discount rate to expected cash flows from future installment and balloon payments. The discount rate takes into
account general market trends and specific credit risk trends for the individual loan. Factors used to arrive at the discount rate
include inputs from spreads based on U.S. Treasury notes and the loan’s credit quality, region, property type, lien priority,
payment type and current status.
Policy Loans—The carrying value of policy loans is the outstanding balance plus any accrued interest. Due to the collateralized
nature of policy loans such that they cannot be separated from the policy contracts, the unpredictable timing of repayments and
the fact that settlement is at outstanding value, American National believes the carrying value of policy loans approximates fair
value.
Separately Managed Accounts—The amounts reported in separately managed accounts consist primarily of notes and private
equity. These investments are private placements and do not have a readily determinable fair value. The carrying value of the
separately managed accounts is cost or market value, if available from the separately managed account manager. Market value
is provided by the separately managed account manager in subsequent quarters. American National believes that cost
approximates fair value at initial recognition during the quarter of investment.
Investment Contracts—The carrying value of investment contracts is equivalent to the accrued account balance. The accrued
account balance consists of deposits, net of withdrawals, net of interest credited, fees and charges assessed and other
adjustments. American National believes that the carrying value of investment contracts approximates fair value because the
majority of these contracts’ interest rates reset at anniversary.
Notes Payable—Notes payable are carried at outstanding principal balance. The carrying value of the notes payable
approximates fair value because the underlying interest rates approximate market rates at the balance sheet date.
Federal Home Loan Bank Advance—The Federal Home Loan Bank advance is carried at outstanding principal balance. The
fair value of the advance is obtained from the Federal Home Loan Bank of Dallas.
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Table of Contents
Note 9 – Fair Value of Financial Instruments — (Continued)
The carrying value and estimated fair value of financial instruments not recorded at fair value on a recurring basis are shown
below (in thousands):
Financial assets
Fixed maturity, bonds held-to-maturity
U.S. states and political subdivisions
Foreign governments
Corporate debt securities
Corporate debt securities
Residential mortgage-backed securities
Collateralized debt securities
Other debt securities
Total fixed maturity, bonds held-to-maturity
Mortgage loans on real estate, net of allowance
Policy loans
Total financial assets
Financial liabilities
Investment contracts
Notes payable
Federal Home Loan Bank advance
Total financial liabilities
Financial assets
Fixed maturity, bonds held-to-maturity
U.S. states and political subdivisions
Foreign governments
Corporate debt securities
Residential mortgage-backed securities
Collateralized debt securities
Total fixed maturity, bonds held-to-maturity
Mortgage loans on real estate, net of allowance
Policy loans
Total financial assets
Financial liabilities
Investment contracts
Notes payable
Total financial liabilities
FV Hierarchy Level
Carrying Amount
Fair Value
December 31, 2020
Level 2
Level 2
Level 2
Level 3
Level 2
Level 2
Level 2
Level 3
Level 3
Level 3
Level 3
Level 2
$
109,445 $
3,851
6,981,597
3,024
114,127
135,194
7,732
7,354,970
5,242,531
373,014
113,535
4,225
7,595,712
3,024
117,728
141,213
7,744
7,983,181
5,451,152
373,014
$
$
$
12,970,515 $
13,807,347
10,101,764 $
10,101,764
153,703
250,000
153,703
250,227
10,505,467 $
10,505,694
FV Hierarchy Level
Carrying Amount
Fair Value
December 31, 2019
Level 2
Level 2
Level 2
Level 2
Level 2
Level 3
Level 3
Level 3
Level 3
$
165,109 $
3,907
8,099,098
237,516
125,631
8,631,261
5,097,017
379,657
170,114
4,349
8,424,969
242,828
126,430
8,968,690
5,309,005
379,657
$
$
$
14,107,935 $
14,657,352
10,254,959 $
10,254,959
157,997
157,997
10,412,956 $
10,412,956
104
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Note 10 – Deferred Policy Acquisition Costs
Deferred policy acquisition costs are shown below (in thousands):
Balance at December 31, 2017
$
791,276 $
426,497 $
36,806 $
119,265 $
1,373,844
Life
Annuity
Health
Property
& Casualty
Total
Additions
Amortization
Effect of change in unrealized gains on available-for-sale debt
securities
Net change
Balance at December 31, 2018
Additions
Amortization
Effect of change in unrealized gains on available-for-sale debt
securities
Net change
Balance at December 31, 2019
Additions
Amortization
131,156
(97,263)
13,964
47,857
839,133
139,336
(113,300)
(12,269)
13,767
852,900
148,142
92,603
(57,468)
37,956
73,091
499,588
70,272
(79,746)
(74,734)
(84,208)
415,380
55,411
12,590
(15,436)
—
(2,846)
33,960
19,940
315,305
551,654
(309,990)
(480,157)
—
5,315
124,580
313,710
51,920
123,417
1,497,261
543,258
(21,322)
(316,141)
(530,509)
—
(1,382)
32,578
15,926
—
(2,431)
122,149
335,744
(87,003)
(74,254)
1,423,007
555,223
(94,386)
(103,709)
(15,619)
(335,831)
(549,545)
Effect of change in unrealized gains on available-for-sale debt
securities
Net change
(10,448)
43,308
(58,026)
(106,324)
—
307
—
(87)
(68,474)
(62,796)
Balance at December 31, 2020
$
896,208 $
309,056 $
32,885 $
122,062 $
1,360,211
Commissions comprise the majority of the additions to deferred policy acquisition costs.
105
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Note 11 – Liability for Future Policy Benefits and Policyholder Account Balances
American National estimates liabilities for amounts payable under insurance and annuity policies. Generally, amounts are
payable over an extended period of time and related liabilities are calculated as the present value of expected benefit payments
reduced by the present value of expected premiums. Such liabilities are established on a block of business based on methods
and underlying assumptions in accordance with GAAP and applicable actuarial standards. Principal assumptions used in the
establishment of liabilities for future policy benefits are mortality, morbidity, policy lapse, renewal, retirement, disability
incidence, disability termination, investment return, inflation, expenses, and other contingent events as appropriate to the
respective product type.
Future policy benefits for non-participating traditional life insurance are equal to the aggregate of the present value of expected
benefit payments and related expenses less the present value of expected net premiums. Assumptions as to mortality and
persistency are based upon American National’s experience when the basis of the liability is established. Interest rates for the
aggregate future policy benefit liabilities range from 3.0% to 8.0%.
Future policy benefit liabilities for participating traditional life insurance are equal to the aggregate of (i) net level premium
reserves for death and endowment policy benefits (calculated based upon the non-forfeiture interest rate, ranging from 2.5% to
5.5%) and mortality rates guaranteed in calculating the cash surrender values described in such contracts; and (ii) the liability
for terminal dividends.
Future policy benefit liabilities for individual fixed deferred annuities after annuitization and single premium immediate
annuities are equal to the present value of expected future payments. The interest rate used in establishing such liabilities range
from 3.0% to 6.0% for all policies in-force.
Future policy benefit liabilities for non-medical health insurance are calculated using the net level premium method and
assumptions as to future morbidity, withdrawals and interest, which provide a margin for adverse deviation. The interest rate
used in establishing such liabilities range from 3.5% to 8.0%.
Future policy benefit liabilities for disabled lives are estimated using the present value of benefits method and experience
assumptions as to claim terminations, expenses and interest. The interest rates used in establishing such liabilities range from
3.0% to 6.0%.
Liabilities for universal life secondary guarantees and paid-up guarantees are determined by estimating the expected value of
death benefits payable when the account balance is projected to be zero and recognizing those benefits ratably over the
accumulation period based on total expected assessments. American National regularly evaluates estimates used and adjusts the
additional liability balances with a related charge or credit to benefit expense, if actual experience or other evidence suggests
that earlier assumptions should be revised. The assumptions used in estimating the secondary and paid-up guarantee liabilities
are consistent with those used for amortizing DAC, and are thus subject to the same variability and risk. The assumptions of
investment performance and volatility for variable products are consistent with historical Standard & Poor’s experience. The
benefits used in calculating the liabilities are based on the average benefits payable over a range of scenarios.
American National periodically reviews its estimates of actuarial liabilities for future policy benefits and compares them with
its actual experience. Differences between actual experience and the assumptions used in pricing these policies, guarantees and
riders and in the establishment of the related liabilities result in variances in profit and could result in losses. The effects of
changes in such estimated liabilities are included in the consolidated statements of operations in the period in which the changes
occur.
Policyholder account balances relate to investment-type contracts and universal life-type policies. Investment-type contracts
principally include traditional individual fixed annuities in the accumulation phase and non-variable group annuity contracts.
Policyholder account balances are equal to (i) policy account values, which consist of an accumulation of gross premium
payments; (ii) credited interest, ranging from 1.0% to 8.0% (some annuities have enhanced first year crediting rates ranging
from 1.0% to 7.0%), less expenses, mortality charges, and withdrawals; and (iii) fair value adjustment.
106
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Note 12 – Liability for Unpaid Claims and Claim Adjustment Expenses
The liability for unpaid claims and claim adjustment expenses (“claims”) for health and property and casualty insurance is included in
“Policy and contract claims” in the consolidated statements of financial position and is the amount estimated for incurred but not
reported (“IBNR”) claims and claims that have been reported but not settled. The liability for unpaid claims is estimated based upon
American National’s historical experience and actuarial assumptions that consider the effects of current developments, anticipated
trends and risk management programs, less anticipated salvage and subrogation. The effects of the changes are included in the
consolidated results of operations in the period in which the changes occur. The time value of money is not taken into account for the
purposes of calculating the liability for unpaid claims. There have been no significant changes in methodologies or assumptions used
to calculate the liability for unpaid claims and claim adjustment expenses.
Information regarding the liability for unpaid claims is shown below (in thousands):
Unpaid claims balance, beginning
Less: Reinsurance recoverables
Net beginning balance
Incurred related to
Current
Prior years
Total incurred claims
Paid claims related to
Current
Prior years
Total paid claims
Net balance
Plus: Reinsurance recoverables
Unpaid claims balance, ending
Years ended December 31,
2020
2019
2018
$
1,322,837 $
1,305,225 $
1,218,652
246,447
1,076,390
1,177,634
(61,659)
1,115,975
681,960
399,276
1,081,236
1,111,129
243,084
254,466
1,050,759
1,207,796
(57,979)
1,149,817
688,544
435,642
1,124,186
1,076,390
246,447
241,301
977,351
1,193,216
(19,852)
1,173,364
688,493
411,463
1,099,956
1,050,759
254,466
$
1,354,213 $
1,322,837 $
1,305,225
The net and gross reserve calculations have shown favorable development as a result of favorable loss emergence compared to what
was implied by the loss development patterns used in the original estimation of losses in prior years. Estimates for ultimate incurred
claims attributable to insured events of prior years decreased by approximately $61.7 million, $58.0 million, $19.9 million in 2020,
2019, and 2018, respectively. The favorable development in 2020 was a reflection of lower rates of claim severity emergence than
previously expected in the worker's compensation line of business , and lower liability claim settlement costs emerging from
agribusiness and private passenger automobile lines of business. The favorable development in 2019 reflected lower rates of claim
severity emergence than previously expected in the workers compensation line of business , and lower liability claim settlement costs
emerging from private passenger automobile line of business.
For short-duration health insurance claims, the total of IBNR plus expected development on reported claims included in the liability
for unpaid claims and claim adjustment expenses at December 31, 2020 and December 31, 2019 was $20.5 million and $21.4 million
respectively.
107
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Note 12 – Liability for Unpaid Claims and Claim Adjustment Expenses — (Continued)
The reconciliation of the net incurred and paid claims development tables to the liability for claims and claim adjustment expenses in
the consolidated statement of financial position is as follows (in thousands):
Net outstanding liabilities
Auto Liability
Non-Auto Liability
Commercial Multi-Peril
Homeowners
Short Tail Property
Credit Property and Casualty
Credit Life
Health
Credit Health
Other
Liabilities for unpaid claims and claim adjustment expenses, net of reinsurance
Reinsurance recoverable on unpaid claims
Auto Liability
Non-Auto Liability
Commercial Multi-Peril
Homeowners
Short Tail Property
Credit Property and Casualty
Credit Life
Health
Credit Health
Other
Total reinsurance recoverable on unpaid claims
Insurance lines other than short-duration
Unallocated claim adjustment expenses
December 31, 2020
$
449,779
282,681
125,321
82,010
39,528
18,870
1,123
25,089
4,689
796
1,029,886
9,240
38,496
5,972
9,520
6,018
14,220
752
165,436
1,903
7,159
258,716
229,209
57,477
286,686
Total gross liability for unpaid claims and claim adjustment expense
$
1,575,288
108
Table of Contents
Note 12 – Liability for Unpaid Claims and Claim Adjustment Expenses — (Continued)
Property and Casualty Reserving Methodology—The following methods are utilized:
•
•
•
•
•
•
Initial Expected Loss Ratio—This method calculates an estimate of ultimate losses by applying an estimated loss ratio to
actual earned premium for each calendar/accident year. This method is appropriate for classes of business where the actual
paid or reported loss experience is not yet mature enough to influence initial expectations of the ultimate loss ratios.
Pegged Frequency and Severity—This method uses actual claims count data and emergence patterns of older accident
periods to project the ultimate number of reported claims for a given accident year. A similar process projects the ultimate
average severity per claim so that the product of the two projections results in a projection of ultimate loss for a given accident
year.
Bornhuetter-Ferguson—This method uses, as a starting point, either an assumed Initial Expected Loss Ratio Method or
Pegged Frequency and Severity method and blends in the loss ratio or frequency and severity implied by the claims experience
to date by using loss development patterns based on our historical experience. This method is generally appropriate where
there are few reported claims and an unstable pattern of reported losses.
Loss or Expense Development (Chain Ladder)—This method uses actual loss or defense and cost containment expense data
and the historical development profiles on older accident periods to project more recent, less developed periods to their
ultimate total. This method is appropriate when there is a relatively stable pattern of loss and expense emergence and a
relatively large number of reported claims.
Ratio of Paid Defense and Cost Containment Expense to Paid Loss Development—This method uses the ratio of paid
defense and cost containment expense to paid loss data and the historical development profiles on older accident periods to
project more recent, less developed periods to their ultimate total. In this method, an ultimate ratio of paid defense and cost
containment expense to paid loss is selected for each accident period. The selected paid defense and cost containment expense
to paid loss ratio is then applied to the selected ultimate loss for each accident period to estimate the ultimate defense and cost
containment expense. Paid defense and cost containment expense is then subtracted from the ultimate defense and cost
containment expense to calculate the unpaid defense and cost containment expense for that accident period.
Calendar Year Paid Adjusting and Other Expense to Paid Loss—This method uses a selected prior calendar years’ paid
expense to paid loss ratio to project ultimate loss adjustment expenses for adjusting and other expense. A percentage of the
selected ratio is applied to the case reserves (depending on the line of insurance) and 100% to the indicated IBNR reserves.
These ratios assume that a percentage of the expense is incurred when a claim is opened and the remaining percentage is paid
throughout the claim’s life.
For most credit property and casualty products, IBNR liability is calculated as a percentage of pro rata unearned premium, with the
specific percentage for a given product line informed by a traditional completion factor claim reserve analysis.
The expected development on reported claims is the sum of a pay-to-current reserve and a future reserve. The pay-to-current reserve is
calculated for each open claim having a monthly indemnity and contains the amount required to pay the open claim from the last
payment date to the current valuation date. The future reserve is calculated by assigning to each open claim a fixed reserve amount
based on the historical average severity. For debt cancellation products and involuntary unemployment insurance, this reserve is
calculated using published valuation tables.
Cumulative claim frequency information is calculated on a per claim basis. Claims that do not result in a liability are not considered in
the determination of unpaid liabilities.
For any given line of business, none of these methods are relied on exclusively. With minor exceptions, multiple methods may be used
for a line of business as a check for reasonableness of our reselected reserve value.
The following contains information about incurred and paid claims development as of December 31, 2020, net of reinsurance, as well
as cumulative claim frequency and the total of IBNR liabilities plus expected development on reported claims included within the net
incurred claims amounts. The information about incurred and paid claims development for the years ended December 31, 2011 to
2019 is presented as supplementary information.
109
Table of Contents
Note 12 – Liability for Unpaid Claims and Claim Adjustment Expenses — (Continued)
Auto Liability—Consists of personal and commercial auto. Claims and claim adjustment expenses are shown below (in thousands):
Accident
Year
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Accident
Year
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
As of December 31, 2020
2011*
2012*
2013*
2014*
2015*
2016*
2017*
2018*
2019*
2020
Years ended December 31,
IBNR Plus
Expected
Development
Cumulative
Number of
Reported
Claims
$ 263,411 $ 250,659 $ 248,865 $ 244,519 $ 244,436 $ 242,619 $ 241,711 $ 240,997 $ 240,650 $ 240,601 $
251,593
242,255
231,312
228,013
229,426
228,559
228,864
228,486
228,236
242,364
236,432
233,068
231,301
228,285
226,608
227,234
227,102
232,146
223,386
217,819
215,419
214,870
214,557
214,326
237,578
240,697
239,421
245,775
244,798
244,621
259,177
256,080
261,400
259,128
257,633
269,803
280,012
275,850
273,551
314,467
299,512
288,806
330,988
313,636
277,597
Total
$ 2,566,109
70
92
312
369
1,567
3,352
7,175
23,172
44,325
90,052
47,076
44,689
38,816
36,000
36,087
37,092
38,535
37,711
35,995
24,322
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Years ended December 31,
2011*
2012*
2013*
2014*
2015*
2016*
2017*
2018*
2019*
2020
$
93,245 $
161,387 $
197,326 $
217,640 $
230,585 $
236,187 $
238,510 $
239,409 $
240,085 $
240,313
82,531
150,323
79,358
183,448
143,709
72,838
204,980
181,535
134,376
78,861
214,467
204,480
166,947
149,366
86,492
219,170
215,280
187,375
186,281
153,911
88,357
222,117
219,303
204,057
211,908
198,326
175,175
95,777
222,865
223,739
209,401
231,530
225,869
218,435
185,317
98,545
224,585
224,675
210,994
237,792
237,592
241,823
227,312
193,389
78,699
All outstanding liabilities before 2011, net of reinsurance*
844
Liabilities for claims and claim adjustment expenses, net of reinsurance
$
449,779
Total
$ 2,117,174
*
Unaudited supplementary information.
110
Table of Contents
Note 12 – Liability for Unpaid Claims and Claim Adjustment Expenses — (Continued)
Non-Auto Liability—Consists of workers’ compensation and other liability occurrence. Claims and claim adjustment expenses are
shown below (in thousands):
Accident
Year
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Accident
Year
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
As of December 31, 2020
2011*
2012*
2013*
2014*
2015*
2016*
2017*
2018*
2019*
2020
Years ended December 31,
IBNR Plus
Expected
Development
Cumulative
Number of
Reported
Claims
$ 86,409 $ 76,038 $ 75,390 $ 74,372 $ 73,647 $ 71,423 $ 68,248 $ 67,979 $ 67,307 $ 67,758 $
83,146
80,470
78,644
75,226
68,017
63,630
64,118
63,336
63,552
74,183
75,815
70,772
67,841
65,096
64,564
63,284
62,926
83,084
75,550
72,624
67,339
67,865
67,267
67,268
83,897
78,968
76,724
67,548
64,189
63,326
86,935
83,179
73,764
73,195
68,178
102,616
88,902
81,240
77,322
88,986
85,910
79,493
96,064
95,340
90,197
Total
$ 735,360
1,978
2,368
2,650
3,472
4,848
8,180
8,875
23,527
38,408
59,252
5,726
4,872
4,556
6,102
5,556
4,481
8,133
13,575
11,633
8,703
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Years ended December 31,
2011*
2012*
2013*
2014*
2015*
2016*
2017*
2018*
2019*
2020
$
13,848 $
31,943 $
41,814 $
52,003 $
56,791 $
60,706 $
62,414 $
63,121 $
63,706 $
64,020
13,862
27,574
12,794
38,826
22,743
11,201
49,585
32,474
26,587
11,979
55,194
42,504
36,220
23,488
12,733
57,863
47,987
45,206
37,059
24,633
14,865
59,528
51,672
51,853
46,285
35,502
37,139
13,156
60,900
54,323
55,307
51,303
45,820
48,654
26,115
12,204
61,450
55,426
57,497
53,478
50,596
53,996
37,574
30,199
9,596
All outstanding liabilities before 2011, net of reinsurance*
21,153
Liabilities for claims and claim adjustment expenses, net of reinsurance
$
282,681
Total
$
473,832
*
Unaudited supplementary information.
111
Table of Contents
Note 12 – Liability for Unpaid Claims and Claim Adjustment Expenses — (Continued)
Commercial Multi-Peril—Consists of business owners insurance and mortgage fire business. Claims and claim adjustment expenses
are shown below (in thousands):
Accident
Year
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Accident
Year
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
As of December 31, 2020
2011*
2012*
2013*
2014*
2015*
2016*
2017*
2018*
2019*
2020
Years ended December 31,
IBNR Plus
Expected
Development
Cumulative
Number of
Reported
Claims
$ 42,185 $ 40,825 $ 39,037 $ 38,160 $ 38,456 $ 36,945 $ 37,014 $ 36,638 $ 35,964 $ 36,104 $
35,169
28,548
26,805
23,258
23,385
23,090
22,481
22,045
22,033
33,979
27,592
27,867
26,970
25,948
26,028
24,790
24,681
36,852
31,220
34,911
33,962
36,132
34,279
34,004
33,997
31,488
29,023
32,282
31,285
33,059
38,115
33,475
33,080
31,615
33,628
42,411
37,079
40,611
43,367
50,784
50,182
51,519
56,062
59,789
68,226
Total
$ 406,410
222
142
301
396
848
1,530
2,801
8,442
17,510
31,248
3,566
2,718
2,228
2,314
2,238
4,792
6,796
5,609
3,442
3,420
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Years ended December 31,
2011*
2012*
2013*
2014*
2015*
2016*
2017*
2018*
2019*
2020
$
13,092 $
18,390 $
22,616 $
28,291 $
30,458 $
32,692 $
34,177 $
34,782 $
34,939 $
35,605
11,525
14,454
9,374
16,263
12,723
12,001
18,670
15,426
16,484
9,820
20,716
18,406
20,199
12,956
11,327
21,026
20,816
24,602
16,402
17,193
12,458
21,352
21,718
27,339
21,680
19,085
20,828
18,027
21,415
23,210
31,448
25,188
22,339
23,294
30,078
22,098
21,453
23,348
32,702
27,201
25,686
26,202
32,490
32,295
25,492
All outstanding liabilities before 2011, net of reinsurance*
1,385
Liabilities for claims and claim adjustment expenses, net of reinsurance
$
125,321
Total
$
282,474
*
Unaudited supplementary information.
112
Table of Contents
Note 12 – Liability for Unpaid Claims and Claim Adjustment Expenses — (Continued)
Homeowners—Consists of homeowners and renters business. Claims and claim adjustment expenses are shown below (in thousands):
Accident
Year
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Accident
Year
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
As of December 31, 2020
2011*
2012*
2013*
2014*
2015*
2016*
2017*
2018*
2019*
2020
Years ended December 31,
IBNR Plus
Expected
Development
Cumulative
Number of
Reported
Claims
$ 203,301 $ 200,356 $ 198,757 $ 197,581 $ 197,381 $ 197,451 $ 197,239 $ 197,070 $ 197,020 $ 197,093 $
181,284
177,664
175,523
175,509
175,178
175,032
174,611
174,276
174,239
152,208
149,080
149,272
148,231
147,927
147,444
147,359
147,234
132,651
131,634
130,287
131,546
130,895
130,747
130,799
125,430
124,199
123,619
123,824
123,731
123,357
147,264
145,373
144,376
145,019
144,828
164,284
172,274
172,491
169,524
174,495
179,561
176,317
177,854
176,005
227,298
Total
$ 1,666,694
—
—
—
—
33
20
25
1,264
5,808
23,749
38,761
30,999
20,041
18,182
17,753
21,549
23,555
22,519
20,125
23,049
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Years ended December 31,
2011*
2012*
2013*
2014*
2015*
2016*
2017*
2018*
2019*
2020
$
160,625 $
190,946 $
194,237 $
195,327 $
196,575 $
196,628 $
196,717 $
196,757 $
196,787 $
196,872
143,797
169,415
115,605
171,842
140,309
96,300
173,170
145,152
122,601
86,617
173,676
146,650
126,245
114,696
105,415
174,139
146,920
129,467
119,331
136,796
116,075
174,247
147,145
130,059
122,585
140,972
159,107
121,631
174,256
147,233
130,305
122,955
144,000
166,009
165,203
122,530
174,239
147,232
130,542
123,065
144,596
167,638
170,850
163,400
166,352
All outstanding liabilities before 2011, net of reinsurance*
102
Liabilities for claims and claim adjustment expenses, net of reinsurance
$
82,010
Total
$ 1,584,786
*
Unaudited supplementary information.
113
Table of Contents
Note 12 – Liability for Unpaid Claims and Claim Adjustment Expenses — (Continued)
Short Tail Property—Consists of auto physical damage, fire, rental owners, standard fire policy, country estates, inland marine and
watercraft. This line of business has substantially all claims settled and paid in less than two years. Claims and claim adjustment
expenses are shown below (in thousands):
Accident Year
2019
2020
Accident Year
2019
2020
Incurred Claims and Allocated Claim Adjustment
Expenses, Net of Reinsurance
As of December 31, 2020
Years ended December 31,
2019*
2020
IBNR Plus Expected
Development
Cumulative Number of
Reported Claims
$
247,229 $
—
Total
$
242,184 $
237,332
479,516
115
(418)
65,697
50,486
Cumulative Paid Claims and Allocated Claim
Adjustment Expenses, Net of Reinsurance
Years ended December 31,
2019*
2020
$
218,333 $
—
Total
$
All outstanding liabilities before 2019, net of reinsurance*
Liabilities for claims and claim adjustment expenses, net of reinsurance
$
238,413
203,827
442,240
2,252
39,528
*
Unaudited supplementary information
Credit Property and Casualty—Consists of credit property insurance, vendor’s or lender’s single interest insurance, GAP insurance,
GAP waiver, debt cancellation products, involuntary unemployment insurance and collateral protection insurance. This line of
business has substantially all claims settled and paid in less than two years. Claims and claim adjustment expenses are shown below
(in thousands):
Accident Year
2019
2020
Accident Year
2019
2020
*
Unaudited supplementary information.
Incurred Claims and Allocated Claim Adjustment
Expenses, Net of Reinsurance
As of December 31, 2020
Years ended December 31,
2019*
2020
IBNR Plus Expected
Development
Cumulative Number of
Reported Claims
$
82,391 $
—
Total
$
82,393 $
65,260
147,653
21
14,089
28,454
19,659
Cumulative Paid Claims and Allocated Claim
Adjustment Expenses, Net of Reinsurance
Years ended December 31,
2019*
2020
$
61,302 $
All outstanding liabilities before 2019, net of reinsurance*
Liabilities for claims and claim adjustment expenses, net of reinsurance
$
Total
$
82,372
46,417
128,789
6
18,870
114
Table of Contents
Note 12 – Liability for Unpaid Claims and Claim Adjustment Expenses — (Continued)
Credit Life—For credit life products, IBNR is calculated as a percentage of life insurance in-force. This line of business has
substantially all claims settled and paid in less than two years. Claims and claim adjustment expenses are shown below (in thousands):
Accident Year
2019
2020
Accident Year
2019
2020
*
Unaudited supplementary information.
Incurred Claims and Allocated Claim Adjustment
Expenses, Net of Reinsurance
As of December 31, 2020
Years ended December 31,
2019*
2020
IBNR Plus Expected
Development
Cumulative Number of
Reported Claims
$
5,956 $
—
Total
$
6,421 $
7,265
13,686
59
1,001
29
29
Cumulative Paid Claims and Allocated Claim
Adjustment Expenses, Net of Reinsurance
Years ended December 31,
2019*
2020
$
4,772 $
—
Total
$
All outstanding liabilities before 2019, net of reinsurance*
Liabilities for claims and claim adjustment expenses, net of reinsurance
$
6,362
6,201
12,563
—
1,123
115
Table of Contents
Note 12 – Liability for Unpaid Claims and Claim Adjustment Expenses — (Continued)
Health Reserving Methodology—The following methods are utilized:
•
•
•
•
Completion Factor Approach—This method assumes that the historical claim patterns will be an accurate representation of
unpaid claim liabilities. An estimate of the unpaid claims is calculated by subtracting period-to-date paid claims from an
estimate of the ultimate “complete” payment for all incurred claims in the period. Completion factors are calculated which
“complete” the current period-to-date payment totals for each incurred month to estimate the ultimate expected payout.
Tabular Claims Reserves—This method is used to calculate the reserves for long-term care and disability income blocks of
business. These reserves rely on published valuation continuance tables created using industry experience regarding
assumptions of continued morbidity and subsequent recovery. Reserves are calculated by applying these continuance tables,
along with appropriate company experience adjustments, to the stream of contractual benefit payments. These expected
benefit payments are discounted at the required interest rate.
Future Policy Benefits—Reserves are equal to the aggregate of the present value of expected future benefit payments, less
the present value of expected future premiums. Morbidity and termination assumptions are based on our experience or
published valuation tables when available and appropriate.
Premium Deficiency Reserves—Deficiency reserves are established when the expected future claim payments and expenses
for a classification of policies are in excess of the expected premiums for these policies. The determination of a deficiency
reserve takes into consideration the likelihood of premium rate increases, the timing of these increases, future net investment
income, and the expected benefit utilization patterns. We have established premium deficiency reserves for portions of the
major medical business and the long-term care business that are in run-off. The assumptions and methods used to determine
the deficiency reserves are reviewed periodically for reasonableness, and the reserve amount is monitored against emerging
losses.
There is no expected development on reported claims in the health blocks. Claim frequency is determined by totaling the number of
unique claim numbers during the period as each unique claim number represents a claim event for an individual claimant.
Health—Consists of stop-loss and other supplemental health products. This line of business has substantially all claims settled and
paid in less than five years. Claims and claim adjustment expenses are shown below (in thousands):
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
As of December 31, 2020
Accident Year
2016*
2017*
2018*
2019*
2020
Years ended December 31,
2016
2017
2018
2019
2020
$
36,198 $
41,236 $
37,164 $
37,233 $
37,223 $
41,544
39,930
64,686
35,466
63,729
48,175
35,447
57,676
52,508
38,461
Total $
221,315
IBNR Plus
Expected
Development
Cumulative
Number of
Reported Claims
—
—
—
5,271
14,269
28,723
31,396
31,766
32,205
23,773
Accident Year
2016*
2017*
2018*
2019*
2020
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Years ended December 31,
2016
2017
2018
2019
2020
*
Unaudited supplementary information.
$
24,357 $
37,040 $
37,115 $
37,191 $
25,358
35,392
34,894
35,420
57,759
33,353
37,198
35,420
57,616
47,270
23,398
All outstanding liabilities before 2016, net of reinsurance*
Liabilities for claims and claim adjustment expenses, net of reinsurance
$
4,676
25,089
Total
$
200,902
116
Table of Contents
Note 12 – Liability for Unpaid Claims and Claim Adjustment Expenses — (Continued)
Credit Health Reserving Methodology—The following methods are utilized:
Tabular Claims Reserves—These reserves rely on published valuation continuance tables. The insureds age at disablement, the
duration of the claim and the remaining term of the policy are used to provide a factor which is applied to the remaining exposure to
calculate the present value of future benefits for insureds on claim.
The claim liability consists of IBNR and Due/Unpaid. The IBNR utilizes an inventory type method based on historical patterns of
claim payments incurred but not reported within the last six months of the valuation date.
The Due/Unpaid reserves are the amount needed to pay an open claim from the last date of payment to the reserve valuation date.
Credit Health—The claim liability consists of credit disability. This line of business has substantially all claims settled and paid in
less than five years. Claims and claim adjustment expenses are shown below (in thousands):
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
As of December 31, 2020
Accident Year
2016*
2017*
2018*
2019*
2020
Years ended December 31,
2016
2017
2018
2019
2020
$
4,323 $
3,975 $
3,914 $
4,029 $
3,865 $
4,555
4,852
4,631
4,773
4,163
3,902
4,820
4,155
3,705
3,736
Total
$
20,281
IBNR Plus
Expected
Development
Cumulative
Number of
Reported Claims
22
81
118
230
540
3,593
3,773
3,535
2,972
1,963
Accident Year
2016*
2017*
2018*
2019*
2020
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Years ended December 31,
2016
2017
2018
2019
2020
$
1,300 $
2,745 $
3,330 $
3,630 $
1,389
3,328
1,473
4,058
2,930
1,208
Total
$
All outstanding liabilities before 2016, net of reinsurance*
Liabilities for claims and claim adjustment expenses, net of reinsurance
$
3,759
4,438
3,598
2,618
1,179
15,592
—
4,689
*
Unaudited supplementary information.
The following table is supplementary information. A 10-year average annual percentage payout of incurred claims is shown below:
Years
Auto Liability
Non-Auto Liability
Commercial Multi-Peril
Homeowners
Short Tail Property
Credit Property and Casualty
Credit Life
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
1
33.5 %
17.6 %
36.3 %
73.9 %
88.0 %
72.8 %
79.9 %
2
29.2 %
20.7 %
15.7 %
20.5 %
12.0 %
27.2 %
20.1 %
3
15.5 %
16.1 %
8.5 %
2.9 %
— %
— %
— %
4
9.6 %
14.0 %
12.0 %
1.5 %
— %
— %
— %
5
5.8 %
8.2 %
8.9 %
0.4 %
— %
— %
— %
6
2.2 %
4.9 %
5.9 %
0.1 %
— %
— %
— %
7
1.2 %
3.2 %
3.8 %
0.1 %
— %
— %
— %
8
0.4 %
1.7 %
0.8 %
— %
— %
— %
— %
9
0.5 %
0.8 %
0.3 %
— %
— %
— %
— %
10
2.1 %
12.8 %
7.8 %
0.6 %
— %
— %
— %
117
Table of Contents
Note 13 – Reinsurance
American National reinsures portions of certain life insurance policies to provide a greater diversification of risk and manage
exposure on larger risks. The maximum amounts that would be retained by one life insurance company (ANICO) by issue ages
are shown below (in thousands):
Individual life
Individual accidental death
Credit life
Group life
Total
0-75 Years
76-80 Years
81 and Over
5,000 $
2,000 $
1,000
250
100
100
250
100
100
250
100
100
5,450 $
2,450 $
1,450
$
$
For the Property and Casualty segment, American National retains the first $1 million of loss per workers’ compensation risk
and $1.5 million of loss per non-workers’ compensation risk. Reinsurance covers up to $6 million of property and liability
losses per risk. Additional excess property per risk coverage is purchased to cover risks up to $20 million, and excess casualty
clash coverage is purchased to cover losses up to $60 million. Excess casualty clash covers losses incurred as a result of one
casualty event involving multiple policies, excess policy limits and extra contractual obligations. Facultative reinsurance is
purchased for individual risks attaching at $20 million as needed. Corporate catastrophe coverage is in place for losses up to
$500 million. American National retains the first $17.5 million of each catastrophe. Catastrophe aggregate reinsurance coverage
is also purchased and is provided by two contracts. The first contract provides for $30 million of coverage after $104 million of
aggregated catastrophe losses has been reached. The first $25 million of each catastrophe loss net of other reinsurance
contributes to the $104 million aggregation of losses. The second aggregate contract is the Second and Third Event Property
Catastrophe Excess cover. This cover provides $15 million of protection excess of the $10 million retention per catastrophe.
The reinsurance protection follows satisfaction of a $13.5 million AAD. This cover acts to reduce the retention on large second
and third catastrophe events to $10 million following a first large catastrophe and includes one automatic reinstatement at
100%.
American National remains primarily liable with respect to any reinsurance ceded and would bear the entire loss if the reinsurer
does not meet their obligations under any reinsurance treaties. American National had the following recoverables from
reinsurance, net of allowance for credit losses (in thousands):
Reinsurance recoverables
December 31,
2020
2019
$
414,359 $
411,830
None of the amount outstanding at December 31, 2020 is the subject of litigation or is in dispute with the reinsurers involved.
Management believes the unfavorable resolution of any dispute that may arise would not have a material impact on American
National’s consolidated financial statements.
The amounts in the consolidated financial statements include the impact of reinsurance. Premiums written and earned are
shown below (in thousands):
WRITTEN
Direct
Reinsurance assumed
Reinsurance ceded
Net
EARNED
Direct
Reinsurance assumed
Reinsurance ceded
Net
Years ended December 31,
2020
2019
2018
$
2,533,278 $
2,500,176 $
2,545,747
591,457
(883,187)
578,656
(865,369)
646,171
(881,711)
$
2,241,548 $
2,213,463 $
2,310,207
$
2,629,403 $
2,464,870 $
2,499,584
291,945
(703,274)
236,504
(518,580)
286,165
(557,556)
$
2,218,074 $
2,182,794 $
2,228,193
118
Table of Contents
Note 13 – Reinsurance — (Continued)
Life insurance in-force and related reinsurance amounts are shown below (in thousands):
Direct life insurance in-force
Reinsurance risks assumed from other companies
Reinsurance risks ceded to other companies
Net life insurance in-force
Note 14 – Federal Income Taxes
December 31,
2020
2019
2018
$
128,075,765 $
117,886,265 $
110,125,270
171,433
218,020
230,845
(24,006,683)
(24,913,905)
(26,601,422)
$
104,240,515 $
93,190,380 $
83,754,693
A reconciliation of the effective tax rate to the statutory federal tax rate is shown below (in thousands, except percentages):
Income tax expense before tax on equity in earnings of
unconsolidated affiliates
Tax on equity in earnings of unconsolidated affiliates
Total expected income tax expense at the statutory rate
Tax-exempt investment income
Deferred tax change
Dividend exclusion
Miscellaneous tax credits, net
Low income housing tax credit expense
Change in valuation allowance
Tax accrual adjustment
Return to provision
Other items, net
Total
Years ended December 31,
2020
2019
2018
Amount
Rate
Amount
Rate
Amount
Rate
$ 113,021
19.5 % $ 145,819
18.3 % $
29,643
18.2 %
8,918
121,939
(4,262)
2,816
(3,097)
(7,484)
4,923
(625)
—
—
2,397
1.5
21.0
(0.7)
0.5
(0.5)
(1.3)
0.8
(0.1)
—
—
0.4
21,735
167,554
(3,969)
(519)
(3,628)
(7,090)
6,394
383
5,350
1,007
2.7
21.0
(0.5)
(0.1)
(0.5)
(0.9)
0.8
—
0.7
0.1
(65)
(0.1)
$ 116,607
20.1 % $ 165,417
20.5 % $
4,469
34,112
(3,323)
(4,354)
(4,080)
(7,802)
6,231
2,700
(2,893)
(20,301)
1,155
1,445
2.8
21.0
(2.0)
(2.7)
(2.5)
(4.8)
3.8
1.7
(1.8)
(12.5)
0.6
0.8 %
As of December 31, 2020, American National had no material net operating loss or tax credit carryforwards.
American National’s federal income tax returns for tax years 2016 to 2019 are subject to examination by the Internal Revenue
Service. In April 2019, American National received notice from the Internal Revenue Service of its intent to audit tax years
2013 to 2016. In September 2020, American National reached a settlement with the Internal Revenue Service and the audit of
tax years 2013, 2014, 2015 and 2016 is now closed. The settlement had no impact on our consolidated statements of financial
position or consolidated statements of operations. In the opinion of management, all prior year deficiencies have been paid or
adequate provisions have been made for any tax deficiencies that may be upheld.
As of December 31, 2020, American National had no provision for uncertain tax positions and no provision for penalties or
interest. In addition, management does not believe there are any uncertain tax benefits that could be recognized within the next
twelve months that would impact American National’s effective tax rate.
119
Table of Contents
Note 14 – Federal Income Taxes — (Continued)
The tax effects of temporary differences that gave rise to the deferred tax assets and liabilities are shown below (in thousands):
December 31,
2020
2019
DEFERRED TAX ASSETS
Invested assets, principally due to impairment losses
$
19,413 $
Investment in real estate and other invested assets, principally due to investment valuation allowances
Policyholder funds, principally due to policy reserve discount
Policyholder funds, principally due to unearned premium reserve
Participating policyholders’ surplus
Commissions and other expenses
Other assets
Tax carryforwards
Gross deferred tax assets before valuation allowance
Valuation allowance
Gross deferred tax assets after valuation allowance
DEFERRED TAX LIABILITIES
Marketable securities, principally due to net unrealized gains
Investment in bonds, principally due to differences between GAAP and tax basis
Deferred policy acquisition costs, due to difference between GAAP and tax amortization methods
Property, plant and equipment, principally due to difference between GAAP and tax depreciation methods
Pension
Other liabilities
Gross deferred tax liabilities
Total net deferred tax liability
33,583
57,572
23,225
41,593
9,057
2,492
1,638
188,573
(2,458)
186,115
388,004
16,041
199,152
19,185
1,549
40,531
664,462
$
478,347 $
16,760
9,680
76,506
25,726
41,533
3,495
11,291
2,344
187,335
(3,083)
184,252
278,144
15,004
218,795
20,812
1,833
44,192
578,780
394,528
GAAP requires us to evaluate the recoverability of our deferred tax assets and establish a valuation allowance, if necessary, to
reduce our deferred tax assets to an amount that is more-likely-than-not to be realized. Considerable judgment is required in
determining whether a valuation allowance is necessary, and if so, the amount of such valuation allowance. There were no
material changes to our valuation allowance recorded during the years ended December 31, 2020 and 2019. Although
realization is not assured, management believes it is more-likely-than-not that our remaining deferred tax assets will be realized
and that as of December 31, 2020, no additional valuation allowance is required.
120
Table of Contents
Note 15 – Accumulated Other Comprehensive Income (Loss)
The components of and changes in the accumulated other comprehensive income (“AOCI”), and the related tax effects, are
shown below (in thousands):
Balance at December 31, 2017
Amounts reclassified from AOCI (net of tax benefit $561 and expense
$1,532)
Unrealized holding losses arising during the period (net of tax benefit
$46,812)
Unrealized adjustment to DAC (net of tax expense $10,903)
Unrealized losses on investments attributable to participating
policyholders’ interest (net of tax expense $2,343)
Actuarial gain arising during the period (net of tax expense of $4,402)
Foreign currency adjustment (net of tax benefit $239)
Cumulative effect of changes in accounting (net of tax benefit $334,955)
Balance at December 31, 2018
Amounts reclassified from AOCI (net of tax benefit $213 and expense
$1,491)
Unrealized holding gains arising during the period (net of tax expense
$70,808)
Unrealized adjustment to DAC (net of tax benefit $18,270)
Unrealized gains on investments attributable to participating
policyholders’ interest (net of tax benefit $3,372)
Actuarial gain arising during the period (net of tax expense $2,629)
Foreign currency adjustment (net of tax expense $104)
Cumulative effect of changes in accounting
Balance at December 31, 2019
Amounts reclassified from AOCI (net of tax benefit $2,092 and expense
$1,018)
Unrealized holding gains arising during the period (net of tax expense
$52,808)
Unrealized adjustment to DAC (net of tax benefit $14,380)
Unrealized gains on investments attributable to participating
policyholders’ interest (net of tax benefit $632)
Actuarial loss arising during the period (net of tax benefit $4,181)
Foreign currency adjustment (net of tax expense $62)
Net Unrealized
Gains (Losses)
on Securities
Defined
Benefit
Pension Plan
Adjustments
Foreign
Currency
Adjustments
Accumulated
Other
Comprehensive
Income (Loss)
$
720,911 $
(76,562) $
(2,133) $
642,216
(2,111)
5,764
(183,981)
41,017
8,814
—
—
(627,119)
(42,469)
—
—
—
16,562
—
—
(54,236)
(800)
5,607
266,373
(68,733)
(12,684)
—
—
16,164
157,851
—
—
—
9,888
—
(16,491)
(55,232)
(7,870)
3,831
198,657
(54,094)
(2,378)
—
—
—
—
—
(15,729)
—
—
—
—
—
—
(900)
—
(3,033)
—
—
—
—
—
390
(458)
(3,101)
—
—
—
—
—
235
3,653
(183,981)
41,017
8,814
16,562
(900)
(627,119)
(99,738)
4,807
266,373
(68,733)
(12,684)
9,888
390
(785)
99,518
(4,039)
198,657
(54,094)
(2,378)
(15,729)
235
Balance at December 31, 2020
$
292,166 $
(67,130) $
(2,866) $
222,170
121
Table of Contents
Note 16 – Stockholders’ Equity and Noncontrolling Interests
The holding company reorganization effective July 1, 2020, provided for the automatic conversion of each share of ANICO
common stock, par value of $1.00 per share, issued and outstanding immediately prior to the effective time of the
reorganization, into one duly issued, fully paid and non-assessable share of the common stock, par value $0.01 per share, of
ANAT. ANAT has one class of common stock with 50,000,000 authorized shares. Upon the effective date of the holding
company reorganization, ANAT retired 3,945,249 shares of common stock that were held in treasury at ANICO prior to the
reorganization. The number of shares outstanding at the dates indicated are shown below:
Common stock
Shares issued
Treasury shares
Outstanding shares
Restricted shares
Unrestricted outstanding shares
Stock-based Compensation
Years ended December 31,
2020
2019
2018
26,887,200
—
26,887,200
(10,000)
30,832,449
(3,945,249)
26,887,200
(10,000)
30,832,449
(3,947,000)
26,885,449
(10,000)
26,877,200
26,877,200
26,875,449
American National has made grants of Stock Appreciation Rights (“SAR”), Restricted Stock (“RS”), and Restricted Stock Units
(“RSU”), pursuant to a stock-based compensation plan. The term for granting additional awards under such plan expired in
2019. Pursuant to the plan, grants were made to certain officers meeting established performance objectives, and grants were
made to directors as compensation and to align their interests with those of other shareholders. In addition, American National
has made grants to directors and advisory directors of RSUs that are cash-settled only, with no provision for conversion to
stock. 8,250 of such cash-settled RSUs were granted during the third quarter of 2020 and are currently outstanding as shown in
the table below.
SAR, RS and RSU information for the periods indicated are shown below:
SAR
RS Shares
RSUs
Weighted-
Average
Grant Date
Fair Value
Shares
Weighted-
Average
Grant Date
Fair Value
Weighted-
Average
Grant Date
Fair Value
Units
Shares
Outstanding at December 31, 2017
2,586 $
106.70
74,000 $
110.19
52,765 $
Granted
Exercised
Forfeited
Expired
Outstanding at December 31, 2018
Granted
Exercised
Forfeited
Expired
Outstanding at December 31, 2019
Granted
Exercised
Forfeited
Expired
Outstanding at December 31, 2020
—
(650)
—
(1,601)
335
—
—
—
(269)
66
—
—
—
(66)
— $
—
99.79
—
114.17
84.41
—
—
—
77.90
110.83
—
—
—
110.83
—
(64,000)
—
—
10,000
—
—
—
—
10,000
—
—
—
—
—
8,250
114.90
(41,949)
—
—
80.05
—
—
—
—
80.05
—
—
—
—
(750)
—
18,316
8,250
(18,316)
—
—
8,250
8,250
(8,250)
—
—
—
10,000 $
80.05
8,250 $
106.26
121.93
106.94
121.93
—
111.12
113.19
111.12
—
—
113.19
75.35
113.19
—
—
75.35
122
Table of Contents
Note 16 – Stockholders' Equity and Noncontrolling Interests — (Continued)
SAR
RS Shares
RSUs
Weighted-average contractual remaining life (in years)
Exercisable shares
Weighted-average exercise price
Weighted-average exercise price exercisable shares
Compensation expense (credit)
Year ended December 31, 2020
Year ended December 31, 2019
Year ended December 31, 2018
Fair value of liability award
December 31, 2020
December 31, 2019
$
$
$
0.0
—
— $
—
2.2
N/A
80.05 $
N/A
(1,000) $
80,000 $
80,000
328,000
0.3
N/A
75.35
N/A
449,000
1,168,000
1,098,000
N/A $
N/A
793,000
971,000
15,000
(28,000)
—
1,000
The SARs give the holder the right to cash compensation based on the difference between the stock price on the grant date and
the stock price on the exercise date. The SARs vest at a rate of 20% per year for five years and expire five years after vesting.
All remaining SARs expired on May 1, 2020.
RS awards entitle the participant to full dividend and voting rights. Each RS share awarded has the value of one share of
restricted stock and vests 10 years from the grant date. Unvested shares are restricted as to disposition, and are subject to
forfeiture under certain circumstances. Compensation expense is recognized over the vesting period. The restrictions on these
awards lapse after 10 years and most of these awards feature a graded vesting schedule in the case of the retirement, death or
disability of an award holder. Restricted stock awards for 350,334 shares have been granted at an exercise price of zero, of
which 10,000 shares are unvested.
RSU awards to our directors and advisory directors are settled in cash based upon the market price of our common stock after
one-year or earlier upon death, disability or retirement from service after age 65. During the twelve months ended December
31, 2020, 8,250 RSUs were granted and will vest on May 1, 2021 and will be settled in cash.
Earnings per Share
Basic earnings per share were calculated using a weighted average number of shares outstanding. Diluted earnings per share
include RS and RSU award shares issued in 2019 and 2018. RSUs issued in 2020 may only be settled in cash.
Weighted average shares outstanding
Incremental shares from RS awards and RSUs
Total shares for diluted calculations
Net income attributable to American National (in thousands)
Basic earnings per share
Diluted earnings per share
Statutory Capital and Surplus
Years ended December 31,
2020
2019
2018
26,878,679
26,882,691
26,886,357
8,446
8,552
30,286
26,887,125
26,891,243
26,916,643
467,505 $
620,363 $
158,995
17.39 $
17.38 $
23.08 $
23.07 $
5.91
5.91
$
$
$
Risk Based Capital (“RBC”) is a measure insurance regulators use to evaluate the capital adequacy of American National's
insurance subsidiaries. RBC is calculated using formulas applied to certain financial balances and activities that consider,
among other things, investment risks related to the type and quality of investments, insurance risks associated with products and
liabilities, interest rate risks and general business risks. Insurance companies that do not maintain capital and surplus at a level
at least 200% of the authorized control level RBC are required to take certain actions. At December 31, 2020 and 2019,
ANICO’s statutory capital and surplus was $3.6 billion and $3.5 billion, respectively. All of our other insurance subsidiaries
had statutory capital and surplus at December 31, 2020 and 2019, above 200% of the authorized control level, except for
ANPAC Louisiana Insurance Company ("ANPLA") at December 31, 2020. At December 31, 2020 and December 31, 2019,
ANPLA's statutory capital and surplus was $68.5 million and $77.0 million, which resulted in an RBC level of 194% and 280%
of the authorized control level, respectively. This decrease in RBC of ANPLA is primarily driven by an increase in
homeowners catastrophe losses impacting the current year operating results in 2020. We are actively managing our
homeowners exposure of ANPLA, will continue to monitor the surplus levels and will be addressing rate adequacy through
future planned underwriting and rate actions.
123
Table of Contents
Note 16 – Stockholders' Equity and Noncontrolling Interests — (Continued)
American National's insurance subsidiaries prepare financial statements in accordance with statutory accounting practices
prescribed or permitted by the insurance department of each subsidiary's state of domicile, which include certain components of
the National Association of Insurance Commissioners’ Codification of Statutory Accounting Principles (“NAIC Codification”).
NAIC Codification is intended to standardize regulatory accounting and reporting to state insurance departments. However,
statutory accounting practices continue to be established by individual state laws and permitted practices. Modifications by the
various state insurance departments may impact the statutory capital and surplus of our insurance subsidiaries.
Statutory accounting differs from GAAP primarily by charging policy acquisition costs to expense as incurred, establishing
future policy benefit liabilities using different actuarial assumptions, and valuing securities on a different basis. In addition,
certain assets are not admitted under statutory accounting principles and are charged directly to surplus.
One of American National’s insurance subsidiaries has been granted a permitted practice from the Missouri Department of
Insurance to record as the valuation of its investment in a wholly-owned subsidiary that is the attorney-in-fact for a Texas
domiciled insurer, the statutory capital and surplus of the Texas domiciled insurer. This permitted practice increases the
statutory capital and surplus of both ANICO and the Missouri domiciled insurance subsidiary by $75.3 million and $70.3
million at December 31, 2020 and 2019, respectively. The statutory capital and surplus of both ANICO and the Missouri
domiciled insurance subsidiary would have remained above the Company action level RBC had it not used the permitted
practice.
The statutory capital and surplus and net income (loss) of our life and property and casualty insurance entities in accordance
with statutory accounting practices are shown below (in thousands):
Statutory capital and surplus
Life insurance entities
Property and casualty insurance entities
Statutory net income (loss)
Life insurance entities
Property and casualty insurance entities
Dividends
December 31,
2020
2019
$
2,188,808 $
1,463,179
2,159,770
1,329,782
Years ended December 31,
2020
2019
2018
$
(25,178) $
47,133 $
127,207
96,269
59,909
66,680
Dividends are paid on a quarterly basis. We paid a quarterly dividend of $0.82 per share for each quarter for the years ended
December 31, 2020 and 2019, and we expect to continue to pay regular cash dividends, although there is no assurance as to
future dividends because they depend on future earnings, capital requirements and financial conditions.
The amount of dividends paid by our insurance company subsidiaries is restricted by insurance law. These restrictions are
based, in part, on the prior year’s statutory income and surplus. In general, dividends up to specified levels are considered
ordinary and may be paid without prior regulatory approval. Dividends in larger amounts, or extraordinary dividends, are
subject to approval by the insurance commissioner of the relevant state of domicile. For example, restrictions applicable to
Texas-domiciled life insurance companies like ANICO limit the payment of dividends to the greater of the prior year’s statutory
net income from operations, or 10% of prior year statutory surplus, in each case determined in accordance with statutory
accounting principles. ANICO is permitted, without prior approval of the Texas Department of Insurance, to pay total dividends
of $363.9 million during 2021.
Noncontrolling Interests
American National County Mutual Insurance Company (“County Mutual”) is a mutual insurance company owned by its
policyholders. ANICO has a management agreement that effectively gives it control of County Mutual. As a result, County
Mutual is included in the consolidated financial statements of American National. Policyholder interests in the financial
position of County Mutual are reflected as noncontrolling interest of $6.8 million at December 31, 2020 and 2019.
American National Group, Inc. and its subsidiaries exercise control or ownership of various joint ventures, resulting in their
consolidation into American National’s consolidated financial statements. The interests of the other partners in the consolidated
joint ventures are shown as a noncontrolling deficit of $0.9 million and $0.7 million at December 31, 2020 and 2019,
respectively.
124
Table of Contents
Note 17 – Segment Information
Management organizes the business into five operating segments:
•
•
Life—consists of whole, term, universal, indexed and variable life insurance. Products are primarily sold through
career, multiple-line, and independent agents as well as direct marketing channels.
Annuity—consists of fixed, indexed, and variable annuity products. Products are primarily sold through independent
agents, brokers, and financial institutions, along with multiple-line and career agents.
• Health—consists of Medicare Supplement, stop-loss, other supplemental health products and credit disability
insurance. Products are typically distributed through independent agents and managing general underwriters.
•
•
Property and Casualty—consists of personal, agricultural and targeted commercial coverages and credit-related
property insurance. Products are primarily sold through multiple-line and independent agents or managing general
agents.
Corporate and Other—consists of net investment income from investments and certain expenses not allocated to the
insurance segments and revenues and related expenses from non-insurance operations.
The accounting policies of the segments are the same as those described in Note 2, Summary of Significant Accounting Policies
and Practices, of the Notes to the Consolidated Financial Statements. All revenues and expenses specifically attributable to
policy transactions are recorded directly to the appropriate operating segment. Revenues and expenses not specifically
attributable to policy transactions are allocated to each segment as follows:
•
•
•
Recurring income from bonds and mortgage loans is allocated based on the assets allocated to each line of business at
the average yield available from these assets.
Net investment income from all other assets is allocated to the insurance segments in accordance with the amount of
capital allocated to each segment, with the remainder recorded in the Corporate and Other segment.
Expenses are charged to segments through direct identification and allocations based upon various factors.
The following summarizes total assets by operating segments (in thousands):
Total assets
Life
Annuity
Health
Property and Casualty
Corporate and Other
Total
Years ended December 31,
2020
2019
$
7,111,991 $
6,825,120
13,642,357
13,808,302
515,841
2,716,896
5,480,730
511,440
2,570,818
4,881,886
$
29,467,815 $
28,597,566
125
Table of Contents
Note 17 – Segment Information — (Continued)
The results of operations measured as the income (loss) before federal income taxes and other items by operating segments are
summarized below (in thousands):
PREMIUMS AND OTHER REVENUES
Premiums
Other policy revenues
Net investment income
Net realized investment gains
Change in investment credit loss
Net gains on equity securities
Other income
Total premiums and other revenues
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits
Claims incurred
Interest credited to policyholders' account balances
Commissions for acquiring and servicing policies
Other operating expenses
Change in deferred policy acquisition costs
Total benefits, losses and expenses
Year ended December 31, 2020
Property
Corporate
Life
Annuity
Health
& Casualty
& Other
Total
$
396,099 $
92,866 $
168,805 $ 1,560,304 $
— $ 2,218,074
295,263
261,389
15,483
570,003
—
—
—
—
—
—
2,084
954,835
2,716
681,068
—
8,637
—
—
—
—
63,949
—
—
—
19,598
12,779
—
29,707
35,660
310,746
933,685
35,660
(102,603)
(102,603)
356,281
3,379
356,281
40,556
197,040
1,637,032
322,424
3,792,399
533,925
214,158
—
—
—
75,943
167,548
182,395
(53,756)
906,055
—
116,122
1,005,620
245,099
55,910
48,359
48,298
—
30,182
39,265
(307)
—
299,960
202,503
87
—
—
—
—
42,891
—
748,083
1,121,742
321,042
553,600
515,413
(5,678)
611,824
185,262
1,508,170
42,891
3,254,202
Income before federal income tax and other items
$
48,780 $
69,244 $
11,778 $
128,862 $
279,533 $
538,197
PREMIUMS AND OTHER REVENUES
Premiums
Other policy revenues
Net investment income
Net realized investment gains
Net gains on equity securities
Other income
Total premiums and other revenues
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits
Claims incurred
Interest credited to policyholders' account balances
Commissions for acquiring and servicing policies
Other operating expenses
Change in deferred policy acquisition costs
Total benefits, losses and expenses
Year ended December 31, 2019
Property
Corporate
Life
Annuity
Health
& Casualty
& Other
Total
$
359,419 $
147,139 $
165,035 $ 1,511,201 $
— $ 2,182,794
288,061
263,788
—
—
1,967
913,235
17,195
663,895
—
—
2,727
830,956
—
9,467
—
—
—
64,263
—
—
20,762
11,897
—
305,256
75,993
30,751
422,535
14,048
1,077,406
30,751
422,535
51,401
195,264
1,587,361
543,327
4,070,143
449,252
218,576
—
—
—
80,950
162,203
190,104
(26,036)
856,473
—
109,013
1,042,153
431,049
71,350
50,507
9,474
—
31,624
41,475
1,382
—
267,457
201,580
2,431
—
—
—
—
41,222
667,828
1,151,166
511,999
532,634
524,888
—
(12,749)
780,956
183,494
1,513,621
41,222
3,375,766
Income before federal income tax and other items
$
56,762 $
50,000 $
11,770 $
73,740 $
502,105 $
694,377
126
Table of Contents
Note 17 – Segment Information — (Continued)
PREMIUMS AND OTHER REVENUES
Premiums
Other policy revenues
Net investment income
Net realized investment gains
Net losses on equity securities
Other income
Total premiums and other revenues
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits
Claims incurred
Interest credited to policyholders' account balances
Commissions for acquiring and servicing policies
Other operating expenses
Change in deferred policy acquisition costs
Total benefits, losses and expenses
Year ended December 31, 2018
Property
Corporate
Life
Annuity
Health
& Casualty
& Other
Total
$
350,012 $
231,027 $
180,414 $ 1,466,740 $
— $ 2,228,193
270,839
233,181
—
—
2,266
856,298
14,710
467,788
—
—
2,611
716,136
—
9,376
—
—
—
62,320
—
—
24,185
10,628
213,975
1,539,688
—
85,702
16,931
285,549
858,367
16,931
(107,188)
(107,188)
4,840
285
44,530
3,326,382
417,702
290,611
—
—
—
122,547
1,049,112
—
54,249
158,657
190,835
(33,893)
787,550
261,435
94,879
46,859
(35,135)
658,649
—
32,516
41,819
2,846
—
278,002
186,019
(5,315)
—
—
—
—
31,479
708,313
1,171,659
315,684
564,054
497,011
—
(71,497)
199,728
1,507,818
31,479
3,185,224
Income (loss) before federal income tax and other items $
68,748 $
57,487 $
14,247 $
31,870 $
(31,194) $
141,158
Note 18 – Pension and Postretirement Benefits
Savings Plans
American National sponsors a qualified defined contribution (401(k) plan) for all employees, and non-qualified defined
contribution plans for certain employees whose otherwise eligible earnings exceed the statutory limits under the qualified plans.
The total expense associated with matching contributions to these plans was $9.9 million, $9.5 million, and $10.2 million for
2020, 2019, and 2018, respectively.
Pension Benefits
American National sponsors qualified and non-qualified defined benefit pension plans, all of which have been frozen. As such,
no additional benefits are accrued through these plans for additional years of service credit or future salary increase credit, and
no new participants are added to the plans. Benefits earned by eligible employees prior to the plans being frozen have not been
affected.
The qualified pension plans are noncontributory. The plans provide benefits for salaried and management employees and
corporate clerical employees subject to a collective bargaining agreement based on years of service and employee
compensation. The non-qualified pension plans cover key employees and restore benefits that would otherwise be curtailed by
statutory limits on qualified plan benefits.
127
Table of Contents
Note 18 – Pension and Postretirement Benefits — (Continued)
Amounts recognized in the consolidated statements of financial position consist of (in thousands):
Reconciliation of benefit obligation
Obligation at beginning of year
Service cost
Interest cost on projected benefit obligation
Actuarial loss
Benefits paid
Obligation at end of year
Reconciliation of fair value of plan assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Benefits paid
Fair value of plan assets at end of year
Qualified
Non-qualified
2020
2019
2020
2019
$
387,273 $
344,974 $
65,733 $
543
13,079
50,620
(23,770)
427,745
470,101
65,700
—
(23,812)
511,989
524
14,867
48,210
(21,302)
387,273
402,579
88,827
—
(21,305)
470,101
—
1,789
6,775
(8,506)
65,791
—
—
8,506
(8,506)
—
68,035
—
2,554
3,847
(8,703)
65,733
—
—
8,703
(8,703)
—
Funded status at end of year
$
84,244 $
82,828 $
(65,791) $
(65,733)
The components of net periodic benefit cost for the defined benefit pension plans are shown below (in thousands):
Service cost
Interest cost
Expected return on plan assets
Amortization of net actuarial loss
Net periodic cost (benefit)
Years ended December 31,
2020
2019
2018
$
$
543 $
523 $
14,868
(26,109)
4,848
17,421
(24,248)
7,070
(5,850) $
766 $
499
15,846
(24,164)
8,560
741
Amounts related to the defined benefit pension plans recognized as a component of AOCI are shown below (in thousands):
Actuarial gain (loss)
Deferred tax benefit (expense)
Cumulative effect of change in accounting
Other comprehensive income (loss), net of tax
Years ended December 31,
2020
2019
2018
$
$
(15,061) $
19,615 $
3,163
—
(4,120)
(16,491)
(11,898) $
(996) $
28,260
(5,934)
—
22,326
Amounts recognized as a component of AOCI that have not been recognized as a component of the combined net periodic
benefit cost of the defined benefit pension plans, are shown below (in thousands):
Net actuarial loss
Deferred tax benefit
Amounts included in AOCI
Years ended December 31,
2020
2019
$
$
(84,976) $
17,846
(67,130) $
(69,915)
14,683
(55,232)
128
Table of Contents
Note 18 – Pension and Postretirement Benefits — (Continued)
The weighted average assumptions used are shown below:
Discount rate
Long-term rate of return
Used for Net Benefit
Cost for year ended
December 31, 2020
Used for Benefit
Obligations as of
December 31, 2020
3.51 %
5.75
2.52 %
N/A
American National’s funding policy for the qualified pension plans is to make annual contributions to meet the minimum
funding standards of the Pension Protection Act of 2006. American National and its affiliates did not contribute to its qualified
plans in 2020 and 2019 due to the substantial contribution over minimum funding standards of $60 million made in 2018. The
benefits paid from the non-qualified plans were $8.5 million, $8.7 million and $8.9 million in 2020, 2019 and 2018,
respectively. Future payments from the non-qualified pension benefit plans will be funded out of general corporate assets.
The following table shows pension benefit payments expected to be paid (in thousands):
2021
2022
2023
2024
2025
2026-2029
$
49,063
32,847
33,168
32,882
30,108
140,784
American National utilizes third-party pricing services to estimate fair value measurements of its pension plan assets. Refer to
Note 9, Fair Value of Financial Instruments for further information concerning the valuation methodologies and related inputs
utilized by the third-party pricing services. The fair values (hierarchy measurements) of the pension plan assets by asset
category are shown below (in thousands):
Asset Category
Corporate debt securities
Residential mortgage-backed securities
Mutual funds
Equity securities by sector
Consumer goods
Energy and utilities
Finance
Healthcare
Industrials
Information technology
Other
Commercial paper
Unallocated group annuity contract
Other
Total
Total
Level 1
Level 2
Level 3
December 31, 2020
$
157,933 $
3,521
—
57,684
22,007
40,161
51,641
25,827
78,720
70,230
872
1,940
1,453
— $
—
—
57,684
22,007
40,161
51,641
25,827
78,720
70,230
—
—
1,453
157,243 $
690
3,521
—
—
—
—
—
—
—
—
872
1,940
—
—
—
—
—
—
—
—
—
—
—
—
—
$
511,989 $
347,723 $
163,576 $
690
129
Table of Contents
Note 18 – Pension and Postretirement Benefits — (Continued)
Asset Category
Corporate debt securities
Residential mortgage-backed securities
Mutual funds
Equity securities by sector
Consumer goods
Energy and utilities
Finance
Healthcare
Industrials
Information technology
Other
Commercial paper
Unallocated group annuity contract
Other
Total
Total
Level 1
Level 2
Level 3
December 31, 2019
$
149,409 $
4,041
25,594
46,260
27,410
57,900
37,017
17,996
60,225
35,597
2,948
598
5,106
— $
—
149,409 $
4,041
25,594
46,260
27,410
57,900
37,017
17,996
60,225
35,597
—
—
5,106
—
—
—
—
—
—
—
—
2,948
598
—
$
470,101 $
313,105 $
156,996 $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
The investment policy for the retirement plan assets is designed to provide the highest return commensurate with sound and
prudent underwriting practices. The investment diversification goals are to have investments in cash and cash equivalents as
necessary for liquidity, debt securities up to 100% and equity securities up to 75% of the total invested plan assets. The amount
invested in any particular investment is limited based on credit quality, and no single investment may at the time of purchase be
more than 5% of the total invested assets.
The corporate debt securities category are investment grade bonds of U.S. and foreign issuers denominated and payable in U.S.
dollars from diverse industries, with a maturity of 1 to 30 years. Foreign bonds in the aggregate shall not exceed 20% of the
bond portfolio. Residential mortgage-backed securities represent asset-backed securities with a maturity date 1 to 30 years with
a Level 1 or 2 rating.
Equity portfolio managers have discretion to choose the degree of concentration in various issues and industry sectors for the
equity securities. Permitted securities are those for which there is an active market providing liquidity for the specific security.
Commercial paper investments generally have a credit rating of A2 Moody’s or P2 by Standard & Poor’s with at least BBB
rating on the issuer’s outstanding debt, or selected issuers with no outstanding debt.
Postretirement Life and Health Benefits
Under American National’s various group benefit plans for active employees, life insurance benefits are provided upon
retirement for eligible participants who meet certain age and length of service requirements.
The accrued postretirement benefit obligation, included in the liability for retirement benefits, was $5.3 million and $4.7 million
at December 31, 2020 and 2019, respectively. These amounts were approximately equal to the unfunded accumulated
postretirement benefit obligation.
130
Table of Contents
Note 19 – Commitments and Contingencies
Commitments
American National and its subsidiaries lease insurance sales office space, technological equipment, and automobiles. The
remaining long-term lease commitments at December 31, 2020 were approximately $7.4 million.
American National had aggregate commitments at December 31, 2020 to purchase, expand or improve real estate, to fund fixed
interest rate mortgage loans, and to purchase other invested assets of $1.2 billion of which $582.7 million is expected to be
funded in 2021 with the remainder funded in 2022 and beyond.
American National had a $100 million short-term variable rate borrowing facility containing a $55 million sub-feature for the
issuance of letters of credit. Borrowings under the facility were at the discretion of the lender and would be used only for
funding working capital requirements. As of December 31, 2020 and 2019, the outstanding letters of credit issued under the
sub-feature were $3.5 million and $3.5 million, respectively, and there were no other borrowings on this facility. American
National chose to non-renew the facility at the October 31, 2020 expiration date.
Federal Home Loan Bank (FHLB) Agreements
In May 2018, the Company became a member of the Federal Home Loan Bank of Dallas (“FHLB”) to augment its liquidity
resources. The Company initially purchased $7 million of stock to meet the FHLB’s membership requirement. The FHLB
member stock is recorded in other invested assets on the Company’s consolidated statements of financial position. Through its
membership, the Company has access to the FHLB’s financial services including advances that provide an attractive funding
source for short-term borrowing and for access to other funding agreements. As of December 31, 2020, certain municipal bonds
and collateralized mortgage obligations with a fair value of approximately $72.4 million and commercial mortgage loans of
approximately $1.5 billion were on deposit with the FHLB as collateral for borrowing. As of December 31, 2020, the collateral
provided borrowing capacity for the $250 million in outstanding advances. The additional borrowing capacity as of February
22, 2021 was approximately $775.2 million. The deposited securities and commercial mortgage loans are included in the
Company’s consolidated statements of financial position within fixed maturity securities and mortgage loans on real estate, net
of allowance, respectively.
FHLB outstanding advance as of December 31, 2020 is shown below (in thousands, except percentages):
At December 31, 2020
FHLB advance, fixed rate
Guarantees
Principal Amount
Interest Rate
Maturity Date
$
250,000
0.38 %
4/28/2021
ANICO has guaranteed bank loans for customers of a third-party marketing operation. The bank loans are used to fund
premium payments on life insurance policies issued by ANICO. The loans are secured by the cash values of the life insurance
policies. If the customer were to default on a bank loan, ANICO would be obligated to pay off the loan. As the cash values of
the life insurance policies always equal or exceed the balance of the loans, management does not foresee any loss on these
guarantees. The total amount of the guarantees outstanding as of December 31, 2020, was approximately $121.4 million, while
the total cash value of the related life insurance policies was approximately $142.8 million.
131
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Note 19 – Commitments and Contingencies — (Continued)
Litigation
American National and certain subsidiaries are defendants in various lawsuits concerning alleged breaches of contracts, various
employment matters, allegedly deceptive insurance sales and marketing practices, and miscellaneous other causes of action
arising in the ordinary course of operations. Certain of these lawsuits include claims for compensatory and punitive damages.
We provide accruals for these items to the extent we deem the losses probable and reasonably estimable. After reviewing these
matters with legal counsel, based upon information presently available, management is of the opinion that the ultimate resultant
liability, if any, would not have a material adverse effect on American National’s consolidated financial position, liquidity or
results of operations; however, assessing the eventual outcome of litigation necessarily involves forward-looking speculation as
to judgments to be made by judges, juries and appellate courts in the future.
Such speculation warrants caution, as the frequency of large damage awards, which bear little or no relation to the economic
damages incurred by plaintiffs in some jurisdictions, continues to create the potential for an unpredictable judgment in any
given lawsuit. These lawsuits are in various stages of development, and future facts and circumstances could result in
management changing its conclusions. It is possible that, if the defenses in these lawsuits are not successful, and the judgments
are greater than management can anticipate, the resulting liability could have a material impact on our consolidated financial
position, liquidity, or results of operations. With respect to the existing litigation, management currently believes that the
possibility of a material judgment adverse to American National is remote and no estimate of range can be made for loss
contingencies that are at least reasonably possible but not accrued.
Note 20 – Related Party Transactions
American National has entered into recurring transactions and agreements with certain related parties. These include mortgage
loans, management contracts, agency commission contracts, marketing agreements, health insurance contracts, and legal
services. The impact on the consolidated financial statements of significant related party transactions is shown below (in
thousands):
Related Party
Financial Statement Line Impacted
2020
2019
2018
2020
2019
Gal-Tex Hotel Corporation Mortgage loan on real estate
$
— $
Gal-Tex Hotel Corporation Net investment income
—
576 $
9
1,647 $
107
Greer, Herz & Adams, LLP Other operating expenses
13,451
12,088
11,173
— $
—
(441)
—
—
(519)
Dollar Amount of Transactions
Amount due from American National
Years ended December 31,
December 31,
Mortgage Loans to Gal-Tex Hotel Corporation (“Gal-Tex”): American National held a first mortgage loan which originated in
1999, with an interest rate of 7.25% and final maturity date of April 1, 2019 issued to a subsidiary of Gal-Tex, which was
collateralized by a hotel property in San Antonio, Texas. This loan has been paid in full. The Moody Foundation owns 34.0%
of Gal-Tex and 22.75% of American National, and the Libbie Shearn Moody Trust owns 50.2% of Gal-Tex and 37.0% of
American National.
Transactions with Greer, Herz & Adams, LLP: Irwin M. Herz, Jr. is a member of the Board of Directors of American National
Group, Inc. and certain of its subsidiaries, and a Partner with Greer, Herz & Adams, LLP, which serves as American National’s
General Counsel.
132
Table of Contents
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to provide reasonable assurance that
information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such
information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has
evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of
December 31, 2020. Based upon that evaluation and subject to the foregoing, the Company’s Chief Executive Officer and Chief
Financial Officer concluded that, as of December 31, 2020, the design and operation of the Company’s disclosure controls and
procedures were effective to accomplish their objectives at the reasonable assurance level.
Management’s Annual Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting
as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is
a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the
United States of America.
Because of inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. In addition,
projections of any evaluations of effectiveness to future periods are subject to the risks that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management, including the Chief Executive Officer and Chief Financial Officer, has conducted an assessment, including
testing, of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020, based on the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — An
Integrated Framework (2013). Based on this evaluation, management has concluded that our internal control over financial
reporting was effective as of December 31, 2020.
The effectiveness of the company’s internal control over financial reporting as of December 31, 2020, has been audited by
Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report.
Changes in Internal Control Over Financial Reporting
Management has monitored the internal controls over financial reporting, including any material changes to the internal control
over financial reporting. There were no changes in the Company’s internal control over financial reporting (as that term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended December 31,
2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial
reporting.
ITEM 9B. OTHER INFORMATION
None
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item is incorporated by reference from our definitive proxy statement for our Annual Meeting
of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2020.
133
Table of Contents
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from our definitive proxy statement for our Annual Meeting
of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2020.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated by reference from our definitive proxy statement for our Annual Meeting
of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2020.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated by reference from our definitive proxy statement for our Annual Meeting
of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2020.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated by reference from our definitive proxy statement for our Annual Meeting
of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2020.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements—(See Item 8: Financial Statements and Supplementary Data)
(a)(2) Supplementary Data and Financial Statement Schedules—are attached hereto at the following pages
Schedule I – Summary of Investments – Other than Investments in Related Parties
Schedule II – Condensed Financial Information of Registrant
Schedule III – Supplementary Insurance Information
Schedule IV – Reinsurance Information
All other schedules are omitted as the required information is inapplicable or the information is presented in the financial
statements or related notes.
Page
137
138
143
144
(b) Exhibits
Exhibit
Number
2.1
3.1
3.2
3.3
3.4
4.1
4.2
Description
Agreement and Plan of Merger, dated February 11, 2020, among American National Insurance Company, a Texas
insurance company ("ANICO"), American National Group, Inc., a Delaware corporation ("ANAT"), and AN
MergerCo., Inc., a Texas corporation (incorporated by reference to Annex I to the Proxy Statement/Prospectus
filed on March 25, 2020).
Amended and Restated Certificate of Incorporation of ANAT (incorporated by reference to Annex II of the
Proxy Statement/Prospectus filed on March 25, 2020).
Restated Articles of Incorporation, as amended, of ANICO (incorporated by reference to Exhibit No. 3.1 to
ANICO's Registration Statement on Form 10-12B filed on April 10, 2009).
Amended and Restated Bylaws of ANAT (incorporated by reference to Annex III of the Proxy Statement/
Prospectus filed on March 25, 2020).
Amended and Restated Bylaws of ANICO (incorporated by reference to Exhibit No. 3.2 to ANICO's Current
Report on Form 8-K filed on February 23, 2018).
Specimen copy of Stock Certificate of ANICO (incorporated by reference to Exhibit No. 4.1 to ANICO’s
Registration Statement on Form 10-12B filed April 10, 2009).
Description of ANAT's Common Stock (incorporated by reference to Exhibit No. 99.1 to ANAT's Form 8K-12B
filed on July 2, 2020.
134
Table of Contents
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
21
23.1
23.2
31.1
31.2
32.1
American National Insurance Company Amended and Restated 1999 Stock and Incentive Plan (the “Stock and
Incentive Plan”)(incorporated by reference to Exhibit No. 10.2 to ANICO's Registration Statement on Form
10-12B filed April 10, 2009).
Form of Restricted Stock Agreement for Officers under the Stock and Incentive Plan (incorporated by reference
to Exhibit No. 10.12 to ANICO’s Quarterly Report on Form 10-Q filed May 7, 2013).
Form of Stock Appreciation Right Agreement under the Stock and Incentive Plan (incorporated by reference to
Exhibit No. 10.5 to ANICO's Annual Report on Form 10-K filed March 2, 2011).
American National Insurance Company Nonqualified Retirement Plan for Certain Salaried Employees
(incorporated by reference to Exhibit No. 10.6 to ANICO’s Registration Statement on Form 10-12B filed on
April 10, 2009).
Amendment to the American National Insurance Company Nonqualified Retirement Plan for Certain Salaried
Employees (incorporated by reference to Exhibit No. 10.2 to ANICO’s amended Current Report on Form 8-K/A
filed on November 6, 2013).
American National Family of Companies Executive Supplemental Savings Plan (incorporated by reference to
Exhibit No. 10.3 to ANICO’s amended Current Report on Form 8-K/A filed on November 6, 2013).
Amendments One and Two to the American National Family of Companies Executive Supplemental Savings plan
(incorporated by reference to Exhibit No. 10.15 to ANICO’s Quarterly Report on Form 10-Q filed on May 8,
2015).
Form of Restricted Stock Unit Agreement for Directors (incorporated by reference to Exhibit No. 10.11 to
ANAT's Quarterly Report on Form 10-Q filed on November 4, 2020).
Amendments Three and Four to the American National Family of Companies Executive Supplemental Savings
Plan (incorporated by reference to Exhibit No. 10.10 to ANICO's Quarterly Report on Form 10-Q filed on August
6, 2019).
Subsidiaries (filed herewith).
Consent of Deloitte & Touche LLP (filed herewith).
Consent of KPMG LLP (filed herewith).
Certification of the principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
Certification of the principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
Certification of the principal executive officer and principal financial officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
101.INS
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL
tags are embedded within the Inline XBRL document.
101.SCH XBRL Taxonomy Extension Schema Document.
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
104
Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information
contained in Exhibits 101).
*
Management contract or compensatory plan or arrangement.
ITEM 16. FORM 10-K SUMMARY
Not applicable
135
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
AMERICAN NATIONAL GROUP, INC.
By:
Name:
Title:
/s/ James E. Pozzi
James E. Pozzi
President and Chief Executive Officer
(Principal Executive Officer)
Date: March 4, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities indicated.
Signature
Title
Date
/s/ James E. Pozzi
James E. Pozzi
/s/ Timothy A. Walsh
Timothy A. Walsh
/s/ Michelle A. Gage
Michelle A. Gage
/s/ William C. Ansell
William C. Ansell
/s/ Arthur O. Dummer
Arthur O. Dummer
/s/ Irwin M. Herz, Jr.
Irwin M. Herz, Jr.
/s/ E. Douglas McLeod
E. Douglas McLeod
/s/ Frances A. Moody-Dahlberg
Frances A. Moody-Dahlberg
/s/ Ross R. Moody
Ross R. Moody
/s/ James P. Payne
James P. Payne
/s/ E.J. Pederson
E.J. Pederson
/s/ James D. Yarbrough
James D. Yarbrough
President and Chief Executive Officer, Director
(Principal Executive Officer)
Executive Vice President,
CFO, Treasurer and ML and P&C Operations
(Principal Financial Officer)
March 4, 2021
March 4, 2021
Vice President, and Controller
March 4, 2021
Director
Director
Director
Director
Director
Director
Director
Director
Director
136
March 4, 2021
March 4, 2021
March 4, 2021
March 4, 2021
March 4, 2021
March 4, 2021
March 4, 2021
March 4, 2021
March 4, 2021
Table of Contents
AMERICAN NATIONAL GROUP, INC. AND SUBSIDIARIES
SCHEDULE I - SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
(In thousands)
Type of Investment
Fixed maturities
Bonds held-to-maturity
U.S. states and political subdivisions
Foreign governments
Corporate debt securities
Residential mortgage-backed securities
Collateralized debt securities
Other debt securities
Bonds available-for-sale
U.S. treasury and government
U.S. states and political subdivisions
Foreign governments
Corporate debt securities
Residential mortgage-backed securities
Collateralized debt securities
Equity securities
Common stocks
Consumer goods
Energy and utilities
Finance
Healthcare
Industrials
Information technology
Other
Preferred stocks
Other investments
December 31, 2020
Cost or
Amortized Cost (1)
Estimated
Fair Value
Amount at Which
Shown in the
Balance Sheet
$
109,445 $
113,535 $
3,851
6,992,095
114,579
139,709
7,733
28,766
1,066,627
14,995
5,887,756
20,544
54,454
133,024
98,519
79,118
96,572
60,679
137,551
135,754
13,408
4,225
7,598,736
117,728
141,213
7,744
29,183
1,140,458
16,388
6,334,479
21,291
55,381
398,105
108,487
207,621
310,318
153,701
561,889
315,108
15,537
109,445
3,851
6,984,620
114,127
135,194
7,733
29,183
1,140,458
16,388
6,334,479
21,291
55,381
398,105
108,487
207,621
310,318
153,701
561,889
315,108
15,537
Mortgage loans on real estate, net of allowance
Investment real estate, net of accumulated depreciation
Real estate acquired in satisfaction of debt
Policy loans
Options (2)
Other long-term investments
Short-term investments
Total investments
5,242,531
5,451,152
5,242,531
473,409
43,884
373,014
100,898
90,563
—
—
373,014
242,201
—
473,409
43,884
373,014
3,852
90,563
1,028,379
1,028,379
1,028,379
$
22,547,857 $
24,745,873 $
24,278,548
(1)
(2)
Original cost of equity securities and, as to fixed maturity securities, original cost reduced by repayments and valuation write-downs and adjusted for
amortization of premiums or accrual of discounts.
The amount shown in the Consolidated Statement of Financial Position represents options exposure net of collateral. See Note 7, Derivative Instruments,
of the Notes to the Consolidated Financial Statements for more information.
See accompanying Report of Independent Registered Public Accounting Firm.
137
Table of Contents
AMERICAN NATIONAL GROUP, INC. (Parent Company Only)
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF FINANCIAL POSITION
(In thousands)
ASSETS
Fixed maturity securities
Equity securities
Mortgage loans on real estate, net of allowance
Other invested assets
Investment in subsidiaries
Deferred policy acquisition costs
Prepaid pension
Other assets
Separate account assets
Total assets
LIABILITIES
Policy liabilities
Policyholders’ account balances
Other liabilities
Separate account liabilities
Total liabilities
EQUITY
Common stock
Additional paid-in capital
Accumulated other comprehensive income
Retained earnings
Treasury stock, at cost
Total stockholders' equity
Total liabilities and stockholders' equity
December 31,
2020
2019
$
— $
10,024,143
—
—
—
6,453,754
—
—
17,754
—
8,998
4,667,425
1,305,533
3,855,531
1,159,812
78,990
903,583
1,073,891
$
$
6,471,508 $
23,077,906
— $
4,418,128
—
13,238
—
13,238
269
47,683
222,170
6,188,148
—
6,458,270
11,076,418
519,720
1,073,891
17,088,157
30,832
21,011
99,518
5,946,857
(108,469)
5,989,749
$
6,471,508 $
23,077,906
The condensed financial statements should be read in conjunction with the consolidated financial statements and notes therein.
See accompanying Report of Independent Registered Public Accounting Firm.
138
Table of Contents
AMERICAN NATIONAL GROUP, INC. (Parent Company Only)
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS
(In thousands)
Years ended December 31,
2020
2019
2018
PREMIUMS AND OTHER REVENUES
Premiums and other policy revenues
Net investment income
Net realized investment gains
Other-than-temporary impairments*
Net gains (losses) on equity securities
Other income
Total premiums and other revenues
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits
Other operating expenses
Total benefits, losses and expenses
Income (loss) before federal income tax and other items
Provision (benefit) for federal income taxes
Equity in earnings of subsidiaries, net of tax
Other components of net periodic pension benefit, net of tax
$
— $
873,076 $
—
—
—
—
—
—
—
1,148
1,148
(1,148)
(245)
468,408
—
866,837
5,600
(6,663)
958
28,037
943,071
686,569
2,053
(1,243)
(208)
19,028
1,767,845
1,649,270
651,162
965,338
1,616,500
151,345
27,568
492,888
3,698
716,959
773,329
1,490,288
158,982
28,308
24,789
3,532
Net income
$
467,505 $
620,363 $
158,995
*
Effective January 1, 2020 the company adopted ASU No. 2016-13. Adoption of this guidance resulted in an allowance for credit losses primarily on
commercial loans and related off-balance sheet unfunded loan commitments, held-to-maturity bonds and reinsurance recoverables. Prior periods have
not been restated to conform to the current presentation. See Note 3, Recently Issued Accounting Pronouncements.
The condensed financial statements should be read in conjunction with the consolidated financial statements and notes therein.
See accompanying Report of Independent Registered Public Accounting Firm.
139
Table of Contents
AMERICAN NATIONAL GROUP, INC. (Parent Company Only)
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
(In thousands)
OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Years ended December 31,
2019
2018
2020
$
467,505 $
620,363 $
158,995
Net realized investment gains
Other-than-temporary impairments
Accretion of premiums, discounts and loan origination fees
Net capitalized interest on policy loans and mortgage loans
Depreciation
Interest credited to policyholders’ account balances
Charges to policyholders’ account balances
Deferred federal income tax expense (benefit)
Equity in earnings of subsidiaries
Net income of subsidiaries
Distributions from equity method investments
Changes in:
Policyholder liabilities
Deferred policy acquisition costs
Reinsurance recoverables
Premiums due and other receivables
Prepaid reinsurance premiums
Accrued investment income
Current tax receivable/payable
Liability for retirement benefits
Fair value of option securities
Fair value of equity securities
Other, net
Net cash provided by operating activities
INVESTING ACTIVITIES
Proceeds from sale/maturity/prepayment of:
Held-to-maturity securities
Available-for-sale securities
Equity securities
Investment real estate
Mortgage loans
Policy loans
Other invested assets
Disposals of property and equipment
Distributions from affiliates and subsidiaries
Payment for the purchase/origination of:
Held-to-maturity securities
Available-for-sale securities
Equity securities
Investment real estate
Mortgage loans
Policy loans
Other invested assets
Additions to property and equipment
Contributions to unconsolidated affiliates
Change in short-term investments
Change in investment in subsidiaries
Change in collateral held for derivatives
Other, net
Net cash provided by (used in) investing activities
140
—
—
—
—
—
—
—
(245)
(468,408)
—
—
—
—
—
—
—
—
12,098
—
—
—
1,264
12,214
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(5,600)
6,663
(9,654)
(31,366)
30,658
441,268
(291,160)
40,936
(6,752)
(486,136)
22,012
44,732
(4,791)
18,826
4,333
5,277
(3,535)
(83,470)
(5,482)
(134,925)
(958)
(6,193)
165,046
706,230
366,696
—
—
789,088
42,316
112,340
69
27,891
(936,646)
(326,476)
(351)
(13,639)
(668,563)
(25,408)
(102,275)
(11,163)
(147,547)
138,021
35,069
97,852
(92)
83,412
(2,053)
1,243
(11,236)
(36,784)
30,492
269,933
(272,638)
10,564
(8,323)
(16,466)
5,319
165,931
(61,881)
(9,855)
(1,302)
3,213
2,306
79,168
(64,824)
50,299
208
(17,943)
274,366
514,393
296,545
—
3,782
799,413
42,407
110,415
—
17,795
(971,396)
(535,233)
(1,485)
(23,790)
(1,021,303)
(23,014)
(67,914)
(10,767)
(95,091)
360,837
100,000
(63,069)
191
(567,284)
Table of Contents
AMERICAN NATIONAL GROUP, INC. (Parent Company Only)
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
FINANCING ACTIVITIES
Policyholders’ account deposits
Policyholders’ account withdrawals
Dividends to stockholders
Dividends from subsidiaries
Net cash provided by (used in) financing activities
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Beginning of the year
End of the year
Years ended December 31,
2019
2018
2020
—
—
(44,095)
49,500
5,405
17,619
—
17,619 $
1,375,003
(1,391,881)
(88,243)
—
(105,121)
143,337
151,592
294,929 $
1,513,478
(1,243,641)
(88,228)
—
181,609
(111,309)
262,901
151,592
$
The condensed financial statements should be read in conjunction with the consolidated financial statements and notes therein.
See accompanying Report of Independent Registered Public Accounting Firm.
141
Table of Contents
AMERICAN NATIONAL GROUP, INC. (Parent Company Only)
SCHEDULE II - NOTES TO THE CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Basis of presentation
The accompanying condensed financial statements should be read in conjunction with the consolidated financial statements and
notes therein.
As discussed in Note 1, Nature of Operations, on July 1, 2020, American National Insurance Company (“ANICO”) completed
its previously announced holding company reorganization, whereby ANICO became a wholly-owned subsidiary of American
National Group, Inc. (“ANAT”) and ANAT replaced ANICO as the publicly held company.
In the parent company only condensed financial statements, ANAT’s investments in subsidiaries are accounted for using the
equity method of accounting. Intercompany balances and transactions with subsidiaries have been eliminated.
142
Table of Contents
AMERICAN NATIONAL GROUP, INC. AND SUBSIDIARIES
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
(In thousands)
Future Policy
Benefits,
Policyholders’
Account
Balances,
Policy and
Contract
Claims
and Other
Policyholder
Funds
Deferred
Policy
Acquisition
Cost
Unearned
Premiums
Premium
Revenue
Net
Investment
Income (1)
Benefits,
Claims,
Losses
and
Settlement
Expenses
Amortization
of Deferred
Policy
Acquisition
Costs
Other
Operating
Expenses (2)
Premiums
Written
—
—
—
—
—
—
—
—
—
Segment
December 31, 2020
Life
Annuity
Health
Property & Casualty
Corporate & Other
December 31, 2019
Life
Annuity
Health
Property & Casualty
Corporate & Other
December 31, 2018
Life
Annuity
Health
Property & Casualty
Corporate & Other
309,056
32,885
122,062
—
415,380
32,578
122,149
—
499,588
33,960
124,580
—
$ 896,208 $
5,443,826 $ 23,867 $ 396,099 $ 261,389 $ 533,925 $
84,443 $
182,395 $
12,690,490
—
92,866
570,003
286,875
30,629
168,805
8,637
214,158
116,122
1,141,352
901,847
1,560,304
63,949
1,005,620
103,709
15,619
335,831
48,359
39,265
202,503
1,590,740
—
—
—
29,707
—
—
42,891
—
Total
$ 1,360,211 $
19,562,543 $ 956,343 $ 2,218,074 $ 933,685 $ 1,869,825 $
539,602 $
515,413 $ 1,590,740
$ 852,900 $
5,293,970 $ 27,080 $ 359,419 $ 263,788 $ 449,252 $
113,300 $
190,104 $
12,856,209
—
282,592
34,862
147,139
165,035
663,895
9,467
218,576
109,013
79,746
21,322
50,507
41,475
1,084,983
871,617
1,511,201
64,263
1,042,153
316,141
201,580
1,546,144
—
—
—
75,993
—
—
41,222
—
Total
$ 1,423,007 $
19,517,754 $ 933,559 $ 2,182,794 $ 1,077,406 $ 1,818,994 $
530,509 $
524,888 $ 1,546,144
$ 839,133 $
5,158,377 $ 29,901 $ 350,012 $ 233,181 $ 417,702 $
97,263 $
190,835 $
12,372,418
—
319,789
37,261
231,027
180,414
467,788
9,376
290,611
122,547
57,468
15,436
46,859
41,819
1,034,265
841,694
1,466,740
62,320
1,049,112
309,990
186,019
1,514,563
—
—
—
85,702
—
—
31,479
—
Total
$ 1,497,261 $
18,884,849 $ 908,856 $ 2,228,193 $ 858,367 $ 1,879,972 $
480,157 $
497,011 $ 1,514,563
(1)
(2)
Net investment income from fixed income assets (bonds and mortgage loans on real estate) is allocated to insurance lines based on the funds generated by
each line at the average yield available from these fixed income assets at the time such funds become available. Net investment income from policy loans is
allocated to the insurance lines according to the amount of loans made by each line. Net investment income from all other assets is allocated to the insurance
lines as necessary to support the equity assigned to that line with the remainder allocated to capital and surplus.
Expenses are charged to segments through direct identification and allocations based on various factors.
See accompanying Report of Independent Registered Public Accounting Firm.
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Table of Contents
AMERICAN NATIONAL GROUP, INC. AND SUBSIDIARIES
SCHEDULE IV - REINSURANCE INFORMATION
(In thousands)
Year ended December 31, 2020
Life insurance in-force
Premiums earned
Life and Annuity
Health
Property and Casualty
Total premiums
Year ended December 31, 2019
Life insurance in-force
Premiums earned
Life and Annuity
Health
Property and Casualty
Total premiums
Year ended December 31, 2018
Life insurance in-force
Premiums earned
Life and Annuity
Health
Property and Casualty
Total premiums
Direct
Amount
Ceded to
Other
Companies
Assumed
from Other
Companies
Net
Amount
Percentage of
Amount
Assumed to Net
$
128,075,765 $
24,006,683 $
171,433 $
104,240,515
0.2 %
$
581,350 $
96,675 $
4,290 $
215,430
1,832,623
263,078
343,521
216,453
71,202
488,965
168,805
1,560,304
$
2,629,403 $
703,274 $
291,945 $
2,218,074
0.9 %
128.2
4.6
13.2 %
$
117,886,265 $
24,913,905 $
218,020 $
93,190,380
0.2 %
$
605,796 $
99,856 $
618 $
209,200
1,649,874
269,487
149,237
225,322
10,564
506,558
165,035
1,511,201
$
2,464,870 $
518,580 $
236,504 $
2,182,794
0.1 %
136.5
0.7
10.8 %
$
110,125,270 $
26,601,422 $
230,845 $
83,754,693
0.3 %
$
684,399 $
103,749 $
389 $
209,109
1,606,076
303,623
150,184
274,928
10,848
581,039
180,414
1,466,740
$
2,499,584 $
557,556 $
286,165 $
2,228,193
0.1 %
152.4
0.7
12.8 %
See accompanying Report of Independent Registered Public Accounting Firm.
144