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, 2021
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)
Delaware
30-1221711
(State or other jurisdiction of
incorporation or organization)
(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)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol
Name of Each Exchange on which Registered
Common Stock, par value $0.01
ANAT
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
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth 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, 2021 (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 $1.1 billion. 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, 2022, there were 26,887,200 shares of the registrant’s voting common stock, $0.01 par value per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
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.
AMERICAN NATIONAL GROUP, INC.
PART I
ITEM 1.
BUSINESS
3
ITEM 1A.
RISK FACTORS
15
ITEM 1B.
UNRESOLVED STAFF COMMENTS
27
ITEM 2.
PROPERTIES
27
ITEM 3.
LEGAL PROCEEDINGS
27
ITEM 4.
MINE SAFETY DISCLOSURES
27
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
28
ITEM 6.
[RESERVED]
29
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
30
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
64
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
67
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
136
ITEM 9A.
CONTROLS AND PROCEDURES
136
ITEM 9B.
OTHER INFORMATION
136
ITEM 9C.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
136
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
137
ITEM 11.
EXECUTIVE COMPENSATION
137
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
137
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
137
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
137
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
138
EXHIBITS INDEX
138
ITEM 16.
FORM 10-K SUMMARY
139
SIGNATURES
140
2
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, 2021, we have over $136.9 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 have been filed by ANAT under CIK No.
0001801075.
On August 6, 2021, ANAT entered into an Agreement and Plan of Merger (the "Merger Agreement") with Brookfield Asset
Management Reinsurance Partners Ltd. ("Brookfield Reinsurance"), an exempted company limited by shares existing under the
laws of Bermuda, and Freestone Merger Sub Inc., a Delaware corporation and an indirect wholly-owned subsidiary of
Brookfield Reinsurance ("Merger Sub"). On the terms and subject to the conditions of the Merger Agreement, at the closing,
Merger Sub will merge with and into ANAT (the "Merger"), with ANAT continuing as the surviving entity, which will become
an indirect, wholly-owned subsidiary of Brookfield Reinsurance. On the terms and subject to the conditions of the Merger
Agreement, at the effective time of the Merger, each issued and outstanding share of the Company's common stock will be
converted into the right to receive $190.00 in cash without interest (the "Merger Consideration"), for total Merger Consideration
of approximately $5.1 billion. The Merger was unanimously approved by the ANAT's board of directors. See Part II, Item 7,
Management's Discussion and Analysis of Financial Condition and Results of Operations, for further information regarding the
Merger.
In this document, we refer to ANAT 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. 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
instituted 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.
3
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.
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.
ITEM 1. BUSINESS — (Continued)
4
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. Due to competitive pressures and a marketing shift toward more
profitable lines of business, we are completing the process of withdrawing from the Medicare Supplement market. New
business sales ceased as of January 31, 2022. Going forward, existing policies will be in run-off and lapse at the end of the
policy period.
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 36 months.
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. Homeowners 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.
Coverage available for the segment includes:
•
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.
ITEM 1. BUSINESS — (Continued)
5
Corporate and Other Segment
Our Corporate and Other segment includes our non-insurance 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.
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, and Part II,
Item 8, Financial Statements and Supplementary Data — Note 11, Liability for Future Policy Benefits and Policyholder
Account Balances, and Note 12, Liability for Unpaid Claims and Claim Adjustment Expenses, of the Notes to the Consolidated
Financial Statements.
ITEM 1. BUSINESS — (Continued)
6
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 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, the risk of large
outflows of cash at times when it is disadvantageous to us to dispose of invested assets, 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.
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 multiple 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 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, when permitted by applicable law, 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.
ITEM 1. BUSINESS — (Continued)
7
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.
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)
A.M. Best's active company rating scale consists of thirteen ratings ranging from A++ (Superior) to D (poor).
(2)
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.
A.M. Best has placed American National’s issuer credit and financial strength ratings under review with developing
implications and S&P Global Ratings has placed the ratings on CreditWatch with negative implications due to the pending
Merger with Brookfield Reinsurance. See Part II, Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations for additional details.
ITEM 1. BUSINESS — (Continued)
8
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.
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 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 and its 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 insurance 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 premium rates, 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.
ITEM 1. BUSINESS — (Continued)
9
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 can restrict our ability to exit
unprofitable markets.
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. As
of December 31, 2021, the capital level of each of our insurance company subsidiaries exceeded 300% of their respective
Authorized Control Levels, the minimum RBC requirement before any action level is triggered or considered.
Own Risk and Solvency Assessment ("ORSA"). The NAIC Risk Management and ORSA Model Act (#505) 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. The model act, 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 the ORSA
requirement, 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. Our own minimum capital requirement, the
Defined Security Standard in our 2021 ORSA, is 200% of the 1-in-250 Conditional Tail Expectation event as measured by the
American National Internal Capital Model. As of December 31, 2021, GAAP equity exceeds this minimum requirement.
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.
ITEM 1. BUSINESS — (Continued)
10
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 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. Several states have either adopted the model regulation or are considering adopting the model
regulation. 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.
Protection of Consumer Information. U.S. federal laws, such as the Gramm-Leach-Bliley Act ("GLB"), and state laws 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, GLB, 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
GLB, 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. Other states may
adopt comprehensive privacy laws like California. For example, on March 2, 2021, Virginia enacted the Virginia Consumer
Data Protection Act ("CDPA"). On June 8, 2021, Colorado passed the Colorado Privacy Act ("CPA"). Both the CDPA and
CPA give certain consumers data protections rights including the right to opt-out of processing their personal data, the right to
delete information, and the right to correct information. The CDPA will go into effect on January 1, 2023 and CPA will go into
effect on July 1, 2023.
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.
ITEM 1. BUSINESS — (Continued)
11
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. On August 28, 2017,
New York became the first state to adopt minimum cybersecurity standards for certain financial institutions. 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 NYDFS of a cybersecurity event within seventy-two hours, maintain a written incident response
plan, and provide 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, a model law patterned after New York's cybersecurity standards. The Insurance 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 Insurance Data Security Model Law in May 2018. Since then, more states have adopted the model law in some form.
In states that have not adopted the Insurance Data Security Model Law, it is not mandatory for insurers to comply with the
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 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.
Anti-Money Laundering. Federal law and regulations require 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, or judicial decisions impacting the
Healthcare Act, could have similar effects on us.
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.
ITEM 1. BUSINESS — (Continued)
12
Human Capital Resources
As of December 31, 2021, we employed approximately 4,545 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. As a
result of COVID-19, a majority of employees have transitioned to a hybrid work model that combines on-premise and remote
work. We also have employees working at other locations, primarily employees of our CSSD division, which has 57 district
offices operating in 15 states. Approximately 985 of our employees are covered under a collective bargaining agreement, the
majority of whom are within CSSD.
In addition to our employees, we have approximately 143,000 non-employee producers who are appointed by the Company to
market specific products and insurance to the various markets we serve. These non-employee producers are 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 2021, the Company’s total employee voluntary turnover was less than 12.2%. We believe 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.
Engagement. We periodically conduct employee surveys managed through a third-party vendor to capture the voice of our
employees, to provide current data on the level of employee engagement, and to identify strengths and opportunities for
improvement. Our corporate values drive who we are, which directly relates to the consistently high marks for ethics that we
receive in our employee surveys.
Employee survey input is routinely integrated into new and existing programs, policies and practices. Culture initiatives focused
on increasing agility, collaboration, and engagement ("ACE"), ongoing since 2016, continue to evolve and benefit with direct
input from employees. Through our ACE culture efforts, we promote diverse discussion and value ideas from all employees on
how to work more effectively and more inclusively.
Diversity, Equity and Inclusion ("DEI"). ACE culture includes focus and commitment towards 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 is
comfortable to be who they are. We value the creativity and vitality 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.
•
DEI Statement. In 2020, we released a diversity, equity and inclusion commitment statement and formed an executive-
led ACE culture task force to build a strategy and roadmap of actions aimed at continuing to grow diversity, equity and
inclusion within the company
•
Inclusive Leadership Development. We believe inclusive leaders are necessary for building diverse teams, leveraging
diverse perspectives to innovate and are critical to achieving organizational growth in the 21st century. Inclusive
behavioral expectations are reflected in all manager goal forms and are considered when evaluating performance and
compensation. Our leadership development program, Ascend, is designed to address and sharpen leaders’ skills we
believe engage and retain employees. Leadership skills and behaviors are reviewed and calibrated in the annual
succession planning process.
•
Women's Leadership Forum. 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.
•
Texas Competes. We are members of Texas Competes, a partnership of business leaders that is welcoming to people in
the LGBTQIA+ community.
•
Celebrating Diversity. Our annual calendar campaign recognizes, celebrates and educates that which makes us unique
and includes commemorative months such as Black History Month, Women's History Month, Asian American Pacific
Islander Month, LGBTQIA+ Pride Month, National Hispanic Heritage Month, National Disability Employment
Awareness Month and National American Indian Heritage Month.
ITEM 1. BUSINESS — (Continued)
13
•
Recruitment and Retention. We have steadily increased our efforts in recent years to attract, retain, develop and
promote qualified women and diverse candidates in our company. We 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 many 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 civilian careers.
•
Females constitute approximately 61% of our workforce. In the past five years, the percentage of women in officer
positions grew from 25% to 34% with additional growth in all people-leader positions from 51% to 55%. Diversity in
people-leader positions grew from 16% to 20% and diversity in officer positions grew from 6% to 10%.
Compensation and Benefits. We invest in our employees’ development and well-being and place a focus on providing a
competitive total rewards package that includes the following:
•
Base salaries that are consistent with position, skill level, experience and location. Base salaries are reviewed annually
and have an opportunity to be increased based on performance. With the current competitive talent market, we
routinely review critical positions against the market and adjust as necessary.
•
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 with a 4% company match, company-paid
life insurance and disability/accident coverage, and dental and vision insurance
•
Our employees’ personal well-being and professional development are critical to our long-term success. We provide
all employees with the opportunity for paid volunteer time, a strong Employee Assistance Program to support
individuals on a variety of topics impacting them, access to wellness coaching, health risk assessments, and onsite
gyms.
Development and Training. American National is committed to supporting the advancement of all employees through formal
and informal learning opportunities, all of which are driven by our company goals, values and culture initiatives. All employees
have opportunities to increase their insurance knowledge through certifications. The company partners with LOMA (Life Office
Management Association) and The Institutes (Risk & Insurance Knowledge Group) to further employee education and
professional development.
Employee Health and Welfare. During the COVID-19 pandemic, American National has devoted key resources to make
employee health and safety a top priority. A majority of the workforce has transitioned to a hybrid work model that combines
on-premise and remote work. This approach has reduced the daily volume of people on-site and has created a more flexible
environment for employees. 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 Part II, Item 7, Management’s Discussion and Analysis of Financial Condition
and Results of Operations for additional discussion on management’s response to COVID-19.
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 through
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 1. BUSINESS — (Continued)
14
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 2021 Annual Report, including the important factors
relating to the Merger 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, inflation, 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.
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.
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.
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.
ITEM 1A. RISK FACTORS
15
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, alternative investments, 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, alternative investments, 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.
During the fourth quarter 2021, the Company sold the majority of our equity securities portfolio.
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 certain 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.
Risk Factors Relating to Our Business and Industry
Major public health issues, such as the novel coronavirus identified in 2019, COVID-19, could have an adverse impact
on our business and results of operations. We are continuing to closely monitor 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 have incurred increased death claims and due to supply chain issues and inflation, which appear
to be connected with the impact of the pandemic, we are facing 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 generally 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
4, 2022, we have received 321 business interruption claims related to COVID-19; all claims received 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.
ITEM 1A. RISK FACTORS — (Continued)
16
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 the impact of the COVID-19 pandemic on the U.S. and global
economies 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 Part II, Item 8, Financial Statements and Supplementary Data —
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 affected by COVID-19,
which could result in an adverse impact on our ability to conduct business. We are continuing to take 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. We continue to monitor our internal controls over financial reporting for
adverse impacts due to the large number of our employees working remotely. New processes, procedures, and controls may be
required to respond to any changes 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, during the height of the pandemic,
state insurance regulators across the country restricted our ability to cancel certain policies for non-payment. Such actions
impacted our cash flows from these policies. In addition, some state insurance regulators have restricted the introduction of new
communicable disease exclusions by property and casualty insurers.
Thus far, throughout the pandemic, we believe we have successfully navigated the risks associated with COVID-19 and have
been able to successfully maintain our business operations. However, as the pandemic continues, the extent to which
COVID-19 impacts our business, results of operations, financial condition, or liquidity will depend on future developments
which remain highly uncertain.
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 liabilities for losses 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 liabilities for losses
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 Part II, Item 8, Financial Statements and
Supplementary Data — 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.
ITEM 1A. RISK FACTORS — (Continued)
17
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. When interest rates fall, we would have the opposite effect. 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.
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.
ITEM 1A. RISK FACTORS — (Continued)
18
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.
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.
ITEM 1A. RISK FACTORS — (Continued)
19
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 were refunded by us, and we believe
that implemented business process changes have helped mitigate the impact of new 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. Digital strategies, 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 the client experience, operations or replace aging systems. While technology developments can enhance the utility and
value of data and analytics, deliver on client expectations, 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 systems and solutions that meet emerging consumer needs and competitive trends.
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, and increasing regulation with respect to 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 hurricanes and wildfires, incurred by the industry in recent years are 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. Increased weather-related catastrophes could also result
in increased credit exposure to reinsurers and other counterparties we do business with. 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.
ITEM 1A. RISK FACTORS — (Continued)
20
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. Such investment
risks can include, but are not limited to, changes in supply and demand characteristics for fossil fuels, advances in low-carbon
technology and renewable energy development, effects of extreme weather events on the physical and operating exposure of
industries and issuers, and the transition that issuers make towards addressing climate risk in their own businesses. It is not
possible to foresee with certainty 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 climate change will impact our
business or the value of our investments. We are subject to complex and changing regulation and public policy debates relating
to climate change that are difficult to predict and quantify and that may have an adverse impact on our business. For example,
in November of 2021, NYDFS finalized its “Guidance for Domestic Insurers on Managing the Financial Risks from Climate
Change.” In general, the guidance provides that a New York-domiciled insurer should integrate consideration of climate risks
into its governance structure at the insurer or group level, consider the impact of climate-related factors on its business
decisions using time horizons that are tailored to the insurer and its activities, incorporate climate risks into its existing financial
risk management framework, use scenario analysis to inform business strategies and risk identification and assessment, and
disclose its climate risks and engage with the Task Force on Climate-related Financial Disclosures and other initiatives when
developing disclosure approaches. In addition, the NAIC and federal agencies, including the SEC and Federal Insurance Office,
are increasingly focused on assessment and disclosure of climate change risks. Governmental guidance or regulations relating to
climate change, or our own leadership decisions implemented as a result of assessing the impact of climate change on our
business, may increase our costs of doing business.
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, longevity, 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.
ITEM 1A. RISK FACTORS — (Continued)
21
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 of 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 costs.
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.
ITEM 1A. RISK FACTORS — (Continued)
22
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, 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. 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 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, 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. Other states may undertake regulatory efforts similar to Circular Letter No. 1. For example,
on July 6, 2021, the governor of Colorado signed Senate Bill 21-169, which also regulates an insurer’s use of external consumer
data and information sources. In addition, the NAIC formed a committee on race and insurance which is focused on
underwriting practices that may be an unintentional proxy for discrimination. As a result of these regulatory efforts, there is a
great deal of uncertainty whether traditional underwriting criteria will be restricted by new state laws or regulations. Such
regulatory efforts may significantly hinder our use of technological and innovative advances to underwrite and price life
insurance accurately and deter the use of what is commonly called “big data” in the underwriting of property and casualty
insurance.
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, HUD finalized a regulation under the Fair Housing Act that applies to home lenders,
landlords and other housing providers (the "2013 Rule"). 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. In
September 2020, HUD adopted a regulation that substantially revises the 2013 Rule, making it more difficult for plaintiffs to
bring disparate impact claims under the Fair Housing Act (the "2020 Rule"). Prior to the 2020 Rule’s effective date, the U.S.
District Court for the District of Massachusetts issued a preliminary injunction to stay HUD’s implementation and enforcement
of the 2020 Rule. On June 25, 2021, HUD reconsidered the 2020 Rule and instead proposed to recodify the 2013 Rule. While
the recodification of the 2013 Rule is not yet final, finalization appears likely. There is concern among property and casualty
insurers that such regulation may impact property and casualty industry underwriting practices and could be applied in a
manner that adversely impacts price differentiation for homeowners’ policies using traditional risk selection analysis. Such an
outcome, 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 also 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, the 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
through 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. Effective February 16, 2021, the DOL adopted a rule that formally
reinstated the investment advice fiduciary definition that existed before the 2016 fiduciary rule was enacted and that included
new interpretations that expanded the definition’s reach to include advice to roll over assets from a qualified plan to an IRA.
The new regulation also included certain new exemptions. 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.
ITEM 1A. RISK FACTORS — (Continued)
23
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. The revised model has been adopted in
some form by many of the states in which we do business, including Texas, and is pending or under consideration in several
others. 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. Finally, changes in federal corporate income tax laws could adversely affect the
federal income taxation of our ongoing operations and have a material adverse impact on our business and results of operations.
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.
ITEM 1A. RISK FACTORS — (Continued)
24
Future changes to GAAP or SAP could impact our product profitability, reserve and capital requirements, financial condition or
results of operations. For example, in August 2018, the FASB released Accounting Standards Update ("ASU") 2018-12,
Targeted Improvements to the Accounting for Long-Duration Contracts, which is expected to result in significant changes to
accounting and disclosures for long-duration insurance contracts, which primarily relates to our life and annuity products as
well as certain health products, among others. See Part II, Item 8, Financial Statements and Supplementary Data — 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.
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 Part II, Item 8, Financial Statements and Supplementary
Data — 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. American National Group, Inc. (ticker symbol 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 gain from operations before realized capital gains, 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, 2021, the Moody Foundation, a charitable trust,
beneficially owned approximately 22.8% 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 47.7% of our common stock as of such date. As a result, 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 extraordinary transactions, such as the Merger Agreement with Brookfield
Reinsurance. 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.
ITEM 1A. RISK FACTORS — (Continued)
25
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
We are subject to environmental, social and governance (“ESG”) risks that could adversely affect our reputation, the
market price of our common stock and/or our business, operations and earnings. Governments, investors, rating agencies,
customers and the general public are increasingly focused on the ESG practices and disclosures of companies. In addition,
certain organizations that provide corporate governance and other corporate risk information to investors and shareholders have
developed scores and ratings to evaluate companies based on ESG metrics. Currently, there are no universal standards for such
scores or ratings, but the importance of ESG evaluations is becoming more broadly accepted by investors and shareholders.
Investors have begun to consider how issuers are addressing ESG matters when making investment decisions. Any negative
publicity regarding ESG or low ESG scores or ratings, or shifts in investing priorities relating to ESG, may adversely affect the
market price of our common stock, our ability to attract and retain customers and employees, and/or our business, operations
and earnings if investors, shareholders, ratings agencies or other stakeholders determine that we have not adequately considered
and addressed ESG matters. In addition, regulatory efforts with respect to ESG matters, including climate change, may increase
our costs of doing business.
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.
26
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.
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 backup datacenter and 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 Part II, Item 8,
Financial Statements and Supplementary Data — Note 19, Commitments and Contingencies, of the Notes to the Consolidated
Financial Statements.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
ITEM 1A. RISK FACTORS — (Continued)
27
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, 2021, our year-end closing stock price was $188.84 per share, and there were 596 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, 2021. 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
—
$
80.05
—
Not approved by security holders
—
—
—
Total
—
$
80.05
—
28
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, 2016, with all dividends reinvested.
YEARS
DOLLARS
American National (ANAT)
NASDAQ Total OMX
NASDAQ Insurance OMX
2016
2017
2018
2019
2020
2021
$75
$100
$125
$150
$175
$200
$225
$250
Value at each year-end of a $100 initial investment made on December 31, 2016:
December 31,
2016
2017
2018
2019
2020
2021
American National (ANAT)
$
100.00
$
104.52
$
105.89
$
100.45
$
85.46
$
162.27
NASDAQ Total OMX
100.00
121.38
114.78
150.55
182.58
229.84
NASDAQ Insurance OMX
100.00
116.95
109.08
133.15
132.39
170.09
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. [RESERVED]
Not applicable
29
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 2020 to 2019, 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, 2020, filed with the SEC on March 4, 2021.
Introductory Note Regarding Pending Merger
On August 6, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Brookfield
Asset Management Reinsurance Partners Ltd. (“Brookfield Reinsurance”), an exempted company limited by shares existing
under the laws of Bermuda, and Freestone Merger Sub Inc., a Delaware corporation and an indirect wholly-owned subsidiary of
Brookfield Reinsurance (“Merger Sub”). Upon completion of the transactions contemplated by the Merger Agreement, the
Company will become an indirect wholly owned subsidiary of Brookfield Reinsurance in consideration for the payment of
$190.00 per share in cash, for total merger consideration of $5.1 billion.
Regulatory Approval Process. The completion of the Merger contemplated by the Merger Agreement (the “Merger”) is subject
to satisfaction or waiver of certain customary closing conditions, including obtaining the required regulatory approval from the
insurance authorities in Texas, Missouri, New York, Louisiana and California. The required insurance regulatory process has
been moving forward consistent with our prior disclosures, and we continue to expect to complete the Merger before the end of
the first half of 2022. However, because state insurance regulatory approval remains outstanding, the Company cannot provide
assurance the Merger will be completed on the terms or timeline currently contemplated, or at all.
Merger Agreement's Restrictions on Interim Operations. The Company has agreed to certain covenants in the Merger
Agreement restricting the conduct of its business between the date of the Merger Agreement and the earlier of the Effective
Time and the termination of the Merger Agreement. The general effect of these covenants is that, during such interim period,
the Company will be limited in its ability to pursue strategic and operational matters outside the ordinary course of business.
The Company has agreed that it and its subsidiaries will conduct their business in the ordinary course consistent with past
practice in all material respects and use reasonable best efforts to preserve their business organizations, goodwill and assets,
keep available the services of their current key officers and employees, and preserve their present relationships with
governmental entities and other key third parties, including customers, reinsurers, distributors, suppliers and other persons with
whom the Company and its subsidiaries have business relationships.
In addition, the Company has agreed to specific restrictions relating to the conduct of its business between the date of the
Merger Agreement and the earlier of the Effective Time and the termination of the Merger Agreement, including, but not
limited to, not to take (or permit any of its subsidiaries to take) the following actions (subject, in each case, to exceptions
specified below and in the Merger Agreement or previously disclosed in writing to Brookfield Reinsurance as provided in the
Merger Agreement or as consented to in writing in advance by Brookfield Reinsurance (which consent shall not be
unreasonably withheld, delayed or conditioned) or as required by law:
•
subject to certain limited exceptions, offer, issue, sell, transfer, pledge, dispose of or encumber any shares of, or
securities convertible into or exchangeable for, or options, warrants, calls, commitments or rights of any kind to
acquire, any shares of capital stock or other voting or equity interests of any class or series of the Company or its
subsidiaries;
•
amend or propose to amend the Company’s or its subsidiaries’ certificate of incorporation, bylaws or other comparable
organizational documents, in each case, whether by merger, consolidation or otherwise;
•
authorize, recommend, propose, enter into or adopt a plan or agreement of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other reorganization of the Company or any of its subsidiaries;
•
subject to certain limited exceptions (including permitting the Company to execute investment portfolio transactions in
the ordinary course of business consistent with past practice and in accordance with its existing investment plan and
investment guidelines), acquire or agree to acquire any business or any corporation, partnership, association or other
business organization or division thereof;
•
make or authorize capital expenditures that are, on an individual basis, in excess of 110% of the Company’s capital
expenditure budget or in excess of 105% of the aggregate capital expenditure budget, except for (i) planned capital
expenditures disclosed to Brookfield Reinsurance at signing of the Merger Agreement and (ii) reasonable emergency
capital expenditures (after consultation with Brookfield Reinsurance) necessary to maintain its ability to operate its
businesses in the ordinary course or for the safety of individuals, assets or the environment;
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
30
•
subject to certain limited exceptions, sell, lease, license, transfer, pledge, subject to any encumbrance or otherwise
dispose of any of its or their assets or properties;
•
incur, guarantee or assume any indebtedness, subject to certain limited exceptions, including investment portfolio
transactions in the ordinary course of business consistent with past practice and other incurrences of indebtedness not
to exceed $10,000,000 in the aggregate;
•
enter into any material contract or reinsurance contract other than in the ordinary course of business consistent with
past practice; and
•
terminate, amend, modify, assign or waive any material right under any material contract or reinsurance contract
except in the ordinary course of business consistent with past practice.
The Merger Agreement permits the Company to continue to pay regular quarterly cash dividends not to exceed $0.82 per share
of common stock prior to completion of the Merger.
The above is a summary of certain material terms of the Merger Agreement and is qualified in its entirety by the terms and
conditions of the Merger Agreement, which was filed as an exhibit to the Company’s current report on Form 8-K filed on
August 9, 2021.
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 certain statements relating to the
COVID-19 pandemic and its potential 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. Forward-looking statements relate to the transaction contemplated by
the Merger Agreement (the "Proposed Transaction"), as well as to the Company’s financial and operating performance on a
stand-alone basis prior to the consummation of the Merger or if the Merger is not consummated. 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,
above and elsewhere in this report, and the following factors relating the Proposed Transaction:
•
conditions to the closing of the Proposed Transaction may not be satisfied;
•
regulatory approvals required for the Proposed Transaction may not be obtained, or required regulatory approvals may
delay the Proposed Transaction or result in the imposition of conditions that could have a material adverse effect on
the Company or Brookfield Reinsurance or cause certain conditions to closing not to be satisfied, which could result in
the termination of the Merger Agreement;
•
the timing of completion of the Proposed Transaction is uncertain;
•
the business of the Company or Brookfield Reinsurance could suffer as a result of uncertainty surrounding the
Proposed Transaction;
•
events, changes or other circumstances could occur that could give rise to the termination of the Merger Agreement;
•
there are risks related to disruption of management’s attention from the ongoing business operations of the Company
or Brookfield Reinsurance due to the Proposed Transaction;
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
31
•
the announcement or pendency of the Proposed Transaction could affect the relationships of the Company or
Brookfield Reinsurance with its clients, and operating results and business generally, including on our ability to retain
and attract employees;
•
the outcome of any legal proceedings initiated against the Company or Brookfield Reinsurance following the
announcement of the Proposed Transaction could adversely affect the Company or Brookfield Reinsurance, including
their ability to consummate the Proposed Transaction; and
•
the Company or Brookfield Reinsurance may be adversely affected by other economic, business, and/or competitive
factors as well as management’s response to any of the aforementioned factors.
The foregoing review of important factors related to the Proposed Transaction should not be construed as exhaustive and should
be read in conjunction with the other cautionary statements that are included herein and elsewhere, including the risk factors
included in Brookfield Reinsurance’s Registration Statement on Form F-1 and in this 2021 Annual Report and other documents
of the Company and Brookfield Reinsurance on file with the SEC. Neither the Company nor Brookfield Reinsurance
undertakes any obligation to update, correct or otherwise revise any forward-looking statements. All subsequent written and
oral forward-looking statements attributable to the Company or Brookfield Reinsurance and/or any person acting on behalf of
either of them are expressly qualified in their entirety by this paragraph. The information contained on any websites referenced
in this Annual Report on Form 10-K is not incorporated by reference into this Annual Report on Form 10-K.
COVID-19 Response
On March 11, 2020, the World Health Organization formally declared the outbreak of the novel coronavirus COVID-19 to be a
pandemic. A summary of significant actions the Company took in response to COVID-19 through December 31, 2020 is
disclosed in our 2020 Annual Report on form 10-K filed with the SEC on March 4, 2021. Below is a summary of significant
subsequent developments in our COVID-19 response:
•
We continue to take steps to protect employees with the goals of maintaining their health and sustaining an adequate
workforce, including employees working 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 for vaccinations and
to address these hardships.
•
We suspended our summer Internship Program for 2020, and in 2021 piloted a program which combined both virtual
and in-person elements for a small group of interns. In 2022, we will be offering a hybrid program with virtual and in-
person elements, to an expanded group of interns.
•
We have developed and are continually refining our return-to-office plans for our locations. Beginning in June 2021,
we gradually re-introduced more employees to our office locations but had to lessen our in-office presence in the latter
part of the year due to a surge in the Omicron variant. We are continually monitoring the situation with a longer-term
plan to offer employees hybrid work schedules, where possible.
Although we have been able to maintain our business operations since the onset of the pandemic, no assurance can be given that
these actions will continue to 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 further extended periods of time. Given this uncertainty, we are
unable to quantify with reasonable confidence the total 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. For additional information regarding the direct and indirect impact to mortality refer to Part II,
Item 7, MD&A, Life.
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.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
32
Overview
American National Group, Inc. ("ANAT") is a family of companies that has $31.3 billion in assets, $24.3 billion in liabilities
and $7.0 billion in stockholders' equity as of December 31, 2021. American National Insurance Company ("ANICO"), founded
in 1905 and headquartered in Galveston, Texas, and other 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
ANICO, 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.
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.
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.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
33
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.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
34
Life and Annuity
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.
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.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
35
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 current
removal of limitations on Short-Term Medical products could significantly increase our production. We constantly monitor the
legislative environment for new changes that would impact our outlook on these products.
We also continue to expand our presence and product portfolio 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 2022. 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.
We have decided to exit the Medicare Supplement market due to increasing pricing pressures and deterioration of new sales and
operational performance. Marketing efforts are refocused to MGU, Worksite and Individual Supplemental lines of business.
Sale of Equity Securities Portfolio
During the fourth quarter of 2021, we sold the majority of our equity securities portfolio. Such sale was based upon senior
management's assessment of market conditions and the potential for changes in the U.S. federal corporate income tax rate. The
sale resulted in net proceeds of $1.7 billion and did not have a significant impact on our stockholders' equity.
Proceeds from the sale of the equity securities portfolio will be reinvested primarily in fixed income investments. We expect
that such sale, coupled with the reinvestment of proceeds in primarily fixed income investments, will have a positive impact on
our net investment income and cash flows, as well as on the Risk Based Capital of our insurance company subsidiaries that held
equity security investments. Such actions will also mitigate fluctuations in net income associated with non-cash earnings from
net gains (losses) from the change in fair value of equity securities.
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 Part II, Item 8, Financial Statements and
Supplementary Data — Notes to the Consolidated Financial Statements for additional information.
Future Policy Benefits
Life and Annuity Liability for Unpaid Claims
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.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
36
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.
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.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
37
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.
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):
December 31, 2021
December 31, 2020
Gross
Ceded
Net
Gross
Ceded
Net
Case
$
673,929
$
71,408
$
602,521
$
628,729
$
60,081
$
568,648
IBNR
549,223
37,788
511,435
518,358
32,926
485,432
Total
$
1,223,152
$
109,196
$
1,113,956
$
1,147,087
$
93,007
$
1,054,080
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 Part II, Item 8, Financial Statements and Supplementary Data — 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, 2021 and December 31, 2020, respectively.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
38
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.
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, 2021 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, 2021.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
39
Deferred Policy Acquisition Costs (DAC)
We had a DAC asset of approximately $1.5 billion and $1.4 billion at December 31, 2021 and 2020, respectively. See Part II,
Item 8, Financial Statements and Supplementary Data — 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, 2021 (in thousands):
Increase (Decrease) in DAC
Increase in future investment margins of 25 basis points
$
50,772
Decrease in future investment margins of 25 basis points
(57,127)
Decrease in future life mortality by 1%
2,189
Increase in future life mortality by 1%
(2,258)
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. The new standard significantly changed how entities measure credit losses for most financial assets and
reinsurance recoverables that are not measured at fair value through net income. The guidance replaced the current “incurred
loss” approach with an “expected loss” model for instruments measured at amortized cost. Refer to Part II, Item 8, Financial
Statements and Supplementary Data — Note 4, Investment in Securities, and Note 5, Mortgage Loans, of the Notes to the
Consolidated Financial Statements 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.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
40
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.
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.
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.
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.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
41
Consolidated Results of Operations
The following sets forth the consolidated results of operations (in thousands):
Years ended December 31,
Change over prior year
2021
2020
2019
2021
2020
PREMIUMS AND OTHER REVENUES
Premiums
$
2,301,053
$
2,218,074
$
2,182,794
$
82,979
$
35,280
Other policy revenues
359,707
310,746
305,256
48,961
5,490
Net investment income
1,171,654
976,152
1,180,907
195,502
(204,755)
Net realized investment gains
64,628
35,660
30,751
28,968
4,909
(Increase) decrease in investment credit loss
28,778
(102,603)
—
131,381
(102,603)
Net gains on equity securities
420,283
356,281
422,535
64,002
(66,254)
Other income
45,688
40,556
51,401
5,132
(10,845)
Total premiums and other revenues
4,391,791
3,834,866
4,173,644
556,925
(338,778)
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits
755,655
748,083
667,828
7,572
80,255
Claims incurred
1,192,155
1,121,742
1,151,166
70,413
(29,424)
Interest credited to policyholders’ account balances
448,654
321,042
511,999
127,612
(190,957)
Commissions for acquiring and servicing policies
640,097
553,600
532,634
86,497
20,966
Other operating expenses
571,869
515,413
524,888
56,456
(9,475)
Change in deferred policy acquisition costs (1)
(79,632)
(5,678)
(12,749)
(73,954)
7,071
Total benefits, losses and expenses
3,528,798
3,254,202
3,375,766
274,596
(121,564)
Income before federal income taxes and other items
$
862,993
$
580,664
$
797,878
$
282,329
$
(217,214)
(1)
A negative change indicates more expense was deferred than amortized and represents a decrease to expenses in the period indicated.
Comparison of the year ended December 31, 2021 to 2020
Earnings increased primarily due to the following:
•
An increase in net investment income driven by increases from investment funds and mortgage loan profit
participation and prepayment income
•
A favorable change in investment credit loss due to improvement in our commercial mortgage loans driven by
improvement in cash flows and a positive economic outlook from our properties, and improving conditions in travel
and leisure
The increase in earnings was partially offset by the following:
•
A decrease in Life segment earnings driven by an overall increase in mortality which includes claims directly and
indirectly attributable to COVID-19
•
A decrease in Property and Casualty segment earnings driven by an increase in net catastrophe losses and higher claim
frequency in our personal automobile products as miles driven have increased
•
An increase in operating expenses primarily due to Merger-related expenses of $21.5 million
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
42
Life
Life segment financial results for the periods indicated were as follows (in thousands):
Years ended December 31,
Change over prior year
2021
2020
2019
2021
2020
PREMIUMS AND OTHER REVENUES
Premiums
$
412,769
$
396,099
$
359,419
$
16,670
$
36,680
Other policy revenues
336,136
295,263
288,061
40,873
7,202
Net investment income
277,962
261,389
263,788
16,573
(2,399)
Other income
1,577
2,084
1,967
(507)
117
Total premiums and other revenues
1,028,444
954,835
913,235
73,609
41,600
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits
605,724
533,925
449,252
71,799
84,673
Interest credited to policyholders’ account balances
84,005
75,943
80,950
8,062
(5,007)
Commissions for acquiring and servicing policies
186,470
167,548
162,203
18,922
5,345
Other operating expenses
195,127
182,395
190,104
12,732
(7,709)
Change in deferred policy acquisition costs (1)
(50,134)
(53,756)
(26,036)
3,622
(27,720)
Total benefits, losses and expenses
1,021,192
906,055
856,473
115,137
49,582
Income before federal income taxes and other items
$
7,252
$
48,780
$
56,762
$
(41,528) $
(7,982)
(1)
A negative change indicates more expense was deferred than amortized and represents a decrease to expenses in the period indicated.
Comparison of the year ended December 31, 2021 to 2020
Earnings for our Life segment decreased primarily due to the following:
•
An overall increase in mortality which includes claims directly and indirectly attributable to COVID-19
The decrease in earnings was partially offset by the following:
•
Strong persistency resulting in an increase in premiums and other policy revenues
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
43
Life Insurance Sales
The following table presents life insurance sales as measured by annualized premium, which allows a comparison of new
policies sold by an insurance company during the period (in thousands):
Years ended December 31,
Change over prior year
2021
2020
2019
2021
2020
Traditional Life
$
64,178
$
62,044
$
56,681
$
2,134
$
5,363
Universal Life
32,989
28,900
28,673
4,089
227
Indexed UL
36,333
30,643
36,906
5,690
(6,263)
Total recurring
133,500
121,587
122,260
11,913
(673)
Single and excess (1)
2,097
1,509
2,193
588
(684)
Credit life (1)
7,714
8,140
10,723
(426)
(2,583)
Total annualized premium
$
143,311
$
131,236
$
135,176
$
12,075
$
(3,940)
(1)
Weighted amounts with single and excess premiums counted at 10%
Life insurance sales are based on the total yearly premium that insurance companies would expect to receive if all recurring
premium policies 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 increased 9.2% during the twelve months ended December 31, 2021 compared to 2020 as new life sales
rebounded from the COVID-19 economic uncertainties and social distancing practices during 2020.
Policy In-force Information
The following table summarizes changes in the Life segment’s in-force amounts (in thousands):
December 31,
Change over prior year
2021
2020
2019
2021
2020
Life insurance in-force
Traditional life
$
98,142,544
$
91,920,577
$
84,129,193
$
6,221,967
$
7,791,384
Interest-sensitive life
38,789,008
36,326,621
33,975,092
2,462,387
2,351,529
Total life insurance in-force
$ 136,931,552
$ 128,247,198
$ 118,104,285
$
8,684,354
$
10,142,913
The following table summarizes changes in the Life segment’s number of policies in-force:
December 31,
Change over prior year
2021
2020
2019
2021
2020
Number of policies in-force
Traditional life
1,696,145
1,832,536
1,911,305
(136,391)
(78,769)
Interest-sensitive life
281,380
269,668
256,146
11,712
13,522
Total number of policies in-force
1,977,525
2,102,204
2,167,451
(124,679)
(65,247)
Life insurance in-force increased during the twelve months ended December 31, 2021 compared to 2020 despite a reduction of
policies in-force due to an increase in sales of higher face amount policies.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
44
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):
Years ended December 31,
Change over prior year
2021
2020
2019
2021
2020
Acquisition cost capitalized
$
(161,898) $
(148,142) $
(139,336) $
(13,756) $
(8,806)
Amortization of DAC
111,764
94,386
113,300
17,378
(18,914)
Change in DAC
$
(50,134) $
(53,756) $
(26,036) $
3,622
$
(27,720)
Reinsurance
The table below summarizes reinsurance reserves and premium amounts assumed and ceded (in thousands):
Reserves
Premiums
Years ended December 31,
Years ended December 31,
2021
2020
2019
2021
2020
2019
Reinsurance assumed
$
2,902
$
1,067
$
1,103
$
5,035
$
1,419
$
507
Reinsurance ceded
(221,898)
(195,251)
(203,011)
(87,721)
(77,444)
(86,017)
Total
$
(218,996) $
(194,184) $
(201,908) $
(82,686) $
(76,025) $
(85,510)
We use reinsurance to mitigate certain risks to the Life segment. During 2021, 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 2021, the companies to whom we have ceded reinsurance for the Life segment are shown below (in thousands, except
percentages):
Reinsurer
A.M. Best Rating (1)
Ceded Premium
Percentage of
Ceded Premium
Swiss Re Life & Health of America Inc.
A+
$
25,133
30.1 %
SCOR Global Life Reinsurance Company of Delaware
A+
18,039
21.6
Munich American Reassurance Company
A+
13,091
15.7
Canada Life Reinsurance
A+
7,543
9.0
Reinsurance Group of America
A+
5,576
6.7
General Re Life Corporation
A++
4,807
5.8
Other Reinsurers with no single company with greater than 5% of the total ceded
premium
9,262
11.1
Total life reinsurance ceded
$
83,451
100.0 %
(1)
A.M. Best rating as of the most current information available February 9, 2022.
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.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
45
Annuity
Annuity segment financial results for the periods indicated were as follows (in thousands):
Years ended December 31,
Change over prior year
2021
2020
2019
2021
2020
PREMIUMS AND OTHER REVENUES
Premiums
$
74,925
$
92,866
$
147,139
$
(17,941) $
(54,273)
Other policy revenues
23,571
15,483
17,195
8,088
(1,712)
Net investment income
629,417
570,003
663,895
59,414
(93,892)
Other income
3,282
2,716
2,727
566
(11)
Total premiums and other revenues
731,195
681,068
830,956
50,127
(149,888)
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits
149,931
214,158
218,576
(64,227)
(4,418)
Interest credited to policyholders’ account balances
364,649
245,099
431,049
119,550
(185,950)
Commissions for acquiring and servicing policies
98,842
55,910
71,350
42,932
(15,440)
Other operating expenses
53,379
48,359
50,507
5,020
(2,148)
Change in deferred policy acquisition costs (1)
(22,838)
48,298
9,474
(71,136)
38,824
Total benefits, losses and expenses
643,963
611,824
780,956
32,139
(169,132)
Income before federal income taxes and other items
$
87,232
$
69,244
$
50,000
$
17,988
$
19,244
(1)
A negative change indicates more expense was deferred than amortized and represents a decrease to expenses in the period indicated.
Comparison of the year ended December 31, 2021 to 2020
Earnings for our Annuity segment increased primarily due to the following:
•
An increase in net investment income due to higher option gains resulting from favorable market conditions
•
A favorable mark-to-market impact to equity-indexed annuity reserves primarily due to higher treasury rates
•
Lower DAC amortization for fixed deferred products due to an increase in estimated gross profits driven by higher
projected future interest rates compared to previous expectations
The increase in earnings was partially offset by the following:
•
A change in estimate in the fourth quarter of 2020 related to our equity-indexed annuity products that resulted in an
increase of $23.0 million in earnings from our Annuity segment. The impacts of the change in estimate consist of an
increase to policyholder benefits of $47.1 million, deferred policy acquisition costs of $26.3 million and a reduction in
interest credited to policyholders' account balances of $96.4 million
Annuity premium and deposit amounts received are shown below (in thousands):
Years ended December 31,
Change over prior year
2021
2020
2019
2021
2020
Fixed deferred annuity
$
920,541
$
366,384
$
944,128
$
554,157
$
(577,744)
Single premium immediate annuity
90,336
125,175
203,314
(34,839)
(78,139)
Equity-indexed deferred annuity
793,068
394,178
330,744
398,890
63,434
Variable deferred annuity
62,719
60,279
69,178
2,440
(8,899)
Total premium and deposits
1,866,664
946,016
1,547,364
920,648
(601,348)
Less: Policy deposits
1,791,739
853,150
1,400,225
938,589
(547,075)
Total earned premiums
$
74,925
$
92,866
$
147,139
$
(17,941) $
(54,273)
Annuity premiums and deposits increased primarily for equity-indexed and fixed deferred products during the year ended
December 31, 2021 compared to 2020 reflecting improved competitiveness of the product. The decrease in earned premium is
due to a decline in single premium annuity sales.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
46
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):
Years ended December 31,
Change over prior year
2021
2020
2019
2021
2020
Acquisition cost capitalized
$
(99,971) $
(55,411) $
(70,272) $
(44,560) $
14,861
Amortization of DAC
77,133
103,709
79,746
(26,576)
23,963
Change in DAC
$
(22,838) $
48,298
$
9,474
$
(71,136) $
38,824
The change in acquisition costs capitalized relates to increased commissions from sales. The change in amortization of DAC
includes the unlocking of assumptions to our equity-indexed annuities largely offset by the effects of increases in interest rates,
and 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 in 2020.
Shown below are the changes in reserve (in thousands):
Years ended December 31,
2021
2020
2019
Fixed deferred annuity
Reserve, beginning of period
$
6,635,203
$
6,893,174
$
6,773,603
Premiums
920,541
366,384
944,128
Death and other benefits
(234,912)
(215,330)
(237,346)
Surrenders
(484,048)
(594,253)
(787,617)
Fees
(1,557)
(968)
(2,616)
Interest and mortality
184,060
186,196
203,022
Reserve, end of period
7,019,287
6,635,203
6,893,174
Equity-indexed annuity
Reserve, beginning of period
4,097,012
3,985,165
3,668,645
Premiums
793,068
394,178
330,744
Death and other benefits
(57,070)
(48,451)
(40,670)
Surrenders
(298,181)
(331,359)
(193,957)
Fees
(3,358)
(2,990)
(3,640)
Interest and mortality
176,620
100,469
224,043
Reserve, end of period
4,708,091
4,097,012
3,985,165
Single premium immediate annuity
Reserve, beginning of period
1,851,955
1,874,942
1,826,137
Premiums
90,336
125,175
203,314
Payments
(203,115)
(218,469)
(216,782)
Interest and mortality
60,767
70,307
62,273
Reserve, end of period
1,799,943
1,851,955
1,874,942
Variable deferred annuity
Reserve, beginning of period
418,508
385,735
332,898
Premiums
62,719
60,279
69,178
Other flows
614
1,356
(97)
Surrenders
(79,465)
(87,068)
(85,994)
Fees
(5,262)
(4,479)
(4,703)
Change in market value and other
58,036
62,685
74,453
Reserve, end of period
455,150
418,508
385,735
Total reserve, end of period
$
13,982,471
$
13,002,678
$
13,139,016
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
47
Interest and Mortality Margin
Margins decreased for fixed annuities over the past two years due to declining portfolio rates and increased for indexed
annuities in 2020 due to the aforementioned change in estimate. The increased margin for indexed annuities was sustained in
2021 due to the favorable impact of increases in treasury rates on mark-to-market reserves. The following table summarizes the
interest margin due to the impact of the investment performance, interest credited to policyholder’s account balances, and the
end of period assets measured by account balance (in thousands):
Years ended December 31,
Change over prior year
2021
2020
2019
2021
2020
Fixed annuity
Fixed investment income
$
352,392
$
369,795
$
384,700
$
(17,403) $
(14,905)
Interest credited and mortality
(244,827)
(256,503)
(265,295)
11,676
8,792
Interest and mortality margin
107,565
113,292
119,405
(5,727)
(6,113)
Equity-indexed annuity
Fixed investment income
174,479
160,271
152,101
14,208
8,170
Option return
102,546
39,937
127,094
62,609
(87,157)
Interest credited and mortality
(176,620)
(100,469)
(224,043)
(76,151)
123,574
Interest and mortality margin
100,405
99,739
55,152
666
44,587
Variable annuity
Separate account management fees
5,073
4,164
4,122
909
42
Interest and mortality margin
5,073
4,164
4,122
909
42
Total interest and mortality margin
$
213,043
$
217,195
$
178,679
$
(4,152) $
38,516
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
48
Health
Health segment financial results for the periods indicated were as follows (in thousands):
Years ended December 31,
Change over prior year
2021
2020
2019
2021
2020
PREMIUMS AND OTHER REVENUES
Premiums
$
143,484
$
168,805
$
165,035
$
(25,321) $
3,770
Net investment income
8,153
8,637
9,467
(484)
(830)
Other income
21,743
19,598
20,762
2,145
(1,164)
Total premiums and other revenues
173,380
197,040
195,264
(23,660)
1,776
BENEFITS, LOSSES AND EXPENSES
Claims incurred
98,029
116,122
109,013
(18,093)
7,109
Commissions for acquiring and servicing policies
24,231
30,182
31,624
(5,951)
(1,442)
Other operating expenses
42,284
39,265
41,475
3,019
(2,210)
Change in deferred policy acquisition costs (1)
3,537
(307)
1,382
3,844
(1,689)
Total benefits, losses and expenses
168,081
185,262
183,494
(17,181)
1,768
Income before federal income taxes and other items
$
5,299
$
11,778
$
11,770
$
(6,479) $
8
(1)
A negative change indicates more expense was deferred than amortized and represents a decrease to expenses in the period indicated.
Comparison of the year ended December 31, 2021 to 2020
Earnings for our Health segment decreased primarily due to the following:
•
An increase in the amortization of deferred policy acquisition costs ("DAC") related to corrective actions impacting
contract issue and administration processes, as well as an increase in claims in our Worksite line of business driven by
short-term disability
•
A reduction in premiums and an increase in DAC amortization driven by policy lapses in our Medicare Supplement
line of business
The decrease in earnings was partially offset by the following:
•
An increase in fee income from various MGU programs
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
49
Health earned premiums for the periods indicated were as follows (in thousands):
Years ended December 31,
Change over prior year
2021
2020
2019
2021
2020
Medicare Supplement
$
70,679
$
85,201
$
78,779
$
(14,522) $
6,422
MGU
20,285
22,166
27,205
(1,881)
(5,039)
Supplemental insurance
14,076
18,586
21,633
(4,510)
(3,047)
Credit Health
13,140
14,576
17,938
(1,436)
(3,362)
Medical expense
7,475
8,541
9,496
(1,066)
(955)
Worksite
13,002
14,594
4,817
(1,592)
9,777
Group health
1,766
1,809
1,964
(43)
(155)
All other
3,061
3,332
3,203
(271)
129
Total
$
143,484
$
168,805
$
165,035
$
(25,321) $
3,770
Policy lapses as a result of rate increases drove a decrease in premiums for Medicare Supplement during 2021. In addition,
Supplemental insurance premiums decreased due to a reduction in sales across all product lines, primarily in short-term
medical.
Health claims incurred for the periods indicated were as follows (in thousands):
Years ended December 31,
Change over prior year
2021
2020
2019
2021
2020
Medicare Supplement
$
54,324
$
66,492
$
63,705
$
(12,168) $
2,787
MGU
15,219
19,657
23,498
(4,438)
(3,841)
Supplemental insurance
7,409
9,945
8,508
(2,536)
1,437
Credit Health
3,673
3,501
3,400
172
101
Medical expense
5,434
7,212
5,857
(1,778)
1,355
Worksite
9,744
6,732
1,958
3,012
4,774
Group health
578
1,142
639
(564)
503
All other
1,648
1,441
1,448
207
(7)
Total
$
98,029
$
116,122
$
109,013
$
(18,093) $
7,109
Medicare Supplement claims decreased driven by policy lapses. In addition, claims experience for our Medical Expense, MGU
and Supplemental health lines of business improved but was partially offset by an increase in short-term disability claims from
our Worksite line of business.
Change in Deferred Policy Acquisition Costs
The following table presents the components of the change in DAC (in thousands):
Years ended December 31,
Change over prior year
2021
2020
2019
2021
2020
Acquisition cost capitalized
$
(14,369) $
(15,926) $
(19,940) $
1,557
$
4,014
Amortization of DAC
17,906
15,619
21,322
2,287
(5,703)
Change in DAC
$
3,537
$
(307) $
1,382
$
3,844
$
(1,689)
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
50
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 2021, the companies to which we have ceded reinsurance for the Health segment are shown below (in thousands, except
percentages):
Reinsurer
A.M. Best Rating (1)
Ceded Premium
Percentage of
Ceded Premium
Roundstone Insurance, Ltd.
N/A (2)
$
84,287
29.4 %
RGA Reinsurance Company
A+
39,975
13.9
AXIS Insurance Company
A
26,455
9.2
PartnerRe America Insurance Company
A+
21,811
7.6
Swiss Re Life & Health America Inc.
A+
16,098
5.6
Transatlantic Reinsurance Company
A+
15,516
5.4
AmFirst Insurance Company
A-
15,403
5.4
Other reinsurers with no single company with greater than 5.0% of the total ceded
premium
67,543
23.5
Total health reinsurance ceded
$
287,088
100.0 %
(1)
A.M. Best rating as of the most current information available February 9, 2022.
(2)
N/A reflects no A.M. Best rating available.
We also utilize reinsurance in our 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.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
51
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
2021
2020
2019
2021
2020
PREMIUMS AND OTHER REVENUES
Net premiums written
$
1,726,151
$
1,590,740
$
1,546,144
$
135,411
$
44,596
Net premiums earned
$
1,669,875
$
1,560,304
$
1,511,201
$
109,571
$
49,103
Net investment income
62,140
63,949
64,263
(1,809)
(314)
Other income
15,807
12,779
11,897
3,028
882
Total premiums and other revenues
1,747,822
1,637,032
1,587,361
110,790
49,671
BENEFITS, LOSSES AND EXPENSES
Claims incurred
1,094,126
1,005,620
1,042,153
88,506
(36,533)
Commissions for acquiring and servicing policies
330,554
299,960
267,457
30,594
32,503
Other operating expenses
213,486
202,503
201,580
10,983
923
Change in deferred policy acquisition costs (1)
(10,197)
87
2,431
(10,284)
(2,344)
Total benefits, losses and expenses
1,627,969
1,508,170
1,513,621
119,799
(5,451)
Income before federal income taxes and other items
$
119,853
$
128,862
$
73,740
$
(9,009)
$
55,122
Loss and loss adjustment expense ratio
65.5 %
64.5 %
69.0 %
1.0 %
(4.5) %
Underwriting expense ratio
32.0
32.2
31.2
(0.2)
1.0
Combined ratio
97.5 %
96.7 %
100.2 %
0.8 %
(3.5) %
Less: Impact of catastrophe events on combined ratio
9.4
9.2
5.9
0.2
3.3
Combined ratio without impact of catastrophe events
88.1 %
87.5 %
94.3 %
0.6 %
(6.8) %
Gross catastrophe losses
$
184,803
$
176,824
$
91,265
$
7,979
$
85,559
Net catastrophe losses
$
154,871
$
140,512
$
89,063
$
14,359
$
51,449
(1)
A negative change indicates more expense was deferred than amortized and represents a decrease to expenses in the period indicated.
Comparison of the year ended December 31, 2021 to 2020
Earnings for our Property and Casualty segment decreased primarily due to the following:
•
An increase in net catastrophe losses and higher claim frequency in our personal automobile products as miles driven
have increased
The decrease in earnings was partially offset primarily due to the following:
•
Improvement in the combined ratio for our commercial and specialty markets products
Additional Information:
•
Net premiums written and earned were reduced by COVID-19 relief policy credits of $1.9 million for personal
automobile policies in 2021 compared to $16.8 million for the same period in 2020. Policy credits were $0.9 million
for commercial automobile policies in 2020
•
The increase in commissions was primarily attributable to an increase in premiums written for our specialty markets
products. The growth in specialty markets products was also the primary driver for the increase in operating expenses
and the deferral of policy acquisition expenses outpacing amortization
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
52
Products
Our Property and Casualty segment consists of: (i) Personal products, marketed primarily to individuals, representing 52% 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 18% of net premiums written.
Personal Products
Personal Products results for the periods indicated were as follows (in thousands, except percentages):
Years ended December 31,
Change over prior year
2021
2020
2019
2021
2020
Net premiums written
Automobile
$
535,653
$
540,645
$
569,675
$
(4,992)
$
(29,030)
Homeowner
304,473
286,560
266,849
17,913
19,711
Other Personal
54,070
52,290
50,834
1,780
1,456
Total net premiums written
$
894,196
$
879,495
$
887,358
$
14,701
$
(7,863)
Net premiums earned
Automobile
$
537,356
$
536,376
$
559,524
$
980
$
(23,148)
Homeowner
290,084
274,350
251,228
15,734
23,122
Other Personal
53,163
51,552
49,475
1,611
2,077
Total net premiums earned
$
880,603
$
862,278
$
860,227
$
18,325
$
2,051
Loss and loss adjustment expense ratio
Automobile
69.1 %
59.5 %
72.7 %
9.6 %
(13.2) %
Homeowner
88.6 %
87.7 %
79.2 %
0.9 %
8.5 %
Other Personal
54.3 %
62.0 %
58.0 %
(7.7) %
4.0 %
Personal lines loss and loss adjustment expense ratio
74.6 %
68.6 %
73.8 %
6.0 %
(5.2) %
Combined Ratio
Automobile
93.2 %
83.9 %
95.9 %
9.3 %
(12.0) %
Homeowner
118.5 %
118.9 %
112.1 %
(0.4) %
6.8 %
Other Personal
84.5 %
94.4 %
99.1 %
(9.9) %
(4.7) %
Personal lines combined ratio
101.0 %
95.7 %
100.8 %
5.3 %
(5.1) %
Comparison of the year ended December 31, 2021 to 2020
Automobile: Net premiums written decreased primarily due to fewer policies in-force. Net premiums earned increased primarily
due to a decrease in COVID-19 relief policy credits which were $1.9 million in 2021 compared to $16.8 million in 2020. The
loss and loss adjustment expense and combined ratios increased primarily due to an increase in claim frequency compared to
the prior year due to the lessening impact of COVID-19.
Homeowners: Net premiums written and earned increased primarily due to rate increases.
Other Personal: These products include coverages for personal property and liability not covered within home and auto
policies, such as watercraft, personal umbrella, and rental owners. Net premiums written and earned increased due to rate
increases in the rental owners product. The loss and loss adjustment expense and combined ratios improved due to fewer non-
catastrophe losses.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
53
Commercial Products
Commercial Products results for the periods indicated were as follows (in thousands, except percentages):
Years ended December 31,
Change over prior year
2021
2020
2019
2021
2020
Net premiums written
Agricultural Business
$
180,575
$
165,112
$
154,408
$
15,463
$
10,704
Automobile
140,058
128,701
122,938
11,357
5,763
Business Owner
87,209
80,383
72,008
6,826
8,375
Workers Compensation
70,901
69,092
74,077
1,809
(4,985)
Other Commercial
36,541
33,205
36,454
3,336
(3,249)
Total net premiums written
$
515,284
$
476,493
$
459,885
$
38,791
$
16,608
Net premiums earned
Agricultural Business
$
173,686
$
161,450
$
150,632
$
12,236
$
10,818
Automobile
135,301
126,365
116,329
8,936
10,036
Business Owner
83,485
76,920
69,109
6,565
7,811
Workers Compensation
70,783
70,179
75,648
604
(5,469)
Other Commercial
35,980
32,919
35,603
3,061
(2,684)
Total net premiums earned
$
499,235
$
467,833
$
447,321
$
31,402
$
20,512
Loss and loss adjustment expense ratio
Agricultural Business
55.1 %
56.4 %
63.4 %
(1.3) %
(7.0) %
Automobile
65.5 %
76.6 %
84.5 %
(11.1) %
(7.9) %
Business Owner
73.4 %
86.1 %
54.8 %
(12.7) %
31.3 %
Workers Compensation
65.2 %
51.7 %
55.6 %
13.5 %
(3.9) %
Other Commercial
52.8 %
70.2 %
50.8 %
(17.4) %
19.4 %
Commercial lines loss and loss adjustment expense ratio
62.2 %
67.0 %
65.2 %
(4.8) %
1.8 %
Combined ratio
Agricultural Business
91.1 %
93.9 %
101.2 %
(2.8) %
(7.3) %
Automobile
88.0 %
99.0 %
109.3 %
(11.0) %
(10.3) %
Business Owner
107.2 %
120.8 %
93.6 %
(13.6) %
27.2 %
Workers Compensation
80.5 %
68.5 %
73.4 %
12.0 %
(4.9) %
Other Commercial
93.7 %
109.9 %
92.8 %
(16.2) %
17.1 %
Commercial lines combined ratio
91.7 %
97.0 %
96.8 %
(5.3) %
0.2 %
Comparison of the year ended December 31, 2021 to 2020
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
increases in policies in-force and rate increases.
Commercial Automobile: Net premiums written and earned increased primarily due to rate increases. The loss and loss
adjustment expense and combined ratios improved primarily due to favorable prior year claim development and rate increases.
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 increases in policies in-force and rate
increases. The loss and loss adjustment expense and combined ratios improved primarily due to more favorable claim
development compared to prior year.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
54
Workers Compensation: The loss and loss adjustment expense and combined ratios increased primarily due to an increase in
claim severity.
Other Commercial: Other commercial products primarily provide umbrella and other liability coverages. Net premiums written
and earned increased primarily due to an increase in premium for umbrella products. The loss and loss adjustment expense and
combined ratios improved primarily due to favorable prior year claim development.
Specialty Markets Products
Specialty markets products results for the periods indicated were as follows (in thousands, except percentages):
Years ended December 31,
Change over prior year
2021
2020
2019
2021
2020
Net premiums written
$
316,671
$
234,752
$
198,901
$
81,919
$
35,851
Net premiums earned
290,035
230,192
203,653
59,843
26,539
Loss and loss adjustment expense ratio
43.4 %
43.7 %
56.8 %
(0.3) %
(13.1) %
Combined ratio
96.8 %
99.7 %
104.7 %
(2.9) %
(5.0) %
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.
Comparison of the year ended December 31, 2021 to 2020
Net written and earned premiums increased primarily due to higher production on renters products and the addition of new
accounts related to the investor property protection products. The loss and loss adjustment expense and combined ratios
improved primarily due to lower losses for Credit GAP products, partially offset by an increase in net catastrophe losses from
$4.2 million in 2020 to $12.3 million in 2021.
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 2021, we retained the first $2.0 million of loss per risk. Our catastrophe reinsurance retention covering property and
casualty companies in total is $35.0 million.
The following table summarizes the Company’s catastrophe reinsurance coverage effective during 2021:
Layer of Loss
Catastrophe Reinsurance Coverage In-Force
Less than $35.0 million
100% of loss retained except for certain losses covered by the Property Catastrophe Top and Drop and
Aggregate Property Catastrophe Excess covers (coverage described below)
$35.0 million - $470.0 million
95% of multiple peril losses covered by Corporate Program (1) (all perils)
$470.0 million - $500.0 million
100% 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.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
55
Each per-event coverage above includes one automatic reinstatement except for a 12.5% portion of the Corporate Program
(12.5% of $35.0 million to $470.0 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 47.5% of losses from $35.0 million to $100.0 million, that reflects a 50% reduction on the prorated
amount. The 12.5% placement of non-reinstateable coverage reduces the amount of reinstatement premium we are obligated to
pay.
The Property Catastrophe Top and Drop cover consists of $30.0 million of annual limit available either wholly or in part across
two layers of coverage. The first layer is 100% of $30.0 million excess of $470.0 million on an occurrence basis. The second
layer provides aggregate protection where subject loss is $15.0 million excess of $20.0 million of each catastrophe, and
recoveries follow satisfaction of a $15.0 million annual aggregate deductible. The second layer acts to reduce the retention on
large second and third catastrophe events to $20.0 million following a first large catastrophe. This cover was placed at 100% for
2021 and does not include a reinstatement.
The Aggregate Property Catastrophe Excess cover provides for $30.0 million of limit excess of $160.0 million of aggregated
catastrophe losses. Qualifying losses include amounts of retained losses net of other reinsurance below $35.0 million on
Property Claims Services (“PCS”) declared catastrophe events and internally declared catastrophe events exceeding $5.0
million. This cover was placed at 55% for 2021 and does not include a reinstatement.
We use multiple reinsurers with each reinsurer absorbing part of the overall risk ceded. The primary reinsurers in the 2021
programs and the coverage each provides are shown in the following table:
A.M. Best Rating (1)
Percent of Risk Covered
Reinsurer
Non–Catastrophe
Catastrophe
Lloyd’s Syndicates
A
56.3 %
37.8 %
Hannover Re
A+
19.6
2.2
Convex
A-
5.1
4.6
Swiss Re
A+
2.8
6.5
Fidelis
A
—
9.0
Other Reinsurers with no single company with greater than a 4.6% share
16.2
39.9
Total reinsurance coverage
100.0 %
100.0 %
(1)
A.M. Best rating as of the most current information available February 9, 2022.
Reserve Development
While we believe that our claims reserves at December 31, 2021 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, 2021 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 Part II,
Item 8, Financial Statements and Supplementary Data — Note 12, Liability for Unpaid Claims and Claim Adjustment
Expenses, of the Notes to the Consolidated Financial Statements.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
56
Corporate and Other
Corporate and Other segment financial results for the periods indicated were as follows (in thousands):
Years ended December 31,
Change over prior year
2021
2020
2019
2020
2019
OTHER REVENUES
Net investment income
$
193,982
$
72,174
$
179,494
$
121,808
$
(107,320)
Net realized investment gains
64,628
35,660
30,751
28,968
4,909
(Increase) decrease in investment credit loss*
28,778
(102,603)
—
131,381
(102,603)
Net gains on equity securities
420,283
356,281
422,535
64,002
(66,254)
Other income
3,279
3,379
14,048
(100)
(10,669)
Total other revenues
710,950
364,891
646,828
346,059
(281,937)
BENEFITS, LOSSES AND EXPENSES
Other expenses
67,593
42,891
41,222
24,702
1,669
Total benefits, losses and expenses
67,593
42,891
41,222
24,702
1,669
Income before federal income taxes and other items
$
643,357
$
322,000
$
605,606
$
321,357
$
(283,606)
*
Effective January 1, 2020, the Company adopted ASU No. 2016-13. Adoption of this guidance resulted in an allowance for credit losses primarily on our
commercial mortgage loans and related off-balance sheet unfunded loan commitments, held-to-maturity bonds and reinsurance recoverables. The results
for 2019 have not been restated to conform to the current presentation.
Comparison of the year ended December 31, 2021 to 2020
Earnings for our Corporate and Other segment increased primarily due to the following:
•
A favorable change in investment credit loss due to improvement in our commercial mortgage loans driven by
improvement in cash flows and a positive economic outlook from our properties, and improving conditions in travel
and leisure
•
An increase in net investment income from investment funds and mortgage loan profit participation and prepayment
income
•
An increase in net gains on equity securities due to more favorable market conditions in 2021 compared to the
negative impact from the pandemic in 2020 on the fair value of our equity securities
The increase in earnings was partially offset primarily by the following:
•
An increase in operating expenses primarily due to Merger-related expenses of $21.5 million
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.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
57
The following summarizes the carrying values of our invested assets by asset class (in thousands, except percentages):
December 31, 2021
December 31, 2020
Fixed maturity, bonds held-to-maturity, at amortized cost
$
7,088,981
28.3 % $
7,354,970
29.2 %
Fixed maturity, bonds available-for-sale, at fair value
8,380,248
33.5
7,597,180
30.1
Equity securities, at fair value
135,433
0.5
2,070,766
8.2
Mortgage loans on real estate, net of allowance
5,199,334
20.8
5,242,531
20.8
Policy loans
365,208
1.5
373,014
1.5
Real estate and real estate partnerships, net of accumulated depreciation (1)
928,412
3.7
960,572
3.8
Investment funds (1)
961,763
3.8
477,135
1.9
Short-term investments
1,840,732
7.4
1,028,379
4.1
Other invested assets
125,795
0.5
94,415
0.4
Total investments
$
25,025,906
100.0 % $
25,198,962
100.0 %
(1)
Refer to Part II, Item 8, Financial Statements and Supplementary Data — Note 2, Summary of Significant Accounting Policies and Practices, of the Notes
to the Consolidated Financial Statements for explanation of prior year retrospective adjustment
The decrease in our total investments at December 31, 2021 compared to December 31, 2020 was a result of a decrease in held-
to-maturity bonds and the sale of equity securities which caused a temporary increase in cash which we intend to reinvest.
Bonds—We allocate most of our fixed maturity securities to support our insurance business. At December 31, 2021, our fixed
maturity securities had an estimated fair value of $15.8 billion, which was $0.6 billion, or 4.2%, above amortized cost. 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. Unrealized gains decreased on our fixed maturity due to an increase in benchmark ten-year interest rates.
For additional information regarding unrealized gains and losses, refer to Part II, Item 7, Investments, Net Unrealized Gains and
Losses table. The estimated fair value for securities due in one year or less was $1.4 billion as of December 31, 2021 and $1.1
billion as of December 31, 2020. For additional information regarding total bonds by credit quality rating, refer to Part II, Item
8, Financial Statements and Supplementary Data — Note 4, Investments in Securities, of the Notes to the Consolidated
Financial Statements.
Equity Securities—We have invested in the equity securities of companies traded on national U.S. stock exchanges. See Part
II, Item 8, Financial Statements and Supplementary Data — Note 4, Investments in Securities, of the Notes to the Consolidated
Financial Statements for the unrealized and realized gains and losses of equity securities. The Company sold the majority of its
equity securities portfolio in the fourth quarter of 2021. For additional information regarding the Sale of Equity Securities
Portfolio, see General Trends above.
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 4.6%
and 4.8% at December 31, 2021 and 2020, respectively. For additional information regarding mortgage loans refer to Part II,
Item 8, Financial Statements and Supplementary Data — 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, 2021, we had $365.2
million in policy loans with a loan to surrender value of approximately 54%, and at December 31, 2020, we had $373.0 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.
Real Estate and Real Estate Partnerships—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. The carrying value of our real estate partnerships is
determined by using the equity method of accounting.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
58
Investment Funds—Our investment funds are primarily comprised of senior secured and second lien private loans that are
secured by assets, revenues and credit/balance sheet lending. We recognize our share of fund earnings in net investment income
on a one-quarter lag under the equity method of accounting. Cash distributions are received from fund earnings and from
liquidation of underlying investments.
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.
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 and 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 increased $195.5 million during 2021 compared to 2020 primarily due to higher gains on options, an
increase in investment income from investment funds and mortgage loan prepayment and profit participation income.
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 increased $29.0 million during 2021 compared to 2020 primarily attributable to realized gains
from bonds. Net realized investment gains (losses) are shown below (in thousands):
December 31,
2021
2020
2019
Bonds
$
54,941
$
23,318
$
16,361
Mortgage loans
(768)
—
(2,412)
Real estate
10,240
12,401
25,555
Other invested assets
215
(59)
(1,785)
Total
$
64,628
$
35,660
$
37,719
Net Unrealized Gains and Losses
The unrealized gains and losses of our fixed maturity securities investment portfolio are shown below (in thousands):
December 31,
2021
2020
Change over prior year
Held-to-maturity
Gains
$
394,900
$
639,648
$
(244,748)
Losses
(25,092)
(11,437)
(13,655)
Net gains
369,808
628,211
(258,403)
Available-for-sale
Gains
321,861
548,996
(227,135)
Losses
(39,097)
(17,476)
(21,621)
Net gains
282,764
531,520
(248,756)
Total
$
652,572
$
1,159,731
$
(507,159)
The net change in the unrealized gains on fixed maturity securities between December 31, 2021 and December 31, 2020 is
primarily attributable to the increase in benchmark ten-year interest rates which were 1.5% and 0.9%, 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.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
59
Liquidity
ANAT's source of liquidity is solely derived from dividends received from its wholly owned subsidiary, ANICO.
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 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. American
National has agreed to pay our financial advisor in connection with the Merger, Citigroup Global Markets Inc. ("Citi"), for its
Merger-related services an aggregate fee of $40.0 million, of which $3.0 million was paid upon delivery of Citi’s fairness
opinion related to the Merger entered into on August 6, 2021 and the remaining $37.0 million is payable contingent upon
consummation of the Merger, which has not been reflected in the consolidated statement of operations. In addition, the
Company agreed to reimburse Citi for expenses, including fees and expenses of counsel, and to indemnify Citi and related
parties against certain liabilities, including liabilities under federal securities laws, arising from Citi’s engagement.
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, 2021, there are no advances outstanding; the final advance was repaid on its maturity date of
April 28, 2021. The available liquidity at February 9, 2022 was approximately $879.3 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 April of 2020. The cancellation and grace periods have been lifted in most states.
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 capital
expenditures that could aggregate to approximately $100.0 million over a three-year period; however, current uncertainties
relating to the COVID-19 pandemic have caused us to delay this project at this time. There are no other unusually large capital
expenditures expected in the next 12-24 months.
We have consistently paid dividends to our stockholders and expect to continue this tradition in the foreseeable future. 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. We believe our portfolio of highly liquid bonds and available-for-sale investment securities coupled with our
ability to borrow funds through the FHLB, are sufficient to meet future liquidity needs as necessary.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
60
As a result of the economic impact associated with COVID-19, American National modified 93 mortgage loans with a total
balance of $1.6 billion during 2020. These modifications were in the form of forbearance of principal and interest payments for
up to six months, extensions of maturity dates, and/or provisions for interest only payments. The modifications were primarily
related to our loans to hotels, retail and parking operations. Due to the ongoing economic stress brought on by the pandemic,
additional modifications for 33 of these loans with a total balance of $725.7 million were made during 2021. These additional
modifications extended the forbearance of principal and interest payments and interest only provisions with a requirement for
the payment of at least 20% of the total interest due during the extended modification period. The modified loans had an
aggregate deferred interest of $5.6 million as of December 31, 2021. There are no commitments to lend additional funds to
debtors whose loans have been modified in a troubled debt restructuring during the periods presented. The decrease in loans
determined to be a troubled debt restructuring during 2021 is primarily attributable to improved economic conditions after
lifting of COVID-19 related restrictions.
The Company holds collateral of $264.2 million at December 31, 2021 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.
Our cash and cash equivalents and short-term investment position increased from $1.4 billion at December 31, 2020 to $3.8
billion at December 31, 2021. The increase primarily relates to the fourth quarter 2021 sale of a majority of the Company's
equity securities portfolio which resulted in an excess cash position. We intend to reinvest the cash proceeds consistent with our
investment guidelines during 2022.
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. A.M. Best has placed American National’s issuer credit and financial strength ratings
under review with developing implications and S&P Global Ratings has placed the ratings on CreditWatch with negative
implications of which are due to the pending Merger with Brookfield Reinsurance.
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):
December 31,
2021
2020
2019
American National stockholders’ equity, excluding accumulated other comprehensive income
(“AOCI”), net of tax
$
6,847,314
$
6,236,100
$
5,890,231
Accumulated other comprehensive income
147,054
222,170
99,518
Total American National stockholders’ equity
$
6,994,368
$
6,458,270
$
5,989,749
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 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 at December 31,
2021 and 2020.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
61
The changes in our capital resources are summarized below (in thousands):
Years ended
2021
2020
Capital and
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Capital and
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Net income attributable to American National
$
699,325
$
—
$
699,325
$
467,505
$
—
$
467,505
Dividends to shareholders
(88,190)
—
(88,190)
(88,190)
—
(88,190)
Change in net unrealized gains on debt
securities
—
(142,854)
(142,854)
—
134,315
134,315
Foreign currency transaction and translation
adjustment
—
62
62
—
235
235
Defined benefit pension plan adjustment
—
67,676
67,676
—
(11,898)
(11,898)
Cumulative effect of accounting changes (1)
—
—
—
(33,500)
—
(33,500)
Other
79
—
79
54
—
54
Total
$
611,214
$
(75,116) $
536,098
$
345,869
$
122,652
$
468,521
(1)
Result of adoption of ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.
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 100% of the company action level RBC are required to
take certain actions. At December 31, 2021 and December 31, 2020, ANICO’s statutory capital and surplus was $4.0 billion
and $3.6 billion, respectively. ANICO and each of our insurance subsidiaries had statutory capital and surplus at December 31,
2021 and 2020 above 200% of the company action level except ANPAC Louisiana Insurance Company ("ANPLA"), which had
an RBC level of 194% at December 31, 2020, which increased to 242% at December 31, 2021.
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.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
62
Contractual Obligations
The following summarizes our contractual obligations as of December 31, 2021 (in thousands):
Payments Due by Period
Total
Less than
1 year
1-3 years
3-5 years
More than
5 years
Life insurance obligations (1)
$
4,504,925
$
(58,739) $
(116,014) $
(36,030) $
4,715,708
Annuity obligations (1)
15,483,714
1,373,520
3,496,133
2,434,695
8,179,366
Property and casualty insurance obligations (2)
1,098,017
487,133
371,074
138,250
101,560
Health insurance obligations (3)
263,837
183,260
29,599
9,428
41,550
Purchase obligations
Commitments to purchase and fund investments
899,017
361,222
321,503
95,230
121,062
Mortgage loan commitments
647,841
424,971
222,870
—
—
Lease obligations
12,680
4,300
6,612
1,685
83
Defined benefit pension plans (4)
60,145
17,638
14,362
10,834
17,311
Notes payable (5)
149,248
75,293
73,955
—
—
Total
$
23,119,424
$
2,868,598
$
4,420,094
$
2,654,092
$
13,176,640
(1)
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.
(2)
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.
(3)
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.
(4)
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.
(5)
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. The entity's liability is limited to its investment in
the respective joint venture. See Part II, Item 8, Financial Statements and Supplementary Data — Note 6, Real Estate and Other
Investments, of the Notes to the Consolidated Financial Statements for additional details.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
63
Off-Balance Sheet Arrangements
We have off-balance sheet arrangements relating to third-party marketing operation bank loans as discussed in Part II, Item 8,
Financial Statements and Supplementary Data — 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 Part II, Item 8, Financial Statements and
Supplementary Data — 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, evaluating 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 the consistency of such
strategies and investments with our overall investment strategy.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS — (Continued)
64
December 31,
2021
2020
Amount
Percent
Amount
Percent
Fixed maturity, bonds held-to-maturity
$
7,088,981
45.8 % $
7,354,970
49.2 %
Fixed maturity, bonds available-for-sale
8,380,248
54.2
7,597,180
50.8
Net unrealized gains on available-for-sale bonds
282,764
3.4
531,520
7.0
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, 2021, these mortgage loans have fixed rates ranging from
3.25% 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 $7.1 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):
Increase (Decrease) in Market Value Given an Interest Rate
Increase (Decrease) of Basis Points
(100)
(50)
50
100
December 31, 2021
$
824,630
$
402,145
$
(384,130) $
(753,265)
December 31, 2020
703,957
345,427
(333,613)
(658,118)
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 becomes 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 61.8% of our portfolio, are summarized
below (in thousands, except percentages):
65
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, to a certain extent, by the 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 Part II, Item 8, Financial Statements and Supplementary Data — 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 2021 and 2020. For additional information regarding the impact of COVID-19 to mortgage
loans, see Part II, Item 8, Financial Statements and Supplementary Data — 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, 2021, we held approximately $135.4 million of equity investments, approximately 0.5% of total investment
assets, 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.
Recent Accounting Pronouncements
Refer to Part II, Item 8, Financial Statements and Supplementary Data — 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.
66
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Annual Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34)
68
Consolidated Statements of Financial Position as of December 31, 2021 and 2020
72
Consolidated Statements of Operations for the years ended December 31, 2021, 2020, and 2019
73
Consolidated Statements of Comprehensive Income for the years ended December 31, 2021, 2020, and 2019
74
Consolidated Statements of Changes in Equity for the years ended December 31, 2021, 2020, and 2019
75
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020, and 2019
76
Notes to the Consolidated Financial Statements
78
Note 1 - Nature of Operations
78
Note 2 - Summary of Significant Accounting Policies and Practices
78
Note 3 - Recently Issued Accounting Pronouncements
84
Note 4 - Investment in Securities
85
Note 5 - Mortgage Loans
90
Note 6 - Real Estate and Other Investments
95
Note 7 - Derivative Instruments
97
Note 8 - Net Investment Income and Realized Investment Gains (Losses)
98
Note 9 - Fair Value of Financial Instruments
99
Note 10 - Deferred Policy Acquisition Costs
107
Note 11 - Liability for Future Policy Benefits and Policyholder Account Balances
108
Note 12 - Liability for Unpaid Claims and Claim Adjustment Expenses
109
Note 13 - Reinsurance
120
Note 14 - Federal Income Taxes
121
Note 15 - Accumulated Other Comprehensive Income
123
Note 16 - Stockholder's Equity and Noncontrolling Interests
124
Note 17 - Segment Information
128
Note 18 - Pension and Postretirement Benefits
130
Note 19 - Commitments and Contingencies
134
Note 20 - Related Party Transactions
135
67
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 statements of financial position of American National Group, Inc. and
subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of operations,
comprehensive income, changes in equity, and cash flows for the years ended December 31, 2021 and 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, 2021, 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 referred to above present fairly, in all material respects, the financial position of the
Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years ended December
31, 2021 and 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,
2021, 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 audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits 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 audits 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 audits 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 audits also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide 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.
68
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.
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 guaranteed cash flows. As of December 31, 2021, the fair value of the embedded derivative liabilities was $833
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 $1.7
billion as of December 31, 2021. 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.
69
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.
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
February 25, 2022
We have served as the Company's auditor since 2020.
70
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 statements of operations, comprehensive income, changes in equity, and cash
flows of American National Group, Inc. (formerly American National Insurance Company) and subsidiaries (the Company) for
the year ended December 31, 2019, and the related notes and financial statement schedules II to IV (collectively, the
consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects,
the results of operations of the Company and its cash flows for the year 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 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 consolidated financial statements are free of material misstatement,
whether due to error or fraud. Our audit 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 audit 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 audit provides 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
71
AMERICAN NATIONAL GROUP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands, except share data)
December 31,
2021
2020
ASSETS
Fixed maturity, bonds held-to-maturity, at amortized cost, net of allowance for credit losses of $13,129 in 2021
and $12,442 in 2020 (Fair value $7,458,789 in 2021 and $7,983,181 in 2020)
$
7,088,981
$
7,354,970
Fixed maturity, bonds available-for-sale, at fair value (Allowance for credit losses of $10,310 in 2021 and
$7,482 in 2020) (Amortized cost $8,107,794 in 2021 and $7,073,142 in 2020)
8,380,248
7,597,180
Equity securities, at fair value (Cost $94,732 in 2021 and $754,625 in 2020)
135,433
2,070,766
Mortgage loans on real estate, net of allowance for credit losses of $97,079 in 2021 and $125,703 in 2020
5,199,334
5,242,531
Policy loans
365,208
373,014
Real estate and real estate partnerships, net of accumulated depreciation of $287,387 in 2021 and $269,626 in
2020
928,412
960,572
Investment funds
961,763
477,135
Short-term investments
1,840,732
1,028,379
Other invested assets
125,795
94,415
Total investments
25,025,906
25,198,962
Cash and cash equivalents
1,930,882
339,947
Accrued investment income
192,913
216,389
Reinsurance recoverables, net of allowance for credit losses of $14,553 in 2021 and $14,353 in 2020
459,621
414,359
Prepaid reinsurance premiums
47,789
42,804
Premiums due and other receivables
382,562
351,972
Deferred policy acquisition costs
1,498,124
1,360,211
Property and equipment, net of accumulated depreciation of $302,936 in 2021 and $281,738 in 2020
137,466
121,578
Prepaid pension
167,587
80,526
Other assets
156,768
155,600
Separate account assets
1,320,703
1,185,467
Total assets
$
31,320,321
$
29,467,815
LIABILITIES
Future policy benefits
Life
$
3,216,626
$
3,149,067
Annuity
1,598,365
1,617,774
Health
45,715
49,658
Policyholders’ account balances
13,879,198
12,812,155
Policy and contract claims
1,692,295
1,575,288
Unearned premium reserve
1,013,830
956,343
Other policyholder funds
379,545
358,601
Liability for retirement benefits
79,089
70,254
Notes payable
149,248
153,703
Deferred tax liabilities, net
200,510
478,347
Current tax payable
321,926
10,372
Federal Home Loan Bank advance
—
250,000
Other liabilities
421,212
335,219
Separate account liabilities
1,320,703
1,185,467
Total liabilities
24,318,262
23,002,248
EQUITY
American National Group, Inc. stockholders’ equity:
Common stock, $0.01 par value; 50,000,000 shares authorized; 26,887,200 shares issued and outstanding in
2021 and 2020
269
269
Additional paid-in capital
47,762
47,683
Accumulated other comprehensive income
147,054
222,170
Retained earnings
6,799,283
6,188,148
Total American National stockholders’ equity
6,994,368
6,458,270
Noncontrolling interest
7,691
7,297
Total stockholders' equity
7,002,059
6,465,567
Total liabilities and stockholders' equity
$
31,320,321
$
29,467,815
See accompanying notes to the consolidated financial statements.
72
AMERICAN NATIONAL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
Years ended December 31,
2021
2020
2019
PREMIUMS AND OTHER REVENUES
Premiums
Life
$
412,769
$
396,099
$
359,419
Annuity
74,925
92,866
147,139
Health
143,484
168,805
165,035
Property and casualty
1,669,875
1,560,304
1,511,201
Other policy revenues
359,707
310,746
305,256
Net investment income
1,171,654
976,152
1,180,907
Net realized investment gains
64,628
35,660
37,719
Other-than-temporary impairments
—
—
(6,968)
(Increase) decrease in investment credit loss
28,778
(102,603)
—
Net gains on equity securities
420,283
356,281
422,535
Other income
45,688
40,556
51,401
Total premiums and other revenues
4,391,791
3,834,866
4,173,644
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits
Life
605,724
533,925
449,252
Annuity
149,931
214,158
218,576
Claims incurred
Health
98,029
116,122
109,013
Property and casualty
1,094,126
1,005,620
1,042,153
Interest credited to policyholders’ account balances
448,654
321,042
511,999
Commissions for acquiring and servicing policies
640,097
553,600
532,634
Other operating expenses
571,869
515,413
524,888
Change in deferred policy acquisition costs
(79,632)
(5,678)
(12,749)
Total benefits, losses and expenses
3,528,798
3,254,202
3,375,766
Income before federal income tax and other items
862,993
580,664
797,878
Less: Provision (benefit) for federal income taxes
Current
408,551
57,697
87,032
Deferred
(241,966)
58,910
78,385
Total provision for federal income taxes
166,585
116,607
165,417
Income after federal income tax
696,408
464,057
632,461
Other components of net periodic pension benefit (costs), net of tax
3,574
4,456
(684)
Net income
699,982
468,513
631,777
Less: Net income attributable to noncontrolling interest, net of tax
657
1,008
11,414
Net income attributable to American National
$
699,325
$
467,505
$
620,363
Amounts available to American National common stockholders
Earnings per share
Basic
$
26.02
$
17.39
$
23.08
Diluted
26.01
17.38
23.07
Weighted average common shares outstanding
26,877,200
26,878,679
26,882,691
Weighted average common shares outstanding and dilutive potential common shares
26,884,679
26,887,125
26,891,243
See accompanying notes to the consolidated financial statements.
73
AMERICAN NATIONAL GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Years ended December 31,
2021
2020
2019
Net income
$
699,982
$
468,513
$
631,777
Other comprehensive income (loss), net of tax
Change in net unrealized gains (losses) on securities
(142,854)
134,315
184,156
Foreign currency transaction and translation adjustments
62
235
390
Defined benefit pension plan adjustment
67,676
(11,898)
15,495
Total other comprehensive income (loss), net of tax
(75,116)
122,652
200,041
Total comprehensive income
624,866
591,165
831,818
Less: Comprehensive income attributable to noncontrolling interest
657
1,008
11,414
Total comprehensive income attributable to American National
$
624,209
$
590,157
$
820,404
See accompanying notes to the consolidated financial statements.
74
AMERICAN NATIONAL GROUP, INC.
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, 2018
$
30,832
$
20,694
$
(99,738) $
5,413,952
$ (108,492) $
14,267
$
5,271,515
Reissuance of treasury shares
—
237
—
—
23
—
260
Amortization of restricted stock
—
80
—
—
—
—
80
Cumulative effect of accounting
change
—
—
(785)
785
—
—
—
Other comprehensive income
—
—
200,041
—
—
—
200,041
Net income attributable to
American National
—
—
—
620,363
—
—
620,363
Cash dividends to common
stockholders (declared per share
of $3.28)
—
—
—
(88,243)
—
—
(88,243)
Contributions
—
—
—
—
—
388
388
Distributions
—
—
—
—
—
(20,055)
(20,055)
Net income attributable to
noncontrolling interest
—
—
—
—
—
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
(26,618)
26,618
—
—
—
—
—
Retirement of treasury shares
(3,945)
—
—
(104,524)
108,469
—
—
Amortization of restricted stock
—
54
—
—
—
—
54
Cumulative effect of accounting
change
—
—
—
(33,500)
—
—
(33,500)
Other comprehensive income
—
—
122,652
—
—
—
122,652
Net income attributable to
American National
—
—
—
467,505
—
—
467,505
Cash dividends to common
stockholders (declared per share
of $3.28)
—
—
—
(88,190)
—
—
(88,190)
Contributions
—
—
—
—
—
856
856
Distributions
—
—
—
—
—
(581)
(581)
Net income attributable to
noncontrolling interest
—
—
—
—
—
1,008
1,008
Balance at December 31, 2020
$
269
$
47,683
$
222,170
$
6,188,148
$
—
$
7,297
$
6,465,567
Amortization of restricted stock
—
79
—
—
—
—
79
Other comprehensive loss
—
—
(75,116)
—
—
—
(75,116)
Net income attributable to
American National
—
—
—
699,325
—
—
699,325
Cash dividends to common
stockholders (declared per share
of $3.28)
—
—
—
(88,190)
—
—
(88,190)
Contributions
—
—
—
—
—
386
386
Distributions
—
—
—
—
—
(649)
(649)
Net income attributable to
noncontrolling interest
—
—
—
—
—
657
657
Balance at December 31, 2021
$
269
$
47,762
$
147,054
$
6,799,283
$
—
$
7,691
$
7,002,059
See accompanying notes to the consolidated financial statements.
75
AMERICAN NATIONAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years ended December 31,
2021
2020
2019
OPERATING ACTIVITIES
Net income
$
699,982
$
468,513
$
631,777
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized investment gains
(64,628)
(35,660)
(37,719)
Other-than-temporary impairments
—
—
6,968
Increase (decrease) in investment credit loss
(28,778)
102,603
—
Accretion of premiums, discounts and loan origination fees
18,932
9,479
(4,394)
Net capitalized interest on policy loans and mortgage loans
(31,620)
(30,367)
(34,081)
Depreciation
49,983
52,551
53,160
Interest credited to policyholders’ account balances
448,654
321,042
511,999
Charges to policyholders’ account balances
(359,707)
(310,746)
(305,256)
Deferred federal income tax expense (benefit)
(241,966)
58,910
78,385
Income from equity method investments
(188,677)
(42,467)
(103,501)
Distributions from unconsolidated affiliates
150,024
82,045
111,848
Changes in:
Policyholder liabilities
271,202
210,397
145,396
Deferred policy acquisition costs
(79,632)
(5,678)
(12,749)
Reinsurance recoverables
(45,262)
(2,529)
15,645
Premiums due and other receivables
(30,590)
(10,048)
3,780
Prepaid reinsurance premiums
(4,985)
1,865
8,952
Accrued investment income
23,476
(15,533)
(12,227)
Current tax payable
311,554
339
18,893
Liability for retirement benefits
7,440
(13,765)
(8,454)
Fair value of option securities
(127,681)
(51,931)
(144,978)
Fair value of equity securities
(420,283)
(356,281)
(422,535)
Other, net
(6,651)
(100,276)
5,503
Net cash provided by operating activities
350,787
332,463
506,412
INVESTING ACTIVITIES
Proceeds from sale/maturity/prepayment of:
Held-to-maturity securities
1,274,488
1,615,811
864,481
Available-for-sale securities
1,224,242
977,051
500,724
Equity securities
2,467,165
117,866
294,798
Real estate and real estate partnerships
21,139
61,548
66,725
Mortgage loans
951,602
522,900
837,732
Policy loans
51,105
52,767
48,079
Other invested assets
239,767
148,101
120,455
Disposals of property and equipment
65
268
69
Distributions from real estate and real estate partnerships
120,019
6,866
61,075
Distributions from investment funds
131,186
91,178
37,926
Payment for the purchase/origination of:
Held-to-maturity securities
(944,443)
(498,149)
(1,468,253)
Available-for-sale securities
(2,244,974)
(1,473,808)
(528,495)
Equity securities
(93,663)
(131,238)
(49,016)
Real estate and real estate partnerships
(12,252)
(31,518)
(24,163)
Mortgage loans
(854,496)
(752,244)
(784,408)
Policy loans
(20,527)
(22,338)
(27,722)
Other invested assets
(164,426)
(98,371)
(109,074)
Additions to property and equipment
(37,150)
(39,863)
(21,402)
Contributions to real estate and real estate partnerships
(123,061)
(119,463)
(85,105)
Contributions to investment funds
(591,324)
(256,638)
(185,140)
Change in short-term investments
(812,353)
(603,058)
(190,511)
Change in collateral held for derivatives
20,604
(15,648)
107,133
Other, net
2,633
2,657
10,369
Net cash provided by (used in) investing activities
605,346
(445,323)
(523,723)
76
AMERICAN NATIONAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
Years ended December 31,
2021
2020
2019
FINANCING ACTIVITIES
Policyholders’ account deposits
2,229,554
1,232,520
1,770,646
Policyholders’ account withdrawals
(1,251,458)
(1,388,649)
(1,481,234)
Proceeds from Federal Home Loan Bank borrowings
—
500,000
—
Repayment of Federal Home Loan Bank borrowings
(250,000)
(250,000)
—
Change in notes payable
(4,455)
(4,294)
20,034
Dividends to stockholders
(88,190)
(88,190)
(88,243)
Payments to noncontrolling interest
(649)
(581)
(20,055)
Net cash provided by financing activities
634,802
806
201,148
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
1,590,935
(112,054)
183,837
Cash and cash equivalents at beginning of the period
339,947
452,001
268,164
Cash and cash equivalents at end of the period
$
1,930,882
$
339,947
$
452,001
Supplemental cash flow information:
Interest paid
$
387
$
805
$
—
Income taxes paid, net
89,600
50,800
86,440
See accompanying notes to the consolidated financial statements.
77
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Nature of Operations
American National Group, Inc. ("ANAT" or the "Company"), through its consolidated subsidiaries (collectively “American
National”) 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.
On August 6, 2021, ANAT entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Brookfield Asset
Management Reinsurance Partners Ltd. (“Brookfield Reinsurance”), an exempted company limited by shares existing under the
laws of Bermuda, and Freestone Merger Sub Inc., a Delaware corporation and an indirect wholly-owned subsidiary of
Brookfield Reinsurance (“Merger Sub”). On the terms and subject to the conditions of the Merger Agreement, at the closing,
Merger Sub will merge with and into the Company (the “Merger”), with the Company continuing as the surviving entity, which
will become an indirect, wholly-owned subsidiary of Brookfield Reinsurance. The Merger was unanimously approved by the
Company’s board of directors. The Merger has received the requisite stockholder approval required under Delaware law. The
only remaining significant closing condition pursuant to the Merger is the required regulatory approval from the insurance
authorities in Texas, Missouri, New York, Louisiana and California.
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, which include real estate partnerships and investment funds, are accounted for using the equity method of accounting.
Certain amounts in prior years have been reclassified to conform to current year presentation.
During the first quarter of 2021, we reclassified the Company's earnings from equity method investments in the condensed
consolidated statements of operations from "Equity in earnings of unconsolidated affiliates" to "Net investment income." For
the years ended December 31, 2020 and 2019, $42.5 million and $103.5 million were reclassified, with no impact to net
income. We also reclassified the related asset balances in the consolidated statements of financial position from "Investments in
unconsolidated affiliates" to "Real estate and real estate partnerships" and "Investment funds," with no impact to total assets.
Management believes these reclassifications result in increased transparency to the users of the financial statements as it relates
to the Company's invested assets and the performance of these investments that are tied to the primary operations of the
Company.
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 "(Increase) decrease in investment credit loss."
78
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
a 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 "Real estate and real estate partnerships” 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 “Net investment
income” 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.
Investment funds are primarily comprised of senior secured and second lien private loans that are secured by assets, revenues
and credit/balance sheet lending. We recognize our share of the fund’s earnings in net investment income on a one-quarter lag
under the equity method of accounting. Cash distributions are received from the earnings and from liquidation of underlying
investments. All investment funds are reevaluated quarterly by the fund manager and are audited annually by an independent
audit firm.
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.
Note 2 – Summary of Significant Accounting Policies and Practices — (Continued)
79
Note 2 – Summary of Significant Accounting Policies and Practices — (Continued)
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.
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 “(Increase) decrease 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 in the form of equity-indexed options 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 within other invested
assets 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).
80
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.
DAC on participating whole life products is amortized in proportion to estimated gross margins. Estimated gross margins are
equal to premiums, plus investment income, less benefits, less expenses not included in DAC, less the change in reserves, less
dividends.
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 fees, 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.
Note 2 – Summary of Significant Accounting Policies and Practices — (Continued)
81
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 4.0% of the life insurance in-force at December 31, 2021 and 16.5% of life
premiums in 2021.
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). Dividends to participating policyholders were $8.1 million, $7.0 million, and
$8.4 million for the years ended 2021, 2020, and 2019, respectively. Income of $18.3 million, $5.8 million, and $34.0 million
was allocated to participating policyholders for the years ended 2021, 2020, and 2019, 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.
Note 2 – Summary of Significant Accounting Policies and Practices — (Continued)
82
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.
Note 2 – Summary of Significant Accounting Policies and Practices — (Continued)
83
Note 3 – Recently Issued Accounting Pronouncements
Adoption of New Accounting Standards
Standard
Description
Effective Date and Method of
Adoption
Impact on Financial Statements
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.
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.
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.
Future Adoption of New Accounting Standards — The FASB issued the following accounting guidance relevant to American
National:
Standard
Description
Effective Date and Method of
Adoption
Impact on Financial Statements
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.
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.
Considerable progress in the
implementation of the new standard
has been made; however, we have not
yet estimated the impact the new
guidance will have on the consolidated
financial statements. Accounting and
actuarial policy elections have mostly
been determined, data flows are being
established, actuarial models are being
developed, and implementation of a
financial reporting disclosure system is
in progress.
ASU 2020-04, Reference Rate
Reform (Topic 848):
Facilitation of the Effects of
Reference Rate Reform on
Financial Reporting
The amendments in this guidance 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
guidance 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. The FASB is
currently deliberating an ASU
that would extend the sunset
date through December 31,
2024.
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's Consolidated Financial
Statements or Notes to the
Consolidated Financial Statements.
84
Note 4 – Investment in Securities
The cost or amortized cost and fair value of investments in securities are shown below (in thousands):
December 31, 2021
Cost or
Amortized Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Allowance for
Credit Losses
Fair Value
Fixed maturity, bonds held-to-maturity
U.S. treasury and government
$
12,284
$
—
$
(287)
$
—
$
11,997
U.S. states and political subdivisions
104,039
1,676
(1,906)
—
103,809
Foreign governments
14,369
137
(159)
—
14,347
Corporate debt securities
6,810,518
388,726
(21,213)
(11,467)
7,166,564
Residential mortgage-backed securities
48,491
2,684
(481)
(516)
50,178
Collateralized debt securities
112,409
1,677
(1,046)
(1,146)
111,894
Total bonds held-to-maturity
7,102,110
394,900
(25,092)
(13,129)
7,458,789
Fixed maturity, bonds available-for-sale
U.S. treasury and government
26,887
121
(255)
—
26,753
U.S. states and political subdivisions
1,028,331
51,124
(2,312)
(14)
1,077,129
Foreign governments
5,000
841
—
—
5,841
Corporate debt securities
6,809,610
268,964
(35,285)
(7,141)
7,036,148
Residential mortgage-backed securities
32,234
342
(341)
(268)
31,967
Collateralized debt securities
205,732
469
(904)
(2,887)
202,410
Total bonds available-for-sale
8,107,794
321,861
(39,097)
(10,310)
8,380,248
Total investments in fixed maturity
$
15,209,904
$
716,761
$
(64,189) $
(23,439) $
15,839,037
December 31, 2020
Cost or
Amortized Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Allowance for
Credit Losses
Fair Value
Fixed maturity, bonds held-to-maturity
U.S. treasury and government
$
7,733
$
11
$
—
$
—
$
7,744
U.S. states and political subdivisions
109,445
4,101
(11)
—
113,535
Foreign governments
3,851
374
—
—
4,225
Corporate debt securities
6,992,095
623,233
(9,117)
(7,475)
7,598,736
Residential mortgage-backed securities
114,579
5,065
(1,464)
(452)
117,728
Collateralized debt securities
139,709
6,864
(845)
(4,515)
141,213
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
28,766
418
(1)
—
29,183
U.S. states and political subdivisions
1,066,627
73,976
(145)
—
1,140,458
Foreign governments
14,995
1,393
—
—
16,388
Corporate debt securities
5,887,756
471,205
(17,207)
(7,275)
6,334,479
Residential mortgage-backed securities
20,544
964
(29)
(188)
21,291
Collateralized debt securities
54,454
1,040
(94)
(19)
55,381
Total bonds available-for-sale
7,073,142
548,996
(17,476)
(7,482)
7,597,180
Total investments in fixed maturity
$
14,440,554
$
1,188,644
$
(28,913) $
(19,924) $
15,580,361
85
The amortized cost and fair value, by contractual maturity, of fixed maturity securities are shown below (in thousands):
December 31, 2021
Bonds Held-to-Maturity
Bonds Available-for-Sale
Amortized Cost
Fair Value
Amortized Cost
Fair Value
Due in one year or less
$
853,273
$
865,103
$
574,056
$
580,191
Due after one year through five years
2,232,939
2,355,707
3,015,864
3,156,717
Due after five years through ten years
2,969,115
3,145,270
2,474,224
2,576,325
Due after ten years
1,046,783
1,092,709
2,043,650
2,067,015
Total
$
7,102,110
$
7,458,789
$
8,107,794
$
8,380,248
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):
Years ended December 31,
2021
2020
2019
Proceeds from sales of fixed maturity, bonds available-for-sale
$
55,558
$
164,372
$
45,017
Gross realized gains
59
624
250
Gross realized losses
—
(4,145)
(1,124)
Gains and losses are determined using specific identification of the securities sold. There was no transfer of bonds from held-to-
maturity to available-for-sale during 2021. During 2020, bonds below investment grade with a carrying value of $142.7 million,
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 $53.5 million and $47.7 million at December 31, 2021 and 2020, 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 $67.1 million and $111.0 million at December 31, 2021 and 2020, respectively.
The components of the change in net unrealized gains (losses) on debt securities are shown below (in thousands):
Years ended December 31,
2021
2020
2019
Bonds available-for-sale: change in unrealized gains (losses)
$
(248,756) $
242,105
$
335,473
Adjustments for
Deferred policy acquisition costs
58,281
(68,474)
(87,003)
Participating policyholders’ interest
8,275
(3,010)
(16,056)
Deferred federal income tax benefit (expense)
39,346
(36,306)
(48,258)
Change in net unrealized gains (losses) on debt securities, net of tax
$
(142,854) $
134,315
$
184,156
The components of the change in net gains on equity securities are shown below (in thousands):
Years ended December 31,
2021
2020
Unrealized gains on equity securities
$
38,771
$
349,999
Net gains on equity securities sold
381,512
6,282
Net gains on equity securities
$
420,283
$
356,281
Note 4 – Investment in Securities — (Continued)
86
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):
December 31, 2021
Less than 12 months
12 months or more
Total
Number of
Issues
Gross
Unrealized
Losses
Fair Value
Number of
Issues
Gross
Unrealized
Losses
Fair Value
Number of
Issues
Gross
Unrealized
Losses
Fair Value
Fixed maturity, bonds
available-for-sale
U.S. treasury and
government
10
$
(230) $
18,378
1
$
(25) $
2,844
11
$
(255) $
21,222
U.S. states and political
subdivisions
13
(618)
50,025
4
(1,694)
33,644
17
(2,312)
83,669
Corporate debt securities
184
(27,335) 1,596,811
32
(7,950)
146,597
216
(35,285) 1,743,408
Residential mortgage-
backed securities
2
(339)
13,193
2
(2)
496
4
(341)
13,689
Collateralized debt securities
26
(885)
191,342
3
(19)
4,447
29
(904)
195,789
Total
235
$ (29,407) $ 1,869,749
42
$
(9,690) $ 188,028
277
$ (39,097) $ 2,057,777
December 31, 2020
Less than 12 months
12 months or more
Total
Number of
Issues
Gross
Unrealized
Losses
Fair Value
Number of
Issues
Gross
Unrealized
Losses
Fair Value
Number of
Issues
Gross
Unrealized
Losses
Fair Value
Fixed maturity, bonds
available-for-sale
U.S. treasury and
government
1
$
(1) $
2,868
—
$
—
$
—
1
$
(1) $
2,868
U.S. states and political
subdivisions
2
(145)
10,205
—
—
—
2
(145)
10,205
Corporate debt securities
43
(8,507)
270,249
8
(8,700)
13,270
51
(17,207)
283,519
Residential mortgage-
backed securities
1
(21)
1,391
3
(8)
593
4
(29)
1,984
Collateralized debt securities
3
(93)
12,752
1
(1)
158
4
(94)
12,910
Total
50
$
(8,767) $ 297,465
12
$
(8,709) $
14,021
62
$ (17,476) $ 311,486
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. Based on this evaluation, unrealized losses on bonds
available-for-sale where an allowance for credit loss was not recorded were concentrated in the Company's fixed maturity
securities within the finance and investment sector.
Equity securities by market sector distribution are shown below, based on fair value:
December 31,
2021
2020
Consumer goods
9.6 %
19.3 %
Energy and utilities
6.4
5.2
Finance
35.6
21.6
Healthcare
9.0
15.0
Industrials
3.5
7.4
Information technology
15.1
27.1
Other
20.8
4.4
Total
100.0 %
100.0 %
Note 4 – Investment in Securities — (Continued)
87
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 available-for-sale bonds 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 are 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 (increase) decrease in investment credit loss.
No accrued interest receivables were written off as of December 31, 2021.
The rollforward of the allowance for credit losses for bonds held-to-maturity is shown below (in thousands):
Corporate Debt
Securities
Collateralized Debt
Securities
Residential Mortgage-
Backed Securities
Total
Balance at January 1, 2021
$
(7,475)
$
(4,515) $
(452) $
(12,442)
Purchases
(1,412)
(168)
—
(1,580)
Disposition
441
551
—
992
Provision
(3,021)
2,986
(64)
(99)
Balance at December 31, 2021
$
(11,467)
$
(1,146) $
(516) $
(13,129)
Foreign
Governments
Corporate Debt
Securities
Collateralized
Debt Securities
Residential
Mortgage-Backed
Securities
Total
Balance at January 1, 2020
$
4
$
(18,563)
$
(2,968) $
(137) $
(21,664)
Purchases
—
(783)
(329)
134
(978)
Disposition
—
9,501
800
—
10,301
Provision
(4)
2,370
(2,018)
(449)
(101)
Balance at December 31, 2020
$
—
$
(7,475)
$
(4,515) $
(452) $
(12,442)
Note 4 – Investment in Securities — (Continued)
88
The rollforward of the allowance for credit losses for available-for-sale debt securities is shown below (in thousands):
U.S. Treasury
and
Government
U.S. State and
Political
Subdivisions
Corporate
Debt
Securities
Collateralized
Debt
Securities
Residential
Mortgage-
Backed
Securities
Total
Beginning balance at January 1, 2021
$
—
$
—
$
(7,275) $
(19) $
(188)
$
(7,482)
Increase in allowance related to purchases
—
—
(3,158)
(538)
—
(3,696)
Reduction in allowance related to disposition
—
—
4,117
182
—
4,299
Allowance on securities that had an
allowance recorded in a previous period
3
12
3,680
(1,507)
(29)
2,159
Allowance on securities where credit losses
were not previously recorded
(3)
(26)
(4,505)
(1,005)
(51)
(5,590)
Balance at December 31, 2021
$
—
$
(14) $
(7,141) $
(2,887) $
(268)
$
(10,310)
Corporate Debt
Securities
Collateralized Debt
Securities
Residential Mortgage-
Backed Securities
Total
Beginning balance at January 1, 2020
$
—
$
—
$
—
$
—
Increase in allowance related to purchases
(217)
—
—
(217)
Reduction in allowance related to disposition
63
6
3
72
Allowance on securities that had an
allowance recorded in a previous period
(1,074)
(25)
(191)
(1,290)
Allowance on securities where credit losses
were not previously recorded
(6,047)
—
—
(6,047)
Balance at December 31, 2020
$
(7,275) $
(19) $
(188)
$
(7,482)
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. Information is also gathered regarding the asset performance of held-to-maturity bonds. 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 mitigated through the diversification of 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):
December 31, 2021
Amortized cost of bonds held-to-maturity by credit rating
Fixed maturity, bonds held-to-maturity
AAA
AA
A
BBB
BB and below
Total
U.S. treasury and government
$
—
$
12,284
$
—
$
—
$
—
$
12,284
U.S. state and political subdivisions
14,364
49,327
9,188
25,770
5,390
104,039
Foreign governments
—
13,355
1,014
—
—
14,369
Corporate debt securities
31,176
400,666
3,212,688
3,061,595
104,393
6,810,518
Collateralized debt securities
—
—
66,715
40,858
4,836
112,409
Residential mortgage-backed securities
—
47,304
—
—
1,187
48,491
Total
$
45,540
$
522,936
$
3,289,605
$
3,128,223
$
115,806
$
7,102,110
Note 4 – Investment in Securities — (Continued)
89
December 31, 2020
Amortized cost of bonds held-to-maturity by credit rating
Fixed maturity, bonds held-to-maturity
AAA
AA
A
BBB
BB and below
Total
U.S. treasury and government
$
—
$
7,733
$
—
$
—
$
—
$
7,733
U.S. state and political subdivisions
25,831
43,964
34,893
—
4,757
109,445
Foreign governments
—
2,820
1,031
—
—
3,851
Corporate debt securities
1,956
262,830
2,976,571
3,647,496
103,242
6,992,095
Collateralized debt securities
—
—
107,795
31,914
—
139,709
Residential mortgage-backed securities
—
112,995
—
—
1,584
114,579
Total
$
27,787
$
430,342
$
3,120,290
$
3,679,410
$
109,583
$
7,367,412
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):
December 31,
2021
2020
Amount
Percentage
Amount
Percentage
East North Central
$
747,661
14.4 % $
783,614
14.9 %
East South Central
117,574
2.3
146,052
2.8
Mountain
1,250,562
24.0
1,284,555
24.5
Pacific
878,820
16.9
806,426
15.4
South Atlantic
627,295
12.0
619,405
11.8
West South Central
1,261,659
24.3
1,313,848
25.1
Other
315,763
6.1
288,631
5.5
Total
$
5,199,334
100.0 % $
5,242,531
100.0 %
As of December 31, 2021 and 2020, loans in foreclosure and loans foreclosed are as follows (in thousands, except number of
loans):
December 31,
2021
2020
Foreclosure and foreclosed
Number of
Loans
Recorded
Investment
Number of
Loans
Recorded
Investment
In foreclosure
—
$
—
1
$
5,168
Filed for bankruptcy*
—
—
1
9,230
Total in foreclosure
—
$
—
2
$
14,398
Foreclosed
1
$
5,168
2
$
8,603
*
Borrower filed for bankruptcy after foreclosure proceedings had begun.
Note 4 – Investment in Securities — (Continued)
90
The age analysis of past due loans is shown below (in thousands, except percentages):
30-59 Days
Past Due
60-89 Days
Past Due
More Than
90 Days
Past Due
Total
December 31, 2021
Total
Current
Amount
Percentage
Apartment
$
—
$
—
$
—
$
—
$
522,595
$
522,595
9.9 %
Hotel
—
—
—
—
962,345
962,345
18.2
Industrial
—
—
—
—
912,645
912,645
17.2
Office
—
—
—
—
1,347,384
1,347,384
25.4
Parking
—
—
—
—
392,310
392,310
7.4
Retail
4,872
—
—
4,872
838,163
843,035
15.9
Storage
—
—
—
—
163,685
163,685
3.1
Other
—
—
—
—
152,414
152,414
2.9
Total
$
4,872
$
—
$
—
$
4,872
$
5,291,541
$
5,296,413
100.0 %
Allowance for credit losses
(97,079)
Total, net of allowance
$
5,199,334
December 31, 2020
Apartment
$
—
$
—
$
—
$
—
$
557,159
$
557,159
10.5 %
Hotel
30,315
30,158
—
60,473
853,522
913,995
17.0
Industrial
14,930
—
5,168
20,098
836,105
856,203
15.9
Office
24,804
—
9,230
34,034
1,522,197
1,556,231
29.0
Parking
48,825
29,355
—
78,180
286,107
364,287
6.8
Retail
4,991
—
25,779
30,770
760,907
791,677
14.7
Storage
—
—
—
—
165,561
165,561
3.1
Other
—
—
—
—
163,121
163,121
3.0
Total
$
123,865
$
59,513
$
40,177
$
223,555
$
5,144,679
$
5,368,234
100.0 %
Allowance for credit losses
(125,703)
Total, net of allowance
$
5,242,531
As a result of the economic impact associated with COVID-19, American National modified 93 loans with a total balance of
$1.6 billion during 2020. These modifications were in the form of forbearance of principal and interest payments for up to six
months, extensions of maturity dates, and/or provision for interest only payments. The modifications were primarily related to
our loans to hotels, retail and parking operations. Due to ongoing economic stress brought on by the pandemic, additional
modifications for 33 of these loans with a total balance of $725.7 million were made during 2021. These additional
modifications extended the forbearance of principal and interest payments and interest only provisions with a requirement for
the payment of at least 20% of the total interest due during the extended modification period. The modified loans had an
aggregate deferred interest of $5.6 million as of December 31, 2021.
There were no unamortized purchase discounts as of December 31, 2021 and 2020. Total mortgage loans were net of
unamortized origination fees of $27.5 million and $26.1 million at December 31, 2021 and 2020, respectively. No unearned
income is included in these amounts.
Note 5 – Mortgage Loans — (Continued)
91
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 could
change based on the expected recovery of the loan, which is evaluated quarterly. Loan modifications executed due to
COVID-19 resulting in a total delay of more than six months were evaluated for troubled debt restructuring status under current
GAAP guidance.
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.
Loans determined to be troubled debt restructuring during the periods presented are as follows (in thousands, except number of
loans):
Years ended December 31,
2021
2020
Number of Loans
Recorded
Investment
Pre-Modification
Recorded
Investment
Post-Modification
Number of Loans
Recorded
Investment
Pre-Modification
Recorded
Investment
Post-Modification
Office
2
$
37,985
$
37,985
7
$
76,220
$
76,220
Retail
3
32,325
32,325
6
79,943
79,943
Industrial
—
—
—
2
11,565
11,565
Hotel
—
—
—
34
811,131
811,131
Parking
1
9,257
9,257
16
248,465
248,465
Storage
1
8,890
8,890
—
—
—
Apartment
—
—
—
2
40,097
40,097
Total
7
$
88,457
$
88,457
67
$
1,267,421
$
1,267,421
For the year ended December 31, 2021, a total of 72 loans with a recorded investment of $1.3 billion were designated as a
troubled debt restructuring. There are no commitments to lend additional funds to debtors whose loans have been modified in a
troubled debt restructuring during the periods presented. The decrease in loans determined to be a troubled debt restructuring in
2021 is primarily attributable to improved economic conditions after lifting of COVID-19 related restrictions.
Note 5 – Mortgage Loans — (Continued)
92
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 credit losses is based upon the current expected credit loss model. 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):
Commercial
Mortgage Loans
Balance at January 1, 2021
$
(125,703)
Provision
28,624
Balance at December 31, 2021
$
(97,079)
Commercial
Mortgage Loans
Balance at January 1, 2020
$
(19,160)
Cumulative adjustment at January 1, 2020
(11,216)
Provision
(95,327)
Balance at December 31, 2020
$
(125,703)
The change in allowance in 2021 was primarily driven by the favorable response of the hospitality and retail industries to re-
opening of the economy and resulting increases in travel and brick-and-mortar shopping.
Note 5 – Mortgage Loans — (Continued)
93
The asset and allowance balances for credit losses for mortgage loans by property-type are shown below (in thousands):
December 31,
2021
2020
Asset Balance
Allowance
Asset Balance
Allowance
Apartment
$
522,595
$
(1,366) $
557,159
$
(8,845)
Hotel
962,345
(39,272)
913,995
(45,596)
Industrial
912,645
(4,051)
856,203
(2,516)
Office
1,347,384
(26,988)
1,556,231
(33,373)
Parking
392,310
(16,037)
364,287
(18,178)
Retail
843,035
(6,685)
791,677
(10,856)
Storage
163,685
(459)
165,561
(2,509)
Other
152,414
(2,221)
163,121
(3,830)
Total
$
5,296,413
$
(97,079) $
5,368,234
$
(125,703)
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 property-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):
Amortized Cost Basis by Origination Year
2021
2020
2019
2018
2017
Prior
Total
Apartment
$
50,747
$
79,673
$
210,011
$
22,166
$
122,472
$
37,526
$
522,595
Hotel
32,312
35,041
94,618
203,151
218,129
379,094
962,345
Industrial
180,229
265,167
135,810
99,716
38,170
193,553
912,645
Office
4,812
24,919
62,260
162,412
314,931
778,050
1,347,384
Parking
31,618
28,651
13,783
26,676
8,446
283,136
392,310
Retail
115,290
69,329
38,761
74,464
74,198
470,993
843,035
Storage
23,184
28,936
48,401
37,156
17,095
8,913
163,685
Other
54,114
—
21,662
29,884
1,650
45,104
152,414
Total
$
492,306
$
531,716
$
625,306
$
655,625
$
795,091
$ 2,196,369
$ 5,296,413
Allowance for credit losses
(97,079)
Total, net of allowance
$ 5,199,334
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, 2021, no commercial loans were past due over 90 days and 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, 2021, we have included a $7.7 million liability in
other liabilities on the consolidated statements of financial position based on unfunded loan commitments of $1.0 billion.
Note 5 – Mortgage Loans — (Continued)
94
Note 6 – Real Estate and Other Investments
The carrying amount of real estate and real estate partnerships, net of accumulated depreciation, by property-type and
geographic distribution are as follows (in thousands, except percentages):
December 31, 2021
December 31, 2020
Amount
Percentage
Amount
Percentage
Hotel
$
56,198
6.1 %
$
67,857
7.1 %
Industrial
119,698
12.9
132,757
13.8
Land
39,760
4.3
51,220
5.3
Office
277,034
29.8
299,500
31.2
Retail
269,941
29.1
268,588
28.0
Apartments
153,871
16.6
120,847
12.6
Other
11,910
1.2
19,803
2.0
Total
$
928,412
100.0 %
$
960,572
100.0 %
December 31, 2021
December 31, 2020
Amount
Percentage
Amount
Percentage
East North Central
$
122,148
13.2 % $
81,310
8.5 %
East South Central
59,122
6.4
65,302
6.8
Mountain
127,542
13.7
133,233
13.9
Pacific
112,714
12.1
127,421
13.3
South Atlantic
67,573
7.3
97,801
10.1
West South Central
428,272
46.1
434,722
45.3
Other
11,041
1.2
20,783
2.1
Total
$
928,412
100.0 % $
960,572
100.0 %
As of December 31, 2021, no real estate partnerships met the criteria as held-for-sale.
American National regularly invests in real estate partnerships and frequently participates in the design with the sponsor, but in
most cases, its involvement is limited to financing. Through analysis performed by American National, some of these
partnerships 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. 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 2021 or 2020.
The assets and liabilities relating to the VIEs included in the consolidated financial statements are as follows (in thousands):
December 31,
2021
2020
Real estate and real estate partnerships
$
126,708
$
131,405
Investment funds
100,374
—
Short-term investments
500
500
Cash and cash equivalents
10,341
8,070
Premiums due and other receivables
3,201
3,484
Other assets
12,992
13,796
Total assets of consolidated VIEs
$
254,116
$
157,255
Notes payable
$
149,248
$
153,703
Other liabilities
8,250
8,490
Total liabilities of consolidated VIEs
$
157,498
$
162,193
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 at December 31, 2021 and 2020.
95
The total long-term notes payable of the consolidated VIE’s consists of the following (in thousands):
December 31,
Interest rate
Maturity
2021
2020
LIBOR
2023
$
10,819
$
10,819
4% fixed
2022
75,293
78,565
4.18% fixed
2024
63,136
64,319
Total
$
149,248
$
153,703
For other real estate partnership VIEs, American National is not the primary beneficiary as major decisions impacting the
economic activities of the VIE require consent from both partners. The carrying amount and maximum exposure to loss relating
to these unconsolidated VIEs follows (in thousands):
December 31,
2021
2020
Carrying
Amount
Maximum
Exposure to Loss
Carrying
Amount
Maximum
Exposure to Loss
Real estate and real estate partnerships
$
332,351
$
332,351
$
368,588
$
368,588
Mortgage loans on real estate
690,779
690,779
722,917
722,917
Accrued investment income
2,878
2,878
4,980
4,980
American National’s net investment income of real estate partnerships is the Company’s share of operating earnings and
realized gains from investments in real estate joint ventures and other limited partnership interests ("joint ventures") using the
equity method of accounting. In 2021 and 2020 certain joint ventures took advantage of market opportunities to generate
realized gains on the sale of real estate held or developed by the ventures.
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, American National’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 investment funds, real estate partnerships, and other partnerships, of which substantially all
are limited liability companies ("LLCs") or limited partnerships, consists of the following (in thousands):
December 31,
2021
2020
Investment funds
$
947,856
$
458,776
Real estate partnerships
439,341
443,279
Other
13,907
18,359
Total investments in partnerships
$
1,401,104
$
920,414
Years ended December 31,
2021
2020
2019
Income from operations
$
103,826
$
14,958
$
7,407
Net gain on sales
84,851
27,509
96,094
Net investment income from partnerships
$
188,677
$
42,467
$
103,501
Note 6 – Real Estate and Other Investments — (Continued)
96
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,
Derivatives Not Designated as
Hedging Instruments
Location in the Consolidated
Statements of Financial Position
2021
2020
Number of
Instruments
Notional
Amounts
Estimated
Fair Value
Number of
Instruments
Notional
Amounts
Estimated
Fair Value
Equity-indexed options
Other invested assets
473
$ 3,523,000
$ 259,383
455
$ 2,867,600
$ 242,201
Equity-indexed embedded derivative
Policyholders’ account balances
125,523
3,419,992
832,579
112,103
2,748,540
705,013
Gains (Losses) Recognized in Income on Derivatives
Derivatives Not Designated as
Hedging Instruments
Location in the Consolidated Statements of Operations
Years ended December 31,
2021
2020
2019
Equity-indexed options
Net investment income
$
127,681
$
51,931
$
144,980
Equity-indexed embedded derivative
Interest credited to policyholders’ account balances
(107,162)
(22,977)
(162,011)
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):
December 31, 2021
Counterparty
Moody/S&P
Rating
Options Fair
Value
Collateral
Held in Cash
Collateral
Held in
Invested
Assets
Total
Collateral
Held
Collateral
Amounts used
to Offset
Exposure
Excess
Collateral
Exposure Net
of Collateral
Bank of America
A2/A-
$
6,289
$
5,950
$
—
$
5,950
$
5,950
$
—
$
339
Barclays
Baa2/BBB
45,410
28,173
18,100
46,273
45,410
863
—
Credit Suisse
Baa1/BBB+
34,411
35,300
—
35,300
34,411
889
—
ING
Baa1/A-
13,280
3,030
10,300
13,330
13,280
50
—
Morgan Stanley
A1/BBB+
61,817
57,716
5,700
63,416
61,817
1,599
—
NATIXIS*
A1/A
26,490
26,660
—
26,660
26,490
170
—
Truist
A3/A-
39,589
30,010
11,000
41,010
39,530
1,480
59
Wells Fargo
A1/BBB+
32,097
22,320
9,900
32,220
32,065
155
32
Total
$
259,383
$
209,159
$
55,000
$
264,159
$
258,953
$
5,206
$
430
December 31, 2020
Counterparty
Moody/S&P
Rating
Options Fair
Value
Collateral
Held in Cash
Collateral
Held in
Invested
Assets
Total
Collateral
Held
Collateral
Amounts used
to Offset
Exposure
Excess
Collateral
Exposure Net
of Collateral
Barclays
Baa2/BBB
$
51,489
$
31,513
$
18,100
$
49,613
$
49,613
$
—
$
1,876
Credit Suisse
Baa1/BBB+
9,447
8,680
—
8,680
8,680
—
767
Goldman-Sachs
A3/BBB+
1,227
1,170
—
1,170
1,170
—
57
ING
Baa1/A-
20,606
10,450
10,300
20,750
20,606
144
—
Morgan Stanley
A2/BBB+
37,406
30,616
5,700
36,316
36,316
—
1,090
NATIXIS*
A1/A+
30,567
30,720
—
30,720
30,567
153
—
Truist
A3/A-
52,127
43,960
11,000
54,960
52,127
2,833
—
Wells Fargo
A2/BBB+
39,332
29,370
9,900
39,270
39,270
—
62
Total
$
242,201
$
186,479
$
55,000
$
241,479
$
238,349
$
3,130
$
3,852
*
Collateral is prohibited from being held in invested assets.
97
Note 8 – Net Investment Income and Net Realized Investment Gains (Losses)
Net investment income is shown below (in thousands):
Years ended December 31,
2021
2020
2019
Bonds
$
523,422
$
560,811
$
602,054
Equity securities
28,102
31,325
33,502
Mortgage loans
260,721
251,414
254,720
Real estate and real estate partnerships
99,483
28,810
106,446
Investment funds
99,007
19,454
5,904
Equity-indexed options
127,681
51,931
144,980
Other invested assets
33,238
32,407
33,301
Total
$
1,171,654
$
976,152
$
1,180,907
Net investment income from equity method investments, comprised of real estate partnerships and investment funds, was
$188.7 million, $42.5 million, and $103.5 million for the twelve months ended December 31, 2021, 2020, and 2019
respectively.
Net realized investment gains (losses) are shown below (in thousands):
Years ended December 31,
2021
2020
2019
Bonds
$
54,941
$
23,318
$
16,361
Mortgage loans
(768)
—
(2,412)
Real estate and real estate partnerships
10,240
12,401
25,555
Other invested assets
215
(59)
(1,785)
Total
$
64,628
$
35,660
$
37,719
Net realized investment gains (losses) by transaction type are shown below (in thousands):
Years ended December 31,
2021
2020
2019
Sales
$
16,045
$
10,249
$
27,161
Calls and maturities
55,526
26,948
17,372
Paydowns
385
(108)
(156)
Impairments
(5,913)
(1,276)
(6,505)
Loss allowance
—
—
21
Other
(1,415)
(153)
(174)
Total
$
64,628
$
35,660
$
37,719
Other-than-temporary impairment losses are shown below (in thousands):
Years ended December 31,
2021
2020
2019
Bonds*
$
—
$
—
$
(6,968)
*
Effective January 1, 2020, the Company adopted ASU No. 2016-13. Adoption of this guidance resulted in an allowance for credit losses primarily on our
commercial mortgage loans and related off-balance sheet unfunded loan commitments, held-to-maturity bonds and reinsurance recoverables. The results
for 2019 have not been restated to conform to the current presentation.
98
Note 9 – Fair Value of Financial Instruments
The carrying amount and fair value of financial instruments are shown below (in thousands):
December 31,
2021
2020
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
Financial assets
Fixed maturity, bonds held-to-maturity
$
7,088,981
$
7,458,789
$
7,354,970
$
7,983,181
Fixed maturity, bonds available-for-sale
8,380,248
8,380,248
7,597,180
7,597,180
Equity securities
135,433
135,433
2,070,766
2,070,766
Equity-indexed options
259,383
259,383
242,201
242,201
Mortgage loans on real estate, net of allowance
5,199,334
5,271,950
5,242,531
5,451,152
Policy loans
365,208
365,208
373,014
373,014
Short-term investments
1,840,732
1,840,732
1,028,379
1,028,379
Separate account assets ($1,278,380 and $1,153,702 included in fair value hierarchy)
1,320,703
1,320,703
1,185,467
1,185,467
Separately managed accounts
99,884
99,884
64,424
64,424
Total financial assets
$ 24,689,906
$ 25,132,330
$ 25,158,932
$ 25,995,764
Financial liabilities
Investment contracts
$ 10,947,958
$ 10,947,958
$ 10,101,764
$ 10,101,764
Embedded derivative liability for equity-indexed contracts
832,579
832,579
705,013
705,013
Notes payable
149,248
149,248
153,703
153,703
Federal Home Loan Bank advance
—
—
250,000
250,227
Separate account liabilities ($1,278,380 and $1,153,702 included in fair value
hierarchy)
1,320,703
1,320,703
1,185,467
1,185,467
Total financial liabilities
$ 13,250,488
$ 13,250,488
$ 12,395,947
$ 12,396,174
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
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.
Level 3
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.
99
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 fair value for fixed maturity securities that are disclosed as Level 1 measurements are based on unadjusted
quoted market prices for identical assets that are readily available in an active market. 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, pricing source 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 pricing source (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 pricing source, 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.
Note 9 – Fair Value of Financial Instruments — (Continued)
100
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, investment funds, 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, 2021, 2020, and
2019.
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, 2021 and 2020, the one-year implied volatility used to estimate embedded derivative
value was 19.6% and 17.6%, 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
Range
December 31,
December 31,
2021
2020
Unobservable Input
2021
2020
Security type
Embedded derivative
Indexed Annuities
$
799.3
$
670.8
Lapse Rate
1-50%
1-50%
Mortality Multiplier
100%
100%
Equity Volatility
12-64%
16-69%
Indexed Life
33.3
34.2
Equity Volatility
12-64%
16-69%
Note 9 – Fair Value of Financial Instruments — (Continued)
101
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, 2021
Total Fair Value
Level 1
Level 2
Level 3
Financial assets
Fixed maturity, bonds available-for-sale
U.S. treasury and government
$
26,753
$
26,753
$
—
$
—
U.S. states and political subdivisions
1,077,129
—
1,077,129
—
Foreign governments
5,841
—
5,841
—
Corporate debt securities
7,036,148
—
6,789,991
246,157
Residential mortgage-backed securities
31,967
—
31,967
—
Collateralized debt securities
202,410
—
202,410
—
Total bonds available-for-sale
8,380,248
26,753
8,107,338
246,157
Equity securities
Common stock
94,895
93,315
—
1,580
Preferred stock
40,538
7,570
—
32,968
Total equity securities
135,433
100,885
—
34,548
Options
259,383
—
—
259,383
Short-term investments
1,840,732
—
1,840,732
—
Separate account assets
1,278,380
381,414
896,966
—
Separately managed accounts
99,884
—
—
99,884
Total financial assets
$
11,994,060
$
509,052
$
10,845,036
$
639,972
Financial liabilities
Embedded derivative for equity-indexed contracts
$
832,579
$
—
$
—
$
832,579
Notes payable
149,248
—
—
149,248
Separate account liabilities
1,278,380
381,414
896,966
—
Total financial liabilities
$
2,260,207
$
381,414
$
896,966
$
981,827
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
1,140,458
—
1,140,458
—
Foreign governments
16,388
—
16,388
—
Corporate debt securities
6,334,479
—
6,224,042
110,437
Residential mortgage-backed securities
21,291
—
21,291
—
Collateralized debt securities
55,381
—
55,381
—
Total bonds available-for-sale
7,597,180
—
7,486,743
110,437
Equity securities
Common stock
2,055,229
2,054,789
—
440
Preferred stock
15,537
14,909
—
628
Total equity securities
2,070,766
2,069,698
—
1,068
Options
242,201
—
—
242,201
Short-term investments
1,028,379
—
1,028,379
—
Separate account assets
1,153,702
309,425
844,277
—
Separately managed accounts
64,424
—
—
64,424
Total financial assets
$
12,156,652
$
2,379,123
$
9,359,399
$
418,130
Financial liabilities
Embedded derivative for equity-indexed contracts
$
705,013
$
—
$
—
$
705,013
Notes payable
153,703
—
—
153,703
Separate account liabilities
1,153,702
309,425
844,277
—
Total financial liabilities
$
2,012,418
$
309,425
$
844,277
$
858,716
Note 9 – Fair Value of Financial Instruments — (Continued)
102
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):
Level 3
Assets
Liability
Investment
Securities
Equity-Indexed
Options
Separately
Managed Accounts
Embedded
Derivative
Balance at December 31, 2018
$
4,346
$
148,006
$
16,532
$
596,075
Net gain for derivatives included in net investment income
—
144,980
—
—
Net change included in interest credited
—
—
—
162,011
Net fair value change included in other comprehensive income
—
—
60
—
Purchases, sales and settlements or maturities
Purchases
45,307
75,163
33,911
—
Sales
(113)
(13,396)
—
—
Settlements or maturities
—
(98,748)
—
—
Premiums less benefits
—
—
—
(26,534)
Gross transfers out of Level 3
(4,233)
—
—
—
Balance at December 31, 2019
45,307
256,005
50,503
731,552
Net gain for derivatives included in net investment income
—
51,931
—
—
Net change included in interest credited
—
—
—
22,977
Net fair value change included in other comprehensive income
80
—
(312)
—
Purchases, sales and settlements or maturities
Purchases
191,960
80,705
25,343
—
Sales
(70,842)
(8,063)
(11,110)
—
Settlements or maturities
—
(138,377)
—
—
Premiums less benefits
—
—
—
(49,516)
Gross transfers out of Level 3
(55,000)
—
—
—
Balance at December 31, 2020
111,505
242,201
64,424
705,013
Net gain for derivatives included in net investment income
—
127,681
—
—
Net change included in interest credited
—
—
—
107,162
Net fair value change included in other comprehensive income
3,269
—
1,444
—
Purchases, sales and settlements or maturities
Purchases
225,063
97,712
56,712
—
Sales
(58,593)
—
(22,696)
—
Settlements or maturities
—
(208,211)
—
—
Premiums less benefits
—
—
—
20,404
Gross transfers into Level 3
1,479
—
—
—
Gross transfers out of Level 3
(2,018)
—
—
—
Balance at December 31, 2021
$
280,705
$
259,383
$
99,884
$
832,579
Within the net gain for derivatives included in net investment income were unrealized gains of $4.4 million, unrealized losses of
$11.2 million, and unrealized gains of $113.3 million relating to assets still held at December 31, 2021, 2020, and 2019,
respectively.
The associated embedded derivative decrease during 2020 is largely driven by classification changes to declared funds within
indexed products and by changes to the embedded derivative discount rate.
There was $26.8 million transferred between Level 1 and Level 2 fair value hierarchies during the periods presented for U.S.
treasury and government bonds available-for-sale. It was determined these securities will be disclosed as Level 1 since
valuations are based on quoted prices readily available in an active market. American National’s valuation of financial
instruments categorized as Level 3 in the fair value hierarchy are based on valuation techniques that use significant inputs that
are unobservable or had a decline in market activity that obscured observability. The indicators considered in determining
whether a significant decrease in the volume and level of activity for a specific asset has occurred include the level of new
issuances in the primary market, trading volume in the secondary market, the level of credit spreads over historical levels,
applicable bid-ask spreads, and price consensus among market participants and other pricing sources. The transfers into Level 3
during 2021 were the result of securities not being priced by the third-party service at the end of the period.
Note 9 – Fair Value of Financial Instruments — (Continued)
103
Equity-Index Options—Certain over the counter equity options are valued using models that are widely accepted in the
financial services industry. These are categorized as Level 3 as a result of the significance of non-market observable inputs such
as volatility and forward price/dividend assumptions. Other primary inputs include interest rate assumptions (risk-free rate
assumptions), and underlying equity quoted index prices for identical or similar assets in markets that exhibit less liquidity
relative to those markets.
The following summarizes the fair value (in thousands), valuation techniques and unobservable inputs of the Level 3 fair value
measurements:
Fair Value at
December 31, 2021
Valuation Technique
Unobservable Input
Range/Weighted
Average
Security type
Investment securities
Common stock
$
1,580
Guideline public company method (1)
Recurring Revenue Multiple (2)
8x
Option pricing method
LTM EBITDA Multiple (3)
7.6x
CVM
NCY EBITDA Multiple (5)
4.8x
Preferred stock
32,968
Guideline public company method (1)
LTM Revenue Multiple (4)
6.3x
Priced at cost
LTM EBITDA Multiple (3)
4.2x
NCY EBITDA Multiple (5)
4.8x
Term (Years)
1.80
Volatility
60.00%
Bonds
246,157
Priced at cost
Coupon rate
2.63-8.00%
Separately managed accounts
99,884
Discounted cash flows (yield analysis)
Discount rate
4.80-16.40%
CVM
NCY EBITDA Multiple (5)
4.8x
Market transaction
N/A
N/A
Fair Value at
December 31, 2020
Valuation Technique
Unobservable Input
Range/Weighted
Average
Security type
Investment securities
Common stock
$
440
Option pricing method
Term (years)
2.83
Volatility
45.00%
Market transaction
N/A
N/A
Preferred stock
628
Option pricing method
Term (years)
2.83
Volatility
45.00%
Market transaction
N/A
N/A
Bonds
110,437
Priced at cost
Coupon rate
2.72-8.00%
Separately managed accounts
64,424
Discounted cash flows (yield analysis)
Discount rate
7.25-14.71%
Market transaction
N/A
N/A
(1)
Guideline public company method uses price multiples from data on comparable public companies. Multiples are then adjusted to account for differences
between what is being valued and comparable firms.
(2)
Recurring Revenue Multiple for the most relevant period of time, measures the value of the equity or a business relative to the revenues it generates.
(3)
Last Twelve Months (“LTM”) EBITDA Multiple valuation metric shows earnings before interest, taxes, depreciation and amortization adjustments for the
past 12 month period.
(4)
LTM Revenue Multiple valuation metric shows revenue for the past 12 month period.
(5)
Next Calendar Year (“NCY”) EBITDA Multiple is the forecasted EBITDA expected to be achieved over the next calendar year.
Investment Securities—These bonds use cost as the best estimate of fair value. They are valued at cost because the value
would not change unless there is a fundamental deterioration in the portfolio. There is no observable market valuation price or
third-party sources that provide market values for these securities since they are not publicly traded. The common and
preferred stock are valued at market transaction, option pricing method, or guideline public company method based on the best
available information.
Separately Managed Accounts—The separately managed account manager uses the mid-point of a range from a third-party to
price these securities. Discounted cash flows (yield analysis) and market transactions approach are used in the valuation. They
use discount rate which is considered an unobservable input.
Note 9 – Fair Value of Financial Instruments — (Continued)
104
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 was carried at outstanding principal balance.
The fair value of the advance was obtained from the Federal Home Loan Bank of Dallas. The Company does not have
outstanding loans from FHLB as of December 31, 2021.
Note 9 – Fair Value of Financial Instruments — (Continued)
105
The carrying value and estimated fair value of financial instruments not recorded at fair value on a recurring basis are shown
below (in thousands):
December 31, 2021
FV Hierarchy Level
Carrying Amount
Fair Value
Financial assets
Fixed maturity, bonds held-to-maturity
U.S. treasury and government
Level 1
$
12,284
$
11,997
U.S. states and political subdivisions
Level 2
104,039
103,809
Foreign governments
Level 2
14,369
14,347
Corporate debt securities
Level 2
6,799,051
7,166,564
Residential mortgage-backed securities
Level 2
47,975
50,178
Collateralized debt securities
Level 2
111,263
111,894
Total fixed maturity, bonds held-to-maturity
7,088,981
7,458,789
Mortgage loans on real estate, net of allowance
Level 3
5,199,334
5,271,950
Policy loans
Level 3
365,208
365,208
Total financial assets
$
12,653,523
$
13,095,947
Financial liabilities
Investment contracts
Level 3
$
10,947,958
$
10,947,958
Notes payable
Level 3
149,248
149,248
Total financial liabilities
$
11,097,206
$
11,097,206
December 31, 2020
FV Hierarchy Level
Carrying Amount
Fair Value
Financial assets
Fixed maturity, bonds held-to-maturity
U.S. treasury and government
Level 2
$
7,732
$
7,744
U.S. states and political subdivisions
Level 2
109,445
113,535
Foreign governments
Level 2
3,851
4,225
Corporate debt securities
Level 2
6,981,597
7,595,712
Corporate debt securities
Level 3
3,024
3,024
Residential mortgage-backed securities
Level 2
114,127
117,728
Collateralized debt securities
Level 2
135,194
141,213
Total fixed maturity, bonds held-to-maturity
7,354,970
7,983,181
Mortgage loans on real estate, net of allowance
Level 3
5,242,531
5,451,152
Policy loans
Level 3
373,014
373,014
Total financial assets
$
12,970,515
$
13,807,347
Financial liabilities
Investment contracts
Level 3
$
10,101,764
$
10,101,764
Notes payable
Level 3
153,703
153,703
Federal Home Loan Bank advance
Level 2
250,000
250,227
Total financial liabilities
$
10,505,467
$
10,505,694
Note 9 – Fair Value of Financial Instruments — (Continued)
106
Note 10 – Deferred Policy Acquisition Costs
Deferred policy acquisition costs are shown below (in thousands):
Life
Annuity
Health
Property
& Casualty
Total
Balance at December 31, 2018
$
839,133
$
499,588
$
33,960
$
124,580
$
1,497,261
Additions
139,336
70,272
19,940
313,710
543,258
Amortization
(113,300)
(79,746)
(21,322)
(316,141)
(530,509)
Effect of change in unrealized gains on available-for-sale debt
securities
(12,269)
(74,734)
—
—
(87,003)
Net change
13,767
(84,208)
(1,382)
(2,431)
(74,254)
Balance at December 31, 2019
852,900
415,380
32,578
122,149
1,423,007
Additions
148,142
55,411
15,926
335,744
555,223
Amortization
(94,386)
(103,709)
(15,619)
(335,831)
(549,545)
Effect of change in unrealized gains on available-for-sale debt
securities
(10,448)
(58,026)
—
—
(68,474)
Net change
43,308
(106,324)
307
(87)
(62,796)
Balance at December 31, 2020
896,208
309,056
32,885
122,062
1,360,211
Additions
161,898
99,971
14,369
366,167
642,405
Amortization
(111,764)
(77,133)
(17,906)
(355,970)
(562,773)
Effect of change in unrealized gains on available-for-sale debt
securities
9,703
48,578
—
—
58,281
Net change
59,837
71,416
(3,537)
10,197
137,913
Balance at December 31, 2021
$
956,045
$
380,472
$
29,348
$
132,259
$
1,498,124
Commissions comprise the majority of the additions to deferred policy acquisition costs.
107
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.
108
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):
Years ended December 31,
2021
2020
2019
Unpaid claims balance, beginning
$
1,354,213
$
1,322,837
$
1,305,225
Less: Reinsurance recoverables
243,084
246,447
254,466
Net beginning balance
1,111,129
1,076,390
1,050,759
Incurred related to
Current
1,277,798
1,177,634
1,207,796
Prior years
(93,357)
(61,659)
(57,979)
Total incurred claims
1,184,441
1,115,975
1,149,817
Paid claims related to
Current
735,968
681,960
688,544
Prior years
392,881
399,276
435,642
Total paid claims
1,128,849
1,081,236
1,124,186
Net balance
1,166,721
1,111,129
1,076,390
Plus: Reinsurance recoverables
288,358
243,084
246,447
Unpaid claims balance, ending
$
1,455,079
$
1,354,213
$
1,322,837
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 $93.4 million, $61.7 million, $58.0 million in 2021,
2020, and 2019, respectively. The favorable development in 2021 was a reflection of lower-than-anticipated settlement costs of losses
arising from commercial automobile, agribusiness, private passenger automobile, guaranteed asset protection waiver, and collateral
protection insurance lines of business. 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.
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, 2021 and December 31, 2020 was $18.9 million and $20.5 million
respectively.
109
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):
December 31, 2021
Net outstanding liabilities
Auto Liability
$
458,517
Non-Auto Liability
303,662
Commercial Multi-Peril
150,783
Homeowners
84,625
Short Tail Property
38,998
Credit Property and Casualty
16,004
Credit Life
1,435
Health
23,329
Credit Health
4,557
Other
897
Liabilities for unpaid claims and claim adjustment expenses, net of reinsurance
1,082,807
Reinsurance recoverable on unpaid claims
Auto Liability
11,554
Non-Auto Liability
40,650
Commercial Multi-Peril
8,419
Homeowners
13,746
Short Tail Property
12,818
Credit Property and Casualty
11,782
Credit Life
673
Health
193,065
Credit Health
1,657
Other
7,020
Total reinsurance recoverable on unpaid claims
301,384
Insurance lines other than short-duration
244,418
Unallocated claim adjustment expenses
63,686
308,104
Total gross liability for unpaid claims and claim adjustment expense
$
1,692,295
Note 12 – Liability for Unpaid Claims and Claim Adjustment Expenses — (Continued)
110
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, 2021, 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, 2012 to
2020 is presented as supplementary information.
Note 12 – Liability for Unpaid Claims and Claim Adjustment Expenses — (Continued)
111
Auto Liability—Consists of personal and commercial auto. Claims and claim adjustment expenses are shown below (in thousands):
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
As of December 31, 2021
Years ended December 31,
IBNR Plus
Expected
Development
Cumulative
Number of
Reported
Claims
Accident
Year
2012*
2013*
2014*
2015*
2016*
2017*
2018*
2019*
2020*
2021
2012
$ 251,593
$ 242,255
$ 231,312
$ 228,013
$ 229,426
$ 228,559
$ 228,864
$ 228,486
$ 228,236
$ 228,181
$
58
44,691
2013
242,364
236,432
233,068
231,301
228,285
226,608
227,234
227,102
226,943
134
38,817
2014
232,146
223,386
217,819
215,419
214,870
214,557
214,326
214,253
203
36,011
2015
237,578
240,697
239,421
245,775
244,798
244,621
243,304
374
36,097
2016
259,177
256,080
261,400
259,128
257,633
256,294
1,434
37,114
2017
269,803
280,012
275,850
273,551
270,464
4,607
38,591
2018
314,467
299,512
288,806
282,805
12,541
37,826
2019
330,988
313,636
305,312
26,749
36,267
2020
277,597
254,808
46,637
26,166
2021
299,746
89,756
26,556
Total
$ 2,582,110
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Years ended December 31,
Accident
Year
2012*
2013*
2014*
2015*
2016*
2017*
2018*
2019*
2020*
2021
2012
$
82,531
$
150,323
$
183,448
$
204,980
$
214,467
$
219,170
$
222,117
$
222,865
$
224,585
$
224,799
2013
79,358
143,709
181,535
204,480
215,280
219,303
223,739
224,675
226,211
2014
72,838
134,376
166,947
187,375
204,057
209,401
210,994
212,522
2015
78,861
149,366
186,281
211,908
231,530
237,792
239,986
2016
86,492
153,911
198,326
225,869
237,592
247,640
2017
88,357
175,175
218,435
241,823
255,530
2018
95,777
185,317
227,312
248,183
2019
98,545
193,389
231,892
2020
78,699
151,722
2021
85,916
Total
$ 2,124,401
All outstanding liabilities before 2012, net of reinsurance*
808
Liabilities for claims and claim adjustment expenses, net of reinsurance
$
458,517
*
Unaudited supplementary information.
Note 12 – Liability for Unpaid Claims and Claim Adjustment Expenses — (Continued)
112
Non-Auto Liability—Consists of workers’ compensation and other liability occurrence. Claims and claim adjustment expenses are
shown below (in thousands):
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
As of December 31, 2021
Years ended December 31,
IBNR Plus
Expected
Development
Cumulative
Number of
Reported
Claims
Accident
Year
2012*
2013*
2014*
2015*
2016*
2017*
2018*
2019*
2020*
2021
2012
$ 83,146
$ 80,470
$ 78,644
$ 75,226
$ 68,017
$ 63,630
$ 64,118
$ 63,336
$ 63,552
$ 63,304
$
1,623
4,877
2013
74,183
75,815
70,772
67,841
65,096
64,564
63,284
62,926
62,159
1,738
4,556
2014
83,084
75,550
72,624
67,339
67,865
67,267
67,268
66,250
3,168
6,111
2015
83,897
78,968
76,724
67,548
64,189
63,326
63,523
3,593
5,563
2016
86,935
83,179
73,764
73,195
68,178
67,347
4,153
4,501
2017
102,616
88,902
81,240
77,322
76,540
6,397
8,176
2018
88,986
85,910
79,493
75,207
16,115
13,684
2019
96,064
95,340
92,544
26,473
11,875
2020
90,197
83,339
37,431
10,028
2021
102,869
65,428
8,512
Total
$ 753,082
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Years ended December 31,
Accident
Year
2012*
2013*
2014*
2015*
2016*
2017*
2018*
2019*
2020*
2021
2012
$
13,862
$
27,574
$
38,826
$
49,585
$
55,194
$
57,863
$
59,528
$
60,900
$
61,450
$
61,858
2013
12,794
22,743
32,474
42,504
47,987
51,672
54,323
55,426
56,916
2014
11,201
26,587
36,220
45,206
51,853
55,307
57,497
58,559
2015
11,979
23,488
37,059
46,285
51,303
53,478
55,434
2016
12,733
24,633
35,502
45,820
50,596
55,205
2017
14,865
37,139
48,654
53,996
59,582
2018
13,156
26,115
37,574
45,316
2019
12,204
30,199
40,729
2020
9,596
23,838
2021
12,389
Total
$
469,826
All outstanding liabilities before 2012, net of reinsurance*
20,406
Liabilities for claims and claim adjustment expenses, net of reinsurance
$
303,662
*
Unaudited supplementary information.
Note 12 – Liability for Unpaid Claims and Claim Adjustment Expenses — (Continued)
113
Commercial Multi-Peril—Consists of business owners insurance and mortgage fire business. Claims and claim adjustment expenses
are shown below (in thousands):
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
As of December 31, 2021
Years ended December 31,
IBNR Plus
Expected
Development
Cumulative
Number of
Reported
Claims
Accident
Year
2012*
2013*
2014*
2015*
2016*
2017*
2018*
2019*
2020*
2021
2012
$ 35,169
$ 28,548
$ 26,805
$ 23,258
$ 23,385
$ 23,090
$ 22,481
$ 22,045
$ 22,033
$ 22,381
$
151
2,717
2013
33,979
27,592
27,867
26,970
25,948
26,028
24,790
24,681
24,733
231
2,228
2014
36,852
31,220
34,911
33,962
36,132
34,279
34,004
33,836
292
2,311
2015
33,997
31,488
29,023
32,282
31,285
33,059
34,282
821
2,240
2016
38,115
33,475
33,080
31,615
33,628
32,705
875
4,798
2017
42,411
37,079
40,611
43,367
47,660
3,631
6,815
2018
50,784
50,182
51,519
51,035
4,595
5,678
2019
56,062
59,789
58,262
11,129
3,587
2020
68,226
63,281
16,924
4,012
2021
95,708
39,566
4,999
Total
$ 463,883
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Years ended December 31,
Accident
Year
2012*
2013*
2014*
2015*
2016*
2017*
2018*
2019*
2020*
2021
2012
$
11,525
$
14,454
$
16,263
$
18,670
$
20,716
$
21,026
$
21,352
$
21,415
$
21,453
$
21,499
2013
9,374
12,723
15,426
18,406
20,816
21,718
23,210
23,348
23,513
2014
12,001
16,484
20,199
24,602
27,339
31,448
32,702
32,934
2015
9,820
12,956
16,402
21,680
25,188
27,201
28,566
2016
11,327
17,193
19,085
22,339
25,686
26,690
2017
12,458
20,828
23,294
26,202
28,420
2018
18,027
30,078
32,490
35,781
2019
22,098
32,295
37,408
2020
25,492
38,415
2021
41,452
Total
$
314,678
All outstanding liabilities before 2012, net of reinsurance*
1,578
Liabilities for claims and claim adjustment expenses, net of reinsurance
$
150,783
*
Unaudited supplementary information.
Note 12 – Liability for Unpaid Claims and Claim Adjustment Expenses — (Continued)
114
Homeowners—Consists of homeowners and renters business. Claims and claim adjustment expenses are shown below (in thousands):
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
As of December 31, 2021
Years ended December 31,
IBNR Plus
Expected
Development
Cumulative
Number of
Reported
Claims
Accident
Year
2012*
2013*
2014*
2015*
2016*
2017*
2018*
2019*
2020*
2021
2012
$ 181,284
$ 177,664
$ 175,523
$ 175,509
$ 175,178
$ 175,032
$ 174,611
$ 174,276
$ 174,239
$ 174,238
$
—
30,999
2013
152,208
149,080
149,272
148,231
147,927
147,444
147,359
147,234
147,246
—
20,041
2014
132,651
131,634
130,287
131,546
130,895
130,747
130,799
130,713
—
18,183
2015
125,430
124,199
123,619
123,824
123,731
123,357
123,312
2
17,758
2016
147,264
145,373
144,376
145,019
144,828
144,766
17
21,559
2017
164,284
172,274
172,491
169,524
169,430
45
23,589
2018
174,495
179,561
176,317
176,681
61
22,576
2019
177,854
176,005
173,763
1,181
20,260
2020
227,298
228,441
2,876
24,788
2021
240,732
31,342
19,762
Total
$ 1,709,322
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Years ended December 31,
Accident
Year
2012*
2013*
2014*
2015*
2016*
2017*
2018*
2019*
2020*
2021
2012
$
143,797
$
169,415
$
171,842
$
173,170
$
173,676
$
174,139
$
174,247
$
174,256
$
174,239
$
174,238
2013
115,605
140,309
145,152
146,650
146,920
147,145
147,233
147,232
147,245
2014
96,300
122,601
126,245
129,467
130,059
130,305
130,542
130,577
2015
86,617
114,696
119,331
122,585
122,955
123,065
123,161
2016
105,415
136,796
140,972
144,000
144,596
144,635
2017
116,075
159,107
166,009
167,638
168,241
2018
121,631
165,203
170,850
174,077
2019
122,530
163,400
170,229
2020
166,352
217,224
2021
175,265
Total
$ 1,624,892
All outstanding liabilities before 2012, net of reinsurance*
195
Liabilities for claims and claim adjustment expenses, net of reinsurance
$
84,625
*
Unaudited supplementary information.
Note 12 – Liability for Unpaid Claims and Claim Adjustment Expenses — (Continued)
115
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):
Incurred Claims and Allocated Claim Adjustment
Expenses, Net of Reinsurance
As of December 31, 2021
Years ended December 31,
IBNR Plus Expected
Development
Cumulative Number of
Reported Claims
Accident Year
2020*
2021
2020
$
237,332
$
229,857
$
282
53,008
2021
269,065
(3,599)
53,068
Total
$
498,922
Cumulative Paid Claims and Allocated Claim
Adjustment Expenses, Net of Reinsurance
Years ended December 31,
Accident Year
2020*
2021
2020
$
203,827
$
227,495
2021
235,425
Total
$
462,920
All outstanding liabilities before 2020, net of reinsurance*
2,996
Liabilities for claims and claim adjustment expenses, net of reinsurance
$
38,998
*
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):
Incurred Claims and Allocated Claim Adjustment
Expenses, Net of Reinsurance
As of December 31, 2021
Years ended December 31,
IBNR Plus Expected
Development
Cumulative Number of
Reported Claims
Accident Year
2020*
2021
2020
$
65,260
$
65,269
$
—
22,385
2021
51,002
12,188
14,443
Total
$
116,271
Cumulative Paid Claims and Allocated Claim
Adjustment Expenses, Net of Reinsurance
Years ended December 31,
Accident Year
2020*
2021
2020
$
46,417
$
65,269
2021
34,998
Total
$
100,267
All outstanding liabilities before 2020, net of reinsurance*
—
Liabilities for claims and claim adjustment expenses, net of reinsurance
$
16,004
*
Unaudited supplementary information.
Note 12 – Liability for Unpaid Claims and Claim Adjustment Expenses — (Continued)
116
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):
Incurred Claims and Allocated Claim Adjustment
Expenses, Net of Reinsurance
As of December 31, 2021
Years ended December 31,
IBNR Plus Expected
Development
Cumulative Number of
Reported Claims
Accident Year
2020*
2021
2020
$
7,265
$
8,397
$
35
48
2021
10,291
1,300
50
Total
$
18,688
Cumulative Paid Claims and Allocated Claim
Adjustment Expenses, Net of Reinsurance
Years ended December 31,
Accident Year
2020*
2021
2020
$
6,201
$
8,359
2021
8,894
Total
$
17,253
All outstanding liabilities before 2020, net of reinsurance*
—
Liabilities for claims and claim adjustment expenses, net of reinsurance
$
1,435
*
Unaudited supplementary information.
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.
Note 12 – Liability for Unpaid Claims and Claim Adjustment Expenses — (Continued)
117
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, 2021
Years ended December 31,
IBNR Plus
Expected
Development
Cumulative
Number of
Reported Claims
Accident Year
2017*
2018*
2019*
2020*
2021
2017
$
41,544
$
39,930
$
35,466
$
35,447
$
35,451
$
—
29,216
2018
64,686
63,729
57,676
57,682
—
30,004
2019
48,175
52,508
47,294
1
30,614
2020
38,461
37,871
3,816
24,946
2021
43,153
14,174
20,877
Total $
221,451
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Years ended December 31,
Accident Year
2017*
2018*
2019*
2020*
2021
2017
$
25,358
$
35,392
$
35,420
$
35,420
$
35,420
2018
34,894
57,759
57,616
57,617
2019
33,353
47,270
47,245
2020
23,398
34,118
2021
27,889
Total
$
202,289
All outstanding liabilities before 2017, net of reinsurance*
4,167
Liabilities for claims and claim adjustment expenses, net of reinsurance
$
23,329
*
Unaudited supplementary information.
Credit Health Reserving Methodology—The following methods are utilized:
Tabular Claims Reserves—These reserves rely on published valuation continuance tables. The insured's 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, 2021
Years ended December 31,
IBNR Plus
Expected
Development
Cumulative
Number of
Reported Claims
Accident Year
2017*
2018*
2019*
2020*
2021
2017
$
4,555
$
4,852
$
4,773
$
4,820
$
4,873
$
46
3,803
2018
4,631
4,163
4,155
4,303
76
3,572
2019
3,902
3,705
3,631
97
2,999
2020
3,736
3,741
222
2,605
2021
3,415
457
1,533
Total
$
19,963
*
Unaudited supplementary information.
Note 12 – Liability for Unpaid Claims and Claim Adjustment Expenses — (Continued)
118
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Years ended December 31,
Accident Year
2017*
2018*
2019*
2020*
2021
2017
$
1,389
$
3,328
$
4,058
$
4,438
$
4,639
2018
1,473
2,930
3,598
3,918
2019
1,208
2,618
3,138
2020
1,179
2,613
2021
1,098
Total
$
15,406
All outstanding liabilities before 2017, net of reinsurance*
—
Liabilities for claims and claim adjustment expenses, net of reinsurance
$
4,557
*
Unaudited supplementary information.
The following table is supplementary information. A 10-year average annual percentage payout of incurred claims is shown below:
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Auto Liability
33.0 %
29.5 %
15.3 %
9.5 %
5.7 %
2.6 %
1.2 %
0.5 %
0.7 %
2.0 %
Non-Auto Liability
17.1 %
19.9 %
15.9 %
13.4 %
8.3 %
5.1 %
3.3 %
1.9 %
1.6 %
13.5 %
Commercial Multi-Peril
37.1 %
16.2 %
8.1 %
10.5 %
8.7 %
5.2 %
3.8 %
0.5 %
0.5 %
9.4 %
Homeowners
73.1 %
21.3 %
3.3 %
1.7 %
0.3 %
0.1 %
0.1 %
— %
— %
0.1 %
Short Tail Property
88.1 %
11.9 %
— %
— %
— %
— %
— %
— %
— %
— %
Credit Property and Casualty
69.9 %
30.1 %
— %
— %
— %
— %
— %
— %
— %
— %
Credit Life
80.1 %
19.9 %
— %
— %
— %
— %
— %
— %
— %
— %
Note 12 – Liability for Unpaid Claims and Claim Adjustment Expenses — (Continued)
119
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):
0-75 Years
76-80 Years
81 and Over
Individual life
$
5,000
$
2,000
$
1,000
Individual accidental death
250
250
250
Credit life
100
100
100
Group life
100
100
100
Total
$
5,450
$
2,450
$
1,450
For the Property and Casualty segment, American National retains the first $2.0 million of loss per risk. Reinsurance covers up
to $6.0 million of property and liability losses per risk. Additional excess property per risk coverage is purchased to cover risks
up to $20.0 million, and excess casualty clash coverage is purchased to cover losses up to $60.0 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 $20.0 million as needed. Corporate catastrophe
coverage is in place for losses up to $470.0 million ($500.0 million if the top layer of the Property Catastrophe Top and Drop
contract is included). American National retains the first $35.0 million of each catastrophe. Catastrophe aggregate reinsurance
coverage is also purchased and is provided by two contracts.
The first contract is the Property Catastrophe Top and Drop cover that consists of $30.0 million of annual limit available either
wholly or in part across two layers of coverage. The first layer is 100% of $30.0 million excess of $470.0 million on an
occurrence basis. The second layer provides aggregate protection where subject loss is $15.0 million excess of $20.0 million of
each catastrophe, and recoveries follow satisfaction of a $15.0 million annual aggregate deductible. The second layer acts to
reduce the retention on large second and third catastrophe events to $20.0 million following a first large catastrophe. This cover
was placed at 100% for 2021 and does not include a reinstatement. The second aggregate contract provides for $30.0 million of
coverage after $160.0 million of annual aggregated catastrophe losses has been reached. Qualifying losses include amounts of
retained losses net of other reinsurance below $35.0 million on Property Claims Services (“PCS”) declared catastrophe events
and internally declared catastrophe events exceeding $5.0 million. This cover was placed at 55% for 2021 and does not include
a reinstatement.
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):
December 31,
2021
2020
Reinsurance recoverables
$
459,621
$
414,359
None of the amount outstanding at December 31, 2021 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.
120
The amounts in the consolidated financial statements include the impact of reinsurance. Premiums written and earned are
shown below (in thousands):
Years ended December 31,
2021
2020
2019
WRITTEN
Direct
$
2,650,696
$
2,533,278
$
2,500,176
Reinsurance assumed
644,858
591,457
578,656
Reinsurance ceded
(944,194)
(883,187)
(865,369)
Net
$
2,351,360
$
2,241,548
$
2,213,463
EARNED
Direct
$
2,716,632
$
2,629,403
$
2,464,870
Reinsurance assumed
317,081
291,945
236,504
Reinsurance ceded
(732,660)
(703,274)
(518,580)
Net
$
2,301,053
$
2,218,074
$
2,182,794
Life insurance in-force and related reinsurance amounts are shown below (in thousands):
December 31,
2021
2020
2019
Direct life insurance in-force
$
136,710,529
$
128,075,765
$
117,886,265
Reinsurance risks assumed from other companies
221,023
171,433
218,020
Reinsurance risks ceded to other companies
(22,835,954)
(24,006,683)
(24,913,905)
Net life insurance in-force
$
114,095,598
$
104,240,515
$
93,190,380
Note 14 – Federal Income Taxes
A reconciliation of the effective tax rate to the statutory federal tax rate is shown below (in thousands, except percentages):
Years ended December 31,
2021
2020
2019
Amount
Rate
Amount
Rate
Amount
Rate
Total expected income tax expense at the statutory rate
$
181,229
21.0 % $
121,939
21.0 % $
167,554
21.0 %
Tax-exempt investment income
(3,929)
(0.5)
(4,262)
(0.7)
(3,969)
(0.5)
Deferred tax change
(8,375)
(1.0)
2,816
0.5
(519)
(0.1)
Dividend exclusion
(3,459)
(0.4)
(3,097)
(0.5)
(3,628)
(0.5)
Tax credits, net
(4,988)
(0.6)
(7,484)
(1.3)
(7,090)
(0.9)
Low income housing tax credit expense
4,744
0.5
4,923
0.8
6,394
0.8
Change in valuation allowance
(138)
—
(625)
(0.1)
383
—
Other items, net
1,501
0.3
2,397
0.4
6,292
0.7
Total
$
166,585
19.3 % $
116,607
20.1 % $
165,417
20.5 %
As of December 31, 2021, American National had no material net operating loss or tax credit carryforwards.
American National’s federal income tax returns for tax years 2018 to 2020 are subject to examination by the Internal Revenue
Service. In the opinion of management, all prior year taxes have been paid or adequate provisions have been made for any tax
deficiencies that may be assessed.
As of December 31, 2021, 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.
Note 13 – Reinsurance — (Continued)
121
The tax effects of temporary differences that gave rise to the deferred tax assets and liabilities are shown below (in thousands):
December 31,
2021
2020
DEFERRED TAX ASSETS
Mortgage loans on real estate
$
27,784
$
34,341
Future policy benefits, policyholders' account balances and claims
43,538
57,572
Unearned premium reserve
25,142
23,225
Participating policyholders’ liability
67,367
41,593
Deferred compensation
11,427
9,057
Tax carryforwards
1,748
1,643
Gross deferred tax assets before valuation allowance
177,006
167,431
Valuation allowance
(2,552)
(2,458)
Gross deferred tax assets after valuation allowance
174,454
164,973
DEFERRED TAX LIABILITIES
Bonds
69,089
122,326
Equity securities
8,386
262,017
Real estate, real estate partnerships and investment funds
16,319
12,499
Other invested assets
30,452
29,664
Deferred acquisition costs
218,252
199,152
Property and equipment
6,272
7,689
Pension and liability for retirement benefits
20,640
1,549
Other liabilities
5,554
8,424
Gross deferred tax liabilities
374,964
643,320
Total net deferred tax liability
$
200,510
$
478,347
In 2021, our deferred tax liabilities decreased from $478.3 million at December 31, 2020 to $200.5 million at December 31,
2021. The decrease was primarily due to the sale of equity securities. Upon sale, deferred tax liabilities on unrealized gains
became realized for tax purposes resulting in a decrease in deferred tax liabilities and an increase in current tax liability.
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, 2021 and 2020. 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, 2021, no additional valuation allowance is required.
Note 14 – Federal Income Taxes — (Continued)
122
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):
Net Unrealized
Gains (Losses)
on Securities
Defined
Benefit
Pension Plan
Adjustments
Foreign
Currency
Adjustments
Accumulated
Other
Comprehensive
Income (Loss)
Balance at December 31, 2018
$
(42,469) $
(54,236) $
(3,033) $
(99,738)
Amounts reclassified from AOCI (net of tax benefit $213 and expense
$1,491)
(800)
5,607
—
4,807
Unrealized holding gains arising during the period (net of tax expense
$70,808)
266,373
—
—
266,373
Unrealized adjustment to DAC (net of tax benefit $18,270)
(68,733)
—
—
(68,733)
Unrealized gains on investments attributable to participating
policyholders’ interest (net of tax benefit $3,372)
(12,684)
—
—
(12,684)
Actuarial gain arising during the period (net of tax expense of $2,629)
—
9,888
—
9,888
Foreign currency adjustment (net of tax expense $104)
—
—
390
390
Cumulative effect of changes in accounting
16,164
(16,491)
(458)
(785)
Balance at December 31, 2019
157,851
(55,232)
(3,101)
99,518
Amounts reclassified from AOCI (net of tax benefit $2,092 and expense
$1,018)
(7,870)
3,831
—
(4,039)
Unrealized holding gains arising during the period (net of tax expense
$52,808)
198,657
—
—
198,657
Unrealized adjustment to DAC (net of tax benefit $14,380)
(54,094)
—
—
(54,094)
Unrealized gains on investments attributable to participating
policyholders’ interest (net of tax benefit $632)
(2,378)
—
—
(2,378)
Actuarial loss arising during the period (net of tax benefit $4,181)
—
(15,729)
—
(15,729)
Foreign currency adjustment (net of tax expense $62)
—
—
235
235
Balance at December 31, 2020
292,166
(67,130)
(2,866)
222,170
Amounts reclassified from AOCI (net of tax benefit $8,608 and expense
$2,016)
(32,382)
7,584
—
(24,798)
Unrealized holding losses arising during the period (net of tax benefit
$43,343)
(163,051)
—
—
(163,051)
Unrealized adjustment to DAC (net of tax expense $12,239)
46,042
—
—
46,042
Unrealized losses on investments attributable to participating
policyholders’ interest (net of tax expense $1,738)
6,537
—
—
6,537
Actuarial gain arising during the period (net of tax expense $15,974)
—
60,092
—
60,092
Foreign currency adjustment (net of tax expense $65)
—
—
62
62
Balance at December 31, 2021
$
149,312
$
546
$
(2,804) $
147,054
123
Note 16 – Stockholders’ Equity and Noncontrolling Interests
ANAT has one class of common stock with a par value of $0.01 per share and 50,000,000 authorized shares. Each issued and
outstanding share of the Company's common stock will be converted into the right to receive $190.00 in cash without interest
pursuant to the Merger Agreement with Brookfield Reinsurance. Refer to Note 1, Nature of Operations, for more information.
The number of shares outstanding at the dates indicated are shown below:
Years ended December 31,
2021
2020
2019
Common stock
Shares issued
26,887,200
26,887,200
30,832,449
Treasury shares
—
—
(3,945,249)
Outstanding shares
26,887,200
26,887,200
26,887,200
Restricted shares
(10,000)
(10,000)
(10,000)
Unrestricted outstanding shares
26,877,200
26,877,200
26,877,200
Stock-based Compensation
American National has made grants of Stock Appreciation Rights (“SAR”), Restricted Stock (“RS”) Awards, 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. During 2021, 10,197 of such cash-settled RSUs were granted and remain outstanding at December 31,
2021 as shown in the table below.
SAR, RS and RSU information for the periods indicated are shown below:
SAR
RS Shares
RSUs
Shares
Weighted-
Average Grant
Date Fair Value
Shares
Weighted-
Average Grant
Date Fair Value
Units
Weighted-
Average Grant
Date Fair Value
Outstanding at December 31, 2018
335
$
84.41
10,000
$
80.05
18,316
$
111.12
Granted
—
—
—
—
8,250
113.19
Exercised
—
—
—
—
(18,316)
111.12
Forfeited
—
—
—
—
—
—
Expired
(269)
77.90
—
—
—
—
Outstanding at December 31, 2019
66
110.83
10,000
80.05
8,250
113.19
Granted
—
—
—
—
8,250
75.35
Exercised
—
—
—
—
(8,250)
113.19
Forfeited
—
—
—
—
—
—
Expired
(66)
110.83
—
—
—
—
Outstanding at December 31, 2020
—
—
10,000
80.05
8,250
75.35
Granted
—
—
—
—
10,197
113.35
Exercised
—
—
—
—
(8,250)
75.35
Forfeited
—
—
—
—
—
—
Expired
—
—
—
—
—
—
Outstanding at December 31, 2021
—
$
—
10,000
$
80.05
10,197
$
113.35
124
SAR
RS Shares
RSUs
Weighted-average contractual remaining life (in years)
0.0
1.16
0.33
Exercisable shares
—
N/A
N/A
Weighted-average exercise price
$
—
$
80.05
$
113.35
Weighted-average exercise price exercisable shares
—
N/A
N/A
Compensation expense (credit)
Year ended December 31, 2021
$
—
$
80,000
$
1,989,000
Year ended December 31, 2020
(1,000)
80,000
449,000
Year ended December 31, 2019
15,000
80,000
1,168,000
Fair value of liability award
December 31, 2021
$
—
N/A $
1,926,000
December 31, 2020
—
N/A
793,000
The SARs gave 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 expired 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 feature a graded vesting schedule in the case of the retirement, death or disability of an award
holder or change in control. 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 or change in control. During the twelve months
ended December 31, 2021, 8,250 RSUs were granted and vested on May 1, 2021 and were settled in cash. A new grant of
10,197 RSUs was awarded to directors and advisory directors on May 1, 2021 with one-year cliff vesting which will be settled
in cash.
Pursuant to the Merger Agreement with Brookfield Reinsurance, each outstanding and unvested restricted share award and
restricted stock unit award will vest and be converted into the right to receive cash payment equal to $190.00 multiplied by the
total number of shares of common stock subject to such award prior to the effective date of the merger with Brookfield
Reinsurance. Refer to Note 1, Nature of Operations, for more information.
Earnings per Share
Basic earnings per share were calculated using a weighted average number of shares outstanding. Diluted earnings per share
include RS awards and RSU award shares issued in 2019. RSUs issued in 2021 and 2020 may only be settled in cash.
Years ended December 31,
2021
2020
2019
Weighted average shares outstanding
26,877,200
26,878,679
26,882,691
Incremental shares from RS awards and RSUs
7,479
8,446
8,552
Total shares for diluted calculations
26,884,679
26,887,125
26,891,243
Net income attributable to American National (in thousands)
$
699,325
$
467,505
$
620,363
Basic earnings per share
$
26.02
$
17.39
$
23.08
Diluted earnings per share
$
26.01
$
17.38
$
23.07
Note 16 – Stockholders' Equity and Noncontrolling Interests — (Continued)
125
Statutory Capital and Surplus
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 100% of the company action level RBC are required to take certain actions. At December 31, 2021 and 2020, ANICO’s
statutory capital and surplus was $4.0 billion and $3.6 billion, respectively, which resulted in an RBC level above 200% of the
company action level. All of our other insurance subsidiaries had statutory capital and surplus at December 31, 2021 and 2020
above 200% of the company action level except ANPAC Louisiana Insurance Company ("ANPLA"), which had an RBC level
of 194% at December 31, 2020, which increased to 242% at December 31, 2021.
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 American National Lloyds Insurance Company by $68.1 million and $75.3
million at December 31, 2021 and 2020, respectively. The statutory capital and surplus of both ANICO and American National
Lloyds Insurance Company would have remained above the authorized control 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):
December 31,
2021
2020
Statutory capital and surplus
Life insurance entities
$
2,425,759
$
2,188,808
Property and casualty insurance entities
1,570,501
1,463,179
Years ended December 31,
2021
2020
2019
Statutory net income (loss)
Life insurance entities
$
956,053
$
(25,178) $
47,133
Property and casualty insurance entities
383,962
127,207
96,269
Statutory net income for our life insurance entities increased as a result of a $1.0 billion dividend payment to ANICO from
ANH Investments, LLC, as a result of proceeds received from the sale of the majority of the equity securities portfolio.
Statutory net income for our property and casualty entities increased driven by an increase in net realized gains as a result of the
sale of the majority of the companies’ equity securities portfolios.
Note 16 – Stockholders' Equity and Noncontrolling Interests — (Continued)
126
Dividends
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, 2021 and 2020, and we expect to continue to pay regular quarterly cash dividends, not to exceed $0.82 per share,
prior to the completion of the merger with Brookfield Reinsurance, although there is no assurance as to future dividends
because they depend on future earnings, capital requirements and financial conditions. Refer to Note 1, Nature of Operations,
for more information regarding the Merger Agreement with Brookfield Reinsurance.
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 gain from operations before realized capital gains, 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 $792.4 million during 2022, subject to the terms and conditions of the Merger Agreement
with Brookfield Reinsurance.
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, 2021 and 2020, respectively.
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 interest of $0.9 million and a noncontrolling deficit of $0.9 million at
December 31, 2021 and 2020, respectively.
Note 16 – Stockholders' Equity and Noncontrolling Interests — (Continued)
127
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 segment 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):
Years ended December 31,
2021
2020
Total assets
Life
$
7,491,012
$
7,111,991
Annuity
14,803,297
13,642,357
Health
532,809
515,841
Property and Casualty
2,888,696
2,716,896
Corporate and Other
5,604,507
5,480,730
Total
$
31,320,321
$
29,467,815
128
The results of operations measured as the income before federal income taxes and other items by operating segments are
summarized below (in thousands):
Year ended December 31, 2021
Life
Annuity
Health
Property &
Casualty
Corporate &
Other
Total
PREMIUMS AND OTHER REVENUES
Premiums
$
412,769
$
74,925
$
143,484
$ 1,669,875
$
—
$ 2,301,053
Other policy revenues
336,136
23,571
—
—
—
359,707
Net investment income
277,962
629,417
8,153
62,140
193,982
1,171,654
Net realized investment gains
—
—
—
—
64,628
64,628
Decrease in investment credit loss
—
—
—
—
28,778
28,778
Net gains on equity securities
—
—
—
—
420,283
420,283
Other income
1,577
3,282
21,743
15,807
3,279
45,688
Total premiums and other revenues
1,028,444
731,195
173,380
1,747,822
710,950
4,391,791
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits
605,724
149,931
—
—
—
755,655
Claims incurred
—
—
98,029
1,094,126
—
1,192,155
Interest credited to policyholders' account balances
84,005
364,649
—
—
—
448,654
Commissions for acquiring and servicing policies
186,470
98,842
24,231
330,554
—
640,097
Other operating expenses
195,127
53,379
42,284
213,486
67,593
571,869
Change in deferred policy acquisition costs
(50,134)
(22,838)
3,537
(10,197)
—
(79,632)
Total benefits, losses and expenses
1,021,192
643,963
168,081
1,627,969
67,593
3,528,798
Income before federal income tax and other items
$
7,252
$
87,232
$
5,299
$
119,853
$
643,357
$
862,993
Year ended December 31, 2020
Life
Annuity
Health
Property &
Casualty
Corporate &
Other
Total
PREMIUMS AND OTHER REVENUES
Premiums
$
396,099
$
92,866
$
168,805
$ 1,560,304
$
—
$ 2,218,074
Other policy revenues
295,263
15,483
—
—
—
310,746
Net investment income
261,389
570,003
8,637
63,949
72,174
976,152
Net realized investment gains
—
—
—
—
35,660
35,660
Increase in investment credit loss
—
—
—
—
(102,603)
(102,603)
Net gains on equity securities
—
—
—
—
356,281
356,281
Other income
2,084
2,716
19,598
12,779
3,379
40,556
Total premiums and other revenues
954,835
681,068
197,040
1,637,032
364,891
3,834,866
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits
533,925
214,158
—
—
—
748,083
Claims incurred
—
—
116,122
1,005,620
—
1,121,742
Interest credited to policyholders' account balances
75,943
245,099
—
—
—
321,042
Commissions for acquiring and servicing policies
167,548
55,910
30,182
299,960
—
553,600
Other operating expenses
182,395
48,359
39,265
202,503
42,891
515,413
Change in deferred policy acquisition costs
(53,756)
48,298
(307)
87
—
(5,678)
Total benefits, losses and expenses
906,055
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
$
322,000
$
580,664
Note 17 – Segment Information — (Continued)
129
Year ended December 31, 2019
Life
Annuity
Health
Property &
Casualty
Corporate &
Other
Total
PREMIUMS AND OTHER REVENUES
Premiums
$
359,419
$
147,139
$
165,035
$ 1,511,201
$
—
$ 2,182,794
Other policy revenues
288,061
17,195
—
—
—
305,256
Net investment income
263,788
663,895
9,467
64,263
179,494
1,180,907
Net realized investment gains
—
—
—
—
30,751
30,751
Net gains on equity securities
—
—
—
—
422,535
422,535
Other income
1,967
2,727
20,762
11,897
14,048
51,401
Total premiums and other revenues
913,235
830,956
195,264
1,587,361
646,828
4,173,644
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits
449,252
218,576
—
—
—
667,828
Claims incurred
—
—
109,013
1,042,153
—
1,151,166
Interest credited to policyholders' account balances
80,950
431,049
—
—
—
511,999
Commissions for acquiring and servicing policies
162,203
71,350
31,624
267,457
—
532,634
Other operating expenses
190,104
50,507
41,475
201,580
41,222
524,888
Change in deferred policy acquisition costs
(26,036)
9,474
1,382
2,431
—
(12,749)
Total benefits, losses and expenses
856,473
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
$
605,606
$
797,878
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 $10.8 million, $9.9 million, and $9.5 million for
2021, 2020, and 2019, 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.
Note 17 – Segment Information — (Continued)
130
Amounts recognized in the consolidated statements of financial position consist of (in thousands):
Qualified
Non-qualified
2021
2020
2021
2020
Reconciliation of benefit obligation
Obligation at beginning of year
$
427,745
$
387,273
$
65,791
$
65,733
Service cost
589
543
—
—
Interest cost on projected benefit obligation
10,290
13,079
917
1,789
Actuarial (gain) loss
(11,640)
50,620
2,496
6,775
Benefits paid
(27,604)
(23,770)
(8,510)
(8,506)
Obligation at end of year
399,380
427,745
60,694
65,791
Reconciliation of fair value of plan assets
Fair value of plan assets at beginning of year
511,989
470,101
—
—
Actual return on plan assets
90,822
65,700
—
—
Employer contributions
—
—
8,510
8,506
Benefits paid
(27,597)
(23,812)
(8,510)
(8,506)
Fair value of plan assets at end of year
575,214
511,989
—
—
Funded status at end of year
$
175,834
$
84,244
$
(60,694) $
(65,791)
The components of net periodic benefit cost for the defined benefit pension plans are shown below (in thousands):
Years ended December 31,
2021
2020
2019
Service cost
$
589
$
543
$
523
Interest cost
11,207
14,868
17,421
Expected return on plan assets
(25,921)
(26,109)
(24,248)
Amortization of net actuarial loss
7,628
4,848
7,070
Settlement recognition
1,973
—
—
Net periodic cost (benefit)
$
(4,524) $
(5,850) $
766
Amounts related to the defined benefit pension plans recognized as a component of AOCI are shown below (in thousands):
Years ended December 31,
2021
2020
2019
Actuarial gain (loss)
$
85,666
$
(15,061) $
19,615
Deferred tax benefit (expense)
(17,990)
3,163
(4,120)
Cumulative effect of change in accounting
—
—
(16,491)
Other comprehensive income (loss), net of tax
$
67,676
$
(11,898) $
(996)
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):
Years ended December 31,
2021
2020
Net actuarial gain (loss)
$
690
$
(84,976)
Deferred tax benefit (expense)
(144)
17,846
Amounts included in AOCI
$
546
$
(67,130)
Note 18 – Pension and Postretirement Benefits — (Continued)
131
The weighted average assumptions used are shown below:
Used for Net Benefit
Cost for year ended
December 31, 2021
Used for Benefit
Obligations as of
December 31, 2021
Discount rate
2.52 %
2.86 %
Long-term rate of return
5.25
—
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 2021, 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, $8.5 million and $8.7 million in 2021, 2020 and 2019,
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):
2022
$
49,048
2023
33,243
2024
32,891
2025
30,522
2026
29,648
2027-2031
135,164
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):
December 31, 2021
Total
Level 1
Level 2
Level 3
Asset Category
Corporate debt securities
$
144,770
$
—
$
144,770
$
—
Residential mortgage-backed securities
61
—
61
—
Equity securities by sector
Consumer goods
63,296
63,296
—
—
Energy and utilities
27,078
27,078
—
—
Finance
48,401
48,401
—
—
Healthcare
60,972
60,972
—
—
Industrials
29,375
29,375
—
—
Information technology
103,379
103,379
—
—
Other
86,256
86,256
—
—
Commercial paper
3,104
—
3,104
—
Unallocated group annuity contract
498
—
498
—
Other
8,024
8,024
—
—
Total
$
575,214
$
426,781
$
148,433
$
—
Note 18 – Pension and Postretirement Benefits — (Continued)
132
December 31, 2020
Total
Level 1
Level 2
Level 3
Asset Category
Corporate debt securities
$
157,933
$
—
$
157,243
$
690
Residential mortgage-backed securities
3,521
—
3,521
—
Equity securities by sector
Consumer goods
57,684
57,684
—
—
Energy and utilities
22,007
22,007
—
—
Finance
40,161
40,161
—
—
Healthcare
51,641
51,641
—
—
Industrials
25,827
25,827
—
—
Information technology
78,720
78,720
—
—
Other
70,230
70,230
—
—
Commercial paper
872
—
872
—
Unallocated group annuity contract
1,940
—
1,940
—
Other
1,453
1,453
—
—
Total
$
511,989
$
347,723
$
163,576
$
690
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 by 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 $12.2 million and
$5.3 million at December 31, 2021 and 2020, respectively. These amounts were approximately equal to the unfunded
accumulated postretirement benefit obligation.
Note 18 – Pension and Postretirement Benefits — (Continued)
133
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, 2021 were approximately $12.7 million.
American National had aggregate commitments at December 31, 2021 to purchase, expand or improve real estate, to fund fixed
interest rate mortgage loans, and to purchase other invested assets of $1.5 billion of which $786.2 million is expected to be
funded in 2022 with the remainder funded in 2023 and beyond.
American National had outstanding letters of credit in the amount of $3.5 million as of December 31, 2021 and 2020.
The Merger Agreement contains certain termination rights for both the Company and Brookfield Reinsurance. If the Merger has
not closed by May 6, 2022 (“Outside Date”), either the Company or Brookfield Reinsurance may terminate the Merger
Agreement. However, if the closing has not occurred because the required insurance regulatory approvals have not been
obtained, and all other conditions to closing have been satisfied (other than those conditions that by their terms are to be
satisfied at the closing, each of which is capable of being satisfied at the closing) or waived, the Outside Date will be August 6,
2022. The Merger Agreement requires the Company to pay Brookfield Reinsurance a $178.5 million termination fee under
certain circumstances. Those circumstances are relatively limited, since the Company has already received the required
stockholder approval for the Merger. Specifically, a termination fee would be payable by the Company if (i) Brookfield
Reinsurance terminates the merger agreement due to the occurrence of a terminable breach by the Company, (ii) a competing
acquisition proposal from a third party was announced prior to the termination that was not withdrawn and (iii) within 12
months after the termination, the Company enters into a definitive agreement with respect to, or otherwise consummates, the
competing acquisition proposal (or does not oppose it, in the case of a tender or exchange offer).
Federal Home Loan Bank (FHLB) Agreements
In May 2018, the Company became a member of the Federal Home Loan Bank of Dallas to augment its liquidity resources. The
Company initially purchased $7.0 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, 2021, certain collateralized mortgage
obligations with a fair value of approximately $28.0 million and commercial mortgage loans of approximately $1.5 billion were
on deposit with the FHLB as collateral for borrowing. As of December 31, 2021, the collateral provided borrowing capacity of
approximately $902.7 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.
Guarantees
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, 2021, was approximately $121.4 million, while
the total cash value of the related life insurance policies was approximately $143.1 million.
Restrictions of the Merger Agreement limit the Company's ability, without Brookfield Reinsurance's consent, to incur guarantee
or assume any indebtedness, subject to certain limited exceptions, including investment portfolio transactions in the ordinary
course of business consistent with past practice and other incurrences of indebtedness not to exceed $10,000,000 in the
aggregate.
134
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. Accruals 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,
an accrual is recorded based on the lowest amount of the range.
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):
Dollar Amount of Transactions
Amount due from American National
Years ended December 31,
December 31,
Related Party
Financial Statement Line Impacted
2021
2020
2019
2021
2020
Gal-Tex Hotel Corporation
Mortgage loan on real estate
$
—
$
—
$
576
$
—
$
—
Gal-Tex Hotel Corporation
Net investment income
—
—
9
—
—
Greer, Herz & Adams, LLP
Other operating expenses
13,203
13,451
12,088
(310)
(441)
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.
Note 19 – Commitments and Contingencies — (Continued)
135
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, 2021. 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, 2021, 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, 2021, 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, 2021.
The effectiveness of the company’s internal control over financial reporting as of December 31, 2021, 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,
2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial
reporting.
ITEM 9B. OTHER INFORMATION
None
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None
136
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, 2021.
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, 2021.
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, 2021.
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, 2021.
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, 2021.
137
Schedules
Page
Schedule I – Summary of Investments – Other than Investments in Related Parties
141
Schedule II – Condensed Financial Information of Registrant
142
Schedule III – Supplementary Insurance Information
148
Schedule IV – Reinsurance Information
149
All other schedules are omitted as the required information is inapplicable or the information is presented in the financial
statements or related notes.
(b) Exhibits
Exhibit Number
Description
2.1
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).
2.2
Agreement and Plan of Merger, dated as of August 6, 2021, by and among Brookfield Asset Management
Reinsurance Partners Ltd., Freestone Merger Sub Inc. and American National Group, Inc. (incorporated by
reference to Exhibit 2.1 of the registrant's Current Report on Form 8-K filed on August 9, 2021).
3.1
Amended and Restated Certificate of Incorporation of ANAT (incorporated by reference to Annex II of the
Proxy Statement/Prospectus filed with the SEC on March 25, 2020).
3.2
Restated Articles of Incorporation, as amended, of ANICO (incorporated by reference to Exhibit No. 3.1 to
the registrant's Registration Statement on Form 10-12B filed April 10, 2009).
3.3
Amended and Restated Bylaws of ANAT (incorporated by reference to Annex III of the Proxy Statement/
Prospectus filed with the SEC on March 25, 2020).
3.4
Amended and Restated Bylaws of ANICO (incorporated by reference to Exhibit No. 3.2 to the registrant's
Current Report on Form 8-K filed on February 23, 2018).
4.1
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).
4.2
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.
10.1*
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).
10.2*
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).
10.3*
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).
10.4*
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).
10.5*
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).
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements—(See Part II, Item 8, Financial Statements and Supplementary Data)
(a)(2) Supplementary Data and Financial Statement Schedules—are attached hereto at the following pages
138
10.6*
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).
10.7*
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).
10.8*
Form of Restricted Stock Unit Agreement for Directors (incorporated by reference to Exhibit No. 10.1 to
ANAT's Quarterly Report on Form 10-Q filed on May 6, 2021).
10.9*
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).
10.10*
Form of Letter Agreement amending outstanding book value units granted to certain employees of American
National Group, Inc. (incorporated by reference to Exhibit No. 10.1 to ANAT's Quarterly Report on Form 10-
Q filed on November 4, 2021).
10.11*
American National Group, Inc. Executive Severance Plan (the “Severance Plan”) (incorporated by reference
to Exhibit No. 99.1 to ANAT’s Current Report on Form 8-K filed on April 26, 2021).
10.12*
Form of Participation Agreement under the Severance Plan (incorporated by reference to Exhibit No. 99.2 to
ANAT’s Current Report on Form 8-K filed on April 26, 2021).
21
Subsidiaries (filed herewith).
23.1
Consent of Deloitte & Touche LLP (filed herewith).
23.2
Consent of KPMG LLP (filed herewith).
31.1
Certification of the principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(filed herewith).
31.2
Certification of the principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(filed herewith).
32.1
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
139
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:
/s/ James E. Pozzi
Name:
James E. Pozzi
Title:
President and Chief Executive Officer
(Principal Executive Officer)
Date: February 25, 2022
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
President and Chief Executive Officer, Director
(Principal Executive Officer)
February 25, 2022
James E. Pozzi
/s/ Brody J. Merrill
Senior Vice President, Chief Financial Officer and
Treasurer (Principle Financial Officer)
February 25, 2022
Brody J. Merrill
/s/ Michelle A. Gage
Vice President, and Controller
February 25, 2022
Michelle A. Gage
/s/ William C. Ansell
Director
February 25, 2022
William C. Ansell
/s/ Arthur O. Dummer
Director
February 25, 2022
Arthur O. Dummer
/s/ Irwin M. Herz, Jr.
Director
February 25, 2022
Irwin M. Herz, Jr.
/s/ E. Douglas McLeod
Director
February 25, 2022
E. Douglas McLeod
/s/ Frances A. Moody-Dahlberg
Director
February 25, 2022
Frances A. Moody-Dahlberg
/s/ Ross R. Moody
Director
February 25, 2022
Ross R. Moody
/s/ James P. Payne
Director
February 25, 2022
James P. Payne
/s/ E.J. Pederson
Director
February 25, 2022
E.J. Pederson
/s/ James D. Yarbrough
Director
February 25, 2022
James D. Yarbrough
140
AMERICAN NATIONAL GROUP, INC. AND SUBSIDIARIES
SCHEDULE I - SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
(In thousands)
December 31, 2021
Cost or
Amortized Cost (1)
Estimated Fair
Value
Amount at Which
Shown in the
Balance Sheet
Type of investment
Fixed maturities
Bonds held-to-maturity
U.S. treasury and government
$
12,284
$
11,997
$
12,284
U.S. states and political subdivisions
104,039
103,809
104,039
Foreign governments
14,369
14,347
14,369
Corporate debt securities
6,810,518
7,166,564
6,799,051
Residential mortgage-backed securities
48,491
50,178
47,975
Collateralized debt securities
112,409
111,894
111,263
Bonds available-for-sale
U.S. treasury and government
26,887
26,753
26,753
U.S. states and political subdivisions
1,028,331
1,077,129
1,077,129
Foreign governments
5,000
5,841
5,841
Corporate debt securities
6,809,610
7,036,148
7,036,148
Residential mortgage-backed securities
32,234
31,967
31,967
Collateralized debt securities
205,732
202,410
202,410
Equity securities
Common stocks
Consumer goods
3,980
13,031
13,031
Energy and utilities
21,138
8,647
8,647
Finance
2,810
7,502
7,502
Healthcare
3,442
12,136
12,136
Industrials
2,214
4,733
4,733
Information technology
5,193
20,436
20,436
Other
18,810
31,492
31,492
Preferred stocks
37,145
37,456
37,456
Other investments
Mortgage loans on real estate, net of allowance
5,199,334
5,271,950
5,199,334
Real estate and real estate partnerships, net of accumulated depreciation
890,105
—
890,105
Investment funds
961,763
—
961,763
Real estate acquired in satisfaction of debt
38,307
—
38,307
Policy loans
365,208
365,208
365,208
Options (2)
113,632
259,383
430
Other long-term investments
125,365
—
125,365
Short-term investments
1,840,732
1,840,732
1,840,732
Total investments
$
24,839,082
$
23,711,743
$
25,025,906
(1)
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.
(2)
The amount shown in the Consolidated Statement of Financial Position represents options exposure net of collateral. See Part II, Item 8, Financial
Statements and Supplementary Data — Note 7, Derivative Instruments, of the Notes to the Consolidated Financial Statements for more information.
See accompanying Report of Independent Registered Public Accounting Firm.
141
AMERICAN NATIONAL GROUP, INC. (Parent Company Only)
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF FINANCIAL POSITION
(In thousands)
December 31,
2021
2020
ASSETS
Investment in subsidiaries
$
6,950,792
$
6,453,754
Other assets
62,016
17,754
Total assets
$
7,012,808
$
6,471,508
LIABILITIES
Other liabilities
$
18,440
$
13,238
Total liabilities
18,440
13,238
EQUITY
Common stock
269
269
Additional paid-in capital
47,762
47,683
Accumulated other comprehensive income
147,054
222,170
Retained earnings
6,799,283
6,188,148
Total stockholders' equity
6,994,368
6,458,270
Total liabilities and stockholders' equity
$
7,012,808
$
6,471,508
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.
142
AMERICAN NATIONAL GROUP, INC. (Parent Company Only)
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS
(In thousands)
Years ended December 31,
2021
2020
2019
PREMIUMS AND OTHER REVENUES
Premiums and other policy revenues
$
—
$
—
$
873,076
Net investment income
—
—
866,837
Net realized investment gains
—
—
5,600
Other-than-temporary impairments
—
—
(6,663)
Net gains on equity securities
—
—
958
Other income
—
—
28,037
Total premiums and other revenues
—
—
1,767,845
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits
—
—
651,162
Other operating expenses
25,802
1,148
965,338
Total benefits, losses and expenses
25,802
1,148
1,616,500
Income (loss) before federal income tax and other items
(25,802)
(1,148)
151,345
Provision (benefit) for federal income taxes
(2,972)
(245)
27,568
Income from subsidiaries, net of tax
722,155
468,408
492,888
Other components of net periodic pension benefit, net of tax
—
—
3,698
Net income
$
699,325
$
467,505
$
620,363
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.
143
AMERICAN NATIONAL GROUP, INC. (Parent Company Only)
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Years ended December 31,
2021
2020
2019
Net income
$
699,325
$
467,505
$
620,363
Other comprehensive income, net of tax
Change in net unrealized gains on securities
—
—
80,235
Defined benefit pension plan adjustment
—
—
(42,139)
Total other comprehensive income, net of tax
—
—
38,096
Total comprehensive income
$
699,325
$
467,505
$
658,459
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.
144
STATEMENTS OF CASH FLOWS
(In thousands)
Years ended December 31,
2021
2020
2019
OPERATING ACTIVITIES
Net income
$
699,325
$
467,505
$
620,363
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized investment gains
—
—
(5,600)
Other-than-temporary impairments
—
—
6,663
Accretion of premiums, discounts and loan origination fees
—
—
(9,654)
Net capitalized interest on policy loans and mortgage loans
—
—
(31,366)
Depreciation
—
—
30,658
Interest credited to policyholders’ account balances
—
—
441,268
Charges to policyholders’ account balances
—
—
(291,160)
Deferred federal income tax expense (benefit)
(1,439)
(245)
40,936
Equity in earnings of subsidiaries
(722,155)
(468,408)
(6,752)
Net income of subsidiaries
—
—
(486,136)
Distributions from equity method investments
—
—
22,012
Dividends from subsidiaries
150,000
—
—
Changes in:
Policyholder liabilities
—
—
44,732
Deferred policy acquisition costs
—
—
(4,791)
Reinsurance recoverables
—
—
18,826
Premiums due and other receivables
—
—
4,333
Prepaid reinsurance premiums
—
—
5,277
Accrued investment income
—
—
(3,535)
Current tax receivable/payable
9,195
12,098
(83,470)
Liability for retirement benefits
—
—
(5,482)
Fair value of option securities
—
—
(134,925)
Fair value of equity securities
—
—
(958)
Other, net
(3,913)
1,264
(6,193)
Net cash provided by operating activities
131,013
12,214
165,046
INVESTING ACTIVITIES
Proceeds from sale/maturity/prepayment of:
Held-to-maturity securities
—
—
706,230
Available-for-sale securities
—
—
366,696
Mortgage loans
—
—
789,088
Policy loans
—
—
42,316
Other invested assets
—
—
112,340
Disposals of property and equipment
—
—
69
Distributions from affiliates and subsidiaries
—
—
27,891
Payment for the purchase/origination of:
Held-to-maturity securities
—
—
(936,646)
Available-for-sale securities
—
—
(326,476)
Equity securities
—
—
(351)
Investment real estate
—
—
(13,639)
Mortgage loans
—
—
(668,563)
Policy loans
—
—
(25,408)
Other invested assets
—
—
(102,275)
Additions to property and equipment
—
—
(11,163)
Contributions to unconsolidated affiliates
—
—
(147,547)
Change in short-term investments
—
—
138,021
Change in investment in subsidiaries
—
—
35,069
Change in collateral held for derivatives
—
—
97,852
Other, net
—
—
(92)
Net cash provided by investing activities
—
—
83,412
AMERICAN NATIONAL GROUP, INC. (Parent Company Only)
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
145
STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
Years ended December 31,
2021
2020
2019
FINANCING ACTIVITIES
Policyholders’ account deposits
—
—
1,375,003
Policyholders’ account withdrawals
—
—
(1,391,881)
Dividends to stockholders
(88,190)
(44,095)
(88,243)
Dividends from subsidiaries
—
49,500
—
Net cash provided by (used in) financing activities
(88,190)
5,405
(105,121)
NET INCREASE IN CASH AND CASH EQUIVALENTS
42,823
17,619
143,337
Beginning of the year
17,619
—
151,592
End of the year
$
60,442
$
17,619
$
294,929
AMERICAN NATIONAL GROUP, INC. (Parent Company Only)
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
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.
146
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.
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.
147
AMERICAN NATIONAL GROUP, INC. AND SUBSIDIARIES
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
(In thousands)
Segment
Deferred
Policy
Acquisition
Cost
Future Policy
Benefits,
Policyholders’
Account
Balances,
Policy and
Contract
Claims and
Other
Policyholder
Funds
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
December 31, 2021
Life
$
956,045
$
5,662,057
$
22,152
$ 412,769
$ 277,962
$ 605,724
$
111,764
$
195,127
$
—
Annuity
380,472
13,643,790
—
74,925
629,417
149,931
77,133
53,379
—
Health
29,348
305,532
27,774
143,484
8,153
98,029
17,906
42,284
—
Property & Casualty
132,259
1,200,365
963,904
1,669,875
62,140
1,094,126
355,970
213,486
1,726,151
Corporate & Other
—
—
—
—
193,982
—
—
67,593
—
Total
$ 1,498,124
$
20,811,744
$ 1,013,830
$ 2,301,053
$ 1,171,654
$ 1,947,810
$
562,773
$
571,869
$ 1,726,151
December 31, 2020
Life
$
896,208
$
5,443,826
$
23,867
$ 396,099
$ 261,389
$ 533,925
$
84,443
$
182,395
$
—
Annuity
309,056
12,690,490
—
92,866
570,003
214,158
103,709
48,359
—
Health
32,885
286,875
30,629
168,805
8,637
116,122
15,619
39,265
—
Property & Casualty
122,062
1,141,352
901,847
1,560,304
63,949
1,005,620
335,831
202,503
1,590,740
Corporate & Other
—
—
—
—
72,174
—
—
42,891
—
Total
$ 1,360,211
$
19,562,543
$ 956,343
$ 2,218,074
$ 976,152
$ 1,869,825
$
539,602
$
515,413
$ 1,590,740
December 31, 2019
Life
$
852,900
$
5,293,970
$
27,080
$ 359,419
$ 263,788
$ 449,252
$
113,300
$
190,104
$
—
Annuity
415,380
12,856,209
—
147,139
663,895
218,576
79,746
50,507
—
Health
32,578
282,592
34,862
165,035
9,467
109,013
21,322
41,475
—
Property & Casualty
122,149
1,084,983
871,617
1,511,201
64,263
1,042,153
316,141
201,580
1,546,144
Corporate & Other
—
—
—
—
179,494
—
—
41,222
—
Total
$ 1,423,007
$
19,517,754
$ 933,559
$ 2,182,794
$ 1,180,907
$ 1,818,994
$
530,509
$
524,888
$ 1,546,144
(1)
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.
(2)
Expenses are charged to segments through direct identification and allocations based on various factors.
See accompanying Report of Independent Registered Public Accounting Firm.
148
AMERICAN NATIONAL GROUP, INC. AND SUBSIDIARIES
SCHEDULE IV - REINSURANCE INFORMATION
(In thousands)
Direct Amount
Ceded to Other
Companies
Assumed
from Other
Companies
Net Amount
Percentage of
Amount
Assumed to Net
Year ended December 31, 2021
Life insurance in-force
$
136,710,529
$
22,835,954
$
221,023
$
114,095,598
0.2 %
Premiums earned
Life and Annuity
$
570,875
$
88,264
$
5,083
$
487,694
1.0 %
Health
198,563
295,631
240,552
143,484
167.7
Property and Casualty
1,947,194
348,765
71,446
1,669,875
4.3
Total premiums
$
2,716,632
$
732,660
$
317,081
$
2,301,053
13.8 %
Year ended December 31, 2020
Life insurance in-force
$
128,075,765
$
24,006,683
$
171,433
$
104,240,515
0.2 %
Premiums earned
Life and Annuity
$
581,350
$
96,675
$
4,290
$
488,965
0.9 %
Health
215,430
263,078
216,453
168,805
128.2
Property and Casualty
1,832,623
343,521
71,202
1,560,304
4.6
Total premiums
$
2,629,403
$
703,274
$
291,945
$
2,218,074
13.2 %
Year ended December 31, 2019
Life insurance in-force
$
117,886,265
$
24,913,905
$
218,020
$
93,190,380
0.2 %
Premiums earned
Life and Annuity
$
605,796
$
99,856
$
618
$
506,558
0.1 %
Health
209,200
269,487
225,322
165,035
136.5
Property and Casualty
1,649,874
149,237
10,564
1,511,201
0.7
Total premiums
$
2,464,870
$
518,580
$
236,504
$
2,182,794
10.8 %
See accompanying Report of Independent Registered Public Accounting Firm.
149