10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2018

or

 

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File No. 001- 34280

 

 

 

LOGO

American National Insurance Company

(Exact name of registrant as specified in its charter)

 

 

 

Texas   74-0484030

(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)

 

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    ☒  Yes    ☐  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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      Smaller reporting company  
Non-accelerated filer      Accelerated filer  
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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of August 01, 2018, there were 26,885,449 shares of the registrant’s voting common stock, $1.00 par value per share, outstanding.

 

 

 


Table of Contents

AMERICAN NATIONAL INSURANCE COMPANY

TABLE OF CONTENTS

 

  PART I – FINANCIAL INFORMATION   
ITEM 1.   FINANCIAL STATEMENTS (Unaudited):   
  Consolidated Statements of Financial Position as of June 30, 2018 and December 31, 2017      3  
  Consolidated Statements of Operations for the three and six months ended June 30, 2018 and 2017      4  
  Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2018 and 2017      5  
  Consolidated Statements of Changes in Equity for the six months ended June 30, 2018 and 2017      5  
  Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2017      6  
  Notes to the Unaudited Consolidated Financial Statements      7  
ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS      37  
ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK      56  
ITEM 4.   CONTROLS AND PROCEDURES      56  
  PART II – OTHER INFORMATION   
ITEM 1.   LEGAL PROCEEDINGS      56  
ITEM 1A.   RISK FACTORS      57  
ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS      59  
ITEM 3.   DEFAULTS UPON SENIOR SECURITIES      59  
ITEM 4.   MINE SAFETY DISCLOSURES      59  
ITEM 5.   OTHER INFORMATION      59  
ITEM 6.   EXHIBIT INDEX      60  

 

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Table of Contents

AMERICAN NATIONAL INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Unaudited and in thousands, except share and per share data)

 

     June 30, 2018     December 31, 2017  

ASSETS

    

Fixed maturity, bonds held-to-maturity, at amortized cost (Fair value $7,835,345 and $7,774,353)

   $ 7,876,853     $ 7,552,959  

Fixed maturity, bonds available-for-sale, at fair value (Amortized cost $6,073,143 and $5,957,901)

     6,050,137       6,145,308  

Equity securities, at fair value (Cost $780,682 and $757,583)

     1,820,702       1,784,226  

Mortgage loans on real estate, net of allowance

     5,114,518       4,749,999  

Policy loans

     376,128       377,103  

Investment real estate, net of accumulated depreciation of $261,921 and $260,904

     529,928       532,346  

Short-term investments

     302,885       658,765  

Other invested assets

     85,256       80,165  
  

 

 

   

 

 

 

Total investments

     22,156,407       21,880,871  
  

 

 

   

 

 

 

Cash and cash equivalents

     441,234       375,837  

Investments in unconsolidated affiliates

     525,371       484,207  

Accrued investment income

     191,229       187,670  

Reinsurance recoverables

     436,132       418,589  

Prepaid reinsurance premiums

     55,790       63,625  

Premiums due and other receivables

     361,025       314,345  

Deferred policy acquisition costs

     1,452,888       1,373,844  

Property and equipment, net of accumulated depreciation of $227,829 and $217,076

     112,834       115,818  

Current tax receivable

     717       44,170  

Other assets

     149,727       158,024  

Separate account assets

     947,484       969,764  
  

 

 

   

 

 

 

Total assets

   $ 26,830,838     $ 26,386,764  
  

 

 

   

 

 

 

LIABILITIES

    

Future policy benefits

    

Life

   $ 3,004,040     $ 2,997,353  

Annuity

     1,477,802       1,400,150  

Accident and health

     55,366       57,104  

Policyholders’ account balances

     12,430,673       12,060,045  

Policy and contract claims

     1,457,790       1,390,561  

Unearned premium reserve

     928,731       875,294  

Other policyholder funds

     324,435       334,501  

Liability for retirement benefits

     109,034       114,538  

Notes payable

     136,730       137,458  

Deferred tax liabilities, net

     295,731       316,370  

Other liabilities

     420,955       477,855  

Separate account liabilities

     947,484       969,764  
  

 

 

   

 

 

 

Total liabilities

     21,588,771       21,130,993  
  

 

 

   

 

 

 

EQUITY

    

American National stockholders’ equity:

    

Common stock, $1.00 par value, - Authorized 50,000,000, Issued 30,832,449 and 30,832,449 Outstanding 26,885,449 and 26,931,884 shares

     30,832       30,832  

Additional paid-in capital

     20,650       19,193  

Accumulated other comprehensive income (loss)

     (110,734     642,216  

Retained earnings

     5,401,965       4,656,134  

Treasury stock, at cost

     (108,492     (101,616
  

 

 

   

 

 

 

Total American National stockholders’ equity

     5,234,221       5,246,759  

Noncontrolling interest

     7,846       9,012  
  

 

 

   

 

 

 

Total equity

     5,242,067       5,255,771  
  

 

 

   

 

 

 

Total liabilities and equity

   $ 26,830,838     $ 26,386,764  
  

 

 

   

 

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

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Table of Contents

AMERICAN NATIONAL INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited and in thousands, except share and per share data)

 

     Three months ended June 30,     Six months ended June 30,  
     2018     2017     2018     2017  

PREMIUMS AND OTHER REVENUE

        

Premiums

        

Life

   $ 84,595     $ 79,287     $ 165,971     $ 156,761  

Annuity

     67,228       65,389       137,844       95,198  

Accident and health

     48,870       36,593       89,885       73,632  

Property and casualty

     360,047       333,250       712,020       660,700  

Other policy revenues

     71,138       66,076       142,477       129,528  

Net investment income

     246,741       234,618       455,410       463,121  

Net realized investment gains

     16,082       11,401       18,181       25,409  

Other-than-temporary impairments

     1,595       (1,469     —         (8,252

Net unrealized gains on equity securities

     44,492       —         11,862       —    

Other income

     11,283       8,948       21,796       17,793  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total premiums and other revenues

     952,071       834,093       1,755,446       1,613,890  
  

 

 

   

 

 

   

 

 

   

 

 

 

BENEFITS, LOSSES AND EXPENSES

        

Policyholder benefits

        

Life

     96,958       101,460       195,504       202,626  

Annuity

     82,103       78,489       166,849       122,478  

Claims incurred

        

Accident and health

     32,310       23,198       60,450       47,578  

Property and casualty

     280,126       254,180       522,616       481,710  

Interest credited to policyholders’ account balances

     105,731       94,548       176,276       190,556  

Commissions for acquiring and servicing policies

     149,737       141,445       294,433       266,937  

Other operating expenses

     123,947       125,970       254,341       252,031  

Change in deferred policy acquisition costs

     (20,116     (27,695     (37,082     (37,182
  

 

 

   

 

 

   

 

 

   

 

 

 

Total benefits, losses and expenses

     850,796       791,595       1,633,387       1,526,734  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before federal income tax and other items

     101,275       42,498       122,059       87,156  
  

 

 

   

 

 

   

 

 

   

 

 

 

Less: Provision for federal income taxes

        

Current

     15,638       5,148       13,533       3,944  

Deferred

     6,319       8,376       9,613       23,315  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total provision for federal income taxes

     21,957       13,524       23,146       27,259  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income after federal income tax

     79,318       28,974       98,913       59,897  
  

 

 

   

 

 

   

 

 

   

 

 

 

Equity in earnings of unconsolidated affiliates

     6,421       12,313       5,876       21,813  

Other components of net periodic pension costs, net of tax

     (1,677     (5,588     (2,469     (6,820
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     84,062       35,699       102,320       74,890  

Less: Net loss attributable to noncontrolling interest, net of tax

     (77     (260     (596     (909
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to American National

   $ 84,139     $ 35,959     $ 102,916     $ 75,799  
  

 

 

   

 

 

   

 

 

   

 

 

 

Amounts available to American National common stockholders

        

Earnings per share

        

Basic

   $ 3.13     $ 1.34     $ 3.83     $ 2.82  

Diluted

     3.12       1.33       3.82       2.81  

Cash dividends to common stockholders

     0.82       0.82       1.64       1.64  

Weighted average common shares outstanding

     26,883,276       26,892,656       26,886,196       26,896,965  

Weighted average common shares outstanding and dilutive potential common shares

     26,910,257       26,955,881       26,933,123       26,966,175  

See accompanying notes to the unaudited consolidated financial statements.

 

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Table of Contents

AMERICAN NATIONAL INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited and in thousands)

 

     Three months ended June 30,     Six months ended June 30,  
     2018     2017     2018     2017  

Net income

   $ 84,062     $ 35,699     $ 102,320     $ 74,890  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

        

Change in net unrealized gains (losses) on securities

     (36,388     40,676       (127,721     96,588  

Foreign currency transaction and translation adjustments

     (134     171       (500     283  

Defined benefit pension plan adjustment

     1,601       6,207       2,390       7,741  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

     (34,921     47,054       (125,831     104,612  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss)

     49,141       82,753       (23,511     179,502  

Less: Comprehensive loss attributable to noncontrolling interest

     (77     (260     (596     (909
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss) attributable to American National

   $ 49,218     $ 83,013     $ (22,915   $ 180,411  
  

 

 

   

 

 

   

 

 

   

 

 

 

AMERICAN NATIONAL INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited and in thousands)

 

     Six months ended June 30,  
     2018     2017  

Common Stock

    

Balance at beginning and end of the period

   $ 30,832     $ 30,832  
  

 

 

   

 

 

 

Additional Paid-In Capital

    

Balance as of January 1,

     19,193       16,406  

Reissuance of treasury shares

     1,173       1,963  

Amortization of restricted stock

     284       413  
  

 

 

   

 

 

 

Balance at end of the period

     20,650       18,782  
  

 

 

   

 

 

 

Accumulated Other Comprehensive Income (Loss)

    

Balance as of January 1,

     642,216       455,899  

Cumulative effect of accounting change

     (627,119     —    

Other comprehensive income (loss)

     (125,831     104,612  
  

 

 

   

 

 

 

Balance at end of the period

     (110,734     560,511  
  

 

 

   

 

 

 

Retained Earnings

    

Balance as of January 1,

     4,656,134       4,250,818  

Cumulative effect of accounting changes

     687,051       —    

Net income attributable to American National

     102,916       75,799  

Cash dividends to common stockholders

     (44,136     (44,168
  

 

 

   

 

 

 

Balance at end of the period

     5,401,965       4,282,449  
  

 

 

   

 

 

 

Treasury Stock

    

Balance as of January 1,

     (101,616     (101,777

Reissuance (purchase) of treasury shares

     (6,876     161  
  

 

 

   

 

 

 

Balance at end of the period

     (108,492     (101,616
  

 

 

   

 

 

 

Noncontrolling Interest

    

Balance as of January 1,

     9,012       9,317  

Contributions

     —         224  

Distributions

     (570     (245

Net loss attributable to noncontrolling interest

     (596     (909
  

 

 

   

 

 

 

Balance at end of the period

     7,846       8,387  
  

 

 

   

 

 

 

Total Equity

   $ 5,242,067     $ 4,799,345  
  

 

 

   

 

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

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AMERICAN NATIONAL INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS         

(Unaudited and in thousands)

 

     Six months ended
June 30,
 
     2018     2017  

OPERATING ACTIVITIES

    

Net income

   $ 102,320     $ 74,890  

Adjustments to reconcile net income to net cash provided by operating activities

    

Net realized investment gains

     (18,181     (25,409

Other-than-temporary impairments

     —         8,252  

Accretion of premiums, discounts and loan origination fees

     (4,736     (5,368

Net capitalized interest on policy loans and mortgage loans

     (20,555     (18,110

Depreciation

     25,783       28,037  

Interest credited to policyholders’ account balances

     176,276       190,556  

Charges to policyholders’ account balances

     (142,477     (129,528

Deferred federal income tax expense

     9,613       23,315  

Equity in earnings of unconsolidated affiliates

     (5,876     (21,813

Distributions from equity method investments

     371       852  

Changes in

    

Policyholder liabilities

     205,125       149,262  

Deferred policy acquisition costs

     (37,082     (37,182

Reinsurance recoverables

     (17,543     24,229  

Premiums due and other receivables

     (46,680     (29,573

Prepaid reinsurance premiums

     7,835       (1,036

Accrued investment income

     (3,559     610  

Current tax receivable/payable

     43,453       (7,397

Liability for retirement benefits

     (2,479     (2,748

Fair value of option securities

     (7,534     (33,194

Fair value of equity securities

     (11,862     —    

Other, net

     1,911       43,140  
  

 

 

   

 

 

 

Net cash provided by operating activities

     254,123       231,785  
  

 

 

   

 

 

 

INVESTING ACTIVITIES

    

Proceeds from sale/maturity/prepayment of

    

Held-to-maturity securities

     395,053       421,911  

Available-for-sale securities

     277,143       281,098  

Equity securities

     24,369       33,186  

Investment real estate

     11,577       40,549  

Mortgage loans

     219,153       319,991  

Policy loans

     28,747       26,258  

Other invested assets

     50,238       41,684  

Disposals of property and equipment

     —         3,049  

Distributions from unconsolidated affiliates

     10,105       15,199  

Payment for the purchase/origination of

    

Held-to-maturity securities

     (780,263     (285,293

Available-for-sale securities

     (317,902     (273,051

Equity securities

     (36,894     (28,547

Investment real estate

     (23,640     (18,538

Mortgage loans

     (561,586     (607,374

Policy loans

     (12,886     (12,442

Other invested assets

     (46,212     (21,014

Additions to property and equipment

     (8,825     (17,698

Contributions to unconsolidated affiliates

     (56,907     (16,611

Change in short-term investments

     355,880       (384,652

Change in collateral held for derivatives

     (1,532     16,713  

Other, net

     (5,739     17,082  
  

 

 

   

 

 

 

Net cash used in investing activities

     (480,121     (448,500
  

 

 

   

 

 

 

FINANCING ACTIVITIES

    

Policyholders’ account deposits

     973,556       1,080,435  

Policyholders’ account withdrawals

     (636,727     (670,071

Change in notes payable

     (728     4,135  

Dividends to stockholders

     (44,136     (44,168

Payments to noncontrolling interest

     (570     (21
  

 

 

   

 

 

 

Net cash provided by financing activities

     291,395       370,310  
  

 

 

   

 

 

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

     65,397       153,595  

Beginning of the period

     375,837       289,338  
  

 

 

   

 

 

 

End of the period

   $ 441,234     $ 442,933  
  

 

 

   

 

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

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Table of Contents

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Nature of Operations

American National Insurance Company and its consolidated subsidiaries (collectively “American National” or “the Company”) offer a broad spectrum of insurance products, including individual and group life insurance, annuities, health insurance, and property and casualty insurance. Business is conducted in all 50 states, the District of Columbia and Puerto Rico.

Note 2 – Summary of Significant Accounting Policies and Practices

The consolidated financial statements and notes thereto have been prepared in conformity with U.S. generally accepted accounting principles (“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, as well as variable interest entities in which American National is the primary beneficiary. Intercompany balances and transactions with consolidated entities have been eliminated. Investments in unconsolidated affiliates are accounted for using the equity method of accounting. Certain amounts in prior years have been reclassified to conform to current year presentation.

The interim consolidated financial statements and notes herein are unaudited and reflect all adjustments which management considers necessary for the fair presentation of the interim consolidated statements of financial position, operations, comprehensive income, changes in equity, and cash flows.

The interim consolidated financial statements and notes should be read in conjunction with the annual consolidated financial statements and notes thereto included in American National’s Annual Report on Form 10-K as of and for the year ended December 31, 2017. The consolidated results of operations for the interim periods should not be considered indicative of results to be expected for the full year.

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.

 

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Note 3 – Recently Issued Accounting Pronouncements

Future Adoption of New Accounting Standards— The FASB issued the following accounting guidance relevant to American National:

In February 2016, the FASB issued guidance that will require significant changes to the statement of financial position of lessees. With certain limited exceptions, lessees will need to recognize virtually all of their leases on the statement of financial position, by recording a right-of-use asset and a lease liability. Lessor accounting is less affected by the standard, but has been updated to align with certain changes in the lessee model and the new revenue recognition standard. The standard is effective for annual periods and interim periods within those annual periods beginning after December 15, 2018. We have identified the majority of the lease contracts and are currently quantifying the expected gross up of our balance sheet for a right-of-use asset and a lease liability as required. Since the majority of our lease activity is as a lessor, we do not expect the adoption of the standard to be material to the Company’s results of operations or financial position.

In June 2016, the FASB issued guidance that will significantly change how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance will replace the current “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. For available-for-sale debt securities, entities will be required to record allowances rather than reduce the carrying amount, as they do under the current other-than-temporary impairment model. The standard is effective for annual periods and interim periods within those annual periods beginning after December 15, 2019. The Company must develop appropriate models to measure expected credit losses to begin determining the impact of adopting the standard on our results of operations or financial position.

In February 2018, the FASB issued guidance that allows for a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The standard is effective for annual periods and interim periods within those annual periods beginning after December 15, 2018. The Company plans to adopt the standard effective January 1, 2019. The guidance changes equity presentation only and will not have an impact on the Company’s consolidated financial position, results of operations, equity or cash flows.

Adoption of New Accounting Standards

In May 2014, the FASB issued guidance that superseded most existing revenue recognition requirements in GAAP. Insurance contracts generally are excluded from the scope of the guidance. For those contracts which are impacted, the transaction price is attributed to the underlying performance obligations in the contract and revenue is recognized as the entity satisfies the performance obligations and transfers control of a good or service to the customer. The Company’s revenues include premium, other policy revenue, net investment income, realized investment gains, and other income. Other income includes fee income which is recognized when obligations under the terms specified within a contract with a customer are either (1) satisfied at a point in time or (2) the progress of completion is measured over a period of time as the obligation is performed using the input method. The Company adopted the standard on its required effective date of January 1, 2018 using the modified retrospective approach. The majority of our revenue sources are insurance related and not in the scope of the guidance. The adoption of the standard did not have a material impact on the Company’s consolidated financial position, results of operations, equity or cash flows as of the adoption date or for the six months ended June 30, 2018.

 

8


Table of Contents

Note 3 – Recently Issued Accounting Pronouncements – (Continued)

Adoption of New Accounting Standards– (Continued)

 

In January 2016, the FASB issued guidance that changed certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The new guidance requires that equity investments, other than those accounted for under the equity method or those that result in consolidation of the investee, be measured at fair value and the changes in fair value are recognized through earnings. When the fair value option has been elected for financial liabilities, changes in fair value due to instrument-specific credit risk will be recognized separately in other comprehensive income. The guidance also simplifies the impairment assessment of equity investments and eliminates the disclosure requirements for methods and significant assumptions used to estimate fair value of financial instruments that are measured at amortized cost on the statement of financial position. The Company adopted the standard on its required effective date of January 1, 2018 using a modified retrospective approach. Upon adoption, cumulative unrealized gains and losses on equity securities of $667.7 million, partially offset by $30.4 million participating policyholders’ interest, net of tax, related to unrealized gains and losses on equity securities, were reclassified from accumulated other comprehensive income to retained earnings. In April 2018, an additional $10.2 million deferred policy acquisition cost adjustment, net of tax, related to net unrealized gains and losses on equity securities, was reclassified from accumulated other comprehensive income to retained earnings. Earnings increased $35.1 million and $9.4 million, net of tax, for the three and six months ended June 30, 2018, respectively from the change in unrealized gains and losses on equity securities.

In October of 2016, the FASB issued guidance requiring an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Whereas, prior guidance prohibited the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset was sold to an outside party. The Company adopted the standard on its required effective date of January 1, 2018 using a modified retrospective approach. Upon adoption, an other liability was released and retained earnings increased by $59.9 million. The adoption of the standard did not have a material impact on the Company’s consolidated financial position, results of operations, equity or cash flows for the six months ended June 30, 2018.

In March 2017, the FASB issued guidance on the presentation of net periodic pension and postretirement benefit costs. The guidance requires the service cost component to be reported in the same line item as other compensation costs. All other components of net periodic pension cost are required to be presented in the income statement separately from the service cost component and outside of income from operations. The Company adopted the standard on its required effective date of January 1, 2018 using a retrospective approach. Upon adoption, other components of net periodic pension costs of $5.6 million and $6.8 million, net of tax, for the three and six months ended June 30, 2017, respectively, were reclassified from other operating expenses. The guidance changed presentation only and did not have an impact on the Company’s consolidated financial position, results of operations, equity or cash flows. Since the Company’s defined benefit pension plans have been frozen, the components of net periodic benefit costs have not materially changed from year-end 2017.

 

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Table of Contents

Note 4 – Investment in Securities

The cost or amortized cost and fair value of investments in securities are shown below (in thousands):

 

     June 30, 2018  
     Cost or
Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
(Losses)
     Fair Value  

Fixed maturity securities, bonds held-to-maturity

           

U.S. states and political subdivisions

   $ 268,760      $ 7,183      $ (442    $ 275,501  

Foreign governments

     3,986        461        —          4,447  

Corporate debt securities

     7,328,304        74,389        (126,294      7,276,399  

Residential mortgage-backed securities

     273,945        6,529        (3,370      277,104  

Collateralized debt securities

     595        16        —          611  

Other debt securities

     1,263        20        —          1,283  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total bonds held-to-maturity

     7,876,853        88,598        (130,106      7,835,345  
  

 

 

    

 

 

    

 

 

    

 

 

 

Fixed maturity securities, bonds available-for-sale

           

U.S. treasury and government

     28,306        355        (356      28,305  

U.S. states and political subdivisions

     857,229        14,506        (4,671      867,064  

Foreign governments

     5,000        1,179        —          6,179  

Corporate debt securities

     5,147,199        52,642        (86,922      5,112,919  

Residential mortgage-backed securities

     32,425        351        (761      32,015  

Collateralized debt securities

     2,984        677        (6      3,655  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total bonds available-for-sale

     6,073,143        69,710        (92,716      6,050,137  
  

 

 

    

 

 

    

 

 

    

 

 

 

Equity securities

           

Common stock

     762,365        1,044,696        (8,593      1,798,468  

Preferred stock

     18,317        3,917        —          22,234  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total equity securities

     780,682        1,048,613        (8,593      1,820,702  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investments in securities

   $ 14,730,678      $ 1,206,921      $ (231,415    $ 15,706,184  
  

 

 

    

 

 

    

 

 

    

 

 

 
     December 31, 2017  
     Cost or
Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
(Losses)
     Fair Value  

Fixed maturity securities, bonds held-to-maturity

           

U.S. states and political subdivisions

   $ 266,966      $ 12,466      $ (37    $ 279,395  

Foreign governments

     4,011        582        —          4,593  

Corporate debt securities

     7,032,464        217,883        (18,020      7,232,327  

Residential mortgage-backed securities

     246,803        9,702        (1,262      255,243  

Collateralized debt securities

     923        31        —          954  

Other debt securities

     1,792        49        —          1,841  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total bonds held-to-maturity

     7,552,959        240,713        (19,319      7,774,353  
  

 

 

    

 

 

    

 

 

    

 

 

 

Fixed maturity securities, bonds available-for-sale

           

U.S. treasury and government

     27,569        475        (146      27,898  

U.S. states and political subdivisions

     866,250        31,621        (824      897,047  

Foreign governments

     5,000        1,460        —          6,460  

Corporate debt securities

     5,038,908        170,112        (16,093      5,192,927  

Residential mortgage-backed securities

     15,009        37        (329      14,717  

Collateralized debt securities

     3,171        651        (4      3,818  

Other debt securities

     1,994        447        —          2,441  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total bonds available-for-sale

     5,957,901        204,803        (17,396      6,145,308  
  

 

 

    

 

 

    

 

 

    

 

 

 

Equity securities

           

Common stock

     738,453        1,029,340        (7,166      1,760,627  

Preferred stock

     19,130        4,469        —          23,599  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total equity securities

     757,583        1,033,809        (7,166      1,784,226  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investments in securities

   $ 14,268,443      $ 1,479,325      $ (43,881    $ 15,703,887  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

10


Table of Contents

Note 4 – Investment in Securities – (Continued)

 

The amortized cost and fair value, by contractual maturity, of fixed maturity securities are shown below (in thousands):

 

     June 30, 2018  
     Bonds Held-to-Maturity      Bonds Available-for-Sale  
     Amortized Cost      Fair Value      Amortized Cost      Fair Value  

Due in one year or less

   $ 310,936      $ 317,255      $ 90,967      $ 91,987  

Due after one year through five years

     4,143,583        4,172,564        2,407,071        2,424,032  

Due after five years through ten years

     2,815,126        2,753,428        3,030,740        2,993,068  

Due after ten years

     607,208        592,098        544,365        541,050  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 7,876,853      $ 7,835,345      $ 6,073,143      $ 6,050,137  
  

 

 

    

 

 

    

 

 

    

 

 

 

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 allocated to their respective categories based on the year of final contractual maturity.

Proceeds from sales of available-for-sale securities, with the related gross realized gains and losses, are shown below (in thousands):

 

     Three months ended June 30,      Six months ended June 30,  
     2018      2017      2018      2017  

Proceeds from sales of available-for-sale securities

   $ 42,932      $ 16,834      $ 90,113      $ 44,557  

Gross realized gains

     11,123        4,162        12,547        14,988  

Gross realized losses

     (32      (140      (587      (146

Gains and losses are determined using specific identification of the securities sold. During the six months ended June 30, 2018 and 2017, bonds with a carrying value of $73,071,000 and $15,000,000, respectively, were transferred from held-to-maturity to available-for-sale after a deterioration in the issuers’ credit worthiness became evident. A realized loss of $6,000,000 was recorded in 2017 on a bond that was transferred due to an other-than-temporary impairment.

The components of the change in net unrealized gains (losses) on debt securities are shown below (in thousands):

 

     Six months ended June 30,  
     2018      2017  

Bonds available-for-sale

   $ (210,413    $ 73,102  

Adjustments for

     

Deferred policy acquisition costs

     41,962        (8,701

Participating policyholders’ interest

     11,924        (8,185

Deferred federal income tax benefit (expense)

     28,806        (19,457
  

 

 

    

 

 

 

Change in net unrealized gains (losses) on debt securities, net of tax

   $ (127,721    $ 36,759  
  

 

 

    

 

 

 

The components of the change in unrealized gains (losses) on equity securities are shown below (in thousands):

 

     Three months ended June 30,      Six months ended June 30,  
     2018      2017      2018      2017  

Net gains on equity securities

   $ 55,567      $ 36,483      $ 23,992      $ 107,139  

Less: Net gains on equity securities sold

     (11,075      (3,735      (12,130      (15,095
  

 

 

    

 

 

    

 

 

    

 

 

 

Unrealized gains on equity securities

   $ 44,492      $ 32,748      $ 11,862      $ 92,044  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

11


Table of Contents

Note 4 – Investment in Securities – (Continued)

 

The gross unrealized losses and fair value of the investment securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are shown below (in thousands):

 

     June 30, 2018  
     Less than 12 months      12 Months or more      Total  
     Unrealized
(Losses)
    Fair
Value
     Unrealized
(Losses)
    Fair
Value
     Unrealized
(Losses)
    Fair
Value
 

Fixed maturity securities, bonds held-to-maturity

  

U.S. states and political subdivisions

   $ (442   $ 38,792      $ —       $ —        $ (442   $ 38,792  

Corporate debt securities

     (116,879     3,691,888        (9,415     168,632        (126,294     3,860,520  

Residential mortgage-backed securities

     (2,218     107,172        (1,152     16,854        (3,370     124,026  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total bonds held-to-maturity

     (119,539     3,837,852        (10,567     185,486        (130,106     4,023,338  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Fixed maturity securities, bonds available-for-sale

              

U.S. treasury and government

     (355     23,092        (1     549        (356     23,641  

U.S. states and political subdivisions

     (3,236     229,026        (1,435     26,551        (4,671     255,577  

Corporate debt securities

     (74,246     2,644,766        (12,676     142,449        (86,922     2,787,215  

Residential mortgage-backed securities

     (594     26,565        (167     1,292        (761     27,857  

Collateralized debt securities

     (1     159        (5     121        (6     280  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total bonds available-for-sale

     (78,432     2,923,608        (14,284     170,962        (92,716     3,094,570  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Equity securities

              

Common stock

     (8,460     65,955        (133     776        (8,593     66,731  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total equity securities

     (8,460     65,955        (133     776        (8,593     66,731  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ (206,431   $ 6,827,415      $ (24,984   $ 357,224      $ (231,415   $ 7,184,639  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
     December 31, 2017  
     Less than 12 months      12 Months or more      Total  
     Unrealized
(Losses)
    Fair
Value
     Unrealized
(Losses)
    Fair
Value
     Unrealized
(Losses)
    Fair
Value
 

Fixed maturity securities, bonds held-to-maturity

  

U.S. states and political subdivisions

   $ (37   $ 1,937      $ —       $ —        $ (37   $ 1,937  

Corporate debt securities

     (8,444     951,425        (9,576     192,737        (18,020     1,144,162  

Residential mortgage-backed securities

     (325     49,283        (937     18,888        (1,262     68,171  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total bonds held-to-maturity

     (8,806     1,002,645        (10,513     211,625        (19,319     1,214,270  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Fixed maturity securities, bonds available-for-sale

              

U.S. treasury and government

     (141     20,352        (5     3,875        (146     24,227  

U.S. states and political subdivisions

     (160     27,669        (664     28,010        (824     55,679  

Corporate debt securities

     (6,657     559,710        (9,436     159,532        (16,093     719,242  

Residential mortgage-backed securities

     (193     12,419        (136     1,428        (329     13,847  

Collateralized debt securities

     —         —          (4     123        (4     123  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total bonds available-for-sale

     (7,151     620,150        (10,245     192,968        (17,396     813,118  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Equity securities

              

Common stock

     (7,166     60,391        —         —          (7,166     60,391  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total equity securities

     (7,166     60,391        —         —          (7,166     60,391  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ (23,123   $ 1,683,186      $ (20,758   $ 404,593      $ (43,881   $ 2,087,779  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

As of June 30, 2018, the securities with unrealized losses including those exceeding one year were not deemed to be other-than-temporarily impaired. American National has the ability and intent to hold those securities until a market price recovery or maturity. It is more-likely-than-not that American National will not be required to sell them prior to recovery, and recovery is expected in a reasonable period of time. It is possible an issuer’s financial circumstances may be different in the future, which may lead to a different impairment conclusion in future periods.

 

12


Table of Contents

Note 4 – Investment in Securities – (Continued)

 

The following table identifies the total bonds distributed by credit quality rating (in thousands, except percentages):

 

     June 30, 2018     December 31, 2017  
     Amortized      Estimated      % of Fair     Amortized      Estimated      % of Fair  
     Cost      Fair Value      Value     Cost      Fair Value      Value  

AAA

   $ 622,719      $ 634,678        4.6   $ 638,039      $ 664,396        4.8

AA

     1,264,185        1,273,017        9.1       1,220,544        1,264,282        9.0  

A

     4,963,507        4,927,798        35.5       4,856,802        4,997,574        35.9  

BBB

     6,604,589        6,569,963        47.3       6,273,220        6,480,719        46.6  

BB and below

     494,996        480,026        3.5       522,255        512,690        3.7  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total

   $ 13,949,996      $ 13,885,482        100.0   $ 13,510,860      $ 13,919,661        100.0
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Equity securities by market sector distribution are shown below:

 

     June 30, 2018     December 31, 2017  

Consumer goods

     21.1     20.2

Energy and utilities

     8.9       8.6  

Finance

     19.8       21.9  

Healthcare

     11.7       11.8  

Industrials

     9.2       9.5  

Information technology

     21.5       20.0  

Other

     7.8       8.0  
  

 

 

   

 

 

 

Total

     100.0     100.0
  

 

 

   

 

 

 

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 the location of the underlying collateral. The distribution based on carrying amount of mortgage loans by location is as follows:

 

     June 30, 2018     December 31, 2017  

East North Central

     14.9     15.4

East South Central

     2.9       3.1  

Mountain

     16.5       14.0  

Pacific

     16.3       16.5  

South Atlantic

     12.5       14.1  

West South Central

     29.9       29.8  

Other

     7.0       7.1  
  

 

 

   

 

 

 

Total

     100.0     100.0
  

 

 

   

 

 

 

For the six months ended June 30, 2018, American National foreclosed on two loans with recorded investments of $1,940,000 and $8,376,000. Three loans with a total recorded investment of $12,635,000 were in the process of foreclosure. For the year ended December 31, 2017, American National foreclosed on one loan with a recorded investment of $2,285,000, and four loans with a total recorded investment of $17,263,000 were in the process of foreclosure. American National did not sell any loans during the six months ended June 30, 2018 or during the year ended December 31, 2017.

 

13


Table of Contents

Note 5 – Mortgage Loans – (Continued)

 

The age analysis of past due loans is shown below (in thousands):

 

     30-59 Days      60-89 Days      More Than                    Total  
     Past Due      Past Due      90 Days      Total      Current      Amount     Percent  

June 30, 2018

                   

Industrial

   $ —        $ —        $ 28,822      $ 28,822      $ 834,897      $ 863,719       16.8  

Office

     —          —          19,625        19,625        1,774,265        1,793,890       34.9  

Retail

     —          —          —          —          766,843        766,843       14.9  

Other

     —          —          —          —          1,708,977        1,708,977       33.4  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ —        $ —        $ 48,447      $ 48,447      $ 5,084,982      $ 5,133,429       100.0  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

 

 

 

Allowance for loan losses

                    (18,911  
                 

 

 

   

Total, net of allowance

                  $ 5,114,518    
                 

 

 

   

December 31, 2017

                   

Industrial

   $ 4,985      $ —        $ —        $ 4,985      $ 781,385      $ 786,370       16.5  

Office

     —          10,713        8,881        19,594        1,764,151        1,783,745       37.4  

Retail

     —          —          —          —          750,979        750,979       15.7  

Other

     —          —          —          —          1,447,771        1,447,771       30.4  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 4,985      $ 10,713      $ 8,881      $ 24,579      $ 4,744,286      $ 4,768,865       100.0  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

 

 

 

Allowance for loan losses

                    (18,866  
                 

 

 

   

Total, net of allowance

                  $ 4,749,999    
                 

 

 

   

There were no unamortized purchase discounts for the six months ended June 30, 2018 or during the year ended December 31, 2017. Total mortgage loans were also net of unamortized origination fees of $31,510,000 and $32,766,000 at June 30, 2018 and December 31, 2017, respectively. No unearned income is included in these amounts.

Allowance for Credit Losses

A loan is considered impaired when it is probable that all amounts due will not be collected according to the contractual terms of the loan agreement. Mortgage loans with temporary difficulties are not considered impaired when the borrower has the financial capacity to fund revenue shortfalls from the properties for the foreseeable future. Individual valuation allowances are established for impaired loans to reduce the carrying value to the fair value of the collateral. Loans not evaluated individually for collectability are segregated by property-type and location, and allowance factors are applied. These factors are developed based on historical loss experience adjusted for the expected trend in the rate of foreclosure losses. Allowance factors are higher for loans of certain property types and in certain regions based on loss experience or a blended historical loss factor.

The change in allowance for credit losses in mortgage loans is shown below (in thousands, except number of loans):

 

    Collectively Evaluated for Impairment     Individually Impaired     Total  
    Number of
Loans
    Recorded
Investment
    Valuation
Allowance
    Number of
Loans
    Recorded
Investment
    Valuation
Allowance
    Number of
Loans
    Recorded
Investment
    Valuation
Allowance
 

Beginning balance at January 1, 2018

    451     $ 4,762,315       16,041       3     $ 6,550       2,825       454     $ 4,768,865     $ 18,866  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Change in allowance

    —         —         554       —         —         (509     —         —         45  

Net change in recorded investment

    5       366,504       —         (1     (1,940     —         4       364,564       —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance at June 30, 2018

    456     $ 5,128,819     $ 16,595       2     $ 4,610     $ 2,316       458     $ 5,133,429     $ 18,911  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

14


Table of Contents

Note 5 – Mortgage Loans – (Continued)

 

Troubled Debt Restructurings

American National has granted concessions which are classified as troubled debt restructurings 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. American National considers the amount, timing and extent of concessions in determining any impairment or changes in the specific allowance for loan losses recorded in connection with a troubled debt restructuring. The carrying value after specific allowance, before and after modification in a troubled debt restructuring, may not change significantly, or may increase if the expected recovery is higher than the pre-modification recovery assessment.

Troubled debt restructuring mortgage loan information is as follows (in thousands, except number of loans):

 

    Six months ended June 30,  
    2018     2017  
    Number of loans     Recorded
investment pre-

modification
    Recorded
investment post
modification
    Number of loans     Recorded
investment pre-

modification
    Recorded
investment post
modification
 

Other (hotel/motel)

    —       $ —       $ —         5     $ 24,801     $ 24,801  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    —       $ —       $ —         5     $ 24,801     $ 24,801  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

There were no loans determined to be troubled debt restructurings for the six months ended June 30, 2018.

Note 6 – Real Estate and Other Investments

Investment real estate by property-type and geographic distribution are as follows:

 

     June 30, 2018     December 31, 2017  

Industrial

     5.5     6.0

Office

     40.0       39.0  

Retail

     40.0       39.3  

Other

     14.5       15.7  
  

 

 

   

 

 

 

Total

     100.0     100.0
  

 

 

   

 

 

 
     June 30, 2018     December 31, 2017  

East North Central

     5.4     6.1

East South Central

     4.5       3.6  

Mountain

     13.2       13.2  

Pacific

     8.3       8.5  

South Atlantic

     15.4       14.0  

West South Central

     50.7       52.4  

Other

     2.5       2.2  
  

 

 

   

 

 

 

Total

     100.0     100.0
  

 

 

   

 

 

 

 

15


Table of Contents

Note 6 – Real Estate and Other Investments – (Continued)

 

American National regularly invests in real estate partnerships and joint ventures. American National frequently participates in the design of these entities with the sponsor, but in most cases, its involvement is limited to financing. Through analysis performed by American National, some of these partnerships and joint ventures have been determined to be variable interest entities (“VIEs”). In certain instances, in addition to an economic interest in the entity, American National holds the power to direct the most significant activities of the entity and is deemed the primary beneficiary or consolidator of the entity. The assets of the consolidated VIEs are restricted and must first be used to settle their liabilities. Creditors or beneficial interest holders of these VIEs have no recourse to the general credit of American National, as American National’s obligation is limited to the amount of its committed investment. American National has not provided financial or other support to the VIEs in the form of liquidity arrangements, guarantees, or other commitments to third parties that may affect the fair value or risk of its variable interest in the VIEs in 2018 or 2017.

The assets and liabilities relating to the VIEs included in the consolidated financial statements are as follows (in thousands):

 

     June 30, 2018      December 31, 2017  

Investment real estate

   $ 143,154      $ 148,456  

Short-term investments

     501        501  

Cash and cash equivalents

     10,365        6,320  

Other receivables

     4,447        4,461  

Other assets

     13,651        15,920  
  

 

 

    

 

 

 

Total assets of consolidated VIEs

   $ 172,118      $ 175,658  
  

 

 

    

 

 

 

Notes payable

   $ 136,730      $ 137,458  

Other liabilities

     5,373        5,616  
  

 

 

    

 

 

 

Total liabilities of consolidated VIEs

   $ 142,103      $ 143,074  
  

 

 

    

 

 

 

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 $27,515,000 and $28,377,000 at June 30, 2018 and December 31,2017, respectively.

The total long-term notes payable of the consolidated VIE’s consists of the following (in thousands):

 

Interest rate

  

Maturity

   June 30, 2018      December 31, 2017  

LIBOR

   2020    $ 10,131      $ 9,702  

90 day LIBOR + 2.5%

   2021      40,403        40,124  

4% fixed

   2022      86,196        87,632  
     

 

 

    

 

 

 

Total

      $ 136,730      $ 137,458  
     

 

 

    

 

 

 

 

16


Table of Contents

Note 6 – Real Estate and Other Investments – (Continued)

 

For other VIEs in which American National is a partner, it is not the primary beneficiary, and these entities are not consolidated, as the major decisions that most significantly impact the economic activities of the VIE require consent of all partners. The carrying amount and maximum exposure to loss relating to unconsolidated VIEs follows (in thousands):

 

     June 30, 2018      December 31, 2017  
     Carrying
Amount
     Maximum
Exposure
to Loss
     Carrying
Amount
     Maximum
Exposure
to Loss
 

Investment in unconsolidated affiliates

   $ 342,821      $ 342,821      $ 314,808      $ 314,808  

Mortgage loans

     621,663        621,663        493,014        493,014  

Accrued investment income

     6,838        6,838        1,817        1,817  

As of June 30, 2018, no real estate investments were classified as held for sale.

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 U.S. 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):

 

Derivatives Not Designated
as Hedging Instruments

  

Location in the Consolidated
Statements of Financial Position

   June 30, 2018      December 31, 2017  
   Number of
Instruments
     Notional
Amounts
     Estimated
Fair Value
     Number of
Instruments
     Notional
Amounts
     Estimated
Fair Value
 

Equity-indexed options

  

Other invested assets

     482      $ 2,219,850      $ 217,341        468      $ 1,885,600      $ 220,190  

Equity-indexed embedded derivative

  

Policyholders’ account balances

     85,281        2,134,700        592,913        76,621        1,819,523        512,526  

 

Derivatives Not Designated
as Hedging Instruments

  

Location in the Consolidated
Statements of Operations

   Gains (Losses) Recognized in Income on Derivatives  
   Three months ended June 30,     Six months ended June 30,  
   2018     2017     2018     2017  

Equity-indexed options

  

Net investment income

   $ 21,778     $ 13,430     $ 7,633     $ 36,563  

Equity-indexed embedded derivative

  

Interest credited to policyholders’ account balances

     (17,599     (18,977     (4,163     (44,104

 

17


Table of Contents

Note 7 – Derivative Instruments – (Continued)

 

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 we believe are credit worthy and obtaining sufficient collateral where appropriate, as a means of mitigating the financial loss from defaults. The non-performance risk is the net counterparty exposure based on the fair value of the open contracts, less 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):

 

         June 30, 2018  

Counterparty

 

Moody/S&P

Rating

   Options Fair
Value
     Collateral Held      Collateral Amounts
used to Offset
Exposure
     Excess
Collateral
     Exposure Net
of Collateral
 

Barclays

 

Baa2/BBB

   $ 50,343      $ 50,313      $ 50,313      $ —        $ 30  

Goldman-Sachs

 

A3/BBB+

     992        1,030        992        38        —    

ING

 

Baa1/A-

     26,646        26,930        26,646        284        —    

Morgan Stanley

 

A3/BBB+

     17,822        17,506        17,506        —          316  

NATIXIS*

 

A2/A

     40,501        40,370        40,370        —          131  

SunTrust

 

Baa1/BBB+

     40,766        39,210        39,210        —          1,556  

Wells Fargo

 

A2/A-

     40,271        38,860        38,860        —          1,411  
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     $ 217,341      $ 214,219      $ 213,897      $ 322      $ 3,444  
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
         December 31, 2017  

Counterparty

 

Moody/S&P

Rating

   Options Fair
Value
     Collateral Held      Collateral Amounts
used to Offset
Exposure
     Excess
Collateral
     Exposure Net
of Collateral
 

Barclays

 

Baa2/BBB

   $ 55,215      $ 56,883      $ 55,215      $ 1,668      $ —    

Goldman-Sachs

 

A3/BBB+

     956        780        780        —          176  

ING

 

Baa1/A-

     26,650        27,330        26,650        680        —    

JP Morgan

 

A3/A-

     189        —          —          —          189  

Morgan Stanley

 

A3/BBB+

     17,490        18,776        17,490        1,286        —    

NATIXIS*

 

A2/A

     37,550        33,860        33,860        —          3,690  

SunTrust

 

Baa1/BBB+

     37,266        36,560        36,560        —          706  

Wells Fargo

 

A2/A

     44,874        47,230        44,874        2,356        —    
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     $ 220,190      $ 221,419      $ 215,429      $ 5,990      $ 4,761  
    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

*

Includes collateral restrictions.    

 

18


Table of Contents

Note 8 – Net Investment Income and Realized Investment Gains (Losses)

Net investment income is shown below (in thousands):

 

     Three months ended June 30,      Six months ended June 30,  
     2018      2017      2018      2017  

Bonds

   $ 142,529      $ 135,453      $ 282,624      $ 269,803  

Dividends on equity securities

     10,898        10,274        20,338        19,006  

Mortgage loans

     58,999        67,316        122,867        125,020  

Real estate

     4,212        (554      8,495        (1,749

Options

     21,778        13,430        7,633        36,563  

Other invested assets

     8,325        8,699        13,453        14,478  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 246,741      $ 234,618      $ 455,410      $ 463,121  
  

 

 

    

 

 

    

 

 

    

 

 

 

Realized investment gains (losses) are shown below (in thousands):

 

     Three months ended June 30,      Six months ended June 30,  
     2018      2017      2018      2017  

Bonds

   $ 6,070      $ 6,564      $ 6,737      $ 10,068  

Equity securities

     11,075        3,735        12,130        15,095  

Mortgage loans

     (856      (3,079      (554      (4,705

Real estate

     (197      4,211        (114      4,999  

Other invested assets

     (10      (30      (18      (48
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 16,082      $ 11,401      $ 18,181      $ 25,409  
  

 

 

    

 

 

    

 

 

    

 

 

 

Other-than-temporary impairment losses are shown below (in thousands):

 

     Three months ended June 30,      Six months ended June 30,  
     2018      2017      2018      2017  

Bonds

   $ —        $ —        $ —        $ (6,000

Equity securities

     1,595        (1,469      —          (2,252
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,595      $ (1,469    $ —        $ (8,252
  

 

 

    

 

 

    

 

 

    

 

 

 

 

19


Table of Contents

Note 9 – Fair Value of Financial Instruments

The carrying amount and fair value of financial instruments are shown below (in thousands):

 

     June 30, 2018      December 31, 2017  
     Carrying             Carrying         
     Amount      Fair Value      Amount      Fair Value  

Financial assets

  

Fixed maturity securities, bonds held-to-maturity

   $ 7,876,853      $ 7,835,345      $ 7,552,959      $ 7,774,353  

Fixed maturity securities, bonds available-for-sale

     6,050,137        6,050,137        6,145,308        6,145,308  

Equity securities

     1,820,702        1,820,702        1,784,226        1,784,226  

Equity-indexed options

     217,341        217,341        220,190        220,190  

Mortgage loans on real estate, net of allowance

     5,114,518        5,138,434        4,749,999        4,811,006  

Policy loans

     376,128        376,128        377,103        377,103  

Short-term investments

     302,885        302,885        658,765        658,765  

Separate account assets

     947,484        947,484        969,764        969,764  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total financial assets

   $ 22,706,048      $ 22,688,456      $ 22,458,314      $ 22,740,715  
  

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities

           

Investment contracts

   $ 9,981,106      $ 9,981,106      $ 8,990,771      $ 8,990,771  

Embedded derivative liability for equity-indexed contracts

     592,913        592,913        512,526        512,526  

Notes payable

     136,730        136,730        137,458        137,458  

Separate account liabilities

     947,484        947,484        969,764        969,764  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total financial liabilities

   $ 11,658,233      $ 11,658,233      $ 10,610,519      $ 10,610,519  
  

 

 

    

 

 

    

 

 

    

 

 

 

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.

Fixed Maturity Securities and Equity OptionsAmerican National utilizes a pricing service to estimate fair value measurements. The estimates of fair value for most fixed maturity securities, including municipal bonds, provided by the pricing service are disclosed as Level 2 measurements as the estimates are based on observable market information rather than market quotes.

 

20


Table of Contents

Note 9 – Fair Value of Financial Instruments – (Continued)

 

The pricing service utilizes market quotations for fixed maturity securities that have quoted prices in active markets. Since fixed maturity securities generally do not trade on a daily basis, the pricing service prepares estimates of fair value measurements for these securities using its proprietary pricing applications, which include available relevant market information, benchmark curves, benchmarking of like securities, sector groupings and matrix pricing. Additionally, an option adjusted spread model is used to develop prepayment and interest rate scenarios.

The pricing service evaluates each asset class based on relevant market information, credit information, perceived market movements and sector news. The market inputs utilized in the pricing evaluation, listed in the approximate order of priority, include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and economic events. The extent of the use of each market input depends on the asset class and the market conditions. Depending on the security, the priority of the use of inputs may change or some market inputs may not be relevant. For some securities, additional inputs may be necessary.

American National has reviewed the inputs and methodology used and the techniques applied by the pricing service to produce quotes that represent the fair value of a specific security. The review confirms that the pricing service is utilizing information from observable transactions or a technique that represents a market participant’s assumptions. American National does not adjust quotes received from the pricing service. The pricing service utilized by American National has indicated that they will only produce an estimate of fair value if there is objectively verifiable information available.

American National holds a small amount of private placement debt and fixed maturity securities that have characteristics that make them unsuitable for matrix pricing. For these securities, a quote from an independent broker (typically a market maker) is obtained. Due to the disclaimers on the quotes that indicate that the price is indicative only, American National includes these fair value estimates in Level 3.

For securities priced using a quote from an independent broker, such as the equity-indexed options and certain fixed maturity securities, American National uses a market-based fair value analysis to validate the reasonableness of prices received. Price variances above a certain threshold are analyzed further to determine if any pricing issue exists. This analysis is performed quarterly.

Equity SecuritiesFor 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 estimate of 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 regularly.

Mortgage LoansThe 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.

 

21


Table of Contents

Note 9 – Fair Value of Financial Instruments – (Continued)

Embedded Derivative The amounts reported within policyholder contract deposits include equity linked interest crediting rates based on the S&P 500 index within index 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 will have the inverse effect decreasing the fair value.

 

   

Mortality rate assumptions vary by age and by 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 June 30, 2018 and December 31, 2017, the one year implied volatility used to estimate embedded derivative value was 13.7%.

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  
     June 30, 2018      December 31, 2017      Unobservable Input    June 30, 2018     December 31, 2017  

Indexed Annuities

   $ 581.6      $ 498.3      Lapse Rate      1-66     1-66
         Mortality Multiplier      90-100     90-100
         Equity Volatility      10-40     7-30

Indexed Life

     11.3        14.2      Equity Volatility      10-40     7-30

Other Financial InstrumentsOther financial instruments classified as Level 3 measurements, as there is little or no market activity, are as follows:

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.

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, plus or minus 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.

 

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Note 9 – Fair Value of Financial Instruments – (Continued)

 

Quantitative Disclosures

The fair value hierarchy measurements of the financial instruments are shown below (in thousands):

 

     Fair Value Measurement as of June 30, 2018  
     Total
Fair Value
     Level 1      Level 2      Level 3  

Financial assets

  

Fixed maturity securities, bonds held-to-maturity

           

U.S. states and political subdivisions

   $ 275,501      $ —        $ 275,501      $ —    

Foreign governments

     4,447        —          4,447        —    

Corporate debt securities

     7,276,399        —          7,276,399        —    

Residential mortgage-backed securities

     277,104        —          277,104        —    

Collateralized debt securities

     611        —          611        —    

Other debt securities

     1,283        —          1,283        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total bonds held-to-maturity

     7,835,345        —          7,835,345        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Fixed maturity securities, bonds available-for-sale

           

U.S. treasury and government

     28,305        —          28,305        —    

U.S. states and political subdivisions

     867,064        —          867,064        —    

Foreign governments

     6,179        —          6,179        —    

Corporate debt securities

     5,112,919        —          5,112,919        —    

Residential mortgage-backed securities

     32,015        —          32,015        —    

Collateralized debt securities

     3,655        —          3,655        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total bonds available-for-sale

     6,050,137        —          6,050,137        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Equity securities

           

Common stock

     1,798,468        1,798,350        —          118  

Preferred stock

     22,234        22,234        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total equity securities

     1,820,702        1,820,584        —          118  
  

 

 

    

 

 

    

 

 

    

 

 

 

Options

     217,341        —          —          217,341  

Mortgage loans on real estate

     5,138,434        —          5,138,434        —    

Policy loans

     376,128        —          —          376,128  

Short-term investments

     302,885        —          302,885        —    

Separate account assets

     947,484        —          947,484        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total financial assets

   $ 22,688,456      $ 1,820,584      $ 20,274,285      $ 593,587  
  

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities

           

Investment contracts

   $ 9,981,106      $ —        $ —        $ 9,981,106  

Embedded derivative liability for equity-indexed contracts

     592,913        —          —          592,913  

Notes payable

     136,730        —          —          136,730  

Separate account liabilities

     947,484        —          947,484        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total financial liabilities

   $ 11,658,233      $ —        $ 947,484      $ 10,710,749  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

Note 9 – Fair Value of Financial Instruments – (Continued)

 

     Fair Value Measurement as of December 31, 2017  
     Total
Fair Value
     Level 1      Level 2      Level 3  

Financial assets

  

Fixed maturity securities, bonds held-to-maturity

           

U.S. states and political subdivisions

   $ 279,395      $ —        $ 276,450      $ 2,945  

Foreign governments

     4,593        —          4,593        —    

Corporate debt securities

     7,232,327        —          7,232,327        —    

Residential mortgage-backed securities

     255,243        —          255,243        —    

Collateralized debt securities

     954        —          954        —    

Other debt securities

     1,841        —          1,841        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total bonds held-to-maturity

     7,774,353        —          7,771,408        2,945  
  

 

 

    

 

 

    

 

 

    

 

 

 

Fixed maturity securities, bonds available-for-sale

           

U.S. treasury and government

     27,898        —          27,898        —    

U.S. states and political subdivisions

     897,047        —          897,047        —    

Foreign governments

     6,460        —          6,460        —    

Corporate debt securities

     5,192,927        —          5,192,927        —    

Residential mortgage-backed securities

     14,717        —          14,717        —    

Collateralized debt securities

     3,818        —          3,818        —    

Other debt securities

     2,441        —          2,441        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total bonds available-for-sale

     6,145,308        —          6,145,308        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Equity securities

           

Common stock

     1,760,627        1,760,499        —          128  

Preferred stock

     23,599        23,599        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total equity securities

     1,784,226        1,784,098        —          128  
  

 

 

    

 

 

    

 

 

    

 

 

 

Options

     220,190        —          —          220,190  

Mortgage loans on real estate

     4,811,006        —          4,811,006        —    

Policy loans

     377,103        —          —          377,103  

Short-term investments

     658,765        —          658,765        —    

Separate account assets

     969,764        —          969,764        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total financial assets

   $ 22,740,715      $ 1,784,098      $ 20,356,251      $ 600,366  
  

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities

           

Investment contracts

   $ 8,990,771      $ —        $ —        $ 8,990,771  

Embedded derivative liability for equity-indexed contracts

     512,526        —          —          512,526  

Notes payable

     137,458        —          —          137,458  

Separate account liabilities

     969,764        —          969,764        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total financial liabilities

   $ 10,610,519      $ —        $ 969,764      $ 9,640,755  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

24


Table of Contents

Note 9 – Fair Value of Financial Instruments – (Continued)

For financial instruments measured at fair value on a recurring basis using Level 3 inputs during the period, a reconciliation of the beginning and ending balances is shown below (in thousands):

 

     Level 3  
     Three months ended June 30, 2018      Six months ended June 30, 2018  
     Assets     Liability      Assets     Liability  
     Investment     Equity-Indexed     Embedded      Investment     Equity-Indexed     Embedded  
     Securities     Options     Derivative      Securities     Options     Derivative  

Beginning balance, 2018

   $ —       $ 204,308     $ 535,641      $ —       $ 220,190     $ 512,526  

Net gain for derivatives included in net investment income

     —         21,712       —          —         7,567       —    

Net change included in interest credited

     —         —         17,599        —         —         4,163  

Purchases, sales and settlements or maturities

             

Purchases

     —         26,084       —          —         43,012       —    

Sales

     —         —         —          —         —         —    

Settlements or maturities

     —         (34,763     —          —         (53,428     —    

Premiums less benefits

     —         —         39,673        —         —         76,224  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Ending balance at June 30, 2018

   $ —       $ 217,341     $ 592,913      $ —       $ 217,341     $ 592,913  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Beginning balance, 2017

   $ 17,329     $ 174,258     $ 346,634      $ 14,264     $ 156,479     $ 314,330  

Total realized and unrealized investment gains (losses) included in other comprehensive income

     105       —         —          (4,362     —         —    

Net gain for derivatives included in net investment income

     —         13,275       —          . —         36,333       —    

Net change included in interest credited

     —         —         18,977        —         —         44,104  

Purchases, sales and settlements or maturities

             

Purchases

     —         13,463       —          —         21,015       —    

Sales

     (1,582     (12,837     —          (3,539     (12,837     —    

Settlements or maturities

     —         (15,782     —          (3,010     (28,613     —    

Premiums less benefits

     —         —         24,578        —         —         31,755  

Carry value transfers in

     —         —            15,000      

Gross transfers into Level 3

     —         —         —          382       —         —    

Gross transfers out of Level 3

     —         —         —          (2,883     —         —    
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Ending balance at June 30, 2017

   $ 15,852     $ 172,377     $ 390,189      $ 15,852     $ 172,377     $ 390,189  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Within the net gain for derivatives included in net investment income were unrealized losses of $18,321,000 and gains of $13,660,000, relating to assets still held at June 30, 2018, and 2017, respectively.

There were no transfers between Level 1 and Level 2 fair value hierarchies during the periods presented. The transfers into Level 3 during the six months ended June 30, 2017 were the result of existing securities no longer being priced by the third-party pricing service at the end of the period. Unless information is obtained from the brokers that indicate observable inputs were used in their pricing, there are not enough observable inputs to enable American National to classify the securities priced by the brokers as other than Level 3. American National’s valuation of these securities involves judgment regarding assumptions market participants would use including quotes from independent brokers. The inputs used by the brokers include recent transactions in the security, similar bonds with same name, ratings, maturity and structure, external dealer quotes in the security, Bloomberg evaluated pricing and prior months pricing. None of them are observable to American National as of June 30, 2018. The transfers out of Level 3 during the six months ended June 30, 2017 were securities being priced by the third-party service at the end of the period, using inputs that are observable or derived from market data, which resulted in classification of these assets as Level 2.

 

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Note 10 – Deferred Policy Acquisition Costs

Deferred policy acquisition costs are shown below (in thousands):

 

                 Accident     Property        
     Life     Annuity     & Health     & Casualty     Total  

Beginning balance at January 1, 2018

   $ 791,276     $ 426,497     $ 36,806     $ 119,265     $ 1,373,844  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Additions

     65,577       59,691       5,931       156,552       287,751  

Amortization

     (51,885     (42,007     (7,525     (149,252     (250,669

Effect of change in unrealized gains on available-for-sale debt securities

     11,123       30,839       —         —         41,962  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net change

     24,815       48,523       (1,594     7,300       79,044  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance at June 30, 2018

   $ 816,091     $ 475,020     $ 35,212     $ 126,565     $ 1,452,888  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commissions comprise the majority of the additions to deferred policy acquisition costs.

Note 11 – Liability for Unpaid Claims and Claim Adjustment Expenses

The liability for unpaid claims and claim adjustment expenses (“claims”) for accident and 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. Liability for unpaid claims are 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):

 

     Six months ended June 30,  
     2018      2017  

Unpaid claims balance, beginning

   $ 1,199,233      $ 1,140,723  

Less reinsurance recoverables

     237,439        216,903  
  

 

 

    

 

 

 

Net beginning balance

     961,794        923,820  
  

 

 

    

 

 

 

Incurred related to

     

Current

     596,530        563,959  

Prior years

     (12,515      (40,137
  

 

 

    

 

 

 

Total incurred claims

     584,015        523,822  
  

 

 

    

 

 

 

Paid claims related to

     

Current

     288,591        288,731  

Prior years

     240,544        205,702  
  

 

 

    

 

 

 

Total paid claims

     529,135        494,433  
  

 

 

    

 

 

 

Net balance

     1,016,845        953,209  

Plus reinsurance recoverables

     255,684        195,072  
  

 

 

    

 

 

 

Unpaid claims balance, ending

   $ 1,272,529      $ 1,148,281  
  

 

 

    

 

 

 

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 $12,515,000 during the first six months of 2018 and decreased by approximately $40,137,000 during the first six months of 2017. This reflected lower-than-anticipated losses in the first six months of 2018 related to accident years prior to 2018 in workers compensation, other commercial, and business owner and commercial package policy 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 June 30, 2018 was $44,443,000.

 

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Table of Contents

Note 12 – Federal Income Taxes 

A reconciliation of the effective tax rate to the statutory federal tax rate is shown below (in thousands, except percentages):

 

     Three months ended June 30,     Six months ended June 30,  
     2018     2017     2018     2017  
     Amount     Rate     Amount*     Rate*     Amount     Rate     Amount*     Rate*  

Income tax expense before tax on equity in earnings of unconsolidated affiliates

   $ 21,267       20.0   $ 14,875       27.1   $ 25,632       20.0   $ 30,505       28.0

Tax on equity in earnings of unconsolidated affiliates

     1,348       1.0       4,309       7.9       1,234       1.0       7,634       7.0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expected income tax expense at the statutory rate

     22,615       21.0       19,184       35.0       26,866       21.0       38,139       35.0  

Tax-exempt investment income

     (836     (0.8     (1,769     (3.2     (1,679     (1.3     (3,601     (3.3

Deferred tax change

     (600     (0.6     (464     (0.8     (909     (0.7     (1,231     (1.1

Dividend exclusion

     (1,001     (0.9     (2,322     (4.2     (1,986     (1.6     (4,164     (3.8

Miscellaneous tax credits, net

     (2,529     (2.3     (2,542     (4.6     (4,742     (3.7     (4,799     (4.4

Low income housing tax credit expense

     1,252       1.2       1,256       2.3       2,504       2.0       2,509       2.3  

Change in valuation allowance

     2,700       2.5       —         —         2,700       2.1       —         —    

Other items, net

     356       0.3       141       0.3       392       0.3       322       0.3  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for federal income tax before interest expense

     21,957       20.4       13,484       24.8       23,146       18.1       27,175       25.0  

Interest expense

     —         —         40       0.1       —         —         84       0.1  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 21,957       20.4   $ 13,524       24.9   $ 23,146       18.1   $ 27,259       25.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

*

Prior year revised to reflect the January 1, 2018 adoption of ASU 2017-07 Compensation-Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. See Note 3, Recently Issued Accounting Pronouncements, of the Notes to the Unaudited Consolidated Financial Statements.     

American National made income tax payments of $14,135,000 and $8,466,000 during the six months ended June 30, 2018 and 2017, respectively.

Management assesses both positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of its existing deferred tax assets. During the three months ended June 30, 2018, management determined that it is more-likely-than-not that the benefit from a deferred tax asset related to its investment in a joint venture will not be realized. In recognition of this risk, American National provided a valuation allowance of $2,700,000 as of June 30, 2018. The valuation allowance resulted in an increase to tax expense on the consolidated statements of operations.

There are no operating or capital loss carryforwards that will expire by December 31, 2018.

American National’s federal income tax returns for years 2014 to 2016 are subject to examination by the Internal Revenue Service. With few exceptions, American National is no longer subject to examination for years before 2014. During the six months ended June 30, 2018, we received $48.0 million in refunds related to 2013, 2014, 2015, and 2016. In the opinion of management, all prior year deficiencies have been paid or adequate provisions have been made for any tax deficiencies that may be upheld. No provision for penalties or interest were established during 2018 relating to a dispute with the Internal Revenue Service. Management does not believe there are any uncertain tax benefits that could be recognized within the next twelve months that would decrease American National’s effective tax rate.

 

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Table of Contents

Note 13 – 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)
 

Beginning balance at January 1, 2018

  $ 716,878     $ (72,772   $ (1,890   $ 642,216  

Amounts reclassified from AOCI (net of tax benefit $462 and expense $635)

    (1,740     2,390       —         650  

Unrealized holding losses arising during the period (net of tax benefit $39,660)

    (168,551     —         —         (168,551

Unrealized adjustment to DAC (net of tax expense $8,812)

    33,150       —         —         33,150  

Unrealized losses on investments attributable to participating policyholders’ interest (net of tax expense $2,504)

    9,420       —         —         9,420  

Foreign currency adjustment (net of tax benefit $133)

    —         —         (500     (500

Cumulative effect of changes in accounting (net of tax benefit $334,955)

    (627,119     —         —         (627,119
 

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance at June 30, 2018

  $ (37,962   $ (70,382   $ (2,390   $ (110,734
 

 

 

   

 

 

   

 

 

   

 

 

 

Beginning balance January 1, 2017

  $ 547,138     $ (88,603   $ (2,636   $ 455,899  

Amounts reclassified from AOCI (net of tax benefit $5,809 and expense $4,168)

    (10,789     7,741       —         (3,048

Unrealized holding gains arising during the period (net of tax expense $63,610)

    118,134       —         —         118,134  

Unrealized adjustment to DAC (net of tax benefit $3,264)

    (5,437     —         —         (5,437

Unrealized gains on investments attributable to participating policyholders’ interest (net of tax benefit $2,865)

    (5,320     —         —         (5,320

Foreign currency adjustment (net of tax expense $152)

    —         —         283       283  
 

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance at June 30, 2017

  $ 643,726     $ (80,862   $ (2,353   $ 560,511  
 

 

 

   

 

 

   

 

 

   

 

 

 

Note 14 – Stockholders’ Equity and Noncontrolling Interests

American National has one class of common stock with a par value of $1.00 per share and 50,000,000 authorized shares. The amounts outstanding at the dates indicated are shown below:

 

     June 30, 2018      December 31, 2017  

Common stock

     

Shares issued

     30,832,449        30,832,449  

Treasury shares

     (3,947,000      (3,900,565
  

 

 

    

 

 

 

Outstanding shares

     26,885,449        26,931,884  

Restricted shares

     (11,333      (74,000
  

 

 

    

 

 

 

Unrestricted outstanding shares

     26,874,116        26,857,884  
  

 

 

    

 

 

 

Stock-based compensation

American National has a stock-based compensation plan, which allows for grants of Non-Qualified Stock Options, Stock Appreciation Rights (“SAR”), Restricted Stock (“RS”) Awards, Restricted Stock Units (“RSU”), Performance Awards, Incentive Awards or any combination thereof. This plan is administered by the American National Board Compensation Committee. To date, only SAR, RS and RSU awards have been made. All awards are subject to review and approval by the Board Compensation Committee both at the time of setting applicable performance objectives and at payment of the awards. The number of shares available for grants under the plan cannot exceed 2,900,000 shares, and no more than 200,000 shares may be granted to any one individual in any calendar year. Grants were made to certain officers meeting established performance objectives, and grants are made to directors as compensation and to align their interests with those of other shareholders.

 

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Note 14 – Stockholders’ Equity and Noncontrolling Interests – (Continued)

 

SAR, RS and RSU information for the periods indicated are shown below:

 

     SAR      RS Shares      RS Units  
     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, 2017

     2,586     $ 106.70        74,000     $ 110.19        52,765     $ 106.26  

Granted

     —         —          —         —          8,250       121.93  

Exercised

     (100     116.48        (62,667     116.48        (41,949     106.94  

Forfeited

     —         —          —         —          —         —    

Expired

     (1,601     114.17        —         —          —         —    
  

 

 

      

 

 

      

 

 

   

Outstanding at June 30, 2018

     885     $ 92.11        11,333     $ 75.44        19,066     $ 111.54  
  

 

 

      

 

 

      

 

 

   

 

     SAR      RS Shares      RS Units  

Weighted-average contractual remaining life (in years)

     0.45        4.63        0.78  

Exercisable shares

     885        N/A        N/A  

Weighted-average exercise price

   $ 92.11      $ 75.44      $ 111.54  

Weighted-average exercise price exercisable shares

     92.11        N/A        N/A  

Compensation expense (credit)

        

Three months ended June 30, 2018

   $ (5,000    $ 83,000      $ 760,000  

Three months ended June 30, 2017

     (14,000      205,000        1,519,000  

Six months ended June 30, 2018

     (34,000      284,000        549,000  

Six months ended June 30, 2017

     (49,000      412,000        1,649,000  

Fair value of liability award

        

June 30, 2018

   $ 27,000        N/A      $ 2,280,000  

December 31, 2017

     63,000        N/A        6,376,000  

The SARs give the holder the right to cash compensation based on the difference between the stock price on the grant date and the stock price on the exercise date. The SARs vest at a rate of 20% per year for five years and expire five years after vesting.

RS awards entitle the participant to full dividend and voting rights. Each RS share awarded has the value of one share of restricted stock and vests 10 years from the grant date. Unvested shares are restricted as to disposition, and are subject to forfeiture under certain circumstances. Compensation expense is recognized over the vesting period. The restrictions on these awards lapse after 10 years and most of these awards feature a graded vesting schedule in the case of the retirement, death or disability of an award holder. Restricted stock awards for 350,334 shares have been granted at an exercise price of zero, of which 11,333 shares are unvested.

RSU awards allow the recipient of the awards to settle the vested RSUs in either shares of American National’s common stock, cash or a combination of both. RSUs granted vest after a one-year or three-year graded vesting requirement or over a shorter period as a result of death, disability or retirement after age 65.

 

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Note 14 – Stockholders’ Equity and Noncontrolling Interests – (Continued)

 

Earnings per share

Basic earnings per share were calculated using a weighted average number of shares outstanding. Diluted earnings per share include RS and RSU award shares.

 

    Three months ended June 30,     Six months ended June 30,  
    2018     2017     2018     2017  

Weighted average shares outstanding

    26,883,276       26,892,656       26,886,196       26,896,965  

Incremental shares from RS awards and RSUs

    26,981       63,225       46,927       69,210  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total shares for diluted calculations

    26,910,257       26,955,881       26,933,123       26,966,175  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to American National (in thousands)

  $ 84,139     $ 35,959     $ 102,916     $ 75,799  

Basic earnings per share

  $ 3.13     $ 1.34     $ 3.83     $ 2.82  

Diluted earnings per share

  $ 3.12     $ 1.33     $ 3.82     $ 2.81  

Statutory Capital and Surplus

Risk Based Capital (“RBC”) is a measure insurance regulators use to evaluate the capital adequacy of American National Insurance Company and its insurance subsidiaries. RBC is calculated using formulas applied to certain financial balances and activities that consider, among other things, investment risks related to the type and quality of investments, insurance risks associated with products and liabilities, interest rate risks and general business risks. Insurance companies that do not maintain capital and surplus at a level at least 200% of the authorized control level RBC are required to take certain actions. At June 30, 2018 and December 31, 2017, American National Insurance Company’s statutory capital and surplus was $3,234,095,000 and $3,293,474,000, respectively. American National Insurance Company and each of its insurance subsidiaries had statutory capital and surplus at June 30, 2018 and December 31, 2017, substantially above 200% of the authorized control level.

American National and its insurance subsidiaries prepare statutory-basis financial statements in accordance with statutory accounting practices prescribed or permitted by the insurance department of the 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 American National Insurance Company and its 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 American National Insurance Company and the Missouri domiciled insurance subsidiary by $69,345,000 and $66,625,000 at June 30, 2018 and December 31, 2017, respectively. The statutory capital and surplus of both American National Insurance Company and the Missouri domiciled insurance subsidiary would have remained substantially above the company action level RBC had it not used the permitted practice.

 

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Note 14 – Stockholders’ Equity and Noncontrolling Interests – (Continued)

 

The statutory capital and surplus and net income of our life and property and casualty insurance entities in accordance with statutory accounting practices are shown below (in thousands):

 

                   June 30, 2018      December 31, 2017  

Statutory capital and surplus

           

Life insurance entities

         $ 2,074,948      $ 2,141,573  

Property and casualty insurance entities

           1,170,214        1,162,761  

 

     Three months ended June 30,      Six months ended June 30,  
     2018      2017      2018      2017  

Statutory net income (loss)

           

Life insurance entities

   $ 12,850      $ 20,809      $ 16,113      $ 18,342  

Property and casualty insurance entities

     (3,828      (5,639      9,230        1,172  

Dividends

American National Insurance Company’s payment of dividends to stockholders is restricted by insurance law. The restrictions require life insurance companies to maintain minimum amounts of capital and surplus, and in the absence of special approval, limit the payment of dividends to the greater of the prior year’s statutory net income from operations, or 10% of prior year statutory surplus. American National Insurance Company is permitted without prior approval of the Texas Department of Insurance to pay total dividends of $329,347,000 during 2018. Similar restrictions on amounts that can transfer in the form of dividends, loans, or advances to American National Insurance Company apply to its insurance subsidiaries.

Noncontrolling interests

American National County Mutual Insurance Company (“County Mutual”) is a mutual insurance company owned by its policyholders. American National 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 $6,750,000 at June 30, 2018 and December 31, 2017.

American National Insurance Company 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 noncontrolling interests of $1,096,000 and $2,262,000 at June 30, 2018 and December 31, 2017, respectively.

 

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Note 15– 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.

 

   

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 to American National’s 2017 annual report on Form 10-K. All revenues and expenses specifically attributable to policy transactions are recorded directly to the appropriate operating segment. Revenues and expenses not specifically attributable to policy transactions are allocated to each segment as follows:

 

   

Recurring income from bonds and mortgage loans is allocated based on the assets allocated to each line of business at the average yield available from these assets.

 

   

Net investment income from all other assets is allocated to the insurance segments in accordance with the amount of capital allocated to each segment, with the remainder recorded in the Corporate and Other business segment.

 

   

Expenses are allocated based upon various factors, including premium and commission ratios of the operating segments.

 

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Note 15– Segment Information – (Continued)

 

The results of operations measured as the income before federal income tax and other items by operating segments are summarized below (in thousands):

 

     Three months ended June 30, 2018  
     Life     Annuity     Accident
& Health
     Property
& Casualty
    Corporate
& Other
     Total  

Premiums and other revenues

              

Premiums

   $ 84,595     $ 67,228     $ 48,870      $ 360,047     $ —        $ 560,740  

Other policy revenues

     67,231       3,907       —          —         —          71,138  

Net investment income

     61,082       148,710       2,263        15,493       19,193        246,741  

Net realized investment gains

     —         —         —          —         17,677        17,677  

Net unrealized gains on equity securities

     —         —         —          —         44,492        44,492  

Other income

     512       631       6,809        2,264       1,067        11,283  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total premiums and other revenues

     213,420       220,476       57,942        377,804       82,429        952,071  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Benefits, losses and expenses

              

Policyholder benefits

     96,958       82,103       —          —         —          179,061  

Claims incurred

     —         —         32,310        280,126       —          312,436  

Interest credited to policyholders’ account balances

     21,046       84,685       —          —         —          105,731  

Commissions for acquiring and servicing policies

     39,391       30,355       9,126        70,865       —          149,737  

Other operating expenses

     48,189       11,853       10,090        45,166       8,649        123,947  

Change in deferred policy acquisition costs

     (7,249     (8,811     506        (4,562     —          (20,116
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total benefits, losses and expenses

     198,335       200,185       52,032        391,595       8,649        850,796  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Income (loss) before federal income tax and other items

   $ 15,085     $ 20,291     $ 5,910      $ (13,791   $ 73,780      $ 101,275  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 
     Three months ended June 30, 2017  
     Life     Annuity     Accident
& Health
     Property
& Casualty
    Corporate
& Other
     Total  

Premiums and other revenues

              

Premiums

   $ 79,287     $ 65,389     $ 36,593      $ 333,250     $ —        $ 514,519  

Other policy revenues

     62,464       3,612       —          —         —          66,076  

Net investment income

     60,689       131,952       2,505        15,775       23,697        234,618  

Net realized investment gains

     —         —         —          —         9,932        9,932  

Other income

     503       974       4,321        2,196       954        8,948  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total premiums and other revenues

     202,943       201,927       43,419        351,221       34,583        834,093  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Benefits, losses and expenses

              

Policyholder benefits

     101,460       78,489       —          —         —          179,949  

Claims incurred

     —         —         23,198        254,180       —          277,378  

Interest credited to policyholders’ account balances

     19,876       74,672       —          —         —          94,548  

Commissions for acquiring and servicing policies

     36,773       33,407       6,270        64,995       —          141,445  

Other operating expenses

     47,660       11,992       9,627        44,506       12,185        125,970  

Change in deferred policy acquisition costs

     (10,707     (14,539     817        (3,266     —          (27,695
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total benefits, losses and expenses

     195,062       184,021       39,912        360,415       12,185        791,595  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Income (loss) before federal income tax and other items

   $ 7,881     $ 17,906     $ 3,507      $ (9,194   $ 22,398      $ 42,498  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

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Note 15– Segment Information – (Continued)

 

The results of operations measured as the income before federal income tax and other items by operating segments are summarized below (in thousands):

 

     Six months ended June 30, 2018  
     Life     Annuity     Accident
& Health
     Property
& Casualty
    Corporate
& Other
     Total  

Premiums and other revenues

              

Premiums

   $ 165,971     $ 137,844     $ 89,885      $ 712,020     $ —        $ 1,105,720  

Other policy revenues

     134,962       7,515       —          —         —          142,477  

Net investment income

     118,850       262,190       4,617        31,354       38,399        455,410  

Net realized investment gains

     —         —         —          —         18,181        18,181  

Net unrealized gains on equity securities

     —         —         —          —         11,862        11,862  

Other income

     1,267       1,356       11,966        4,327       2,880        21,796  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total premiums and other revenues

     421,050       408,905       106,468        747,701       71,322        1,755,446  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Benefits, losses and expenses

              

Policyholder benefits

     195,504       166,849       —          —         —          362,353  

Claims incurred

     —         —         60,450        522,616       —          583,066  

Interest credited to policyholders’ account balances

     37,311       138,965       —          —         —          176,276  

Commissions for acquiring and servicing policies

     78,911       60,359       15,142        140,021       —          294,433  

Other operating expenses

     99,139       23,172       20,448        92,967       18,615        254,341  

Change in deferred policy acquisition costs

     (13,692     (17,684     1,594        (7,300     —          (37,082
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total benefits, losses and expenses

     397,173       371,661       97,634        748,304       18,615        1,633,387  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Income (loss) before federal income tax and other items

   $ 23,877     $ 37,244     $ 8,834      $ (603   $ 52,707      $ 122,059  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 
     Six months ended June 30, 2017  
     Life     Annuity     Accident
& Health
     Property
& Casualty
    Corporate
& Other
     Total  

Premiums and other revenues

              

Premiums

   $ 156,761     $ 95,198     $ 73,632      $ 660,700     $ —        $ 986,291  

Other policy revenues

     122,373       7,155       —          —         —          129,528  

Net investment income

     122,898       271,629       5,012        29,815       33,767        463,121  

Net realized investment gains

     —         —         —          —         17,157        17,157  

Other income

     1,119       1,639       8,667        4,134       2,234        17,793  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total premiums and other revenues

     403,151       375,621       87,311        694,649       53,158        1,613,890  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Benefits, losses and expenses

              

Policyholder benefits

     202,626       122,478       —          —         —          325,104  

Claims incurred

     —         —         47,578        481,710       —          529,288  

Interest credited to policyholders’ account balances

     35,281       155,275       —          —         —          190,556  

Commissions for acquiring and servicing policies

     71,583       50,691       12,160        132,503       —          266,937  

Other operating expenses

     96,843       22,680       19,857        90,788       21,863        252,031  

Change in deferred policy acquisition costs

     (18,564     (17,170     2,149        (3,597     —          (37,182
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total benefits, losses and expenses

     387,769       333,954       81,744        701,404       21,863        1,526,734  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Income (loss) before federal income tax and other items

   $ 15,382     $ 41,667     $ 5,567      $ (6,755   $ 31,295      $ 87,156  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

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Table of Contents

Note 16 – Commitments and Contingencies

Commitments

American National had aggregate commitments at June 30, 2018, to purchase, expand or improve real estate, to fund fixed interest rate mortgage loans, and to purchase other invested assets of $748,380,000 of which $381,365,000 is expected to be funded in 2018 with the remainder funded in 2019 and beyond.

American National has a $100,000,000 short-term variable rate borrowing facility containing a $55,000,000 sub-feature for the issuance of letters of credit. Borrowings under the facility are at the discretion of the lender and would be used only for funding working capital requirements. The combination of borrowings and outstanding letters of credit cannot exceed $100,000,000 at any time. As of June 30, 2018 and December 31, 2017, the outstanding letters of credit were $3,031,000 and $4,586,000, respectively, and there were no borrowings on this facility. This facility expires on October 31, 2018. American National expects it will be able to be renewed on substantially equivalent terms upon expiration.

Federal Home Loan Bank (FHLB) Agreements

In May 2018, the Company became a member of the Federal Home Loan Bank of Dallas (“FHLB”) to augment its liquidity resources. As membership requires the ownership of member stock, the Company 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 June 30, 2018, certain collateralized mortgage obligations (CMO’s) with a fair value of approximately $132.5 million were on deposit with the FHLB as collateral for amounts subject to funding agreements. The deposited securities are included in bonds held-to-maturity on the Company’s consolidated statements of financial position.

Guarantees

American National has guaranteed bank loans for custom