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 September 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 if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☑  Yes    ☐  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 November 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 September 30, 2018 and December 31, 2017      3  
  Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017      4  
  Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2018 and 2017      5  
  Consolidated Statements of Changes in Equity for the nine months ended September 30, 2018 and 2017      5  
  Consolidated Statements of Cash Flows for the nine months ended September 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      57  

ITEM 4.

 

CONTROLS AND PROCEDURES

     57  
  PART II – OTHER INFORMATION   

ITEM 1.

  LEGAL PROCEEDINGS      57  

ITEM 1A.

  RISK FACTORS      58  

ITEM 2.

  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS      58  

ITEM 3.

  DEFAULTS UPON SENIOR SECURITIES      58  

ITEM 4.

  MINE SAFETY DISCLOSURES      58  

ITEM 5.

  OTHER INFORMATION      58  

ITEM 6.

  EXHIBIT INDEX      59  

 

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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)

 

     September 30, 2018     December 31, 2017  

ASSETS

    

Fixed maturity, bonds held-to-maturity, at amortized cost (Fair value $7,941,606 and $7,774,353)

   $ 8,010,576     $ 7,552,959  

Fixed maturity, bonds available-for-sale, at fair value (Amortized cost $6,119,694 and $5,957,901)

     6,074,668       6,145,308  

Equity securities, at fair value (Cost $696,474 and $757,583)

     1,810,647       1,784,226  

Mortgage loans on real estate, net of allowance

     5,139,758       4,749,999  

Policy loans

     374,256       377,103  

Investment real estate, net of accumulated depreciation of $268,559 and $260,904

     543,440       532,346  

Short-term investments

     217,221       658,765  

Other invested assets

     74,956       80,165  
  

 

 

   

 

 

 

Total investments

     22,245,522       21,880,871  
  

 

 

   

 

 

 

Cash and cash equivalents

     606,775       375,837  

Investments in unconsolidated affiliates

     535,729       484,207  

Accrued investment income

     186,421       187,670  

Reinsurance recoverables

     460,125       418,589  

Prepaid reinsurance premiums

     56,038       63,625  

Premiums due and other receivables

     377,618       314,345  

Deferred policy acquisition costs

     1,458,591       1,373,844  

Property and equipment, net of accumulated depreciation of $233,635 and $217,076

     111,495       115,818  

Current tax receivable

     42,717       44,170  

Prepaid pension

     32,118       —    

Other assets

     147,078       158,024  

Separate account assets

     1,043,688       969,764  
  

 

 

   

 

 

 

Total assets

   $ 27,303,915     $ 26,386,764  
  

 

 

   

 

 

 

LIABILITIES

    

Future policy benefits

    

Life

   $ 3,023,872     $ 2,997,353  

Annuity

     1,501,035       1,400,150  

Health

     54,967       57,104  

Policyholders’ account balances

     12,522,225       12,060,045  

Policy and contract claims

     1,472,040       1,390,561  

Unearned premium reserve

     941,180       875,294  

Other policyholder funds

     329,489       334,501  

Liability for retirement benefits

     78,355       114,538  

Notes payable

     137,504       137,458  

Deferred tax liabilities, net

     345,235       316,370  

Other liabilities

     472,655       477,855  

Separate account liabilities

     1,043,688       969,764  
  

 

 

   

 

 

 

Total liabilities

     21,922,245       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

     20,673       19,193  

Accumulated other comprehensive income (loss)

     (123,709     642,216  

Retained earnings

     5,553,383       4,656,134  

Treasury stock, at cost

     (108,492     (101,616
  

 

 

   

 

 

 

Total American National stockholders’ equity

     5,372,687       5,246,759  

Noncontrolling interest

     8,983       9,012  
  

 

 

   

 

 

 

Total equity

     5,381,670       5,255,771  
  

 

 

   

 

 

 

Total liabilities and equity

   $ 27,303,915     $ 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 September 30,     Nine months ended September 30,  
     2018     2017     2018     2017  

PREMIUMS AND OTHER REVENUE

        

Premiums

        

Life

   $ 91,176     $ 84,862     $ 257,147     $ 241,623  

Annuity

     47,296       65,007       185,140       160,205  

Health

     45,154       41,832       135,039       115,464  

Property and casualty

     374,842       345,816       1,086,862       1,006,516  

Other policy revenues

     70,840       54,030       213,317       183,558  

Net investment income

     285,532       241,205       740,942       704,326  

Net realized investment gains (losses)

     (8,606     33,929       9,575       59,338  

Other-than-temporary impairments

     —         (3,485     —         (11,737

Net unrealized gains on equity securities

     133,825       —         145,687       —    

Other income

     12,177       9,554       33,973       27,347  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total premiums and other revenues

     1,052,236       872,750       2,807,682       2,486,640  
  

 

 

   

 

 

   

 

 

   

 

 

 

BENEFITS, LOSSES AND EXPENSES

        

Policyholder benefits

        

Life

     119,816       106,904       315,320       309,530  

Annuity

     64,153       79,090       231,002       201,568  

Claims incurred

        

Health

     29,751       28,546       90,201       76,124  

Property and casualty

     272,885       238,178       795,501       719,888  

Interest credited to policyholders’ account balances

     133,418       104,699       309,694       295,255  

Commissions for acquiring and servicing policies

     138,979       141,645       433,412       408,582  

Other operating expenses

     118,761       112,969       373,102       365,000  

Change in deferred policy acquisition costs

     (8,794     (32,225     (45,876     (69,407
  

 

 

   

 

 

   

 

 

   

 

 

 

Total benefits, losses and expenses

     868,969       779,806       2,502,356       2,306,540  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before federal income tax and other items

     183,267       92,944       305,326       180,100  
  

 

 

   

 

 

   

 

 

   

 

 

 

Less: Provision (benefit) for federal income taxes

        

Current

     (39,937     22,980       (26,404     26,924  

Deferred

     59,156       14,203       68,769       37,518  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total provision for federal income taxes

     19,219       37,183       42,365       64,442  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income after federal income tax

     164,048       55,761       262,961       115,658  
  

 

 

   

 

 

   

 

 

   

 

 

 

Equity in earnings of unconsolidated affiliates

     13,029       22,387       18,905       44,200  

Other components of net periodic pension costs, net of tax

     (1,236     (1,545     (3,705     (8,365
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     175,841       76,603       278,161       151,493  

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

     2,377       3,334       1,781       2,425  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to American National

   $ 173,464     $ 73,269     $ 276,380     $ 149,068  
  

 

 

   

 

 

   

 

 

   

 

 

 

Amounts available to American National common stockholders

        

Earnings per share

        

Basic

   $ 6.45     $ 2.72     $ 10.28     $ 5.54  

Diluted

     6.44       2.72       10.26       5.53  

Cash dividends to common stockholders

     0.82       0.82       2.46       2.46  

Weighted average common shares outstanding

     26,886,498       26,894,538       26,886,299       26,895,952  

Weighted average common shares outstanding and dilutive potential common shares

     26,893,013       26,958,664       26,923,540       26,959,227  

See accompanying notes to the unaudited consolidated financial statements.

 

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AMERICAN NATIONAL INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited and in thousands)

 

     Three months ended September 30,      Nine months ended September 30,  
     2018     2017      2018     2017  

Net income

   $ 175,841     $ 76,603      $ 278,161     $ 151,493  
  

 

 

   

 

 

    

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

         

Change in net unrealized gains (losses) on securities

     (14,395     29,774        (142,116     126,362  

Foreign currency transaction and translation adjustments

     (181     411        (681     694  

Defined benefit pension plan adjustment

     1,601       1,535        3,991       9,276  
  

 

 

   

 

 

    

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

     (12,975     31,720        (138,806     136,332  
  

 

 

   

 

 

    

 

 

   

 

 

 

Total comprehensive income

     162,866       108,323        139,355       287,825  

Less: Comprehensive income attributable to noncontrolling interest

     2,377       3,334        1,781       2,425  
  

 

 

   

 

 

    

 

 

   

 

 

 

Total comprehensive income attributable to American National

   $ 160,489     $ 104,989      $ 137,574     $ 285,400  
  

 

 

   

 

 

    

 

 

   

 

 

 

AMERICAN NATIONAL INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited and in thousands)

 

     Nine months ended September 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

     1,172       1,964  

Amortization of restricted stock

     308       618  
  

 

 

   

 

 

 

Balance at end of the period

     20,673       18,988  
  

 

 

   

 

 

 

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)

     (138,806     136,332  
  

 

 

   

 

 

 

Balance at end of the period

     (123,709     592,231  
  

 

 

   

 

 

 

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

     276,380       149,068  

Cash dividends to common stockholders

     (66,182     (66,249
  

 

 

   

 

 

 

Balance at end of the period

     5,553,383       4,333,637  
  

 

 

   

 

 

 

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

     (1,810     (2,492

Net income attributable to noncontrolling interest

     1,781       2,425  
  

 

 

   

 

 

 

Balance at end of the period

     8,983       9,474  
  

 

 

   

 

 

 

Total Equity

   $ 5,381,670     $ 4,883,546  
  

 

 

   

 

 

 

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)

 

     Nine months ended September 30,  
     2018     2017  

OPERATING ACTIVITIES

    

Net income

   $ 278,161     $ 151,493  

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

    

Net realized investment gains

     (9,575     (59,338

Other-than-temporary impairments

     —         11,737  

Accretion of premiums, discounts and loan origination fees

     (4,303     (4,233

Net capitalized interest on policy loans and mortgage loans

     (29,250     (25,218

Depreciation

     39,241       41,131  

Interest credited to policyholders’ account balances

     309,694       295,255  

Charges to policyholders’ account balances

     (213,317     (183,558

Deferred federal income tax expense

     68,769       37,518  

Equity in earnings of unconsolidated affiliates

     (18,905     (44,200

Distributions from equity method investments

     16,375       1,133  

Changes in

    

Policyholder liabilities

     281,596       273,411  

Deferred policy acquisition costs

     (45,876     (69,407

Reinsurance recoverables

     (41,536     (7,063

Premiums due and other receivables

     (63,272     (38,499

Prepaid reinsurance premiums

     7,587       (2,500

Accrued investment income

     1,249       (3,596

Current tax receivable/payable

     1,454       21,571  

Liability for retirement benefits

     (63,249     (7,934

Fair value of option securities

     (58,396     (56,920

Fair value of equity securities

     (145,687     —    

Other, net

     53,782       40,578  
  

 

 

   

 

 

 

Net cash provided by operating activities

     364,542       371,361  
  

 

 

   

 

 

 

INVESTING ACTIVITIES

    

Proceeds from sale/maturity/prepayment of

    

Held-to-maturity securities

     492,160       599,202  

Available-for-sale securities

     348,149       327,424  

Equity securities

     164,413       106,090  

Investment real estate

     11,577       46,745  

Mortgage loans

     467,040       431,702  

Policy loans

     42,071       39,003  

Other invested assets

     84,846       62,815  

Disposals of property and equipment

     93       554  

Distributions from unconsolidated affiliates

     35,684       12,561  

Payment for the purchase/origination of

    

Held-to-maturity securities

     (1,011,398     (690,190

Available-for-sale securities

     (436,877     (438,798

Equity securities

     (40,981     (96,819

Investment real estate

     (35,583     (27,527

Mortgage loans

     (834,877     (848,263

Policy loans

     (18,268     (18,953

Other invested assets

     (61,407     (33,062

Additions to property and equipment

     (13,527     (19,162

Contributions to unconsolidated affiliates

     (100,567     (23,267

Change in short-term investments

     441,544       (369,547

Change in collateral held for derivatives

     40,243       29,797  

Other, net

     (5,795     19,055  
  

 

 

   

 

 

 

Net cash used in investing activities

     (431,460     (890,640
  

 

 

   

 

 

 

FINANCING ACTIVITIES

    

Policyholders’ account deposits

     1,378,325       1,607,263  

Policyholders’ account withdrawals

     (1,012,522     (960,161

Change in notes payable

     45       2,084  

Dividends to stockholders

     (66,182     (66,249

Payments to noncontrolling interest

     (1,810     (2,268
  

 

 

   

 

 

 

Net cash provided by financing activities

     297,856       580,669  
  

 

 

   

 

 

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

     230,938       61,390  

Beginning of the period

     375,837       289,338  
  

 

 

   

 

 

 

End of the period

   $ 606,775     $ 350,728  
  

 

 

   

 

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

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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

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 nine months ended September 30, 2018.

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 $105.7 million and $115.1 million, net of tax, for the three and nine months ended September 30, 2018, respectively from the change in net 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 nine months ended September 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 $1.5 million and $8.4 million, net of tax, for the three and nine months ended September 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 3 – Recently Issued Accounting Pronouncements – (Continued)

 

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

In February 2016, the FASB issued guidance that will require significant changes to the statement of financial position of lessees. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similarly to existing guidance for operating leases today. 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 and will be implemented using the effective date method, which requires a cumulative-effect adjustment to the opening balance of retained earnings on the effective date. We have identified and analyzed the majority of the lease contracts and 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, reinsurance recoverables 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 results of operations or financials position.

In August 2018, the FASB issued guidance that seeks to improve financial reporting for insurance companies that issue long duration contracts. The guidance improves the timeliness of recognizing changes in the liability for future policy benefits and modifies the rate used to discount future cash flows. The guidance will simplify and improve accounting for certain market-based options or guarantees associated with deposit type contracts, simplify the amortization of deferred acquisition costs and provide users of the financial statements with enhanced disclosures. The standard is effective for annual periods and interim periods within those annual periods beginning after December 15, 2020. The Company is in the process of evaluating the impact of the adoption of this standard.

 

9


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):

 

     September 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

   $ 247,206      $ 5,328      $ (487    $ 252,047  

Foreign governments

     3,974        392        —          4,366  

Corporate debt securities

     7,472,207        60,834        (136,329      7,396,712  

Residential mortgage-backed securities

     285,878        5,323        (4,059      287,142  

Collateralized debt securities

     594        11        —          605  

Other debt securities

     717        17        —          734  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total bonds held-to-maturity

     8,010,576        71,905        (140,875      7,941,606  
  

 

 

    

 

 

    

 

 

    

 

 

 

Fixed maturity securities, bonds available-for-sale

           

U.S. treasury and government

     28,306        305        (453      28,158  

U.S. states and political subdivisions

     855,782        10,930        (7,683      859,029  

Foreign governments

     5,000        1,120        —          6,120  

Corporate debt securities

     5,195,655        44,841        (94,229      5,146,267  

Residential mortgage-backed securities

     32,080        312        (865      31,527  

Collateralized debt securities

     2,871        701        (5      3,567  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total bonds available-for-sale

     6,119,694        58,209        (103,235      6,074,668  
  

 

 

    

 

 

    

 

 

    

 

 

 

Equity securities

           

Common stock

     678,992        1,119,395        (7,175      1,791,212  

Preferred stock

     17,482        1,953        —          19,435  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total equity securities

     696,474        1,121,348        (7,175      1,810,647  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investments in securities

   $  14,826,744      $  1,251,462      $ (251,285    $  15,826,921  
  

 

 

    

 

 

    

 

 

    

 

 

 
     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):

 

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

Due in one year or less

   $ 330,810      $ 335,370      $ 78,293      $ 78,999  

Due after one year through five years

     4,207,211        4,226,509        2,476,253        2,486,617  

Due after five years through ten years

     2,850,306        2,774,862        3,053,003        3,004,384  

Due after ten years

     622,249        604,865        512,145        504,668  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $       8,010,576      $       7,941,606      $       6,119,694      $       6,074,668  
  

 

 

    

 

 

    

 

 

    

 

 

 

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 fixed maturity available-for-sale securities, with the related gross realized gains and losses, are shown below (in thousands):

 

                                                                                                   
     Three months ended September 30,      Nine months ended September 30,  
           2018                  2017                  2018                  2017        

Proceeds from sales of fixed maturity available-for-sale securities

   $   18,424      $   72,910      $   64,980      $ 117,467  

Gross realized gains

     —          31,397        376        46,385  

Gross realized losses

     (569      (4,837      (1,156      (4,983

Gains and losses are determined using specific identification of the securities sold. During the nine months ended September 30, 2018 and 2017, bonds with a carrying value of $73,071,000 and $25,266,000, 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):

 

                                                                                   
                   Nine months ended September 30,  
                                   2018                  2017        

Bonds available-for-sale

         $ (232,433    $ 85,740  

Adjustments for

           

Deferred policy acquisition costs

           38,871        (11,551

Participating policyholders’ interest

           13,975        (9,140

Deferred federal income tax benefit (expense)

           37,471        (22,480
        

 

 

    

 

 

 

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

         $ (142,116    $ 42,569  
        

 

 

    

 

 

 

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

 

     Three months ended September 30,      Nine months ended September 30,  
           2018                  2017                  2018                  2017        

Net gains on equity securities

   $ 126,495      $ 63,711      $ 150,487      $ 170,850  

Less: Net (gains) losses on equity securities sold

     7,330        (26,842      (4,800      (41,937
  

 

 

    

 

 

    

 

 

    

 

 

 

Unrealized gains on equity securities

   $   133,825      $   36,869      $   145,687      $   128,913  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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):

 

     September 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

   $ (487   $ 25,772      $ —       $ —        $ (487   $ 25,772  

Corporate debt securities

     (122,326     3,861,692        (14,003     254,988        (136,329     4,116,680  

Residential mortgage-backed securities

     (2,508     114,526        (1,551     25,357        (4,059     139,883  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total bonds held-to-maturity

     (125,321     4,001,990        (15,554     280,345        (140,875     4,282,335  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Fixed maturity securities, bonds available-for-sale

              

U.S. treasury and government

     (275     16,763        (178     7,922        (453     24,685  

U.S. states and political subdivisions

     (5,783     323,896        (1,900     27,720        (7,683     351,616  

Corporate debt securities

     (78,920     2,717,092        (15,309     178,421        (94,229     2,895,513  

Residential mortgage-backed securities

     (316     16,448        (549     12,064        (865     28,512  

Collateralized debt securities

     (2     159        (3     100        (5     259  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total bonds available-for-sale

     (85,296     3,074,358        (17,939     226,227        (103,235     3,300,585  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Equity securities

              

Common stock

     (5,634     31,117        (1,541     8,635        (7,175     39,752  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total equity securities

     (5,634     31,117        (1,541     8,635        (7,175     39,752  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ (216,251   $  7,107,465      $ (35,034   $  515,207      $ (251,285   $  7,622,672  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
     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 September 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):

 

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

AAA

   $ 619,031      $ 625,804        4.5   $ 638,039      $ 664,396        4.8

AA

     1,258,310        1,260,219        9.0       1,220,544        1,264,282        9.0  

A

     5,213,022        5,158,582        36.8       4,856,802        4,997,574        35.9  

BBB

     6,531,238        6,475,759        46.2       6,273,220        6,480,719        46.6  

BB and below

     508,669        495,910        3.5       522,255        512,690        3.7  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total

   $ 14,130,270      $ 14,016,274        100.0   $ 13,510,860      $ 13,919,661        100.0
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Equity securities by market sector distribution are shown below:

 

     September 30, 2018     December 31, 2017  

Consumer goods

     21.6     20.2

Energy and utilities

     7.9       8.6  

Finance

     18.1       21.9  

Healthcare

     12.7       11.8  

Industrials

     9.5       9.5  

Information technology

     23.0       20.0  

Other

     7.2       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:

 

     September 30, 2018     December 31, 2017  

East North Central

     15.5     15.4

East South Central

     2.9       3.1  

Mountain

     17.8       14.0  

Pacific

     15.7       16.5  

South Atlantic

     12.2       14.1  

West South Central

     28.3       29.8  

Other

     7.6       7.1  
  

 

 

   

 

 

 

Total

     100.0     100.0
  

 

 

   

 

 

 

For the nine months ended September 30, 2018, American National foreclosed on four loans with a total recorded investment of $22,608,000. Seven loans with a total recorded investment of $51,829,000 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 nine months ended September 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  

September 30, 2018

                   

Industrial

   $ —        $ —        $ 28,822      $ 28,822      $ 843,497      $ 872,319       16.9  

Office

     10,103        —          5,164        15,267        1,733,759        1,749,026       33.9  

Retail

     —          —          —          —          857,602        857,602       16.6  

Other

     —          —          —          —          1,680,178        1,680,178       32.6  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 10,103      $ —        $ 33,986      $ 44,089      $ 5,115,036      $ 5,159,125       100.0  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

      

 

 

 

Allowance for loan losses

                    (19,367  
                 

 

 

   

Total, net of allowance

                  $ 5,139,758    
                 

 

 

   

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 nine months ended September 30, 2018 or during the year ended December 31, 2017. Total mortgage loans were also net of unamortized origination fees of $30,591,000 and $32,766,000 at September 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

     —          —          600        —         —          (99     —          —          501  

Net change in recorded investment

     3        379,187        —          (1     11,073        —         2        390,260        —    
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Ending balance at September 30, 2018

     454      $ 5,141,502      $ 16,641        2     $ 17,623      $ 2,726       456      $ 5,159,125      $ 19,367  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

 

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):

 

     Nine months ended September 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
 

Office

     1      $ 5,164      $ 5,164        1      $ 10,103      $ 10,103  

Other (hotel/motel)

     —          —          —          5        24,801        24,801  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1      $ 5,164      $ 5,164        6      $ 34,904      $ 34,904  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

There was one loan determined to be a troubled debt restructuring for the nine months ended September 30, 2018. There are no commitments to lend additional funds to debtors whose loans have been modified in a troubled debt restructuring during the periods presented.

Note 6 – Real Estate and Other Investments

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

 

     September 30, 2018     December 31, 2017  

Industrial

     6.2     6.0

Office

     40.7       39.0  

Retail

     39.3       39.3  

Other

     13.8       15.7  
  

 

 

   

 

 

 

Total

     100.0     100.0
  

 

 

   

 

 

 
     September 30, 2018     December 31, 2017  

East North Central

     6.3     6.1

East South Central

     5.0       3.6  

Mountain

     12.8       13.2  

Pacific

     8.0       8.5  

South Atlantic

     15.0       14.0  

West South Central

     50.5       52.4  

Other

     2.4       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):

 

     September 30, 2018      December 31, 2017  

Investment real estate

   $ 142,256      $ 148,456  

Short-term investments

     500        501  

Cash and cash equivalents

     10,464        6,320  

Other receivables

     3,932        4,461  

Other assets

     12,208        15,920  
  

 

 

    

 

 

 

Total assets of consolidated VIEs

   $ 169,360      $ 175,658  
  

 

 

    

 

 

 

Notes payable

   $ 137,504      $ 137,458  

Other liabilities

     5,278        5,616  
  

 

 

    

 

 

 

Total liabilities of consolidated VIEs

   $ 142,782      $ 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 $27,069,000 and $28,377,000 at September 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

   September 30, 2018      December 31, 2017  

LIBOR

   2020    $ 10,211      $ 9,702  

90 day LIBOR + 2.5%

   2021      41,826        40,124  

4% fixed

   2022      85,467        87,632  
     

 

 

    

 

 

 

Total

      $  137,504      $  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):

 

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

Investment in unconsolidated affiliates

   $ 346,166      $ 346,166      $ 314,808      $ 314,808  

Mortgage loans

     622,603        622,603        493,014        493,014  

Accrued investment income

     2,528        2,528        1,817        1,817  

As of September 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

   September 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      473      $ 2,278,800      $ 256,969        468      $ 1,885,600      $ 220,190  

Equity-indexed embedded derivative

   Policyholders’ account balances      87,342        2,245,380        652,136        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 September 30,     Nine months ended September 30,  
   2018     2017     2018     2017  

Equity-indexed options

   Net investment income    $ 50,943     $ 20,992     $ 58,576     $ 57,555  

Equity-indexed embedded derivative

   Interest credited to policyholders’ account balances      (52,797     (25,637     (56,960     (69,741

 

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):

 

Counterparty

  

Moody/S&P
Rating

   September 30, 2018  
   Options Fair
Value
     Collateral
Held
     Collateral
Amounts used to
Offset Exposure
     Excess
Collateral
     Exposure Net
of Collateral
 

Barclays

   Baa3/BBB    $ 54,151      $ 54,123      $ 54,123      $ —        $ 28  

Goldman-Sachs

   A3/BBB+      1,124        1,030        1,030        —          94  

ING

   Baa1/A-      27,994        28,570        27,994        576        —    

Morgan Stanley

   A3/BBB+      23,986        23,696        23,696        —          290  

NATIXIS*

   A1/A      52,089        52,550        52,089        461        —    

SunTrust

   Baa1/BBB+      46,573        45,970        45,970        —          603  

Wells Fargo

   A2/A-      51,052        51,700        50,770        930        282  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

      $ 256,969      $ 257,639      $ 255,672      $ 1,967      $ 1,297  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Counterparty

  

Moody/S&P
Rating

   December 31, 2017  
   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 September 30,      Nine months ended September 30,  
     2018      2017      2018      2017  

Bonds

   $  141,045      $  134,990      $  423,669      $  404,793  

Dividends on equity securities

     10,387        9,688        30,725        28,694  

Mortgage loans

     64,741        54,913        187,608        179,933  

Real estate

     2,783        8,233        11,278        6,484  

Options

     50,943        20,992        58,576        57,555  

Other invested assets

     15,633        12,389        29,086        26,867  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 285,532      $ 241,205      $ 740,942      $ 704,326  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net realized investment gains (losses) are shown below (in thousands):

 

                                                                                                           
     Three months ended September 30,      Nine months ended September 30,  
     2018      2017      2018      2017  

Bonds

   $ 1,858      $ 6,116      $ 8,595      $  16,184  

Equity securities

     (7,330      26,842        4,800        41,937  

Mortgage loans

     (2,279      (664      (2,833      (5,369

Real estate

     (886      (161      (1,000      4,838  

Other invested assets

     31        1,796        13        1,748  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ (8,606    $ 33,929      $ 9,575      $ 59,338  
  

 

 

    

 

 

    

 

 

    

 

 

 

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

 

                                                                                                           
     Three months ended September 30,      Nine months ended September 30,  
     2018      2017      2018      2017  

Bonds

   $   —        $ (47    $   —        $ (6,047

Equity securities

     —          (3,438      —          (5,690
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —        $ (3,485    $ —        $ (11,737
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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):

 

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

Financial assets

  

Fixed maturity securities, bonds held-to-maturity

   $ 8,010,576      $ 7,941,606      $ 7,552,959      $ 7,774,353  

Fixed maturity securities, bonds available-for-sale

     6,074,668        6,074,668        6,145,308        6,145,308  

Equity securities

     1,810,647        1,810,647        1,784,226        1,784,226  

Equity-indexed options

     256,969        256,969        220,190        220,190  

Mortgage loans on real estate, net of allowance

     5,139,758        5,097,623        4,749,999        4,811,006  

Policy loans

     374,256        374,256        377,103        377,103  

Short-term investments

     217,221        217,221        658,765        658,765  

Separate account assets

     1,043,688        1,043,688        969,764        969,764  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total financial assets

   $  22,927,783      $  22,816,678      $  22,458,314      $  22,740,715  
  

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities

           

Investment contracts

   $ 10,016,438      $ 10,016,438      $ 8,990,771      $ 8,990,771  

Embedded derivative liability for equity-indexed contracts

     652,136        652,136        512,526        512,526  

Notes payable

     137,504        137,504        137,458        137,458  

Separate account liabilities

     1,043,688        1,043,688        969,764        969,764  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total financial liabilities

   $ 11,849,766      $ 11,849,766      $ 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 Options—American National utilizes a pricing service to estimate fair value measurements. The estimates of fair value for most fixed maturity securities, including municipal bonds, provided by the pricing service are disclosed as Level 2 measurements as the estimates are based on observable market information rather than market quotes.

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

 

20


Table of Contents

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

 

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 Securities—For publicly-traded equity securities, prices are received from a nationally recognized pricing service that are based on observable market transactions, and these securities are classified as Level 1 measurements. For certain preferred stock, current market quotes in active markets are unavailable. In these instances, an 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 annually.

Mortgage Loans—The fair value of mortgage loans is estimated using discounted cash flow analyses on a loan by loan basis by applying a discount rate to expected cash flows from future installment and balloon payments. The discount rate takes into account general market trends and specific credit risk trends for the individual loan. Factors used to arrive at the discount rate include inputs from spreads based on U.S. Treasury notes and the loan’s credit quality, region, property type, lien priority, payment type and current status.

Separate account assets and liabilities—Separate account assets and liabilities are funds that are held separate from the general assets and liabilities of American National and that represent the investments of variable insurance product contract holders, who bear the investment risk of such funds. Investment income and investment gains and losses from these separate funds accrue to the benefit of the contract holders. Separate accounts are established in conformity with insurance laws and are not chargeable with liabilities that arise from any other business of American National. American National reports separately, as assets and liabilities, investments held in separate accounts and liabilities of the separate accounts if (i) such separate accounts are legally recognized; (ii) assets supporting the contract liabilities are legally insulated from American National’s general account liabilities; (iii) investments are directed by the contract holder; and (iv) all investment performance, net of contract fees and assessments, is passed through to the contract holder. The assets of these accounts are carried at fair value. Deposits, net investment income and realized investment gains and losses for these accounts are excluded from revenues, and related liability increases are excluded from benefits and expenses in the consolidated financial statements.

 

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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 September 30, 2018 and December 31, 2017, the one year implied volatility used to estimate embedded derivative value was 8.9% and 13.7%, respectively.

Fair values of indexed life and annuity liabilities are calculated using the discounted cash flow technique. Shown below are the significant unobservable inputs used to calculate the Level 3 fair value of the embedded derivatives within policyholder contract deposits (in millions, except range percentages):

 

     Fair Value           Range  
     September 30, 2018      December 31, 2017      Unobservable Input    September 30, 2018     December 31, 2017  

Indexed Annuities

   $  635.9      $  498.3      Lapse Rate      1-66     1-66
         Mortality Multiplier      90-100     90-100
         Equity Volatility      10-40     7-30

Indexed Life

     16.2        14.2      Equity Volatility      10-40     7-30

Other Financial Instruments—Other 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 September 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

   $ 252,047      $ —        $ 252,047      $ —    

Foreign governments

     4,366        —          4,366        —    

Corporate debt securities

     7,396,712        —          7,396,712        —    

Residential mortgage-backed securities

     287,142        —          287,142        —    

Collateralized debt securities

     605        —          605        —    

Other debt securities

     734        —          734        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total bonds held-to-maturity

     7,941,606        —          7,941,606        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Fixed maturity securities, bonds available-for-sale

           

U.S. treasury and government

     28,158        —          28,158        —    

U.S. states and political subdivisions

     859,029        —          859,029        —    

Foreign governments

     6,120        —          6,120        —    

Corporate debt securities

     5,146,267        —          5,142,034        4,233  

Residential mortgage-backed securities

     31,527        —          31,527        —    

Collateralized debt securities

     3,567        —          3,567        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total bonds available-for-sale

     6,074,668        —          6,070,435        4,233  
  

 

 

    

 

 

    

 

 

    

 

 

 

Equity securities

           

Common stock

     1,791,212        1,791,109        —          103  

Preferred stock

     19,435        19,435        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total equity securities

     1,810,647        1,810,544        —          103  
  

 

 

    

 

 

    

 

 

    

 

 

 

Options

     256,969        —          —          256,969  

Mortgage loans on real estate

     5,097,623        —          5,097,623        —    

Policy loans

     374,256        —          —          374,256  

Short-term investments

     217,221        —          217,221        —    

Separate account assets

     1,043,688        —          1,043,688        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total financial assets

   $  22,816,678      $  1,810,544      $  20,370,573      $ 635,561  
  

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities

           

Investment contracts

   $ 10,016,438      $ —        $ —        $ 10,016,438  

Embedded derivative liability for equity-indexed contracts

     652,136        —          —          652,136  

Notes payable

     137,504        —          —          137,504  

Separate account liabilities

     1,043,688        —          1,043,688        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total financial liabilities

   $ 11,849,766      $ —        $ 1,043,688      $  10,806,078  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

23


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 September 30, 2018      Nine months ended September 30, 2018  
     Assets     Liability      Assets     Liability  
     Investment
Securities
    Equity-Indexed
Options
    Embedded
Derivative
     Investment
Securities
    Equity-Indexed
Options
    Embedded
Derivative
 

Beginning balance, 2018

   $ —       $ 217,341     $ 592,913      $ —       $ 220,190     $ 512,526  

Net gain for derivatives included in net investment income

     —         50,866       —          —         58,433       —    

Net change included in interest credited

     —         —         52,797        —         —         56,960  

Purchases, sales and settlements or maturities

             

Purchases

     4,233       15,195       —          4,233       58,207       —    

Sales

     —         —         —          —         —         —    

Settlements or maturities

     —         (26,433     —          —         (79,861     —    

Premiums less benefits

     —         —         6,426        —         —         82,650  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Ending balance at September 30, 2018

   $ 4,233     $ 256,969     $ 652,136      $ 4,233     $ 256,969     $ 652,136  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Beginning balance, 2017

   $  15,852     $ 172,377     $ 390,189      $  14,264     $ 156,479     $ 314,330  

Total realized and unrealized investment losses included in other comprehensive income

     (3,703     —         —          (8,065     —         —    

Net gain for derivatives included in net investment income

     —         20,671       —          . —         57,004       —    

Net change included in interest credited

     —         —         25,637        —         —         69,741  

Purchases, sales and settlements or maturities

             

Purchases

     —         12,047       —          —         33,062       —    

Sales

     (5,297     —         —          (8,836     (12,837     —    

Settlements or maturities

     (4,010     (15,421     —          (7,020     (44,034     —    

Premiums less benefits

     —         —         23,420        —         —         55,175  

Carry value transfers in

     —         —         —          15,000       —         —    

Gross transfers into Level 3

     —         —         —          382       —         —    

Gross transfers out of Level 3

     —         —         —          (2,883     —         —    
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Ending balance at September 30, 2017

   $ 2,842     $  189,674     $  439,246      $ 2,842     $  189,674     $  439,246  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Within the net gain for derivatives included in net investment income were unrealized gains of $18,868,000 and gains of $26,489,000, relating to assets still held at September 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 nine months ended September 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 September 30, 2018. The transfers out of Level 3 during the nine months ended September 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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Table of Contents

Note 10 – Deferred Policy Acquisition Costs

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

 

     Life     Annuity     Health     Property
& Casualty
    Total  

Beginning balance at January 1, 2018

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Additions

     98,617       76,580       9,268       237,824       422,289  

Amortization

     (80,467     (57,520     (11,328     (227,098     (376,413

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

     13,294       25,577       —         —         38,871  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net change

     31,444       44,637       (2,060     10,726       84,747  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance at September 30, 2018

   $ 822,720     $ 471,134     $ 34,746     $ 129,991     $ 1,458,591  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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 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):

 

     Nine months ended September 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

     895,862        847,289  

Prior years

     (9,062      (61,284
  

 

 

    

 

 

 

Total incurred claims

     886,800        786,005  
  

 

 

    

 

 

 

Paid claims related to

     

Current

     502,175        483,111  

Prior years

     317,970        259,478  
  

 

 

    

 

 

 

Total paid claims

     820,145        742,589  
  

 

 

    

 

 

 

Net balance

     1,028,620        967,236  

Plus reinsurance recoverables

     266,780        232,187  
  

 

 

    

 

 

 

Unpaid claims balance, ending

   $ 1,295,400      $ 1,199,423  
  

 

 

    

 

 

 

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 $9,062,000 during the first nine months of 2018 and decreased by approximately $61,284,000 during the same period in 2017. The decrease for the first nine months in 2018 related to lower-than-anticipated losses in our workers compensation, other commercial, business owner, and commercial package policy lines of business. The decrease for the first nine months of 2017 reflects lower-than-anticipated losses in auto, 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 September 30, 2018 was approximately $48,363,000.

 

26


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 September 30,     Nine months ended September 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

   $ 38,486       20.0   $ 32,530       28.2   $ 64,118       19.8   $ 63,035       28.1

Tax on equity in earnings of unconsolidated affiliates

     2,736       1.0       7,836       6.8       3,970       1.2       15,470       6.9  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expected income tax expense at the statutory rate

     41,222       21.0       40,366       35.0       68,088       21.0       78,505       35.0  

Tax-exempt investment income

     (830     (0.4     (1,737     (1.5     (2,509     (0.8     (5,338     (2.4

Deferred tax change

     —         —         29       —         (909     (0.3     (1,202     (0.5

Dividend exclusion

     (1,064     (0.5     (2,078     (1.8     (3,050     (0.9     (6,242     (2.8

Miscellaneous tax credits, net

     (1,252     (0.6     (2,268     (2.0     (5,994     (1.8     (7,067     (3.2

Low income housing tax credit expense

     1,251       0.6       1,254       1.1       3,755       1.2       3,763       1.7  

Change in valuation allowance

     —         —         —         —         2,700       0.8       —         —    

Tax accrual adjustment

     (2,893     (1.5     —         —         (2,893     (0.9     —         —    

Return to provision

     (18,332     (9.3     —         —         (18,332     (5.7     —         —    

Other items, net

     1,117       0.8       1,701       1.5       1,509       0.5       2,023       0.9  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for federal income tax before interest expense

     19,219       10.1       37,267       32.3       42,365       13.1       64,442       28.7  

Interest expense

     —         —         (84     (0.1     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 19,219       10.1   $ 37,183       32.2   $ 42,365       13.1   $ 64,442       28.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

*

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 $15,064,000 and $8,466,000 during the nine months ended September 30, 2018 and 2017, respectively.

During the three months ended September 30, 2018, American National recorded an income tax benefit of $18,332,000 related to the filing of its 2017 tax return. The $18.3 million tax benefit was primarily a result of tax deductions taken at the prior year federal tax rate of 35% as opposed to the new federal tax rate of 21% primarily due to a pension plan contribution, depreciation on fixed assets and changes in our estimated income from joint ventures.

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 nine months ended September 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 September 30, 2018. The valuation allowance resulted in an increase to tax expense on the consolidated statements of operations.

As of September 30, 2018, American National has an alternative minimum tax (AMT) credit carryforward of $6,933,000. Under the Tax Cuts and Jobs Act, AMT credit carryforwards may be utilized to offset regular tax liability. If not utilized, the credits are fully refundable by 2021.

American National’s federal income tax returns for years 2014 to 2017 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 nine months ended September 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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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 $606 and expense $1,061)

     (2,282      3,991        —          1,709  

Unrealized holding losses arising during the period (net of tax benefit $47,963)

     (181,582      —          —          (181,582

Unrealized adjustment to DAC (net of tax expense $8,163)

     30,708        —          —          30,708  

Unrealized losses on investments attributable to participating policyholders’ interest (net of tax expense $2,935)

     11,040        —          —          11,040  

Foreign currency adjustment (net of tax benefit $181)

     —          —          (681      (681

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

     (627,119      —          —          (627,119
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance at September 30, 2018

   $ (52,357    $ (68,781    $ (2,571    $ (123,709
  

 

 

    

 

 

    

 

 

    

 

 

 

Beginning balance January 1, 2017

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

Amounts reclassified from AOCI (net of tax benefit $12,657 and expense $4,995)

     (23,507      9,276        —          (14,231

Unrealized holding gains arising during the period (net of tax expense $87,786)

     163,031        —          —          163,031  

Unrealized adjustment to DAC (net of tax benefit $4,330)

     (7,221      —          —          (7,221

Unrealized gains on investments attributable to participating policyholders’ interest (net of tax benefit $3,199)

     (5,941      —          —          (5,941

Foreign currency adjustment (net of tax expense $374)

     —          —          694        694  
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance at September 30, 2017

   $ 673,500      $ (79,327    $ (1,942    $ 592,231  
  

 

 

    

 

 

    

 

 

    

 

 

 

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:

 

     September 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

     (10,000      (74,000
  

 

 

    

 

 

 

Unrestricted outstanding shares

     26,875,449        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

     (650     99.79        (64,000     114.90        (41,949     106.94  

Forfeited

     —         —          —         —          (750     121.93  

Expired

     (1,601     114.17        —         —          —         —    
  

 

 

      

 

 

      

 

 

   

Outstanding at September 30, 2018

     335     $ 84.54        10,000     $ 80.05        18,316     $ 111.12  
  

 

 

      

 

 

      

 

 

   

 

     SAR      RS Shares      RS Units  

Weighted-average contractual remaining life (in years)

     0.79        4.42        0.53  

Exercisable shares

     335        N/A        N/A  

Weighted-average exercise price

   $ 84.54      $ 80.05      $ 111.12  

Weighted-average exercise price exercisable shares

     84.54        N/A        N/A  

Compensation expense (credit)

        

Three months ended September 30, 2018

   $ 7,000      $ 24,000      $ 371,000  

Three months ended September 30, 2017

     5,000        206,000        565,000  

Nine months ended September 30, 2018

     (27,000      308,000        920,000  

Nine months ended September 30, 2017

     (44,000      618,000        2,214,000  

Fair value of liability award

        

September 30, 2018

   $ 34,000        N/A      $ 2,465,000  

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 10,000 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 September 30,      Nine months ended September 30,  
     2018      2017      2018      2017  

Weighted average shares outstanding

     26,886,498        26,894,538        26,886,299        26,895,952  

Incremental shares from RS awards and RSUs

     6,515        64,126        37,241        63,275  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total shares for diluted calculations

     26,893,013        26,958,664        26,923,540        26,959,227  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income attributable to American National (in thousands)

   $ 173,464      $ 73,269      $ 276,380      $ 149,068  

Basic earnings per share

   $ 6.45      $ 2.72      $ 10.28      $ 5.54  

Diluted earnings per share

   $ 6.44      $ 2.72      $ 10.26      $ 5.53  

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 September 30, 2018 and December 31, 2017, American National Insurance Company’s statutory capital and surplus was $3,294,722,000 and $3,293,474,000, respectively. American National Insurance Company and each of its insurance subsidiaries had statutory capital and surplus at September 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 $69,164,000 and $66,625,000 at September 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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Table of Contents

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):

 

     September 30, 2018      December 31, 2017  

Statutory capital and surplus

     

Life insurance entities

   $ 2,119,491      $ 2,141,573  

Property and casualty insurance entities

     1,186,836        1,162,761  

 

     Three months ended September 30,      Nine months ended September 30,  
     2018      2017      2018      2017  

Statutory net income

           

Life insurance entities

   $ 9,537      $ 9,674      $ 25,650      $ 28,016  

Property and casualty insurance entities

     21,382        20,096        30,611        21,268  

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 September 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 $2,233,000 and $2,262,000 at September 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 charged to segments through direct identification and allocations based upon various factors.

 

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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 September 30, 2018  
     Life     Annuity     Health      Property
& Casualty
    Corporate
& Other
    Total  

Premiums and other revenue

             

Premiums

   $ 91,176     $ 47,296     $ 45,154      $ 374,842     $ —       $ 558,468  

Other policy revenues

     67,260       3,580       —          —         —         70,840  

Net investment income

     65,875       174,771       2,233        15,629       27,024       285,532  

Net realized investment gains (losses)

     —         —         —          —         (8,606     (8,606

Net unrealized gains on equity securities

     —         —         —          —         133,825       133,825  

Other income

     492       624       6,631        3,399       1,031       12,177  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total premiums and other revenues

     224,803       226,271       54,018        393,870       153,274       1,052,236  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Benefits, losses and expenses

             

Policyholder benefits

     119,816       64,153       —          —         —         183,969  

Claims incurred

     —         —         29,751        272,885       —         302,636  

Interest credited to policyholders’ account balances

     19,537       113,881       —          —         —         133,418  

Commissions for acquiring and servicing policies

     39,813       18,515       8,516        72,135       —         138,979  

Other operating expenses

     45,467       11,350       10,829        45,277       5,838       118,761  

Change in deferred policy acquisition costs

     (4,458     (1,376     466        (3,426     —         (8,794
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total benefits, losses and expenses

     220,175       206,523       49,562        386,871       5,838       868,969  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Income before federal income tax and other items

   $ 4,628     $ 19,748     $ 4,456      $ 6,999     $ 147,436     $ 183,267  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

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

Premiums and other revenue

             

Premiums

   $ 84,862     $ 65,007     $ 41,832      $ 345,816     $ —       $ 537,517  

Other policy revenues

     50,959       3,071       —          —         —         54,030  

Net investment income

     59,336       145,906       2,415        15,750       17,798       241,205  

Net realized investment gains

     —         —         —          —         30,444       30,444  

Other income

     578       613       5,531        2,111       721       9,554  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total premiums and other revenues

     195,735       214,597       49,778        363,677       48,963       872,750  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Benefits, losses and expenses

             

Policyholder benefits

     106,904       79,090       —          —         —         185,994  

Claims incurred

     —         —         28,546        238,178       —         266,724  

Interest credited to policyholders’ account balances

     16,484       88,215       —          —         —         104,699  

Commissions for acquiring and servicing policies

     38,011       27,339       7,835        68,460       —         141,645  

Other operating expenses

     44,157       10,735       8,911        43,288       5,878       112,969  

Change in deferred policy acquisition costs

     (25,486     (5,806     768        (1,701     —         (32,225
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total benefits, losses and expenses

     180,070       199,573       46,060        348,225       5,878       779,806  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Income before federal income tax and other items

   $ 15,665     $ 15,024     $ 3,718      $ 15,452     $ 43,085     $ 92,944  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

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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):

 

     Nine months ended September 30, 2018  
     Life     Annuity     Health      Property
& Casualty
    Corporate
& Other
     Total  

Premiums and other revenue

              

Premiums

   $ 257,147     $ 185,140     $ 135,039      $ 1,086,862     $ —        $ 1,664,188  

Other policy revenues

     202,222       11,095       —          —         —          213,317  

Net investment income

     184,725       436,961       6,850        46,983       65,423        740,942  

Net realized investment gains

     —         —         —          —         9,575        9,575  

Net unrealized gains on equity securities

     —         —         —          —         145,687        145,687  

Other income

     1,759       1,980       18,597        7,726       3,911        33,973  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total premiums and other revenues

     645,853       635,176       160,486        1,141,571       224,596        2,807,682  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Benefits, losses and expenses

              

Policyholder benefits

     315,320       231,002       —          —         —          546,322  

Claims incurred

     —         —         90,201        795,501       —          885,702  

Interest credited to policyholders’ account balances

     56,848       252,846       —          —         —          309,694  

Commissions for acquiring and servicing policies

     118,724       78,874       23,658        212,156       —          433,412  

Other operating expenses

     144,606       34,522       31,277        138,244       24,453        373,102  

Change in deferred policy acquisition costs

     (18,150     (19,060     2,060        (10,726     —          (45,876
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total benefits, losses and expenses

     617,348       578,184       147,196        1,135,175       24,453        2,502,356  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Income before federal income tax and other items

   $ 28,505     $ 56,992     $ 13,290      $ 6,396     $ 200,143      $ 305,326  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 
     Nine months ended September 30, 2017  
     Life     Annuity     Health      Property
& Casualty
    Corporate
& Other
     Total  

Premiums and other revenue

              

Premiums

   $ 241,623     $ 160,205     $ 115,464      $ 1,006,516     $ —        $ 1,523,808  

Other policy revenues

     173,332