UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended ~~June~~September 30, 2020


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

Commission File No. ~~333-236385~~001-39369

American National Group, Inc.

(Exact name of registrant as specified in its charter)

(formerly American National Insurance Company)


Delaware						30-1221711
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

One Moody Plaza

Galveston, Texas 77550-7999

(Address of principal executive offices) (Zip Code)

(409) 763-4661

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol

Name of Each Exchange on which Registered

Common Stock, par value $0.01

ANAT

NASDAQ

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☒ Yes ☐ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Sections 15(d) of the Exchange Act. ☐ Yes ☒ No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☐☒ No ☒

As of ~~July 30,~~October 29, 2020, there ~~were~~were 26,887,200 shares of the registrant’s voting common stock, $0.01 par value per share, outstanding.

Table of Contents

AMERICAN NATIONAL GROUP, INC.

TABLE OF CONTENTS



	PART I – FINANCIAL INFORMATION

ITEM 1.	FINANCIAL ~~STATEMENTS~~:STATEMENTS:

	Condensed Consolidated Statements of Financial Position as of ~~June~~September 30,, 2020 and December 31, ~~201~~9 2019 (unaudited)	3

	Condensed Consolidated Statements of Operations for the three and ~~six~~ nine months ended ~~June~~September 30,, 2020 and 2019 2019 (unaudited)	4

	Condensed Consolidated Statements of Comprehensive ~~Incom~~e Income for the three and ~~six~~nine months ended ~~June~~September 30,, 2020 and 2019 2019 (unaudited)	5

	Condensed Consolidated Statements of Changes in Equity for the three and ~~six~~nine months ended ~~June~~September 30,, 2020 and 2 01 9 2019 (unaudited)	6

	Condensed Consolidated Statements of Cash Flows for the ~~six~~nine months ended ~~June~~September 30,, 2020 and ~~201~~92019 (unaudited)	8

	Notes to the Condensed Consolidated Financial Statements (u ~~naudited~~) (unaudited)	10

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	41

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	65

ITEM 4.	CONTROLS AND PROCEDURES	6566

	PART II – OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	66

ITEM 1A.	RISK FACTORS	66









ITEM 6.	EXHIBITS	6867

Table of Contents

AMERICAN NATIONAL GROUP, INC.

(formerly AMERICAN NATIONAL INSURANCE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)

(In thousands, except share data)


		June 30, 2020		December 31, 2019			September 30, 2020		December 31, 2019
ASSETS	ASSETS					ASSETS
Fixed maturity, bonds held-to-maturity, at amortized cost, net of allowance for credit losses of $22,414 in 2020 (Fair value $8,713,716 in 2020 and $8,968,690 in 2019)		$	8,238,405	$	8,631,261
Fixed maturity, bonds available-for-sale, at fair value (Allowance for credit losses of $4,115 in 2020) (Amortized cost $6,779,116 in 2020 and $6,435,670 in 2019)		7,170,471		6,725,085
Equity securities, at fair value (Cost $733,628 in 2020 and $663,058 in 2019)		1,714,264		1,700,960
Mortgage loans on real estate, net of allowance for credit losses of $111,480 in 2020 and allowance for loan loss of $19,160 in 2019		5,176,511		5,097,017
Fixed maturity, bonds held-to-maturity, at amortized cost, net of allowance for credit losses of $21,491 in 2020 (Fair value $8,248,611 in 2020 and $8,968,690 in 2019)						Fixed maturity, bonds held-to-maturity, at amortized cost, net of allowance for credit losses of $21,491 in 2020 (Fair value $8,248,611 in 2020 and $8,968,690 in 2019)	$	7,702,347	$	8,631,261
Fixed maturity, bonds available-for-sale, at fair value (Allowance for credit losses of $7,638 in 2020) (Amortized cost $6,794,366 in 2020 and $6,435,670 in 2019)						Fixed maturity, bonds available-for-sale, at fair value (Allowance for credit losses of $7,638 in 2020) (Amortized cost $6,794,366 in 2020 and $6,435,670 in 2019)	7,236,188		6,725,085
Equity securities, at fair value (Cost $734,916 in 2020 and $663,058 in 2019)						Equity securities, at fair value (Cost $734,916 in 2020 and $663,058 in 2019)	1,840,855		1,700,960
Mortgage loans on real estate, net of allowance for credit losses of $112,916 in 2020 and allowance for loan loss of $19,160 in 2019						Mortgage loans on real estate, net of allowance for credit losses of $112,916 in 2020 and allowance for loan loss of $19,160 in 2019	5,176,474		5,097,017
Policy loans	Policy loans	377,826		379,657		Policy loans	374,387		379,657
Investment real estate, net of accumulated depreciation of $266,953 in 2020 and $256,757 in 2019		544,604		551,219
Investment real estate, net of accumulated depreciation of $266,697 in 2020 and $256,757 in 2019						Investment real estate, net of accumulated depreciation of $266,697 in 2020 and $256,757 in 2019	514,076		551,219
Short-term investments	Short-term investments	501,087		425,321		Short-term investments	800,793		425,321
Other invested assets	Other invested assets	97,390		76,569		Other invested assets	103,030		76,569
Total investments	Total investments	23,820,558		23,587,089		Total investments	23,748,150		23,587,089
Cash and cash equivalents	Cash and cash equivalents	466,247		452,001		Cash and cash equivalents	884,083		452,001
Investments in unconsolidated affiliates	Investments in unconsolidated affiliates	782,525		705,721		Investments in unconsolidated affiliates	827,364		705,721
Accrued investment income	Accrued investment income	211,268		200,856		Accrued investment income	211,655		200,856
Reinsurance recoverables, net of allowance for credit losses of $17,844 in 2020 and $8,220 in 2019		432,639		411,830
Reinsurance recoverables, net of allowance for credit losses of $14,845 in 2020 and allowance for recoverables loss of $8,220 in 2019						Reinsurance recoverables, net of allowance for credit losses of $14,845 in 2020 and allowance for recoverables loss of $8,220 in 2019	477,904		411,830
Prepaid reinsurance premiums	Prepaid reinsurance premiums	38,638		44,669		Prepaid reinsurance premiums	40,574		44,669
Premiums due and other receivables	Premiums due and other receivables	393,556		341,924		Premiums due and other receivables	372,535		341,924
Deferred policy acquisition costs	Deferred policy acquisition costs	1,408,142		1,423,007		Deferred policy acquisition costs	1,400,440		1,423,007
Property and equipment, net of accumulated depreciation of $269,977 in 2020 and $257,907 in 2019		110,313		106,303
Property and equipment, net of accumulated depreciation of $276,047 in 2020 and $257,907 in 2019						Property and equipment, net of accumulated depreciation of $276,047 in 2020 and $257,907 in 2019	117,892		106,303

Prepaid pension	Prepaid pension	84,935		78,990		Prepaid pension	87,908		78,990
Other assets	Other assets	213,186		171,285		Other assets	187,665		171,285
Separate account assets	Separate account assets	1,032,956		1,073,891		Separate account assets	1,092,574		1,073,891
Total assets	Total assets	$	28,994,963	$	28,597,566	Total assets	$	29,448,744	$	28,597,566
LIABILITIES	LIABILITIES					LIABILITIES
Future policy benefits	Future policy benefits					Future policy benefits
Life	Life	$	3,106,342	$	3,087,578	Life	$	3,123,027	$	3,087,578
Annuity	Annuity	1,568,993		1,571,263		Annuity	1,573,480		1,571,263
Health	Health	50,024		49,886		Health	50,143		49,886
Policyholders’ account balances	Policyholders’ account balances	12,847,289		12,957,989		Policyholders’ account balances	12,869,130		12,957,989
Policy and contract claims	Policy and contract claims	1,548,523		1,489,979		Policy and contract claims	1,596,729		1,489,979
Unearned premium reserve	Unearned premium reserve	976,667		933,559		Unearned premium reserve	983,113		933,559
Other policyholder funds	Other policyholder funds	362,389		361,059		Other policyholder funds	362,187		361,059
Liability for retirement benefits	Liability for retirement benefits	63,184		67,435		Liability for retirement benefits	61,043		67,435
Notes payable	Notes payable	155,871		157,997		Notes payable	154,788		157,997
Deferred tax liabilities, net	Deferred tax liabilities, net	382,753		394,528		Deferred tax liabilities, net	414,206		394,528
Current tax payable	Current tax payable	12,896		9,757		Current tax payable	5,173		9,757
Federal home loan bank advance		500,000		—
Federal Home Loan Bank advances						Federal Home Loan Bank advances	500,000		0
Other liabilities	Other liabilities	414,135		446,882		Other liabilities	510,337		446,882
Separate account liabilities	Separate account liabilities	1,032,956		1,073,891		Separate account liabilities	1,092,574		1,073,891
Total liabilities	Total liabilities	23,022,022		22,601,803		Total liabilities	23,295,930		22,601,803
EQUITY	EQUITY					EQUITY
American National stockholders’ equity:
Common stock, $1.00 par value, Authorized 50,000,000 in 2020 and 2019, Issued 30,832,449 in 2020 and 2019 Outstanding 26,887,200 shares in 2020 and 2019		30,832		30,832
American National Group, Inc. stockholders’ equity:						American National Group, Inc. stockholders’ equity:
Common stock, $0.01 par value in 2020 and $1.00 in 2019; 50,000,000 shares authorized; 26,887,200 shares issued and outstanding in 2020 and 30,832,449 shares issued and 26,887,200 outstanding in 2019						Common stock, $0.01 par value in 2020 and $1.00 in 2019; 50,000,000 shares authorized; 26,887,200 shares issued and outstanding in 2020 and 30,832,449 shares issued and 26,887,200 outstanding in 2019	269		30,832
Additional paid-in capital	Additional paid-in capital	21,051		21,011		Additional paid-in capital	47,689		21,011
Accumulated other comprehensive income	Accumulated other comprehensive income	163,911		99,518		Accumulated other comprehensive income	194,706		99,518
Retained earnings	Retained earnings	5,859,361		5,946,857		Retained earnings	5,903,843		5,946,857
Treasury stock, at cost	Treasury stock, at cost	(108,469)		(108,469)		Treasury stock, at cost	0		(108,469)
Total American National stockholders’ equity	Total American National stockholders’ equity	5,966,686		5,989,749		Total American National stockholders’ equity	6,146,507		5,989,749
Noncontrolling interest	Noncontrolling interest	6,255		6,014		Noncontrolling interest	6,307		6,014
Total stockholders' equity	Total stockholders' equity	5,972,941		5,995,763		Total stockholders' equity	6,152,814		5,995,763
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	28,994,963	$	28,597,566	Total liabilities and stockholders' equity	$	29,448,744	$	28,597,566

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

AMERICAN NATIONAL GROUP, INC.

(formerly AMERICAN NATIONAL INSURANCE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except share and per share data)


		Three months ended June 30,						Six months ended June 30,							Three months ended September 30,				Nine months ended September 30,
		2020		2019		2020		2019			2020		2019		2020		2019
PREMIUMS AND OTHER REVENUES	PREMIUMS AND OTHER REVENUES									PREMIUMS AND OTHER REVENUES
Premiums	Premiums									Premiums
Life	Life	$	91,670	$	86,087	$	181,186	$	172,555	Life	$	101,182	$	93,079	$	282,368	$	265,634
Annuity	Annuity	25,944		56,222		41,453		96,129		Annuity	27,960		41,305		69,413		137,434
Health	Health	42,945		42,224		86,031		80,905		Health	40,934		40,676		126,965		121,581
Property and casualty	Property and casualty	372,704		371,739		761,361		742,920		Property and casualty	391,388		382,784		1,152,749		1,125,704
Other policy revenues	Other policy revenues	79,787		75,146		159,392		149,394		Other policy revenues	79,344		76,784		238,736		226,178
Net investment income	Net investment income	287,348		257,730		402,632		550,076		Net investment income	254,256		246,620		656,888		796,696
Net realized investment gains (losses)		3,939		(2,937)		8,087		10
Net realized investment gains										Net realized investment gains	17,387		31,933		25,474		31,943
Other-than-temporary impairments	Other-than-temporary impairments	—		(6,968)		—		(6,968)		Other-than-temporary impairments	0		0		0		(6,968)
Change in investment credit loss	Change in investment credit loss	(52,310)		—		(96,988)		—		Change in investment credit loss	(4,175)		0		(101,163)		0
Net gains (losses) on equity securities		298,825		67,060		(33,750)		273,437
Net gains on equity securities										Net gains on equity securities	152,147		8,589		118,397		282,026
Other income	Other income	10,336		10,374		21,469		21,912		Other income	9,683		10,730		31,152		32,642
Total premiums and other revenues	Total premiums and other revenues	1,161,188		956,677		1,530,873		2,080,370		Total premiums and other revenues	1,070,106		932,500		2,600,979		3,012,870
BENEFITS, LOSSES AND EXPENSES	BENEFITS, LOSSES AND EXPENSES									BENEFITS, LOSSES AND EXPENSES
Policyholder benefits	Policyholder benefits									Policyholder benefits
Life	Life	124,941		104,462		235,407		213,927		Life	153,957		113,652		389,364		327,579
Annuity	Annuity	44,983		72,788		79,785		131,549		Annuity	46,424		59,699		126,209		191,248
Claims incurred	Claims incurred									Claims incurred
Health	Health	26,726		26,708		61,611		52,475		Health	27,933		28,567		89,544		81,042
Property and casualty	Property and casualty	280,561		271,608		510,270		509,752		Property and casualty	258,412		280,695		768,682		790,447
Interest credited to policyholders’ account balances	Interest credited to policyholders’ account balances	146,783		123,687		142,460		264,921		Interest credited to policyholders’ account balances	128,946		106,782		271,406		371,703
Commissions for acquiring and servicing policies	Commissions for acquiring and servicing policies	140,490		141,295		270,925		279,940		Commissions for acquiring and servicing policies	138,365		128,689		409,290		408,629
Other operating expenses	Other operating expenses	125,177		129,533		259,103		263,143		Other operating expenses	126,413		128,502		385,516		391,645
Change in deferred policy acquisition costs	Change in deferred policy acquisition costs	(4,703)		(17,308)		(6,375)		(23,939)		Change in deferred policy acquisition costs	(8,387)		1,548		(14,762)		(22,391)
Total benefits, losses and expenses	Total benefits, losses and expenses	884,958		852,773		1,553,186		1,691,768		Total benefits, losses and expenses	872,063		848,134		2,425,249		2,539,902
Income (loss) before federal income tax and other items		276,230		103,904		(22,313)		388,602
Less: Provision (benefit) for federal income taxes
Income before federal income tax and other items										Income before federal income tax and other items	198,043		84,366		175,730		472,968
Less: Provision for federal income taxes										Less: Provision for federal income taxes
Current	Current	(13,714)		14,231		10,789		28,011		Current	20,789		4,433		31,578		32,444
Deferred	Deferred	65,911		7,717		(20,260)		61,314		Deferred	23,123		18,042		2,863		79,356
Total provision (benefit) for federal income taxes		52,197		21,948		(9,471)		89,325
Income (loss) after federal income tax		224,033		81,956		(12,842)		299,277
Equity in earnings (losses) of unconsolidated affiliates		(13,622)		16,790		2,085		57,250
Total provision for federal income taxes										Total provision for federal income taxes	43,912		22,475		34,441		111,800
Income after federal income tax										Income after federal income tax	154,131		61,891		141,289		361,168
Equity in earnings of unconsolidated affiliates										Equity in earnings of unconsolidated affiliates	17,029		45,075		19,114		102,325
Other components of net periodic pension benefit (costs), net of tax	Other components of net periodic pension benefit (costs), net of tax	357		(871)		928		(1,785)		Other components of net periodic pension benefit (costs), net of tax	543		(1,023)		1,471		(2,808)
Net income (loss)		210,768		97,875		(9,829)		354,742
Less: Net income (loss) attributable to noncontrolling interest, net of tax		223		(965)		70		(2,315)
Net income (loss) attributable to American National		$	210,545	$	98,840	$	(9,899)	$	357,057
Net income										Net income	171,703		105,943		161,874		460,685
Less: Net income attributable to noncontrolling interest, net of tax										Less: Net income attributable to noncontrolling interest, net of tax	651		13,759		721		11,444
Net income attributable to American National										Net income attributable to American National	$	171,052	$	92,184	$	161,153	$	449,241
Amounts available to American National common stockholders	Amounts available to American National common stockholders									Amounts available to American National common stockholders
Earnings (loss) per share
Earnings per share										Earnings per share
Basic	Basic	$	7.83	$	3.68	$	(0.37)	$	13.28	Basic	$	6.36	$	3.43	$	6.00	$	16.71
Diluted	Diluted	7.83		3.67		(0.37)		13.28		Diluted	6.36		3.43		5.99		16.71

Weighted average common shares outstanding	Weighted average common shares outstanding	26,878,684		26,881,700		26,880,183		26,883,699		Weighted average common shares outstanding	26,877,200		26,881,700		26,879,178		26,883,025
Weighted average common shares outstanding and dilutive potential common shares	Weighted average common shares outstanding and dilutive potential common shares	26,887,129		26,888,964		26,889,448		26,889,936		Weighted average common shares outstanding and dilutive potential common shares	26,884,758		26,888,172		26,887,874		26,889,338

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

AMERICAN NATIONAL GROUP, INC.

(formerly AMERICAN NATIONAL INSURANCE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(In thousands)

Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019
Net income (loss) $ 210,768 $ 97,875 $ (9,829) $ 354,742
Other comprehensive income, net of tax
  Change in net unrealized gains on securities 173,776 98,360 61,373 183,874
  Foreign currency transaction and translation adjustments 339 746 (585) 590
  Defined benefit pension plan adjustment 1,849 1,495 3,605 2,911
Total other comprehensive income, net of tax 175,964 100,601 64,393 187,375
Total comprehensive income 386,732 198,476 54,564 542,117
Less: Comprehensive income (loss) attributable to noncontrolling interest 223 (965) 70 (2,315)
Total comprehensive income attributable to American National $ 386,509 $ 199,441 $ 54,494 $ 544,432


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Net income	$	171,703	$	105,943	$	161,874	$	460,685
Other comprehensive income (loss), net of tax
Change in net unrealized gains (losses) on securities	28,573		(2,569)		89,946		181,305
Foreign currency transaction and translation adjustments	371		(293)		(214)		297
Defined benefit pension plan adjustment	1,851		1,454		5,456		4,365
Total other comprehensive income (loss), net of tax	30,795		(1,408)		95,188		185,967
Total comprehensive income	202,498		104,535		257,062		646,652
Less: Comprehensive income attributable to noncontrolling interest	651		13,759		721		11,444
Total comprehensive income attributable to American National	$	201,847	$	90,776	$	256,341	$	635,208

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

AMERICAN NATIONAL GROUP, INC.

(formerly AMERICAN NATIONAL INSURANCE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)

(In thousands, except per share data)


		Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Treasury Stock		Noncontrolling Interest		Total Equity			Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Treasury Stock		Noncontrolling Interest		Total Equity
Balance at December 31, 2019	Balance at December 31, 2019	$	30,832	$	21,011	$	99,518	$	5,946,857	$	(108,469)	$	6,014	$	5,995,763	Balance at December 31, 2019	$	30,832	$	21,011	$	99,518	$	5,946,857	$	(108,469)	$	6,014	$	5,995,763

Amortization of restricted stock	Amortization of restricted stock	—		20		—		—		—		—		20		Amortization of restricted stock	—		20		—		—		—		—		20
Cumulative effect of accounting change	Cumulative effect of accounting change	—		—		—		(34,702)		—		—		(34,702)		Cumulative effect of accounting change	—		—		—		(34,702)		—		—		(34,702)
Other comprehensive loss	Other comprehensive loss	—		—		(111,571)		—		—		—		(111,571)		Other comprehensive loss	—		—		(111,571)		—		—		—		(111,571)
Net loss attributable to American National	Net loss attributable to American National	—		—		—		(220,444)		—		—		(220,444)		Net loss attributable to American National	—		—		—		(220,444)		—		—		(220,444)
Cash dividends to common stockholders (declared per share of $0.82)	Cash dividends to common stockholders (declared per share of $0.82)	—		—		—		(22,047)		—		—		(22,047)		Cash dividends to common stockholders (declared per share of $0.82)	—		—		—		(22,047)		—		—		(22,047)
Contributions	Contributions	—		—		—		—		—		546		546		Contributions	—		—		—		—		—		546		546
Distributions	Distributions	—		—		—		—		—		(323)		(323)		Distributions	—		—		—		—		—		(323)		(323)
Net loss attributable to noncontrolling interest	Net loss attributable to noncontrolling interest	—		—		—		—		—		(153)		(153)		Net loss attributable to noncontrolling interest	—		—		—		—		—		(153)		(153)
Balance at March 31, 2020	Balance at March 31, 2020	$	30,832	$	21,031	$	(12,053)	$	5,669,664	$	(108,469)	$	6,084	$	5,607,089	Balance at March 31, 2020	$	30,832	$	21,031	$	(12,053)	$	5,669,664	$	(108,469)	$	6,084	$	5,607,089

Amortization of restricted stock	Amortization of restricted stock	—		20		—		—		—		—		20		Amortization of restricted stock	—		20		—		—		—		—		20
Cumulative effect of accounting change	Cumulative effect of accounting change	—		—		—		1,199		—		—		1,199		Cumulative effect of accounting change	—		—		—		1,199		—		—		1,199
Other comprehensive income	Other comprehensive income	—		—		175,964		—		—		—		175,964		Other comprehensive income	—		—		175,964		—		—		—		175,964
Net income attributable to American National	Net income attributable to American National	—		—		—		210,545		—		—		210,545		Net income attributable to American National	—		—		—		210,545		—		—		210,545
Cash dividends to common stockholders (declared per share of $0.82)	Cash dividends to common stockholders (declared per share of $0.82)	—		—		—		(22,047)		—		—		(22,047)		Cash dividends to common stockholders (declared per share of $0.82)	—		—		—��		(22,047)		—		—		(22,047)
Contributions	Contributions	—		—		—		—		—		310		310		Contributions	—		—		—		—		—		310		310
Distributions	Distributions	—		—		—		—		—		(362)		(362)		Distributions	—		—		—		—		—		(362)		(362)
Net income attributable to noncontrolling interest	Net income attributable to noncontrolling interest	—		—		—		—		—		223		223		Net income attributable to noncontrolling interest	—		—		—		—		—		223		223
Balance at June 30, 2020	Balance at June 30, 2020	$	30,832	$	21,051	$	163,911	$	5,859,361	$	(108,469)	$	6,255	$	5,972,941	Balance at June 30, 2020	$	30,832	$	21,051	$	163,911	$	5,859,361	$	(108,469)	$	6,255	$	5,972,941

Reclassification of par value due to reorganization																Reclassification of par value due to reorganization	(26,618)		26,618		—		—		—		—		0
Retirement of treasury shares																Retirement of treasury shares	(3,945)		—		—		(104,524)		108,469		—		0

Amortization of restricted stock																Amortization of restricted stock	—		20		—		—		—		—		20

Other comprehensive income																Other comprehensive income	—		—		30,795		—		—		—		30,795
Net income attributable to American National																Net income attributable to American National	—		—		—		171,052		—		—		171,052
Cash dividends to common stockholders (declared per share of $0.82)																Cash dividends to common stockholders (declared per share of $0.82)	—		—		—		(22,046)		—		—		(22,046)
Contributions																Contributions	—		—		—		—		—		0		0
Distributions																Distributions	—		—		—		—		—		(599)		(599)
Net income attributable to noncontrolling interest																Net income attributable to noncontrolling interest	—		—		—		—		—		651		651
Balance at September 30, 2020																Balance at September 30, 2020	$	269	$	47,689	$	194,706	$	5,903,843	$	0	$	6,307	$	6,152,814

See accompanying notes to the unaudited condensed consolidated financial statements.

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AMERICAN NATIONAL GROUP, INC.

(formerly AMERICAN NATIONAL INSURANCE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)

(In thousands, except per share data)


		Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Treasury Stock		Noncontrolling Interest		Total Equity			Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Treasury Stock		Noncontrolling Interest		Total Equity
Balance at December 31, 2018	Balance at December 31, 2018	$	30,832	$	20,694	$	(99,738)	$	5,413,952	$	(108,492)	$	14,267	$	5,271,515	Balance at December 31, 2018	$	30,832	$	20,694	$	(99,738)	$	5,413,952	$	(108,492)	$	14,267	$	5,271,515

Reissuance of treasury shares	Reissuance of treasury shares	—		237		—		—		23		—		260		Reissuance of treasury shares	—		237		—		—		23		—		260
Amortization of restricted stock	Amortization of restricted stock	—		20		—		—		—		—		20		Amortization of restricted stock	—		20		—		—		—		—		20
Cumulative effect of accounting change	Cumulative effect of accounting change	—		—		(785)		785		—		—		—		Cumulative effect of accounting change	—		—		(785)		785		—		—		0
Other comprehensive income	Other comprehensive income	—		—		86,774		—		—		—		86,774		Other comprehensive income	—		—		86,774		—		—		—		86,774
Net income attributable to American National	Net income attributable to American National	—		—		—		258,217		—		—		258,217		Net income attributable to American National	—		—		—		258,217		—		—		258,217
Cash dividends to common stockholders (declared per share of $0.82)	Cash dividends to common stockholders (declared per share of $0.82)	—		—		—		(22,101)		—		—		(22,101)		Cash dividends to common stockholders (declared per share of $0.82)	—		—		—		(22,101)		—		—		(22,101)
Contributions	Contributions	—		—		—		—		—		3		3		Contributions	—		—		—		—		—		3		3
Distributions	Distributions	—		—		—		—		—		(419)		(419)		Distributions	—		—		—		—		—		(419)		(419)
Net loss attributable to noncontrolling interest	Net loss attributable to noncontrolling interest	—		—		—		—		—		(1,350)		(1,350)		Net loss attributable to noncontrolling interest	—		—		—		—		—		(1,350)		(1,350)
Balance at March 31, 2019	Balance at March 31, 2019	$	30,832	$	20,951	$	(13,749)	$	5,650,853	$	(108,469)	$	12,501	$	5,592,919	Balance at March 31, 2019	$	30,832	$	20,951	$	(13,749)	$	5,650,853	$	(108,469)	$	12,501	$	5,592,919

Amortization of restricted stock	Amortization of restricted stock	—		20		—		—		—		—		20		Amortization of restricted stock	—		20		—		—		—		—		20

Other comprehensive income	Other comprehensive income	—		—		100,601		—		—		—		100,601		Other comprehensive income	—		—		100,601		—		—		—		100,601
Net income attributable to American National	Net income attributable to American National	—		—		—		98,840		—		—		98,840		Net income attributable to American National	—		—		—		98,840		—		—		98,840
Cash dividends to common stockholders (declared per share of $0.82)	Cash dividends to common stockholders (declared per share of $0.82)	—		—		—		(22,044)		—		—		(22,044)		Cash dividends to common stockholders (declared per share of $0.82)	—		—		—		(22,044)		—		—		(22,044)
Contributions	Contributions	—		—		—		—		—		168		168		Contributions	—		—		—		—		—		168		168
Distributions	Distributions	—		—		—		—		—		(1,957)		(1,957)		Distributions	—		—		—		—		—		(1,957)		(1,957)
Net loss attributable to noncontrolling interest	Net loss attributable to noncontrolling interest	—		—		—		—		—		(965)		(965)		Net loss attributable to noncontrolling interest	—		—		—		—		—		(965)		(965)
Balance at June 30, 2019	Balance at June 30, 2019	$	30,832	$	20,971	$	86,852	$	5,727,649	$	(108,469)	$	9,747	$	5,767,582	Balance at June 30, 2019	$	30,832	$	20,971	$	86,852	$	5,727,649	$	(108,469)	$	9,747	$	5,767,582

Amortization of restricted stock																Amortization of restricted stock	—		20		—		—		—		—		20

Other comprehensive loss																Other comprehensive loss	—		—		(1,408)		—		—		—		(1,408)
Net income attributable to American National																Net income attributable to American National	—		—		—		92,184		—		—		92,184
Cash dividends to common stockholders (declared per share of $0.82)																Cash dividends to common stockholders (declared per share of $0.82)	—		—		—		(22,050)		—		—		(22,050)
Contributions																Contributions	—		—		—		—		—		56		56
Distributions																Distributions	—		—		—		—		—		(18,435)		(18,435)
Net income attributable to noncontrolling interest																Net income attributable to noncontrolling interest	—		—		—		—		—		13,759		13,759
Balance at September 30, 2019																Balance at September 30, 2019	$	30,832	$	20,991	$	85,444	$	5,797,783	$	(108,469)	$	5,127	$	5,831,708

See accompanying notes to the unaudited condensed consolidated financial statements.

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AMERICAN NATIONAL GROUP, INC.

(formerly AMERICAN NATIONAL INSURANCE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)


		Six months ended June 30,							Nine months ended September 30,
		2020		2019			2020		2019
OPERATING ACTIVITIES	OPERATING ACTIVITIES					OPERATING ACTIVITIES
Net income (loss)		$	(9,829)	$	354,742
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Net income						Net income	$	161,874	$	460,685
Adjustments to reconcile net income to net cash provided by operating activities:						Adjustments to reconcile net income to net cash provided by operating activities:
Net realized investment gains	Net realized investment gains	(8,087)		(10)		Net realized investment gains	(25,474)		(31,943)
Other-than-temporary impairments	Other-than-temporary impairments	—		6,968		Other-than-temporary impairments	0		6,968
Change in investment credit loss	Change in investment credit loss	96,988		—		Change in investment credit loss	101,163		0
Accretion of premiums, discounts and loan origination fees	Accretion of premiums, discounts and loan origination fees	3,851		(2,547)		Accretion of premiums, discounts and loan origination fees	12,457		(3,862)
Net capitalized interest on policy loans and mortgage loans	Net capitalized interest on policy loans and mortgage loans	(14,125)		(18,397)		Net capitalized interest on policy loans and mortgage loans	(22,596)		(25,719)
Depreciation	Depreciation	26,241		30,621		Depreciation	39,389		40,760
Interest credited to policyholders’ account balances	Interest credited to policyholders’ account balances	142,460		264,921		Interest credited to policyholders’ account balances	271,406		371,703
Charges to policyholders’ account balances	Charges to policyholders’ account balances	(159,392)		(149,394)		Charges to policyholders’ account balances	(238,736)		(226,178)
Deferred federal income tax expense (benefit)		(20,260)		61,314
Deferred federal income tax expense						Deferred federal income tax expense	2,863		79,356
Equity in earnings of unconsolidated affiliates	Equity in earnings of unconsolidated affiliates	(2,085)		(57,250)		Equity in earnings of unconsolidated affiliates	(19,114)		(102,325)
Distributions from unconsolidated affiliates	Distributions from unconsolidated affiliates	31,413		64,224		Distributions from unconsolidated affiliates	45,233		103,128
Changes in:	Changes in:					Changes in:
Policyholder liabilities	Policyholder liabilities	114,562		120,652		Policyholder liabilities	187,393		168,352
Deferred policy acquisition costs	Deferred policy acquisition costs	(6,375)		(23,939)		Deferred policy acquisition costs	(14,762)		(22,391)
Reinsurance recoverables	Reinsurance recoverables	(20,809)		(9,677)		Reinsurance recoverables	(66,074)		(7,318)
Premiums due and other receivables	Premiums due and other receivables	(51,632)		(18,313)		Premiums due and other receivables	(30,611)		(15,989)
Prepaid reinsurance premiums	Prepaid reinsurance premiums	6,031		2,627		Prepaid reinsurance premiums	4,095		2,483
Accrued investment income	Accrued investment income	(10,412)		(8,945)		Accrued investment income	(10,799)		(3,030)
Current tax payable	Current tax payable	3,485		10,223		Current tax payable	(4,711)		(5,335)
Liability for retirement benefits	Liability for retirement benefits	(5,632)		(1,969)		Liability for retirement benefits	(8,404)		(2,956)
Fair value of option securities	Fair value of option securities	40,938		(89,608)		Fair value of option securities	2,200		(95,885)
Fair value of equity securities	Fair value of equity securities	33,750		(273,437)		Fair value of equity securities	(118,397)		(282,026)
Other, net	Other, net	(74,733)		(31,034)		Other, net	(17,352)		(13,282)
Net cash provided by operating activities	Net cash provided by operating activities	116,348		231,772		Net cash provided by operating activities	251,043		395,196
INVESTING ACTIVITIES	INVESTING ACTIVITIES					INVESTING ACTIVITIES
Proceeds from sale/maturity/prepayment of:	Proceeds from sale/maturity/prepayment of:					Proceeds from sale/maturity/prepayment of:
Held-to-maturity securities	Held-to-maturity securities	689,573		299,968		Held-to-maturity securities	1,167,417		502,141
Available-for-sale securities	Available-for-sale securities	501,014		164,925		Available-for-sale securities	803,665		329,489
Equity securities	Equity securities	31,750		149,397		Equity securities	79,623		178,817
Investment real estate	Investment real estate	2,395		6,713		Investment real estate	45,645		64,459
Mortgage loans	Mortgage loans	164,654		405,768		Mortgage loans	313,009		626,449
Policy loans	Policy loans	25,956		22,873		Policy loans	40,502		33,096
Other invested assets	Other invested assets	55,008		41,262		Other invested assets	98,975		53,350
Disposals of property and equipment	Disposals of property and equipment	16		69		Disposals of property and equipment	16		69
Distributions from unconsolidated affiliates	Distributions from unconsolidated affiliates	26,911		37,309		Distributions from unconsolidated affiliates	39,190		78,014
Payment for the purchase/origination of:	Payment for the purchase/origination of:					Payment for the purchase/origination of:
Held-to-maturity securities	Held-to-maturity securities	(336,138)		(647,367)		Held-to-maturity securities	(351,036)		(1,121,049)
Available-for-sale securities	Available-for-sale securities	(840,481)		(355,920)		Available-for-sale securities	(1,027,856)		(458,635)
Equity securities	Equity securities	(78,634)		(18,280)		Equity securities	(101,090)		(49,016)
Investment real estate	Investment real estate	(7,040)		(19,520)		Investment real estate	(12,232)		(22,218)
Mortgage loans	Mortgage loans	(326,726)		(283,312)		Mortgage loans	(466,472)		(419,144)
Policy loans	Policy loans	(12,813)		(12,033)		Policy loans	(17,196)		(19,935)
Other invested assets	Other invested assets	(46,373)		(38,768)		Other invested assets	(83,820)		(46,221)

Additions to property and equipment	Additions to property and equipment	(16,151)		(9,494)		Additions to property and equipment	(29,799)		(16,094)
Contributions to unconsolidated affiliates	Contributions to unconsolidated affiliates	(143,838)		(111,620)		Contributions to unconsolidated affiliates	(203,748)		(194,846)
Change in short-term investments	Change in short-term investments	(75,766)		(390,423)		Change in short-term investments	(375,472)		(192,188)
Change in collateral held for derivatives	Change in collateral held for derivatives	(70,424)		83,169		Change in collateral held for derivatives	(43,816)		75,827
Other, net	Other, net	(4,322)		1,397		Other, net	(2,816)		3,857
Net cash used in investing activities	Net cash used in investing activities	(461,429)		(673,887)		Net cash used in investing activities	(127,311)		(593,778)

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AMERICAN NATIONAL GROUP, INC.

(formerly AMERICAN NATIONAL INSURANCE COMPANY)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) ~~(CONCLUDED)~~(CONTINUED)

(In thousands)


		Six months ended June 30,							Nine months ended September 30,
		2020		2019			2020		2019
FINANCING ACTIVITIES	FINANCING ACTIVITIES					FINANCING ACTIVITIES
Policyholders’ account deposits	Policyholders’ account deposits	562,041		1,288,581		Policyholders’ account deposits	905,424		1,559,231
Policyholders’ account withdrawals	Policyholders’ account withdrawals	(655,809)		(776,888)		Policyholders’ account withdrawals	(1,026,953)		(1,126,580)
Proceeds from Federal Home Loan Bank borrowings	Proceeds from Federal Home Loan Bank borrowings	500,000		—		Proceeds from Federal Home Loan Bank borrowings	500,000		0
Change in notes payable	Change in notes payable	(2,126)		21,614		Change in notes payable	(3,209)		21,080

Dividends to stockholders	Dividends to stockholders	(44,094)		(44,145)		Dividends to stockholders	(66,140)		(66,195)
Payments to noncontrolling interest	Payments to noncontrolling interest	(685)		(2,376)		Payments to noncontrolling interest	(772)		(20,811)
Net cash provided by financing activities	Net cash provided by financing activities	359,327		486,786		Net cash provided by financing activities	308,350		366,725
NET INCREASE IN CASH AND CASH EQUIVALENTS	NET INCREASE IN CASH AND CASH EQUIVALENTS	14,246		44,671		NET INCREASE IN CASH AND CASH EQUIVALENTS	432,082		168,143
Cash and cash equivalents at beginning of the period	Cash and cash equivalents at beginning of the period	452,001		268,164		Cash and cash equivalents at beginning of the period	452,001		268,164
Cash and cash equivalents at end of the period	Cash and cash equivalents at end of the period	$	466,247	$	312,835	Cash and cash equivalents at end of the period	$	884,083	$	436,307

Supplemental cash flow information:	Supplemental cash flow information:					Supplemental cash flow information:
Interest paid	Interest paid	$	132	$	—	Interest paid	$	512	$	0
Income taxes paid, net	Income taxes paid, net	3,800		40,440		Income taxes paid, net	30,800		58,940

See accompanying notes to the unaudited condensed consolidated financial statements.

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Nature of Operations

On July 1, 2020, American National Insurance Company, a Texas insurance company (“ANICO”), completed its previously announced holding company ~~reorganization, which is described further in Note 18, Subsequent Events.~~reorganization. As a result of such reorganization, ANICO became a wholly owned subsidiary of American National Group, Inc., a Delaware corporation (“ANAT”), and ANAT replaced ANICO as the publicly held company. Consequently, all filings with the Securities and Exchange Commission from July 2, 2020 forward will be filed by ANAT under CIK No. 0001801075. For purposes of filing this Form 10-Q for the three and ~~six~~nine months ended ~~June~~September 30, 2020, the accompanying unaudited condensed consolidated financial statements and notes thereto have been titled “American National Group, Inc.” to reflect the current name of the public registrant, with the parenthetical notation “formerly American National Insurance Company” to reflect the reporting entity for the periods covered therein. Upon the effective date of the holding company reorganization, ANAT retired 3,945,249 shares of common stock that were held in treasury at ANICO prior to the reorganization. The amount of retired treasury stock in excess of par value was charged to retained earnings. Before and after the reorganization, the issuer had 50,000,000 authorized shares of common stock and 26,887,200 common shares outstanding. As a result of the reorganization, each share of ANICO common stock, par value $1.00 per share was automatically converted into one duly issued, fully paid and non-assessable share of ANAT common stock, par value $0.01 per share. As a result of the reorganization, the directors and officers of ANICO became directors and officers of ANAT. There is no change in the ultimate ownership of the organization and business operations will continue from our current office locations and companies. ANAT, through its consolidated subsidiaries (collectively “American National” or the "Company”) ~~offer~~offers a broad portfolio of insurance products, including individual and group life insurance, annuities, health insurance, and property and casualty insurance. Business is conducted in all 50 states, the District of Columbia and Puerto Rico.

Note 2 – Summary of Significant Accounting Policies and Practices

The condensed 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 the voting rights, as well as variable interest entities in which American National is the primary beneficiary. Intercompany balances and transactions with consolidated entities have been eliminated. Investments in unconsolidated affiliates are accounted for using the equity method of accounting. Certain amounts in prior years have been reclassified to conform to current year presentation.

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

The interim condensed 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, 2019. The condensed 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 condensed 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


Standard	Description	Effective Date and Method of Adoption	Impact on Financial Statements
ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments	The new standard significantly changes how entities measure credit losses for most financial assets, reinsurance recoverables and certain other instruments that are not measured at fair value through net income. The guidance replaces the current “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. The measurement of credit losses for available-for-sale debt securities measured at fair value is not affected except that credit losses recognized are limited to the amount by which the fair value is below amortized cost, and the credit loss is recognized through a valuation allowance. Previously, the credit loss adjustments for available-for-sale debt securities were recognized through a direct write down of the investment under the other-than-temporary impairment model. The standard also requires additional disclosures.	The Company adopted this standard on its required effective date of January 1, 2020 using a modified retrospective transition.	Adoption of this guidance resulted in an allowance for credit losses primarily on the commercial mortgage loans and related off-balance sheet unfunded loan commitments, held-to-maturity bonds and reinsurance recoverables. The Company recorded a cumulative effect adjustment to retained earnings of $33.5 million, net of tax, which reduced stockholders' equity. The impact is attributable to a $42.4 million allowance for credit losses on the aforementioned financial assets. See table below for additional detail.

As of January 1, 2020, changes related to the adoption of ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASC 326"), had the following effect on assets and liabilities:


		Pre-ASC 326 Adoption		Adjustment to Adopt ASC 326		Balance as of January 1, 2020			Pre-ASC 326 Adoption		Adjustment to Adopt ASC 326		Balance as of January 1, 2020
Assets:	Assets:							Assets:
Allowance for credit losses	Allowance for credit losses							Allowance for credit losses
Fixed maturity, bonds held-to-maturity, at amortized cost	Fixed maturity, bonds held-to-maturity, at amortized cost	$	—	$	(21,664)	$	(21,664)	Fixed maturity, bonds held-to-maturity, at amortized cost	$	0	$	(21,664)	$	(21,664)

Mortgage loans on real estate	Mortgage loans on real estate	(19,160)		(11,224)		(30,384)		Mortgage loans on real estate	(19,160)		(11,224)		(30,384)
Reinsurance recoverables	Reinsurance recoverables	(8,220)		(7,920)		(16,140)		Reinsurance recoverables	(8,220)		(7,920)		(16,140)
Liabilities:	Liabilities:							Liabilities:
Allowance for credit losses	Allowance for credit losses							Allowance for credit losses
Other policyholder funds	Other policyholder funds	—		1,526		1,526		Other policyholder funds	0		1,526		1,526
Other liabilities	Other liabilities	—		(3,126)		(3,126)		Other liabilities	0		(3,126)		(3,126)
Total	Total	$	(27,380)	$	(42,408)	$	(69,788)	Total	$	(27,380)	$	(42,408)	$	(69,788)

Table of Contents

Note 3 – Recently Issued Accounting Pronouncements – (Continued)

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


Standard	Description	Effective Date and Method of Adoption	Impact on Financial Statements
ASU 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts	The guidance will improve the timeliness of recognizing changes in the liability for future policy benefits for traditional and limited payment long-duration contracts and will modify the rate used to discount future cash flows. The guidance will also simplify the accounting for certain market-based options or guarantees associated with deposit (or account balance) contracts (market risk benefits), simplify the amortization of deferred acquisition costs and add significant qualitative and quantitative disclosures.	This standard will become effective for the Company for all annual and interim periods beginning January 1, 2022. The FASB met on ~~June 10,~~September 30, 2020 and ~~proposed~~approved delaying the effective date of ASU 2018-12 until January 1, 2023. This proposal is pending final adoption. The guidance allows for one of two adoption methods, a modified retrospective transition or a full retrospective transition except for the changes to accounting for market risk benefits which will require a retrospective transition.	We are currently evaluating the impact of the standard to the Company. Based on the nature of the standard, we expect the impact to be material to our Condensed Consolidated Financial Statements and Notes to the Condensed Consolidated Financial ~~Statements~~Statements.
ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans	The new standard modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The guidance removes certain defined benefit pension or other postretirement plan disclosures that are no longer cost beneficial, clarifies the specific requirements for each disclosure and adds disclosure requirements.	This standard will become effective for the annual period ending December 31, 2020 using a retrospective transition.	The Company does not expect the adoption of this standard to have a material impact on our Condensed Consolidated Financial Statements or Notes to the ~~Condensed~~ Consolidated Financial Statements.
ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes	The amendments simplify the accounting for income taxes by removing certain exceptions in the existing guidance including those related to intra-period tax allocation when there is a loss from continuing operations and income or a gain from other items. The amendments require that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax as well as other minor changes.	This standard will become effective for the Company for all annual and interim periods beginning January 1, 2021. The new guidance specifies which amendments should be applied prospectively, retrospective to all periods presented or on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption.	The Company does not expect the adoption of this standard to have a material impact on our Condensed Consolidated Financial Statements or Notes to the Condensed Consolidated Financial Statements.
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting	The amendments in this update provide optional expedients and exceptions for applying Generally Accepted Accounting Principles ("GAAP") to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The guidance only applies to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.	The amendments in this update are effective for all entities as of March 12, 2020 and will sunset through December 31, 2022, at which time the application of exceptions and optional expedients will no longer be permitted.	We are evaluating our current exposure to LIBOR and the impact this standard would have on the Condensed Consolidated Financial Statements. We expect to have our evaluation of exposure completed by December 31, 2020.

Table of Contents

Note 4 – Investment in Securities

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


		June 30, 2020																			September 30, 2020
		Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Allowance for Credit Losses		Fair Value			Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Allowance for Credit Losses		Fair Value
Fixed maturity, bonds held-to-maturity	Fixed maturity, bonds held-to-maturity											Fixed maturity, bonds held-to-maturity
U.S. states and political subdivisions	U.S. states and political subdivisions	$	127,591	$	4,208	$	—	$	—	$	131,799	U.S. states and political subdivisions	$	106,908	$	4,278	$	(3)	$	0	$	111,183
Foreign governments	Foreign governments	3,880		481		—		—		4,361		Foreign governments	3,865		429		0		0		4,294
Corporate debt securities	Corporate debt securities	7,754,873		498,531		(33,883)		(19,882)		8,199,639		Corporate debt securities	7,315,879		567,282		(32,659)		(18,510)		7,831,992
Residential mortgage-backed securities	Residential mortgage-backed securities	164,903		6,604		(1,181)		—		170,326		Residential mortgage-backed securities	146,173		5,589		(1,434)		(35)		150,293
Collateralized debt securities	Collateralized debt securities	209,572		1,236		(685)		(2,532)		207,591		Collateralized debt securities	151,013		4,704		(1,922)		(2,946)		150,849

Total bonds held-to-maturity	Total bonds held-to-maturity	8,260,819		511,060		(35,749)		(22,414)		8,713,716		Total bonds held-to-maturity	7,723,838		582,282		(36,018)		(21,491)		8,248,611
Fixed maturity, bonds available-for-sale	Fixed maturity, bonds available-for-sale											Fixed maturity, bonds available-for-sale
U.S. treasury and government	U.S. treasury and government	29,132		676		—		—		29,808		U.S. treasury and government	32,017		543		(1)		0		32,559
U.S. states and political subdivisions	U.S. states and political subdivisions	1,025,297		67,074		—		—		1,092,371		U.S. states and political subdivisions	1,028,802		69,994		(37)		0		1,098,759
Foreign governments	Foreign governments	14,988		1,782		—		—		16,770		Foreign governments	14,992		1,602		0		0		16,594
Corporate debt securities	Corporate debt securities	5,653,025		362,094		(38,038)		(3,824)		5,973,257		Corporate debt securities	5,664,288		410,495		(35,150)		(7,437)		6,032,196
Residential mortgage-backed securities	Residential mortgage-backed securities	29,460		1,231		(23)		(211)		30,457		Residential mortgage-backed securities	26,292		1,256		(70)		(194)		27,284
Collateralized debt securities	Collateralized debt securities	27,214		751		(77)		(80)		27,808		Collateralized debt securities	27,975		892		(64)		(7)		28,796
Total bonds available-for-sale	Total bonds available-for-sale	6,779,116		433,608		(38,138)		(4,115)		7,170,471		Total bonds available-for-sale	6,794,366		484,782		(35,322)		(7,638)		7,236,188
Total investments in fixed maturity	Total investments in fixed maturity	$	15,039,935	$	944,668	$	(73,887)	$	(26,529)	$	15,884,187	Total investments in fixed maturity	$	14,518,204	$	1,067,064	$	(71,340)	$	(29,129)	$	15,484,799


		December 31, 2019																			December 31, 2019
		Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Allowance for Credit Losses		Fair Value			Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Allowance for Credit Losses		Fair Value
Fixed maturity, bonds held-to-maturity	Fixed maturity, bonds held-to-maturity											Fixed maturity, bonds held-to-maturity
U.S. states and political subdivisions	U.S. states and political subdivisions	$	165,109	$	5,005	$	—	$	—	$	170,114	U.S. states and political subdivisions	$	165,109	$	5,005	$	0	$	—	$	170,114
Foreign governments	Foreign governments	3,907		442		—		—		4,349		Foreign governments	3,907		442		0		—		4,349
Corporate debt securities	Corporate debt securities	8,099,098		332,410		(6,539)		—		8,424,969		Corporate debt securities	8,099,098		332,410		(6,539)		—		8,424,969
Residential mortgage-backed securities	Residential mortgage-backed securities	237,516		6,460		(1,148)		—		242,828		Residential mortgage-backed securities	237,516		6,460		(1,148)		—		242,828
Collateralized debt securities	Collateralized debt securities	125,631		1,146		(347)		—		126,430		Collateralized debt securities	125,631		1,146		(347)		—		126,430

Total bonds held-to-maturity	Total bonds held-to-maturity	8,631,261		345,463		(8,034)		—		8,968,690		Total bonds held-to-maturity	8,631,261		345,463		(8,034)		—		8,968,690
Fixed maturity, bonds available-for-sale	Fixed maturity, bonds available-for-sale											Fixed maturity, bonds available-for-sale
U.S. treasury and government	U.S. treasury and government	29,505		441		(5)		—		29,941		U.S. treasury and government	29,505		441		(5)		—		29,941
U.S. states and political subdivisions	U.S. states and political subdivisions	1,030,309		47,865		(9)		—		1,078,165		U.S. states and political subdivisions	1,030,309		47,865		(9)		—		1,078,165
Foreign governments	Foreign governments	5,000		1,287		—		—		6,287		Foreign governments	5,000		1,287		0		—		6,287
Corporate debt securities	Corporate debt securities	5,338,007		251,408		(12,795)		—		5,576,620		Corporate debt securities	5,338,007		251,408		(12,795)		—		5,576,620
Residential mortgage-backed securities	Residential mortgage-backed securities	23,405		739		(201)		—		23,943		Residential mortgage-backed securities	23,405		739		(201)		—		23,943
Collateralized debt securities	Collateralized debt securities	9,444		686		(1)		—		10,129		Collateralized debt securities	9,444		686		(1)		—		10,129

Total bonds available-for-sale	Total bonds available-for-sale	6,435,670		302,426		(13,011)		—		6,725,085		Total bonds available-for-sale	6,435,670		302,426		(13,011)		—		6,725,085
Total investments in fixed maturity	Total investments in fixed maturity	$	15,066,931	$	647,889	$	(21,045)	$	—	$	15,693,775	Total investments in fixed maturity	$	15,066,931	$	647,889	$	(21,045)	$	—	$	15,693,775

Table of Contents

Note 4 – Investment in Securities – (Continued)

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


		June 30, 2020															September 30, 2020
		Bonds Held-to-Maturity						Bonds Available-for-Sale							Bonds Held-to-Maturity				Bonds Available-for-Sale
		Amortized Cost		Fair Value		Amortized Cost		Fair Value			Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	Due in one year or less	$	919,447	$	932,495	$	486,900	$	493,348	Due in one year or less	$	778,789	$	789,231	$	368,975	$	374,081
Due after one year through five years	Due after one year through five years	3,055,241		3,222,507		3,214,261		3,369,646		Due after one year through five years	2,947,159		3,133,068		3,230,219		3,410,019
Due after five years through ten years	Due after five years through ten years	3,253,320		3,486,960		2,275,574		2,447,411		Due after five years through ten years	3,096,745		3,379,567		2,307,855		2,504,782
Due after ten years	Due after ten years	1,032,811		1,071,754		802,381		860,066		Due after ten years	901,145		946,745		887,317		947,306
Total	Total	$	8,260,819	$	8,713,716	$	6,779,116	$	7,170,471	Total	$	7,723,838	$	8,248,611	$	6,794,366	$	7,236,188

Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Residential and commercial mortgage-backed securities, which are not due at a single maturity, have been presented based on the year of final contractual maturity.

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


		Three months ended June 30,						Six months ended June 30,							Three months ended September 30,				Nine months ended September 30,
		2020		2019		2020		2019			2020		2019		2020		2019
Proceeds from sales of fixed maturity, bonds available-for-sale	Proceeds from sales of fixed maturity, bonds available-for-sale	$	85,000	$	—	$	131,513	$	285	Proceeds from sales of fixed maturity, bonds available-for-sale	$	32,859	$	14,921	$	164,372	$	15,205
Gross realized gains	Gross realized gains	—		—		412		—		Gross realized gains	212		56		624		56
Gross realized losses	Gross realized losses	—		—		(4,072)		(23)		Gross realized losses	(73)		0		(4,145)		(23)

Gains and losses are determined using specific identification of the securities sold. During the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, bonds below investment grade with a carrying value of $88,711,000 and $157,939,000 respectively, were transferred from held-to-maturity to available-for-sale after a deterioration in the issuers’ creditworthiness. ~~There was no transfer of bonds from held-to-maturity to available-for-sale during the six months ended June 30, 2020. NaN realized losses were recorded at June 30, 2020 and 2019.~~

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


		Six months ended June 30,							Nine months ended September 30,
		2020		2019			2020		2019
Bonds available-for-sale: change in unrealized gains	Bonds available-for-sale: change in unrealized gains	$	106,055	$	279,618	Bonds available-for-sale: change in unrealized gains	$	160,045	$	326,945
Adjustments for	Adjustments for					Adjustments for
Deferred policy acquisition costs	Deferred policy acquisition costs	(21,240)		(34,853)		Deferred policy acquisition costs	(37,329)		(82,587)
Participating policyholders’ interest	Participating policyholders’ interest	(5,052)		(12,811)		Participating policyholders’ interest	(7,962)		(14,989)
Deferred federal income tax expense	Deferred federal income tax expense	(18,390)		(48,080)		Deferred federal income tax expense	(24,808)		(48,064)
Change in net unrealized gains (losses) on debt securities, net of tax		$	61,373	$	183,874
Change in net unrealized gains on debt securities, net of tax						Change in net unrealized gains on debt securities, net of tax	$	89,946	$	181,305

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

Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019
Unrealized gains (losses) on equity securities $ 298,793 $ 51,933 $ (34,808) $ 254,955
Net gains on equity securities sold 32 15,127 1,058 18,482
Net gains (losses) on equity securities $ 298,825 $ 67,060 $ (33,750) $ 273,437


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Unrealized gains on equity securities	$	154,104	$	3,605	$	119,296	$	258,209
Net gains (losses) on equity securities sold	(1,957)		4,984		(899)		23,817
Net gains on equity securities	$	152,147	$	8,589	$	118,397	$	282,026

Table of Contents

Note 4 – Investment in Securities – (Continued)

The gross unrealized losses and fair value of bonds available-for-sale, aggregated by investment category and length of time individual securities have been in a continuous unrealized loss position due to ~~noncredit related~~market factors ~~at June 30, 2020~~ are shown below (in thousands, except number of issues):


		June 30, 2020																													September 30, 2020
		Less than 12 months								12 months or more										Total								Less than 12 months					12 months or more	Total
		Number of issues	Gross Unrealized (Losses)		Fair Value		Number of issues	Gross Unrealized (Losses)		Fair Value		Number of issues	Gross Unrealized (Losses)		Fair Value			Number of issues	Gross Unrealized (Losses)		Fair Value		Number of issues	Gross Unrealized (Losses)		Fair Value		Number of issues	Gross Unrealized (Losses)		Fair Value

Fixed maturity, bonds available-for-sale	Fixed maturity, bonds available-for-sale																Fixed maturity, bonds available-for-sale

U.S. treasury and government																	U.S. treasury and government	1	$	(1)	$	2,868	0	$	0	$	0	1	$	(1)	$	2,868
U.S. states and political subdivisions																	U.S. states and political subdivisions	2	(37)		5,484		0	0		0		2	(37)		5,484
Corporate debt securities	Corporate debt securities	75	$	(25,259)	$	479,455	11	$	(12,779)	$	53,086	84	$	(38,038)	$	532,541	Corporate debt securities	86	(22,857)		533,271		11	(12,293)		49,002		97	(35,150)		582,273
Residential mortgage-backed securities	Residential mortgage-backed securities	—	—		—		3	(23)		11,169		3	(23)		11,169		Residential mortgage-backed securities	1	(70)		7,000		3	0		613		4	(70)		7,613
Collateralized debt securities	Collateralized debt securities	2	(74)		9,411		1	(3)		156		3	(77)		9,567		Collateralized debt securities	1	(62)		8,008		1	(2)		157		2	(64)		8,165

Total	Total	77	$	(25,333)	$	488,866	15	$	(12,805)	$	64,411	90	$	(38,138)	$	553,277	Total	91	$	(23,027)	$	556,631	15	$	(12,295)	$	49,772	106	$	(35,322)	$	606,403


		December 31, 2019																														December 31, 2019
		Less than 12 months								12 months or more									Total										Less than 12 months					12 months or more	Total
		Number of issues	Gross Unrealized (Losses)		Fair Value		Number of issues	Gross Unrealized (Losses)		Fair Value		Number of issues	Gross Unrealized (Losses)		Fair Value			Number of issues		Gross Unrealized (Losses)		Fair Value		Number of issues	Gross Unrealized (Losses)		Fair Value		Number of issues	Gross Unrealized (Losses)		Fair Value

Fixed maturity, bonds available-for-sale	Fixed maturity, bonds available-for-sale																Fixed maturity, bonds available-for-sale
U.S. treasury and government	U.S. treasury and government	—	$	—	$	—	5	$	(5)	$	8,299	5	$	(5)	$	8,299	U.S. treasury and government	0		$	0	$	0	5	$	(5)	$	8,299	5	$	(5)	$	8,299
U.S. states and political subdivisions	U.S. states and political subdivisions	2	(9)		1,733		—	—		—		2	(9)		1,733		U.S. states and political subdivisions	2		(9)		1,733		0	0		0		2	(9)		1,733
Corporate debt securities	Corporate debt securities	22	(5,257)		94,942		25	(7,538)		132,626		47	(12,795)		227,568		Corporate debt securities	22		(5,257)		94,942		25	(7,538)		132,626		47	(12,795)		227,568
Residential mortgage-backed securities	Residential mortgage-backed securities	1	(9)		10,169		3	(192)		722		4	(201)		10,891		Residential mortgage-backed securities	1		(9)		10,169		3	(192)		722		4	(201)		10,891
Collateralized debt securities	Collateralized debt securities	1	(1)		159		—	—		—		1	(1)		159		Collateralized debt securities	1		(1)		159		0	0		0		1	(1)		159
Total	Total	26	$	(5,276)	$	107,003	33	$	(7,735)	$	141,647	59	$	(13,011)	$	248,650	Total	26		$	(5,276)	$	107,003	33	$	(7,735)	$	141,647	59	$	(13,011)	$	248,650

Unrealized losses on bonds available-for-sale where an allowance for credit loss was not recorded are due to noncredit related factors caused by market liquidity events related to COVID-19 and the related economic downturn. A number of assumptions and estimates are inherent in evaluating whether an allowance for credit loss is necessary, which include the financial condition, near term and long-term prospects of the issue or issuer, including relevant industry conditions and trends and implications of rating agency actions and offering prices.

Equity securities by market sector distribution are shown below, based on fair value:


		June 30, 2020		December 31, 2019			September 30, 2020		December 31, 2019
Consumer goods	Consumer goods	19.3	%	18.9	%	Consumer goods	20.7	%	18.9	%
Energy and utilities	Energy and utilities	5.7		8.0		Energy and utilities	5.1		8.0
Finance	Finance	21.4		18.0		Finance	20.4		18.0
Healthcare	Healthcare	15.7		13.0		Healthcare	15.7		13.0
Industrials	Industrials	5.7		7.6		Industrials	6.5		7.6
Information technology	Information technology	27.7		25.0		Information technology	27.2		25.0
Other	Other	4.5		9.5		Other	4.4		9.5
Total	Total	100.0	%	100.0	%	Total	100.0	%	100.0	%

Table of Contents

Note 4 – Investment in Securities – (Continued)

Allowance for Credit Losses

Held-to-Maturity ~~Securities—~~Securities—Management measures expected credit losses on bonds held-to-maturity on a collective (pool) basis by major security type: corporate bonds, structured products, municipals, specialty products and treasuries. Accrued interest receivable on held-to maturity debt securities are excluded from the estimate of credit losses. The estimate of expected credit losses considers historical credit loss information that is adjusted for current market conditions and reasonable and supportable economic forecasts based upon a third-party valuation model.

Available-for-Sale ~~Securities—~~Securities—For available-for-sale bonds ~~available-for-sale~~ in an unrealized loss position, the Company first assesses whether it intends to sell the security or will be required to sell the security before recovery of its amortized cost basis. If either of these criteria is met, the security’s amortized cost basis is written down to fair value through income. For bonds available-for-sale that do not meet either indicated criteria, the Company evaluates whether the decline in fair value has resulted from credit events or market factors. In making this assessment, management first calculates the extent to which value is less than amortized cost, and then may consider any changes to the rating of the security by a rating agency, and any specific conditions related to the security. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded, limited to the amount fair value is less than amortized cost. Any remaining unrealized loss is recognized in other comprehensive income.

When the discounted cash flow method is used to determine the allowance for credit losses, management's estimates incorporate expected prepayments, if any. Model inputs are considered reasonable and supportable for three years. A mean reversion is applied in years four and five. Credit loss allowance is not measured on accrued interest receivable because the balance is written off to net investment income in a timely manner, within 90 days. Changes in the allowance for credit losses are recognized through the condensed consolidated statement of operations as ~~changes~~change in expected credit loss.

No accrued interest receivables were written off as of ~~June~~September 30, 2020.

The rollforward of the allowance for credit losses for bonds held-to-maturity is shown below (in thousands):


		Foreign governments		Corporate debt securities		Collateralized debt securities		Residential mortgage backed securities		Total			Foreign Governments		Corporate Debt Securities		Collateralized Debt Securities		Residential Mortgage Backed Securities		Total
Allowance for credit losses	Allowance for credit losses											Allowance for credit losses
Cumulative adjustment at January 1, 2020	Cumulative adjustment at January 1, 2020	$	4	$	(18,563)	$	(2,968)	$	(137)	$	(21,664)	Cumulative adjustment at January 1, 2020	$	4	$	(18,563)	$	(2,968)	$	(137)	$	(21,664)
Purchases												Purchases	0		(622)		(323)		0		(945)
Disposition												Disposition	0		6,901		106		134		7,141
Provision	Provision	1		162		(18)		134		279		Provision	1		(6,117)		199		0		(5,917)
Ending balance at March 31, 2020		5		(18,401)		(2,986)		(3)		(21,385)
Balance at March 31, 2020												Balance at March 31, 2020	5		(18,401)		(2,986)		(3)		(21,385)

Purchases												Purchases	0		(116)		0		0		(116)
Disposition												Disposition	0		200		0		0		200
Provision	Provision	(5)		(1,481)		454		3		(1,029)		Provision	(5)		(1,565)		454		3		(1,113)

Ending balance at June 30, 2020		$	—	$	(19,882)	$	(2,532)	$	—	$	(22,414)
Balance at June 30, 2020												Balance at June 30, 2020	0		(19,882)		(2,532)		0		(22,414)

Purchases												Purchases	0		(4)		(6)		0		(10)
Disposition												Disposition	0		1,607		0		0		1,607
Provision												Provision	0		(231)		(408)		(35)		(674)

Balance at September 30, 2020												Balance at September 30, 2020	$	0	$	(18,510)	$	(2,946)	$	(35)	$	(21,491)

Table of Contents

Note 4 – Investment in Securities – (Continued)

The rollforward of the allowance for credit losses for available-for-sale debt securities is shown below (in thousands):

Corporate debt securities Collateralized debt securities Residential mortgage backed securities Total
Allowance for credit losses
Beginning balance at January 1, 2020 $ — $ — $ — $ —
Provision (12,499) (236) (130) (12,865)
Ending balance at March 31, 2020 (12,499) (236) (130) (12,865)
Provision 8,675 156 (81) 8,750
Ending balance at June 30, 2020 $ (3,824) $ (80) $ (211) $ (4,115)


	Corporate Debt Securities		Collateralized Debt Securities		Residential Mortgage Backed Securities		Total
Allowance for credit losses
Beginning balance at January 1, 2020	$	0	$	0	$	0	$	0

Allowance on securities that had an allowance recorded in a previous period	(12,499)		(236)		(130)		(12,865)
Balance at March 31, 2020	(12,499)		(236)		(130)		(12,865)




Increase in allowance related to purchases	(73)		0		0		(73)
Reduction in allowance related to disposition	7		0		3		10
Allowance on securities that had an allowance recorded in a previous period	10,017		155		(83)		10,089
Allowance on securities where credit losses were not previously recorded	(1,276)		0		0		(1,276)



Balance at June 30, 2020	(3,824)		(81)		(210)		(4,115)

Increase in allowance related to purchases	(28)		0		0		(28)
Reduction in allowance related to disposition	33		0		0		33
Allowance on securities that had an allowance recorded in a previous period	1,153		74		16		1,243
Allowance on securities where credit losses were not previously recorded	(4,771)		0		0		(4,771)





Balance at September 30, 2020	$	(7,437)	$	(7)	$	(194)	$	(7,638)

The change in allowance for the ~~six~~nine months ended ~~June~~September 30, 2020 was impacted by economic changes due to the COVID-19 pandemic on the bond market. ~~Bond prices improved during~~During the ~~second~~third quarter, asenergy, retail and real estate sectors were impacted and caused the ~~government passed an economic stimulus package and restored some confidence to investors. Also, as businesses began to reopen, people started returning to work, which further assisted~~increase in ~~bringing stability to bond markets.~~the allowance.

Credit Quality Indicators

The Company monitors the credit quality of bonds held-to-maturity through the use of credit ratings, which are updated on a monthly basis. The two traditional metrics for assessing interest rate risks are interest-coverage ratios and capitalization ratios which can also be used in the assessment of credit risk. These risks are fairly mitigated through the diversification of all bond investments. Categories of diversification include credit ratings, geographic locations, maturities, and market sector.

The credit quality indicators for the amortized cost of bonds held-to-maturity ~~as of June 30, 2020~~ are shown below (in thousands):


															September 30, 2020
		Amortized cost of bonds held-to-maturity by credit rating																							Amortized cost of bonds held-to-maturity by credit rating
Fixed maturity, bonds held-to-maturity	Fixed maturity, bonds held-to-maturity	AAA		AA		A		BBB		BB and below		Total		Fixed maturity, bonds held-to-maturity	AAA		AA		A		BBB		BB and below		Total
U.S. state and political subdivisions	U.S. state and political subdivisions	$	46,407	$	64,577	$	11,340	$	—	$	5,267	$	127,591	U.S. state and political subdivisions	$	29,996	$	64,232	$	7,893	$	0	$	4,787	$	106,908
Foreign governments	Foreign governments	—		2,842		1,038		—		—		3,880		Foreign governments	0		2,831		1,034		0		0		3,865
Corporate debt securities	Corporate debt securities	1,947		283,746		3,272,723		4,015,284		181,173		7,754,873		Corporate debt securities	1,951		276,131		3,074,717		3,859,811		103,269		7,315,879
Residential mortgage backed securities	Residential mortgage backed securities	73,981		—		—		—		90,922		164,903		Residential mortgage backed securities	61,850		0		0		0		84,323		146,173
Collateralized debt securities	Collateralized debt securities	—		—		166,682		15,743		27,147		209,572		Collateralized debt securities	0		0		118,921		5,120		26,972		151,013
Total	Total	$	122,335	$	351,165	$	3,451,783	$	4,031,027	$	304,509	$	8,260,819	Total	$	93,797	$	343,194	$	3,202,565	$	3,864,931	$	219,351	$	7,723,838


	December 31, 2019
	Amortized cost of bonds held-to-maturity by credit rating
Fixed maturity, bonds held-to-maturity	AAA		AA		A		BBB		BB and below		Total
U.S. state and political subdivisions	$	58,539	$	76,542	$	24,260	$	500	$	5,268	$	165,109
Foreign governments	0		2,861		1,046		0		0		3,907
Corporate debt securities	2,729		407,070		3,637,144		4,031,931		20,224		8,099,098
Residential mortgage backed securities	87,003		0		51,771		0		98,742		237,516
Collateralized debt securities	0		0		109,233		16,398		0		125,631
Total	$	148,271	$	486,473	$	3,823,454	$	4,048,829	$	124,234	$	8,631,261

At ~~June~~September 30, 2020, a bond classified as held-to-maturity with an amortized cost of $38,000 was past due on making an interest payment for over 90 days and is in nonaccrual status.

Table of Contents

Note 5 -– Mortgage Loans

Generally, commercial mortgage loans are secured by first liens on income-producing real estate. American National attempts to maintain a diversified portfolio by considering both the location of the underlying ~~collateral.~~collateral as well as the type of mortgage loan. The geographic categories come from the USU.S. Census Bureau's "Census Regions and Divisions of the United States." The distribution based on carrying amount of mortgage loans by location is as follows (in thousands, except percentages):


		June 30, 2020						December 31, 2019							September 30, 2020				December 31, 2019
East North Central	East North Central	$	711,602	13.7	%	$	667,150	13.1	%	East North Central	$	724,667	14.0	%	$	667,150	13.1	%
East South Central	East South Central	145,675		2.8		144,887		2.8		East South Central	147,385		2.8		144,887		2.8
Mountain	Mountain	1,227,945		23.7		1,200,434		23.6		Mountain	1,245,404		24.1		1,200,434		23.6
Pacific	Pacific	896,268		17.3		852,574		16.7		Pacific	830,697		16.1		852,574		16.7
South Atlantic	South Atlantic	618,061		11.9		621,875		12.2		South Atlantic	626,014		12.1		621,875		12.2
West South Central	West South Central	1,252,397		24.2		1,272,522		25.0		West South Central	1,284,656		24.8		1,272,522		25.0
Other	Other	324,563		6.4		337,575		6.6		Other	317,651		6.1		337,575		6.6
Total	Total	$	5,176,511	100.0	%	$	5,097,017	100.0	%	Total	$	5,176,474	100.0	%	$	5,097,017	100.0	%

~~During the six months ended June~~As of September 30, 2020 ~~American National foreclosed on 1 loan with a recorded investment of $4,511,000,~~ and ~~3 loans with a recorded investment of $18,502,000 were in the process of foreclosure at June 30, 2020. For the year ended~~ December 31, 2019, ~~American National~~loans in foreclosure and loans foreclosed ~~on 2 loans with a total recorded investment~~are as follows (in thousands, except number of $16,008,000, and there were 2 loans with a total recorded investment of $13,345,000 in the process of foreclosure. American National did 0t sell any loans during the six months ended June 30, 2020 or the year ended December 31, 2019.loans):


	September 30, 2020			December 31, 2019
Foreclosure and foreclosed	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
In foreclosure	4	$	24,498	2	$	13,345
Filed for bankruptcy*	1	9,230		0	0
Total in foreclosure	5	$	33,728	2	$	13,345

Foreclosed	1	$	4,511	2	$	16,008

*Borrower filed for bankruptcy after foreclosure proceedings had begun

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


		30-59 Days Past Due		60-89 Days Past Due		More Than 90 Days Past Due		Total		Current		Total								30-59 Days Past Due				60-89 Days Past Due		More Than 90 Days Past Due			Total				Current			Total
June 30, 2020																			Amount				Percent
September 30, 2020																September 30, 2020	30-59 Days Past Due			60-89 Days Past Due				More Than 90 Days Past Due				Total							Current			Amount		Percent
Apartment	Apartment	$	40,095	$	—	$	—	$	40,095	$	408,752	$	448,847	8.5	%	Apartment										$	469,903				8.9	%
Hotel	Hotel	212,708		137,195		54,855		404,758		497,488		902,246		17.1		Hotel	0					45,386				0			45,386				858,893			904,279			17.1
Industrial	Industrial	—		—		9,259		9,259		718,521		727,780		13.7		Industrial	0			0				9,260		9,260			765,337				774,597			14.7
Office	Office	58,352		12,759		17,392		88,503		1,478,233		1,566,736		29.6		Office	39,392			0				9,230		48,622			1,511,988				1,560,610			29.5
Retail	Retail	82,051		120,645		4,999		207,695		657,861		865,556		16.4		Retail	0			0				5,000		5,000			801,198				806,198			15.2
Other	Other	10,489		214,865		29,257		254,611		522,215		776,826		14.7		Other	0			0				0		0			773,803				773,803			14.6
Total	Total	$	403,695	$	485,464	$	115,762	$	1,004,921	$	4,283,070	$	5,287,991	100.0	%	Total	$	39,392		$	45,386			$	23,490	$	108,268		$	5,181,122			$	5,289,390		100.0	%
Allowance for credit losses	Allowance for credit losses											(111,480)				Allowance for credit losses																	(112,916)
Total, net of allowance	Total, net of allowance											$	5,176,511			Total, net of allowance																	$	5,176,474
December 31, 2019	December 31, 2019															December 31, 2019
Apartment	Apartment	$	—	$	—	$	—	$	—	$	416,865	$	416,865	8.1	%	Apartment	$	0		$	0			$	0	$	0		$	416,865			$	416,865		8.2	%
Hotel	Hotel	—		—		—		—		901,044		901,044		17.6		Hotel	0			0				0		0			901,044				901,044			17.6
Industrial	Industrial	—		13,076		4,091		17,167		589,721		606,888		11.9		Industrial	0			13,076				4,091		17,167			589,722				606,889			11.9
Office	Office	22,870		—		—		22,870		1,587,591		1,610,461		31.5		Office	22,870			0				0		22,870			1,587,591				1,610,461			31.5
Retail	Retail	—		—		4,122		4,122		843,467		847,589		16.6		Retail	0			0				4,122		4,122			843,466				847,588			16.5
Other	Other	11,759		—		—		11,759		721,571		733,330		14.3		Other	11,759			0				0		11,759			721,571				733,330			14.3
Total	Total	$	34,629	$	13,076	$	8,213	$	55,918	$	5,060,259	$	5,116,177	100.0	%	Total	$	34,629		$	13,076			$	8,213	$	55,918		$	5,060,259			$	5,116,177		100.0	%
Allowance for loan losses	Allowance for loan losses											(19,160)				Allowance for loan losses																	(19,160)
Total, net of allowance	Total, net of allowance											$	5,097,017			Total, net of allowance																	$	5,097,017

Table of Contents

Note 5 – Mortgage Loans – (Continued)

As a result of the economic impact associated with COVID-19, as of ~~June~~September 30, 2020, 7792 loans with a total balance of ~~$1.2~~$1.6 billion primarily related to hotels, retail and parking operations ~~(which are included in the other category in the table above)~~ were ~~in the course of modification.~~modified. The terms of the modifications of these loans include forbearance of principal and interest payments for a period of up to six months, extensions of maturity dates, and/or provision for interest only payments. ~~As of July 29, 2020, 49 of the 77~~Of these modified loans, ~~in the course of modification on June 30, 2020 with a total balance of $774~~1 loan totaling $45 million ~~have been~~is over 60 days past due. All other loans are current under their modified ~~leaving 28 loans with a total balance of $434 million in the course of modification. The Company expects the modification of these loans to be finalized shortly.~~terms.

~~The loans in the course of modification are included in the aging table based upon their original terms as follows (in thousands):~~

30-59 Days Past Due 60-89 Days Past Due More Than 90 Days Past Due Total Current Total Amount
June 30, 2020 $ 343,000 $ 461,000 $ 99,000 $ 903,000 $ 305,000 $ 1,208,000

~~Table of Contents~~

~~Note 5 - Mortgage Loans - (Continued)~~

There were 0 unamortized purchase discounts as of ~~June~~September 30, 2020 and December 31, 2019. Total mortgage loans were net of unamortized origination fees of ~~$28,860,000~~$27,001,000 and $29,294,000 at ~~June~~September 30, 2020 and December 31, 2019, respectively. No unearned income is included in these amounts.

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~~Loans that have these concessions ~~in determining credit loss allowances for loan losses recorded in connection with a~~could be classified as troubled debt ~~restructuring.~~restructurings. The carrying value after ~~specific~~the allowance, before and after modification in a troubled debt restructuring, may not change significantly, or may increase if the expected recovery is higher than the pre-modification recovery assessment. Loan modifications executed due to COVID-19 resulting in a total delay of more than six months were evaluated for troubled debt restructured status under current GAAP guidance.

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


		Six months ended June 30,																			Nine months ended September 30,
		2020								2019									2020				2019
		Number of Loans	Recorded Investment Pre- Modification		Recorded Investment Post Modification		Number of Loans	Recorded Investment Pre- Modification		Recorded Investment Post Modification			Number of Loans	Recorded Investment Pre-Modification		Recorded Investment Post Modification		Number of Loans	Recorded Investment Pre- Modification		Recorded Investment Post Modification
Office	Office	—	$	—	$	—	1	$	9,331	$	9,331	Office	7	$	76,201	$	76,201	1	$	9,271	$	9,271
Retail	Retail	3	22,161		22,161		2	40,249		40,249		Retail	6	79,911		79,911		2	41,354		41,354
Industrial	Industrial	—	—		—		4	20,595		20,595		Industrial	2	11,473		11,473		0	0		0
Hotel	Hotel	11	341,556		341,556		—	—		—		Hotel	34	811,007		811,007		0	0		0
Parking												Parking	13	168,740		168,740		0	0		0
Other	Other	2	5,776		5,776		—	—		—		Other	5	119,738		119,738		0	0		0
Total	Total	16	$	369,493	$	369,493	7	$	70,175	$	70,175	Total	67	$	1,267,070	$	1,267,070	3	$	50,625	$	50,625

American National considers the amount, timing and extent of concessions in determining credit loss allowances for loan losses recorded in connection with a troubled debt restructuring.

Allowance for Credit Losses

Mortgage loans on real estate are stated at unpaid principal balance, adjusted for any unamortized discount, deferred expenses and allowances. The allowance for current expected losses per ASC 326, at the effective date will be based upon the current expected credit loss ~~model, refer~~model. Refer to Note 3, ~~"Recently~~Recently Issued Accounting Pronouncements." The model considers past loss experience, current economic conditions, and reasonable and supportable forecasts of future conditions. Reversion for the allowance calculation is implicit in the models used to determine the allowance. The methodology uses a discounted cash flow approach based on expected cash flows.

The rollforward of the allowance for credit losses for mortgage loans is shown below (in thousands):



	Commercial Mortgage Loans
Beginning balance at January 1, 2020	$	(19,160)



Cumulative adjustment at January 1, 2020	(11,216)
Provision	(29,069)

Balance at March 31, 2020	$		(59,445)
Provision	(52,035)
Balance at June 30, 2020	(111,480)



Provision	(1,436)

Balance at September 30, 2020	$	~~(111,480)~~(112,916)

The change in allowance for the six months ended June 30, 2020 was driven by the economic disruption and uncertainty caused by COVID-19, we have been working with many of our mortgage loan borrowers, primarily those related to hotels, retail and parking operations, on loan modifications as noted above.

Table of Contents

Note 5 -– Mortgage Loans -– (Continued)

The change in allowance for the nine months ended September 30, 2020 was driven by the economic disruption caused by COVID-19.

The asset and allowance balances for credit losses for mortgage loans by property-type are shown below (in thousands):


		June 30, 2020							September 30, 2020
		Asset Balance		Allowance			Asset Balance		Allowance
Apartment	Apartment	$	445,579	$	(3,268)	Apartment	$	465,221	$	(4,682)
Hotel	Hotel	857,142		(45,104)		Hotel	859,119		(45,160)
Industrial	Industrial	724,195		(3,586)		Industrial	771,951		(2,646)
Office	Office	1,543,211		(23,525)		Office	1,534,903		(25,707)
Retail	Retail	852,869		(12,686)		Retail	795,164		(11,034)
Parking						Parking	352,435		(11,129)
Other	Other	753,515		(23,311)		Other	397,681		(12,558)
Total	Total	$	5,176,511	$	(111,480)	Total	$	5,176,474	$	(112,916)

Credit Quality Indicators

Mortgage loans are segregated by property-type and quantitative and qualitative allowance factors are applied. Qualitative factors are developed quarterly based on the pooling of assets with similar risk characteristics and historical loss experience adjusted for the expected trend in the current market environment. Credit losses are pooled by collateral type as it represents the most similar and reliable risk characteristics in our portfolio. The amortized cost of mortgage loans by year of origination by property-type are shown below (in thousands):


		Amortized Cost Basis by Origination Year																									Amortized Cost Basis by Origination Year
		2020		2019		2018		2017		2016		Prior		Total			2020		2019		2018		2017		2016		Prior		Total
Apartment	Apartment	$	—	$	108,698	$	43,457	$	190,907	$	68,859	$	37,469	$	449,390	Apartment	$	402	$	136,436	$	46,267	$	180,656	$	68,664	$	37,478	$	469,903
Hotel	Hotel	—		57,560		204,054		219,527		148,026		273,845		903,012		Hotel	0		59,402		204,094		219,597		148,078		273,834		905,005
Industrial	Industrial	123,102		174,401		130,090		52,007		124,923		123,257		727,780		Industrial	168,467		178,797		134,431		46,676		124,259		121,967		774,597
Office	Office	—		56,068		193,000		347,383		314,239		656,046		1,566,736		Office	6,564		58,345		195,201		345,425		312,693		642,382		1,560,610
Retail	Retail	42,784		41,190		103,201		80,943		223,764		373,674		865,556		Retail	49,111		41,145		104,694		80,577		161,720		368,951		806,198
Parking																Parking	28,684		13,787		30,523		8,700		169,715		122,757		374,166
Other	Other	31,206		86,718		142,940		89,367		238,411		186,875		775,517		Other	19,879		83,671		112,659		54,917		69,994		57,791		398,911
Total	Total	$	197,092	$	524,635	$	816,742	$	980,134	$	1,118,222	$	1,651,166	$	5,287,991	Total	$	273,107	$	571,583	$	827,869	$	936,548	$	1,055,123	$	1,625,160	$	5,289,390
Allowance for loan losses	Allowance for loan losses													(111,480)		Allowance for loan losses													(112,916)
Total, net of allowance	Total, net of allowance													$	5,176,511	Total, net of allowance													$	5,176,474

Generally, mortgage loans are secured by first liens on income-producing real estate with a loan-to-value ratio of up to 75%. It is the Company's policy to not accrue interest on loans that are 90 days delinquent and where amounts are determined to be uncollectible. At ~~June~~September 30, 2020, commercial loans of ~~$115,762,000~~$23,490,000 were past due over 90 days and are in nonaccrual status.

Off-Balance Sheet Credit Exposures

The Company has off-balance sheet credit exposures related to non-cancellable unfunded commitment amounts on commercial mortgage loans. We estimate the allowance for these exposures by applying the allowance rate we computed for each property type to the related outstanding commitment amounts. As of ~~June~~September 30, 2020, we have included a ~~$13,032,000~~$13,429,000 liability in other liabilities on the condensed consolidated statements of financial position based on unfunded loan commitments of ~~$578,979,000.~~$660,924,000.

Table of Contents

Note 6 – Real Estate and Other Investments

~~Investment~~The carrying amount of investment real estate, net of accumulated depreciation, by property-type and geographic distribution are as follows (in thousands, except percentages):


		June 30, 2020						December 31, 2019							September 30, 2020				December 31, 2019
Industrial	Industrial	$	68,315	12.5	%	$	68,809	12.5	%	Industrial	$	40,970	8.0	%	$	68,809	12.5	%
Office	Office	219,108		40.2		219,490		39.8		Office	218,005		42.4		219,490		39.8
Retail	Retail	213,317		39.2		215,800		39.1		Retail	211,464		41.1		215,800		39.1
Other	Other	43,864		8.1		47,120		8.6		Other	43,637		8.5		47,120		8.6
Total	Total	$	544,604	100.0	%	$	551,219	100.0	%	Total	$	514,076	100.0	%	$	551,219	100.0	%


		June 30, 2020						December 31, 2019							September 30, 2020				December 31, 2019
East North Central	East North Central	$	32,572	6.0	%	$	32,539	5.9	%	East North Central	$	32,455	6.3	%	$	32,539	5.9	%
East South Central	East South Central	33,466		6.2		34,248		6.2		East South Central	33,123		6.4		34,248		6.2
Mountain	Mountain	66,942		12.3		68,498		12.4		Mountain	66,330		12.9		68,498		12.4
Pacific	Pacific	39,425		7.2		40,462		7.3		Pacific	39,000		7.6		40,462		7.3
South Atlantic	South Atlantic	82,682		15.2		83,552		15.2		South Atlantic	72,802		14.2		83,552		15.2
West South Central	West South Central	272,551		50.0		278,833		50.6		West South Central	253,200		49.3		278,833		50.6
Other	Other	16,966		3.1		13,087		2.4		Other	17,166		3.3		13,087		2.4
Total	Total	$	544,604	100.0	%	$	551,219	100.0	%	Total	$	514,076	100.0	%	$	551,219	100.0	%

American National regularly invests in real estate partnerships and joint ventures. American National frequently participates in the design of these joint venture or partnership entities with the sponsor, but in most cases, our involvement is limited to financing. Through analysis performed by American National, some of these partnerships and joint ventures have been determined to be variable interest entities (“VIEs”). In certain instances, in addition to an economic interest in the entity, American National holds the power to direct the most significant activities of the entity and is deemed the primary beneficiary or consolidator of the entity. The assets of the consolidated VIEs are restricted and must first be used to settle their liabilities. Creditors or beneficial interest holders of these VIEs have no recourse to the general credit of American National, as American National’s obligation is limited to the amount of its committed investment. American National has not provided financial or other support to the VIEs in the form of liquidity arrangements, guarantees, or other commitments to third parties that may affect the fair value or risk of its variable interest in the VIEs in 2020 or 2019.

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


		June 30, 2020		December 31, 2019			September 30, 2020		December 31, 2019
Investment real estate	Investment real estate	$	133,548	$	134,534	Investment real estate	$	133,152	$	134,534
Short-term investments	Short-term investments	501		500		Short-term investments	500		500
Cash and cash equivalents	Cash and cash equivalents	8,681		11,155		Cash and cash equivalents	5,634		11,155
Other receivables	Other receivables	2,503		3,673		Other receivables	3,704		3,673
Other assets	Other assets	11,383		15,355		Other assets	13,153		15,355
Total assets of consolidated VIEs	Total assets of consolidated VIEs	$	156,616	$	165,217	Total assets of consolidated VIEs	$	156,143	$	165,217
Notes payable	Notes payable	$	155,871	$	157,997	Notes payable	$	154,788	$	157,997
Other liabilities	Other liabilities	4,616		9,731		Other liabilities	6,526		9,731
Total liabilities of consolidated VIEs	Total liabilities of consolidated VIEs	$	160,487	$	167,728	Total liabilities of consolidated VIEs	$	161,314	$	167,728

The notes payable in the condensed consolidated statements of financial position pertain to the borrowings of the consolidated VIEs. The liability of American National relating to notes payable of the consolidated VIEs is limited to the amount of its direct or indirect investment in the respective ventures, which totaled ~~$3,066,000~~$3,108,000 and $4,304,000 at ~~June~~September 30, 2020 and December 31, 2019, respectively.

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

Interest rate Maturity June 30, 2020 December 31, 2019
LIBOR 2021 $ 10,828 $ 10,836
4% fixed 2022 80,152 81,709
4.18% fixed 2024 64,891 65,452
Total $ 155,871 $ 157,997


Interest rate	Maturity	September 30, 2020		December 31, 2019
LIBOR	2021	$	10,819	$	10,836
4% fixed	2022	79,363		81,709
4.18% fixed	2024	64,606		65,452
Total		$	154,788	$	157,997

Table of Contents

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

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


		June 30, 2020						December 31, 2019							September 30, 2020				December 31, 2019
		Carrying Amount		Maximum Exposure to Loss		Carrying Amount		Maximum Exposure to Loss			Carrying Amount		Maximum Exposure to Loss		Carrying Amount		Maximum Exposure to Loss
Investment in unconsolidated affiliates	Investment in unconsolidated affiliates	$	342,967	$	342,967	$	332,742	$	332,742	Investment in unconsolidated affiliates	$	347,554	$	347,554	$	332,742	$	332,742
Mortgage loans	Mortgage loans	696,645		696,545		657,528		657,528		Mortgage loans	721,899		721,899		657,528		657,528
Accrued investment income	Accrued investment income	3,276		3,276		2,198		2,198		Accrued investment income	5,154		5,154		2,198		2,198

As of ~~June~~September 30, 2020, 1 real estate investment with a carrying value of $3,364,000 met the criteria 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	Derivatives Not Designated as Hedging Instruments	Location in the Condensed Consolidated Statements of Financial Position	June 30, 2020												December 31, 2019												Derivatives Not Designated as Hedging Instruments	Location in the Condensed Consolidated Statements of Financial Position		September 30, 2020							December 31, 2019
						Number of Instruments			Notional Amounts		Estimated Fair Value			Number of Instruments			Notional Amounts		Estimated Fair Value	Derivatives Not Designated as Hedging Instruments		Location in the Condensed Consolidated Statements of Financial Position			Number of Instruments				Estimated Fair Value			Number of Instruments			Notional Amounts	Estimated Fair Value
																																						Number of Instruments	Notional Amounts	Estimated Fair Value	Number of Instruments	Notional Amounts	Estimated Fair Value
Equity-indexed options	Equity-indexed options	Other invested assets	459	$	2,693,100		$	191,486		473		$	2,654,600		$	256,005	Equity-indexed options	Other invested assets					$	2,761,300		$	213,782	473		$	2,654,600		$	256,005
Equity-indexed embedded derivative	Equity-indexed embedded derivative	Policyholders’ account balances	105,964	2,561,102			675,970			101,950		2,527,205			731,552		Equity-indexed embedded derivative	Policyholders’ account balances			108,958		2,625,029			693,780		101,950		2,527,205			731,552


Derivatives Not Designated as Hedging Instruments	Derivatives Not Designated as Hedging Instruments	Location in the Condensed Consolidated Statements of Operations	Gains (Losses) Recognized in Income on Derivatives																Derivatives Not Designated as Hedging Instruments		Location in the Condensed Consolidated Statements of Operations		Gains (Losses) Recognized in Income on Derivatives
							Three months ended June 30,								Six months ended June 30,							Location in the Condensed Consolidated Statements of Operations			Three months ended September 30,			Nine months ended September 30,
							2020			2019			2020		2019	Derivatives Not Designated as Hedging Instruments	Location in the Condensed Consolidated Statements of Operations						2020				2019
Equity-indexed options	Equity-indexed options	Net investment income	$	67,157	$	23,125		$	(40,938)		$	89,610	Equity-indexed options	Net investment income				$		6,278			$	(2,200)	$	95,888
Equity-indexed embedded derivative	Equity-indexed embedded derivative	Interest credited to policyholders’ account balances	(62,491)		(36,255)			27,090			(94,411)		Equity-indexed embedded derivative	Interest credited to policyholders’ account balances				(11,462)			(17,702)		(105,873)

The Company’s use of derivative instruments exposes it to credit risk in the event of non-performance by the counterparties. The Company has a policy of only dealing with counterparties it believes are creditworthy and obtaining collateral where appropriate, as a means of mitigating the financial loss from defaults. The Company holds collateral in cash and notes secured by U.S. ~~government backed~~government-backed assets. The non-performance risk is the net counterparty exposure based on the fair value of the open contracts, less the fair value of collateral held. The Company maintains master netting agreements with its current active trading partners. As such, a right of offset has been applied to collateral that supports credit risk and has been recorded in the condensed consolidated statements of financial position as an offset to “Other invested assets” with an associated payable to “Other liabilities” for excess collateral.

Table of Contents

Note 7 – Derivative Instruments -– (Continued)

Information regarding the Company’s exposure to credit loss on the options it holds is presented below (in thousands):


			June 30, 2020																												September 30, 2020
Counterparty	Counterparty	Moody/S&P Rating	Options Fair Value		Collateral Held in Cash		Collateral Held in Invested Assets		Total Collateral Held		Collateral Amounts used to Offset Exposure		Excess Collateral		Exposure Net of Collateral		Counterparty	Moody/S&P Rating	Options Fair Value		Collateral Held in Cash		Collateral Held in Invested Assets		Total Collateral Held		Collateral Amounts used to Offset Exposure		Excess Collateral		Exposure Net of Collateral
Barclays	Barclays	Baa2/BBB	$	36,375	$	17,373	$	18,100	$	35,473	$	35,473	$	—	$	902	Barclays	Baa2/BBB	$	42,627	$	24,033	$	18,100	$	42,133	$	42,133	$	0	$	494
Credit Suisse	Credit Suisse	Baa2/BBB+	4,946		4,470		—		4,470		4,470		—		476		Credit Suisse	Baa2/BBB+	7,936		7,670		0		7,670		7,670		0		266
Goldman-Sachs	Goldman-Sachs	A3/BBB+	990		910		—		910		910		—		80		Goldman-Sachs	A3/BBB+	1,095		910		0		910		910		0		185
ING	ING	Baa1/A-	24,305		14,040		10,300		24,340		24,305		35		—		ING	Baa1/A-	20,858		10,770		10,300		21,070		20,858		212		0
Morgan Stanley	Morgan Stanley	A3/BBB+	16,967		8,256		5,700		13,956		13,956		—		3,011		Morgan Stanley	A3/BBB+	22,132		15,426		5,700		21,126		21,126		0		1,006
NATIXIS*	NATIXIS*	A1/A+	26,834		26,570		—		26,570		26,570		—		264		NATIXIS*	A1/A+	30,827		31,030		0		31,030		30,827		203		0
SunTrust		A3/A-	47,570		34,780		11,000		45,780		45,780		—		1,790
Truist																	Truist	A3/A-	52,586		40,740		11,000		51,740		51,728		12		858
Wells Fargo	Wells Fargo	A2/A-	33,499		22,210		9,900		32,110		32,110		—		1,389		Wells Fargo	A2/A-	35,721		25,030		9,900		34,930		34,930		0		791
Total	Total		$	191,486	$	128,609	$	55,000	$	183,609	$	183,574	$	35	$	7,912	Total		$	213,782	$	155,609	$	55,000	$	210,609	$	210,182	$	427	$	3,600


			December 31, 2019																												December 31, 2019
Counterparty	Counterparty	Moody/S&P Rating	Options Fair Value		Collateral Held in Cash		Collateral Held in Invested Assets		Total Collateral Held		Collateral Amounts used to Offset Exposure		Excess Collateral		Exposure Net of Collateral		Counterparty	Moody/S&P Rating	Options Fair Value		Collateral Held in Cash		Collateral Held in Invested Assets		Total Collateral Held		Collateral Amounts used to Offset Exposure		Excess Collateral		Exposure Net of Collateral
Barclays	Barclays	Baa3/BBB	$	54,583	$	27,343	$	28,000	$	55,343	$	54,583	$	760	$	—	Barclays	Baa3/BBB	$	54,583	$	27,343	$	28,000	$	55,343	$	54,583	$	760	$	0
Credit Suisse	Credit Suisse	Baa2/BBB+	7,117		7,390		—		7,390		7,009		381		108		Credit Suisse	Baa2/BBB+	7,117		7,390		0		7,390		7,009		381		108
Goldman-Sachs	Goldman-Sachs	A3/BBB+	1,053		930		—		930		930		—		123		Goldman-Sachs	A3/BBB+	1,053		930		0		930		930		0		123
ING	ING	Baa1/A-	30,330		14,940		16,000		30,940		30,330		610		—		ING	Baa1/A-	30,330		14,940		16,000		30,940		30,330		610		0

Morgan Stanley	Morgan Stanley	A3/BBB+	34,988		25,926		9,000		34,926		34,926		—		62		Morgan Stanley	A3/BBB+	34,988		25,926		9,000		34,926		34,926		0		62
NATIXIS*	NATIXIS*	A1/A+	29,918		30,200		—		30,200		29,918		282		—		NATIXIS*	A1/A+	29,918		30,200		0		30,200		29,918		282		0
SunTrust	SunTrust	A3/A-	60,360		41,720		17,000		58,720		58,645		75		1,715		SunTrust	A3/A-	60,360		41,720		17,000		58,720		58,645		75		1,715
Wells Fargo	Wells Fargo	A2/A-	37,656		24,110		15,000		39,110		37,656		1,454		—		Wells Fargo	A2/A-	37,656		24,110		15,000		39,110		37,656		1,454		0
Total	Total		$	256,005	$	172,559	$	85,000	$	257,559	$	253,997	$	3,562	$	2,008	Total		$	256,005	$	172,559	$	85,000	$	257,559	$	253,997	$	3,562	$	2,008

*Collateral is prohibited from being held in invested assets

Table of Contents

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

Net investment income is shown below (in thousands):


		Three months ended June 30,						Six months ended June 30,							Three months ended September 30,				Nine months ended September 30,
		2020		2019		2020		2019			2020		2019		2020		2019
Bonds	Bonds	$	141,762	$	150,907	$	287,881	$	298,464	Bonds	$	138,743	$	154,322	$	426,624	$	452,786
Equity securities	Equity securities	7,919		9,015		15,766		17,307		Equity securities	7,905		7,985		23,671		25,292
Mortgage loans	Mortgage loans	60,445		63,158		119,773		126,357		Mortgage loans	61,561		64,753		181,334		191,110
Real estate	Real estate	1,734		4,508		3,447		6,363		Real estate	(121)		1,005		3,326		7,310
Equity-indexed options	Equity-indexed options	67,157		23,125		(40,938)		89,610		Equity-indexed options	38,738		6,278		(2,200)		95,888
Other invested assets	Other invested assets	8,331		7,017		16,703		11,975		Other invested assets	7,430		12,277		24,133		24,310
Total	Total	$	287,348	$	257,730	$	402,632	$	550,076	Total	$	254,256	$	246,620	$	656,888	$	796,696

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


		Three months ended June 30,						Six months ended June 30,							Three months ended September 30,				Nine months ended September 30,
		2020		2019		2020		2019			2020		2019		2020		2019
Bonds	Bonds	$	3,952	$	2,611	$	9,430	$	5,213	Bonds	$	6,117	$	6,075	$	15,547	$	11,288
Mortgage loans	Mortgage loans	—		(544)		—		(89)		Mortgage loans	0		(2,097)		0		(2,186)
Real estate	Real estate	(7)		(2,728)		(1,314)		(2,886)		Real estate	11,265		27,388		9,951		24,502
Other invested assets	Other invested assets	(6)		(2,276)		(29)		(2,228)		Other invested assets	5		567		(24)		(1,661)
Total	Total	$	3,939	$	(2,937)	$	8,087	$	10	Total	$	17,387	$	31,933	$	25,474	$	31,943

Net realized investment ~~gain~~gains (losses) by transaction type are shown below (in thousands):

Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019
Sales $ — $ (583) $ (3,618) $ (763)
Calls 4,025 2,274 13,145 4,928
Paydowns (73) 319 (54) 288
Impairments — (4,700) (1,276) (4,700)
Loss allowance — (257) — 260
Others (13) 10 (110) (3)
Total $ 3,939 $ (2,937) $ 8,087 $ 10


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Sales	$	11,417	$	28,518	$	7,799	$	27,756
Calls and maturities	5,986		6,100		19,131		11,029
Paydowns	(7)		(81)		(61)		206
Impairments	0		(2,590)		(1,276)		(7,290)
Loss allowance	0		(12)		0		247
Others	(9)		(2)		(119)		(5)
Total	$	17,387	$	31,933	$	25,474	$	31,943

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

Three months ended June 30, Six months ended June 30,
2020 2019 2020 2019
Bonds $ — $ (6,968) $ — $ (6,968)



	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Bonds	$	0	$	0	$	0	$	(6,968)

Table of Contents

Note 9 – Fair Value of Financial Instruments

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


		June 30, 2020						December 31, 2019							September 30, 2020				December 31, 2019
		Carrying Amount		Fair Value		Carrying Amount		Fair Value			Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets	Financial assets									Financial assets
Fixed maturity, bonds held-to-maturity	Fixed maturity, bonds held-to-maturity	$	8,238,405	$	8,713,716	$	8,631,261	$	8,968,690	Fixed maturity, bonds held-to-maturity	$	7,702,347	$	8,248,611	$	8,631,261	$	8,968,690
Fixed maturity, bonds available-for-sale	Fixed maturity, bonds available-for-sale	7,170,471		7,170,471		6,725,085		6,725,085		Fixed maturity, bonds available-for-sale	7,236,188		7,236,188		6,725,085		6,725,085
Equity securities	Equity securities	1,714,264		1,714,264		1,700,960		1,700,960		Equity securities	1,840,855		1,840,855		1,700,960		1,700,960
Equity-indexed options	Equity-indexed options	191,486		191,486		256,005		256,005		Equity-indexed options	213,782		213,782		256,005		256,005
Mortgage loans on real estate, net of allowance	Mortgage loans on real estate, net of allowance	5,176,511		5,438,373		5,097,017		5,309,005		Mortgage loans on real estate, net of allowance	5,176,474		5,381,157		5,097,017		5,309,005
Policy loans	Policy loans	377,826		377,826		379,657		379,657		Policy loans	374,387		374,387		379,657		379,657
Short-term investments	Short-term investments	501,087		501,087		425,321		425,321		Short-term investments	800,793		800,793		425,321		425,321
Separate account assets ($1,005,889 and $1,049,938 included in fair value hierarchy)		1,032,956		1,032,956		1,073,891		1,073,891
Separate account assets ($1,062,762 and $1,049,938 included in fair value hierarchy)										Separate account assets ($1,062,762 and $1,049,938 included in fair value hierarchy)	1,092,574		1,092,574		1,073,891		1,073,891
Separately managed accounts	Separately managed accounts	51,537		51,537		50,503		50,503		Separately managed accounts	62,052		62,052		50,503		50,503
Total financial assets	Total financial assets	$	24,454,543	$	25,191,716	$	24,339,700	$	24,889,117	Total financial assets	$	24,499,452	$	25,250,399	$	24,339,700	$	24,889,117
Financial liabilities	Financial liabilities									Financial liabilities
Investment contracts	Investment contracts	$	10,185,122	$	10,185,122	$	10,254,959	$	10,254,959	Investment contracts	$	10,167,018	$	10,167,018	$	10,254,959	$	10,254,959
Embedded derivative liability for equity-indexed contracts	Embedded derivative liability for equity-indexed contracts	675,970		675,970		731,552		731,552		Embedded derivative liability for equity-indexed contracts	693,780		693,780		731,552		731,552
Notes payable	Notes payable	155,871		155,871		157,997		157,997		Notes payable	154,788		154,788		157,997		157,997
Federal Home Loan Bank advance		500,000		500,000		—		—
Separate account liabilities ($1,005,889 and $1,049,938 included in fair value hierarchy)		1,032,956		1,032,956		1,073,891		1,073,891
Federal Home Loan Bank advances										Federal Home Loan Bank advances	500,000		500,000		0		0
Separate account liabilities ($1,062,762 and $1,049,938 included in fair value hierarchy)										Separate account liabilities ($1,062,762 and $1,049,938 included in fair value hierarchy)	1,092,574		1,092,574		1,073,891		1,073,891
Total financial liabilities	Total financial liabilities	$	12,549,919	$	12,549,919	$	12,218,399	$	12,218,399	Total financial liabilities	$	12,608,160	$	12,608,160	$	12,218,399	$	12,218,399

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability. A fair value hierarchy is used to determine fair value based on a hypothetical transaction at the measurement date from the perspective of a market participant. American National has evaluated the types of securities in its investment portfolio to determine an appropriate hierarchy level based upon trading activity and the observability of market inputs. The classification of assets or liabilities within the fair value hierarchy is based on the lowest level of significant input to its valuation. The input levels are defined as follows:


Level 1						Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2						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.

Table of Contents

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

Valuation Techniques for Financial Instruments Recorded at Fair Value

Fixed Maturity Securities and Equity ~~Options—~~Options—American National utilizes a pricing service to estimate fair value measurements. The estimates of fair value for most fixed maturity securities, including municipal bonds, provided by the pricing service are disclosed as Level 2 measurements as the estimates are based on observable market information rather than market quotes. The pricing service utilizes market quotations for fixed maturity securities that have quoted prices in active markets. Since fixed maturity securities generally do not trade on a daily basis, the pricing service prepares estimates of fair value measurements for these securities using its proprietary pricing applications, which include available relevant market information, benchmark curves, benchmarking of like securities, sector groupings and matrix pricing. Additionally, an option adjusted spread model is used to develop prepayment and interest rate scenarios.

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

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

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

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

Equity ~~Securities—~~Securities—For publicly-traded equity securities, prices are received from a nationally recognized pricing service that are based on observable market transactions, and these securities are classified as Level 1 measurements. For certain preferred stock, current market quotes in active markets are unavailable. In these instances, an estimated fair value is received from the pricing service. The service utilizes similar methodologies to price preferred stocks as it does for fixed maturity securities. If applicable, these estimates would be disclosed as Level 2 measurements. American National tests the accuracy of the information provided by reference to other services annually.

Short-Term Investments—Short-term investments are primarily commercial paper rated A2 or P2 or better by Standard & Poor's and Moody's, respectively. Commercial paper is carried at amortized cost which approximates fair value. These investments are classified as Level 2 measurements.

Table of Contents

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

Separate Account Assets and Liabilities—Separate account assets and liabilities are funds that are held separate from the general assets and liabilities of American National 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 condensed consolidated statements of operations.

The separate account assets included on the quantitative disclosures fair value hierarchy table are comprised of short-term investments, equity securities, and fixed maturity bonds available-for-sale. Equity securities are classified as Level 1 measurements. Short-term investments and fixed maturity securities are classified as Level 2 measurements. These classifications for separate account assets reflect the same fair value level methodologies as listed above as they are derived from the same vendors and follow the same process.

The separate account assets also include cash and cash equivalents, investments in unconsolidated affiliates, accrued investment income, and receivables for securities. These are not financial instruments and are not included in the quantitative disclosures of fair value hierarchy table.

Embedded ~~Derivative—~~Derivative—The amounts reported within policyholder contract deposits include equity linked interest crediting rates based on the S&P 500 index within ~~index~~indexed annuities and indexed life. The following unobservable inputs are used for measuring the fair value of the embedded derivatives associated with the policyholder contract liabilities:

•Lapse rate assumptions are determined by company experience. Lapse rates are generally assumed to be lower during a contract’s surrender charge period and then higher once the surrender charge period has ended. Decreases to the assumed lapse rates generally increase the fair value of the liability as more policyholders persist to collect the crediting interest pertaining to the indexed product. Increases to the lapse rate assumption decrease the fair value.

•Mortality rate assumptions vary by age and gender based on company and industry experience. Decreases to the assumed mortality rates increase the fair value of the liabilities as more policyholders earn crediting interest. Increases to the assumed mortality rates decrease the fair value as higher decrements reduce the potential for future interest credits.

•Equity volatility assumptions begin with current market volatilities and grow to long-term values. Increases to the assumed volatility will increase the fair value of liabilities, as future projections will produce higher increases in the linked index. At ~~June~~September 30, 2020 and December 31, 2019, the one year implied volatility used to estimate embedded derivative value was ~~24.4%~~22.6% and 11.3%, respectively.

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


		Fair Value						Range						Fair Value			Range
		June 30, 2020		December 31, 2019		Unobservable Input	June 30, 2020	December 31, 2019		September 30, 2020		December 31, 2019		Unobservable Input	September 30, 2020	December 31, 2019
Indexed Annuities	Indexed Annuities	$	659.2	$	706.5	Lapse Rate	1-70%	1-70%	Indexed Annuities	$	677.0	$	706.5	Lapse Rate	1-70%	1-70%
						Mortality Multiplier	90-100%	90-100%						Mortality Multiplier	90-100%	90-100%
						Equity Volatility	16-65%	11-46%						Equity Volatility	17-56%	11-46%
Indexed Life	Indexed Life	16.7		25.1		Equity Volatility	16-65%	11-46%	Indexed Life	16.7		18.4		Equity Volatility	17-56%	11-46%

Table of Contents

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

Quantitative Disclosures

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


		Assets and Liabilities Carried at Fair Value by Hierarchy Level as of June 30, 2020															Assets and Liabilities Carried at Fair Value by Hierarchy Level as of September 30, 2020
		Total Fair Value		Level 1		Level 2		Level 3			Total Fair Value		Level 1		Level 2		Level 3
Financial assets	Financial assets									Financial assets
Fixed maturity, bonds available-for-sale	Fixed maturity, bonds available-for-sale									Fixed maturity, bonds available-for-sale
U.S. treasury and government	U.S. treasury and government	$	29,808	$	—	$	29,808	$	—	U.S. treasury and government	$	32,559	$	0	$	32,559	$	0
U.S. states and political subdivisions	U.S. states and political subdivisions	1,092,371		—		1,092,371		—		U.S. states and political subdivisions	1,098,759		0		1,098,759		0
Foreign governments	Foreign governments	16,770		—		16,770		—		Foreign governments	16,594		0		16,594		0
Corporate debt securities	Corporate debt securities	5,973,257		—		5,869,579		103,678		Corporate debt securities	6,032,196		0		5,913,834		118,362
Residential mortgage-backed securities	Residential mortgage-backed securities	30,457		—		30,457		—		Residential mortgage-backed securities	27,284		0		27,284		0
Collateralized debt securities	Collateralized debt securities	27,808		—		27,808		—		Collateralized debt securities	28,796		0		28,796		0
Total bonds available-for-sale	Total bonds available-for-sale	7,170,471		—		7,066,793		103,678		Total bonds available-for-sale	7,236,188		0		7,117,826		118,362
Equity securities	Equity securities									Equity securities
Common stock	Common stock	1,696,311		1,696,159		—		152		Common stock	1,822,813		1,822,656		0		157
Preferred stock	Preferred stock	17,953		17,492		—		461		Preferred stock	18,042		17,575		0		467
Total equity securities	Total equity securities	1,714,264		1,713,651		—		613		Total equity securities	1,840,855		1,840,231		0		624
Options	Options	191,486		—		—		191,486		Options	213,782		0		0		213,782
Short-term investments	Short-term investments	501,087		—		501,087		—		Short-term investments	800,793		0		800,793		0
Separate account assets	Separate account assets	1,005,889		154,144		851,745		—		Separate account assets	1,062,762		275,667		787,095		0
Separately managed accounts	Separately managed accounts	51,537		—		—		51,537		Separately managed accounts	62,052		0		0		62,052
Total financial assets	Total financial assets	$	10,634,734	$	1,867,795	$	8,419,625	$	347,314	Total financial assets	$	11,216,432	$	2,115,898	$	8,705,714	$	394,820
Financial liabilities	Financial liabilities									Financial liabilities
Embedded derivative for equity-indexed contracts	Embedded derivative for equity-indexed contracts	$	675,970	$	—	$	—	$	675,970	Embedded derivative for equity-indexed contracts	$	693,780	$	0	$	0	$	693,780
Separate account liabilities	Separate account liabilities	1,005,889		154,144		851,745		—		Separate account liabilities	1,062,762		275,667		787,095		0
Total financial liabilities	Total financial liabilities	$	1,681,859	$	154,144	$	851,745	$	675,970	Total financial liabilities	$	1,756,542	$	275,667	$	787,095	$	693,780


		Assets and Liabilities Carried at Fair Value by Hierarchy Level as of December 31, 2019															Assets and Liabilities Carried at Fair Value by Hierarchy Level as of December 31, 2019
		Total Fair Value		Level 1		Level 2		Level 3			Total Fair Value		Level 1		Level 2		Level 3
Financial assets	Financial assets									Financial assets
Fixed maturity, bonds available-for-sale	Fixed maturity, bonds available-for-sale									Fixed maturity, bonds available-for-sale
U.S. treasury and government	U.S. treasury and government	$	29,941	$	—	$	29,941	$	—	U.S. treasury and government	$	29,941	$	0	$	29,941	$	0
U.S. states and political subdivisions	U.S. states and political subdivisions	1,078,165		—		1,078,165		—		U.S. states and political subdivisions	1,078,165		0		1,078,165		0
Foreign governments	Foreign governments	6,287		—		6,287		—		Foreign governments	6,287		0		6,287		0
Corporate debt securities	Corporate debt securities	5,576,620		—		5,531,776		44,844		Corporate debt securities	5,576,620		0		5,531,776		44,844
Residential mortgage-backed securities	Residential mortgage-backed securities	23,943		—		23,943		—		Residential mortgage-backed securities	23,943		0		23,943		0
Collateralized debt securities	Collateralized debt securities	10,129		—		10,129		—		Collateralized debt securities	10,129		0		10,129		0
Total bonds available-for-sale	Total bonds available-for-sale	6,725,085		—		6,680,241		44,844		Total bonds available-for-sale	6,725,085		0		6,680,241		44,844
Equity securities	Equity securities									Equity securities
Common stock	Common stock	1,682,149		1,681,686		—		463		Common stock	1,682,149		1,681,686		0		463
Preferred stock	Preferred stock	18,811		18,811		—		—		Preferred stock	18,811		18,811		0		0
Total equity securities	Total equity securities	1,700,960		1,700,497		—		463		Total equity securities	1,700,960		1,700,497		0		463
Options	Options	256,005		—		—		256,005		Options	256,005		0		0		256,005
Short-term investments	Short-term investments	425,321		—		425,321		—		Short-term investments	425,321		0		425,321		0
Separate account assets	Separate account assets	1,049,938		271,575		778,363		—		Separate account assets	1,049,938		271,575		778,363		0
Separately managed accounts	Separately managed accounts	50,503		—		—		50,503		Separately managed accounts	50,503		0		0		50,503
Total financial assets	Total financial assets	$	10,207,812	$	1,972,072	$	7,883,925	$	351,815	Total financial assets	$	10,207,812	$	1,972,072	$	7,883,925	$	351,815
Financial liabilities	Financial liabilities									Financial liabilities
Embedded derivative for equity-indexed contracts	Embedded derivative for equity-indexed contracts	$	731,552	$	—	$	—	$	731,552	Embedded derivative for equity-indexed contracts	$	731,552	$	0	$	0	$	731,552
Separate account liabilities	Separate account liabilities	1,049,938		271,575		778,363		—		Separate account liabilities	1,049,938		271,575		778,363		0
Total financial liabilities	Total financial liabilities	$	1,781,490	$	271,575	$	778,363	$	731,552	Total financial liabilities	$	1,781,490	$	271,575	$	778,363	$	731,552

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																															Level 3
		Three months ended June 30, 2020														Six months ended June 30, 2020															Three months ended September 30, 2020					Nine months ended September 30, 2020
		Assets										Liability		Assets												Liability	Assets						Liability		Assets		Liability
		Investment Securities		Equity-Indexed Options		Separately Managed Accounts		Embedded Derivative		Investment Securities		Equity-Indexed Options		Separately Managed Accounts		Embedded Derivative			Investment Securities		Equity-Indexed Options		Separately Managed Accounts		Embedded Derivative		Investment Securities		Equity-Indexed Options		Separately Managed Accounts		Embedded Derivative
Beginning balance	Beginning balance	$	53,853	$	125,988	$	50,489	$	630,952	$	45,307	$	256,005	$	50,503	$	731,552	Beginning balance	$	104,138	$	191,486	$	51,537	$	675,970	$	45,307	$	256,005	$	50,503	$	731,552

Net gain (loss) for derivatives included in net investment income	Net gain (loss) for derivatives included in net investment income	—		67,157		—		—		—		(40,938)		—		—		Net gain (loss) for derivatives included in net investment income	0		38,738		0		0		0		(2,200)		0		0
Net change included in interest credited	Net change included in interest credited	—		—		—		62,491		—		—		—		(27,090)		Net change included in interest credited	0		0		0		44,792		0		0		0		17,702
Net fair value change included in other comprehensive income	Net fair value change included in other comprehensive income	—		—		(4,046)		—		—		—		(4,060)		—		Net fair value change included in other comprehensive income	6		0		3,663		0		4		0		(397)		0
Purchases, sales and settlements or maturities	Purchases, sales and settlements or maturities																	Purchases, sales and settlements or maturities
Purchases	Purchases	86,467		24,273		9,042		—		109,169		38,438		9,042		—		Purchases	15,222		19,257		7,421		0		124,390		57,695		16,463		0
Sales	Sales	(36,642)		—		(3,948)		—		(50,798)		—		(3,948)		—		Sales	(380)		0		(569)		0		(50,715)		0		(4,517)		0
Settlements or maturities	Settlements or maturities	—		(25,932)		—		—		—		(62,019)		—		—		Settlements or maturities	0		(35,699)		0		0		0		(97,718)		0		0
Premiums less benefits	Premiums less benefits	—		—		—		(17,473)		—		—		—		(28,492)		Premiums less benefits	0		0		0		(26,982)		0		0		0		(55,474)

Ending balance at June 30, 2020		$	103,678	$	191,486	$	51,537	$	675,970	$	103,678	$	191,486	$	51,537	$	675,970
Ending balance at September 30, 2020																		Ending balance at September 30, 2020	$	118,986	$	213,782	$	62,052	$	693,780	$	118,986	$	213,782	$	62,052	$	693,780

		Level 3																															Level 3
		Three months ended June 30, 2019														Six months ended June 30, 2019															Three months ended September 30, 2019					Nine months ended September 30, 2019
		Assets										Liability		Assets												Liability	Assets						Liability		Assets		Liability
		Investment Securities		Equity-Indexed Options		Separately Managed Accounts*		Embedded Derivative		Investment Securities		Equity-Indexed Options		Separately Managed Accounts*		Embedded Derivative			Investment Securities		Equity-Indexed Options		Separately Managed Accounts(1)		Embedded Derivative		Investment Securities		Equity-Indexed Options		Separately Managed Accounts(1)		Embedded Derivative
Beginning balance	Beginning balance	$	4,346	$	216,156	$	23,254	$	668,485	$	4,346	$	148,006	$	16,532	$	596,075	Beginning balance	$	4,346	$	231,044	$	30,655	$	695,676	$	4,346	$	148,006	$	16,532	$	596,075

Net gain for derivatives included in net investment income	Net gain for derivatives included in net investment income	—		23,125		—		—		—		89,610		—		—		Net gain for derivatives included in net investment income	0		6,278		0		0		0		95,888		0		0
Net change included in interest credited	Net change included in interest credited	—		—		—		36,255		—		—		—		94,411		Net change included in interest credited	0		0		0		11,462		0		0		0		105,873
Net fair value change included in other comprehensive income	Net fair value change included in other comprehensive income	—		—		(11)		—		—		—		(2)		—		Net fair value change included in other comprehensive income	0		0		0		0		0		0		(2)		0
Purchases, sales and settlements or maturities	Purchases, sales and settlements or maturities																	Purchases, sales and settlements or maturities
Purchases	Purchases	—		21,412		7,412		—		—		38,768		14,125		—		Purchases	463		17,029		9,438		0		463		55,797		23,563		0

Sales																		Sales	(113)		(13,397)		0		0		(113)		(13,397)		0		0
Settlements or maturities	Settlements or maturities	—		(29,649)		—		—		—		(45,340)		—		—		Settlements or maturities	0		(16,770)		0		0		0		(62,110)		0		0
Premiums less benefits	Premiums less benefits	—		—		—		(9,064)		—		—		—		5,190		Premiums less benefits	0		0		0		(15,372)		0		0		0		(10,182)

Ending balance at June 30, 2019		$	4,346	$	231,044	$	30,655	$	695,676	$	4,346	$	231,044	$	30,655	$	695,676
Ending balance at September 30, 2019																		Ending balance at September 30, 2019	$	4,696	$	224,184	$	40,093	$	691,766	$	4,696	$	224,184	$	40,093	$	691,766

*(1)Subsequent to the issuance of the Company's interim condensed consolidated financial statements as of and for the three and ~~six~~nine months ended ~~June~~September 30, 2019, the Company's management determined Separately Managed Accounts were omitted from this disclosure. The amounts included in the disclosure tables above now include disclosures for Separately Managed Accounts for all periods presented.

Within the net gain for derivatives included in net investment income were unrealized gains of ~~$59,948,000~~$38,788,407 and ~~$84,756,000,~~$79,991,000, relating to assets still held at ~~June~~September 30, 2020 and 2019, respectively.

Table of Contents

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

Fair Value Information About Financial Instruments Not Recorded at Fair Value

Information about fair value estimates for financial instruments not measured at fair values is discussed below:

Fixed Maturity Securities—The fair value of bonds held-to-maturity is determined consistent with the disclosure under Valuation Techniques for the Financial Instrument Recorded at Fair Value section.

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

Policy Loans—The carrying value of policy loans is the outstanding balance plus any accrued interest. Due to the collateralized nature of policy loans such that they cannot be separated from the policy contracts, the unpredictable timing of repayments and the fact that settlement is at outstanding value, American National believes the carrying value of policy loans approximates fair value.

Separately Managed Accounts—The amounts reported in separately managed accounts consist primarily of notes and private equity. These investments are private placements and do not have a readily determinable fair value. The carrying value of the separately managed accounts is cost or market value if available from the separately managed account manager. Market value is provided by the separately managed account manager in subsequent quarters. American National believes that cost approximates fair value at initial recognition during the quarter of investment.

Investment Contracts—The carrying value of investment contracts is equivalent to the accrued account balance. The accrued account balance consists of deposits, net of withdrawals, 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.

Federal Home Loan Bank ~~advance~~advances—The Federal Home Loan Bank ~~advance is~~advances are carried at outstanding principal balance. The ~~carrying~~fair value of the ~~advance approximates fair value because~~advances are obtained from the ~~underlying interest rates approximate market rates at the balance sheet date.~~Federal Home Loan Bank.

Table of Contents

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

The carrying value and estimated fair value of financial instruments not recorded at fair value on a recurring basis are shown below (in thousands):


		June 30, 2020									September 30, 2020
		FV Hierarchy Level	Carrying Amount		Fair Value			FV Hierarchy Level	Carrying Amount		Fair Value
Financial assets	Financial assets						Financial assets
Fixed maturity, bonds held-to-maturity	Fixed maturity, bonds held-to-maturity						Fixed maturity, bonds held-to-maturity
U.S. states and political subdivisions	U.S. states and political subdivisions	Level 2	$	127,592	$	131,799	U.S. states and political subdivisions	Level 2	$	106,908	$	111,183
Foreign governments	Foreign governments	Level 2	3,880		4,361		Foreign governments	Level 2	3,865		4,294
Corporate debt securities	Corporate debt securities	Level 2	7,734,990		8,199,640		Corporate debt securities	Level 2	7,297,369		7,831,992

Residential mortgage-backed securities	Residential mortgage-backed securities	Level 2	207,039		170,326		Residential mortgage-backed securities	Level 2	146,138		150,293
Collateralized debt securities	Collateralized debt securities	Level 2	164,904		207,590		Collateralized debt securities	Level 2	148,067		150,849

Total fixed maturity, bonds held-to-maturity	Total fixed maturity, bonds held-to-maturity		8,238,405		8,713,716		Total fixed maturity, bonds held-to-maturity		7,702,347		8,248,611
Mortgage loans on real estate, net of allowance	Mortgage loans on real estate, net of allowance	Level 3	5,176,511		5,438,373		Mortgage loans on real estate, net of allowance	Level 3	5,176,474		5,381,157
Policy loans	Policy loans	Level 3	377,826		377,826		Policy loans	Level 3	374,387		374,387

Total financial assets	Total financial assets		$	13,792,742	$	14,529,915	Total financial assets		$	13,253,208	$	14,004,155
Financial liabilities	Financial liabilities						Financial liabilities
Investment contracts	Investment contracts	Level 3	$	10,185,122	$	10,185,122	Investment contracts	Level 3	$	10,167,018	$	10,167,018
Notes payable	Notes payable	Level 3	155,871		155,871		Notes payable	Level 3	154,788		154,788
Federal Home Loan Bank advance		Level 3	500,000		500,000
Federal Home Loan Bank advances							Federal Home Loan Bank advances	Level 3	500,000		500,000
Total financial liabilities	Total financial liabilities		$	10,840,993	$	10,840,993	Total financial liabilities		$	10,821,806	$	10,821,806


		December 31, 2019									December 31, 2019
		FV Hierarchy Level	Carrying Amount		Fair Value			FV Hierarchy Level	Carrying Amount		Fair Value
Financial assets	Financial assets						Financial assets
Fixed maturity, bonds held-to-maturity	Fixed maturity, bonds held-to-maturity						Fixed maturity, bonds held-to-maturity
U.S. states and political subdivisions	U.S. states and political subdivisions	Level 2	$	165,109	$	170,114	U.S. states and political subdivisions	Level 2	$	165,109	$	170,114
Foreign governments	Foreign governments	Level 2	3,907		4,349		Foreign governments	Level 2	3,907		4,349
Corporate debt securities	Corporate debt securities	Level 2	8,099,098		8,424,969		Corporate debt securities	Level 2	8,099,098		8,424,969
Residential mortgage-backed securities	Residential mortgage-backed securities	Level 2	237,516		242,828		Residential mortgage-backed securities	Level 2	237,516		242,828
Collateralized debt securities	Collateralized debt securities	Level 2	125,631		126,430		Collateralized debt securities	Level 2	125,631		126,430

Total fixed maturity, bonds held-to-maturity	Total fixed maturity, bonds held-to-maturity		8,631,261		8,968,690		Total fixed maturity, bonds held-to-maturity		8,631,261		8,968,690
Mortgage loans on real estate, net allowance		Level 3	5,097,017		5,309,005
Mortgage loans on real estate, net of allowance							Mortgage loans on real estate, net of allowance	Level 3	5,097,017		5,309,005
Policy loans	Policy loans	Level 3	379,657		379,657		Policy loans	Level 3	379,657		379,657

Total financial assets	Total financial assets		$	14,107,935	$	14,657,352	Total financial assets		$	14,107,935	$	14,657,352
Financial liabilities	Financial liabilities						Financial liabilities
Investment contracts	Investment contracts	Level 3	$	10,254,959	$	10,254,959	Investment contracts	Level 3	$	10,254,959	$	10,254,959
Notes payable	Notes payable	Level 3	157,997		157,997		Notes payable	Level 3	157,997		157,997
Total financial liabilities	Total financial liabilities		$	10,412,956	$	10,412,956	Total financial liabilities		$	10,412,956	$	10,412,956

Table of Contents

Note 10 – Deferred Policy Acquisition Costs

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


		Life		Annuity		Health		Property & Casualty		Total			Life		Annuity		Health		Property & Casualty		Total
Beginning balance at January 1, 2020	Beginning balance at January 1, 2020	$	852,900	$	415,380	$	32,578	$	122,149	$	1,423,007	Beginning balance at January 1, 2020	$	852,900	$	415,380	$	32,578	$	122,149	$	1,423,007
Additions	Additions	65,712		22,318		7,583		175,769		271,382		Additions	100,210		37,217		12,117		255,497		405,041
Amortization	Amortization	(46,339)		(41,910)		(7,543)		(169,215)		(265,007)		Amortization	(65,338)		(65,364)		(11,535)		(248,042)		(390,279)
Effect of change in unrealized gains on bonds available-for-sale debt	Effect of change in unrealized gains on bonds available-for-sale debt	(3,918)		(17,322)		—		—		(21,240)		Effect of change in unrealized gains on bonds available-for-sale debt	(7,398)		(29,931)		0		0		(37,329)
Net change	Net change	15,455		(36,914)		40		6,554		(14,865)		Net change	27,474		(58,078)		582		7,455		(22,567)
Ending balance at June 30, 2020		$	868,355	$	378,466	$	32,618	$	128,703	$	1,408,142
Ending balance at September 30, 2020												Ending balance at September 30, 2020	$	880,374	$	357,302	$	33,160	$	129,604	$	1,400,440

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 condensed consolidated statements of financial position and is the amount estimated for incurred but not reported (“IBNR”) claims and claims that have been reported but not settled. The liability for unpaid claims is estimated based upon American National’s historical experience and actuarial assumptions that consider the effects of current developments, anticipated trends and risk management programs, less anticipated salvage and subrogation. The effects of the changes are included in the condensed consolidated results of operations in the period in which the changes occur. The time value of money is not taken into account for the purposes of calculating the liability for unpaid claims. There have been no significant changes in methodologies or assumptions used to calculate the liability for unpaid claims and claim adjustment expenses.

Information regarding the liability for unpaid claims is shown below (in thousands):


		Six months ended June 30,							Nine months ended September 30,
		2020		2019			2020		2019
Unpaid claims balance, beginning	Unpaid claims balance, beginning	$	1,322,837	$	1,305,225	Unpaid claims balance, beginning	$	1,322,837	$	1,305,225
Less: Reinsurance recoverables	Less: Reinsurance recoverables	246,447		254,466		Less: Reinsurance recoverables	246,447		254,466
Net beginning balance	Net beginning balance	1,076,390		1,050,759		Net beginning balance	1,076,390		1,050,759
Incurred related to	Incurred related to					Incurred related to
Current	Current	601,691		591,073		Current	904,890		917,048
Prior years	Prior years	(33,256)		(30,691)		Prior years	(53,090)		(47,048)
Total incurred claims	Total incurred claims	568,435		560,382		Total incurred claims	851,800		870,000
Paid claims related to	Paid claims related to					Paid claims related to
Current	Current	268,203		272,650		Current	495,325		482,729
Prior years	Prior years	267,282		276,738		Prior years	334,054		370,807
Total paid claims	Total paid claims	535,485		549,388		Total paid claims	829,379		853,536
Net balance	Net balance	1,109,340		1,061,753		Net balance	1,098,811		1,067,223
Plus: Reinsurance recoverables	Plus: Reinsurance recoverables	250,378		249,245		Plus: Reinsurance recoverables	286,188		247,174
Unpaid claims balance, ending	Unpaid claims balance, ending	$	1,359,718	$	1,310,998	Unpaid claims balance, ending	$	1,384,999	$	1,314,397

The net and gross reserve calculations have shown favorable development in 2020 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 ~~$33,256,000~~$53,090,000 during the first ~~six~~nine months of 2020 and decreased by ~~$30,691,000~~$47,048,000 during the same period in 2019. The favorable development in 2020 was a reflection of lower-than-anticipated settlement of losses in the private passenger automobile, agribusiness, and workers ~~compensation.~~compensation lines of business. The favorable development for the first ~~six~~nine months in 2019 reflects lower-than-anticipated settlement of losses in the workers compensation and agribusiness lines of business.

For short-duration health insurance claims, the total of IBNR plus expected development on reported claims included in the liability for unpaid claims and claim adjustment expenses at ~~June~~September 30, 2020 and December 31, 2019 was ~~$26,249,000~~$20,419,000 and $21,379,000, respectively.

Table of Contents

Note 12 – Federal Income Taxes

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


		Three months ended June 30,														Six months ended June 30,																Three months ended September 30,					Nine months ended September 30,
		2020						2019						2020								2019						2020				2019				2020	2019
		Amount		Rate		Amount		Rate		Amount		Rate		Amount		Rate			Amount		Rate			Amount		Rate		Amount		Rate		Amount		Rate
Income tax expense (benefit) before tax on equity in earnings of unconsolidated affiliates		$	58,008	22.1	%	$	21,819	18.1	%	$	(4,686)	23.2	%	$	81,606	18.3	%
Income tax expense before tax on equity in earnings of unconsolidated affiliates																		Income tax expense before tax on equity in earnings of unconsolidated affiliates	$	41,589	19.3		%	$	17,717	13.7	%	$	36,903	18.9	%	$	99,323	17.3	%
Tax on equity in earnings of unconsolidated affiliates	Tax on equity in earnings of unconsolidated affiliates	(2,860)		(1.1)		3,526		2.9		438		(2.2)		12,023		2.7		Tax on equity in earnings of unconsolidated affiliates	3,576		1.7			9,465		7.3		4,014		2.1		21,488		3.7
Total expected income tax expense (benefit) at the statutory rate		55,148		21.0		25,345		21.0		(4,248)		21.0		93,629		21.0
Total expected income tax expense at the statutory rate																		Total expected income tax expense at the statutory rate	45,165		21.0			27,182		21.0		40,917		21.0		120,811		21.0
Tax-exempt investment income	Tax-exempt investment income	(1,061)		(0.4)		(1,109)		(0.9)		(2,088)		10.3		(1,918)		(0.4)		Tax-exempt investment income	(1,062)		(0.5)			(1,027)		(0.8)		(3,149)		(1.6)		(2,945)		(0.5)

Dividend exclusion	Dividend exclusion	(1,443)		(0.5)		(860)		(0.7)		(2,305)		11.4		(1,781)		(0.4)		Dividend exclusion	10		0			(817)		(0.6)		(2,295)		(1.2)		(2,598)		(0.4)
Miscellaneous tax credits, net	Miscellaneous tax credits, net	(1,534)		(0.6)		(3,299)		(2.7)		(3,929)		19.4		(4,991)		(1.1)		Miscellaneous tax credits, net	(2,127)		(1.0)			(1,521)		(1.2)		(6,056)		(3.1)		(6,512)		(1.1)
Low income housing tax credit expense	Low income housing tax credit expense	982		0.4		1,783		1.5		2,756		(13.6)		2,941		0.6		Low income housing tax credit expense	997		0.5			1,324		1.0		3,753		1.9		4,265		0.7

Noncontrolling interest																		Noncontrolling interest	(104)		0			(2,284)		(1.8)		(104)		(0.1)		(2,284)		(0.4)
Change in valuation allowance	Change in valuation allowance	12		—		165		0.1		124		(0.6)		165		—		Change in valuation allowance	11		0			70		0.1		134		0.1		235		0

Other items, net	Other items, net	93		—		(77)		(0.1)		219		(1.1)		1,280		0.3		Other items, net	1,022		0.4			(452)		(0.3)		1,241		0.7		828		0.1
Provision (benefit) for federal income taxes		$	52,197	19.9	%	$	21,948	18.2	%	$	(9,471)	46.8	%	$	89,325	20.0	%
Provision for federal income taxes																		Provision for federal income taxes	$	43,912	20.4		%	$	22,475	17.4	%	$	34,441	17.7	%	$	111,800	19.4	%

As of ~~June~~September 30, 2020, ~~and December 31, 2019,~~ American National had no material net operating loss or tax credit carryforwards.

American National’s federal income tax returns for tax years 2016 to 2018 are subject to examination by the Internal Revenue Service. Tax returns for 2013 to 2015 are subject to examination with certain limitations. In April 2019, American National received notice from the Internal Revenue Service of its intent to audit tax years 2013 to 2016. In September 2020, American National reached a settlement with the Internal Revenue Service and the audit of tax years 2013, 2014, 2015 and 2016 is now closed. The settlement had no impact on our condensed consolidated statements of financial position or condensed consolidated statements of operations. In the opinion of management, all prior year deficiencies have been paid or adequate provisions have been made for any tax deficiencies that may be upheld.

As of ~~June~~September 30, 2020, American National had no provision for uncertain tax positions and no provision for penalties or interest were established. In addition, management does not believe there are any uncertain tax benefits that could be recognized within the next twelve months that would impact American National’s effective tax rate.

Note 13 – 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, 2020 $ 157,851 $ (55,232) $ (3,101) $ 99,518
Amounts reclassified from AOCI (net of tax benefit $448 and expense $959) (1,687) 3,605 — 1,918
Unrealized holding gains arising during the period (net of tax expense $22,284) 83,831 — — 83,831
Unrealized adjustment to DAC (net of tax benefit $4,460) (16,780) — — (16,780)
Unrealized gains on investments attributable to participating policyholders’ interest (net of tax benefit $1,061) (3,991) — — (3,991)
Foreign currency adjustment (net of tax benefit $156)
— — (585) (585)
Ending balance at June 30, 2020 $ 219,224 $ (51,627) $ (3,686) $ 163,911
Beginning balance at January 1, 2019 $ (42,469) $ (54,236) $ (3,033) $ (99,738)
Amounts reclassified from AOCI (net of tax expense $565 and $774) 2,126 2,911 — 5,037
Unrealized holding gains arising during the period (net of tax expense $58,322) 219,402 — — 219,402
Unrealized adjustment to DAC (net of tax benefit $7,320) (27,533) — — (27,533)
Unrealized gains on investments attributable to participating policyholders’ interest (net of tax benefit $2,690) (10,121) — — (10,121)
Foreign currency adjustment (net of tax benefit $157) — — 590 590
Cumulative effect of changes in accounting 16,166 (16,493) (458) (785)
Ending balance at June 30, 2019 $ 157,571 $ (67,818) $ (2,901) $ 86,852


	Net Unrealized Gains (Losses) on Securities		Defined Benefit Pension Plan Adjustments		Foreign Currency Adjustments		Accumulated Other Comprehensive Income (Loss)
Beginning balance at January 1, 2020	$	157,851	$	(55,232)	$	(3,101)	$	99,518
Amounts reclassified from AOCI (net of tax benefit $1,179 and expense $1,450)	(4,434)		5,456		—		1,022
Unrealized holding gains arising during the period (net of tax expense $34,600)	130,160		—		—		130,160
Unrealized adjustment to DAC (net of tax benefit $7,839)	(29,490)		—		—		(29,490)
Unrealized gains on investments attributable to participating policyholders’ interest (net of tax benefit $1,672)	(6,290)		—		—		(6,290)
Foreign currency adjustment (net of tax benefit $57)	—		—		(214)		(214)

Ending balance at September 30, 2020	$	247,797	$	(49,776)	$	(3,315)	$	194,706
Beginning balance at January 1, 2019	$	(42,469)	$	(54,236)	$	(3,033)	$	(99,738)
Amounts reclassified from AOCI (net of tax expense $401 and $1,160)	1,510		4,365		—		5,875
Unrealized holding gains arising during the period (net of tax expense $68,285)	256,880		—		—		256,880
Unrealized adjustment to DAC (net of tax benefit $17,343)	(65,244)		—		—		(65,244)
Unrealized gains on investments attributable to participating policyholders’ interest (net of tax benefit $3,148)	(11,841)		—		—		(11,841)
Foreign currency adjustment (net of tax expense $79)	—		—		297		297
Cumulative effect of changes in accounting	16,164		(16,491)		(458)		(785)
Ending balance at September 30, 2019	$	155,000	$	(66,362)	$	(3,194)	$	85,444

Table of Contents

Note 14 – Stockholders’ Equity and Noncontrolling Interests

~~American National~~The holding company reorganization effective July 1, 2020, provided for the automatic conversion of ANICO common stock, par value of $1.00 per share, issued and outstanding immediately prior to the effective time of the reorganization, into one duly issued, fully paid and non-assessable share of the common stock, par value $0.01 per share, of ANAT. ANAT has one class of common stock with ~~a par value of $1.00 per share and~~ 50,000,000 authorized shares. Upon the effective date of the holding company reorganization, ANAT retired 3,945,249 shares of common stock that were held in treasury at ANICO prior to the reorganization. The ~~amounts~~number of shares outstanding at the dates indicated are shown below:


		June 30, 2020	December 31, 2019		September 30, 2020	December 31, 2019
Common stock	Common stock			Common stock
Shares issued	Shares issued	30,832,449	30,832,449	Shares issued	26,887,200	30,832,449
Treasury shares	Treasury shares	(3,945,249)	(3,945,249)	Treasury shares	0	(3,945,249)
Outstanding shares	Outstanding shares	26,887,200	26,887,200	Outstanding shares	26,887,200	26,887,200
Restricted shares	Restricted shares	(10,000)	(10,000)	Restricted shares	(10,000)	(10,000)
Unrestricted outstanding shares	Unrestricted outstanding shares	26,877,200	26,877,200	Unrestricted outstanding shares	26,877,200	26,877,200

Stock-based Compensation

American National has made grants of Stock Appreciation Rights (“SAR”), Restricted Stock (“RS”) Awards, and Restricted Stock Units (“RSU”), pursuant to a stock-based compensation plan. The term for granting additional awards under such plan expired in 2019. Pursuant to the plan, grants were made to certain officers meeting established performance objectives, and grants were made to directors as compensation and to align their interests with those of other shareholders. In addition, American National has made grants to directors and advisory directors of RSUs that are cash-settled only, with no provision for conversion to stock. ~~Such~~8,250 of such cash-settled RSUs ~~vested~~were granted during the ~~three months ended June 30,~~third quarter of 2020 and ~~no additional RSU's remain~~are currently outstanding ~~which is~~as shown in the table below.

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


		SAR				RS Shares							RSUs				SAR			RS Shares		RSUs
		Shares	Weighted-Average Grant Date Fair Value		Shares	Weighted-Average Grant Date Fair Value		Units	Weighted-Average Grant Date Fair Value			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, 2019	Outstanding at December 31, 2019	66	$	110.83	10,000	$	80.05	8,250	$	113.19	Outstanding at December 31, 2019	66		$	110.83	10,000	$	80.05	8,250	$	113.19
Granted	Granted	—	—		—	—		—	—		Granted	—		—		—	—		8,250	75.35
Exercised	Exercised	—	—		—	—		(8,250)	113.19		Exercised	—		—		—	—		(8,250)	113.19
Forfeited	Forfeited	—	—		—	—		—	—		Forfeited	—		—		—	—		—	—
Expired	Expired	(66)	110.83		—	—		—	—		Expired	(66)		110.83		—	—		—	—
Outstanding at June 30, 2020		—	$	—	10,000	$	80.05	—	$	—
Outstanding at September 30, 2020											Outstanding at September 30, 2020	0		$	0	10,000	$	80.05	8,250	$	75.35


		SAR		RS Shares		RSUs			SAR		RS Shares		RSUs
Weighted-average contractual remaining life (in years)	Weighted-average contractual remaining life (in years)	0		2.67		0		Weighted-average contractual remaining life (in years)	0		2.42		0.58
Exercisable shares	Exercisable shares	—		N/A		N/A		Exercisable shares	0		N/A		N/A
Weighted-average exercise price	Weighted-average exercise price	$	—	$	80.05	$	113.19	Weighted-average exercise price	$	0	$	0	$	75.35
Weighted-average exercise price exercisable shares	Weighted-average exercise price exercisable shares	—		N/A		N/A		Weighted-average exercise price exercisable shares	0		N/A		N/A
Compensation expense (credit)	Compensation expense (credit)							Compensation expense (credit)
Three months ended June 30, 2020		$	—	$	20,000	$	(14,000)
Three months ended June 30, 2019		(12,000)		20,000		578,000
Six months ended June 30, 2020		$	(1,000)	$	40,000	$	(184,000)
Six months ended June 30, 2019		(15,000)		40,000		941,000
Three months ended September 30, 2020								Three months ended September 30, 2020	$	0	$	20,000	$	360,000
Three months ended September 30, 2019								Three months ended September 30, 2019	1,000		20,000		154,000
Nine months ended September 30, 2020								Nine months ended September 30, 2020	$	(1,000)	$	60,000	$	176,000
Nine months ended September 30, 2019								Nine months ended September 30, 2019	(14,000)		60,000		1,094,000
Fair value of liability award	Fair value of liability award							Fair value of liability award
June 30, 2020		$	—	N/A		$	—
September 30, 2020								September 30, 2020	$	0	N/A		$	557,000
December 31, 2019	December 31, 2019	1,000		N/A		971,000		December 31, 2019	1,000		N/A		971,000

The SARs give the holder the right to cash compensation based on the difference between the stock price on the grant date and the stock price on the exercise date. The SARs vest at a rate of 20% per year for five years and expire five years after vesting. All remaining ~~SAR's~~SARs expired on May 1, 2020.

RS awards entitle the participant to full dividend and voting rights. Each RS share awarded has the value of one share of restricted stock and vests 10 years from the grant date. Unvested shares are restricted as to disposition, and are subject to forfeiture under certain circumstances. Compensation expense is recognized over the vesting period. The restrictions on these awards lapse after 10 years and feature a graded vesting schedule in the case of the retirement, death or disability of an award holder. Restricted stock awards for 350,334 shares have been granted at an exercise price of 0, of which 10,000 shares are unvested.

~~RSU awards to our directors and advisory directors are settled in cash based upon the market price of our common stock after~~ ~~one~~-year or earlier upon death, disability or retirement from service after age 65. All outstanding RSU's vested on May 1, 2020, and no RSU's were granted during the six months ended June 30, 2020 as a result of the uncertainty surrounding the COVID-19 pandemic.

Table of Contents

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

RSU awards to our directors and advisory directors are settled in cash based upon the market price of our common stock generally after one-year or earlier upon death, disability or retirement from service after age 65. RSUs were not granted in May as a result of the uncertainty surrounding the COVID-19 pandemic; however, in August, the Board approved the grant of 8,250 RSUs which will vest on May 1, 2021 and will be settled in cash.

Earnings per Share

Basic earnings per share were calculated using a weighted average number of shares outstanding. Diluted earnings per share include RS and RSU award ~~shares.~~shares issued in 2019. RSUs issued in 2020 may only be settled in cash.


		Three months ended June 30,						Six months ended June 30,							Three months ended September 30,				Nine months ended September 30,
		2020		2019		2020		2019			2020		2019		2020		2019
Weighted average shares outstanding	Weighted average shares outstanding	26,878,684		26,881,700		26,880,183		26,883,699		Weighted average shares outstanding	26,877,200		26,881,700		26,879,178		26,883,025
Incremental shares from RS awards and RSUs	Incremental shares from RS awards and RSUs	8,445		7,264		9,265		6,237		Incremental shares from RS awards and RSUs	7,558		6,472		8,696		6,313
Total shares for diluted calculations	Total shares for diluted calculations	26,887,129		26,888,964		26,889,448		26,889,936		Total shares for diluted calculations	26,884,758		26,888,172		26,887,874		26,889,338
Net income (loss) attributable to American National (in thousands)		$	210,545	$	98,840	$	(9,899)	$	357,057
Net income attributable to American National (in thousands)										Net income attributable to American National (in thousands)	$	171,052	$	92,184	$	161,153	$	449,241
Basic earnings per share	Basic earnings per share	$	7.83	$	3.68	$	(0.37)	$	13.28	Basic earnings per share	$	6.36	$	3.43	$	6.00	$	16.71
Diluted earnings per share	Diluted earnings per share	$	7.83	$	3.67	$	(0.37)	$	13.28	Diluted earnings per share	$	6.36	$	3.43	$	5.99	$	16.71

Statutory Capital and Surplus

Risk Based Capital (“RBC”) is a measure insurance regulators use to evaluate the capital adequacy of American National's insurance subsidiaries. RBC is calculated using formulas applied to certain financial balances and activities that consider, among other things, investment risks related to the type and quality of investments, insurance risks associated with products and liabilities, interest rate risks and general business risks. Insurance companies that do not maintain capital and surplus at a level at least 200% of the authorized control level RBC are required to take certain actions. At ~~June~~September 30, 2020 and December 31, 2019, American National Insurance Company’s statutory capital and surplus was ~~$3,419,135,000~~$3,488,293,000 and $3,477,727,000, respectively. American National Insurance Company and each of its insurance subsidiaries had statutory capital and surplus at ~~June~~September 30, 2020 and December 31, 2019, ~~substantially~~ above 200% of the authorized control level.

American ~~National and its~~National's 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 $73,084,000 ~~$70,542,000~~ and $70,339,000 at ~~June~~September 30, 2020 and December 31, 2019, 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.

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

June 30, 2020 December 31, 2019
Statutory capital and surplus
Life insurance entities $ 2,086,978 $ 2,159,770
Property and casualty insurance entities 1,343,222 1,329,782


		Three months ended June 30,						Six months ended June 30,							September 30, 2020	December 31, 2019
		2020		2019		2020		2019
Statutory net income (loss)
Statutory capital and surplus										Statutory capital and surplus
Life insurance entities	Life insurance entities	$	(28,301)	$	12,782	$	26,674	$	5,698	Life insurance entities	$	2,120,222	$	2,159,770
Property and casualty insurance entities	Property and casualty insurance entities	(12,975)		12,344		35,278		50,464		Property and casualty insurance entities	1,379,711		1,329,782

Table of Contents

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


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Statutory net income (loss)
Life insurance entities	$	(11,638)	$	26,498	$	13,036	$	32,196
Property and casualty insurance entities	33,816		15,626		69,094		66,090

Dividends

Dividends are paid on a quarterly basis. We paid a quarterly dividend of $0.82 per share for each quarter ~~for~~during the ~~three and six~~nine months ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019, respectively. We expect to continue to pay regular cash dividends, although there is no assurance as to future dividends because they depend on future earnings, capital requirements and financial conditions.

American National Insurance Company’s payment of dividends to its stockholder, American National Group, Inc. 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 $347,773,000 during 2020. 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 Insurance Company has a management agreement that effectively gives it control of County Mutual. As a result, County Mutual is included in the condensed consolidated financial statements of American National. Policyholder interests in the financial position of County Mutual are reflected as noncontrolling interest of $6,750,000 at ~~June~~September 30, 2020 and December 31, 2019.

American National ~~Insurance Company~~Group, Inc. and its subsidiaries exercise control or ownership of various joint ventures, resulting in their consolidation into American National’s condensed consolidated financial statements. The interests of the other partners in the consolidated joint ventures are shown as a noncontrolling deficit o~~f $495,000~~of $443,000 and $736,000 at ~~June~~September 30, 2020 and December 31, 2019, respectively.

Note 15 -– Segment Information

Management organizes the business into 5 operating segments:

•Life—consists of whole, term, universal, indexed and variable life insurance. Products are primarily sold through career, multiple-line, and independent agents as well as direct marketing channels.

•Annuity—consists of fixed, indexed, and variable annuity products. Products are primarily sold through independent agents, brokers, and financial institutions, along with multiple-line and career agents.

•Health—consists of Medicare Supplement, stop-loss, other supplemental health products and credit disability insurance. Products are typically distributed through independent agents and managing general underwriters.

•Property and Casualty—consists of personal, agricultural and targeted commercial coverages and credit-related property insurance. Products are primarily sold through multiple-line and independent agents or managing general agents.

•Corporate and Other—consists of net investment income from investments and certain expenses not allocated to the insurance segments and revenues and related expenses from non-insurance operations.

The accounting policies of the segments are the same as those described in Note 2, Summary of Significant Accounting Policies and Practices, of American National’s 2019 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 segment.

•Expenses are charged to segments through direct identification and allocations based upon various factors.

Table of Contents

Note 15 – Segment Information -– (Continued)

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


		Three months ended June 30, 2020																							Three months ended September 30, 2020
								Property		Corporate											Property		Corporate
		Life		Annuity		Health		& Casualty		& Other		Total			Life		Annuity		Health		& Casualty		& Other		Total
PREMIUMS AND OTHER REVENUES	PREMIUMS AND OTHER REVENUES													PREMIUMS AND OTHER REVENUES
Premiums	Premiums	$	91,670	$	25,944	$	42,945	$	372,704	$	—	$	533,263	Premiums	$	101,182	$	27,960	$	40,934	$	391,388	$	0	$	561,464
Other policy revenues	Other policy revenues	76,226		3,561		—		—		—		79,787		Other policy revenues	75,317		4,027		0		0		0		79,344
Net investment income	Net investment income	73,645		189,842		2,214		16,037		5,610		287,348		Net investment income	69,235		163,125		2,033		16,049		3,814		254,256
Net realized investment gains	Net realized investment gains	—		—		—		—		3,939		3,939		Net realized investment gains	0		0		0		0		17,387		17,387

Change in investment credit loss	Change in investment credit loss	—		—		—		—		(52,310)		(52,310)		Change in investment credit loss	0		0		0		0		(4,175)		(4,175)
Net gains on equity securities	Net gains on equity securities	—		—		—		—		298,825		298,825		Net gains on equity securities	0		0		0		0		152,147		152,147
Other income	Other income	440		795		5,503		2,844		754		10,336		Other income	358		733		4,971		3,079		542		9,683
Total premiums and other revenues	Total premiums and other revenues	241,981		220,142		50,662		391,585		256,818		1,161,188		Total premiums and other revenues	246,092		195,845		47,938		410,516		169,715		1,070,106
BENEFITS, LOSSES AND EXPENSES	BENEFITS, LOSSES AND EXPENSES													BENEFITS, LOSSES AND EXPENSES
Policyholder benefits	Policyholder benefits	124,941		44,983		—		—		—		169,924		Policyholder benefits	153,957		46,424		0		0		0		200,381
Claims incurred	Claims incurred	—		—		26,726		280,561		—		307,287		Claims incurred	0		0		27,933		258,412		0		286,345
Interest credited to policyholders’ account balances	Interest credited to policyholders’ account balances	25,201		121,582		—		—		—		146,783		Interest credited to policyholders’ account balances	24,522		104,424		0		0		0		128,946
Commissions for acquiring and servicing policies	Commissions for acquiring and servicing policies	41,287		11,657		7,160		80,386		—		140,490		Commissions for acquiring and servicing policies	41,974		16,119		7,608		72,664		0		138,365
Other operating expenses	Other operating expenses	44,505		11,746		9,476		50,080		9,370		125,177		Other operating expenses	45,080		12,115		10,013		48,576		10,629		126,413
Change in deferred policy acquisition costs	Change in deferred policy acquisition costs	(11,535)		12,306		(17)		(5,457)		—		(4,703)		Change in deferred policy acquisition costs	(15,499)		8,555		(542)		(901)		—		(8,387)
Total benefits, losses and expenses	Total benefits, losses and expenses	224,399		202,274		43,345		405,570		9,370		884,958		Total benefits, losses and expenses	250,034		187,637		45,012		378,751		10,629		872,063
Income (loss) before federal income tax and other items	Income (loss) before federal income tax and other items	$	17,582	$	17,868	$	7,317	$	(13,985)	$	247,448	$	276,230	Income (loss) before federal income tax and other items	$	(3,942)	$	8,208	$	2,926	$	31,765	$	159,086	$	198,043


		Three months ended June 30, 2019																							Three months ended September 30, 2019
								Property		Corporate											Property		Corporate
		Life		Annuity		Health		& Casualty		& Other		Total			Life		Annuity		Health		& Casualty		& Other		Total
PREMIUMS AND OTHER REVENUES	PREMIUMS AND OTHER REVENUES													PREMIUMS AND OTHER REVENUES
Premiums	Premiums	$	86,087	$	56,222	$	42,224	$	371,739	$	—	$	556,272	Premiums	$	93,079	$	41,305	$	40,676	$	382,784	$	0	$	557,844
Other policy revenues	Other policy revenues	70,610		4,536		—		—		—		75,146		Other policy revenues	72,446		4,338		0		0		0		76,784
Net investment income	Net investment income	63,916		155,355		2,376		16,706		19,377		257,730		Net investment income	61,961		141,684		2,381		16,357		24,237		246,620
Net realized investment losses		—		—		—		—		(9,905)		(9,905)
Net realized investment gains														Net realized investment gains	0		0		0		0		31,933		31,933

Net gains on equity securities	Net gains on equity securities	—		—		—		—		67,060		67,060		Net gains on equity securities	0		0		0		0		8,589		8,589
Other income	Other income	469		574		5,534		2,830		967		10,374		Other income	441		653		5,021		3,137		1,478		10,730
Total premiums and other revenues	Total premiums and other revenues	221,082		216,687		50,134		391,275		77,499		956,677		Total premiums and other revenues	227,927		187,980		48,078		402,278		66,237		932,500
BENEFITS, LOSSES AND EXPENSES	BENEFITS, LOSSES AND EXPENSES													BENEFITS, LOSSES AND EXPENSES
Policyholder benefits	Policyholder benefits	104,462		72,788		—		—		—		177,250		Policyholder benefits	113,652		59,699		0		0		0		173,351
Claims incurred	Claims incurred	—		—		26,708		271,608		—		298,316		Claims incurred	0		0		28,567		280,695		0		309,262
Interest credited to policyholders’ account balances	Interest credited to policyholders’ account balances	15,197		108,490		—		—		—		123,687		Interest credited to policyholders’ account balances	22,045		84,737		0		0		0		106,782
Commissions for acquiring and servicing policies	Commissions for acquiring and servicing policies	40,881		23,139		8,692		68,583		—		141,295		Commissions for acquiring and servicing policies	42,023		13,368		7,405		65,893		0		128,689
Other operating expenses	Other operating expenses	46,669		13,349		10,707		49,681		9,127		129,533		Other operating expenses	46,873		12,264		9,504		50,111		9,750		128,502
Change in deferred policy acquisition costs	Change in deferred policy acquisition costs	(9,205)		(4,369)		(146)		(3,588)		—		(17,308)		Change in deferred policy acquisition costs	(5,080)		7,006		258		(636)		0		1,548
Total benefits, losses and expenses	Total benefits, losses and expenses	198,004		213,397		45,961		386,284		9,127		852,773		Total benefits, losses and expenses	219,513		177,074		45,734		396,063		9,750		848,134
Income before federal income tax and other items	Income before federal income tax and other items	$	23,078	$	3,290	$	4,173	$	4,991	$	68,372	$	103,904	Income before federal income tax and other items	$	8,414	$	10,906	$	2,344	$	6,215	$	56,487	$	84,366

Table of Contents

Note 15 – Segment Information -– (Continued)


		Six months ended June 30, 2020																							Nine months ended September 30, 2020
								Property		Corporate											Property		Corporate
		Life		Annuity		Health		& Casualty		& Other		Total			Life		Annuity		Health		& Casualty		& Other		Total
PREMIUMS AND OTHER REVENUES	PREMIUMS AND OTHER REVENUES													PREMIUMS AND OTHER REVENUES
Premiums	Premiums	$	181,186	$	41,453	$	86,031	$	761,361	$	—	$	1,070,031	Premiums	$	282,368	$	69,413	$	126,965	$	1,152,749	$	0	$	1,631,495
Other policy revenues	Other policy revenues	151,766		7,626		—		—		—		159,392		Other policy revenues	227,083		11,653		0		0		0		238,736
Net investment income	Net investment income	119,220		231,383		4,447		32,122		15,460		402,632		Net investment income	188,455		394,508		6,480		48,171		19,274		656,888
Net realized investment gains	Net realized investment gains	—		—		—		—		8,087		8,087		Net realized investment gains	0		0		0		0		25,474		25,474
Change in investment credit loss	Change in investment credit loss	—		—		—		—		(96,988)		(96,988)		Change in investment credit loss	0		0		0		0		(101,163)		(101,163)
Net losses on equity securities		—		—		—		—		(33,750)		(33,750)
Net gains on equity securities														Net gains on equity securities	0		0		0		0		118,397		118,397
Other income	Other income	1,176		1,433		10,030		6,577		2,253		21,469		Other income	1,534		2,166		15,001		9,656		2,795		31,152
Total premiums and other revenues	Total premiums and other revenues	453,348		281,895		100,508		800,060		(104,938)		1,530,873		Total premiums and other revenues	699,440		477,740		148,446		1,210,576		64,777		2,600,979
BENEFITS, LOSSES AND EXPENSES	BENEFITS, LOSSES AND EXPENSES													BENEFITS, LOSSES AND EXPENSES
Policyholder benefits	Policyholder benefits	235,407		79,785		—		—		—		315,192		Policyholder benefits	389,364		126,209		0		0		0		515,573
Claims incurred	Claims incurred	—		—		61,611		510,270		—		571,881		Claims incurred	0		0		89,544		768,682		0		858,226
Interest credited to policyholders’ account balances	Interest credited to policyholders’ account balances	23,298		119,162		—		—		—		142,460		Interest credited to policyholders’ account balances	47,820		223,586		0		0		0		271,406
Commissions for acquiring and servicing policies	Commissions for acquiring and servicing policies	80,754		21,905		15,184		153,082		—		270,925		Commissions for acquiring and servicing policies	122,728		38,024		22,792		225,746		0		409,290
Other operating expenses	Other operating expenses	91,985		23,622		20,105		103,084		20,307		259,103		Other operating expenses	137,065		35,737		30,118		151,660		30,936		385,516
Change in deferred policy acquisition costs	Change in deferred policy acquisition costs	(19,373)		19,592		(40)		(6,554)		—		(6,375)		Change in deferred policy acquisition costs	(34,872)		28,147		(582)		(7,455)		0		(14,762)
Total benefits, losses and expenses	Total benefits, losses and expenses	412,071		264,066		96,860		759,882		20,307		1,553,186		Total benefits, losses and expenses	662,105		451,703		141,872		1,138,633		30,936		2,425,249
Income (loss) before federal income tax and other items		$	41,277	$	17,829	$	3,648	$	40,178	$	(125,245)	$	(22,313)
Income before federal income tax and other items														Income before federal income tax and other items	$	37,335	$	26,037	$	6,574	$	71,943	$	33,841	$	175,730


		Six months ended June 30, 2019																							Nine months ended September 30, 2019
								Property		Corporate											Property		Corporate
		Life		Annuity		Health		& Casualty		& Other		Total			Life		Annuity		Health		& Casualty		& Other		Total
PREMIUMS AND OTHER REVENUES	PREMIUMS AND OTHER REVENUES													PREMIUMS AND OTHER REVENUES
Premiums	Premiums	$	172,555	$	96,129	$	80,905	$	742,920	$	—	$	1,092,509	Premiums	$	265,634	$	137,434	$	121,581	$	1,125,704	$	0	$	1,650,353
Other policy revenues	Other policy revenues	140,854		8,540		—		—		—		149,394		Other policy revenues	213,300		12,878		0		0		0		226,178
Net investment income	Net investment income	132,672		346,066		4,796		31,728		34,814		550,076		Net investment income	194,633		487,750		7,177		48,085		59,051		796,696
Net realized investment losses		—		—		—		—		(6,958)		(6,958)
Net realized investment gains														Net realized investment gains	0		0		0		0		24,975		24,975
Net gains on equity securities	Net gains on equity securities	—		—		—		—		273,437		273,437		Net gains on equity securities	0		0		0		0		282,026		282,026
Other income	Other income	1,145		1,263		10,919		5,552		3,033		21,912		Other income	1,586		1,916		15,940		8,689		4,511		32,642
Total premiums and other revenues	Total premiums and other revenues	447,226		451,998		96,620		780,200		304,326		2,080,370		Total premiums and other revenues	675,153		639,978		144,698		1,182,478		370,563		3,012,870
BENEFITS, LOSSES AND EXPENSES	BENEFITS, LOSSES AND EXPENSES													BENEFITS, LOSSES AND EXPENSES
Policyholder benefits	Policyholder benefits	213,927		131,549		—		—		—		345,476		Policyholder benefits	327,579		191,248		0		0		0		518,827
Claims incurred	Claims incurred	—		—		52,475		509,752		—		562,227		Claims incurred	0		0		81,042		790,447		0		871,489
Interest credited to policyholders’ account balances	Interest credited to policyholders’ account balances	35,516		229,405		—		—		—		264,921		Interest credited to policyholders’ account balances	57,561		314,142		0		0		0		371,703
Commissions for acquiring and servicing policies	Commissions for acquiring and servicing policies	78,623		50,005		15,570		135,742		—		279,940		Commissions for acquiring and servicing policies	120,646		63,373		22,975		201,635		0		408,629
Other operating expenses	Other operating expenses	95,647		25,823		21,699		101,566		18,408		263,143		Other operating expenses	142,520		38,087		31,203		151,677		28,158		391,645
Change in deferred policy acquisition costs	Change in deferred policy acquisition costs	(14,040)		(7,389)		661		(3,171)		—		(23,939)		Change in deferred policy acquisition costs	(19,120)		(383)		919		(3,807)		0		(22,391)
Total benefits, losses and expenses	Total benefits, losses and expenses	409,673		429,393		90,405		743,889		18,408		1,691,768		Total benefits, losses and expenses	629,186		606,467		136,139		1,139,952		28,158		2,539,902
Income before federal income tax and other items	Income before federal income tax and other items	$	37,553	$	22,605	$	6,215	$	36,311	$	285,918	$	388,602	Income before federal income tax and other items	$	45,967	$	33,511	$	8,559	$	42,526	$	342,405	$	472,968

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Note 16 – Commitments and Contingencies

Commitments

American National and its subsidiaries lease insurance sales office space, technological equipment, and automobiles. The remaining long-term lease commitments at ~~June~~September 30, 2020 were approximately ~~$12,287,000.~~$10,876,000.

American National had aggregate commitments at ~~June~~September 30, 2020 to purchase, expand or improve real estate, to fund fixed interest rate mortgage loans, and to purchase other invested assets of ~~$1,333,284,000~~$1,362,900,000 of which ~~$357,404,000~~$328,144,000 is expected to be funded in 2020 with the remainder funded in 2021 and beyond.

American National ~~has~~had a $100,000,000 short-term variable rate borrowing facility containing a $55,000,000 sub-feature for the issuance of letters of credit. Borrowings under the facility ~~are~~were at the discretion of the lender and would be used only for funding working capital requirements. The combination of borrowings and outstanding letters of credit cannot exceed $100,000,000 at any time. As of ~~June~~September 30, 2020 and December 31, 2019, the outstanding letters of credit were $3,484,000, and there were no borrowings on this facility. This facility ~~expires~~expired on October 31, 2020.

Federal Home Loan Bank (FHLB) Agreements

In May 2018, the Company became a member of the Federal Home Loan Bank of Dallas (“FHLB”) to augment its liquidity resources. The Company initially purchased $7.0 million of stock to meet the FHLB’s membership requirement. The FHLB member stock is recorded in other invested assets on the Company’s condensed consolidated statements of financial position. Through its membership, the Company has access to the FHLB’s financial services including advances that provide an attractive funding source for short-term borrowing and for access to other funding agreements. As of ~~June~~September 30, 2020, certain municipal bonds and collateralized mortgage obligations (CMO’s) with a fair value of approximately ~~$103.4~~$84.1 million and commercial mortgage loans of approximately ~~$1.5~~$1.4 billion were on deposit with the FHLB as collateral for borrowing. As of ~~June~~September 30, 2020, the collateral provided borrowing capacity for the $500 million in outstanding advances as well as approximately ~~$454~~$564 million in additional borrowing capacity. The deposited securities and commercial mortgage loans are included in the Company’s condensed consolidated statements of financial position within fixed maturity securities and mortgage loans on real estate, net of allowance, respectively.

FHLB outstanding advances as of ~~June~~September 30, 2020 are shown below (in thousands, except percentages):


		Principal Amount		Interest Rate		Maturity Date		Principal Amount		Interest Rate		Maturity Date
At June 30, 2020
At September 30, 2020							At September 30, 2020
FHLB advance, fixed rate*							FHLB advance, fixed rate*	$	250,000	0.25	%	10/13/2020
FHLB advance, fixed rate	FHLB advance, fixed rate	$	250,000	0.25	%	10/13/2020	FHLB advance, fixed rate	250,000		0.38	%	4/28/2021
FHLB advance, fixed rate		250,000		0.38	%	4/28/2021

* This advance was repaid in full on its maturity date of October 13, 2020. For more information on the details of this loan repayment, refer to Note 18, Subsequent Events.

Guarantees

American National has guaranteed bank loans for customers of a third-party marketing operation. The bank loans are used to fund premium payments on life insurance policies issued by American National. The loans are secured by the cash values of the life insurance policies. If the customer were to default on a bank loan, American National would be obligated to pay off the loan. As the cash values of the life insurance policies always equal or exceed the balance of the loans, management does not foresee any loss on these guarantees. The total amount of the guarantees outstanding as of ~~June~~September 30, 2020, was approximately $121,379,000, while the total cash value of the related life insurance policies was approximately ~~$141,054,000.~~$142,019,000.

Litigation

American National and certain subsidiaries are defendants in various lawsuits concerning alleged breaches of contracts, various employment matters, allegedly deceptive insurance sales and marketing practices, and miscellaneous other causes of action arising in the ordinary course of operations. Certain of these lawsuits include claims for compensatory and punitive damages. We provide accruals for these items to the extent we deem the losses probable and reasonably estimable. After reviewing these matters with legal counsel, based upon information presently available, management is of the opinion that the ultimate resultant liability, if any, would not have a material adverse effect on American National’s condensed consolidated financial position, liquidity or results of operations; however, assessing the eventual outcome of litigation necessarily involves forward-looking speculation as to judgments to be made by judges, juries and appellate courts in the future.

Table of Contents

Note 16 – Commitments and Contingencies -– (Continued)

Such speculation warrants caution, as the frequency of large damage awards, which bear little or no relation to the economic damages incurred by plaintiffs in some jurisdictions, continues to create the potential for an unpredictable judgment in any given lawsuit. These lawsuits are in various stages of development, and future facts and circumstances could result in management changing its conclusions. It is possible that, if the defenses in these lawsuits are not successful, and the judgments are greater than management can anticipate, the resulting liability could have a material impact on our condensed consolidated financial position, liquidity or results of operations. With respect to the existing litigation, management currently believes that the possibility of a material judgment adverse to American National is remote and no estimate of range can be made for loss contingencies that are at least reasonably possible but not accrued.

Note 17 -– Related Party Transactions

American National has entered into recurring transactions and agreements with certain related parties. These include mortgage loans, management contracts, agency commission contracts, marketing agreements, health insurance contracts, and legal services. The impact on the condensed consolidated financial statements of significant related party transactions is shown below (in thousands):


			Dollar Amount of Transactions																															Dollar Amount of Transactions
		Financial Statement Line Impacted	Three months ended June 30,								Six months ended June 30,									Amount due to (from) American National									Financial Statement Line Impacted			Three months ended September 30,						Nine months ended September 30,			Amount due to (from) American National
Related Party	Related Party				2020			2019		2020			2019			June 30, 2020			December 31, 2019	Related Party		Financial Statement Line Impacted			2020			2019			2020			2019			September 30, 2020			December 31, 2019
Gal-Tex Hotel Corporation	Gal-Tex Hotel Corporation	Mortgage loan on real estate	$	—		$	145	$	—		$	576		$	—		$	—	Gal-Tex Hotel Corporation		Mortgage loan on real estate		$	0		$	0		$	0		$	576		$	0		$	0
Gal-Tex Hotel Corporation	Gal-Tex Hotel Corporation	Net investment income	—			1		—			9			—			—		Gal-Tex Hotel Corporation		Net investment income		0			0			0			9			0			0
Greer, Herz & Adams, LLP	Greer, Herz & Adams, LLP	Other operating expenses	3,251			3,007		7,094			5,896			(497)			(519)		Greer, Herz & Adams, LLP		Other operating expenses		3,033			3,129			10,127			9,025			(558)			(519)

Mortgage Loans to Gal-Tex Hotel Corporation (“Gal-Tex”): American National held a first mortgage loan which originated in 1999, with an interest rate of 7.25% and final maturity date of April 1, 2019 issued to a subsidiary of Gal-Tex, which was collateralized by a hotel property in San Antonio, Texas. This loan has been paid in full. ~~As of June 30, 2020, the~~The Moody Foundation owns 34.0% of Gal-Tex and 22.75% of American National, and the Libbie Shearn Moody Trust owns 50.2% of Gal-Tex and 37.0% of American National.

On July 1, 2020, the Company completed a holding company reorganization, at that time, American National became a wholly owned subsidiary of American National Group, Inc. For additional details see Note 18, Subsequent Events, of the Notes to the Unaudited Condensed Consolidated Financial Statements.

Transactions with Greer, Herz & Adams, LLP: Irwin M. Herz, Jr. is a member of the Board of Directors of American National Group, Inc. and certain of its subsidiaries, and a Partner with Greer, Herz & Adams, LLP, which serves as American National’s General Counsel.

Note 18 – Subsequent Events

On ~~July 1,~~April 13, 2020, ~~American National Insurance~~the Company borrowed from the Federal Home Loan Bank of Dallas' COVID-19 Relief Advance Program. The net amount of the advance was approximately $240 million after a ~~Texas insurance company (“ANICO”), completed~~required capital stock purchase of approximately $10 million. The loan has an interest rate of 0.25% with a final maturity date of October 13, 2020. The Company paid this advance in full on its ~~previously announced holding company reorganization pursuant to the Agreement and Plan~~maturity date of Merger dated February 11, 2020 (the “Reorganization Agreement”), among ANICO, American National Group, Inc., a Delaware corporation (“ANAT”), and AN MergerCo, Inc., a Texas corporation (“MergerCo”).October 13, 2020. The ~~Reorganization Agreement provided~~capital stock purchased for the merger of ANICO with and into MergerCo (the “Merger”), with ANICO surviving the Merger as a wholly owned subsidiary of ANAT, and the automatic conversion of each share of the common stock, par value $1.00 per share, of ANICO issued and outstanding immediately prior to the effective time of the Merger (“ANICO Stock”), into one duly issued, fully paid and non-assessable share of the common stock, par value $0.01 per share, of ANAT (“ANAT Stock”) (collectively with the other transactions contemplated by the Reorganization Agreement, the “Reorganization”).

~~As a result of the Reorganization, ANAT replaced ANICO as the publicly held company~~advance was not sold and is now ~~listed on~~considered excess stock left at the ~~NASDAQ exchange under the symbol “ANAT,” the same ticker symbol previously used by American National Insurance Company. The directors~~Federal Home Loan Bank of Dallas, and ~~officers of ANICO just prior~~it will be available to the reorganization are now serving as directors and officers of ANAT. There is no change in the ultimate ownership of the organization and business operations will continue from our current office locations and companies. This reorganization will have no effect on our agents or policyholders.use for potential future advances.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following pages provide management’s discussion and analysis (“MD&A”) of financial condition and results of operations for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019 of American National ~~Insurance Company~~Group, Inc. and its subsidiaries (referred to in this document as “we,” “our,” “us,” or the “Company”). This information should be read in conjunction with our condensed consolidated financial statements included in Item 1, Financial Statements, of this Form 10-Q.

Caution Regarding Forward-Looking Statements

Certain statements made in this report, including but not limited to the accompanying condensed consolidated financial statements, and the notes thereto appearing in Item 1 herein, Management's Discussion and Analysis of Financial Condition and Results of Operations in this Item 2 ("MD&A"), and the exhibits and financial statement schedules filed as a part hereof or incorporated by reference herein, may contain or incorporate by reference information that includes or is based upon forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally are indicated by words such as “expects,” “intends,” “anticipates,” “plans,” “believes,” “estimates,” “will” or words of similar meaning, and include, without limitation, statements regarding the outlook of our business and expected financial performance, and statements relating to the COVID-19 pandemic and its effects on the Company. These forward-looking statements are subject to changes and uncertainties which are, in many instances, beyond our control and have been made based upon our assumptions, expectations and beliefs concerning future developments and their potential effect upon us. There can be no assurance that future developments will be in accordance with our expectations, or that the effect of future developments on us will be as anticipated, particularly given the uncertainty relating to the COVID-19 pandemic. We do not make public specific projections relating to future earnings, and we do not endorse any projections regarding future performance made by others. Additionally, we do not publicly update or revise forward-looking statements based on the outcome of various foreseeable or unforeseeable events. Forward-looking statements are not guarantees of future performance and involve various risks and uncertainties. There are certain important factors that could cause actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements, including without limitation risks, uncertainties and other factors discussed in Item 1A ~~Risk Factors in~~of our 2019 Form 10-K filed with the SEC on February 28, 2020, as supplemented by the Risk Factors discussion in Part II, Item 1A ~~Risk Factors below,~~of our Form 10-Q for the period ending June 30, 2020, filed with the SEC on August 5, 2020, and elsewhere in this report, such as:

•Economic & Investment Risk Factors

•potential for difficult conditions in the economy, which may not improve in the near future, and risks related to persistently low or unpredictable interest rates;

•fluctuations in the markets for fixed maturity securities, equity securities, and commercial real estate, which could adversely affect the valuation of our investment portfolio, our net investment income, our retirement expense, and sales of or fees from certain of our products;

•lack of liquidity for certain of our investments;

•the potential for adverse effects on interest rates and the value of certain assets as a result of the discontinuation of the London Inter-Bank Offered Rate (LIBOR);

•risk of investment losses and defaults;

•Operational Risk Factors

•differences between actual experience regarding mortality, morbidity, persistency, expense, surrenders and investment returns, and our assumptions for product pricing, establishing liabilities and reserves or for other purposes;

•potential ineffectiveness of our risk management policies and procedures;

•changes in our experience related to deferred policy acquisition costs;

•failures or limitations of our computer, information security and administration systems;

•failure to complete and implement technology initiatives in a timely manner;

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~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)~~

•potential employee error or misconduct, which may result in fraud or adversely affect the execution and administration of our policies and claims;

•potential ineffectiveness of our internal controls over financial reporting;

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

•Catastrophic Event Risk Factors

•natural or man-made catastrophes, pandemic disease such as COVID-19, or other events resulting in increased claims activity from catastrophic loss of life or property;

•the effects of unanticipated events on our disaster recovery and business continuity planning;

•the effects of global climate change;

•Marketplace Risk Factors

•the highly competitive nature of the insurance and annuity business;

•potential difficulty in attraction and retention of qualified employees and agents;

•the introduction of alternative healthcare solutions or changes in federal healthcare policy, both of which could impact our supplemental healthcare business;

•Litigation and Regulation Risk Factors

•adverse determinations in litigation or regulatory proceedings which may result in significant financial losses and harm to our reputation;

•significant changes in government regulation;

•changes in tax law;

•changes in statutory or U.S. Generally Accepted Accounting Principles (“GAAP”), practices or policies;

•Reinsurance and Counterparty Risk Factors

•potential changes in the availability, affordability, adequacy and collectability of reinsurance protection;

•potential default or failure to perform by the counterparties to our reinsurance arrangements and derivative instruments;

•Other Risk Factors

•major public health issues, such as the novel coronavirus COVID-19;

•potentially adverse rating agency actions;

•control of our company by a small number of stockholders; and

•advances in medical technology and testing, which may increase our adverse selection risk.

Many of these risks and uncertainties have been exacerbated by the COVID-19 pandemic, particularly those described in the Economic and Investment Risk Factors, Litigation and Regulation Risk Factors, and Reinsurance and Counterparty Risk Factors. ~~In addition, other risks and uncertainties arise from COVID-19, as described in Part II, Item 1A Risk Factors below.~~

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

COVID-19 Response

On March 11, 2020, the World Health Organization formally declared the outbreak of the novel coronavirus COVID-19 to be a pandemic. The spread of COVID-19 has caused illness, quarantines, cancellation of events and travel, alternative arrangements and shutdowns for business and ~~school shutdowns,~~schools, reduction in business activity, widespread unemployment, and overall economic and financial market instability. Through the ~~second~~third quarter of 2020, American National is for the most part conducting its normal business operations. However, because of the impact of COVID-19 we have approximately 80% of our back-office employees working remotely.

Below is a summary of significant actions we have taken through the date of this report to manage the risks of disruption to business operation from COVID-19:

•We have taken steps to protect employees with the goals of maintaining their health and sustaining an adequate workforce, including directing as many employees as possible to work from home and offering flexibility for employees negotiating scheduling conflicts due to the impacts of COVID-19, such as caring for family, ~~school closures~~alternative arrangements and ~~re-openings,~~shutdowns for business and schools, self-isolation or personal illness, including granting additional paid time off to address these hardships.

•We are communicating on a regular basis with our board of directors, senior management and employees regarding the ongoing developments of the COVID-19 pandemic. We are communicating through email, company intranet, videos, posters and other signage, an HR email hotline, teleconferences, and online MS Teams meetings.

•We have implemented multiple communication avenues to keep our customers, vendors and producers informed, including:

•Providing regular communications to producers with updates on our operations and service, contacts for support, available resources, and expectations;

•Engaging in ongoing communications with critical vendors related to their business continuity plans; and

•Providing an overview of our response to COVID-19 on our corporate website.

•We are offering leniency on premium payments and other deadlines, in some cases pursuant to recent regulatory requirements, for customers impacted by the COVID-19 outbreak, as discussed elsewhere in this report.

•We have reduced premiums for some of our property and casualty policies by providing policy credits or exposure adjustments to personal automobile insurance, workers compensation or other commercial policies, in some cases pursuant to regulatory requirements.

•We have assessed our facilities, systems, policies and procedures and have implemented plans to continue critical operations and services while many employees are working off-site. The implementation of these plans across all locations was addressed simultaneously in accordance with standards and procedures for remote access that existed prior to the current challenges COVID-19 has introduced. We also have plans for increasing capacity in critical operations should employees in any of our locations become unavailable to work due to COVID-19 health issues. We are continuing to evaluate our cybersecurity program for the next challenges that COVID-19 is likely to create.

•We have provided our employees education and training with respect to cybersecurity issues that may arise relating to COVID-19 and working remotely.

•We have provided our managers resources on leading virtually, virtual meeting tips and transitioning back to the office.

•We deferred salary merit and promotional ~~increases.~~increases in May 2020. Promotions were effective without compensation adjustments. During the third quarter, the board of directors approved the salary actions that had previously been deferred. Salary merit and promotional increases were paid to employees effective September 15, 2020. The pay was not retroactive.

•We have suspended our summer Internship Program for 2020 and plan to resume these efforts in 2021.

•We are developing ~~return to work~~return-to-office programs as we transition through the different reopening situations at our locations. At the end of the ~~second~~third quarter of 2020, many of the locations in which we operate had begun to ease restrictions that were in place earlier in the period. However, ~~as of the date of this filing,~~ viral infections in the general population have begun to increase again resulting in resumption of restrictions in certain areas in which we operate. As a result, we have temporarily paused further ~~return-to-work~~return-to-office plans at our ~~locations.~~locations until January 2021.

•We have provided alternatives to employees who are working remotely who wish to receive a free flu shot.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

•We have taken numerous steps to promote the safety of our employees in keeping current with the local and state mandates and health expert recommendations including:

•Enhancing cleaning protocols by increasing the cleaning rounds per day and focusing on high touch areas, including door handles, elevator knobs, etc.

•Practicing social distancing and promoting safe interactions by not congregating in general areas such as workrooms, breakrooms and copier rooms, refraining from shaking hands, staying 6 feet apart, and keeping in-person meetings short and opting for teleconference, email and phone calls.

•Requiring all employees to wear face coverings when they enter our buildings, in common areas and whenever they are away from their workspace.

•Providing face masks to all employees, primarily those who are unable to work remotely and those returning to the office.

•Placed signs regarding social distancing guidelines, wearing of face masks, and washing hands around high traffic areas.

•Posted social distancing markers and additional signage throughout the buildings as reminders to remain six feet apart.

•Procured and maintained sufficient supply of hand sanitizer and sanitizing wipes for use at entry points and common areas

•Arranged chairs in reception areas and other communal seating areas by removing chairs to maintain social distancing.

•Installed transparent shields in work areas where social distancing cannot be practiced.

•Adjusted air fan/filtration systems, where possible, to help enhance air flow by letting more fresh air into the buildings, while maintaining adequate comfort levels.

•Approved procedures for suspected and confirmed employee cases of COVID-19 that include notification, quarantine and cleaning practices that are in line with the current CDC guidelines.

No assurance can be given that these actions will be successful, nor can we predict the level of disruption that will occur should the COVID-19 pandemic and its related macroeconomic risks continue for an extended period of time. Given this uncertainty, we are unable to quantify with reasonable confidence the expected impact of the COVID-19 pandemic on our future operations, financial condition, liquidity and results of operations. The wide-ranging social, economic and financial consequences of the COVID-19 pandemic and the possible effects of ongoing and future governmental action in response to COVID-19 compound this uncertainty. American National may see an increased level of claims, a reduction in sales, and an increased level of asset impairments during 2020 related to COVID-19. Additional information regarding risks and uncertainties related to the COVID-19 pandemic are set forth in Part II, Item 1A of ~~this report.~~our Form 10-Q for the period ending June 30, 2020, filed with the SEC on August 5, 2020.

COVID-19 Update

Our investment results during the first ~~six~~nine months of the year were impacted by the disruption caused by COVID-19. Net investment income was lower primarily on bonds, mortgage loans and equity indexed options. Significant volatility in financial markets resulted in ~~a year-to-date decline in the fair value of our equity securities and~~ increased credit allowances established for mortgage loans and to a lesser extent certain bonds negatively impacted income. Economic disruption as a result of COVID-19 has also resulted in requests for loan modifications from certain mortgage loans borrowers related to loans with a total carrying amount of ~~$1.2~~$1.6 billion. These loan modifications related primarily to hotels, retail businesses and parking operations. The terms of the modifications of these loans include forbearance of principal and interest payments for a period of up to six months, extensions of maturity dates, and/or provision for interest only payments.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

~~Premium~~Sales growth in our operating segments was negatively impacted by stay-at-home orders and the increased economic uncertainty caused by COVID-19. ~~This uncertainty reduced sales of health insurance products as well as certain life and annuity products.~~ Additionally, we reduced premiums for some of our property and casualty policies by providing credit or exposure adjustments to personal automobile insurance, workers compensation or other commercial policies, in some cases pursuant to regulatory requirements.

Life claims experience through September 2020 has increased compared to the same period 2019. We are analyzing the increase to determine if it is directly or indirectly related to COVID-19.

Loss and loss adjustment expenses in our operating segments included modestly lower loss estimates in certain product lines, primarily personal and commercial automobile due to a decrease in claim frequency as policyholders drove fewer miles due to shelter-in-place ~~orders~~orders. In addition, to date we have received 316 business interruption claims related to COVID-19 and have closed ~~314~~315 of those claims without payment ~~since our~~and have one open claim. Our policies generally exclude coverage for damage resulting from a virus or bacteria. However, it is possible that courts, state insurance regulators, or both could require us to extend coverage beyond our policy ~~language.~~language and underwriting intent.

This MD&A should be read in conjunction with our condensed consolidated financial statements and related notes included in Part I - Financial Information - Item 1, Financial Statements.

Overview

American National Insurance Company, founded in 1905 and headquartered in Galveston, Texas, and its subsidiaries offer a broad spectrum of products and services, which include life insurance, annuities, property and casualty insurance, health insurance, credit insurance, and pension products. The American National companies operate in all 50 states, the District of Columbia and Puerto Rico. Major insurance subsidiaries include American National Life Insurance Company of Texas, American National Life Insurance Company of New York, American National Property and Casualty Company, Garden State Life Insurance Company, Standard Life and Accident Insurance Company, Farm Family Casualty Insurance Company and United Farm Family Insurance Company.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

General Trends

During the ~~second~~third quarter of 2020, American National had no material changes to the general trends discussed in the MD&A included in our 2019 Annual Report on Form 10-K filed with the SEC on February 28, 2020. However, please see the "COVID-19 Response" discussion above for general information about the pandemic's impact on us.

Critical Accounting Estimates

The unaudited interim condensed consolidated financial statements have been prepared in conformity with GAAP. In addition to GAAP, insurance companies apply specific SEC regulations when preparing the condensed consolidated financial statements. The preparation of the condensed consolidated financial statements and notes requires us to make estimates and assumptions that affect the amounts reported. Actual results could differ from results reported using those estimates and assumptions. Our accounting policies inherently require the use of judgment relating to a variety of assumptions and estimates, particularly expectations of current and future mortality, morbidity, persistency, expenses, interest rates, and property and casualty loss frequency, severity, claim reporting and settlement patterns. Due to the inherent uncertainty when using the assumptions and estimates, the effect of certain accounting policies under different conditions or assumptions could vary from those reported in the condensed consolidated financial statements.

For a discussion of our critical accounting estimates, see the MD&A in our 2019 Annual Report on Form 10-K filed with the SEC on February 28, 2020. There have been no changes except as follows.

On January 1, 2020, we adopted ASC 326 accounting guidance related to the allowance for credit ~~losses, refer~~losses. Refer to Note 3, ~~"Recently~~Recently Issued Accounting ~~Pronouncements,".~~Pronouncements. The new standard significantly changes how entities measure credit losses for most financial assets and reinsurance recoverables that are not measured at fair value through net income. The guidance replaces the current “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. Refer to Note 4, ~~"Investment~~Investment in ~~Securities"~~Securities, and Note 5, ~~"Mortgage Loans"~~Mortgage Loans, of the Notes to the Unaudited Condensed Consolidated Financial Statements in Item 1 for further discussion of the accounting policies and methodologies for establishing the allowance for credit losses.

The accounting estimates relating to the allowance for credit losses over financial assets held at amortized cost have been evaluated and monitored since adoption and management has deemed these estimates to be critical for the following reasons:

•Changes in the provision for credit losses can be material to the financial position and results of operations for the Company;

•Estimates relating to the allowance for credit losses require us to project future cash flows, delinquencies, collateral values, occupancy rates, prepayments based on a reasonable and supportable forecast in order to estimate probability of default and the loss given default;

•The allowance for credit losses is also affected by factors outside of our control including, but not limited to, market volatility, deterioration in the credit or prospects of companies and governmental entities, political uncertainty, industry trends, and trends in interest rates;

•Management judgment is required to determine which models, methodologies, and scenario conditions are used to calculate the allowance for credit losses to produce a reasonable estimate that encompasses the expected lifetime credit losses.

Since our estimate for the allowance for credit losses relies on management judgment and ~~are~~is sensitive to factors outside of our control, as noted above, there are inherent uncertainties within the estimates. As a result, the changes in the allowance for credit losses could materially impact our condensed consolidated financial statements.

Recently Issued Accounting Pronouncements

Refer to Note 3, Recently Issued Accounting Pronouncements, of the Notes to the Unaudited Condensed Consolidated Financial Statements in Item 1.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

Condensed Consolidated Results of Operations

The following sets forth the condensed consolidated results of operations (in thousands):


		Three months ended June 30,								Six months ended June 30,									Three months ended September 30,						Nine months ended September 30,
		2020		2019		Change		2020		2019		Change			2020		2019		Change		2020		2019		Change
PREMIUMS AND OTHER REVENUES	PREMIUMS AND OTHER REVENUES													PREMIUMS AND OTHER REVENUES
Premiums	Premiums	$	533,263	$	556,272	$	(23,009)	$	1,070,031	$	1,092,509	$	(22,478)	Premiums	$	561,464	$	557,844	$	3,620	$	1,631,495	$	1,650,353	$	(18,858)
Other policy revenues	Other policy revenues	79,787		75,146		4,641		159,392		149,394		9,998		Other policy revenues	79,344		76,784		2,560		238,736		226,178		12,558
Net investment income	Net investment income	287,348		257,730		29,618		402,632		550,076		(147,444)		Net investment income	254,256		246,620		7,636		656,888		796,696		(139,808)
Net realized investments gains (losses)		3,939		(9,905)		13,844		8,087		(6,958)		15,045
Net realized investments gains														Net realized investments gains	17,387		31,933		(14,546)		25,474		24,975		499

Change in investment credit loss	Change in investment credit loss	(52,310)		—		(52,310)		(96,988)		—		(96,988)		Change in investment credit loss	(4,175)		—		(4,175)		(101,163)		—		(101,163)
Net gains (losses) on equity securities		298,825		67,060		231,765		(33,750)		273,437		(307,187)
Net gains on equity securities														Net gains on equity securities	152,147		8,589		143,558		118,397		282,026		(163,629)
Other income	Other income	10,336		10,374		(38)		21,469		21,912		(443)		Other income	9,683		10,730		(1,047)		31,152		32,642		(1,490)
Total premiums and other revenues	Total premiums and other revenues	1,161,188		956,677		204,511		1,530,873		2,080,370		(549,497)		Total premiums and other revenues	1,070,106		932,500		137,606		2,600,979		3,012,870		(411,891)
BENEFITS, LOSSES AND EXPENSES	BENEFITS, LOSSES AND EXPENSES													BENEFITS, LOSSES AND EXPENSES
Policyholder benefits	Policyholder benefits	169,924		177,250		(7,326)		315,192		345,476		(30,284)		Policyholder benefits	200,381		173,351		27,030		515,573		518,827		(3,254)
Claims incurred	Claims incurred	307,287		298,316		8,971		571,881		562,227		9,654		Claims incurred	286,345		309,262		(22,917)		858,226		871,489		(13,263)
Interest credited to policyholders’ account balances	Interest credited to policyholders’ account balances	146,783		123,687		23,096		142,460		264,921		(122,461)		Interest credited to policyholders’ account balances	128,946		106,782		22,164		271,406		371,703		(100,297)
Commissions for acquiring and servicing policies	Commissions for acquiring and servicing policies	140,490		141,295		(805)		270,925		279,940		(9,015)		Commissions for acquiring and servicing policies	138,365		128,689		9,676		409,290		408,629		661
Other operating expenses	Other operating expenses	125,177		129,533		(4,356)		259,103		263,143		(4,040)		Other operating expenses	126,413		128,502		(2,089)		385,516		391,645		(6,129)
Change in deferred policy acquisition costs ⁽¹⁾	Change in deferred policy acquisition costs ⁽¹⁾	(4,703)		(17,308)		12,605		(6,375)		(23,939)		17,564		Change in deferred policy acquisition costs(1)	(8,387)		1,548		(9,935)		(14,762)		(22,391)		7,629
Total benefits, losses and expenses	Total benefits, losses and expenses	884,958		852,773		32,185		1,553,186		1,691,768		(138,582)		Total benefits, losses and expenses	872,063		848,134		23,929		2,425,249		2,539,902		(114,653)
Income (loss) before federal income taxes other items		$	276,230	$	103,904	$	172,326	$	(22,313)	$	388,602	$	(410,915)
Income before federal income taxes and other items														Income before federal income taxes and other items	$	198,043	$	84,366	$	113,677	$	175,730	$	472,968	$	(297,238)

(1) A negative amount of net change indicates more expense was deferred than amortized and represents a decrease to expenses in the period indicated.

Comparison of the three months ended ~~June~~September 30, 2020 to 2019

Earnings increased primarily due to the following:

•Increase in net gains on equity securities resulting from favorable market conditions

•Favorable impact of mark-to-market reserves for indexed annuity products driven by stable interest rates during the second quarter of 2020 compared to a decline in interest rates for the same period in 2019

The increase in earnings was partially offset due to the following:

•~~Change in estimated investment credit loss driven by the economic disruption and uncertainty caused by COVID-19~~

•Increase in ~~catastrophe losses~~claim experience in our ~~Property and Casualty~~Life segment

Comparison of the ~~six~~nine months ended ~~June~~September 30, 2020 to 2019

Earnings decreased primarily due to the following:

•A decrease in net ~~loss~~gains on equity securities ~~attributable to the COVID-19 pandemic and related economic~~resulting from unfavorable market conditions

•~~The change~~An increase in ~~investment~~the allowance for credit ~~loss~~losses due to the ~~adoption of new accounting guidance~~economic disruptions caused by the COVID-19 pandemic

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

Life

Life segment financial results for the periods indicated were as follows (in thousands):


		Three months ended June 30,								Six months ended June 30,									Three months ended September 30,						Nine months ended September 30,
		2020		2019		Change		2020		2019		Change			2020		2019		Change		2020		2019		Change
PREMIUMS AND OTHER REVENUES	PREMIUMS AND OTHER REVENUES													PREMIUMS AND OTHER REVENUES
Premiums	Premiums	$	91,670	$	86,087	$	5,583	$	181,186	$	172,555	$	8,631	Premiums	$	101,182	$	93,079	$	8,103	$	282,368	$	265,634	$	16,734
Other policy revenues	Other policy revenues	76,226		70,610		5,616		151,766		140,854		10,912		Other policy revenues	75,317		72,446		2,871		227,083		213,300		13,783
Net investment income	Net investment income	73,645		63,916		9,729		119,220		132,672		(13,452)		Net investment income	69,235		61,961		7,274		188,455		194,633		(6,178)
Other income	Other income	440		469		(29)		1,176		1,145		31		Other income	358		441		(83)		1,534		1,586		(52)
Total premiums and other revenues	Total premiums and other revenues	241,981		221,082		20,899		453,348		447,226		6,122		Total premiums and other revenues	246,092		227,927		18,165		699,440		675,153		24,287
BENEFITS, LOSSES AND EXPENSES	BENEFITS, LOSSES AND EXPENSES													BENEFITS, LOSSES AND EXPENSES
Policyholder benefits	Policyholder benefits	124,941		104,462		20,479		235,407		213,927		21,480		Policyholder benefits	153,957		113,652		40,305		389,364		327,579		61,785
Interest credited to policyholders’ account balances	Interest credited to policyholders’ account balances	25,201		15,197		10,004		23,298		35,516		(12,218)		Interest credited to policyholders’ account balances	24,522		22,045		2,477		47,820		57,561		(9,741)
Commissions for acquiring and servicing policies	Commissions for acquiring and servicing policies	41,287		40,881		406		80,754		78,623		2,131		Commissions for acquiring and servicing policies	41,974		42,023		(49)		122,728		120,646		2,082
Other operating expenses	Other operating expenses	44,505		46,669		(2,164)		91,985		95,647		(3,662)		Other operating expenses	45,080		46,873		(1,793)		137,065		142,520		(5,455)
Change in deferred policy acquisition costs ⁽¹⁾	Change in deferred policy acquisition costs ⁽¹⁾	(11,535)		(9,205)		(2,330)		(19,373)		(14,040)		(5,333)		Change in deferred policy acquisition costs(1)	(15,499)		(5,080)		(10,419)		(34,872)		(19,120)		(15,752)
Total benefits, losses and expenses	Total benefits, losses and expenses	224,399		198,004		26,395		412,071		409,673		2,398		Total benefits, losses and expenses	250,034		219,513		30,521		662,105		629,186		32,919
Income before federal income taxes and other items		$	17,582	$	23,078	$	(5,496)	$	41,277	$	37,553	$	3,724
Income (loss) before federal income taxes and other items														Income (loss) before federal income taxes and other items	$	(3,942)	$	8,414	$	(12,356)	$	37,335	$	45,967	$	(8,632)

(1) A negative amount of net change indicates more expense was deferred than amortized and represents a decrease to expenses in the period indicated.

Comparison of the three months ended ~~June~~September 30, 2020 to 2019

Earnings for our Life segment decreased primarily due to the following:

•~~Higher~~An overall increase in mortality ~~primarily in our Universal life and Term life products~~

T•heAnnual assumption review resulting in unlocking due to a decrease in long term interest rate assumptions

The decrease in earnings was partially offset by the following:

•~~Renewal growth in traditional life premiums and an increase~~Increase in other policy revenues resulting from the persistency and aging of our interest sensitive block of business

Comparison of the ~~six~~nine months ended ~~June~~September 30, 2020 to 2019

Earnings for our Life segment ~~increased~~decreased primarily due to the following:

•An overall increase in mortality

•Annual assumption review resulting in unlocking due to a decrease in long term interest rate assumptions

The decrease in earnings was partially offset by the following:

•Decrease in ~~reserves~~policyholder benefits related to our participating ~~policies~~polices resulting from a 2019 increase that was higher than normal

•~~Renewal growth in traditional life premiums and an increase~~Increase in other policy revenues resulting from the persistency and aging of our interest sensitive block of business

~~The increase in earnings was partially offset by the following:~~

•~~Higher mortality, primarily in our Universal life and Term life products~~

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

Life insurance sales

The following table presents life insurance sales as measured by annualized premium, a statistical measure used by the insurance industry, which allows a comparison of new policies sold by an insurance company during the period (in thousands):


		Three months ended June 30,								Six months ended June 30,									Three months ended September 30,						Nine months ended September 30,
		2020		2019		Change		2020		2019		Change			2020		2019		Change		2020		2019		Change
Traditional life	Traditional life	$	15,009	$	14,711	$	298	$	29,983	$	28,698	$	1,285	Traditional life	$	16,073	$	13,711	$	2,362	$	46,056	$	42,409	$	3,647
Universal life	Universal life	6,604		7,557		(953)		12,754		13,697		(943)		Universal life	7,859		7,062		797		20,613		20,759		(146)
Indexed UL	Indexed UL	6,842		9,035		(2,193)		13,644		17,001		(3,357)		Indexed UL	8,328		9,980		(1,652)		21,972		26,981		(5,009)
Total recurring	Total recurring	28,455		31,303		(2,848)		56,381		59,396		(3,015)		Total recurring	32,260		30,753		1,507		88,641		90,149		(1,508)
Single and excess ⁽¹⁾	Single and excess ⁽¹⁾	263		482		(219)		465		915		(450)		Single and excess (1)	387		420		(33)		852		1,334		(482)
Credit life ⁽¹⁾	Credit life ⁽¹⁾	1,865		2,855		(990)		4,048		5,468		(1,420)		Credit life (1)	2,015		2,691		(676)		6,063		8,159		(2,096)
Total annualized premium	Total annualized premium	$	30,583	$	34,640	$	(4,057)	$	60,894	$	65,779	$	(4,885)	Total annualized premium	$	34,662	$	33,864	$	798	$	95,556	$	99,642	$	(4,086)

(1) These are weighted amounts representing 10% of single and excess premiums.

Life insurance sales are based on the total yearly premium that insurance companies would expect to receive if all recurring premium policies would remain in force, plus 10% of single and excess premiums. Life insurance sales measure activity associated with gaining new insurance business in the current period, and includes deposits received related to interest sensitive life and universal life-type products. GAAP premium revenues, on the other hand, are associated with policies sold in current and prior periods, and deposits received related to interest sensitive life and universal life-type products are recorded in a policyholder account which is reflected as a liability. Therefore, a reconciliation of premium revenues and insurance sales is not meaningful.

Total ~~Recurring~~Life sales increased during the three months ended September 30, 2020 compared to 2019 primarily due to higher traditional life sales. Total Life sales decreased during the ~~three and six month~~nine months ended ~~June~~September 30, 2020 compared to 2019 primarily due to lower Indexed Universal Life and Credit Life sales which we believe was due ~~primarily~~ to ~~increased~~the economic uncertainty from COVID-19.

Policy in-force information

The following table summarizes changes in the Life segment’s in-force amounts (in thousands):


		June 30, 2020		December 31, 2019		Change			September 30, 2020		December 31, 2019		Change
Life insurance in-force	Life insurance in-force							Life insurance in-force
Traditional life	Traditional life	$	88,038,821	$	84,129,193	$	3,909,628	Traditional life	$	89,919,097	$	84,129,193	$	5,789,904
Interest-sensitive life	Interest-sensitive life	35,022,027		33,975,092		1,046,935		Interest-sensitive life	35,616,434		33,975,092		1,641,342
Total life insurance in-force	Total life insurance in-force	$	123,060,848	$	118,104,285	$	4,956,563	Total life insurance in-force	$	125,535,531	$	118,104,285	$	7,431,246

The following table summarizes changes in the Life segment’s number of policies in-force:


		June 30, 2020	December 31, 2019	Change		September 30, 2020	December 31, 2019	Change
Number of policies in-force	Number of policies in-force				Number of policies in-force
Traditional life	Traditional life	1,864,600	1,911,305	(46,705)	Traditional life	1,846,338	1,911,305	(64,967)
Interest-sensitive life	Interest-sensitive life	262,273	256,146	6,127	Interest-sensitive life	265,982	256,146	9,836
Total number of policies in-force	Total number of policies in-force	2,126,873	2,167,451	(40,578)	Total number of policies in-force	2,112,320	2,167,451	(55,131)

Life insurance in-force increased during the ~~six~~nine months ended ~~June~~September 30, 2020 compared to December 31, 2019 despite a reduction of policies in-force due to an increase in sales of higher face amount policies.

Change in Deferred Policy Acquisition Costs

The change in DAC represents acquisition costs capitalized less the amortization of existing DAC.


		Three months ended June 30,								Six months ended June 30,									Three months ended September 30,						Nine months ended September 30,
		2020		2019		Change		2020		2019		Change			2020		2019		Change		2020		2019		Change
Acquisition cost capitalized	Acquisition cost capitalized	$	(32,359)	$	(33,656)	$	1,297	$	(65,712)	$	(64,419)	$	(1,293)	Acquisition cost capitalized	$	(34,498)	$	(34,393)	$	(105)	$	(100,210)	$	(98,812)	$	(1,398)
Amortization of DAC	Amortization of DAC	20,824		24,451		(3,627)		46,339		50,379		(4,040)		Amortization of DAC	18,999		29,313		(10,314)		65,338		79,692		(14,354)
Change in DAC	Change in DAC	$	(11,535)	$	(9,205)	$	(2,330)	$	(19,373)	$	(14,040)	$	(5,333)	Change in DAC	$	(15,499)	$	(5,080)	$	(10,419)	$	(34,872)	$	(19,120)	$	(15,752)

The reduction in DAC amortization for the three and ~~six~~nine months ended ~~June~~September 30, 2020 relates to ~~increased claims.~~the annual assumption review and unlocking and lower gross profits.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

Annuity

Annuity segment financial results for the periods indicated were as follows (in thousands):


		Three months ended June 30,								Six months ended June 30,									Three months ended September 30,						Nine months ended September 30,
		2020		2019		Change		2020		2019		Change			2020		2019		Change		2020		2019		Change
PREMIUMS AND OTHER REVENUES	PREMIUMS AND OTHER REVENUES													PREMIUMS AND OTHER REVENUES
Premiums	Premiums	$	25,944	$	56,222	$	(30,278)	$	41,453	$	96,129	$	(54,676)	Premiums	$	27,960	$	41,305	$	(13,345)	$	69,413	$	137,434	$	(68,021)
Other policy revenues	Other policy revenues	3,561		4,536		(975)		7,626		8,540		(914)		Other policy revenues	4,027		4,338		(311)		11,653		12,878		(1,225)
Net investment income	Net investment income	189,842		155,355		34,487		231,383		346,066		(114,683)		Net investment income	163,125		141,684		21,441		394,508		487,750		(93,242)
Other income	Other income	795		574		221		1,433		1,263		170		Other income	733		653		80		2,166		1,916		250
Total premiums and other revenues	Total premiums and other revenues	220,142		216,687		3,455		281,895		451,998		(170,103)		Total premiums and other revenues	195,845		187,980		7,865		477,740		639,978		(162,238)
BENEFITS, LOSSES AND EXPENSES	BENEFITS, LOSSES AND EXPENSES													BENEFITS, LOSSES AND EXPENSES
Policyholder benefits	Policyholder benefits	44,983		72,788		(27,805)		79,785		131,549		(51,764)		Policyholder benefits	46,424		59,699		(13,275)		126,209		191,248		(65,039)
Interest credited to policyholders’ account balances	Interest credited to policyholders’ account balances	121,582		108,490		13,092		119,162		229,405		(110,243)		Interest credited to policyholders’ account balances	104,424		84,737		19,687		223,586		314,142		(90,556)
Commissions for acquiring and servicing policies	Commissions for acquiring and servicing policies	11,657		23,139		(11,482)		21,905		50,005		(28,100)		Commissions for acquiring and servicing policies	16,119		13,368		2,751		38,024		63,373		(25,349)
Other operating expenses	Other operating expenses	11,746		13,349		(1,603)		23,622		25,823		(2,201)		Other operating expenses	12,115		12,264		(149)		35,737		38,087		(2,350)
Change in deferred policy acquisition costs ⁽¹⁾	Change in deferred policy acquisition costs ⁽¹⁾	12,306		(4,369)		16,675		19,592		(7,389)		26,981		Change in deferred policy acquisition costs(1)	8,555		7,006		1,549		28,147		(383)		28,530
Total benefits, losses and expenses	Total benefits, losses and expenses	202,274		213,397		(11,123)		264,066		429,393		(165,327)		Total benefits, losses and expenses	187,637		177,074		10,563		451,703		606,467		(154,764)
Income before federal income taxes and other items	Income before federal income taxes and other items	$	17,868	$	3,290	$	14,578	$	17,829	$	22,605	$	(4,776)	Income before federal income taxes and other items	$	8,208	$	10,906	$	(2,698)	$	26,037	$	33,511	$	(7,474)

(1) A positive amount of net change indicates less expense was deferred than amortized and represents an increase to expenses in the period indicated.

Comparison of the three months ended ~~June 30, 2020 to 2019~~

~~Earnings for our Annuity segment increased primarily due to the following:~~

~~Comparison of the six months ended June~~September 30, 2020 to 2019

Earnings for our Annuity segment decreased primarily due to the following:

•~~Significant change~~Annual assumption review resulting in ~~mark-to-market~~unlocking on our fixed deferred annuity block due to decrease in long-term interest rate assumptions

•Higher interest credited on indexed annuities

The decrease in earnings was partially offset by the following:

•An increase in net investment income due to higher option gains resulting from favorable market conditions

Comparison of the nine months ended September 30, 2020 to 2019

Earnings for our Annuity segment decreased primarily due to the following:

•An increase in reserves for indexed annuity products ~~driven by~~due to mark-to-market based adjustments attributable to lower interest rates and unfavorable equity market conditions

•Annual assumption review resulting in unlocking on our fixed deferred annuity block due to decrease in long-term interest rate assumptions

•Increased spread compression on fixed annuities due to declining portfolio yield

~~Annuity premium and deposit amounts received are shown below (in thousands):~~

Three months ended June 30, Six months ended June 30,
2020 2019 Change 2020 2019 Change
Fixed deferred annuity $ 73,399 $ 311,269 $ (237,870) $ 191,809 $ 832,517 $ (640,708)
Single premium immediate annuity 33,352 77,879 (44,527) 56,110 134,008 (77,898)
Equity-indexed deferred annuity 77,404 106,098 (28,694) 135,380 206,844 (71,464)
Variable deferred annuity 14,176 16,012 (1,836) 29,857 32,111 (2,254)
Total premium and deposits 198,331 511,258 (312,927) 413,156 1,205,480 (792,324)
Less: Policy deposits 172,387 455,036 (282,649) 371,703 1,109,351 (737,648)
Total earned premiums $ 25,944 $ 56,222 $ (30,278) $ 41,453 $ 96,129 $ (54,676)

Annuity premium and deposits decreased primarily for fixed deferred products during the three and six months ended June 30, 2020 compared to 2019. The low interest rate environment and choices we made on setting crediting rates, coupled with the impact of economic uncertainty attributable to COVID-19 resulted in lower sales of fixed deferred annuities during the three and six months ended June 30, 2020.

Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

Annuity premium and deposit amounts received are shown below (in thousands):


	Three months ended September 30,						Nine months ended September 30,
	2020		2019		Change		2020		2019		Change
Fixed deferred annuity	$	126,820	$	77,342	$	49,478	$	318,629	$	909,859	$	(591,230)
Single premium immediate annuity	36,217		50,815		(14,598)		92,327		184,823		(92,496)
Equity-indexed deferred annuity	95,105		74,876		20,229		230,485		281,720		(51,235)
Variable deferred annuity	16,816		18,400		(1,584)		46,673		50,511		(3,838)
Total premium and deposits	274,958		221,433		53,525		688,114		1,426,913		(738,799)
Less: Policy deposits	246,998		180,128		66,870		618,701		1,289,479		(670,778)
Total earned premiums	$	27,960	$	41,305	$	(13,345)	$	69,413	$	137,434	$	(68,021)

Annuity premium and deposits decreased primarily for fixed deferred products during the nine months ended September 30, 2020 compared to 2019. The low interest rate environment and choices we made on setting crediting rates, coupled with the economic impact attributable to COVID-19 and significant reduction of face-to-face interactions with prospective policyholders has resulted in lower sales of fixed deferred annuities during the three and nine months ended September 30, 2020.

Change in Deferred Policy Acquisition Costs

The change in DAC represents acquisition costs capitalized less the amortization of existing DAC, which is calculated in proportion to expected gross profits. The following shows the components of the change in DAC (in thousands):


		Three months ended June 30,								Six months ended June 30,									Three months ended September 30,						Nine months ended September 30,
		2020		2019		Change		2020		2019		Change			2020		2019		Change		2020		2019		Change
Acquisition cost capitalized	Acquisition cost capitalized	$	(10,793)	$	(23,091)	$	12,298	$	(22,318)	$	(48,168)	$	25,850	Acquisition cost capitalized	$	(14,899)	$	(13,611)	$	(1,288)	$	(37,217)	$	(61,779)	$	24,562
Amortization of DAC	Amortization of DAC	23,099		18,722		4,377		41,910		40,779		1,131		Amortization of DAC	23,454		20,617		2,837		65,364		61,396		3,968
Change in DAC	Change in DAC	$	12,306	$	(4,369)	$	16,675	$	19,592	$	(7,389)	$	26,981	Change in DAC	$	8,555	$	7,006	$	1,549	$	28,147	$	(383)	$	28,530

The change in amortization for the three and nine months ended September 30, 2020 was primarily due to unlocking assumptions. Long run earned rate assumptions were lowered from 5.75% to 4.75%, which lowered DAC by $7.2 million. This was offset by raising assumed spread targets to match recent trends in renewal rate setting, which raised DAC by $2.3 million. The combined impact of assumptions unlocking was a $4.9 million decrease in DAC. The change in acquisition costs capitalized for the nine months ended September 30, 2020 strongly ~~correlated~~correlates with the change in commissions, which ~~have~~ declined due to lower ~~sales.~~

~~Shown below are~~sales in the ~~changes in account values (in thousands):~~

Six months ended June 30,
2020 2019
Fixed deferred annuity
Reserve, beginning of period $ 6,893,174 $ 6,773,603
Premiums 191,809 832,517
Death and other benefits (104,787) (117,126)
Surrenders (240,051) (453,917)
Fees (533) (1,516)
Interest and mortality 94,357 101,243
Reserve, end of period 6,833,969 7,134,804
Equity-indexed annuity
Reserve, beginning of period 3,985,166 3,668,645
Premiums 135,380 206,844
Death and other benefits (23,292) (16,946)
Surrenders (182,778) (85,951)
Fees (1,767) (1,922)
Interest and mortality 21,865 126,454
Reserve, end of period 3,934,574 3,897,124
Single premium immediate annuity
Reserve, beginning of period 1,874,942 1,826,137
Premiums 56,110 134,008
Payments (108,815) (106,973)
Interest and mortality 36,643 29,896
Reserve, end of period 1,858,880 1,883,068
Variable deferred annuity
Account value, beginning of period 385,736 332,898
Premiums 29,857 32,111
Other flows 765 987
Surrenders (44,491) (42,217)
Fees (2,128) (2,338)
Change in market value and other (3,546) 48,712
Reserve, end of period 366,193 370,153
Total reserve, end of period $ 12,993,616 $ 13,285,149
first half of the year.

Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

Shown below are the changes in account values (in thousands):


	Nine months ended September 30,
	2020		2019
Fixed deferred annuity
Reserve, beginning of period	$	6,893,174	$	6,773,603
Premiums	318,629		909,859
Death and other benefits	(162,750)		(180,120)
Surrenders	(417,390)		(617,457)
Fees	(754)		(2,237)
Interest and mortality	141,895		153,272
Reserve, end of period	6,772,804		7,036,920
Equity-indexed annuity
Reserve, beginning of period	3,985,166		3,668,645
Premiums	230,485		281,720
Death and other benefits	(35,891)		(29,426)
Surrenders	(258,140)		(135,281)
Fees	(2,443)		(2,833)
Interest and mortality	77,996		157,517
Reserve, end of period	3,997,173		3,940,342
Single premium immediate annuity
Reserve, beginning of period	1,874,942		1,826,137
Premiums	92,327		184,823
Payments	(162,248)		(161,161)
Interest and mortality	53,741		47,245
Reserve, end of period	1,858,762		1,897,044
Variable deferred annuity
Account value, beginning of period	385,736		332,898
Premiums	46,673		50,511
Other flows	637		152
Surrenders	(60,605)		(61,314)
Fees	(3,301)		(3,562)
Change in market value and other	21,154		48,607
Reserve, end of period	390,294		367,292
Total reserve, end of period	$	13,019,033	$	13,241,598

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

Interest Margin

Margins ~~increased~~were relatively flat during the three months ended ~~June~~September 30, 2020 compared to ~~2019 due to unfavorable changes in indexed annuity mark-to-market reserves in~~ 2019. Margins decreased during the ~~six~~nine months ended ~~June~~September 30, 2020 compared to 2019 due to spread compression on fixed annuities and unfavorable changes in reserves for indexed annuities due to mark-to-market ~~reserves~~adjustments in the first quarter this year. The following table summarizes the interest margin due to the impact of the investment performance, interest credited to policyholder’s account balances, and the end of period assets measured by account balance (in thousands):


		Three months ended June 30,								Six months ended June 30,									Three months ended September 30,						Nine months ended September 30,
		2020		2019		Change		2020		2019		Change			2020		2019		Change		2020		2019		Change
Fixed annuity	Fixed annuity													Fixed annuity
Fixed investment income	Fixed investment income	$	93,535	$	97,099	$	(3,564)	$	187,155	$	191,491	$	(4,336)	Fixed investment income	$	92,020	$	97,545	$	(5,525)	$	279,175	$	289,036	$	(9,861)
Interest credited and mortality	Interest credited and mortality	(64,872)		(67,746)		2,874		(131,000)		(131,139)		139		Interest credited and mortality	(64,637)		(69,377)		4,740		(195,637)		(200,517)		4,880
Interest and mortality margin	Interest and mortality margin	28,663		29,353		(690)		56,155		60,352		(4,197)		Interest and mortality margin	27,383		28,168		(785)		83,538		88,519		(4,981)
Equity-indexed annuity	Equity-indexed annuity													Equity-indexed annuity
Fixed investment income	Fixed investment income	40,352		37,692		2,660		80,051		74,715		5,336		Fixed investment income	39,634		38,471		1,163		119,685		113,186		6,499
Option return	Option return	55,955		20,565		35,390		(35,823)		79,861		(115,684)		Option return	31,471		5,667		25,804		(4,352)		85,528		(89,880)
Interest credited and mortality	Interest credited and mortality	(73,883)		(54,213)		(19,670)		(21,865)		(126,454)		104,589		Interest credited and mortality	(56,131)		(31,063)		(25,068)		(77,996)		(157,517)		79,521
Interest and mortality margin	Interest and mortality margin	22,424		4,044		18,380		22,363		28,122		(5,759)		Interest and mortality margin	14,974		13,075		1,899		37,337		41,197		(3,860)

Variable annuity	Variable annuity													Variable annuity
Separate account management fees	Separate account management fees	1,003		1,041		(38)		1,943		2,016		(73)		Separate account management fees	1,078		1,085		(7)		3,021		3,101		(80)
Interest and mortality margin	Interest and mortality margin	1,003		1,041		(38)		1,943		2,016		(73)		Interest and mortality margin	1,078		1,085		(7)		3,021		3,101		(80)
Total interest and mortality margin	Total interest and mortality margin	$	52,090	$	34,438	$	17,652	$	80,461	$	90,490	$	(10,029)	Total interest and mortality margin	$	43,435	$	42,328	$	1,107	$	123,896	$	132,817	$	(8,921)

5253

Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

Health

Health segment financial results for the periods indicated were as follows (in thousands):


		Three months ended June 30,								Six months ended June 30,									Three months ended September 30,						Nine months ended September 30,
		2020		2019		Change		2020		2019		Change			2020		2019		Change		2020		2019		Change
PREMIUMS AND OTHER REVENUES	PREMIUMS AND OTHER REVENUES													PREMIUMS AND OTHER REVENUES
Premiums	Premiums	$	42,945	$	42,224	$	721	$	86,031	$	80,905	$	5,126	Premiums	$	40,934	$	40,676	$	258	$	126,965	$	121,581	$	5,384
Net investment income	Net investment income	2,214		2,376		(162)		4,447		4,796		(349)		Net investment income	2,033		2,381		(348)		6,480		7,177		(697)
Other income	Other income	5,503		5,534		(31)		10,030		10,919		(889)		Other income	4,971		5,021		(50)		15,001		15,940		(939)
Total premiums and other revenues	Total premiums and other revenues	50,662		50,134		528		100,508		96,620		3,888		Total premiums and other revenues	47,938		48,078		(140)		148,446		144,698		3,748
BENEFITS, LOSSES AND EXPENSES	BENEFITS, LOSSES AND EXPENSES													BENEFITS, LOSSES AND EXPENSES
Claims incurred	Claims incurred	26,726		26,708		18		61,611		52,475		9,136		Claims incurred	27,933		28,567		(634)		89,544		81,042		8,502
Commissions for acquiring and servicing policies	Commissions for acquiring and servicing policies	7,160		8,692		(1,532)		15,184		15,570		(386)		Commissions for acquiring and servicing policies	7,608		7,405		203		22,792		22,975		(183)
Other operating expenses	Other operating expenses	9,476		10,707		(1,231)		20,105		21,699		(1,594)		Other operating expenses	10,013		9,504		509		30,118		31,203		(1,085)
Change in deferred policy acquisition costs ⁽¹⁾	Change in deferred policy acquisition costs ⁽¹⁾	(17)		(146)		129		(40)		661		(701)		Change in deferred policy acquisition costs (1)	(542)		258		(800)		(582)		919		(1,501)
Total benefits, losses and expenses	Total benefits, losses and expenses	43,345		45,961		(2,616)		96,860		90,405		6,455		Total benefits, losses and expenses	45,012		45,734		(722)		141,872		136,139		5,733
Income before federal income taxes and other items	Income before federal income taxes and other items	$	7,317	$	4,173	$	3,144	$	3,648	$	6,215	$	(2,567)	Income before federal income taxes and other items	$	2,926	$	2,344	$	582	$	6,574	$	8,559	$	(1,985)

(1) A negative amount of net change indicates more expense was deferred than amortized and represents a decrease to expenses in the period indicated.

Comparison of the three months ended ~~June~~September 30, 2020 to 2019

Earnings for our Health segment increased primarily due to the following:

•~~Improvement in the~~Lower loss ratio in our Medical Expense block, primarily attributable to the release of reserves for larger claims

•Lower loss ratio in our ~~Medicare Supplement~~Group insurance line of business, primarily attributable to the receipt of a reinsurer's commutation payment

•Favorable reserve changes for legacy long-term care products due to ~~a reduction~~an increase in ~~non-essential medical service related claims attributable to COVID-19, and also to~~claim terminations

The increase in earnings was partially offset by:

•A decrease in MGU earnings resulting from an increase in our allowance for uncollectible reinsurance receivables

•Higher loss ratio in our Supplemental insurance block, primarily driven by increased claim severity on the ~~impact of ongoing rate increases on this block of business~~legacy master cancer plan

Comparison of the ~~six~~nine months ended ~~June~~September 30, 2020 to 2019

Earnings for our Health segment decreased primarily due to the following:

•~~Increase in claims from our Medical expense block~~

•Higher loss ratio in our ~~Supplement~~Supplemental insurance block, primarily driven by increased claim severity on the ~~original~~legacy master cancer plan ~~and also~~

•A decrease in MGU earnings resulting from an increase in our ~~short-term medical~~allowance for uncollectible reinsurance receivables

The decrease in earnings was partially offset by:

•Favorable reserve changes for legacy long-term care products due to an increase in claim terminations

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

Health earned premiums for the periods indicated were as follows (in thousands):

Three months ended June 30, Six months ended June 30,
2020 2019 Change 2020 2019 Change
Medicare Supplement $ 21,624 $ 18,870 $ 2,754 $ 43,202 $ 37,229 $ 5,973
MGU 6,132 8,562 (2,430) 11,603 14,986 (3,383)
Supplemental insurance 4,754 5,434 (680) 9,735 10,889 (1,154)
Credit Health 3,562 4,582 (1,020) 7,736 8,983 (1,247)
Medical expense 2,195 2,411 (216) 4,393 4,847 (454)
Worksite 3,438 919 2,519 6,992 1,685 5,307
Group health 429 538 (109) 797 985 (188)
All other 811 908 (97) 1,573 1,301 272
Total $ 42,945 $ 42,224 $ 721 $ 86,031 $ 80,905 $ 5,126


	Three months ended September 30,						Nine months ended September 30,
	2020		2019		Change		2020		2019		Change
Medicare Supplement	$	21,137	$	19,982	$	1,155	$	64,336	$	57,211	$	7,125
MGU	4,702		6,358		(1,656)		16,306		21,344		(5,038)
Supplemental insurance	4,417		5,344		(927)		14,152		16,233		(2,081)
Credit Health	3,460		4,492		(1,032)		11,196		13,475		(2,279)
Medical expense	2,075		2,374		(299)		6,468		7,221		(753)
Worksite	3,808		766		3,042		10,800		2,451		8,349
Group health	505		441		64		1,303		1,426		(123)
All other	830		919		(89)		2,404		2,220		184
Total	$	40,934	$	40,676	$	258	$	126,965	$	121,581	$	5,384

Increased sales in late 2019 drove premium growth in Medicare Supplement. Similarly, Worksite premium increased due to the addition of ~~several~~a large ~~groups~~group. The decline in ~~late 2019.~~

MGU premium is driven by the completion of prior treaties for a large MGU program that is inactive for 2020.

Health claims incurred for the periods indicated were as follows (in thousands):


		Three months ended June 30,								Six months ended June 30,									Three months ended September 30,						Nine months ended September 30,
		2020		2019		Change		2020		2019		Change			2020		2019		Change		2020		2019		Change
Medicare Supplement	Medicare Supplement	$	15,023	$	15,282	$	(259)	$	34,727	$	30,418	$	4,309	Medicare Supplement	$	15,969	$	16,096	$	(127)	$	50,695	$	46,514	$	4,181
MGU	MGU	4,966		6,665		(1,699)		9,609		12,761		(3,152)		MGU	5,947		6,029		(82)		15,556		18,790		(3,234)
Supplemental insurance	Supplemental insurance	2,645		2,261		384		5,803		4,272		1,531		Supplemental insurance	2,226		2,192		34		8,029		6,464		1,565
Credit Health	Credit Health	528		437		91		1,256		1,473		(217)		Credit Health	1,072		1,020		52		2,328		2,493		(165)
Medical expense	Medical expense	1,085		1,262		(177)		5,110		2,363		2,747		Medical expense	807		1,665		(858)		5,918		3,950		1,968
Worksite	Worksite	1,312		518		794		2,754		925		1,829		Worksite	2,144		261		1,883		4,898		1,186		3,712
Group health	Group health	326		321		5		876		(71)		947		Group health	23		464		(441)		898		394		504
All other	All other	841		(38)		879		1,476		334		1,142		All other	(255)		840		(1,095)		1,222		1,251		(29)
Total	Total	$	26,726	$	26,708	$	18	$	61,611	$	52,475	$	9,136	Total	$	27,933	$	28,567	$	(634)	$	89,544	$	81,042	$	8,502

Favorable claim experience for the three months ended September 30, 2020 is driven by the aforementioned increase in claim terminations and resulting claim reserve releases in our legacy long-term care products.

Change in Deferred Policy Acquisition Costs

The following table presents the components of the change in DAC (in thousands):

Three months ended June 30, Six months ended June 30,
2020 2019 Change 2020 2019 Change
Acquisition cost capitalized $ (2,205) $ (3,457) $ 1,252 $ (7,583) $ (6,544) $ (1,039)
Amortization of DAC 2,188 3,311 (1,123) 7,543 7,205 338
Change in DAC $ (17) $ (146) $ 129 $ (40) $ 661 $ (701)


	Three months ended September 30,						Nine months ended September 30,
	2020		2019		Change		2020		2019		Change
Acquisition cost capitalized	$	(4,534)	$	(1,085)	$	(3,449)	$	(12,117)	$	(7,629)	$	(4,488)
Amortization of DAC	3,992		1,343		2,649		11,535		8,548		2,987
Change in DAC	$	(542)	$	258	$	(800)	$	(582)	$	919	$	(1,501)

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

Property and Casualty

Property and Casualty segment financial results for the periods indicated were as follows (in thousands, except percentages):


		Three months ended June 30,												Six months ended June 30,													Three months ended September 30,									Nine months ended September 30,
		2020			2019			Change			2020			2019			Change				2020			2019			Change			2020			2019			Change
PREMIUMS AND OTHER REVENUES	PREMIUMS AND OTHER REVENUES																			PREMIUMS AND OTHER REVENUES
Net premiums written	Net premiums written	$	406,076		$	403,977		$	2,099		$	813,663		$	789,653		$	24,010		Net premiums written	$	397,780		$	390,799		$	6,981		$	1,211,444		$	1,180,451		$	30,993
Net premiums earned	Net premiums earned	$	372,704		$	371,739		$	965		$	761,361		$	742,920		$	18,441		Net premiums earned	$	391,388		$	382,784		$	8,604		$	1,152,749		$	1,125,704		$	27,045
Net investment income	Net investment income	16,037			16,706			(669)			32,122			31,728			394			Net investment income	16,049			16,357			(308)			48,171			48,085			86
Other income	Other income	2,844			2,830			14			6,577			5,552			1,025			Other income	3,079			3,137			(58)			9,656			8,689			967
Total premiums and other revenues	Total premiums and other revenues	391,585			391,275			310			800,060			780,200			19,860			Total premiums and other revenues	410,516			402,278			8,238			1,210,576			1,182,478			28,098
BENEFITS, LOSSES AND EXPENSES	BENEFITS, LOSSES AND EXPENSES																			BENEFITS, LOSSES AND EXPENSES
Claims incurred	Claims incurred	280,561			271,608			8,953			510,270			509,752			518			Claims incurred	258,412			280,695			(22,283)			768,682			790,447			(21,765)
Commissions for acquiring and servicing policies	Commissions for acquiring and servicing policies	80,386			68,583			11,803			153,082			135,742			17,340			Commissions for acquiring and servicing policies	72,664			65,893			6,771			225,746			201,635			24,111
Other operating expenses	Other operating expenses	50,080			49,681			399			103,084			101,566			1,518			Other operating expenses	48,576			50,111			(1,535)			151,660			151,677			(17)
Change in deferred policy acquisition costs ⁽¹⁾	Change in deferred policy acquisition costs ⁽¹⁾	(5,457)			(3,588)			(1,869)			(6,554)			(3,171)			(3,383)			Change in deferred policy acquisition costs(1)	(901)			(636)			(265)			(7,455)			(3,807)			(3,648)
Total benefits, losses and expenses	Total benefits, losses and expenses	405,570			386,284			19,286			759,882			743,889			15,993			Total benefits, losses and expenses	378,751			396,063			(17,312)			1,138,633			1,139,952			(1,319)
Income (loss) before federal income taxes and other items		$	(13,985)		$	4,991		$	(18,976)		$	40,178		$	36,311		$	3,867
Income before federal income taxes and other items																				Income before federal income taxes and other items	$	31,765		$	6,215		$	25,550		$	71,943		$	42,526		$	29,417
Loss and loss adjustment expense ratio	Loss and loss adjustment expense ratio	75.3		%	73.1		%	2.2		%	67.0		%	68.6		%	(1.6)		%	Loss and loss adjustment expense ratio	66.0		%	73.3		%	(7.3)		%	66.7		%	70.2		%	(3.5)		%
Underwriting expense ratio	Underwriting expense ratio	33.5			30.8			2.7			32.8			31.5			1.3			Underwriting expense ratio	30.7			30.1			0.6			32.1			31.0			1.1
Combined ratio	Combined ratio	108.8		%	103.9		%	4.9		%	99.8		%	100.1		%	(0.3)		%	Combined ratio	96.7		%	103.4		%	(6.7)		%	98.8		%	101.2		%	(2.4)		%
Impact of catastrophe events on combined ratio	Impact of catastrophe events on combined ratio	23.8			7.7			16.1			13.1			5.9			7.2			Impact of catastrophe events on combined ratio	8.1			9.6			(1.5)			11.5			7.2			4.3
Combined ratio without impact of catastrophe events	Combined ratio without impact of catastrophe events	85.0		%	96.2		%	(11.2)		%	86.7		%	94.2		%	(7.5)		%	Combined ratio without impact of catastrophe events	88.6		%	93.8		%	(5.2)		%	87.3		%	94.0		%	(6.7)		%
Gross catastrophe losses	Gross catastrophe losses	$	87,790		$	28,234		$	59,556		$	100,356		$	44,004		$	56,352		Gross catastrophe losses	$	80,054		$	36,634		$	43,420		$	180,410		$	80,456		$	99,954
Net catastrophe losses	Net catastrophe losses	$	88,559		$	28,616		$	59,943		$	100,038		$	44,210		$	55,828		Net catastrophe losses	$	27,141		$	36,796		$	(9,655)		$	127,179		$	81,005		$	46,174

(1) A negative amount of net change indicates more expense was deferred than amortized and represents a decrease to expenses in the period indicated.

Comparison of the three months ended ~~June 30, 2020 to 2019~~

~~Earnings for our Property and Casualty segment decreased primarily due to the following:~~

•~~A very significant increase in catastrophe losses~~

~~Comparison of the six months ended June~~September 30, 2020 to 2019

Earnings for our Property and Casualty segment increased primarily due to the following:

•An improvement in the combined ratio for our personal auto products attributable to fewer miles driven by policyholders and ~~agricultural business~~favorable claim development

•Although gross catastrophe losses increased, those losses were partially mitigated through reinsurance coverages which resulted in a decrease in net catastrophe losses

Comparison of the nine months ended September 30, 2020 to 2019

Earnings for our Property and Casualty segment increased primarily due to the following:

•An improvement in the combined ratio for our personal auto products attributable to fewer miles driven by policyholders and favorable claim development

The increase in earnings was partially offset by the following:

•Significantly higher catastrophe losses, having the greatest impact on our homeowners loss ratio

Additional information:

•Net premiums written and earned for the ~~second quarter~~first nine months were reduced by COVID-19 relief policy credits for auto policyholders totaling ~~$17.0~~$17.7 million; ~~$16.1~~$16.8 million for personal auto policies and $0.9 million for commercial auto ~~policies, the~~policies. The policy ~~credit is~~credits were based on ~~15%~~10%-15% of monthly premiums

•The increase in commissions expense for the ~~second~~third quarter and first ~~six~~nine months was primarily due to the increase in premiums written and an increase in contingent commissions due to the improvement in the loss ratios for the Specialty Markets Group products

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

Products

Our Property and Casualty segment consists of: (i) Personal products, marketed primarily to individuals, representing ~~52%~~55% of net premiums written; (ii) Commercial products, focused primarily on agricultural and other business related markets, representing ~~34%~~31% of net premiums written; and (iii) Specialty Markets Group products, marketed through independent managing general agents and managing general underwriters, representing 14% of net premiums written.

Personal Products

Personal Products results for the periods indicated were as follows (in thousands, except percentages):


		Three months ended June 30,												Six months ended June 30,													Three months ended September 30,									Nine months ended September 30,
		2020			2019			Change			2020			2019			Change				2020			2019			Change			2020			2019			Change
Net premiums written	Net premiums written																			Net premiums written
Automobile	Automobile	$	120,796		$	140,914		$	(20,118)		$	265,806		$	287,222		$	(21,416)		Automobile	$	142,702		$	145,574		$	(2,872)		$	408,509		$	432,796		$	(24,287)
Homeowner	Homeowner	77,337			70,414			6,923			138,587			125,337			13,250			Homeowner	77,267			71,718			5,549			215,854			197,055			18,799
Other Personal	Other Personal	13,378			13,163			215			26,364			25,598			766			Other Personal	13,668			13,515			153			40,032			39,113			919
Total net premiums written	Total net premiums written	$	211,511		$	224,491		$	(12,980)		$	430,757		$	438,157		$	(7,400)		Total net premiums written	$	233,637		$	230,807		$	2,830		$	664,395		$	668,964		$	(4,569)
Net premiums earned	Net premiums earned																			Net premiums earned
Automobile	Automobile	$	120,450		$	139,583		$	(19,133)		$	257,933		$	277,192		$	(19,259)		Automobile	$	139,155		$	142,474		$	(3,319)		$	397,088		$	419,666		$	(22,578)
Homeowner	Homeowner	67,184			61,260			5,924			133,882			121,669			12,213			Homeowner	66,472			63,508			2,964			200,354			185,177			15,177
Other Personal	Other Personal	12,326			12,131			195			24,780			24,026			754			Other Personal	13,142			12,487			655			37,922			36,513			1,409
Total net premiums earned	Total net premiums earned	$	199,960		$	212,974		$	(13,014)		$	416,595		$	422,887		$	(6,292)		Total net premiums earned	$	218,769		$	218,469		$	300		$	635,364		$	641,356		$	(5,992)
Loss and loss adjustment expense ratio	Loss and loss adjustment expense ratio																			Loss and loss adjustment expense ratio
Automobile	Automobile	55.5		%	75.9		%	(20.4)		%	59.0		%	71.6		%	(12.6)		%	Automobile	57.9		%	72.7		%	(14.8)		%	58.6		%	71.9		%	(13.3)		%
Homeowner	Homeowner	138.9		%	88.5		%	50.4		%	102.3		%	78.1		%	24.2		%	Homeowner	101.3		%	110.0		%	(8.7)		%	102.0		%	89.0		%	13.0		%
Other Personal	Other Personal	83.2		%	58.9		%	24.3		%	69.1		%	59.8		%	9.3		%	Other Personal	51.6		%	59.1		%	(7.5)		%	63.0		%	59.6		%	3.4		%
Personal line loss and loss adjustment expense ratio	Personal line loss and loss adjustment expense ratio	85.2		%	78.5		%	6.7		%	73.5		%	72.8		%	0.7		%	Personal line loss and loss adjustment expense ratio	70.7		%	82.8		%	(12.1)		%	72.6		%	76.2		%	(3.6)		%
Combined Ratio	Combined Ratio																			Combined Ratio
Automobile	Automobile	83.3		%	99.1		%	(15.8)		%	84.9		%	94.9		%	(10.0)		%	Automobile	79.1		%	95.3		%	(16.2)		%	82.9		%	95.0		%	(12.1)		%
Homeowner	Homeowner	169.1		%	119.6		%	49.5		%	133.8		%	110.4		%	23.4		%	Homeowner	132.4		%	139.7		%	(7.3)		%	133.3		%	120.4		%	12.9		%
Other Personal	Other Personal	117.7		%	104.0		%	13.7		%	103.5		%	104.7		%	(1.2)		%	Other Personal	79.2		%	103.2		%	(24.0)		%	95.1		%	104.2		%	(9.1)		%
Personal line combined ratio	Personal line combined ratio	114.3		%	105.3		%	9.0		%	101.7		%	99.9		%	1.8		%	Personal line combined ratio	95.3		%	108.6		%	(13.3)		%	99.5		%	102.9		%	(3.4)		%

Comparison of 2020 to 2019

Automobile: ~~Net~~COVID-19 relief policy credits decreased net premiums written and earned ~~decreased~~ for the ~~second~~third quarter by $0.7 million and first ~~six~~nine months ~~due to $16.1~~by $16.8 million, ~~in COVID-19 relief policy credits~~as previously discussed, as well as exposure changes primarily caused by ~~less~~fewer miles driven due to the impact of COVID-19. The loss and loss adjustment expense and combined ratios improved for the ~~second~~third quarter and first ~~six~~nine months due to a decrease in loss and loss adjustment expenses incurred, largely attributable to fewer miles driven by policyholders due to shelter-in-place orders and favorable claim development.

Homeowners: Net premiums written and earned increased for the ~~second~~third quarter and first ~~six~~nine months primarily due to rate ~~increases and more premium being retained by us as a result of lower amounts of catastrophe reinsurance.~~increases. The loss and loss adjustment expense and combined ratios improved for the third quarter due to decreased catastrophe losses and increased for the ~~second quarter and~~ first ~~six~~nine months due to increased catastrophe losses due to multiple wind and hail storms. Catastrophe losses ~~increased~~decreased by ~~$39.4~~$10.7 million, to ~~$57.7~~$18.6 million from ~~$18.3~~$29.1 million in the ~~second~~third quarter and increased by ~~$38.3~~$27.7 million, to ~~$64.7~~$83.3 million from ~~$26.4~~$55.6 million in the first ~~six~~nine months in 2020 compared to 2019.

Other Personal: These products include coverages for individuals seeking to protect their personal property and liability not covered within their home and auto policies, such as coverages for watercraft, personal umbrella, and rental owners. The loss and loss adjustment expense ~~ratio increased~~and combined ratios improved for the ~~second~~third quarter due to decreased catastrophe losses. For the first nine months, the loss and ~~first six months~~loss adjustment ratio increased due to the increase in non-catastrophe losses incurred ~~including an increase in catastrophe losses. The~~and the combined ratio ~~for the second quarter increased~~decreased due to ~~the increases in the losses incurred as noted above, partially offset by an improvement in the expense ratio;~~decreased commissions and ~~improved in the first six months due to an improvement in the expense ratio.~~

operating expenses.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

Commercial Products

Commercial Products results for the periods indicated were as follows (in thousands, except percentages):


		Three months ended June 30,												Six months ended June 30,													Three months ended September 30,									Nine months ended September 30,
		2020			2019			Change			2020			2019			Change				2020			2019			Change			2020			2019			Change
Net premiums written	Net premiums written																			Net premiums written
Agricultural Business	Agricultural Business	$	46,496		$	43,294		$	3,202		$	87,478		$	81,297		$	6,181		Agricultural Business	$	40,201		$	38,783		$	1,418		$	127,679		$	120,080		$	7,599
Automobile	Automobile	36,666			34,652			2,014			74,378			69,134			5,244			Automobile	27,700			27,925			(225)			102,078			97,059			5,019
Business Owner	Business Owner	23,403			20,561			2,842			44,782			39,610			5,172			Business Owner	17,893			16,685			1,208			62,674			56,295			6,379
Workers Compensation	Workers Compensation	22,254			23,912			(1,658)			43,267			45,586			(2,319)			Workers Compensation	12,935			14,414			(1,479)			56,202			60,000			(3,798)
Other Commercial	Other Commercial	9,404			10,369			(965)			18,743			20,129			(1,386)			Other Commercial	7,920			8,681			(761)			26,664			28,808			(2,144)
Total net premiums written	Total net premiums written	$	138,223		$	132,788		$	5,435		$	268,648		$	255,756		$	12,892		Total net premiums written	$	106,649		$	106,488		$	161		$	375,297		$	362,242		$	13,055
Net premiums earned	Net premiums earned																			Net premiums earned
Agricultural Business	Agricultural Business	$	40,387		$	37,399		$	2,988		$	79,460		$	74,006		$	5,454		Agricultural Business	$	40,145		$	38,038		$	2,107		$	119,605		$	112,044		$	7,561
Automobile	Automobile	30,832			28,531			2,301			61,297			56,014			5,283			Automobile	32,492			29,495			2,997			93,790			85,510			8,280
Business Owner	Business Owner	19,024			16,910			2,114			37,438			33,192			4,246			Business Owner	19,498			17,918			1,580			56,935			51,110			5,825
Workers Compensation	Workers Compensation	17,479			18,683			(1,204)			35,075			37,405			(2,330)			Workers Compensation	17,634			19,137			(1,503)			52,709			56,542			(3,833)
Other Commercial	Other Commercial	8,304			8,812			(508)			16,393			17,486			(1,093)			Other Commercial	8,310			8,993			(683)			24,704			26,476			(1,772)
Total net premiums earned	Total net premiums earned	$	116,026		$	110,335		$	5,691		$	229,663		$	218,103		$	11,560		Total net premiums earned	$	118,079		$	113,581		$	4,498		$	347,743		$	331,682		$	16,061
Loss and loss adjustment expense ratio	Loss and loss adjustment expense ratio																			Loss and loss adjustment expense ratio
Agricultural Business	Agricultural Business	80.9		%	71.2		%	9.7		%	60.7		%	76.6		%	(15.9)		%	Agricultural Business	47.8		%	64.7		%	(16.9)		%	56.3		%	72.5		%	(16.2)		%
Automobile	Automobile	70.1		%	82.5		%	(12.4)		%	66.8		%	77.9		%	(11.1)		%	Automobile	84.9		%	82.9		%	2.0		%	73.1		%	79.7		%	(6.6)		%
Business Owner	Business Owner	81.9		%	62.0		%	19.9		%	88.1		%	58.8		%	29.3		%	Business Owner	81.5		%	50.1		%	31.4		%	85.9		%	55.7		%	30.2		%
Workers Compensation	Workers Compensation	65.2		%	40.5		%	24.7		%	59.0		%	43.5		%	15.5		%	Workers Compensation	63.5		%	57.7		%	5.8		%	60.5		%	48.3		%	12.2		%
Other Commercial	Other Commercial	52.3		%	66.3		%	(14.0)		%	60.4		%	47.8		%	12.6		%	Other Commercial	67.8		%	34.8		%	33.0		%	62.9		%	43.4		%	19.5		%
Commercial line loss and loss adjustment expense ratio	Commercial line loss and loss adjustment expense ratio	73.8		%	67.1		%	6.7		%	66.5		%	66.2		%	0.3		%	Commercial line loss and loss adjustment expense ratio	67.3		%	63.6		%	3.7		%	66.8		%	65.4		%	1.4		%
Combined ratio	Combined ratio																			Combined ratio
Agricultural Business	Agricultural Business	117.9		%	107.5		%	10.4		%	97.9		%	113.7		%	(15.8)		%	Agricultural Business	85.6		%	100.6		%	(15.0)		%	93.8		%	109.3		%	(15.5)		%
Automobile	Automobile	94.0		%	107.2		%	(13.2)		%	90.4		%	103.0		%	(12.6)		%	Automobile	105.7		%	107.8		%	(2.1)		%	95.7		%	104.6		%	(8.9)		%
Business Owner	Business Owner	116.7		%	100.9		%	15.8		%	123.3		%	98.2		%	25.1		%	Business Owner	115.9		%	88.6		%	27.3		%	120.8		%	94.8		%	26.0		%
Workers Compensation	Workers Compensation	82.4		%	59.4		%	23.0		%	76.7		%	62.1		%	14.6		%	Workers Compensation	79.6		%	74.3		%	5.3		%	77.7		%	66.2		%	11.5		%
Other Commercial	Other Commercial	90.4		%	108.9		%	(18.5)		%	100.8		%	90.6		%	10.2		%	Other Commercial	106.9		%	76.9		%	30.0		%	102.8		%	85.9		%	16.9		%
Commercial line combined ratio	Commercial line combined ratio	104.0		%	98.4		%	5.6		%	97.0		%	97.9		%	(0.9)		%	Commercial line combined ratio	96.7		%	94.3		%	2.4		%	96.9		%	96.6		%	0.3		%

Comparison of 2020 to 2019

Agricultural Business: Our agricultural business product allows policyholders to customize and cover their agriculture exposure using a package policy, which includes coverage for residences and household contents, farm and ranch buildings and building contents, personal and commercial liability and personal property. Net premiums written and earned increased for the ~~second~~third quarter and first six months primarily due to rate increases and an increase in policies in-force. The loss and loss adjustment expense and combined ratios increased for the second quarter primarily due to an increase in catastrophe losses, which increased by $10.1 million to $13.5 million compared to $3.4 million in the prior year, because of multiple wind and hail storms and improved for the six months due to favorable claim development.

~~Commercial Automobile: Net premiums written and earned increased for the second quarter and first six~~nine months primarily due to rate increases and an increase in policies in-force. The loss and loss adjustment expense and combined ratios improved for the ~~second~~third quarter and first ~~six~~nine months primarily due to fewer claims as well as favorable prior year severity development.

Commercial Automobile: Net premiums written and earned increased for the third quarter and first nine months and net premiums written increased for the first nine months primarily due to rate increases and an increase in policies in-force. The loss and loss adjustment expense ratio increased for the third quarter primarily due to an increase in allocated loss adjustment expense reserves. The combined ratio improved for the third quarter primarily due to improvement in the expense ratio. The loss and loss adjustment expense and combined ratios improved for the first nine months primarily due to a decrease in claim frequency as policyholders drove fewer miles due to shelter-in-place orders.

Business Owner: Our business owner product allows policyholders to customize and cover their property and liability exposures using a package policy. Net premiums written and earned increased for the ~~second~~third quarter and first ~~six~~nine months primarily due to rate increases and an increase in policies in-force. The loss and loss adjustment expense and combined ratios increased for the ~~second~~third quarter and first ~~six~~nine months primarily due to unfavorable prior year claim development.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

Workers Compensation: Net premiums written and earned decreased for the ~~second~~third quarter and first ~~six~~nine months primarily due to rate decreases. The loss and loss adjustment expense and combined ratios increased for the ~~second~~third quarter primarily due to the severity of claims and increased for the first ~~six~~nine months primarily due to an increase in the severity of claims and an increase in allocated loss adjustment expense reserves.

Other Commercial: Other commercial products primarily provide umbrella and other liability coverages. Net premiums written and earned decreased for the ~~second~~third quarter and first ~~six~~nine months primarily due to an increase in ceded premiums for reinsurance coverage. The loss and loss adjustment expense and combined ratios ~~decreased for the second quarter primarily due to a decrease in allocated loss adjustment expense reserves and~~ increased for the third quarter and the first ~~six~~nine months primarily due to an increase in claim severity and frequency.

Specialty Markets Products

Specialty Markets product results for the periods indicated were as follows (in thousands, except percentages):


		Three months ended June 30,												Six months ended June 30,													Three months ended September 30,									Nine months ended September 30,
		2020			2019			Change			2020			2019			Change				2020			2019			Change			2020			2019			Change
Net premiums written	Net premiums written	$	56,342		$	46,698		$	9,644		$	114,258		$	95,740		$	18,518		Net premiums written	$	57,494		$	53,505		$	3,989		$	171,752		$	149,245		$	22,507
Net premiums earned	Net premiums earned	56,719			48,430			8,289			115,102			101,930			13,172			Net premiums earned	54,539			50,736			3,803			169,641			152,666			16,975
Loss and loss adjustment expense ratio⁽¹⁾	Loss and loss adjustment expense ratio⁽¹⁾	43.3		%	62.7		%	(19.4)		%	44.5		%	56.5		%	(12.0)		%	Loss and loss adjustment expense ratio(1)	44.5		%	54.4		%	(9.9)		%	44.5		%	55.8		%	(11.3)		%
Combined ratio⁽¹⁾	Combined ratio⁽¹⁾	99.4		%	110.5		%	(11.1)		%	98.5		%	106.0		%	(7.5)		%	Combined ratio(1)	102.6		%	101.7		%	0.9		%	99.8		%	104.6		%	(4.8)		%

(1) Ratio does not include fee income

Specialty Markets products provide protection to borrowers and the creditors that extend credit to them. Products offer coverage against unpaid indebtedness as a result of death, disability, involuntary unemployment or untimely loss to the collateral securing a personal or mortgage loan. Specialty Markets products also include renters, aviation, and private flood insurance.

Net written and earned premiums increased for the ~~second~~third quarter and first ~~six~~nine months primarily due to the addition of new accounts for Mortgage Security Insurance (“MSI”), Collateral Protection Insurance, and Investor Property Protection (“IPP”) products. The loss and loss adjustment expense and combined ratios decreased for the ~~second~~third quarter and first ~~six~~nine months primarily due to the improvement of loss ratios on Guaranteed Asset Protection (“GAP”) products and IPP.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

Corporate and Other

Corporate and Other segment financial results for the periods indicated were as follows (in thousands):


		Three months ended June 30,								Six months ended June 30,									Three months ended September 30,						Nine months ended September 30,
		2020		2019		Change		2020		2019		Change			2020		2019		Change		2020		2019		Change
OTHER REVENUES	OTHER REVENUES													OTHER REVENUES
Net investment income	Net investment income	$	5,610	$	19,377	$	(13,767)	$	15,460	$	34,814	$	(19,354)	Net investment income	$	3,814	$	24,237	$	(20,423)	$	19,274	$	59,051	$	(39,777)
Realized investment gains (losses)		3,939		(9,905)		13,844		8,087		(6,958)		15,045
Realized investment gains														Realized investment gains	17,387		31,933		(14,546)		25,474		24,975		499

Change in investment credit loss	Change in investment credit loss	(52,310)		—		(52,310)		(96,988)		—		(96,988)		Change in investment credit loss	(4,175)		—		(4,175)		(101,163)		—		(101,163)
Net gains (losses) on equity securities		298,825		67,060		231,765		(33,750)		273,437		(307,187)
Net gains on equity securities														Net gains on equity securities	152,147		8,589		143,558		118,397		282,026		(163,629)
Other income	Other income	754		967		(213)		2,253		3,033		(780)		Other income	542		1,478		(936)		2,795		4,511		(1,716)
Total other revenues	Total other revenues	256,818		77,499		179,319		(104,938)		304,326		(409,264)		Total other revenues	169,715		66,237		103,478		64,777		370,563		(305,786)
BENEFITS, LOSSES AND EXPENSES	BENEFITS, LOSSES AND EXPENSES													BENEFITS, LOSSES AND EXPENSES
Other operating expenses	Other operating expenses	9,370		9,127		243		20,307		18,408		1,899		Other operating expenses	10,629		9,750		879		30,936		28,158		2,778
Total benefits, losses and expenses	Total benefits, losses and expenses	9,370		9,127		243		20,307		18,408		1,899		Total benefits, losses and expenses	10,629		9,750		879		30,936		28,158		2,778
Income (loss) before federal income taxes and other items		$	247,448	$	68,372	$	179,076	$	(125,245)	$	285,918	$	(411,163)
Income before federal income taxes and other items														Income before federal income taxes and other items	$	159,086	$	56,487	$	102,599	$	33,841	$	342,405	$	(308,564)

Comparison of the three months ended ~~June~~September 30, 2020 to 2019

Earnings for our Corporate and Other segment increased primarily due to the following:

•An increase in the S&P 500 Index of ~~20.0%~~8.5% for the three months ended ~~June~~September 30, 2020 compared to a ~~3.8%~~1.2% increase for the same period in 2019 resulting in an increase in net gains on equity securities

•~~Realized investment gains attributable to gains on certain bonds that were called~~

The increase in earnings was partially offset by the following:

•A decrease in net investment income driven by ~~decreases in investment income for the assets not used to support insurance products~~bonds, mortgage loans and real estate

•~~The change~~A decrease in realized investment ~~credit loss due to the adoption~~gains from sales of ~~the new credit loss standard~~investments in real estate related joint ventures

Comparison of the ~~six~~nine months ended ~~June~~September 30, 2020 to 2019

Earnings for our Corporate and Other segment decreased primarily due to the following:

•~~The~~An increase in the S&P 500 ~~Index decreased 4.0% during the first half~~index of ~~2020~~4.1% compared to an increase of ~~17.4%~~18.7% during the same period in 2019 ~~driving the decrease in net gains on equity securities~~

•The change in investment credit loss ~~for the first six months of 2020~~ due to ~~the adoption of the new credit loss standard~~economic disruptions caused by COVID-19

•A decrease in net investment income driven by ~~decreases in investment income for the assets not used to support insurance products~~bonds, mortgage loans and real estate

~~The decrease in earnings was partially offset due to the following:~~

•~~Realized investment gains attributable to gains on certain bonds that were called~~

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

Investments

We manage our investment portfolio to optimize the rate of return commensurate with sound and prudent asset selection and to maintain a well-diversified portfolio in support of our products and capital. Our investment operations are regulated primarily by the state insurance departments where our insurance companies are domiciled. Investment activities, including setting investment policies and defining acceptable risk levels, are subject to oversight by our Board of Directors, which is assisted by our Finance Committee and Enterprise Risk Management Committee.

Our insurance and annuity products are generally supported by investment-grade bonds and commercial mortgage loans. We also invest in equity options as a hedge for our indexed products. We purchase fixed maturity securities and designate them as either held-to-maturity or available-for-sale considering our estimated future cash flow needs. We also monitor the composition of our fixed maturity securities classified as held-to-maturity and available-for-sale and adjust the mix within the portfolio as investments mature or new investments are purchased.

We invest in commercial mortgage loans when the yield and credit risk compare favorably with fixed maturity securities. Individual residential mortgage loans including sub-prime or Alt-A mortgage loans have not been and are not expected to be part of our investment portfolio. We purchase real estate and equity investments based on a risk and reward analysis where we believe there are opportunities for enhanced returns.

The following summarizes the carrying values of our invested assets (other than investments in unconsolidated affiliates) by asset class (in thousands, except percentages):


		June 30, 2020						December 31, 2019							September 30, 2020				December 31, 2019
Fixed maturity, bond held-to-maturity, at amortized cost	Fixed maturity, bond held-to-maturity, at amortized cost	$	8,238,405	34.6	%	$	8,631,261	36.6	%	Fixed maturity, bond held-to-maturity, at amortized cost	$	7,702,347	32.4	%	$	8,631,261	36.6	%
Fixed maturity, bond available-for-sale, at fair value	Fixed maturity, bond available-for-sale, at fair value	7,170,471		30.1		6,725,085		28.5		Fixed maturity, bond available-for-sale, at fair value	7,236,188		30.5		6,725,085		28.5
Equity securities, at fair value	Equity securities, at fair value	1,714,264		7.2		1,700,960		7.2		Equity securities, at fair value	1,840,855		7.8		1,700,960		7.2
Mortgage loans on real estate, net of allowance	Mortgage loans on real estate, net of allowance	5,176,511		21.7		5,097,017		21.6		Mortgage loans on real estate, net of allowance	5,176,474		21.8		5,097,017		21.6
Policy loans	Policy loans	377,826		1.6		379,657		1.6		Policy loans	374,387		1.6		379,657		1.6
Investment real estate, net of accumulated depreciation	Investment real estate, net of accumulated depreciation	544,604		2.3		551,219		2.3		Investment real estate, net of accumulated depreciation	514,076		2.2		551,219		2.3
Short-term investments	Short-term investments	501,087		2.1		425,321		1.8		Short-term investments	800,793		3.4		425,321		1.8
Other invested assets	Other invested assets	97,390		0.4		76,569		0.4		Other invested assets	103,030		0.3		76,569		0.4
Total investments	Total investments	$	23,820,558	100.0	%	$	23,587,089	100.0	%	Total investments	$	23,748,150	100.0	%	$	23,587,089	100.0	%

The increase in our total investments at ~~June~~September 30, 2020 compared to year-end 2019 was primarily the result of increases in bonds ~~available for sale,~~available-for-sale, short term investments, and other invested assets. These increases were somewhat offset by a decrease in bonds ~~held to maturity.~~held-to-maturity.

Bonds—We allocate most of our fixed maturity securities to support our insurance business. At ~~June~~September 30, 2020, our fixed maturity securities had an estimated fair value of ~~$15.9~~$15.5 billion, which was ~~$0.9~~$1.0 billion, or ~~5.8%~~6.8% higher than the amortized cost for the period. At December 31, 2019, our fixed maturity securities had an estimated fair value of $15.7 billion, which was $0.6 billion, or 4.2%, above amortized cost. The estimated fair value for securities due in one year or less was ~~$1.4~~$1.2 billion as of ~~June~~September 30, 2020 and ~~$1.2 billion as of~~ December 31, 2019. For additional information regarding total bonds by credit quality rating refer to Note 4, Investments in Securities, of the Notes to the Unaudited Condensed Consolidated Financial Statements.

Equity Securities—We invest in companies publicly traded on national U.S. stock exchanges. See Note 4, Investments in Securities, of the Notes to the Unaudited Condensed Consolidated Financial Statements for the unrealized and realized gains and losses of equity securities.

Mortgage Loans—We invest in commercial mortgage loans that are diversified by property-type and geography. Generally, mortgage loans are secured by first liens on income-producing real estate with a loan-to-value ratio of up to 75%. Mortgage loans are generally carried at outstanding principal balances, adjusted for any unamortized premium or discount, deferred fees or expenses, and net of allowances. The weighted average coupon yield on the principal funded for mortgage loans was 4.8% at ~~June~~September 30, 2020 and December 31, 2019, respectively. For additional information regarding mortgage loans refer to Note 5, Mortgage Loans, of the Notes to the Unaudited Condensed Consolidated Financial Statements.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

Policy Loans—For certain life insurance products, policyholders may borrow funds using the policy’s cash value as collateral. The maximum amount of the policy loan depends upon the policy’s surrender value. As of ~~June~~September 30, 2020, we had ~~$377.8~~$374.4 million in policy loans with a loan to surrender value of ~~56%~~55%, and at December 31, 2019, we had $379.7 million in policy loans with a loan to surrender value of approximately 56%. Interest rates on policy loans primarily range from 3.0% to 12.0% per annum. Policy loans may be repaid at any time by the policyholder and have priority to any claims on the policy. If the policyholder fails to repay the policy loan, funds are withdrawn from the policy’s benefits.

Investment Real Estate—We invest in commercial real estate where positive cash flows and/or appreciation in value is expected. Real estate may be owned directly by our insurance companies or non-insurance affiliates or indirectly in joint ventures with real estate developers or investors we determine share our perspective regarding risk and return relationships. The carrying value of real estate is stated at cost, less accumulated depreciation and impairments, if any. Depreciation is provided over the estimated useful lives of the properties.

Short-Term Investments—Short-term investments are primarily commercial paper rated A2 or P2 or better by Standard & Poor’s and Moody’s, respectively. The amount fluctuates depending on our view of the desirability of investing in the available long-term investment opportunities and our liquidity needs, including mortgage investment-funding commitments.

Other Invested Assets—Other invested assets comprised primarily of equity-indexed options are carried at fair value and may be collateralized by counterparties; such collateral is restricted to the Company’s use. Other invested assets also include tax credit partnerships, Certified Capital Companies (“CAPCO”) investments, mineral rights and limited liability company interests, which are carried at cost, less allowance for depletion, where applicable. ~~Separately~~Investments in separately managed accounts and Federal Home Loan Bank stock are also included in other invested assets and are carried at cost or market value if available from the account manager.

Net Investment Income and Net Realized Gains (Losses)

Net investment income decreased ~~$147.4~~$139.8 million during the ~~six~~nine months ended ~~June~~September 30, 2020 compared to 2019 primarily due to losses on options from a decline in the S&P 500 Index.

Interest income on mortgage loans is accrued on the principal amount of the loan at the contractual interest rate. Accretion of discounts is recorded using the effective yield method. Interest income, accretion of discounts and prepayment fees are reported in net investment income. Interest is not accrued on loans generally more than 90 days past due or when the collection of interest is not considered probable. Loans in foreclosure are placed on nonaccrual status. Interest received on nonaccrual status mortgage loans is included in net investment income in the period received.

Net realized investment gains ~~increased $8.1~~decreased $6.5 million during the ~~six~~nine months ended ~~June~~September 30, 2020 compared to 2019 primarily attributable to ~~the call~~decreased sales of ~~bonds.~~real estate. Net realized investment gains (losses) are shown below (in thousands):


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Bonds	$	6,117	$	6,075	$	15,547	$	11,288
Mortgage loans	0		(2,097)		0		(2,186)
Real estate	11,265		27,388		9,951		24,502
Other invested assets	5		567		(24)		(1,661)
Total	$	17,387	$	31,933	$	25,474	$	31,943

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

Net Unrealized Gains and Losses

The unrealized gains and losses of our fixed maturity securities investment portfolio are shown below (in thousands):


		June 30, 2020		December 31, 2019		Change			September 30, 2020		December 31, 2019		Change
Held-to-Maturity	Held-to-Maturity							Held-to-Maturity
Gains	Gains	$	511,060	$	345,463	$	165,597	Gains	$	582,282	$	345,463	$	236,819
Losses	Losses	(35,749)		(8,034)		(27,715)		Losses	(36,018)		(8,034)		(27,984)
Net gains	Net gains	475,311		337,429		137,882		Net gains	546,264		337,429		208,835
Available-for-Sale	Available-for-Sale							Available-for-Sale
Gains	Gains	433,608		302,426		131,182		Gains	484,782		302,426		182,356
Losses	Losses	(38,138)		(13,011)		(25,127)		Losses	(35,322)		(13,011)		(22,311)
Net gains	Net gains	395,470		289,415		106,055		Net gains	449,460		289,415		160,045

Total	Total	$	870,781	$	626,844	$	243,937	Total	$	995,724	$	626,844	$	368,880

The net change in the unrealized gains on fixed maturity securities between ~~June~~September 30, 2020 and December 31, 2019 is primarily attributable to the decrease in benchmark ten-year interest rates, which were 0.7% and 1.9% respectively. The Company does not expect to be required to sell any of the securities in an unrealized loss position.

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~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)~~

Liquidity

As a result of the ~~Reorganization,~~holding company reorganization, ANICO became ~~the~~a wholly owned subsidiary of ANAT. ANAT's source of liquidity ~~will be primarily~~is solely derived from dividends received from ANICO. ~~As a result, ANAT will depend on dividend payments from ANICO to meet its liquidity needs.~~

In April 2020, the Company borrowed $500 million from the ~~FHLB for~~Federal Home Loan Bank of Dallas' COVID-19 Relief Advance Program. One advance was approximately $240 million after a required capital stock purchase of approximately $10 million. The loan has an interest rate of 0.25%. The Company paid this advance in full on its maturity date of October 13, 2020.

We are monitoring our liquidity needs closely. Should the ~~uncertainty~~Company require additional liquidity, deposits of certain securities and ~~market volatility relating to~~mortgage loans under the ~~COVID-19 pandemic. As a condition to borrowing from~~Company's membership with the FHLB ~~the company had to purchase~~provide approximately ~~$15~~$816 million of ~~stock in the FHLB. Accordingly, we have $485 million of funds~~additional available credit to us ~~if needed. The FHLB stock can be sold back to the FHLB at cost upon the repayment~~as of ~~the advances.~~October 28, 2020.

~~In addition, we announced a 15% policy credit for our personal and commercial auto policyholders based on their April and May premiums, which amounted to approximately $17.0 million.~~ As a result of the impacts of COVID-19, state insurance departments across the country had issued regulations that required us not to cancel policies for non-payment for varying amounts of time but generally for at least 90-day periods which began in March and early April 2020. The cancellation and grace periods have been lifted in most states. At this time, however, our liquidity requirements have been and are expected to continue to be met by funds from operations.

We are monitoring our liquidity needs closely. In the second quarter of 2020, the Company deferred salary merit and promotional increases and promotions became effective without associated increases in compensation. As of the end of the second quarter of 2020, we have $485 million of the FHLB advances available for use in the event that the need arises. Should the Company require additional liquidity, deposits of certain securities and mortgage loans under the Company's membership with the FHLB provide approximately $566 million of additional available credit to us as of July 29, 2020.

The primary use of cash has been and is expected to continue to be payment of policyholder benefits and claims incurred. Current and expected patterns of claim frequency and severity may change from period to period but continue to be within historical norms. Management currently considers our current liquidity position to be sufficient to meet anticipated demands over the next twelve months. Our contractual obligations are not expected to have a significant negative impact to cash flows from operations.

Our defined benefit plans are frozen and currently adequately funded; however, low interest rates, increased longevity of participants, and rising Pension Benefit Guaranty Corporation (“PBGC”) premiums may cause us to increase our funding of the plans.

We are currently evaluating the renovation and modernization of our home office facilities. This could result in capital expenditures that could aggregate to approximately $100 million over a three year period beginning in 2021. ~~However, current uncertainties~~To date, the economic disruption relating to the COVID-19 pandemic ~~could cause us~~has not caused the Company to lower or delay anticipated spending on capital investment projects. There are no other unusually large capital expenditures expected in the next 12-24 months.

We have paid dividends to stockholders for over 110 consecutive years and expect to continue this trend. There are no other known trends or uncertainties regarding product pricing, changes in product lines or rising costs that are expected to have a significant impact to cash flows from operations, although ~~uncertainties~~disruptions relating to the COVID-19 pandemic could still significantly impact one or more of these items.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

Funds received as premium payments and deposits that are not used for liquidity requirements are generally invested in bonds and commercial mortgages. Funds are invested with the intent that income from the investments and proceeds from the maturities will meet our ongoing cash flow needs. We historically have not had to liquidate invested assets in order to cover cash flow needs. While our investment portfolio has been significantly impacted by volatility associated with COVID-19, and likely will continue to be, at this time, we believe our portfolio of highly liquid bonds available-for-sale, including equity securities, is sufficient to meet future liquidity needs as necessary.

As a result of the economic disruption caused by COVID-19, we ~~expect to modify mortgage~~modified 92 loans with ~~an aggregate outstanding~~a total balance of ~~$1.2~~$1.6 billion. These modifications primarily ~~relate~~related to hotels, retail and parking operations. The terms of the modifications of these loans include forbearance of principal and interest payments for a period of up to six months, extensions of maturity dates, and/or provision of interest only payments.

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~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)~~

The Company holds collateral of ~~$183.6~~$210.6 million at ~~June~~September 30, 2020 to offset exposure from its derivative counterparties. Cash flows associated with collateral received from counterparties change as the market value of the underlying derivative contract changes.

Our cash and cash equivalents and short-term investment position increased from $877.3 million at December 31, 2019 to ~~$967.3 million~~$1.7 billion at ~~June~~September 30, 2020. The increase in liquidity primarily relates to an increase in ~~commercial paper.~~money market accounts due to the decline in bond purchases.

A downgrade or a potential downgrade in our financial strength ratings could result in a loss of business and could adversely affect our cash flows from operations.

Further information regarding additional sources or uses of cash is described in Note 16, Commitments and Contingencies, of the Notes to the Unaudited Condensed Consolidated Financial Statements.

Capital Resources

Our capital resources are summarized below (in thousands):


		June 30, 2020		December 31, 2019			September 30, 2020		December 31, 2019
American National stockholders’ equity, excluding accumulated other comprehensive income (“AOCI”), net of tax	American National stockholders’ equity, excluding accumulated other comprehensive income (“AOCI”), net of tax	$	5,802,775	$	5,890,231	American National stockholders’ equity, excluding accumulated other comprehensive income (“AOCI”), net of tax	$	5,951,801	$	5,890,231
Accumulated other comprehensive income	Accumulated other comprehensive income	163,911		99,518		Accumulated other comprehensive income	194,706		99,518
Total American National stockholders’ equity	Total American National stockholders’ equity	$	5,966,686	$	5,989,749	Total American National stockholders’ equity	$	6,146,507	$	5,989,749

We have notes payable relating to borrowings by real estate joint ventures that we consolidate into our financial statements that are not part of our capital resources. The lenders for the notes payable generally have no recourse against us in the event of default by the joint ventures. Therefore, the liability we have for these notes payable is limited to our investment in the respective ventures, which totaled $3.1 million and $4.3 million at ~~June~~September 30, 2020 and December 31, 2019, respectively.

The changes in our capital resources are summarized below (in thousands):


		June 30, 2020										December 31, 2019											September 30, 2020				December 31, 2019
		Capital and Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total		Capital and Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total			Capital and Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total		Capital and Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
Net income (loss) attributable to American National		$	(9,899)	$	—	$	(9,899)	$	620,363	$	—	$	620,363
Net income attributable to American National														Net income attributable to American National	$	161,153	$	—	$	161,153	$	620,363	$	—	$	620,363
Dividends to shareholders	Dividends to shareholders	(44,094)		—		(44,094)		(88,243)		—		(88,243)		Dividends to shareholders	(66,140)		—		(66,140)		(88,243)		—		(88,243)
Change in net unrealized gains (losses) on debt securities		—		61,373		61,373		—		184,156		184,156
Change in net unrealized gains on debt securities														Change in net unrealized gains on debt securities	—		89,946		89,946		—		184,156		184,156
Foreign currency transaction and translation adjustment	Foreign currency transaction and translation adjustment	—		(585)		(585)		—		390		390		Foreign currency transaction and translation adjustment	—		(214)		(214)		—		390		390
Defined benefit pension plan adjustment	Defined benefit pension plan adjustment	—		3,605		3,605		—		15,495		15,495		Defined benefit pension plan adjustment	—		5,456		5,456		—		15,495		15,495
Cumulative effect of accounting change	Cumulative effect of accounting change	(33,503)		—		(33,503)		785		(785)		—		Cumulative effect of accounting change	(33,503)		—		(33,503)		785		(785)		—
Other	Other	40		—		40		340		—		340		Other	60		—		60		340		—		340
Total	Total	$	(87,456)	$	64,393	$	(23,063)	$	533,245	$	199,256	$	732,501	Total	$	61,570	$	95,188	$	156,758	$	533,245	$	199,256	$	732,501

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)

Statutory Capital and Surplus and Risk-based Capital

Statutory capital and surplus is the capital of our insurance companies reported in accordance with accounting practices prescribed or permitted by the applicable state insurance departments. RBC is calculated using formulas applied to certain financial balances and activities that consider, among other things, investment risks related to the type and quality of investments, insurance risks associated with products and liabilities, interest rate risks and general business risks. Insurance companies that do not maintain capital and surplus at a level of at least 200% of the authorized control level RBC are required to take certain actions. At ~~June~~September 30, 2020 and December 31, 2019, American National Insurance Company’s statutory capital and surplus was ~~$3,419,135,000~~$3,488,293,000 and $3,477,727,000, respectively. American National Insurance Company and each of its insurance subsidiaries had statutory capital and surplus at ~~June~~September 30, 2020 and December 31, 2019 ~~substantially~~ above 200% of the authorized control level.

The achievement of long-term growth will require growth in American National Insurance Company’s and our other insurance subsidiaries’ statutory capital and surplus. Our subsidiaries may obtain additional statutory capital through various sources, such as retained statutory earnings or equity contributions from us.

Contractual Obligations

Our future cash payments associated with claims and claims adjustment expenses, life, annuity and disability obligations, contractual obligations pursuant to operating leases for office space and equipment, and notes payable have not materially changed since December 31, 2019. We expect to have the capacity to pay our obligations as they come due.

At ~~June~~September 30, 2020, the Company had $500 million in outstanding advances with Federal Home Loan Bank. On October 13, 2020, one of these advances totaling $250 million had been paid in full. It is expected the Company will have sufficient cash flow to meet its current lending ~~commitment.~~commitments. For additional details see Note 16, Commitments and Contingencies, and Note 18, Subsequent Events, of the Notes to the Unaudited Condensed Consolidated Financial Statements.

Off-Balance Sheet Arrangements

We have off-balance sheet arrangements relating to third-party marketing operation bank loans as discussed in Note 16, Commitments and Contingencies, of the Notes to the Unaudited Condensed Consolidated Financial Statements. We could be exposed to a liability for these loans, which are supported by the cash value of the underlying insurance contracts. The cash value of the life insurance policies is designed to always equal or exceed the balance of the loans. Accordingly, management does not foresee any material loss related to these arrangements.

Related-Party Transactions

We have various agency, consulting and service arrangements with individuals and entities considered to be related parties. Each of these arrangements has been reviewed and approved by our Audit Committee, which retains final decision-making authority for these transactions. The amounts involved, both individually and in the aggregate, with these arrangements are not material to any segment or to our overall operations. For additional details regarding significant related party transactions, see Note 17, Related Party Transactions, of the Notes to the Unaudited Condensed Consolidated Financial Statements.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our market risk has not changed materially from those disclosed in our 2019 Annual Report on form 10-K filed with the SEC on February 28, 2020, although the recent economic disruptions caused by the COVID-19 pandemic has added greater uncertainty to the credit risk and equity risk that we face.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to provide reasonable assurance that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of ~~June~~September 30, 2020. Based upon that evaluation and subject to the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of ~~June~~September 30, 2020, the design and operation of the Company’s disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

Management has monitored the internal controls over financial reporting, including any material changes to the internal control over financial reporting. There were no changes in the Company’s internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended ~~June~~September 30, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Information required for Item 1 is incorporated by reference to the discussion under the heading “Litigation” in Note 16, Commitments and Contingencies, of the Notes to the Unaudited Condensed Consolidated Financial Statements.

ITEM 1A. RISK FACTORS

~~Except with respect to the discussions below, there~~There have been no material changes to the "Risk Factors" discussion in Item 1A of our 2019 Form 10-K filed with the SEC on February 28, ~~2020.~~

~~Major public health issues, such~~2020, as supplemented by the ~~novel coronavirusCOVID-19, could have an adverse impact on our business and results of operations.~~

We are closely monitoring developments related to the COVID-19 pandemic to assess its impact on our business; however, due to the evolving and highly uncertain nature of this event, it currently is not possible to estimate the ultimate direct and indirect impact of COVID-19 on our business, results of operations, financial condition, or liquidity with reasonable certainty. COVID-19 has impacted us, as discussed elsewhere"Risk Factors" discussion in the report, and COVID-19 or other major public health issues may further impact us in a number of ways. We may face increased costs associated with claims under our life, health, and commercial casualty insurance products. The cost of reinsurance to us for these coverages could increase, and we may encounter decreased availability of such reinsurance.

~~Our investment portfolio has been and may continue to be adversely affected by market volatility, changes in interest rates, reduced liquidity, deteriorating capacity~~Part II, Item 1A of our ~~mortgage loan borrowers to meet their obligations to us, possible declining values of collateral securing our mortgage loan portfolio and by a U.S. and global economic slowdown caused by~~Form 10-Q for the ~~COVID-19 pandemic or~~period ending June 30, 2020, filed with the ~~uncertainty of its outcome. Extreme market volatility may leave us unable to react to market events in a prudent manner consistent with our historical practices in dealing with more orderly markets.~~

~~Our workforce, and the workforces of our vendors, service providers and counterparties, may also be affected, which could result in an adverse impact~~SEC on our ability to conduct business. We are taking precautions to protect the safety and well-being of our employees while striving to provide uninterrupted service to our policyholders and claimants. However, no assurance can be given that these actions will be sufficient, nor can we predict the level of disruption that will occur to our employees' ability to continue to provide customer support and service as many continue to work from home. In addition, the increase in the number of our employees working remotely has increased certain risks to our business, including increased demand on our information technology resources and systems, greater potential for phishing and other cybersecurity attacks, and an increase in the number of points of potential attack. Any failure to effectively manage these risks and to timely identify and respond to any cyberattacks, may adversely affect our business. Our internal controls over financial reporting could be adversely impacted as a result of the large number of our employees working remotely. New processes, procedures, and controls may be required to respond to this change in our business environment. Further, should any key employees become ill from COVID-19 and unable to work, our ability to operate our internal controls may be adversely impacted.

The efforts of governmental and non-governmental organizations in combating the spread and severity of COVID-19 or other major public health issues may not be effective. Further, we cannot predict how legal and regulatory responses to concerns about COVID-19 or other major public health issues, will impact our business. For example, state insurance regulators across the country have restricted our ability to cancel certain policies for non-payment, which has impacted and will continue to impact our cash flows from these policies. In addition, should state regulators force us to extend insurance coverage beyond our policy language, the impact on our business could be significant.

The extent to which COVID-19 impacts our business, results of operations, financial condition, or liquidity will depend on future developments which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions taken to contain or treat its impact.

~~We may be unable to maintain the availability and performance of our systems and to safeguard our data and our customers' confidential information and privacy.~~ We rely on the availability, reliability, and security of internet technologies, our internal networks, information-processing infrastructure, system platforms, business applications and third-party providers (collectively “systems”) to operate our businesses. We use these systems to receive, store, process, retrieve, calculate and evaluate customer and company information, including to provide insurance quotes, process premium payments, administer our products, provide customer support, process claims and make changes to existing policies, among many other functions. We also rely on systems for investment management, financial reporting and data analysis to support our policyholder reserves and other actuarial estimates.

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~~ITEM 1A. RISK FACTORS~~ — ~~(Continued)~~

We have strategies and processes to secure, maintain and enhance our existing internal networks, technology and processing infrastructure and our information systems, including updating or replacing certain information systems to keep pace with advancing technology, changing customer preferences and expectations, and increasingly stringent industry and regulatory standards. However, despite these efforts, we may still experience system failures, extended unavailability or other outages, or damage or destruction to internal or external networks or systems, whether caused by intentional or unintentional acts or events, as well as difficulties arising from the implementation of system-security vulnerability patches, third-party system upgrades, and new systems and technologies, any of which could compromise our ability to perform critical functions on a timely basis. For instance, if these systems were inaccessible or inoperable, or if they fail to function properly, the resulting disruptions may impede or interrupt our business operations, cause misstated or unreliable financial data, or impact the effectiveness of our internal controls over financial reporting.

In certain lines of our business, our information technology and telecommunication systems interface with and rely upon third-party services, over which we have no direct control, including providers of computing infrastructure platforms or externally hosted systems commonly known as the “cloud.” We are highly dependent on our ability to access these external services for necessary business functions, such as acquiring new business, managing existing business, paying claims, and ensuring timely and accurate financial reporting. If we do not effectively develop, implement and monitor these relationships, if third-party providers do not perform as anticipated, if technological or other problems are incurred with a transition, or if outsourcing relationships relevant to our business process functions are terminated or otherwise interrupted, we may not realize expected productivity improvements or cost-efficiencies, and we may experience operational difficulties, increased costs and a loss of business.

We receive and transmit legally protected information with and among customers, agents, financial institutions and selected third party vendors and service providers, including personally identifiable information and non-public information. We have invested significant time and resources towards preventing and mitigating the risks associated with unauthorized access to this data through security penetration and vulnerability assessments, vulnerability patching processes and several layers of data intrusion and detection protection technologies, designs and authentication capabilities. However, because the techniques used to obtain unauthorized access, disable or degrade service, deposit ransomware or sabotage systems constantly evolve and may be difficult to detect for long periods of time, we may be unable to implement adequate preventive measures. In addition, hardware, software or applications we develop or procure from third parties may contain vulnerability defects in design or manufacture or other problems that could unexpectedly compromise information security or access thereto. Consequently, our cybersecurity efforts may not be effective against all security threats and breach attempts in light of increasingly complex and advanced persistent threat techniques and the evolving sophistication of individual and nation state-sponsored cyber-attacks. A breach, whether from external or internal sources, or from the theft or loss of equipment, can result in access, viewing, misappropriation, altering or deleting information in our or a third party’s systems on which we rely, including customers’, agents’ and employees’ sensitive personal and financial information and our proprietary business information. Like other companies, we have experienced threats to our data and systems through phishing campaigns, malware, ransomware and other fraudulent and deceptive activities, and we have experienced certain incidents of unauthorized access to our data and systems. In addition, spoofing attacks have been carried out by individuals impersonating customers, which have resulted in unauthorized withdrawals from a limited number of customer accounts. Such withdrawals have been refunded by us, and we believe we have implemented appropriate business process changes to help mitigate the impact of any future attacks. We have also implemented technology to further assist in the identification of these bad actors. These various threats, attacks and incidents that have occurred to date have not been material to our operations and are not expected to be material to our operations based on information presently known to management. However, any significant attacks, unauthorized access or disclosures, disruptions or other security breaches, whether affecting us or third parties, could result in substantial business disruption and consequences, including without limitation, costs of repairing or replacing systems, increased security costs, costs of customer notifications and credit monitoring services, lost revenues, litigation, regulatory action, fines and penalties, and harm to customer and producer confidence and our reputation. While we have purchased cybersecurity risk insurance and intend to assess the adequacy of this insurance annually, this insurance may not be sufficient in scope or amount to cover all of our losses from breaches of our data.August 5, 2020.

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ITEM 6.						EXHIBITS


Exhibit Number						Description

3.1						Amended and Restated Certificate of Incorporation of American National Group. Inc. (incorporated by reference to Annex II of the Proxy Statement/Prospectus filed with the SEC on March 25, 2020).

3.2						Restated Articles of Incorporation, as amended, of American National Insurance Company (incorporated by reference to Exhibit No. 3.1 to the registrant's Registration Statement on Form 10-12B filed April 10, 2009).

3.3						Amended and Restated Bylaws of American National Group, Inc. (incorporated by reference to Annex III of the Proxy Statement/Prospectus filed with the SEC on March 25, 2020)

3.4						Amended and Restated Bylaws of American National Insurance Company (incorporated by reference to Exhibit No. 3.2 to the registrant's Current Report on Form 8-K filed February 23, 2018).

10.11						Form of Restricted Stock Unit Agreement for Directors (filed herewith).*

31.1						Certification of the principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

31.2						Certification of the principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

32.1						Certification of the principal executive officer and principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH						XBRL Taxonomy Extension Schema Document.

101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB						XBRL Taxonomy Extension Label Linkbase Document.

101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF						XBRL Taxonomy Extension Definition Linkbase Document.

104						Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101).

Management contract or compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


By:						/s/ James E. Pozzi
Name:						James E. Pozzi
Title:						President and Chief Executive Officer

By:						/s/ Timothy A. Walsh
Name:						Timothy A.Walsh
Title:						Executive Vice President, CFO, Treasurer and ML and P&C Operations

Date: ~~August 5,~~November 4, 2020

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