UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| | | | | |
☒ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 20202021
or
| | | | | |
☐ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File No. 001-39369
American National Group, Inc.
(Exact name of registrant as specified in its charter)
(formerly American National Insurance Company)
| | | | | | | | |
Delaware | | 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 October 29, 2020,2021, there werewere 26,887,200 shares of the registrant’s voting common stock, $0.01 par value per share, outstanding.
AMERICAN NATIONAL GROUP, INC.
TABLE OF CONTENTS
| | | | | | | | |
| | |
| | |
| | |
ITEM 1. | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
ITEM 2. | | |
| | |
ITEM 3. | | |
| | |
ITEM 4. | | |
| | |
| | |
| | |
ITEM 1. | | |
| | |
ITEM 1A. | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
ITEM 6. | | |
| | |
SIGNATURES | | |
AMERICAN NATIONAL GROUP, INC.
(formerly AMERICAN NATIONAL INSURANCE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
(In thousands, except share data)
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
ASSETS | | | |
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) | 7,236,188 | | | 6,725,085 | |
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 | 5,176,474 | | | 5,097,017 | |
Policy loans | 374,387 | | | 379,657 | |
Investment real estate, net of accumulated depreciation of $266,697 in 2020 and $256,757 in 2019 | 514,076 | | | 551,219 | |
Short-term investments | 800,793 | | | 425,321 | |
Other invested assets | 103,030 | | | 76,569 | |
Total investments | 23,748,150 | | | 23,587,089 | |
Cash and cash equivalents | 884,083 | | | 452,001 | |
Investments in unconsolidated affiliates | 827,364 | | | 705,721 | |
Accrued investment income | 211,655 | | | 200,856 | |
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 | 40,574 | | | 44,669 | |
Premiums due and other receivables | 372,535 | | | 341,924 | |
Deferred policy acquisition costs | 1,400,440 | | | 1,423,007 | |
Property and equipment, net of accumulated depreciation of $276,047 in 2020 and $257,907 in 2019 | 117,892 | | | 106,303 | |
| | | |
Prepaid pension | 87,908 | | | 78,990 | |
Other assets | 187,665 | | | 171,285 | |
Separate account assets | 1,092,574 | | | 1,073,891 | |
Total assets | $ | 29,448,744 | | | $ | 28,597,566 | |
LIABILITIES | | | |
Future policy benefits | | | |
Life | $ | 3,123,027 | | | $ | 3,087,578 | |
Annuity | 1,573,480 | | | 1,571,263 | |
Health | 50,143 | | | 49,886 | |
Policyholders’ account balances | 12,869,130 | | | 12,957,989 | |
Policy and contract claims | 1,596,729 | | | 1,489,979 | |
Unearned premium reserve | 983,113 | | | 933,559 | |
Other policyholder funds | 362,187 | | | 361,059 | |
Liability for retirement benefits | 61,043 | | | 67,435 | |
Notes payable | 154,788 | | | 157,997 | |
Deferred tax liabilities, net | 414,206 | | | 394,528 | |
Current tax payable | 5,173 | | | 9,757 | |
Federal Home Loan Bank advances | 500,000 | | | 0 | |
Other liabilities | 510,337 | | | 446,882 | |
Separate account liabilities | 1,092,574 | | | 1,073,891 | |
Total liabilities | 23,295,930 | | | 22,601,803 | |
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 | 269 | | | 30,832 | |
Additional paid-in capital | 47,689 | | | 21,011 | |
Accumulated other comprehensive income | 194,706 | | | 99,518 | |
Retained earnings | 5,903,843 | | | 5,946,857 | |
Treasury stock, at cost | 0 | | | (108,469) | |
Total American National stockholders’ equity | 6,146,507 | | | 5,989,749 | |
Noncontrolling interest | 6,307 | | | 6,014 | |
Total stockholders' equity | 6,152,814 | | | 5,995,763 | |
Total liabilities and stockholders' equity | $ | 29,448,744 | | | $ | 28,597,566 | |
| | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
ASSETS | | | |
Fixed maturity, bonds held-to-maturity, at amortized cost, net of allowance for credit losses of $13,492 in 2021 and $12,442 in 2020 (Fair value $7,747,031 in 2021 and $7,983,181 in 2020) | $ | 7,277,801 | | | $ | 7,354,970 | |
Fixed maturity, bonds available-for-sale, at fair value (Allowance for credit losses of $4,529 in 2021 and $7,482 in 2020) (Amortized cost $8,207,687 in 2021 and $7,073,142 in 2020) | 8,573,081 | | | 7,597,180 | |
Equity securities, at fair value (Cost $838,872 in 2021 and $754,625 in 2020) | 2,383,478 | | | 2,070,766 | |
Mortgage loans on real estate, net of allowance for credit losses of $106,897 in 2021 and $125,703 in 2020 | 5,002,978 | | | 5,242,531 | |
Policy loans | 364,960 | | | 373,014 | |
Real estate and real estate partnerships, net of accumulated depreciation of $282,248 in 2021 and $269,626 in 2020 | 926,154 | | | 960,572 | |
Investment funds | 814,527 | | | 477,135 | |
Short-term investments | 536,621 | | | 1,028,379 | |
Other invested assets | 123,337 | | | 94,415 | |
Total investments | 26,002,937 | | | 25,198,962 | |
Cash and cash equivalents | 504,465 | | | 339,947 | |
| | | |
Accrued investment income | 207,473 | | | 216,389 | |
Reinsurance recoverables, net of allowance for credit losses of $15,196 in 2021 and $14,353 in 2020 | 443,756 | | | 414,359 | |
Prepaid reinsurance premiums | 44,098 | | | 42,804 | |
Premiums due and other receivables | 402,054 | | | 351,972 | |
Deferred policy acquisition costs | 1,448,905 | | | 1,360,211 | |
Property and equipment, net of accumulated depreciation of $297,807 in 2021 and $281,738 in 2020 | 133,447 | | | 121,578 | |
Current tax receivable | 23,913 | | | — | |
Prepaid pension | 91,214 | | | 80,526 | |
Other assets | 155,780 | | | 155,600 | |
Separate account assets | 1,260,427 | | | 1,185,467 | |
Total assets | $ | 30,718,469 | | | $ | 29,467,815 | |
LIABILITIES | | | |
Future policy benefits | | | |
Life | $ | 3,194,176 | | | $ | 3,149,067 | |
Annuity | 1,608,952 | | | 1,617,774 | |
Health | 47,017 | | | 49,658 | |
Policyholders’ account balances | 13,632,812 | | | 12,812,155 | |
Policy and contract claims | 1,668,898 | | | 1,575,288 | |
Unearned premium reserve | 1,032,713 | | | 956,343 | |
Other policyholder funds | 363,729 | | | 358,601 | |
Liability for retirement benefits | 81,268 | | | 70,254 | |
Notes payable | 150,378 | | | 153,703 | |
Deferred tax liabilities, net | 516,331 | | | 478,347 | |
Current tax payable | — | | | 10,372 | |
Federal Home Loan Bank advance | — | | | 250,000 | |
Other liabilities | 407,954 | | | 335,219 | |
Separate account liabilities | 1,260,427 | | | 1,185,467 | |
Total liabilities | 23,964,655 | | | 23,002,248 | |
EQUITY | | | |
American National Group, Inc. stockholders’ equity: | | | |
Common stock, $0.01 par value; 50,000,000 shares authorized; 26,887,200 shares issued and outstanding in 2021 and 2020 | 269 | | | 269 | |
Additional paid-in capital | 47,742 | | | 47,683 | |
Accumulated other comprehensive income | 127,159 | | | 222,170 | |
Retained earnings | 6,571,202 | | | 6,188,148 | |
| | | |
Total American National stockholders’ equity | 6,746,372 | | | 6,458,270 | |
Noncontrolling interest | 7,442 | | | 7,297 | |
Total stockholders' equity | 6,753,814 | | | 6,465,567 | |
Total liabilities and stockholders' equity | $ | 30,718,469 | | | $ | 29,467,815 | |
See accompanying notes to the unaudited condensed consolidated financial statements.
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 September 30, | | Nine months ended September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
PREMIUMS AND OTHER REVENUES | | | | | | | | |
Premiums | | | | | | | | |
Life | | $ | 101,182 | | | $ | 93,079 | | | $ | 282,368 | | | $ | 265,634 | |
Annuity | | 27,960 | | | 41,305 | | | 69,413 | | | 137,434 | |
Health | | 40,934 | | | 40,676 | | | 126,965 | | | 121,581 | |
Property and casualty | | 391,388 | | | 382,784 | | | 1,152,749 | | | 1,125,704 | |
Other policy revenues | | 79,344 | | | 76,784 | | | 238,736 | | | 226,178 | |
Net investment income | | 254,256 | | | 246,620 | | | 656,888 | | | 796,696 | |
Net realized investment gains | | 17,387 | | | 31,933 | | | 25,474 | | | 31,943 | |
Other-than-temporary impairments | | 0 | | | 0 | | | 0 | | | (6,968) | |
Change in investment credit loss | | (4,175) | | | 0 | | | (101,163) | | | 0 | |
Net gains on equity securities | | 152,147 | | | 8,589 | | | 118,397 | | | 282,026 | |
Other income | | 9,683 | | | 10,730 | | | 31,152 | | | 32,642 | |
Total premiums and other revenues | | 1,070,106 | | | 932,500 | | | 2,600,979 | | | 3,012,870 | |
BENEFITS, LOSSES AND EXPENSES | | | | | | | | |
Policyholder benefits | | | | | | | | |
Life | | 153,957 | | | 113,652 | | | 389,364 | | | 327,579 | |
Annuity | | 46,424 | | | 59,699 | | | 126,209 | | | 191,248 | |
Claims incurred | | | | | | | | |
Health | | 27,933 | | | 28,567 | | | 89,544 | | | 81,042 | |
Property and casualty | | 258,412 | | | 280,695 | | | 768,682 | | | 790,447 | |
Interest credited to policyholders’ account balances | | 128,946 | | | 106,782 | | | 271,406 | | | 371,703 | |
Commissions for acquiring and servicing policies | | 138,365 | | | 128,689 | | | 409,290 | | | 408,629 | |
Other operating expenses | | 126,413 | | | 128,502 | | | 385,516 | | | 391,645 | |
Change in deferred policy acquisition costs | | (8,387) | | | 1,548 | | | (14,762) | | | (22,391) | |
Total benefits, losses and expenses | | 872,063 | | | 848,134 | | | 2,425,249 | | | 2,539,902 | |
Income before federal income tax and other items | | 198,043 | | | 84,366 | | | 175,730 | | | 472,968 | |
Less: Provision for federal income taxes | | | | | | | | |
Current | | 20,789 | | | 4,433 | | | 31,578 | | | 32,444 | |
Deferred | | 23,123 | | | 18,042 | | | 2,863 | | | 79,356 | |
Total provision for federal income taxes | | 43,912 | | | 22,475 | | | 34,441 | | | 111,800 | |
Income after federal income tax | | 154,131 | | | 61,891 | | | 141,289 | | | 361,168 | |
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 | | 543 | | | (1,023) | | | 1,471 | | | (2,808) | |
Net income | | 171,703 | | | 105,943 | | | 161,874 | | | 460,685 | |
Less: Net income attributable to noncontrolling interest, net of tax | | 651 | | | 13,759 | | | 721 | | | 11,444 | |
Net income attributable to American National | | $ | 171,052 | | | $ | 92,184 | | | $ | 161,153 | | | $ | 449,241 | |
Amounts available to American National common stockholders | | | | | | | | |
Earnings per share | | | | | | | | |
Basic | | $ | 6.36 | | | $ | 3.43 | | | $ | 6.00 | | | $ | 16.71 | |
Diluted | | 6.36 | | | 3.43 | | | 5.99 | | | 16.71 | |
| | | | | | | | |
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 | | 26,884,758 | | | 26,888,172 | | | 26,887,874 | | | 26,889,338 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
PREMIUMS AND OTHER REVENUES | | | | | | | | |
Premiums | | | | | | | | |
Life | | $ | 104,802 | | | $ | 101,182 | | | $ | 306,365 | | | $ | 282,368 | |
Annuity | | 18,698 | | | 27,960 | | | 63,436 | | | 69,413 | |
Health | | 36,201 | | | 40,934 | | | 108,914 | | | 126,965 | |
Property and Casualty | | 426,887 | | | 391,388 | | | 1,235,778 | | | 1,152,749 | |
Other policy revenues | | 88,687 | | | 79,344 | | | 265,749 | | | 238,736 | |
Net investment income | | 261,140 | | | 271,285 | | | 828,520 | | | 676,002 | |
Net realized investment gains | | 20,138 | | | 17,387 | | | 49,979 | | | 25,474 | |
| | | | | | | | |
(Increase) decrease in investment credit loss | | 5,969 | | | (4,175) | | | 25,562 | | | (101,163) | |
Net gains on equity securities | | 681 | | | 152,147 | | | 267,425 | | | 118,397 | |
Other income | | 12,026 | | | 9,683 | | | 32,813 | | | 31,152 | |
Total premiums and other revenues | | 975,229 | | | 1,087,135 | | | 3,184,541 | | | 2,620,093 | |
BENEFITS, LOSSES AND EXPENSES | | | | | | | | |
Policyholder benefits | | | | | | | | |
Life | | 161,633 | | | 153,957 | | | 447,309 | | | 389,364 | |
Annuity | | 29,222 | | | 46,424 | | | 116,662 | | | 126,209 | |
Claims incurred | | | | | | | | |
Health | | 23,935 | | | 27,933 | | | 74,376 | | | 89,544 | |
Property and Casualty | | 299,956 | | | 258,412 | | | 824,697 | | | 768,682 | |
Interest credited to policyholders’ account balances | | 82,251 | | | 128,946 | | | 301,274 | | | 271,406 | |
Commissions for acquiring and servicing policies | | 171,219 | | | 138,365 | | | 488,817 | | | 409,290 | |
Other operating expenses | | 151,971 | | | 126,413 | | | 435,380 | | | 385,516 | |
Change in deferred policy acquisition costs | | (7,088) | | | (8,387) | | | (64,049) | | | (14,762) | |
Total benefits, losses and expenses | | 913,099 | | | 872,063 | | | 2,624,466 | | | 2,425,249 | |
Income before federal income tax and other items | | 62,130 | | | 215,072 | | | 560,075 | | | 194,844 | |
Less: Provision (benefit) for federal income taxes | | | | | | | | |
Current | | 12,624 | | | 20,789 | | | 50,811 | | | 31,578 | |
Deferred | | (814) | | | 23,123 | | | 62,499 | | | 2,863 | |
Total provision for federal income taxes | | 11,810 | | | 43,912 | | | 113,310 | | | 34,441 | |
Income after federal income tax | | 50,320 | | | 171,160 | | | 446,765 | | | 160,403 | |
| | | | | | | | |
Other components of net periodic pension benefit, net of tax | | 917 | | | 543 | | | 2,778 | | | 1,471 | |
Net income | | 51,237 | | | 171,703 | | | 449,543 | | | 161,874 | |
Less: Net income attributable to noncontrolling interest, net of tax | | 189 | | | 651 | | | 346 | | | 721 | |
Net income attributable to American National | | $ | 51,048 | | | $ | 171,052 | | | $ | 449,197 | | | $ | 161,153 | |
Amounts available to American National common stockholders | | | | | | | | |
Earnings per share | | | | | | | | |
Basic | | $ | 1.90 | | | $ | 6.36 | | | $ | 16.71 | | | $ | 6.00 | |
Diluted | | 1.90 | | | 6.36 | | | 16.71 | | | 5.99 | |
| | | | | | | | |
Weighted average common shares outstanding | | 26,877,200 | | | 26,877,200 | | | 26,877,200 | | | 26,879,178 | |
Weighted average common shares outstanding and dilutive potential common shares | | 26,884,582 | | | 26,884,758 | | | 26,884,700 | | | 26,887,874 | |
See accompanying notes to the unaudited condensed consolidated financial statements.
AMERICAN NATIONAL GROUP, INC.
(formerly AMERICAN NATIONAL INSURANCE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Net income | | $ | 51,237 | | | $ | 171,703 | | | $ | 449,543 | | | $ | 161,874 | |
Other comprehensive income (loss), net of tax | | | | | | | | |
Change in net unrealized gains (losses) on securities | | (46,717) | | | 28,573 | | | (103,585) | | | 89,946 | |
Foreign currency transaction and translation adjustments | | (297) | | | 371 | | | 122 | | | (214) | |
Defined benefit pension plan adjustment | | 2,322 | | | 1,851 | | | 8,452 | | | 5,456 | |
Total other comprehensive income (loss), net of tax | | (44,692) | | | 30,795 | | | (95,011) | | | 95,188 | |
Total comprehensive income | | 6,545 | | | 202,498 | | | 354,532 | | | 257,062 | |
Less: Comprehensive income attributable to noncontrolling interest | | 189 | | | 651 | | | 346 | | | 721 | |
Total comprehensive income attributable to American National | | $ | 6,356 | | | $ | 201,847 | | | $ | 354,186 | | | $ | 256,341 | |
See accompanying notes to the unaudited condensed consolidated financial statements.
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 |
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 | — | | | 20 | | | — | | | — | | | — | | | — | | | 20 | |
Cumulative effect of accounting change | — | | | — | | | — | | | (34,702) | | | — | | | — | | | (34,702) | |
Other comprehensive loss | — | | | — | | | (111,571) | | | — | | | — | | | — | | | (111,571) | |
Net loss attributable to American National | — | | | — | | | — | | | (220,444) | | | — | | | — | | | (220,444) | |
Cash dividends to common stockholders (declared per share of $0.82) | — | | | — | | | — | | | (22,047) | | | — | | | — | | | (22,047) | |
Contributions | — | | | — | | | — | | | — | | | — | | | 546 | | | 546 | |
Distributions | — | | | — | | | — | | | — | | | — | | | (323) | | | (323) | |
Net loss attributable to noncontrolling interest | — | | | — | | | — | | | — | | | — | | | (153) | | | (153) | |
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 | — | | | 20 | | | — | | | — | | | — | | | — | | | 20 | |
Cumulative effect of accounting change | — | | | — | | | — | | | 1,199 | | | — | | | — | | | 1,199 | |
Other comprehensive income | — | | | — | | | 175,964 | | | — | | | — | | | — | | | 175,964 | |
Net income attributable to American National | — | | | — | | | — | | | 210,545 | | | — | | | — | | | 210,545 | |
Cash dividends to common stockholders (declared per share of $0.82) | — | | | — | | | —�� | | | (22,047) | | | — | | | — | | | (22,047) | |
Contributions | — | | | — | | | — | | | — | | | — | | | 310 | | | 310 | |
Distributions | — | | | — | | | — | | | — | | | — | | | (362) | | | (362) | |
Net income attributable to noncontrolling interest | — | | | — | | | — | | | — | | | — | | | 223 | | | 223 | |
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 | (26,618) | | | 26,618 | | | — | | | — | | | — | | | — | | | 0 | |
Retirement of treasury shares | (3,945) | | | — | | | — | | | (104,524) | | | 108,469 | | | — | | | 0 | |
| | | | | | | | | | | | | |
Amortization of restricted stock | — | | | 20 | | | — | | | — | | | — | | | — | | | 20 | |
| | | | | | | | | | | | | |
Other comprehensive income | — | | | — | | | 30,795 | | | — | | | — | | | — | | | 30,795 | |
Net income attributable to American National | — | | | — | | | — | | | 171,052 | | | — | | | — | | | 171,052 | |
Cash dividends to common stockholders (declared per share of $0.82) | — | | | — | | | — | | | (22,046) | | | — | | | — | | | (22,046) | |
Contributions | — | | | — | | | — | | | — | | | — | | | 0 | | | 0 | |
Distributions | — | | | — | | | — | | | — | | | — | | | (599) | | | (599) | |
Net income attributable to noncontrolling interest | — | | | — | | | — | | | — | | | — | | | 651 | | | 651 | |
Balance at September 30, 2020 | $ | 269 | | | $ | 47,689 | | | $ | 194,706 | | | $ | 5,903,843 | | | $ | 0 | | | $ | 6,307 | | | $ | 6,152,814 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | | | Noncontrolling Interest | | Total Equity |
Balance at January 1, 2021 | $ | 269 | | | $ | 47,683 | | | $ | 222,170 | | | $ | 6,188,148 | | | | | $ | 7,297 | | | $ | 6,465,567 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Amortization of restricted stock | — | | | 19 | | | — | | | — | | | | | — | | | 19 | |
| | | | | | | | | | | | | |
Other comprehensive loss | — | | | — | | | (102,211) | | | — | | | | | — | | | (102,211) | |
Net income attributable to American National | — | | | — | | | — | | | 170,173 | | | | | — | | | 170,173 | |
Cash dividends to common stockholders (declared per share of $0.82) | — | | | — | | | — | | | (22,048) | | | | | — | | | (22,048) | |
Contributions | — | | | — | | | — | | | — | | | | | 259 | | | 259 | |
Distributions | — | | | — | | | — | | | — | | | | | (380) | | | (380) | |
Net income attributable to noncontrolling interest | — | | | — | | | — | | | — | | | | | 100 | | | 100 | |
Balance at March 31, 2021 | $ | 269 | | | $ | 47,702 | | | $ | 119,959 | | | $ | 6,336,273 | | | | | $ | 7,276 | | | $ | 6,511,479 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Amortization of restricted stock | — | | | 20 | | | — | | | — | | | | | — | | | 20 | |
| | | | | | | | | | | | | |
Other comprehensive income | — | | | — | | | 51,892 | | | — | | | | | — | | | 51,892 | |
Net income attributable to American National | — | | | — | | | — | | | 227,976 | | | | | — | | | 227,976 | |
Cash dividends to common stockholders (declared per share of $0.82) | — | | | — | | | — | | | (22,047) | | | | | — | | | (22,047) | |
Contributions | — | | | — | | | — | | | — | | | | | — | | | — | |
Distributions | — | | | — | | | — | | | — | | | | | (339) | | | (339) | |
Net income attributable to noncontrolling interest | — | | | — | | | — | | | — | | | | | 57 | | | 57 | |
Balance at June 30, 2021 | $ | 269 | | | $ | 47,722 | | | $ | 171,851 | | | $ | 6,542,202 | | | | | $ | 6,994 | | | $ | 6,769,038 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Amortization of restricted stock | — | | | 20 | | | — | | | — | | | | | — | | | 20 | |
| | | | | | | | | | | | | |
Other comprehensive loss | — | | | — | | | (44,692) | | | — | | | | | — | | | (44,692) | |
Net income attributable to American National | — | | | — | | | — | | | 51,048 | | | | | — | | | 51,048 | |
Cash dividends to common stockholders (declared per share of $0.82) | — | | | — | | | — | | | (22,048) | | | | | — | | | (22,048) | |
Contributions | — | | | — | | | — | | | — | | | | | 64 | | | 64 | |
Distributions | — | | | — | | | — | | | — | | | | | 195 | | | 195 | |
Net income attributable to noncontrolling interest | — | | | — | | | — | | | — | | | | | 189 | | | 189 | |
Balance at September 30, 2021 | $ | 269 | | | $ | 47,742 | | | $ | 127,159 | | | $ | 6,571,202 | | | | | $ | 7,442 | | | $ | 6,753,814 | |
See accompanying notes to the unaudited condensed consolidated financial statements.
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 |
Balance at December 31, 2018 | $ | 30,832 | | | $ | 20,694 | | | $ | (99,738) | | | $ | 5,413,952 | | | $ | (108,492) | | | $ | 14,267 | | | $ | 5,271,515 | |
| | | | | | | | | | | | | |
Reissuance of treasury shares | — | | | 237 | | | — | | | — | | | 23 | | | — | | | 260 | |
Amortization of restricted stock | — | | | 20 | | | — | | | — | | | — | | | — | | | 20 | |
Cumulative effect of accounting change | — | | | — | | | (785) | | | 785 | | | — | | | — | | | 0 | |
Other comprehensive income | — | | | — | | | 86,774 | | | — | | | — | | | — | | | 86,774 | |
Net income attributable to American National | — | | | — | | | — | | | 258,217 | | | — | | | — | | | 258,217 | |
Cash dividends to common stockholders (declared per share of $0.82) | — | | | — | | | — | | | (22,101) | | | — | | | — | | | (22,101) | |
Contributions | — | | | — | | | — | | | — | | | — | | | 3 | | | 3 | |
Distributions | — | | | — | | | — | | | — | | | — | | | (419) | | | (419) | |
Net loss attributable to noncontrolling interest | — | | | — | | | — | | | — | | | — | | | (1,350) | | | (1,350) | |
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 | — | | | 20 | | | — | | | — | | | — | | | — | | | 20 | |
| | | | | | | | | | | | | |
Other comprehensive income | — | | | — | | | 100,601 | | | — | | | — | | | — | | | 100,601 | |
Net income attributable to American National | — | | | — | | | — | | | 98,840 | | | — | | | — | | | 98,840 | |
Cash dividends to common stockholders (declared per share of $0.82) | — | | | — | | | — | | | (22,044) | | | — | | | — | | | (22,044) | |
Contributions | — | | | — | | | — | | | — | | | — | | | 168 | | | 168 | |
Distributions | — | | | — | | | — | | | — | | | — | | | (1,957) | | | (1,957) | |
Net loss attributable to noncontrolling interest | — | | | — | | | — | | | — | | | — | | | (965) | | | (965) | |
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 | — | | | 20 | | | — | | | — | | | — | | | — | | | 20 | |
| | | | | | | | | | | | | |
Other comprehensive loss | — | | | — | | | (1,408) | | | — | | | — | | | — | | | (1,408) | |
Net income attributable to American National | — | | | — | | | — | | | 92,184 | | | — | | | — | | | 92,184 | |
Cash dividends to common stockholders (declared per share of $0.82) | — | | | — | | | — | | | (22,050) | | | — | | | — | | | (22,050) | |
Contributions | — | | | — | | | — | | | — | | | — | | | 56 | | | 56 | |
Distributions | — | | | — | | | — | | | — | | | — | | | (18,435) | | | (18,435) | |
Net income attributable to noncontrolling interest | — | | | — | | | — | | | — | | | — | | | 13,759 | | | 13,759 | |
Balance at September 30, 2019 | $ | 30,832 | | | $ | 20,991 | | | $ | 85,444 | | | $ | 5,797,783 | | | $ | (108,469) | | | $ | 5,127 | | | $ | 5,831,708 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Treasury Stock | | Noncontrolling Interest | | Total Equity |
Balance at January 1, 2020 | $ | 30,832 | | | $ | 21,011 | | | $ | 99,518 | | | $ | 5,946,857 | | | $ | (108,469) | | | $ | 6,014 | | | $ | 5,995,763 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Amortization of restricted stock | — | | | 20 | | | — | | | — | | | — | | | — | | | 20 | |
Cumulative effect of accounting change | — | | | — | | | — | | | (34,702) | | | — | | | — | | | (34,702) | |
Other comprehensive loss | — | | | — | | | (111,571) | | | — | | | — | | | — | | | (111,571) | |
Net loss attributable to American National | — | | | — | | | — | | | (220,444) | | | — | | | — | | | (220,444) | |
Cash dividends to common stockholders (declared per share of $0.82) | — | | | — | | | — | | | (22,047) | | | — | | | — | | | (22,047) | |
Contributions | — | | | — | | | — | | | — | | | — | | | 546 | | | 546 | |
Distributions | — | | | — | | | — | | | — | | | — | | | (323) | | | (323) | |
Net loss attributable to noncontrolling interest | — | | | — | | | — | | | — | | | — | | | (153) | | | (153) | |
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 | — | | | 20 | | | — | | | — | | | — | | | — | | | 20 | |
Cumulative effect of accounting change | — | | | — | | | — | | | 1,199 | | | — | | | — | | | 1,199 | |
Other comprehensive income | — | | | — | | | 175,964 | | | — | | | — | | | — | | | 175,964 | |
Net income attributable to American National | — | | | — | | | — | | | 210,545 | | | — | | | — | | | 210,545 | |
Cash dividends to common stockholders (declared per share of $0.82) | — | | | — | | | — | | | (22,047) | | | — | | | — | | | (22,047) | |
Contributions | — | | | — | | | — | | | — | | | — | | | 310 | | | 310 | |
Distributions | — | | | — | | | — | | | — | | | — | | | (362) | | | (362) | |
Net income attributable to noncontrolling interest | — | | | — | | | — | | | — | | | — | | | 223 | | | 223 | |
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 | (26,618) | | | 26,618 | | | — | | | — | | | — | | | — | | | — | |
Retirement of treasury shares | (3,945) | | | — | | | — | | | (104,524) | | | 108,469 | | | — | | | — | |
Amortization of restricted stock | — | | | 20 | | | — | | | — | | | — | | | — | | | 20 | |
| | | | | | | | | | | | | |
Other comprehensive income | — | | | — | | | 30,795 | | | — | | | — | | | — | | | 30,795 | |
Net income attributable to American National | — | | | — | | | — | | | 171,052 | | | — | | | — | | | 171,052 | |
Cash dividends to common stockholders (declared per share of $0.82) | — | | | — | | | — | | | (22,046) | | | — | | | — | | | (22,046) | |
Contributions | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Distributions | — | | | — | | | — | | | — | | | — | | | (599) | | | (599) | |
Net income attributable to noncontrolling interest | — | | | — | | | — | | | — | | | — | | | 651 | | | 651 | |
Balance at September 30, 2020 | $ | 269 | | | $ | 47,689 | | | $ | 194,706 | | | $ | 5,903,843 | | | $ | — | | | $ | 6,307 | | | $ | 6,152,814 | |
See accompanying notes to the unaudited condensed consolidated financial statements.
AMERICAN NATIONAL GROUP, INC.
(formerly AMERICAN NATIONAL INSURANCE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
| | | | | | | | | | | |
| Nine months ended September 30, |
| 2020 | | 2019 |
OPERATING ACTIVITIES | | | |
Net income | $ | 161,874 | | | $ | 460,685 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Net realized investment gains | (25,474) | | | (31,943) | |
Other-than-temporary impairments | 0 | | | 6,968 | |
Change in investment credit loss | 101,163 | | | 0 | |
Accretion of premiums, discounts and loan origination fees | 12,457 | | | (3,862) | |
Net capitalized interest on policy loans and mortgage loans | (22,596) | | | (25,719) | |
Depreciation | 39,389 | | | 40,760 | |
Interest credited to policyholders’ account balances | 271,406 | | | 371,703 | |
Charges to policyholders’ account balances | (238,736) | | | (226,178) | |
Deferred federal income tax expense | 2,863 | | | 79,356 | |
Equity in earnings of unconsolidated affiliates | (19,114) | | | (102,325) | |
Distributions from unconsolidated affiliates | 45,233 | | | 103,128 | |
Changes in: | | | |
Policyholder liabilities | 187,393 | | | 168,352 | |
Deferred policy acquisition costs | (14,762) | | | (22,391) | |
Reinsurance recoverables | (66,074) | | | (7,318) | |
Premiums due and other receivables | (30,611) | | | (15,989) | |
Prepaid reinsurance premiums | 4,095 | | | 2,483 | |
Accrued investment income | (10,799) | | | (3,030) | |
Current tax payable | (4,711) | | | (5,335) | |
Liability for retirement benefits | (8,404) | | | (2,956) | |
Fair value of option securities | 2,200 | | | (95,885) | |
Fair value of equity securities | (118,397) | | | (282,026) | |
Other, net | (17,352) | | | (13,282) | |
Net cash provided by operating activities | 251,043 | | | 395,196 | |
INVESTING ACTIVITIES | | | |
Proceeds from sale/maturity/prepayment of: | | | |
Held-to-maturity securities | 1,167,417 | | | 502,141 | |
Available-for-sale securities | 803,665 | | | 329,489 | |
Equity securities | 79,623 | | | 178,817 | |
Investment real estate | 45,645 | | | 64,459 | |
Mortgage loans | 313,009 | | | 626,449 | |
Policy loans | 40,502 | | | 33,096 | |
Other invested assets | 98,975 | | | 53,350 | |
Disposals of property and equipment | 16 | | | 69 | |
Distributions from unconsolidated affiliates | 39,190 | | | 78,014 | |
Payment for the purchase/origination of: | | | |
Held-to-maturity securities | (351,036) | | | (1,121,049) | |
Available-for-sale securities | (1,027,856) | | | (458,635) | |
Equity securities | (101,090) | | | (49,016) | |
Investment real estate | (12,232) | | | (22,218) | |
Mortgage loans | (466,472) | | | (419,144) | |
Policy loans | (17,196) | | | (19,935) | |
Other invested assets | (83,820) | | | (46,221) | |
| | | |
Additions to property and equipment | (29,799) | | | (16,094) | |
Contributions to unconsolidated affiliates | (203,748) | | | (194,846) | |
Change in short-term investments | (375,472) | | | (192,188) | |
Change in collateral held for derivatives | (43,816) | | | 75,827 | |
Other, net | (2,816) | | | 3,857 | |
Net cash used in investing activities | (127,311) | | | (593,778) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | | | | | | | | | |
| Nine months ended September 30, |
| 2021 | | 2020 |
OPERATING ACTIVITIES | | | |
Net income | $ | 449,543 | | | $ | 161,874 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Net realized investment gains | (49,979) | | | (25,474) | |
| | | |
Increase (decrease) in investment credit loss | (25,562) | | | 101,163 | |
Accretion of premiums, discounts and loan origination fees | 12,971 | | | 12,457 | |
Net capitalized interest on policy loans and mortgage loans | (24,130) | | | (22,596) | |
Depreciation | 38,211 | | | 39,389 | |
Fair value of option securities | (70,434) | | | 2,200 | |
Fair value of equity securities | (267,425) | | | (118,397) | |
Interest credited to policyholders’ account balances | 301,274 | | | 271,406 | |
Charges to policyholders’ account balances | (265,749) | | | (238,736) | |
Deferred federal income tax expense | 62,499 | | | 2,863 | |
Income from equity method investments | (111,307) | | | (19,114) | |
Distributions from unconsolidated affiliates | 89,625 | | | 45,233 | |
Changes in: | | | |
Policyholder liabilities | 252,913 | | | 187,393 | |
Deferred policy acquisition costs | (64,049) | | | (14,762) | |
Reinsurance payables | (29,397) | | | (66,074) | |
Premiums due and other receivables | (50,082) | | | (30,611) | |
Prepaid reinsurance premiums | (1,294) | | | 4,095 | |
Accrued investment income | 8,916 | | | (10,799) | |
Current tax receivable | (34,285) | | | (4,711) | |
Liability for retirement benefits | 11,025 | | | (8,404) | |
Other, net | 41,075 | | | (17,352) | |
Net cash provided by operating activities | 274,359 | | | 251,043 | |
INVESTING ACTIVITIES | | | |
Proceeds from sale/maturity/prepayment of: | | | |
Held-to-maturity securities | 965,803 | | | 1,167,417 | |
Available-for-sale securities | 920,882 | | | 803,665 | |
Equity securities | 51,159 | | | 79,623 | |
Real estate and real estate partnerships | 19,976 | | | 45,645 | |
Mortgage loans | 727,848 | | | 313,009 | |
Policy loans | 40,038 | | | 40,502 | |
| | | |
Other invested assets | 170,386 | | | 98,975 | |
Disposals of property and equipment | 65 | | | 16 | |
Distributions from real estate and real estate partnerships | 92,815 | | | 224 | |
Distributions from investment funds | 84,997 | | | 38,966 | |
Payment for the purchase/origination of: | | | |
Held-to-maturity securities | (882,092) | | | (351,036) | |
Available-for-sale securities | (2,058,148) | | | (1,027,856) | |
Equity securities | (80,188) | | | (101,090) | |
Real estate and real estate partnerships | (8,328) | | | (12,232) | |
Mortgage loans | (450,916) | | | (466,472) | |
Policy loans | (14,974) | | | (17,196) | |
Other invested assets | (120,900) | | | (83,820) | |
Additions to property and equipment | (28,003) | | | (29,799) | |
Contributions to real estate and real estate partnerships | (89,200) | | | (56,578) | |
Contributions to investment funds | (401,467) | | | (147,170) | |
Change in short-term investments | 491,758 | | | (375,472) | |
Change in collateral held for derivatives | (8,946) | | | (43,816) | |
Other, net | 2,454 | | | (2,816) | |
Net cash used in investing activities | (574,981) | | | (127,311) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
AMERICAN NATIONAL GROUP, INC.
(formerly AMERICAN NATIONAL INSURANCE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
(In thousands)
| | | | | | | | | | | |
| Nine months ended September 30, |
| 2020 | | 2019 |
FINANCING ACTIVITIES | | | |
Policyholders’ account deposits | 905,424 | | | 1,559,231 | |
Policyholders’ account withdrawals | (1,026,953) | | | (1,126,580) | |
Proceeds from Federal Home Loan Bank borrowings | 500,000 | | | 0 | |
Change in notes payable | (3,209) | | | 21,080 | |
| | | |
Dividends to stockholders | (66,140) | | | (66,195) | |
Payments to noncontrolling interest | (772) | | | (20,811) | |
Net cash provided by financing activities | 308,350 | | | 366,725 | |
NET INCREASE IN CASH AND CASH EQUIVALENTS | 432,082 | | | 168,143 | |
Cash and cash equivalents at beginning of the period | 452,001 | | | 268,164 | |
Cash and cash equivalents at end of the period | $ | 884,083 | | | $ | 436,307 | |
| | | |
Supplemental cash flow information: | | | |
Interest paid | $ | 512 | | | $ | 0 | |
Income taxes paid, net | 30,800 | | | 58,940 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | | | | | | | | | |
| Nine months ended September 30, |
| 2021 | | 2020 |
FINANCING ACTIVITIES | | | |
Policyholders’ account deposits | $ | 1,722,108 | | | $ | 905,424 | |
Policyholders’ account withdrawals | (936,976) | | | (1,026,953) | |
Proceeds from Federal Home Loan Bank borrowings | — | | | 500,000 | |
Repayment of Federal Home Loan Bank borrowings | (250,000) | | | — | |
Change in notes payable | (3,325) | | | (3,209) | |
| | | |
Dividends to stockholders | (66,143) | | | (66,140) | |
Payments to noncontrolling interest | (524) | | | (772) | |
Net cash provided by financing activities | 465,140 | | | 308,350 | |
NET INCREASE IN CASH AND CASH EQUIVALENTS | 164,518 | | | 432,082 | |
Cash and cash equivalents at beginning of the period | 339,947 | | | 452,001 | |
Cash and cash equivalents at end of the period | $ | 504,465 | | | $ | 884,083 | |
| | | |
Supplemental cash flow information: | | | |
Interest paid | $ | 328 | | | $ | 512 | |
Income taxes paid, net | 82,911 | | | 30,800 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
See accompanying notes to the unaudited condensed consolidated financial statements.
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. As a result of such reorganization, ANICO became a wholly owned subsidiary of American National Group, Inc., a Delaware corporation (“ANAT” ("ANAT" or the "Company"), 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 nine months ended 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”) offers a broad portfolio of insurance products, including individual and group life insurance, annuities, health insurance, and property and casualty insurance. Business is conducted in all 50 states, the District of Columbia and Puerto Rico.
On August 6, 2021, ANAT entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Brookfield Asset Management Reinsurance Partners Ltd. (“Brookfield Reinsurance”), an exempted company limited by shares existing under the laws of Bermuda, and Freestone Merger Sub Inc., a Delaware corporation and an indirect wholly-owned subsidiary of Brookfield Reinsurance (“Merger Sub”). On the terms and subject to the conditions of the Merger Agreement, at the closing, Merger Sub will merge with and into the Company (the “Merger”), with the Company continuing as the surviving entity, which will become an indirect, wholly-owned subsidiary of Brookfield Reinsurance. The Merger was unanimously approved by the Company’s board of directors.
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, which include real estate partnerships and investment funds, are accounted for using the equity method of accounting. Certain amountsChanges in prior years have been reclassifiedperiod presentation were made to conform to the current yearperiod presentation.
The interimDuring the first quarter of 2021, we reclassified the Company's earnings from equity method investments in the condensed consolidated financial statements of operations from "Equity in earnings of unconsolidated affiliates" to "Net investment income." For the three and notes herein are unauditednine months ended September 30, 2020, $17.0 million and reflect all adjustments which management considers necessary for$19.1 million were reclassified, with no impact to net income. We also reclassified the fair presentation ofrelated asset balances in the interim condensed consolidated statements of financial position from "Investments in unconsolidated affiliates" to "Real estate and real estate partnerships" and "Investment funds," with no impact to total assets. Management believes these reclassifications result in increased transparency to the users of the financial statements as it relates to the Company's invested assets and the performance of these investments that are tied to the primary operations comprehensive income, changes in equity, and cash flows.of the Company.
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, 2019.2020. 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.
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 |
Assets: | | | | | |
Allowance for credit losses | | | | | |
Fixed maturity, bonds held-to-maturity, at amortized cost | $ | 0 | | | $ | (21,664) | | | $ | (21,664) | |
| | | | | |
Mortgage loans on real estate | (19,160) | | | (11,224) | | | (30,384) | |
Reinsurance recoverables | (8,220) | | | (7,920) | | | (16,140) | |
Liabilities: | | | | | |
Allowance for credit losses | | | | | |
Other policyholder funds | 0 | | | 1,526 | | | 1,526 | |
Other liabilities | 0 | | | (3,126) | | | (3,126) | |
Total | $ | (27,380) | | | $ | (42,408) | | | $ | (69,788) | |
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 September 30, 2020 and 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. |
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 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 becomebecame 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 todid not have a material impact on ourto the Company's Condensed Consolidated Financial Statements or Notes to the Condensed Consolidated Financial Statements. |
Future Adoption of New Accounting Standards—The Financial Accounting Standards Board issued the following accounting guidance relevant to American National:
| | | | | | | | | | | |
Standard | Description | Effective Date and Method of Adoption | Impact on Financial Statements |
ASU 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts | The guidance will improve the timeliness of recognizing changes in the liability for future policy benefits for traditional and limited payment long-duration contracts and will modify the rate used to discount future cash flows. The guidance will also simplify the accounting for certain market-based options or guarantees associated with deposit (or account balance) contracts (market risk benefits), simplify the amortization of deferred acquisition costs and add significant qualitative and quantitative disclosures. | This standard will become effective for the Company for all annual and interim periods beginning January 1, 2023, which was extended from the previous effective date of January 1, 2022 through the issuance of ASU 2020-11. The guidance allows for one of two adoption methods, a modified retrospective transition or a full retrospective transition except for the changes to accounting for market risk benefits which will require a retrospective transition. | We are currently evaluating the impact of the amendment to the Company. Based on the nature of the standard, we expect the impact of adoption to be material to our Condensed Consolidated Financial Statements and 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 updateguidance provide optional expedients and exceptions for applying Generally Accepted Accounting Principles ("GAAP")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 updateguidance 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 exposureThe inventory of LIBOR exposures has been completed and is primarily limited to floating rate bonds, alternative investments, and borrowings within joint venture investments. Some of the contracts included in these categories will mature prior to December 31, 2021, the start of LIBOR andrates cessations. The transition from LIBOR is expected to result in an immaterial impact to the impact this standard would have onCompany's Condensed Consolidated Financial Statements or Notes to the Condensed Consolidated Financial Statements. We expect to have our evaluation of exposure completed by December 31, 2020. |
Note 4 – Investment in Securities
The cost or amortized cost and fair value of investments in securities are shown below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 |
| Cost or Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized (Losses) | | Allowance for Credit Losses | | Fair Value |
Fixed maturity, bonds held-to-maturity | | | | | | | | | |
U.S. states and political subdivisions | $ | 106,908 | | | $ | 4,278 | | | $ | (3) | | | $ | 0 | | | $ | 111,183 | |
Foreign governments | 3,865 | | | 429 | | | 0 | | | 0 | | | 4,294 | |
Corporate debt securities | 7,315,879 | | | 567,282 | | | (32,659) | | | (18,510) | | | 7,831,992 | |
Residential mortgage-backed securities | 146,173 | | | 5,589 | | | (1,434) | | | (35) | | | 150,293 | |
Collateralized debt securities | 151,013 | | | 4,704 | | | (1,922) | | | (2,946) | | | 150,849 | |
| | | | | | | | | |
Total bonds held-to-maturity | 7,723,838 | | | 582,282 | | | (36,018) | | | (21,491) | | | 8,248,611 | |
Fixed maturity, bonds available-for-sale | | | | | | | | | |
U.S. treasury and government | 32,017 | | | 543 | | | (1) | | | 0 | | | 32,559 | |
U.S. states and political subdivisions | 1,028,802 | | | 69,994 | | | (37) | | | 0 | | | 1,098,759 | |
Foreign governments | 14,992 | | | 1,602 | | | 0 | | | 0 | | | 16,594 | |
Corporate debt securities | 5,664,288 | | | 410,495 | | | (35,150) | | | (7,437) | | | 6,032,196 | |
Residential mortgage-backed securities | 26,292 | | | 1,256 | | | (70) | | | (194) | | | 27,284 | |
Collateralized debt securities | 27,975 | | | 892 | | | (64) | | | (7) | | | 28,796 | |
Total bonds available-for-sale | 6,794,366 | | | 484,782 | | | (35,322) | | | (7,638) | | | 7,236,188 | |
Total investments in fixed maturity | $ | 14,518,204 | | | $ | 1,067,064 | | | $ | (71,340) | | | $ | (29,129) | | | $ | 15,484,799 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2021 |
| Cost or Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Allowance for Credit Losses | | Fair Value |
Fixed maturity, bonds held-to-maturity | | | | | | | | | |
U.S. treasury and government | $ | 12,320 | | | $ | — | | | $ | (157) | | | $ | — | | | $ | 12,163 | |
U.S. states and political subdivisions | 108,155 | | | 2,226 | | | (2,059) | | | — | | | 108,322 | |
Foreign governments | 14,403 | | | 240 | | | (110) | | | — | | | 14,533 | |
Corporate debt securities | 6,995,994 | | | 479,215 | | | (14,470) | | | (11,977) | | | 7,448,762 | |
Residential mortgage-backed securities | 54,319 | | | 3,395 | | | (448) | | | (506) | | | 56,760 | |
Collateralized debt securities | 106,102 | | | 1,697 | | | (299) | | | (1,009) | | | 106,491 | |
Total bonds held-to-maturity | 7,291,293 | | | 486,773 | | | (17,543) | | | (13,492) | | | 7,747,031 | |
Fixed maturity, bonds available-for-sale | | | | | | | | | |
U.S. treasury and government | 25,880 | | | 180 | | | (56) | | | — | | | 26,004 | |
U.S. states and political subdivisions | 1,029,345 | | | 53,553 | | | (2,394) | | | (16) | | | 1,080,488 | |
Foreign governments | 5,000 | | | 980 | | | — | | | — | | | 5,980 | |
Corporate debt securities | 6,905,556 | | | 341,990 | | | (24,882) | | | (3,569) | | | 7,219,095 | |
Residential mortgage-backed securities | 32,321 | | | 602 | | | (84) | | | (257) | | | 32,582 | |
Collateralized debt securities | 209,585 | | | 688 | | | (654) | | | (687) | | | 208,932 | |
Total bonds available-for-sale | 8,207,687 | | | 397,993 | | | (28,070) | | | (4,529) | | | 8,573,081 | |
Total investments in fixed maturity | $ | 15,498,980 | | | $ | 884,766 | | | $ | (45,613) | | | $ | (18,021) | | | $ | 16,320,112 | |
| | | December 31, 2019 | | December 31, 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. treasury and government | | U.S. treasury and government | $ | 7,733 | | | $ | 11 | | | $ | — | | | $ | — | | | $ | 7,744 | |
U.S. states and political subdivisions | U.S. states and political subdivisions | $ | 165,109 | | | $ | 5,005 | | | $ | 0 | | | $ | — | | | $ | 170,114 | | U.S. states and political subdivisions | 109,445 | | | 4,101 | | | (11) | | | — | | | 113,535 | |
Foreign governments | Foreign governments | 3,907 | | | 442 | | | 0 | | | — | | | 4,349 | | Foreign governments | 3,851 | | | 374 | | | — | | | — | | | 4,225 | |
Corporate debt securities | Corporate debt securities | 8,099,098 | | | 332,410 | | | (6,539) | | | — | | | 8,424,969 | | Corporate debt securities | 6,992,095 | | | 623,233 | | | (9,117) | | | (7,475) | | | 7,598,736 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 237,516 | | | 6,460 | | | (1,148) | | | — | | | 242,828 | | Residential mortgage-backed securities | 114,579 | | | 5,065 | | | (1,464) | | | (452) | | | 117,728 | |
Collateralized debt securities | Collateralized debt securities | 125,631 | | | 1,146 | | | (347) | | | — | | | 126,430 | | Collateralized debt securities | 139,709 | | | 6,864 | | | (845) | | | (4,515) | | | 141,213 | |
| 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 | 7,367,412 | | | 639,648 | | | (11,437) | | | (12,442) | | | 7,983,181 | |
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 | 28,766 | | | 418 | | | (1) | | | — | | | 29,183 | |
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 | 1,066,627 | | | 73,976 | | | (145) | | | — | | | 1,140,458 | |
Foreign governments | Foreign governments | 5,000 | | | 1,287 | | | 0 | | | — | | | 6,287 | | Foreign governments | 14,995 | | | 1,393 | | | — | | | — | | | 16,388 | |
Corporate debt securities | Corporate debt securities | 5,338,007 | | | 251,408 | | | (12,795) | | | — | | | 5,576,620 | | Corporate debt securities | 5,887,756 | | | 471,205 | | | (17,207) | | | (7,275) | | | 6,334,479 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | 23,405 | | | 739 | | | (201) | | | — | | | 23,943 | | Residential mortgage-backed securities | 20,544 | | | 964 | | | (29) | | | (188) | | | 21,291 | |
Collateralized debt securities | Collateralized debt securities | 9,444 | | | 686 | | | (1) | | | — | | | 10,129 | | Collateralized debt securities | 54,454 | | | 1,040 | | | (94) | | | (19) | | | 55,381 | |
| 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 | 7,073,142 | | | 548,996 | | | (17,476) | | | (7,482) | | | 7,597,180 | |
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 | $ | 14,440,554 | | | $ | 1,188,644 | | | $ | (28,913) | | | $ | (19,924) | | | $ | 15,580,361 | |
Note 4 – Investment in Securities – (Continued)
The amortized cost and fair value, by contractual maturity, of fixed maturity securities are shown below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 |
| Bonds Held-to-Maturity | | Bonds Available-for-Sale |
| Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
Due in one year or less | $ | 778,789 | | | $ | 789,231 | | | $ | 368,975 | | | $ | 374,081 | |
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 | 3,096,745 | | | 3,379,567 | | | 2,307,855 | | | 2,504,782 | |
Due after ten years | 901,145 | | | 946,745 | | | 887,317 | | | 947,306 | |
Total | $ | 7,723,838 | | | $ | 8,248,611 | | | $ | 6,794,366 | | | $ | 7,236,188 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2021 |
| Bonds Held-to-Maturity | | Bonds Available-for-Sale |
| Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
Due in one year or less | $ | 730,763 | | | $ | 742,347 | | | $ | 441,452 | | | $ | 446,036 | |
Due after one year through five years | 2,547,132 | | | 2,713,348 | | | 3,153,728 | | | 3,347,317 | |
Due after five years through ten years | 3,046,253 | | | 3,272,173 | | | 2,663,455 | | | 2,801,606 | |
Due after ten years | 967,145 | | | 1,019,163 | | | 1,949,052 | | | 1,978,122 | |
Total | $ | 7,291,293 | | | $ | 7,747,031 | | | $ | 8,207,687 | | | $ | 8,573,081 | |
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 September 30, | | Nine months ended September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
Proceeds from sales of fixed maturity, bonds available-for-sale | | $ | 32,859 | | | $ | 14,921 | | | $ | 164,372 | | | $ | 15,205 | |
Gross realized gains | | 212 | | | 56 | | | 624 | | | 56 | |
Gross realized losses | | (73) | | | 0 | | | (4,145) | | | (23) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Proceeds from sales of fixed maturity, bonds available-for-sale | | $ | 5,907 | | | $ | 32,859 | | | $ | 31,080 | | | $ | 164,372 | |
Gross realized gains | | — | | | 212 | | | 59 | | | 624 | |
Gross realized losses | | — | | | (73) | | | — | | | (4,145) | |
Gains and losses are determined using specific identification of the securities sold. There was no transfer of bonds from held-to-maturity to available-for-sale during the nine months ended September 30, 2021. During the nine months ended September 30, 2020, and 2019, bonds below investment grade with a carrying value of $88,711,000 and $157,939,000 respectively,$88.7 million, were transferred from held-to-maturity to available-for-sale after a deterioration in the issuers’issuers' creditworthiness.
In accordance with various regulations, American National has bonds on deposit with regulating authorities with a carrying value of $48.1 million and $47.7 million at September 30, 2021 and December 31, 2020, respectively. In addition, American National has pledged bonds in connection with agreements and transactions, such as financing and reinsurance agreements. The carrying value of bonds pledged was $70.9 million and $111.0 million at September 30, 2021 and December 31, 2020, respectively.
The components of the change in net unrealized gains (losses) on debt securities are shown below (in thousands):
| | | | | | | | | | | |
| Nine months ended September 30, |
| 2020 | | 2019 |
Bonds available-for-sale: change in unrealized gains | $ | 160,045 | | | $ | 326,945 | |
Adjustments for | | | |
Deferred policy acquisition costs | (37,329) | | | (82,587) | |
Participating policyholders’ interest | (7,962) | | | (14,989) | |
Deferred federal income tax expense | (24,808) | | | (48,064) | |
Change in net unrealized gains on debt securities, net of tax | $ | 89,946 | | | $ | 181,305 | |
| | | | | | | | | | | |
| Nine months ended September 30, |
| 2021 | | 2020 |
Bonds available-for-sale: change in unrealized gains (losses) | $ | (161,597) | | | $ | 160,045 | |
Adjustments for | | | |
Deferred policy acquisition costs | 24,645 | | | (37,329) | |
Participating policyholders’ interest | 5,458 | | | (7,962) | |
Deferred federal income tax benefit (expense) | 27,909 | | | (24,808) | |
Change in net unrealized gains (losses) on debt securities, net of tax | $ | (103,585) | | | $ | 89,946 | |
The components of the change in net gains on equity securities are shown below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Unrealized gains on equity securities | | $ | 397 | | | $ | 154,104 | | | $ | 269,536 | | | $ | 119,296 | |
Net gains (losses) on equity securities sold | | 284 | | | (1,957) | | | (2,111) | | | (899) | |
Net gains on equity securities | | $ | 681 | | | $ | 152,147 | | | $ | 267,425 | | | $ | 118,397 | |
Note 4 – Investment in Securities – (Continued)
The gross unrealized losses and fair value of bonds available-for-sale, aggregated by investment category and length of time individual securities have been in a continuous unrealized loss position due to market factors are shown below (in thousands, except number of issues):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 |
| Less than 12 months | | 12 months or more | | Total |
| Number of issues | | Gross Unrealized (Losses) | | Fair Value | | Number of issues | | Gross Unrealized (Losses) | | Fair Value | | Number of issues | | Gross Unrealized (Losses) | | Fair Value |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Fixed maturity, bonds available-for-sale | | | | | | | | | | | | | | | | | |
U.S. treasury and government | 1 | | | $ | (1) | | | $ | 2,868 | | | 0 | | | $ | 0 | | | $ | 0 | | | 1 | | | $ | (1) | | | $ | 2,868 | |
U.S. states and political subdivisions | 2 | | | (37) | | | 5,484 | | | 0 | | | 0 | | | 0 | | | 2 | | | (37) | | | 5,484 | |
Corporate debt securities | 86 | | | (22,857) | | | 533,271 | | | 11 | | | (12,293) | | | 49,002 | | | 97 | | | (35,150) | | | 582,273 | |
Residential mortgage-backed securities | 1 | | | (70) | | | 7,000 | | | 3 | | | 0 | | | 613 | | | 4 | | | (70) | | | 7,613 | |
Collateralized debt securities | 1 | | | (62) | | | 8,008 | | | 1 | | | (2) | | | 157 | | | 2 | | | (64) | | | 8,165 | |
| | | | | | | | | | | | | | | | | |
Total | 91 | | | $ | (23,027) | | | $ | 556,631 | | | 15 | | | $ | (12,295) | | | $ | 49,772 | | | 106 | | | $ | (35,322) | | | $ | 606,403 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2021 |
| Less than 12 months | | 12 months or more | | Total |
| Number of Issues | | Gross Unrealized Losses | | Fair Value | | Number of Issues | | Gross Unrealized Losses | | Fair Value | | Number of Issues | | Gross Unrealized Losses | | Fair Value |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Fixed maturity, bonds available-for-sale | | | | | | | | | | | | | | | | | |
U.S. treasury and government | 8 | | | $ | (49) | | | $ | 17,451 | | | 1 | | | $ | (7) | | | $ | 2,861 | | | 9 | | | $ | (56) | | | $ | 20,312 | |
U.S. states and political subdivisions | 15 | | | (1,888) | | | 68,227 | | | 1 | | | (506) | | | 4,752 | | | 16 | | | (2,394) | | | 72,979 | |
Corporate debt securities | 168 | | | (22,525) | | | 1,341,169 | | | 15 | | | (2,357) | | | 65,833 | | | 183 | | | (24,882) | | | 1,407,002 | |
Residential mortgage-backed securities | 2 | | | (81) | | | 13,468 | | | 2 | | | (3) | | | 528 | | | 4 | | | (84) | | | 13,996 | |
Collateralized debt securities | 22 | | | (602) | | | 158,176 | | | 2 | | | (52) | | | 4,455 | | | 24 | | | (654) | | | 162,631 | |
| | | | | | | | | | | | | | | | | |
Total | 215 | | | $ | (25,145) | | | $ | 1,598,491 | | | 21 | | | $ | (2,925) | | | $ | 78,429 | | | 236 | | | $ | (28,070) | | | $ | 1,676,920 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| | Less than 12 months | | 12 months or more | | Total |
| | Number of Issues | | Gross Unrealized Losses | | Fair Value | | Number of Issues | | Gross Unrealized Losses | | Fair Value | | Number of Issues | | Gross Unrealized Losses | | Fair Value |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Fixed maturity, bonds available-for-sale | | | | | | | | | | | | | | | | | | |
U.S. treasury and government | | 1 | | | $ | (1) | | | $ | 2,868 | | | — | | | $ | — | | | $ | — | | | 1 | | | $ | (1) | | | $ | 2,868 | |
U.S. states and political subdivisions | | 2 | | | (145) | | | 10,205 | | | — | | | — | | | — | | | 2 | | | (145) | | | 10,205 | |
Corporate debt securities | | 43 | | | (8,507) | | | 270,249 | | | 8 | | | (8,700) | | | 13,270 | | | 51 | | | (17,207) | | | 283,519 | |
Residential mortgage-backed securities | | 1 | | | (21) | | | 1,391 | | | 3 | | | (8) | | | 593 | | | 4 | | | (29) | | | 1,984 | |
Collateralized debt securities | | 3 | | | (93) | | | 12,752 | | | 1 | | | (1) | | | 158 | | | 4 | | | (94) | | | 12,910 | |
Total | | 50 | | | $ | (8,767) | | | $ | 297,465 | | | 12 | | | $ | (8,709) | | | $ | 14,021 | | | 62 | | | $ | (17,476) | | | $ | 311,486 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2019 |
| | Less than 12 months | | 12 months or more | | Total |
| | Number of issues | | Gross Unrealized (Losses) | | Fair Value | | Number of issues | | Gross Unrealized (Losses) | | Fair Value | | Number of issues | | Gross Unrealized (Losses) | | Fair Value |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Fixed maturity, bonds available-for-sale | | | | | | | | | | | | | | | | | | |
U.S. treasury and government | | 0 | | | $ | 0 | | | $ | 0 | | | 5 | | | $ | (5) | | | $ | 8,299 | | | 5 | | | $ | (5) | | | $ | 8,299 | |
U.S. states and political subdivisions | | 2 | | | (9) | | | 1,733 | | | 0 | | | 0 | | | 0 | | | 2 | | | (9) | | | 1,733 | |
Corporate debt securities | | 22 | | | (5,257) | | | 94,942 | | | 25 | | | (7,538) | | | 132,626 | | | 47 | | | (12,795) | | | 227,568 | |
Residential mortgage-backed securities | | 1 | | | (9) | | | 10,169 | | | 3 | | | (192) | | | 722 | | | 4 | | | (201) | | | 10,891 | |
Collateralized debt securities | | 1 | | | (1) | | | 159 | | | 0 | | | 0 | | | 0 | | | 1 | | | (1) | | | 159 | |
Total | | 26 | | | $ | (5,276) | | | $ | 107,003 | | | 33 | | | $ | (7,735) | | | $ | 141,647 | | | 59 | | | $ | (13,011) | | | $ | 248,650 | |
| | | | | | | | | | | | | | | | | | |
Unrealized losses on bonds available-for-sale where an allowance for credit loss was not recorded are due to noncredit related factors caused by market liquidity events related to COVID-19 and the related economic downturn. A number of assumptions and estimates are inherent in evaluating whether an allowance for credit loss is necessary, which include the financial condition, near term and long-term prospects of the issue or issuer, including relevant industry conditions and trends and implications of rating agency actions and offering prices. Based on this evaluation, unrealized losses on bonds available-for-sale where an allowance for credit loss was not recorded were concentrated in the Company's fixed maturity securities within the Oil, Gas and Coal exploration, production, and refining sector.
Equity securities by market sector distribution are shown below, based on fair value:
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
Consumer goods | 20.7 | % | | 18.9 | % |
Energy and utilities | 5.1 | | | 8.0 | |
Finance | 20.4 | | | 18.0 | |
Healthcare | 15.7 | | | 13.0 | |
Industrials | 6.5 | | | 7.6 | |
Information technology | 27.2 | | | 25.0 | |
Other | 4.4 | | | 9.5 | |
Total | 100.0 | % | | 100.0 | % |
| | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
Consumer goods | 16.8 | % | | 19.3 | % |
Energy and utilities | 5.6 | | | 5.2 | |
Finance | 24.5 | | | 21.6 | |
Healthcare | 14.0 | | | 15.0 | |
Industrials | 7.2 | | | 7.4 | |
Information technology | 26.7 | | | 27.1 | |
Other | 5.2 | | | 4.4 | |
Total | 100.0 | % | | 100.0 | % |
Note 4 – Investment in Securities – (Continued)
Allowance for Credit Losses
Held-to-Maturity Securities—Management measures expected credit losses on bonds held-to-maturity on a collective (pool)qualitative adjustment basis by major security type: corporate bonds, structured products, municipals, specialty products and treasuries. Accrued interest receivable on held-to maturityheld-to-maturity debt securities are excluded from the estimate of credit losses. The estimate of expected credit losses considers historical credit loss information that is adjusted for current market conditions and reasonable and supportable economic forecasts based upon a third-party valuation model.
Available-for-Sale Securities—For available-for-sale bonds in an unrealized loss position, the Company first assesses whether it intends to sell the security or will be required to sell the security before recovery of its amortized cost basis. If either of these criteria isare met, the security’s amortized cost basis is written down to fair value through income. For bonds available-for-sale that do not meet either indicated criteria, the Company evaluates whether the decline in fair value has resulted from credit events or market factors. In making this assessment, management first calculates the extent to which fair value is less than amortized cost, and then may consider any changes to the rating of the security by a rating agency, and any specific conditions related to the security. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded through income, limited to the amount fair value is less than amortized cost. Any remaining unrealized loss is recognized in other comprehensive income.
When the discounted cash flow method is used to determine the allowance for credit losses, management's estimates incorporate expected prepayments, if any. Model inputs are considered reasonable and supportable for three years. A mean reversion is applied in years four and five. Credit loss allowance is not measured on accrued interest receivable because the balance is written off to net investment income in a timely manner, within 90 days. Changes in the allowance for credit losses are recognized through the condensed consolidated statement of operations as change in expectedinvestment credit loss.
No accrued interest receivables were written off as of September 30, 2020.2021.
Note 4 – Investment in Securities – (Continued)
The rollforward of the allowance for credit losses for bonds held-to-maturity is shown below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Foreign Governments | | Corporate Debt Securities | | Collateralized Debt Securities | | Residential Mortgage Backed Securities | | Total |
Allowance for credit losses | | | | | | | | | | | |
Cumulative adjustment at January 1, 2020 | | | $ | 4 | | | $ | (18,563) | | | $ | (2,968) | | | $ | (137) | | | $ | (21,664) | |
Purchases | | | 0 | | | (622) | | | (323) | | | 0 | | | (945) | |
Disposition | | | 0 | | | 6,901 | | | 106 | | | 134 | | | 7,141 | |
Provision | | | 1 | | | (6,117) | | | 199 | | | 0 | | | (5,917) | |
Balance at March 31, 2020 | | | 5 | | | (18,401) | | | (2,986) | | | (3) | | | (21,385) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Purchases | | | 0 | | | (116) | | | 0 | | | 0 | | | (116) | |
Disposition | | | 0 | | | 200 | | | 0 | | | 0 | | | 200 | |
Provision | | | (5) | | | (1,565) | | | 454 | | | 3 | | | (1,113) | |
| | | | | | | | | | | |
Balance at June 30, 2020 | | | 0 | | | (19,882) | | | (2,532) | | | 0 | | | (22,414) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Purchases | | | 0 | | | (4) | | | (6) | | | 0 | | | (10) | |
Disposition | | | 0 | | | 1,607 | | | 0 | | | 0 | | | 1,607 | |
Provision | | | 0 | | | (231) | | | (408) | | | (35) | | | (674) | |
| | | | | | | | | | | |
Balance at September 30, 2020 | | | $ | 0 | | | $ | (18,510) | | | $ | (2,946) | | | $ | (35) | | | $ | (21,491) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Corporate Debt Securities | | Collateralized Debt Securities | | Residential Mortgage Backed Securities | | Total |
| | | | | | | | | | | |
Balance at January 1, 2021 | | | | | $ | (7,475) | | | $ | (4,515) | | | $ | (452) | | | $ | (12,442) | |
Purchases | | | | | (228) | | | — | | | — | | | (228) | |
Disposition | | | | | 125 | | | — | | | — | | | 125 | |
Provision | | | | | (4,215) | | | (2,004) | | | (90) | | | (6,309) | |
Balance at March 31, 2021 | | | | | $ | (11,793) | | | $ | (6,519) | | | $ | (542) | | | $ | (18,854) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Purchases | | | | | (974) | | | — | | | — | | | (974) | |
Disposition | | | | | 104 | | | 551 | | | — | | | 655 | |
Provision | | | | | (2,289) | | | 4,244 | | | 16 | | | 1,971 | |
| | | | | | | | | | | |
Balance at June 30, 2021 | | | | | $ | (14,952) | | | $ | (1,724) | | | $ | (526) | | | $ | (17,202) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Purchases | | | | | (101) | | | — | | | — | | | (101) | |
Disposition | | | | | 194 | | | — | | | — | | | 194 | |
Provision | | | | | 2,882 | | | 715 | | | 20 | | | 3,617 | |
| | | | | | | | | | | |
Balance at September 30, 2021 | | | | | $ | (11,977) | | | $ | (1,009) | | | $ | (506) | | | $ | (13,492) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Foreign Governments | | Corporate Debt Securities | | Collateralized Debt Securities | | Residential Mortgage Backed Securities | | Total |
| | | | | | | | | | | |
Balance at January 1, 2020 | | | $ | 4 | | | $ | (18,563) | | | $ | (2,968) | | | $ | (137) | | | $ | (21,664) | |
Purchases | | | — | | | (622) | | | (323) | | | — | | | (945) | |
Disposition | | | — | | | 6,901 | | | 106 | | | 134 | | | 7,141 | |
Provision | | | 1 | | | (6,117) | | | 199 | | | — | | | (5,917) | |
| | | | | | | | | | | |
Balance at March 31, 2020 | | | $ | 5 | | | $ | (18,401) | | | $ | (2,986) | | | $ | (3) | | | $ | (21,385) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Purchases | | | — | | | (116) | | | — | | | — | | | (116) | |
Disposition | | | — | | | 200 | | | — | | | — | | | 200 | |
Provision | | | (5) | | | (1,565) | | | 454 | | | 3 | | | (1,113) | |
| | | | | | | | | | | |
Balance at June 30, 2020 | | | $ | — | | | $ | (19,882) | | | $ | (2,532) | | | $ | — | | | $ | (22,414) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Purchases | | | — | | | (4) | | | (6) | | | — | | | (10) | |
Disposition | | | — | | | 1,607 | | | — | | | — | | | 1,607 | |
Provision | | | — | | | (231) | | | (408) | | | (35) | | | (674) | |
| | | | | | | | | | | |
Balance at September 30, 2020 | | | $ | — | | | $ | (18,510) | | | $ | (2,946) | | | $ | (35) | | | $ | (21,491) | |
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 | | | | | | | $ | 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) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. Treasury and Government | | U.S. State and Political Subdivisions | | | | Corporate Debt Securities | | Collateralized Debt Securities | | Residential Mortgage Backed Securities | | Total |
| | | | | | | | | | | | | |
Balance at January 1, 2021 | $ | — | | | $ | — | | | | | $ | (7,275) | | | $ | (19) | | | $ | (188) | | | $ | (7,482) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Allowance on securities that had an allowance recorded in a previous period | — | | | — | | | | | (733) | | | (488) | | | (10) | | | (1,231) | |
Allowance on securities where credit losses were not previously recorded | (3) | | | — | | | | | — | | | — | | | — | | | (3) | |
| | | | | | | | | | | | | |
Balance at March 31, 2021 | $ | (3) | | | $ | — | | | | | $ | (8,008) | | | $ | (507) | | | $ | (198) | | | $ | (8,716) | |
| | | | | | | | | | | | | |
Increase in allowance related to purchases | — | | | — | | | | | (981) | | | (192) | | | — | | | (1,173) | |
Reduction in allowance related to disposition | — | | | — | | | | | 4,039 | | | 182 | | | — | | | 4,221 | |
| | | | | | | | | | | | | |
Allowance on securities that had an allowance recorded in a previous period | 3 | | | — | | | | | 1,181 | | | 87 | | | (5) | | | 1,266 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Allowance on securities where credit losses were not previously recorded | — | | | (8) | | | | | (720) | | | (26) | | | (2) | | | (756) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Balance at June 30, 2021 | $ | — | | | $ | (8) | | | | | $ | (4,489) | | | $ | (456) | | | $ | (205) | | | $ | (5,158) | |
| | | | | | | | | | | | | |
Increase in allowance related to purchases | — | | | — | | | | | (2,177) | | | (346) | | | — | | | (2,523) | |
Reduction in allowance related to disposition | — | | | — | | | | | 56 | | | — | | | — | | | 56 | |
Allowance on securities that had an allowance recorded in a previous period | — | | | 8 | | | | | 3,339 | | | 238 | | | (3) | | | 3,582 | |
Allowance on securities where credit losses were not previously recorded | — | | | (16) | | | | | (298) | | | (123) | | | (49) | | | (486) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Balance at September 30, 2021 | $ | — | | | $ | (16) | | | | | $ | (3,569) | | | $ | (687) | | | $ | (257) | | | $ | (4,529) | |
The change | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Corporate Debt Securities | | Collateralized Debt Securities | | Residential Mortgage Backed Securities | | Total |
| | | | | | | | | | | | | |
Balance at January 1, 2020 | | | | | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
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) | | | — | | | — | | | (73) | |
Reduction in allowance related to disposition | | | | | | | 7 | | | — | | | 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) | | | — | | | — | | | (1,276) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Balance at June 30, 2020 | | | | | | | $ | (3,824) | | | $ | (81) | | | $ | (210) | | | $ | (4,115) | |
| | | | | | | | | | | | | |
Increase in allowance related to purchases | | | | | | | (28) | | | — | | | — | | | (28) | |
Reduction in allowance related to disposition | | | | | | | 33 | | | — | | | — | | | 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) | | | — | | | — | | | (4,771) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Balance at September 30, 2020 | | | | | | | $ | (7,437) | | | $ | (7) | | | $ | (194) | | | $ | (7,638) | |
Note 4 – Investment in allowance for the nine months ended September 30, 2020 was impacted by economic changes due to the COVID-19 pandemic on the bond market. During the third quarter, energy, retail and real estate sectors were impacted and caused the increase in the allowance.Securities – (Continued)
Credit Quality Indicators
The Company monitors the credit quality of bonds held-to-maturity through the use of credit ratings, which are updated on a monthly basis. Information is also gathered regarding the asset performance of held-to-maturity bonds. The two traditional metrics for assessing interest rate risks are interest-coverage ratios and capitalization ratios, which can also be used in the assessment of credit risk. These risks are fairly mitigated through the diversification of all bond investments. Categories of diversification include credit ratings, geographic locations, maturities, and market sector.
The credit quality indicators for the amortized cost of bonds held-to-maturity are shown below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 |
| Amortized cost of bonds held-to-maturity by credit rating |
Fixed maturity, bonds held-to-maturity | AAA | | AA | | A | | BBB | | BB and below | | Total |
U.S. state and political subdivisions | $ | 29,996 | | | $ | 64,232 | | | $ | 7,893 | | | $ | 0 | | | $ | 4,787 | | | $ | 106,908 | |
Foreign governments | 0 | | | 2,831 | | | 1,034 | | | 0 | | | 0 | | | 3,865 | |
Corporate debt securities | 1,951 | | | 276,131 | | | 3,074,717 | | | 3,859,811 | | | 103,269 | | | 7,315,879 | |
Residential mortgage backed securities | 61,850 | | | 0 | | | 0 | | | 0 | | | 84,323 | | | 146,173 | |
Collateralized debt securities | 0 | | | 0 | | | 118,921 | | | 5,120 | | | 26,972 | | | 151,013 | |
Total | $ | 93,797 | | | $ | 343,194 | | | $ | 3,202,565 | | | $ | 3,864,931 | | | $ | 219,351 | | | $ | 7,723,838 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2021 |
| Amortized cost of bonds held-to-maturity by credit rating |
Fixed maturity, bonds held-to-maturity | AAA | | AA | | A | | BBB | | BB and below | | Total |
U.S. treasury and government | $ | — | | | $ | 12,320 | | | $ | — | | | $ | — | | | $ | — | | | $ | 12,320 | |
U.S. state and political subdivisions | 14,867 | | | 52,852 | | | 9,193 | | | 25,853 | | | 5,390 | | | 108,155 | |
Foreign governments | — | | | 13,385 | | | 1,018 | | | — | | | — | | | 14,403 | |
Corporate debt securities | 31,259 | | | 401,106 | | | 3,240,129 | | | 3,230,894 | | | 92,606 | | | 6,995,994 | |
Collateralized debt securities | — | | | — | | | 67,866 | | | 33,339 | | | 4,897 | | | 106,102 | |
Residential mortgage backed securities | — | | | 53,031 | | | — | | | — | | | 1,288 | | | 54,319 | |
Total | $ | 46,126 | | | $ | 532,694 | | | $ | 3,318,206 | | | $ | 3,290,086 | | | $ | 104,181 | | | $ | 7,291,293 | |
| | | December 31, 2019 | | December 31, 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. treasury and government | | U.S. treasury and government | $ | — | | | $ | 7,733 | | | $ | — | | | $ | — | | | $ | — | | | $ | 7,733 | |
U.S. state and political subdivisions | U.S. state and political subdivisions | $ | 58,539 | | | $ | 76,542 | | | $ | 24,260 | | | $ | 500 | | | $ | 5,268 | | | $ | 165,109 | | U.S. state and political subdivisions | 25,831 | | | 43,964 | | | 34,893 | | | — | | | 4,757 | | | 109,445 | |
Foreign governments | Foreign governments | 0 | | | 2,861 | | | 1,046 | | | 0 | | | 0 | | | 3,907 | | Foreign governments | — | | | 2,820 | | | 1,031 | | | — | | | — | | | 3,851 | |
Corporate debt securities | Corporate debt securities | 2,729 | | | 407,070 | | | 3,637,144 | | | 4,031,931 | | | 20,224 | | | 8,099,098 | | Corporate debt securities | 1,956 | | | 262,830 | | | 2,976,571 | | | 3,647,496 | | | 103,242 | | | 6,992,095 | |
Collateralized debt securities | | Collateralized debt securities | — | | | — | | | 107,795 | | | 31,914 | | | — | | | 139,709 | |
Residential mortgage backed securities | Residential mortgage backed securities | 87,003 | | | 0 | | | 51,771 | | | 0 | | | 98,742 | | | 237,516 | | Residential mortgage backed securities | — | | | 112,995 | | | — | | | — | | | 1,584 | | | 114,579 | |
Collateralized debt securities | 0 | | | 0 | | | 109,233 | | | 16,398 | | | 0 | | | 125,631 | | |
| Total | Total | $ | 148,271 | | | $ | 486,473 | | | $ | 3,823,454 | | | $ | 4,048,829 | | | $ | 124,234 | | | $ | 8,631,261 | | Total | $ | 27,787 | | | $ | 430,342 | | | $ | 3,120,290 | | | $ | 3,679,410 | | | $ | 109,583 | | | $ | 7,367,412 | |
At 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.
Note 5 – Mortgage Loans
Generally, commercial mortgage loans are secured by first liens on income-producing real estate. American National attempts to maintain a diversified portfolio by considering both the location of the underlying collateral as well as the type of mortgage loan. The geographic categories come from the U.S. Census Bureau's "Census Regions and Divisions of the United States." The distribution based on carrying amount of mortgage loans by location is as follows (in thousands, except percentages):
| | | | | | | | | | | | | | | | | | | | | | | September 30, 2021 | | December 31, 2020 |
| | September 30, 2020 | | December 31, 2019 | | Amount | | Percentage | | Amount | | Percentage |
East North Central | East North Central | $ | 724,667 | | | 14.0 | % | | $ | 667,150 | | | 13.1 | % | East North Central | $ | 736,044 | | | 14.7 | % | | $ | 783,614 | | | 14.9 | % |
East South Central | East South Central | 147,385 | | | 2.8 | | | 144,887 | | | 2.8 | | East South Central | 112,150 | | | 2.3 | | | 146,052 | | | 2.8 | |
Mountain | Mountain | 1,245,404 | | | 24.1 | | | 1,200,434 | | | 23.6 | | Mountain | 1,243,779 | | | 24.9 | | | 1,284,555 | | | 24.5 | |
Pacific | Pacific | 830,697 | | | 16.1 | | | 852,574 | | | 16.7 | | Pacific | 797,586 | | | 15.9 | | | 806,426 | | | 15.4 | |
South Atlantic | South Atlantic | 626,014 | | | 12.1 | | | 621,875 | | | 12.2 | | South Atlantic | 550,256 | | | 11.0 | | | 619,405 | | | 11.8 | |
West South Central | West South Central | 1,284,656 | | | 24.8 | | | 1,272,522 | | | 25.0 | | West South Central | 1,247,386 | | | 24.9 | | | 1,313,848 | | | 25.1 | |
Other | Other | 317,651 | | | 6.1 | | | 337,575 | | | 6.6 | | Other | 315,777 | | | 6.3 | | | 288,631 | | | 5.5 | |
Total | Total | $ | 5,176,474 | | | 100.0 | % | | $ | 5,097,017 | | | 100.0 | % | Total | $ | 5,002,978 | | | 100.0 | % | | $ | 5,242,531 | | | 100.0 | % |
As of September 30, 20202021 and December 31, 2019,2020, loans in foreclosure and loans foreclosed are as follows (in thousands, except number of loans):
| | | September 30, 2020 | | December 31, 2019 | | September 30, 2021 | | December 31, 2020 |
Foreclosure and foreclosed | Foreclosure and foreclosed | Number of Loans | | Recorded Investment | | Number of Loans | | Recorded Investment | Foreclosure and foreclosed | Number of Loans | | Recorded Investment | | Number of Loans | | Recorded Investment |
In foreclosure | In foreclosure | 4 | | $ | 24,498 | | | 2 | | $ | 13,345 | | In foreclosure | — | | | $ | — | | | 1 | | | $ | 5,168 | |
Filed for bankruptcy* | Filed for bankruptcy* | 1 | | 9,230 | | | 0 | | | 0 | | Filed for bankruptcy* | — | | | — | | | 1 | | | 9,230 | |
Total in foreclosure | Total in foreclosure | 5 | | $ | 33,728 | | | 2 | | $ | 13,345 | | Total in foreclosure | — | | | $ | — | | | 2 | | | $ | 14,398 | |
| Foreclosed | Foreclosed | 1 | | $ | 4,511 | | | 2 | | $ | 16,008 | | Foreclosed | — | | | $ | — | | | 2 | | $ | 8,603 | |
*Borrower filed for bankruptcy after foreclosure proceedings had begunbegun.
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 |
September 30, 2020 | | | | | | Amount | | Percent |
Apartment | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 469,903 | | | $ | 469,903 | | | 8.9 | % |
Hotel | 0 | | | 45,386 | | | 0 | | | 45,386 | | | 858,893 | | | 904,279 | | | 17.1 | |
Industrial | 0 | | | 0 | | | 9,260 | | | 9,260 | | | 765,337 | | | 774,597 | | | 14.7 | |
Office | 39,392 | | | 0 | | | 9,230 | | | 48,622 | | | 1,511,988 | | | 1,560,610 | | | 29.5 | |
Retail | 0 | | | 0 | | | 5,000 | | | 5,000 | | | 801,198 | | | 806,198 | | | 15.2 | |
Other | 0 | | | 0 | | | 0 | | | 0 | | | 773,803 | | | 773,803 | | | 14.6 | |
Total | $ | 39,392 | | | $ | 45,386 | | | $ | 23,490 | | | $ | 108,268 | | | $ | 5,181,122 | | | $ | 5,289,390 | | | 100.0 | % |
Allowance for credit losses | | | | | | | | | | | (112,916) | | | |
Total, net of allowance | | | | | | | | | | | $ | 5,176,474 | | | |
December 31, 2019 | | | | | | | | | | | | | |
Apartment | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 416,865 | | | $ | 416,865 | | | 8.2 | % |
Hotel | 0 | | | 0 | | | 0 | | | 0 | | | 901,044 | | | 901,044 | | | 17.6 | |
Industrial | 0 | | | 13,076 | | | 4,091 | | | 17,167 | | | 589,722 | | | 606,889 | | | 11.9 | |
Office | 22,870 | | | 0 | | | 0 | | | 22,870 | | | 1,587,591 | | | 1,610,461 | | | 31.5 | |
Retail | 0 | | | 0 | | | 4,122 | | | 4,122 | | | 843,466 | | | 847,588 | | | 16.5 | |
Other | 11,759 | | | 0 | | | 0 | | | 11,759 | | | 721,571 | | | 733,330 | | | 14.3 | |
Total | $ | 34,629 | | | $ | 13,076 | | | $ | 8,213 | | | $ | 55,918 | | | $ | 5,060,259 | | | $ | 5,116,177 | | | 100.0 | % |
Allowance for loan losses | | | | | | | | | | | (19,160) | | | |
Total, net of allowance | | | | | | | | | | | $ | 5,097,017 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 30-59 Days Past Due | | 60-89 Days Past Due | | More Than 90 Days Past Due | | Total | | Current | | Total |
September 30, 2021 | | | | | | Amount | | Percentage |
Apartment | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 506,243 | | | $ | 506,243 | | | 9.9 | % |
Hotel | — | | | — | | | — | | | — | | | 923,268 | | | 923,268 | | | 18.1 | |
Industrial | — | | | — | | | — | | | — | | | 904,189 | | | 904,189 | | | 17.7 | |
Office | — | | | — | | | — | | | — | | | 1,412,399 | | | 1,412,399 | | | 27.6 | |
Parking | — | | | — | | | — | | | — | | | 362,168 | | | 362,168 | | | 7.1 | |
Retail | — | | | — | | | — | | | — | | | 740,439 | | | 740,439 | | | 14.5 | |
Storage | — | | | — | | | — | | | — | | | 139,186 | | | 139,186 | | | 2.7 | |
Other | — | | | 2,258 | | | — | | | 2,258 | | | 119,725 | | | 121,983 | | | 2.4 | |
Total | $ | — | | | $ | 2,258 | | | $ | — | | | $ | 2,258 | | | $ | 5,107,617 | | | $ | 5,109,875 | | | 100.0 | % |
Allowance for credit losses | | | | | | | | | | | (106,897) | | | |
Total, net of allowance | | | | | | | | | | | $ | 5,002,978 | | | |
December 31, 2020 | | | | | | | | | | | | | |
Apartment | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 557,159 | | | $ | 557,159 | | | 10.5 | % |
Hotel | 30,315 | | | 30,158 | | | — | | | 60,473 | | | 853,522 | | | 913,995 | | | 17.0 | |
Industrial | 14,930 | | | — | | | 5,168 | | | 20,098 | | | 836,105 | | | 856,203 | | | 15.9 | |
Office | 24,804 | | | — | | | 9,230 | | | 34,034 | | | 1,522,197 | | | 1,556,231 | | | 29.0 | |
Parking | 48,825 | | | 29,355 | | | — | | | 78,180 | | | 286,107 | | | 364,287 | | | 6.8 | |
Retail | 4,991 | | | — | | | 25,779 | | | 30,770 | | | 760,907 | | | 791,677 | | | 14.7 | |
Storage | — | | | — | | | — | | | — | | | 165,561 | | | 165,561 | | | 3.1 | |
Other | — | | | — | | | — | | | — | | | 163,121 | | | 163,121 | | | 3.0 | |
Total | $ | 123,865 | | | $ | 59,513 | | | $ | 40,177 | | | $ | 223,555 | | | $ | 5,144,679 | | | $ | 5,368,234 | | | 100.0 | % |
Allowance for credit losses | | | | | | | | | | | (125,703) | | | |
Total, net of allowance | | | | | | | | | | | $ | 5,242,531 | | | |
Note 5 – Mortgage Loans – (Continued)
As a result of the economic impact associated with COVID-19, as of September 30, 2020, 92American National modified 93 loans with a total balance of $1.6 billion primarily related to hotels, retailduring the second and parking operationsthird quarters of 2020. These modifications were modified. The termsin the form 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 provisionprovisions for interest only payments. OfThe modifications were primarily related to our loans to hotels, retail and parking operations. Due to the ongoing economic stress brought on by the pandemic, additional modifications for 33 of these loans with a total balance of $739.7 million were made during 2021. These additional modifications extended the forbearance of principal and interest payments and interest only provisions with a requirement for the payment of at least 20% of the total interest due during the extended modification period. The modified loans 1 loan totaling $45had an aggregate deferred interest of $8.0 million is over 60 days past due. All other loans are current under their modified terms.
as of September 30, 2021. There were 0no unamortized purchase discounts as of September 30, 20202021 and December 31, 2019.2020. Total mortgage loans were net of unamortized origination fees of $27,001,000$24.5 million and $29,294,000$26.1 million at September 30, 20202021 and December 31, 2019,2020, respectively. No unearned income is included in these amounts.
Troubled Debt Restructurings
American National has granted concessions to certain mortgage loan borrowers. Concessions are generally one of, or a combination of, a delay in payment of principal or interest, a reduction of the contractual interest rate or an extension of the maturity date. Loans that have these concessions could be classified as troubled debt restructurings. The carrying value after the allowance, before and after modification in a troubled debt restructuring, may notcould change significantly, or may increase ifbased on the expected recovery of the loan, which is higher than the pre-modification recovery assessment.evaluated quarterly. 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):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, |
| 2020 | | 2019 |
| Number of Loans | | Recorded Investment Pre-Modification | | Recorded Investment Post Modification | | Number of Loans | | Recorded Investment Pre- Modification | | Recorded Investment Post Modification |
Office | 7 | | | $ | 76,201 | | | $ | 76,201 | | | 1 | | | $ | 9,271 | | | $ | 9,271 | |
Retail | 6 | | | 79,911 | | | 79,911 | | | 2 | | | 41,354 | | | 41,354 | |
Industrial | 2 | | | 11,473 | | | 11,473 | | | 0 | | | 0 | | | 0 | |
Hotel | 34 | | | 811,007 | | | 811,007 | | | 0 | | | 0 | | | 0 | |
Parking | 13 | | | 168,740 | | | 168,740 | | | 0 | | | 0 | | | 0 | |
Other | 5 | | | 119,738 | | | 119,738 | | | 0 | | | 0 | | | 0 | |
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.
Loans determined to be troubled debt restructures during the periods presented is as follows (in thousands, except number of loans):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, |
| 2021 | | 2020 |
| Number of Loans | | Recorded Investment Pre-Modification | | Recorded Investment Post-Modification | | Number of Loans | | Recorded Investment Pre-Modification | | Recorded Investment Post-Modification |
Office | 3 | | | $ | 44,828 | | | $ | 44,828 | | | 7 | | | $ | 76,201 | | | $ | 76,201 | |
Retail | 3 | | | 32,711 | | | 32,711 | | | 6 | | | 79,911 | | | 79,911 | |
Industrial | — | | | — | | | — | | | 2 | | | 11,473 | | | 11,473 | |
Hotel | — | | | — | | | — | | | 34 | | | 811,007 | | | 811,007 | |
Parking | 1 | | | 9,716 | | | 9,716 | | | 13 | | | 168,740 | | | 168,740 | |
Storage | 1 | | | 8,947 | | | 8,947 | | | — | | | — | | | — | |
Other | — | | | — | | | — | | | 5 | | | 119,738 | | | 119,738 | |
Total | 8 | | | $ | 96,202 | | | $ | 96,202 | | | 67 | | | $ | 1,267,070 | | | $ | 1,267,070 | |
As of September 30, 2021, a total of 74 loans with a recorded investment of $1.4 billion were designated a troubled debt restructure. There are no commitments to lend additional funds to debtors whose loans have been modified in a troubled debt restructuring during the periods presented. The decrease in loans determined to be a troubled debt restructuring in the nine months ended September 30, 2021 is primarily attributable to improved economic conditions after lifting of COVID-19 related restrictions.
Note 5 – Mortgage Loans – (Continued)
Allowance for Credit Losses
Mortgage loans on real estate are stated at unpaid principal balance, adjusted for any unamortized discount, deferred expenses and allowances. The allowance for current expectedcredit losses per ASC 326, at the effective date will beis based upon the current expected credit loss model. Refer to Note 3, Recently Issued Accounting Pronouncements. The model considers past loss experience, current economic conditions, and reasonable and supportable forecasts of future conditions. Reversion for the allowance calculation is implicit in the models used to determine the allowance. The methodology uses a discounted cash flow approach based on expected cash flows.
The rollforward of the allowance for credit losses for mortgage loans is shown below (in thousands):
| | | | | |
| Commercial Mortgage Loans |
Beginning balanceBalance at January 1, 2021 | $ | (125,703) | |
| |
| |
| |
| |
Provision | (885) | |
| |
Balance at March 31, 2021 | $ | (126,588) | |
Provision | 17,630 | |
Balance at June 30, 2021 | $ | (108,958) | |
| |
| |
| |
Provision | 2,061 | |
| |
Balance at September 30, 2021 | $ | (106,897) | |
| |
| Commercial Mortgage Loans |
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 | $ | (112,916) | |
Note 5 – Mortgage Loans – (Continued)
The change in allowance for the nine months ended September 30, 20202021 was primarily driven by a favorable response of the economic disruption caused by COVID-19.hospitality and retail industries to re-opening of the economy and resulting increases in travel and brick-and-mortar shopping.
The asset and allowance balances for credit losses for mortgage loans by property-type are shown below (in thousands):
| | | | | | | | | | | |
| September 30, 2020 |
| Asset Balance | | Allowance |
Apartment | $ | 465,221 | | | $ | (4,682) | |
Hotel | 859,119 | | | (45,160) | |
Industrial | 771,951 | | | (2,646) | |
Office | 1,534,903 | | | (25,707) | |
Retail | 795,164 | | | (11,034) | |
Parking | 352,435 | | | (11,129) | |
Other | 397,681 | | | (12,558) | |
Total | $ | 5,176,474 | | | $ | (112,916) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
| Asset Balance | | Allowance | | Asset Balance | | Allowance |
Apartment | $ | 506,243 | | | $ | (2,241) | | | $ | 557,159 | | | $ | (8,845) | |
Hotel | 923,268 | | | (43,365) | | | 913,995 | | | (45,596) | |
Industrial | 904,189 | | | (5,043) | | | 856,203 | | | (2,516) | |
Office | 1,412,399 | | | (30,022) | | | 1,556,231 | | | (33,373) | |
Parking | 362,168 | | | (17,018) | | | 364,287 | | | (18,178) | |
Retail | 740,439 | | | (6,823) | | | 791,677 | | | (10,856) | |
Storage | 139,186 | | | (610) | | | 165,561 | | | (2,509) | |
Other | 121,983 | | | (1,775) | | | 163,121 | | | (3,830) | |
Total | $ | 5,109,875 | | | $ | (106,897) | | | $ | 5,368,234 | | | $ | (125,703) | |
Note 5 – Mortgage Loans – (Continued)
Credit Quality Indicators
Mortgage loans are segregated by property-type and quantitative and qualitative allowance factors are applied. Qualitative factors are developed quarterly based on the pooling of assets with similar risk characteristics and historical loss experience adjusted for the expected trend in the current market environment. Credit losses are pooled by collateral typeproperty-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 | | |
| 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | Prior | | Total |
Apartment | $ | 402 | | | $ | 136,436 | | | $ | 46,267 | | | $ | 180,656 | | | $ | 68,664 | | | $ | 37,478 | | | $ | 469,903 | |
Hotel | 0 | | | 59,402 | | | 204,094 | | | 219,597 | | | 148,078 | | | 273,834 | | | 905,005 | |
Industrial | 168,467 | | | 178,797 | | | 134,431 | | | 46,676 | | | 124,259 | | | 121,967 | | | 774,597 | |
Office | 6,564 | | | 58,345 | | | 195,201 | | | 345,425 | | | 312,693 | | | 642,382 | | | 1,560,610 | |
Retail | 49,111 | | | 41,145 | | | 104,694 | | | 80,577 | | | 161,720 | | | 368,951 | | | 806,198 | |
Parking | 28,684 | | | 13,787 | | | 30,523 | | | 8,700 | | | 169,715 | | | 122,757 | | | 374,166 | |
Other | 19,879 | | | 83,671 | | | 112,659 | | | 54,917 | | | 69,994 | | | 57,791 | | | 398,911 | |
Total | $ | 273,107 | | | $ | 571,583 | | | $ | 827,869 | | | $ | 936,548 | | | $ | 1,055,123 | | | $ | 1,625,160 | | | $ | 5,289,390 | |
Allowance for loan losses | | | | | | | | | | | | | (112,916) | |
Total, net of allowance | | | | | | | | | | | | | $ | 5,176,474 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amortized Cost Basis by Origination Year | | |
| 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Total |
Apartment | $ | 1,697 | | | $ | 69,866 | | | $ | 254,562 | | | $ | 22,166 | | | $ | 120,436 | | | $ | 37,516 | | | $ | 506,243 | |
Hotel | — | | | 33,010 | | | 88,011 | | | 203,828 | | | 218,931 | | | 379,488 | | | 923,268 | |
Industrial | 125,914 | | | 269,948 | | | 153,789 | | | 113,858 | | | 38,406 | | | 202,274 | | | 904,189 | |
Office | 2,759 | | | 31,598 | | | 60,917 | | | 198,379 | | | 316,907 | | | 801,839 | | | 1,412,399 | |
Parking | — | | | 28,658 | | | 13,803 | | | 26,970 | | | 8,498 | | | 284,239 | | | 362,168 | |
Retail | 4,672 | | | 69,132 | | | 38,831 | | | 72,046 | | | 74,557 | | | 481,201 | | | 740,439 | |
Storage | — | | | 27,430 | | | 48,360 | | | 37,354 | | | 17,095 | | | 8,947 | | | 139,186 | |
Other | 24,466 | | | — | | | 21,656 | | | 30,046 | | | 1,650 | | | 44,165 | | | 121,983 | |
Total | $ | 159,508 | | | $ | 529,642 | | | $ | 679,929 | | | $ | 704,647 | | | $ | 796,480 | | | $ | 2,239,669 | | | $ | 5,109,875 | |
Allowance for credit losses | | | | | | | | | | | | | (106,897) | |
Total, net of allowance | | | | | | | | | | | | | $ | 5,002,978 | |
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 September 30, 2020,2021, no commercial loans of $23,490,000 were past due over 90 days and areor in nonaccrualnon-accrual status.
Off-Balance Sheet Credit Exposures
The Company has off-balance sheet credit exposures related to non-cancellable unfunded commitment amounts on commercial mortgage loans. We estimate the allowance for these exposures by applying the allowance rate we computed for each property type to the related outstanding commitment amounts. As of September 30, 2020,2021, we have included a $13,429,000$6.7 million liability in other liabilities on the condensed consolidated statements of financial position based on unfunded loan commitments of $660,924,000.
Note 6 –- Real Estate and Other Investments
The carrying amount of investment real estate, net of accumulated depreciation, and real estate partnerships by property-type and geographic distribution are as follows (in thousands, except percentages):
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
Industrial | $ | 40,970 | | | 8.0 | % | | $ | 68,809 | | | 12.5 | % |
Office | 218,005 | | | 42.4 | | | 219,490 | | | 39.8 | |
Retail | 211,464 | | | 41.1 | | | 215,800 | | | 39.1 | |
Other | 43,637 | | | 8.5 | | | 47,120 | | | 8.6 | |
Total | $ | 514,076 | | | 100.0 | % | | $ | 551,219 | | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
| Amount | | Percentage | | Amount | | Percentage |
Hotel | $ | 56,817 | | | 6.1 | % | | $ | 67,857 | | | 7.1 | % |
Industrial | 130,546 | | | 14.1 | | | 132,757 | | | 13.8 | |
Land | 38,564 | | | 4.2 | | | 51,220 | | | 5.3 | |
Office | 281,120 | | | 30.4 | | | 299,500 | | | 31.2 | |
Retail | 272,665 | | | 29.4 | | | 268,588 | | | 28.0 | |
Apartments | 133,977 | | | 14.5 | | | 120,847 | | | 12.6 | |
Other | 12,465 | | | 1.3 | | | 19,803 | | | 2.0 | |
Total | $ | 926,154 | | | 100.0 | % | | $ | 960,572 | | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
East North Central | $ | 32,455 | | | 6.3 | % | | $ | 32,539 | | | 5.9 | % |
East South Central | 33,123 | | | 6.4 | | | 34,248 | | | 6.2 | |
Mountain | 66,330 | | | 12.9 | | | 68,498 | | | 12.4 | |
Pacific | 39,000 | | | 7.6 | | | 40,462 | | | 7.3 | |
South Atlantic | 72,802 | | | 14.2 | | | 83,552 | | | 15.2 | |
West South Central | 253,200 | | | 49.3 | | | 278,833 | | | 50.6 | |
Other | 17,166 | | | 3.3 | | | 13,087 | | | 2.4 | |
Total | $ | 514,076 | | | 100.0 | % | | $ | 551,219 | | | 100.0 | % |
Note 6 – Real Estate and Other Investments – (Continued)
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
| Amount | | Percentage | | Amount | | Percentage |
East North Central | $ | 100,276 | | | 10.8 | % | | $ | 81,310 | | | 8.5 | % |
East South Central | 60,771 | | | 6.6 | | | 65,302 | | | 6.8 | |
Mountain | 122,528 | | | 13.2 | | | 133,233 | | | 13.9 | |
Pacific | 113,520 | | | 12.3 | | | 127,421 | | | 13.3 | |
South Atlantic | 73,807 | | | 8.0 | | | 97,801 | | | 10.1 | |
West South Central | 445,499 | | | 48.1 | | | 434,722 | | | 45.3 | |
Other | 9,753 | | | 1.0 | | | 20,783 | | | 2.1 | |
Total | $ | 926,154 | | | 100.0 | % | | $ | 960,572 | | | 100.0 | % |
As of September 30, 2021, no real estate investments met the criteria as held-for-sale.
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 partiesthird-parties that may affect the fair value or risk of its variable interest in the VIEs in 20202021 or 2019.2020.
The assets and liabilities relating to the VIEs included in the condensed consolidated financial statements are as follows (in thousands):
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
Investment real estate | $ | 133,152 | | | $ | 134,534 | |
Short-term investments | 500 | | | 500 | |
Cash and cash equivalents | 5,634 | | | 11,155 | |
Other receivables | 3,704 | | | 3,673 | |
Other assets | 13,153 | | | 15,355 | |
Total assets of consolidated VIEs | $ | 156,143 | | | $ | 165,217 | |
Notes payable | $ | 154,788 | | | $ | 157,997 | |
Other liabilities | 6,526 | | | 9,731 | |
Total liabilities of consolidated VIEs | $ | 161,314 | | | $ | 167,728 | |
| | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
Real estate and real estate partnerships | $ | 128,746 | | | $ | 131,405 | |
Investment funds | 50,000 | | | — | |
Short-term investments | 500 | | | 500 | |
Cash and cash equivalents | 9,441 | | | 8,070 | |
Premiums due and other receivables | 2,929 | | | 3,484 | |
Other assets | 11,784 | | | 13,796 | |
Total assets of consolidated VIEs | $ | 203,400 | | | $ | 157,255 | |
Notes payable | $ | 150,378 | | | $ | 153,703 | |
Other liabilities | 7,003 | | | 8,490 | |
Total liabilities of consolidated VIEs | $ | 157,381 | | | $ | 162,193 | |
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 $3,108,000 and $4,304,000$3.0 million at September 30, 20202021 and December 31, 2019,2020, respectively.
The total long-term notes payable of the consolidated VIEs consists of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | |
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 | |
| | | | | | | | | | | | | | | | | | | | |
Interest rate | | Maturity | | September 30, 2021 | | December 31, 2020 |
LIBOR | | 2023 | | $ | 10,819 | | | $ | 10,819 | |
4% fixed | | 2022 | | 76,123 | | | 78,565 | |
4.18% fixed | | 2024 | | 63,436 | | | 64,319 | |
Total | | | | $ | 150,378 | | | $ | 153,703 | |
Note 6 – Real Estate and Other Investments – (Continued)
For other VIEs in which American National is a partner, it is not the primary beneficiary, and these entities are not consolidated, as the major decisions that most significantly impact the economic activities of the VIE require consent of all partners. The carrying amount and maximum exposure to loss relating to unconsolidated VIEs follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
| Carrying Amount | | Maximum Exposure to Loss | | Carrying Amount | | Maximum Exposure to Loss |
Investment in unconsolidated affiliates | $ | 347,554 | | | $ | 347,554 | | | $ | 332,742 | | | $ | 332,742 | |
Mortgage loans | 721,899 | | | 721,899 | | | 657,528 | | | 657,528 | |
Accrued investment income | 5,154 | | | 5,154 | | | 2,198 | | | 2,198 | |
As | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
| Carrying Amount | | Maximum Exposure to Loss | | Carrying Amount | | Maximum Exposure to Loss |
Real estate and real estate partnerships | $ | 349,007 | | | $ | 349,007 | | | $ | 368,588 | | | $ | 368,588 | |
Mortgage loans on real estate | 715,410 | | | 715,410 | | | 722,917 | | | 722,917 | |
Accrued investment income | 3,557 | | | 3,557 | | | 4,980 | | | 4,980 | |
American National’s equity in earnings of real estate partnerships is the Company’s share of operating earnings and realized gains from investments in real estate joint ventures and other limited partnership interests (“joint ventures”) using the equity method of accounting. In 2021 and 2020, certain joint ventures took advantage of market opportunities to generate realized gains on the sale of real estate held or developed by the ventures.
The Company’s income from and investment in each joint venture did not exceed 20% and therefore no separate financial disclosure is required. The Company’s income from, assets held, and investment in each joint venture did not exceed 10% of operating income before tax. Additionally, American National’s investment in joint ventures is less than 3% of the Company’s total assets, and investments in individual joint ventures are not considered to be material to the Company in relation to its financial position or ongoing results of operations. Therefore, summarized financial information of equity method investees has not been included.
The Company’s total investment in investment funds and other partnerships, of which substantially all are limited liability companies ("LLCs") or limited partnerships, was comprised of $814.5 million and $477.1 million at September 30, 2021 and December 31, 2020, 1 real estate investment with a carrying value of $3,364,000 met the criteria as held-for-sale.respectively.
Note 7 – Derivative Instruments
American National purchases over-the-counter equity-indexed options as economic hedges against fluctuations in the equity markets to which equity-indexed products are exposed. These options are not designated as hedging instruments for accounting purposes under U.S. GAAP. Equity-indexed contracts include a fixed host universal-life insurance or annuity contract and an equity-indexed embedded derivative. The detail of derivative instruments is shown below (in thousands, except number of instruments):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives Not Designated as Hedging Instruments | | Location in the 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 |
|
Equity-indexed options | | Other invested assets | | 456 | | | $ | 2,761,300 | | | $ | 213,782 | | | 473 | | | $ | 2,654,600 | | | $ | 256,005 | |
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 Financial Position | | September 30, 2021 | | December 31, 2020 |
| Three months ended September 30, | | Nine months ended September 30, | | Number of Instruments | | Notional Amounts | | Estimated Fair Value | | Number of Instruments | | Notional Amounts | | Estimated Fair Value |
| 2020 | | 2019 | | 2020 | | 2019 | |
Equity-indexed options | Equity-indexed options | | Net investment income | | $ | 38,738 | | | $ | 6,278 | | | $ | (2,200) | | | $ | 95,888 | | Equity-indexed options | | Other invested assets | | 454 | | | $ | 3,357,400 | | | $ | 229,690 | | | 455 | | | $ | 2,867,600 | | | $ | 242,201 | |
Equity-indexed embedded derivative | Equity-indexed embedded derivative | | Interest credited to policyholders’ account balances | | (44,792) | | | (11,462) | | | (17,702) | | | (105,873) | | Equity-indexed embedded derivative | | Policyholders’ account balances | | 120,467 | | | 3,267,671 | | | 767,920 | | | 112,103 | | | 2,748,540 | | | 705,013 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives Not Designated as Hedging Instruments | | Location in the Condensed Consolidated Statements of Operations | | Gains (Losses) Recognized in Income on Derivatives |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Equity-indexed options | | Net investment income | | $ | 1,365 | | | $ | 38,738 | | | $ | 70,434 | | | $ | (2,200) | |
Equity-indexed embedded derivative | | Interest credited to policyholders’ account balances | | 9,607 | | | (44,792) | | | (45,542) | | | (17,702) | |
The Company’s use of derivative instruments exposes it to credit risk in the event of non-performance by the counterparties. The Company has a policy of only dealing with counterparties it believes are creditworthy and obtaining sufficient collateral where appropriate, as a means of mitigating the financial loss from defaults. The Company holds collateral in cash and notes secured by U.S. government-backed assets. The non-performance risk is the net counterparty exposure based on the fair value of the open contracts, less the fair value of collateral held. The Company maintains master netting agreements with its current active trading partners. As such, a right of offset has been applied to collateral that supports credit risk and has been recorded in the condensed consolidated statements of financial position as an offset to “Other invested assets” with an associated payable to “Other liabilities” for excess collateral.
Note 7 – Derivative Instruments – (Continued)
Information regarding the Company’s exposure to credit loss on the options it holds is presented below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | September 30, 2020 |
Counterparty | | Moody/S&P Rating | | Options Fair Value | | Collateral Held in Cash | | Collateral Held in Invested Assets | | Total Collateral Held | | Collateral Amounts used to Offset Exposure | | Excess Collateral | | Exposure Net of Collateral |
Barclays | | Baa2/BBB | | $ | 42,627 | | | $ | 24,033 | | | $ | 18,100 | | | $ | 42,133 | | | $ | 42,133 | | | $ | 0 | | | $ | 494 | |
Credit Suisse | | Baa2/BBB+ | | 7,936 | | | 7,670 | | | 0 | | | 7,670 | | | 7,670 | | | 0 | | | 266 | |
Goldman-Sachs | | A3/BBB+ | | 1,095 | | | 910 | | | 0 | | | 910 | | | 910 | | | 0 | | | 185 | |
ING | | Baa1/A- | | 20,858 | | | 10,770 | | | 10,300 | | | 21,070 | | | 20,858 | | | 212 | | | 0 | |
Morgan Stanley | | A3/BBB+ | | 22,132 | | | 15,426 | | | 5,700 | | | 21,126 | | | 21,126 | | | 0 | | | 1,006 | |
NATIXIS* | | A1/A+ | | 30,827 | | | 31,030 | | | 0 | | | 31,030 | | | 30,827 | | | 203 | | | 0 | |
Truist | | A3/A- | | 52,586 | | | 40,740 | | | 11,000 | | | 51,740 | | | 51,728 | | | 12 | | | 858 | |
Wells Fargo | | A2/A- | | 35,721 | | | 25,030 | | | 9,900 | | | 34,930 | | | 34,930 | | | 0 | | | 791 | |
Total | | | | $ | 213,782 | | | $ | 155,609 | | | $ | 55,000 | | | $ | 210,609 | | | $ | 210,182 | | | $ | 427 | | | $ | 3,600 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | September 30, 2021 |
Counterparty | | Moody/S&P Rating | | Options Fair Value | | Collateral Held in Cash | | Collateral Held in Invested Assets | | Total Collateral Held | | Collateral Amounts Used to Offset Exposure | | Excess Collateral | | Exposure Net of Collateral |
Bank of America | | A2/A- | | $ | 676 | | | $ | 390 | | | $ | — | | | $ | 390 | | | $ | 390 | | | $ | — | | | $ | 286 | |
Barclays | | Baa2/BBB | | 41,501 | | | 24,233 | | | 18,100 | | | 42,333 | | | 41,501 | | | 832 | | | — | |
| | | | | | | | | | | | | | | | |
Credit Suisse | | Baa1/BBB+ | | 25,194 | | | 26,360 | | | — | | | 26,360 | | | 25,194 | | | 1,166 | | | — | |
ING | | Baa1/A- | | 12,171 | | | 2,100 | | | 10,300 | | | 12,400 | | | 12,171 | | | 229 | | | — | |
Morgan Stanley | | A1/BBB+ | | 59,145 | | | 54,516 | | | 5,700 | | | 60,216 | | | 59,145 | | | 1,071 | | | — | |
NATIXIS* | | A1/A | | 25,731 | | | 26,170 | | | — | | | 26,170 | | | 25,731 | | | 439 | | | — | |
Truist | | A3/A- | | 32,235 | | | 21,890 | | | 11,000 | | | 32,890 | | | 32,235 | | | 655 | | | — | |
Wells Fargo | | A1/BBB+ | | 33,037 | | | 24,180 | | | 9,900 | | | 34,080 | | | 33,037 | | | 1,043 | | | — | |
Total | | | | $ | 229,690 | | | $ | 179,839 | | | $ | 55,000 | | | $ | 234,839 | | | $ | 229,404 | | | $ | 5,435 | | | $ | 286 | |
| | | | | | December 31, 2019 | | | | | December 31, 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 | | Baa3/BBB | | $ | 54,583 | | | $ | 27,343 | | | $ | 28,000 | | | $ | 55,343 | | | $ | 54,583 | | | $ | 760 | | | $ | 0 | | Barclays | | Baa2/BBB | | $ | 51,489 | | | $ | 31,513 | | | $ | 18,100 | | | $ | 49,613 | | | $ | 49,613 | | | $ | — | | | $ | 1,876 | |
Credit Suisse | Credit Suisse | | Baa2/BBB+ | | 7,117 | | | 7,390 | | | 0 | | | 7,390 | | | 7,009 | | | 381 | | | 108 | | Credit Suisse | | Baa1/BBB+ | | 9,447 | | | 8,680 | | | — | | | 8,680 | | | 8,680 | | | — | | | 767 | |
Goldman-Sachs | Goldman-Sachs | | A3/BBB+ | | 1,053 | | | 930 | | | 0 | | | 930 | | | 930 | | | 0 | | | 123 | | Goldman-Sachs | | A3/BBB+ | | 1,227 | | | 1,170 | | | — | | | 1,170 | | | 1,170 | | | — | | | 57 | |
ING | ING | | Baa1/A- | | 30,330 | | | 14,940 | | | 16,000 | | | 30,940 | | | 30,330 | | | 610 | | | 0 | | ING | | Baa1/A- | | 20,606 | | | 10,450 | | | 10,300 | | | 20,750 | | | 20,606 | | | 144 | | | — | |
| Morgan Stanley | Morgan Stanley | | A3/BBB+ | | 34,988 | | | 25,926 | | | 9,000 | | | 34,926 | | | 34,926 | | | 0 | | | 62 | | Morgan Stanley | | A2/BBB+ | | 37,406 | | | 30,616 | | | 5,700 | | | 36,316 | | | 36,316 | | | — | | | 1,090 | |
NATIXIS* | NATIXIS* | | A1/A+ | | 29,918 | | | 30,200 | | | 0 | | | 30,200 | | | 29,918 | | | 282 | | | 0 | | NATIXIS* | | A1/A+ | | 30,567 | | | 30,720 | | | — | | | 30,720 | | | 30,567 | | | 153 | | | — | |
SunTrust | | A3/A- | | 60,360 | | | 41,720 | | | 17,000 | | | 58,720 | | | 58,645 | | | 75 | | | 1,715 | | |
| Truist | | Truist | | A3/A- | | 52,127 | | | 43,960 | | | 11,000 | | | 54,960 | | | 52,127 | | | 2,833 | | | — | |
Wells Fargo | Wells Fargo | | A2/A- | | 37,656 | | | 24,110 | | | 15,000 | | | 39,110 | | | 37,656 | | | 1,454 | | | 0 | | Wells Fargo | | A2/BBB+ | | 39,332 | | | 29,370 | | | 9,900 | | | 39,270 | | | 39,270 | | | — | | | 62 | |
Total | Total | | $ | 256,005 | | | $ | 172,559 | | | $ | 85,000 | | | $ | 257,559 | | | $ | 253,997 | | | $ | 3,562 | | | $ | 2,008 | | Total | | $ | 242,201 | | | $ | 186,479 | | | $ | 55,000 | | | $ | 241,479 | | | $ | 238,349 | | | $ | 3,130 | | | $ | 3,852 | |
*Collateral is prohibited from being held in invested assetsassets.
Note 8 – Net Investment Income and Realized Investment Gains (Losses)
Net investment income is shown below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
Bonds | | $ | 138,743 | | | $ | 154,322 | | | $ | 426,624 | | | $ | 452,786 | |
Equity securities | | 7,905 | | | 7,985 | | | 23,671 | | | 25,292 | |
Mortgage loans | | 61,561 | | | 64,753 | | | 181,334 | | | 191,110 | |
Real estate | | (121) | | | 1,005 | | | 3,326 | | | 7,310 | |
Equity-indexed options | | 38,738 | | | 6,278 | | | (2,200) | | | 95,888 | |
Other invested assets | | 7,430 | | | 12,277 | | | 24,133 | | | 24,310 | |
Total | | $ | 254,256 | | | $ | 246,620 | | | $ | 656,888 | | | $ | 796,696 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Bonds | | $ | 132,725 | | | $ | 138,743 | | | $ | 392,838 | | | $ | 426,624 | |
Equity securities | | 8,316 | | | 7,905 | | | 24,116 | | | 23,671 | |
Mortgage loans | | 60,722 | | | 61,561 | | | 199,910 | | | 181,334 | |
Real estate and real estate partnerships | | 15,796 | | | 5,091 | | | 44,725 | | | 20,360 | |
Investment funds | | 32,962 | | | 11,817 | | | 71,950 | | | 2,080 | |
Equity-indexed options | | 1,365 | | | 38,738 | | | 70,434 | | | (2,200) | |
Other invested assets | | 9,254 | | | 7,430 | | | 24,547 | | | 24,133 | |
Total | | $ | 261,140 | | | $ | 271,285 | | | $ | 828,520 | | | $ | 676,002 | |
Net investment income from equity method investments, comprised of real estate partnerships and investment funds was $46.4 million and $17.0 million for the three months ended September 30, 2021 and 2020 and $109.3 million and $19.1 million for the nine months ended September 30, 2021 and 2020, respectively.
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 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Bonds | | $ | 22,939 | | | $ | 6,117 | | | $ | 42,106 | | | $ | 15,547 | |
Mortgage loans | | — | | | — | | | (768) | | | — | |
Real estate and real estate partnerships | | (1,705) | | | 11,265 | | | 9,387 | | | 9,951 | |
Other invested assets | | (1,096) | | | 5 | | | (746) | | | (24) | |
Total | | $ | 20,138 | | | $ | 17,387 | | | $ | 49,979 | | | $ | 25,474 | |
Net realized investment gains (losses) by transaction type are shown below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 September 30, | | Nine months ended September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
Bonds | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | (6,968) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Sales | | $ | (1,209) | | | $ | 11,417 | | | $ | 11,716 | | | $ | 7,799 | |
Calls and maturities | | 23,081 | | | 5,986 | | | 41,657 | | | 19,131 | |
Paydowns | | (142) | | | (7) | | | 390 | | | (61) | |
Impairments | | (1,380) | | | — | | | (3,413) | | | (1,276) | |
| | | | | | | | |
Other | | (212) | | | (9) | | | (371) | | | (119) | |
Total | | $ | 20,138 | | | $ | 17,387 | | | $ | 49,979 | | | $ | 25,474 | |
Note 9 – Fair Value of Financial Instruments
The carrying amount and fair value of financial instruments are shown below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Financial assets | | | | | | | |
Fixed maturity, bonds held-to-maturity | $ | 7,702,347 | | | $ | 8,248,611 | | | $ | 8,631,261 | | | $ | 8,968,690 | |
Fixed maturity, bonds available-for-sale | 7,236,188 | | | 7,236,188 | | | 6,725,085 | | | 6,725,085 | |
Equity securities | 1,840,855 | | | 1,840,855 | | | 1,700,960 | | | 1,700,960 | |
Equity-indexed options | 213,782 | | | 213,782 | | | 256,005 | | | 256,005 | |
Mortgage loans on real estate, net of allowance | 5,176,474 | | | 5,381,157 | | | 5,097,017 | | | 5,309,005 | |
Policy loans | 374,387 | | | 374,387 | | | 379,657 | | | 379,657 | |
Short-term investments | 800,793 | | | 800,793 | | | 425,321 | | | 425,321 | |
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 | 62,052 | | | 62,052 | | | 50,503 | | | 50,503 | |
Total financial assets | $ | 24,499,452 | | | $ | 25,250,399 | | | $ | 24,339,700 | | | $ | 24,889,117 | |
Financial liabilities | | | | | | | |
Investment contracts | $ | 10,167,018 | | | $ | 10,167,018 | | | $ | 10,254,959 | | | $ | 10,254,959 | |
Embedded derivative liability for equity-indexed contracts | 693,780 | | | 693,780 | | | 731,552 | | | 731,552 | |
Notes payable | 154,788 | | | 154,788 | | | 157,997 | | | 157,997 | |
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) | 1,092,574 | | | 1,092,574 | | | 1,073,891 | | | 1,073,891 | |
Total financial liabilities | $ | 12,608,160 | | | $ | 12,608,160 | | | $ | 12,218,399 | | | $ | 12,218,399 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Financial assets | | | | | | | |
Fixed maturity, bonds held-to-maturity | $ | 7,277,801 | | | $ | 7,747,031 | | | $ | 7,354,970 | | | $ | 7,983,181 | |
Fixed maturity, bonds available-for-sale | 8,573,081 | | | 8,573,081 | | | 7,597,180 | | | 7,597,180 | |
Equity securities | 2,383,478 | | | 2,383,478 | | | 2,070,766 | | | 2,070,766 | |
Equity-indexed options, included in other invested assets | 229,690 | | | 229,690 | | | 242,201 | | | 242,201 | |
Mortgage loans on real estate, net of allowance | 5,002,978 | | | 5,241,982 | | | 5,242,531 | | | 5,451,152 | |
Policy loans | 364,960 | | | 364,960 | | | 373,014 | | | 373,014 | |
Short-term investments | 536,621 | | | 536,621 | | | 1,028,379 | | | 1,028,379 | |
Separate account assets ($1,223,525 and $1,153,702 included in fair value hierarchy) | 1,260,427 | | | 1,260,427 | | | 1,185,467 | | | 1,185,467 | |
Separately managed accounts, included in other invested assets | 97,157 | | | 97,157 | | | 64,424 | | | 64,424 | |
Total financial assets | $ | 25,726,193 | | | $ | 26,434,427 | | | $ | 25,158,932 | | | $ | 25,995,764 | |
Financial liabilities | | | | | | | |
Investment contracts | $ | 10,794,070 | | | $ | 10,794,070 | | | $ | 10,101,764 | | | $ | 10,101,764 | |
Embedded derivative liability for equity-indexed contracts | 767,920 | | | 767,920 | | | 705,013 | | | 705,013 | |
Notes payable | 150,378 | | | 150,378 | | | 153,703 | | | 153,703 | |
Federal Home Loan Bank advance | — | | | — | | | 250,000 | | | 250,227 | |
Separate account liabilities ($1,223,525 and $1,153,702 included in fair value hierarchy) | 1,260,427 | | | 1,260,427 | | | 1,185,467 | | | 1,185,467 | |
Total financial liabilities | $ | 12,972,795 | | | $ | 12,972,795 | | | $ | 12,395,947 | | | $ | 12,396,174 | |
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability. A fair value hierarchy is used to determine fair value based on a hypothetical transaction at the measurement date from the perspective of a market participant. American National has evaluated the types of securities in its investment portfolio to determine an appropriate hierarchy level based upon trading activity and the observability of market inputs. The classification of assets or liabilities within the fair value hierarchy is based on the lowest level of significant input to its valuation. The input levels are defined as follows:
| | | | | | | | |
Level 1 | | Unadjusted quoted prices in active markets for identical assets or liabilities. |
| |
Level 2 | | Quoted prices in markets that are not active or inputs that are observable directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities other than quoted prices in Level 1; quoted prices in markets that are not active; or other inputs that are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities. |
| |
Level 3 | | Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. Unobservable inputs reflect American National’s own assumptions about the assumptions that market participants would use in pricing the asset or liability. Level 3 assets and liabilities include financial instruments whose values are determined using pricing models and third-party evaluation, as well as instruments for which the determination of fair value requires significant management judgment or estimation. |
Note 9 – Fair Value of Financial Instruments – (Continued)
Valuation Techniques for Financial Instruments Recorded at Fair Value
Fixed Maturity Securities and Equity Options—American National utilizes a pricing service to estimate fair value measurements. The fair value for fixed maturity securities that are disclosed as Level 1 measurements are based on unadjusted quoted market prices for identical assets that are readily available in an active market. The estimates of fair value for most fixed maturity securities, including municipal bonds, provided by the pricing service are disclosed as Level 2 measurements as the estimates are based on observable market information rather than market quotes. The pricing service utilizes market quotations for fixed maturity securities that have quoted prices in active markets. Since fixed maturity securities generally do not trade on a daily basis, the pricing service prepares estimates of fair value measurements for these securities using its proprietary pricing applications, which include available relevant market information, benchmark curves, benchmarking of like securities, sector groupings and matrix pricing. Additionally, an option adjusted spread model is used to develop prepayment and interest rate scenarios.
The pricing service evaluates each asset class based on relevant market information, credit information, perceived market movements and sector news. The market inputs utilized in the pricing evaluation, listed in the approximate order of priority, include: benchmark yields, reported trades, broker/dealerpricing source quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and economic events. The extent of the use of each market input depends on the asset class and the market conditions. Depending on the security, the priority of the use of inputs may change or some market inputs may not be relevant. For some securities, additional inputs may be necessary.
American National has reviewed the inputs and methodology used and the techniques applied by the pricing service to produce quotes that represent the fair value of a specific security. The review confirms that the pricing service is utilizing information from observable transactions or a technique that represents a market participant’s assumptions. American National does not adjust quotes received from the pricing service. The pricing service utilized by American National has indicated that they will only produce an estimate of fair value if there is objectively verifiable information available.
American National holds a small amount of private placement debt and fixed maturity securities that have characteristics that make them unsuitable for matrix pricing. For these securities, a quote from an independent brokerpricing source (typically a market maker) is obtained. Due to the disclaimers on the quotes that indicate the price is indicative only, American National includes these fair value estimates in Level 3.
For securities priced using a quote from an independent broker,pricing source, such as the equity-indexed options and certain fixed maturity securities, American National uses a market-based fair value analysis to validate the reasonableness of prices received. Price variances above a certain threshold are analyzed further to determine if any pricing issue exists. This analysis is performed quarterly.
Equity Securities—For publicly-traded equity securities, prices are received from a nationally recognized pricing service that are based on observable market transactions, and these securities are classified as Level 1 measurements. For certain preferred stock, current market quotes in active markets are unavailable. In these instances, an estimated fair value is received from the pricing service. The service utilizes similar methodologies to price preferred stocks as it does for fixed maturity securities. If applicable, these estimates would be disclosed as Level 2 measurements. American National tests the accuracy of the information provided by reference to other services annually.
Short-Term Investments—Short-term investments are primarily commercial paper rated A2 or P2 or better by Standard & Poor's and Moody's, respectively. Commercial paper is carried at amortized cost which approximates fair value. These investments are classified as Level 2 measurements.
Note 9 – Fair Value of Financial Instruments – (Continued)
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 representNational. Separate account assets include funds representing the investments of variable insurance product contract holders, who bear the investment risk of such funds. Investment income and investment gains and losses from these separate funds accrue to the benefit of the contract holders. 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 such separate accounts and liabilities of the separate accounts if (i) such separate accounts are legally recognized; (ii) assets supporting the contract liabilities are legally insulated from American National’s general account liabilities; (iii) investments are directed by the contract holder; and (iv) all investment performance, net of contract fees and assessments, is passed through to the contract holder. In addition, American National's qualified pension plan assets are included in separate accounts. The assets of these accounts are carried at fair value. Deposits, net investment income and realized investment gains and losses for these accounts are excluded from revenues, and related liability increases are excluded from benefits and expenses in the condensed consolidated statements of operations. Separate accounts are established in conformity with insurance laws and are not chargeable with liabilities that arise from any other business of American National.
The separate account assets included on the quantitative disclosures fair value hierarchy table are comprised of short-term investments, equity securities, and fixed maturity bonds available-for-sale. Equity securities are classified as Level 1 measurements. Short-term investments and fixed maturity securities are classified as Level 2 measurements. These classifications for separate account assets reflect the same fair value level methodologies as listed above as they are derived from the same vendors and follow the same process.
The separate account assets also include cash and cash equivalents, investments in unconsolidated affiliates,investment funds, accrued investment income, and receivables for securities. These are not financial instruments and are not included in the quantitative disclosures of fair value hierarchy table.
No gains or losses were recognized on assets transferred to separate accounts for the nine months ended September 30, 2021 and 2020, respectively.
Embedded Derivative—The amounts reported within policyholder contract deposits include equity linked interest crediting rates based on the S&P 500 index within indexed annuities and indexed life. The following unobservable inputs are used for measuring the fair value of the embedded derivatives associated with the policyholder contract liabilities:
•Lapse rate assumptions are determined by company experience. Lapse rates are generally assumed to be lower during a contract’s surrender charge period and then higher once the surrender charge period has ended. Decreases to the assumed lapse rates generally increase the fair value of the liability as more policyholders persist to collect the crediting interest pertaining to the indexed product. Increases to the lapse rate assumption decrease the fair value.
•Mortality rate assumptions vary by age and gender based on company and industry experience. Decreases to the assumed mortality rates increase the fair value of the liabilities as more policyholders earn crediting interest. Increases to the assumed mortality rates decrease the fair value as higher decrements reduce the potential for future interest credits.
•Equity volatility assumptions begin with current market volatilities and grow to long-term values. Increases to the assumed volatility will increase the fair value of liabilities, as future projections will produce higher increases in the linked index. At September 30, 20202021 and December 31, 2019,2020, the one year implied volatility used to estimate embedded derivative value was 22.6%20.9% and 11.3%17.6%, respectively.
Fair values of indexed life and annuity liabilities are calculated using the discounted cash flow technique. Shown below are the significant unobservable inputs used to calculate the Level 3 fair value of the embedded derivatives within policyholder contract deposits (in millions, except range percentages):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value | | | | Range |
| September 30, 2020 | | December 31, 2019 | | Unobservable Input | | September 30, 2020 | | December 31, 2019 |
Indexed Annuities | $ | 677.0 | | | $ | 706.5 | | | Lapse Rate | | 1-70% | | 1-70% |
| | | | | Mortality Multiplier | | 90-100% | | 90-100% |
| | | | | Equity Volatility | | 17-56% | | 11-46% |
Indexed Life | 16.7 | | | 18.4 | | | Equity Volatility | | 17-56% | | 11-46% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value | | | | Range |
| September 30, 2021 | | December 31, 2020 | | Unobservable Input | | September 30, 2021 | | December 31, 2020 |
Security type | | | | | | | | | |
Embedded derivative | | | | | | | | | |
Indexed Annuities | $ | 741.5 | | | $ | 670.8 | | | Lapse Rate | | 1-50% | | 1-50% |
| | | | | Mortality Multiplier | | 100% | | 100% |
| | | | | Equity Volatility | | 14-67% | | 16-69% |
Indexed Life | 26.4 | | | 34.2 | | | Equity Volatility | | 14-67% | | 16-69% |
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 September 30, 2020 |
| Total Fair Value | | Level 1 | | Level 2 | | Level 3 |
Financial assets | | | | | | | |
Fixed maturity, bonds available-for-sale | | | | | | | |
U.S. treasury and government | $ | 32,559 | | | $ | 0 | | | $ | 32,559 | | | $ | 0 | |
U.S. states and political subdivisions | 1,098,759 | | | 0 | | | 1,098,759 | | | 0 | |
Foreign governments | 16,594 | | | 0 | | | 16,594 | | | 0 | |
Corporate debt securities | 6,032,196 | | | 0 | | | 5,913,834 | | | 118,362 | |
Residential mortgage-backed securities | 27,284 | | | 0 | | | 27,284 | | | 0 | |
Collateralized debt securities | 28,796 | | | 0 | | | 28,796 | | | 0 | |
Total bonds available-for-sale | 7,236,188 | | | 0 | | | 7,117,826 | | | 118,362 | |
Equity securities | | | | | | | |
Common stock | 1,822,813 | | | 1,822,656 | | | 0 | | | 157 | |
Preferred stock | 18,042 | | | 17,575 | | | 0 | | | 467 | |
Total equity securities | 1,840,855 | | | 1,840,231 | | | 0 | | | 624 | |
Options | 213,782 | | | 0 | | | 0 | | | 213,782 | |
Short-term investments | 800,793 | | | 0 | | | 800,793 | | | 0 | |
Separate account assets | 1,062,762 | | | 275,667 | | | 787,095 | | | 0 | |
Separately managed accounts | 62,052 | | | 0 | | | 0 | | | 62,052 | |
Total financial assets | $ | 11,216,432 | | | $ | 2,115,898 | | | $ | 8,705,714 | | | $ | 394,820 | |
Financial liabilities | | | | | | | |
Embedded derivative for equity-indexed contracts | $ | 693,780 | | | $ | 0 | | | $ | 0 | | | $ | 693,780 | |
Separate account liabilities | 1,062,762 | | | 275,667 | | | 787,095 | | | 0 | |
Total financial liabilities | $ | 1,756,542 | | | $ | 275,667 | | | $ | 787,095 | | | $ | 693,780 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Assets and Liabilities Carried at Fair Value by Hierarchy Level at September 30, 2021 |
| Total Fair Value | | Level 1 | | Level 2 | | Level 3 |
Financial assets | | | | | | | |
Fixed maturity, bonds available-for-sale | | | | | | | |
U.S. treasury and government | $ | 26,004 | | | $ | 26,004 | | | $ | — | | | $ | — | |
U.S. states and political subdivisions | 1,080,488 | | | — | | | 1,080,488 | | | — | |
Foreign governments | 5,980 | | | — | | | 5,980 | | | — | |
Corporate debt securities | 7,219,095 | | | — | | | 7,050,921 | | | 168,174 | |
Residential mortgage-backed securities | 32,582 | | | — | | | 32,582 | | | — | |
Collateralized debt securities | 208,932 | | | — | | | 208,932 | | | — | |
Total bonds available-for-sale | 8,573,081 | | | 26,004 | | | 8,378,903 | | | 168,174 | |
Equity securities | | | | | | | |
Common stock | 2,337,313 | | | 2,335,668 | | | — | | | 1,645 | |
Preferred stock | 46,165 | | | 13,136 | | | — | | | 33,029 | |
Total equity securities | 2,383,478 | | | 2,348,804 | | | — | | | 34,674 | |
Options | 229,690 | | | — | | | — | | | 229,690 | |
Short-term investments | 536,621 | | | — | | | 536,621 | | | — | |
Separate account assets | 1,223,525 | | | 351,433 | | | 872,092 | | | — | |
Separately managed accounts | 97,157 | | | — | | | — | | | 97,157 | |
Total financial assets | $ | 13,043,552 | | | $ | 2,726,241 | | | $ | 9,787,616 | | | $ | 529,695 | |
Financial liabilities | | | | | | | |
Embedded derivative for equity-indexed contracts | $ | 767,920 | | | $ | — | | | $ | — | | | $ | 767,920 | |
Notes payable | 150,378 | | | — | | | — | | | 150,378 | |
Separate account liabilities | 1,223,525 | | | 351,433 | | | 872,092 | | | — | |
Total financial liabilities | $ | 2,141,823 | | | $ | 351,433 | | | $ | 872,092 | | | $ | 918,298 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Assets and Liabilities Carried at Fair Value by Hierarchy Level as of December 31, 2019 |
| Total Fair Value | | Level 1 | | Level 2 | | Level 3 |
Financial assets | | | | | | | |
Fixed maturity, bonds available-for-sale | | | | | | | |
U.S. treasury and government | $ | 29,941 | | | $ | 0 | | | $ | 29,941 | | | $ | 0 | |
U.S. states and political subdivisions | 1,078,165 | | | 0 | | | 1,078,165 | | | 0 | |
Foreign governments | 6,287 | | | 0 | | | 6,287 | | | 0 | |
Corporate debt securities | 5,576,620 | | | 0 | | | 5,531,776 | | | 44,844 | |
Residential mortgage-backed securities | 23,943 | | | 0 | | | 23,943 | | | 0 | |
Collateralized debt securities | 10,129 | | | 0 | | | 10,129 | | | 0 | |
Total bonds available-for-sale | 6,725,085 | | | 0 | | | 6,680,241 | | | 44,844 | |
Equity securities | | | | | | | |
Common stock | 1,682,149 | | | 1,681,686 | | | 0 | | | 463 | |
Preferred stock | 18,811 | | | 18,811 | | | 0 | | | 0 | |
Total equity securities | 1,700,960 | | | 1,700,497 | | | 0 | | | 463 | |
Options | 256,005 | | | 0 | | | 0 | | | 256,005 | |
Short-term investments | 425,321 | | | 0 | | | 425,321 | | | 0 | |
Separate account assets | 1,049,938 | | | 271,575 | | | 778,363 | | | 0 | |
Separately managed accounts | 50,503 | | | 0 | | | 0 | | | 50,503 | |
Total financial assets | $ | 10,207,812 | | | $ | 1,972,072 | | | $ | 7,883,925 | | | $ | 351,815 | |
Financial liabilities | | | | | | | |
Embedded derivative for equity-indexed contracts | $ | 731,552 | | | $ | 0 | | | $ | 0 | | | $ | 731,552 | |
Separate account liabilities | 1,049,938 | | | 271,575 | | | 778,363 | | | 0 | |
Total financial liabilities | $ | 1,781,490 | | | $ | 271,575 | | | $ | 778,363 | | | $ | 731,552 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Assets and Liabilities Carried at Fair Value by Hierarchy Level at December 31, 2020 |
| Total Fair Value | | Level 1 | | Level 2 | | Level 3 |
Financial assets | | | | | | | |
Fixed maturity, bonds available-for-sale | | | | | | | |
U.S. treasury and government | $ | 29,183 | | | $ | — | | | $ | 29,183 | | | $ | — | |
U.S. states and political subdivisions | 1,140,458 | | | — | | | 1,140,458 | | | — | |
Foreign governments | 16,388 | | | — | | | 16,388 | | | — | |
Corporate debt securities | 6,334,479 | | | — | | | 6,224,042 | | | 110,437 | |
Residential mortgage-backed securities | 21,291 | | | — | | | 21,291 | | | — | |
Collateralized debt securities | 55,381 | | | — | | | 55,381 | | | — | |
Total bonds available-for-sale | 7,597,180 | | | — | | | 7,486,743 | | | 110,437 | |
Equity securities | | | | | | | |
Common stock | 2,055,229 | | | 2,054,789 | | | — | | | 440 | |
Preferred stock | 15,537 | | | 14,909 | | | — | | | 628 | |
Total equity securities | 2,070,766 | | | 2,069,698 | | | — | | | 1,068 | |
Options | 242,201 | | | — | | | — | | | 242,201 | |
Short-term investments | 1,028,379 | | | — | | | 1,028,379 | | | — | |
Separate account assets | 1,153,702 | | | 309,425 | | | 844,277 | | | — | |
Separately managed accounts | 64,424 | | | — | | | — | | | 64,424 | |
Total financial assets | $ | 12,156,652 | | | $ | 2,379,123 | | | $ | 9,359,399 | | | $ | 418,130 | |
Financial liabilities | | | | | | | |
Embedded derivative for equity-indexed contracts | $ | 705,013 | | | $ | — | | | $ | — | | | $ | 705,013 | |
Notes payable | 153,703 | | | — | | | — | | | 153,703 | |
Separate account liabilities | 1,153,702 | | | 309,425 | | | 844,277 | | | — | |
Total financial liabilities | $ | 2,012,418 | | | $ | 309,425 | | | $ | 844,277 | | | $ | 858,716 | |
Note 9 – Fair Value of Financial Instruments – (Continued)
For financial instruments measured at fair value on a recurring basis using Level 3 inputs during the period, a reconciliation of the beginning and ending balances is shown below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Level 3 |
| Three months ended September 30, 2020 | | Nine months ended September 30, 2020 |
| Assets | | Liability | | Assets | | Liability |
| Investment Securities | | Equity-Indexed Options | | Separately Managed Accounts | | Embedded Derivative | | Investment Securities | | Equity-Indexed Options | | Separately Managed Accounts | | Embedded Derivative |
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 | 0 | | | 38,738 | | | 0 | | | 0 | | | 0 | | | (2,200) | | | 0 | | | 0 | |
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 | 6 | | | 0 | | | 3,663 | | | 0 | | | 4 | | | 0 | | | (397) | | | 0 | |
Purchases, sales and settlements or maturities | | | | | | | | | | | | | | | |
Purchases | 15,222 | | | 19,257 | | | 7,421 | | | 0 | | | 124,390 | | | 57,695 | | | 16,463 | | | 0 | |
Sales | (380) | | | 0 | | | (569) | | | 0 | | | (50,715) | | | 0 | | | (4,517) | | | 0 | |
Settlements or maturities | 0 | | | (35,699) | | | 0 | | | 0 | | | 0 | | | (97,718) | | | 0 | | | 0 | |
Premiums less benefits | 0 | | | 0 | | | 0 | | | (26,982) | | | 0 | | | 0 | | | 0 | | | (55,474) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Ending balance at September 30, 2020 | $ | 118,986 | | | $ | 213,782 | | | $ | 62,052 | | | $ | 693,780 | | | $ | 118,986 | | | $ | 213,782 | | | $ | 62,052 | | | $ | 693,780 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Level 3 |
| Three months ended September 30, 2019 | | Nine months ended September 30, 2019 |
| Assets | | Liability | | Assets | | Liability |
| Investment Securities | | Equity-Indexed Options | | Separately Managed Accounts(1) | | Embedded Derivative | | Investment Securities | | Equity-Indexed Options | | Separately Managed Accounts(1) | | Embedded Derivative |
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 | 0 | | | 6,278 | | | 0 | | | 0 | | | 0 | | | 95,888 | | | 0 | | | 0 | |
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 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (2) | | | 0 | |
Purchases, sales and settlements or maturities | | | | | | | | | | | | | | | |
Purchases | 463 | | | 17,029 | | | 9,438 | | | 0 | | | 463 | | | 55,797 | | | 23,563 | | | 0 | |
Sales | (113) | | | (13,397) | | | 0 | | | 0 | | | (113) | | | (13,397) | | | 0 | | | 0 | |
Settlements or maturities | 0 | | | (16,770) | | | 0 | | | 0 | | | 0 | | | (62,110) | | | 0 | | | 0 | |
Premiums less benefits | 0 | | | 0 | | | 0 | | | (15,372) | | | 0 | | | 0 | | | 0 | | | (10,182) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
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 nine months ended 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. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Level 3 |
| Three months ended September 30, 2021 | | Nine months ended September 30, 2021 |
| Assets | | Liability | | Assets | | Liability |
| Investment Securities | | Equity-Indexed Options | | Separately Managed Accounts | | Embedded Derivative | | Investment Securities | | Equity-Indexed Options | | Separately Managed Accounts | | Embedded Derivative |
Beginning balance | $ | 137,790 | | | $ | 260,053 | | | $ | 77,904 | | | $ | 776,430 | | | $ | 111,505 | | | $ | 242,201 | | | $ | 64,424 | | | $ | 705,013 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Net gain for derivatives included in net investment income | — | | | 1,365 | | | — | | | — | | | — | | | 70,434 | | | — | | | — | |
Net change included in interest credited | — | | | — | | | — | | | (9,607) | | | — | | | — | | | — | | | 45,542 | |
Net fair value change included in other comprehensive income | 541 | | | — | | | (195) | | | — | | | 2,422 | | | — | | | 427 | | | — | |
Purchases, sales and settlements or maturities | | | | | | | | | | | | | | | |
Purchases | 72,443 | | | 23,487 | | | 23,250 | | | — | | | 118,623 | | | 69,917 | | | 45,961 | | | — | |
Sales | (5,907) | | | — | | | (3,802) | | | — | | | (29,162) | | | — | | | (13,655) | | | — | |
Settlements or maturities | — | | | (55,215) | | | — | | | — | | | — | | | (152,862) | | | — | | | — | |
Premiums less benefits | — | | | — | | | — | | | 1,097 | | | — | | | — | | | — | | | 17,365 | |
| | | | | | | | | | | | | | | |
Gross transfers into Level 3 | — | | | — | | | — | | | — | | | 1,479 | | | — | | | — | | | — | |
Gross transfers out of Level 3 | (2,019) | | | — | | | — | | | — | | | (2,019) | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | |
Ending balance at September 30, 2021 | $ | 202,848 | | | $ | 229,690 | | | $ | 97,157 | | | $ | 767,920 | | | $ | 202,848 | | | $ | 229,690 | | | $ | 97,157 | | | $ | 767,920 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Level 3 |
| Three months ended September 30, 2020 | | Nine months ended September 30, 2020 |
| Assets | | Liability | | Assets | | Liability |
| Investment Securities | | Equity-Indexed Options | | Separately Managed Accounts | | Embedded Derivative | | Investment Securities | | Equity-Indexed Options | | Separately Managed Accounts | | Embedded Derivative |
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 | — | | | 38,738 | | | — | | | — | | | — | | | (2,200) | | | — | | | — | |
Net change included in interest credited | — | | | — | | | — | | | 44,792 | | | — | | | — | | | — | | | 17,702 | |
Net fair value change included in other comprehensive income | 6 | | | — | | | 3,663 | | | — | | | 4 | | | — | | | (397) | | | — | |
Purchases, sales and settlements or maturities | | | | | | | | | | | | | | | |
Purchases | 15,222 | | | 19,257 | | | 7,421 | | | — | | | 124,390 | | | 57,695 | | | 16,463 | | | — | |
Sales | (380) | | | — | | | (569) | | | — | | | (50,715) | | | — | | | (4,517) | | | — | |
Settlements or maturities | — | | | (35,699) | | | — | | | — | | | — | | | (97,718) | | | — | | | — | |
Premiums less benefits | — | | | — | | | — | | | (26,982) | | | — | | | — | | | — | | | (55,474) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Ending balance at September 30, 2020 | $ | 118,986 | | | $ | 213,782 | | | $ | 62,052 | | | $ | 693,780 | | | $ | 118,986 | | | $ | 213,782 | | | $ | 62,052 | | | $ | 693,780 | |
| | | | | | | | | | | | | | | |
Within the net gain (loss) for derivatives included in net investment income were unrealized losses of $20.7 million and unrealized gains of $38,788,407 and $79,991,000,$38.8 million, relating to assets still held at September 30, 20202021 and 2019,2020, respectively.
There were no transfers between Level 1 and Level 2 fair value hierarchies during the periods presented. American National’s valuation of financial instruments categorized as Level 3 in the fair value hierarchy are based on valuation techniques that use significant inputs that are unobservable or had a decline in market activity that obscured observability. The indicators considered in determining whether a significant decrease in the volume and level of activity for a specific asset has occurred include the level of new issuances in the primary market, trading volume in the secondary market, the level of credit spreads over historical levels, applicable bid-ask spreads, and price consensus among market participants and other pricing sources. The transfers into Level 3 during the three months ended September 30, 2021 were the result of securities not being priced by the third-party service at the end of the period.
Equity-Index Options—Certain over the counter equity options are valued using models that are widely accepted in the financial services industry. These are categorized as Level 3 as a result of the significance of non-market observable inputs such as volatility and forward price/dividend assumptions. Other primary inputs include interest rate assumptions (risk-free rate assumptions), and underlying equity quoted index prices for identical or similar assets in markets that exhibit less liquidity relative to those markets.
Note 9 – Fair Value of Financial Instruments – (Continued)
The following summarizes the fair value (in thousands), valuation techniques and unobservable inputs of the Level 3 fair value measurements:
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value at September 30, 2021 | | Valuation Technique | | Unobservable Input | | Range/Weighted Average |
Security type | | | | | | | |
Investment securities | | | | | | | |
Common stock | $ | 1,645 | | | Guideline public company method (1) | | Recurring Revenue Multiple (2) | | 7.75x |
| | | Option pricing method | | LTM EBITDA Multiple (3) | | 20x |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Preferred stock | 33,029 | | | Guideline public company method | | LTM Revenue Multiple (4) | | 5.50x |
| | | Priced at cost | | LTM EBITDA Multiple | | 5.30x |
| | | | | Term (years) | | 2.08 |
| | | | | Volatility | | 55.00 | % |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Bonds | 168,174 | | | Priced at cost | | Coupon rate | | 2.65-9.75% |
Separately managed accounts | 97,157 | | | Discounted cash flows (yield analysis) | | Discount rate | | 6.78-15.53% |
| | | Market transaction | | N/A | | N/A |
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value at December 31, 2020 | | Valuation Technique | | Unobservable Input | | Range/Weighted Average |
Security type | | | | | | | |
Investment securities | | | | | | | |
Common stock | $ | 440 | | | Option pricing method | | Term (years) | | 2.83 |
| | | | | Volatility | | 45.00 | % |
| | | Market transaction | | N/A | | N/A |
Preferred stock | 628 | | | Option pricing method | | Term (years) | | 2.83 |
| | | | | Volatility | | 45.00 | % |
| | | Market transaction | | N/A | | N/A |
Bonds | 110,437 | | | Priced at cost | | Coupon rate | | 2.72-8.00% |
Separately managed accounts | 64,424 | | | Discounted cash flows (yield analysis) | | Discount rate | | 7.25-14.71% |
| | | Market transaction | | N/A | | N/A |
(1)Guideline public company method uses price multiples from data on comparable public companies. Multiples are then adjusted to account for differences between what is being valued and comparable firms.
(2)Recurring revenue multiple for the most relevant period of time, measures the value of the equity or a business relative to the revenues it generates.
(3)LTM EBITDA multiple valuation metric shows earnings before interest, taxes, depreciation and amortization adjustments for the past 12 month period.
(4)LTM EBITDA multiple valuation metric shows revenue for the past 12 month period.
Investment Securities—These bonds use cost as the best estimate of fair value. They are valued at cost because the value would not change unless there is a fundamental deterioration in the portfolio. There is no observable market valuation price or third-party sources that provide market values for these securities since they are not publicly traded. The common and preferred stock are valued at market transaction, option pricing method, or guideline public company method based on the best available information.
Separately Managed Accounts—The separately managed account manager uses the mid-point of a range from a third-party to price these securities. Discounted cash flows (yield analysis) and market transactions approach are used in the valuation. They use discount rate which is considered an unobservable input.
Note 9 – Fair Value of Financial Instruments – (Continued)
Fair Value Information About Financial Instruments Not Recorded at Fair Value
Information about fair value estimates for financial instruments not measured at fair valuesvalue is discussed below:
Fixed Maturity Securities—The fair value of bonds held-to-maturity is determined to be consistent with the disclosure under Valuation Techniques for the Financial Instrument Recorded at Fair Value section.
Mortgage Loans—The fair value of mortgage loans is estimated using discounted cash flow analyses on a loan by loan basis by applying a discount rate to expected cash flows from future installment and balloon payments. The discount rate takes into account general market trends and specific credit risk trends for the individual loan. Factors used to arrive at the discount rate include inputs from spreads based on U.S. Treasury notes and the loan’s credit quality, region, property type,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 minusnet of interest credited, fees and charges assessed and other adjustments. American National believes that the carrying value of investment contracts approximates fair value because the majority of these contracts’ interest rates reset at anniversary.
Notes Payable—Notes payable are carried at outstanding principal balance. The carrying value of the notes payable approximates fair value because the underlying interest rates approximate market rates at the balance sheet date.
Federal Home Loan Bank advancesAdvance—The Federal Home Loan Bank advances areadvance was carried at outstanding principal balance. The fair value of the advances areadvance was obtained from the Federal Home Loan Bank.Bank of Dallas.
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):
| | | | | | | | | | | | | | | | | |
| September 30, 2020 |
| FV Hierarchy Level | | Carrying Amount | | Fair Value |
Financial assets | | | | | |
Fixed maturity, bonds held-to-maturity | | | | | |
U.S. states and political subdivisions | Level 2 | | $ | 106,908 | | | $ | 111,183 | |
Foreign governments | Level 2 | | 3,865 | | | 4,294 | |
Corporate debt securities | Level 2 | | 7,297,369 | | | 7,831,992 | |
| | | | | |
Residential mortgage-backed securities | Level 2 | | 146,138 | | | 150,293 | |
Collateralized debt securities | Level 2 | | 148,067 | | | 150,849 | |
| | | | | |
Total fixed maturity, bonds held-to-maturity | | | 7,702,347 | | | 8,248,611 | |
Mortgage loans on real estate, net of allowance | Level 3 | | 5,176,474 | | | 5,381,157 | |
Policy loans | Level 3 | | 374,387 | | | 374,387 | |
| | | | | |
Total financial assets | | | $ | 13,253,208 | | | $ | 14,004,155 | |
Financial liabilities | | | | | |
Investment contracts | Level 3 | | $ | 10,167,018 | | | $ | 10,167,018 | |
Notes payable | Level 3 | | 154,788 | | | 154,788 | |
Federal Home Loan Bank advances | Level 3 | | 500,000 | | | 500,000 | |
Total financial liabilities | | | $ | 10,821,806 | | | $ | 10,821,806 | |
| | | | | | | | | | | | | | | | | |
| September 30, 2021 |
| FV Hierarchy Level | | Carrying Amount | | Fair Value |
Financial assets | | | | | |
Fixed maturity, bonds held-to-maturity | | | | | |
U.S. Treasury and government | Level 1 | | $ | 12,320 | | | $ | 12,163 | |
U.S. states and political subdivisions | Level 2 | | 108,155 | | | 108,322 | |
Foreign governments | Level 2 | | 14,403 | | | 14,533 | |
Corporate debt securities | Level 2 | | 6,984,017 | | | 7,448,762 | |
Residential mortgage-backed securities | Level 2 | | 53,813 | | | 56,760 | |
Collateralized debt securities | Level 2 | | 105,093 | | | 106,491 | |
Total fixed maturity, bonds held-to-maturity | | | 7,277,801 | | | 7,747,031 | |
Mortgage loans on real estate, net of allowance | Level 3 | | 5,002,978 | | | 5,241,982 | |
Policy loans | Level 3 | | 364,960 | | | 364,960 | |
| | | | | |
Total financial assets | | | $ | 12,645,739 | | | $ | 13,353,973 | |
Financial liabilities | | | | | |
Investment contracts | Level 3 | | $ | 10,794,070 | | | $ | 10,794,070 | |
Notes payable | Level 3 | | 150,378 | | | 150,378 | |
| | | | | |
Total financial liabilities | | | $ | 10,944,448 | | | $ | 10,944,448 | |
| | | December 31, 2019 | | December 31, 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. treasury and government | | U.S. treasury and government | Level 2 | | $ | 7,732 | | | $ | 7,744 | |
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 | | 109,445 | | | 113,535 | |
Foreign governments | Foreign governments | Level 2 | | 3,907 | | | 4,349 | | Foreign governments | Level 2 | | 3,851 | | | 4,225 | |
Corporate debt securities | Corporate debt securities | Level 2 | | 8,099,098 | | | 8,424,969 | | Corporate debt securities | Level 2 | | 6,981,597 | | | 7,595,712 | |
Corporate debt securities | | Corporate debt securities | Level 3 | | 3,024 | | | 3,024 | |
Residential mortgage-backed securities | Residential mortgage-backed securities | Level 2 | | 237,516 | | | 242,828 | | Residential mortgage-backed securities | Level 2 | | 114,127 | | | 117,728 | |
Collateralized debt securities | Collateralized debt securities | Level 2 | | 125,631 | | | 126,430 | | Collateralized debt securities | Level 2 | | 135,194 | | | 141,213 | |
| 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 | | 7,354,970 | | | 7,983,181 | |
Mortgage loans on real estate, net of allowance | Mortgage loans on real estate, net of allowance | Level 3 | | 5,097,017 | | | 5,309,005 | | Mortgage loans on real estate, net of allowance | Level 3 | | 5,242,531 | | | 5,451,152 | |
Policy loans | Policy loans | Level 3 | | 379,657 | | | 379,657 | | Policy loans | Level 3 | | 373,014 | | | 373,014 | |
| Total financial assets | Total financial assets | | $ | 14,107,935 | | | $ | 14,657,352 | | Total financial assets | | $ | 12,970,515 | | | $ | 13,807,347 | |
Financial liabilities | Financial liabilities | | | | | Financial liabilities | | | | |
Investment contracts | Investment contracts | Level 3 | | $ | 10,254,959 | | | $ | 10,254,959 | | Investment contracts | Level 3 | | $ | 10,101,764 | | | $ | 10,101,764 | |
Notes payable | Notes payable | Level 3 | | 157,997 | | | 157,997 | | Notes payable | Level 3 | | 153,703 | | | 153,703 | |
Federal Home Loan Bank advance | | Federal Home Loan Bank advance | Level 2 | | 250,000 | | | 250,227 | |
Total financial liabilities | Total financial liabilities | | $ | 10,412,956 | | | $ | 10,412,956 | | Total financial liabilities | | $ | 10,505,467 | | | $ | 10,505,694 | |
Note 10 – Deferred Policy Acquisition Costs
Deferred policy acquisition costs (“DAC”) are shown below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Life | | Annuity | | Health | | Property & Casualty | | Total |
Beginning balance at January 1, 2020 | $ | 852,900 | | | $ | 415,380 | | | $ | 32,578 | | | $ | 122,149 | | | $ | 1,423,007 | |
Additions | 100,210 | | | 37,217 | | | 12,117 | | | 255,497 | | | 405,041 | |
Amortization | (65,338) | | | (65,364) | | | (11,535) | | | (248,042) | | | (390,279) | |
Effect of change in unrealized gains on bonds available-for-sale debt | (7,398) | | | (29,931) | | | 0 | | | 0 | | | (37,329) | |
Net change | 27,474 | | | (58,078) | | | 582 | | | 7,455 | | | (22,567) | |
Ending balance at September 30, 2020 | $ | 880,374 | | | $ | 357,302 | | | $ | 33,160 | | | $ | 129,604 | | | $ | 1,400,440 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Life | | Annuity | | Health | | Property & Casualty | | Total |
Beginning balance at January 1, 2021 | $ | 896,208 | | | $ | 309,056 | | | $ | 32,885 | | | $ | 122,062 | | | $ | 1,360,211 | |
Additions | 122,234 | | | 78,775 | | | 9,211 | | | 275,071 | | | 485,291 | |
Amortization | (80,995) | | | (65,037) | | | (11,907) | | | (263,303) | | | (421,242) | |
Effect of change in unrealized gains on available-for-sale debt securities | 6,939 | | | 17,706 | | | — | | | — | | | 24,645 | |
Net change | 48,178 | | | 31,444 | | | (2,696) | | | 11,768 | | | 88,694 | |
Ending balance at September 30, 2021 | $ | 944,386 | | | $ | 340,500 | | | $ | 30,189 | | | $ | 133,830 | | | $ | 1,448,905 | |
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):
| | | | | | | | | | | |
| Nine months ended September 30, |
| 2021 | | 2020 |
Unpaid claims balance, beginning | $ | 1,354,213 | | | $ | 1,322,837 | |
Less: Reinsurance recoverables | 243,084 | | | 246,447 | |
Net beginning balance | 1,111,129 | | | 1,076,390 | |
Incurred related to | | | |
Current | 960,748 | | | 904,890 | |
Prior years | (65,493) | | | (53,090) | |
Total incurred claims | 895,255 | | | 851,800 | |
Paid claims related to | | | |
Current | 512,515 | | | 495,325 | |
Prior years | 335,065 | | | 334,054 | |
Total paid claims | 847,580 | | | 829,379 | |
Net balance | 1,158,804 | | | 1,098,811 | |
Plus: Reinsurance recoverables | 277,109 | | | 286,188 | |
Unpaid claims balance, ending | $ | 1,435,913 | | | $ | 1,384,999 | |
| | | | | | | | | | | |
| Nine months ended September 30, |
| 2020 | | 2019 |
Unpaid claims balance, beginning | $ | 1,322,837 | | | $ | 1,305,225 | |
Less: Reinsurance recoverables | 246,447 | | | 254,466 | |
Net beginning balance | 1,076,390 | | | 1,050,759 | |
Incurred related to | | | |
Current | 904,890 | | | 917,048 | |
Prior years | (53,090) | | | (47,048) | |
Total incurred claims | 851,800 | | | 870,000 | |
Paid claims related to | | | |
Current | 495,325 | | | 482,729 | |
Prior years | 334,054 | | | 370,807 | |
Total paid claims | 829,379 | | | 853,536 | |
Net balance | 1,098,811 | | | 1,067,223 | |
Plus: Reinsurance recoverables | 286,188 | | | 247,174 | |
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 $53,090,000$65.5 million during the first nine months of 20202021 and decreased by $47,048,000$53.1 million during the same period in 2019.2020. The favorable development in 2021 was a reflection of lower-than-anticipated settlement of losses arising from commercial automobile, agribusiness, private passenger automobile, guaranteed asset protection waiver, and collateral protection insurance lines of business. The favorable development in 2020 was a reflection of lower-than-anticipated settlement of losses in the private passenger automobile, agribusiness, and workers compensation lines of business. The favorable development for the first 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 September 30, 20202021 and December 31, 20192020 was $20,419,000$18.3 million and $21,379,000,$20.5 million, respectively.
Note 12 – Federal Income Taxes
A reconciliation of the effective tax rate to the statutory federal tax rate is shown below (in thousands, except percentages):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
| Amount | | Rate | | Amount | | Rate | | Amount | | Rate | | Amount | | Rate |
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 | 3,576 | | | 1.7 | | | 9,465 | | | 7.3 | | | 4,014 | | | 2.1 | | | 21,488 | | | 3.7 | |
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 | (1,062) | | | (0.5) | | | (1,027) | | | (0.8) | | | (3,149) | | | (1.6) | | | (2,945) | | | (0.5) | |
| | | | | | | | | | | | | | | |
Dividend exclusion | 10 | | | 0 | | | (817) | | | (0.6) | | | (2,295) | | | (1.2) | | | (2,598) | | | (0.4) | |
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 | 997 | | | 0.5 | | | 1,324 | | | 1.0 | | | 3,753 | | | 1.9 | | | 4,265 | | | 0.7 | |
Noncontrolling interest | (104) | | | 0 | | | (2,284) | | | (1.8) | | | (104) | | | (0.1) | | | (2,284) | | | (0.4) | |
Change in valuation allowance | 11 | | | 0 | | | 70 | | | 0.1 | | | 134 | | | 0.1 | | | 235 | | | 0 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Other items, net | 1,022 | | | 0.4 | | | (452) | | | (0.3) | | | 1,241 | | | 0.7 | | | 828 | | | 0.1 | |
Provision for federal income taxes | $ | 43,912 | | | 20.4 | % | | $ | 22,475 | | | 17.4 | % | | $ | 34,441 | | | 17.7 | % | | $ | 111,800 | | | 19.4 | % |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| Amount | | Rate | | Amount | | Rate | | Amount | | Rate | | Amount | | Rate |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Total expected income tax expense at the statutory rate | $ | 13,048 | | | 21.0 | % | | $ | 45,165 | | | 21.0 | % | | $ | 117,616 | | | 21.0 | % | | $ | 40,917 | | | 21.0 | % |
Tax-exempt investment income | (1,182) | | | (1.9) | | | (1,062) | | | (0.5) | | | (3,465) | | | (0.6) | | | (3,149) | | | (1.6) | |
| | | | | | | | | | | | | | | |
Dividend exclusion | (1,127) | | | (1.8) | | | 10 | | | — | | | (2,719) | | | (0.5) | | | (2,295) | | | (1.2) | |
Tax credits, net | (782) | | | (1.3) | | | (2,127) | | | (1.0) | | | (3,747) | | | (0.7) | | | (6,056) | | | (3.1) | |
Low income housing tax credit expense | 955 | | | 1.5 | | | 997 | | | 0.5 | | | 3,843 | | | 0.7 | | | 3,753 | | | 1.9 | |
Change in valuation allowance | 580 | | | 0.9 | | | 11 | | | — | | | 613 | | | 0.1 | | | 134 | | | 0.1 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Other items, net | 318 | | | 0.6 | | | 918 | | | 0.4 | | | 1,169 | | | 0.2 | | | 1,137 | | | 0.6 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Total | $ | 11,810 | | | 19.0 | % | | $ | 43,912 | | | 20.4 | % | | $ | 113,310 | | | 20.2 | % | | $ | 34,441 | | | 17.7 | % |
As of September 30, 2020,2021, American National had no materialmaterial net operating loss or tax credit carryforwards.
American National’s federal income tax returns for tax years 2016 and 2018 to 20182020 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 September 30, 2020,2021, American National had no provision for uncertain tax positions and no provisionprovision for penalties or interest were established.interest. In addition, management does not believebelieve 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 $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 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Net Unrealized Gains (Losses) on Securities | | Defined Benefit Pension Plan Adjustments | | Foreign Currency Adjustments | | Accumulated Other Comprehensive Income (Loss) |
Beginning balance at January 1, 2021 | $ | 292,166 | | | $ | (67,130) | | | $ | (2,866) | | | $ | 222,170 | |
Amounts reclassified from AOCI (net of tax benefit $6,493 and expense $2,247) | (24,424) | | | 8,452 | | | — | | | (15,972) | |
Unrealized holding losses arising during the period (net of tax benefit $27,364) | (102,943) | | | — | | | — | | | (102,943) | |
Unrealized adjustment to DAC (net of tax expense $5,175) | 19,470 | | | — | | | — | | | 19,470 | |
Unrealized losses on investments attributable to participating policyholders’ interest (net of tax expense $1,146) | 4,312 | | | — | | | — | | | 4,312 | |
Foreign currency adjustment (net of tax expense $32) | — | | | — | | | 122 | | | 122 | |
Ending balance at September 30, 2021 | $ | 188,581 | | | $ | (58,678) | | | $ | (2,744) | | | $ | 127,159 | |
| | | | | | | |
| 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 | |
Note 14 – Stockholders’ Equity and Noncontrolling Interests
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 $0.01 per share and 50,000,000 authorized shares. Upon the effective dateEach issued and outstanding share of the holding company reorganization, ANAT retired 3,945,249 shares ofCompany's common stock that were heldwill be converted into the right to receive $190.00 in treasury at ANICO priorcash without interest pursuant to the reorganization.Merger Agreement with Brookfield Reinsurance. Refer to Note 1, Nature of Operations, for more information. The number of shares outstanding at the dates indicated are shown below:
| | | September 30, 2020 | | December 31, 2019 | | September 30, 2021 | | December 31, 2020 |
Common stock | Common stock | | | | Common stock | | | |
Shares issued | Shares issued | 26,887,200 | | | 30,832,449 | | Shares issued | 26,887,200 | | | 26,887,200 | |
Treasury shares | 0 | | | (3,945,249) | | |
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. 8,250During the second quarter of 2021, 10,197 of such cash-settled RSUs were granted during the third quarter of 2020 and are currentlyremain outstanding at September 30, 2021 as shown in the table below.
SAR,
RS and RSU information for the periods indicated are shown below:
| | | SAR | | RS Shares | | RSUs | | | | 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 | | Units | | Weighted-Average Grant Date Fair Value |
Outstanding at December 31, 2019 | 66 | | | $ | 110.83 | | | 10,000 | | | $ | 80.05 | | | 8,250 | | | $ | 113.19 | | |
Outstanding at December 31, 2020 | | Outstanding at December 31, 2020 | | | 10,000 | | | $ | 80.05 | | | 8,250 | | | $ | 75.35 | |
Granted | Granted | — | | | — | | | — | | | — | | | 8,250 | | | 75.35 | | Granted | | | — | | | — | | | 10,197 | | | 113.35 | |
Exercised | Exercised | — | | | — | | | — | | | — | | | (8,250) | | | 113.19 | | Exercised | | | — | | | — | | | (8,250) | | | 75.35 | |
Forfeited | Forfeited | — | | | — | | | — | | | — | | | — | | | — | | Forfeited | | | — | | | — | | | — | | | — | |
Expired | Expired | (66) | | | 110.83 | | | — | | | — | | | — | | | — | | Expired | | | — | | | — | | | — | | | — | |
Outstanding at September 30, 2020 | 0 | | | $ | 0 | | | 10,000 | | | $ | 80.05 | | | 8,250 | | | $ | 75.35 | | |
Outstanding at September 30, 2021 | | Outstanding at September 30, 2021 | | | 10,000 | | | $ | 80.05 | | | 10,197 | | | $ | 113.35 | |
| | | SAR | | RS Shares | | RSUs | | SAR | | RS Shares | | RSUs |
Weighted-average contractual remaining life (in years) | Weighted-average contractual remaining life (in years) | 0 | | 2.42 | | 0.58 | Weighted-average contractual remaining life (in years) | 0.00 | | 1.42 | | 0.58 |
Exercisable shares | Exercisable shares | 0 | | | N/A | | N/A | Exercisable shares | — | | | N/A | | N/A |
Weighted-average exercise price | Weighted-average exercise price | $ | 0 | | | $ | 0 | | | $ | 75.35 | | Weighted-average exercise price | $ | — | | | $ | 80.05 | | | $ | 113.35 | |
Weighted-average exercise price exercisable shares | Weighted-average exercise price exercisable shares | 0 | | | N/A | | N/A | Weighted-average exercise price exercisable shares | — | | | N/A | | N/A |
Compensation expense (credit) | Compensation expense (credit) | | Compensation expense (credit) | |
Three months ended September 30, 2021 | | Three months ended September 30, 2021 | $ | — | | | $ | 20,000 | | | $ | 464,000 | |
Three months ended September 30, 2020 | Three months ended September 30, 2020 | $ | 0 | | | $ | 20,000 | | | $ | 360,000 | | Three months ended September 30, 2020 | — | | | 20,000 | | | 360,000 | |
Three months ended September 30, 2019 | 1,000 | | | 20,000 | | | 154,000 | | |
Nine months ended September 30, 2021 | | Nine months ended September 30, 2021 | $ | — | | | $ | 60,000 | | | $ | 1,815,000 | |
Nine months ended September 30, 2020 | Nine months ended September 30, 2020 | $ | (1,000) | | | $ | 60,000 | | | $ | 176,000 | | Nine months ended September 30, 2020 | (1,000) | | | 60,000 | | | 176,000 | |
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 | |
September 30, 2020 | $ | 0 | | | N/A | | $ | 557,000 | | |
December 31, 2019 | 1,000 | | | N/A | | 971,000 | | |
September 30, 2021 | | September 30, 2021 | $ | — | | | N/A | | $ | 1,928,000 | |
December 31, 2020 | | December 31, 2020 | — | | | N/A | | 793,000 | |
The SARs givegave 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 vestvested at a rate of 20% per year for five years and expireexpired five years after vesting. All remaining SARs expired on May 1, 2020.
RS awards entitle the participant to full dividend and voting rights. Each RS share awarded has the value of one share of restricted stock and vests 10 years from the grant date. Unvested shares are restricted as to disposition, and are subject to forfeiture under certain circumstances. Compensation expense is recognized over the vesting period. The restrictions on these awards lapse after 10 years and feature a graded vesting schedule in the case of the retirement, death or disability of an award holder.holder or change in control. Restricted stock awards for 350,334 shares have been granted at an exercise price of 0,zero, of which 10,000 shares are unvested.
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-yearone-year or earlier upon death, disability or retirement from service after age 65.65 or change in control. During the twelve months ended December 31, 2020, 8,250 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 vestand vested on May 1, 2021 and were settled in cash.A new grant of 10,197 RSUs was awarded to directors and advisory directors on May 1, 2021 with one-year cliff vesting which will be settled in cash.
Pursuant to the Merger Agreement with Brookfield Reinsurance, each outstanding and unvested restricted share award and restricted stock unit award will vest and be converted into the right to receive cash payment equal to $190.00 multiplied by the total number of shares of common stock subject to such award prior to the effective date of the merger with Brookfield Reinsurance. Refer to Note 1, Nature of Operations, for more information.
Earnings per Share
Basic earnings per share were calculated using a weighted average number of shares outstanding. Diluted earnings per share include RS and RSU award shares issued in 2019.awards. RSUs issued in 2020 may only be settled in cash.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Weighted average shares outstanding | 26,877,200 | | | 26,881,700 | | | 26,879,178 | | | 26,883,025 | |
Incremental shares from RS awards and RSUs | 7,558 | | | 6,472 | | | 8,696 | | | 6,313 | |
Total shares for diluted calculations | 26,884,758 | | | 26,888,172 | | | 26,887,874 | | | 26,889,338 | |
Net income attributable to American National (in thousands) | $ | 171,052 | | | $ | 92,184 | | | $ | 161,153 | | | $ | 449,241 | |
Basic earnings per share | $ | 6.36 | | | $ | 3.43 | | | $ | 6.00 | | | $ | 16.71 | |
Diluted earnings per share | $ | 6.36 | | | $ | 3.43 | | | $ | 5.99 | | | $ | 16.71 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Weighted average shares outstanding | 26,877,200 | | | 26,877,200 | | | 26,877,200 | | | 26,879,178 | |
Incremental shares from RS awards | 7,382 | | | 7,558 | | | 7,500 | | | 8,696 | |
Total shares for diluted calculations | 26,884,582 | | | 26,884,758 | | | 26,884,700 | | | 26,887,874 | |
Net income attributable to American National (in thousands) | $ | 51,048 | | | $ | 171,052 | | | $ | 449,197 | | | $ | 161,153 | |
Basic earnings per share | $ | 1.90 | | | $ | 6.36 | | | $ | 16.71 | | | $ | 6.00 | |
Diluted earnings per share | $ | 1.90 | | | $ | 6.36 | | | $ | 16.71 | | | $ | 5.99 | |
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%100% of the authorized controlcompany action level RBC are required to take certain actions. At September 30, 20202021 and December 31, 2019, American National Insurance Company’s2020, ANICO's statutory capital and surplus was $3,488,293,000$3.7 billion and $3,477,727,000, respectively. American National Insurance Company and each$3.6 billion, respectively, which resulted in an RBC level above 200% of itsthe company action level. All of our other insurance subsidiaries had statutory capital and surplus at September 30, 20202021 and December 31, 2019,2020, above 200% of the authorized controlcompany action level, except for ANPAC Louisiana Insurance Company ("ANPLA"). At September 30, 2021 and December 31, 2020, ANPLA's statutory capital and surplus was $42.1 million and $68.5 million respectively, which resulted in an RBC level of 119% and 194% of the company action level. This decrease in RBC of ANPLA is primarily driven by an increase in homeowners catastrophe losses impacting the operating results in 2021 and 2020. We are actively managing our homeowners exposure of ANPLA, will continue to monitor the surplus levels and will be addressing rate adequacy through future planned underwriting and rate actions.
American National's insurance subsidiaries prepare statutory-basis financial statements in accordance with statutory accounting practices prescribed or permitted by the insurance department of theeach subsidiary's state of domicile, which include certain components of the National Association of Insurance Commissioners’ Codification of Statutory Accounting Principles (“NAIC Codification”). NAIC Codification is intended to standardize regulatory accounting and reporting to state insurance departments. However, statutory accounting practices continue to be established by individual state laws and permitted practices. Modifications by the various state insurance departments may impact the statutory capital and surplus of American National Insurance Company and itsour 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.
Note 14 – Stockholders’ Equity and Noncontrolling Interests – (Continued)
One of American National’s insurance subsidiaries has been granted a permitted practice from the Missouri Department of Insurance to record as the valuation of its investment in a wholly-owned subsidiary that is the attorney-in-fact for a Texas domiciled insurer, the statutory capital and surplus of the Texas domiciled insurer. This permitted practice increases the statutory capital and surplus of both ANICO and American National Lloyds Insurance Company and the Missouri domiciled insurance subsidiary by $73,084,000$67.0 million and $70,339,000$75.3 million at September 30, 20202021 and December 31, 2019,2020, respectively. The statutory capital and surplus of both ANICO and American National Lloyds Insurance Company and the Missouri domiciled insurance subsidiary would have remained above the Company actionauthorized control level RBC had it not used the permitted practice.
The statutory capital and surplus and net income (loss) of our life and property and casualty insurance entities in accordance with statutory accounting practices are shown below (in thousands):
| | | September 30, 2020 | | December 31, 2019 | | September 30, 2021 | | December 31, 2020 |
Statutory capital and surplus | Statutory capital and surplus | | | | | Statutory capital and surplus | | | | |
Life insurance entities | Life insurance entities | | $ | 2,120,222 | | | $ | 2,159,770 | | Life insurance entities | | $ | 2,189,438 | | | $ | 2,188,808 | |
Property and casualty insurance entities | Property and casualty insurance entities | | 1,379,711 | | | 1,329,782 | | Property and casualty insurance entities | | 1,567,841 | | | 1,463,179 | |
Note 14 – Stockholders’ Equity and Noncontrolling Interests – (Continued)
| | | | Three months ended September 30, | | Nine months ended September 30, | | | Three months ended September 30, | | Nine months ended September 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 | | | 2021 | | 2020 | | 2021 | | 2020 |
Statutory net income (loss) | Statutory net income (loss) | | | | | | | | | Statutory net income (loss) | | | | | | | | |
Life insurance entities | Life insurance entities | | $ | (11,638) | | | $ | 26,498 | | | $ | 13,036 | | | $ | 32,196 | | Life insurance entities | | $ | (16,116) | | | $ | (11,638) | | | $ | (67,290) | | | $ | 13,036 | |
Property and casualty insurance entities | Property and casualty insurance entities | | 33,816 | | | 15,626 | | | 69,094 | | | 66,090 | | Property and casualty insurance entities | | 10,825 | | | 33,816 | | | 67,976 | | | 69,094 | |
Dividends
Dividends are paid on a quarterly basis. We paid a quarterly dividend of $0.82 per share for each quarter during the nine months ended September 30, 20202021 and September 30, 2019, respectively. We2020, and we expect to continue to pay regular quarterly cash dividends, not to exceed $0.82 per share, prior to the completion of the merger with Brookfield Reinsurance, although there is no assurance as to future dividends because they depend on future earnings, capital requirements and financial conditions. Refer to Note 1, Nature of Operations, for more information regarding the Merger Agreement with Brookfield Reinsurance.
American National Insurance Company’s payment
The amount of dividends to its stockholder, American National Group, Inc.paid by our insurance company subsidiaries is restricted by insurance law. TheThese restrictions requireare based, in part, on the prior year’s statutory income and surplus. In general, dividends up to specified levels are considered ordinary and may be paid without prior regulatory approval. Dividends in larger amounts, or extraordinary dividends, are subject to approval by the insurance commissioner of the relevant state of domicile. For example, restrictions applicable to Texas-domiciled life insurance companies to maintain minimum amounts of capital and surplus, and in the absence of special approval,like ANICO limit the payment of dividends to the greater of the prior year’s statutory net income from operations, or 10% of prior year statutory surplus. American National Insurance Companysurplus, in each case determined in accordance with statutory accounting principles. ANICO is permitted without prior approval of the Texas Department of Insurance to pay total dividends of $347,773,000$363.9 million during 2020. Similar restrictions on amounts that can transfer in2021 and subject to the formterms and conditions of dividends, loans, or advances to American National Insurance Company apply to its insurance subsidiaries.the Merger Agreement with Brookfield Reinsurance.
Noncontrolling InterestsInterest
American National County Mutual Insurance Company (“County Mutual”) is a mutual insurance company owned by its policyholders. American National Insurance CompanyANICO 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$6.8 million at September 30, 20202021 and December 31, 2019.2020, respectively.
American National Group, Inc. and its subsidiaries exercise control or ownership of various joint ventures, resulting in their consolidation into American National’s condensed consolidated financial statements. The interests of the other partners in the consolidated joint ventures are shown as a noncontrolling interest of $0.6 million and a noncontrolling deficit of $443,000 and $736,000$0.9 million at September 30, 20202021 and December 31, 2019,2020, respectively.
Note 15 – Segment Information
Management organizes the business into 5 operating segments:
•Life—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—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—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.underwriters ("MGU").
•Property and Casualty—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—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.
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 September 30, 2020 |
| | | | | | | Property | | Corporate | | |
| Life | | Annuity | | Health | | & Casualty | | & Other | | Total |
PREMIUMS AND OTHER REVENUES | | | | | | | | | | | |
Premiums | $ | 101,182 | | | $ | 27,960 | | | $ | 40,934 | | | $ | 391,388 | | | $ | 0 | | | $ | 561,464 | |
Other policy revenues | 75,317 | | | 4,027 | | | 0 | | | 0 | | | 0 | | | 79,344 | |
Net investment income | 69,235 | | | 163,125 | | | 2,033 | | | 16,049 | | | 3,814 | | | 254,256 | |
Net realized investment gains | 0 | | | 0 | | | 0 | | | 0 | | | 17,387 | | | 17,387 | |
| | | | | | | | | | | |
Change in investment credit loss | 0 | | | 0 | | | 0 | | | 0 | | | (4,175) | | | (4,175) | |
Net gains on equity securities | 0 | | | 0 | | | 0 | | | 0 | | | 152,147 | | | 152,147 | |
Other income | 358 | | | 733 | | | 4,971 | | | 3,079 | | | 542 | | | 9,683 | |
Total premiums and other revenues | 246,092 | | | 195,845 | | | 47,938 | | | 410,516 | | | 169,715 | | | 1,070,106 | |
BENEFITS, LOSSES AND EXPENSES | | | | | | | | | | | |
Policyholder benefits | 153,957 | | | 46,424 | | | 0 | | | 0 | | | 0 | | | 200,381 | |
Claims incurred | 0 | | | 0 | | | 27,933 | | | 258,412 | | | 0 | | | 286,345 | |
Interest credited to policyholders’ account balances | 24,522 | | | 104,424 | | | 0 | | | 0 | | | 0 | | | 128,946 | |
Commissions for acquiring and servicing policies | 41,974 | | | 16,119 | | | 7,608 | | | 72,664 | | | 0 | | | 138,365 | |
Other operating expenses | 45,080 | | | 12,115 | | | 10,013 | | | 48,576 | | | 10,629 | | | 126,413 | |
Change in deferred policy acquisition costs | (15,499) | | | 8,555 | | | (542) | | | (901) | | | — | | | (8,387) | |
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 | $ | (3,942) | | | $ | 8,208 | | | $ | 2,926 | | | $ | 31,765 | | | $ | 159,086 | | | $ | 198,043 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, 2021 |
| | | | | | | | | | | |
| Life | | Annuity | | Health | | Property & Casualty | | Corporate & Other | | Total |
PREMIUMS AND OTHER REVENUES | | | | | | | | | | | |
Premiums | $ | 104,802 | | | $ | 18,698 | | | $ | 36,201 | | | $ | 426,887 | | | $ | — | | | $ | 586,588 | |
Other policy revenues | 83,331 | | | 5,356 | | | — | | | — | | | — | | | 88,687 | |
Net investment income | 63,379 | | | 132,236 | | | 1,941 | | | 15,929 | | | 47,655 | | | 261,140 | |
Net realized investment gains | — | | | — | | | — | | | — | | | 20,138 | | | 20,138 | |
| | | | | | | | | | | |
Decrease in investment credit loss | — | | | — | | | — | | | — | | | 5,969 | | | 5,969 | |
Net gains on equity securities | — | | | — | | | — | | | — | | | 681 | | | 681 | |
Other income | 431 | | | 972 | | | 6,045 | | | 3,863 | | | 715 | | | 12,026 | |
Total premiums and other revenues | 251,943 | | | 157,262 | | | 44,187 | | | 446,679 | | | 75,158 | | | 975,229 | |
BENEFITS, LOSSES AND EXPENSES | | | | | | | | | | | |
Policyholder benefits | 161,633 | | | 29,222 | | | — | | | — | | | — | | | 190,855 | |
Claims incurred | — | | | — | | | 23,935 | | | 299,956 | | | — | | | 323,891 | |
Interest credited to policyholders’ account balances | 10,180 | | | 72,071 | | | — | | | — | | | — | | | 82,251 | |
Commissions for acquiring and servicing policies | 50,461 | | | 24,865 | | | 6,010 | | | 89,883 | | | — | | | 171,219 | |
Other operating expenses | 51,114 | | | 14,653 | | | 11,294 | | | 53,364 | | | 21,546 | | | 151,971 | |
Change in deferred policy acquisition costs | (13,311) | | | 8,982 | | | 311 | | | (3,070) | | | — | | | (7,088) | |
Total benefits, losses and expenses | 260,077 | | | 149,793 | | | 41,550 | | | 440,133 | | | 21,546 | | | 913,099 | |
Income (loss) before federal income tax and other items | $ | (8,134) | | | $ | 7,469 | | | $ | 2,637 | | | $ | 6,546 | | | $ | 53,612 | | | $ | 62,130 | |
| | | Three months ended September 30, 2019 | | Three months ended September 30, 2020 |
| | | Property | | Corporate | | |
| | Life | | Annuity | | Health | | & Casualty | | & Other | | Total | | Life | | Annuity | | Health | | Property & Casualty | | Corporate & Other | | Total |
PREMIUMS AND OTHER REVENUES | PREMIUMS AND OTHER REVENUES | | | | | | | | | | | | PREMIUMS AND OTHER REVENUES | | | | | | | | | | | |
Premiums | Premiums | $ | 93,079 | | | $ | 41,305 | | | $ | 40,676 | | | $ | 382,784 | | | $ | 0 | | | $ | 557,844 | | Premiums | $ | 101,182 | | | $ | 27,960 | | | $ | 40,934 | | | $ | 391,388 | | | $ | — | | | $ | 561,464 | |
Other policy revenues | Other policy revenues | 72,446 | | | 4,338 | | | 0 | | | 0 | | | 0 | | | 76,784 | | Other policy revenues | 75,317 | | | 4,027 | | | — | | | — | | | — | | | 79,344 | |
Net investment income | Net investment income | 61,961 | | | 141,684 | | | 2,381 | | | 16,357 | | | 24,237 | | | 246,620 | | Net investment income | 69,235 | | | 163,125 | | | 2,033 | | | 16,049 | | | 20,843 | | | 271,285 | |
Net realized investment gains | Net realized investment gains | 0 | | | 0 | | | 0 | | | 0 | | | 31,933 | | | 31,933 | | Net realized investment gains | — | | | — | | | — | | | — | | | 17,387 | | | 17,387 | |
| Increase in investment credit loss | | Increase in investment credit loss | — | | | — | | | — | | | — | | | (4,175) | | | (4,175) | |
Net gains on equity securities | Net gains on equity securities | 0 | | | 0 | | | 0 | | | 0 | | | 8,589 | | | 8,589 | | Net gains on equity securities | — | | | — | | | — | | | — | | | 152,147 | | | 152,147 | |
Other income | Other income | 441 | | | 653 | | | 5,021 | | | 3,137 | | | 1,478 | | | 10,730 | | Other income | 358 | | | 733 | | | 4,971 | | | 3,079 | | | 542 | | | 9,683 | |
Total premiums and other revenues | Total premiums and other revenues | 227,927 | | | 187,980 | | | 48,078 | | | 402,278 | | | 66,237 | | | 932,500 | | Total premiums and other revenues | 246,092 | | | 195,845 | | | 47,938 | | | 410,516 | | | 186,744 | | | 1,087,135 | |
BENEFITS, LOSSES AND EXPENSES | BENEFITS, LOSSES AND EXPENSES | | | | | | | | | | | | BENEFITS, LOSSES AND EXPENSES | | | | | | | | | | | |
Policyholder benefits | Policyholder benefits | 113,652 | | | 59,699 | | | 0 | | | 0 | | | 0 | | | 173,351 | | Policyholder benefits | 153,957 | | | 46,424 | | | — | | | — | | | — | | | 200,381 | |
Claims incurred | Claims incurred | 0 | | | 0 | | | 28,567 | | | 280,695 | | | 0 | | | 309,262 | | Claims incurred | — | | | — | | | 27,933 | | | 258,412 | | | — | | | 286,345 | |
Interest credited to policyholders’ account balances | Interest credited to policyholders’ account balances | 22,045 | | | 84,737 | | | 0 | | | 0 | | | 0 | | | 106,782 | | Interest credited to policyholders’ account balances | 24,522 | | | 104,424 | | | — | | | — | | | — | | | 128,946 | |
Commissions for acquiring and servicing policies | Commissions for acquiring and servicing policies | 42,023 | | | 13,368 | | | 7,405 | | | 65,893 | | | 0 | | | 128,689 | | Commissions for acquiring and servicing policies | 41,974 | | | 16,119 | | | 7,608 | | | 72,664 | | | — | | | 138,365 | |
Other operating expenses | Other operating expenses | 46,873 | | | 12,264 | | | 9,504 | | | 50,111 | | | 9,750 | | | 128,502 | | 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 | (5,080) | | | 7,006 | | | 258 | | | (636) | | | 0 | | | 1,548 | | Change in deferred policy acquisition costs | (15,499) | | | 8,555 | | | (542) | | | (901) | | | — | | | (8,387) | |
Total benefits, losses and expenses | Total benefits, losses and expenses | 219,513 | | | 177,074 | | | 45,734 | | | 396,063 | | | 9,750 | | | 848,134 | | Total benefits, losses and expenses | 250,034 | | | 187,637 | | | 45,012 | | | 378,751 | | | 10,629 | | | 872,063 | |
Income before federal income tax and other items | $ | 8,414 | | | $ | 10,906 | | | $ | 2,344 | | | $ | 6,215 | | | $ | 56,487 | | | $ | 84,366 | | |
Income (loss) before federal income tax and other items | | Income (loss) before federal income tax and other items | $ | (3,942) | | | $ | 8,208 | | | $ | 2,926 | | | $ | 31,765 | | | $ | 176,115 | | | $ | 215,072 | |
Note 15 – Segment Information – (Continued)
| | | | Nine months ended September 30, 2020 | | Nine months ended September 30, 2021 |
| | | Property | | Corporate | | |
| | Life | | Annuity | | Health | | & Casualty | | & Other | | Total | | Life | | Annuity | | Health | | Property & Casualty | | Corporate & Other | | Total |
PREMIUMS AND OTHER REVENUES | PREMIUMS AND OTHER REVENUES | | | | | | | | | | | | PREMIUMS AND OTHER REVENUES | | | | | | | | | | | |
Premiums | Premiums | $ | 282,368 | | | $ | 69,413 | | | $ | 126,965 | | | $ | 1,152,749 | | | $ | 0 | | | $ | 1,631,495 | | Premiums | $ | 306,365 | | | $ | 63,436 | | | $ | 108,914 | | | $ | 1,235,778 | | | $ | — | | | $ | 1,714,493 | |
Other policy revenues | Other policy revenues | 227,083 | | | 11,653 | | | 0 | | | 0 | | | 0 | | | 238,736 | | Other policy revenues | 248,366 | | | 17,383 | | | — | | | — | | | — | | | 265,749 | |
Net investment income | Net investment income | 188,455 | | | 394,508 | | | 6,480 | | | 48,171 | | | 19,274 | | | 656,888 | | Net investment income | 203,401 | | | 449,456 | | | 6,028 | | | 47,167 | | | 122,468 | | | 828,520 | |
Net realized investment gains | Net realized investment gains | 0 | | | 0 | | | 0 | | | 0 | | | 25,474 | | | 25,474 | | Net realized investment gains | — | | | — | | | — | | | — | | | 49,979 | | | 49,979 | |
Change in investment credit loss | 0 | | | 0 | | | 0 | | | 0 | | | (101,163) | | | (101,163) | | |
Decrease in investment credit loss | | Decrease in investment credit loss | — | | | — | | | — | | | — | | | 25,562 | | | 25,562 | |
Net gains on equity securities | Net gains on equity securities | 0 | | | 0 | | | 0 | | | 0 | | | 118,397 | | | 118,397 | | Net gains on equity securities | — | | | — | | | — | | | — | | | 267,425 | | | 267,425 | |
Other income | Other income | 1,534 | | | 2,166 | | | 15,001 | | | 9,656 | | | 2,795 | | | 31,152 | | Other income | 1,311 | | | 2,760 | | | 16,032 | | | 10,138 | | | 2,572 | | | 32,813 | |
Total premiums and other revenues | Total premiums and other revenues | 699,440 | | | 477,740 | | | 148,446 | | | 1,210,576 | | | 64,777 | | | 2,600,979 | | Total premiums and other revenues | 759,443 | | | 533,035 | | | 130,974 | | | 1,293,083 | | | 468,006 | | | 3,184,541 | |
BENEFITS, LOSSES AND EXPENSES | BENEFITS, LOSSES AND EXPENSES | | | | | | | | | | | | BENEFITS, LOSSES AND EXPENSES | | | | | | | | | | | |
Policyholder benefits | Policyholder benefits | 389,364 | | | 126,209 | | | 0 | | | 0 | | | 0 | | | 515,573 | | Policyholder benefits | 447,309 | | | 116,662 | | | — | | | — | | | — | | | 563,971 | |
Claims incurred | Claims incurred | 0 | | | 0 | | | 89,544 | | | 768,682 | | | 0 | | | 858,226 | | Claims incurred | — | | | — | | | 74,376 | | | 824,697 | | | — | | | 899,073 | |
Interest credited to policyholders’ account balances | Interest credited to policyholders’ account balances | 47,820 | | | 223,586 | | | 0 | | | 0 | | | 0 | | | 271,406 | | Interest credited to policyholders’ account balances | 53,276 | | | 247,998 | | | — | | | — | | | — | | | 301,274 | |
Commissions for acquiring and servicing policies | Commissions for acquiring and servicing policies | 122,728 | | | 38,024 | | | 22,792 | | | 225,746 | | | 0 | | | 409,290 | | Commissions for acquiring and servicing policies | 142,278 | | | 77,833 | | | 18,561 | | | 250,145 | | | — | | | 488,817 | |
Other operating expenses | Other operating expenses | 137,065 | | | 35,737 | | | 30,118 | | | 151,660 | | | 30,936 | | | 385,516 | | Other operating expenses | 147,381 | | | 39,718 | | | 31,769 | | | 157,926 | | | 58,586 | | | 435,380 | |
Change in deferred policy acquisition costs | Change in deferred policy acquisition costs | (34,872) | | | 28,147 | | | (582) | | | (7,455) | | | 0 | | | (14,762) | | Change in deferred policy acquisition costs | (41,239) | | | (13,738) | | | 2,696 | | | (11,768) | | | — | | | (64,049) | |
Total benefits, losses and expenses | Total benefits, losses and expenses | 662,105 | | | 451,703 | | | 141,872 | | | 1,138,633 | | | 30,936 | | | 2,425,249 | | Total benefits, losses and expenses | 749,005 | | | 468,473 | | | 127,402 | | | 1,221,000 | | | 58,586 | | | 2,624,466 | |
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 | | Income before federal income tax and other items | $ | 10,438 | | | $ | 64,562 | | | $ | 3,572 | | | $ | 72,083 | | | $ | 409,420 | | | $ | 560,075 | |
|
| | | | Nine months ended September 30, 2019 | | Nine months ended September 30, 2020 |
| | | Property | | Corporate | | |
| | Life | | Annuity | | Health | | & Casualty | | & Other | | Total | | Life | | Annuity | | Health | | Property & Casualty | | Corporate & Other | | Total |
PREMIUMS AND OTHER REVENUES | PREMIUMS AND OTHER REVENUES | | | | | | | | | | | | PREMIUMS AND OTHER REVENUES | | | | | | | | | | | |
Premiums | Premiums | $ | 265,634 | | | $ | 137,434 | | | $ | 121,581 | | | $ | 1,125,704 | | | $ | 0 | | | $ | 1,650,353 | | Premiums | $ | 282,368 | | | $ | 69,413 | | | $ | 126,965 | | | $ | 1,152,749 | | | $ | — | | | $ | 1,631,495 | |
Other policy revenues | Other policy revenues | 213,300 | | | 12,878 | | | 0 | | | 0 | | | 0 | | | 226,178 | | Other policy revenues | 227,083 | | | 11,653 | | | — | | | — | | | — | | | 238,736 | |
Net investment income | Net investment income | 194,633 | | | 487,750 | | | 7,177 | | | 48,085 | | | 59,051 | | | 796,696 | | Net investment income | 188,455 | | | 394,508 | | | 6,480 | | | 48,171 | | | 38,388 | | | 676,002 | |
Net realized investment gains | Net realized investment gains | 0 | | | 0 | | | 0 | | | 0 | | | 24,975 | | | 24,975 | | Net realized investment gains | — | | | — | | | — | | | — | | | 25,474 | | | 25,474 | |
Increase in investment credit loss | | Increase in investment credit loss | — | | | — | | | — | | | — | | | (101,163) | | | (101,163) | |
Net gains on equity securities | Net gains on equity securities | 0 | | | 0 | | | 0 | | | 0 | | | 282,026 | | | 282,026 | | Net gains on equity securities | — | | | — | | | — | | | — | | | 118,397 | | | 118,397 | |
Other income | Other income | 1,586 | | | 1,916 | | | 15,940 | | | 8,689 | | | 4,511 | | | 32,642 | | Other income | 1,534 | | | 2,166 | | | 15,001 | | | 9,656 | | | 2,795 | | | 31,152 | |
Total premiums and other revenues | Total premiums and other revenues | 675,153 | | | 639,978 | | | 144,698 | | | 1,182,478 | | | 370,563 | | | 3,012,870 | | Total premiums and other revenues | 699,440 | | | 477,740 | | | 148,446 | | | 1,210,576 | | | 83,891 | | | 2,620,093 | |
BENEFITS, LOSSES AND EXPENSES | BENEFITS, LOSSES AND EXPENSES | | | | | | | | | | | | BENEFITS, LOSSES AND EXPENSES | | | | | | | | | | | |
Policyholder benefits | Policyholder benefits | 327,579 | | | 191,248 | | | 0 | | | 0 | | | 0 | | | 518,827 | | Policyholder benefits | 389,364 | | | 126,209 | | | — | | | — | | | — | | | 515,573 | |
Claims incurred | Claims incurred | 0 | | | 0 | | | 81,042 | | | 790,447 | | | 0 | | | 871,489 | | Claims incurred | — | | | — | | | 89,544 | | | 768,682 | | | — | | | 858,226 | |
Interest credited to policyholders’ account balances | Interest credited to policyholders’ account balances | 57,561 | | | 314,142 | | | 0 | | | 0 | | | 0 | | | 371,703 | | Interest credited to policyholders’ account balances | 47,820 | | | 223,586 | | | — | | | — | | | — | | | 271,406 | |
Commissions for acquiring and servicing policies | Commissions for acquiring and servicing policies | 120,646 | | | 63,373 | | | 22,975 | | | 201,635 | | | 0 | | | 408,629 | | Commissions for acquiring and servicing policies | 122,728 | | | 38,024 | | | 22,792 | | | 225,746 | | | — | | | 409,290 | |
Other operating expenses | Other operating expenses | 142,520 | | | 38,087 | | | 31,203 | | | 151,677 | | | 28,158 | | | 391,645 | | 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 | (19,120) | | | (383) | | | 919 | | | (3,807) | | | 0 | | | (22,391) | | Change in deferred policy acquisition costs | (34,872) | | | 28,147 | | | (582) | | | (7,455) | | | — | | | (14,762) | |
Total benefits, losses and expenses | Total benefits, losses and expenses | 629,186 | | | 606,467 | | | 136,139 | | | 1,139,952 | | | 28,158 | | | 2,539,902 | | Total benefits, losses and expenses | 662,105 | | | 451,703 | | | 141,872 | | | 1,138,633 | | | 30,936 | | | 2,425,249 | |
Income before federal income tax and other items | Income before federal income tax and other items | $ | 45,967 | | | $ | 33,511 | | | $ | 8,559 | | | $ | 42,526 | | | $ | 342,405 | | | $ | 472,968 | | Income before federal income tax and other items | $ | 37,335 | | | $ | 26,037 | | | $ | 6,574 | | | $ | 71,943 | | | $ | 52,955 | | | $ | 194,844 | |
|
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 September 30, 20202021 were approximately $10,876,000.$7.0 million.
American National had aggregate commitments at September 30, 20202021 to purchase, expand or improve real estate, to fund fixed interest rate mortgage loans, and to purchase other invested assets of $1,362,900,000$2.1 billion of which $328,144,000$708.5 million is expected to be funded in 20202021 with the remainder funded in 20212022 and beyond.
American National 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 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. Asin the amount of $3.5 million as of September 30, 20202021 and December 31, 2019, the outstanding letters of credit were $3,484,000, and there were no borrowings on this facility. This facility 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 September 30, 2020,2021, certain municipal bonds and collateralized mortgage obligations (CMO’s) with a fair value of approximately $84.1$32.1 million and commercial mortgage loans of approximately $1.4 billion were on deposit with the FHLB as collateral for borrowing. As of September 30, 2020,2021, the collateral provided borrowing capacity for the $500 million in outstanding advances as well asof approximately $564 million in additional borrowing capacity.$990.6 million. 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 September 30, 2020 are shown below (in thousands, except percentages):
| | | | | | | | | | | | | | | | | |
| Principal Amount | | Interest Rate | | Maturity Date |
At September 30, 2020 | | | | | |
FHLB advance, fixed rate* | $ | 250,000 | | | 0.25 | % | | 10/13/2020 |
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 NationalANICO 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.ANICO. The loans are secured by the cash values of the life insurance policies. If the customer were to default on a bank loan, American NationalANICO 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 September 30, 2020,2021, was approximately $121,379,000,$121.4 million, while the total cash value of the related life insurance policies was approximately $142,019,000.$142.1 million.
Restrictions of the Merger Agreement limit the Company's ability, without Brookfield Reinsurance's consent, to incur guarantee or assume any indebtedness, subject to certain limited exceptions, including investment portfolio transactions in the ordinary course of business consistent with past practice and other incurrences of indebtedness not to exceed $10,000,000 in the aggregate. Refer to Part I, Item 2, MD&A, Introductory Note Regarding Pending Merger for more information.
Note 16 – Commitments and Contingencies – (Continued)
Litigation
American National and certain subsidiaries are defendants in various lawsuits concerning alleged breaches of contracts, various employment matters, allegedly deceptive insurance sales and marketing practices, and miscellaneous other causes of action arising in the ordinary course of operations. Certain of these lawsuits include claims for compensatory and punitive damages. We provide accruals for these items to the extent we deem the losses probable and reasonably estimable. After reviewing these matters with legal counsel, based upon information presently available, management is of the opinion that the ultimate resultant liability, if any, would not have a material adverse effect on American National’s 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.
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 | | |
| | Financial Statement Line Impacted | | Three months ended September 30, | | Nine months ended September 30, | | Amount due to (from) American National |
Related Party | | | 2020 | | 2019 | | 2020 | | 2019 | | September 30, 2020 | | December 31, 2019 |
Gal-Tex Hotel Corporation | | Mortgage loan on real estate | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 576 | | | $ | 0 | | | $ | 0 | |
Gal-Tex Hotel Corporation | | Net investment income | | 0 | | | 0 | | | 0 | | | 9 | | | 0 | | | 0 | |
Greer, Herz & Adams, LLP | | Other operating expenses | | 3,033 | | | 3,129 | | | 10,127 | | | 9,025 | | | (558) | | | (519) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Dollar Amount of Transactions | | |
| | Financial Statement Line Impacted | | Three months ended September 30, | | Nine months ended September 30, | | Amount due from American National |
Related Party | | | 2021 | | 2020 | | 2021 | | 2020 | | September 30, 2021 | | December 31, 2020 |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Greer, Herz & Adams, LLP | | Other operating expenses | | $ | 3,184 | | | $ | 3,033 | | | $ | 10,276 | | | $ | 10,127 | | | $ | (496) | | | $ | (441) | |
Mortgage Loans to Gal-Tex Hotel Corporation (“Gal-Tex”): American National held a first mortgage loan which originated in 1999, with an interest rate of 7.25% and final maturity date of April 1, 2019 issued to a subsidiary of Gal-Tex, which was collateralized by a hotel property in San Antonio, Texas. This loan has been paid in full. The Moody Foundation owns 34.0% of Gal-Tex and 22.75% of American National, and the Libbie Shearn Moody Trust owns 50.2% of Gal-Tex and 37.0% of American National.
Transactions with Greer, Herz & Adams, LLP: Irwin M. Herz, Jr. is a member of the Board of Directors of American National Group, Inc. and certain of its subsidiaries, and a Partner with Greer, Herz & Adams, LLP, which serves as American National’s General Counsel.
Note 18 – Subsequent Events
On April 13, 2020, 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 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 maturity date of October 13, 2020. The capital stock purchased for the advance was not sold and is now considered excess stock left at the Federal Home Loan Bank of Dallas, and it will be available to use for potential future advances.
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 nine months ended September 30, 20202021 and 20192020 of American National 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.
Introductory Note Regarding Pending Merger
On August 6, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Brookfield Asset Management Reinsurance Partners Ltd. (“Brookfield Reinsurance”), an exempted company limited by shares existing under the laws of Bermuda, and Freestone Merger Sub Inc., a Delaware corporation and an indirect wholly-owned subsidiary of Brookfield Reinsurance (“Merger Sub”). On the terms and subject to the conditions of the Merger Agreement, at the closing, Merger Sub will merge with and into the Company (the “Merger”), with the Company continuing as the surviving entity, which will become an indirect, wholly-owned subsidiary of Brookfield Reinsurance. The Merger was unanimously approved by the Company’s board of directors.
On the terms and subject to the conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each issued and outstanding share of the Company's common stock will be converted into the right to receive $190.00 in cash without interest (the “Merger Consideration”), for total Merger Consideration of approximately $5.1 billion. On the terms and subject to the conditions of the Merger Agreement, at the Effective Time, each outstanding and unvested restricted share award and restricted stock unit award will vest and be converted into the right to receive a cash payment equal to the Merger Consideration multiplied by the total number of shares of common stock subject to such award prior to the Effective Time.
Closing Conditions. The completion of the Merger is subject to satisfaction or waiver of certain closing conditions, including: (i) there being no law or injunction prohibiting consummation of the Merger; (ii) subject to specified materiality standards, the accuracy of the representations and warranties of the other party; and (iii) compliance by the other party in all material respects with its covenants. Brookfield Reinsurance’s and Merger Sub’s obligations are also conditioned upon the absence of a material adverse effect on the Company and the absence of any burdensome condition (as defined in the Merger Agreement) imposed by any regulators as part of the regulatory approval process.
The completion of the Merger is also subject to antitrust clearance (or termination of the applicable waiting period) from the U.S. Department of Justice or Federal Trade Commission. On August 27, 2021, the Company and Brookfield Reinsurance filed the required notifications for antitrust clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR Act"). The waiting period under the HSR Act expired on September 27, 2021.
Financing. Brookfield Reinsurance has received an equity commitment letter from Brookfield Asset Management Inc., the aggregate proceeds of which will provide Brookfield Reinsurance with the funds needed to consummate the Merger, including to pay the aggregate Merger Consideration pursuant to the Merger Agreement. The equity commitment will be reduced by the amount of any debt actually funded at closing if and to the extent that such debt financing is used to fund the payment of Merger Consideration. The completion of the Merger is not conditioned on receipt of financing by Brookfield Reinsurance.
Stockholder Approval. The Merger Agreement has already received the requisite stockholder approval required under Delaware law. Under the Company’s certificate of incorporation, stockholders are permitted to take action by majority written consent in lieu of a stockholder meeting. Under the Merger Agreement, the Company agreed to take all actions necessary, immediately after the execution of the Merger Agreement, to seek and obtain stockholder written consents from certain stockholders holding a majority of the outstanding shares of our common stock. These stockholder written consents, representing a majority of the outstanding shares of our common stock, were timely delivered to the Company. No further approval of the stockholders of the Company is required to adopt and approve the Merger Agreement. As a result, after those stockholder consents were delivered, the Company's board of directors no longer had the right to consider unsolicited competing acquisition proposals from third parties or to exercise a "fiduciary out" and no such third party proposal has been received.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
Mailing of Information Statement and Appraisal Rights. On September 17, 2021, the Company began mailing the definitive information statement and appraisal rights notice to the Company's stockholders, and that document is available in the EDGAR system on the SEC's website at www.sec.gov. As disclosed in the definitive information statement, any stockholder who wished to demand appraisal rights for its shares was required to deliver its demand no later than October 7, 2021, the 20th day after the information statement was first mailed to stockholders. Prior to that deadline, the Company received only one purported appraisal demand, which was submitted by the owner of 2,000 shares of common stock (less than 0.01% of the Company's outstanding shares).
Termination Rights and Termination Date. The Merger Agreement contains certain termination rights for both the Company and Brookfield Reinsurance and further provides that, upon termination of the Merger Agreement, under certain circumstances, the Company may be required to pay Brookfield Reinsurance a termination fee equal to $178.5 million. If the Merger has not closed by May 6, 2022 (“Outside Date”), either the Company or Brookfield Reinsurance may terminate the Merger Agreement.However, if the closing has not occurred because (a) any applicable waiting period under any antitrust law relating to the Merger has not expired or been terminated or (b) certain governmental approvals or prior written non-disapprovals have not been obtained, and all other conditions to closing have been satisfied (other than those conditions that by their terms are to be satisfied at the closing, each of which is capable of being satisfied at the closing) or waived, the Outside Date will be August 6, 2022.
Interim Operating Covenants. The Company has agreed to certain covenants in the Merger Agreement restricting the conduct of its business between the date of the Merger Agreement and the earlier of the Effective Time and the termination of the Merger Agreement. The general effect of these covenants is that, during such interim period, the Company will be limited in its ability to pursue strategic and operational matters outside the ordinary course of business. The Company has agreed that it and its subsidiaries will conduct their business in the ordinary course consistent with past practice in all material respects and use reasonable best efforts to preserve their business organizations, goodwill and assets, keep available the services of their current key officers and employees, and preserve their present relationships with governmental entities and other key third parties, including customers, reinsurers, distributors, suppliers and other persons with whom the Company and its subsidiaries have business relationships.
In addition, the Company has agreed to specific restrictions relating to the conduct of its business between the date of the Merger Agreement and the earlier of the Effective Time and the termination of the Merger Agreement, including, but not limited to, not to take (or permit any of its subsidiaries to take) the following actions (subject, in each case, to exceptions specified below and in the Merger Agreement or previously disclosed in writing to Brookfield Reinsurance as provided in the Merger Agreement or as consented to in writing in advance by Brookfield Reinsurance (which consent shall not be unreasonably withheld, delayed or conditioned)) or as required by law:
•subject to certain limited exceptions, offer, issue, sell, transfer, pledge, dispose of or encumber any shares of, or securities convertible into or exchangeable for, or options, warrants, calls, commitments or rights of any kind to acquire, any shares of capital stock or other voting or equity interests of any class or series of the Company or its subsidiaries;
•amend or propose to amend the Company’s or its subsidiaries’ certificate of incorporation, bylaws or other comparable organizational documents, in each case, whether by merger, consolidation or otherwise;
•authorize, recommend, propose, enter into or adopt a plan or agreement of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of the Company or any of its subsidiaries;
•subject to certain limited exceptions (including permitting the Company to execute investment portfolio transactions in the ordinary course of business consistent with past practice and in accordance with its existing investment plan and investment guidelines), acquire or agree to acquire any business or any corporation, partnership, association or other business organization or division thereof;
•make or authorize capital expenditures that are, on an individual basis, in excess of 110% of the Company’s capital expenditure budget or in excess of 105% of the aggregate capital expenditure budget, except for (i) planned capital expenditures disclosed to Brookfield Reinsurance at signing of the Merger Agreement and (ii) reasonable emergency capital expenditures (after consultation with Brookfield Reinsurance) necessary to maintain its ability to operate its businesses in the ordinary course or for the safety of individuals, assets or the environment;
•subject to certain limited exceptions, sell, lease, license, transfer, pledge, subject to any encumbrance or otherwise dispose of any of its or their assets or properties;
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
•incur, guarantee or assume any indebtedness, subject to certain limited exceptions, including investment portfolio transactions in the ordinary course of business consistent with past practice and other incurrences of indebtedness not to exceed $10,000,000 in the aggregate;
•enter into any material contract or reinsurance contract other than in the ordinary course of business consistent with past practice; and
•terminate, amend, modify, assign or waive any material right under any material contract or reinsurance contract except in the ordinary course of business consistent with past practice.
The Merger Agreement permits the Company to continue to pay regular quarterly cash dividends not to exceed $0.82 per share of common stock prior to completion of the Merger.
Anticipated Timing; No Assurance that Closing will Occur. Because, as disclosed above, (i) the required stockholder approval for the Merger has been obtained, (ii) the information statement and appraisal rights notice has been sent to stockholders and (iii) the HSR Act waiting period has expired, the only remaining significant closing condition is the receipt of the required regulatory approval from the insurance authorities in Texas, Missouri, New York, Louisiana and California. On September 3, 2021, Brookfield Reinsurance made the required Form A filings with each of these state insurance regulators, and those regulators are reviewing the filings. The Merger is expected to close in the first half of 2022. However, because state insurance regulatory approval remains outstanding, the Company cannot provide assurance the Merger will be completed on the terms or timeline currently contemplated, or at all.
The above is a summary of certain material terms of the Merger Agreement and is qualified in its entirety by the terms and conditions of the Merger Agreement, which was filed as an exhibit to the Company’s current report on Form 8-K filed on August 9, 2021.
Caution Regarding Forward-Looking Statements
Certain statements made in this report, including but not limited to the accompanying 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, or that our risk management policies and procedures will be effective, particularly given the uncertainty relating to the COVID-19 pandemic. We do not make public specific projections relating to future earnings, and we do not endorse any projections regarding future performance made by others. Additionally, we do not publicly update or revise forward-looking statements based on the outcome of various foreseeable or unforeseeable events. Forward-looking statements are not guarantees of future performance and involve various risks and uncertainties. There are certain important factors that could cause actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements, including without limitation risks, uncertainties and other factors discussed in Item 1A of our 20192020 Form 10-K filed with the SEC on February 28, 2020, as supplemented by the Risk Factors discussion in Part II, Item 1A of our Form 10-Q for the period ending June 30, 2020, filed with the SEC on August 5, 2020,March 4, 2021 and elsewhere in this report, such as:report.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
These forward-looking statements relate to the transaction contemplated by the Merger Agreement (the "Proposed Transaction"), as well as to the Company’s financial and operating performance on a stand-alone basis prior to the consummation of the Merger or if the Merger is not consummated. Important factors that could cause actual results and outcomes to differ materially from those in the forward-looking statements include, but are not limited to those summarized below:
•Factors Relating to the Proposed Transaction with Brookfield Reinsurance
•conditions to the closing of the Proposed Transaction may not be satisfied;
•regulatory approvals required for the Proposed Transaction may not be obtained, or required regulatory approvals may delay the Proposed Transaction or result in the imposition of conditions that could have a material adverse effect on the Company or Brookfield Reinsurance or cause certain conditions to closing not to be satisfied, which could result in the termination of the Merger Agreement;
•the timing of completion of the Proposed Transaction is uncertain;
•the business of the Company or Brookfield Reinsurance could suffer as a result of uncertainty surrounding the Proposed Transaction;
•events, changes or other circumstances could occur that could give rise to the termination of the Merger Agreement;
•there are risks related to disruption of management’s attention from the ongoing business operations of the Company or Brookfield Reinsurance due to the Proposed Transaction;
•the announcement or pendency of the Proposed Transaction could affect the relationships of the Company or Brookfield Reinsurance with its clients, operating results and business generally, including on our ability to retain employees;
•the outcome of any legal proceedings initiated against the Company or Brookfield Reinsurance following the announcement of the Proposed Transaction could adversely affect the Company or Brookfield Reinsurance, including their ability to consummate the Proposed Transaction; and
•the Company or Brookfield Reinsurance may be adversely affected by other economic, business, and/or competitive factors as well as management’s response to any of the aforementioned factors.
The foregoing review of important factors related to the Proposed Transaction should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included herein and elsewhere, including the risk factors included in Brookfield Reinsurance’s Registration Statement on Form F-1 and the Company’s most recent Annual Report on Form 10-K and other documents of the Company and Brookfield Reinsurance on file with the SEC.Neither the Company nor Brookfield Reinsurance undertakes any obligation to update, correct or otherwise revise any forward-looking statements.All subsequent written and oral forward-looking statements attributable to the Company or Brookfield Reinsurance and/or any person acting on behalf of either of them are expressly qualified in their entirety by this paragraph.The information contained on any websites referenced in this Quarterly Report on Form 10-Q is not incorporated by reference into this Quarterly Report on Form 10-Q.
•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;
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
•Operational Risk Factors Relating to Our Business and Industry
•the impact of major public health issues, like COVID-19;
•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;
•advances in medical technology and testing, which may increase our adverse selection risk;
•potentially adverse rating agency actions;
•Information Technology Factors
•failures or limitations of our computer, information security and administration systems;
•failure to complete and implement technology initiatives in a timely manner;
•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;
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”("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 Relating to Our Corporate Structure and Ownership of Our Common Stock
•major public health issues, such asstate law limitations on the novel coronavirus COVID-19;
•potentially adverse rating agency actions;payment of dividends by our subsidiaries, which could limit the amount of dividends we pay;
•control of our companyCompany by a small number of stockholders; and
•advancesanti-takeover provisions in medical technologyour governing documents;
•the designation in our governing documents of the Delaware Court of Chancery as the exclusive forum for substantially all disputes between our stockholders 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.
us;
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
•General Factors
•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 risk management policies and procedures;
•the effects of unanticipated events on our disaster recovery and business continuity planning; and
•potential ineffectiveness of our internal controls over financial reporting.
COVID-19 Response
On
A summary of actions the Company has taken in response to COVID-19 through December 31, 2020 is disclosed in our 2020 Annual Report on form 10-K filed with the SEC on March 11, 2020, the World Health Organization formally declared the outbreak of the novel coronavirus COVID-19 to be a pandemic. The spread of COVID-19 has caused illness, quarantines, cancellation of events and travel, alternative arrangements and shutdowns for business and schools, reduction in business activity, widespread unemployment, and overall economic and financial market instability. Through the 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.
4, 2021. 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:subsequent developments in our COVID-19 response:
•We have takencontinue to take steps to protect employees with the goals of maintaining their health and sustaining an adequate workforce, including directing as many employees as possible to workworking from home and offering flexibility for employees negotiating scheduling conflicts due to the impacts of COVID-19, such as caring for family, alternative arrangements and shutdowns for business and schools, self-isolation or personal illness, including granting additional paid time off for vaccinations and to address these hardships.
•We 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 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-office programs as we transition through the different reopening situations at our locations. At the end2021 piloted a program which combines both virtual and in-person elements for a small group of the 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, 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-office plans at our locations until January 2021.interns.
•We have provided alternatives to employees whodeveloped and are working remotely who wish to receive a free flu shot.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
•We have taken numerous steps to promote the safety ofcontinually refining our employeesreturn-to-office plans for our locations. Beginning 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 allJune, we gradually re-introduced more employees to wear face coverings when they enter our buildings, in common areasoffice locations 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.process of implementing longer-term plans to offer employees hybrid work schedules, where possible.
NoAlthough since the onset of the pandemic we have been able to maintain our business operations, no assurance can be given that these actions will continue to be successful, nor can we predict the level of disruption that will occur should the COVID-19 pandemic and its related macroeconomic risks continue for 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, Risk Factors of our 2020 Form 10-Q for the period ending June 30, 2020,10-K filed with the SEC on August 5, 2020.
COVID-19 Update
Our investment results duringMarch 4, 2021. For additional information regarding the first nine months of the year were impacted by the disruption caused by COVID-19. Net investment income was lower primarily on bonds, mortgage loansdirect and equity indexed options. Significant volatility in financial markets resulted in increased credit allowances established for mortgage loans andindirect impact 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 relatedmortality refer to loans with a total carrying amount of $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.
Part I, Item 2, MD&A, Life.
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.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
Sales growthOverview
American National Group, Inc. ("ANAT") is a family of companies that has, on a consolidated GAAP basis, $30.7 billion in our operating segments was negatively impacted by stay-at-home ordersassets, $23.9 billion in liabilities and the increased economic uncertainty caused by COVID-19. Additionally, we reduced premiums for some$6.8 billion in stockholders’ equity as 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. In addition, to date we have received 316 business interruption claims related to COVID-19 and have closed 315 of those claims without payment 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 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
30, 2021. American National Insurance Company ("ANICO"), founded in 1905 and headquartered in Galveston, Texas, and itsother ANAT subsidiaries offer a broad spectrum of products and services, which include life insurance, annuities, property and casualty insurance, health insurance, credit insurance, and pension products. The American National companies operate in all 50 states, the District of Columbia and Puerto Rico. Major insuranceIn addition to ANICO, major subsidiaries include American National Life Insurance Company of Texas, American National Life Insurance Company of New York, American National Property and Casualty Company, Garden State Life Insurance Company, Standard Life and Accident Insurance Company, Farm Family Casualty Insurance Company and United Farm Family Insurance Company.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
General Trends
During the third quarter of 2020,2021, American National had no material changes to the general trends discussed in the MD&A included in our 20192020 Annual Report on Form 10-K filed with the SEC on February 28, 2020.March 4, 2021. However, please see the "COVID-19 Response" discussion above for general information about the pandemic's impact on us.us, as well as "Introductory Note Regarding Pending Merger" above for general information about the pending Merger with Brookfield Reinsurance.
Anticipated Sale of Equity Securities Portfolio
We have recently received the required corporate approval to sell our equity securities portfolio before the end of 2021. That approval follows our assessment, including by our board of directors and senior management, of market conditions and the potential for changes in the U.S. federal corporate income tax rate. As of October 29, 2021, the total fair value of our equity securities portfolio was $2.4 billion.
We expect that the sale of the equity securities portfolio, and the reinvestment of the proceeds primarily in fixed income investments, will have a positive impact on our net investment income and cash flows, as well as on the Risk Based Capital of our insurance company subsidiaries that currently hold equity security investments.
The sale of the equity securities is expected to generate a taxable gain and will not have a significant impact on our stockholders' equity. We do expect it to impact net income, as future non-cash earnings from net gains (losses) from the change in fair value of equity securities will be significantly reduced once these securities are sold.
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 20192020 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 to Note 3, Recently Issued Accounting 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 NoteMarch 4, Investment in Securities, and Note 5, 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:2021.
•
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 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.
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 September 30, | | | | Nine months ended September 30, | | |
| 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change |
PREMIUMS AND OTHER REVENUES | | | | | | | | | | | |
Premiums | $ | 561,464 | | | $ | 557,844 | | | $ | 3,620 | | | $ | 1,631,495 | | | $ | 1,650,353 | | | $ | (18,858) | |
Other policy revenues | 79,344 | | | 76,784 | | | 2,560 | | | 238,736 | | | 226,178 | | | 12,558 | |
Net investment income | 254,256 | | | 246,620 | | | 7,636 | | | 656,888 | | | 796,696 | | | (139,808) | |
Net realized investments gains | 17,387 | | | 31,933 | | | (14,546) | | | 25,474 | | | 24,975 | | | 499 | |
| | | | | | | | | | | |
Change in investment credit loss | (4,175) | | | — | | | (4,175) | | | (101,163) | | | — | | | (101,163) | |
Net gains on equity securities | 152,147 | | | 8,589 | | | 143,558 | | | 118,397 | | | 282,026 | | | (163,629) | |
Other income | 9,683 | | | 10,730 | | | (1,047) | | | 31,152 | | | 32,642 | | | (1,490) | |
Total premiums and other revenues | 1,070,106 | | | 932,500 | | | 137,606 | | | 2,600,979 | | | 3,012,870 | | | (411,891) | |
BENEFITS, LOSSES AND EXPENSES | | | | | | | | | | | |
Policyholder benefits | 200,381 | | | 173,351 | | | 27,030 | | | 515,573 | | | 518,827 | | | (3,254) | |
Claims incurred | 286,345 | | | 309,262 | | | (22,917) | | | 858,226 | | | 871,489 | | | (13,263) | |
Interest credited to policyholders’ account balances | 128,946 | | | 106,782 | | | 22,164 | | | 271,406 | | | 371,703 | | | (100,297) | |
Commissions for acquiring and servicing policies | 138,365 | | | 128,689 | | | 9,676 | | | 409,290 | | | 408,629 | | | 661 | |
Other operating expenses | 126,413 | | | 128,502 | | | (2,089) | | | 385,516 | | | 391,645 | | | (6,129) | |
Change in deferred policy acquisition costs(1) | (8,387) | | | 1,548 | | | (9,935) | | | (14,762) | | | (22,391) | | | 7,629 | |
Total benefits, losses and expenses | 872,063 | | | 848,134 | | | 23,929 | | | 2,425,249 | | | 2,539,902 | | | (114,653) | |
Income before federal income taxes and other items | $ | 198,043 | | | $ | 84,366 | | | $ | 113,677 | | | $ | 175,730 | | | $ | 472,968 | | | $ | (297,238) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | | | Nine months ended September 30, | | |
| 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change |
PREMIUMS AND OTHER REVENUES | | | | | | | | | | | |
Premiums | $ | 586,588 | | | $ | 561,464 | | | $ | 25,124 | | | $ | 1,714,493 | | | $ | 1,631,495 | | | $ | 82,998 | |
Other policy revenues | 88,687 | | | 79,344 | | | 9,343 | | | 265,749 | | | 238,736 | | | 27,013 | |
Net investment income | 261,140 | | | 271,285 | | | (10,145) | | | 828,520 | | | 676,002 | | | 152,518 | |
Net realized investments gains | 20,138 | | | 17,387 | | | 2,751 | | | 49,979 | | | 25,474 | | | 24,505 | |
| | | | | | | | | | | |
(Increase) decrease in investment credit loss | 5,969 | | | (4,175) | | | 10,144 | | | 25,562 | | | (101,163) | | | 126,725 | |
Net gains on equity securities | 681 | | | 152,147 | | | (151,466) | | | 267,425 | | | 118,397 | | | 149,028 | |
Other income | 12,026 | | | 9,683 | | | 2,343 | | | 32,813 | | | 31,152 | | | 1,661 | |
Total premiums and other revenues | 975,229 | | | 1,087,135 | | | (111,906) | | | 3,184,541 | | | 2,620,093 | | | 564,448 | |
BENEFITS, LOSSES AND EXPENSES | | | | | | | | | | | |
Policyholder benefits | 190,855 | | | 200,381 | | | (9,526) | | | 563,971 | | | 515,573 | | | 48,398 | |
Claims incurred | 323,891 | | | 286,345 | | | 37,546 | | | 899,073 | | | 858,226 | | | 40,847 | |
Interest credited to policyholders’ account balances | 82,251 | | | 128,946 | | | (46,695) | | | 301,274 | | | 271,406 | | | 29,868 | |
Commissions for acquiring and servicing policies | 171,219 | | | 138,365 | | | 32,854 | | | 488,817 | | | 409,290 | | | 79,527 | |
Other operating expenses | 151,971 | | | 126,413 | | | 25,558 | | | 435,380 | | | 385,516 | | | 49,864 | |
Change in deferred policy acquisition costs (1) | (7,088) | | | (8,387) | | | 1,299 | | | (64,049) | | | (14,762) | | | (49,287) | |
Total benefits, losses and expenses | 913,099 | | | 872,063 | | | 41,036 | | | 2,624,466 | | | 2,425,249 | | | 199,217 | |
Income before federal income taxes and other items | $ | 62,130 | | | $ | 215,072 | | | $ | (152,942) | | | $ | 560,075 | | | $ | 194,844 | | | $ | 365,231 | |
(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 September 30, 20202021 to 2019
Earnings increased primarily due to the following:
•Increase in net gains on equity securities resulting from favorable market conditions
The increase in earnings was partially offset due to the following:
•Increase in claim experience in our Life segment2020
Comparison of the nine months ended September 30, 2020 to 2019
Earnings decreased primarily due to the following:
•A decrease in net gains on equity securities as a result of less favorable market conditions for equity securities
•A decrease in Life segment earnings driven by an overall increase in mortality
•A decrease in Property and Casualty segment earnings resulting from unfavorablelosses from Hurricane Ida and an increase in claim frequency in our personal automobile products
Comparison of the nine months ended September 30, 2021 to 2020
Earnings increased primarily due to the following:
•An increase in net gains on equity securities due to favorable market conditions for equity securities in 2021 and the negative impact that the pandemic had on the market values of equity securities in 2020
•Favorable change in expected investment credit loss due to improvement in our commercial mortgage loans driven by GDP growth and improved economic outlook
•An increase in the allowance for credit lossesnet investment income driven by higher investment income from mortgage loan profit participation and prepayment income and investment funds
The increase in earnings was partially offset due to the economic disruptions causedfollowing:
•A decrease in Life segment earnings driven by thean overall increase in mortality which includes claims directly and indirectly attributable to COVID-19 pandemic
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 September 30, | | | | Nine months ended September 30, | | |
| 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change |
PREMIUMS AND OTHER REVENUES | | | | | | | | | | | |
Premiums | $ | 101,182 | | | $ | 93,079 | | | $ | 8,103 | | | $ | 282,368 | | | $ | 265,634 | | | $ | 16,734 | |
Other policy revenues | 75,317 | | | 72,446 | | | 2,871 | | | 227,083 | | | 213,300 | | | 13,783 | |
Net investment income | 69,235 | | | 61,961 | | | 7,274 | | | 188,455 | | | 194,633 | | | (6,178) | |
Other income | 358 | | | 441 | | | (83) | | | 1,534 | | | 1,586 | | | (52) | |
Total premiums and other revenues | 246,092 | | | 227,927 | | | 18,165 | | | 699,440 | | | 675,153 | | | 24,287 | |
BENEFITS, LOSSES AND EXPENSES | | | | | | | | | | | |
Policyholder benefits | 153,957 | | | 113,652 | | | 40,305 | | | 389,364 | | | 327,579 | | | 61,785 | |
Interest credited to policyholders’ account balances | 24,522 | | | 22,045 | | | 2,477 | | | 47,820 | | | 57,561 | | | (9,741) | |
Commissions for acquiring and servicing policies | 41,974 | | | 42,023 | | | (49) | | | 122,728 | | | 120,646 | | | 2,082 | |
Other operating expenses | 45,080 | | | 46,873 | | | (1,793) | | | 137,065 | | | 142,520 | | | (5,455) | |
Change in deferred policy acquisition costs(1) | (15,499) | | | (5,080) | | | (10,419) | | | (34,872) | | | (19,120) | | | (15,752) | |
Total benefits, losses and expenses | 250,034 | | | 219,513 | | | 30,521 | | | 662,105 | | | 629,186 | | | 32,919 | |
Income (loss) before federal income taxes and other items | $ | (3,942) | | | $ | 8,414 | | | $ | (12,356) | | | $ | 37,335 | | | $ | 45,967 | | | $ | (8,632) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | | | Nine months ended September 30, | | |
| 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change |
PREMIUMS AND OTHER REVENUES | | | | | | | | | | | |
Premiums | $ | 104,802 | | | $ | 101,182 | | | $ | 3,620 | | | $ | 306,365 | | | $ | 282,368 | | | $ | 23,997 | |
Other policy revenues | 83,331 | | | 75,317 | | | 8,014 | | | 248,366 | | | 227,083 | | | 21,283 | |
Net investment income | 63,379 | | | 69,235 | | | (5,856) | | | 203,401 | | | 188,455 | | | 14,946 | |
Other income | 431 | | | 358 | | | 73 | | | 1,311 | | | 1,534 | | | (223) | |
Total premiums and other revenues | 251,943 | | | 246,092 | | | 5,851 | | | 759,443 | | | 699,440 | | | 60,003 | |
BENEFITS, LOSSES AND EXPENSES | | | | | | | | | | | |
Policyholder benefits | 161,633 | | | 153,957 | | | 7,676 | | | 447,309 | | | 389,364 | | | 57,945 | |
Interest credited to policyholders’ account balances | 10,180 | | | 24,522 | | | (14,342) | | | 53,276 | | | 47,820 | | | 5,456 | |
Commissions for acquiring and servicing policies | 50,461 | | | 41,974 | | | 8,487 | | | 142,278 | | | 122,728 | | | 19,550 | |
Other operating expenses | 51,114 | | | 45,080 | | | 6,034 | | | 147,381 | | | 137,065 | | | 10,316 | |
Change in deferred policy acquisition costs (1) | (13,311) | | | (15,499) | | | 2,188 | | | (41,239) | | | (34,872) | | | (6,367) | |
Total benefits, losses and expenses | 260,077 | | | 250,034 | | | 10,043 | | | 749,005 | | | 662,105 | | | 86,900 | |
Income (loss) before federal income taxes and other items | $ | (8,134) | | | $ | (3,942) | | | $ | (4,192) | | | $ | 10,438 | | | $ | 37,335 | | | $ | (26,897) | |
(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 September 30, 20202021 to 20192020
Earnings for our Life segment decreased primarily due to the following:
•An increase in policyholder benefits due to improvement in the participating policyholder share of change in investment credit loss, primarily associated with mortgage loans
•Annual assumption review resulting in an unlocking expense due to an expected increase in future mortality
The decrease in earnings was partially offset by the following:
•Improved persistency resulting in an increase in premiums and other policy revenues
Comparison of the nine months ended September 30, 2021 to 2020
Earnings for our Life segment decreased primarily due to the following:
•An overall increase in mortality
•Annual assumption review resulting in unlocking due which includes claims directly and indirectly attributable to a decrease in long term interest rate assumptionsCOVID-19
The decrease in earnings was partially offset by the following:
•IncreaseImproved persistency resulting in an increase in premiums and other policy revenues resulting from the persistency and aging of our interest sensitive block of business
Comparison of the nine months ended September 30, 2020 to 2019
Earnings for our Life segment 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 policyholder benefits related to our participating polices resulting from a 2019 increase that was higher than normal
•Increase in other policy revenues resulting from the persistency and aging of our interest sensitive block of business
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
Life insurance salesInsurance 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 September 30, | | | | Nine months ended September 30, | | | | | Three months ended September 30, | | | | Nine months ended September 30, | | |
| | | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change | | | 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change |
Traditional life | Traditional life | | $ | 16,073 | | | $ | 13,711 | | | $ | 2,362 | | | $ | 46,056 | | | $ | 42,409 | | | $ | 3,647 | | Traditional life | | $ | 15,578 | | | $ | 16,071 | | | $ | (493) | | | $ | 48,674 | | | $ | 46,056 | | | $ | 2,618 | |
Universal life | Universal life | | 7,859 | | | 7,062 | | | 797 | | | 20,613 | | | 20,759 | | | (146) | | Universal life | | 7,097 | | | 7,859 | | | (762) | | | 23,371 | | | 20,613 | | | 2,758 | |
Indexed UL | Indexed UL | | 8,328 | | | 9,980 | | | (1,652) | | | 21,972 | | | 26,981 | | | (5,009) | | Indexed UL | | 9,299 | | | 8,328 | | | 971 | | | 25,991 | | | 21,972 | | | 4,019 | |
Total recurring | Total recurring | | 32,260 | | | 30,753 | | | 1,507 | | | 88,641 | | | 90,149 | | | (1,508) | | Total recurring | | 31,974 | | | 32,258 | | | (284) | | | 98,036 | | | 88,641 | | | 9,395 | |
Single and excess (1) | Single and excess (1) | | 387 | | | 420 | | | (33) | | | 852 | | | 1,334 | | | (482) | | Single and excess (1) | | 523 | | | 387 | | | 136 | | | 1,368 | | | 852 | | | 516 | |
Credit life (1) | Credit life (1) | | 2,015 | | | 2,691 | | | (676) | | | 6,063 | | | 8,159 | | | (2,096) | | Credit life (1) | | 2,044 | | | 2,015 | | | 29 | | | 5,765 | | | 6,063 | | | (298) | |
Total annualized premium | Total annualized premium | | $ | 34,662 | | | $ | 33,864 | | | $ | 798 | | | $ | 95,556 | | | $ | 99,642 | | | $ | (4,086) | | Total annualized premium | | $ | 34,541 | | | $ | 34,660 | | | $ | (119) | | | $ | 105,169 | | | $ | 95,556 | | | $ | 9,613 | |
(1) These are weightedWeighted amounts representing 10% ofwith single and excess premiums.premiums counted at 10%.
Life insurance sales are based on the total yearly premium that insurance companies would expect to receive if all recurring premium policies would remain in force,in-force, plus 10% of single and excess premiums. Life insurance sales measure activity associated with gaining new insurance business in the current period, and includes deposits received related to interest sensitive life and universal life-type products. Whereas GAAP premium revenues 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 nine months ended September 30, 20202021 compared to 2019 primarily due to lower Indexed Universal Life and Credit2020. Life sales which we believe was due to thewere impacted in 2020 by stay-at-home orders and economic uncertainty fromrelated to COVID-19.
Policy in-force informationIn-force Information
The following table summarizes changes in the Life segment’s in-force amounts (in thousands):
| | | September 30, 2020 | | December 31, 2019 | | Change | | September 30, 2021 | | December 31, 2020 | | Change |
Life insurance in-force | Life insurance in-force | | | | | | | Life insurance in-force | | | | | | |
Traditional life | Traditional life | | $ | 89,919,097 | | | $ | 84,129,193 | | | $ | 5,789,904 | | Traditional life | | $ | 96,834,072 | | | $ | 91,920,577 | | | $ | 4,913,495 | |
Interest-sensitive life | Interest-sensitive life | | 35,616,434 | | | 33,975,092 | | | 1,641,342 | | Interest-sensitive life | | 38,243,519 | | | 36,326,621 | | | 1,916,898 | |
Total life insurance in-force | Total life insurance in-force | | $ | 125,535,531 | | | $ | 118,104,285 | | | $ | 7,431,246 | | Total life insurance in-force | | $ | 135,077,591 | | | $ | 128,247,198 | | | $ | 6,830,393 | |
The following table summarizes changes in the Life segment’s number of policies in-force:
| | | September 30, 2020 | | December 31, 2019 | | Change | | September 30, 2021 | | December 31, 2020 | | Change |
Number of policies in-force | Number of policies in-force | | | | | | | Number of policies in-force | | | | | | |
Traditional life | Traditional life | | 1,846,338 | | | 1,911,305 | | | (64,967) | | Traditional life | | 1,716,003 | | | 1,832,536 | | | (116,533) | |
Interest-sensitive life | Interest-sensitive life | | 265,982 | | | 256,146 | | | 9,836 | | Interest-sensitive life | | 279,188 | | | 269,668 | | | 9,520 | |
Total number of policies in-force | Total number of policies in-force | | 2,112,320 | | | 2,167,451 | | | (55,131) | | Total number of policies in-force | | 1,995,191 | | | 2,102,204 | | | (107,013) | |
Life insurance in-force increased during the nine months ended September 30, 20202021 compared to December 31, 20192020 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 September 30, | | | | Nine months ended September 30, | | |
| | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change |
Acquisition cost capitalized | | $ | (34,498) | | | $ | (34,393) | | | $ | (105) | | | $ | (100,210) | | | $ | (98,812) | | | $ | (1,398) | |
Amortization of DAC | | 18,999 | | | 29,313 | | | (10,314) | | | 65,338 | | | 79,692 | | | (14,354) | |
Change in DAC | | $ | (15,499) | | | $ | (5,080) | | | $ | (10,419) | | | $ | (34,872) | | | $ | (19,120) | | | $ | (15,752) | |
The reductionfollowing shows the components of the change in DAC amortization for the three and nine months ended September 30, 2020 relates to the annual assumption review and unlocking and lower gross profits.(in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | Nine months ended September 30, | | |
| | 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change |
Acquisition cost capitalized | | $ | (41,586) | | | $ | (34,498) | | | $ | (7,088) | | | $ | (122,234) | | | $ | (100,210) | | | $ | (22,024) | |
Amortization of DAC | | 28,275 | | | 18,999 | | | 9,276 | | | 80,995 | | | 65,338 | | | 15,657 | |
| | | | | | | | | | | | |
Change in DAC | | $ | (13,311) | | | $ | (15,499) | | | $ | 2,188 | | | $ | (41,239) | | | $ | (34,872) | | | $ | (6,367) | |
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 September 30, | | | | Nine months ended September 30, | | |
| 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change |
PREMIUMS AND OTHER REVENUES | | | | | | | | | | | |
Premiums | $ | 27,960 | | | $ | 41,305 | | | $ | (13,345) | | | $ | 69,413 | | | $ | 137,434 | | | $ | (68,021) | |
Other policy revenues | 4,027 | | | 4,338 | | | (311) | | | 11,653 | | | 12,878 | | | (1,225) | |
Net investment income | 163,125 | | | 141,684 | | | 21,441 | | | 394,508 | | | 487,750 | | | (93,242) | |
Other income | 733 | | | 653 | | | 80 | | | 2,166 | | | 1,916 | | | 250 | |
Total premiums and other revenues | 195,845 | | | 187,980 | | | 7,865 | | | 477,740 | | | 639,978 | | | (162,238) | |
BENEFITS, LOSSES AND EXPENSES | | | | | | | | | | | |
Policyholder benefits | 46,424 | | | 59,699 | | | (13,275) | | | 126,209 | | | 191,248 | | | (65,039) | |
Interest credited to policyholders’ account balances | 104,424 | | | 84,737 | | | 19,687 | | | 223,586 | | | 314,142 | | | (90,556) | |
Commissions for acquiring and servicing policies | 16,119 | | | 13,368 | | | 2,751 | | | 38,024 | | | 63,373 | | | (25,349) | |
Other operating expenses | 12,115 | | | 12,264 | | | (149) | | | 35,737 | | | 38,087 | | | (2,350) | |
Change in deferred policy acquisition costs(1) | 8,555 | | | 7,006 | | | 1,549 | | | 28,147 | | | (383) | | | 28,530 | |
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 | $ | 8,208 | | | $ | 10,906 | | | $ | (2,698) | | | $ | 26,037 | | | $ | 33,511 | | | $ | (7,474) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | | | Nine months ended September 30, | | |
| 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change |
PREMIUMS AND OTHER REVENUES | | | | | | | | | | | |
Premiums | $ | 18,698 | | | $ | 27,960 | | | $ | (9,262) | | | $ | 63,436 | | | $ | 69,413 | | | $ | (5,977) | |
Other policy revenues | 5,356 | | | 4,027 | | | 1,329 | | | 17,383 | | | 11,653 | | | 5,730 | |
Net investment income | 132,236 | | | 163,125 | | | (30,889) | | | 449,456 | | | 394,508 | | | 54,948 | |
Other income | 972 | | | 733 | | | 239 | | | 2,760 | | | 2,166 | | | 594 | |
Total premiums and other revenues | 157,262 | | | 195,845 | | | (38,583) | | | 533,035 | | | 477,740 | | | 55,295 | |
BENEFITS, LOSSES AND EXPENSES | | | | | | | | | | | |
Policyholder benefits | 29,222 | | | 46,424 | | | (17,202) | | | 116,662 | | | 126,209 | | | (9,547) | |
Interest credited to policyholders’ account balances | 72,071 | | | 104,424 | | | (32,353) | | | 247,998 | | | 223,586 | | | 24,412 | |
Commissions for acquiring and servicing policies | 24,865 | | | 16,119 | | | 8,746 | | | 77,833 | | | 38,024 | | | 39,809 | |
Other operating expenses | 14,653 | | | 12,115 | | | 2,538 | | | 39,718 | | | 35,737 | | | 3,981 | |
Change in deferred policy acquisition costs (1) | 8,982 | | | 8,555 | | | 427 | | | (13,738) | | | 28,147 | | | (41,885) | |
Total benefits, losses and expenses | 149,793 | | | 187,637 | | | (37,844) | | | 468,473 | | | 451,703 | | | 16,770 | |
Income before federal income taxes and other items | $ | 7,469 | | | $ | 8,208 | | | $ | (739) | | | $ | 64,562 | | | $ | 26,037 | | | $ | 38,525 | |
(1)A positivenegative amount of net change indicates lessmore expense was deferred than amortized and represents an increasea decrease to expenses in the period indicated.
Comparison of the three months ended September 30, 20202021 to 20192020
Earnings for our Annuity segment decreasedremained consistent; however, there were offsetting variances as follows:
•Decline in net investment income and interest credited for equity-indexed annuity products due to less favorable market conditions
Comparison of the nine months ended September 30, 2021 to 2020
Earnings for our Annuity segment increased primarily due to the following:
•Annual assumption review resulting in 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, 2020Favorable mark-to-market impact to 2019
Earnings for our Annuity segment decreased primarilyequity-indexed annuity reserves due to the following:
•An increase in reserves for indexed annuity products due to mark-to-market based adjustments attributable to lowerhigher interest rates and unfavorable equity market conditions
•Annual assumption review resulting in unlocking on ourLower DAC amortization for fixed deferred annuity blockproducts due to decreasean increase in long-termestimated gross profits driven by higher projected future interest rate assumptionsrates compared to previous expectations
•Increased spread compression on fixed annuities due to declining portfolio yield
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) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | Nine months ended September 30, | | |
| | 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change |
Fixed deferred annuity | | $ | 241,621 | | | $ | 126,820 | | | $ | 114,801 | | | $ | 716,544 | | | $ | 318,629 | | | $ | 397,915 | |
Single premium immediate annuity | | 20,721 | | | 36,217 | | | (15,496) | | | 73,703 | | | 92,327 | | | (18,624) | |
Equity-indexed deferred annuity | | 195,088 | | | 95,105 | | | 99,983 | | | 627,085 | | | 230,485 | | | 396,600 | |
Variable deferred annuity | | 16,906 | | | 16,816 | | | 90 | | | 46,740 | | | 46,673 | | | 67 | |
Total premium and deposits | | 474,336 | | | 274,958 | | | 199,378 | | | 1,464,072 | | | 688,114 | | | 775,958 | |
Less: Policy deposits | | 455,638 | | | 246,998 | | | 208,640 | | | 1,400,636 | | | 618,701 | | | 781,935 | |
Total earned premiums | | $ | 18,698 | | | $ | 27,960 | | | $ | (9,262) | | | $ | 63,436 | | | $ | 69,413 | | | $ | (5,977) | |
Annuity premium and deposits decreasedincreased primarily for equity-indexed and 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, 2020.2021 compared to 2020 reflecting improved competitiveness of the product.
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 September 30, | | | | Nine months ended September 30, | | |
| | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change |
Acquisition cost capitalized | | $ | (14,899) | | | $ | (13,611) | | | $ | (1,288) | | | $ | (37,217) | | | $ | (61,779) | | | $ | 24,562 | |
Amortization of DAC | | 23,454 | | | 20,617 | | | 2,837 | | | 65,364 | | | 61,396 | | | 3,968 | |
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. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | Nine months ended September 30, | | |
| | 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change |
Acquisition cost capitalized | | $ | (24,864) | | | $ | (14,899) | | | $ | (9,965) | | | $ | (78,775) | | | $ | (37,217) | | | $ | (41,558) | |
Amortization of DAC | | 33,846 | | | 23,454 | | | 10,392 | | | 65,037 | | | 65,364 | | | (327) | |
| | | | | | | | | | | | |
Change in DAC | | $ | 8,982 | | | $ | 8,555 | | | $ | 427 | | | $ | (13,738) | | | $ | 28,147 | | | $ | (41,885) | |
The change in acquisition costs capitalized for the nine months ended September 30, 2020 strongly correlates with the2021 relates to increased commissions from sales. The change in commissions, which declined dueamortization of DAC for the three months ended September 30, 2021 was primarily related to lower salesan annual review and unlocking of assumptions. The change in amortization for the first halfnine months ended September 30, 2021 includes the unlocking effects largely offset by the effects of the year.
increases in interest rates.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
Shown below are the changes in account valuesreserve (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 | |
| | | | | | | | | | | | | | |
| | Nine months ended September 30, |
| | 2021 | | 2020 |
Fixed deferred annuity | | | | |
Reserve, beginning of period | | $ | 6,635,203 | | | $ | 6,893,174 | |
Premiums | | 716,544 | | | 318,629 | |
Death and other benefits | | (181,806) | | | (162,750) | |
Surrenders | | (360,943) | | | (417,390) | |
Fees | | (1,265) | | | (754) | |
Interest and mortality | | 140,217 | | | 141,895 | |
Reserve, end of period | | 6,947,950 | | | 6,772,804 | |
Equity-indexed annuity | | | | |
Reserve, beginning of period | | 4,097,013 | | | 3,985,166 | |
Premiums | | 627,085 | | | 230,485 | |
Death and other benefits | | (42,260) | | | (35,891) | |
Surrenders | | (222,928) | | | (258,140) | |
Fees | | (2,390) | | | (2,443) | |
Interest and mortality | | 103,248 | | | 77,996 | |
Reserve, end of period | | 4,559,768 | | | 3,997,173 | |
Single premium immediate annuity | | | | |
Reserve, beginning of period | | 1,851,955 | | | 1,874,942 | |
Premiums | | 73,703 | | | 92,327 | |
Payments | | (149,091) | | | (162,248) | |
Interest and mortality | | 44,560 | | | 53,741 | |
Reserve, end of period | | 1,821,127 | | | 1,858,762 | |
Variable deferred annuity | | | | |
Reserve, beginning of period | | 418,510 | | | 385,736 | |
Premiums | | 46,740 | | | 46,673 | |
Other flows | | 103 | | | 637 | |
Surrenders | | (60,965) | | | (60,605) | |
Fees | | (3,870) | | | (3,301) | |
Change in market value and other | | 38,243 | | | 21,154 | |
Reserve, end of period | | 438,761 | | | 390,294 | |
Total reserve, end of period | | $ | 13,767,606 | | | $ | 13,019,033 | |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
Interest and Mortality Margin
Margins were relatively flatincreased during the three months ended September 30, 2020 compared to 2019. Margins decreased during theand nine months ended September 30, 20202021 compared to 20192020 due to spread compression on fixed annuities and unfavorablefavorable changes in mark-to-market reserves for indexed annuities dueand a $13.8 million decrease in indexed annuity reserve related to mark-to-market adjustmentsmodeling refinements, including a related offsetting $12.4 million reduction in the first quarter this year.DAC. 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 September 30, | | | | Nine months ended September 30, | | |
| | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change |
Fixed annuity | | | | | | | | | | | | |
Fixed investment income | | $ | 92,020 | | | $ | 97,545 | | | $ | (5,525) | | | $ | 279,175 | | | $ | 289,036 | | | $ | (9,861) | |
Interest credited and mortality | | (64,637) | | | (69,377) | | | 4,740 | | | (195,637) | | | (200,517) | | | 4,880 | |
Interest and mortality margin | | 27,383 | | | 28,168 | | | (785) | | | 83,538 | | | 88,519 | | | (4,981) | |
Equity-indexed annuity | | | | | | | | | | | | |
Fixed investment income | | 39,634 | | | 38,471 | | | 1,163 | | | 119,685 | | | 113,186 | | | 6,499 | |
Option return | | 31,471 | | | 5,667 | | | 25,804 | | | (4,352) | | | 85,528 | | | (89,880) | |
Interest credited and mortality | | (56,131) | | | (31,063) | | | (25,068) | | | (77,996) | | | (157,517) | | | 79,521 | |
Interest and mortality margin | | 14,974 | | | 13,075 | | | 1,899 | | | 37,337 | | | 41,197 | | | (3,860) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Variable annuity | | | | | | | | | | | | |
Separate account management fees | | 1,078 | | | 1,085 | | | (7) | | | 3,021 | | | 3,101 | | | (80) | |
Interest and mortality margin | | 1,078 | | | 1,085 | | | (7) | | | 3,021 | | | 3,101 | | | (80) | |
Total interest and mortality margin | | $ | 43,435 | | | $ | 42,328 | | | $ | 1,107 | | | $ | 123,896 | | | $ | 132,817 | | | $ | (8,921) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | | | Nine months ended September 30, | | |
| 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change |
Fixed annuity | | | | | | | | | | | |
Fixed investment income | $ | 87,310 | | | $ | 92,020 | | | $ | (4,710) | | | $ | 263,653 | | | $ | 279,175 | | | $ | (15,522) | |
Interest credited and mortality | (65,984) | | | (64,637) | | | (1,347) | | | (184,777) | | | (195,637) | | | 10,860 | |
Interest and mortality margin | 21,326 | | | 27,383 | | | (6,057) | | | 78,876 | | | 83,538 | | | (4,662) | |
Equity-indexed annuity | | | | | | | | | | | |
Fixed investment income | 43,840 | | | 39,634 | | | 4,206 | | | 128,478 | | | 119,685 | | | 8,793 | |
Option return | 1,087 | | | 31,471 | | | (30,384) | | | 57,325 | | | (4,352) | | | 61,677 | |
Interest credited and mortality | (12,486) | | | (56,131) | | | 43,645 | | | (103,248) | | | (77,996) | | | (25,252) | |
Interest and mortality margin | 32,441 | | | 14,974 | | | 17,467 | | | 82,555 | | | 37,337 | | | 45,218 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Variable annuity | | | | | | | | | | | |
Separate account management fees | 1,202 | | | 1,078 | | | 124 | | | 3,739 | | | 3,021 | | | 718 | |
Interest and mortality margin | 1,202 | | | 1,078 | | | 124 | | | 3,739 | | | 3,021 | | | 718 | |
Total interest and mortality margin | $ | 54,969 | | | $ | 43,435 | | | $ | 11,534 | | | $ | 165,170 | | | $ | 123,896 | | | $ | 41,274 | |
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 September 30, | | | | Nine months ended September 30, | | |
| 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change |
PREMIUMS AND OTHER REVENUES | | | | | | | | | | | |
Premiums | $ | 40,934 | | | $ | 40,676 | | | $ | 258 | | | $ | 126,965 | | | $ | 121,581 | | | $ | 5,384 | |
Net investment income | 2,033 | | | 2,381 | | | (348) | | | 6,480 | | | 7,177 | | | (697) | |
Other income | 4,971 | | | 5,021 | | | (50) | | | 15,001 | | | 15,940 | | | (939) | |
Total premiums and other revenues | 47,938 | | | 48,078 | | | (140) | | | 148,446 | | | 144,698 | | | 3,748 | |
BENEFITS, LOSSES AND EXPENSES | | | | | | | | | | | |
Claims incurred | 27,933 | | | 28,567 | | | (634) | | | 89,544 | | | 81,042 | | | 8,502 | |
Commissions for acquiring and servicing policies | 7,608 | | | 7,405 | | | 203 | | | 22,792 | | | 22,975 | | | (183) | |
Other operating expenses | 10,013 | | | 9,504 | | | 509 | | | 30,118 | | | 31,203 | | | (1,085) | |
Change in deferred policy acquisition costs (1) | (542) | | | 258 | | | (800) | | | (582) | | | 919 | | | (1,501) | |
Total benefits, losses and expenses | 45,012 | | | 45,734 | | | (722) | | | 141,872 | | | 136,139 | | | 5,733 | |
Income before federal income taxes and other items | $ | 2,926 | | | $ | 2,344 | | | $ | 582 | | | $ | 6,574 | | | $ | 8,559 | | | $ | (1,985) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | | | Nine months ended September 30, | | |
| 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change |
PREMIUMS AND OTHER REVENUES | | | | | | | | | | | |
Premiums | $ | 36,201 | | | $ | 40,934 | | | $ | (4,733) | | | $ | 108,914 | | | $ | 126,965 | | | $ | (18,051) | |
Net investment income | 1,941 | | | 2,033 | | | (92) | | | 6,028 | | | 6,480 | | | (452) | |
Other income | 6,045 | | | 4,971 | | | 1,074 | | | 16,032 | | | 15,001 | | | 1,031 | |
Total premiums and other revenues | 44,187 | | | 47,938 | | | (3,751) | | | 130,974 | | | 148,446 | | | (17,472) | |
BENEFITS, LOSSES AND EXPENSES | | | | | | | | | | | |
Claims incurred | 23,935 | | | 27,933 | | | (3,998) | | | 74,376 | | | 89,544 | | | (15,168) | |
Commissions for acquiring and servicing policies | 6,010 | | | 7,608 | | | (1,598) | | | 18,561 | | | 22,792 | | | (4,231) | |
Other operating expenses | 11,294 | | | 10,013 | | | 1,281 | | | 31,769 | | | 30,118 | | | 1,651 | |
Change in deferred policy acquisition costs (1) | 311 | | | (542) | | | 853 | | | 2,696 | | | (582) | | | 3,278 | |
Total benefits, losses and expenses | 41,550 | | | 45,012 | | | (3,462) | | | 127,402 | | | 141,872 | | | (14,470) | |
Income before federal income taxes and other items | $ | 2,637 | | | $ | 2,926 | | | $ | (289) | | | $ | 3,572 | | | $ | 6,574 | | | $ | (3,002) | |
(1) A negativepositive amount of net change indicates moreless expense was deferred than amortized and represents a decreasean increase to expenses in the period indicated.
Comparison of the three months ended September 30, 20202021 to 2019
Earnings for our Health segment increased primarily due to the following:
•Lower loss ratio in our Medical Expense block, primarily attributable to the release of reserves for larger claims
•Lower loss ratio in our 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 an increase in 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 legacy master cancer plan2020
Comparison of the nine months ended September 30, 2020 to 2019
Earnings for our Health segment decreased primarily due to the following:
•Higher loss ratioPolicy lapses in our Supplemental insurance block, primarily driven by increased claim severity on the legacy master cancer planMedicare Supplement line of business, resulting in a reduction in premiums and an increase in deferred policy acquisition costs ("DAC") amortization
•AHigher loss ratio for Medical Expense, legacy long-term care and Credit disability products
The decrease in earnings was mostly offset due to the following:
•Increased fee income from various MGU earnings resulting from anprograms and a non-recurring 2020 increase in our allowance for uncollectible reinsurance receivables
Comparison of the nine months ended September 30, 2021 to 2020
Earnings for our Health segment decreased primarily due to the following:
•Additional expense related to policy processing revisions, as well as an increase in short-term disability claims in our Worksite line of business
•Policy lapses in our Medicare Supplement line of business, resulting in a reduction in premiums and an increase in DAC amortization
The decrease in earnings was partially offset by:by the following:
•Favorable reserve changes for legacy long-term care products due to anreleases, increased fee income from various MGU programs and a non-recurring 2020 increase in claim terminationsallowance for uncollectible reinsurance receivables
•
Improved claim experience in the Supplemental health line of business
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 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 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | Nine months ended September 30, | | |
| | 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change |
Medicare Supplement | | $ | 17,310 | | | $ | 21,137 | | | $ | (3,827) | | | $ | 54,567 | | | $ | 64,336 | | | $ | (9,769) | |
MGU | | 4,839 | | | 4,702 | | | 137 | | | 15,777 | | | 16,306 | | | (529) | |
Supplemental insurance | | 3,539 | | | 4,417 | | | (878) | | | 10,684 | | | 14,152 | | | (3,468) | |
Credit Health | | 3,350 | | | 3,460 | | | (110) | | | 9,893 | | | 11,196 | | | (1,303) | |
Medical expense | | 1,880 | | | 2,075 | | | (195) | | | 5,687 | | | 6,468 | | | (781) | |
Worksite | | 4,056 | | | 3,808 | | | 248 | | | 8,681 | | | 10,800 | | | (2,119) | |
Group health | | 484 | | | 505 | | | (21) | | | 1,343 | | | 1,303 | | | 40 | |
All other | | 743 | | | 830 | | | (87) | | | 2,282 | | | 2,404 | | | (122) | |
Total | | $ | 36,201 | | | $ | 40,934 | | | $ | (4,733) | | | $ | 108,914 | | | $ | 126,965 | | | $ | (18,051) | |
Policy lapses as a result of rate increases drove a decrease in late 2019 drove premium growth inpremiums for Medicare Supplement. Similarly, Worksite premium increasedSupplement during 2021. In addition, Supplemental insurance premiums decreased during the nine months ended September 30, 2021 due to a reduction in sales across all product lines, primarily in short-term medical. Worksite premiums decreased for the additionnine months ended September 30, 2021 as a result of a large group. The decline in MGU premium is driven by the completion of prior treaties for a large MGU program that is inactive for 2020.revisions to policy processing.
Health claims incurred for the periods indicated were as follows (in thousands):
| | | | Three months ended September 30, | | Nine months ended September 30, | | | | Three months ended September 30, | | Nine months ended September 30, | |
| | | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change | | | 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change |
Medicare Supplement | Medicare Supplement | | $ | 15,969 | | | $ | 16,096 | | | $ | (127) | | | $ | 50,695 | | | $ | 46,514 | | | $ | 4,181 | | Medicare Supplement | | $ | 13,188 | | | $ | 15,969 | | | $ | (2,781) | | | $ | 42,288 | | | $ | 50,695 | | | $ | (8,407) | |
MGU | MGU | | 5,947 | | | 6,029 | | | (82) | | | 15,556 | | | 18,790 | | | (3,234) | | MGU | | 2,942 | | | 5,947 | | | (3,005) | | | 12,149 | | | 15,556 | | | (3,407) | |
Supplemental insurance | Supplemental insurance | | 2,226 | | | 2,192 | | | 34 | | | 8,029 | | | 6,464 | | | 1,565 | | Supplemental insurance | | 1,614 | | | 2,226 | | | (612) | | | 4,838 | | | 8,029 | | | (3,191) | |
Credit Health | Credit Health | | 1,072 | | | 1,020 | | | 52 | | | 2,328 | | | 2,493 | | | (165) | | Credit Health | | 1,552 | | | 1,072 | | | 480 | | | 3,092 | | | 2,328 | | | 764 | |
Medical expense | Medical expense | | 807 | | | 1,665 | | | (858) | | | 5,918 | | | 3,950 | | | 1,968 | | Medical expense | | 1,214 | | | 807 | | | 407 | | | 4,458 | | | 5,918 | | | (1,460) | |
Worksite | Worksite | | 2,144 | | | 261 | | | 1,883 | | | 4,898 | | | 1,186 | | | 3,712 | | Worksite | | 2,818 | | | 2,144 | | | 674 | | | 6,550 | | | 4,898 | | | 1,652 | |
Group health | Group health | | 23 | | | 464 | | | (441) | | | 898 | | | 394 | | | 504 | | Group health | | 287 | | | 23 | | | 264 | | | 241 | | | 898 | | | (657) | |
All other | All other | | (255) | | | 840 | | | (1,095) | | | 1,222 | | | 1,251 | | | (29) | | All other | | 320 | | | (255) | | | 575 | | | 760 | | | 1,222 | | | (462) | |
Total | Total | | $ | 27,933 | | | $ | 28,567 | | | $ | (634) | | | $ | 89,544 | | | $ | 81,042 | | | $ | 8,502 | | Total | | $ | 23,935 | | | $ | 27,933 | | | $ | (3,998) | | | $ | 74,376 | | | $ | 89,544 | | | $ | (15,168) | |
Favorable claim experience
Medicare Supplement claims decreased for the three and nine months ended September 30, 2020 is2021 driven by policy lapses. In addition, claim experience for our Medical Expense and Supplemental health lines of business improved during the aforementionednine months ended September 30, 2021 and was partially offset by an increase in claim terminations and resulting claim reserve releases inshort-term disability claims from our legacy long-term care products.Worksite line of business.
Change in Deferred Policy Acquisition Costs
The following table presents the components of the change in DAC (in thousands):
| | | | Three months ended September 30, | | | | Nine months ended September 30, | | | | | Three months ended September 30, | | | | Nine months ended September 30, | | |
| | | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change | | | 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change |
Acquisition cost capitalized | Acquisition cost capitalized | | $ | (4,534) | | | $ | (1,085) | | | $ | (3,449) | | | $ | (12,117) | | | $ | (7,629) | | | $ | (4,488) | | Acquisition cost capitalized | | $ | (3,327) | | | $ | (4,534) | | | $ | 1,207 | | | $ | (9,211) | | | $ | (12,117) | | | $ | 2,906 | |
Amortization of DAC | Amortization of DAC | | 3,992 | | | 1,343 | | | 2,649 | | | 11,535 | | | 8,548 | | | 2,987 | | Amortization of DAC | | 3,638 | | | 3,992 | | | (354) | | | 11,907 | | | 11,535 | | | 372 | |
Change in DAC | Change in DAC | | $ | (542) | | | $ | 258 | | | $ | (800) | | | $ | (582) | | | $ | 919 | | | $ | (1,501) | | Change in DAC | | $ | 311 | | | $ | (542) | | | $ | 853 | | | $ | 2,696 | | | $ | (582) | | | $ | 3,278 | |
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 September 30, | | | | Nine months ended September 30, | | |
| 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change |
PREMIUMS AND OTHER REVENUES | | | | | | | | | | | |
Net premiums written | $ | 397,780 | | | $ | 390,799 | | | $ | 6,981 | | | $ | 1,211,444 | | | $ | 1,180,451 | | | $ | 30,993 | |
Net premiums earned | $ | 391,388 | | | $ | 382,784 | | | $ | 8,604 | | | $ | 1,152,749 | | | $ | 1,125,704 | | | $ | 27,045 | |
Net investment income | 16,049 | | | 16,357 | | | (308) | | | 48,171 | | | 48,085 | | | 86 | |
Other income | 3,079 | | | 3,137 | | | (58) | | | 9,656 | | | 8,689 | | | 967 | |
Total premiums and other revenues | 410,516 | | | 402,278 | | | 8,238 | | | 1,210,576 | | | 1,182,478 | | | 28,098 | |
BENEFITS, LOSSES AND EXPENSES | | | | | | | | | | | |
Claims incurred | 258,412 | | | 280,695 | | | (22,283) | | | 768,682 | | | 790,447 | | | (21,765) | |
Commissions for acquiring and servicing policies | 72,664 | | | 65,893 | | | 6,771 | | | 225,746 | | | 201,635 | | | 24,111 | |
Other operating expenses | 48,576 | | | 50,111 | | | (1,535) | | | 151,660 | | | 151,677 | | | (17) | |
Change in deferred policy acquisition costs(1) | (901) | | | (636) | | | (265) | | | (7,455) | | | (3,807) | | | (3,648) | |
Total benefits, losses and expenses | 378,751 | | | 396,063 | | | (17,312) | | | 1,138,633 | | | 1,139,952 | | | (1,319) | |
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 | 66.0 | % | | 73.3 | % | | (7.3) | % | | 66.7 | % | | 70.2 | % | | (3.5) | % |
Underwriting expense ratio | 30.7 | | | 30.1 | | | 0.6 | | | 32.1 | | | 31.0 | | | 1.1 | |
Combined ratio | 96.7 | % | | 103.4 | % | | (6.7) | % | | 98.8 | % | | 101.2 | % | | (2.4) | % |
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 | 88.6 | % | | 93.8 | % | | (5.2) | % | | 87.3 | % | | 94.0 | % | | (6.7) | % |
Gross catastrophe losses | $ | 80,054 | | | $ | 36,634 | | | $ | 43,420 | | | $ | 180,410 | | | $ | 80,456 | | | $ | 99,954 | |
Net catastrophe losses | $ | 27,141 | | | $ | 36,796 | | | $ | (9,655) | | | $ | 127,179 | | | $ | 81,005 | | | $ | 46,174 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | | | Nine months ended September 30, | | |
| 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change |
PREMIUMS AND OTHER REVENUES | | | | | | | | | | | |
Net premiums written | $ | 442,061 | | | $ | 397,780 | | | $ | 44,281 | | | $ | 1,313,885 | | | $ | 1,211,444 | | | $ | 102,441 | |
Net premiums earned | $ | 426,887 | | | $ | 391,388 | | | $ | 35,499 | | | $ | 1,235,778 | | | $ | 1,152,749 | | | $ | 83,029 | |
Net investment income | 15,929 | | | 16,049 | | | (120) | | | 47,167 | | | 48,171 | | | (1,004) | |
Other income | 3,863 | | | 3,079 | | | 784 | | | 10,138 | | | 9,656 | | | 482 | |
Total premiums and other revenues | 446,679 | | | 410,516 | | | 36,163 | | | 1,293,083 | | | 1,210,576 | | | 82,507 | |
BENEFITS, LOSSES AND EXPENSES | | | | | | | | | | | |
Claims incurred | 299,956 | | | 258,412 | | | 41,544 | | | 824,697 | | | 768,682 | | | 56,015 | |
Commissions for acquiring and servicing policies | 89,883 | | | 72,664 | | | 17,219 | | | 250,145 | | | 225,746 | | | 24,399 | |
Other operating expenses | 53,364 | | | 48,576 | | | 4,788 | | | 157,926 | | | 151,660 | | | 6,266 | |
Change in deferred policy acquisition costs (1) | (3,070) | | | (901) | | | (2,169) | | | (11,768) | | | (7,455) | | | (4,313) | |
Total benefits, losses and expenses | 440,133 | | | 378,751 | | | 61,382 | | | 1,221,000 | | | 1,138,633 | | | 82,367 | |
Income before federal income taxes and other items | $ | 6,546 | | | $ | 31,765 | | | $ | (25,219) | | | $ | 72,083 | | | $ | 71,943 | | | $ | 140 | |
Loss and loss adjustment expense ratio | 70.3 | % | | 66.0 | % | | 4.3 | % | | 66.7 | % | | 66.7 | % | | — | % |
Underwriting expense ratio | 32.8 | | | 30.7 | | | 2.1 | | | 32.1 | | | 32.1 | | | — | |
Combined ratio | 103.1 | % | | 96.7 | % | | 6.4 | % | | 98.8 | % | | 98.8 | % | | — | % |
Less: Impact of catastrophe events on combined ratio | 15.6 | | | 10.2 | | | 5.4 | | | 11.7 | | | 13.5 | | | (1.8) | |
Combined ratio without impact of catastrophe events | 87.5 | % | | 86.5 | % | | 1.0 | % | | 87.1 | % | | 85.3 | % | | 1.8 | % |
Gross catastrophe losses | $ | 83,479 | | | $ | 80,054 | | | $ | 3,425 | | | $ | 150,479 | | | $ | 180,410 | | | $ | (29,931) | |
Net catastrophe losses | $ | 57,139 | | | $ | 27,141 | | | $ | 29,998 | | | $ | 120,664 | | | $ | 127,179 | | | $ | (6,515) | |
(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 September 30, 20202021 to 20192020
Earnings for our Property and Casualty segment increaseddecreased primarily due to the following:
•An improvementPrimarily as a result of losses from Hurricane Ida and an increase in the combinedloss and loss adjustment expense ratio fordue to an increase in claim frequency in our personal autoautomobile products attributable to fewerprimarily as miles driven by policyholders and favorable claim development
•Although gross catastrophe losseshave 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, 20202021 to 20192020
Earnings for our Property and Casualty segment increasedwas in line with the prior year primarily due to the following:
•An improvementImprovement in the combined ratio for oureach product line except for personal auto products attributable to fewer miles driven by policyholdersautomobile and favorable claim developmentworkers compensation
The increase in earnings was partially offset primarily by the following:
•Significantly higher catastrophe losses, havingAn increase in the greatestloss and loss adjustment expense ratio for our personal automobile products primarily due to an increase in claim frequency compared to the prior year due to the lessening impact on our homeowners loss ratioof COVID-19
Additional information:Information
•Net premiums written and earned for the first nine months were reduced by COVID-19 relief policy credits as follows:
◦$0.5 million for auto policyholders totaling $17.7 million;personal automobile policies in the third quarter of 2021 compared to $0.7 million for personal automobile policies in 2020
◦$1.9 million for personal automobile policies for the first nine months of 2021 compared to $16.8 million for personal autoautomobile policies and $0.9 million for commercial auto policies. The policy credits were based on 10%-15% of monthly premiumsautomobile policies in 2020
•The increase in commissions expense for the third quarter and first nine months was primarily dueattributable to thean increase in premiums written and an increase in contingent commissions due to the improvement in the loss ratios for theour Specialty Markets Group products
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 55%52% of net premiums written; (ii) Commercial products, focused primarily on agricultural and other business related markets, representing 31% of net premiums written; and (iii) Specialty Markets Group products, marketed through independent managing general agents and managing general underwriters, representing 14%17% of net premiums written.
Personal Products
Personal Products results for the periods indicated were as follows (in thousands, except percentages):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | Nine months ended September 30, | | |
| | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change |
Net premiums written | | | | | | | | | | | | |
Automobile | | $ | 142,702 | | | $ | 145,574 | | | $ | (2,872) | | | $ | 408,509 | | | $ | 432,796 | | | $ | (24,287) | |
Homeowner | | 77,267 | | | 71,718 | | | 5,549 | | | 215,854 | | | 197,055 | | | 18,799 | |
Other Personal | | 13,668 | | | 13,515 | | | 153 | | | 40,032 | | | 39,113 | | | 919 | |
Total net premiums written | | $ | 233,637 | | | $ | 230,807 | | | $ | 2,830 | | | $ | 664,395 | | | $ | 668,964 | | | $ | (4,569) | |
Net premiums earned | | | | | | | | | | | | |
Automobile | | $ | 139,155 | | | $ | 142,474 | | | $ | (3,319) | | | $ | 397,088 | | | $ | 419,666 | | | $ | (22,578) | |
Homeowner | | 66,472 | | | 63,508 | | | 2,964 | | | 200,354 | | | 185,177 | | | 15,177 | |
Other Personal | | 13,142 | | | 12,487 | | | 655 | | | 37,922 | | | 36,513 | | | 1,409 | |
Total net premiums earned | | $ | 218,769 | | | $ | 218,469 | | | $ | 300 | | | $ | 635,364 | | | $ | 641,356 | | | $ | (5,992) | |
Loss and loss adjustment expense ratio | | | | | | | | | | | | |
Automobile | | 57.9 | % | | 72.7 | % | | (14.8) | % | | 58.6 | % | | 71.9 | % | | (13.3) | % |
Homeowner | | 101.3 | % | | 110.0 | % | | (8.7) | % | | 102.0 | % | | 89.0 | % | | 13.0 | % |
Other Personal | | 51.6 | % | | 59.1 | % | | (7.5) | % | | 63.0 | % | | 59.6 | % | | 3.4 | % |
Personal line loss and loss adjustment expense ratio | | 70.7 | % | | 82.8 | % | | (12.1) | % | | 72.6 | % | | 76.2 | % | | (3.6) | % |
Combined Ratio | | | | | | | | | | | | |
Automobile | | 79.1 | % | | 95.3 | % | | (16.2) | % | | 82.9 | % | | 95.0 | % | | (12.1) | % |
Homeowner | | 132.4 | % | | 139.7 | % | | (7.3) | % | | 133.3 | % | | 120.4 | % | | 12.9 | % |
Other Personal | | 79.2 | % | | 103.2 | % | | (24.0) | % | | 95.1 | % | | 104.2 | % | | (9.1) | % |
Personal line combined ratio | | 95.3 | % | | 108.6 | % | | (13.3) | % | | 99.5 | % | | 102.9 | % | | (3.4) | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | Nine months ended September 30, | | |
| | 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change |
Net premiums written | | | | | | | | | | | | |
Automobile | | $ | 135,703 | | | $ | 142,702 | | | $ | (6,999) | | | $ | 408,366 | | | $ | 408,509 | | | $ | (143) | |
Homeowner | | 83,636 | | | 77,267 | | | 6,369 | | | 230,817 | | | 215,854 | | | 14,963 | |
Other Personal | | 13,678 | | | 13,668 | | | 10 | | | 41,341 | | | 40,032 | | | 1,309 | |
Total net premiums written | | $ | 233,017 | | | $ | 233,637 | | | $ | (620) | | | $ | 680,524 | | | $ | 664,395 | | | $ | 16,129 | |
Net premiums earned | | | | | | | | | | | | |
Automobile | | $ | 134,786 | | | $ | 139,155 | | | $ | (4,369) | | | $ | 403,217 | | | $ | 397,088 | | | $ | 6,129 | |
Homeowner | | 73,270 | | | 66,472 | | | 6,798 | | | 215,786 | | | 200,354 | | | 15,432 | |
Other Personal | | 13,323 | | | 13,142 | | | 181 | | | 39,148 | | | 37,922 | | | 1,226 | |
Total net premiums earned | | $ | 221,379 | | | $ | 218,769 | | | $ | 2,610 | | | $ | 658,151 | | | $ | 635,364 | | | $ | 22,787 | |
Loss and loss adjustment expense ratio | | | | | | | | | | | | |
Automobile | | 72.0 | % | | 57.9 | % | | 14.1 | % | | 68.8 | % | | 58.6 | % | | 10.2 | % |
Homeowner | | 111.3 | % | | 101.3 | % | | 10.0 | % | | 94.8 | % | | 102.0 | % | | (7.2) | % |
Other Personal | | 51.6 | % | | 51.6 | % | | — | % | | 55.9 | % | | 63.0 | % | | (7.1) | % |
Personal lines loss and loss adjustment expense ratio | | 83.7 | % | | 70.7 | % | | 13.0 | % | | 76.7 | % | | 72.6 | % | | 4.1 | % |
Combined Ratio | | | | | | | | | | | | |
Automobile | | 96.4 | % | | 79.1 | % | | 17.3 | % | | 93.1 | % | | 82.9 | % | | 10.2 | % |
Homeowner | | 142.0 | % | | 132.4 | % | | 9.6 | % | | 124.8 | % | | 133.3 | % | | (8.5) | % |
Other Personal | | 81.8 | % | | 79.2 | % | | 2.6 | % | | 86.0 | % | | 95.1 | % | | (9.1) | % |
Personal lines combined ratio | | 110.6 | % | | 95.3 | % | | 15.3 | % | | 103.1 | % | | 99.5 | % | | 3.6 | % |
Comparison of 20202021 to 20192020
Automobile: COVID-19 relief policy credits decreased netNet premiums written and earned for the third quarter by $0.7 million and net premiums written for the first nine months bydecreased primarily due to fewer policies in-force. Net premiums earned for the first nine months increased primarily due to COVID-19 relief policy credits of $1.9 million in 2021 compared to $16.8 million as previously discussed, as well as exposure changes primarily caused by fewer miles driven due to the impact of COVID-19.in 2020. The loss and loss adjustment expense and combined ratios improvedincreased for the third quarter and first nine months primarily due to a decreasean increase in loss and loss adjustment expenses incurred, largely attributableclaim frequency compared to fewer miles driven by policyholdersthe prior year due to shelter-in-place orders and favorable claim development.the lessening impact of COVID-19.
HomeownersHomeowner: Net premiums written and earned increased for the third quarter and first nine months primarily due to rate increases. The loss and loss adjustment expense and combined ratios improvedincreased for the third quarter due to decreasedan increase in catastrophe losses and increaseddecreased for the first nine months due to increasedrate increases and decreases in catastrophe losses due to multiple wind and hail storms.non-catastrophe losses. Catastrophe losses, decreasednet of reinsurance, increased by $10.7$20.0 million, to $18.6 million from $29.1$38.6 million in the third quarter compared to $18.6 million in 2020, and increaseddecreased by $27.7$3.1 million, to $83.3$80.2 million from $55.6 million infor the first nine months in 2020 compared to 2019.$83.3 million in 2020.
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. Net premiums written and earned increased for the first nine months due to rate increases in the rental owners product. The loss and loss adjustment expense and combined ratios improved for the third quarter due to decreased catastrophe losses. For the first nine months the loss and loss adjustment ratio increased due to the increase infewer non-catastrophe losses incurred and the combined ratio decreased due to decreased commissions and operating expenses.
losses.
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 September 30, | | | | Nine months ended September 30, | | |
| 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change |
Net premiums written | | | | | | | | | | | |
Agricultural Business | $ | 40,201 | | | $ | 38,783 | | | $ | 1,418 | | | $ | 127,679 | | | $ | 120,080 | | | $ | 7,599 | |
Automobile | 27,700 | | | 27,925 | | | (225) | | | 102,078 | | | 97,059 | | | 5,019 | |
Business Owner | 17,893 | | | 16,685 | | | 1,208 | | | 62,674 | | | 56,295 | | | 6,379 | |
Workers Compensation | 12,935 | | | 14,414 | | | (1,479) | | | 56,202 | | | 60,000 | | | (3,798) | |
Other Commercial | 7,920 | | | 8,681 | | | (761) | | | 26,664 | | | 28,808 | | | (2,144) | |
Total net premiums written | $ | 106,649 | | | $ | 106,488 | | | $ | 161 | | | $ | 375,297 | | | $ | 362,242 | | | $ | 13,055 | |
Net premiums earned | | | | | | | | | | | |
Agricultural Business | $ | 40,145 | | | $ | 38,038 | | | $ | 2,107 | | | $ | 119,605 | | | $ | 112,044 | | | $ | 7,561 | |
Automobile | 32,492 | | | 29,495 | | | 2,997 | | | 93,790 | | | 85,510 | | | 8,280 | |
Business Owner | 19,498 | | | 17,918 | | | 1,580 | | | 56,935 | | | 51,110 | | | 5,825 | |
Workers Compensation | 17,634 | | | 19,137 | | | (1,503) | | | 52,709 | | | 56,542 | | | (3,833) | |
Other Commercial | 8,310 | | | 8,993 | | | (683) | | | 24,704 | | | 26,476 | | | (1,772) | |
Total net premiums earned | $ | 118,079 | | | $ | 113,581 | | | $ | 4,498 | | | $ | 347,743 | | | $ | 331,682 | | | $ | 16,061 | |
Loss and loss adjustment expense ratio | | | | | | | | | | | |
Agricultural Business | 47.8 | % | | 64.7 | % | | (16.9) | % | | 56.3 | % | | 72.5 | % | | (16.2) | % |
Automobile | 84.9 | % | | 82.9 | % | | 2.0 | % | | 73.1 | % | | 79.7 | % | | (6.6) | % |
Business Owner | 81.5 | % | | 50.1 | % | | 31.4 | % | | 85.9 | % | | 55.7 | % | | 30.2 | % |
Workers Compensation | 63.5 | % | | 57.7 | % | | 5.8 | % | | 60.5 | % | | 48.3 | % | | 12.2 | % |
Other Commercial | 67.8 | % | | 34.8 | % | | 33.0 | % | | 62.9 | % | | 43.4 | % | | 19.5 | % |
Commercial line loss and loss adjustment expense ratio | 67.3 | % | | 63.6 | % | | 3.7 | % | | 66.8 | % | | 65.4 | % | | 1.4 | % |
Combined ratio | | | | | | | | | | | |
Agricultural Business | 85.6 | % | | 100.6 | % | | (15.0) | % | | 93.8 | % | | 109.3 | % | | (15.5) | % |
Automobile | 105.7 | % | | 107.8 | % | | (2.1) | % | | 95.7 | % | | 104.6 | % | | (8.9) | % |
Business Owner | 115.9 | % | | 88.6 | % | | 27.3 | % | | 120.8 | % | | 94.8 | % | | 26.0 | % |
Workers Compensation | 79.6 | % | | 74.3 | % | | 5.3 | % | | 77.7 | % | | 66.2 | % | | 11.5 | % |
Other Commercial | 106.9 | % | | 76.9 | % | | 30.0 | % | | 102.8 | % | | 85.9 | % | | 16.9 | % |
Commercial line combined ratio | 96.7 | % | | 94.3 | % | | 2.4 | % | | 96.9 | % | | 96.6 | % | | 0.3 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | | | Nine months ended September 30, | | |
| 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change |
Net premiums written | | | | | | | | | | | |
Agricultural Business | $ | 45,364 | | | $ | 40,201 | | | $ | 5,163 | | | $ | 140,111 | | | $ | 127,679 | | | $ | 12,432 | |
Automobile | 31,144 | | | 27,700 | | | 3,444 | | | 111,607 | | | 102,078 | | | 9,529 | |
Business Owner | 19,689 | | | 17,893 | | | 1,796 | | | 67,931 | | | 62,674 | | | 5,257 | |
Workers Compensation | 13,909 | | | 12,935 | | | 974 | | | 56,948 | | | 56,202 | | | 746 | |
Other Commercial | 8,636 | | | 7,920 | | | 716 | | | 29,174 | | | 26,664 | | | 2,510 | |
Total net premiums written | $ | 118,742 | | | $ | 106,649 | | | $ | 12,093 | | | $ | 405,771 | | | $ | 375,297 | | | $ | 30,474 | |
Net premiums earned | | | | | | | | | | | |
Agricultural Business | $ | 44,387 | | | $ | 40,145 | | | $ | 4,242 | | | $ | 128,886 | | | $ | 119,605 | | | $ | 9,281 | |
Automobile | 34,474 | | | 32,492 | | | 1,982 | | | 100,112 | | | 93,790 | | | 6,322 | |
Business Owner | 21,331 | | | 19,498 | | | 1,833 | | | 61,705 | | | 56,935 | | | 4,770 | |
Workers Compensation | 18,049 | | | 17,634 | | | 415 | | | 52,394 | | | 52,709 | | | (315) | |
Other Commercial | 9,102 | | | 8,310 | | | 792 | | | 27,010 | | | 24,704 | | | 2,306 | |
Total net premiums earned | $ | 127,343 | | | $ | 118,079 | | | $ | 9,264 | | | $ | 370,107 | | | $ | 347,743 | | | $ | 22,364 | |
Loss and loss adjustment expense ratio | | | | | | | | | | | |
Agricultural Business | 54.2 | % | | 47.8 | % | | 6.4 | % | | 53.2 | % | | 56.3 | % | | (3.1) | % |
Automobile | 70.2 | % | | 84.9 | % | | (14.7) | % | | 66.1 | % | | 73.1 | % | | (7.0) | % |
Business Owner | 76.8 | % | | 81.5 | % | | (4.7) | % | | 77.5 | % | | 85.9 | % | | (8.4) | % |
Workers Compensation | 78.1 | % | | 63.5 | % | | 14.6 | % | | 66.9 | % | | 60.5 | % | | 6.4 | % |
Other Commercial | 71.1 | % | | 67.8 | % | | 3.3 | % | | 53.3 | % | | 62.9 | % | | (9.6) | % |
Commercial lines loss and loss adjustment expense ratio | 66.9 | % | | 67.3 | % | | (0.4) | % | | 62.7 | % | | 66.8 | % | | (4.1) | % |
Combined ratio | | | | | | | | | | | |
Agricultural Business | 90.8 | % | | 85.6 | % | | 5.2 | % | | 89.1 | % | | 93.8 | % | | (4.7) | % |
Automobile | 93.3 | % | | 105.7 | % | | (12.4) | % | | 88.3 | % | | 95.7 | % | | (7.4) | % |
Business Owner | 111.2 | % | | 115.9 | % | | (4.7) | % | | 111.2 | % | | 120.8 | % | | (9.6) | % |
Workers Compensation | 93.7 | % | | 79.6 | % | | 14.1 | % | | 82.4 | % | | 77.7 | % | | 4.7 | % |
Other Commercial | 111.7 | % | | 106.9 | % | | 4.8 | % | | 93.9 | % | | 102.8 | % | | (8.9) | % |
Commercial lines combined ratio | 96.8 | % | | 96.7 | % | | 0.1 | % | | 92.0 | % | | 96.9 | % | | (4.9) | % |
Comparison of 20202021 to 20192020
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 third quarter and first nine months primarily due to rate increases and an increase in policies in-force. The lossin-force and loss adjustment expense and combined ratios improved for the third quarter and first 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 third quarter and first nine months primarily due to rate increases and an increase in policies in-force.increases. The loss and loss adjustment expense and combined ratios increased for the third quarter primarily due to a increase in catastrophe losses and improved the first nine months primarily due to a decrease in catastrophe losses. Catastrophe losses, net of reinsurance, increased by $4.0 million, to $6.3 million in the third quarter compared to $2.3 million in 2020, and decreased by $3.6 million, to $14.5 million for the first nine months compared to $18.1 million in 2020.
Commercial Automobile: Net premiums written and earned increased for the third quarter and first nine months primarily due to unfavorablerate increases. The loss and loss adjustment expense ratio and combined ratio improved for the third quarter and first nine months primarily due to favorable prior year claim development.development and rate increases.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
Workers Compensation
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 decreased increased for the third quarter and first nine months primarily due to increases in policies in-force and rate decreases.increases. The loss and loss adjustment expense and combined ratios improved for the third quarter and first nine months primarily due to a decrease in allocated loss adjustment expense reserves.
Workers Compensation: Net premiums written increased for the third quarter primarily due to the severity of claimsa decrease in ceded premiums for reinsurance coverage. The loss and loss adjustment expense and combined ratio increased for the third quarter and first nine months primarily due to an increase in the severity of claims and an increase in allocated loss adjustment expense reserves.claim severity.
Other Commercial: Other commercial products primarily provide umbrella and other liability coverages. Net premiums written and earned decreasedincreased for the third quarter and first nine months primarily due to an increase in ceded premiumspremium for reinsurance coverage.umbrella products. The loss and loss adjustment expense and combined ratios increased for the third quarter primarily due to an increase in allocated loss adjustment expense reserves and improved for the first nine months primarily due to an increase infavorable prior year claim severity and frequency.development.
Specialty Markets Products
Specialty Markets product results for the periods indicated were as follows (in thousands, except percentages):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | Nine months ended September 30, | | |
| | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change |
Net premiums written | | $ | 57,494 | | | $ | 53,505 | | | $ | 3,989 | | | $ | 171,752 | | | $ | 149,245 | | | $ | 22,507 | |
Net premiums earned | | 54,539 | | | 50,736 | | | 3,803 | | | 169,641 | | | 152,666 | | | 16,975 | |
Loss and loss adjustment expense ratio(1) | | 44.5 | % | | 54.4 | % | | (9.9) | % | | 44.5 | % | | 55.8 | % | | (11.3) | % |
Combined ratio(1) | | 102.6 | % | | 101.7 | % | | 0.9 | % | | 99.8 | % | | 104.6 | % | | (4.8) | % |
(1) Ratio does not include fee income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | | | Nine months ended September 30, | | |
| | 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change |
Net premiums written | | $ | 90,301 | | | $ | 57,494 | | | $ | 32,807 | | | $ | 227,589 | | | $ | 171,752 | | | $ | 55,837 | |
Net premiums earned | | 78,165 | | | 54,539 | | | 23,626 | | | 207,519 | | | 169,641 | | | 37,878 | |
| | | | | | | | | | | | |
Loss and loss adjustment expense ratio | | 37.4 | % | | 44.5 | % | | (7.1) | % | | 42.6 | % | | 44.5 | % | | (1.9) | % |
Combined ratio | | 92.1 | % | | 102.6 | % | | (10.5) | % | | 97.3 | % | | 99.8 | % | | (2.5) | % |
| | | | | | | | | | | | |
Specialty Markets products provide protection to borrowers and the creditors that extend credit to them. Products offer coverage against unpaid indebtedness as a result of death, disability, involuntary unemployment or untimely loss to the collateral securing a personal or mortgage loan. Specialty Markets products also include renters, mortgage security, aviation, and private flood insurance.
Comparison of 2021 to 2020
Net written and earned premiums increased for the third quarter and first nine months primarily due to higher production on renters products and the addition of new accounts for Mortgage Security Insurance (“MSI”), Collateral Protection Insurance, and Investor Property Protection (“IPP”)related to the investor property protection products. The loss and loss adjustment expense and combined ratios decreasedimproved for the third quarter and first nine months primarily due to the improvement of loss ratios on Guaranteed Asset Protection (“GAP”) products and IPP.lower losses for Credit GAP products.
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 September 30, | | | | Nine months ended September 30, | | |
| 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change |
OTHER REVENUES | | | | | | | | | | | |
Net investment income | $ | 3,814 | | | $ | 24,237 | | | $ | (20,423) | | | $ | 19,274 | | | $ | 59,051 | | | $ | (39,777) | |
Realized investment gains | 17,387 | | | 31,933 | | | (14,546) | | | 25,474 | | | 24,975 | | | 499 | |
| | | | | | | | | | | |
Change in investment credit loss | (4,175) | | | — | | | (4,175) | | | (101,163) | | | — | | | (101,163) | |
Net gains on equity securities | 152,147 | | | 8,589 | | | 143,558 | | | 118,397 | | | 282,026 | | | (163,629) | |
Other income | 542 | | | 1,478 | | | (936) | | | 2,795 | | | 4,511 | | | (1,716) | |
Total other revenues | 169,715 | | | 66,237 | | | 103,478 | | | 64,777 | | | 370,563 | | | (305,786) | |
BENEFITS, LOSSES AND EXPENSES | | | | | | | | | | | |
Other operating expenses | 10,629 | | | 9,750 | | | 879 | | | 30,936 | | | 28,158 | | | 2,778 | |
Total benefits, losses and expenses | 10,629 | | | 9,750 | | | 879 | | | 30,936 | | | 28,158 | | | 2,778 | |
Income before federal income taxes and other items | $ | 159,086 | | | $ | 56,487 | | | $ | 102,599 | | | $ | 33,841 | | | $ | 342,405 | | | $ | (308,564) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | | | Nine months ended September 30, | | |
| 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change |
OTHER REVENUES | | | | | | | | | | | |
Net investment income | $ | 47,655 | | | $ | 20,843 | | | $ | 26,812 | | | $ | 122,468 | | | $ | 38,388 | | | $ | 84,080 | |
Realized investment gains | 20,138 | | | 17,387 | | | 2,751 | | | 49,979 | | | 25,474 | | | 24,505 | |
| | | | | | | | | | | |
(Increase) decrease in investment credit loss | 5,969 | | | (4,175) | | | 10,144 | | | 25,562 | | | (101,163) | | | 126,725 | |
Net gains on equity securities | 681 | | | 152,147 | | | (151,466) | | | 267,425 | | | 118,397 | | | 149,028 | |
Other income | 715 | | | 542 | | | 173 | | | 2,572 | | | 2,795 | | | (223) | |
Total other revenues | 75,158 | | | 186,744 | | | (111,586) | | | 468,006 | | | 83,891 | | | 384,115 | |
BENEFITS, LOSSES AND EXPENSES | | | | | | | | | | | |
Other operating expenses | 21,546 | | | 10,629 | | | 10,917 | | | 58,586 | | | 30,936 | | | 27,650 | |
Total benefits, losses and expenses | 21,546 | | | 10,629 | | | 10,917 | | | 58,586 | | | 30,936 | | | 27,650 | |
Income before federal income taxes and other items | $ | 53,612 | | | $ | 176,115 | | | $ | (122,503) | | | $ | 409,420 | | | $ | 52,955 | | | $ | 356,465 | |
Comparison of the three months ended September 30, 20202021 to 20192020
Earnings for our Corporate and Other segment decreased primarily due to the following:
•A decrease in net gains on equity securities as a result of less favorable market conditions for equity securities
•An increase in operating expenses due to Merger-related expenses
Comparison of the nine months ended September 30, 2021 to 2020
Earnings for our Corporate and Other segment increased primarily due to the following:
•An increase in the S&P 500 Index of 8.5% for the three months ended September 30, 2020 compared to a 1.2% increase for the same period in 2019 resulting in an increase in net gains on equity securities due to more favorable market conditions in 2021 compared to the negative impact on the fair values of equity securities from the pandemic in 2020
•Favorable change in investment credit loss due to improvement in our commercial mortgage loans driven by GDP growth and positive economic outlook
•An increase in net investment income driven by increases in investment income from mortgage loan profit participation and prepayment income and investment funds
The increase in earnings was partially offset by the following:
•A decrease in net investment income driven by bonds, mortgage loans and real estate
•A decrease in realized investment gains from sales of investments in real estate related joint ventures
Comparison of the nine months ended September 30, 2020 to 2019
Earnings for our Corporate and Other segment decreased primarily due toby the following:
•An increase in the S&P 500 index of 4.1% compared to an increase of 18.7% during the same period in 2019
•The change in investment credit lossoperating expenses due to economic disruptions caused by COVID-19
•A decrease in net investment income driven by bonds, mortgage loansretirement benefit and real estate
Merger-related expenses
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, ALM Committee, and Enterprise Risk Management Committee.
Our insurance and annuity products are generally supported by investment-grade bonds and commercial mortgage loans. We also invest in equity options as a hedge for our indexed products. We purchase fixed maturity securities and designate them as either held-to-maturity or available-for-sale considering our estimated future cash flow needs. We also monitor the composition of our fixed maturity securities classified as held-to-maturity and available-for-sale and adjust the mix within the portfolio as investments mature or new investments are purchased.
We invest in commercial mortgage loans when the yield and credit risk compare favorably with fixed maturity securities. Individual residential mortgage loans including sub-prime or Alt-A mortgage loans have not been and are not expected to be part of our investment portfolio. We purchase real estate and equity investments based on a risk and reward analysis where we believe there are opportunities for enhanced returns.
The following summarizes the carrying values of our invested assets (other than investments in unconsolidated affiliates) by asset class (in thousands, except percentages):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
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 | | 7,236,188 | | | 30.5 | | | 6,725,085 | | | 28.5 | |
Equity securities, at fair value | | 1,840,855 | | | 7.8 | | | 1,700,960 | | | 7.2 | |
Mortgage loans on real estate, net of allowance | | 5,176,474 | | | 21.8 | | | 5,097,017 | | | 21.6 | |
Policy loans | | 374,387 | | | 1.6 | | | 379,657 | | | 1.6 | |
Investment real estate, net of accumulated depreciation | | 514,076 | | | 2.2 | | | 551,219 | | | 2.3 | |
Short-term investments | | 800,793 | | | 3.4 | | | 425,321 | | | 1.8 | |
Other invested assets | | 103,030 | | | 0.3 | | | 76,569 | | | 0.4 | |
Total investments | | $ | 23,748,150 | | | 100.0 | % | | $ | 23,587,089 | | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 |
Fixed maturity, bond held-to-maturity, at amortized cost | | $ | 7,277,801 | | | 28.0 | % | | $ | 7,354,970 | | | 29.2 | % |
Fixed maturity, bond available-for-sale, at fair value | | 8,573,081 | | | 32.9 | | | 7,597,180 | | | 30.1 | |
Equity securities, at fair value | | 2,383,478 | | | 9.2 | | | 2,070,766 | | | 8.2 | |
Mortgage loans on real estate, net of allowance | | 5,002,978 | | | 19.2 | | | 5,242,531 | | | 20.8 | |
Policy loans | | 364,960 | | | 1.4 | | | 373,014 | | | 1.5 | |
Real estate and real estate partnerships, net of accumulated depreciation | | 926,154 | | | 3.6 | | | 960,572 | | | 3.8 | |
Investment funds | | 814,527 | | | 3.1 | | | 477,135 | | | 1.9 | |
Short-term investments | | 536,621 | | | 2.1 | | | 1,028,379 | | | 4.1 | |
Other invested assets | | 123,337 | | | 0.5 | | | 94,415 | | | 0.4 | |
Total investments | | $ | 26,002,937 | | | 100.0 | % | | $ | 25,198,962 | | | 100.0 | % |
The increase in our total investments at September 30, 20202021 compared to year-end 20192020 was primarily the result of increasesan increase in held-to-maturity bonds, available-for-sale short term investments,bonds, and other invested assets. These increases were somewhat offset by a decrease in bonds held-to-maturity.equity securities.
Bonds—We allocate most of our fixed maturity securities to support our insurance business. At September 30, 2021, our fixed maturity securities had an estimated fair value of $16.3 billion, which was $0.8 billion, or 5.4%, above amortized cost. At December 31, 2020, our fixed maturity securities had an estimated fair value of $15.5$15.6 billion, which was $1.0$1.2 billion, or 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%8.0%, above amortized cost. The estimated fair value for securities due in one year or less was $1.2 billion and $1.1 billion as of September 30, 20202021 and December 31, 2019.2020, respectively. 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 investhave invested in the equity securities of 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. However, we intend to sell nearly all of our equity securities portfolio prior to the end of 2021. For additional information please see the Anticipated Sale of Equity Securities Portfolio discussion in the General Trends section above.
Mortgage Loans—We invest in commercial mortgage loans that are diversified by property-type and geography. Generally, mortgage loans are secured by first liens on income-producing real estate with a loan-to-value ratio of up to 75%. Mortgage loans are generally carried at outstanding principal balances, adjusted for any unamortized premium or discount, deferred fees or expenses, and net of allowances. The weighted average coupon yield on the principal funded for mortgage loans was 4.7% and 4.8% at September 30, 20202021 and December 31, 2019,2020, respectively. For additional information regarding mortgage loans refer to Note 5, Mortgage Loans, of the Notes to the Unaudited Condensed Consolidated Financial Statements.
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 September 30, 2020,2021, we had $374.4$365.0 million in policy loans with a loan to surrender value of 55%54%, and at December 31, 2019,2020, we had $379.7$373.0 million in policy loans with a loan to surrender value of approximately 56%. Interest rates on policy loans primarily range from 3.0% to 12.0% per annum. Policy loans may be repaid at any time by the policyholder and have priority toover 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 and Real Estate Partnerships—We invest in commercial real estate where positive cash flows and/or appreciation in value is expected. Real estate may be owned directly by our insurance companies or non-insurance affiliates or indirectly in joint ventures with real estate developers or investors we determine share our perspective regarding risk and return relationships. The carrying value of real estate is stated at cost, less accumulated depreciation and impairments, if any. Depreciation is provided over the estimated useful lives of the properties. The carrying value of our real estate partnerships is determined by using the equity method of accounting.
Short-Term
Investment Funds—Our investment funds are primarily comprised of senior secured and second lien private loans that are secured by assets, revenues and credit/balance sheet lending. We recognize our share of the fund’s earnings in net investment income on a one-quarter lag under the equity method of accounting. Cash distributions are received from the earnings and from liquidation of underlying investments.
Short-term Investments—Short-term investments are primarily commercial paper rated A2 or P2 or better by Standard & Poor’s and Moody’s, respectively. The amount fluctuates depending on our view of the desirability of investing in the available long-term investment opportunities and our liquidity needs, including mortgage investment-funding commitments.
Other Invested Assets—Other invested assets are comprised primarily of equity-indexed optionspooled loans to mid-sized businesses which are initiated and administered by third-party managers. These loans are carried at fair value. Other invested assets also include equity-indexed options, carried at fair value, and may be collateralizednet of collateral provided by counterparties; such collateral is restricted to the Company’s use. OtherAdditionally, other invested assets also include tax credit partnerships, Certified Capital Companies (“CAPCO”) investments,FHLB capital stock, mineral rights, mezzanine loans and limited liability company interests,lease financing arrangements, all of which are carried at cost, less allowance for depletion, where applicable. 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.cost.
Net Investment Income and Net Realized Gains (Losses)
Net investment income decreased $139.8increased $152.5 million during the nine months ended September 30, 20202021 compared to 20192020 primarily due to losseshigher gains on options from a declinean improvement in the S&P 500 Index.Index, and an increase in income from mortgage loan profit participation and prepayment income, real estate partnerships and investment funds.
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 nonaccrualnon-accrual status. Interest received on nonaccrualnon-accrual status mortgage loans is included in net investment income in the period received.
Net realized investment gains decreased $6.5increased $24.5 million during the nine months ended September 30, 20202021 compared to 20192020 primarily attributable to decreased sales of real estate.bond call activity. 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 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Bonds | | $ | 22,939 | | | $ | 6,117 | | | $ | 42,106 | | | $ | 15,547 | |
Mortgage loans | | — | | | — | | | (768) | | | — | |
Real estate and real estate partnerships | | (1,705) | | | 11,265 | | | 9,387 | | | 9,951 | |
Other invested assets | | (1,096) | | | 5 | | | (746) | | | (24) | |
Total | | $ | 20,138 | | | $ | 17,387 | | | $ | 49,979 | | | $ | 25,474 | |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
Net Unrealized Gains and Losses(Losses)
The unrealized gains and losses of our fixed maturity securities investment portfolio are shown below (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 | | Change |
Held-to-Maturity | | | | | | |
Gains | | $ | 582,282 | | | $ | 345,463 | | | $ | 236,819 | |
Losses | | (36,018) | | | (8,034) | | | (27,984) | |
Net gains | | 546,264 | | | 337,429 | | | 208,835 | |
Available-for-Sale | | | | | | |
Gains | | 484,782 | | | 302,426 | | | 182,356 | |
Losses | | (35,322) | | | (13,011) | | | (22,311) | |
Net gains | | 449,460 | | | 289,415 | | | 160,045 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Total | | $ | 995,724 | | | $ | 626,844 | | | $ | 368,880 | |
| | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 | | Change |
Held-to-maturity | | | | | | |
Gains | | $ | 486,773 | | | $ | 639,648 | | | $ | (152,875) | |
Losses | | (17,543) | | | (11,437) | | | (6,106) | |
Net gains | | 469,230 | | | 628,211 | | | (158,981) | |
Available-for-sale | | | | | | |
Gains | | 397,993 | | | 548,996 | | | (151,003) | |
Losses | | (28,070) | | | (17,476) | | | (10,594) | |
Net gains | | 369,923 | | | 531,520 | | | (161,597) | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Total | | $ | 839,153 | | | $ | 1,159,731 | | | $ | (320,578) | |
The net change in the unrealized gains on fixed maturity securities between September 30, 20202021 and December 31, 20192020 is primarily attributable to the decreaseincrease in benchmark ten-year interest rates, which were 0.7%1.5% and 1.9%0.9%, respectively. The Company does not currently intend to sell nor does it expect to be required to sell any of the securities in an unrealized loss position.
Liquidity
As a result of the holding company reorganization, ANICO became a wholly owned subsidiary of ANAT. ANAT's source of liquidity is solely derived from dividends received from ANICO.
The primary use of cash has been and is expected to continue to be the payment of policyholder benefits and claims incurred. Current and expected patterns of claim frequency and severity may change from period to period but continue to be within historical norms. Management considers our current liquidity position to be sufficient to meet anticipated demands over the next twelve months.
Our contractual obligations are not expected to have a significant negative impact to cash flows from operations. American National has agreed to pay our financial advisor in connection with the Merger, Citigroup Global Markets Inc. ("Citi"), for its Merger-related services an aggregate fee of $40.0 million, of which $3.0 million was paid upon delivery of Citi’s opinion related to the Merger on August 6, 2021 and the remaining $37.0 million is payable contingent upon consummation of the Merger, which has not been reflected in the condensed consolidated statement of operations. In addition, the Company agreed to reimburse Citi for expenses, including fees and expenses of counsel, and to indemnify Citi and related parties against certain liabilities, including liabilities under federal securities laws, arising from Citi’s engagement.
In April 2020, the Company borrowed $500$500.0 million from the Federal Home Loan Bank of Dallas' COVID-19 Relief Advance Program. OneAs of September 30, 2021, there are no advances outstanding; the final 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 fullrepaid on its maturity date of October 13, 2020.
We are monitoring ourApril 28, 2021. The available liquidity needs closely. Should the Company require additional liquidity, deposits of certain securities and mortgage loans under the Company's membership withthrough the FHLB provideat September 30, 2021 was approximately $816 million of additional available credit to us as of October 28, 2020.$990.6 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 mostall states. At this time, however, our liquidity requirements have been and are expected to continue to be met by funds from operations.
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$100.0 million over a three year period beginning in 2021. To date, the economic disruption2022; however, current uncertainties relating to the COVID-19 pandemic has nothave caused the Companyus to lower or delay anticipated spending on capital investment projects.this project at this time. There are no other unusually large capital expenditures expected in the next 12-24 months.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
We have consistently paid dividends to our stockholders for over 110 consecutive years and expect to continue this trend.tradition prior to the completion of the Merger. 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 disruptionsuncertainties relating to the COVID-19 pandemic could still significantly impact one or more of these items.
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, weWe believe our portfolio of highly liquid bonds, available-for-sale includinginvestment securities, and equity securities, iscoupled with our ability to borrow funds through the FHLB, are sufficient to meet future liquidity needs as necessary.
As a result of the economic disruption caused byimpact associated with COVID-19, weAmerican National modified 9293 loans with a total balance of $1.6 billion.billion during the second and third quarters of 2020. These modifications primarily related to hotels, retail and parking operations. The termswere in the form 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 ofprovisions for interest only payments. The modifications were primarily related to our loans to hotels, retail and parking operations. Due to the ongoing economic stress brought on by the pandemic, additional modifications for 33 of these loans with a total balance of $739.7 million were made during 2021. These additional modifications extended the forbearance of principal and interest payments and interest only provisions with a requirement for the payment of at least 20% of the total interest due during the extended modification period. The modified loans had an aggregate deferred interest of $8.0 million as of September 30, 2021. As of September 30, 2021, a total of 74 loans with a recorded investment of $1.4 billion were designated a troubled debt restructure. There are no commitments to lend additional funds to debtors whose loans have been modified in a troubled debt restructuring during the periods presented. The decrease in loans determined to be a troubled debt restructuring in the nine months ended September 30, 2021 is primarily attributable to improved economic conditions after lifting of COVID-19 related restrictions.
The Company holds collateral of $210.6$234.8 million at September 30, 20202021 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 increaseddecreased from $877.3 million$1.4 billion at December 31, 20192020 to $1.7$1.0 billion at September 30, 2020.2021. The increase in liquiditydecrease primarily relates to an increasea decrease in money market accounts due to the decline in bond purchases.commercial paper.
A downgrade or a potential downgrade in our financial strength ratings could result in a loss of business and could adversely affect our cash flows from operations. A.M. Best has placed American National’s issuer credit and financial strength ratings under review with developing implications and S&P Global Ratings has placed the ratings on CreditWatch with negative implications due to the pending Merger with Brookfield Reinsurance.
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
Capital Resources
Our capital resources are summarized below (in thousands):
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
American National stockholders’ equity, excluding accumulated other comprehensive income (“AOCI”), net of tax | $ | 5,951,801 | | | $ | 5,890,231 | |
Accumulated other comprehensive income | 194,706 | | | 99,518 | |
Total American National stockholders’ equity | $ | 6,146,507 | | | $ | 5,989,749 | |
| | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
American National stockholders’ equity, excluding accumulated other comprehensive income (“AOCI”), net of tax | $ | 6,619,213 | | | $ | 6,236,100 | |
Accumulated other comprehensive income | 127,159 | | | 222,170 | |
Total American National stockholders’ equity | $ | 6,746,372 | | | $ | 6,458,270 | |
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 theseof American National relating to notes payable of the consolidated VIEs is limited to ourthe amount of its direct or indirect investment in the respective ventures, which totaled $3.1 million and $4.3$3.0 million at September 30, 20202021 and December 31, 2019, respectively.
The changes in our capital resources are summarized below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 |
Net income attributable to American National | | $ | 161,153 | | | $ | — | | | $ | 161,153 | | | $ | 620,363 | | | $ | — | | | $ | 620,363 | |
Dividends to shareholders | | (66,140) | | | — | | | (66,140) | | | (88,243) | | | — | | | (88,243) | |
Change in net unrealized gains on debt securities | | — | | | 89,946 | | | 89,946 | | | — | | | 184,156 | | | 184,156 | |
Foreign currency transaction and translation adjustment | | — | | | (214) | | | (214) | | | — | | | 390 | | | 390 | |
Defined benefit pension plan adjustment | | — | | | 5,456 | | | 5,456 | | | — | | | 15,495 | | | 15,495 | |
Cumulative effect of accounting change | | (33,503) | | | — | | | (33,503) | | | 785 | | | (785) | | | — | |
Other | | 60 | | | — | | | 60 | | | 340 | | | — | | | 340 | |
Total | | $ | 61,570 | | | $ | 95,188 | | | $ | 156,758 | | | $ | 533,245 | | | $ | 199,256 | | | $ | 732,501 | |
2020.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
The changes in our capital resources are summarized below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 |
| | Capital and Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total | | Capital and Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total |
Net income attributable to American National | | $ | 449,197 | | | $ | — | | | $ | 449,197 | | | $ | 467,505 | | | $ | — | | | $ | 467,505 | |
Dividends to shareholders | | (66,143) | | | — | | | (66,143) | | | (88,190) | | | — | | | (88,190) | |
Change in net unrealized gains (losses) on debt securities | | — | | | (103,585) | | | (103,585) | | | — | | | 134,315 | | | 134,315 | |
Foreign currency transaction and translation adjustment | | — | | | 122 | | | 122 | | | — | | | 235 | | | 235 | |
Defined benefit pension plan adjustment | | — | | | 8,452 | | | 8,452 | | | — | | | (11,898) | | | (11,898) | |
Cumulative effect of accounting change (1) | | — | | | — | | | — | | | (33,500) | | | — | | | (33,500) | |
Other | | 59 | | | — | | | 59 | | | 54 | | | — | | | 54 | |
Total | | $ | 383,113 | | | $ | (95,011) | | | $ | 288,102 | | | $ | 345,869 | | | $ | 122,652 | | | $ | 468,521 | |
(1) Result of adoption of ASU-2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.
Statutory Capital and Surplus and Risk-based Capital
Statutory capital and surplus is the capital of our insurance companies reported in accordance with accounting practices prescribed or permitted by the applicable state insurance departments. RBC is calculated using formulas applied to certain financial balances and activities that consider, among other things, investment risks related to the type and quality of investments, insurance risks associated with products and liabilities, interest rate risks and general business risks. Insurance companies that do not maintain capital and surplus at a level of at least 200%100% of the authorized controlcompany action level RBC are required to take certain actions. At September 30, 20202021 and December 31, 2019, American National Insurance Company’s2020, ANICO’s statutory capital and surplus was $3,488,293,000$3.7 billion and $3,477,727,000,$3.6 billion, respectively. American National Insurance CompanyANICO and each of itsour other insurance subsidiaries had statutory capital and surplus at September 30, 20202021 and December 31, 20192020 above 200% of the authorized controlcompany action level, except for ANPAC Louisiana Insurance Company ("ANPLA").
At September 30, 2021 and December 31, 2020, ANPLA's statutory capital and surplus was $42.1 million and $68.5 million respectively, which resulted in an RBC level of 119% and 194% of the company action level. This decrease in RBC of ANPLA is primarily driven by an increase in homeowners catastrophe losses impacting the operating results in 2021 and 2020. We are actively managing our homeowners exposure in ANPLA and will be addressing rate adequacy through future planned underwriting and rate actions.
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, 2019.2020. We expect to have the capacity to pay our obligations as they come due.
At 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 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.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risk has not changed materially from those disclosedthe description in our 20192020 Annual Report on form 10-K filed with the SEC on February 28, 2020,March 4, 2021, 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.
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 September 30, 2020.2021. Based upon that evaluation and subject to the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2020,2021, 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 September 30, 20202021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information required for Item 1, Financial Statements, 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
Please see the "Factors Relating to the Proposed Transaction with Brookfield Reinsurance" in the "Introductory Note Regarding Pending Merger" at the beginning of Item 2 above. There have been no other material changes to the "Risk Factors"Risk Factors discussion in Item 1A of our 20192020 Form 10-K filed with the SEC on February 28, 2020, as supplemented by the "Risk Factors" discussion in Part II, Item 1A of our Form 10-Q for the period ending June 30, 2020, filed with the SEC on August 5, 2020.
March 4, 2021.
| | | | | | | | |
Exhibit Number | | Description |
| |
2.1 | | Agreement and Plan of Merger, dated February 11, 2020, among American National Insurance Company, a Texas insurance company ("ANICO"), American National Group, Inc., a Delaware corporation ("ANAT"), and AN MergerCo., Inc., a Texas corporation (incorporated by reference to Annex I to the Proxy Statement/Prospectus filed on March 25, 2020). |
| | |
2.2 | | |
| | |
3.1 | | |
| |
3.2 | | |
| | |
3.3 | | |
| | |
3.4 | | |
| | |
10.1110.1* | | |
| |
| | |
| | |
31.1 | | |
| |
31.2 | | |
| |
32.1 | | |
| |
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.
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. WalshBrody J. Merrill |
Name: | | Timothy A.WalshBrody J. Merrill |
Title: | | ExecutiveSenior Vice President, CFO,Chief Financial Officer and Treasurer and ML and P&C Operations |
Date: November 4, 20202021