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ANAT American National

Filed: 6 May 21, 2:04pm
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 March 31, 2021
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File No. 001-39369
anat-20210331_g1.jpg
American National Group, Inc.
(Exact name of registrant as specified in its charter)
 

Delaware30-1221711
(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 SymbolName of Each Exchange on which Registered
Common Stock, par value $0.01ANATNASDAQ
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 April 29, 2021, there were 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



2

AMERICAN NATIONAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
(In thousands, except share data)

March 31, 2021December 31, 2020
ASSETS
Fixed maturity, bonds held-to-maturity, at amortized cost, net of allowance for credit losses of $18,854 in 2021 and $12,442 in 2020 (Fair value $7,908,767 in 2021 and $7,983,181 in 2020)$7,475,862 $7,354,970 
Fixed maturity, bonds available-for-sale, at fair value (Allowance for credit losses of $8,716 in 2021 and $7,482 in 2020) (Amortized cost $7,046,940 in 2021 and $7,073,142 in 2020)7,397,792 7,597,180 
Equity securities, at fair value (Cost $777,796 in 2021 and $754,625 in 2020)2,164,146 2,070,766 
Mortgage loans on real estate, net of allowance for credit losses of $126,588 in 2021 and $125,703 in 20205,141,094 5,242,531 
Policy loans369,525 373,014 
Real estate and real estate partnerships, net of accumulated depreciation of $270,770 in 2021 and $269,626 in 2020938,189 960,572 
Investment funds523,225 477,135 
Short-term investments1,212,342 1,028,379 
Other invested assets94,316 94,415 
Total investments25,316,491 25,198,962 
Cash and cash equivalents459,087 339,947 
Accrued investment income213,760 216,389 
Reinsurance recoverables, net of allowance for credit losses of $14,390 in 2021 and $14,353 in 2020444,286 414,359 
Prepaid reinsurance premiums40,807 42,804 
Premiums due and other receivables373,136 351,972 
Deferred policy acquisition costs1,421,900 1,360,211 
Property and equipment, net of accumulated depreciation of $287,615 in 2021 and $281,738 in 2020125,810 121,578 
Prepaid pension84,089 80,526 
Other assets162,701 155,600 
Separate account assets1,207,754 1,185,467 
Total assets$29,849,821 $29,467,815 
LIABILITIES
Future policy benefits
Life$3,149,000 $3,149,067 
Annuity1,621,258 1,617,774 
Health48,812 49,658 
Policyholders’ account balances12,960,532 12,812,155 
Policy and contract claims1,637,130 1,575,288 
Unearned premium reserve979,302 956,343 
Other policyholder funds355,898 358,601 
Liability for retirement benefits65,704 70,254 
Notes payable152,607 153,703 
Deferred tax liabilities, net478,469 478,347 
Current tax payable24,499 10,372 
Federal Home Loan Bank advance250,000 250,000 
Other liabilities407,377 335,219 
Separate account liabilities1,207,754 1,185,467 
Total liabilities23,338,342 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 2020269 269 
Additional paid-in capital47,702 47,683 
Accumulated other comprehensive income119,959 222,170 
Retained earnings6,336,273 6,188,148 
Total American National stockholders’ equity6,504,203 6,458,270 
Noncontrolling interest7,276 7,297 
Total stockholders' equity6,511,479 6,465,567 
Total liabilities and stockholders' equity$29,849,821 $29,467,815 
See accompanying notes to the unaudited condensed consolidated financial statements.

3

AMERICAN NATIONAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except share and per share data)

 Three months ended March 31,
 20212020
PREMIUMS AND OTHER REVENUES
Premiums
Life$100,779 $89,516 
Annuity24,241 15,509 
Health38,228 43,086 
Property and casualty399,405 388,657 
Other policy revenues86,539 79,605 
Net investment income269,981 130,991 
Net realized investment gains19,239 4,148 
Change in investment credit loss(5,486)(44,678)
Net gains (losses) on equity securities95,940 (332,575)
Other income9,752 11,133 
Total premiums and other revenues1,038,618 385,392 
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits
Life146,160 110,466 
Annuity44,717 34,802 
Claims incurred
Health24,251 34,885 
Property and casualty244,135 229,709 
Interest credited to policyholders’ account balances107,787 (4,323)
Commissions for acquiring and servicing policies153,685 130,435 
Other operating expenses133,502 133,926 
Change in deferred policy acquisition costs(28,119)(1,672)
Total benefits, losses and expenses826,118 668,228 
Income (loss) before federal income tax and other items212,500 (282,836)
Less: Provision (benefit) for federal income taxes
Current16,130 24,503 
Deferred27,041 (86,171)
Total provision (benefit) for federal income taxes43,171 (61,668)
Income (loss) after federal income tax169,329 (221,168)
Other components of net periodic pension benefit, net of tax944 571 
Net income (loss)170,273 (220,597)
Less: Net income (loss) attributable to noncontrolling interest, net of tax100 (153)
Net income (loss) attributable to American National$170,173 $(220,444)
Amounts available to American National common stockholders
Earnings (losses) per share
Basic$6.33 $(8.20)
Diluted6.33 (8.20)
Weighted average common shares outstanding26,877,200 26,881,700 
Weighted average common shares outstanding and dilutive potential common shares26,884,899 26,891,675 
See accompanying notes to the unaudited condensed consolidated financial statements.

4

AMERICAN NATIONAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(In thousands)

 Three months ended March 31,
 20212020
Net income (loss)$170,273 $(220,597)
Other comprehensive income (loss), net of tax
  Change in net unrealized losses on securities(106,264)(112,403)
  Foreign currency transaction and translation adjustments244 (924)
  Defined benefit pension plan adjustment3,809 1,756 
Total other comprehensive loss, net of tax(102,211)(111,571)
Total comprehensive income (loss)68,062 (332,168)
Less: Comprehensive income (loss) attributable to noncontrolling interest100 (153)
Total comprehensive income (loss) attributable to American National$67,962 $(332,015)
See accompanying notes to the unaudited condensed consolidated financial statements.


5

AMERICAN NATIONAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)
(In thousands, except per share data)

 Common Stock*Additional Paid-In CapitalAccumulated Other Comprehensive Income (Loss)Retained EarningsNoncontrolling InterestTotal 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 
*Refer to Note 1 - Nature of Operations for more information on changes in Common Stock and Treasury Stock resulting from the Company's reorganization effective July 1, 2020.
 Common StockAdditional Paid-In CapitalAccumulated Other Comprehensive Income (Loss)Retained EarningsTreasury StockNoncontrolling InterestTotal 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 
See accompanying notes to the unaudited condensed consolidated financial statements.

6



AMERICAN NATIONAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
 Three months ended March 31,
 20212020
OPERATING ACTIVITIES
Net income (loss)$170,273 $(220,597)
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized investment gains(19,239)(4,148)
Change in investment credit loss5,486 44,678 
Accretion of premiums, discounts and loan origination fees2,991 1,845 
Net capitalized interest on policy loans and mortgage loans(8,969)(6,351)
Depreciation12,688 12,614 
Fair value of option securities(28,827)108,095 
Fair value of equity securities(95,940)332,575 
Interest credited to policyholders’ account balances107,787 (4,323)
Charges to policyholders’ account balances(86,539)(79,605)
Deferred federal income tax expense27,041 (86,171)
Income from equity method investments(23,161)(15,707)
Distributions from unconsolidated affiliates17,605 27,246 
Changes in:
Policyholder liabilities130,675 (4,203)
Deferred policy acquisition costs(28,119)(1,672)
Reinsurance recoverables(29,927)6,207 
Premiums due and other receivables(21,164)(35,858)
Prepaid reinsurance premiums1,997 5,862 
Accrued investment income2,629 8,604 
Current tax payable14,127 22,392 
Liability for retirement benefits(3,291)(2,879)
Other, net1,313 3,447 
    Net cash provided by operating activities149,436 112,051 
INVESTING ACTIVITIES
Proceeds from sale/maturity/prepayment of:
Held-to-maturity securities446,616 360,849 
Available-for-sale securities249,726 274,697 
Equity securities35,383 27,620 
Real estate and real estate partnerships11,119 964 
Mortgage loans267,290 105,964 
Policy loans15,106 12,414 
Other invested assets38,231 32,609 
Disposals of property and equipment11 
Distributions from real estate and real estate partnerships40,846 3,994 
Distributions from investment funds30,557 7,717 
Payment for the purchase/origination of:
Held-to-maturity securities(560,406)(345,112)
Available-for-sale securities(210,290)(250,954)
Equity securities(32,845)(34,350)
Real estate and real estate partnerships(2,910)(3,361)
Mortgage loans(157,027)(166,933)
Policy loans(5,090)(6,520)
Other invested assets(22,441)(10,192)
Additions to property and equipment(9,914)(5,354)
Contributions to real estate and real estate partnerships(28,092)(24,933)
Contributions to investment funds(66,589)(57,132)
Change in short-term investments(183,963)6,439 
Change in collateral held for derivatives13,136 (128,078)
Other, net(2,356)4,400 
    Net cash used in investing activities(133,902)(195,252)

7



AMERICAN NATIONAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
(In thousands)

Three months ended March 31,
20212020
FINANCING ACTIVITIES
Policyholders’ account deposits450,984 294,297 
Policyholders’ account withdrawals(323,854)(310,921)
Change in notes payable(1,096)(1,054)
Dividends to stockholders(22,048)(22,047)
Payments to noncontrolling interest(380)(323)
    Net cash provided by (used in) financing activities103,606 (40,048)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS119,140 (123,249)
Cash and cash equivalents at beginning of the period339,947 452,001 
Cash and cash equivalents at end of the period$459,087 $328,752 
Supplemental cash flow information:
Interest paid$218 $21 
Income taxes paid, net18 
See accompanying notes to the unaudited condensed consolidated financial statements.

8


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”), 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. 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.

Note 2 – Summary of Significant Accounting Policies and Practices

The condensed consolidated financial statements and notes thereto have been prepared in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) and are reported in U.S. currency. American National consolidates entities that are wholly-owned and those in which American National owns less than 100% but controls the voting rights, as well as variable interest entities in which American National is the primary beneficiary. Intercompany balances and transactions with consolidated entities have been eliminated. Investments in unconsolidated affiliates are accounted for using the equity method of accounting. Changes in prior period presentation were made to conform to the current period presentation.

We reclassified the Company's earnings from equity method investments in the condensed consolidated statements of operations from "Equity in earnings of unconsolidated affiliates" to "Net investment income." For the three months ended March 31, 2020, $15.7 million was reclassified, with no impact to net income. We also reclassified the related asset balances in the 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 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, 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.



9


Note 3 – Recently Issued Accounting Pronouncements
Adoption of New Accounting Standards

StandardDescriptionEffective Date and Method of AdoptionImpact on Financial Statements
ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income TaxesThe amendments simplify the accounting for income taxes by removing certain exceptions in the existing guidance including those related to intra-period tax allocation when there is a loss from continuing operations and income or a gain from other items. The amendments require that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax as well as other minor changes.This standard became effective for the Company for all annual and interim periods beginning January 1, 2021. The new guidance specifies which amendments should be applied prospectively, retrospective to all periods presented or on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption.The adoption of this standard did not have a material impact to the Company's Condensed Consolidated Financial Statements or Notes to the Condensed Consolidated Financial Statements.

0Future Adoption of New Accounting Standards—The FASB issued the following accounting guidance relevant to American National:

StandardDescriptionEffective Date and Method of AdoptionImpact on Financial Statements
ASU 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration ContractsThe 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 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 ReportingThe amendments in this guidance provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The guidance only applies to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.The amendments in this guidance are effective for all entities as of March 12, 2020 and will sunset through December 31, 2022, at which time the application of exceptions and optional expedients will no longer be permitted.The inventory of LIBOR exposures has been completed and is primarily limited to floating rate bonds, alternative investments, and borrowings within joint venture investments. Some of the contracts included in these categories will mature prior to December 31, 2021, the start of LIBOR rates cessations. The transition from LIBOR is expected to result in an immaterial impact to the Company.


10


Note 4 – Investment in Securities
The cost or amortized cost and fair value of investments in securities are shown below (in thousands):

 March 31, 2021
 Cost or Amortized CostGross Unrealized GainsGross Unrealized (Losses)Allowance for Credit LossesFair Value
Fixed maturity, bonds held-to-maturity
U.S. treasury and government$11,478 $$(181)$$11,297 
U.S. states and political subdivisions114,154 3,186 (3,669)113,671 
Foreign governments14,468 313 (296)14,485 
Corporate debt securities7,128,893 458,923 (35,626)(11,793)7,540,397 
Residential mortgage-backed securities81,778 4,546 (836)(542)84,946 
Collateralized debt securities143,945 7,220 (675)(6,519)143,971 
         Total bonds held-to-maturity7,494,716 474,188 (41,283)(18,854)7,908,767 
Fixed maturity, bonds available-for-sale
U.S. treasury and government25,088 298 (30)(3)25,353 
U.S. states and political subdivisions1,054,322 58,630 (4,416)1,108,536 
Foreign governments14,999 1,182 16,181 
Corporate debt securities5,868,891 344,930 (42,162)(8,008)6,163,651 
Residential mortgage-backed securities19,048 675 (8)(198)19,517 
Collateralized debt securities64,592 671 (202)(507)64,554 
         Total bonds available-for-sale7,046,940 406,386 (46,818)(8,716)7,397,792 
Total investments in fixed maturity$14,541,656 $880,574 $(88,101)$(27,570)$15,306,559 

 December 31, 2020
 Cost or Amortized CostGross Unrealized GainsGross Unrealized (Losses)Allowance for Credit LossesFair Value
Fixed maturity, bonds held-to-maturity
U.S. treasury and government$7,733 $11 $$$7,744 
U.S. states and political subdivisions109,445 4,101 (11)113,535 
Foreign governments3,851 374 4,225 
Corporate debt securities6,992,095 623,233 (9,117)(7,475)7,598,736 
Residential mortgage-backed securities114,579 5,065 (1,464)(452)117,728 
Collateralized debt securities139,709 6,864 (845)(4,515)141,213 
         Total bonds held-to-maturity7,367,412 639,648 (11,437)(12,442)7,983,181 
Fixed maturity, bonds available-for-sale
U.S. treasury and government28,766 418 (1)29,183 
U.S. states and political subdivisions1,066,627 73,976 (145)1,140,458 
Foreign governments14,995 1,393 16,388 
Corporate debt securities5,887,756 471,205 (17,207)(7,275)6,334,479 
Residential mortgage-backed securities20,544 964 (29)(188)21,291 
Collateralized debt securities54,454 1,040 (94)(19)55,381 
         Total bonds available-for-sale7,073,142 548,996 (17,476)(7,482)7,597,180 
Total investments in fixed maturity$14,440,554 $1,188,644 $(28,913)$(19,924)$15,580,361 


11


Note 4 – Investment in Securities – (Continued)
The amortized cost and fair value, by contractual maturity, of fixed maturity securities are shown below (in thousands):

 March 31, 2021
 Bonds Held-to-MaturityBonds Available-for-Sale
 Amortized CostFair ValueAmortized CostFair Value
Due in one year or less$553,460 $561,970 $371,354 $374,859 
Due after one year through five years2,833,579 3,020,077 3,253,114 3,456,068 
Due after five years through ten years3,026,464 3,231,420 2,309,455 2,442,852 
Due after ten years1,081,213 1,095,300 1,113,017 1,124,013 
Total$7,494,716 $7,908,767 $7,046,940 $7,397,792 

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 March 31,
 20212020
Proceeds from sales of fixed maturity, bonds available-for-sale$11,650 $46,513 
Gross realized gains412 
Gross realized losses(4,072)

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 three months ended March 31, 2021 and 2020.

In accordance with various regulations, American National has bonds on deposit with regulating authorities with a carrying value of $47.1 million and $47.7 million at March 31, 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 $97.2 million and $111.0 million at March 31, 2021 and December 31, 2020, respectively.

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

 Three months ended March 31,
 20212020
Bonds available-for-sale: change in unrealized losses$(171,952)$(244,361)
Adjustments for
Deferred policy acquisition costs33,570 89,326 
Participating policyholders’ interest4,322 11,151 
Deferred federal income tax benefit27,796 31,481 
Change in net unrealized losses on debt securities, net of tax$(106,264)$(112,403)

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

 Three months ended March 31,
 20212020
Unrealized gains (losses) on equity securities$96,766 $(333,601)
Net gains (losses) on equity securities sold(826)1,026 
Net gains (losses) on equity securities$95,940 $(332,575)




12


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):

 March 31, 2021
 Less than 12 months12 months or moreTotal
 Number of IssuesGross Unrealized (Losses)Fair ValueNumber of IssuesGross Unrealized (Losses)Fair ValueNumber of IssuesGross Unrealized (Losses)Fair Value
Fixed maturity, bonds available-for-sale
U.S. treasury and government$(30)$12,353 $$$(30)$12,353 
U.S. states and political subdivisions19 (4,416)83,704 19 (4,416)83,704 
Corporate debt securities128 (31,727)738,969 16 (10,435)54,603 144 (42,162)793,572 
Residential mortgage-backed securities(1)245 (7)566 (8)811 
Collateralized debt securities(200)39,113 (2)156 (202)39,269 
Total161 $(36,374)$874,384 20 $(10,444)$55,325 181 $(46,818)$929,709 

December 31, 2020
 Less than 12 months12 months or moreTotal
 Number of IssuesGross Unrealized (Losses)Fair ValueNumber of IssuesGross Unrealized (Losses)Fair ValueNumber of IssuesGross Unrealized (Losses)Fair Value
Fixed maturity, bonds available-for-sale
U.S. treasury and government$(1)$2,868 $$$(1)$2,868 
U.S. states and political subdivisions(145)10,205 (145)10,205 
Corporate debt securities43 (8,507)270,249 (8,700)13,270 51 (17,207)283,519 
Residential mortgage-backed securities(21)1,391 (8)593 (29)1,984 
Collateralized debt securities(93)12,752 (1)158 (94)12,910 
Total50 $(8,767)$297,465 12 $(8,709)$14,021 62 $(17,476)$311,486 

Unrealized losses on bonds available-for-sale where an allowance for credit loss was not recorded were concentrated in the Company's corporate securities within the oil and gas sectors. A number of assumptions and estimates are inherent in evaluating whether an allowance for credit loss is necessary, which include the financial condition, near term and long-term prospects of the issue or issuer, including relevant industry conditions and trends and implications of rating agency actions and offering prices.

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

March 31, 2021December 31, 2020
Consumer goods18.4 %19.3 %
Energy and utilities5.8 5.2 
Finance22.9 21.6 
Healthcare14.5 15.0 
Industrials7.7 7.4 
Information technology26.2 27.1 
Other4.5 4.4 
        Total100.0 %100.0 %


13


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

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

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

No accrued interest receivables were written off as of March 31, 2021.

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

Three months ended March 31, 2021
Foreign GovernmentsCorporate Debt SecuritiesCollateralized Debt SecuritiesResidential Mortgage Backed SecuritiesTotal
Allowance for credit losses
Balance at January 1, 2021$0 $(7,475)$(4,515)$(452)$(12,442)
Purchases(228)(228)
Disposition125 125 
Provision(4,215)(2,004)(90)(6,309)
Balance at March 31, 2021$0 $(11,793)$(6,519)$(542)$(18,854)
Three months ended March 31, 2020
Foreign GovernmentsCorporate Debt SecuritiesCollateralized Debt SecuritiesResidential Mortgage Backed SecuritiesTotal
Allowance for credit losses
Balance at January 1, 2020$4 $(18,563)$(2,968)$(137)$(21,664)
Purchases(622)(323)(945)
Disposition6,901 106 134 7,141 
Provision(6,117)199 (5,917)
Balance at March 31, 2020$5 $(18,401)$(2,986)$(3)$(21,385)



14


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):

Three months ended March 31, 2021
U.S. Treasury and GovernmentCorporate Debt SecuritiesCollateralized Debt SecuritiesResidential Mortgage Backed SecuritiesTotal
Allowance for credit losses
Balance at January 1, 2021$$(7,275)$(19)$(188)$(7,482)
Allowance on securities that had an allowance recorded in a previous period(733)(488)(10)(1,231)
Allowance on securities where credit losses were not previously recorded(3)(3)
Balance at March 31, 2021$(3)$(8,008)$(507)$(198)$(8,716)
Three months ended March 31, 2020
U.S. Treasury and GovernmentCorporate Debt SecuritiesCollateralized Debt SecuritiesResidential Mortgage Backed SecuritiesTotal
Allowance for credit losses
Balance at January 1, 2020$$0 $0 $0 $0 
Allowance on securities that had an allowance recorded in a previous period0 (12,499)(236)(130)(12,865)
Balance at March 31, 2020$0 $(12,499)$(236)$(130)$(12,865)

Credit Quality Indicators

The Company monitors the credit quality of bonds held-to-maturity through the use of credit ratings, which are updated on a monthly basis. The two traditional metrics for assessing interest rate risks are interest-coverage ratios and capitalization ratios, which can also be used in the assessment of credit risk. These risks are fairly mitigated through the diversification of 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):

March 31, 2021
Amortized cost of bonds held-to-maturity by credit rating
Fixed maturity, bonds held-to-maturityAAAAAABBBBB and belowTotal
U.S. treasury and government$$11,478 $$$$11,478 
U.S. state and political subdivisions17,828 55,474 34,325 6,527 114,154 
Foreign governments13,441 1,027 14,468 
Corporate debt securities25,982 337,853 3,210,816 3,455,649 98,593 7,128,893 
Collateralized debt securities105,327 33,580 5,038 143,945 
Residential mortgage backed securities80,268 1,510 81,778 
Total$43,810 $498,514 $3,351,495 $3,489,229 $111,668 $7,494,716 

December 31, 2020
Amortized cost of bonds held-to-maturity by credit rating
Fixed maturity, bonds held-to-maturityAAAAAABBBBB and belowTotal
U.S. treasury and government$$7,733 $$$$7,733 
U.S. state and political subdivisions25,831 43,964 34,893 4,757 109,445 
Foreign governments2,820 1,031 3,851 
Corporate debt securities1,956 262,830 2,976,571 3,647,496 103,242 6,992,095 
Collateralized debt securities107,795 31,914 139,709 
Residential mortgage backed securities112,995 1,584 114,579 
Total$27,787 $430,342 $3,120,290 $3,679,410 $109,583 $7,367,412 


15


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):

March 31, 2021December 31, 2020
AmountPercentageAmountPercentage
East North Central$741,253 14.4 %$783,614 14.9 %
East South Central140,020 2.7 146,052 2.8 
Mountain1,324,391 25.8 1,284,555 24.5 
Pacific785,654 15.3 806,426 15.4 
South Atlantic574,516 11.2 619,405 11.8 
West South Central1,278,061 24.9 1,313,848 25.1 
Other297,199 5.7 288,631 5.5 
Total$5,141,094 100.0 %$5,242,531 100.0 %

As of March 31, 2021 and December 31, 2020, loans in foreclosure and loans foreclosed are as follows (in thousands, except number of loans):

March 31, 2021December 31, 2020
Foreclosure and foreclosedNumber of LoansRecorded InvestmentNumber of LoansRecorded Investment
In foreclosure$5,168 $5,168 
Filed for bankruptcy*9,230 9,230 
Total in foreclosure2 $14,398 2 $14,398 
Foreclosed0 $0 2$8,603 
*Borrower filed for bankruptcy after foreclosure proceedings had begun.

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

 30-59 Days Past Due60-89 Days Past DueMore Than 90 Days Past DueTotalCurrentTotal
March 31, 2021AmountPercentage
Apartment$$$$$552,091 $552,091 10.5 %
Hotel101,432 101,432 791,927 893,359 17.0 
Industrial5,168 5,168 831,194 836,362 15.9 
Office9,803 9,230 19,033 1,524,777 1,543,810 29.3 
Parking363,737 363,737 6.9 
Retail74,004 74,004 709,392 783,396 14.9 
Storage152,488 152,488 2.9 
Other142,439 142,439 2.6 
Total$185,239 $0 $14,398 $199,637 $5,068,045 $5,267,682 100.0 %
Allowance for credit losses(126,588)
Total, net of allowance$5,141,094 
December 31, 2020
Apartment$$$$$557,159 $557,159 10.5 %
Hotel30,315 30,158 60,473 853,522 913,995 17.0 
Industrial14,930 5,168 20,098 836,105 856,203 15.9 
Office24,804 9,230 34,034 1,522,197 1,556,231 29.0 
Parking48,825 29,355 78,180 286,107 364,287 6.8 
Retail4,991 25,779 30,770 760,907 791,677 14.7 
Storage165,561 165,561 3.1 
Other163,121 163,121 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 
16


Note 5 – Mortgage Loans – (Continued)
As a result of the economic impact associated with COVID-19, American National originally granted 93 loan modifications during the second and third quarters of 2020 with a total balance of $1.6 billion in the form of forbearance of principal and interest payments for up to six months, extensions of maturity dates, and/or provisions for interest only payments. Modifications were primarily related to our loans to hotels, retail and parking operations. Due to the ongoing economic stress brought on by the pandemic, we made additional modifications in the first quarter of 2021 for 24 of these loans with a total balance of $633.6 million which extended the forbearance of principal and interest payments and interest only provisions but also included 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 $17.0 million as of March 31, 2021.
There were 0 unamortized purchase discounts as of March 31, 2021 and December 31, 2020. Total mortgage loans were net of unamortized origination fees of $24.0 million and $26.1 million at March 31, 2021 and December 31, 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 not change significantly, or may increase if the expected recovery is higher than the pre-modification recovery assessment. Loan modifications executed due to COVID-19 resulting in a total delay of more than six months were evaluated for troubled debt restructured status under current GAAP guidance.

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

Three months ended March 31,
20212020
Number of LoansRecorded Investment Pre-ModificationRecorded Investment Post ModificationNumber of LoansRecorded Investment Pre- ModificationRecorded Investment Post Modification
Office$14,660 $14,660 $$
Retail28,234 28,234 
Parking9,730 9,730 
Storage8,937 8,937 
Total6 $61,561 $61,561 0 $0 $0 

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.

There were 6 loans determined to be a troubled debt restructuring for the three months ended March 31, 2021. There are $2.7 million of commitments to lend additional funds to debtors whose loans have been modified in a troubled debt restructuring during the periods presented. The increase in loans determined to be a troubled debt restructuring in the three months ended March 31, 2021 is primarily attributable to COVID-19 related loan modifications where the concessions granted were in excess of six-months in duration.


17


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 credit losses is based upon the current expected credit loss model. The model considers past loss experience, current economic conditions, and reasonable and supportable forecasts of future conditions. Reversion for the allowance calculation is implicit in the models used to determine the allowance. The methodology uses a discounted cash flow approach based on expected cash flows.

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

Commercial Mortgage Loans
Balance at January 1, 2021$(125,703)
Provision(885)
Balance at March 31, 2021$(126,588)
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)

The change in allowance for the three months ended March 31, 2021 was primarily driven by distress in the hospitality industry which has seen a dramatic increase in loss results as the individual markets are now expected to rebound more slowly than previously anticipated. This is partially offset; however, by a more optimistic outlook for the industrial, office and retail sectors as they are expected to more directly benefit from the general re-opening of the economy, access to vaccines and approval of the "American Rescue Plan Act."

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

March 31, 2021December 31, 2020
Asset BalanceAllowanceAsset BalanceAllowance
Apartment$552,091 $(6,195)$557,159 $(8,845)
Hotel893,359 (53,075)913,995 (45,596)
Industrial836,362 (3,337)856,203 (2,516)
Office1,543,810 (25,753)1,556,231 (33,373)
Parking363,737 (21,583)364,287 (18,178)
Retail783,396 (12,725)791,677 (10,856)
Storage152,488 (1,697)165,561 (2,509)
Other142,439 (2,223)163,121 (3,830)
Total$5,267,682 $(126,588)$5,368,234 $(125,703)


18


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 property-type as it represents the most similar and reliable risk characteristics in our portfolio. The amortized cost of mortgage loans by year of origination by property-type are shown below (in thousands):

Amortized Cost Basis by Origination Year
20212020201920182017PriorTotal
Apartment$$48,092 $218,763 $48,323 $160,068 $76,845 $552,091 
Hotel20,415 69,492 204,080 219,713 379,659 893,359 
Industrial40,891 251,592 157,235 114,493 46,912 225,239 836,362 
Office2,111 31,803 60,469 199,646 341,820 907,961 1,543,810 
Parking28,672 13,795 27,153 8,600 285,517 363,737 
Retail2,562 69,245 38,942 96,819 79,723 496,105 783,396 
Storage23,156 58,734 44,566 17,095 8,937 152,488 
Other21,612 69,087 2,236 49,504 142,439 
Total$45,564 $472,975 $639,042 $804,167 $876,167 $2,429,767 $5,267,682 
Allowance for credit losses(126,588)
Total, net of allowance$5,141,094 
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 March 31, 2021, commercial loans of $14.4 million were past due over 90 days and are in non-accrual status.

Off-Balance Sheet Credit Exposures

The Company has off-balance sheet credit exposures related to non-cancellable unfunded commitment amounts on commercial mortgage loans. We estimate the allowance for these exposures by applying the allowance rate we computed for each property type to the related outstanding commitment amounts. As of March 31, 2021, we have included a $8.8 million liability in other liabilities on the condensed consolidated statements of financial position based on unfunded loan commitments of $549.7 million.

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):

March 31, 2021December 31, 2020
AmountPercentageAmountPercentage
Hotel$61,415 6.6 %$67,857 7.1 %
Industrial119,122 12.7 132,757 13.8 
Land49,725 5.3 51,220 5.3 
Office297,756 31.7 299,500 31.2 
Retail268,224 28.6 268,588 28.0 
Apartments123,275 13.1 120,847 12.6 
Other18,672 2.0 19,803 2.0 
Total$938,189 100.0 %$960,572 100.0 %

19


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


 March 31, 2021December 31, 2020
AmountPercentageAmountPercentage
East North Central$96,423 10.3 %$81,310 8.5 %
East South Central62,708 6.7 65,302 6.8 
Mountain134,988 14.4 133,233 13.9 
Pacific113,026 12.0 127,421 13.3 
South Atlantic90,755 9.7 97,801 10.1 
West South Central430,015 45.8 434,722 45.3 
Other10,274 1.1 20,783 2.1 
Total$938,189 100.0 %$960,572 100.0 %

As of March 31, 2021, 0 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-parties that may affect the fair value or risk of its variable interest in the VIEs in 2021 or 2020.

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

March 31, 2021December 31, 2020
Real estate and real estate partnerships$130,448 $131,405 
Short-term investments500 500 
Cash and cash equivalents6,925 8,070 
Premiums due and other receivables3,563 3,484 
Other assets14,128 13,796 
Total assets of consolidated VIEs$155,564 $157,255 
Notes payable$152,607 $153,703 
Other liabilities8,935 8,490 
Total liabilities of consolidated VIEs$161,542 $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 $2.9 million and $3.0 million at March 31, 2021 and December 31, 2020, respectively.

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

Interest rateMaturityMarch 31, 2021December 31, 2020
LIBOR2021$10,819 $10,819 
4% fixed202277,759 78,565 
4.18% fixed202464,029 64,319 
Total$152,607 $153,703 


20


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):

 March 31, 2021December 31, 2020
 Carrying AmountMaximum Exposure to LossCarrying AmountMaximum Exposure to Loss
Real estate and real estate partnerships$349,073 $349,073 $368,588 $368,588 
Mortgage loans on real estate691,488 691,488 722,917 722,917 
Accrued investment income4,692 4,692 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 LLC’s or limited partnerships, was comprised of $523.2 million and $477.1 million in 2021 and 2020 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 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 InstrumentsLocation in the Condensed Consolidated Statements of Financial PositionMarch 31, 2021December 31, 2020
Number of InstrumentsNotional AmountsEstimated Fair ValueNumber of InstrumentsNotional AmountsEstimated Fair Value
Equity-indexed optionsOther invested assets452 $3,013,400 $253,363 455 $2,867,600 $242,201 
Equity-indexed embedded derivativePolicyholders’ account balances115,235 2,909,609 740,514 112,103 2,748,540 705,013 

Derivatives Not Designated as Hedging InstrumentsLocation in the Condensed Consolidated Statements of OperationsGains (Losses) Recognized in Income on Derivatives
Three months ended March 31,
20212020
Equity-indexed optionsNet investment income$28,827 $(108,095)
Equity-indexed embedded derivativeInterest credited to policyholders’ account balances(26,689)89,581 

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.


21


Note 7 – Derivative Instruments – (Continued)
Information regarding the Company’s exposure to credit loss on the options it holds is presented below (in thousands):

  March 31, 2021
CounterpartyMoody/S&P RatingOptions Fair ValueCollateral Held in CashCollateral Held in Invested AssetsTotal Collateral HeldCollateral Amounts used to Offset ExposureExcess CollateralExposure Net of Collateral
BarclaysBaa2/BBB$54,613 $36,563 $18,100 $54,663 $54,613 $50 $
Credit SuisseBaa1/BBB+13,416 12,580 12,580 12,580 836 
Goldman-SachsA2/BBB+1,285 1,170 1,170 1,170 115 
INGBaa1/A-19,568 9,220 10,300 19,520 19,520 48 
Morgan StanleyA1/BBB+50,800 44,526 5,700 50,226 50,226 574 
NATIXIS*A1/A+29,198 29,500 29,500 29,198 302 
TruistA3/A-44,698 33,810 11,000 44,810 44,698 112 
Wells FargoA2/BBB+39,785 29,580 9,900 39,480 39,480 305 
       Total$253,363 $196,949 $55,000 $251,949 $251,485 $464 $1,878 


  December 31, 2020
CounterpartyMoody/S&P RatingOptions Fair ValueCollateral Held in CashCollateral Held in Invested AssetsTotal Collateral HeldCollateral Amounts used to Offset ExposureExcess CollateralExposure Net of Collateral
BarclaysBaa2/BBB$51,489 $31,513 $18,100 $49,613 $49,613 $$1,876 
Credit SuisseBaa1/BBB+9,447 8,680 8,680 8,680 767 
Goldman-SachsA3/BBB+1,227 1,170 1,170 1,170 57 
INGBaa1/A-20,606 10,450 10,300 20,750 20,606 144 
Morgan StanleyA2/BBB+37,406 30,616 5,700 36,316 36,316 1,090 
NATIXIS*A1/A+30,567 30,720 30,720 30,567 153 
TruistA3/A-52,127 43,960 11,000 54,960 52,127 2,833 
Wells FargoA2/BBB+39,332 29,370 9,900 39,270 39,270 62 
       Total$242,201 $186,479 $55,000 $241,479 $238,349 $3,130 $3,852 
*Collateral is prohibited from being held in invested assets.

22


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


Net investment income (loss) is shown below (in thousands):

 Three months ended March 31,
 20212020
Bonds$130,497 $146,119 
Equity securities7,493 7,847 
Mortgage loans70,866 59,328 
Real estate and real estate partnerships3,485 12,487 
Investment funds21,356 4,933 
Equity-indexed options28,827 (108,095)
Other invested assets7,457 8,372 
Total$269,981 $130,991 


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

 Three months ended March 31,
 20212020
Bonds$7,699 $5,478 
Real estate11,193 (1,307)
Other invested assets347 (23)
Total$19,239 $4,148 

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

Three months ended March 31,
20212020
Sales$12,898 $(3,618)
Calls and maturities7,260 9,120 
Paydowns439 19 
Impairments(1,265)(1,276)
Other(93)(97)
Total$19,239 $4,148 

23


Note 9 – Fair Value of Financial Instruments

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

 March 31, 2021December 31, 2020
Carrying AmountFair ValueCarrying AmountFair Value
Financial assets
Fixed maturity, bonds held-to-maturity$7,475,862 $7,908,767 $7,354,970 $7,983,181 
      Fixed maturity, bonds available-for-sale7,397,792 7,397,792 7,597,180 7,597,180 
Equity securities2,164,146 2,164,146 2,070,766 2,070,766 
Equity-indexed options, included in other invested assets253,363 253,363 242,201 242,201 
Mortgage loans on real estate, net of allowance5,141,094 5,264,896 5,242,531 5,451,152 
Policy loans369,525 369,525 373,014 373,014 
Short-term investments1,212,342 1,212,342 1,028,379 1,028,379 
Separate account assets ($1,175,689 and $1,153,702 included in fair value hierarchy)1,207,754 1,207,754 1,185,467 1,185,467 
Separately managed accounts, included in other invested assets66,981 66,981 64,424 64,424 
                Total financial assets$25,288,859 $25,845,566 $25,158,932 $25,995,764 
Financial liabilities
Investment contracts$10,235,015 $10,235,015 $10,101,764 $10,101,764 
Embedded derivative liability for equity-indexed contracts740,514 740,514 705,013 705,013 
Notes payable152,607 152,607 153,703 153,703 
Federal Home Loan Bank advance250,000 250,070 250,000 250,227 
Separate account liabilities ($1,175,689 and $1,153,702 included in fair value hierarchy)1,207,754 1,207,754 1,185,467 1,185,467 
                Total financial liabilities$12,585,890 $12,585,960 $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.


24


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, pricing source quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and economic events. The extent of the use of each market input depends on the asset class and the market conditions. Depending on the security, the priority of the use of inputs may change or some market inputs may not be relevant. For some securities, additional inputs may be necessary.

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

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

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

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

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

25


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. Separate account assets include funds representing the investments of variable insurance product contract holders, who bear the investment risk of such funds. Investment income and investment gains and losses from these separate funds accrue to the benefit of the contract holders. American National reports separately, as assets and liabilities, investments held in such separate accounts and liabilities of the separate accounts if (i) such separate accounts are legally recognized; (ii) assets supporting the contract liabilities are legally insulated from American National’s general account liabilities; (iii) investments are directed by the contract holder; and (iv) all investment performance, net of contract fees and assessments, is passed through to the contract holder. In addition, American National's qualified pension plan assets are included in separate accounts. The assets of these accounts are carried at fair value. Deposits, net investment income and realized investment gains and losses for these accounts are excluded from revenues, and related liability increases are excluded from benefits and expenses in the 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, 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 three months ended March 31, 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 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 March 31, 2021 and December 31, 2020, the one year implied volatility used to estimate embedded derivative value was 15.0% and 17.6%, respectively.

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

 Fair Value Range
 March 31, 2021December 31, 2020Unobservable InputMarch 31, 2021December 31, 2020
Indexed Annuities$704.4 $670.8 Lapse Rate1-50%1-50%
Mortality Multiplier100%100%
Equity Volatility15-62%16-69%
Indexed Life36.1 34.2 Equity Volatility15-62%16-69%

26


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 at March 31, 2021
 Total Fair ValueLevel 1Level 2Level 3
Financial assets
Fixed maturity, bonds available-for-sale
U.S. treasury and government$25,353 $25,353 $$
U.S. states and political subdivisions1,108,536 1,108,536 
Foreign governments16,181 16,181 
Corporate debt securities6,163,651 6,037,574 126,077 
Residential mortgage-backed securities19,517 19,517 — 
Collateralized debt securities64,554 64,554 
                  Total bonds available-for-sale7,397,792 25,353 7,246,362 126,077 
Equity securities
Common stock2,148,131 2,147,001 1,130 
Preferred stock16,015 14,736 1,279 
Total equity securities2,164,146 2,161,737 0 2,409 
Options253,363 253,363 
Short-term investments1,212,342 1,212,342 
Separate account assets1,175,689 324,269 851,420 
Separately managed accounts66,981 66,981 
Total financial assets$12,270,313 $2,511,359 $9,310,124 $448,830 
Financial liabilities
Embedded derivative for equity-indexed contracts$740,514 $$$740,514 
Notes payable152,607 152,607 
Separate account liabilities1,175,689 324,269 851,420 
Total financial liabilities$2,068,810 $324,269 $851,420 $893,121 

 Assets and Liabilities Carried at Fair Value by Hierarchy Level at December 31, 2020
 Total Fair ValueLevel 1Level 2Level 3
Financial assets
Fixed maturity, bonds available-for-sale
U.S. treasury and government$29,183 $$29,183 $
U.S. states and political subdivisions1,140,458 1,140,458 
Foreign governments16,388 16,388 
Corporate debt securities6,334,479 6,224,042 110,437 
Residential mortgage-backed securities21,291 21,291 
Collateralized debt securities55,381 55,381 
Total bonds available-for-sale7,597,180 0 7,486,743 110,437 
Equity securities
Common stock2,055,229 2,054,789 440 
Preferred stock15,537 14,909 628 
Total equity securities2,070,766 2,069,698 0 1,068 
Options242,201 242,201 
Short-term investments1,028,379 1,028,379 
Separate account assets1,153,702 309,425 844,277 
Separately managed accounts64,424 64,424 
Total financial assets$12,156,652 $2,379,123 $9,359,399 $418,130 
Financial liabilities
Embedded derivative for equity-indexed contracts$705,013 $$$705,013 
Notes payable153,703 153,703 
Separate account liabilities1,153,702 309,425 844,277 
Total financial liabilities$2,012,418 $309,425 $844,277 $858,716 
27


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 March 31, 2021
 AssetsLiability
Investment SecuritiesEquity-Indexed OptionsSeparately Managed AccountsEmbedded Derivative
Balance at January 1, 2021$111,505 $242,201 $64,424 $705,013 
Net gain for derivatives included in net investment income28,827 
Net change included in interest credited26,689 
Net fair value change included in other comprehensive income1,178 594 
Purchases, sales and settlements or maturities
Purchases27,453 20,147 10,072 
Sales(11,650)(8,109)
Settlements or maturities(37,812)
Premiums less benefits8,812 
Ending balance at March 31, 2021$128,486 $253,363 $66,981 $740,514 
Level 3
Three months ended March 31, 2020
AssetsLiability
Investment SecuritiesEquity-Indexed OptionsSeparately Managed AccountsEmbedded Derivative
Balance at January 1, 2020$45,307 $256,005 $50,503 $731,552 
Net loss for derivatives included in net investment income(108,095)
Net change included in interest credited(89,581)
Net fair value change included in other comprehensive income80 
Purchases, sales and settlements or maturities
Purchases22,702 14,164 
Sales(14,156)
Settlements or maturities(36,086)
Premiums less benefits(11,019)
Ending balance at March 31, 2020$53,853 $125,988 $50,583 $630,952 

Within the net gain (loss) for derivatives included in net investment income were unrealized gains of $7.9 million and $127.2 million, relating to assets still held at March 31, 2021 and 2020, respectively.

Unless information is obtained from the pricing sources that indicates observable inputs were used in their pricing, there are not enough observable inputs to enable American National to classify the securities priced by the pricing source as other than Level 3. American National’s valuation of these securities involves judgment regarding assumptions market participants would use including quotes from independent pricing sources. The inputs used by the pricing sources include recent transactions in the security, similar bonds with same name, ratings, maturity and structure, external dealer quotes in the security, Bloomberg evaluated pricing and prior months pricing. None of these inputs were observable to American National as of March 31, 2021. The transfers out of Level 3 during the three months ended March 31, 2021 were the result of securities being priced by the third-party service at the end of the period, using inputs that were observable or derived from market data, which resulted in classification of these assets as Level 2.
28


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 value is discussed below:

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

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

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

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

Investment Contracts—The carrying value of investment contracts is equivalent to the accrued account balance. The accrued account balance consists of deposits, net of withdrawals, net of interest credited, fees and charges assessed and other adjustments. American National believes that the carrying value of investment contracts approximates fair value because the majority of these contracts’ interest rates reset at anniversary.

Notes Payable—Notes payable are carried at outstanding principal balance. The carrying value of the notes payable approximates fair value because the underlying interest rates approximate market rates at the balance sheet date.

Federal Home Loan Bank Advance—The Federal Home Loan Bank advance is carried at outstanding principal balance. The fair value of the advance is obtained from the Federal Home Loan Bank of Dallas.
29


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):

 March 31, 2021
FV Hierarchy LevelCarrying AmountFair Value
Financial assets
Fixed maturity, bonds held-to-maturity
U.S. Treasury and governmentLevel 1$11,478 $11,297 
U.S. states and political subdivisionsLevel 2114,154 113,671 
Foreign governmentsLevel 214,468 14,485 
Corporate debt securitiesLevel 27,117,100 7,540,397 
Residential mortgage-backed securitiesLevel 281,236 84,946 
Collateralized debt securitiesLevel 2137,426 143,971 
Total fixed maturity, bonds held-to-maturity7,475,862 7,908,767 
Mortgage loans on real estate, net of allowanceLevel 35,141,094 5,264,896 
Policy loansLevel 3369,525 369,525 
Total financial assets$12,986,481 $13,543,188 
Financial liabilities
Investment contractsLevel 3$10,235,015 $10,235,015 
Notes payableLevel 3152,607 152,607 
Federal Home Loan Bank advanceLevel 2250,000 250,070 
Total financial liabilities$10,637,622 $10,637,692 

 December 31, 2020
FV Hierarchy LevelCarrying AmountFair Value
Financial assets
Fixed maturity, bonds held-to-maturity
U.S. treasury and governmentLevel 2$7,732 $7,744 
U.S. states and political subdivisionsLevel 2109,445 113,535 
Foreign governmentsLevel 23,851 4,225 
Corporate debt securitiesLevel 26,981,597 7,595,712 
Corporate debt securitiesLevel 33,024 3,024 
Residential mortgage-backed securitiesLevel 2114,127 117,728 
Collateralized debt securitiesLevel 2135,194 141,213 
Total fixed maturity, bonds held-to-maturity7,354,970 7,983,181 
Mortgage loans on real estate, net of allowanceLevel 35,242,531 5,451,152 
Policy loansLevel 3373,014 373,014 
Total financial assets$12,970,515 $13,807,347 
Financial liabilities
Investment contractsLevel 3$10,101,764 $10,101,764 
Notes payableLevel 3153,703 153,703 
Federal Home Loan Bank advanceLevel 2250,000 250,227 
Total financial liabilities$10,505,467 $10,505,694 

30


Note 10 – Deferred Policy Acquisition Costs
Deferred policy acquisition costs are shown below (in thousands):

LifeAnnuityHealthProperty & CasualtyTotal
Beginning balance at January 1, 2021$896,208 $309,056 $32,885 $122,062 $1,360,211 
Additions43,256 23,488 2,849 86,579 156,172 
Amortization(28,787)(12,417)(3,703)(83,146)(128,053)
Effect of change in unrealized gains on available-for-sale debt securities8,915 24,655 33,570 
Net change23,384 35,726 (854)3,433 61,689 
Ending balance at March 31, 2021$919,592 $344,782 $32,031 $125,495 $1,421,900 

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):
 
 Three months ended March 31,
 20212020
Unpaid claims balance, beginning$1,373,600 $1,322,837 
Less: Reinsurance recoverables262,471 246,447 
Net beginning balance1,111,129 1,076,390 
Incurred related to
Current300,176 260,025 
Prior years(31,127)4,172 
Total incurred claims269,049 264,197 
Paid claims related to
Current99,857 95,635 
Prior years160,716 174,986 
Total paid claims260,573 270,621 
Net balance1,119,605 1,069,966 
Plus: Reinsurance recoverables239,160 244,230 
Unpaid claims balance, ending$1,358,765 $1,314,196 

The net and gross reserve calculations have shown favorable development as a result of favorable loss emergence compared to what was implied by the loss development patterns used in the original estimation of losses in prior years. Estimates for ultimate incurred claims attributable to insured events of prior years decreased by approximately $31.1 million during the first three months of 2021 and increased by $4.2 million during the same period in 2020. The favorable development in 2021 was a reflection of lower liability claim settlement costs emerging from commercial automobile, agribusiness, and private passenger automobile lines of business. The unfavorable development in 2020 was a reflection of higher-than-normal settlements of losses in the Managing General Underwriting and Collateral Protection Insurance 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 March 31, 2021 and December 31, 2020 was $22.2 million and $20.5 million, respectively.
31


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 March 31,
 20212020
 AmountRateAmountRate
Total expected income tax expense at the statutory rate$44,625 21.0 %$(59,396)21.0 %
Tax-exempt investment income(1,172)(0.6)(1,027)0.4 
Dividend exclusion(813)(0.4)(862)0.3 
Tax credits, net(1,618)(0.8)(2,395)0.8 
Low income housing tax credit expense1,513 0.7 1,774 (0.6)
Change in valuation allowance29 112 
Other items, net607 0.4 126 (0.1)
Total$43,171 20.3 %$(61,668)21.8 %

As of March 31, 2021, American National had no material net operating loss or tax credit carryforwards.

American National’s federal income tax returns for tax years 2016 to 2019 are subject to examination by the Internal Revenue Service. 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 March 31, 2021, American National had no provision for uncertain tax positions and no provision for penalties or interest. In addition, management does not believe there are any uncertain tax benefits that could be recognized within the next twelve months that would impact American National’s effective tax rate.

Note 13 – 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 SecuritiesDefined Benefit Pension Plan AdjustmentsForeign Currency AdjustmentsAccumulated 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 $944 and expense $1,013)(3,553)3,809 — 256 
Unrealized holding losses arising during the period (net of tax benefit $35,260)(132,644)— — (132,644)
Unrealized adjustment to DAC (net of tax expense $7,050)26,519 — — 26,519 
Unrealized losses on investments attributable to participating policyholders’ interest (net of tax expense $908)3,414 — — 3,414 
Foreign currency adjustment (net of tax expense $65)
— — 244 244 
Ending balance at March 31, 2021$185,902 $(63,321)$(2,622)$119,959 
Net Unrealized Gains (Losses) on SecuritiesDefined Benefit Pension Plan AdjustmentsForeign Currency AdjustmentsAccumulated 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 expense $2,554 and $467)9,606 1,756 — 11,362 
Unrealized holding losses arising during the period (net of tax benefit $53,533)(201,385)— — (201,385)
Unrealized adjustment to DAC (net of tax expense $18,759)70,567 — — 70,567 
Unrealized losses on investments attributable to participating policyholders’ interest (net of tax expense $2,342)8,809 — — 8,809 
Foreign currency adjustment (net of tax benefit $246)— — (924)(924)
Ending balance at March 31, 2020$45,448 $(53,476)$(4,025)$(12,053)

32


Note 14 – Stockholders’ Equity and Noncontrolling Interests



ANAT has one class of common stock with a par value $0.01 per share and 50,000,000 authorized shares. The number of shares outstanding at the dates indicated are shown below:

March 31, 2021December 31, 2020
Common stock
Shares issued26,887,200 26,887,200 
Restricted shares(10,000)(10,000)
Unrestricted outstanding shares26,877,200 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. 8,250 of such cash-settled RSUs were granted during the third quarter of 2020 and remained outstanding at March 31, 2021 as shown in the table below.

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

 RS SharesRSUs
 SharesWeighted-Average Grant Date Fair ValueUnitsWeighted-Average Grant Date Fair Value
Outstanding at December 31, 202010,000 $80.05 8,250 $75.35 
Granted— — 
Exercised— — 
Forfeited— — — — 
Expired— — 
Outstanding at March 31, 202110,000 $80.05 8,250 $75.35 

SARRS SharesRSUs
Weighted-average contractual remaining life (in years)0.001.920.08
Exercisable sharesN/AN/A
Weighted-average exercise price$$80.05 $75.35 
Weighted-average exercise price exercisable sharesN/AN/A
Compensation expense (credit)
Three months ended March 31, 2021$$20,000 $220,000 
Three months ended March 31, 2020(1,000)20,000 (171,000)
Fair value of liability award
March 31, 2021$N/A$890,000 
December 31, 2020N/A793,000 

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

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

RSU awards to our directors and advisory directors are settled in cash based upon the market price of our common stock after one-year or earlier upon death, disability or retirement from service after age 65. During the twelve months ended December 31, 2020, 8,250 RSUs were granted and will vest on May 1, 2021 and will be settled in cash.
33


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

Earnings per Share

Basic earnings per share were calculated using a weighted average number of shares outstanding. Diluted earnings per share include RS awards. RSUs may only be settled in cash.

 Three months ended March 31,
 20212020
Weighted average shares outstanding26,877,200 26,881,700 
Incremental shares from RS awards and RSUs7,699 9,975 
Total shares for diluted calculations26,884,899 26,891,675 
Net income (loss) attributable to American National (in thousands)$170,173 $(220,444)
Basic earnings (losses) per share$6.33 $(8.20)
Diluted earnings (losses) per share$6.33 $(8.20)

Statutory Capital and Surplus

Risk Based Capital (“RBC”) is a measure insurance regulators use to evaluate the capital adequacy of American National's insurance subsidiaries. RBC is calculated using formulas applied to certain financial balances and activities that consider, among other things, investment risks related to the type and quality of investments, insurance risks associated with products and liabilities, interest rate risks and general business risks. Insurance companies that do not maintain capital and surplus at a level at least 200% of the authorized control level RBC are required to take certain actions. At March 31, 2021 and December 31, 2020, ANICO's statutory capital and surplus was $3.7 billion and $3.6 billion, respectively, which resulted in an RBC level above 200% of the authorized control level. All of our other insurance subsidiaries had statutory capital and surplus at March 31, 2021 and December 31, 2020, above 200% of the authorized control level, except for ANPAC Louisiana Insurance Company ("ANPLA"). At March 31, 2021 and December 31, 2020, ANPLA's statutory capital and surplus was $63.5 million and $68.5 million respectively, which resulted in an RBC level of 179% and 194% of the authorized control 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 financial statements in accordance with statutory accounting practices prescribed or permitted by the insurance department of each subsidiary's state of domicile, which include certain components of the National Association of Insurance Commissioners’ Codification of Statutory Accounting Principles (“NAIC Codification”). NAIC Codification is intended to standardize regulatory accounting and reporting to state insurance departments. However, statutory accounting practices continue to be established by individual state laws and permitted practices. Modifications by the various state insurance departments may impact the statutory capital and surplus of our insurance subsidiaries.

Statutory accounting differs from GAAP primarily by charging policy acquisition costs to expense as incurred, establishing future policy benefit liabilities using different actuarial assumptions, and valuing securities on a different basis. In addition, certain assets are not admitted under statutory accounting principles and are charged directly to surplus.

One of American National’s insurance subsidiaries has been granted a permitted practice from the Missouri Department of Insurance to record as the valuation of its investment in a wholly-owned subsidiary that is the attorney-in-fact for a Texas domiciled insurer, the statutory capital and surplus of the Texas domiciled insurer. This permitted practice increases the statutory capital and surplus of both ANICO and American National Lloyds Insurance Company by $65.3 million and $75.3 million at March 31, 2021 and December 31, 2020, respectively. The statutory capital and surplus of both ANICO and American National Lloyds Insurance Company would have remained above the Company action level RBC had it not used the permitted practice.
34


Note 14 – Stockholders’ Equity and Noncontrolling Interests – (Continued)
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):
March 31, 2021December 31, 2020
Statutory capital and surplus
Life insurance entities$2,190,618 $2,188,808 
Property and casualty insurance entities1,514,248 1,463,179 

 Three months ended March 31,
 20212020
Statutory net income (loss)
Life insurance entities$(32,217)$52,975 
Property and casualty insurance entities39,272 48,254 

Dividends

Dividends are paid on a quarterly basis. We paid a quarterly dividend of $0.82 per share for each quarter during the three months ended March 31, 2021 and March 31, 2020, and we expect to continue to pay regular cash dividends, although there is no assurance as to future dividends because they depend on future earnings, capital requirements and financial conditions.

The amount of dividends paid by our insurance company subsidiaries is restricted by insurance law. These restrictions are based, in part, on the prior year’s statutory income and surplus. In general, dividends up to specified levels are considered ordinary and may be paid without prior regulatory approval. Dividends in larger amounts, or extraordinary dividends, are subject to approval by the insurance commissioner of the relevant state of domicile. For example, restrictions applicable to Texas-domiciled life insurance companies like ANICO limit the payment of dividends to the greater of the prior year’s statutory net income from operations, or 10% of prior year statutory surplus, in each case determined in accordance with statutory accounting principles. ANICO is permitted without prior approval of the Texas Department of Insurance to pay total dividends of $363.9 million during 2021.

Noncontrolling Interest

American National County Mutual Insurance Company (“County Mutual”) is a mutual insurance company owned by its policyholders. ANICO has a management agreement that effectively gives it control of County Mutual. As a result, County Mutual is included in the condensed consolidated financial statements of American National. Policyholder interests in the financial position of County Mutual are reflected as noncontrolling interest of $6.8 million at March 31, 2021 and December 31, 2020.

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 $0.5 million and a noncontrolling deficit of $0.9 million at March 31, 2021 and December 31, 2020, respectively.

Note 15 – Segment Information

Management organizes the business into 5 operating segments:
Life—consists of whole, term, universal, indexed and variable life insurance. Products are primarily sold through career, multiple-line, and independent agents as well as direct marketing channels.
Annuity—consists of fixed, indexed, and variable annuity products. Products are primarily sold through independent agents, brokers, and financial institutions, along with multiple-line and career agents.
Health—consists of Medicare Supplement, stop-loss, other supplemental health products and credit disability insurance. Products are typically distributed through independent agents and managing general underwriters.
Property and Casualty—consists of personal, agricultural and targeted commercial coverages and credit-related property insurance. Products are primarily sold through multiple-line and independent agents or managing general agents.
Corporate and Other—consists of net investment income from investments and certain expenses not allocated to the insurance segments and revenues and related expenses from non-insurance operations.
35


Note 15 – Segment Information – (Continued)
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 2020 annual report on Form 10-K filed with the SEC on March 4, 2021. 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.
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 March 31, 2021
 LifeAnnuityHealthProperty & CasualtyCorporate & OtherTotal
PREMIUMS AND OTHER REVENUES
Premiums$100,779 $24,241 $38,228 $399,405 $$562,653 
Other policy revenues81,508 5,031 86,539 
Net investment income67,797 153,864 2,083 15,513 30,724 269,981 
Net realized investment gains19,239 19,239 
Change in investment credit loss(5,486)(5,486)
Net gains on equity securities95,940 95,940 
Other income458 856 4,094 3,489 855 9,752 
Total premiums and other revenues250,542 183,992 44,405 418,407 141,272 1,038,618 
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits146,160 44,717 190,877 
Claims incurred24,251 244,135 268,386 
Interest credited to policyholders’ account balances19,770 88,017 107,787 
Commissions for acquiring and servicing policies45,420 23,042 5,986 79,237 153,685 
Other operating expenses47,041 12,181 10,608 53,886 9,786 133,502 
Change in deferred policy acquisition costs(14,469)(11,071)854 (3,433)— (28,119)
Total benefits, losses and expenses243,922 156,886 41,699 373,825 9,786 826,118 
Income before federal income tax and other items$6,620 $27,106 $2,706 $44,582 $131,486 $212,500 

 Three months ended March 31, 2020
 LifeAnnuityHealthProperty & CasualtyCorporate & OtherTotal
PREMIUMS AND OTHER REVENUES
Premiums$89,516 $15,509 $43,086 $388,657 $$536,768 
Other policy revenues75,540 4,065 79,605 
Net investment income45,575 41,541 2,233 16,085 25,557 130,991 
Net realized investment gains4,148 4,148 
Change in investment credit loss(44,678)(44,678)
Net losses on equity securities(332,575)(332,575)
Other income736 638 4,527 3,733 1,499 11,133 
Total premiums and other revenues211,367 61,753 49,846 408,475 (346,049)385,392 
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits110,466 34,802 145,268 
Claims incurred34,885 229,709 264,594 
Interest credited to policyholders’ account balances(1,903)(2,420)(4,323)
Commissions for acquiring and servicing policies39,467 10,248 8,024 72,696 130,435 
Other operating expenses47,480 11,876 10,629 53,004 10,937 133,926 
Change in deferred policy acquisition costs(7,838)7,286 (23)(1,097)(1,672)
Total benefits, losses and expenses187,672 61,792 53,515 354,312 10,937 668,228 
Income (loss) before federal income tax and other items$23,695 $(39)$(3,669)$54,163 $(356,986)$(282,836)



36


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 March 31, 2021 were approximately $8.0 million.

American National had aggregate commitments at March 31, 2021 to purchase, expand or improve real estate, to fund fixed interest rate mortgage loans, and to purchase other invested assets of $1.3 billion of which $572.6 million is expected to be funded in 2021 with the remainder funded in 2022 and beyond.

American National had outstanding letters of credit in the amount of $3.5 million as of March 31, 2021 and December 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 March 31, 2021, certain municipal bonds and collateralized mortgage obligations with a fair value of approximately $60.3 million and commercial mortgage loans of approximately $1.5 billion were on deposit with the FHLB as collateral for borrowing. As of March 31, 2021, the collateral provided borrowing capacity for the $250.0 million in outstanding advances as well as approximately $740.7 million in additional borrowing capacity. The deposited securities and commercial mortgage loans are included in the Company’s condensed consolidated statements of financial position within fixed maturity securities and mortgage loans on real estate, net of allowance, respectively.

FHLB outstanding advances as of March 31, 2021 are shown below (in thousands, except percentages):

Principal AmountInterest RateMaturity Date
At March 31, 2021
FHLB advance, fixed rate$250,000 0.38 %4/28/2021

Guarantees

ANICO has guaranteed bank loans for customers of a third-party marketing operation. The bank loans are used to fund premium payments on life insurance policies issued by ANICO. The loans are secured by the cash values of the life insurance policies. If the customer were to default on a bank loan, ANICO would be obligated to pay off the loan. As the cash values of the life insurance policies always equal or exceed the balance of the loans, management does not foresee any loss on these guarantees. The total amount of the guarantees outstanding as of March 31, 2021, was approximately $121.4 million, while the total cash value of the related life insurance policies was approximately $143.8 million.


37


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.

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 ImpactedThree months ended March 31,Amount due from American National
Related Party20212020March 31, 2021December 31, 2020
Greer, Herz & Adams, LLPOther operating expenses$3,713 $3,843 $(617)$(441)

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 28, 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 $245.0 million after a required capital stock purchase of approximately $5.0 million. The loan had an interest rate of 0.38% with a final maturity date of April 28, 2021. The Company paid this advance in full on its maturity date of April 28, 2021. The capital stock purchased for the advance was not sold and is now considered excess stock at the Federal Home Loan Bank of Dallas, and will be available to use in the event of future advances.

38

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 months ended March 31, 2021 and 2020 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.

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, 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 2020 Form 10-K filed with the SEC on March 4, 2021 and elsewhere in this report.

Many of these risks and uncertainties have been exacerbated by the COVID-19 pandemic, particularly those described in the Economic and Investment Risk Factors, Litigation and Regulation Risk Factors, and Reinsurance and Counterparty Risk Factors in the Company's Form 10-K filed with the SEC on March 4, 2021. Risks and uncertainties include the following:
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;
risk of investment losses and defaults;
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;
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;
39


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

Information Technology Risk Factors
failures or limitations of our computer, information security and administration systems;
failure to complete and implement technology initiatives in a timely manner;
Catastrophic Event Risk Factors
natural or man-made catastrophes resulting in increased claims activity from catastrophic loss of life or property;
the effects of global climate change;
Marketplace Risk Factors
the highly competitive nature of the insurance and annuity business;
potential difficulty in attraction and retention of qualified employees and agents;
the introduction of alternative healthcare solutions or changes in federal healthcare policy, both of which could impact our supplemental healthcare business;
Litigation and Regulation Risk Factors
adverse determinations in litigation or regulatory proceedings which may result in significant financial losses and harm to our reputation;
significant changes in government regulation;
changes in tax law;
changes in statutory or U.S. Generally Accepted Accounting Principles (“GAAP”), practices or policies;
Reinsurance and Counterparty Risk Factors
potential changes in the availability, affordability, adequacy and collectability of reinsurance protection;
potential default or failure to perform by the counterparties to our reinsurance arrangements and derivative instruments;
Risk Factors Relating to Our Corporate Structure and Ownership of Our Common Stock
state law limitations on the payment of dividends by our subsidiaries, which could limit the amount of dividends we pay;
control of our Company by a small number of stockholders;
anti-takeover provisions in our 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 us;
General Risk 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.
40


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

COVID-19 Response

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 4, 2021. Below is a summary of subsequent developments in our COVID-19 response:
We have taken steps to protect employees with the goals of maintaining their health and sustaining an adequate workforce, including directing as many employees as possible to work from home and offering flexibility for employees negotiating scheduling conflicts due to the impacts of COVID-19, such as caring for family, alternative arrangements and shutdowns for business and schools, self-isolation or personal illness, including granting additional paid time off to get vaccinations and to address these hardships.
We suspended our summer Internship Program for 2020 and in 2021 are piloting a program which combines both virtual and in-person elements for a small group of interns.
We developed and continue to refine return-to-office programs as we transition through the different reopening situations at our locations. During the first quarter of 2021, 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 June 2021. At that time, we will potentially be gradually re-introducing more employees to our office locations and are exploring longer-term plans to offer employees hybrid work schedules, where possible.

No assurance can be given that these actions will be successful, nor can we predict the level of disruption that will occur should the COVID-19 pandemic and its related macroeconomic risks continue for an extended period of time. Given this uncertainty, we are unable to quantify with reasonable confidence the expected impact of the COVID-19 pandemic on our future operations, financial condition, liquidity and results of operations. The wide-ranging social, economic and financial consequences of the COVID-19 pandemic and the possible effects of ongoing and future governmental action in response to COVID-19 compound this uncertainty. 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-K filed with the SEC on March 4, 2021. For additional information regarding the direct and indirect impact to mortality refer to 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.

41


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

Overview

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

General Trends

During the first quarter of 2021, American National had no material changes to the general trends discussed in the MD&A included in our 2020 Annual Report on Form 10-K filed with the SEC on March 4, 2021. However, please see the "COVID-19 Response and Update" discussion above for general information about the pandemic's impact on us.

Critical Accounting Estimates

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

For a discussion of our critical accounting estimates, see the MD&A in our 2020 Annual Report on Form 10-K filed with the SEC on March 4, 2021.

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.
42


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 March 31, 
 20212020Change
PREMIUMS AND OTHER REVENUES
Premiums$562,653 $536,768 $25,885 
Other policy revenues86,539 79,605 6,934 
Net investment income269,981 130,991 138,990 
Net realized investments gains19,239 4,148 15,091 
Change in investment credit loss(5,486)(44,678)39,192 
Net gains (losses) on equity securities95,940 (332,575)428,515 
Other income9,752 11,133 (1,381)
Total premiums and other revenues1,038,618 385,392 653,226 
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits190,877 145,268 45,609 
Claims incurred268,386 264,594 3,792 
Interest credited to policyholders’ account balances107,787 (4,323)112,110 
Commissions for acquiring and servicing policies153,685 130,435 23,250 
Other operating expenses133,502 133,926 (424)
Change in deferred policy acquisition costs (1)
(28,119)(1,672)(26,447)
Total benefits, losses and expenses826,118 668,228 157,890 
Income (loss) before federal income taxes and other items$212,500 $(282,836)$495,336 
(1) A negative amount of change indicates more expense was deferred than amortized and represents a decrease to expenses in the period indicated.

Comparison of the three months ended March 31, 2021 to 2020

Earnings increased primarily due to the following:
An increase in net gains on equity securities resulting from favorable market conditions in the three months ended March 31, 2021 compared to a net loss on equity securities in the same period in 2020 driven by unfavorable market conditions as a result of the COVID-19 pandemic
An increase in earnings in our Annuity segment driven by our equity indexed annuity products
An increase in net investment income due to higher option gains resulting from favorable market conditions
The increase in earnings was partially offset due to the following:
Increase in claims which reduced the earnings from our Life segment

43


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 March 31, 
 20212020Change
PREMIUMS AND OTHER REVENUES
Premiums$100,779 $89,516 $11,263 
Other policy revenues81,508 75,540 5,968 
Net investment income67,797 45,575 22,222 
Other income458 736 (278)
Total premiums and other revenues250,542 211,367 39,175 
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits146,160 110,466 35,694 
Interest credited to policyholders’ account balances19,770 (1,903)21,673 
Commissions for acquiring and servicing policies45,420 39,467 5,953 
Other operating expenses47,041 47,480 (439)
Change in deferred policy acquisition costs (1)
(14,469)(7,838)(6,631)
Total benefits, losses and expenses243,922 187,672 56,250 
Income before federal income taxes and other items$6,620 $23,695 $(17,075)
(1)A negative amount of change indicates more expense was deferred than amortized and represents a decrease to expenses in the period indicated.

Comparison of the three months ended March 31, 2021 to 2020

Earnings for our Life segment decreased primarily due to the following:
An overall increase in mortality which includes claims directly and indirectly attributable to COVID-19
The decrease in earnings was partially offset by the following:
Improved persistency and an increase in sales, resulting in an increase in premiums and other policy revenues

44


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


Life Insurance Sales

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

 Three months ended March 31, 
 20212020Change
Traditional life$15,757 $14,974 $783 
Universal life8,376 6,150 2,226 
Indexed UL8,370 6,802 1,568 
Total recurring32,503 27,926 4,577 
Single and excess (1)
378 202 176 
Credit life (1)
1,657 2,184 (527)
Total annualized premium$34,538 $30,312 $4,226 
(1)These are weighted amounts representing 10% of single and excess premiums.

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

Total Life sales increased during the three months ended March 31, 2021 compared to 2020 primarily due to higher Universal Life and Indexed Universal Life sales.

Policy In-force Information

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

March 31, 2021December 31, 2020Change
Life insurance in-force
Traditional life$93,497,659 $91,920,577 $1,577,082 
Interest-sensitive life36,920,337 36,326,621 593,716 
Total life insurance in-force$130,417,996 $128,247,198 $2,170,798 

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

March 31, 2021December 31, 2020Change
Number of policies in-force
Traditional life1,792,484 1,832,536 (40,052)
Interest-sensitive life272,377 269,668 2,709 
Total number of policies in-force2,064,861 2,102,204 (37,343)

Life insurance in-force increased during the three months ended March 31, 2021 compared to December 31, 2020 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. The following shows the components of the change in DAC (in thousands):
 Three months ended March 31, 
 20212020Change
Acquisition cost capitalized$(43,256)$(33,353)$(9,903)
Amortization of DAC28,787 25,515 3,272 
Change in DAC$(14,469)$(7,838)$(6,631)

45


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 March 31,
 20212020Change
PREMIUMS AND OTHER REVENUES
Premiums$24,241 $15,509 $8,732 
Other policy revenues5,031 4,065 966 
Net investment income153,864 41,541 112,323 
Other income856 638 218 
Total premiums and other revenues183,992 61,753 122,239 
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits44,717 34,802 9,915 
Interest credited to policyholders’ account balances88,017 (2,420)90,437 
Commissions for acquiring and servicing policies23,042 10,248 12,794 
Other operating expenses12,181 11,876 305 
Change in deferred policy acquisition costs (1)
(11,071)7,286 (18,357)
Total benefits, losses and expenses156,886 61,792 95,094 
Income (loss) before federal income taxes and other items$27,106 $(39)$27,145 
(1)A negative amount of change indicates more expense was deferred than amortized and represents a decrease to expenses in the period indicated.

Comparison of the three months ended March 31, 2021 to 2020

Earnings for our Annuity segment increased primarily due to the following:
An increase in net investment income due to higher option gains resulting from favorable market conditions
Favorable mark-to-market impact for equity indexed annuity products due to favorable interest rates
Lower DAC amortization for fixed deferred products due to an increase in estimated gross profits driven by higher projected future interest rates compared to our previous expectations
46


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 March 31, 
 20212020Change
Fixed deferred annuity$123,752 $118,410 $5,342 
Single premium immediate annuity28,530 22,758 5,772 
Equity-indexed deferred annuity202,856 57,976 144,880 
Variable deferred annuity14,187 15,681 (1,494)
Total premium and deposits369,325 214,825 154,500 
Less: Policy deposits345,084 199,316 145,768 
Total earned premiums$24,241 $15,509 $8,732 

Annuity premium and deposits increased primarily for equity indexed deferred products during the three months ended March 31, 2021 compared to 2020 reflecting the 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 March 31, 
 20212020Change
Acquisition cost capitalized$(23,488)$(11,525)$(11,963)
Amortization of DAC12,417 18,811 (6,394)
Change in DAC$(11,071)$7,286 $(18,357)

The change in acquisition costs capitalized for the three months ended March 31, 2021 strongly correlates with the change in commissions, which increased due to higher sales. The amortization of DAC was lower for the three months ended March 31, 2021 due to an increase in estimated gross profits driven by higher projected future interest rates.


47


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


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

 Three months ended March 31,
 20212020
Fixed deferred annuity
Reserve, beginning of period$6,635,203 $6,893,174 
Premiums123,752 118,410 
Death and other benefits(64,071)(45,937)
Surrenders(128,156)(127,941)
Fees(405)(463)
Interest and mortality44,621 47,912 
Reserve, end of period6,610,944 6,885,155 
Equity-indexed annuity
Reserve, beginning of period4,097,013 3,985,166 
Premiums202,856 57,976 
Death and other benefits(11,912)(11,811)
Surrenders(75,147)(73,332)
Fees(747)(915)
Interest and mortality45,932 (52,018)
Reserve, end of period4,257,995 3,905,066 
Single premium immediate annuity
Reserve, beginning of period1,851,955 1,874,942 
Premiums28,530 22,758 
Payments(49,601)(54,249)
Interest and mortality14,701 18,216 
Reserve, end of period1,845,585 1,861,667 
Variable deferred annuity
Account value, beginning of period418,510 385,736 
Premiums14,187 15,681 
Other flows120 959 
Surrenders(21,325)(30,486)
Fees(1,256)(1,063)
Change in market value and other13,665 (54,898)
Reserve, end of period423,901 315,929 
Total reserve, end of period$13,138,425 $12,967,817 


48


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


Interest and Mortality Margin

Margins increased during the three months ended March 31, 2021 compared to 2020 due to favorable changes in mark-to-market reserves for indexed annuities. 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 March 31, 
 20212020Change
Fixed annuity
Fixed investment income$88,462 $93,620 $(5,158)
Interest credited and mortality(59,322)(66,128)6,806 
Interest and mortality margin29,140 27,492 1,648 
Equity-indexed annuity
Fixed investment income41,719 39,699 2,020 
Option return23,683 (91,778)115,461 
Interest credited and mortality(45,932)52,018 (97,950)
Interest and mortality margin19,470 (61)19,531 
Variable annuity
Separate account management fees1,247 940 307 
Interest and mortality margin1,247 940 307 
Total interest and mortality margin$49,857 $28,371 $21,486 

49


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 March 31, 
 20212020Change
PREMIUMS AND OTHER REVENUES
Premiums$38,228 $43,086 $(4,858)
Net investment income2,083 2,233 (150)
Other income4,094 4,527 (433)
Total premiums and other revenues44,405 49,846 (5,441)
BENEFITS, LOSSES AND EXPENSES
Claims incurred24,251 34,885 (10,634)
Commissions for acquiring and servicing policies5,986 8,024 (2,038)
Other operating expenses10,608 10,629 (21)
Change in deferred policy acquisition costs (1)
854 (23)877 
Total benefits, losses and expenses41,699 53,515 (11,816)
Income (loss) before federal income taxes and other items$2,706 $(3,669)$6,375 
(1) A positive amount of change indicates less expense was deferred than amortized and represents an increase to expenses in the period indicated.

Comparison of the three months ended March 31, 2021 to 2020

Earnings for our Health segment increased primarily due to the following:
A reduction in claims for Medical Expense. There was a single large claim in 2020
Lower loss ratio for Medicare Supplement as rate increases are approved and implemented
Lower claims for Supplemental health

50


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 March 31,
 20212020Change
Medicare Supplement$18,824 $21,576 $(2,752)
MGU5,185 5,471 (286)
Supplemental insurance3,889 4,981 (1,092)
Credit Health3,255 4,174 (919)
Medical expense1,956 2,197 (241)
Worksite4,018 3,555 463 
Group health349 369 (20)
All other752 763 (11)
Total$38,228 $43,086 $(4,858)

Policy lapses as a result of rate increases drove a decrease in premiums for Medicare Supplement in 2021. Supplemental insurance premiums decreased due to a reduction in sales across all product lines, primarily in Short Term Medical. Premiums for Credit Health decreased as a result of contract terminations.

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

 Three months ended March 31,
 20212020Change
Medicare Supplement$14,226 $19,704 $(5,478)
MGU3,302 4,643 (1,341)
Supplemental insurance1,675 3,158 (1,483)
Credit Health825 728 97 
Medical expense2,280 4,025 (1,745)
Worksite2,133 1,442 691 
Group health(73)550 (623)
All other(117)635 (752)
Total$24,251 $34,885 $(10,634)

Favorable claim experience for the three months ended March 31, 2021 is driven by improved benefit ratios resulting from rate increases impacting Medicare Supplement policies. In addition, Supplemental insurance claim severity for the legacy master cancer plan has lessened in 2021. Similarly, Medical Expense claims decreased driven by the aforementioned single large claim in early 2020. MGU claims decreased as a result of large ceded paid claims for one MGU program in 2021.

Change in Deferred Policy Acquisition Costs

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

 Three months ended March 31, 
 20212020Change
Acquisition cost capitalized$(2,849)$(5,378)$2,529 
Amortization of DAC3,703 5,355 (1,652)
Change in DAC$854 $(23)$877 

51


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 March 31, 
 20212020Change
PREMIUMS AND OTHER REVENUES
Net premiums written$425,366 $407,588 $17,778 
Net premiums earned$399,405 $388,657 $10,748 
Net investment income15,513 16,085 (572)
Other income3,489 3,733 (244)
Total premiums and other revenues418,407 408,475 9,932 
BENEFITS, LOSSES AND EXPENSES
Claims incurred244,135 229,709 14,426 
Commissions for acquiring and servicing policies79,237 72,696 6,541 
Other operating expenses53,886 53,004 882 
Change in deferred policy acquisition costs (1)
(3,433)(1,097)(2,336)
Total benefits, losses and expenses373,825 354,312 19,513 
Income before federal income taxes and other items$44,582 $54,163 $(9,581)
Loss and loss adjustment expense ratio61.1 %59.1 %2.0 %
Underwriting expense ratio32.5 32.1 0.4 
Combined ratio93.6 %91.2 %2.4 %
Impact of catastrophe events on combined ratio9.0 3.0 6.0 
Combined ratio without impact of catastrophe events84.6 %88.2 %(3.6)%
Gross catastrophe losses$36,932 $12,566 $24,366 
Net catastrophe losses$35,966 $11,479 $24,487 
(1) A negative amount of change indicates more expense was deferred than amortized and represents a decrease to expenses in the period indicated.

Comparison of the three months ended March 31, 2021 to 2020

Earnings for our Property and Casualty segment decreased primarily due to the following:
Earnings from our personal products decreased. The decrease was primarily due to significantly higher catastrophe losses caused by freezing conditions in the south and mid-west, which had the greatest impact on our homeowners' loss ratio
The decrease in earnings was partially offset by the following:
Earnings from our commercial products increased. The increase was driven by lower loss and loss adjustment expense ratios on our automobile and business owner products
Additional Information:
The increase in commissions expense was primarily attributable to our Specialty Markets Group products, which had increases in direct commissions due to an increase in premiums written and contingent commissions tied to improvements in the loss ratio.
52


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


Products

Our Property and Casualty segment consists of: (i) Personal products, marketed primarily to individuals, representing 52% of net premiums written; (ii) Commercial products, focused primarily on agricultural and other business related markets, representing 33% of net premiums written; and (iii) Specialty Markets Group products, marketed through independent managing general agents and managing general underwriters, representing 15% of net premiums written.

Personal Products

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

 Three months ended March 31, 
 20212020Change
Net premiums written
Automobile$141,425 $145,011 $(3,586)
Homeowner65,691 61,250 4,441 
Other Personal14,078 12,986 1,092 
Total net premiums written$221,194 $219,247 $1,947 
Net premiums earned
Automobile$134,110 $137,483 $(3,373)
Homeowner70,195 66,699 3,496 
Other Personal12,752 12,454 298 
Total net premiums earned$217,057 $216,636 $421 
Loss and loss adjustment expense ratio
Automobile63.2 %62.1 %1.1 %
Homeowner86.4 %65.5 %20.9 %
Other Personal48.5 %55.2 %(6.7)%
Personal line loss and loss adjustment expense ratio69.8 %62.7 %7.1 %
Combined Ratio
Automobile87.5 %86.2 %1.3 %
Homeowner115.5 %98.3 %17.2 %
Other Personal78.4 %89.5 %(11.1)%
Personal line combined ratio96.0 %90.1 %5.9 %

Comparison of 2021 to 2020

Automobile: Net premiums written and earned decreased for the first quarter primarily due to a decrease in policies in-force.

Homeowners: Net premiums written and earned increased for the first quarter primarily due to rate increases. The loss and loss adjustment expense and combined ratios increased due to higher catastrophe losses caused by winter storms. Catastrophe losses, net of reinsurance, increased by $16.0 million, to $23.0 million in the first quarter compared to $7.0 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 quarter due to rate increases in the rental owners product. The loss and loss adjustment expense and combined ratios improved for the first quarter due to fewer non-catastrophe losses.
53


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 March 31, 
 20212020Change
Net premiums written
Agricultural Business$44,773 $40,982 $3,791 
Automobile40,066 37,712 2,354 
Business Owner23,087 21,378 1,709 
Workers Compensation20,918 21,012 (94)
Other Commercial10,075 9,339 736 
Total net premiums written$138,919 $130,423 $8,496 
Net premiums earned
Agricultural Business$41,323 $39,073 $2,250 
Automobile32,366 30,464 1,902 
Business Owner19,814 18,413 1,401 
Workers Compensation17,239 17,596 (357)
Other Commercial8,847 8,090 757 
Total net premiums earned$119,589 $113,636 $5,953 
Loss and loss adjustment expense ratio
Agricultural Business52.0 %39.7 %12.3 %
Automobile50.6 %63.5 %(12.9)%
Business Owner76.8 %94.6 %(17.8)%
Workers Compensation57.1 %52.9 %4.2 %
Other Commercial34.3 %68.8 %(34.5)%
Commercial line loss and loss adjustment expense ratio55.2 %59.1 %(3.9)%
Combined ratio
Agricultural Business89.3 %77.2 %12.1 %
Automobile73.5 %86.8 %(13.3)%
Business Owner111.8 %130.1 %(18.3)%
Workers Compensation75.0 %71.1 %3.9 %
Other Commercial78.2 %111.4 %(33.2)%
Commercial line combined ratio85.9 %89.8 %(3.9)%

Comparison of 2021 to 2020

Agricultural Business: Our agricultural business product allows policyholders to customize and cover their agriculture exposure using a package policy, which includes coverage for residences and household contents, farm and ranch buildings and building contents, personal and commercial liability and personal property. Net premiums written and earned increased for the first quarter primarily due to increases in policies in-force and rate increases. The loss and loss adjustment expense and combined ratios increased primarily due to higher catastrophe losses. Catastrophe losses, net of reinsurance, increased by $4.5 million, to $6.7 million in the first quarter compared to $2.2 million in 2020.

Commercial Automobile: Net premiums written and earned increased for the first quarter primarily due to rate increases. The loss and loss adjustment expense ratio and combined ratio improved for the first quarter primarily due to favorable prior year claim development and a decrease in claim frequency as policyholders drove fewer miles due to the impact of COVID-19.

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 first quarter primarily due to increases in policies in-force and rate increases. The loss and loss adjustment expense and combined ratios improved for the first quarter primarily due to favorable prior year claim development and a decrease in claim frequency.
54


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


Workers Compensation: The loss and loss adjustment expense and combined ratios increased for the first quarter primarily due to less favorable prior year claim development and an increase in claim severity.

Other Commercial: Other commercial products primarily provide umbrella and other liability coverages. Net premiums written and earned increased for the first quarter primarily due to an increase in premium for umbrella products. The loss and loss adjustment expense and combined ratios improved primarily due to favorable prior year claim development.

Specialty Markets Products

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

 Three months ended March 31, 
 20212020Change
Net premiums written$65,254 $57,916 $7,338 
Net premiums earned62,758 58,383 4,375 
Loss and loss adjustment expense ratio (1)
42.5 %45.6 %(3.1)%
Combined ratio (1)
100.0 %97.6 %2.4 %
(1)Ratio does not include fee income.

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

Comparison of 2021 to 2020

Net written and earned premiums increased for the first quarter primarily due to the addition of new accounts related to the investor property protection product. The loss and loss adjustment expense ratio decreased for the first quarter primarily due to the improvement of loss ratios on products that provide collateral protection related to automobiles, also known as auto GAP business, and collateral protection insurance. The combined ratio increased for the first quarter primarily due to increases in direct commissions as a result of an increase in premiums written and contingent commissions tied to improvements in the loss ratio.
55


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 March 31, 
 20212020Change
OTHER REVENUES
Net investment income$30,724 $25,557 $5,167 
Realized investment gains19,239 4,148 15,091 
Change in investment credit loss(5,486)(44,678)39,192 
Net gains (losses) on equity securities95,940 (332,575)428,515 
Other income855 1,499 (644)
Total other revenues141,272 (346,049)487,321 
BENEFITS, LOSSES AND EXPENSES
Other operating expenses9,786 10,937 (1,151)
Total benefits, losses and expenses9,786 10,937 (1,151)
Income (loss) before federal income taxes and other items$131,486 $(356,986)$488,472 

Comparison of the three months ended March 31, 2021 to 2020

Earnings for our Corporate and Other segment increased primarily due to the following:
An increase in net gains on equity securities due to an increase in the S&P 500 of 5.8% for the three months ended March 31, 2021 compared to a 20.0% decrease for the same period in 2020, which reflects the impact from the declaration of a pandemic in March of 2020
Expense for credit losses decreased; the expense for credit losses in the previous year was due to economic disruptions caused by the COVID-19 pandemic
56


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 by asset class (in thousands, except percentages):

 March 31, 2021December 31, 2020
Fixed maturity, bond held-to-maturity, at amortized cost$7,475,862 29.5 %$7,354,970 29.2 %
Fixed maturity, bond available-for-sale, at fair value7,397,792 29.2 7,597,180 30.1 
Equity securities, at fair value2,164,146 8.5 2,070,766 8.2 
Mortgage loans on real estate, net of allowance5,141,094 20.3 5,242,531 20.8 
Policy loans369,525 1.5 373,014 1.5 
Real estate and real estate partnerships, net of accumulated depreciation938,189 3.7 960,572 3.8 
Investment funds523,225 2.1 477,135 1.9 
Short-term investments1,212,342 4.8 1,028,379 4.1 
Other invested assets94,316 0.4 94,415 0.4 
Total investments$25,316,491 100.0 %$25,198,962 100.0 %

The increase in our total investments at March 31, 2021 compared to year-end 2020 was primarily the result of an increase in short-term investments.

Bonds—We allocate most of our fixed maturity securities to support our insurance business. At March 31, 2021, our fixed maturity securities had an estimated fair value of $15.3 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 $15.6 billion, which was $1.2 billion, or 8.0%, above amortized cost. The estimated fair value for securities due in one year or less was $0.9 billion and $1.1 billion as of March 31, 2021 and December 31, 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 invest in the equity securities of companies traded on national U.S. stock exchanges. See Note 4, Investments in Securities, of the Notes to the Unaudited Condensed Consolidated Financial Statements for the unrealized and realized gains and losses of equity securities.

Mortgage Loans—We invest in commercial mortgage loans that are diversified by property-type and geography. Generally, mortgage loans are secured by first liens on income-producing real estate with a loan-to-value ratio of up to 75%. Mortgage loans are generally carried at outstanding principal balances, adjusted for any unamortized premium or discount, deferred fees or expenses, and net of allowances. The weighted average coupon yield on the principal funded for mortgage loans was 4.7% and 4.8% at March 31, 2021 and December 31, 2020, respectively. For additional information regarding mortgage loans refer to Note 5, Mortgage Loans, of the Notes to the Unaudited Condensed Consolidated Financial Statements.

57


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 March 31, 2021, we had $369.5 million in policy loans with a loan to surrender value of 55%, and at December 31, 2020, we had $373.0 million in policy loans with a loan to surrender value of approximately 56%. Interest rates on policy loans primarily range from 3.0% to 12.0% per annum. Policy loans may be repaid at any time by the policyholder and have priority to any claims on the policy. If the policyholder fails to repay the policy loan, funds are withdrawn from the policy’s benefits.

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

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 pooled 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, net of collateral provided by counterparties; such collateral is restricted to the Company’s use. Additionally, other invested assets include FHLB capital stock, mineral rights, mezzanine loans and lease financing arrangements, all of which are carried at cost.

Net Investment Income and Net Realized Gains (Losses)

Net investment income increased $139.0 million during the three months ended March 31, 2021 compared to 2020 primarily due to higher gains on options from improvement in the S&P 500 Index.

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

Net realized investment gains increased $15.1 million during the three months ended March 31, 2021 compared to 2020 primarily attributable to an increase in sales of real estate partnership interests. Net realized investment gains (losses) are shown below (in thousands):

 Three months ended March 31,
 20212020
Bonds$7,699 $5,478 
Real estate11,193 (1,307)
Other invested assets347 (23)
Total$19,239 $4,148 


58


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


Net Unrealized Gains and Losses

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

March 31, 2021December 31, 2020Change
Held-to-Maturity
Gains$474,188 $639,648 $(165,460)
Losses(41,283)(11,437)(29,846)
Net gains432,905 628,211 (195,306)
Available-for-Sale
Gains406,386 548,996 (142,610)
Losses(46,818)(17,476)(29,342)
Net gains359,568 531,520 (171,952)
Total$792,473 $1,159,731 $(367,258)

The net change in the unrealized gains on fixed maturity securities between March 31, 2021 and December 31, 2020 is primarily attributable to the increase in benchmark ten-year interest rates, which were 1.8% and 0.9% respectively. The Company does not currently intend to sell nor does it expect to be required to sell any of the securities in an unrealized loss position.

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.

We are monitoring our liquidity needs closely. In April 2020, the Company borrowed $500.0 million from the Federal Home Loan Bank of Dallas' COVID-19 Relief Advance Program. As of March 31, 2021, one advance totaling $250.0 million was outstanding and was repaid on its maturity date of April 28, 2021. The available liquidity immediately following the repayment was approximately $1.1 billion.

As a result of the impacts of COVID-19, state insurance departments across the country issued regulations that required us not to cancel policies for non-payment for varying amounts of time but generally for at least 90-day periods which began in March and early April 2020. The cancellation and grace periods have been lifted in most states.

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

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

We are currently evaluating the renovation and modernization of our home office facilities. This could result in capital expenditures that could aggregate to approximately $100 million over a three year period beginning in 2021; however, current uncertainties relating to the COVID-19 pandemic could cause us to lower or delay anticipated spending on capital investment projects. There are no other unusually large capital expenditures expected in the next 12-24 months.

We have consistently paid dividends to our stockholders and expect to continue this tradition. There are no other known trends or uncertainties regarding product pricing, changes in product lines or rising costs that are expected to have a significant impact to cash flows from operations, although uncertainties relating to the COVID-19 pandemic could still significantly impact one or more of these items.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — (Continued)


Funds received as premium payments and deposits that are not used for liquidity requirements are generally invested in bonds and commercial mortgages. Funds are invested with the intent that income from the investments and proceeds from the maturities will meet our ongoing cash flow needs. We historically have not had to liquidate invested assets in order to cover cash flow needs. Our investment portfolio was significantly impacted by volatility associated with COVID-19 during 2020. We believe our portfolio of highly liquid bonds, available-for-sale investment securities, and equity securities, coupled with our ability to borrow funds through the FHLB, are sufficient to meet future liquidity needs as necessary.

As a result of the economic impact associated with COVID-19, American National originally granted 93 loan modifications during the second and third quarters of 2020 with a total balance of $1.6 billion in the form of forbearance of principal and interest payments for up to six months, extensions of maturity dates, and/or provisions for interest only payments. Modifications were primarily related to our loans to hotels, retail and parking operations. Due to the ongoing economic stress brought on by the pandemic, we made additional modifications in the first quarter of 2021 for 24 of these loans with a total balance of $633.6 million which extended the forbearance of principal and interest payments and interest only provisions but also included 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 $17.0 million as of March 31, 2021.

The Company holds collateral of $251.9 million at March 31, 2021 to offset exposure from its derivative counterparties. Cash flows associated with collateral received from counterparties change as the market value of the underlying derivative contract changes.

Our cash and cash equivalents and short-term investment position increased from $1.4 billion at December 31, 2020 to $1.7 billion at March 31, 2021. The increase in cash is a result of reduced investment in long-term securities due to market uncertainty.

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

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

Capital Resources

Our capital resources are summarized below (in thousands):

March 31, 2021December 31, 2020
American National stockholders’ equity, excluding accumulated other comprehensive income (“AOCI”), net of tax$6,384,244 $6,236,100 
Accumulated other comprehensive income119,959 222,170 
Total American National stockholders’ equity$6,504,203 $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 these notes payable is limited to our investment in the respective ventures, which totaled $2.9 million and $3.0 million at March 31, 2021 and December 31, 2020, respectively.

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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):

 March 31, 2021December 31, 2020
Capital and
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
TotalCapital and
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Net income attributable to American National$