ITEM 7.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Forward-Looking Statements
Certain statements made in
this report include 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. These forward-looking statements are subject to changes and uncertainties which are, in many instances, beyond our control and have been made based upon our assumptions, expectations and beliefs
concerning future developments and their potential effect upon us. There can be no assurance that future developments will be in accordance with our expectations, or that the effect of future developments on us will be as anticipated. It is not a
matter of corporate policy for us to make 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 limitations risks, uncertainties and other factors discussed in Item 1A, Risk Factors and elsewhere in
this report.
Managements discussion and analysis (MD&A) of our financial condition and results of operations should be read in
conjunction with our consolidated financial statements and related notes included in Item 8, Financial Statements and Supplementary Data.
Revision to Previously Reported Amounts
Immaterial
Correction of an Error.
During the fourth quarter of 2016, the Company revised previously reported amounts to include cash held in a bank custody account representing collateral provided to us by third parties for equity-option derivative
transactions. In accordance with Staff Accounting Bulletin (SAB) No. 99,
Materiality,
and SAB No. 108,
Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements
, management evaluated the materiality of the error from qualitative and quantitative perspectives, and concluded the error was immaterial to the current and prior periods. The correction revised only the consolidated statements of
financial position and statements of cash flows . There was no revision to the consolidated statements of operations, comprehensive income or changes in equity. Detail regarding the revision amounts is included in Part II, Item 8, Note
2Summary of Significant Accounting Policies and Practices, of the Notes to the Consolidated Financial Statements.
Consequently, the Company revised
its historical financial statements for fiscal 2015, fiscal 2014 herein, and will revise the quarters within fiscal 2016, when they are published in future filings.
Overview
Chartered in 1905, we are a diversified
insurance and financial services company offering a broad spectrum of insurance products in all 50 states, the District of Columbia, and Puerto Rico. Our headquarters are in Galveston, Texas.
Our business has been and will continue to be influenced by a number of industry-wide, segment or product-specific trends and conditions. In our discussion
below, we first outline the broad macro-economic or industry trends (General Trends) that we expect to impact our overall business. Second, we discuss certain segment-specific trends we believe may impact individual segments or specific products
within these segments.
24
Segments
The insurance segments do not directly own assets. Rather, assets are allocated to support the liabilities and capital allocated to each segment. The mix of
assets allocated to each of the insurance segments is intended to support the characteristics of the insurance liabilities within each segment including expected cash flows and pricing assumptions, and is intended to be sufficient to support each
segments business activities. We have utilized this methodology consistently over all periods presented.
The Corporate and Other business segment
acts as the owner of all of the invested assets of the Company. The investment income from the invested assets is allocated to the insurance segments in accordance with the assets allocated to each insurance segment. Earnings of the Corporate and
Other business segment are derived from income related to invested assets not allocated to the insurance segments and from our non-insurance businesses. All realized investment gains and losses, which includes other-than-temporary impairments
(OTTI), are recorded in this segment.
General Trends
Our business, financial condition and results of operations are materially affected by economic and financial market conditions. The U.S. and global economies,
as well as the capital markets, continue to show mixed signals, and uncertainties continue to be significant factors in the markets in which we operate. Factors such as consumer spending, business investment, the volatility of the capital markets,
the level of interest rates, unemployment, the level of participation in the workforce and the risk of inflation or deflation will affect the business and economic environment and, in turn, impact the demand for the type of financial and insurance
products we offer. Adverse changes in the economy could have a material adverse effect on us. However, we believe those risks are somewhat mitigated by our financial strength, active enterprise risk management and disciplined underwriting for our
products. Our diverse product mix across insurance segments is a strength that we expect will help us adapt to the volatile economic environment and give us the ability to serve the changing needs of our customers. Additionally, through our
long-term business approach, we believe we remain financially strong, and we are committed to providing a steady and reliable source of financial protection for policyholders.
Interest Rates:
The low-interest rate environment is a challenge for life insurers as the spreads on deposit-type contracts remain narrow, especially
as interest rates have approached minimum crediting rates. Low market interest rates reduce the spreads between the amounts we credit to fixed annuity and individual life policyholders and the amounts we earn on the investments that support these
obligations. Our ALM Committee actively manages the profitability of our in-force contracts. In previous years, we reduced the guaranteed minimum crediting rates on new fixed annuity contracts and new business, which has afforded us the flexibility
to respond to the unusually low-interest rate environment. In previous years, we also reduced crediting rates on in-force contracts, where permitted to do so. These actions help mitigate the adverse impact of low interest rates on the profitability
of these products, although sales volume may be negatively impacted as a result. We also maintain assets with various maturities to support product liabilities and ensure liquidity. A gradual increase in longer-term interest rates relative to
short-term rates generally will have a favorable effect on the profitability of our products. Rapidly rising interest rates could result in reduced persistency of our spread-based products, if contract holders shift assets into higher yielding
investments. We believe our ability to react quickly to the changing marketplace will help us manage this risk.
The interest rate environment affects
estimated future profit projections, which could impact the amortization of our DAC assets and the estimates of policyholder liabilities. Significantly lower future estimated profits may cause us to accelerate the amortization of DAC or require us
to establish additional policyholder liabilities, thereby reducing earnings. We periodically review assumptions with respect to future earnings to make sure that they remain appropriate considering the current interest rate environment.
Low interest rates are also challenging for property and casualty insurers. Investment income is an important element in earning an acceptable return on
capital. Lower interest rates resulting in lower investment income require us to achieve better underwriting results. We have adjusted policy prices to help mitigate the adverse impact of low interest rates on our property and casualty business.
25
Changing Regulatory Environment
: The insurance industry is primarily regulated at the state level,
although some life and annuity products and services are also subject to U.S. federal regulation. We are regularly subjected to additional or changing regulation that requires us to update systems, change product structure, increase the amount of
reporting or adopt changes to distribution. These changes may increase the capital requirements for us and the industry, increase operating costs, change our operating practices and change our ability to provide products with pricing attractive to
the marketplace.
Importance of Operating Efficiencies:
The volatile economic environment and costs associated with greater regulation create a
further need for operating efficiencies. We manage our cost base while maintaining our commitment to provide superior customer service to policyholders and agents. Investments in technology are coordinated through a disciplined project management
process. We anticipate continually improving our use of technology to enhance our policyholders and agents experience and increase efficiency of our employees.
Increased Role of Advanced Technology
: The use of mobile technology has changed the way consumers want to conduct their business, including real-time
access to information. Many customers expect to complete transactions in a digital format instead of traditional methods that require a phone call or submission of paper forms. Social media and other customer-facing technologies also reshape the way
companies communicate and collaborate with key stakeholders, and new tools exist to better collect and analyze information for potential business opportunities and better manage risks. For example, American National has mobile-enabled all of its
Internet-based access and leverages social media channels to reach out to potential customers to promote awareness of the company, including the products and services offered. We expect that technology will continue to evolve, offering new and more
effective ways to reach and service our customers and shareholders. We evaluate available and evolving technologies and incorporate those that we believe offer appropriate benefits to the company and its customers.
Increased Challenges of Talent Attraction and Retention
: Attracting individuals with the right skills and retaining employees for the longer term
remains a business challenge. These challenges may become more difficult as the working population ages, causing loss of valuable work knowledge and experience through attrition. The cost of higher education may result in fewer people attending
college or a university, thus leaving a potential workforce that is less prepared for the higher thinking challenges of the new workplace. Competitors who develop stronger appeal to applicants who seek innovative and paradigm shifting companies will
have an edge. We are increasing our talent development efforts so that we can promote from within. In addition, we are expanding the use of technology to broaden our candidate base when recruiting and to deliver targeted training to augment the
current skill level of our employees.
Life and Annuity
Life insurance and annuity are mainstay segments, as they have been during our long history. We believe that the combination of predictable and decreasing
mortality rates, positive cash flow generation for many years after policy issue and favorable persistency characteristics suggest a viable and profitable future for these lines of business.
Effective management of invested assets and associated liabilities using crediting rates and, where applicable, financial hedging instruments (which we use as
economic hedges of equity-indexed life and annuity products), is important to the success of our life and annuity segments. Asset disintermediation, the risk of large outflows of cash at times when it is disadvantageous to us to dispose
of invested assets, is a risk associated with these segments.
Demographics
: We believe a key driver shaping the actions of the life insurance
industry is the rising income protection, wealth accumulation and insurance needs of retiring Baby Boomers (those born between 1946 and 1964). As a result of increasing longevity and uncertainty regarding the Social Security System and an ongoing
transition from defined benefit pension plans to 401(k) type retirement plans, retirees will need to accumulate sufficient savings to support retirement income requirements.
26
We believe we are well positioned to address the Baby Boomers increasing need for savings tools and income
protection. We believe that our overall financial strength and broad distribution channels position us to respond with a variety of products for individuals approaching retirement age, who seek information to plan for and manage their retirement
needs. We believe our products that offer guaranteed income flows for life, including single premium immediate annuities, are well positioned to serve this market.
Competitive Pressures
: In recent years, the competitive landscape of the U.S. life insurance industry has shifted. Established insurers are competing
against each other and also against new market entrants that are developing products to attract the interest of the growing number of retirees. Competition exists in terms of retaining and acquiring consumers business and also in terms of
access to producers and distributors. Consolidation among distributors coupled with the aging sales force remains a challenge among insurers. In addition, the increased technological sophistication of consumers necessitates that insurers and
distributors invest significant resources in technology to adapt to consumer expectations. We believe we possess sufficient scale, financial strength, resources and flexibility to compete effectively.
The annuity market is also highly competitive. In addition to aggressive interest crediting rates and new product features on annuities, there is competition
from other financial service firms. Insurers continue to evaluate their distribution channels and the way they deliver products to consumers.
We believe
we will continue to be competitive in the life and annuity markets through our broad line of products, diverse distribution channels, and consistent high level of customer service. We modify our products to meet customer needs and to expand our
reach where we believe we can obtain profitable growth.
Health
Most of the major provisions of the Patient Protection and Affordable Care Act, and a reconciliation measure, the Health Care and Education Reconciliation Act
of 2010 (collectively, the Healthcare Acts), phased in effective January 1, 2014. The Healthcare Acts mandate broad changes in the delivery of health care benefits that have impacted our current business model including our
relationships with current and future customers, producers, and health care providers, as well as our products, services and processes. As a result, the Healthcare Acts generated new opportunities in the limited benefit and supplemental product
markets. In recent years, we built a portfolio of such products to be sold in the worksite market as well as to individuals. We had some success with the individual products in 2014 and 2015 although these products were restricted somewhat in
2015 and 2016 due to regulatory changes. We are now expanding our presence in the worksite market to generate new opportunities in the broker market, as well as designing and implementing a captive sales force. With the recent changes in the
Presidency and Congress, the future of the Healthcare Acts is questionable. We continue to monitor possible changes and maintain a wait and see attitude, allowing us to be opportunistic to new markets.
We expect our Managing General Underwriter (MGU) business to remain stable during 2017. We generally retain only 10% of the MGU premium and risk.
The majority of the revenue generated from this business is fee income included in Other income of the Health segments operating results.
Property and Casualty
We remain committed to
offering our personal and commercial property and casualty lines of business primarily through exclusive independent multiple line agents. We favor a balanced, focused and collaborative approach to both growth and profitability through the
development of successful agencies. In 2013, we launched a revised Agent Career Program to enhance recruiting, selection, on-boarding and training of new agent candidates. In 2017, a New Agent Development Program for newly appointed multiple line
agents was introduced to support multiple line distribution growth goals. The new program is designed to enhance the development and retention of new multiple line agents across the country.
Our primary focus is to acquire and retain profitable business. To accomplish this objective, we use sophisticated pricing models and risk segmentation, along
with a focused distribution force. We believe this approach allows us to make product enhancements and offer programs that are tailored to our target markets while charging an appropriate premium for the risk.
27
Demand for property and casualty credit-related insurance products continues to increase. Credit markets have
improved in recent years, which is increasing sales in the auto dealer market and, in turn, demand for our GAP products. We continue to update credit-related insurance product offerings and pricing to meet changing market needs, as well as adding
new agents to expand market share in the credit-related insurance market. We are reviewing and implementing procedures to enhance customer service while, at the same time, looking for efficiencies to reduce administrative costs.
Competition
: The property and casualty insurance industry remains highly competitive. Despite the competitive environment, we expect to identify
profitable opportunities through our strong distribution channels, expanding geographic coverage, marketing efforts, new product development and pricing sophistication.
Critical Accounting Estimates
The preparation of
financial statements in accordance with GAAP requires estimates and assumptions that often involve a significant degree of judgment. These estimates and judgments include expectations of current and future mortality, morbidity, persistency, claims
and claim adjustment expenses, recoverability of receivables, investment returns and interest rates which extend well into the future. In developing these estimates, there is inherent uncertainty and material changes to facts and circumstances may
develop. Although variability is inherent in these estimates, we believe the amounts as reported are appropriate, based upon the facts available upon compilation of the consolidated financial statements.
On an ongoing basis, management reviews the estimates and assumptions used in preparing the financial statements. If current facts and circumstances warrant
modifications in estimates and assumptions, our financial position and results of operations as reported in the consolidated financial statements could change significantly.
A description of these critical accounting estimates is presented below. Also, see the Notes to the Consolidated Financial Statements for additional
information.
Reserves
Life and Annuity
Reserves
Life ReservingPrincipal assumptions used in the determination of the reserves for future policy benefits are mortality, policy lapse
rates, investment return, inflation, expenses and other contingent events as appropriate to the respective product type. Reserves for incurred but not reported (IBNR) claims on life policies are calculated using historical claims
information. Reserves for interest-sensitive and variable universal life insurance policies are equal to the current account value calculated for the policyholder. Some of our universal life policies contain secondary guarantees, for which
additional reserves are recorded based on the term of the policy.
Annuity ReservingReserves for payout annuities with more than insignificant
amounts of mortality risk are calculated in accordance with the applicable accounting guidance for limited pay insurance contracts. Benefit and maintenance expense reserves are calculated by using assumptions reflecting our expectations of future
costs, including an appropriate margin for adverse deviation. Payout annuity reserves are calculated using standard industry mortality tables specified for statutory reporting. If the resulting reserve would otherwise cause profits to be recognized
at the issue date, additional reserves are recorded. The resulting recognition of profits would be gradual over the expected life of the contract.
Reserves for deferred annuities are established equivalent to the account value held on behalf of the policyholder. Additional reserves for guaranteed minimum
death benefits are determined as needed in accordance with the applicable accounting guidance. The profit recognition on deferred annuity contracts is gradual over the expected life of the contract. No immediate profit is recognized on the sale of
the contract.
28
Key AssumptionsThe following assumptions reflect our best estimates and may impact our life and annuity
reserves:
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|
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Future lapse rates will remain reasonably consistent with our current expectations;
|
|
|
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Mortality rates will remain reasonably consistent within standard industry mortality table ranges; and
|
|
|
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Future interest spreads will remain reasonably consistent with our current expectations.
|
RecoverabilityAt least annually, we test the adequacy of the net benefit reserves (policy benefit reserves less DAC) recorded for life insurance and
annuity products. To perform the tests, we use our current best-estimate assumptions as to policyholder mortality, persistency, maintenance expenses and invested asset returns.
For interest-sensitive business, best-estimate assumptions are updated to reflect observed changes based on experience studies and current economic
conditions. We reflect the effect of such assumption changes in DAC and reserve balances accordingly. Due to the long-term nature of many of the liabilities, small changes in certain assumptions may cause large changes in profitability. In
particular, changes in estimates of the future invested asset return have a large effect on the degree of reserve adequacy and DAC recoverability.
For
traditional business, a lock-in principle applies, whereby the assumptions used to calculate the benefit reserves and DAC are set when a policy is issued and do not change with changes in actual experience. These include margins for
adverse deviation in the event that actual experience differs from the original assumptions.
Health Reserves
Health reserves are established using the following methods:
Completion Factor ApproachThis method assumes that the historical claim patterns will be an accurate representation of unpaid claim liabilities. An
estimate of the unpaid claims is calculated by subtracting period-to-date paid claims from an estimate of the ultimate complete payment for all incurred claims in the period. Completion factors are calculated which complete
the current period-to-date payment totals for each incurred month to estimate the ultimate expected payout.
Tabular Claims ReservesThis method is
used to calculate the reserves for disability income blocks of business. These reserves rely on published valuation continuance tables created using industry experience regarding assumptions of continued morbidity and subsequent recovery. Reserves
are calculated by applying these continuance tables, along with appropriate company experience adjustments, to the stream of contractual benefit payments. These expected benefit payments are discounted at the required interest rate.
Future Policy BenefitsReserves are equal to the aggregate of the present value of expected future benefit payments, less the present value of expected
future premiums. Morbidity and termination assumptions are based on our experience or published valuation tables when available and appropriate.
Premium
Deficiency ReservesDeficiency reserves are established when the expected future claim payments and expenses for a classification of policies are in excess of the expected premiums for these policies. The determination of a deficiency reserve
takes into consideration the likelihood of premium rate increases, the timing of these increases, and the expected benefit utilization patterns. We have established premium deficiency reserves for portions of the major medical business and the
long-term care business that are in run-off. The assumptions and methods used to determine the deficiency reserves are reviewed periodically for reasonableness, and the reserve amount is monitored against emerging losses.
29
Property and Casualty Reserves
Reserves for Claims and Claim Adjustment Expense (CAE)
Property and casualty reserves are established to provide for the estimated cost
of settling and paying both reported (case) as well as incurred but not reported (IBNR) claims. The two major categories of CAE are defense and cost containment expense, and adjusting and other expense. The details of
property and casualty reserves are shown below (in thousands):
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|
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|
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|
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|
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|
|
|
|
|
|
|
|
|
|
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|
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|
December 31, 2016
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|
|
December 31, 2015
|
|
|
|
Gross
|
|
|
Ceded
|
|
|
Net
|
|
|
Gross
|
|
|
Ceded
|
|
|
Net
|
|
Case
|
|
$
|
501,222
|
|
|
$
|
59,442
|
|
|
$
|
441,780
|
|
|
$
|
487,154
|
|
|
$
|
30,439
|
|
|
$
|
456,715
|
|
IBNR
|
|
|
402,961
|
|
|
|
20,052
|
|
|
|
382,909
|
|
|
|
383,429
|
|
|
|
10,751
|
|
|
|
372,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
904,183
|
|
|
$
|
79,494
|
|
|
$
|
824,689
|
|
|
$
|
870,583
|
|
|
$
|
41,190
|
|
|
$
|
829,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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Case ReservesReserves for reported losses are determined on either a judgment or a formula basis, depending on the
timing and type of the loss. The formula reserve is a fixed amount for each claim of a given type based on historical paid loss data for similar claims with provisions for trend changes, such as those caused by inflation. Judgment reserve amounts
generally replace initial formula reserves and are set for each loss based on facts and circumstances of each case and the expectation of damages. We regularly monitor the adequacy of reserves on a case-by-case basis and change the amount of such
reserves as necessary.
IBNR
IBNR reserves are estimated based on many variables, including historical statistical information, inflation,
legal developments, economic conditions, and general trends in claim severity, frequency and other factors that could affect the adequacy of claims reserves. Loss and premium data is aggregated by exposure class and by accident year. IBNR reserves
are estimated by projecting ultimate losses on each class of business and subtracting paid losses and case reserves. Our overall reserve practice provides for ongoing claims evaluation and adjustment based on the development of related data and
other relevant information pertaining to claims. Adjustments in aggregate reserves, if any, are included in the results of operations of the period during which such adjustments are made.
We believe we conservatively reflect the potential uncertainty generated by volatility in our loss development profiles when selecting loss development factor
patterns for each line of business. See Note 12, Liability for Unpaid Claims and Claim Adjustment Expenses, of the Notes to the Consolidated Financial Statements for additional information.
The evaluation process to determine reserves involves the collaboration of underwriting, claims and actuarial departments. The process also includes
consultation with independent actuarial firms as part of our process of gaining reassurance that claims and CAE reserves estimate sufficiently, all obligations arising from all losses incurred as of year-end. The independent actuarial firm completes
the Statements of Actuarial Opinion required by individual state insurance regulations at each year-end, opining that the recorded statutory claims and CAE reserves are reasonable.
Premium Deficiency ReserveDeficiency reserves are recorded when the expected claims payments and policy maintenance costs for a product line exceed the
expected premiums for that product line. The estimation of a deficiency reserve considers the current profitability of a product line using anticipated claims, CAE, and policy maintenance costs. The assumptions and methods used to determine the need
for deficiency reserves are reviewed periodically for reasonableness. There were no reserves of this type at December 31, 2016 and December 31, 2015, respectively.
30
Property and Casualty Reserving MethodologyThe following methods are utilized:
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Initial Expected Loss RatioThis method calculates an estimate of ultimate losses by applying an estimated loss ratio to actual earned premium for each calendar/accident year. This method is appropriate for classes
of business where the actual paid or reported loss experience is not yet mature enough to influence initial expectations of the ultimate loss ratios.
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Bornhuetter-FergusonThis method uses as a starting point an assumed initial expected loss ratio method and blends in the loss ratio implied by the claims experience to date by using loss development patterns based
on our historical experience. This method is generally appropriate where there are few reported claims and a relatively less stable pattern of reported losses.
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Loss or Expense Development (Chain Ladder)This method uses actual loss or defense and cost containment expense data and the historical development profiles on older accident periods to project more recent, less
developed periods to their ultimate total. This method is appropriate when there is a relatively stable pattern of loss and expense emergence and a relatively large number of reported claims.
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Ratio of Paid Defense and Cost Containment Expense to Paid Loss DevelopmentThis method uses the ratio of paid defense and cost containment expense to paid loss data and the historical development profiles on older
accident periods to project more recent, less developed periods to their ultimate total. In this method, an ultimate ratio of paid defense and cost containment expense to paid loss is selected for each accident period. The selected paid defense and
cost containment expense to paid loss ratio is then applied to the selected ultimate loss for each accident period to estimate the ultimate defense and cost containment expense. Paid defense and cost containment expense is then subtracted from the
ultimate defense and cost containment expense to calculate the unpaid defense and cost containment expense for that accident period.
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Calendar Year Paid Adjusting and Other Expense to Paid LossThis method uses a selected prior calendar years paid expense to paid loss ratio to project ultimate loss adjustment expenses for adjusting and
other expense. A percentage of the selected ratio is applied to the case reserves (depending on the line of insurance) and 100% to the indicated IBNR reserves. These ratios assume that a percentage of the expense is incurred when a claim is opened
and the remaining percentage is paid throughout the claims life.
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The basis of our selected single point best estimate on a particular
line of business is often a blended result from two or more methods (e.g. weighted averages). Our estimate is highly dependent on actuarial and management judgment as to which method(s) is most appropriate for a particular accident year and class of
business. Our methodology changes over time, as new information emerges regarding underlying loss activity and other factors.
Key Assumptions The
following assumptions may impact our property and casualty reserves:
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Stability of future inflation rates and consistency with historical inflation norms;
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The expected loss development patterns;
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Consistent claims handling, reserving and payment processes;
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No unusual growth patterns or unexpected changes in the mix of business; and
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No significant prospective changes in laws that would significantly affect future payouts.
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The loss ratio
selections and development profiles are developed primarily using our historical claims and loss experience. These development patterns reflect prior inflation rates, and could be impacted by future changes in inflation rates, particularly those
relating to medical care costs, automobile repair parts and building or home material costs. These assumptions have not been modified from the preceding periods and are consistent with historical loss reserve development patterns.
31
For non-credit lines of business, future inflation rates could vary from our assumption of relatively stable
rates. Unexpected changes in future inflation rates could impact our financial position and liquidity, and we measure the sensitivity of our reserve levels to unexpected changes in inflation. The impacts of future inflation for a 1.0% decrease and
3.0% increase over the implied inflation rate in the December 31, 2016 gross loss reserve balance are as follows (amounts in thousands):
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Cumulative Increase (Decrease) in Reserves
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|
1.0% Decrease
|
|
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3.0% Increase
|
|
Personal
|
|
|
|
|
|
|
|
|
Automobile
|
|
$
|
(3,995
|
)
|
|
$
|
12,533
|
|
Homeowner
|
|
|
(859
|
)
|
|
|
3,290
|
|
Commercial
|
|
|
|
|
|
|
|
|
Agricultural Business
|
|
|
(8,341
|
)
|
|
|
23,299
|
|
Automobile
|
|
|
(2,191
|
)
|
|
|
6,659
|
|
The analysis of our credit insurance line of business quantifies the estimated impact on gross loss reserves of a reasonably
likely scenario of varying the ratio applied to the earned premium to determine the IBNR reserves at December 31, 2016. IBNR reserving methodology for this line of business focuses primarily on the use of a ratio applied to the unearned premium
for each credit insurance product. The selected ratios are based on historical loss and claim data. In our analysis, we varied this ratio by +/- 5% across all credit insurance products combined. The results of our analysis show an increase or
decrease in gross reserves across all accident years combined of approximately $8.3 million.
It is not appropriate to aggregate the impacts shown in our
sensitivity analysis, as our lines of business are not directly correlated. The variations are not meant to be a best-case or worst-case scenario, and it is possible that future variations will be more or less than the
amounts in the sensitivity analysis. While these are possible scenarios based on the information available to us at this time, we do not believe the reader should consider our sensitivity analysis an actual reserve range.
Management believes our reserves at December 31, 2016 are adequate. New information, regulation, events or circumstances unknown at the original
valuation date, however, may result in future development resulting in ultimate losses being significantly greater or less than the recorded reserves at December 31, 2016.
Deferred Policy Acquisition Costs
We had a DAC
asset of approximately $1.29 billion and $1.32 billion at December 31, 2016 and 2015, respectively. See Note 10, Deferred Policy Acquisition Costs, of the Notes to the Consolidated Financial Statements for additional details.
We believe the estimates used in our DAC calculations provide an example of how variations in assumptions and estimates would affect our business. The
following table displays the sensitivity of reasonably likely changes in assumptions in the DAC amortization for our long-tail business at December 31, 2016 (in thousands):
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|
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|
|
|
|
Increase (Decrease) in
DAC
|
|
Increase in future investment margins of 25 basis points
|
|
$
|
37,360
|
|
Decrease in future investment margins of 25 basis points
|
|
|
(40,178
|
)
|
Decrease in future life mortality by 1%
|
|
|
1,276
|
|
Increase in future life mortality by 1%
|
|
|
(1,255
|
)
|
32
Reinsurance
We manage our insurance underwriting risk exposures by purchasing reinsurance. We manage counterparty risk by entering into agreements with reinsurers we
consider creditworthy, generally measured by the individual entity or entities financial strength rating. However, we do not require a specified minimum rating. We monitor the concentrations of the reinsurers and reduce the participation
percentage of lower-rated and unrated companies when appropriate in our judgment. In the third quarter of 2015, we recognized a loss related to a reinsurer being unable to fulfill its obligations. While we believe we currently have no significant
credit risk related to reinsurance counterparties, we continue to monitor their financial condition.
Some of our reinsurance contracts contain clauses
that allow us to terminate the participation with reinsurers whose ratings are downgraded. Information used in our risk assessment is comprised of industry ratings, recent news and reports, and a limited review of financial statements. We also may
require reinsurers not licensed in our state of domicile or with whom we have limited experience, to provide letters of credit, trust agreements, or cash advances to fund their share of reserves.
Other-Than-Temporary Impairment
A decline in the
fair value of investment securities below their cost basis is evaluated on an ongoing basis to determine if the decline is other-than-temporary. A number of assumptions and estimates inherent in evaluating impairments are used to determine if they
are other-than-temporary, which include 1) our ability and intent to hold the investment securities for a period of time sufficient to allow for an anticipated recovery in value; 2) the expected recoverability of principal and interest; 3) the
length of time and extent to which the fair value has been less than cost basis; 4) 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; and 5) the specific reasons that a security is in a significant unrealized loss position, including market conditions, which could affect liquidity.
Valuation of Financial Instruments
The fair value
of available-for-sale securities (equity and fixed maturity securities) is determined by management using one of the three primary sources of information: the quoted prices in active markets; third-party pricing services; or independent broker
quotations. Estimated fair value of securities based on quoted prices in active markets is readily and regularly available; therefore, valuation of these securities generally does not involve management judgment. For securities without quoted
prices, fair value measurement is determined using third-party pricing services proprietary pricing applications. Typical inputs used by the models are relevant market information, benchmark curves, benchmark pricing of like securities, sector
groupings and matrix pricing. Any securities remaining unpriced after utilizing the first two pricing methods are submitted to independent brokers for prices. We have analyzed the third-party pricing services and independent brokers valuation
methodologies and related inputs, and have evaluated the various types of securities in our investment portfolio to determine an appropriate fair value hierarchy level based upon trading activity and the observability of market inputs. Management
completes certain tests throughout the year and at year-end to determine that prices provided by our pricing services are reasonable.
We utilize
over-the-counter equity options to hedge our exposure to equity-indexed universal life and equity-indexed deferred annuity benefits, and the fair values for these options are sourced from broker quotations. Accounting guidance requires a fair value
calculation as part of equity-indexed policy reserves. This is called the value of embedded derivative (or VED) and the other part of the indexed policy reserve is called the host reserve. The embedded derivative represents future benefit
cash flows in excess of minimum guarantee cash flows. The host covers the minimum guarantee cash flows. Both the VED and the host reserve are calculated by a vendor-sourced reserve valuation system. The VED calculation model
incorporates assumptions related to current option pricing (such as implied volatility and LIBOR/swap curve), future policyholder behavior (such as surrenders and withdrawals), and factors affecting the value of future indexed interest periods (such
as option budgets).
33
Pension and Postretirement Benefit Plans
The Company has frozen each of its defined benefit pension plans. Our pension and postretirement benefit obligations and related costs covering our employees
are estimated using actuarial concepts in accordance with the relevant accounting guidance. The discount rate and the expected return on plan assets are important elements of expense and/or liability measurements. Each year, these key assumptions
are reevaluated to determine whether they reflect the best estimates for the current period. Changes in the methodology used to determine the best estimates are made when facts or circumstances change. Other assumptions involve demographic factors
such as retirement age, mortality and turnover. The expected long-term rate of return on plan assets is determined using the building-block method which is described further in Note 18, Pension and Postretirement Benefits, of the Consolidated
Financial Statements. Early in 2017, the Company commenced a one time window offering to terminated, vested participants of our qualified defined benefit pension plans. The offer allows participants to take a lump sum or annuity payout which will be
funded from pension plan assets.
Litigation Contingencies
Based on information currently available, we believe that amounts ultimately paid, if any, arising from existing and currently potential litigation would not
have a material effect on our results of operations and financial condition. However, it should be noted that the frequency of large damage awards, which bear little or no relation to the economic damages incurred by plaintiffs, continues to create
the potential for an unpredictable judgment in any given lawsuit. It is possible that, if the defenses in these lawsuits are not successful, and the judgments are greater than we anticipate, the resulting liability could have a material impact on
the consolidated financial statements.
Federal Income Taxes
Our effective tax rate is based on income, non-taxable and non-deductible items, statutory tax rates and tax credits. Also, managements best estimate of
future events and their impact is included in our accounting estimates. Certain changes or future events, such as changes in tax legislation, and completion of tax audits could have an impact on our estimates and effective tax rate. Audit periods
remain open for review until the statute of limitations has passed.
GAAP requires us to evaluate the recoverability of our deferred tax assets and
establish a valuation allowance, if necessary, to reduce our deferred tax asset to an amount that is more-likely-than-not to be realized. Considerable judgment is required in determining whether a valuation allowance is necessary, and if so, the
amount of such valuation allowance. Although realization is not assured, management believes it is more-likely-than-not that the deferred tax assets will be realized and that no valuation allowance is necessary at his time.
34
Consolidated Results of Operations
The following sets forth the consolidated results of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
Change over prior year
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
Premiums and other revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
1,996,648
|
|
|
$
|
1,838,519
|
|
|
$
|
1,815,971
|
|
|
$
|
158,129
|
|
|
$
|
22,548
|
|
Other policy revenues
|
|
|
306,880
|
|
|
|
250,265
|
|
|
|
224,254
|
|
|
|
56,615
|
|
|
|
26,011
|
|
Net investment income
|
|
|
860,235
|
|
|
|
834,831
|
|
|
|
932,858
|
|
|
|
25,404
|
|
|
|
(98,027
|
)
|
Realized investments gains (losses), net
|
|
|
28,940
|
|
|
|
59,443
|
|
|
|
41,422
|
|
|
|
(30,503
|
)
|
|
|
18,021
|
|
Other income
|
|
|
35,248
|
|
|
|
34,397
|
|
|
|
36,085
|
|
|
|
851
|
|
|
|
(1,688
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total premiums and other revenues
|
|
|
3,227,951
|
|
|
|
3,017,455
|
|
|
|
3,050,590
|
|
|
|
210,496
|
|
|
|
(33,135
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits, losses and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits
|
|
|
711,384
|
|
|
|
617,006
|
|
|
|
542,015
|
|
|
|
94,378
|
|
|
|
74,991
|
|
Claims incurred
|
|
|
1,015,047
|
|
|
|
923,367
|
|
|
|
933,768
|
|
|
|
91,680
|
|
|
|
(10,401
|
)
|
Interest credited to policyholders account balances
|
|
|
331,770
|
|
|
|
293,464
|
|
|
|
353,492
|
|
|
|
38,306
|
|
|
|
(60,028
|
)
|
Commissions for acquiring and servicing policies
|
|
|
465,962
|
|
|
|
425,338
|
|
|
|
397,126
|
|
|
|
40,624
|
|
|
|
28,212
|
|
Other operating expenses
|
|
|
503,459
|
|
|
|
501,377
|
|
|
|
485,865
|
|
|
|
2,082
|
|
|
|
15,512
|
|
Change in deferred policy acquisition costs
(1)
|
|
|
1,152
|
|
|
|
(11,785
|
)
|
|
|
9,578
|
|
|
|
12,937
|
|
|
|
(21,363
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses
|
|
|
3,028,774
|
|
|
|
2,748,767
|
|
|
|
2,721,844
|
|
|
|
280,007
|
|
|
|
26,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before other items and federal income taxes
|
|
$
|
199,177
|
|
|
$
|
268,688
|
|
|
$
|
328,746
|
|
|
$
|
(69,511
|
)
|
|
$
|
(60,058
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
A negative amount of net change indicates more expense was deferred than amortized and represents a decrease to expenses in the period indicated. A positive net change indicates less expense was deferred than amortized
and represents an increase to expenses in the period indicated.
|
Consolidated earnings decreased during 2016 compared to 2015 primarily due
to a decrease in property and casualty earnings and lower realized capital gains. Property and casualty earnings decreased as continued premium growth was outpaced by the increase in personal auto claims and as catastrophe losses reverted to what we
believe is a normal level. The decrease in realized capital gains was attributable to a decrease in sales of certain real estate holdings compared to 2015. Consolidated earnings decreased during 2015 compared to 2014 primarily due to a
decrease in margins earned on investment income.
Life
Life segment financial results for the periods indicated were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
Change over prior year
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
Premiums and other revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
318,953
|
|
|
$
|
305,350
|
|
|
$
|
307,771
|
|
|
$
|
13,603
|
|
|
$
|
(2,421
|
)
|
Other policy revenues
|
|
|
295,289
|
|
|
|
237,797
|
|
|
|
209,192
|
|
|
|
57,492
|
|
|
|
28,605
|
|
Net investment income
|
|
|
227,923
|
|
|
|
226,076
|
|
|
|
232,389
|
|
|
|
1,847
|
|
|
|
(6,313
|
)
|
Other income
|
|
|
2,067
|
|
|
|
1,709
|
|
|
|
1,427
|
|
|
|
358
|
|
|
|
282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total premiums and other revenues
|
|
|
844,232
|
|
|
|
770,932
|
|
|
|
750,779
|
|
|
|
73,300
|
|
|
|
20,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits, losses and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits
|
|
|
416,467
|
|
|
|
386,785
|
|
|
|
351,271
|
|
|
|
29,682
|
|
|
|
35,514
|
|
Interest credited to policyholders account balances
|
|
|
63,565
|
|
|
|
59,148
|
|
|
|
68,796
|
|
|
|
4,417
|
|
|
|
(9,648
|
)
|
Commissions for acquiring and servicing policies
|
|
|
132,428
|
|
|
|
121,482
|
|
|
|
124,447
|
|
|
|
10,946
|
|
|
|
(2,965
|
)
|
Other operating expenses
|
|
|
199,769
|
|
|
|
201,112
|
|
|
|
194,927
|
|
|
|
(1,343
|
)
|
|
|
6,185
|
|
Change in deferred policy acquisition costs
(1)
|
|
|
3,887
|
|
|
|
(31,048
|
)
|
|
|
(32,014
|
)
|
|
|
34,935
|
|
|
|
966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses
|
|
|
816,116
|
|
|
|
737,479
|
|
|
|
707,427
|
|
|
|
78,637
|
|
|
|
30,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before other items and federal income taxes
|
|
$
|
28,116
|
|
|
$
|
33,453
|
|
|
$
|
43,352
|
|
|
$
|
(5,337
|
)
|
|
$
|
(9,899
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
A negative amount of net change indicates more expense was deferred than amortized and represents a decrease to expenses in the period indicated. A positive net change indicates less expense was deferred than amortized
and represents an increase to expenses in the period indicated.
|
35
Earnings decreased during 2016 compared to 2015 primarily due to a change in estimate which resulted in a net
decrease in earnings of $3.7 million. Additional non-recurring expense was incurred in 2016 relating to certain policies that lapsed with insufficient value to cover their outstanding policy loan balance. Earnings decreased during 2015 compared to
2014 primarily due to the increase in policyholders benefits partially offset by an increase in other policy revenues.
Premiums and other revenues
Premiums increased during 2016 compared to 2015 primarily due to continued growth in renewal premium on our term products. Premiums were
relatively flat during 2015 compared to 2014.
Other policy revenues include mortality charges, earned policy service fees and surrender charges on
interest-sensitive life insurance policies. The increase in other policy revenues during 2016 compared to 2015 is due to an increase in mortality charges and the above-mentioned change in estimate. The increase in other policy revenues during 2015
compared to 2014 is attributable to an increase in mortality charges and an assumption change for universal life products.
Life insurance sales
The following table presents life insurance sales as measured by annualized premium, a non-GAAP measure used by the insurance industry, which allows a
comparison of new policies sold by an insurance company during the period (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
Change over prior year
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
Traditional Life
|
|
$
|
52,596
|
|
|
$
|
55,280
|
|
|
$
|
55,391
|
|
|
$
|
(2,684
|
)
|
|
$
|
(111
|
)
|
Universal Life
|
|
|
19,519
|
|
|
|
14,355
|
|
|
|
15,276
|
|
|
|
5,164
|
|
|
|
(921
|
)
|
Indexed UL
|
|
|
24,606
|
|
|
|
22,888
|
|
|
|
22,458
|
|
|
|
1,718
|
|
|
|
430
|
|
Variable UL
|
|
|
24
|
|
|
|
25
|
|
|
|
39
|
|
|
|
(1
|
)
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Recurring
|
|
$
|
96,745
|
|
|
$
|
92,548
|
|
|
$
|
93,164
|
|
|
$
|
4,197
|
|
|
$
|
(616
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single and excess
|
|
$
|
1,932
|
|
|
$
|
2,163
|
|
|
$
|
2,173
|
|
|
$
|
(231
|
)
|
|
$
|
(10
|
)
|
Credit life
|
|
|
4,372
|
|
|
|
3,984
|
|
|
|
3,940
|
|
|
|
388
|
|
|
|
44
|
|
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 and 15% of credit life premium. 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.
Life insurance sales increased during 2016 compared to 2015 primarily driven by an increase in universal life policy sales. Life insurance sales were
relatively flat during 2015 compared to 2014.
Benefits, losses and expenses
Policyholder benefits increased during 2016 compared to 2015 primarily due to the above-mentioned change in estimate. Policyholder benefits increased during
2015 compared to 2014 primarily due to an increase in claims although claims were within our product pricing measures.
Commissions increased during 2016
compared to 2015 primarily due to an increase in universal life policy sales. Commissions were relatively flat during 2015 compared to 2014.
36
The following table presents the components of the change in DAC (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Change over prior year
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
Acquisition capitalized
|
|
$
|
108,825
|
|
|
$
|
108,615
|
|
|
$
|
110,195
|
|
|
$
|
210
|
|
|
$
|
(1,580
|
)
|
Amortization
|
|
|
(112,712
|
)
|
|
|
(77,567
|
)
|
|
|
(78,181
|
)
|
|
|
(35,145
|
)
|
|
|
614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in DAC
|
|
$
|
(3,887
|
)
|
|
$
|
31,048
|
|
|
$
|
32,014
|
|
|
$
|
(34,935
|
)
|
|
$
|
(966
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in DAC is primarily due to the change in estimate mentioned above. DAC was relatively flat during 2015 compared
to 2014.
Policy in-force information
The
following table summarizes changes in the Life segments in-force amounts (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Change over prior year
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
Life insurance in-force
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Traditional life
|
|
$
|
67,649,433
|
|
|
$
|
63,336,601
|
|
|
$
|
59,409,750
|
|
|
$
|
4,312,832
|
|
|
$
|
3,926,851
|
|
Interest-sensitive life
|
|
|
27,971,646
|
|
|
|
26,858,051
|
|
|
|
26,166,314
|
|
|
|
1,113,595
|
|
|
|
691,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total life insurance in-force
|
|
$
|
95,621,079
|
|
|
$
|
90,194,652
|
|
|
$
|
85,576,064
|
|
|
$
|
5,426,427
|
|
|
$
|
4,618,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes changes in the Life segments number of policies in-force:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Change over prior year
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
Number of policies in-force
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Traditional life
|
|
$
|
1,841,359
|
|
|
$
|
1,890,600
|
|
|
$
|
1,949,119
|
|
|
$
|
(49,241
|
)
|
|
$
|
(58,519
|
)
|
Interest-sensitive life
|
|
|
222,845
|
|
|
|
212,851
|
|
|
|
205,805
|
|
|
|
9,994
|
|
|
|
7,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total number of policies
|
|
$
|
2,064,204
|
|
|
$
|
2,103,451
|
|
|
$
|
2,154,924
|
|
|
$
|
(39,247
|
)
|
|
$
|
(51,473
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total life insurance in-force increased during 2016 compared to 2015 and 2015 compared to 2014, while the total number of
policies decreased for the same periods, reflecting the transition to fewer but higher face amount policies.
37
Reinsurance
The table below summarizes reinsurance reserves and premium amounts assumed and ceded (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves
|
|
|
Premiums
|
|
|
|
Years ended December 31,
|
|
|
Years ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Reinsurance assumed
|
|
$
|
1,716
|
|
|
$
|
48
|
|
|
$
|
117
|
|
|
$
|
2,188
|
|
|
$
|
(20
|
)
|
|
$
|
137
|
|
Reinsurance ceded
|
|
|
(219,375
|
)
|
|
|
(219,272
|
)
|
|
|
(209,853
|
)
|
|
|
(104,128
|
)
|
|
|
(101,636
|
)
|
|
|
(96,577
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(217,659
|
)
|
|
$
|
(219,224
|
)
|
|
$
|
(209,736
|
)
|
|
$
|
(101,940
|
)
|
|
$
|
(101,656
|
)
|
|
$
|
(96,440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We use reinsurance to mitigate risk to the Life segment. During 2016, our retention limits were $1.5 million for issue ages 65
and under, and $700,000 million for issue ages 66 and older for traditional and universal life. Accidental death and premium waiver benefits are mostly retained on new business. Increases in reserves and premium amounts ceded primarily reflect
increased use of reinsurance in conjunction with treaties related to universal life products.
Consistent with our corporate risk management strategy, we
periodically adjust our reinsurance program and retention limits as market conditions warrant. While, in the past, we have reinsured up to 90% of new business, we are currently reinsuring newly developed permanent products on a modified excess
retention basis, in which we reinsure mortality risk on a yearly renewable term basis, ceding a 75% quota share of policies with a face value of at least $500,000 up to our retention and then 100% in excess of retention
.
Current traditionally
marketed term products are reinsured on a modified excess retention basis, in which we reinsure mortality risk on a yearly renewable term basis, ceding 50% quota share of face amounts in excess of $250,000 up to our retention and then 100% in excess
of retention.
Reinsurance is used in the credit life business primarily to provide producers of credit-related insurance products the opportunity to
participate in the underwriting risk through producer-owned captive reinsurance companies often domiciled outside of the United States. A majority of the treaties entered into by our Credit Insurance Division are written on a 100% coinsurance basis
with benefit limits of $125,000 on credit life. We have entered into funds withheld reinsurance treaties, which provide for cessions to the reinsurer on a written basis.
For 2016, the companies to whom we have ceded reinsurance for the Life segment are shown below (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A.M. Best
|
|
|
Ceded
|
|
|
Percentage of
|
|
Reinsurer
|
|
Rating
(1)
|
|
|
Premium
|
|
|
Gross Premium
|
|
Swiss Re Life & Health of America Inc.
|
|
|
A
|
+
|
|
$
|
26,402
|
|
|
|
6.2
|
%
|
SCOR Global Life Reinsurance Company of Delaware
|
|
|
A
|
|
|
|
18,041
|
|
|
|
4.3
|
|
Munich American Reassurance Company
|
|
|
A
|
+
|
|
|
15,155
|
|
|
|
3.6
|
|
Reinsurance Group Of America
|
|
|
A
|
+
|
|
|
6,094
|
|
|
|
1.4
|
|
Other Reinsurers with no single company greater than 5% of the total ceded premium
|
|
|
|
|
|
|
38,436
|
|
|
|
9.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total life reinsurance ceded
|
|
|
|
|
|
$
|
104,128
|
|
|
|
24.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
A.M. Best rating as of the most current information available January 05, 2017.
|
38
Annuity
Annuity segment financial results for the periods indicated were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
Change over prior year
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
Premiums and other revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
248,714
|
|
|
$
|
183,125
|
|
|
$
|
190,357
|
|
|
$
|
65,589
|
|
|
$
|
(7,232
|
)
|
Other policy revenues
|
|
|
11,591
|
|
|
|
12,468
|
|
|
|
15,062
|
|
|
|
(877
|
)
|
|
|
(2,594
|
)
|
Net investment income
|
|
|
500,726
|
|
|
|
459,458
|
|
|
|
545,887
|
|
|
|
41,268
|
|
|
|
(86,429
|
)
|
Other income
|
|
|
3,161
|
|
|
|
3,464
|
|
|
|
(1
|
)
|
|
|
(303
|
)
|
|
|
3,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total premiums and other revenues
|
|
|
764,192
|
|
|
|
658,515
|
|
|
|
751,305
|
|
|
|
105,677
|
|
|
|
(92,790
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits, losses and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits
|
|
|
294,917
|
|
|
|
230,221
|
|
|
|
234,173
|
|
|
|
64,696
|
|
|
|
(3,952
|
)
|
Interest credited to policyholders account balances
|
|
|
268,205
|
|
|
|
234,316
|
|
|
|
284,696
|
|
|
|
33,889
|
|
|
|
(50,380
|
)
|
Commissions for acquiring and servicing policies
|
|
|
78,177
|
|
|
|
62,917
|
|
|
|
48,478
|
|
|
|
15,260
|
|
|
|
14,439
|
|
Other operating expenses
|
|
|
53,054
|
|
|
|
54,037
|
|
|
|
56,487
|
|
|
|
(983
|
)
|
|
|
(2,450
|
)
|
Change in deferred policy acquisition costs
(1)
|
|
|
(5,780
|
)
|
|
|
17,069
|
|
|
|
31,735
|
|
|
|
(22,849
|
)
|
|
|
(14,666
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses
|
|
|
688,573
|
|
|
|
598,560
|
|
|
|
655,569
|
|
|
|
90,013
|
|
|
|
(57,009
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before other items and federal income taxes
|
|
$
|
75,619
|
|
|
$
|
59,955
|
|
|
$
|
95,736
|
|
|
$
|
15,664
|
|
|
$
|
(35,781
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
A negative amount of net change indicates more expense was deferred than amortized and represents a decrease to expenses in the period indicated. A positive net change indicates less expense was deferred than amortized
and represents an increase to expenses in the period indicated.
|
Earnings increased during 2016 compared to 2015 primarily due to increased
assets, as measured by account value and reserves, leading to an increase in margins earned on net investment income. The favorable decrease in DAC for 2016 was related to lower surrenders. Earnings decreased during 2015 compared to 2014 primarily
due to the decrease in investment margins. Net investment income declined in 2015 primarily due to unrealized losses in income on over-the-counter-equity-indexed option derivatives and a decrease in investment income.
Premiums and other revenues
Annuity premium and
deposit amounts received are shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
Change over prior year
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
Fixed deferred annuity
|
|
$
|
508,894
|
|
|
$
|
528,623
|
|
|
$
|
316,265
|
|
|
$
|
(19,729
|
)
|
|
$
|
212,358
|
|
Single premium immediate annuity
|
|
|
281,521
|
|
|
|
213,341
|
|
|
|
215,871
|
|
|
|
68,180
|
|
|
|
(2,530
|
)
|
Equity-indexed deferred annuity
|
|
|
572,473
|
|
|
|
432,517
|
|
|
|
245,574
|
|
|
|
139,956
|
|
|
|
186,943
|
|
Variable deferred annuity
|
|
|
76,012
|
|
|
|
93,898
|
|
|
|
110,854
|
|
|
|
(17,886
|
)
|
|
|
(16,956
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total premium and deposits
|
|
|
1,438,900
|
|
|
|
1,268,379
|
|
|
|
888,564
|
|
|
|
170,521
|
|
|
|
379,815
|
|
Less: Policy deposits
|
|
|
1,190,186
|
|
|
|
1,085,254
|
|
|
|
698,207
|
|
|
|
104,932
|
|
|
|
387,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earned premiums
|
|
$
|
248,714
|
|
|
$
|
183,125
|
|
|
$
|
190,357
|
|
|
$
|
65,589
|
|
|
$
|
(7,232
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning in the third quarter of 2015, the Company enhanced crediting rates on certain annuity products resulting in
increased sales through 2016.
39
We monitor account values and changes in those values as a key indicator of performance in our Annuity segment.
Shown below are the changes in account values (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Fixed deferred and equity-indexed annuity
|
|
|
|
|
|
|
|
|
|
|
|
|
Account value, beginning of period
|
|
$
|
8,880,448
|
|
|
$
|
8,873,397
|
|
|
$
|
9,355,946
|
|
Net inflows
|
|
|
766,895
|
|
|
|
686,312
|
|
|
|
408,615
|
|
Surrenders
|
|
|
(784,666
|
)
|
|
|
(893,986
|
)
|
|
|
(1,158,463
|
)
|
Fees
|
|
|
(5,821
|
)
|
|
|
(6,301
|
)
|
|
|
(9,007
|
)
|
Interest credited
|
|
|
261,494
|
|
|
|
221,026
|
|
|
|
276,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Account value, end of period
|
|
|
9,118,350
|
|
|
|
8,880,448
|
|
|
|
8,873,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single premium immediate annuity
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve, beginning of period
|
|
|
1,398,481
|
|
|
|
1,274,664
|
|
|
|
1,144,616
|
|
Net inflows
|
|
|
117,840
|
|
|
|
68,355
|
|
|
|
82,820
|
|
Interest and mortality
|
|
|
50,119
|
|
|
|
55,462
|
|
|
|
47,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve, end of period
|
|
|
1,566,440
|
|
|
|
1,398,481
|
|
|
|
1,274,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable deferred annuity
|
|
|
|
|
|
|
|
|
|
|
|
|
Account value, beginning of period
|
|
|
417,821
|
|
|
|
494,516
|
|
|
|
489,305
|
|
Net inflows
|
|
|
71,982
|
|
|
|
91,276
|
|
|
|
108,094
|
|
Surrenders
|
|
|
(114,543
|
)
|
|
|
(163,677
|
)
|
|
|
(129,577
|
)
|
Fees
|
|
|
(4,745
|
)
|
|
|
(5,507
|
)
|
|
|
(5,763
|
)
|
Change in market value and other
|
|
|
21,830
|
|
|
|
1,213
|
|
|
|
32,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Account value, end of period
|
|
|
392,345
|
|
|
|
417,821
|
|
|
|
494,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total account value, end of period
|
|
$
|
11,077,135
|
|
|
$
|
10,696,750
|
|
|
$
|
10,642,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits, losses and expenses
Policyholder benefits consist of annuity payments and reserve increases for SPIA contracts. Reserve increases are highly correlated to the sales volume of SPIA
contracts. The level of benefits for 2016, 2015, and 2014 was commensurate with increases in SPIA premium during these periods.
Commissions increased
during 2016 compared to 2015 driven by the mix of business and the increase in sales of higher commissionable products, such as equity-indexed and single premium immediate annuities. Commissions increased during 2015 compared to 2014 driven by the
increase in fixed deferred and equity-indexed annuity sales.
Other operating expenses were relatively flat during 2016 compared to 2015 despite the
increase in annuity volume. Other operating expenses also decreased during 2015 compared to 2014.
40
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
Change over prior year
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
Acquisition cost capitalized
|
|
$
|
77,161
|
|
|
$
|
64,724
|
|
|
$
|
47,400
|
|
|
$
|
12,437
|
|
|
$
|
17,324
|
|
Amortization of DAC
|
|
|
(71,381
|
)
|
|
|
(81,793
|
)
|
|
|
(79,135
|
)
|
|
|
10,412
|
|
|
|
(2,658
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in DAC
|
|
$
|
5,780
|
|
|
$
|
(17,069
|
)
|
|
$
|
(31,735
|
)
|
|
$
|
22,849
|
|
|
$
|
14,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The change in DAC increased during 2016 compared to 2015, and 2015 compared to 2014, due to an increase in capitalization
which is primarily driven by the increase in commissions.
The amortization of DAC as a percentage of gross profits is an important ratio for the Annuity
segment. Changes in this ratio reflect the impact of emerging experience. The ratios for the years ended December 31, 2016, 2015, and 2014 were 35.5%, 42.2%, and 34.0%, respectively. The favorable decrease in the 2016 ratio was directly related
to lower surrenders. The 2015 ratio is at a relatively normal level. The lower 2014 ratio also reflects lower than estimated surrenders.
Options and Derivatives
Net investment income
without equity-indexed options or option return increased during 2016 compared to 2015 primarily due to higher account values and reserves as a result of increased sales. Net investment income without option return decreased during 2015
compared to 2014 primarily due to a lower net investment portfolio yield.
The S&P 500 Index increased by approximately 9.5% in 2016 and decreased by
approximately 0.7% in 2015.This change in index performance led to an increase in the option return of $33.3 million during 2016 compared to 2015, partially offset by a $27.9 million increase in the related equity-indexed embedded derivative for a
net increase in earnings of $5.4 million.
The following table summarizes the incremental impact of the investment performance of option
return on net investment income, and the impact of the equity-indexed annuity embedded derivatives to interest credited to policyholders account balances (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
Change over prior year
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Without option return
|
|
$
|
474,627
|
|
|
$
|
466,660
|
|
|
$
|
496,652
|
|
|
$
|
7,967
|
|
|
$
|
(29,992
|
)
|
Option return
|
|
|
26,099
|
|
|
|
(7,202
|
)
|
|
|
49,235
|
|
|
|
33,301
|
|
|
|
(56,437
|
)
|
Interest credited to policy account balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Without embedded derivatives
|
|
|
244,701
|
|
|
|
238,702
|
|
|
|
255,383
|
|
|
|
5,999
|
|
|
|
(16,681
|
)
|
Equity-indexed annuity embedded derivatives
|
|
|
23,504
|
|
|
|
(4,386
|
)
|
|
|
29,313
|
|
|
|
27,890
|
|
|
|
(33,699
|
)
|
41
Health
Health segment results for the periods indicated were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
Change over prior year
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
Premiums and other revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
175,589
|
|
|
$
|
196,777
|
|
|
$
|
216,868
|
|
|
$
|
(21,188
|
)
|
|
$
|
(20,091
|
)
|
Net investment income
|
|
|
9,942
|
|
|
|
10,135
|
|
|
|
11,692
|
|
|
|
(193
|
)
|
|
|
(1,557
|
)
|
Other income
|
|
|
17,488
|
|
|
|
17,714
|
|
|
|
20,391
|
|
|
|
(226
|
)
|
|
|
(2,677
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total premiums and other revenues
|
|
|
203,019
|
|
|
|
224,626
|
|
|
|
248,951
|
|
|
|
(21,607
|
)
|
|
|
(24,325
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits, losses and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims incurred
|
|
|
131,828
|
|
|
|
146,805
|
|
|
|
144,799
|
|
|
|
(14,977
|
)
|
|
|
2,006
|
|
Commissions for acquiring and servicing policies
|
|
|
22,846
|
|
|
|
27,455
|
|
|
|
35,896
|
|
|
|
(4,609
|
)
|
|
|
(8,441
|
)
|
Other operating expenses
|
|
|
43,263
|
|
|
|
45,047
|
|
|
|
43,261
|
|
|
|
(1,784
|
)
|
|
|
1,786
|
|
Change in deferred policy acquisition costs
(1)
|
|
|
3,770
|
|
|
|
3,394
|
|
|
|
(564
|
)
|
|
|
376
|
|
|
|
3,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses
|
|
|
201,707
|
|
|
|
222,701
|
|
|
|
223,392
|
|
|
|
(20,994
|
)
|
|
|
(691
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before other items and federal income taxes
|
|
$
|
1,312
|
|
|
$
|
1,925
|
|
|
$
|
25,559
|
|
|
$
|
(613
|
)
|
|
$
|
(23,634
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
A negative amount of net change indicates more expense was deferred than amortized and represents a decrease to expenses in the period indicated. A positive net change indicates less expense was deferred than amortized
and represents an increase to expenses in the period indicated.
|
Earnings remained relatively constant during 2016 and 2015 and decreased
from 2014 relating to separate items that reduced earnings below levels of prior years. In 2016, the Company decreased the estimate of losses that would be ceded to and paid by reinsurers on claims incurred primarily in 2001. In 2015, earnings were
negatively impacted due to an increase in claims retained by the Company from a reinsurer that was unable to meet its contractual obligations.
Premiums and other revenues
Health earned
premiums for the periods indicated were as follows (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Medicare Supplement
|
|
$
|
68,376
|
|
|
|
38.9
|
%
|
|
$
|
76,090
|
|
|
|
38.6
|
%
|
|
$
|
85,099
|
|
|
|
39.2
|
%
|
Credit accident and health
|
|
|
15,124
|
|
|
|
8.6
|
|
|
|
13,106
|
|
|
|
6.7
|
|
|
|
13,736
|
|
|
|
6.3
|
|
MGU
|
|
|
17,611
|
|
|
|
10.0
|
|
|
|
23,798
|
|
|
|
12.1
|
|
|
|
24,230
|
|
|
|
11.2
|
|
Supplemental insurance
|
|
|
23,876
|
|
|
|
13.6
|
|
|
|
26,546
|
|
|
|
13.5
|
|
|
|
31,769
|
|
|
|
14.7
|
|
Medical expense
|
|
|
14,021
|
|
|
|
8.0
|
|
|
|
16,910
|
|
|
|
8.6
|
|
|
|
21,919
|
|
|
|
10.1
|
|
Group
|
|
|
30,974
|
|
|
|
17.6
|
|
|
|
34,361
|
|
|
|
17.5
|
|
|
|
33,835
|
|
|
|
15.6
|
|
All other
|
|
|
5,607
|
|
|
|
3.3
|
|
|
|
5,966
|
|
|
|
3.0
|
|
|
|
6,280
|
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
175,589
|
|
|
|
100.0
|
%
|
|
$
|
196,777
|
|
|
|
100.0
|
%
|
|
$
|
216,868
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earned premiums decreased during 2016 compared to 2015, primarily due to a decline in Medicare Supplement and MGU premiums.
Medicare Supplement earned premiums decreased due to lapses that were greater than new sales, compounded by the continuing shift in sales from comprehensive higher premium plans to the lower premium high deductible plan. MGU premiums decreased due
to the removal of lesser performing groups by several MGUs. New sources of business have originated during the current year and it is intended that premiums written for these groups will replace portions of the cancelled groups. Medical expense
premiums continued to decline due to lapsation of this closed block of business. Supplemental insurance declined during 2016 compared to 2015, due to lapsation, which more than offset the increase in sales relative to 2015. Earned premiums decreased
during 2015 compared to 2014 primarily due to the continued contraction of the closed medical expense blocks of business, and a decrease in Medicare Supplement sales.
Effective January 1, 2017, the majority of the Group premium, which is in runoff, did not renew. Consequently, 2017 earned premium for this component of
business will be significantly lower than in prior periods.
42
Our in-force certificates or policies as of the dates indicated are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Medicare Supplement
|
|
|
33,815
|
|
|
|
6.3
|
%
|
|
|
35,586
|
|
|
|
6.8
|
%
|
|
|
38,245
|
|
|
|
6.0
|
%
|
Credit accident and health
|
|
|
194,194
|
|
|
|
36.1
|
|
|
|
204,080
|
|
|
|
39.0
|
|
|
|
227,790
|
|
|
|
35.8
|
|
MGU
|
|
|
195,936
|
|
|
|
36.4
|
|
|
|
164,626
|
|
|
|
31.4
|
|
|
|
239,537
|
|
|
|
37.6
|
|
Supplemental insurance
|
|
|
60,261
|
|
|
|
11.2
|
|
|
|
62,384
|
|
|
|
11.9
|
|
|
|
70,207
|
|
|
|
11.0
|
|
Medical expense
|
|
|
2,228
|
|
|
|
0.4
|
|
|
|
2,717
|
|
|
|
0.5
|
|
|
|
3,313
|
|
|
|
0.5
|
|
Group
|
|
|
17,485
|
|
|
|
3.3
|
|
|
|
16,988
|
|
|
|
3.2
|
|
|
|
16,877
|
|
|
|
2.6
|
|
All other
|
|
|
33,820
|
|
|
|
6.3
|
|
|
|
37,335
|
|
|
|
7.2
|
|
|
|
41,417
|
|
|
|
6.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
537,739
|
|
|
|
100.0
|
%
|
|
|
523,716
|
|
|
|
100.0
|
%
|
|
|
637,386
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-force policies decreased in all blocks of health business, except for group and MGU during 2016. Since the MGU policy
counts include 100% reinsured certificates, the increase does not always translate into corresponding increases in premiums. Total in-force policies decreased during 2015 compared to 2014, primarily due to decreases in the MGU line, credit accident
and health business, and supplemental insurance. MGU inforce certificate counts decreased during 2015 primarily as a result of removing lesser performing groups by several MGUs. Credit accident and health decreased due to contraction in that market
as distributors continued to shift their marketing emphasis to property and casualty products.
Benefits, losses and expenses
Claims incurred increased during 2015 due to a receivable write-off associated with an insolvent reinsurer. The decrease in claims during 2016 reflected the
non-recurrence of the aforementioned write-off which was partially offset by a $7.2 million change in estimate, decreasing the amount of ceded claim reserves in 2016.
Commissions decreased during 2016 compared to 2015 primarily due to the decrease in premiums.
Other operating expenses for 2016, 2015, and 2014 were relatively flat.
Change in Deferred Policy Acquisition Costs
The
following table presents the components of the change in DAC (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
Change over prior year
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
Acquisition cost capitalized
|
|
$
|
11,203
|
|
|
$
|
20,249
|
|
|
$
|
19,530
|
|
|
$
|
(9,046
|
)
|
|
$
|
719
|
|
Amortization of DAC
|
|
|
(14,973
|
)
|
|
|
(23,643
|
)
|
|
|
(18,966
|
)
|
|
|
8,670
|
|
|
|
(4,677
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in DAC
|
|
$
|
(3,770
|
)
|
|
$
|
(3,394
|
)
|
|
$
|
564
|
|
|
$
|
(376
|
)
|
|
$
|
(3,958
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The change in DAC had a slightly larger impact on expenses during 2016 compared to 2015 due to declining commission expense
deferral. The increase in amortization of DAC in 2015 relative to 2014 was associated with the smaller Medicare Supplement and closed Medical Expense blocks as well as greater than expected lapsation of the limited benefit medical supplemental
products.
Reinsurance
For the medical
expense business, we use reinsurance on an excess of loss basis. We purchase coverage for $1.5 million in excess of $500,000. We cede or retrocede the majority of the premium and risk associated with our stop loss and other MGU programs. We
maintain reinsurance on a quota share basis for our long-term care and disability income business.
43
Reinsurance is also used in the credit accident and health business. In certain cases, particularly in the auto
retail market, we may also reinsure the policy written through non-U.S. producer-owned captive reinsurers to allow the dealer to participate in the performance of these credit accident and health contracts. A majority of the treaties entered into by
our Credit Insurance Division are written on a 100% coinsurance basis with benefit limits of $1,000 per month.
For 2016, the companies to which we have
ceded reinsurance for the Health segment are shown below (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A.M. Best
|
|
|
Ceded
|
|
|
Percentage of
|
|
Reinsurer
|
|
Rating
(1)
|
|
|
Premium
|
|
|
Gross Premium
|
|
Maiden Reinsurance North America, Inc.
|
|
|
A
|
|
|
$
|
50,864
|
|
|
|
12.8
|
%
|
Munich Reinsurance America
|
|
|
A
|
+
|
|
|
22,900
|
|
|
|
5.8
|
|
QBE Reinsurance Corporation
|
|
|
A
|
|
|
|
15,707
|
|
|
|
4.0
|
|
Monitor Life
|
|
|
A
|
-
|
|
|
15,075
|
|
|
|
3.8
|
|
Other reinsurers with no single company greater than 5.0% of the total ceded premium
|
|
|
|
|
|
|
116,974
|
|
|
|
29.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total health reinsurance ceded
|
|
|
|
|
|
$
|
221,520
|
|
|
|
55.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
A.M.Best rating as of the most current information available February 10, 2017
|
Property and Casualty
Property and Casualty results for the periods indicated were as follows (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
Change over prior year
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
Premiums and other revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written
|
|
$
|
1,282,876
|
|
|
$
|
1,187,980
|
|
|
$
|
1,109,029
|
|
|
$
|
94,896
|
|
|
$
|
78,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
$
|
1,253,392
|
|
|
$
|
1,153,267
|
|
|
$
|
1,100,975
|
|
|
$
|
100,125
|
|
|
$
|
52,292
|
|
Net investment income
|
|
|
57,091
|
|
|
|
55,620
|
|
|
|
58,843
|
|
|
|
1,471
|
|
|
|
(3,223
|
)
|
Other income
|
|
|
4,588
|
|
|
|
5,534
|
|
|
|
4,735
|
|
|
|
(946
|
)
|
|
|
799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total premiums and other revenues
|
|
|
1,315,071
|
|
|
|
1,214,421
|
|
|
|
1,164,553
|
|
|
|
100,650
|
|
|
|
49,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits, losses and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims incurred
|
|
|
883,219
|
|
|
|
776,562
|
|
|
|
745,540
|
|
|
|
106,657
|
|
|
|
31,022
|
|
Commissions for acquiring and servicing policies
|
|
|
232,514
|
|
|
|
213,486
|
|
|
|
188,305
|
|
|
|
19,028
|
|
|
|
25,181
|
|
Other operating expenses
|
|
|
165,509
|
|
|
|
156,583
|
|
|
|
130,655
|
|
|
|
8,926
|
|
|
|
25,928
|
|
Change in deferred policy acquisition costs
(1)
|
|
|
(725
|
)
|
|
|
(1,200
|
)
|
|
|
10,421
|
|
|
|
475
|
|
|
|
(11,621
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses
|
|
|
1,280,517
|
|
|
|
1,145,431
|
|
|
|
1,074,921
|
|
|
|
135,086
|
|
|
|
70,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before other items and federal income taxes
|
|
$
|
34,554
|
|
|
$
|
68,990
|
|
|
$
|
89,632
|
|
|
$
|
(34,436
|
)
|
|
$
|
(20,642
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
|
|
|
70.5
|
%
|
|
|
67.3
|
%
|
|
|
67.7
|
%
|
|
|
3.2
|
|
|
|
(0.4
|
)
|
Underwriting expense ratio
|
|
|
31.7
|
|
|
|
32.0
|
|
|
|
29.9
|
|
|
|
(0.3
|
)
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
102.2
|
%
|
|
|
99.3
|
%
|
|
|
97.6
|
%
|
|
|
2.9
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of catastrophe events on combined ratio
|
|
|
6.8
|
|
|
|
5.7
|
|
|
|
5.9
|
|
|
|
1.1
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio without impact of catastrophe events
|
|
|
95.4
|
%
|
|
|
93.6
|
%
|
|
|
91.7
|
%
|
|
|
1.8
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross catastrophe losses
|
|
$
|
85,252
|
|
|
$
|
65,413
|
|
|
$
|
64,479
|
|
|
$
|
19,839
|
|
|
$
|
934
|
|
Net catastrophe losses
|
|
|
84,989
|
|
|
|
62,717
|
|
|
|
65,374
|
|
|
|
22,272
|
|
|
|
(2,657
|
)
|
(1)
|
A negative amount of net change indicates more expense was deferred than amortized and represents a decrease to expenses in the period indicated. A positive net change indicates less expense was deferred than amortized
and represents an increase to expenses in the period indicated.
|
44
Property and Casualty pre-tax earnings decreased during 2016 compared to 2015, as continued premium growth and
the favorable results in our commercial lines were outpaced by the increase in losses attributable to personal auto claims and higher catastrophe losses. Gross catastrophe losses for the year ended December 31, 2016 increased compared to 2015
as the losses reverted to what we believe is a more normal level. Property and Casualty earnings decreased during 2015 compared to 2014 due to increased non-catastrophe claims and growth related operating expenses.
Premiums and other revenues
Net premiums written
and earned increased during 2016 compared to 2015 for all major lines of business. The largest increases were in the personal automobile and collateral protection lines of business. Net premiums written and earned increased during 2015 compared to
2014 due to increases in the commercial and credit lines.
Benefits, losses and expenses
Claims incurred increased during 2016 compared to 2015 as a result of increases in catastrophe losses as well as an increase in frequency and severity of
claims related to the automobile lines of business. The increase in claims during 2015 compared to 2014 was primarily a result of an increase in non-catastrophe weather related losses.
Commissions for acquiring and servicing policies increased during 2016 compared to 2015, primarily as a result of the growth of the collateral protection and
mortgage security insurance lines of business. Commissions for acquiring and servicing policies increased during 2015 compared to 2014 as a result of the growth of the collateral protection line of business.
The underwriting expense ratio decreased in 2016 compared to 2015. Operating expenses increased during 2016 compared to 2015, and 2015 compared to 2014, as a
result of costs related to growth initiatives.
Gross catastrophe losses for the year ended December 31, 2016 increased compared to 2015 as the
losses reverted to what we believe is a more normal level. Gross catastrophe losses for the year ended December 31, 2015 were relatively flat compared to 2014. Average severity of catastrophe losses increased by 6% in 2016 compared
to 2015 but decreased by 17% in 2015 compared to 2014.
Products
Our Property and Casualty segment consists of: (i) Personal products, marketed primarily to individuals, representing 56.7% of net premiums written;
(ii) Commercial products, which focus primarily on agricultural and other markets, representing 31.7% of net premiums written; and (iii) Credit-related property insurance products, which are marketed to and through financial institutions
and retailers, representing 11.6% of net premiums written.
45
Personal Products
Personal Products results for the periods indicated were as follows (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
Change over prior year
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
Net premiums written
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile
|
|
$
|
445,860
|
|
|
$
|
412,686
|
|
|
$
|
403,470
|
|
|
$
|
33,174
|
|
|
$
|
9,216
|
|
Homeowner
|
|
|
238,967
|
|
|
|
226,272
|
|
|
|
223,852
|
|
|
|
12,695
|
|
|
|
2,420
|
|
Other Personal
|
|
|
42,484
|
|
|
|
41,658
|
|
|
|
37,290
|
|
|
|
826
|
|
|
|
4,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net premiums written
|
|
$
|
727,311
|
|
|
$
|
680,616
|
|
|
$
|
664,612
|
|
|
$
|
46,695
|
|
|
$
|
16,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile
|
|
$
|
431,580
|
|
|
$
|
405,891
|
|
|
$
|
400,050
|
|
|
$
|
25,689
|
|
|
$
|
5,841
|
|
Homeowner
|
|
|
230,565
|
|
|
|
222,338
|
|
|
|
219,920
|
|
|
|
8,227
|
|
|
|
2,418
|
|
Other Personal
|
|
|
42,122
|
|
|
|
40,966
|
|
|
|
36,638
|
|
|
|
1,156
|
|
|
|
4,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net premiums earned
|
|
$
|
704,267
|
|
|
$
|
669,195
|
|
|
$
|
656,608
|
|
|
$
|
35,072
|
|
|
$
|
12,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile
|
|
|
85.7
|
%
|
|
|
77.6
|
%
|
|
|
78.0
|
%
|
|
|
8.1
|
%
|
|
|
(0.4
|
)%
|
Homeowner
|
|
|
71.8
|
|
|
|
64.5
|
|
|
|
64.1
|
|
|
|
7.3
|
|
|
|
0.4
|
|
Other Personal
|
|
|
55.3
|
|
|
|
62.8
|
|
|
|
42.6
|
|
|
|
(7.5
|
)
|
|
|
20.2
|
|
Personal line loss ratio
|
|
|
79.3
|
%
|
|
|
72.4
|
%
|
|
|
71.4
|
%
|
|
|
6.9
|
%
|
|
|
1.0
|
%
|
Combined Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile
|
|
|
110.9
|
%
|
|
|
102.8
|
%
|
|
|
101.1
|
%
|
|
|
8.1
|
%
|
|
|
1.7
|
%
|
Homeowner
|
|
|
100.0
|
|
|
|
91.7
|
|
|
|
89.4
|
|
|
|
8.3
|
|
|
|
2.3
|
|
Other Personal
|
|
|
79.1
|
|
|
|
87.0
|
|
|
|
62.0
|
|
|
|
(7.9
|
)
|
|
|
25.0
|
|
Personal line combined ratio
|
|
|
105.5
|
%
|
|
|
98.2
|
%
|
|
|
95.0
|
%
|
|
|
7.3
|
%
|
|
|
3.2
|
%
|
Automobile
: Net premiums written and earned increased in the personal automobile line during 2016 compared to 2015, due
to an increase of policies in force and rate increases. The loss and combined ratio increased during 2016 compared to 2015, primarily due to an increase in the frequency and severity of claims and catastrophe losses compared to the prior year. Net
premiums written and earned increased during 2015 compared to 2014, due to increases in sales volume and rates.
Homeowner
: Net premiums written
and earned increased during 2016 compared to 2015, primarily due to increases in sales of homeowner products to renters. The loss and combined ratio increased during 2016 compared to 2015, due to increases in catastrophe claim activity compared to
the prior year. Net premiums written increased during 2015 compared to 2014 given growth in policy counts.
Other Personal:
These products include
watercraft, rental-owner and umbrella coverages for individuals seeking to protect their personal property and liability not covered within their home and auto policies. The loss ratio decreased during 2016 compared to 2015 primarily due to certain
umbrella claim re-designations from personal lines to commercial lines. The loss ratio increased during 2015 compared to 2014 due to increased catastrophe claim activity during the first half of 2015 and lower than typical loss results in 2014.
46
Commercial Products
Commercial Products results for the periods indicated were as follows (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
Change over prior year
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
Net premiums written
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Commercial
|
|
$
|
172,667
|
|
|
$
|
159,834
|
|
|
$
|
150,819
|
|
|
$
|
12,833
|
|
|
$
|
9,015
|
|
Agricultural Business
|
|
|
137,182
|
|
|
|
123,548
|
|
|
|
115,592
|
|
|
|
13,634
|
|
|
|
7,956
|
|
Automobile
|
|
|
96,939
|
|
|
|
88,767
|
|
|
|
86,603
|
|
|
|
8,172
|
|
|
|
2,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net premiums written
|
|
$
|
406,788
|
|
|
$
|
372,149
|
|
|
$
|
353,014
|
|
|
$
|
34,639
|
|
|
$
|
19,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Commercial
|
|
$
|
165,828
|
|
|
$
|
154,114
|
|
|
$
|
146,845
|
|
|
$
|
11,714
|
|
|
$
|
7,269
|
|
Agricultural Business
|
|
|
133,436
|
|
|
|
121,031
|
|
|
|
111,599
|
|
|
|
12,405
|
|
|
|
9,432
|
|
Automobile
|
|
|
94,423
|
|
|
|
87,450
|
|
|
|
84,653
|
|
|
|
6,973
|
|
|
|
2,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net premiums earned
|
|
$
|
393,687
|
|
|
$
|
362,595
|
|
|
$
|
343,097
|
|
|
$
|
31,092
|
|
|
$
|
19,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Commercial
|
|
|
63.1
|
%
|
|
|
65.3
|
%
|
|
|
77.5
|
%
|
|
|
(2.2
|
)
|
|
|
(12.2
|
)
|
Agricultural Business
|
|
|
58.1
|
|
|
|
66.0
|
|
|
|
66.6
|
|
|
|
(7.9
|
)
|
|
|
(0.6
|
)
|
Automobile
|
|
|
70.8
|
|
|
|
74.4
|
|
|
|
69.5
|
|
|
|
(3.6
|
)
|
|
|
4.9
|
|
Commercial line loss ratio
|
|
|
63.2
|
%
|
|
|
67.7
|
%
|
|
|
72.0
|
%
|
|
|
(4.5
|
)
|
|
|
(4.3
|
)
|
Combined ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Commercial
|
|
|
94.7
|
%
|
|
|
93.3
|
%
|
|
|
104.4
|
%
|
|
|
1.4
|
|
|
|
(11.1
|
)
|
Agricultural Business
|
|
|
95.4
|
|
|
|
106.6
|
|
|
|
106.3
|
|
|
|
(11.2
|
)
|
|
|
0.3
|
|
Automobile
|
|
|
95.6
|
|
|
|
98.5
|
|
|
|
92.6
|
|
|
|
(2.9
|
)
|
|
|
5.9
|
|
Commercial line combined ratio
|
|
|
95.1
|
%
|
|
|
99.0
|
%
|
|
|
102.1
|
%
|
|
|
(3.9
|
)
|
|
|
(3.1
|
)
|
Other Commercial
: Net premiums written and earned increased during 2016 compared to 2015 primarily due to increased
sales of mortgage security insurance. This increase was partially offset by an increase in reinsurance premium ceded for the workers compensation and umbrella lines of business. Net premiums written and earned increased during 2015 compared to 2014,
primarily due to increased premium per policy for the workers compensation and business owners products. Improvement in the loss and combined ratios during 2015 compared to 2014 is primarily due to favorable case reserve development on
workers compensation claims.
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 buildings and building contents, personal and commercial liability and personal property. Net premiums written and earned increased
during 2016 compared to 2015, primarily as a result of improved rate adequacy. The loss ratio decreased during 2016 compared to 2015 primarily due to a decrease in catastrophe losses. Net premiums earned increased during 2015 compared to 2014
primarily as a result of improved rate adequacy.
Automobile
: Net premiums written and earned increased during 2016
compared to 2015, due to an increase in direct written premiums coupled with a decrease in ceded premiums. The loss ratio decreased during 2016 compared to 2015, primarily due to a decrease in average severity of losses. Net premiums written
increased during 2015 compared to 2014 primarily due to improved rate adequacy. The loss and combined ratios increased during 2015 compared to 2014, primarily due to an increase in average severity of losses.
47
Credit Products
Credit-related property product results for the periods indicated were as follows (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
Change over prior year
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
Net premiums written
|
|
$
|
148,777
|
|
|
$
|
135,215
|
|
|
$
|
91,403
|
|
|
$
|
13,562
|
|
|
$
|
43,812
|
|
Net premiums earned
|
|
|
155,437
|
|
|
|
121,477
|
|
|
|
101,270
|
|
|
|
33,960
|
|
|
|
20,207
|
|
Loss ratio
|
|
|
48.7
|
%
|
|
|
38.4
|
%
|
|
|
29.5
|
%
|
|
|
10.3
|
%
|
|
|
8.9
|
%
|
Combined ratio
|
|
|
107.2
|
%
|
|
|
107.9
|
%
|
|
|
100.8
|
%
|
|
|
(0.7
|
)%
|
|
|
7.1
|
%
|
Credit-related property products are offered on automobiles, residential and commercial real estate, furniture and appliances
in connection with the financing of those items. These policies pay an amount if the insured property is lost or damaged and the amount paid is not directly related to an event affecting the consumers ability to pay the debt.
Net written and earned premiums increased during 2016 compared to 2015, primarily due to increases in our collateral protection business. The loss ratio
increased during 2016 compared to 2015 and 2015 compared to 2014, primarily due to an increase in claims in our Guaranteed Auto Protection (GAP) business lines. Net written and earned premiums increased during 2015 compared to 2014 primarily due to
increases in our Collateral Protection business and updated pricing initiatives in our GAP business. The loss ratio increased during 2015 compared to 2014 mostly due to an increase in claims in our GAP business lines.
Reinsurance
We reinsure a portion of the risks
that we underwrite to manage our loss exposure. In return for ceded premiums, reinsurers assume a portion of the claims incurred. In addition to our reinsurance coverage, we are partially protected by the Terrorism Risk Insurance Program
Reauthorization Act of 2015 and its predecessors. We participate in the National Flood Insurance Program administered by the Federal Emergency Management Agency.
We retain the first $500,000 for workers compensation risks and the first $1.5 million of loss per risk for non-workers compensation risks.
Workers compensation reinsurance coverage for losses between $500,000 and $1 million follows satisfaction of a $2 million annual aggregate deductible. Our catastrophe reinsurance retention covering property and casualty companies in total is
$17.5 million for non-earthquake losses and $10 million for earthquake losses.
The following table summarizes the Companys catastrophe reinsurance
coverage effective during 2017.
|
|
|
Layer of Loss
|
|
Catastrophe Reinsurance Coverage in Force
|
Less than $10.0 million
|
|
100% of loss retained except for certain losses covered by the
Catastrophe Aggregate
and
Stretch & Aggregate
coverage described below
|
$10.0 million$17.5 million
|
|
100% of earthquake losses countrywide
|
$17.5 million$500 million
|
|
100% of multiple peril losses covered by
Corporate Program
(1)
(all perils)
|
(1)
|
The Corporate Program covers all non-credit property and casualty business, subject to certain limits, and is not specific to the Company or any of its subsidiaries, or any state or region. The program does cover the
Mortgage Security Insurance business written by the Credit Insurance Division.
|
48
Each per-event coverage above includes one automatic reinstatement except for a 12.5% portion of the Corporate
Program (12.5% of $35 million to $500 million). The automatic reinstatement requires us to pay additional reinsurance premium for any losses into each reinsurance layer. The reinstatement premium is prorated by the percentage of actual loss to the
coverage, with the exception of losses from $35 million to $100 million, which reflect a 50% reduction on the prorated amount, and the losses from $17.5 million to $35 million, which are free for the first limit and reflect a 50% reduction on the
second limit. The 12.5% placement of non-reinstateable coverage reduces the amount of reinstatement premium we are obligated to pay.
We purchase a
Catastrophe Aggregate reinsurance coverage that provides for $30 million of limit excess of $90 million of aggregated catastrophe losses. Qualifying losses include amounts of retained losses below $10 million on Property Claims Services
(PCS) declared catastrophe events and internally declared catastrophe events exceeding $5 million. The Catastrophe Aggregate reinsurance coverage has been placed at 100.0% for 2017 and does not include a reinstatement.
A Stretch & Aggregate cover is purchased which consists of a $35 million annual limit available either wholly or in part across two layers. The first
layer is 8.75% of $400 million excess of $100 million on an occurrence basis. The second layer provides aggregate protection for a subject loss and is $35 million excess of $5 million of each catastrophe. Recoveries follow satisfaction of a $45
million annual aggregate deductible. This cover was placed at 100% on July 1, 2015, and again on July 1, 2016. It is in place until June 30, 2017. American National expects to place the cover again on July 1, 2017.
We use multiple reinsurers with each reinsurer absorbing part of the overall risk ceded. The primary reinsurers in the 2016 programs and the coverage each
provides are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A.M. Best
|
|
|
Percent of Risk Covered
|
|
Reinsurer
|
|
Rating
(1)
|
|
|
NonCatastrophe
|
|
|
Catastrophe
|
|
Lloyds Syndicates
|
|
|
A
|
|
|
|
41.9
|
%
|
|
|
43.7
|
%
|
Swiss Re
|
|
|
A
|
+
|
|
|
15.8
|
|
|
|
6.3
|
|
Safety National Casualty Corporation
|
|
|
A
|
+
|
|
|
18.2
|
|
|
|
|
|
Hannover Ruckversicherung-Aktiengesellschaft, Germany
|
|
|
A
|
+
|
|
|
9.2
|
|
|
|
|
|
Tokio Millunnium Re Ltd.
|
|
|
A
|
++
|
|
|
|
|
|
|
7.0
|
|
Other Reinsurers with no single company with greater than a 5% share
|
|
|
|
|
|
|
14.9
|
|
|
|
43.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Reinsurance Coverage
|
|
|
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
A.M. Best rating as of the most current information available February 1, 2017
|
Reserve Development
While we believe that our claims reserves at December 31, 2016 are adequate, new information, events or circumstances, unknown at the original
valuation date, may lead to future developments in ultimate losses in amounts significantly greater or less than the reserves currently recorded. The actual final cost of settling both claims outstanding at December 31, 2016 and claims expected
to arise from unexpired periods of risk is uncertain. There are many other possible changes that would cause losses to increase or decrease, which include but are not limited to: claim severity; the expected level of reported claims; judicial action
changing the scope or liability of coverage; the regulatory, social and economic environment; and unexpected changes in loss inflation. For additional information regarding prior year development of our claims and CAE reserves, refer to Note 12,
Liability for Unpaid Claims and Claim Adjustment Expenses, of the Notes to the Consolidated Financial Statements.
49
Corporate and Other
Corporate and Other segment financial results for the periods indicated were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
Change over prior year
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
Other revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
64,553
|
|
|
$
|
83,542
|
|
|
$
|
84,047
|
|
|
$
|
(18,989
|
)
|
|
$
|
(505
|
)
|
Realized investment gains (losses), net
|
|
|
28,940
|
|
|
|
59,443
|
|
|
|
41,422
|
|
|
|
(30,503
|
)
|
|
|
18,021
|
|
Other Income
|
|
|
7,944
|
|
|
|
5,976
|
|
|
|
9,533
|
|
|
|
1,968
|
|
|
|
(3,557
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other revenues
|
|
|
101,437
|
|
|
|
148,961
|
|
|
|
135,002
|
|
|
|
(47,524
|
)
|
|
|
13,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits, losses and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions
|
|
|
(3
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
(2
|
)
|
Other operating expenses
|
|
|
41,864
|
|
|
|
44,598
|
|
|
|
60,535
|
|
|
|
(2,734
|
)
|
|
|
(15,937
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits, losses and expenses
|
|
|
41,861
|
|
|
|
44,596
|
|
|
|
60,535
|
|
|
|
(2,735
|
)
|
|
|
(15,939
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before other items and federal income taxes
|
|
$
|
59,576
|
|
|
$
|
104,365
|
|
|
$
|
74,467
|
|
|
$
|
(44,789
|
)
|
|
$
|
29,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings decreased during 2016 compared to 2015 primarily due to a decrease in realized investment gains. The decrease in
realized investment gains is primarily attributable to a decrease in the sale of certain real estate holdings compared to 2015. Earnings increased during 2015 compared to 2014 primarily due to a decrease in operating expenses and an increase in
realized investment gains. The increase in realized investment gains in 2015 was attributable to higher gains on the sale of equity securities and higher real estate sale activity.
The Corporate and Other business segment recorded other-than-temporary impairments of $17.7 million, $27.9 million, and $6.6 million in 2016, 2015, and 2014,
respectively, which are in Realized investment gains, net.
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. Our investment operations are regulated primarily by the state insurance departments where the insurance subsidiaries are domiciled. Investment activities, including setting investment policies and defining acceptable risk levels, are
subject to oversight by our Board of Directors, which is assisted by our Finance Committee and Management Risk Committee.
Our insurance and annuity
products are 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.
50
The following summarizes the carrying values of our invested assets (other than investments in unconsolidated
affiliates) by asset class (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Bonds held-to-maturity, at amortized cost
|
|
$
|
7,251,385
|
|
|
|
35.8
|
%
|
|
$
|
7,609,420
|
|
|
|
38.7
|
%
|
Bonds available-for-sale, at fair value
|
|
|
5,803,276
|
|
|
|
28.7
|
|
|
|
5,483,916
|
|
|
|
28.0
|
|
Equity securities, at fair value
|
|
|
1,541,676
|
|
|
|
7.6
|
|
|
|
1,514,979
|
|
|
|
7.7
|
|
Mortgage loans, net of allowance
|
|
|
4,348,046
|
|
|
|
21.5
|
|
|
|
3,483,280
|
|
|
|
17.8
|
|
Policy loans
|
|
|
384,376
|
|
|
|
1.9
|
|
|
|
407,491
|
|
|
|
2.1
|
|
Investment real estate, net of accumulated depreciation
|
|
|
593,417
|
|
|
|
2.9
|
|
|
|
581,255
|
|
|
|
3.0
|
|
Short-term investments
|
|
|
192,226
|
|
|
|
1.0
|
|
|
|
460,612
|
|
|
|
2.3
|
|
Other invested assets
|
|
|
113,550
|
|
|
|
0.6
|
|
|
|
71,943
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
20,227,952
|
|
|
|
100.0
|
%
|
|
$
|
19,612,896
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in our total investments at December 31, 2016 compared to 2015 was primarily a result of the purchase of
bonds available-for-sale and increased mortgage loan activity.
Bonds
We allocate most of our fixed maturity securities to support our
insurance business. At December 31, 2016, our fixed maturity securities had an estimated fair value of $13.3 billion, which was $0.4 billion, or 2.9%, above amortized cost. At December 31, 2015, our fixed maturity securities had an
estimated fair value of $13.2 billion, which was $0.2 billion, or 1.6%, above amortized cost. The estimated fair value for securities due in one year or less increased from $0.5 billion as of December 31, 2015 to $0.7 billion as of
December 31, 2016, primarily as a result of maturities. For additional information regarding total bonds by credit quality rating refer to Note 4, Investments in Securities, of the Notes to the Consolidated Financial Statements.
Equity Securities
We invest in companies publicly traded on national U.S. stock exchanges; See Note 4, Investments in Securities, of the
Notes to the Consolidated Financial Statements for the cost, gross unrealized gains and losses, and fair value of the 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 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 4.4%
at December 31, 2016 and 2015, respectively.
Policy Loans
For certain life insurance products, policyholders may borrow funds
using the policys cash value as collateral. The maximum amount of the policy loan depends upon the policys surrender value. As of December 31, 2016, we had $384.4 million in policy loans with a loan to surrender value of 64.6%, and
at December 31, 2015, we had $407.5 million in policy loans with a loan to surrender value of 61.3%. 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 policys benefits.
Investment Real Estate
We invest in commercial real estate where positive cash flows and/or appreciation in value is expected. Real estate
may be owned directly by our insurance companies or non-insurance affiliates or indirectly in joint ventures with real estate developers or investors we determine share our perspective regarding risk and return relationships. The carrying value of
real estate is stated at cost, less accumulated depreciation and valuation allowances, if any. Depreciation is provided over the estimated useful lives of the properties.
Short-Term Investments
Short-term investments are primarily commercial paper rated A2 or P2 or better by Standard & Poors
and Moodys, 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.
51
Net Investment Income and Net Realized Gains (Losses)
Net investment income increased $25.4 million during 2016 compared to 2015 primarily due to an increase in unrealized gains of equity-indexed options as a
result of increases in the S&P 500 which are recorded at fair value with changes in fair value recorded as investment income.
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 gains decreased $40.8 million during 2016 compared to 2015
primarily due to a decrease in the sale of certain real estate holdings. Other-than-temporary impairment on investment securities decreased $10.3 million during 2016 compared to 2015.
Net Unrealized Gains and Losses
The unrealized
gains and losses of our fixed maturity and equity securities investment portfolio are shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
Change
|
|
Held-to-Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains
|
|
$
|
285,315
|
|
|
$
|
305,964
|
|
|
$
|
(20,649
|
)
|
Losses
|
|
|
(40,008
|
)
|
|
|
(159,831
|
)
|
|
|
119,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Gain
|
|
|
245,307
|
|
|
|
146,133
|
|
|
|
99,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains
|
|
|
986,635
|
|
|
|
891,687
|
|
|
|
94,948
|
|
Losses
|
|
|
(43,100
|
)
|
|
|
(131,449
|
)
|
|
|
88,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Gain
|
|
|
943,535
|
|
|
|
760,238
|
|
|
|
183,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,188,842
|
|
|
$
|
906,371
|
|
|
$
|
282,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes bonds and equity securities
|
The net change in the unrealized gains on fixed maturity securities
between December 31, 2015 and December 31, 2016 is primarily attributable to the decrease in interest rates. 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.
The net unrealized gains of our equity securities were $809.2 million and $704.2 million at December 31, 2016 and 2015, respectively.
The increase is attributable to favorable market conditions.
Liquidity
Our liquidity requirements have been and are expected to continue to be met by funds from operations, comprised of premiums received from our customers,
collateral for derivative transactions, and investment income. 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 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 flow from operations.
52
Changes in interest rates during 2016 and market expectations for potentially higher rates through 2017 may lead
to an increase in the volume of annuity contracts, which may be partially offset by increases in surrenders. 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. Future contributions to our defined benefit plans are not expected to significantly impact cash flow and are expected to enhance overall
funded status of plans. No unusually large capital expenditures are expected in the next 12-24 months. We have paid dividends to stockholders for over 110 consecutive years and expect to continue this trend. There are no other known trends or
uncertainties regarding product pricing, changes in product lines or rising costs that are expected to have a significant impact to cash flows from operations.
Funds received as premium payments and deposits 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. We believe our portfolio of highly liquid available-for-sale
investment securities, including equity securities, is sufficient to meet future liquidity needs as necessary.
The Company holds collateral 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. As the value of a derivative asset declines or increases, the
collateral requirements would also decline or increase respectively. For more information, see Note 7, Derivative Instruments, of the Notes to the Consolidated Financial Statements.
Our cash and cash equivalents and short-term investment position decreased from $771.5 million at December 31, 2015 to $481.6 million at
December 31, 2016. The decrease relates primarily to a reduction in short-term investments used to fund additional investments in mortgage loans and construction loans.
A downgrade or a potential downgrade in our financial strength ratings could result in a loss of business and could adversely affect our cash flow from
operations.
Further information regarding additional sources or uses of cash is described in Note 19, Commitments and Contingencies, of the Notes to the
Consolidated Financial Statements.
Capital Resources
Our capital resources are summarized below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
American National stockholders equity, excluding accumulated other comprehensive income, net
of tax (AOCI)
|
|
$
|
4,196,279
|
|
|
$
|
4,099,662
|
|
|
$
|
3,936,781
|
|
AOCI
|
|
|
455,899
|
|
|
|
352,620
|
|
|
|
490,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total American National stockholders equity
|
|
$
|
4,652,178
|
|
|
$
|
4,452,282
|
|
|
$
|
4,427,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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 $31.8 million and $34.7 million at December 31, 2016 and 2015, respectively.
53
The changes in our capital resources are summarized below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Capital and
Retained
Earnings
|
|
|
AOCI
|
|
|
Total
|
|
|
Capital and
Retained
Earnings
|
|
|
AOCI
|
|
|
Total
|
|
Net income attributable to American National
|
|
$
|
181,003
|
|
|
$
|
|
|
|
$
|
181,003
|
|
|
$
|
242,988
|
|
|
$
|
|
|
|
$
|
242,988
|
|
Dividends to shareholders
|
|
|
(87,741
|
)
|
|
|
|
|
|
|
(87,741
|
)
|
|
|
(84,446
|
)
|
|
|
|
|
|
|
(84,446
|
)
|
Change in net unrealized gains
|
|
|
|
|
|
|
93,704
|
|
|
|
93,704
|
|
|
|
|
|
|
|
(114,717
|
)
|
|
|
(114,717
|
)
|
Defined benefit pension plan adjustment
|
|
|
|
|
|
|
9,286
|
|
|
|
9,286
|
|
|
|
|
|
|
|
(21,815
|
)
|
|
|
(21,815
|
)
|
Foreign currency transaction and translation adjustment
|
|
|
|
|
|
|
289
|
|
|
|
289
|
|
|
|
|
|
|
|
(1,630
|
)
|
|
|
(1,630
|
)
|
Other
|
|
|
3,355
|
|
|
|
|
|
|
|
3,355
|
|
|
|
4,339
|
|
|
|
|
|
|
|
4,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
96,617
|
|
|
$
|
103,279
|
|
|
$
|
199,896
|
|
|
$
|
162,881
|
|
|
$
|
(138,162
|
)
|
|
$
|
24,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory Capital and Surplus and Risk-based Capital
Statutory capital and surplus is the capital of our insurance companies reported in accordance with accounting practices prescribed or permitted by the
applicable state insurance departments. RBC is calculated using formulas applied to certain financial balances and activities that consider, among other things, investment risks related to the type and quality of investments, insurance risks
associated with products and liabilities, interest rate risks and general business risks. Insurance companies that do not maintain capital and surplus at a level of at least 200% of the authorized control level RBC are required to take certain
actions. At December 31, 2016 and December 31, 2015, American National Insurance Companys statutory capital and surplus was $2,985,909,000 and $2,925,935,000, respectively. American National Insurance Company and each of its
insurance subsidiaries had statutory capital and surplus at December 31, 2016 and December 31, 2015, substantially above 200% of the authorized control level.
The achievement of long-term growth will require growth in American National Insurance Companys and our insurance subsidiaries statutory capital
and surplus. Our subsidiaries may obtain additional statutory capital through various sources, such as retained statutory earnings or equity contributions from us.
Contractual Obligations
The following summarizes our
contractual obligations as of December 31, 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
|
|
Total
|
|
|
1 year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
5 years
|
|
Life insurance obligations
(1)
|
|
$
|
5,394,794
|
|
|
$
|
(643
|
)
|
|
$
|
117,641
|
|
|
$
|
305,096
|
|
|
$
|
4,972,700
|
|
Annuity obligations
(1)
|
|
|
13,334,931
|
|
|
|
1,313,300
|
|
|
|
3,365,580
|
|
|
|
2,565,871
|
|
|
|
6,090,180
|
|
Property and casualty insurance
obligations
(2)
|
|
|
855,974
|
|
|
|
344,166
|
|
|
|
267,168
|
|
|
|
105,843
|
|
|
|
138,797
|
|
Accident and health insurance
obligations
(3)
|
|
|
228,741
|
|
|
|
104,839
|
|
|
|
37,366
|
|
|
|
19,409
|
|
|
|
67,127
|
|
Purchase obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to purchase and fund investments
|
|
|
83,367
|
|
|
|
49,867
|
|
|
|
11,590
|
|
|
|
11,409
|
|
|
|
10,501
|
|
Mortgage loan commitments
|
|
|
703,710
|
|
|
|
487,765
|
|
|
|
215,945
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
5,086
|
|
|
|
1,687
|
|
|
|
2,032
|
|
|
|
1,063
|
|
|
|
304
|
|
Defined benefit pension plans
(4)
|
|
|
103,089
|
|
|
|
12,394
|
|
|
|
22,574
|
|
|
|
21,544
|
|
|
|
46,577
|
|
Notes payable
(5)
|
|
|
136,080
|
|
|
|
|
|
|
|
8,584
|
|
|
|
37,074
|
|
|
|
90,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
20,845,772
|
|
|
$
|
2,313,375
|
|
|
$
|
4,048,480
|
|
|
$
|
3,067,309
|
|
|
$
|
11,416,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
(1)
|
Life and annuity obligations include undiscounted estimated claim, benefit, surrender and commission obligations offset by expected future premiums and deposits on in-force insurance policies and annuity contracts. All
amounts are gross of any reinsurance recoverable. Estimated claim, benefit and surrender obligations are based on mortality and lapse assumptions comparable with historical experience. Estimated payments on interest-sensitive life and annuity
obligations include interest credited to those products. The interest crediting rates are derived by deducting current product spreads from a constant investment yield. As a result, the estimated obligations for insurance liabilities included in the
table exceed the liabilities recorded in the liability for future policy benefits and policy and contract claims. Due to the significance of the assumptions used, the amounts presented could materially differ from actual payments. Separate account
obligations have not been included in the table since those obligations are not part of the general account obligations and will be funded by cash flows from separate account assets. The general account obligations for insurance liabilities will be
funded by cash flows from general account assets and future premiums and deposits. Participating policyholder dividends payable consists of liabilities related to dividends payable in the following calendar year and are presented in the less than
one-year category. All estimated cash payments are net of estimated future premiums on policies currently in-force net of future policyholder dividends payable. The participating policyholders share obligation included in other policyholder
funds and the timing and amount of the ultimate participating policyholder obligation is subject to significant uncertainty and the amount of the participating policyholder obligation is based upon a long-term projection of the performance of the
participating policy block.
|
(2)
|
Includes case reserves for reported claims and reserves for IBNR with the timing of future payments based on our historical payment patterns. The timing of these payments may vary significantly from the pattern shown in
the preceding table. The ultimate losses may vary materially from the recorded amounts, which are our best estimates.
|
(3)
|
Reflects estimated future claim payments for claims incurred based on mortality and morbidity assumptions that are consistent with historical claims experience. These are not discounted with interest and will exceed the
liabilities recorded in reserves for future claim payment, which are discounted with interest. Due to the significance of the assumptions used, the amounts presented could materially differ from actual payments.
|
(4)
|
Estimated payments through continuing operations for benefit obligations of the non-qualified defined benefit pension plan. A liability has been established for the full amount of benefits accrued.
|
(5)
|
The estimated payments due by period for notes payable reflect the contractual maturities of principal for amounts borrowed by real estate joint ventures and collateralized by real-estate owned by the respective entity.
American Nationals liability is limited to its investment in the respective joint venture. See Note 6, Real Estate and Other Investments, of the Notes to the Consolidated Financial Statements for additional details.
|
Off-Balance Sheet Arrangements
We have off-balance sheet
arrangements relating to a third-party marketing operations bank loans as discussed in Note 19, Commitments and Contingencies, of the Notes to the Consolidated Financial Statements. We could be exposed to a liability for these loans, which are
supported by the cash value of the underlying insurance contracts. The cash value of the life insurance policies is designed to always equal or exceed the balance of the loans. Accordingly, management does not foresee any loss related to these
arrangements.
Related-Party Transactions
We have
various agency, consulting and service arrangements with individuals and entities considered to be related parties. Each of these arrangements has been reviewed and approved by our Audit Committee, which retains final decision-making authority for
these transactions. The amounts involved, both individually and in the aggregate, with these arrangements are not material to any segment or to our overall operations. For additional details see Note 20, Related Party Transactions, of the Notes to
the Consolidated Financial Statements.
55
ITEM 7A.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Our investments and some of our products are
subject to market risks associated with changes in interest rates, credit spreads, issuer defaults and equity prices or market indices. Adverse changes due to these market risks may occur due to changes in market liquidity or to changes in market
perceptions of credit worthiness or risk tolerance among other factors.
We emphasize prudent risk management throughout all our operations. Our
enterprise risk management procedures help us to identify, prioritize and manage various risks including market risk. Under the leadership of our Board of Directors and Corporate Risk Officer, we have instituted a framework based on the principles
of enterprise risk management to provide reasonable assurance regarding the achievement of our strategic objectives. Related activities include:
|
|
|
Identifying evolving and potential risks and events that may affect us;
|
|
|
|
managing risks within our risk profile;
|
|
|
|
appropriate escalation of risks and disclosure of any risk limit breaches within the enterprise, along with the correction method if appropriate;
|
|
|
|
tracking actual risk levels against predetermined thresholds; and
|
|
|
|
monitoring of capital adequacy.
|
We expect ongoing enterprise risk management efforts will expand the
management tools used to ensure an efficient allocation of capital and enhance the measurement of possible diversification benefits across business segments and risk classes.
A key component of our risk management program is our ALM Committee. The ALM Committee monitors the level of our risk exposure in managing our assets and
liabilities to attain the desired risk-return profile for our diverse mix of assets and liabilities and their resultant cash flows. This process includes maintaining adequate reserves, monitoring claims and surrender experience, managing interest
rate spreads, evaluation of alternate investment strategies and protecting against disintermediation risk for life insurance and annuity products.
As a
part of the ALM process, we have asset portfolios for each major line of business, which represent the investment strategies used to fund liabilities within acceptable levels of risk. We monitor these strategies through regular review of portfolio
metrics, such as effective duration, yield curve sensitivity, convexity and liquidity. In executing these ALM strategies, we regularly reevaluate the estimates used in determining the approximate amounts and timing of payments to or on behalf of
policyholders for insurance liabilities. Many of these estimates are inherently subjective and could impact our ability to achieve our ALM goals and objectives. Our Finance Committee also reviews the risks associated with evaluation of alternate
investment strategies and the specific investments made to support our business and for consistency with our overall investment strategy.
Interest
Rate Risk
Interest rate risk is the risk that the value of our interest sensitive assets or liabilities will change with changes in market interest
rates. The fair market value of fixed maturity securities is inversely related to changes in market interest rates. As interest rates fall, the cash flow from the interest coupon and dividend streams of existing fixed rate investments become more
valuable and thus, market values of fixed maturity securities rise. As interest rates rise, the reverse occurs and the market value of fixed maturity securities falls.
56
The carrying values of our investment in fixed maturity securities, which comprise 64.1% of our portfolio, are
summarized below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
Bonds held-to-maturity
|
|
$
|
7,251,385
|
|
|
|
55.5
|
%
|
|
$
|
7,609,420
|
|
|
|
58.1
|
%
|
Bonds available-for-sale
|
|
|
5,803,276
|
|
|
|
44.5
|
|
|
|
5,483,916
|
|
|
|
41.9
|
|
Net unrealized gains on available-for-sale bonds
|
|
|
134,292
|
|
|
|
2.3
|
|
|
|
56,085
|
|
|
|
1.0
|
|
The increase in the unrealized gains on available-for-sale bonds was primarily the result of a decrease in unrealized losses
on corporate debt securities. Information regarding our unrealized gains or losses is disclosed in Note 4, Investments in Securities, of the Notes to the Consolidated Financial Statements. Our exposure to cash flow changes is discussed further in
the Liquidity and Capital Resources section of the MD&A.
Our mortgage loans also have interest rate risk. As of December 31, 2016, these
mortgage loans have fixed rates ranging from 4.0% to 10.0%. Most of the mortgage loan contracts require periodic payments of both principal and interest, and have amortization periods of three to 30 years. Many of our mortgage loans contain
prepayment restrictions or fees or both that reduce the risk of payment before maturity or compensate us for all or a portion of the investment income lost through early payment of the loan principal.
Rising interest rates can cause increases in policy loans associated with life insurance policies and surrenders relating to life insurance or annuities.
Policyholders may move their assets into new products offering higher rates if there were sudden or significant changes in interest rates. We may have to sell assets earlier than anticipated to pay for these withdrawals. Our life insurance and
annuity product designs reduce the financial impact of early surrenders through the use of restriction on withdrawal, surrender charges and market value adjustment features. ALM guidelines, including duration targets and asset allocation tolerances,
help ensure this risk is managed within the constraints of established criteria. Consistent monitoring of and periodic changes to our product pricing help us to better match the duration of assets and liabilities.
Falling interest rates can have an adverse impact on our asset accumulation investment products, such as our fixed deferred annuity business. We aim to
manage interest margins, which are the differences between yields on investments supporting our liabilities and amounts credited to policyholder account balances. As investment portfolio yields decline, we can reduce crediting rates on products, to
a limit defined by contractual minimum guarantees. Due to these contractual minimums, declines in interest rates can ultimately impact the profitability of this business. As of December 31, 2016, of our $9.2 billion in deferred annuities, $87.8
million have guaranteed minimum rates greater than or equal to 3.5% with no guarantees greater than 4.5%.
The profitability of some of our
products could be adversely affected by low interest rates. Assuming investment yields remain at 2016 levels, the impact of investing in that lower interest rate environment would have a minimal impact in 2017 and could reduce profit by $1.6 million
in 2018 and $3.1 million in 2019. In projecting this impact, we modeled projected crediting rates, considering interest spread targets and crediting rate floors.
Interest Rate sensitivity analysis:
The table below shows the estimated change in pre-tax market values of our investments in fixed maturity securities
caused by instantaneous, one time parallel shifts in the corresponding year-end U.S. Treasury yield curves of +/- 100bps and +/- 50bps (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in Market Value Given an Interest rate
Increase (Decrease) of
X Basis Points
|
|
|
(100)
|
|
(50)
|
|
50
|
|
100
|
December 31, 2016
|
|
$ 610,421
|
|
$ 301,819
|
|
$ (297,039)
|
|
$ (587,945)
|
December 31, 2015
|
|
$ 652,006
|
|
$ 321,689
|
|
$ (315,117)
|
|
$ (622,712)
|
These calculations hold all other variables influencing the values of fixed maturity securities constant and would not fully
reflect any prepayment to the portfolio, changes in corporate spreads or non-parallel changes in interest rates for different maturities or credit quality. Actual results may differ materially from these amounts due to the assumptions and estimates
used in calculating the scenarios.
57
Credit Risk
We are exposed to credit risk, which is the uncertainty of whether a counterparty will honor its obligation under the terms of a security, loan or contract
including reinsurance agreements. To help manage credit risk, we have an Investment Plan approved by our Board of Directors. This plan provides issuer and geographic concentration limits, investment size limits and other applicable parameters such
as mortgage loan-to-value guidelines. Investment activity, including the setting of investment policies and defining acceptable risk levels, is subject to review by our Finance Committee and Management Risk Committee.
We are also exposed to the risk created by changes in market prices and cash flows associated with fluctuations in the credit spread or the markets
perception of the relative risk and reward to hold fixed maturity securities of borrowers with different credit characteristics or credit ratings. Credit spread widening will reduce the fair value of our existing investment portfolio and will
increase investment income on new purchases. Credit spread tightening would have the opposite effect. Information regarding the credit quality of our fixed maturity securities can be found in the Investments section of the MD&A.
We are subject to credit risk associated with our reinsurance agreements. While we believe our reinsurers are reputable and have the financial strength to
meet their obligations to us, reinsurance does not eliminate our liability to pay our policyholders, and we remain primarily liable to our policyholders for the risks we insure. We regularly monitor the financial strength of our reinsurers and the
levels of concentration to individual reinsurers to verify they meet established thresholds.
The Companys use of derivative instruments exposes it
to credit risk in the event of non-performance by counterparties. The Company has adopted a policy of only dealing with counterparties we believe are credit worthy and obtaining sufficient collateral where appropriate, as a means of mitigating the
financial loss from defaults. The non-performance risk is the net counterparty exposure based on the fair value of the open contracts, less collateral held. For additional information regarding counterparties used and collateral received, see Note
7, Derivative Instruments, of the Notes to the Consolidated Financial Statements.
Equity Risk
Equity risk is the risk that we will incur realized or unrealized losses due to changes in the overall equity investment markets or specific investments within
our portfolio. At December 31, 2016, we held approximately $1.5 billion of equity investments, which are subject to equity risk. Our exposure to the equity markets is managed by sector and individual security and is intended to track the
Standard & Poors 500 Index (S&P 500) with minor variations. We mitigate our equity risk by diversification of the investment portfolio.
We also have equity risk associated with the equity-indexed life and annuity products we market. We have entered into derivative transactions, primarily
over-the-counter equity call options, to hedge our exposure to equity-index changes.
Changes in Accounting Principles
Refer to Note 3, Recently Issued Accounting Pronouncements, of the Notes to the Consolidated Financial Statements for a discussion of recently issued
accounting pronouncements not yet adopted.
58
|
|
|
|
|
Item 8.
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
|
|
|
|
|
|
Index to Annual Consolidated Financial Statements
|
|
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
60
|
|
|
|
Report of Independent Registered Public Accounting Firm on Internal
Control
|
|
|
61
|
|
|
|
Consolidated Statements of Financial Position as of December
31, 2016 and 2015
|
|
|
62
|
|
|
|
Consolidated Statements of Operations for the years ended December
31, 2016, 2015, and 2014
|
|
|
63
|
|
|
|
Consolidated Statements of Comprehensive Income for the years ended December 31,
2016, 2015, and 2014
|
|
|
64
|
|
|
|
Consolidated Statements of Changes in Equity for the years ended December 31,
2016, 2015, and 2014
|
|
|
64
|
|
|
|
Consolidated Statements of Cash Flows for the years ended December
31, 2016, 2015, and 2014
|
|
|
65
|
|
|
|
Notes to the Consolidated Financial Statements
|
|
|
66
|
|
59
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
American National
Insurance Company:
We have audited the accompanying consolidated statements of financial position of American National Insurance Company and subsidiaries
(the Company) as of December 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2016. In
connection with our audits of the consolidated financial statements, we also have audited financial statement schedules I to V. These consolidated financial statements and financial statement schedules are the responsibility of the Companys
management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
American National Insurance Company and subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2016, in conformity with U.S.
generally accepted accounting principles. Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the Companys internal control over financial reporting as of December 31, 2016, based on criteria established in
Internal Control Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), and our report dated March 10, 2017
,
expressed an adverse opinion on the effectiveness of the Companys internal control over financial reporting.
/s/ KPMG LLP
Houston, Texas
March 10, 2017
60
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
American National
Insurance Company:
We have audited American National Insurance Companys (the Company) internal control over financial reporting as of
December 31, 2016, based on criteria established in
Internal Control - Integrated Framework
(2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys management is
responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Managements Annual Report on Internal
Control over Financial Reporting.
Our responsibility is to express an opinion on the Companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A companys internal control over
financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over
financial reporting, such that there is a reasonable possibility that a material misstatement of the companys annual or interim financial statements will not be prevented or detected on a timely basis. Material weaknesses related to
ineffective internal controls over the measurement and presentation of deferred income taxes, the recognition and disclosure of the amount of collateral under equity option derivative arrangements and the information and communication controls over
these areas have been identified and included in managements assessment.
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated financial position of American National Insurance Company and subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of operations,
comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2016, and the related financial statement schedules I to V. This material weakness was considered in determining the
nature, timing, and extent of audit tests applied in our audit of the 2016 consolidated financial statements, and this report does not affect our report dated March 10, 2017, which expressed an unqualified opinion on those consolidated
financial statements.
In our opinion, because of the effect of the aforementioned material weaknesses on the achievement of the objectives of the control
criteria, American National Insurance Company has not maintained effective internal control over financial reporting as of December 31, 2016, based on criteria established in
Internal ControlIntegrated Framework
(2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We do not express an opinion or any other form of assurance on
managements statements referring to corrective actions taken after December 31, 2016, relative to the aforementioned material weaknesses in internal control over financial reporting.
/s/ KPMG LLP
Houston, Texas
March 10, 2017
61
AMERICAN NATIONAL INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
(As Revised)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Fixed maturity, bonds held-to-maturity, at amortized cost (Fair value $7,496,692 and
$7,755,553)
|
|
$
|
7,251,385
|
|
|
$
|
7,609,420
|
|
Fixed maturity, bonds available-for-sale, at fair value (Amortized cost $5,668,984 and
$5,427,831)
|
|
|
5,803,276
|
|
|
|
5,483,916
|
|
Equity securities, at fair value (Cost $732,433 and $810,826)
|
|
|
1,541,676
|
|
|
|
1,514,979
|
|
Mortgage loans on real estate, net of allowance
|
|
|
4,348,046
|
|
|
|
3,483,280
|
|
Policy loans
|
|
|
384,376
|
|
|
|
407,491
|
|
Investment real estate, net of accumulated depreciation of $259,578 and $212,139
|
|
|
593,417
|
|
|
|
581,255
|
|
Short-term investments
|
|
|
192,226
|
|
|
|
460,612
|
|
Other invested assets
|
|
|
113,550
|
|
|
|
71,943
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
20,227,952
|
|
|
|
19,612,896
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
289,338
|
|
|
|
310,930
|
|
Investments in unconsolidated affiliates
|
|
|
490,476
|
|
|
|
379,348
|
|
Accrued investment income
|
|
|
180,323
|
|
|
|
177,474
|
|
Reinsurance recoverables
|
|
|
401,709
|
|
|
|
413,881
|
|
Prepaid reinsurance premiums
|
|
|
63,026
|
|
|
|
77,907
|
|
Premiums due and other receivables
|
|
|
296,930
|
|
|
|
285,446
|
|
Deferred policy acquisition costs
|
|
|
1,294,443
|
|
|
|
1,324,669
|
|
Property and equipment, net
|
|
|
116,028
|
|
|
|
120,680
|
|
Current tax receivable
|
|
|
61,423
|
|
|
|
4,091
|
|
Other assets
|
|
|
169,962
|
|
|
|
140,788
|
|
Separate account assets
|
|
|
941,612
|
|
|
|
918,446
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
24,533,222
|
|
|
$
|
23,766,556
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Future policy benefits
|
|
|
|
|
|
|
|
|
Life
|
|
$
|
2,939,308
|
|
|
$
|
2,853,962
|
|
Annuity
|
|
|
1,277,220
|
|
|
|
1,113,057
|
|
Accident and health
|
|
|
60,308
|
|
|
|
65,034
|
|
Policyholders account balances
|
|
|
11,068,775
|
|
|
|
10,829,173
|
|
Policy and contract claims
|
|
|
1,303,925
|
|
|
|
1,280,011
|
|
Unearned premium reserve
|
|
|
823,938
|
|
|
|
812,977
|
|
Other policyholder funds
|
|
|
318,620
|
|
|
|
305,836
|
|
Liability for retirement benefits
|
|
|
152,496
|
|
|
|
207,635
|
|
Notes payable
|
|
|
136,080
|
|
|
|
128,436
|
|
Deferred tax liabilities, net
|
|
|
367,487
|
|
|
|
219,295
|
|
Other liabilities
|
|
|
481,958
|
|
|
|
570,223
|
|
Separate account liabilities
|
|
|
941,612
|
|
|
|
918,446
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
19,871,727
|
|
|
|
19,304,085
|
|
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
|
|
American National stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $1.00 par value,Authorized 50,000,000, Issued 30,832,449 and 30,832,449
Outstanding 26,914,516 and 26,894,456 shares
|
|
|
30,832
|
|
|
|
30,832
|
|
Additional paid-in capital
|
|
|
16,406
|
|
|
|
13,689
|
|
Accumulated other comprehensive income
|
|
|
455,899
|
|
|
|
352,620
|
|
Retained earnings
|
|
|
4,250,818
|
|
|
|
4,157,184
|
|
Treasury stock, at cost
|
|
|
(101,777
|
)
|
|
|
(102,043
|
)
|
|
|
|
|
|
|
|
|
|
Total American National stockholders equity
|
|
|
4,652,178
|
|
|
|
4,452,282
|
|
Noncontrolling interest
|
|
|
9,317
|
|
|
|
10,189
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
4,661,495
|
|
|
|
4,462,471
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
24,533,222
|
|
|
$
|
23,766,556
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
62
AMERICAN NATIONAL INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
PREMIUMS AND OTHER REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
|
|
$
|
318,953
|
|
|
$
|
305,350
|
|
|
$
|
307,771
|
|
Annuity
|
|
|
248,714
|
|
|
|
183,125
|
|
|
|
190,357
|
|
Accident and health
|
|
|
175,589
|
|
|
|
196,777
|
|
|
|
216,868
|
|
Property and casualty
|
|
|
1,253,392
|
|
|
|
1,153,267
|
|
|
|
1,100,975
|
|
Other policy revenues
|
|
|
306,880
|
|
|
|
250,265
|
|
|
|
224,254
|
|
Net investment income
|
|
|
860,235
|
|
|
|
834,831
|
|
|
|
932,858
|
|
Net realized investment gains
|
|
|
46,607
|
|
|
|
87,385
|
|
|
|
48,062
|
|
Other-than-temporary impairments
|
|
|
(17,667
|
)
|
|
|
(27,942
|
)
|
|
|
(6,640
|
)
|
Other income
|
|
|
35,248
|
|
|
|
34,397
|
|
|
|
36,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total premiums and other revenues
|
|
|
3,227,951
|
|
|
|
3,017,455
|
|
|
|
3,050,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BENEFITS, LOSSES AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
|
|
|
416,467
|
|
|
|
386,785
|
|
|
|
351,271
|
|
Annuity
|
|
|
294,917
|
|
|
|
230,221
|
|
|
|
234,173
|
|
Claims incurred
|
|
|
|
|
|
|
|
|
|
|
|
|
Accident and health
|
|
|
131,828
|
|
|
|
146,805
|
|
|
|
144,799
|
|
Property and casualty
|
|
|
883,219
|
|
|
|
776,562
|
|
|
|
745,540
|
|
Interest credited to policyholders account balances
|
|
|
331,770
|
|
|
|
293,464
|
|
|
|
353,492
|
|
Commissions for acquiring and servicing policies
|
|
|
465,962
|
|
|
|
425,338
|
|
|
|
397,126
|
|
Other operating expenses
|
|
|
503,459
|
|
|
|
501,377
|
|
|
|
485,865
|
|
Change in deferred policy acquisition costs
|
|
|
1,152
|
|
|
|
(11,785
|
)
|
|
|
9,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits, losses and expenses
|
|
|
3,028,774
|
|
|
|
2,748,767
|
|
|
|
2,721,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before federal income tax and equity in earnings of unconsolidated
affiliates
|
|
|
199,177
|
|
|
|
268,688
|
|
|
|
328,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Provision (benefit) for federal income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
(15,376
|
)
|
|
|
93,979
|
|
|
|
77,547
|
|
Deferred
|
|
|
89,086
|
|
|
|
9,741
|
|
|
|
19,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for federal income taxes
|
|
|
73,710
|
|
|
|
103,720
|
|
|
|
96,614
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
57,200
|
|
|
|
77,408
|
|
|
|
14,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
182,667
|
|
|
|
242,376
|
|
|
|
246,826
|
|
Less
:
Net income (loss) attributable to noncontrolling interest, net of tax
|
|
|
1,664
|
|
|
|
(612
|
)
|
|
|
1,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to American National
|
|
$
|
181,003
|
|
|
$
|
242,988
|
|
|
$
|
245,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts available to American National common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
6.73
|
|
|
$
|
9.04
|
|
|
$
|
9.15
|
|
Diluted
|
|
|
6.71
|
|
|
|
9.02
|
|
|
|
9.11
|
|
Cash dividends to common stockholders
|
|
|
3.26
|
|
|
|
3.14
|
|
|
|
3.08
|
|
Weighted average common shares outstanding
|
|
|
26,908,570
|
|
|
|
26,876,522
|
|
|
|
26,802,841
|
|
Weighted average common shares outstanding and dilutive potential common shares
|
|
|
26,967,072
|
|
|
|
26,950,066
|
|
|
|
26,918,670
|
|
See accompanying notes to the consolidated financial statements.
63
AMERICAN NATIONAL INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net income
|
|
$
|
182,667
|
|
|
$
|
242,376
|
|
|
$
|
246,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized gains (losses) on securities
|
|
|
93,704
|
|
|
|
(114,717
|
)
|
|
|
110,214
|
|
Foreign currency transaction and translation adjustments
|
|
|
289
|
|
|
|
(1,630
|
)
|
|
|
(954
|
)
|
Defined benefit pension plan adjustment
|
|
|
9,286
|
|
|
|
(21,815
|
)
|
|
|
(32,190
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax
|
|
|
103,279
|
|
|
|
(138,162
|
)
|
|
|
77,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
285,946
|
|
|
|
104,214
|
|
|
|
323,896
|
|
Less: Comprehensive income (loss) attributable to noncontrolling interest
|
|
|
1,664
|
|
|
|
(612
|
)
|
|
|
1,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income attributable to American National
|
|
$
|
284,282
|
|
|
$
|
104,826
|
|
|
$
|
322,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMERICAN NATIONAL INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning and end of the period
|
|
$
|
30,832
|
|
|
$
|
30,832
|
|
|
$
|
30,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional Paid-In Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1,
|
|
|
13,689
|
|
|
|
9,248
|
|
|
|
4,650
|
|
Reissuance of treasury shares
|
|
|
1,825
|
|
|
|
2,129
|
|
|
|
1,635
|
|
Income tax effect from restricted stock arrangement
|
|
|
49
|
|
|
|
1,165
|
|
|
|
|
|
Amortization of restricted stock
|
|
|
843
|
|
|
|
1,147
|
|
|
|
2,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of the period
|
|
|
16,406
|
|
|
|
13,689
|
|
|
|
9,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1,
|
|
|
352,620
|
|
|
|
490,782
|
|
|
|
413,712
|
|
Other comprehensive income (loss)
|
|
|
103,279
|
|
|
|
(138,162
|
)
|
|
|
77,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of the period
|
|
|
455,899
|
|
|
|
352,620
|
|
|
|
490,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1,
|
|
|
4,157,184
|
|
|
|
3,998,642
|
|
|
|
3,836,112
|
|
Net income attributable to American National
|
|
|
181,003
|
|
|
|
242,988
|
|
|
|
245,335
|
|
Cash dividends to common stockholders
|
|
|
(87,741
|
)
|
|
|
(84,446
|
)
|
|
|
(82,805
|
)
|
Cumulative effect of accounting change
|
|
|
372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of the period
|
|
|
4,250,818
|
|
|
|
4,157,184
|
|
|
|
3,998,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1,
|
|
|
(102,043
|
)
|
|
|
(101,941
|
)
|
|
|
(97,441
|
)
|
Reissuance (purchase) of treasury shares
|
|
|
266
|
|
|
|
(102
|
)
|
|
|
(4,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of the period
|
|
|
(101,777
|
)
|
|
|
(102,043
|
)
|
|
|
(101,941
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1,
|
|
|
10,189
|
|
|
|
12,384
|
|
|
|
12,757
|
|
Contributions
|
|
|
|
|
|
|
1,859
|
|
|
|
981
|
|
Distributions
|
|
|
(2,536
|
)
|
|
|
(3,442
|
)
|
|
|
(2,845
|
)
|
Net income (loss) attributable to noncontrolling interest
|
|
|
1,664
|
|
|
|
(612
|
)
|
|
|
1,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of the period
|
|
|
9,317
|
|
|
|
10,189
|
|
|
|
12,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity
|
|
$
|
4,661,495
|
|
|
$
|
4,462,471
|
|
|
$
|
4,439,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
64
AMERICAN NATIONAL INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
(As Revised)
|
|
|
(As Revised)
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
182,667
|
|
|
$
|
242,376
|
|
|
$
|
246,826
|
|
Adjustments to reconcile net income to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized investment gains
|
|
|
(46,607
|
)
|
|
|
(87,385
|
)
|
|
|
(48,062
|
)
|
Other-than-temporary impairments
|
|
|
17,667
|
|
|
|
27,942
|
|
|
|
6,640
|
|
Amortization (accretion) of premiums, discounts and loan origination fees
|
|
|
(2,926
|
)
|
|
|
2,701
|
|
|
|
7,294
|
|
Net capitalized interest on policy loans and mortgage loans
|
|
|
(32,813
|
)
|
|
|
(31,360
|
)
|
|
|
(32,122
|
)
|
Depreciation
|
|
|
45,278
|
|
|
|
40,573
|
|
|
|
38,414
|
|
Interest credited to policyholders account balances
|
|
|
331,770
|
|
|
|
293,464
|
|
|
|
353,492
|
|
Charges to policyholders account balances
|
|
|
(306,880
|
)
|
|
|
(250,265
|
)
|
|
|
(224,254
|
)
|
Deferred federal income tax expense
|
|
|
89,086
|
|
|
|
9,741
|
|
|
|
19,067
|
|
Equity in earnings of unconsolidated affiliates
|
|
|
(57,200
|
)
|
|
|
(77,408
|
)
|
|
|
(14,694
|
)
|
Distributions from equity method investments
|
|
|
1,096
|
|
|
|
819
|
|
|
|
5,186
|
|
Changes in
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder liabilities
|
|
|
282,159
|
|
|
|
259,645
|
|
|
|
200,718
|
|
Deferred policy acquisition costs
|
|
|
1,152
|
|
|
|
(11,785
|
)
|
|
|
9,578
|
|
Reinsurance recoverables
|
|
|
12,172
|
|
|
|
14,773
|
|
|
|
(13,911
|
)
|
Premiums due and other receivables
|
|
|
(11,691
|
)
|
|
|
(5,512
|
)
|
|
|
(1,184
|
)
|
Prepaid reinsurance premiums
|
|
|
14,881
|
|
|
|
(21,887
|
)
|
|
|
1,850
|
|
Accrued investment income
|
|
|
(2,849
|
)
|
|
|
8,470
|
|
|
|
8,887
|
|
Current tax receivable/payable
|
|
|
(57,332
|
)
|
|
|
4,578
|
|
|
|
9,838
|
|
Liability for retirement benefits
|
|
|
(53,979
|
)
|
|
|
(31,435
|
)
|
|
|
(19,084
|
)
|
Other, net
|
|
|
(4,074
|
)
|
|
|
(8,587
|
)
|
|
|
2,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
401,577
|
|
|
|
379,458
|
|
|
|
556,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale/maturity/prepayment of
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity securities
|
|
|
491,478
|
|
|
|
1,150,650
|
|
|
|
661,125
|
|
Available-for-sale securities
|
|
|
459,511
|
|
|
|
574,391
|
|
|
|
910,691
|
|
Investment real estate
|
|
|
12,833
|
|
|
|
19,788
|
|
|
|
63,030
|
|
Mortgage loans
|
|
|
587,355
|
|
|
|
836,443
|
|
|
|
606,738
|
|
Policy loans
|
|
|
59,920
|
|
|
|
56,773
|
|
|
|
55,542
|
|
Other invested assets
|
|
|
30,743
|
|
|
|
71,564
|
|
|
|
40,882
|
|
Disposals of property and equipment
|
|
|
16,240
|
|
|
|
4,681
|
|
|
|
11,269
|
|
Distributions from unconsolidated affiliates
|
|
|
55,311
|
|
|
|
130,742
|
|
|
|
41,779
|
|
Payment for the purchase/origination of
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity securities
|
|
|
(156,453
|
)
|
|
|
(525,950
|
)
|
|
|
(439,422
|
)
|
Available-for-sale securities
|
|
|
(683,128
|
)
|
|
|
(1,343,795
|
)
|
|
|
(1,044,602
|
)
|
Investment real estate
|
|
|
(45,631
|
)
|
|
|
(106,255
|
)
|
|
|
(51,699
|
)
|
Mortgage loans
|
|
|
(1,428,471
|
)
|
|
|
(962,267
|
)
|
|
|
(668,073
|
)
|
Policy loans
|
|
|
(25,480
|
)
|
|
|
(26,459
|
)
|
|
|
(29,093
|
)
|
Other invested assets
|
|
|
(67,571
|
)
|
|
|
(38,101
|
)
|
|
|
(27,705
|
)
|
Additions to property and equipment
|
|
|
(47,301
|
)
|
|
|
(32,596
|
)
|
|
|
(31,951
|
)
|
Contributions to unconsolidated affiliates
|
|
|
(135,208
|
)
|
|
|
(132,004
|
)
|
|
|
(12,560
|
)
|
Change in short-term investments
|
|
|
268,386
|
|
|
|
(29,612
|
)
|
|
|
64,386
|
|
Change in collateral held for derivatives
|
|
|
24,349
|
|
|
|
(65,160
|
)
|
|
|
22,724
|
|
Other, net
|
|
|
27,869
|
|
|
|
12,702
|
|
|
|
15,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(555,248
|
)
|
|
|
(404,465
|
)
|
|
|
189,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholders account deposits
|
|
|
1,528,107
|
|
|
|
1,405,350
|
|
|
|
1,002,420
|
|
Policyholders account withdrawals
|
|
|
(1,313,394
|
)
|
|
|
(1,400,661
|
)
|
|
|
(1,532,023
|
)
|
Change in notes payable
|
|
|
7,643
|
|
|
|
20,259
|
|
|
|
(5,672
|
)
|
Dividends to stockholders
|
|
|
(87,741
|
)
|
|
|
(84,446
|
)
|
|
|
(82,805
|
)
|
Payments to noncontrolling interest
|
|
|
(2,536
|
)
|
|
|
(1,583
|
)
|
|
|
(1,864
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
132,079
|
|
|
|
(61,081
|
)
|
|
|
(619,944
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
(21,592
|
)
|
|
|
(86,088
|
)
|
|
|
125,899
|
|
Beginning of the period
|
|
|
310,930
|
|
|
|
397,018
|
|
|
|
271,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of the period
|
|
$
|
289,338
|
|
|
$
|
310,930
|
|
|
$
|
397,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
65
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Nature of Operations
American National
Insurance Company and its consolidated subsidiaries (collectively American National or the Company) offer a broad spectrum of insurance products, including individual and group life insurance, annuities, health insurance, and
property and casualty insurance. Business is conducted in all 50 states, the District of Columbia and Puerto Rico.
Note 2 Summary of
Significant Accounting Policies and Practices
The consolidated financial statements and notes thereto have been prepared in conformity with U.S.
generally accepted accounting principles (GAAP) and are reported in U.S. currency. American National consolidates entities that are wholly-owned and those in which American National owns less than 100% but controls, as well as variable
interest entities in which American National is the primary beneficiary. Intercompany balances and transactions with consolidated entities have been eliminated. Investments in unconsolidated affiliates are accounted for using the equity method of
accounting. Certain amounts in prior years have been reclassified to conform to current year presentation.
The preparation of the consolidated financial
statements in conformity with GAAP requires the use of estimates and assumptions that affect the reported consolidated financial statement balances. Actual results could differ from those estimates.
66
Note 2 Summary of Significant Accounting Policies and Practices (Continued)
Revision to Previously Reported Amounts
Immaterial Correction of an Error.
During the fourth quarter of 2016, the Company revised previously reported amounts to include cash held in a bank
custody account representing collateral provided to us by third parties for equity-option derivative transactions. For details, see Note 7, Derivative Instruments, of the Notes to the Consolidated Financial Statements. In accordance with Staff
Accounting Bulletin (SAB) No. 99,
Materiality,
and SAB No. 108,
Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements
, management evaluated the
materiality of the error from qualitative and quantitative perspectives, and concluded the error was immaterial to the current and prior periods. The correction of the immaterial error revised the consolidated statements of financial position and
statements of cash flows only. There was no revision to the consolidated statements of operations, comprehensive income or changes in equity. The Company revised its historical financial statements for fiscal 2015 and fiscal 2014 herein, and will
revise the quarters within fiscal 2016, when they are published in future filings.
Financial statement amounts previously reported were revised as shown
below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Reported
|
|
|
As Revised
|
|
|
Effect of
Change
|
|
As of December 31, 2015
Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
Other invested assets
|
|
$
|
173,042
|
|
|
$
|
71,943
|
|
|
$
|
(101,099
|
)
|
Cash and cash equivalents
|
|
|
190,237
|
|
|
|
310,930
|
|
|
|
120,693
|
|
Other liabilities
|
|
|
550,629
|
|
|
|
570,223
|
|
|
|
19,594
|
|
Total assets
|
|
|
23,746,962
|
|
|
|
23,766,556
|
|
|
|
19,594
|
|
Total liabilities
|
|
|
19,284,491
|
|
|
|
19,304,085
|
|
|
|
19,594
|
|
Statement of Cash Flow
|
|
|
|
|
|
|
|
|
Change in collateral held for derivatives
|
|
|
|
|
|
|
(65,160
|
)
|
|
|
(65,160
|
)
|
Other, net
|
|
|
14,412
|
|
|
|
12,702
|
|
|
|
(1,710
|
)
|
Net cash used in investing activities
|
|
|
(337,595
|
)
|
|
|
(404,465
|
)
|
|
|
(66,870
|
)
|
Net decrease in cash and cash equivalents
|
|
|
(19,218
|
)
|
|
|
(86,088
|
)
|
|
|
(66,870
|
)
|
Cash at beginning of period
|
|
|
209,455
|
|
|
|
397,018
|
|
|
|
187,563
|
|
Cash at end of period
|
|
|
190,237
|
|
|
|
310,930
|
|
|
|
120,693
|
|
As of December 31, 2014
Balance Sheet
|
|
|
|
|
|
|
|
|
Other invested assets
|
|
$
|
220,255
|
|
|
$
|
53,996
|
|
|
$
|
(166,259
|
)
|
Cash and cash equivalents
|
|
|
209,455
|
|
|
|
397,018
|
|
|
|
187,563
|
|
Other liabilities
|
|
|
550,843
|
|
|
|
572,147
|
|
|
|
21,304
|
|
Total assets
|
|
|
23,544,532
|
|
|
|
23,565,836
|
|
|
|
21,304
|
|
Total liabilities
|
|
|
19,104,585
|
|
|
|
19,125,889
|
|
|
|
21,304
|
|
Statement of Cash Flow
|
|
|
|
|
|
|
|
|
Change in collateral held for derivatives
|
|
|
|
|
|
|
22,724
|
|
|
|
22,724
|
|
Other, net
|
|
|
4,331
|
|
|
|
15,997
|
|
|
|
11,666
|
|
Net cash provided by investing activities
|
|
|
154,668
|
|
|
|
189,058
|
|
|
|
34,390
|
|
Net increase in cash and cash equivalents
|
|
|
91,509
|
|
|
|
125,899
|
|
|
|
34,390
|
|
Cash at beginning of period
|
|
|
117,946
|
|
|
|
271,119
|
|
|
|
153,173
|
|
Cash at end of period
|
|
|
209,455
|
|
|
|
397,018
|
|
|
|
187,563
|
|
67
Note 2 Summary of Significant Accounting Policies and Practices (Continued)
Investments
Investment securities
Bonds classified as held-to-maturity are carried at amortized cost. Bonds classified as available-for-sale are carried at
fair value. Equity securities are classified as available-for-sale and carried at fair value. After-tax net unrealized gains or losses on available-for-sale securities are reflected in equity as a component of Accumulated Other Comprehensive
Income (AOCI).
Mortgage loans on real estate
are stated at unpaid principal balance, adjusted for any unamortized discount,
deferred expenses, and allowances. Accretion of discounts is recorded using the effective yield method. Interest income, prepayment fees and accretion of discounts and origination fees are reported in Net investment income in the
consolidated statements of operations. Interest income earned on impaired and non-impaired loans is accrued on the principal amount of the loan based on contractual interest rate. However, interest ceases to accrue for loans on which interest is
more than 90 days past due, when the collection of interest is not probable or when a loan is in foreclosure. Income on past due loans is reported on a cash basis. When a loan becomes current, it is placed back into accrual status. Cash receipts on
impaired loans are recorded as a reduction of principal, interest income, expense reimbursement or other manner in accordance with the loan agreement. Gains and losses from the sale of loans and changes in allowances are reported in Net
realized investment gains in the consolidated statements of operations.
Each mortgage loan is evaluated quarterly and placed in a watchlist if
events occur or circumstances exist that could indicate that American National will be unable to collect all amounts due according to the contractual terms. Additionally, loans with estimated collateral value less than their balance and loans with
characteristics indicative of higher than normal credit risks are reviewed quarterly. All loans in the watchlist are analyzed individually for impairment. If a loan is concluded to be fully collectible, no loss allowance is recorded. Loans are
considered impaired when, based upon current information and events, it is probable that all amounts due under the contractual terms of the loan will be uncollectible. A specific allowance for loan losses is established for the excess carrying value
of the loan over either: (i) the present value of expected future cash flows discounted at the loans original effective interest rate, or (ii) the estimated fair value of the underlying collateral if the loan is in the process of
foreclosure or otherwise collateral dependent. Allowances are also established on groups of loans with similar characteristics, such as property types, if based on experience, it is probable that a loss has occurred and the amount of the loss can be
reasonably estimated. The allowance is reviewed quarterly to determine if it is adequate, or if a recovery of the asset is assured and the allowance can be reduced.
Management believes the recorded allowance is adequate and is the best estimate of probable loan losses, including losses incurred at the reporting date but
not identified by a specific loan. The allowance is based on historical loan loss experience, known and inherent risks in the portfolio, adverse situations affecting the borrowers ability to repay, the estimated value of the underlying
collateral, composition of the loan portfolio, current economic conditions and other relevant factors. Loans are charged off as uncollectible only when the loan is forgiven by a legal agreement. Prior to charging off a loan, an allowance is recorded
based on the estimated recoverable amount. Upon forgiveness, both the allowance and the loan balance are reduced which results in no further gain or loss.
Policy loans
are carried at cost, which approximates fair value.
68
Note 2 Summary of Significant Accounting Policies and Practices (Continued)
Investment real estate
including related improvements, are stated at cost less accumulated
depreciation. Depreciation is provided on a straight-line basis over the estimated useful life of the asset (typically 15 to 50 years). Rental income is recognized on a straight-line basis over the term of the respective lease. American National
classifies a property as held-for-sale if it commits to a plan to sell a property within one year and actively markets the property in its current condition for a price that is reasonable in comparison to its estimated fair value. Real estate
held-for-sale is stated at the lower of depreciated cost or estimated fair value less expected disposition costs, and is not depreciated while it is classified as held-for-sale. American National periodically reviews its investment real estate for
impairment and tests properties for recoverability whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable and the carrying value of the property exceeds its estimated fair value. Properties whose
carrying values are greater than their undiscounted cash flows are written down to their estimated fair value, with the impairment loss included in Realized investment gains (losses) in the consolidated statements of operations.
Impairment losses are based upon the estimated fair value of real estate, which is generally computed using the present value of expected future cash flows from the real estate discounted at a rate commensurate with the underlying risks as well as
other appraisal methods. Real estate acquired upon foreclosure is recorded at the lower of its cost, or its estimated fair value at the date of foreclosure.
Real Estate Joint Ventures and Other Limited Partnership Interests
in which the Company has more than a minor interest or influence over the
investees operations, but it does not have a controlling interest and is not the primary beneficiary, are accounted for using the equity method. These investments are reported as Investments in unconsolidated affiliates in the
consolidated statements of financial position. For certain joint ventures, American National records its share of earnings using a lag methodology of one to three months when timely financial information is not available and the contractual right
does not exist to receive such financial information. In addition to the investees impairment analysis of its underlying investments, American National routinely evaluates its investments in those investees for impairments. American National
considers financial and other information provided by the investee, other known information and inherent risks in the underlying investments, as well as future capital commitments, in determining whether impairment has occurred. When an impairment
is deemed to have occurred at the joint venture level, American National recognizes its share within Equity in earnings (losses) of unconsolidated affiliates to record the investment at its fair value. When an impairment results from
American Nationals separate analysis, an adjustment is made through Net realized investment gains to record the investment at its fair value.
Short-term investments
comprised of commercial paper, are carried at amortized cost, which approximates fair value.
Other invested assets
comprised primarily of equity-indexed options, which are carried at fair value and may be collateralized by counterparties; such
collateral is restricted to the Companys use. Other invested assets also include tax credit partnerships, Certified Capital Companies (CAPCO) investments, mineral rights and limited liability interests, are carried at cost, less
allowance for depletion, where applicable.
Impairments
are evaluated quarterly and where management believes that the carrying value will not be
realized, an other-than-temporary impairment (OTTI) loss is recorded.
All fixed maturity securities with unrealized losses are
assessed to determine if the creditworthiness of any of those securities has deteriorated to a point where its carrying value will not be realized at maturity. For fixed maturity securities at December 31, 2016, the unrealized losses on fixed
maturity securities that were not other-than-temporarily impaired were the result of credit spread widening. There were no delinquent coupon payments attributed to these securities at December 31, 2016
.
69
Note 2 Summary of Significant Accounting Policies and Practices (Continued)
For all fixed maturity securities in unrealized loss positions which American National does not intend to
sell and for which it is not more-likely-than-not that it will be required to sell before its anticipated recovery, American National assesses whether the amortized cost basis of securities will be recovered by comparing the net present value of the
expected cash flows from those securities with its amortized cost basis. Management estimates the expected cash flows using historical experience information as well as market observable data, such as industry analyst reports and forecasts, sector
credit ratings and other data relevant to the collectability of a security. The net present value of the expected cash flows from fixed maturity securities is calculated by discounting managements best estimate of expected cash flows at the
effective interest rate implicit in the fixed maturity security when acquired. If the net present value of the expected cash flows is less than the amortized cost, an OTTI has occurred in the form of a credit loss. The credit loss is recognized in
earnings in the amount of excess amortized cost over the net present value of the expected cash flows. If the fair value is less than the net present value of its expected cash flows at the impairment measurement date, a non-credit loss exists which
is recorded in other comprehensive income (loss) for the difference between the fair value and the net present value of the expected cash flows.
After the recognition of an OTTI, fixed maturity securities are accounted for as if they had been purchased on the OTTI measurement date, with a cost basis
equal to their previous amortized cost less the related OTTI losses recognized in earnings. The new cost basis of an other-than-temporarily impaired security is not adjusted for subsequent increases in estimated fair value. Should there be a
significant increase in the estimate of cash flows expected to be collected from previously impaired securities, the increase would be accounted for prospectively by accreting it as interest income over its remaining life.
American National evaluates quarterly all equity securities in unrealized loss positions and recognizes an OTTI loss on those where a market price recovery is
not expected in a reasonable period of time. All equity securities with unrealized losses are also evaluated for credit quality. OTTI is recognized if management believes the carrying value of securities will not be realized, regardless of the
length of time that they have had an unrealized loss.
Derivative instruments
are purchased to hedge against future interest rate increases in
liabilities indexed to market rates, and are recorded in the consolidated statements of financial position at fair value net of collateral provided by counterparties. The change in fair value of derivative assets and liabilities is reported in the
consolidated statements of operations as Net investment income and Interest credited to policyholders account balances, respectively. American National does not apply hedge accounting treatment to its derivative
instruments. The Company uses derivative instruments to hedge our business risk and holds collateral to offset exposure from its counterparties. Unrestricted collateral that supports credit risk is reported in the consolidated statements of
financial position as an offset to Other invested assets with an associated payable to Other liabilities for excess collateral. Restricted collateral is recorded as Other liabilities due to the uncertainty of the
collaterals availability to offset exposure losses.
Cash and cash equivalents
include cash on-hand and in banks, as well as amounts invested
in money market funds and are reported as Cash and cash equivalents in the consolidated statements of financial position.
Property
and equipment
consist of buildings occupied by American National, data processing equipment, software, furniture and equipment, and automobiles which are carried at cost, less accumulated depreciation. Depreciation is calculated using
straight-line and accelerated methods over the estimated useful lives of the assets (typically 3 to 50 years).
70
Note 2 Summary of Significant Accounting Policies and Practices (Continued)
Insurance specific assets and liabilities
Deferred policy acquisition costs
(DAC) are capitalized costs related directly to the successful acquisition of new or renewal insurance
contracts. Significant costs are incurred to acquire insurance and annuity contracts, including commissions and certain underwriting, policy issuance and processing expenses.
DAC on traditional life and health products is amortized with interest over the anticipated premium-paying period of the related policies, in proportion to
the ratio of annual premium revenue expected to be received over the life of the policies. Expected premium revenue is estimated by using the same mortality, morbidity and withdrawal assumptions used in computing liabilities for future policy
benefits. DAC is reduced by a provision for possible inflation of maintenance and settlement expenses determined by means of grading interest rates.
DAC
on universal life, limited-pay and investment-type contracts is amortized as a level percentage of the present value of anticipated gross profits from investment yields, mortality, and surrender charges. The effect of the realization of unrealized
gains (losses) on DAC is recognized within AOCI in the consolidated statements of financial position as of the reporting date. A change in interest rates could have a significant impact on DAC calculated for these contracts.
DAC associated with property and casualty business is amortized over the coverage period of the related policies, in relation to premium earned.
For short-duration and long-duration contracts, DAC is grouped consistent with the manner in which insurance contracts are acquired, serviced and measured for
profitability and is reviewed for recoverability based on the profitability of the underlying insurance contracts. Investment income is not anticipated in assessing the recoverability of DAC for short-duration contracts.
Liabilities for future policy benefits
for traditional products have been provided on a net level premium method based on estimated investment yields,
withdrawals, mortality, and other assumptions that were appropriate at the time policies were issued. Estimates are based on historical experience, adjusted for possible adverse deviation. These estimates are periodically reviewed and compared with
actual experience. When it is determined that future expected experience differs significantly from existing assumptions, the estimates are revised for current and future issues.
Policyholders account balances
represent the contract value that has accrued to the benefit of the policyholders related to universal-life and
investments-type contracts. These are generally equal to the accumulated deposits, plus interest credited, reduced by withdrawals, payouts, and accumulated policyholder assessments.
Reserves for claims and claim adjustment expenses (CAE)
are established to provide for the estimated costs of paying claims. These reserves
include estimates for both case reserves and incurred but not reported (IBNR) claim reserves. Case reserves include the liability for reported but unpaid claims. IBNR reserves include a provision for potential development on case
reserves, losses on claims currently closed which may reopen in the future, as well as incurred but not reported claims. These reserves also include an estimate of the expense associated with settling claims, including legal and other fees and the
general expenses of administering the claims adjustment process.
Reinsurance
Reinsurance recoverables are estimated amounts due to American
National from reinsurers related to paid and unpaid ceded claims and CAE and are presented net of a reserve for collectability. Recoveries of gross ultimate losses are estimated by a review of individual large claims and the ceded portion of IBNR
using assumed distribution of loss by percentage retained. The most significant assumption is the average size of the individual losses for those claims that have occurred but have not yet been reported. The ultimate amount of the reinsurance ceded
recoverable is unknown until all losses settle.
71
Note 2 Summary of Significant Accounting Policies and Practices (Continued)
Separate account assets and liabilities
Separate account assets and liabilities are funds intended to meet the investment objectives of contract holders who bear the investment risk. Investment
income and investment gains and losses from these separate funds accrue to the benefit of the contract holders. Separate accounts are established in conformity with insurance laws and are not chargeable with liabilities that arise from any other
business of American National. American National reports separately, as assets and liabilities, investments held in separate accounts and liabilities of the separate accounts if (i) such separate accounts are legally recognized;
(ii) assets supporting the contract liabilities are legally insulated from American Nationals general account liabilities; (iii) investments are directed by the contract holder; and (iv) all investment performance, net of
contract fees and assessments, is passed through to the contract holder. The assets of these accounts are carried at fair value. Deposits, net investment income and realized investment gains and losses for these accounts are excluded from revenues,
and related liability increases are excluded from benefits and expenses in the consolidated financial statements.
Premiums, benefits, claims incurred
and expenses
Traditional ordinary life and health
premiums are recognized as revenue when due. Benefits and expenses are associated with earned
premiums to result in recognition of profits over the term of the insurance contracts.
Annuity
premiums received on limited-pay and supplemental
annuity contracts involving a significant life contingency are recognized as revenue when due. Deferred annuity premiums are recorded as deposits rather than recognized as revenue. Revenues from deferred annuity contracts are principally surrender
charges and, in the case of variable annuities, administrative fees assessed to contractholders.
Universal life and single premium whole life
revenues represent amounts assessed to policyholders including mortality charges, surrender charges actually paid and earned policy service fees. Amounts included in expenses are benefits in excess of account balances returned to policyholders.
Property and casualty
premiums are recognized as revenue proportionately over the contract period, net of reinsurance ceded. Claims incurred
consist of claims and CAE paid and the change in reserves, net of reinsurance received and recoverable.
Participating insurance policies
Participating business comprised approximately 6.1% of the life insurance in-force at December 31, 2016 and 18.2% of life premiums in 2016. Of the total
participating business, 77.7% was written by Farm Family Life Insurance Company (Farm Family Life). For the participating business excluding Farm Family Life, the allocation of dividends to participating policyowners is based upon a
comparison of experienced rates of mortality, interest and expenses, as determined periodically for representative plans of insurance, issue ages and policy durations, with the corresponding rates assumed in the calculation of premiums.
For the Farm Family Life participating business, profits earned on participating business are reserved for the payment of dividends to policyholders, except
for the stockholders share of profits on participating policies, which is limited to the greater of 10% of the profit on participating business, or 50 cents per thousand dollars of the face amount of participating life insurance in-force.
Participating policyholders interest includes the accumulated net income from participating policies reserved for payment to such policyholders in the form of dividends (less net income allocated to stockholders as indicated above) as well as
a pro rata portion of unrealized investment gains (losses), net of tax.
72
Note 2 Summary of Significant Accounting Policies and Practices (Continued)
Federal income taxes
American National files a consolidated life and non-life federal income tax return. Certain subsidiaries that are consolidated for financial reporting are not
eligible to be included in the consolidated federal income tax return; accordingly, they file separate returns.
Deferred federal income tax assets and
liabilities are recognized to reflect the future tax consequences attributable to differences between the financial statement amounts of assets and liabilities and their respective tax bases. Deferred taxes are measured using enacted tax rates
expected to apply in the years in which those temporary differences are expected to be recovered or settled.
American National recognizes tax benefits on
uncertain tax positions if it is more-likely-than-not the position based on its technical merits will be sustained by taxing authorities. American National recognizes the largest benefit that is greater than 50% likely of being
ultimately realized upon settlement. Tax benefits not meeting the more-likely-than-not threshold, if applicable, are included with Other liabilities in the consolidated statements of financial position.
Interest and penalties assessed, if applicable, are classified as current federal income taxes in the consolidated statements of operations.
Pension and postretirement benefit plans
Pension and
postretirement benefit obligations and costs for our frozen benefit plans are estimated using assumptions including demographic factors such as retirement age and mortality.
American National uses a discount rate to determine the present value of future benefits on the measurement date. The guideline for setting this rate is a
high-quality long-term corporate bond rate. To determine the expected long-term rate of return on plan assets, a building-block method is used. The expected rate of return on each asset is broken down into inflation, the real risk-free rate of
return (i.e., the long-term estimate of future returns on default-free U.S. government securities), and the risk premium for each asset class (i.e., the expected return in excess of the risk-free rate). Using this approach, the calculated return
will fluctuate from year to year; however, it is American Nationals policy to hold this long-term assumption relatively constant.
73
Note 2 Summary of Significant Accounting Policies and Practices (Continued)
Stock-based compensation
Stock Appreciation Rights
(SARs) liability and compensation cost is based on the fair value of the grants and are remeasured each reporting
period through the settlement date. The fair value of the SARs is calculated using the Black-Scholes-Merton option-pricing model. The key assumptions used in the model include: the grant date and remeasurement date stock prices, expected life
of the SARs and the risk-free rate of return. The compensation liability related to the SAR award is included in Other liabilities in the consolidated statements of financial position.
Restricted Stock
(RS) equity and compensation cost is based on the fair value of the underlying stock at grant date. The compensation cost
accrued is included in Additional paid-in capital in the consolidated statements of financial position.
Restricted Stock Units
(RSU) provides the recipients of the awards the option to settle vested RSUs in either cash or American National common stock. Effective December 31, 2012, American Nationals Board Compensation Committee modified the
settlement provision within the outstanding restricted stock units, which changed the RSU classification from an equity to a liability award. The liability is remeasured each reporting period through the vesting date and is adjusted for changes in
fair value. The compensation liability related to the RSUs is included in Other Liabilities in the consolidated statements of financial position.
Litigation contingencies
Existing and potential
litigation is reviewed quarterly to determine if any adjustments to liabilities for possible losses are necessary. Reserves for losses are established whenever they are probable and estimable. If no one estimate within the range of possible losses
is more probable than any other, a reserve is recorded based on the lowest amount of the range.
Note 3 Recently Issued Accounting
Pronouncements
Adoption of New Accounting Standards
In February 2015, the FASB issued guidance amending the consolidation analysis. The guidance modifies the evaluation of whether limited partnerships and
similar legal entities are variable interest entities (VIEs) or voting interest entities. The guidance eliminates the presumption that a general partner should consolidate a limited partnership and affects the consolidation analysis of reporting
entities that are involved with VIEs. The Company adopted the standard on its required effective date of January 1, 2016. The adoption did not have a material impact to the Companys results of operations or financial position.
In May 2015, the FASB issued guidance to expand the disclosures an insurance entity would provide about its short duration contracts. The disclosure about the
liability for unpaid claims and claim adjustment expenses is intended to increase the transparency of significant estimates made in the measuring of those liabilities. It is also intended to provide insight into an insurance entitys ability to
underwrite and anticipate costs associated with claims. The Company adopted the standard for the annual period ending December 31, 2016 and the expanded disclosure required is included in Note 12, Liability for Unpaid Claims and Claim
Adjustment Expenses, of the Notes to Consolidated Financial Statements. The adoption affected disclosure only and did not impact the Companys results of operations or financial position.
74
Note 3 Recently Issued Accounting Pronouncements (Continued)
Future Adoption of New Accounting Standards
The FASB issued the following accounting guidance
relevant to American National:
In May 2014, the FASB issued guidance that will supersede most existing revenue recognition requirements in GAAP.
Insurance contracts generally are excluded from the scope of the guidance. For those contracts which are impacted, the transaction price is attributed to the underlying performance obligations in the contract and revenue is recognized as the entity
satisfies the performance obligations and transfers control of a good or service to the customer. The standard is effective for annual periods and interim periods within those annual periods beginning after December 15, 2017. The Company
intends to adopt the standard effective January 1, 2018, which is not expected to be material to the Companys results of operations or financial position.
In January 2016, the FASB issued guidance that will change certain aspects of recognition, measurement, presentation, and disclosure of financial instruments.
The new guidance requires that equity investments in unconsolidated entities be measured at fair value and that changes in fair value are recognized through earnings. When the fair value option has been elected for financial liabilities, changes in
fair value due to instrument-specific credit risk will be recognized separately in other comprehensive income. The guidance also simplifies the impairment assessment of equity investments and eliminates the disclosure requirements for methods and
significant assumptions used to estimate fair value of financial instruments that are measured at amortized cost on the statement of financial position. The standard is effective for annual periods and interim periods within those annual periods
beginning after December 15, 2017. The Company is currently evaluating the impact of adoption to the Companys results of operations and financial position.
In February 2016, the FASB issued guidance that will require significant changes to the statement of financial position of lessees. With certain limited
exceptions, lessees will need to recognize virtually all of their leases on the statement of financial position, by recording a right-of-use asset and a lease liability. Lessor accounting is updated to align with certain changes in the lessee model
and the new revenue recognition standard. The standard is effective for annual periods and interim periods within those annual periods beginning after December 15, 2018. The Company is currently evaluating the impact of adoption, which is not
expected to be material to the Companys results of operations or financial position.
In June 2016, the FASB issued guidance that will significantly
change how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance will replace the current incurred loss approach with an
expected loss model for instruments measured at amortized cost. For available-for-sale debt securities, entities will be required to record allowances rather than reduce the carrying amount, as they do under the current
other-than-temporary impairment model. The standard is effective for annual periods and interim periods within those annual periods beginning after December 15, 2019. The Company is currently evaluating the impact of adoption to the
Companys results of operations and financial position.
75
Note 4 Investment in Securities
The cost or amortized cost and fair value of investments in securities are shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Cost or
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
(Losses)
|
|
|
Fair Value
|
|
Fixed maturity securities, bonds held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. states and political subdivisions
|
|
$
|
301,994
|
|
|
$
|
17,190
|
|
|
$
|
(102
|
)
|
|
$
|
319,082
|
|
Foreign governments
|
|
|
4,057
|
|
|
|
659
|
|
|
|
|
|
|
|
4,716
|
|
Corporate debt securities
|
|
|
6,711,508
|
|
|
|
253,191
|
|
|
|
(38,721
|
)
|
|
|
6,925,978
|
|
Residential mortgage-backed securities
|
|
|
229,758
|
|
|
|
14,112
|
|
|
|
(1,185
|
)
|
|
|
242,685
|
|
Collateralized debt securities
|
|
|
1,290
|
|
|
|
64
|
|
|
|
|
|
|
|
1,354
|
|
Other debt securities
|
|
|
2,778
|
|
|
|
99
|
|
|
|
|
|
|
|
2,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bonds held-to-maturity
|
|
|
7,251,385
|
|
|
|
285,315
|
|
|
|
(40,008
|
)
|
|
|
7,496,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities, bonds available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury and government
|
|
|
25,062
|
|
|
|
594
|
|
|
|
(16
|
)
|
|
|
25,640
|
|
U.S. states and political subdivisions
|
|
|
945,431
|
|
|
|
21,170
|
|
|
|
(6,378
|
)
|
|
|
960,223
|
|
Foreign governments
|
|
|
5,000
|
|
|
|
1,567
|
|
|
|
|
|
|
|
6,567
|
|
Corporate debt securities
|
|
|
4,666,096
|
|
|
|
145,716
|
|
|
|
(31,049
|
)
|
|
|
4,780,763
|
|
Residential mortgage-backed securities
|
|
|
18,588
|
|
|
|
2,267
|
|
|
|
(342
|
)
|
|
|
20,513
|
|
Collateralized debt securities
|
|
|
5,574
|
|
|
|
821
|
|
|
|
(3
|
)
|
|
|
6,392
|
|
Other debt securities
|
|
|
3,233
|
|
|
|
|
|
|
|
(55
|
)
|
|
|
3,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bonds available-for-sale
|
|
|
5,668,984
|
|
|
|
172,135
|
|
|
|
(37,843
|
)
|
|
|
5,803,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
713,099
|
|
|
|
810,611
|
|
|
|
(5,195
|
)
|
|
|
1,518,515
|
|
Preferred stock
|
|
|
19,334
|
|
|
|
3,889
|
|
|
|
(62
|
)
|
|
|
23,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
732,433
|
|
|
|
814,500
|
|
|
|
(5,257
|
)
|
|
|
1,541,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments in securities
|
|
$
|
13,652,802
|
|
|
$
|
1,271,950
|
|
|
$
|
(83,108
|
)
|
|
$
|
14,841,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
Cost or
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
(Losses)
|
|
|
Fair Value
|
|
Fixed maturity securities, bonds held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. states and political subdivisions
|
|
$
|
324,643
|
|
|
$
|
22,318
|
|
|
$
|
(444
|
)
|
|
$
|
346,517
|
|
Foreign governments
|
|
|
4,101
|
|
|
|
867
|
|
|
|
|
|
|
|
4,968
|
|
Corporate debt securities
|
|
|
6,985,844
|
|
|
|
263,927
|
|
|
|
(158,101
|
)
|
|
|
7,091,670
|
|
Residential mortgage-backed securities
|
|
|
277,135
|
|
|
|
18,351
|
|
|
|
(1,286
|
)
|
|
|
294,200
|
|
Collateralized debt securities
|
|
|
1,924
|
|
|
|
100
|
|
|
|
|
|
|
|
2,024
|
|
Other debt securities
|
|
|
15,773
|
|
|
|
401
|
|
|
|
|
|
|
|
16,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bonds held-to-maturity
|
|
|
7,609,420
|
|
|
|
305,964
|
|
|
|
(159,831
|
)
|
|
|
7,755,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities, bonds available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury and government
|
|
|
24,024
|
|
|
|
702
|
|
|
|
(34
|
)
|
|
|
24,692
|
|
U.S. states and political subdivisions
|
|
|
933,958
|
|
|
|
39,808
|
|
|
|
(1,275
|
)
|
|
|
972,491
|
|
Foreign governments
|
|
|
5,000
|
|
|
|
1,733
|
|
|
|
|
|
|
|
6,733
|
|
Corporate debt securities
|
|
|
4,431,765
|
|
|
|
120,471
|
|
|
|
(107,614
|
)
|
|
|
4,444,622
|
|
Residential mortgage-backed securities
|
|
|
25,629
|
|
|
|
2,155
|
|
|
|
(420
|
)
|
|
|
27,364
|
|
Collateralized debt securities
|
|
|
7,455
|
|
|
|
629
|
|
|
|
(70
|
)
|
|
|
8,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bonds available-for-sale
|
|
|
5,427,831
|
|
|
|
165,498
|
|
|
|
(109,413
|
)
|
|
|
5,483,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
794,839
|
|
|
|
718,225
|
|
|
|
(22,035
|
)
|
|
|
1,491,029
|
|
Preferred stock
|
|
|
15,987
|
|
|
|
7,964
|
|
|
|
(1
|
)
|
|
|
23,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
810,826
|
|
|
|
726,189
|
|
|
|
(22,036
|
)
|
|
|
1,514,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments in securities
|
|
$
|
13,848,077
|
|
|
$
|
1,197,651
|
|
|
$
|
(291,280
|
)
|
|
$
|
14,754,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76
Note 4 Investment in Securities (Continued)
The amortized cost and fair value, by contractual maturity, of fixed maturity securities are shown below (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Bonds Held-to-Maturity
|
|
|
Bonds Available-for-Sale
|
|
|
|
Amortized Cost
|
|
|
Fair Value
|
|
|
Amortized Cost
|
|
|
Fair Value
|
|
Due in one year or less
|
|
$
|
492,792
|
|
|
$
|
503,694
|
|
|
$
|
228,534
|
|
|
$
|
231,434
|
|
Due after one year through five years
|
|
|
3,369,648
|
|
|
|
3,556,266
|
|
|
|
1,443,585
|
|
|
|
1,514,270
|
|
Due after five years through ten years
|
|
|
3,209,951
|
|
|
|
3,250,902
|
|
|
|
3,396,681
|
|
|
|
3,458,366
|
|
Due after ten years
|
|
|
173,144
|
|
|
|
180,805
|
|
|
|
595,184
|
|
|
|
594,231
|
|
Without single maturity date
|
|
|
5,850
|
|
|
|
5,025
|
|
|
|
5,000
|
|
|
|
4,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,251,385
|
|
|
$
|
7,496,692
|
|
|
$
|
5,668,984
|
|
|
$
|
5,803,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual maturities differ from contractual maturities because borrowers may have the right to call or prepay obligations with
or without call or prepayment penalties. Residential and commercial mortgage-backed securities, which are not due at a single maturity, have been allocated to their respective categories based on the year of final contractual maturity.
Proceeds from sales of available-for-sale securities, with the related gross realized gains and losses, are shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Proceeds from sales of available-for-sale securities
|
|
$
|
138,665
|
|
|
$
|
86,793
|
|
|
$
|
184,918
|
|
Gross realized gains
|
|
|
34,135
|
|
|
|
34,434
|
|
|
|
38,301
|
|
Gross realized losses
|
|
|
(7,775
|
)
|
|
|
(592
|
)
|
|
|
(3,635
|
)
|
Gains and losses are determined using specific identification of the securities sold. During 2016 and 2015, bonds with a
carrying value of $22,848,000 and $171,000, respectively were transferred from held-to-maturity to available-for-sale after a significant deterioration in the issuers credit worthiness became evident. An unrealized loss of $723,000 and $53,000
were recorded in 2016 and 2015, respectively following the transfer at fair value.
In accordance with various regulations, American National had bonds on
deposit with regulating authorities with a carrying value of $52,349,000 and $51,877,000 at December 31, 2016 and 2015, 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 $76,558,000 and $77,360,000 at December 31, 2016 and 2015, respectively.
The components of the change in net unrealized gains (losses) on securities are shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Bonds available-for-sale
|
|
$
|
78,207
|
|
|
$
|
(171,006
|
)
|
|
$
|
83,809
|
|
Equity securities
|
|
|
105,090
|
|
|
|
(73,441
|
)
|
|
|
108,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized gains (losses) on securities during the year
|
|
|
183,297
|
|
|
|
(244,447
|
)
|
|
|
191,875
|
|
Adjustments for
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred policy acquisition costs
|
|
|
(29,074
|
)
|
|
|
59,340
|
|
|
|
(14,611
|
)
|
Participating policyholders interest
|
|
|
(10,282
|
)
|
|
|
8,646
|
|
|
|
(9,046
|
)
|
Deferred federal income tax benefit (expense)
|
|
|
(50,237
|
)
|
|
|
61,744
|
|
|
|
(58,004
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized gains (losses) on securities, net of tax
|
|
$
|
93,704
|
|
|
$
|
(114,717
|
)
|
|
$
|
110,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
Note 4 Investment in Securities (Continued)
The gross unrealized losses and fair value of the investment securities, aggregated by investment category
and length of time that individual securities have been in a continuous unrealized loss position, are shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Less than 12 months
|
|
|
12 Months or more
|
|
|
Total
|
|
|
|
Unrealized
(Losses)
|
|
|
Fair
Value
|
|
|
Unrealized
(Losses)
|
|
|
Fair
Value
|
|
|
Unrealized
(Losses)
|
|
|
Fair
Value
|
|
Fixed maturity securities, bonds held-to-maturity
|
|
|
|
|
U.S. states and political subdivisions
|
|
$
|
(102
|
)
|
|
$
|
18,886
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(102
|
)
|
|
$
|
18,886
|
|
Corporate debt securities
|
|
|
(18,110
|
)
|
|
|
971,361
|
|
|
|
(20,611
|
)
|
|
|
186,262
|
|
|
|
(38,721
|
)
|
|
|
1,157,623
|
|
Residential mortgage-backed securities
|
|
|
(558
|
)
|
|
|
22,806
|
|
|
|
(627
|
)
|
|
|
10,248
|
|
|
|
(1,185
|
)
|
|
|
33,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bonds held-to-maturity
|
|
|
(18,770
|
)
|
|
|
1,013,053
|
|
|
|
(21,238
|
)
|
|
|
196,510
|
|
|
|
(40,008
|
)
|
|
|
1,209,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities, bonds available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury and government
|
|
|
(16
|
)
|
|
|
10,640
|
|
|
|
|
|
|
|
|
|
|
|
(16
|
)
|
|
|
10,640
|
|
U.S. states and political subdivisions
|
|
|
(6,376
|
)
|
|
|
282,141
|
|
|
|
(2
|
)
|
|
|
122
|
|
|
|
(6,378
|
)
|
|
|
282,263
|
|
Corporate debt securities
|
|
|
(19,828
|
)
|
|
|
917,215
|
|
|
|
(11,221
|
)
|
|
|
126,584
|
|
|
|
(31,049
|
)
|
|
|
1,043,799
|
|
Residential mortgage-backed securities
|
|
|
(204
|
)
|
|
|
12,420
|
|
|
|
(138
|
)
|
|
|
3,982
|
|
|
|
(342
|
)
|
|
|
16,402
|
|
Collateralized debt securities
|
|
|
|
|
|
|
1
|
|
|
|
(3
|
)
|
|
|
146
|
|
|
|
(3
|
)
|
|
|
147
|
|
Other Debt Securities
|
|
|
(55
|
)
|
|
|
3,178
|
|
|
|
|
|
|
|
|
|
|
|
(55
|
)
|
|
|
3,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bonds available-for-sale
|
|
|
(26,479
|
)
|
|
|
1,225,595
|
|
|
|
(11,364
|
)
|
|
|
130,834
|
|
|
|
(37,843
|
)
|
|
|
1,356,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
(5,195
|
)
|
|
|
53,068
|
|
|
|
|
|
|
|
|
|
|
|
(5,195
|
)
|
|
|
53,068
|
|
Preferred stock
|
|
|
(62
|
)
|
|
|
4,324
|
|
|
|
|
|
|
|
|
|
|
|
(62
|
)
|
|
|
4,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
(5,257
|
)
|
|
|
57,392
|
|
|
|
|
|
|
|
|
|
|
|
(5,257
|
)
|
|
|
57,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(50,506
|
)
|
|
$
|
2,296,040
|
|
|
$
|
(32,602
|
)
|
|
$
|
327,344
|
|
|
$
|
(83,108
|
)
|
|
$
|
2,623,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
Less than 12 months
|
|
|
12 Months or more
|
|
|
Total
|
|
|
|
Unrealized
(Losses)
|
|
|
Fair
Value
|
|
|
Unrealized
(Losses)
|
|
|
Fair
Value
|
|
|
Unrealized
(Losses)
|
|
|
Fair
Value
|
|
Fixed maturity securities, bonds held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. states and political subdivisions
|
|
$
|
(444
|
)
|
|
$
|
19,412
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(444
|
)
|
|
$
|
19,412
|
|
Corporate debt securities
|
|
|
(93,285
|
)
|
|
|
1,912,178
|
|
|
|
(64,816
|
)
|
|
|
283,469
|
|
|
|
(158,101
|
)
|
|
|
2,195,647
|
|
Residential mortgage-backed securities
|
|
|
(449
|
)
|
|
|
21,275
|
|
|
|
(837
|
)
|
|
|
14,721
|
|
|
|
(1,286
|
)
|
|
|
35,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bonds held-to-maturity
|
|
|
(94,178
|
)
|
|
|
1,952,865
|
|
|
|
(65,653
|
)
|
|
|
298,190
|
|
|
|
(159,831
|
)
|
|
|
2,251,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities, bonds available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury and government
|
|
|
(34
|
)
|
|
|
18,802
|
|
|
|
|
|
|
|
|
|
|
|
(34
|
)
|
|
|
18,802
|
|
U.S. states and political subdivisions
|
|
|
(1,223
|
)
|
|
|
80,807
|
|
|
|
(52
|
)
|
|
|
2,569
|
|
|
|
(1,275
|
)
|
|
|
83,376
|
|
Corporate debt securities
|
|
|
(81,638
|
)
|
|
|
1,796,357
|
|
|
|
(25,976
|
)
|
|
|
90,784
|
|
|
|
(107,614
|
)
|
|
|
1,887,141
|
|
Residential mortgage-backed securities
|
|
|
(228
|
)
|
|
|
15,273
|
|
|
|
(192
|
)
|
|
|
4,984
|
|
|
|
(420
|
)
|
|
|
20,257
|
|
Collateralized debt securities
|
|
|
(66
|
)
|
|
|
2,115
|
|
|
|
(4
|
)
|
|
|
253
|
|
|
|
(70
|
)
|
|
|
2,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bonds available-for-sale
|
|
|
(83,189
|
)
|
|
|
1,913,354
|
|
|
|
(26,224
|
)
|
|
|
98,590
|
|
|
|
(109,413
|
)
|
|
|
2,011,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
(22,035
|
)
|
|
|
136,694
|
|
|
|
|
|
|
|
|
|
|
|
(22,035
|
)
|
|
|
136,694
|
|
Preferred stock
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
(22,035
|
)
|
|
|
136,694
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(22,036
|
)
|
|
|
136,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(199,402
|
)
|
|
$
|
4,002,913
|
|
|
$
|
(91,878
|
)
|
|
$
|
396,780
|
|
|
$
|
(291,280
|
)
|
|
$
|
4,399,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016, the securities with unrealized losses including those exceeding one year were not deemed to be
other-than-temporarily impaired. American National has the ability and intent to hold those securities until a market price recovery or maturity. It is not more-likely-than-not that American National will be required to sell them prior to recovery,
and recovery is expected in a reasonable period of time. It is possible an issuers financial circumstances may be different in the future, which may lead to a different impairment conclusion in future periods.
78
Note 4 Investment in Securities (Continued)
The following table identifies the total bonds distributed by credit quality rating (in thousands, except
percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
Amortized
|
|
|
Estimated
|
|
|
% of Fair
|
|
|
Amortized
|
|
|
Estimated
|
|
|
% of Fair
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Value
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Value
|
|
AAA
|
|
$
|
667,561
|
|
|
$
|
691,296
|
|
|
|
5.2
|
%
|
|
$
|
681,918
|
|
|
$
|
720,175
|
|
|
|
5.4
|
%
|
AA
|
|
|
1,393,137
|
|
|
|
1,440,667
|
|
|
|
10.8
|
|
|
|
1,522,300
|
|
|
|
1,591,496
|
|
|
|
12.0
|
|
A
|
|
|
4,538,471
|
|
|
|
4,696,909
|
|
|
|
35.3
|
|
|
|
4,672,994
|
|
|
|
4,828,340
|
|
|
|
36.5
|
|
BBB
|
|
|
5,758,560
|
|
|
|
5,931,112
|
|
|
|
44.6
|
|
|
|
5,731,158
|
|
|
|
5,732,961
|
|
|
|
43.3
|
|
BB and below
|
|
|
562,640
|
|
|
|
539,984
|
|
|
|
4.1
|
|
|
|
428,881
|
|
|
|
366,497
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,920,369
|
|
|
$
|
13,299,968
|
|
|
|
100.0
|
%
|
|
$
|
13,037,251
|
|
|
$
|
13,239,469
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities by market sector distribution are shown below:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Consumer goods
|
|
|
20.4
|
%
|
|
|
20.5
|
%
|
Energy and utilities
|
|
|
11.1
|
|
|
|
10.3
|
|
Finance
|
|
|
22.1
|
|
|
|
20.0
|
|
Healthcare
|
|
|
12.7
|
|
|
|
14.6
|
|
Industrials
|
|
|
9.0
|
|
|
|
8.2
|
|
Information technology
|
|
|
17.1
|
|
|
|
17.8
|
|
Other
|
|
|
7.6
|
|
|
|
8.6
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
79
Note 5 Mortgage Loans
Generally, commercial mortgage loans are secured by first liens on income-producing real estate. American National attempts to maintain a diversified portfolio
by considering the location of the underlying collateral. The distribution based on carrying amount of mortgage loans by location are is as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
East North Central
|
|
|
16.2
|
%
|
|
|
18.8
|
%
|
East South Central
|
|
|
3.7
|
|
|
|
4.8
|
|
Mountain
|
|
|
10.6
|
|
|
|
11.6
|
|
Pacific
|
|
|
17.6
|
|
|
|
10.7
|
|
South Atlantic
|
|
|
15.1
|
|
|
|
18.8
|
|
West South Central
|
|
|
31.0
|
|
|
|
29.0
|
|
Other
|
|
|
5.8
|
|
|
|
6.3
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
During 2016, American National did not foreclose on any loans, and one loan with a recorded investment of $1,940,000, was in
the process of foreclosure. For the year ended December 31, 2015, American National foreclosed on three loans with a recorded investment totaling $24,333,000 and one loan was in the process of foreclosure with a recorded investment of
$2,450,000. American National sold no loans during 2016 and one loan with a recorded investment of $2,702,000 resulting in a realized loss of $1,602,000 for the year ended December 31, 2015.
The age analysis of past due loans is shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59 Days
|
|
|
60-89 Days
|
|
|
More Than
|
|
|
|
|
|
|
|
|
Total
|
|
December 31, 2016
|
|
Past Due
|
|
|
Past Due
|
|
|
90 Days
|
|
|
Total
|
|
|
Current
|
|
|
Amount
|
|
|
Percent
|
|
Industrial
|
|
$
|
|
|
|
$
|
2,300
|
|
|
$
|
|
|
|
$
|
2,300
|
|
|
$
|
744,472
|
|
|
$
|
746,772
|
|
|
|
17.1
|
|
Office
|
|
|
|
|
|
|
|
|
|
|
6,059
|
|
|
|
6,059
|
|
|
|
1,541,880
|
|
|
|
1,547,939
|
|
|
|
35.5
|
|
Retail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
736,121
|
|
|
|
736,121
|
|
|
|
16.9
|
|
Other
|
|
|
20,179
|
|
|
|
9,280
|
|
|
|
|
|
|
|
29,459
|
|
|
|
1,300,245
|
|
|
|
1,329,704
|
|
|
|
30.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
20,179
|
|
|
$
|
11,580
|
|
|
$
|
6,059
|
|
|
$
|
37,818
|
|
|
$
|
4,322,718
|
|
|
$
|
4,360,536
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,490
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total, net of allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,348,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
704,426
|
|
|
$
|
704,426
|
|
|
|
20.1
|
|
Office
|
|
|
|
|
|
|
5,883
|
|
|
|
2,450
|
|
|
|
8,333
|
|
|
|
1,252,484
|
|
|
|
1,260,817
|
|
|
|
36.1
|
|
Retail
|
|
|
19,088
|
|
|
|
|
|
|
|
|
|
|
|
19,088
|
|
|
|
583,810
|
|
|
|
602,898
|
|
|
|
17.2
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
928,034
|
|
|
|
928,034
|
|
|
|
26.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
19,088
|
|
|
$
|
5,883
|
|
|
$
|
2,450
|
|
|
$
|
27,421
|
|
|
$
|
3,468,754
|
|
|
$
|
3,496,175
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,895
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total, net of allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,483,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans are net of unamortized discounts of $233,000 and $452,000 and unamortized origination fees of $33,019,000
and $22,637,000 at December 31, 2016 and 2015, respectively. No unearned income is included in these amounts.
80
Note 5 Mortgage Loans (Continued)
Allowance for Credit Losses
A loan is considered impaired when it is probable that all amounts due will not be collected according to the contractual terms of the loan agreement. Mortgage
loans with temporary difficulties are not considered impaired when the borrower has the financial capacity to fund revenue shortfalls from the properties for the foreseeable future. Individual valuation allowances are established for impaired loans
to reduce the carrying value to the fair value of the collateral. Loans not evaluated individually for collectability are segregated by property-type and location, and allowance factors are applied. These factors are developed based on our
historical loss experience adjusted for the expected trend in the rate of foreclosure losses. Allowance factors are higher for loans of certain property types and in certain regions based on loss experience or a blended historical loss factor.
The change in allowance for credit losses in mortgage loans is shown below (in thousands, except number of loans):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively
Evaluated
for Impairment
|
|
|
Individually
Impaired
|
|
|
Total
|
|
|
|
Number of
Loans
|
|
|
Recorded
Investment
|
|
|
Valuation
Allowance
|
|
|
Number of
Loans
|
|
|
Recorded
Investment
|
|
|
Valuation
Allowance
|
|
|
Number of
Loans
|
|
|
Recorded
Investment
|
|
|
Valuation
Allowance
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2013
|
|
|
407
|
|
|
$
|
3,310,930
|
|
|
$
|
11,688
|
|
|
|
1
|
|
|
$
|
493
|
|
|
$
|
493
|
|
|
|
408
|
|
|
$
|
3,311,423
|
|
|
$
|
12,181
|
|
Change Due to Factor Development
|
|
|
|
|
|
|
|
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127
|
|
Change in allowance
|
|
|
|
|
|
|
|
|
|
|
462
|
|
|
|
|
|
|
|
|
|
|
|
5,090
|
|
|
|
|
|
|
|
|
|
|
|
5,552
|
|
Change in recorded investment
|
|
|
(8
|
)
|
|
|
39,954
|
|
|
|
|
|
|
|
2
|
|
|
|
26,070
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
66,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
|
399
|
|
|
|
3,350,884
|
|
|
|
12,277
|
|
|
|
3
|
|
|
|
26,563
|
|
|
|
5,583
|
|
|
|
402
|
|
|
|
3,377,447
|
|
|
|
17,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in allowance
|
|
|
|
|
|
|
|
|
|
|
(1,561
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,404
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,965
|
)
|
Change in recorded investment
|
|
|
2
|
|
|
|
129,123
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(10,395
|
)
|
|
|
|
|
|
|
1
|
|
|
|
118,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
401
|
|
|
|
3,480,007
|
|
|
|
10,716
|
|
|
|
2
|
|
|
|
16,168
|
|
|
|
2,179
|
|
|
|
403
|
|
|
|
3,496,175
|
|
|
|
12,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in allowance
|
|
|
|
|
|
|
|
|
|
|
772
|
|
|
|
|
|
|
|
|
|
|
|
(1,177
|
)
|
|
|
|
|
|
|
|
|
|
|
(405
|
)
|
Change in recorded investment
|
|
|
29
|
|
|
|
878,589
|
|
|
|
|
|
|
|
|
|
|
|
(14,228
|
)
|
|
|
|
|
|
|
29
|
|
|
|
864,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
|
430
|
|
|
$
|
4,358,596
|
|
|
$
|
11,488
|
|
|
|
2
|
|
|
$
|
1,940
|
|
|
$
|
1,002
|
|
|
|
432
|
|
|
$
|
4,360,536
|
|
|
$
|
12,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81
Note 5 Mortgage Loans (Continued)
Troubled Debt Restructurings
American National has granted concessions which are classified as troubled debt restructurings to certain mortgage loan borrowers. Concessions are generally
one of, or a combination of, a delay in payment of principal or interest, a reduction of the contractual interest rate or an extension of the maturity date. American National considers the amount, timing and extent of concessions in determining any
impairment or changes in the specific allowance for loan losses recorded in connection with a troubled debt restructuring. The carrying value after specific allowance, before and after modification in a troubled debt restructuring, may not change
significantly, or may increase if the expected recovery is higher than the pre-modification recovery assessment.
Troubled debt restructuring mortgage
loan information is as follows (in thousands, except number of loans):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Number of
loans
|
|
|
Recorded
investment pre-
modification
|
|
|
Recorded
investment post
modification
|
|
|
Number of
loans
|
|
|
Recorded
investment pre-
modification
|
|
|
Recorded
investment post
modification
|
|
Office
|
|
|
1
|
|
|
$
|
6,432
|
|
|
$
|
6,432
|
|
|
|
2
|
|
|
$
|
12,211
|
|
|
$
|
12,211
|
|
Retail
|
|
|
2
|
|
|
|
10,972
|
|
|
|
10,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3
|
|
|
$
|
17,404
|
|
|
$
|
17,404
|
|
|
|
2
|
|
|
$
|
12,211
|
|
|
$
|
12,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There are $430,399 of commitments to lend additional funds to debtors whose loans have been modified in troubled debt
restructuring, and there have been no defaults on modified loans during the periods presented.
Note 6 Real Estate and Other Investments
Investment real estate by property-type and geographic distribution are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Industrial
|
|
|
9.2
|
%
|
|
|
10.9
|
%
|
Office
|
|
|
37.8
|
|
|
|
38.1
|
|
Retail
|
|
|
37.2
|
|
|
|
37.0
|
|
Other
|
|
|
15.8
|
|
|
|
14.0
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
East North Central
|
|
|
8.8
|
%
|
|
|
11.4
|
%
|
East South Central
|
|
|
3.4
|
|
|
|
3.6
|
|
Mountain
|
|
|
12.0
|
|
|
|
12.6
|
|
Pacific
|
|
|
6.1
|
|
|
|
5.6
|
|
South Atlantic
|
|
|
13.0
|
|
|
|
10.1
|
|
West South Central
|
|
|
52.2
|
|
|
|
50.7
|
|
Other
|
|
|
4.5
|
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
82
Note 6 Real Estate and Other Investments (Continued)
American National regularly invests in real estate partnerships and joint ventures. American National
frequently participates in the design of these entities with the sponsor, but in most cases, its involvement is limited to financing. Through analysis performed by American National, some of these partnerships and joint ventures have been determined
to be variable interest entities (VIEs). In certain instances, in addition to an economic interest in the entity, American National holds the power to direct the most significant activities of the entity and is deemed the primary
beneficiary or consolidator of the entity. The assets of the consolidated VIEs are restricted and must first be used to settle their liabilities. Creditors or beneficial interest holders of these VIEs have no recourse to the general credit of
American National, as American Nationals 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 2016 or 2015.
The assets and liabilities
relating to the VIEs included in the consolidated financial statements are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Investment real estate
|
|
$
|
173,816
|
|
|
$
|
174,264
|
|
Short-term investments
|
|
|
1
|
|
|
|
1
|
|
Cash and cash equivalents
|
|
|
6,099
|
|
|
|
3,855
|
|
Accrued investment income
|
|
|
|
|
|
|
557
|
|
Other receivables
|
|
|
6,456
|
|
|
|
8,101
|
|
Other assets
|
|
|
8,820
|
|
|
|
8,210
|
|
|
|
|
|
|
|
|
|
|
Total assets of consolidated VIEs
|
|
$
|
195,192
|
|
|
$
|
194,988
|
|
|
|
|
|
|
|
|
|
|
Notes payable
|
|
$
|
136,080
|
|
|
$
|
128,436
|
|
Other liabilities
|
|
|
10,037
|
|
|
|
19,436
|
|
|
|
|
|
|
|
|
|
|
Total liabilities of consolidated VIEs
|
|
$
|
146,117
|
|
|
$
|
147,872
|
|
|
|
|
|
|
|
|
|
|
The notes payable in the consolidated statements of financial position pertain to the borrowings of the consolidated VIEs. The
liability of American National relating to notes payable of the consolidated VIEs is limited to the amount of its direct or indirect investment in the respective ventures, which totaled $31,795,000 and $34,699,000 at December 31, 2016 and 2015,
respectively. The total of notes payable, $136,080,000, is long-term and consists of four notes with the following interest rates: one note at 4.0%, one note at LIBOR, one note at 90-Day LIBOR plus LIBOR margin, and one note at Prime Rate. Two notes
mature in 2018, one note matures in 2021, and one note matures in 2022.
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 unanimous consent of all partners. The carrying amount and maximum exposure to loss relating to
unconsolidated VIEs follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Carrying
Amount
|
|
|
Maximum
Exposure
to Loss
|
|
|
Carrying
Amount
|
|
|
Maximum
Exposure
to Loss
|
|
Investment in unconsolidated affiliates
|
|
$
|
323,933
|
|
|
$
|
323,933
|
|
|
$
|
236,816
|
|
|
$
|
236,816
|
|
Mortgage loans
|
|
|
481,799
|
|
|
|
481,799
|
|
|
|
212,228
|
|
|
|
212,228
|
|
Accrued investment income
|
|
|
1,919
|
|
|
|
1,919
|
|
|
|
661
|
|
|
|
661
|
|
As of December 31, 2016, one real estate investment with a carrying value of $2,818,000 was classified as held for sale.
83
Note 6 Real Estate and Other Investments (Continued)
The Companys equity in earnings of unconsolidated affiliates is the Companys 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 2016 and 2015 certain joint ventures took advantage of market
opportunities to generate realized gains on the sale of real estate held or developed by the venture.
The Companys income from and investment in
each joint venture did not exceed 20% and therefore no separate financial disclosure is required. The Companys income from, assets held, and investment in each joint venture did not exceed 10% except for 2015 when it was determined one joint
venture slightly exceeded the income test threshold of 10% at 10.89% of operating income before tax. However, 96.8% of this joint ventures income in 2015 was attributable to realized gain resulting from the sale of its operating assets.
Additionally, the Companys investment in joint ventures continues to be 2% or less of the Companys total assets, and investments in individual joint ventures is 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
Companys total investment in and equity in earnings of unconsolidated affiliates, which are substantially all LLCs or LLPs, were comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Real estate
|
|
$
|
372,393
|
|
|
$
|
299,720
|
|
Equity and fixed income
|
|
|
79,145
|
|
|
|
50,326
|
|
Other
|
|
|
38,938
|
|
|
|
29,302
|
|
|
|
|
|
|
|
|
|
|
Total investments in unconsolidated affiliates
|
|
$
|
490,476
|
|
|
$
|
379,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Income from operations
|
|
$
|
19,005
|
|
|
$
|
815
|
|
|
$
|
284
|
|
Net gain on sales
|
|
|
38,195
|
|
|
|
76,593
|
|
|
|
14,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of unconsolidated affiliates
|
|
$
|
57,200
|
|
|
$
|
77,408
|
|
|
$
|
14,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 7 Derivative Instruments
American National purchases over-the-counter equity-indexed options as economic hedges against fluctuations in the equity markets to which equity-indexed
products are exposed. These options are not designated as hedging instruments for accounting purposes under U.S. GAAP. Equity-indexed contracts include a fixed host universal-life insurance or annuity contract and an equity-indexed embedded
derivative. The detail of derivative instruments is shown below (in thousands, except number of instruments):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Derivatives Not Designated
as Hedging Instruments
|
|
Location in the Consolidated
Statements of Financial
Position
|
|
2016
|
|
|
2015
|
|
|
|
Number of
Instruments
|
|
|
Notional
Amounts
|
|
|
Estimated
Fair Value
|
|
|
Number of
Instruments
|
|
|
Notional
Amounts
|
|
|
Estimated
Fair Value
|
|
Equity-indexed options
|
|
Other invested assets
|
|
|
442
|
|
|
$
|
1,414,100
|
|
|
$
|
156,479
|
|
|
|
419
|
|
|
$
|
1,200,600
|
|
|
$
|
123,007
|
|
Equity-indexed embedded derivative
|
|
Policyholders account balances
|
|
|
62,481
|
|
|
|
1,289,800
|
|
|
|
314,330
|
|
|
|
51,815
|
|
|
|
1,067,600
|
|
|
|
242,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated
as Hedging
Instruments
|
|
Location in the Consolidated
Statements of
Operations
|
|
Gains (Losses) Recognized in
Income on Derivatives
|
|
|
|
Years ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Equity-indexed options
|
|
Net investment income
|
|
$
|
28,869
|
|
|
$
|
(9,103
|
)
|
|
$
|
52,071
|
|
Equity-indexed embedded derivative
|
|
Interest credited to policyholders account balances
|
|
|
(25,239
|
)
|
|
|
6,439
|
|
|
|
(32,071
|
)
|
84
Note 7 Derivative Instruments (Continued)
The Companys use of derivative instruments exposes it to credit risk in the event of non-performance by
the counterparties. The Company has adopted a policy of only dealing with counterparties we believe are credit worthy and obtaining sufficient collateral where appropriate, as a means of mitigating the financial loss from defaults. The
non-performance risk is the net counterparty exposure based on the fair value of the open contracts, less collateral held. The Company maintains master netting agreements with its current active trading partners. As such, a right of offset has been
applied to unrestricted collateral that supports credit risk and has been recorded in the consolidated statements of financial position as an offset to Other invested assets with an associated payable to Other liabilities for
excess collateral. Restricted collateral has been recorded as Other liabilities because of the uncertainty of its availability to offset exposure losses. Information regarding the Companys exposure to credit loss on the options it
holds is presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Counterparty
|
|
Moody/S&P
Rating
|
|
|
Options
Fair Value
|
|
|
Collateral
Held
|
|
|
Collateral
Amounts
used to
Offset
Exposure
|
|
|
Excess
and
Restricted
Collateral
|
|
|
Exposure
Net of
Collateral
|
|
Barclays
|
|
|
Baa2/BBB
|
|
|
$
|
33,839
|
|
|
$
|
35,063
|
|
|
$
|
33,839
|
|
|
$
|
1,224
|
|
|
$
|
|
|
Citigroup
|
|
|
Baa1/BBB+
|
|
|
|
2,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,249
|
|
Goldman-Sachs
|
|
|
A3/BBB+
|
|
|
|
1,452
|
|
|
|
1,400
|
|
|
|
1,400
|
|
|
|
|
|
|
|
52
|
|
ING
|
|
|
Baa1/A-
|
|
|
|
29,609
|
|
|
|
26,430
|
|
|
|
26,430
|
|
|
|
|
|
|
|
3,179
|
|
JP Morgan
|
|
|
A3/A-
|
|
|
|
163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163
|
|
Morgan Stanley
|
|
|
A3/BBB+
|
|
|
|
17,864
|
|
|
|
17,680
|
|
|
|
17,680
|
|
|
|
|
|
|
|
184
|
|
NATIXIS*
|
|
|
A2/A
|
|
|
|
24,804
|
|
|
|
26,620
|
|
|
|
|
|
|
|
26,620
|
|
|
|
24,804
|
|
SunTrust
|
|
|
Baa1/BBB+
|
|
|
|
19,559
|
|
|
|
19,960
|
|
|
|
19,559
|
|
|
|
401
|
|
|
|
|
|
Wells Fargo
|
|
|
A2/A
|
|
|
|
26,940
|
|
|
|
26,540
|
|
|
|
26,540
|
|
|
|
|
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
156,479
|
|
|
$
|
153,693
|
|
|
$
|
125,448
|
|
|
$
|
28,245
|
|
|
$
|
31,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Counterparty
|
|
Moody/S&P
Rating
|
|
|
Options
Fair Value
|
|
|
Collateral
Held
|
|
|
Collateral
Amounts
used to
Offset
Exposure
|
|
|
Excess
and
Restricted
Collateral
|
|
|
Exposure
Net of
Collateral
|
|
Barclays
|
|
|
Baa2/BBB
|
|
|
$
|
29,976
|
|
|
$
|
31,383
|
|
|
$
|
29,976
|
|
|
$
|
1,407
|
|
|
$
|
|
|
Citigroup
|
|
|
Baa1/BBB+
|
|
|
|
2,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,044
|
|
Goldman-Sachs
|
|
|
A3/BBB+
|
|
|
|
1,075
|
|
|
|
1,040
|
|
|
|
1,040
|
|
|
|
|
|
|
|
35
|
|
ING
|
|
|
Baa1/A-
|
|
|
|
21,459
|
|
|
|
18,590
|
|
|
|
18,590
|
|
|
|
|
|
|
|
2,869
|
|
JP Morgan
|
|
|
A3/A-
|
|
|
|
795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
795
|
|
Morgan Stanley
|
|
|
A3/BBB+
|
|
|
|
11,625
|
|
|
|
12,530
|
|
|
|
11,625
|
|
|
|
905
|
|
|
|
|
|
NATIXIS*
|
|
|
A2/A
|
|
|
|
16,165
|
|
|
|
16,230
|
|
|
|
|
|
|
|
16,230
|
|
|
|
16,165
|
|
SunTrust
|
|
|
Baa1/BBB+
|
|
|
|
18,143
|
|
|
|
18,240
|
|
|
|
18,143
|
|
|
|
97
|
|
|
|
|
|
Wells Fargo
|
|
|
A2/A
|
|
|
|
21,725
|
|
|
|
22,680
|
|
|
|
21,725
|
|
|
|
955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
123,007
|
|
|
$
|
120,693
|
|
|
$
|
101,099
|
|
|
$
|
19,594
|
|
|
$
|
21,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Collateral Restrictions
|
85
Note 8 Net Investment Income and Realized Investment Gains (Losses)
Net investment income is shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Bonds
|
|
$
|
551,849
|
|
|
$
|
558,837
|
|
|
$
|
596,013
|
|
Equity securities
|
|
|
38,680
|
|
|
|
36,314
|
|
|
|
35,324
|
|
Mortgage loans
|
|
|
211,972
|
|
|
|
204,913
|
|
|
|
204,499
|
|
Real estate
|
|
|
6,743
|
|
|
|
12,833
|
|
|
|
10,823
|
|
Options
|
|
|
28,869
|
|
|
|
(9,103
|
)
|
|
|
52,071
|
|
Other invested assets
|
|
|
22,122
|
|
|
|
31,037
|
|
|
|
34,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
860,235
|
|
|
$
|
834,831
|
|
|
$
|
932,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized investment gains (losses) are shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Bonds
|
|
$
|
16,705
|
|
|
$
|
16,300
|
|
|
$
|
25,580
|
|
Equity securities
|
|
|
33,348
|
|
|
|
60,485
|
|
|
|
22,089
|
|
Mortgage loans
|
|
|
405
|
|
|
|
(220
|
)
|
|
|
(5,679
|
)
|
Real estate
|
|
|
2,188
|
|
|
|
10,872
|
|
|
|
7,035
|
|
Other invested assets
|
|
|
(6,039
|
)
|
|
|
(52
|
)
|
|
|
(963
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
46,607
|
|
|
$
|
87,385
|
|
|
$
|
48,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporary impairment losses are shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Bonds
|
|
$
|
(94
|
)
|
|
$
|
(286
|
)
|
|
$
|
(41
|
)
|
Equity securities
|
|
|
(17,573
|
)
|
|
|
(27,656
|
)
|
|
|
(6,599
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(17,667
|
)
|
|
$
|
(27,942
|
)
|
|
$
|
(6,640
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86
Note 9 Fair Value of Financial Instruments
The carrying amount and fair value of financial instruments are shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
Financial assets
|
|
|
|
|
Fixed maturity securities, bonds held-to-maturity
|
|
$
|
7,251,385
|
|
|
$
|
7,496,692
|
|
|
$
|
7,609,420
|
|
|
$
|
7,755,553
|
|
Fixed maturity securities, bonds available-for-sale
|
|
|
5,803,276
|
|
|
|
5,803,276
|
|
|
|
5,483,916
|
|
|
|
5,483,916
|
|
Equity securities
|
|
|
1,541,676
|
|
|
|
1,541,676
|
|
|
|
1,514,979
|
|
|
|
1,514,979
|
|
Equity-indexed options
|
|
|
156,479
|
|
|
|
156,479
|
|
|
|
123,007
|
|
|
|
123,007
|
|
Mortgage loans on real estate, net of allowance
|
|
|
4,348,046
|
|
|
|
4,435,530
|
|
|
|
3,483,280
|
|
|
|
3,621,978
|
|
Policy loans
|
|
|
384,376
|
|
|
|
384,376
|
|
|
|
407,491
|
|
|
|
407,491
|
|
Short-term investments
|
|
|
192,226
|
|
|
|
192,226
|
|
|
|
460,612
|
|
|
|
460,612
|
|
Separate account assets
|
|
|
941,612
|
|
|
|
941,612
|
|
|
|
918,446
|
|
|
|
918,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
20,619,076
|
|
|
$
|
20,951,867
|
|
|
$
|
20,001,151
|
|
|
$
|
20,285,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment contracts
|
|
$
|
8,785,412
|
|
|
$
|
8,785,412
|
|
|
$
|
8,787,376
|
|
|
$
|
8,787,376
|
|
Embedded derivative liability for equity-indexed contracts
|
|
|
314,330
|
|
|
|
314,330
|
|
|
|
242,412
|
|
|
|
242,412
|
|
Notes payable
|
|
|
136,080
|
|
|
|
136,080
|
|
|
|
128,436
|
|
|
|
128,436
|
|
Separate account liabilities
|
|
|
941,612
|
|
|
|
941,612
|
|
|
|
918,446
|
|
|
|
918,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities
|
|
$
|
10,177,434
|
|
|
$
|
10,177,434
|
|
|
$
|
10,076,670
|
|
|
$
|
10,076,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Nationals own assumptions about the assumptions
that market participants would use in pricing the asset or liability. Level 3 assets and liabilities include financial instruments whose values are determined using pricing models and third-party evaluation, as well as instruments for which the
determination of fair value requires significant management judgment or estimation.
|
Fixed Maturity Securities and Equity Options
American National utilizes a pricing service to estimate fair value
measurements. The estimates of fair value for most fixed maturity securities, including municipal bonds, provided by the pricing service are disclosed as Level 2 measurements as the estimates are based on observable market information rather than
market quotes.
87
Note 9 Fair Value of Financial Instruments (Continued)
The pricing service utilizes market quotations for fixed maturity securities that have quoted prices in
active markets. Since fixed maturity securities generally do not trade on a daily basis, the pricing service prepares estimates of fair value measurements for these securities using its proprietary pricing applications, which include available
relevant market information, benchmark curves, benchmarking of like securities, sector groupings and matrix pricing. Additionally, an option adjusted spread model is used to develop prepayment and interest rate scenarios.
The pricing service evaluates each asset class based on relevant market information, credit information, perceived market movements and sector news. The
market inputs utilized in the pricing evaluation, listed in the approximate order of priority, include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data,
and economic events. The extent of the use of each market input depends on the asset class and the market conditions. Depending on the security, the priority of the use of inputs may change or some market inputs may not be relevant. For some
securities, additional inputs may be necessary.
American National has reviewed the inputs and methodology used and the techniques applied by the pricing
service to produce quotes that represent the fair value of a specific security. The review confirms that the pricing service is utilizing information from observable transactions or a technique that represents a market participants
assumptions. American National does not adjust quotes received from the pricing service. The pricing service utilized by American National has indicated that they will only produce an estimate of fair value if there is objectively verifiable
information available.
American National holds a small amount of private placement debt and fixed maturity securities that have characteristics that make
them unsuitable for matrix pricing. For these securities, a quote from an independent broker (typically a market maker) is obtained. Due to the disclaimers on the quotes that indicate that the price is indicative only, American National includes
these fair value estimates in Level 3.
For securities priced using a quote from an independent broker, such as the equity options and certain fixed
maturity securities, American National uses a market-based fair value analysis to validate the reasonableness of prices received from an independent broker. Price variances above a certain threshold are analyzed further to determine if any pricing
issue exists. This analysis is performed quarterly.
Equity Securities
For publicly-traded equity securities, prices are received from a
nationally recognized pricing service that are based on observable market transactions, and these securities are classified as Level 1 measurements. For certain preferred stock, current market quotes in active markets are unavailable. In these
instances, an estimate of fair value is received from the pricing service. The service utilizes similar methodologies to price preferred stocks as it does for fixed maturity securities. These estimates are disclosed as Level 2 measurements. American
National tests the accuracy of the information provided by reference to other services regularly.
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 loans credit quality, region, property type, lien priority, payment type and current
status.
Embedded Derivative
The embedded derivative liability for equity-indexed contracts is measured at fair value and is recalculated each
reporting period using equity option pricing models. To validate the assumptions used to price the embedded derivative liability, American National measures and compares embedded derivative returns against the returns of equity options held to hedge
the liability cash flows.
88
Note 9 Fair Value of Financial Instruments (Continued)
The significant unobservable input used to calculate the fair value of the embedded derivatives is equity
option implied volatility. An increase in implied volatility will result in an increase in the value of the equity-indexed embedded derivatives, all other things being equal. At December 31, 2016 and 2015, the one year implied volatility used
to estimate embedded derivative value was 16.5% and 17.5%, respectively.
Other Financial Instruments
Other financial instruments classified
as Level 3 measurements, as there is little or no market activity, are as follows:
Policy loansThe 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 and the unpredictable timing of repayments and the fact that settlement is at outstanding
value, American National believes the carrying value of policy loans approximates fair value.
Investment contracts The carrying value of investment
contracts is equivalent to the accrued account balance. The accrued account balance consists of deposits, net of withdrawals, plus or minus interest credited, fees and charges assessed and other adjustments. American National believes that the
carrying value of investment contracts approximates fair value because the majority of these contracts interest rates reset to current rates offered 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.
89
Note 9 Fair Value of Financial Instruments (Continued)
Quantitative Disclosures
The fair value hierarchy measurements of the financial instruments are shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement as of December 31, 2016
|
|
|
|
Total
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Financial assets
|
|
|
|
|
Fixed maturity securities, bonds held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. states and political subdivisions
|
|
$
|
319,082
|
|
|
$
|
|
|
|
$
|
319,082
|
|
|
$
|
|
|
Foreign governments
|
|
|
4,716
|
|
|
|
|
|
|
|
4,716
|
|
|
|
|
|
Corporate debt securities
|
|
|
6,925,978
|
|
|
|
|
|
|
|
6,875,015
|
|
|
|
50,963
|
|
Residential mortgage-backed securities
|
|
|
242,685
|
|
|
|
|
|
|
|
241,779
|
|
|
|
906
|
|
Collateralized debt securities
|
|
|
1,354
|
|
|
|
|
|
|
|
|
|
|
|
1,354
|
|
Other debt securities
|
|
|
2,877
|
|
|
|
|
|
|
|
|
|
|
|
2,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bonds held-to-maturity
|
|
|
7,496,692
|
|
|
|
|
|
|
|
7,440,592
|
|
|
|
56,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities, bonds available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury and government
|
|
|
25,640
|
|
|
|
|
|
|
|
25,640
|
|
|
|
|
|
U.S. states and political subdivisions
|
|
|
960,223
|
|
|
|
|
|
|
|
957,748
|
|
|
|
2,475
|
|
Foreign governments
|
|
|
6,567
|
|
|
|
|
|
|
|
6,567
|
|
|
|
|
|
Corporate debt securities
|
|
|
4,780,763
|
|
|
|
|
|
|
|
4,773,516
|
|
|
|
7,247
|
|
Residential mortgage-backed securities
|
|
|
20,513
|
|
|
|
|
|
|
|
17,909
|
|
|
|
2,604
|
|
Collateralized debt securities
|
|
|
6,392
|
|
|
|
|
|
|
|
4,454
|
|
|
|
1,938
|
|
Other debt securities
|
|
|
3,178
|
|
|
|
|
|
|
|
3,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bonds available-for-sale
|
|
|
5,803,276
|
|
|
|
|
|
|
|
5,789,012
|
|
|
|
14,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
1,518,515
|
|
|
|
1,518,515
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
23,161
|
|
|
|
23,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
1,541,676
|
|
|
|
1,541,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
156,479
|
|
|
|
|
|
|
|
|
|
|
|
156,479
|
|
Mortgage loans on real estate
|
|
|
4,435,530
|
|
|
|
|
|
|
|
4,435,530
|
|
|
|
|
|
Policy loans
|
|
|
384,376
|
|
|
|
|
|
|
|
|
|
|
|
384,376
|
|
Short-term investments
|
|
|
192,226
|
|
|
|
|
|
|
|
192,226
|
|
|
|
|
|
Separate account assets
|
|
|
941,612
|
|
|
|
|
|
|
|
941,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
20,951,867
|
|
|
$
|
1,541,676
|
|
|
$
|
18,798,972
|
|
|
$
|
611,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment contracts
|
|
$
|
8,785,412
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
8,785,412
|
|
Embedded derivative liability for equity-indexed contracts
|
|
|
314,330
|
|
|
|
|
|
|
|
|
|
|
|
314,330
|
|
Notes payable
|
|
|
136,080
|
|
|
|
|
|
|
|
|
|
|
|
136,080
|
|
Separate account liabilities
|
|
|
941,612
|
|
|
|
|
|
|
|
941,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities
|
|
$
|
10,177,434
|
|
|
$
|
|
|
|
$
|
941,612
|
|
|
$
|
9,235,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90
Note 9 Fair Value of Financial Instruments (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement as of December 31, 2015
|
|
|
|
Total
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Financial assets
|
|
|
|
|
Fixed maturity securities, bonds held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. states and political subdivisions
|
|
$
|
346,517
|
|
|
$
|
|
|
|
$
|
346,517
|
|
|
$
|
|
|
Foreign governments
|
|
|
4,968
|
|
|
|
|
|
|
|
4,968
|
|
|
|
|
|
Corporate debt securities
|
|
|
7,091,670
|
|
|
|
|
|
|
|
7,010,165
|
|
|
|
81,505
|
|
Residential mortgage-backed securities
|
|
|
294,200
|
|
|
|
|
|
|
|
293,267
|
|
|
|
933
|
|
Collateralized debt securities
|
|
|
2,024
|
|
|
|
|
|
|
|
2,024
|
|
|
|
|
|
Other debt securities
|
|
|
16,174
|
|
|
|
|
|
|
|
12,355
|
|
|
|
3,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bonds held-to-maturity
|
|
|
7,755,553
|
|
|
|
|
|
|
|
7,669,296
|
|
|
|
86,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities, bonds available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury and government
|
|
|
24,692
|
|
|
|
|
|
|
|
24,692
|
|
|
|
|
|
U.S. states and political subdivisions
|
|
|
972,491
|
|
|
|
|
|
|
|
969,996
|
|
|
|
2,495
|
|
Foreign governments
|
|
|
6,733
|
|
|
|
|
|
|
|
6,733
|
|
|
|
|
|
Corporate debt securities
|
|
|
4,444,622
|
|
|
|
|
|
|
|
4,431,263
|
|
|
|
13,359
|
|
Residential mortgage-backed securities
|
|
|
27,364
|
|
|
|
|
|
|
|
24,958
|
|
|
|
2,406
|
|
Collateralized debt securities
|
|
|
8,014
|
|
|
|
|
|
|
|
6,144
|
|
|
|
1,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bonds available-for-sale
|
|
|
5,483,916
|
|
|
|
|
|
|
|
5,463,786
|
|
|
|
20,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
1,491,029
|
|
|
|
1,491,029
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
23,950
|
|
|
|
23,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
1,514,979
|
|
|
|
1,514,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
123,007
|
|
|
|
|
|
|
|
|
|
|
|
123,007
|
|
Mortgage loans on real estate
|
|
|
3,621,978
|
|
|
|
|
|
|
|
3,621,978
|
|
|
|
|
|
Policy loans
|
|
|
407,491
|
|
|
|
|
|
|
|
|
|
|
|
407,491
|
|
Short-term investments
|
|
|
460,612
|
|
|
|
|
|
|
|
460,612
|
|
|
|
|
|
Separate account assets
|
|
|
918,446
|
|
|
|
|
|
|
|
918,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
20,285,982
|
|
|
$
|
1,514,979
|
|
|
$
|
18,134,118
|
|
|
$
|
636,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment contracts
|
|
$
|
8,787,376
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
8,787,376
|
|
Embedded derivative liability for equity-indexed contracts
|
|
|
242,412
|
|
|
|
|
|
|
|
|
|
|
|
242,412
|
|
Notes payable
|
|
|
128,436
|
|
|
|
|
|
|
|
|
|
|
|
128,436
|
|
Separate account liabilities
|
|
|
918,446
|
|
|
|
|
|
|
|
918,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities
|
|
$
|
10,076,670
|
|
|
$
|
|
|
|
$
|
918,446
|
|
|
$
|
9,158,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91
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
|
|
|
|
Assets
|
|
|
Liability
|
|
|
|
Investment
|
|
|
Equity-Indexed
|
|
|
Embedded
|
|
|
|
Securities
|
|
|
Options
|
|
|
Derivative
|
|
Balance at December 31, 2013
|
|
$
|
48,304
|
|
|
$
|
164,753
|
|
|
$
|
148,435
|
|
Total realized and unrealized investment losses included in other comprehensive income
|
|
|
(11,746
|
)
|
|
|
|
|
|
|
|
|
Net fair value change included in realized gains
|
|
|
13,056
|
|
|
|
|
|
|
|
|
|
Net gain for derivatives included in net investment income
|
|
|
|
|
|
|
44,492
|
|
|
|
|
|
Net change included in interest credited
|
|
|
|
|
|
|
|
|
|
|
32,071
|
|
Purchases, sales and settlements or maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
|
|
|
|
|
16,844
|
|
|
|
|
|
Sales
|
|
|
(37,803
|
)
|
|
|
|
|
|
|
|
|
Settlements or maturities
|
|
|
(10
|
)
|
|
|
(36,640
|
)
|
|
|
|
|
Premiums less benefits
|
|
|
|
|
|
|
|
|
|
|
27,681
|
|
Gross transfers into Level 3
|
|
|
54,241
|
|
|
|
|
|
|
|
|
|
Gross transfers out of Level 3
|
|
|
(1,609
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
|
64,433
|
|
|
|
189,449
|
|
|
|
208,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total realized and unrealized investment gains included in other comprehensive income
|
|
|
427
|
|
|
|
|
|
|
|
|
|
Net fair value change included in realized gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for derivatives included in net investment income
|
|
|
|
|
|
|
(13,889
|
)
|
|
|
|
|
Net change included in interest credited
|
|
|
|
|
|
|
|
|
|
|
(6,439
|
)
|
Purchases, sales and settlements or maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
|
|
|
|
|
22,369
|
|
|
|
|
|
Sales
|
|
|
(2
|
)
|
|
|
(55,279
|
)
|
|
|
|
|
Settlements or maturities
|
|
|
(479
|
)
|
|
|
(19,643
|
)
|
|
|
|
|
Premiums less benefits
|
|
|
|
|
|
|
|
|
|
|
40,664
|
|
Gross transfers into Level 3
|
|
|
10,228
|
|
|
|
|
|
|
|
|
|
Gross transfers out of Level 3
|
|
|
(54,477
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
20,130
|
|
|
|
123,007
|
|
|
|
242,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total realized and unrealized investment gains included in other comprehensive income
|
|
|
481
|
|
|
|
|
|
|
|
|
|
Net fair value change included in realized gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain for derivatives included in net investment income
|
|
|
|
|
|
|
28,400
|
|
|
|
|
|
Net change included in interest credited
|
|
|
|
|
|
|
|
|
|
|
25,239
|
|
Purchases, sales and settlements or maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
|
|
|
|
|
27,961
|
|
|
|
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlements or maturities
|
|
|
(425
|
)
|
|
|
(22,889
|
)
|
|
|
|
|
Premiums less benefits
|
|
|
|
|
|
|
|
|
|
|
46,679
|
|
Gross transfers into Level 3
|
|
|
908
|
|
|
|
|
|
|
|
|
|
Gross transfers out of Level 3
|
|
|
(6,830
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
14,264
|
|
|
$
|
156,479
|
|
|
$
|
314,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within the net gain (loss) for derivatives included in net investment income were unrealized gains of $44,615,000, unrealized
losses of $50,114,000, and unrealized gains of $24,108,000 relating to assets still held at December 31, 2016, 2015, and 2014, respectively.
92
Note 9 Fair Value of Financial Instruments (Continued)
There were no transfers between Level 1 and Level 2 fair value hierarchies. The transfers into Level 3 during
the years ended December 31, 2016, 2015, and 2014 were the result of existing securities no longer being priced by the third-party pricing service at the end of the period and unless information is obtained from the brokers that indicate
observable inputs were used in their pricing, there are not enough observable inputs to enable American National to classify the securities priced by the brokers as anything other than Level 3. American Nationals valuation of these securities
involves judgment regarding assumptions market participants would use including quotes from independent brokers. The inputs used by the brokers include recent transactions in the security, similar bonds with same name, ratings, maturity and
structure, external dealer quotes in the security, Bloomberg evaluated pricing and prior months pricing. None of them are observable to American National as of December 31, 2016. The transfers out of Level 3 during the years ended
December 31, 2016, 2015, and 2014, were securities being priced by the third-party service at the end of the period, using inputs that are observable or derived from market data, which resulted in classification of these assets as Level 2.
Note 10 Deferred Policy Acquisition Costs
Deferred policy acquisition costs are shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accident
& Health
|
|
|
Property
& Casualty
|
|
|
|
|
|
|
Life
|
|
|
Annuity
|
|
|
|
|
Total
|
|
Balance at December 31, 2013
|
|
$
|
684,084
|
|
|
|
424,158
|
|
|
|
47,220
|
|
|
|
122,271
|
|
|
$
|
1,277,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
110,195
|
|
|
|
47,400
|
|
|
|
19,530
|
|
|
|
213,237
|
|
|
|
390,362
|
|
Amortization
|
|
|
(78,181
|
)
|
|
|
(79,135
|
)
|
|
|
(18,966
|
)
|
|
|
(223,658
|
)
|
|
|
(399,940
|
)
|
Effect of change in unrealized gains on available-for-sale securities
|
|
|
(4,629
|
)
|
|
|
(9,982
|
)
|
|
|
|
|
|
|
|
|
|
|
(14,611
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change
|
|
|
27,385
|
|
|
|
(41,717
|
)
|
|
|
564
|
|
|
|
(10,421
|
)
|
|
|
(24,189
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
|
711,469
|
|
|
|
382,441
|
|
|
|
47,784
|
|
|
|
111,850
|
|
|
|
1,253,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
108,615
|
|
|
|
64,724
|
|
|
|
20,249
|
|
|
|
236,785
|
|
|
|
430,373
|
|
Amortization
|
|
|
(77,567
|
)
|
|
|
(81,793
|
)
|
|
|
(23,643
|
)
|
|
|
(235,585
|
)
|
|
|
(418,588
|
)
|
Effect of change in unrealized gains on available-for-sale securities
|
|
|
13,506
|
|
|
|
45,834
|
|
|
|
|
|
|
|
|
|
|
|
59,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change
|
|
|
44,554
|
|
|
|
28,765
|
|
|
|
(3,394
|
)
|
|
|
1,200
|
|
|
|
71,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
756,023
|
|
|
|
411,206
|
|
|
|
44,390
|
|
|
|
113,050
|
|
|
|
1,324,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
108,825
|
|
|
|
77,161
|
|
|
|
11,203
|
|
|
|
263,024
|
|
|
|
460,213
|
|
Amortization
|
|
|
(112,712
|
)
|
|
|
(71,381
|
)
|
|
|
(14,973
|
)
|
|
|
(262,299
|
)
|
|
|
(461,365
|
)
|
Effect of change in unrealized gains on available-for-sale securities
|
|
|
(6,296
|
)
|
|
|
(22,778
|
)
|
|
|
|
|
|
|
|
|
|
|
(29,074
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change
|
|
|
(10,183
|
)
|
|
|
(16,998
|
)
|
|
|
(3,770
|
)
|
|
|
725
|
|
|
|
(30,226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
745,840
|
|
|
$
|
394,208
|
|
|
$
|
40,620
|
|
|
$
|
113,775
|
|
|
$
|
1,294,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions comprise the majority of the additions to deferred policy acquisition costs.
93
Note 11 Liability for Future Policy Benefits and Policyholder Account Balances
American National estimates liabilities for amounts payable under insurance and annuity policies. Generally, amounts are payable over an extended period of
time and related liabilities are calculated as the present value of expected benefit payments reduced by the present value of expected premiums. Such liabilities are established on a block of business based on methods and underlying assumptions in
accordance with GAAP and applicable actuarial standards. Principal assumptions used in the establishment of liabilities for future policy benefits are mortality, morbidity, policy lapse, renewal, retirement, disability incidence, disability
termination, investment return, inflation, expenses, and other contingent events as appropriate to the respective product type.
Future policy benefits
for non-participating traditional life insurance are equal to the aggregate of the present value of expected benefit payments and related expenses less the present value of expected net premiums. Assumptions as to mortality and persistency are based
upon American Nationals experience when the basis of the liability is established. Interest rates for the aggregate future policy benefit liabilities range from 3.0% to 8.0%.
Future policy benefit liabilities for participating traditional life insurance are equal to the aggregate of (i) net level premium reserves for death and
endowment policy benefits (calculated based upon the non-forfeiture interest rate, ranging from 2.5% to 5.5%) and mortality rates guaranteed in calculating the cash surrender values described in such contracts; and (ii) the liability for
terminal dividends.
Future policy benefit liabilities for individual fixed deferred annuities after annuitization and single premium immediate annuities
are equal to the present value of expected future payments. The interest rate used in establishing such liabilities range from 3.0% to 6.0% for all policies in-force.
Future policy benefit liabilities for non-medical health insurance are calculated using the net level premium method and assumptions as to future morbidity,
withdrawals and interest, which provide a margin for adverse deviation. The interest rate used in establishing such liabilities range from 3.5% to 8.0%.
Future policy benefit liabilities for disabled lives are estimated using the present value of benefits method and experience assumptions as to claim
terminations, expenses and interest. The interest rate used in establishing such liabilities range from 3.0% to 4.5%.
Liabilities for universal life
secondary guarantees and paid-up guarantees are determined by estimating the expected value of death benefits payable when the account balance is projected to be zero and recognizing those benefits ratably over the accumulation period based on total
expected assessments. American National regularly evaluates estimates used and adjusts the additional liability balances with a related charge or credit to benefit expense, if actual experience or other evidence suggests that earlier assumptions
should be revised. The assumptions used in estimating the secondary and paid-up guarantee liabilities are consistent with those used for amortizing DAC, and are thus subject to the same variability and risk. The assumptions of investment performance
and volatility for variable products are consistent with historical Standard & Poors experience. The benefits used in calculating the liabilities are based on the average benefits payable over a range of scenarios.
American National periodically reviews its estimates of actuarial liabilities for future policy benefits and compares them with its actual experience.
Differences between actual experience and the assumptions used in pricing these policies, guarantees and riders and in the establishment of the related liabilities result in variances in profit and could result in losses. The effects of changes in
such estimated liabilities are included in the results of operations in the period in which the changes occur.
Policyholder account balances relate to
investment-type contracts and universal life-type policies. Investment-type contracts principally include traditional individual fixed annuities in the accumulation phase and non-variable group annuity contracts. Policyholder account balances are
equal to (i) policy account values, which consist of an accumulation of gross premium payments; (ii) credited interest, ranging from 1.0% to 8.0% (some annuities have enhanced first year crediting rates ranging from 1.0% to 7.0%), less
expenses, mortality charges, and withdrawals; and (iii) fair value adjustments.
94
Note 12 Liability for Unpaid Claims and Claim Adjustment Expenses
The liability for unpaid claims and claim adjustment expenses (claims) for accident and health, and property and casualty insurance is included in
Policy and contract claims in the consolidated statements of financial position and is the amount estimated for claims that have been reported but not settled and incurred but not reported (IBNR) claims. Liability for unpaid
claims are estimated based upon American Nationals historical experience and actuarial assumptions that consider the effects of current developments, anticipated trends and risk management programs, less anticipated salvage and subrogation.
The effects of the changes are included in the consolidated results of operations in the period in which the changes occur. The time value of money is not taken into account for the purposes of calculating the liability for unpaid claims. There have
been no significant changes in methodologies or assumptions used to calculate the liability for unpaid claims and claim adjustment expenses.
Information
regarding the liability for unpaid claims is shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Unpaid claims balance, beginning
|
|
$
|
1,104,302
|
|
|
$
|
1,132,394
|
|
|
$
|
1,096,301
|
|
Less reinsurance recoverables
|
|
|
217,337
|
|
|
|
245,906
|
|
|
|
215,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net beginning balance
|
|
|
886,965
|
|
|
|
886,488
|
|
|
|
881,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred related to
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
1,055,796
|
|
|
|
950,228
|
|
|
|
940,466
|
|
Prior years
|
|
|
(36,788
|
)
|
|
|
(22,830
|
)
|
|
|
(44,806
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total incurred claims
|
|
|
1,019,008
|
|
|
|
927,398
|
|
|
|
895,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid claims related to
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
654,175
|
|
|
|
580,476
|
|
|
|
561,887
|
|
Prior years
|
|
|
327,978
|
|
|
|
346,445
|
|
|
|
328,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total paid claims
|
|
|
982,153
|
|
|
|
926,921
|
|
|
|
890,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net balance
|
|
|
923,820
|
|
|
|
886,965
|
|
|
|
886,488
|
|
Plus reinsurance recoverables
|
|
|
216,903
|
|
|
|
217,337
|
|
|
|
245,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid claims balance, ending
|
|
$
|
1,140,723
|
|
|
$
|
1,104,302
|
|
|
$
|
1,132,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $36,788,000 in 2016 and
$22,830,000 in 2015 and $44,806,000 in 2014. This was a reflection of lower-than-anticipated losses in the multi-peril line of business in 2016 and lower-than-anticipated losses in the personal auto, other liability and multi-peril lines of business
in 2015 and 2014.
95
Note 12 Liability for Unpaid Claims and Claim Adjustment Expenses (Continued)
The reconciliation of the net incurred and paid claims development tables to the liability for claims and
claim adjustment expenses in the consolidated statement of financial position is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
Net outstanding liabilities
|
|
|
|
|
|
Auto Liability
|
|
|
$
|
369,209
|
|
Non-Auto Liability
|
|
|
|
263,801
|
|
Commercial Multi-Peril
|
|
|
|
88,259
|
|
Homeowners
|
|
|
|
61,256
|
|
Short Tail Property
|
|
|
|
26,088
|
|
Credit
|
|
|
|
16,076
|
|
Health
|
|
|
|
23,068
|
|
Other
|
|
|
|
2,278
|
|
|
|
|
|
|
|
|
|
|
Liabilities for unpaid claims and claim adjustment expenses, net of
reinsurance
|
|
|
|
850,035
|
|
|
|
|
|
|
|
|
|
|
Reinsurance recoverable on unpaid claims
|
|
|
|
|
|
Auto Liability
|
|
|
|
8,004
|
|
Non-Auto Liability
|
|
|
|
30,923
|
|
Commercial Multi-Peril
|
|
|
|
3,348
|
|
Homeowners
|
|
|
|
1,442
|
|
Short Tail Property
|
|
|
|
20,497
|
|
Credit
|
|
|
|
15,280
|
|
Health
|
|
|
|
134,283
|
|
Other
|
|
|
|
3,648
|
|
|
|
|
|
|
|
|
|
|
Total reinsurance recoverable on unpaid claims
|
|
|
|
217,425
|
|
|
|
|
|
|
|
|
|
|
Insurance lines other than short-duration
|
|
|
|
192,517
|
|
Unallocated claims adjustment expenses
|
|
|
|
43,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
236,465
|
|
|
|
|
|
|
|
|
|
|
Total gross liability for unpaid claims and claim adjustment expense
|
|
|
$
|
1,303,925
|
|
|
|
|
|
|
|
|
|
|
Property and Casualty Reserving MethodologyThe following methods are utilized:
|
|
|
Initial Expected Loss RatioThis method calculates an estimate of ultimate losses by applying an estimated loss ratio to actual earned premium for each calendar/accident year.
|
|
|
|
Bornhuetter-FergusonThis method uses as a starting point an assumed initial expected loss ratio method and blends in the loss ratio implied by the claims experience to date by using loss development patterns based
on our historical experience.
|
|
|
|
Loss or Expense Development (Chain Ladder)This method uses actual loss or defense and cost containment expense data and the historical development profiles on older accident periods to project more recent, less
developed periods to their ultimate total.
|
96
Note 12 Liability for Unpaid Claims and Claim Adjustment Expenses (Continued)
|
|
|
Ratio of Paid Defense and Cost Containment Expense to Paid Loss DevelopmentThis method uses the ratio of paid defense and cost containment expense to paid loss data and the historical development profiles on older
accident periods to project more recent, less developed periods to their ultimate total. In this method, an ultimate ratio of paid defense and cost containment expense to paid loss is selected for each accident period. The selected paid defense and
cost containment expense to paid loss ratio is then applied to the selected ultimate loss for each accident period to estimate the ultimate defense and cost containment expense. Paid defense and cost containment expense is then subtracted from the
ultimate defense and cost containment expense to calculate the unpaid defense and cost containment expense for that accident period.
|
|
|
|
Calendar Year Paid Adjusting and Other Expense to Paid LossThis method uses a selected prior calendar years paid expense to paid loss ratio to project ultimate loss adjustment expenses for adjusting and
other expense. A percentage of the selected ratio is applied to the case reserves (depending on the line of insurance) and 100% to the indicated IBNR reserves. These ratios assume that a percentage of the expense is incurred when a claim is opened
and the remaining percentage is paid throughout the claims life.
|
|
|
|
Pegged Frequency and Severity uses actual claims count data and emergence patterns of older accident periods to project the ultimate number of reported claims for a given accident year. A similar process projects
the ultimate average severity per claim so that the product of the 2 projections results in a projection of ultimate loss for a given accident year.
|
For most credit property and casualty products, IBNR liability is calculated as a percentage of pro rata unearned premium, with the specific percentage for a
given product line determined by a completion factor method. For a large subset of GAP waiver and collateral protection insurance business, IBNR liability is the average monthly paid loss over the preceding 12 months.
The expected development on reported claims is the sum of a pay-to-current reserve and a future reserve. The pay-to-current reserve is calculated for each
open claim having a monthly indemnity and contains the monies required to pay the open claim from the last payment date to the current valuation date. The future reserve is calculated by assigning to each open claim a fixed reserve amount based on
the historical average severity. For debt cancellation products and involuntary unemployment insurance this reserve is calculated using published valuation tables.
Cumulative claim frequency information is calculated on a per claim basis. Claims that do not result in a liability are not considered in the determination of
unpaid liabilities.
For any given line of business, none of these methods are relied on exclusively. With minor exception, we will typically run all
of these methods for most lines. While we may not ultimately utilize a given method for a given line, we will review as a check for reasonableness of our selected result.
The following contains information about incurred and paid claims development as of December 31, 2016, net of reinsurance, as well as cumulative claim
frequency and the total of incurred-but-not-reported liabilities plus expected development on reported claims included within the net incurred claims amounts. The information about incurred and paid claims development for the years ended
December 31, 2007, to 2015, is presented as supplementary information.
97
Note 12 Liability for Unpaid Claims and Claim Adjustment Expenses (Continued)
Auto Liability
- Consists of personal and commercial auto. Claims and claim adjustment expenses are
shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
|
|
|
As of
December 31, 2016
|
|
|
|
For the Years Ended December 31,
|
|
|
IBNR Plus
Expected
Development
|
|
|
Cumulative
Number of
Reported
Claims
|
|
Accident Year
|
|
2007*
|
|
|
2008*
|
|
|
2009*
|
|
|
2010*
|
|
|
2011*
|
|
|
2012*
|
|
|
2013*
|
|
|
2014*
|
|
|
2015*
|
|
|
2016
|
|
|
|
2007
|
|
$
|
306,939
|
|
|
$
|
281,373
|
|
|
$
|
278,279
|
|
|
$
|
276,801
|
|
|
$
|
276,740
|
|
|
$
|
275,669
|
|
|
$
|
274,620
|
|
|
$
|
273,938
|
|
|
$
|
273,484
|
|
|
$
|
273,039
|
|
|
$
|
106
|
|
|
|
51,839
|
|
2008
|
|
|
|
|
|
|
280,131
|
|
|
|
271,759
|
|
|
|
261,683
|
|
|
|
261,555
|
|
|
|
260,015
|
|
|
|
257,097
|
|
|
|
257,915
|
|
|
|
256,158
|
|
|
|
255,600
|
|
|
|
191
|
|
|
|
47,788
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
299,753
|
|
|
|
273,551
|
|
|
|
263,269
|
|
|
|
258,749
|
|
|
|
260,029
|
|
|
|
258,200
|
|
|
|
257,678
|
|
|
|
256,586
|
|
|
|
376
|
|
|
|
47,059
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
288,166
|
|
|
|
270,935
|
|
|
|
266,223
|
|
|
|
265,949
|
|
|
|
264,104
|
|
|
|
263,040
|
|
|
|
261,930
|
|
|
|
1,045
|
|
|
|
47,081
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
263,411
|
|
|
|
250,659
|
|
|
|
248,865
|
|
|
|
244,519
|
|
|
|
244,436
|
|
|
|
242,619
|
|
|
|
1,891
|
|
|
|
47,049
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
251,593
|
|
|
|
242,255
|
|
|
|
231,312
|
|
|
|
228,013
|
|
|
|
229,426
|
|
|
|
3,333
|
|
|
|
44,546
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
242,364
|
|
|
|
236,432
|
|
|
|
233,068
|
|
|
|
231,301
|
|
|
|
7,190
|
|
|
|
38,641
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
232,146
|
|
|
|
223,386
|
|
|
|
217,819
|
|
|
|
13,842
|
|
|
|
35,800
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
237,578
|
|
|
|
240,696
|
|
|
|
34,168
|
|
|
|
35,573
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
259,173
|
|
|
|
78,756
|
|
|
|
34,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
2,468,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
|
|
|
|
For the Years Ended December 31,
|
|
Accident Year
|
|
2007*
|
|
|
2008*
|
|
|
2009*
|
|
|
2010*
|
|
|
2011*
|
|
|
2012*
|
|
|
2013*
|
|
|
2014*
|
|
|
2015*
|
|
|
2016
|
|
2007
|
|
$
|
103,283
|
|
|
$
|
178,233
|
|
|
$
|
223,147
|
|
|
$
|
248,430
|
|
|
$
|
261,908
|
|
|
$
|
269,148
|
|
|
$
|
270,745
|
|
|
$
|
271,751
|
|
|
$
|
272,602
|
|
|
$
|
272,603
|
|
2008
|
|
|
|
|
|
|
92,395
|
|
|
|
163,228
|
|
|
|
203,708
|
|
|
|
228,898
|
|
|
|
244,749
|
|
|
|
249,953
|
|
|
|
251,924
|
|
|
|
253,145
|
|
|
|
255,118
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
95,847
|
|
|
|
166,441
|
|
|
|
203,869
|
|
|
|
228,650
|
|
|
|
242,768
|
|
|
|
250,681
|
|
|
|
253,417
|
|
|
|
254,988
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92,589
|
|
|
|
164,298
|
|
|
|
208,531
|
|
|
|
237,540
|
|
|
|
250,647
|
|
|
|
257,021
|
|
|
|
259,173
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93,245
|
|
|
|
161,387
|
|
|
|
197,326
|
|
|
|
217,640
|
|
|
|
230,585
|
|
|
|
236,187
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82,531
|
|
|
|
150,323
|
|
|
|
183,448
|
|
|
|
204,980
|
|
|
|
214,467
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,358
|
|
|
|
143,709
|
|
|
|
181,535
|
|
|
|
204,480
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72,838
|
|
|
|
134,376
|
|
|
|
166,947
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,861
|
|
|
|
149,365
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
2,099,819
|
|
|
|
|
All outstanding liabilities before 2007, net of reinsurance*
|
|
|
|
839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities for claims and claim adjustment expenses,
net of reinsurance
|
|
|
$
|
369,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Unaudited supplemental information
|
98
Note 12 Liability for Unpaid Claims and Claim Adjustment Expenses (Continued)
Non-Auto
Liability
- Consists of workers compensation and
other liability occurrence. Claims and claim adjustment expenses are shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred Claims and Allocated Claim Adjustment Expenses, Net of
Reinsurance
|
|
|
As of
December 31, 2016
|
|
|
|
For the Years Ended December 31,
|
|
|
IBNR Plus
Expected
Development
|
|
|
Cumulative
Number of
Reported
Claims
|
|
Accident Year
|
|
2007*
|
|
|
2008*
|
|
|
2009*
|
|
|
2010*
|
|
|
2011*
|
|
|
2012*
|
|
|
2013*
|
|
|
2014*
|
|
|
2015*
|
|
|
2016
|
|
|
|
2007
|
|
$
|
87,108
|
|
|
$
|
82,759
|
|
|
$
|
85,138
|
|
|
$
|
83,071
|
|
|
$
|
79,720
|
|
|
$
|
80,520
|
|
|
$
|
78,496
|
|
|
$
|
78,739
|
|
|
$
|
79,101
|
|
|
$
|
79,668
|
|
|
$
|
2,532
|
|
|
|
30,182
|
|
2008
|
|
|
|
|
|
|
85,367
|
|
|
|
85,384
|
|
|
|
77,798
|
|
|
|
72,492
|
|
|
|
71,969
|
|
|
|
73,436
|
|
|
|
74,114
|
|
|
|
73,912
|
|
|
|
74,684
|
|
|
|
3,025
|
|
|
|
18,374
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
83,773
|
|
|
|
75,857
|
|
|
|
70,905
|
|
|
|
72,267
|
|
|
|
72,490
|
|
|
|
72,077
|
|
|
|
71,003
|
|
|
|
71,517
|
|
|
|
3,681
|
|
|
|
13,294
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91,191
|
|
|
|
85,498
|
|
|
|
83,724
|
|
|
|
82,287
|
|
|
|
82,145
|
|
|
|
82,087
|
|
|
|
80,920
|
|
|
|
5,141
|
|
|
|
7,778
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86,409
|
|
|
|
76,038
|
|
|
|
75,390
|
|
|
|
74,372
|
|
|
|
73,647
|
|
|
|
71,423
|
|
|
|
6,088
|
|
|
|
5,673
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83,146
|
|
|
|
80,470
|
|
|
|
78,644
|
|
|
|
75,226
|
|
|
|
68,017
|
|
|
|
7,407
|
|
|
|
4,706
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,183
|
|
|
|
75,815
|
|
|
|
70,772
|
|
|
|
67,841
|
|
|
|
9,541
|
|
|
|
4,411
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83,084
|
|
|
|
75,550
|
|
|
|
72,624
|
|
|
|
16,145
|
|
|
|
5,824
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83,897
|
|
|
|
78,968
|
|
|
|
31,995
|
|
|
|
5,116
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86,935
|
|
|
|
48,102
|
|
|
|
3,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
752,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of
Reinsurance
|
|
|
|
For the Years Ended December 31,
|
|
Accident Year
|
|
2007*
|
|
|
2008*
|
|
|
2009*
|
|
|
2010*
|
|
|
2011*
|
|
|
2012*
|
|
|
2013*
|
|
|
2014*
|
|
|
2015*
|
|
|
2016
|
|
2007
|
|
$
|
22,008
|
|
|
$
|
37,569
|
|
|
$
|
50,184
|
|
|
$
|
58,978
|
|
|
$
|
65,026
|
|
|
$
|
68,652
|
|
|
$
|
70,605
|
|
|
$
|
72,044
|
|
|
$
|
73,180
|
|
|
$
|
74,880
|
|
2008
|
|
|
|
|
|
|
18,852
|
|
|
|
34,624
|
|
|
|
43,206
|
|
|
|
51,077
|
|
|
|
58,043
|
|
|
|
62,087
|
|
|
|
64,840
|
|
|
|
66,629
|
|
|
|
67,329
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
15,389
|
|
|
|
28,725
|
|
|
|
41,424
|
|
|
|
49,895
|
|
|
|
55,391
|
|
|
|
61,277
|
|
|
|
63,039
|
|
|
|
64,755
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,473
|
|
|
|
31,819
|
|
|
|
46,746
|
|
|
|
57,354
|
|
|
|
65,557
|
|
|
|
69,091
|
|
|
|
70,369
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,848
|
|
|
|
31,943
|
|
|
|
41,814
|
|
|
|
52,003
|
|
|
|
56,791
|
|
|
|
60,706
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,862
|
|
|
|
27,574
|
|
|
|
38,826
|
|
|
|
49,585
|
|
|
|
55,194
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,794
|
|
|
|
22,743
|
|
|
|
32,474
|
|
|
|
42,504
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,201
|
|
|
|
26,587
|
|
|
|
36,220
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,979
|
|
|
|
23,488
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
508,178
|
|
|
|
|
All outstanding liabilities before 2007, net of reinsurance*
|
|
|
|
19,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities for claims and claim adjustment
expenses, net of reinsurance
|
|
|
$
|
263,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Unaudited supplemental information
|
99
Note 12 Liability for Unpaid Claims and Claim Adjustment Expenses (Continued)
Commercial Multi-Peril
- Consists of business owners insurance and mortgage fire business. Claims and
claim adjustment expenses are shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred Claims and Allocated Claim Adjustment Expenses, Net of
Reinsurance
|
|
|
As of
December 31, 2016
|
|
|
|
For the Years Ended December 31,
|
|
|
IBNR Plus
Expected
Development
|
|
|
Cumulative
Number of
Reported
Claims
|
|
Accident Year
|
|
2007*
|
|
|
2008*
|
|
|
2009*
|
|
|
2010*
|
|
|
2011*
|
|
|
2012*
|
|
|
2013*
|
|
|
2014*
|
|
|
2015*
|
|
|
2016
|
|
|
|
2007
|
|
$
|
43,834
|
|
|
$
|
40,324
|
|
|
$
|
39,877
|
|
|
$
|
39,215
|
|
|
$
|
39,309
|
|
|
$
|
38,158
|
|
|
$
|
38,218
|
|
|
$
|
38,078
|
|
|
$
|
38,243
|
|
|
$
|
37,861
|
|
|
$
|
684
|
|
|
|
3,290
|
|
2008
|
|
|
|
|
|
|
40,640
|
|
|
|
39,231
|
|
|
|
37,105
|
|
|
|
37,825
|
|
|
|
37,034
|
|
|
|
35,594
|
|
|
|
36,141
|
|
|
|
37,605
|
|
|
|
37,298
|
|
|
|
1,061
|
|
|
|
3,831
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
41,027
|
|
|
|
38,666
|
|
|
|
36,610
|
|
|
|
35,354
|
|
|
|
34,884
|
|
|
|
34,381
|
|
|
|
34,529
|
|
|
|
34,079
|
|
|
|
989
|
|
|
|
3,512
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,116
|
|
|
|
37,736
|
|
|
|
40,243
|
|
|
|
37,520
|
|
|
|
35,914
|
|
|
|
37,839
|
|
|
|
37,215
|
|
|
|
1,294
|
|
|
|
3,583
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,185
|
|
|
|
40,825
|
|
|
|
39,037
|
|
|
|
38,160
|
|
|
|
38,456
|
|
|
|
36,945
|
|
|
|
1,308
|
|
|
|
3,552
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,169
|
|
|
|
28,548
|
|
|
|
26,805
|
|
|
|
23,258
|
|
|
|
23,385
|
|
|
|
1,206
|
|
|
|
2,704
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,979
|
|
|
|
27,592
|
|
|
|
27,867
|
|
|
|
26,970
|
|
|
|
2,653
|
|
|
|
2,188
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,852
|
|
|
|
31,220
|
|
|
|
34,911
|
|
|
|
4,962
|
|
|
|
2,229
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,997
|
|
|
|
31,488
|
|
|
|
9,814
|
|
|
|
2,003
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,114
|
|
|
|
20,761
|
|
|
|
3,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
338,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of
Reinsurance
|
|
|
|
For the Years Ended December 31,
|
|
Accident Year
|
|
2007*
|
|
|
2008*
|
|
|
2009*
|
|
|
2010*
|
|
|
2011*
|
|
|
2012*
|
|
|
2013*
|
|
|
2014*
|
|
|
2015*
|
|
|
2016
|
|
2007
|
|
$
|
11,548
|
|
|
$
|
17,625
|
|
|
$
|
21,869
|
|
|
$
|
26,682
|
|
|
$
|
31,080
|
|
|
$
|
34,386
|
|
|
$
|
35,217
|
|
|
$
|
35,738
|
|
|
$
|
36,054
|
|
|
$
|
36,474
|
|
2008
|
|
|
|
|
|
|
10,083
|
|
|
|
17,357
|
|
|
|
20,638
|
|
|
|
25,415
|
|
|
|
29,900
|
|
|
|
32,187
|
|
|
|
34,321
|
|
|
|
34,847
|
|
|
|
35,270
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
11,101
|
|
|
|
17,248
|
|
|
|
21,660
|
|
|
|
25,779
|
|
|
|
30,272
|
|
|
|
32,150
|
|
|
|
32,623
|
|
|
|
32,842
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,511
|
|
|
|
17,490
|
|
|
|
22,135
|
|
|
|
27,152
|
|
|
|
31,378
|
|
|
|
33,384
|
|
|
|
34,888
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,092
|
|
|
|
18,390
|
|
|
|
22,616
|
|
|
|
28,291
|
|
|
|
30,458
|
|
|
|
32,692
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,525
|
|
|
|
14,454
|
|
|
|
16,263
|
|
|
|
18,670
|
|
|
|
20,716
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,374
|
|
|
|
12,723
|
|
|
|
15,426
|
|
|
|
18,406
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,001
|
|
|
|
16,484
|
|
|
|
20,199
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,820
|
|
|
|
12,956
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
255,770
|
|
|
|
|
All outstanding liabilities before 2007, net of reinsurance*
|
|
|
|
5,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities for claims and claim adjustment
expenses, net of reinsurance
|
|
|
$
|
88,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Unaudited supplemental information
|
100
Note 12 Liability for Unpaid Claims and Claim Adjustment Expenses (Continued)
Homeowners
- Consists of homeowners and renters business. Claims and claim adjustment expenses are
shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
|
|
|
As of
December 31, 2016
|
|
|
|
For the Years Ended December 31,
|
|
|
IBNR Plus
Expected
Development
|
|
|
Cumulative
Number of
Reported
Claims
|
|
Accident Year
|
|
2007*
|
|
|
2008*
|
|
|
2009*
|
|
|
2010*
|
|
|
2011*
|
|
|
2012*
|
|
|
2013*
|
|
|
2014*
|
|
|
2015*
|
|
|
2016
|
|
|
|
2007
|
|
$
|
127,373
|
|
|
$
|
125,628
|
|
|
$
|
124,041
|
|
|
$
|
123,879
|
|
|
$
|
123,950
|
|
|
$
|
123,747
|
|
|
$
|
123,681
|
|
|
$
|
123,619
|
|
|
$
|
123,668
|
|
|
$
|
123,624
|
|
|
$
|
|
|
|
|
22,811
|
|
2008
|
|
|
|
|
|
|
191,926
|
|
|
|
198,128
|
|
|
|
198,351
|
|
|
|
198,578
|
|
|
|
197,066
|
|
|
|
196,987
|
|
|
|
196,777
|
|
|
|
197,210
|
|
|
|
197,004
|
|
|
|
86
|
|
|
|
42,646
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
183,437
|
|
|
|
178,420
|
|
|
|
179,249
|
|
|
|
177,534
|
|
|
|
177,798
|
|
|
|
177,989
|
|
|
|
178,372
|
|
|
|
178,073
|
|
|
|
130
|
|
|
|
31,483
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
206,606
|
|
|
|
200,318
|
|
|
|
198,111
|
|
|
|
198,029
|
|
|
|
197,443
|
|
|
|
197,675
|
|
|
|
197,465
|
|
|
|
225
|
|
|
|
37,066
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
203,301
|
|
|
|
200,356
|
|
|
|
198,757
|
|
|
|
197,581
|
|
|
|
197,381
|
|
|
|
197,451
|
|
|
|
335
|
|
|
|
38,748
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
181,284
|
|
|
|
177,664
|
|
|
|
175,523
|
|
|
|
175,509
|
|
|
|
175,178
|
|
|
|
464
|
|
|
|
30,972
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
152,208
|
|
|
|
149,080
|
|
|
|
149,272
|
|
|
|
148,231
|
|
|
|
440
|
|
|
|
19,997
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132,651
|
|
|
|
131,634
|
|
|
|
130,287
|
|
|
|
690
|
|
|
|
18,115
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125,430
|
|
|
|
124,197
|
|
|
|
1,552
|
|
|
|
17,583
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
147,262
|
|
|
|
9,391
|
|
|
|
19,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
1,618,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
|
|
|
|
For the Years Ended December 31,
|
|
Accident Year
|
|
2007*
|
|
|
2008*
|
|
|
2009*
|
|
|
2010*
|
|
|
2011*
|
|
|
2012*
|
|
|
2013*
|
|
|
2014*
|
|
|
2015*
|
|
|
2016
|
|
2007
|
|
$
|
91,413
|
|
|
$
|
116,836
|
|
|
$
|
119,622
|
|
|
$
|
121,596
|
|
|
$
|
122,919
|
|
|
$
|
123,126
|
|
|
$
|
123,295
|
|
|
$
|
123,570
|
|
|
$
|
123,578
|
|
|
$
|
123,591
|
|
2008
|
|
|
|
|
|
|
148,526
|
|
|
|
189,694
|
|
|
|
193,653
|
|
|
|
195,290
|
|
|
|
195,936
|
|
|
|
196,132
|
|
|
|
196,358
|
|
|
|
196,546
|
|
|
|
196,896
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
142,781
|
|
|
|
170,372
|
|
|
|
173,985
|
|
|
|
175,220
|
|
|
|
176,588
|
|
|
|
176,985
|
|
|
|
177,428
|
|
|
|
177,615
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
149,755
|
|
|
|
189,046
|
|
|
|
193,006
|
|
|
|
195,365
|
|
|
|
195,714
|
|
|
|
196,281
|
|
|
|
196,419
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160,625
|
|
|
|
190,946
|
|
|
|
194,237
|
|
|
|
195,327
|
|
|
|
196,575
|
|
|
|
196,628
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
143,797
|
|
|
|
169,415
|
|
|
|
171,842
|
|
|
|
173,170
|
|
|
|
173,676
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115,605
|
|
|
|
140,309
|
|
|
|
145,152
|
|
|
|
146,650
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96,300
|
|
|
|
122,601
|
|
|
|
126,245
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86,617
|
|
|
|
114,696
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
1,557,831
|
|
|
|
|
All outstanding liabilities before 2007, net of reinsurance*
|
|
|
|
315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities for claims and claim adjustment expenses,
net of reinsurance
|
|
|
$
|
61,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Unaudited supplemental information
|
101
Note 12 Liability for Unpaid Claims and Claim Adjustment Expenses (Continued)
Short Tail Property
- Consists of auto physical damage, fire, rental owners, standard fire policy,
country estates, inland marine and watercraft. This line of business has substantially all claims settled and paid in less than two years. Claims and claim adjustment expenses are shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred Claims and
Allocated Claim
Adjustment Expenses,
Net of Reinsurance
|
|
|
As of
December 31, 2016
|
|
|
|
For the Years Ended December 31,
|
|
|
IBNR Plus
Expected
Development
|
|
|
Cumulative
Number of
Reported
Claims
|
|
Accident Year
|
|
2015*
|
|
|
2016
|
|
|
|
2015
|
|
|
202,310
|
|
|
|
199,957
|
|
|
|
315
|
|
|
|
59,375
|
|
2016
|
|
|
|
|
|
|
215,492
|
|
|
|
(3,433
|
)
|
|
|
61,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
415,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Paid Claims and Allocated
Claim Adjustment Expenses,
Net of Reinsurance
|
|
|
|
For the Years Ended
December 31,
|
|
Accident Year
|
|
2015*
|
|
|
2016
|
|
2015
|
|
|
182,772
|
|
|
|
198,140
|
|
2016
|
|
|
|
|
|
|
192,325
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
390,465
|
|
All outstanding liabilities before 2015, net of
reinsurance*
|
|
|
|
1,104
|
|
|
|
|
|
|
|
|
|
|
Liabilities for claims and claim adjustment expenses, net
of reinsurance
|
|
|
$
|
26,088
|
|
|
|
|
|
|
|
|
|
|
*
|
Unaudited supplemental information
|
102
Note 12 Liability for Unpaid Claims and Claim Adjustment Expenses (Continued)
Credit
- Consists of credit property insurance, vendors or lenders single interest
insurance, GAP insurance, GAP waiver, debt cancellation products, involuntary unemployment insurance and collateral protection insurance. This line of business has substantially all claims settled and paid in less than two years. Claims and claim
adjustment expenses are shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred Claims and
Allocated Claim
Adjustment Expenses, Net
of Reinsurance
|
|
|
As of
December 31, 2016
|
|
|
|
For the Years Ended December 31,
|
|
|
IBNR Plus
Expected
Development
|
|
|
Cumulative
Number of
Reported
Claims
|
|
Accident Year
|
|
2015*
|
|
|
2016
|
|
|
|
2015
|
|
|
46,540
|
|
|
|
46,367
|
|
|
|
|
|
|
|
34,211
|
|
2016
|
|
|
|
|
|
|
75,841
|
|
|
|
8,584
|
|
|
|
39,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
122,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Paid Claims and Allocated
Claim Adjustment Expenses,
Net of Reinsurance
|
|
Accident Year
|
|
For the Years Ended December 31,
|
|
|
|
2015*
|
|
|
2016
|
|
2015
|
|
|
34,499
|
|
|
|
46,367
|
|
2016
|
|
|
|
|
|
|
59,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
106,132
|
|
All outstanding liabilities before 2015, net of
reinsurance*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities for claims and claim adjustment expenses, net
of reinsurance
|
|
|
$
|
16,076
|
|
|
|
|
|
|
|
|
|
|
*
|
Unaudited supplemental information
|
103
Note 12 Liability for Unpaid Claims and Claim Adjustment Expenses (Continued)
Accident and Health Reserving Methodology
Completion Factor ApproachThis method assumes that the historical claim patterns will be an accurate representation of unpaid claim liabilities. An
estimate of the unpaid claims is calculated by subtracting
period-to-date
paid claims from an estimate of the ultimate complete payment for all incurred
claims in the period. Completion factors are calculated which complete the current
period-to-date
payment totals for each incurred month to estimate the
ultimate expected payout.
Tabular Claims ReservesThis method is used to calculate the reserves for disability income blocks of business. These
reserves rely on published valuation continuance tables created using industry experience regarding assumptions of continued morbidity and subsequent recovery. Reserves are calculated by applying these continuance tables, along with appropriate
company experience adjustments, to the stream of contractual benefit payments. These expected benefit payments are discounted at the required interest rate.
Future Policy BenefitsReserves are equal to the aggregate of the present value of expected future benefit payments, less the present value of expected
future premiums. Morbidity and termination assumptions are based on our experience or published valuation tables when available and appropriate.
Premium
Deficiency ReservesDeficiency reserves are established when the expected future claim payments and expenses for a classification of policies are in excess of the expected premiums for these policies. The determination of a deficiency reserve
takes into consideration the likelihood of premium rate increases, the timing of these increases, and the expected benefit utilization patterns. We have established premium deficiency reserves for portions of the major medical business and the
long-term care business that are in
run-off.
The assumptions and methods used to determine the deficiency reserves are reviewed periodically for reasonableness, and the reserve amount is monitored against
emerging losses.
There is no expected development on reported claims in the health blocks. Claim frequency is determined by totaling the number of unique
claim numbers during the period as each unique claim number represents a claim event for an individual claimant.
104
Note 12 Liability for Unpaid Claims and Claim Adjustment Expenses (Continued)
Accident and Health
- Consists of stop loss, other supplemental health products and credit disability
insurance. This line of business has substantially all claims settled and paid in less than four years. Claims and claim adjustment expenses are shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred Claims and Allocated Claim Adjustment Expenses,
Net of Reinsurance
|
|
|
As of
December 31, 2016
|
|
|
|
For the Years Ended December 31,
|
|
|
IBNR Plus
Expected
Development
|
|
|
Cumulative
Number of
Reported
Claims
|
|
Accident Year
|
|
2012*
|
|
|
2013*
|
|
|
2014*
|
|
|
2015*
|
|
|
2016
|
|
|
|
2012
|
|
|
47,085
|
|
|
|
58,082
|
|
|
|
54,285
|
|
|
|
54,193
|
|
|
|
54,183
|
|
|
|
3
|
|
|
|
67,043
|
|
2013
|
|
|
|
|
|
|
40,970
|
|
|
|
51,725
|
|
|
|
46,940
|
|
|
|
46,995
|
|
|
|
5
|
|
|
|
63,614
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
38,102
|
|
|
|
67,545
|
|
|
|
62,802
|
|
|
|
10
|
|
|
|
51,456
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,069
|
|
|
|
45,167
|
|
|
|
3,789
|
|
|
|
44,572
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,198
|
|
|
|
11,002
|
|
|
|
35,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
245,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Paid Claims and Allocated Claim
Adjustment Expenses, Net of Reinsurance
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
Accident Year
|
|
|
|
|
|
|
|
2012*
|
|
|
2013*
|
|
|
2014*
|
|
|
2015*
|
|
|
2016
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
32,701
|
|
|
|
54,252
|
|
|
|
54,094
|
|
|
|
54,115
|
|
|
|
54,120
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,071
|
|
|
|
46,780
|
|
|
|
46,860
|
|
|
|
46,939
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,436
|
|
|
|
62,632
|
|
|
|
62,678
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,574
|
|
|
|
41,491
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
229,585
|
|
All outstanding liabilities before 2012, net of reinsurance*
|
|
|
|
7,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities for claims and claim adjustment expenses, net of reinsurance
|
|
|
$
|
23,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Unaudited supplemental information
|
105
Note 12 Liability for Unpaid Claims and Claim Adjustment Expenses (Continued)
The following table is supplementary information. 10 year average annual percentage payout of incurred claims
is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Annual Percentage Payout of
Incurred Claims by Age, Net of Reinsurance
|
|
Years
|
|
1
|
|
|
2
|
|
|
3
|
|
|
4
|
|
|
5
|
|
|
6
|
|
|
7
|
|
|
8
|
|
|
9
|
|
|
10
|
|
Auto Liability
|
|
|
35.5
|
%
|
|
|
28.1
|
%
|
|
|
15.5
|
%
|
|
|
9.6
|
%
|
|
|
5.2
|
%
|
|
|
2.5
|
%
|
|
|
0.8
|
%
|
|
|
0.5
|
%
|
|
|
0.5
|
%
|
|
|
1.8
|
%
|
Non-Auto
Liability
|
|
|
19.9
|
%
|
|
|
19.4
|
%
|
|
|
15.2
|
%
|
|
|
13.1
|
%
|
|
|
8.3
|
%
|
|
|
5.6
|
%
|
|
|
2.5
|
%
|
|
|
2.2
|
%
|
|
|
1.2
|
%
|
|
|
12.6
|
%
|
Commercial Multi-Peril
|
|
|
33.8
|
%
|
|
|
14.3
|
%
|
|
|
10.7
|
%
|
|
|
12.5
|
%
|
|
|
10.5
|
%
|
|
|
6.4
|
%
|
|
|
3.3
|
%
|
|
|
1.1
|
%
|
|
|
1.0
|
%
|
|
|
6.4
|
%
|
Homeowners
|
|
|
76.2
|
%
|
|
|
18.5
|
%
|
|
|
2.2
|
%
|
|
|
0.9
|
%
|
|
|
0.5
|
%
|
|
|
0.2
|
%
|
|
|
0.1
|
%
|
|
|
0.1
|
%
|
|
|
0.1
|
%
|
|
|
1.2
|
%
|
Short Tail Property
|
|
|
90.3
|
%
|
|
|
9.7
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Credit
|
|
|
76.6
|
%
|
|
|
23.4
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Note 13 Reinsurance
American National reinsures portions of certain life insurance policies to provide a greater diversification of risk and manage exposure on larger risks. For
the issue ages zero to 65, the maximum amount that would be retained by one life insurance company (American National) would be $1.5 million individual life, $250,000 individual accidental death, $100,000 group life, and $125,000 credit life.
If individual, group and credit insurance were all in force at the same time, the maximum risk on any one life aged zero to 65 could be $1.975 million. For the issue ages 66 and over, the maximum amount that would be retained by one life
insurance company (American National) would be $700,000 individual life, $250,000 individual accidental death, $100,000 group life, and $125,000 credit life. If individual, group and credit insurance were all in force at the same time, the maximum
risk on any one life aged over 65 could be $1.175 million.
For the Property and Casualty segment, American National retains the first $500,000 of
loss per workers compensation risk and $1.5 million of loss per
non-workers
compensation risk. Workers compensation reinsurance coverage for losses between $500,000 and $1 million
follows satisfaction of a $2 million annual aggregate deductible. Reinsurance covers up to $6 million of property and liability losses per risk. Additional excess property per risk coverage is purchased to cover risks up to
$20 million, and excess casualty clash coverage is purchased to cover losses up to $60 million. Excess casualty clash covers losses incurred as a result of one casualty event involving multiple policies, excess policy limits, and extra
contractual obligations. Facultative reinsurance is purchased for individual risks attaching at $20 million, as needed. Corporate catastrophe coverage is in place for losses up to a $500 million event. Catastrophe aggregate reinsurance
coverage is also purchased. This coverage is provided by two contracts. The first contract provides for $30 million of coverage after $90 million of aggregated catastrophe losses has been reached. The first $10 million of each
catastrophe loss contributes to the $90 million aggregation of losses. The second aggregate contract is the Stretch & Aggregate cover. It consists of a $35 million annual limit available either wholly or in part across two layers.
The first layer is 8.75% of $400 million excess of $100 million on an occurrence basis. The second layer provides aggregate protection with subject loss of $35 million excess of $5 million of each catastrophe. Recoveries follow
satisfaction of a $45 million annual aggregate deductible. This cover was placed on July 1, 2016. American National expects to place the cover again on July 1, 2017.
106
Note 13 Reinsurance (Continued)
American National remains primarily liable with respect to any reinsurance ceded, and would bear the entire
loss if the reinsurer does not meet their obligations under any reinsurance treaties. American National had amounts recoverable from reinsurers of $401,709,000 and $413,881,000 at December 31, 2016 and 2015, respectively. None of the amount
outstanding at December 31, 2016 is the subject of litigation or is in dispute with the reinsurers involved. Management believes the unfavorable resolution of any dispute that may arise would not have a material impact on American
Nationals consolidated financial statements.
The amounts in the consolidated financial statements include the impact of reinsurance. Information
regarding the effect of reinsurance is shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Direct premiums
|
|
$
|
2,246,595
|
|
|
$
|
2,069,434
|
|
|
$
|
2,049,447
|
|
Reinsurance premiums assumed from other companies
|
|
|
194,910
|
|
|
|
188,368
|
|
|
|
227,076
|
|
Reinsurance premiums ceded to other companies
|
|
|
(444,857
|
)
|
|
|
(419,283
|
)
|
|
|
(460,552
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums
|
|
$
|
1,996,648
|
|
|
$
|
1,838,519
|
|
|
$
|
1,815,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance in-force and related reinsurance amounts are shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Direct life insurance in-force
|
|
$
|
95,439,425
|
|
|
$
|
90,194,532
|
|
|
$
|
85,570,057
|
|
Reinsurance risks assumed from other companies
|
|
|
181,655
|
|
|
|
120
|
|
|
|
6,007
|
|
Reinsurance risks ceded to other companies
|
|
|
(29,980,485
|
)
|
|
|
(29,891,183
|
)
|
|
|
(30,007,131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net life insurance in-force
|
|
$
|
65,640,595
|
|
|
$
|
60,303,469
|
|
|
$
|
55,568,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 14 Federal Income Taxes
A reconciliation of the effective tax rate to the statutory federal tax rate is shown below (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
Income tax on pre-tax income
|
|
$
|
89,732
|
|
|
|
35.0
|
%
|
|
$
|
121,134
|
|
|
|
35.0
|
%
|
|
$
|
115,061
|
|
|
|
35.0
|
%
|
Tax-exempt investment income
|
|
|
(7,834
|
)
|
|
|
(3.1
|
)
|
|
|
(7,589
|
)
|
|
|
(2.2
|
)
|
|
|
(6,680
|
)
|
|
|
(2.0
|
)
|
Deferred tax change
|
|
|
6,699
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend exclusion
|
|
|
(8,490
|
)
|
|
|
(3.3
|
)
|
|
|
(8,183
|
)
|
|
|
(2.4
|
)
|
|
|
(7,620
|
)
|
|
|
(2.3
|
)
|
Miscellaneous tax credits, net
|
|
|
(9,993
|
)
|
|
|
(3.9
|
)
|
|
|
(9,103
|
)
|
|
|
(2.6
|
)
|
|
|
(7,888
|
)
|
|
|
(2.4
|
)
|
Low income housing tax credit expense
|
|
|
4,795
|
|
|
|
1.9
|
|
|
|
4,862
|
|
|
|
1.4
|
|
|
|
4,583
|
|
|
|
1.4
|
|
Other items, net
|
|
|
(3,885
|
)
|
|
|
(1.5
|
)
|
|
|
2,599
|
|
|
|
0.8
|
|
|
|
(842
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for federal income tax before interest expense
|
|
|
71,024
|
|
|
|
27.7
|
|
|
|
103,720
|
|
|
|
30.0
|
|
|
|
96,614
|
|
|
|
29.4
|
|
Interest expense
|
|
|
2,686
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
73,710
|
|
|
|
28.8
|
%
|
|
$
|
103,720
|
|
|
|
30.0
|
%
|
|
$
|
96,614
|
|
|
|
29.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American National made income tax payments of $33,367,000, $80,759,000 and $61,821,000 during 2016, 2015, and 2014,
respectively.
107
Note 14 Federal Income Taxes (Continued)
The tax effects of temporary differences that gave rise to the deferred tax assets and liabilities are shown
below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
DEFERRED TAX ASSETS
|
|
|
|
|
|
|
|
|
Invested assets, principally due to impairment losses
|
|
$
|
41,982
|
|
|
$
|
84,061
|
|
Investment in real estate and other invested assets, principally due to investment valuation
allowances
|
|
|
10,028
|
|
|
|
7,867
|
|
Policyholder funds, principally due to policy reserve discount
|
|
|
159,351
|
|
|
|
181,003
|
|
Policyholder funds, principally due to unearned premium reserve
|
|
|
35,207
|
|
|
|
33,214
|
|
Participating policyholders surplus
|
|
|
54,023
|
|
|
|
50,648
|
|
Pension
|
|
|
57,388
|
|
|
|
77,976
|
|
Commissions and other expenses
|
|
|
6,563
|
|
|
|
7,003
|
|
Other assets
|
|
|
37,250
|
|
|
|
33,150
|
|
Tax carryforwards
|
|
|
278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
402,070
|
|
|
|
474,922
|
|
|
|
|
|
|
|
|
|
|
DEFERRED TAX LIABILITIES
|
|
|
|
|
|
|
|
|
Marketable securities, principally due to net unrealized gains
|
|
|
329,464
|
|
|
|
265,577
|
|
Investment in bonds, principally due to differences between GAAP and tax basis
|
|
|
20,875
|
|
|
|
19,047
|
|
Deferred policy acquisition costs, due to difference between GAAP and tax amortization
methods
|
|
|
342,888
|
|
|
|
355,416
|
|
Property, plant and equipment, principally due to difference between GAAP and tax depreciation
methods
|
|
|
27,490
|
|
|
|
23,636
|
|
Other liabilities
|
|
|
48,840
|
|
|
|
30,541
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
769,557
|
|
|
|
694,217
|
|
|
|
|
|
|
|
|
|
|
Total net deferred tax liability
|
|
$
|
367,487
|
|
|
$
|
219,295
|
|
|
|
|
|
|
|
|
|
|
Management believes that a sufficient taxable income will be achieved over time to utilize the deferred tax assets in the
consolidated federal tax return; therefore, no valuation allowance was recorded as of December 31, 2016 and 2015. There are no ordinary loss tax carryforwards that will expire by December 31, 2017.
American Nationals federal income tax returns for years 2013 to 2015 and years 2005 to 2009 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. No provision for penalties was established; however, management has accrued interest in the
amount of $2.7 million, net of tax, during 2016 relating to a dispute with the Internal Revenue Service. Management does not believe there are any uncertain tax benefits that could be recognized within the next twelve months that would decrease
American Nationals effective tax rate.
108
Note 15 Accumulated Other Comprehensive Income
The components of and changes in the accumulated other comprehensive income (AOCI), and the related tax effects, are shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Unrealized
Gains (Losses)
on Securities
|
|
|
Defined
Benefit
Pension Plan
Adjustments
|
|
|
Foreign
Currency
Adjustments
|
|
|
AOCI
|
|
Balance at December 31, 2013
|
|
$
|
457,937
|
|
|
$
|
(43,884
|
)
|
|
$
|
(341
|
)
|
|
$
|
413,712
|
|
Amounts reclassified from AOCI (net of tax benefit $12,379 and expense $1,547)
|
|
|
(22,990
|
)
|
|
|
2,873
|
|
|
|
|
|
|
|
(20,117
|
)
|
Unrealized holding gains arising during the period (net of tax expense $79,535)
|
|
|
147,709
|
|
|
|
|
|
|
|
|
|
|
|
147,709
|
|
Unrealized adjustment to DAC (net of tax benefit $5,986)
|
|
|
(8,625
|
)
|
|
|
|
|
|
|
|
|
|
|
(8,625
|
)
|
Unrealized gains on investments attributable to participating policyholders interest (net of
tax benefit $3,166)
|
|
|
(5,880
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,880
|
)
|
Actuarial loss arising during the period (net of tax benefit of $18,880)
|
|
|
|
|
|
|
(35,063
|
)
|
|
|
|
|
|
|
(35,063
|
)
|
Foreign currency adjustment (net of tax benefit $514)
|
|
|
|
|
|
|
|
|
|
|
(954
|
)
|
|
|
(954
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
|
568,151
|
|
|
|
(76,074
|
)
|
|
|
(1,295
|
)
|
|
|
490,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified from AOCI (net of tax benefit $12,845 and expense $3,429)
|
|
|
(23,856
|
)
|
|
|
6,368
|
|
|
|
|
|
|
|
(17,488
|
)
|
Unrealized holding losses arising during the period (net of tax benefit $72,711)
|
|
|
(135,035
|
)
|
|
|
|
|
|
|
|
|
|
|
(135,035
|
)
|
Unrealized adjustment to DAC (net of tax expense $20,786)
|
|
|
38,554
|
|
|
|
|
|
|
|
|
|
|
|
38,554
|
|
Unrealized losses on investments attributable to participating policyholders interest (net
of tax expense $3,026)
|
|
|
5,620
|
|
|
|
|
|
|
|
|
|
|
|
5,620
|
|
Actuarial loss arising during the period (net of tax benefit of $15,175)
|
|
|
|
|
|
|
(28,183
|
)
|
|
|
|
|
|
|
(28,183
|
)
|
Foreign currency adjustment (net of tax benefit $878)
|
|
|
|
|
|
|
|
|
|
|
(1,630
|
)
|
|
|
(1,630
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
453,434
|
|
|
|
(97,889
|
)
|
|
|
(2,925
|
)
|
|
|
352,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified from AOCI (net of tax benefit $7,705 and expense $4,438)
|
|
|
(14,308
|
)
|
|
|
8,242
|
|
|
|
|
|
|
|
(6,066
|
)
|
Unrealized holding gains arising during the period (net of tax expense $71,859)
|
|
|
133,451
|
|
|
|
|
|
|
|
|
|
|
|
133,451
|
|
Unrealized adjustment to DAC (net of tax benefit $10,318)
|
|
|
(18,756
|
)
|
|
|
|
|
|
|
|
|
|
|
(18,756
|
)
|
Unrealized gains on investments attributable to participating policyholders interest (net of
tax benefit $3,599)
|
|
|
(6,683
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,683
|
)
|
Actuarial gain arising during the period (net of tax expense of $562)
|
|
|
|
|
|
|
1,044
|
|
|
|
|
|
|
|
1,044
|
|
Foreign currency adjustment (net of tax expense $156)
|
|
|
|
|
|
|
|
|
|
|
289
|
|
|
|
289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
547,138
|
|
|
$
|
(88,603
|
)
|
|
$
|
(2,636
|
)
|
|
$
|
455,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109
Note 16 Stockholders Equity and Noncontrolling Interests
American National has one class of common stock with a par value of $1.00 per share and 50,000,000 authorized shares. The amounts outstanding at the dates
indicated are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued
|
|
|
30,832,449
|
|
|
|
30,832,449
|
|
|
|
30,832,449
|
|
Treasury shares
|
|
|
(3,917,933
|
)
|
|
|
(3,937,993
|
)
|
|
|
(3,960,507
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding shares
|
|
|
26,914,516
|
|
|
|
26,894,456
|
|
|
|
26,871,942
|
|
Restricted shares
|
|
|
(76,000
|
)
|
|
|
(76,000
|
)
|
|
|
(142,667
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrestricted outstanding shares
|
|
|
26,838,516
|
|
|
|
26,818,456
|
|
|
|
26,729,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
American National has one stock-based compensation plan, which allows for grants of Non-Qualified Stock Options, Stock Appreciation Rights (SAR),
Restricted Stock (RS) Awards, Restricted Stock Units (RSU), Performance Awards, Incentive Awards or any combination thereof. This plan is administered by the American National Board Compensation Committee. Incentive awards
under this plan are made to officers meeting established performance objectives. All awards are subject to review and approval by the Board Compensation Committee both at the time of setting applicable performance objectives and at payment of the
awards. The number of shares available for grants under the plan cannot exceed 2,900,000 shares, and no more than 200,000 shares may be granted to any one individual in any calendar year. Grants are made to certain officers and directors as
compensation and to align their interests with those of other shareholders.
SAR, RS and RSU information for the periods indicated are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SAR
|
|
|
RS Shares
|
|
|
RS Units
|
|
|
|
Shares
|
|
|
Weighted-Average
Grant Date
Fair Value
|
|
|
Shares
|
|
|
Weighted-Average
Grant Date
Fair Value
|
|
|
Units
|
|
|
Weighted-Average
Grant Date
Fair Value
|
|
Outstanding at December 31, 2013
|
|
|
74,435
|
|
|
$
|
114.08
|
|
|
|
190,667
|
|
|
$
|
107.54
|
|
|
|
121,369
|
|
|
$
|
76.23
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,383
|
|
|
|
113.49
|
|
Exercised
|
|
|
(3,226
|
)
|
|
|
95.54
|
|
|
|
(48,000
|
)
|
|
|
108.00
|
|
|
|
(59,438
|
)
|
|
|
76.53
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100
|
)
|
|
|
113.49
|
|
Expired
|
|
|
(16,279
|
)
|
|
|
115.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2014
|
|
|
54,930
|
|
|
|
114.86
|
|
|
|
142,667
|
|
|
|
107.39
|
|
|
|
128,214
|
|
|
|
95.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83,093
|
|
|
|
104.75
|
|
Exercised
|
|
|
(116
|
)
|
|
|
73.97
|
|
|
|
(66,667
|
)
|
|
|
103.58
|
|
|
|
(75,119
|
)
|
|
|
91.35
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(463
|
)
|
|
|
105.30
|
|
Expired
|
|
|
(16,722
|
)
|
|
|
114.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2015
|
|
|
38,092
|
|
|
|
115.18
|
|
|
|
76,000
|
|
|
|
110.73
|
|
|
|
135,725
|
|
|
|
103.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,849
|
|
|
|
103.58
|
|
Exercised
|
|
|
(15,375
|
)
|
|
|
114.07
|
|
|
|
|
|
|
|
|
|
|
|
(66,581
|
)
|
|
|
100.06
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,548
|
)
|
|
|
106.10
|
|
Expired
|
|
|
(16,564
|
)
|
|
|
116.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
6,153
|
|
|
$
|
113.36
|
|
|
|
76,000
|
|
|
$
|
110.73
|
|
|
|
100,445
|
|
|
$
|
105.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110
Note 16 Stockholders Equity and Noncontrolling Interests (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SAR
|
|
|
RS Shares
|
|
|
RS Units
|
|
Weighted-average contractual remaining life (in years)
|
|
|
0.94
|
|
|
|
2.94
|
|
|
|
1.61
|
|
Exercisable shares
|
|
|
6,153
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Weighted-average exercise price
|
|
$
|
113.36
|
|
|
$
|
110.73
|
|
|
$
|
105.97
|
|
Weighted-average exercise price exercisable shares
|
|
|
113.36
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Compensation expense (credit)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2016
|
|
$
|
179,000
|
|
|
$
|
843,000
|
|
|
$
|
6,539,000
|
|
Year ended December 31, 2015
|
|
|
(72,000
|
)
|
|
|
1,147,000
|
|
|
|
6,635,000
|
|
Year ended December 31, 2014
|
|
|
(23,000
|
)
|
|
|
2,963,000
|
|
|
|
7,710,000
|
|
Fair value of liability award
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
$
|
213,000
|
|
|
|
N/A
|
|
|
$
|
23,634,000
|
|
December 31, 2015
|
|
|
37,000
|
|
|
|
N/A
|
|
|
|
19,415,000
|
|
The SARs give the holder the right to cash compensation based on the difference between the stock price on the grant date and
the stock price on the exercise date. The SARs vest at a rate of 20% per year for five years and expire five years after vesting.
RS awards entitle
the participant to full dividend and voting rights. Each RS share awarded has the value of one share of restricted stock and vests 10 years from the grant date. Unvested shares are restricted as to disposition, and are subject to forfeiture under
certain circumstances. Compensation expense is recognized over the vesting period. The restrictions on these awards lapse after 10 years and most of these awards feature a graded vesting schedule in the case of the retirement, death or disability of
an award holder. Restricted stock awards for 350,334 shares have been granted at an exercise price of zero, of which 76,000 shares are unvested.
RSU
awards allow the recipient of the awards to settle the vested RSUs in either shares of American Nationals common stock or cash. RSUs vest after a three-year graded vesting requirement or over a shorter period as a result of death, disability
or retirement after age 65.
Earnings per share
Basic earnings per share were calculated using a weighted average number of shares outstanding. Diluted earnings per share include RS and RSU award shares.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Weighted average shares outstanding
|
|
|
26,908,570
|
|
|
|
26,876,522
|
|
|
|
26,802,841
|
|
Incremental shares from RS awards and RSUs
|
|
|
58,502
|
|
|
|
73,544
|
|
|
|
115,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shares for diluted calculations
|
|
|
26,967,072
|
|
|
|
26,950,066
|
|
|
|
26,918,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to American National (in thousands)
|
|
$
|
181,003
|
|
|
$
|
242,988
|
|
|
$
|
245,335
|
|
Basic earnings per share
|
|
$
|
6.73
|
|
|
$
|
9.04
|
|
|
$
|
9.15
|
|
Diluted earnings per share
|
|
|
6.71
|
|
|
|
9.02
|
|
|
|
9.11
|
|
111
Note 16 Stockholders Equity and Noncontrolling Interests (Continued)
Statutory Capital and Surplus
Risk Based Capital (RBC) is a measure insurance regulators use to evaluate the capital adequacy of American National Insurance Company and its
insurance subsidiaries. RBC is calculated using formulas applied to certain financial balances and activities that consider, among other things, investment risks related to the type and quality of investments, insurance risks associated with
products and liabilities, interest rate risks and general business risks. Insurance companies that do not maintain capital and surplus at a level at least 200% of the authorized control level RBC are required to take certain actions. At
December 31, 2016 and 2015, American National Insurance Companys statutory capital and surplus was $2,985,909,000 and $2,925,935,000, respectively. American National Insurance Company and each of its insurance subsidiaries had statutory
capital and surplus at December 31, 2016 and 2015, substantially above 200% of the authorized control level.
American National and its insurance
subsidiaries prepare statutory-basis financial statements in accordance with statutory accounting practices prescribed or permitted by the insurance department of the state of domicile, which include certain components of the National Association of
Insurance Commissioners Codification of Statutory Accounting Principles (NAIC Codification). NAIC Codification is intended to standardize regulatory accounting and reporting to state insurance departments. However, statutory
accounting practices continue to be established by individual state laws and permitted practices. Modifications by the various state insurance departments may impact the statutory capital and surplus of American National Insurance Company and its
insurance subsidiaries.
Statutory accounting differs from GAAP primarily by charging policy acquisition costs to expense as incurred, establishing future
policy benefit liabilities using different actuarial assumptions, and valuing securities on a different basis. In addition, certain assets are not admitted under statutory accounting principles and are charged directly to surplus.
One of American Nationals insurance subsidiaries has been granted a permitted practice from the Missouri Department of Insurance to record as the
valuation of its investment in a wholly-owned subsidiary that is the attorney-in-fact for a Texas domiciled insurer, the statutory capital and surplus of the Texas domiciled insurer. This permitted practice increases the statutory capital and
surplus of both American National Insurance Company and the Missouri domiciled insurance subsidiary by $67,858,000 and $67,076,000 at December 31, 2016 and 2015, respectively. Additionally, the statutory capital and surplus of both American
National Insurance Company and the Missouri domiciled insurance subsidiary would have remained substantially above the company action level RBC had it not used the permitted practice.
112
Note 16 Stockholders Equity and Noncontrolling Interests (Continued)
The statutory capital and surplus and net income of our life and property and casualty insurance entities in
accordance with statutory accounting practices are shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Statutory capital and surplus
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance entities
|
|
|
|
|
|
$
|
1,921,171
|
|
|
$
|
1,900,939
|
|
Property and casualty insurance entities
|
|
|
|
|
|
|
1,074,525
|
|
|
|
1,033,942
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Statutory net income
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance entities
|
|
$
|
82,101
|
|
|
$
|
136,170
|
|
|
$
|
169,823
|
|
Property and casualty insurance entities
|
|
|
48,378
|
|
|
|
71,823
|
|
|
|
73,076
|
|
Dividends
American
National Insurance Companys payment of dividends to stockholders is restricted by statutory regulations. The restrictions require life insurance companies to maintain minimum amounts of capital and surplus, and in the absence of special
approval, limit the payment of dividends to the greater of the prior years statutory net income from operations, or 10% of prior year statutory surplus. American National Insurance Company is permitted to pay total dividends of $298,591,000
during 2017, without prior approval of the Texas Department of Insurance. Similar restrictions on amounts that can transfer in the form of dividends, loans, or advances to American National Insurance Company apply to its insurance subsidiaries.
Noncontrolling interests
American National County Mutual
Insurance Company (County Mutual) is a mutual insurance company that is owned by its policyholders. American National has a management agreement that effectively gives it control of County Mutual. As a result, County Mutual is included
in the consolidated financial statements of American National. Policyholder interests in the financial position of County Mutual are reflected as noncontrolling interest of $6,750,000 at December 31, 2016 and 2015.
American National Insurance Company and its subsidiaries exercise significant control or ownership of various joint ventures, resulting in their consolidation
into American Nationals consolidated financial statements. The interests of the other partners in the consolidated joint ventures are shown as noncontrolling interests of $2,567,000 and $3,439,000 at December 31, 2016 and 2015,
respectively.
113
Note 17 Segment Information
Management organizes the business into five operating segments:
|
|
|
Lifemarkets whole, term, universal, indexed and variable life insurance on a national basis primarily through career, multiple-line, and independent agents as well as direct marketing channels.
|
|
|
|
Annuityoffers fixed, indexed, and variable annuity products. These products are primarily sold through independent agents, brokers, and financial institutions, along with multiple-line and career agents.
|
|
|
|
Healthprimary lines of business are Medicare supplement, stop loss, other supplemental health products and credit disability insurance. Health products are typically distributed through independent agents and
managing general underwriters.
|
|
|
|
Property and Casualtywrites personal, agricultural and targeted commercial coverages and credit-related property insurance. These products are primarily sold through multiple-line and independent agents.
|
|
|
|
Corporate and Otherconsists of net investment income from investments not allocated to the insurance segments and revenues from non-insurance operations.
|
The accounting policies of the segments are the same as those described in Note 2 to the consolidated financial statements. All revenues and expenses
specifically attributable to policy transactions are recorded directly to the appropriate operating segment. Revenues and expenses not specifically attributable to policy transactions are allocated to each segment as follows:
|
|
|
Recurring income from bonds and mortgage loans is allocated based on the assets allocated to each line of business at the average yield available from these assets.
|
|
|
|
Net investment income from all other assets is allocated to the insurance segments in accordance with the amount of capital allocated to each segment, with the remainder recorded in the Corporate and Other business
segment.
|
|
|
|
Expenses are allocated based upon various factors, including premium and commission ratios of the operating segments.
|
The following summarizes the results of operations measured as the income before federal income taxes, and equity in earnings of unconsolidated affiliates by
operating segments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Life
|
|
$
|
28,116
|
|
|
$
|
33,453
|
|
|
$
|
43,352
|
|
Annuity
|
|
|
75,619
|
|
|
|
59,955
|
|
|
|
95,736
|
|
Health
|
|
|
1,312
|
|
|
|
1,925
|
|
|
|
25,559
|
|
Property and Casualty
|
|
|
34,554
|
|
|
|
68,990
|
|
|
|
89,632
|
|
Corporate and Other
|
|
|
59,576
|
|
|
|
104,365
|
|
|
|
74,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
199,177
|
|
|
$
|
268,688
|
|
|
$
|
328,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following summarizes total assets by operating segments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Total Assets
|
|
|
|
|
|
|
(As Revised
|
)
|
|
|
(As Revised
|
)
|
Life
|
|
$
|
5,921,208
|
|
|
$
|
5,718,553
|
|
|
$
|
5,565,791
|
|
Annuity
|
|
|
11,310,936
|
|
|
|
10,888,447
|
|
|
|
10,766,619
|
|
Health
|
|
|
472,369
|
|
|
|
463,600
|
|
|
|
489,873
|
|
Property and Casualty
|
|
|
2,046,303
|
|
|
|
2,040,102
|
|
|
|
1,992,741
|
|
Corporate and other
|
|
|
4,782,406
|
|
|
|
4,655,854
|
|
|
|
4,750,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
24,533,222
|
|
|
$
|
23,766,556
|
|
|
$
|
23,565,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114
Note 18 Pension and Postretirement Benefits
Savings plans
American National sponsors a qualified
defined contribution (401(k) plan) for all employees, and non-qualified defined contribution plans for certain employees whose otherwise eligible earnings exceed the statutory limits under the qualified plans. The total expense associated with
these plans was $13,658,000, $12,146,000, and $12,350,000 for 2016, 2015, and 2014, respectively.
Pension benefits
American National sponsors qualified and non-qualified defined benefit pension plans each of which have been frozen. As such, no additional benefits are
accrued through these plans for additional years of service credit or future salary increase credit, and no new participants are added to the plans. Benefits earned by eligible employees prior to the plans being frozen have not been affected. Early
in 2017, the Company commenced a one- time window offering to terminated, vested participants of our qualified defined benefit pension plans. The offer allows participants to take a lump sum or annuity payout which will be funded from pension plan
assets.
The qualified pension plans are noncontributory. The plans provide benefits for salaried and management employees and corporate clerical
employees subject to a collective bargaining agreement based on years of service and employee compensation. The non-qualified pension plans cover key employees and restore benefits that would otherwise be curtailed by statutory limits on qualified
plan benefits.
Amounts recognized in the consolidated statements of financial position consist of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Reconciliation of benefit obligation
|
|
|
|
|
|
|
|
|
Obligation at January 1,
|
|
$
|
524,143
|
|
|
$
|
513,151
|
|
Service cost
|
|
|
59
|
|
|
|
97
|
|
Interest cost on projected benefit obligation
|
|
|
20,690
|
|
|
|
18,721
|
|
Actuarial loss
|
|
|
3,684
|
|
|
|
21,451
|
|
Benefits paid
|
|
|
(35,044
|
)
|
|
|
(29,277
|
)
|
|
|
|
|
|
|
|
|
|
Obligation at December 31,
|
|
|
513,532
|
|
|
|
524,143
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of fair value of plan assets
|
|
|
|
|
|
|
|
|
Fair value of plan assets at January 1,
|
|
|
322,563
|
|
|
|
324,179
|
|
Actual return on plan assets
|
|
|
27,305
|
|
|
|
(1,051
|
)
|
Employer contributions
|
|
|
52,409
|
|
|
|
28,712
|
|
Benefits paid
|
|
|
(35,044
|
)
|
|
|
(29,277
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at December 31,
|
|
|
367,233
|
|
|
|
322,563
|
|
|
|
|
|
|
|
|
|
|
Funded status at December 31,
|
|
$
|
(146,299
|
)
|
|
$
|
(201,580
|
)
|
|
|
|
|
|
|
|
|
|
The components of net periodic benefit cost for the defined benefit pension plans are shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Service cost
|
|
$
|
59
|
|
|
$
|
97
|
|
|
$
|
111
|
|
Interest cost
|
|
|
20,690
|
|
|
|
18,721
|
|
|
|
20,612
|
|
Expected return on plan assets
|
|
|
(22,013
|
)
|
|
|
(20,856
|
)
|
|
|
(20,402
|
)
|
Amortization of net actuarial loss
|
|
|
12,680
|
|
|
|
9,797
|
|
|
|
4,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
11,416
|
|
|
$
|
7,759
|
|
|
$
|
4,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115
Note 18 Pension and Postretirement Benefits (Continued)
Amounts related to the defined benefit pension plans recognized as a component of OCI are shown below (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Actuarial gain (loss)
|
|
$
|
14,286
|
|
|
$
|
(33,562
|
)
|
|
$
|
(49,523
|
)
|
Deferred tax (expense) benefit
|
|
|
(5,000
|
)
|
|
|
11,747
|
|
|
|
17,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax
|
|
$
|
9,286
|
|
|
$
|
(21,815
|
)
|
|
$
|
(32,190
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated actuarial loss for the plan that will be amortized out of AOCI into the net periodic benefit cost over the next
fiscal year is $11,587,000. Amounts recognized as a component of AOCI that have not been recognized as a component of the combined net periodic benefit cost of the defined benefit pension plans, are shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Net actuarial loss
|
|
$
|
(136,312
|
)
|
|
$
|
(150,598
|
)
|
Deferred tax benefit
|
|
|
47,709
|
|
|
|
52,709
|
|
|
|
|
|
|
|
|
|
|
Amounts included in AOCI
|
|
$
|
(88,603
|
)
|
|
$
|
(97,889
|
)
|
|
|
|
|
|
|
|
|
|
The weighted average assumptions used are shown below:
|
|
|
|
|
|
|
|
|
|
|
Used for Net Benefit
|
|
|
Used for Benefit
|
|
|
|
Cost in Fiscal Year
|
|
|
Obligations
|
|
|
|
1/1/2016 to 12/31/2016
|
|
|
as of 12/31/2016
|
|
Discount rate
|
|
|
4.08
|
%
|
|
|
3.92
|
%
|
Long-term rate of return
|
|
|
7.41
|
|
|
|
7.42
|
|
American Nationals funding policy for the qualified pension plans is to make annual contributions to meet the minimum
funding standards of ERISA. American National contributed $40,090,000, $18,630,000, and $12,482,500 to the qualified pension plans in 2016, 2015 and 2014, respectively. American National and its affiliates expect to contribute $20,000,000 to its
qualified plans in 2017. The benefits paid from the non-qualified plans were $12,319,000, $10,082,000 and $8,615,000 in 2016, 2015 and 2014, respectively. Future payments from the non-qualified pension benefit plans will be funded out of general
corporate assets.
The following table shows pension benefit payments, expected to be paid (in thousands). The amount for 2017 includes an estimate for
possible lump sum payments associated with the aforementioned one time window offering.
|
|
|
|
|
2017
|
|
$
|
59,475
|
|
2018
|
|
|
30,871
|
|
2019
|
|
|
34,839
|
|
2020
|
|
|
30,340
|
|
2021
|
|
|
33,919
|
|
2022-2026
|
|
|
158,224
|
|
116
Note 18 Pension and Postretirement Benefits (Continued)
American National utilizes third-party pricing services to estimate fair value measurements of its pension
plan assets. Refer to Note 9 for further information concerning the valuation methodologies and related inputs utilized by the third-party pricing services. The fair values of the pension plan assets by asset category are shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Asset Category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. states and political subdivision securities
|
|
$
|
1,952
|
|
|
$
|
|
|
|
$
|
1,952
|
|
|
$
|
|
|
Corporate debt securities
|
|
|
58,462
|
|
|
|
|
|
|
|
58,462
|
|
|
|
|
|
Residential mortgage-backed securities
|
|
|
616
|
|
|
|
|
|
|
|
616
|
|
|
|
|
|
Mutual fund
|
|
|
9,405
|
|
|
|
9,405
|
|
|
|
|
|
|
|
|
|
Equity securities by sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer goods
|
|
|
53,252
|
|
|
|
53,252
|
|
|
|
|
|
|
|
|
|
Energy and utilities
|
|
|
28,602
|
|
|
|
28,602
|
|
|
|
|
|
|
|
|
|
Finance
|
|
|
51,842
|
|
|
|
51,842
|
|
|
|
|
|
|
|
|
|
Healthcare
|
|
|
27,501
|
|
|
|
27,501
|
|
|
|
|
|
|
|
|
|
Industrials
|
|
|
17,035
|
|
|
|
17,035
|
|
|
|
|
|
|
|
|
|
Information technology
|
|
|
33,992
|
|
|
|
33,992
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
30,042
|
|
|
|
30,042
|
|
|
|
|
|
|
|
|
|
Commercial paper
|
|
|
49,111
|
|
|
|
|
|
|
|
49,111
|
|
|
|
|
|
Unallocated group annuity contract
|
|
|
4,742
|
|
|
|
|
|
|
|
4,742
|
|
|
|
|
|
Other
|
|
|
679
|
|
|
|
592
|
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
367,233
|
|
|
$
|
252,263
|
|
|
$
|
114,970
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Asset Category
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
41,365
|
|
|
$
|
|
|
|
$
|
41,365
|
|
|
$
|
|
|
Residential mortgage-backed securities
|
|
|
803
|
|
|
|
|
|
|
|
803
|
|
|
|
|
|
Mutual fund
|
|
|
9,405
|
|
|
|
9,405
|
|
|
|
|
|
|
|
|
|
Equity securities by sector
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer goods
|
|
|
50,485
|
|
|
|
50,485
|
|
|
|
|
|
|
|
|
|
Energy and utilities
|
|
|
22,525
|
|
|
|
22,525
|
|
|
|
|
|
|
|
|
|
Finance
|
|
|
47,469
|
|
|
|
47,469
|
|
|
|
|
|
|
|
|
|
Healthcare
|
|
|
2,306
|
|
|
|
2,306
|
|
|
|
|
|
|
|
|
|
Industrials
|
|
|
29,050
|
|
|
|
29,050
|
|
|
|
|
|
|
|
|
|
Information technology
|
|
|
16,522
|
|
|
|
16,522
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
65,410
|
|
|
|
65,410
|
|
|
|
|
|
|
|
|
|
Commercial paper
|
|
|
30,511
|
|
|
|
|
|
|
|
30,511
|
|
|
|
|
|
Unallocated group annuity contract
|
|
|
5,763
|
|
|
|
|
|
|
|
5,763
|
|
|
|
|
|
Other
|
|
|
949
|
|
|
|
862
|
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
322,563
|
|
|
$
|
244,034
|
|
|
$
|
78,529
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117
Note 18 Pension and Postretirement Benefits (Continued)
The investment policy for the retirement plan assets is designed to provide the highest return possible
commensurate with sound and prudent underwriting practices. The investment diversification goals are to have investments in cash and cash equivalents as necessary for liquidity, debt securities up to 100% and equity securities up to 75% of the total
invested plan assets. The amount invested in any particular investment is limited based on credit quality, and no single investment may at the time of purchase be more than 5% of the total invested assets.
The corporate debt securities category are investment grade bonds of U.S and foreign issuers denominated and payable in U.S. dollars from diverse industries,
with a maturity of 1 to 30 years. Foreign bonds in the aggregate shall not exceed 20% of the bond portfolio. Residential mortgage-backed securities represent asset-backed securities with a maturity date 1 to 30 years with a rating of NAIC
1 or 2.
Equity portfolio managers have discretion to choose the degree of concentration in various issues and industry sectors for the equity
securities. Permitted securities are those for which there is an active market providing liquidity for the specific security.
Commercial paper
investments generally have a credit rating of A2 Moodys or P2 by Standard & Poors with at least BBB rating on the issuers outstanding debt, or selected issuers with no outstanding debt.
Postretirement life and health benefits
American
National sponsors a contributory health and dental benefit plan to a closed block of retirees and their dependents who met certain age and length of service requirements as of December 31, 1993. The primary retiree health benefit plan provides
Medicare Supplemental and prescription drug benefits. American Nationals contribution is limited to $40 per month for retirees and spouses. Since American Nationals contributions to the cost of the retiree benefits plans are fixed, the
health care cost trend rate will have no effect on the future expense or the accumulated postretirement benefit obligation. Under American Nationals various group benefit plans for active employees, life insurance benefits are provided upon
retirement for eligible participants who meet certain age and length of service requirements.
The accrued postretirement benefit obligation, included in
the liability for retirement benefits, was $6,197,000 and $6,055,000 at December 31, 2016 and 2015, respectively. These amounts were approximately equal to the unfunded accumulated postretirement benefit obligation.
118
Note 19 Commitments and Contingencies
Commitments
American National and its subsidiaries lease
insurance sales office space in various cities. The remaining long-term lease commitments at December 31, 2016 were approximately $5,086,000.
American National had aggregate commitments at December 31, 2016, to purchase, expand or improve real estate, to fund fixed interest rate mortgage loans,
and to purchase other invested assets of $787,077,000 of which $538,260,000 is expected to be funded in 2017 with the remainder funded in 2018 and beyond.
American National has a $100,000,000 short-term variable rate borrowing facility containing a $55,000,000 sub-feature for the issuance of letters of credit.
Borrowings under the facility are at the discretion of the lender and would be used only for funding working capital requirements. The combination of borrowings and outstanding letters of credit cannot exceed $100,000,000 at any time. As of
December 31, 2016 and 2015, the outstanding letters of credit were $9,473,000 and $9,501,000, respectively, and there were no borrowings on this facility. This facility expires on October 30, 2017. American National expects it will be
renewed on substantially equivalent terms upon expiration.
Guarantees
American National has guaranteed bank loans for customers of a third-party marketing operation. The bank loans are used to fund premium payments on life
insurance policies issued by American National. The loans are secured by the cash values of the life insurance policies. If the customer were to default on the bank loan, American National would be obligated to pay off the loans. 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 December 31, 2016, was approximately $206,376,000,
while the total cash value of the related life insurance policies was approximately $209,785,000.
Litigation
American National and certain subsidiaries, in common with the insurance industry in general, 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 Nationals 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 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.
119
Note 20 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, accident and health insurance contracts, and legal services. The impact on the consolidated financial statements of significant related party transactions is shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar Amount of Transactions
|
|
|
Amount due to (from) American National
|
|
|
|
|
|
Years ended December 31,
|
|
|
December 31,
|
|
Related Party
|
|
Financial Statement Line Impacted
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Gal-Tex Hotel Corporation
|
|
Mortgage loan on real estate
|
|
$
|
1,426
|
|
|
$
|
1,326
|
|
|
$
|
3,756
|
|
|
$
|
5,182
|
|
Gal-Tex Hotel Corporation
|
|
Net investment income
|
|
|
329
|
|
|
|
428
|
|
|
|
23
|
|
|
|
31
|
|
Greer, Herz & Adams, LLP
|
|
Other operating expenses
|
|
|
9,315
|
|
|
|
7,951
|
|
|
|
(283
|
)
|
|
|
(274
|
)
|
Mortgage Loans to Gal-Tex Hotel Corporation (Gal-Tex)
: American National holds a first mortgage loan
originated in 1999, with an interest rate of 7.25% and final maturity date of April 1, 2019 issued to Gal-Tex, which is collateralized by a hotel property in San Antonio, Texas. This loan is current as to principal and interest payments.
Transactions with Greer, Herz & Adams, LLP
: Irwin M. Herz, Jr. is an American National advisory director and a Partner with Greer,
Herz & Adams, LLP, which serves as American Nationals General Counsel.
Note 21 Selected Quarterly Financial Data
The unaudited selected quarterly financial data is shown below (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Total premiums and other revenues
|
|
$
|
764,970
|
|
|
$
|
756,567
|
|
|
$
|
800,448
|
|
|
$
|
717,506
|
|
|
$
|
823,142
|
|
|
$
|
699,859
|
|
|
$
|
839,391
|
|
|
$
|
843,523
|
|
Total benefits, losses and expenses
|
|
|
741,462
|
|
|
|
665,208
|
|
|
|
760,168
|
|
|
|
668,099
|
|
|
|
775,420
|
|
|
|
653,199
|
|
|
|
751,724
|
|
|
|
762,261
|
|
Income before federal income tax and equity in earnings of unconsolidated affiliates
|
|
|
23,508
|
|
|
|
91,359
|
|
|
|
40,280
|
|
|
|
49,407
|
|
|
|
47,722
|
|
|
|
46,660
|
|
|
|
87,667
|
|
|
|
81,262
|
|
Total provision (benefit) for federal income taxes
|
|
|
(4,070
|
)
|
|
|
45,690
|
|
|
|
9,890
|
|
|
|
15,210
|
|
|
|
22,590
|
|
|
|
18,134
|
|
|
|
45,300
|
|
|
|
24,686
|
|
Equity in earnings (losses) of unconsolidated affiliates
|
|
|
937
|
|
|
|
56,584
|
|
|
|
1,798
|
|
|
|
462
|
|
|
|
36,530
|
|
|
|
16,339
|
|
|
|
17,935
|
|
|
|
4,023
|
|
Net income
|
|
|
28,515
|
|
|
|
102,253
|
|
|
|
32,188
|
|
|
|
34,659
|
|
|
|
61,662
|
|
|
|
44,865
|
|
|
|
60,302
|
|
|
|
60,599
|
|
Net income (loss) attributable to noncontrolling interest
|
|
|
(801
|
)
|
|
|
(729
|
)
|
|
|
(437
|
)
|
|
|
(394
|
)
|
|
|
2,373
|
|
|
|
2,852
|
|
|
|
529
|
|
|
|
(2,341
|
)
|
Net income attributable to American National
|
|
|
29,316
|
|
|
|
102,982
|
|
|
|
32,625
|
|
|
|
35,053
|
|
|
|
59,289
|
|
|
|
42,013
|
|
|
|
59,773
|
|
|
|
62,940
|
|
Earnings per share attributable to American National
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
1.09
|
|
|
|
3.84
|
|
|
|
1.21
|
|
|
|
1.30
|
|
|
|
2.20
|
|
|
|
1.56
|
|
|
|
2.23
|
|
|
|
2.34
|
|
Diluted
|
|
|
1.09
|
|
|
|
3.82
|
|
|
|
1.21
|
|
|
|
1.30
|
|
|
|
2.20
|
|
|
|
1.56
|
|
|
|
2.21
|
|
|
|
2.34
|
|
120