|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2016
|
|
|
|
|
|
|
As Reported
|
|
|
As Revised
|
|
|
Effect of Change
|
|
Statement of Cash Flow
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in collateral held for derivatives
|
|
$
|
|
|
|
$
|
(4,266
|
)
|
|
$
|
(4,266
|
)
|
Other investing activities, net
|
|
|
4,168
|
|
|
|
1,904
|
|
|
|
(2,264
|
)
|
Net cash used in investing activities
|
|
|
(431,934
|
)
|
|
|
(438,464
|
)
|
|
|
(6,530
|
)
|
Net decrease in cash and cash equivalents
|
|
|
(56,348
|
)
|
|
|
(62,878
|
)
|
|
|
(6,530
|
)
|
Cash at beginning of period
|
|
|
190,237
|
|
|
|
310,930
|
|
|
|
120,693
|
|
Cash at end of period
|
|
|
133,889
|
|
|
|
248,052
|
|
|
|
114,163
|
|
8
Note 3 Recently Issued Accounting Pronouncements
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 using a modified retrospective approach. Since the majority of our revenue sources are insurance related and accordingly, not in scope of the standard, we do not expect the adoption of the standard to be material to the
Companys results of operations or financial position. The Company is currently identifying those contracts which are in the scope of the standard, and assessing the impact to those non-insurance revenue streams.
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 the changes in fair value are recognized through earnings. When the fair value option has been elected for financial liabilities, changes in
fair value due to instrument-specific credit risk will be recognized separately in other comprehensive income. The guidance also simplifies the impairment assessment of equity investments and eliminates the disclosure requirements for methods and
significant assumptions used to estimate fair value of financial instruments that are measured at amortized cost on the statement of financial position. The 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 less affected by the standard, but has been updated to
align with certain changes in the lessee model and the new revenue recognition standard. The standard is effective for annual periods and interim periods within those annual periods beginning after December 15, 2018. We are currently
quantifying the expected gross up of our balance sheet for a right of use asset and a lease liability as required. Since the majority of our lease activity is as a lessor, we do not expect the adoption of the standard 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 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 must develop appropriate models to measure expected credit losses to begin determining the impact of adopting the
standard on our results of operations or financial position.
In March 2017, the FASB issued guidance on the presentation of net periodic pension and
postretirement benefit costs. The guidance requires the service cost component to be reported in the same line item as other compensation costs. All other components of net benefit cost are required to be presented in the income statement separately
from the service cost component and outside of income from operations. The standard is effective for annual periods, including interim periods within those annual periods beginning after December 15, 2017. The Company plans to adopt the
standard effective January 1, 2018. Considering the Companys defined benefit pension plans are frozen, this guidance is not expected to have a material impact to the Companys results of operations or financial position.
9
Note 4 Investment in Securities
The cost or amortized cost and fair value of investments in securities are shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
|
Cost or
Amortized Cost
|
|
|
Gross Unrealized
Gains
|
|
|
Gross Unrealized
(Losses)
|
|
|
Fair Value
|
|
Fixed maturity securities, bonds held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. states and political subdivisions
|
|
$
|
270,349
|
|
|
$
|
16,462
|
|
|
$
|
(2
|
)
|
|
$
|
286,809
|
|
Foreign governments
|
|
|
4,034
|
|
|
|
651
|
|
|
|
|
|
|
|
4,685
|
|
Corporate debt securities
|
|
|
6,662,827
|
|
|
|
270,611
|
|
|
|
(22,229
|
)
|
|
|
6,911,209
|
|
Residential mortgage-backed securities
|
|
|
209,063
|
|
|
|
12,508
|
|
|
|
(855
|
)
|
|
|
220,716
|
|
Collateralized debt securities
|
|
|
927
|
|
|
|
49
|
|
|
|
|
|
|
|
976
|
|
Other debt securities
|
|
|
2,294
|
|
|
|
87
|
|
|
|
|
|
|
|
2,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bonds held-to-maturity
|
|
|
7,149,494
|
|
|
|
300,368
|
|
|
|
(23,086
|
)
|
|
|
7,426,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities, bonds available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury and government
|
|
|
26,276
|
|
|
|
564
|
|
|
|
(43
|
)
|
|
|
26,797
|
|
U.S. states and political subdivisions
|
|
|
916,877
|
|
|
|
31,919
|
|
|
|
(2,008
|
)
|
|
|
946,788
|
|
Foreign governments
|
|
|
5,000
|
|
|
|
1,562
|
|
|
|
|
|
|
|
6,562
|
|
Corporate debt securities
|
|
|
4,741,109
|
|
|
|
191,476
|
|
|
|
(20,659
|
)
|
|
|
4,911,926
|
|
Residential mortgage-backed securities
|
|
|
16,436
|
|
|
|
3,657
|
|
|
|
(182
|
)
|
|
|
19,911
|
|
Collateralized debt securities
|
|
|
3,411
|
|
|
|
701
|
|
|
|
(3
|
)
|
|
|
4,109
|
|
Other debt securities
|
|
|
1,959
|
|
|
|
410
|
|
|
|
|
|
|
|
2,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bonds available-for-sale
|
|
|
5,711,068
|
|
|
|
230,289
|
|
|
|
(22,895
|
)
|
|
|
5,918,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
721,483
|
|
|
|
907,231
|
|
|
|
(10,666
|
)
|
|
|
1,618,048
|
|
Preferred stock
|
|
|
19,130
|
|
|
|
4,722
|
|
|
|
|
|
|
|
23,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
740,613
|
|
|
|
911,953
|
|
|
|
(10,666
|
)
|
|
|
1,641,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments in securities
|
|
$
|
13,601,175
|
|
|
$
|
1,442,610
|
|
|
$
|
(56,647
|
)
|
|
$
|
14,987,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
Note 4 Investment in Securities (Continued)
The amortized cost and fair value, by contractual maturity, of fixed maturity securities are shown below (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
|
Bonds Held-to-Maturity
|
|
|
Bonds Available-for-Sale
|
|
|
|
Amortized Cost
|
|
|
Fair Value
|
|
|
Amortized Cost
|
|
|
Fair Value
|
|
Due in one year or less
|
|
$
|
510,417
|
|
|
$
|
519,885
|
|
|
$
|
222,627
|
|
|
$
|
227,075
|
|
Due after one year through five years
|
|
|
3,429,929
|
|
|
|
3,607,802
|
|
|
|
1,547,018
|
|
|
|
1,624,300
|
|
Due after five years through ten years
|
|
|
2,874,949
|
|
|
|
2,955,702
|
|
|
|
3,364,202
|
|
|
|
3,478,405
|
|
Due after ten years
|
|
|
328,349
|
|
|
|
338,256
|
|
|
|
572,221
|
|
|
|
583,666
|
|
Without single maturity date
|
|
|
5,850
|
|
|
|
5,131
|
|
|
|
5,000
|
|
|
|
5,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,149,494
|
|
|
$
|
7,426,776
|
|
|
$
|
5,711,068
|
|
|
$
|
5,918,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Proceeds from sales of available-for-sale securities
|
|
$
|
16,834
|
|
|
$
|
27,026
|
|
|
$
|
44,557
|
|
|
$
|
42,731
|
|
Gross realized gains
|
|
|
4,162
|
|
|
|
3,517
|
|
|
|
14,988
|
|
|
|
8,584
|
|
Gross realized losses
|
|
|
(140
|
)
|
|
|
(214
|
)
|
|
|
(146
|
)
|
|
|
(338
|
)
|
Gains and losses are determined using specific identification of the securities sold. During the six months ended
June 30, 2017, bonds with a carrying value of $15,000,000 transferred from held-to-maturity to available-for-sale after a significant deterioration in the issuers credit worthiness became evident. A realized loss of $6,000,000 was
recorded in 2017 on the bond that was transferred, due to an other-than-temporary impairment. During the six months ended June 30, 2016 there were no bonds transferred from held-to-maturity to available-for-sale.
The components of the change in net unrealized gains (losses) on securities are shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Bonds available-for-sale
|
|
$
|
73,102
|
|
|
$
|
256,233
|
|
Equity securities
|
|
|
92,044
|
|
|
|
21,232
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized gains on securities during the year
|
|
|
165,146
|
|
|
|
277,465
|
|
Adjustments for
|
|
|
|
|
|
|
|
|
Deferred policy acquisition costs
|
|
|
(8,701
|
)
|
|
|
(64,746
|
)
|
Participating policyholders interest
|
|
|
(8,185
|
)
|
|
|
(11,882
|
)
|
Deferred federal income tax expense
|
|
|
(51,672
|
)
|
|
|
(70,061
|
)
|
|
|
|
|
|
|
|
|
|
Change in net unrealized gains on securities, net of tax
|
|
$
|
96,588
|
|
|
$
|
130,776
|
|
|
|
|
|
|
|
|
|
|
11
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
|
Less than 12 months
|
|
|
12 Months or more
|
|
|
Total
|
|
|
|
Unrealized
(Losses)
|
|
|
Fair
Value
|
|
|
Unrealized
(Losses)
|
|
|
Fair
Value
|
|
|
Unrealized
(Losses)
|
|
|
Fair
Value
|
|
Fixed maturity securities, bonds held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. states and political subdivisions
|
|
$
|
(2
|
)
|
|
$
|
204
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(2
|
)
|
|
$
|
204
|
|
Corporate debt securities
|
|
|
(9,407
|
)
|
|
|
606,313
|
|
|
|
(12,822
|
)
|
|
|
148,030
|
|
|
|
(22,229
|
)
|
|
|
754,343
|
|
Residential mortgage-backed securities
|
|
|
(321
|
)
|
|
|
28,163
|
|
|
|
(534
|
)
|
|
|
8,375
|
|
|
|
(855
|
)
|
|
|
36,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bonds held-to-maturity
|
|
|
(9,730
|
)
|
|
|
634,680
|
|
|
|
(13,356
|
)
|
|
|
156,405
|
|
|
|
(23,086
|
)
|
|
|
791,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities, bonds available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury and government
|
|
|
(43
|
)
|
|
|
21,939
|
|
|
|
|
|
|
|
|
|
|
|
(43
|
)
|
|
|
21,939
|
|
U.S. states and political subdivisions
|
|
|
(2,006
|
)
|
|
|
83,470
|
|
|
|
(2
|
)
|
|
|
120
|
|
|
|
(2,008
|
)
|
|
|
83,590
|
|
Corporate debt securities
|
|
|
(8,140
|
)
|
|
|
433,962
|
|
|
|
(12,519
|
)
|
|
|
92,426
|
|
|
|
(20,659
|
)
|
|
|
526,388
|
|
Residential mortgage-backed securities
|
|
|
(47
|
)
|
|
|
11,171
|
|
|
|
(135
|
)
|
|
|
2,241
|
|
|
|
(182
|
)
|
|
|
13,412
|
|
Collateralized debt securities
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
130
|
|
|
|
(3
|
)
|
|
|
130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bonds available-for-sale
|
|
|
(10,236
|
)
|
|
|
550,542
|
|
|
|
(12,659
|
)
|
|
|
94,917
|
|
|
|
(22,895
|
)
|
|
|
645,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
(10,666
|
)
|
|
|
53,184
|
|
|
|
|
|
|
|
|
|
|
|
(10,666
|
)
|
|
|
53,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
(10,666
|
)
|
|
|
53,184
|
|
|
|
|
|
|
|
|
|
|
|
(10,666
|
)
|
|
|
53,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(30,632
|
)
|
|
$
|
1,238,406
|
|
|
$
|
(26,015
|
)
|
|
$
|
251,322
|
|
|
$
|
(56,647
|
)
|
|
$
|
1,489,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017, 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.
12
Note 4 Investment in Securities (Continued)
The following table identifies the total bonds distributed by credit quality rating (in thousands, except
percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
Amortized
|
|
|
Estimated
|
|
|
% of Fair
|
|
|
Amortized
|
|
|
Estimated
|
|
|
% of Fair
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Value
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Value
|
|
AAA
|
|
$
|
647,845
|
|
|
$
|
677,568
|
|
|
|
5.1
|
%
|
|
$
|
667,561
|
|
|
$
|
691,296
|
|
|
|
5.2
|
%
|
AA
|
|
|
1,312,690
|
|
|
|
1,367,924
|
|
|
|
10.3
|
|
|
|
1,393,137
|
|
|
|
1,440,667
|
|
|
|
10.8
|
|
A
|
|
|
4,545,127
|
|
|
|
4,727,609
|
|
|
|
35.4
|
|
|
|
4,538,471
|
|
|
|
4,696,909
|
|
|
|
35.3
|
|
BBB
|
|
|
5,801,135
|
|
|
|
6,032,590
|
|
|
|
45.2
|
|
|
|
5,758,560
|
|
|
|
5,931,112
|
|
|
|
44.6
|
|
BB and below
|
|
|
553,765
|
|
|
|
539,547
|
|
|
|
4.0
|
|
|
|
562,640
|
|
|
|
539,984
|
|
|
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,860,562
|
|
|
$
|
13,345,238
|
|
|
|
100.0
|
%
|
|
$
|
12,920,369
|
|
|
$
|
13,299,968
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities by market sector distribution are shown below:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Consumer goods
|
|
|
20.6
|
%
|
|
|
20.4
|
%
|
Energy and utilities
|
|
|
9.0
|
|
|
|
11.1
|
|
Finance
|
|
|
21.8
|
|
|
|
22.1
|
|
Healthcare
|
|
|
13.5
|
|
|
|
12.7
|
|
Industrials
|
|
|
9.1
|
|
|
|
9.0
|
|
Information technology
|
|
|
18.6
|
|
|
|
17.1
|
|
Other
|
|
|
7.4
|
|
|
|
7.6
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
Note 5 Mortgage Loans
Generally, commercial mortgage loans are secured by first liens on income-producing real estate. American National attempts to maintain a diversified portfolio
by considering the location of the underlying collateral. The distribution based on carrying amount of mortgage loans by location is as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
East North Central
|
|
|
15.3
|
%
|
|
|
16.2
|
%
|
East South Central
|
|
|
3.6
|
|
|
|
3.7
|
|
Mountain
|
|
|
12.9
|
|
|
|
10.6
|
|
Pacific
|
|
|
18.1
|
|
|
|
17.6
|
|
South Atlantic
|
|
|
14.7
|
|
|
|
15.1
|
|
West South Central
|
|
|
29.3
|
|
|
|
31.0
|
|
Other
|
|
|
6.1
|
|
|
|
5.8
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2017, American National did not foreclose on any loans, and two loans with a total
recorded investment of $4,225,000 were in the process of foreclosure. For the year ended December 31, 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. American National did not sell any loans during the six months ended June 30, 2017 or during the year ended December 31, 2016.
13
Note 5 Mortgage Loans (Continued)
The age analysis of past due loans is shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-59 Days
|
|
|
60-89 Days
|
|
|
More Than
|
|
|
|
|
|
|
|
|
Total
|
|
June 30, 2017
|
|
Past Due
|
|
|
Past Due
|
|
|
90 Days
|
|
|
Total
|
|
|
Current
|
|
|
Amount
|
|
|
Percent
|
|
Industrial
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
764,419
|
|
|
$
|
764,419
|
|
|
|
16.4
|
|
Office
|
|
|
|
|
|
|
|
|
|
|
6,059
|
|
|
|
6,059
|
|
|
|
1,656,769
|
|
|
|
1,662,828
|
|
|
|
35.6
|
|
Retail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
713,687
|
|
|
|
713,687
|
|
|
|
15.3
|
|
Other
|
|
|
8,350
|
|
|
|
|
|
|
|
|
|
|
|
8,350
|
|
|
|
1,515,337
|
|
|
|
1,523,687
|
|
|
|
32.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,350
|
|
|
$
|
|
|
|
$
|
6,059
|
|
|
$
|
14,409
|
|
|
$
|
4,650,212
|
|
|
$
|
4,664,621
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,195
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total, net of allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,647,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans are net of unamortized discounts of $119,000 and $233,000 and unamortized origination fees of $32,041,000
and $33,019,000 at June 30, 2017 and December 31, 2016, respectively. No unearned income is included in these amounts.
Allowance for Credit
Losses
A loan is considered impaired when it is probable that all amounts due will not be collected according to the contractual terms of the loan
agreement. Mortgage loans with temporary difficulties are not considered impaired when the borrower has the financial capacity to fund revenue shortfalls from the properties for the foreseeable future. Individual valuation allowances are established
for impaired loans to reduce the carrying value to the fair value of the collateral. Loans not evaluated individually for collectability are segregated by property-type and location, and allowance factors are applied. These factors are developed
based on 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
|
|
Beginning balance, 2017
|
|
|
430
|
|
|
$
|
4,358,596
|
|
|
$
|
11,488
|
|
|
|
2
|
|
|
$
|
1,940
|
|
|
$
|
1,002
|
|
|
|
432
|
|
|
$
|
4,360,536
|
|
|
$
|
12,490
|
|
Change in allowance
|
|
|
|
|
|
|
|
|
|
|
1,559
|
|
|
|
|
|
|
|
|
|
|
|
3,146
|
|
|
|
|
|
|
|
|
|
|
|
4,705
|
|
Net change in recorded investment
|
|
|
2
|
|
|
|
279,995
|
|
|
|
|
|
|
|
2
|
|
|
|
6,895
|
|
|
|
|
|
|
|
4
|
|
|
|
286,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance at June 30, 2017
|
|
|
432
|
|
|
$
|
4,638,591
|
|
|
$
|
13,047
|
|
|
|
4
|
|
|
$
|
8,835
|
|
|
$
|
4,148
|
|
|
|
436
|
|
|
$
|
4,647,426
|
|
|
$
|
17,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
Number of
loans
|
|
|
Recorded
investment pre-
modification
|
|
|
Recorded
investment post
modification
|
|
|
Number of
loans
|
|
|
Recorded
investment pre-
modification
|
|
|
Recorded
investment post
modification
|
|
Retail
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
1
|
|
|
$
|
3,934
|
|
|
$
|
3,934
|
|
Other (hotel/motel)
|
|
|
5
|
|
|
|
24,801
|
|
|
|
24,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5
|
|
|
$
|
24,801
|
|
|
$
|
24,801
|
|
|
|
1
|
|
|
$
|
3,934
|
|
|
$
|
3,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There are $7,919,000 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:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Industrial
|
|
|
6.5
|
%
|
|
|
9.2
|
%
|
Office
|
|
|
38.5
|
|
|
|
37.8
|
|
Retail
|
|
|
38.9
|
|
|
|
37.2
|
|
Other
|
|
|
16.1
|
|
|
|
15.8
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
East North Central
|
|
|
6.1
|
%
|
|
|
8.8
|
%
|
East South Central
|
|
|
3.5
|
|
|
|
3.4
|
|
Mountain
|
|
|
12.6
|
|
|
|
12.0
|
|
Pacific
|
|
|
7.4
|
|
|
|
6.1
|
|
South Atlantic
|
|
|
13.7
|
|
|
|
13.0
|
|
West South Central
|
|
|
52.3
|
|
|
|
52.2
|
|
Other
|
|
|
4.4
|
|
|
|
4.5
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
15
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 2017 or 2016.
The assets and liabilities
relating to the VIEs included in the consolidated financial statements are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Investment real estate
|
|
$
|
157,694
|
|
|
$
|
173,816
|
|
Short-term investments
|
|
|
1,001
|
|
|
|
1
|
|
Cash and cash equivalents
|
|
|
2,243
|
|
|
|
6,099
|
|
Other receivables
|
|
|
5,496
|
|
|
|
6,456
|
|
Other assets
|
|
|
10,420
|
|
|
|
8,820
|
|
|
|
|
|
|
|
|
|
|
Total assets of consolidated VIEs
|
|
$
|
176,854
|
|
|
$
|
195,192
|
|
|
|
|
|
|
|
|
|
|
Notes payable
|
|
$
|
140,216
|
|
|
$
|
136,080
|
|
Other liabilities
|
|
|
3,663
|
|
|
|
10,037
|
|
|
|
|
|
|
|
|
|
|
Total liabilities of consolidated VIEs
|
|
$
|
143,879
|
|
|
$
|
146,117
|
|
|
|
|
|
|
|
|
|
|
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 $30,482,000 and $31,795,000 at June 30, 2017 and
December 31, 2016, respectively.
The total long-term notes payable of the consolidated VIEs consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Interest rate
|
|
Maturity
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Prime
|
|
2018
|
|
$
|
1,698
|
|
|
$
|
1,267
|
|
LIBOR
|
|
2020
|
|
|
9,407
|
|
|
|
7,318
|
|
90 day LIBOR + 2.5%
|
|
2021
|
|
|
40,070
|
|
|
|
37,074
|
|
4% fixed
|
|
2022
|
|
|
89,041
|
|
|
|
90,421
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
140,216
|
|
|
$
|
136,080
|
|
|
|
|
|
|
|
|
|
|
|
|
16
Note 6 Real Estate and Other Investments (Continued)
For other VIEs in which American National is a partner, it is not the primary beneficiary, and these entities
are not consolidated, as the major decisions that most significantly impact the economic activities of the VIE require unanimous consent of all partners. The carrying amount and maximum exposure to loss relating to unconsolidated VIEs follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
Carrying
Amount
|
|
|
Maximum
Exposure
to Loss
|
|
|
Carrying
Amount
|
|
|
Maximum
Exposure
to Loss
|
|
Investment in unconsolidated affiliates
|
|
$
|
329,601
|
|
|
$
|
329,601
|
|
|
$
|
323,933
|
|
|
$
|
323,933
|
|
Mortgage loans
|
|
|
563,487
|
|
|
|
563,487
|
|
|
|
481,799
|
|
|
|
481,799
|
|
Accrued investment income
|
|
|
1,997
|
|
|
|
1,997
|
|
|
|
1,919
|
|
|
|
1,919
|
|
As of June 30, 2017, no real estate investments were classified as held for sale.
Note 7 Derivative Instruments
American National
purchases over-the-counter equity-indexed options as economic hedges against fluctuations in the equity markets to which equity-indexed products are exposed. These options are not designated as hedging instruments for accounting purposes under U.S.
GAAP. Equity-indexed contracts include a fixed host universal-life insurance or annuity contract and an equity-indexed embedded derivative. The detail of derivative instruments is shown below (in thousands, except number of instruments):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Derivatives Not Designated
as Hedging Instruments
|
|
Location in the Consolidated
Statements of Financial Position
|
|
Number of
Instruments
|
|
|
Notional
Amounts
|
|
|
Estimated
Fair Value
|
|
|
Number of
Instruments
|
|
|
Notional
Amounts
|
|
|
Estimated
Fair Value
|
|
Equity-indexed options
|
|
Other invested assets
|
|
|
449
|
|
|
$
|
1,605,800
|
|
|
$
|
172,377
|
|
|
|
442
|
|
|
$
|
1,414,100
|
|
|
$
|
156,479
|
|
Equity-indexed embedded derivative
|
|
Policyholders
account balances
|
|
|
69,064
|
|
|
|
1,504,000
|
|
|
|
390,189
|
|
|
|
62,481
|
|
|
|
1,289,800
|
|
|
|
314,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated
as Hedging Instruments
|
|
Location in the Consolidated
Statements of Operations
|
|
Gains (Losses) Recognized in Income on Derivatives
|
|
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Equity-indexed options
|
|
Net investment income
|
|
$
|
13,430
|
|
|
$
|
5,789
|
|
|
$
|
36,563
|
|
|
$
|
2,150
|
|
Equity-indexed embedded derivative
|
|
Interest credited to policyholders account balances
|
|
|
(18,977
|
)
|
|
|
(8,725
|
)
|
|
|
(44,104
|
)
|
|
|
(6,173
|
)
|
17
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 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
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
|
|
$
|
41,063
|
|
|
$
|
41,153
|
|
|
$
|
41,063
|
|
|
$
|
90
|
|
|
$
|
|
|
Goldman-Sachs
|
|
A3/BBB+
|
|
|
1,136
|
|
|
|
1,150
|
|
|
|
1,136
|
|
|
|
13
|
|
|
|
|
|
ING
|
|
Baa1/A-
|
|
|
30,111
|
|
|
|
28,460
|
|
|
|
28,460
|
|
|
|
|
|
|
|
1,651
|
|
JP Morgan
|
|
A3/A-
|
|
|
180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
180
|
|
Morgan Stanley
|
|
A3/BBB+
|
|
|
13,802
|
|
|
|
14,186
|
|
|
|
13,802
|
|
|
|
384
|
|
|
|
|
|
NATIXIS*
|
|
A2/A
|
|
|
27,666
|
|
|
|
27,450
|
|
|
|
|
|
|
|
27,450
|
|
|
|
27,666
|
|
SunTrust
|
|
Baa1/BBB+
|
|
|
27,104
|
|
|
|
26,740
|
|
|
|
26,740
|
|
|
|
|
|
|
|
364
|
|
Wells Fargo
|
|
A2/A
|
|
|
31,315
|
|
|
|
32,160
|
|
|
|
30,960
|
|
|
|
1,201
|
|
|
|
355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
172,377
|
|
|
$
|
171,299
|
|
|
$
|
142,161
|
|
|
$
|
29,138
|
|
|
$
|
30,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Collateral Restrictions
|
18
Note 8 Net Investment Income and Realized Investment Gains (Losses)
Net investment income is shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Bonds
|
|
$
|
135,453
|
|
|
$
|
138,786
|
|
|
$
|
269,803
|
|
|
$
|
278,979
|
|
Equity securities
|
|
|
10,274
|
|
|
|
10,048
|
|
|
|
19,006
|
|
|
|
19,327
|
|
Mortgage loans
|
|
|
67,316
|
|
|
|
49,314
|
|
|
|
125,020
|
|
|
|
97,316
|
|
Real estate
|
|
|
(554
|
)
|
|
|
429
|
|
|
|
(1,749
|
)
|
|
|
(1,445
|
)
|
Options
|
|
|
13,430
|
|
|
|
5,789
|
|
|
|
36,563
|
|
|
|
2,150
|
|
Other invested assets
|
|
|
8,699
|
|
|
|
6,344
|
|
|
|
14,478
|
|
|
|
10,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
234,618
|
|
|
$
|
210,710
|
|
|
$
|
463,121
|
|
|
$
|
406,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized investment gains (losses) are shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Bonds
|
|
$
|
6,564
|
|
|
$
|
1,854
|
|
|
$
|
10,068
|
|
|
$
|
4,593
|
|
Equity securities
|
|
|
3,735
|
|
|
|
6,065
|
|
|
|
15,095
|
|
|
|
10,930
|
|
Mortgage loans
|
|
|
(3,079
|
)
|
|
|
(433
|
)
|
|
|
(4,705
|
)
|
|
|
1,059
|
|
Real estate
|
|
|
4,211
|
|
|
|
273
|
|
|
|
4,999
|
|
|
|
273
|
|
Other invested assets
|
|
|
(30
|
)
|
|
|
(793
|
)
|
|
|
(48
|
)
|
|
|
(827
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,401
|
|
|
$
|
6,966
|
|
|
$
|
25,409
|
|
|
$
|
16,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporary impairment losses are shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Bonds
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(6,000
|
)
|
|
$
|
|
|
Equity securities
|
|
|
(1,469
|
)
|
|
|
(3,551
|
)
|
|
|
(2,252
|
)
|
|
|
(7,027
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(1,469
|
)
|
|
$
|
(3,551
|
)
|
|
$
|
(8,252
|
)
|
|
$
|
(7,027
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
Note 9 Fair Value of Financial Instruments
The carrying amount and fair value of financial instruments are shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
Carrying
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
Financial assets
|
|
|
|
|
Fixed maturity securities, bonds held-to-maturity
|
|
$
|
7,149,494
|
|
|
$
|
7,426,776
|
|
|
$
|
7,251,385
|
|
|
$
|
7,496,692
|
|
Fixed maturity securities, bonds available-for-sale
|
|
|
5,918,462
|
|
|
|
5,918,462
|
|
|
|
5,803,276
|
|
|
|
5,803,276
|
|
Equity securities
|
|
|
1,641,900
|
|
|
|
1,641,900
|
|
|
|
1,541,676
|
|
|
|
1,541,676
|
|
Equity-indexed options
|
|
|
172,377
|
|
|
|
172,377
|
|
|
|
156,479
|
|
|
|
156,479
|
|
Mortgage loans on real estate, net of allowance
|
|
|
4,647,426
|
|
|
|
4,744,780
|
|
|
|
4,348,046
|
|
|
|
4,435,530
|
|
Policy loans
|
|
|
383,928
|
|
|
|
383,928
|
|
|
|
384,376
|
|
|
|
384,376
|
|
Short-term investments
|
|
|
576,878
|
|
|
|
576,878
|
|
|
|
192,226
|
|
|
|
192,226
|
|
Separate account assets
|
|
|
922,496
|
|
|
|
922,496
|
|
|
|
941,612
|
|
|
|
941,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
21,412,961
|
|
|
$
|
21,787,597
|
|
|
$
|
20,619,076
|
|
|
$
|
20,951,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
Investment contracts
|
|
$
|
8,797,440
|
|
|
$
|
8,797,440
|
|
|
$
|
8,785,412
|
|
|
$
|
8,785,412
|
|
Embedded derivative liability for equity-indexed contracts
|
|
|
390,189
|
|
|
|
390,189
|
|
|
|
314,330
|
|
|
|
314,330
|
|
Notes payable
|
|
|
140,216
|
|
|
|
140,216
|
|
|
|
136,080
|
|
|
|
136,080
|
|
Separate account liabilities
|
|
|
922,496
|
|
|
|
922,496
|
|
|
|
941,612
|
|
|
|
941,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities
|
|
$
|
10,250,341
|
|
|
$
|
10,250,341
|
|
|
$
|
10,177,434
|
|
|
$
|
10,177,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
20
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-indexed options and certain
fixed maturity securities, American National uses a market-based fair value analysis to validate the reasonableness of prices received. Price variances above a certain threshold are analyzed further to determine if any pricing issue exists. This
analysis is performed quarterly.
Equity Securities
For publicly-traded equity securities, prices are received from a nationally recognized
pricing service that are based on observable market transactions, and these securities are classified as Level 1 measurements. For certain preferred stock, current market quotes in active markets are unavailable. In these instances, an estimate of
fair value is received from the pricing service. The service utilizes similar methodologies to price preferred stocks as it does for fixed maturity securities. 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.
21
Note 9 Fair Value of Financial Instruments (Continued)
Embedded Derivative
The amounts reported within policyholder contract deposits include equity
linked interest crediting rates based on the S&P 500 index within index annuities and indexed life. The following unobservable inputs are used for measuring the fair value of the embedded derivatives associated with the policyholder contract
liabilities:
|
|
|
Lapse rate assumptions are determined by company experience. Lapse rates are generally assumed to be lower during a contracts surrender charge period and then higher once the surrender charge period has ended.
Decreases to the assumed lapse rates generally increase the fair value of the liability as more policyholders persist to collect the crediting interest pertaining to the indexed product. Increases to the lapse rate assumption will have the inverse
effect decreasing the fair value.
|
|
|
|
Mortality rate assumptions vary by age and by gender based on company and industry experience. Decreases to the assumed mortality rates increase the fair value of the liabilities as more policyholders earn crediting
interest. Increases to the assumed mortality rates decrease the fair value as higher decrements reduce the potential for future interest credits.
|
|
|
|
Equity volatility assumptions begin with current market volatilities and grow to long-term values. Increases to the assumed volatility will increase the fair value of liabilities, as future projections will produce
higher increases in the linked index. At June 30, 2017 and December 31, 2016, the one year implied volatility used to estimate embedded derivative value was 13.9% and 16.5%, respectively.
|
Fair values of indexed life and annuity liabilities are calculated using discounted cash flow technique. Shown below are the significant unobservable inputs
used to calculate the Level 3 fair value of the embedded derivatives within policyholder contract deposits (in millions, except range percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
Unobservable Input
|
|
Range
|
|
Indexed Annuities
|
|
$
|
379.9
|
|
|
$
|
306.5
|
|
|
Lapse Rate
|
|
|
1%-66%
|
|
|
|
|
|
|
|
|
|
|
|
Mortality Multiplier
|
|
|
90%-100%
|
|
|
|
|
|
|
|
|
|
|
|
Equity Volatility
|
|
|
12%-40%
|
|
Indexed Life
|
|
|
10.3
|
|
|
|
7.8
|
|
|
Lapse Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortality Multiplier
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Volatility
|
|
|
12%-40%
|
|
22
Note 9 Fair Value of Financial Instruments (Continued)
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.
23
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 June 30, 2017
|
|
|
|
Total
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities, bonds held-to-maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. states and political subdivisions
|
|
$
|
286,809
|
|
|
$
|
|
|
|
$
|
286,809
|
|
|
$
|
|
|
Foreign governments
|
|
|
4,685
|
|
|
|
|
|
|
|
4,685
|
|
|
|
|
|
Corporate debt securities
|
|
|
6,911,209
|
|
|
|
|
|
|
|
6,884,647
|
|
|
|
26,562
|
|
Residential mortgage-backed securities
|
|
|
220,716
|
|
|
|
|
|
|
|
219,836
|
|
|
|
880
|
|
Collateralized debt securities
|
|
|
976
|
|
|
|
|
|
|
|
976
|
|
|
|
|
|
Other debt securities
|
|
|
2,381
|
|
|
|
|
|
|
|
|
|
|
|
2,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bonds held-to-maturity
|
|
|
7,426,776
|
|
|
|
|
|
|
|
7,396,953
|
|
|
|
29,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities, bonds available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury and government
|
|
|
26,797
|
|
|
|
|
|
|
|
26,797
|
|
|
|
|
|
U.S. states and political subdivisions
|
|
|
946,788
|
|
|
|
|
|
|
|
944,323
|
|
|
|
2,465
|
|
Foreign governments
|
|
|
6,562
|
|
|
|
|
|
|
|
6,562
|
|
|
|
|
|
Corporate debt securities
|
|
|
4,911,926
|
|
|
|
|
|
|
|
4,902,539
|
|
|
|
9,387
|
|
Residential mortgage-backed securities
|
|
|
19,911
|
|
|
|
|
|
|
|
15,911
|
|
|
|
4,000
|
|
Collateralized debt securities
|
|
|
4,109
|
|
|
|
|
|
|
|
4,109
|
|
|
|
|
|
Other debt securities
|
|
|
2,369
|
|
|
|
|
|
|
|
2,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bonds available-for-sale
|
|
|
5,918,462
|
|
|
|
|
|
|
|
5,902,610
|
|
|
|
15,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
1,618,048
|
|
|
|
1,618,048
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
23,852
|
|
|
|
23,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
1,641,900
|
|
|
|
1,641,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
172,377
|
|
|
|
|
|
|
|
|
|
|
|
172,377
|
|
Mortgage loans on real estate
|
|
|
4,744,780
|
|
|
|
|
|
|
|
4,744,780
|
|
|
|
|
|
Policy loans
|
|
|
383,928
|
|
|
|
|
|
|
|
|
|
|
|
383,928
|
|
Short-term investments
|
|
|
576,878
|
|
|
|
|
|
|
|
576,878
|
|
|
|
|
|
Separate account assets
|
|
|
922,496
|
|
|
|
|
|
|
|
922,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
21,787,597
|
|
|
$
|
1,641,900
|
|
|
$
|
19,543,717
|
|
|
$
|
601,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment contracts
|
|
$
|
8,797,440
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
8,797,440
|
|
Embedded derivative liability for equity-indexed contracts
|
|
|
390,189
|
|
|
|
|
|
|
|
|
|
|
|
390,189
|
|
Notes payable
|
|
|
140,216
|
|
|
|
|
|
|
|
|
|
|
|
140,216
|
|
Separate account liabilities
|
|
|
922,496
|
|
|
|
|
|
|
|
922,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities
|
|
$
|
10,250,341
|
|
|
$
|
|
|
|
$
|
922,496
|
|
|
$
|
9,327,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
Note 9 Fair Value of Financial Instruments (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
Note 9 Fair Value of Financial Instruments (Continued)
For financial instruments measured at fair value on a recurring basis using Level 3 inputs during the period,
a reconciliation of the beginning and ending balances is shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3
|
|
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
Assets
|
|
|
Liability
|
|
|
Assets
|
|
|
Liability
|
|
|
|
Investment
Securities
|
|
|
Equity-Indexed
Options
|
|
|
Embedded
Derivative
|
|
|
Investment
Securities
|
|
|
Equity-Indexed
Options
|
|
|
Embedded
Derivative
|
|
Beginning balance, 2017
|
|
$
|
17,329
|
|
|
$
|
174,258
|
|
|
$
|
346,634
|
|
|
$
|
14,264
|
|
|
$
|
156,479
|
|
|
$
|
314,330
|
|
|
|
|
|
|
|
|
Total realized and unrealized investment gains (losses) included in other comprehensive
income
|
|
|
105
|
|
|
|
|
|
|
|
|
|
|
|
(4,362
|
)
|
|
|
|
|
|
|
|
|
Net fair value change included in realized gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain for derivatives included in net investment income
|
|
|
|
|
|
|
13,275
|
|
|
|
|
|
|
|
|
|
|
|
36,333
|
|
|
|
|
|
Net change included in interest credited
|
|
|
|
|
|
|
|
|
|
|
18,977
|
|
|
|
|
|
|
|
|
|
|
|
44,104
|
|
Purchases, sales and settlements or maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
|
|
|
|
|
13,463
|
|
|
|
|
|
|
|
|
|
|
|
21,015
|
|
|
|
|
|
Sales
|
|
|
(1,582
|
)
|
|
|
(12,837
|
)
|
|
|
|
|
|
|
(3,539
|
)
|
|
|
(12,837
|
)
|
|
|
|
|
Settlements or maturities
|
|
|
|
|
|
|
(15,782
|
)
|
|
|
|
|
|
|
(3,010
|
)
|
|
|
(28,613
|
)
|
|
|
|
|
Premiums less benefits
|
|
|
|
|
|
|
|
|
|
|
24,578
|
|
|
|
|
|
|
|
|
|
|
|
31,755
|
|
Carry value transfers in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
Gross transfers into Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
382
|
|
|
|
|
|
|
|
|
|
Gross transfers out of Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,883
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance at June 30, 2017
|
|
$
|
15,852
|
|
|
$
|
172,377
|
|
|
$
|
390,189
|
|
|
$
|
15,852
|
|
|
$
|
172,377
|
|
|
$
|
390,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance, 2016
|
|
$
|
21,689
|
|
|
$
|
123,761
|
|
|
$
|
258,267
|
|
|
$
|
20,130
|
|
|
$
|
123,007
|
|
|
$
|
242,412
|
|
|
|
|
|
|
|
|
Total realized and unrealized investment gains included in other comprehensive income
|
|
|
352
|
|
|
|
|
|
|
|
|
|
|
|
511
|
|
|
|
|
|
|
|
|
|
Net fair value change included in realized gains
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Net gain for derivatives included in net investment income
|
|
|
|
|
|
|
5,789
|
|
|
|
|
|
|
|
|
|
|
|
2,150
|
|
|
|
|
|
Net change included in interest credited
|
|
|
|
|
|
|
|
|
|
|
8,725
|
|
|
|
|
|
|
|
|
|
|
|
6,173
|
|
Purchases, sales and settlements or maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
|
|
|
|
|
7,178
|
|
|
|
|
|
|
|
|
|
|
|
12,471
|
|
|
|
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlements or maturities
|
|
|
(376
|
)
|
|
|
(2,153
|
)
|
|
|
|
|
|
|
(389
|
)
|
|
|
(3,053
|
)
|
|
|
|
|
Premiums less benefits
|
|
|
|
|
|
|
|
|
|
|
11,578
|
|
|
|
|
|
|
|
|
|
|
|
29,985
|
|
Gross transfers into Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,413
|
|
|
|
|
|
|
|
|
|
Gross transfers out of Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance at June 30, 2016
|
|
$
|
21,666
|
|
|
$
|
134,575
|
|
|
$
|
278,570
|
|
|
$
|
21,666
|
|
|
$
|
134,575
|
|
|
$
|
278,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within the net gain for derivatives included in net investment income were unrealized gains of $13,660,000, and $19,745,000
relating to assets still held at June 30, 2017, and 2016, respectively.
There were no transfers between Level 1 and Level 2 fair value hierarchies.
The transfers into Level 3 during the six months ended June 30, 2017 and 2016 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 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 June 30, 2017. The transfers out of Level 3 during the six months ended
June 30, 2017 were securities being priced by the third-party service at the end of the period, using inputs that are observable or derived from market data, which resulted in classification of these assets as Level 2.
26
Note 10 Deferred Policy Acquisition Costs
Deferred policy acquisition costs are shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
|
|
|
Annuity
|
|
|
Accident
& Health
|
|
|
Property
& Casualty
|
|
|
Total
|
|
Beginning balance, 2017
|
|
$
|
745,840
|
|
|
$
|
394,208
|
|
|
$
|
40,620
|
|
|
$
|
113,775
|
|
|
$
|
1,294,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
60,650
|
|
|
|
50,856
|
|
|
|
5,603
|
|
|
|
142,022
|
|
|
|
259,131
|
|
Amortization
|
|
|
(42,086
|
)
|
|
|
(33,686
|
)
|
|
|
(7,752
|
)
|
|
|
(138,425
|
)
|
|
|
(221,949
|
)
|
Effect of change in unrealized gains on available-for-sale securities
|
|
|
(3,982
|
)
|
|
|
(4,719
|
)
|
|
|
|
|
|
|
|
|
|
|
(8,701
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change
|
|
|
14,582
|
|
|
|
12,451
|
|
|
|
(2,149
|
)
|
|
|
3,597
|
|
|
|
28,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance at June 30, 2017
|
|
$
|
760,422
|
|
|
$
|
406,659
|
|
|
$
|
38,471
|
|
|
$
|
117,372
|
|
|
$
|
1,322,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions comprise the majority of the additions to deferred policy acquisition costs.
Note 11 Liability for Unpaid Claims and Claim Adjustment Expenses
The liability for unpaid claims and claim adjustment expenses (claims) for 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 incurred but not reported (IBNR) claims and claims that have been reported but not settled. 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):
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Unpaid claims balance, beginning
|
|
$
|
1,140,723
|
|
|
$
|
1,104,302
|
|
Less reinsurance recoverables
|
|
|
216,903
|
|
|
|
217,337
|
|
|
|
|
|
|
|
|
|
|
Net beginning balance
|
|
|
923,820
|
|
|
|
886,965
|
|
|
|
|
|
|
|
|
|
|
Incurred related to
|
|
|
|
|
|
|
|
|
Current
|
|
|
563,959
|
|
|
|
523,388
|
|
Prior years
|
|
|
(40,137
|
)
|
|
|
(16,628
|
)
|
|
|
|
|
|
|
|
|
|
Total incurred claims
|
|
|
523,822
|
|
|
|
506,760
|
|
|
|
|
|
|
|
|
|
|
Paid claims related to
|
|
|
|
|
|
|
|
|
Current
|
|
|
288,731
|
|
|
|
266,566
|
|
Prior years
|
|
|
205,702
|
|
|
|
209,805
|
|
|
|
|
|
|
|
|
|
|
Total paid claims
|
|
|
494,433
|
|
|
|
476,371
|
|
|
|
|
|
|
|
|
|
|
Net balance
|
|
|
953,209
|
|
|
|
917,354
|
|
Plus reinsurance recoverables
|
|
|
195,072
|
|
|
|
206,962
|
|
|
|
|
|
|
|
|
|
|
Unpaid claims balance, ending
|
|
$
|
1,148,281
|
|
|
$
|
1,124,316
|
|
|
|
|
|
|
|
|
|
|
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 $40,137,000 during the first
six months of 2017 and decreased by approximately $16,628,000 during the first six months of 2016. This was a reflection of lower-than-anticipated losses in the auto, business owner and commercial package policy lines of business in 2017.
For short-duration health insurance claims, the total of IBNR plus expected development on reported claims included in the liability for unpaid claims and
claim adjustment expenses at June 30, 2017 was $24,587,000.
27
Note 12 Federal Income Taxes
A reconciliation of the effective tax rate to the statutory federal tax rate is shown below (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
Income tax on pre-tax income
|
|
$
|
16,175
|
|
|
|
35.0
|
%
|
|
$
|
14,727
|
|
|
|
35.0
|
%
|
|
$
|
34,467
|
|
|
|
35.0
|
%
|
|
$
|
23,283
|
|
|
|
35.0
|
%
|
Tax-exempt investment income
|
|
|
(1,769
|
)
|
|
|
(3.8
|
)
|
|
|
(1,974
|
)
|
|
|
(4.7
|
)
|
|
|
(3,601
|
)
|
|
|
(3.7
|
)
|
|
|
(3,946
|
)
|
|
|
(5.9
|
)
|
Deferred tax change
|
|
|
(464
|
)
|
|
|
(1.0
|
)
|
|
|
(341
|
)
|
|
|
(0.8
|
)
|
|
|
(1,231
|
)
|
|
|
(1.2
|
)
|
|
|
(10,508
|
)
|
|
|
(15.8
|
)
|
Dividend exclusion
|
|
|
(2,322
|
)
|
|
|
(5.0
|
)
|
|
|
(1,879
|
)
|
|
|
(4.5
|
)
|
|
|
(4,164
|
)
|
|
|
(4.2
|
)
|
|
|
(4,226
|
)
|
|
|
(6.4
|
)
|
Miscellaneous tax credits, net
|
|
|
(2,542
|
)
|
|
|
(5.5
|
)
|
|
|
(2,865
|
)
|
|
|
(6.8
|
)
|
|
|
(4,799
|
)
|
|
|
(4.9
|
)
|
|
|
(5,116
|
)
|
|
|
(7.7
|
)
|
Low income housing tax credit expense
|
|
|
1,256
|
|
|
|
2.7
|
|
|
|
1,295
|
|
|
|
3.1
|
|
|
|
2,509
|
|
|
|
2.5
|
|
|
|
2,589
|
|
|
|
3.9
|
|
Other items, net
|
|
|
141
|
|
|
|
0.3
|
|
|
|
885
|
|
|
|
2.1
|
|
|
|
322
|
|
|
|
0.4
|
|
|
|
1,142
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for federal income tax before interest expense
|
|
|
10,475
|
|
|
|
22.7
|
|
|
|
9,848
|
|
|
|
23.4
|
|
|
|
23,503
|
|
|
|
23.9
|
|
|
|
3,218
|
|
|
|
4.8
|
|
Interest expense
|
|
|
40
|
|
|
|
0.1
|
|
|
|
42
|
|
|
|
0.1
|
|
|
|
84
|
|
|
|
0.1
|
|
|
|
2,602
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,515
|
|
|
|
22.8
|
%
|
|
$
|
9,890
|
|
|
|
23.5
|
%
|
|
$
|
23,587
|
|
|
|
24.0
|
%
|
|
$
|
5,820
|
|
|
|
8.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American National made income tax payments of $8,466,000 and $35,458,000 during the six months ended June 30, 2017 and
2016, respectively.
Management believes 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 June 30, 2017 and 2016. There are no net operating or capital loss carryforwards that will expire by December 31, 2017.
American Nationals federal income tax returns for years 2013 to 2016 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 accrued an additional $84,000
in interest, net of tax, during 2017 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.
28
Note 13 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
|
|
Beginning balance, 2017
|
|
$
|
547,138
|
|
|
$
|
(88,603
|
)
|
|
$
|
(2,636
|
)
|
|
$
|
455,899
|
|
Amounts reclassified from AOCI (net of tax benefit $5,809 and expense $4,168)
|
|
|
(10,789
|
)
|
|
|
7,741
|
|
|
|
|
|
|
|
(3,048
|
)
|
Unrealized holding gains arising during the period (net of tax expense $63,610)
|
|
|
118,134
|
|
|
|
|
|
|
|
|
|
|
|
118,134
|
|
Unrealized adjustment to DAC (net of tax benefit $3,264)
|
|
|
(5,437
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,437
|
)
|
Unrealized gains on investments attributable to participating policyholders interest (net
of tax benefit $2,865)
|
|
|
(5,320
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,320
|
)
|
Foreign currency adjustment (net of tax expense $152)
|
|
|
|
|
|
|
|
|
|
|
283
|
|
|
|
283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance at June 30, 2017
|
|
$
|
643,726
|
|
|
$
|
(80,862
|
)
|
|
$
|
(2,353
|
)
|
|
$
|
560,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance, 2016
|
|
$
|
453,434
|
|
|
$
|
(97,889
|
)
|
|
$
|
(2,925
|
)
|
|
$
|
352,620
|
|
Amounts reclassified from AOCI (net of tax benefit $2,105 and expense $2,292)
|
|
|
(3,910
|
)
|
|
|
4,256
|
|
|
|
|
|
|
|
346
|
|
Unrealized holding gains arising during the period (net of tax expense $99,218)
|
|
|
184,262
|
|
|
|
|
|
|
|
|
|
|
|
184,262
|
|
Unrealized adjustment to DAC (net of tax benefit $22,893)
|
|
|
(41,853
|
)
|
|
|
|
|
|
|
|
|
|
|
(41,853
|
)
|
Unrealized gains on investments attributable to participating policyholders interest (net
of tax benefit $4,159)
|
|
|
(7,723
|
)
|
|
|
|
|
|
|
|
|
|
|
(7,723
|
)
|
Foreign currency adjustment (net of tax expense $232)
|
|
|
|
|
|
|
|
|
|
|
430
|
|
|
|
430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance at June 30, 2016
|
|
$
|
584,210
|
|
|
$
|
(93,633
|
)
|
|
$
|
(2,495
|
)
|
|
$
|
488,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 14 Stockholders Equity and Noncontrolling Interests
American National has one class of common stock with a par value of $1.00 per share and 50,000,000 authorized shares. The amounts outstanding at the dates
indicated are shown below:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Common stock
|
|
|
|
|
|
|
|
|
Shares issued
|
|
|
30,832,449
|
|
|
|
30,832,449
|
|
Treasury shares
|
|
|
(3,900,565
|
)
|
|
|
(3,917,933
|
)
|
|
|
|
|
|
|
|
|
|
Outstanding shares
|
|
|
26,931,884
|
|
|
|
26,914,516
|
|
Restricted shares
|
|
|
(74,000
|
)
|
|
|
(76,000
|
)
|
|
|
|
|
|
|
|
|
|
Unrestricted outstanding shares
|
|
|
26,857,884
|
|
|
|
26,838,516
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
American National has a stock-based compensation plan, which allows for grants of Non-Qualified Stock Options, Stock Appreciation Rights (SAR),
Restricted Stock (RS) Awards, Restricted Stock Units (RSU), Performance Awards, Incentive Awards or any combination thereof. This plan is administered by the American National Board Compensation Committee. 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 meeting established performance objectives and directors as compensation and to align their interests with those of other
shareholders.
29
Note 14 Stockholders Equity and Noncontrolling Interests (Continued)
SAR, RS and RSU information for the periods indicated are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SAR
|
|
|
RS Shares
|
|
|
RS Units
|
|
|
|
Shares
|
|
|
Weighted-Average
Grant Date
Fair Value
|
|
|
Shares
|
|
|
Weighted-Average
Grant Date
Fair Value
|
|
|
Units
|
|
|
Weighted-Average
Grant Date
Fair Value
|
|
Outstanding at December 31, 2016
|
|
|
6,153
|
|
|
$
|
113.36
|
|
|
|
76,000
|
|
|
$
|
110.73
|
|
|
|
100,445
|
|
|
$
|
105.97
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,500
|
|
|
|
117.69
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
(2,000
|
)
|
|
|
130.52
|
|
|
|
(61,386
|
)
|
|
|
108.81
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33
|
)
|
|
|
104.75
|
|
Expired
|
|
|
(3,034
|
)
|
|
|
118.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2017
|
|
|
3,119
|
|
|
$
|
108.37
|
|
|
|
74,000
|
|
|
$
|
110.19
|
|
|
|
55,526
|
|
|
$
|
106.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SAR
|
|
|
RS Shares
|
|
|
RS Units
|
|
Weighted-average contractual remaining life (in years)
|
|
|
0.97
|
|
|
|
2.89
|
|
|
|
1.11
|
|
Exercisable shares
|
|
|
3,119
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Weighted-average exercise price
|
|
$
|
108.37
|
|
|
$
|
110.19
|
|
|
$
|
106.32
|
|
Weighted-average exercise price exercisable shares
|
|
|
108.37
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Compensation expense (credit)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2017
|
|
$
|
(14,000
|
)
|
|
$
|
205,000
|
|
|
$
|
1,519,000
|
|
Three months ended June 30, 2016
|
|
|
4,000
|
|
|
|
209,000
|
|
|
|
345,000
|
|
Six months ended June, 2017
|
|
|
(49,000
|
)
|
|
|
412,000
|
|
|
|
1,649,000
|
|
Six months ended June, 2016
|
|
|
37,000
|
|
|
|
419,000
|
|
|
|
4,447,000
|
|
Fair value of liability award
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
$
|
30,000
|
|
|
|
N/A
|
|
|
$
|
6,468,000
|
|
December 31, 2016 (restated)
|
|
|
213,000
|
|
|
|
N/A
|
|
|
|
13,197,000
|
|
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 74,000 shares are unvested.
RSU
awards allow the recipient of the awards to settle the vested RSUs in either shares of American Nationals common stock, cash or a combination of both. RSUs granted vest after a one-year or three-year graded vesting requirement or over a
shorter period as a result of death, disability or retirement after age 65.
30
Note 14 Stockholders Equity and Noncontrolling Interests (Continued)
Earnings per share
Basic earnings per share were calculated using a weighted average number of shares outstanding. Diluted earnings per share include RS and RSU award shares.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Weighted average shares outstanding
|
|
|
26,892,656
|
|
|
|
26,908,077
|
|
|
|
26,896,965
|
|
|
|
26,908,748
|
|
Incremental shares from RS awards and RSUs
|
|
|
63,225
|
|
|
|
62,520
|
|
|
|
69,210
|
|
|
|
56,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shares for diluted calculations
|
|
|
26,955,881
|
|
|
|
26,970,597
|
|
|
|
26,966,175
|
|
|
|
26,965,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to American National (in thousands)
|
|
$
|
35,959
|
|
|
$
|
32,625
|
|
|
$
|
75,799
|
|
|
$
|
61,941
|
|
Basic earnings per share
|
|
$
|
1.34
|
|
|
$
|
1.21
|
|
|
$
|
2.82
|
|
|
$
|
2.30
|
|
Diluted earnings per share
|
|
|
1.33
|
|
|
|
1.21
|
|
|
|
2.81
|
|
|
|
2.30
|
|
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
June 30, 2017 and December 31, 2016, American National Insurance Companys statutory capital and surplus was $3,028,989,000 and $2,985,909,000, respectively. American National Insurance Company and each of its insurance subsidiaries
had statutory capital and surplus at June 30, 2017 and December 31, 2016, 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 $64,533,000 and $64,555,000 at June 30, 2017 and June 30, 2016, respectively. The statutory capital and surplus of
both American National Insurance Company and the Missouri domiciled insurance subsidiary would have remained substantially above the company action level RBC had it not used the permitted practice.
31
Note 14 Stockholders Equity and Noncontrolling Interests (Continued)
The statutory capital and surplus and net income of our life and property and casualty insurance entities in
accordance with statutory accounting practices are shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Statutory capital and surplus
|
|
|
|
|
|
|
|
|
Life insurance entities
|
|
$
|
1,959,927
|
|
|
$
|
1,921,171
|
|
Property and casualty insurance entities
|
|
|
1,079,183
|
|
|
|
1,074,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Statutory net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance entities
|
|
$
|
20,809
|
|
|
$
|
19,182
|
|
|
$
|
18,342
|
|
|
$
|
23,109
|
|
Property and casualty insurance entities
|
|
|
(5,639
|
)
|
|
|
(1,291
|
)
|
|
|
1,172
|
|
|
|
3,257
|
|
Dividends
American
National Insurance Companys payment of dividends to stockholders is restricted by insurance law. The restrictions require life insurance companies to maintain minimum amounts of capital and surplus, and in the absence of special approval,
limit the payment of dividends to the greater of the prior years statutory net income from operations, or 10% of prior year statutory surplus. American National Insurance Company is permitted without prior approval of the Texas Department of
Insurance to pay total dividends of $298,591,000 during 2017. Similar restrictions on amounts that can transfer in the form of dividends, loans, or advances to American National Insurance Company apply to its insurance subsidiaries.
Noncontrolling interests
American National County Mutual
Insurance Company (County Mutual) is a mutual insurance company owned by its policyholders. American National has a management agreement that effectively gives it control of County Mutual. As a result, County Mutual is included in the
consolidated financial statements of American National. Policyholder interests in the financial position of County Mutual are reflected as noncontrolling interest of $6,750,000 at June 30, 2017 and December 31, 2016.
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 $1,637,000 and $2,567,000 at June 30, 2017 and December 31,
2016, respectively.
32
Note 15 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 American Nationals 2016 annual report on Form 10-K. All revenues
and expenses specifically attributable to policy transactions are recorded directly to the appropriate operating segment. Revenues and expenses not specifically attributable to policy transactions are allocated to each segment as follows:
|
|
|
Recurring income from bonds and mortgage loans is allocated based on the assets allocated to each line of business at the average yield available from these assets.
|
|
|
|
Net investment income from all other assets is allocated to the insurance segments in accordance with the amount of capital allocated to each segment, with the remainder recorded in the Corporate and Other business
segment.
|
|
|
|
Expenses are 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Life
|
|
$
|
7,816
|
|
|
$
|
16,766
|
|
|
$
|
15,303
|
|
|
$
|
13,285
|
|
Annuity
|
|
|
17,871
|
|
|
|
17,463
|
|
|
|
41,624
|
|
|
|
35,434
|
|
Health
|
|
|
3,492
|
|
|
|
4,419
|
|
|
|
5,549
|
|
|
|
3,785
|
|
Property and Casualty
|
|
|
(9,267
|
)
|
|
|
(4,775
|
)
|
|
|
(6,844
|
)
|
|
|
2,215
|
|
Corporate and Other
|
|
|
13,989
|
|
|
|
6,407
|
|
|
|
21,032
|
|
|
|
9,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
33,901
|
|
|
$
|
40,280
|
|
|
$
|
76,664
|
|
|
$
|
63,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
Note 16 Commitments and Contingencies
Commitments
American National had aggregate commitments
at June 30, 2017, to purchase, expand or improve real estate, to fund fixed interest rate mortgage loans, and to purchase other invested assets of $859,961,000 of which $455,221,000 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 June 30, 2017 and December 31, 2016, the outstanding letters of credit were $9,548,000 and $9,473,000, respectively, and there were no borrowings on this facility. This facility expires on October 30, 2017. American
National expects it will be able to 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 a bank loan, American National would be obligated to pay off the loan. As the cash values of
the life insurance policies always equal or exceed the balance of the loans, management does not foresee any loss on these guarantees. The total amount of the guarantees outstanding as of June 30, 2017, was approximately $206,376,000, while the
total cash value of the related life insurance policies was approximately $212,268,000.
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.
One-Time Pension Payout Window
The one-time window
offering to terminated, vested participants of our qualified defined benefit pension plans allowing participants to take a lump sum or annuity payout of their pension benefit, closed in March 2017. Payments to participants that elected to take a
lump sum payout were made from pension plan assets in April, 2017. A portion of the pension actuarial loss included in Accumulated Other Comprehensive Income was recognized as pension costs in proportion to the reduction of the pension plans
total benefit obligations. The after-tax expense recognized in the second quarter of 2017 was approximately $4,673,000.
34
Note 17 Related Party Transactions
American National has entered into recurring transactions and agreements with certain related parties. These include mortgage loans, management contracts,
agency commission contracts, marketing agreements, 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
|
|
|
|
|
|
Six months ended June 30,
|
|
|
June 30,
|
|
|
December 31,
|
|
Related Party
|
|
Financial Statement Line Impacted
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Gal-Tex Hotel Corporation
|
|
Mortgage loan on real estate
|
|
$
|
752
|
|
|
$
|
700
|
|
|
$
|
3,004
|
|
|
$
|
3,756
|
|
Gal-Tex Hotel Corporation
|
|
Net investment income
|
|
|
125
|
|
|
|
177
|
|
|
|
18
|
|
|
|
23
|
|
Greer, Herz & Adams, LLP
|
|
Other operating expenses
|
|
|
5,624
|
|
|
|
4,627
|
|
|
|
(417
|
)
|
|
|
(283
|
)
|
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 a subsidiary of 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.
35
Consolidated
Results of Operations
The following sets forth the consolidated results of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Premiums and other revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
514,519
|
|
|
$
|
512,699
|
|
|
$
|
1,820
|
|
|
$
|
986,291
|
|
|
$
|
1,003,698
|
|
|
$
|
(17,407
|
)
|
Other policy revenues
|
|
|
66,076
|
|
|
|
65,489
|
|
|
|
587
|
|
|
|
129,528
|
|
|
|
129,836
|
|
|
|
(308
|
)
|
Net investment income
|
|
|
234,618
|
|
|
|
210,710
|
|
|
|
23,908
|
|
|
|
463,121
|
|
|
|
406,764
|
|
|
|
56,357
|
|
Realized investments gains, net
|
|
|
9,932
|
|
|
|
3,415
|
|
|
|
6,517
|
|
|
|
17,157
|
|
|
|
9,001
|
|
|
|
8,156
|
|
Other income
|
|
|
8,948
|
|
|
|
8,135
|
|
|
|
813
|
|
|
|
17,793
|
|
|
|
16,119
|
|
|
|
1,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total premiums and other revenues
|
|
|
834,093
|
|
|
|
800,448
|
|
|
|
33,645
|
|
|
|
1,613,890
|
|
|
|
1,565,418
|
|
|
|
48,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits, losses and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits
|
|
|
176,707
|
|
|
|
185,409
|
|
|
|
(8,702
|
)
|
|
|
319,477
|
|
|
|
367,427
|
|
|
|
(47,950
|
)
|
Claims incurred
|
|
|
277,438
|
|
|
|
261,287
|
|
|
|
16,151
|
|
|
|
529,496
|
|
|
|
505,537
|
|
|
|
23,959
|
|
Interest credited to policyholders account balances
|
|
|
94,548
|
|
|
|
85,901
|
|
|
|
8,647
|
|
|
|
190,556
|
|
|
|
162,428
|
|
|
|
28,128
|
|
Commissions for acquiring and servicing policies
|
|
|
141,440
|
|
|
|
114,945
|
|
|
|
26,495
|
|
|
|
266,931
|
|
|
|
227,829
|
|
|
|
39,102
|
|
Other operating expenses
|
|
|
137,754
|
|
|
|
129,197
|
|
|
|
8,557
|
|
|
|
267,948
|
|
|
|
259,573
|
|
|
|
8,375
|
|
Change in deferred policy acquisition costs
(1)
|
|
|
(27,695
|
)
|
|
|
(16,571
|
)
|
|
|
(11,124
|
)
|
|
|
(37,182
|
)
|
|
|
(21,164
|
)
|
|
|
(16,018
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses
|
|
|
800,192
|
|
|
|
760,168
|
|
|
|
40,024
|
|
|
|
1,537,226
|
|
|
|
1,501,630
|
|
|
|
35,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before other items and federal income taxes
|
|
$
|
33,901
|
|
|
$
|
40,280
|
|
|
$
|
(6,379
|
)
|
|
$
|
76,664
|
|
|
$
|
63,788
|
|
|
$
|
12,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 amortized and represents an increase to expenses in the period indicated.
|
Consolidated earnings decreased during the three months ended June 30, 2017 compared to 2016 primarily due to a pension settlement expense of $7.2
million relating to the completion of a one-time retirement benefit withdrawal window for the frozen defined benefit pension plans. Consolidated earnings increased during the six months ended June 30, 2017 compared to 2016 primarily due to an
increase in net investment income. The increase in net investment income is attributable to increased investment income on mortgage loans and increased assets in the annuity segment, as measured by account value and reserves.
38
Life
Life
segment financial results for the periods indicated were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Premiums and other revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
79,287
|
|
|
$
|
77,053
|
|
|
$
|
2,234
|
|
|
$
|
156,761
|
|
|
$
|
152,170
|
|
|
$
|
4,591
|
|
Other policy revenues
|
|
|
62,464
|
|
|
|
62,579
|
|
|
|
(115
|
)
|
|
|
122,373
|
|
|
|
124,187
|
|
|
|
(1,814
|
)
|
Net investment income
|
|
|
60,689
|
|
|
|
56,060
|
|
|
|
4,629
|
|
|
|
122,898
|
|
|
|
110,244
|
|
|
|
12,654
|
|
Other income
|
|
|
503
|
|
|
|
477
|
|
|
|
26
|
|
|
|
1,119
|
|
|
|
1,070
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total premiums and other revenues
|
|
|
202,943
|
|
|
|
196,169
|
|
|
|
6,774
|
|
|
|
403,151
|
|
|
|
387,671
|
|
|
|
15,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits, losses and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits
|
|
|
98,909
|
|
|
|
91,754
|
|
|
|
7,155
|
|
|
|
198,017
|
|
|
|
192,525
|
|
|
|
5,492
|
|
Interest credited to policyholders account balances
|
|
|
19,876
|
|
|
|
17,470
|
|
|
|
2,406
|
|
|
|
35,281
|
|
|
|
33,555
|
|
|
|
1,726
|
|
Commissions for acquiring and servicing policies
|
|
|
36,773
|
|
|
|
31,189
|
|
|
|
5,584
|
|
|
|
71,583
|
|
|
|
60,983
|
|
|
|
10,600
|
|
Other operating expenses
|
|
|
50,276
|
|
|
|
50,450
|
|
|
|
(174
|
)
|
|
|
101,531
|
|
|
|
101,829
|
|
|
|
(298
|
)
|
Change in deferred policy acquisition costs
(1)
|
|
|
(10,707
|
)
|
|
|
(11,460
|
)
|
|
|
753
|
|
|
|
(18,564
|
)
|
|
|
(14,506
|
)
|
|
|
(4,058
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses
|
|
|
195,127
|
|
|
|
179,403
|
|
|
|
15,724
|
|
|
|
387,848
|
|
|
|
374,386
|
|
|
|
13,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before other items and federal income taxes
|
|
$
|
7,816
|
|
|
$
|
16,766
|
|
|
$
|
(8,950
|
)
|
|
$
|
15,303
|
|
|
$
|
13,285
|
|
|
$
|
2,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 decreased during the three months ended June 30, 2017 compared to 2016 primarily due to an increase in the frequency of incurred claims.
Earnings increased during the six months ended June 30, 2017 compared to 2016 primarily due to a higher return on invested assets, partially offset by an increase in policyholders benefits.
Premiums and other revenues
Premiums increased
during the three and six months ended June 30, 2017 compared to 2016 primarily due to continued growth in renewal premium on traditional life products. Other policy revenues include mortality charges, earned policy service fees and surrender
charges on interest-sensitive life insurance policies.
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Traditional Life
|
|
$
|
15,439
|
|
|
$
|
13,774
|
|
|
$
|
1,665
|
|
|
$
|
29,704
|
|
|
$
|
27,313
|
|
|
$
|
2,391
|
|
Universal Life
|
|
|
6,165
|
|
|
|
4,807
|
|
|
|
1,358
|
|
|
|
11,490
|
|
|
|
8,965
|
|
|
|
2,525
|
|
Indexed UL
|
|
|
6,878
|
|
|
|
6,511
|
|
|
|
367
|
|
|
|
12,787
|
|
|
|
11,589
|
|
|
|
1,198
|
|
Variable UL
|
|
|
|
|
|
|
24
|
|
|
|
(24
|
)
|
|
|
|
|
|
|
24
|
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Recurring
|
|
$
|
28,482
|
|
|
$
|
25,116
|
|
|
$
|
3,366
|
|
|
$
|
53,981
|
|
|
$
|
47,891
|
|
|
$
|
6,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single and excess
|
|
$
|
821
|
|
|
$
|
532
|
|
|
$
|
289
|
|
|
$
|
1,422
|
|
|
$
|
955
|
|
|
$
|
467
|
|
Credit life
|
|
|
1,060
|
|
|
|
1,165
|
|
|
|
(105
|
)
|
|
|
2,069
|
|
|
|
2,045
|
|
|
|
24
|
|
39
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.
GAAP premium revenues are associated with policies sold in current
and prior periods. 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 for all major lines during the three and six months ended June 30, 2017 compared to 2016.
Benefits, losses and expenses
Policyholder
benefits increased during the three and six months ended June 30, 2017 compared to 2016 primarily due to an increase in the frequency of incurred claims.
Commissions increased during the three and six months ended June 30, 2017 compared to 2016 commensurate with the increase in life sales.
The following table presents the components of the change in DAC (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Acquisition cost capitalized
|
|
$
|
31,604
|
|
|
$
|
29,247
|
|
|
$
|
2,357
|
|
|
$
|
60,650
|
|
|
$
|
54,464
|
|
|
$
|
6,186
|
|
Amortization of DAC
|
|
|
(20,897
|
)
|
|
|
(17,787
|
)
|
|
|
(3,110
|
)
|
|
|
(42,086
|
)
|
|
|
(39,958
|
)
|
|
|
(2,128
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in DAC
|
|
$
|
10,707
|
|
|
$
|
11,460
|
|
|
$
|
(753
|
)
|
|
$
|
18,564
|
|
|
$
|
14,506
|
|
|
$
|
4,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policy in-force information
The following table summarizes changes in the Life segments in-force amounts (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2017
|
|
|
December 31,
2016
|
|
|
Change
|
|
Life insurance in-force
|
|
|
|
|
|
|
|
|
|
|
|
|
Traditional life
|
|
$
|
70,474,059
|
|
|
$
|
67,649,433
|
|
|
$
|
2,824,626
|
|
Interest-sensitive life
|
|
|
28,623,748
|
|
|
|
27,971,646
|
|
|
|
652,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total life insurance in-force
|
|
$
|
99,097,807
|
|
|
$
|
95,621,079
|
|
|
$
|
3,476,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes changes in the Life segments number of policies in-force:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2017
|
|
|
December 31,
2016
|
|
|
Change
|
|
Number of policies in-force
|
|
|
|
|
|
|
|
|
|
|
|
|
Traditional life
|
|
|
1,819,009
|
|
|
|
1,841,359
|
|
|
|
(22,350
|
)
|
Interest-sensitive life
|
|
|
226,611
|
|
|
|
222,845
|
|
|
|
3,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total number of policies
|
|
|
2,045,620
|
|
|
|
2,064,204
|
|
|
|
(18,584
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total life insurance in-force increased during the six months ended June 30, 2017 compared to December 31, 2016,
while the total number of policies decreased for the same periods, reflecting the transition to policies with higher face amounts.
40
Annuity
Annuity segment financial results for the periods indicated were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Premiums and other revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
65,389
|
|
|
$
|
86,030
|
|
|
$
|
(20,641
|
)
|
|
$
|
95,198
|
|
|
$
|
156,238
|
|
|
$
|
(61,040
|
)
|
Other policy revenues
|
|
|
3,612
|
|
|
|
2,910
|
|
|
|
702
|
|
|
|
7,155
|
|
|
|
5,649
|
|
|
|
1,506
|
|
Net investment income
|
|
|
131,952
|
|
|
|
123,640
|
|
|
|
8,312
|
|
|
|
271,629
|
|
|
|
240,536
|
|
|
|
31,093
|
|
Other income
|
|
|
974
|
|
|
|
802
|
|
|
|
172
|
|
|
|
1,639
|
|
|
|
1,762
|
|
|
|
(123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total premiums and other revenues
|
|
|
201,927
|
|
|
|
213,382
|
|
|
|
(11,455
|
)
|
|
|
375,621
|
|
|
|
404,185
|
|
|
|
(28,564
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits, losses and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits
|
|
|
77,798
|
|
|
|
93,655
|
|
|
|
(15,857
|
)
|
|
|
121,460
|
|
|
|
174,902
|
|
|
|
(53,442
|
)
|
Interest credited to policyholders account balances
|
|
|
74,672
|
|
|
|
68,431
|
|
|
|
6,241
|
|
|
|
155,275
|
|
|
|
128,873
|
|
|
|
26,402
|
|
Commissions for acquiring and servicing policies
|
|
|
33,407
|
|
|
|
21,363
|
|
|
|
12,044
|
|
|
|
50,691
|
|
|
|
43,271
|
|
|
|
7,420
|
|
Other operating expenses
|
|
|
12,718
|
|
|
|
15,808
|
|
|
|
(3,090
|
)
|
|
|
23,741
|
|
|
|
28,966
|
|
|
|
(5,225
|
)
|
Change in deferred policy acquisition costs
(1)
|
|
|
(14,539
|
)
|
|
|
(3,338
|
)
|
|
|
(11,201
|
)
|
|
|
(17,170
|
)
|
|
|
(7,261
|
)
|
|
|
(9,909
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses
|
|
|
184,056
|
|
|
|
195,919
|
|
|
|
(11,863
|
)
|
|
|
333,997
|
|
|
|
368,751
|
|
|
|
(34,754
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before other items and federal income taxes
|
|
$
|
17,871
|
|
|
$
|
17,463
|
|
|
$
|
408
|
|
|
$
|
41,624
|
|
|
$
|
35,434
|
|
|
$
|
6,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 the six months ended June 30, 2017 compared to 2016 primarily due to increased assets, as measured by account value and
reserves, leading to an increase in investment income net of interest credited to policyholders account balances.
When comparing the three month
period ending June 30, 2017 to the prior year, earnings were relatively stable. The improvement in investment income related to increased assets was partly offset by immediate annuities having better than expected mortality experience in the
second quarter of 2016.
Premiums and other revenues
Annuity premium and deposit amounts received are shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Fixed deferred annuity
|
|
$
|
306,954
|
|
|
$
|
145,792
|
|
|
$
|
161,162
|
|
|
$
|
454,156
|
|
|
$
|
329,948
|
|
|
$
|
124,208
|
|
Single premium immediate annuity
|
|
|
80,724
|
|
|
|
98,552
|
|
|
|
(17,828
|
)
|
|
|
116,901
|
|
|
|
177,164
|
|
|
|
(60,263
|
)
|
Equity-indexed deferred annuity
|
|
|
256,899
|
|
|
|
159,292
|
|
|
|
97,607
|
|
|
|
389,800
|
|
|
|
301,271
|
|
|
|
88,529
|
|
Variable deferred annuity
|
|
|
19,606
|
|
|
|
20,685
|
|
|
|
(1,079
|
)
|
|
|
39,912
|
|
|
|
40,574
|
|
|
|
(662
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total premium and deposits
|
|
|
664,183
|
|
|
|
424,321
|
|
|
|
239,862
|
|
|
|
1,000,769
|
|
|
|
848,957
|
|
|
|
151,812
|
|
Less: Policy deposits
|
|
|
598,794
|
|
|
|
338,291
|
|
|
|
260,503
|
|
|
|
905,571
|
|
|
|
692,719
|
|
|
|
212,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earned premiums
|
|
$
|
65,389
|
|
|
$
|
86,030
|
|
|
$
|
(20,641
|
)
|
|
$
|
95,198
|
|
|
$
|
156,238
|
|
|
$
|
(61,040
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales strengthened during the second quarter of 2017 led by the fixed deferred and equity indexed products. Earned premium,
however, which is reflective of decreased single premium immediate annuity sales, decreased during the three and six months ended June 30, 2017 compared to 2016.
41
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):
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Fixed deferred and equity-indexed annuity
|
|
|
|
|
|
|
|
|
Account value, beginning of period
|
|
$
|
9,118,350
|
|
|
$
|
8,880,448
|
|
Net inflows
|
|
|
699,473
|
|
|
|
492,357
|
|
Surrenders
|
|
|
(410,957
|
)
|
|
|
(439,972
|
)
|
Fees
|
|
|
(3,742
|
)
|
|
|
(3,060
|
)
|
Interest credited
|
|
|
152,332
|
|
|
|
125,050
|
|
|
|
|
|
|
|
|
|
|
Account value, end of period
|
|
|
9,555,456
|
|
|
|
9,054,823
|
|
|
|
|
|
|
|
|
|
|
Single premium immediate annuity
|
|
|
|
|
|
|
|
|
Reserve, beginning of period
|
|
|
1,566,440
|
|
|
|
1,398,481
|
|
Net inflows
|
|
|
29,405
|
|
|
|
97,199
|
|
Interest and mortality
|
|
|
27,101
|
|
|
|
21,486
|
|
|
|
|
|
|
|
|
|
|
Reserve, end of period
|
|
|
1,622,946
|
|
|
|
1,517,166
|
|
|
|
|
|
|
|
|
|
|
Variable deferred annuity
|
|
|
|
|
|
|
|
|
Account value, beginning of period
|
|
|
392,345
|
|
|
|
417,821
|
|
Net inflows
|
|
|
37,495
|
|
|
|
39,470
|
|
Surrenders
|
|
|
(78,881
|
)
|
|
|
(52,156
|
)
|
Fees
|
|
|
(2,281
|
)
|
|
|
(2,364
|
)
|
Change in market value and other
|
|
|
33,502
|
|
|
|
2,986
|
|
|
|
|
|
|
|
|
|
|
Account value, end of period
|
|
|
382,180
|
|
|
|
405,757
|
|
|
|
|
|
|
|
|
|
|
Total account value, end of period
|
|
$
|
11,560,582
|
|
|
$
|
10,977,746
|
|
|
|
|
|
|
|
|
|
|
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 decrease in the level of benefits for the six months ended June 30, 2017 was commensurate with decreases in SPIA premium relative to the prior year.
Commissions increased during the three and six months ended June 30, 2017 compared to 2016 driven by an increase in sales of deferred annuity and equity
indexed products.
Other operating expenses decreased during the three and six months ended June 30, 2017 compared to 2016 as annuity volume
increased.
The change in DAC represents acquisition costs capitalized less the amortization of existing DAC, which is calculated in proportion to
expected gross profits. The following shows the components of the change in DAC (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Acquisition cost capitalized
|
|
$
|
33,010
|
|
|
$
|
22,349
|
|
|
$
|
10,661
|
|
|
$
|
50,856
|
|
|
$
|
43,295
|
|
|
$
|
7,561
|
|
Amortization of DAC
|
|
|
(18,471
|
)
|
|
|
(19,011
|
)
|
|
|
540
|
|
|
|
(33,686
|
)
|
|
|
(36,034
|
)
|
|
|
2,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in DAC
|
|
$
|
14,539
|
|
|
$
|
3,338
|
|
|
$
|
11,201
|
|
|
$
|
17,170
|
|
|
$
|
7,261
|
|
|
$
|
9,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The change in DAC increased during the six months ended June 30, 2017 compared to 2016 due to a 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 six months ended June 30, 2017 and 2016 were 33.9% and 35.9% respectively. The favorable decrease in the 2017 ratio is due to lower
than expected surrenders in 2017.
42
Options and Derivatives
Net investment income without equity-indexed options or option return remained relatively flat for the three and six months ended June 30,
2017 compared to 2016.
The S&P 500 Index increased by approximately 8.2% and 2.7% in the six months ended June 30, 2017 and 2016, respectively.
This change in index performance led to an increase in the option return of $29.6 million during the six months ended June 30, 2017 compared to 2016, offset by a $32.3 million increase in the related equity-indexed embedded derivative for a net
decrease in earnings of $2.7 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Without option return
|
|
$
|
119,984
|
|
|
$
|
118,040
|
|
|
$
|
1,944
|
|
|
$
|
239,485
|
|
|
$
|
237,993
|
|
|
$
|
1,492
|
|
Option return
|
|
|
11,968
|
|
|
|
5,600
|
|
|
|
6,368
|
|
|
|
32,144
|
|
|
|
2,543
|
|
|
|
29,601
|
|
Interest credited to policy account balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Without embedded derivatives
|
|
|
58,345
|
|
|
|
59,735
|
|
|
|
(1,390
|
)
|
|
|
116,555
|
|
|
|
122,486
|
|
|
|
(5,931
|
)
|
Equity-indexed annuity embedded derivatives
|
|
|
16,327
|
|
|
|
8,696
|
|
|
|
7,631
|
|
|
|
38,720
|
|
|
|
6,387
|
|
|
|
32,333
|
|
Health
Health segment
results for the periods indicated were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Premiums and other revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
36,593
|
|
|
$
|
44,828
|
|
|
$
|
(8,235
|
)
|
|
$
|
73,632
|
|
|
$
|
87,141
|
|
|
$
|
(13,509
|
)
|
Net investment income
|
|
|
2,505
|
|
|
|
2,519
|
|
|
|
(14
|
)
|
|
|
5,012
|
|
|
|
4,968
|
|
|
|
44
|
|
Other income
|
|
|
4,321
|
|
|
|
4,637
|
|
|
|
(316
|
)
|
|
|
8,667
|
|
|
|
8,816
|
|
|
|
(149
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total premiums and other revenues
|
|
|
43,419
|
|
|
|
51,984
|
|
|
|
(8,565
|
)
|
|
|
87,311
|
|
|
|
100,925
|
|
|
|
(13,614
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits, losses and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims incurred
|
|
|
23,258
|
|
|
|
30,327
|
|
|
|
(7,069
|
)
|
|
|
47,786
|
|
|
|
62,619
|
|
|
|
(14,833
|
)
|
Commissions for acquiring and servicing policies
|
|
|
6,270
|
|
|
|
5,380
|
|
|
|
890
|
|
|
|
12,160
|
|
|
|
10,258
|
|
|
|
1,902
|
|
Other operating expenses
|
|
|
9,582
|
|
|
|
11,081
|
|
|
|
(1,499
|
)
|
|
|
19,667
|
|
|
|
21,913
|
|
|
|
(2,246
|
)
|
Change in deferred policy acquisition costs
(1)
|
|
|
817
|
|
|
|
777
|
|
|
|
40
|
|
|
|
2,149
|
|
|
|
2,350
|
|
|
|
(201
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses
|
|
|
39,927
|
|
|
|
47,565
|
|
|
|
(7,638
|
)
|
|
|
81,762
|
|
|
|
97,140
|
|
|
|
(15,378
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before other items and federal income taxes
|
|
$
|
3,492
|
|
|
$
|
4,419
|
|
|
$
|
(927
|
)
|
|
$
|
5,549
|
|
|
$
|
3,785
|
|
|
$
|
1,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 the three months ended June 30, 2017 compared to 2016. Earnings increased during the six months ended
June 30, 2017 compared to 2016, in part due to the absence of group major medical plans with losses that were not renewed effective January 1, 2017.
43
Premiums and other revenues
Health earned premiums for the periods indicated were as follows (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Medicare Supplement
|
|
$
|
16,400
|
|
|
|
44.7
|
%
|
|
$
|
17,236
|
|
|
|
38.4
|
%
|
|
$
|
32,851
|
|
|
|
44.7
|
%
|
|
$
|
34,876
|
|
|
|
40.0
|
%
|
Credit accident and health
|
|
|
4,464
|
|
|
|
12.2
|
|
|
|
3,397
|
|
|
|
7.6
|
|
|
|
9,232
|
|
|
|
12.5
|
|
|
|
6,188
|
|
|
|
7.1
|
|
MGU
|
|
|
4,385
|
|
|
|
12.0
|
|
|
|
4,846
|
|
|
|
10.8
|
|
|
|
8,898
|
|
|
|
12.1
|
|
|
|
8,265
|
|
|
|
9.5
|
|
Supplemental insurance
|
|
|
6,249
|
|
|
|
17.1
|
|
|
|
5,191
|
|
|
|
11.6
|
|
|
|
12,468
|
|
|
|
16.9
|
|
|
|
10,448
|
|
|
|
12.0
|
|
Medical expense
|
|
|
3,167
|
|
|
|
8.7
|
|
|
|
3,505
|
|
|
|
7.8
|
|
|
|
6,380
|
|
|
|
8.7
|
|
|
|
7,205
|
|
|
|
8.3
|
|
Group health
|
|
|
586
|
|
|
|
1.6
|
|
|
|
9,186
|
|
|
|
20.5
|
|
|
|
1,209
|
|
|
|
1.6
|
|
|
|
17,417
|
|
|
|
20.0
|
|
All other
|
|
|
1,342
|
|
|
|
3.7
|
|
|
|
1,467
|
|
|
|
3.3
|
|
|
|
2,594
|
|
|
|
3.5
|
|
|
|
2,742
|
|
|
|
3.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
36,593
|
|
|
|
100.0
|
%
|
|
$
|
44,828
|
|
|
|
100.0
|
%
|
|
$
|
73,632
|
|
|
|
100.0
|
%
|
|
$
|
87,141
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medicare Supplement earned premiums decreased slightly based on the continued shift in sales from comprehensive higher premium
plans to the lower premium high deductible plan. Credit accident and health increased primarily due to the onboarding of new producers writing new credit monthly pay business. Supplement Insurance increased due to increased sales in group worksite
health benefit programs. Medical expense and group health are closed blocks of business. Written premiums on these closed blocks declined during the three and six months ended June 30, 2017 compared to 2016 due to non-renewal of a group health
plan and lapsation.
Our in-force certificates or policies as of the dates indicated are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Medicare Supplement
|
|
|
33,887
|
|
|
|
6.6
|
%
|
|
|
33,896
|
|
|
|
6.1
|
%
|
Credit accident and health
|
|
|
183,884
|
|
|
|
35.9
|
|
|
|
193,147
|
|
|
|
34.9
|
|
MGU
|
|
|
194,851
|
|
|
|
38.1
|
|
|
|
210,353
|
|
|
|
38.0
|
|
Supplemental insurance
|
|
|
50,521
|
|
|
|
9.9
|
|
|
|
61,828
|
|
|
|
11.2
|
|
Medical expense
|
|
|
2,055
|
|
|
|
0.4
|
|
|
|
2,384
|
|
|
|
0.4
|
|
Group health
|
|
|
14,686
|
|
|
|
2.9
|
|
|
|
16,725
|
|
|
|
3.0
|
|
All other
|
|
|
31,852
|
|
|
|
6.2
|
|
|
|
35,311
|
|
|
|
6.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
511,736
|
|
|
|
100.0
|
%
|
|
|
553,644
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total in-force policies decreased during the six months ended June 30, 2017 compared to 2016, primarily due to the
decrease in the MGU line, Supplemental Insurance, and continued shrinkage of the closed Medical Expense and All Other blocks. Medicare Supplement in-force policies remained stable although the sale of lower premium policies caused a decrease in
earned premium. Credit accident and health in-force policies do not include monthly pay business. Although Credit accident and health premiums increased, policy counts decreased due to a decrease in the traditional single premium business. Although
Supplemental Insurance sales increased, the termination of a large group with low coverage amounts produced a net decrease in Supplemental Insurance policy counts. Group health in-force policies decreased due to the non-renewal of a group health
plan included in 2016 health results.
Benefits, losses and expenses
Claims incurred decreased during the three and six months ended June 30, 2017 compared to 2016 due to the non-renewal of a group health plan.
Commissions increased slightly during the three and six months ended June 30, 2017 compared to 2016 primarily due to increased sales in Credit accident
and health on monthly pay business and Supplemental Insurance.
44
Change in Deferred Policy Acquisition Costs
The following table presents the components of the change in DAC (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Acquisition cost capitalized
|
|
$
|
2,732
|
|
|
$
|
935
|
|
|
$
|
1,797
|
|
|
$
|
5,603
|
|
|
$
|
4,915
|
|
|
$
|
688
|
|
Amortization of DAC
|
|
|
(3,549
|
)
|
|
|
(1,712
|
)
|
|
|
(1,837
|
)
|
|
|
(7,752
|
)
|
|
|
(7,265
|
)
|
|
|
(487
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in DAC
|
|
$
|
(817
|
)
|
|
$
|
(777
|
)
|
|
$
|
(40
|
)
|
|
$
|
(2,149
|
)
|
|
$
|
(2,350
|
)
|
|
$
|
201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and Casualty
Property and Casualty results for the periods indicated were as follows (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Premiums and other revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written
|
|
$
|
365,797
|
|
|
$
|
332,682
|
|
|
$
|
33,115
|
|
|
$
|
715,909
|
|
|
$
|
646,027
|
|
|
$
|
69,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
$
|
333,250
|
|
|
$
|
304,788
|
|
|
$
|
28,462
|
|
|
$
|
660,700
|
|
|
$
|
608,149
|
|
|
$
|
52,551
|
|
Net investment income
|
|
|
15,775
|
|
|
|
13,040
|
|
|
|
2,735
|
|
|
|
29,815
|
|
|
|
27,952
|
|
|
|
1,863
|
|
Other income
|
|
|
2,196
|
|
|
|
1,361
|
|
|
|
835
|
|
|
|
4,134
|
|
|
|
2,351
|
|
|
|
1,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total premiums and other revenues
|
|
|
351,221
|
|
|
|
319,189
|
|
|
|
32,032
|
|
|
|
694,649
|
|
|
|
638,452
|
|
|
|
56,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits, losses and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims incurred
|
|
|
254,180
|
|
|
|
230,960
|
|
|
|
23,220
|
|
|
|
481,710
|
|
|
|
442,918
|
|
|
|
38,792
|
|
Commissions for acquiring and servicing policies
|
|
|
64,995
|
|
|
|
57,013
|
|
|
|
7,982
|
|
|
|
132,503
|
|
|
|
113,319
|
|
|
|
19,184
|
|
Other operating expenses
|
|
|
44,579
|
|
|
|
38,541
|
|
|
|
6,038
|
|
|
|
90,877
|
|
|
|
81,747
|
|
|
|
9,130
|
|
Change in deferred policy acquisition costs
(1)
|
|
|
(3,266
|
)
|
|
|
(2,550
|
)
|
|
|
(716
|
)
|
|
|
(3,597
|
)
|
|
|
(1,747
|
)
|
|
|
(1,850
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits and expenses
|
|
|
360,488
|
|
|
|
323,964
|
|
|
|
36,524
|
|
|
|
701,493
|
|
|
|
636,237
|
|
|
|
65,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before other items and federal income taxes
|
|
$
|
(9,267
|
)
|
|
$
|
(4,775
|
)
|
|
$
|
(4,492
|
)
|
|
$
|
(6,844
|
)
|
|
$
|
2,215
|
|
|
$
|
(9,059
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
|
|
|
76.3
|
%
|
|
|
75.8
|
%
|
|
|
0.5
|
|
|
|
72.9
|
%
|
|
|
72.8
|
%
|
|
|
0.1
|
|
Underwriting expense ratio
|
|
|
31.9
|
|
|
|
30.5
|
|
|
|
1.4
|
|
|
|
33.3
|
|
|
|
31.8
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
108.2
|
%
|
|
|
106.3
|
%
|
|
|
1.9
|
|
|
|
106.2
|
%
|
|
|
104.6
|
%
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of catastrophe events on combined ratio
|
|
|
12.4
|
|
|
|
11.5
|
|
|
|
0.9
|
|
|
|
10.3
|
|
|
|
9.4
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio without impact of catastrophe events
|
|
|
95.8
|
%
|
|
|
94.8
|
%
|
|
|
1.0
|
|
|
|
95.9
|
%
|
|
|
95.2
|
%
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross catastrophe losses
|
|
$
|
41,262
|
|
|
$
|
35,024
|
|
|
$
|
6,238
|
|
|
$
|
68,034
|
|
|
$
|
57,351
|
|
|
$
|
10,683
|
|
Net catastrophe losses
|
|
|
41,213
|
|
|
|
35,020
|
|
|
|
6,193
|
|
|
|
67,988
|
|
|
|
57,163
|
|
|
|
10,825
|
|
(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.
|
Property and Casualty results declined during the three and six months ended June 30, 2017 compared to 2016 primarily due to increased catastrophe losses
and other fire and wind/hail losses impacting the homeowners and personal auto lines.
Premiums and other revenues
Net premiums written and earned increased for all major lines of business during the three and six months ended June 30, 2017 compared to 2016. The
largest increases were in the personal automobile and other commercial lines of business.
Benefits, losses and expenses
Claims incurred increased during the three and six months ended June 30, 2017 compared to 2016, as a result of increases in catastrophe losses as well as
non-catastrophe property losses.
45
Commissions for acquiring and servicing policies increased during the three and six months ended June 30,
2017 compared to 2016, primarily as a result of the premium growth as well as the mix of products.
Operating expenses increased during the three and six
months ended June 30, 2017 compared to 2016, as a result of costs related to growth initiatives.
Products
Our Property and Casualty segment consists of: (i) Personal products, marketed primarily to individuals, representing 54.9% of net premiums written;
(ii) Commercial products, focused primarily on agricultural and other business related markets, representing 34.7% of net premiums written; and (iii) Credit-related property insurance products, marketed to and through financial
institutions and retailers, representing 10.4% of net premiums written.
Personal Products
Personal Products results for the periods indicated were as follows (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Net premiums written
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile
|
|
$
|
122,998
|
|
|
$
|
109,029
|
|
|
$
|
13,969
|
|
|
$
|
245,863
|
|
|
$
|
219,072
|
|
|
$
|
26,791
|
|
Homeowner
|
|
|
69,507
|
|
|
|
64,961
|
|
|
|
4,546
|
|
|
|
123,963
|
|
|
|
114,840
|
|
|
|
9,123
|
|
Other Personal
|
|
|
11,851
|
|
|
|
10,887
|
|
|
|
964
|
|
|
|
23,316
|
|
|
|
21,831
|
|
|
|
1,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net premiums written
|
|
$
|
204,356
|
|
|
$
|
184,877
|
|
|
$
|
19,479
|
|
|
$
|
393,142
|
|
|
$
|
355,743
|
|
|
$
|
37,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile
|
|
$
|
118,832
|
|
|
$
|
106,487
|
|
|
$
|
12,345
|
|
|
$
|
231,781
|
|
|
$
|
210,356
|
|
|
$
|
21,425
|
|
Homeowner
|
|
|
60,753
|
|
|
|
56,462
|
|
|
|
4,291
|
|
|
|
119,678
|
|
|
|
112,421
|
|
|
|
7,257
|
|
Other Personal
|
|
|
10,850
|
|
|
|
10,274
|
|
|
|
576
|
|
|
|
21,357
|
|
|
|
20,640
|
|
|
|
717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net premiums earned
|
|
$
|
190,435
|
|
|
$
|
173,223
|
|
|
$
|
17,212
|
|
|
$
|
372,816
|
|
|
$
|
343,417
|
|
|
$
|
29,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile
|
|
|
83.1
|
%
|
|
|
86.3
|
%
|
|
|
(3.2
|
)%
|
|
|
79.2
|
%
|
|
|
84.1
|
%
|
|
|
(4.9
|
)%
|
Homeowner
|
|
|
99.7
|
|
|
|
83.2
|
|
|
|
16.5
|
|
|
|
89.1
|
|
|
|
74.3
|
|
|
|
14.8
|
|
Other Personal
|
|
|
84.9
|
|
|
|
61.1
|
|
|
|
23.8
|
|
|
|
70.3
|
|
|
|
47.6
|
|
|
|
22.7
|
|
Personal line loss ratio
|
|
|
88.5
|
%
|
|
|
83.8
|
%
|
|
|
4.7
|
%
|
|
|
88.5
|
%
|
|
|
78.7
|
%
|
|
|
9.8
|
%
|
Combined Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile
|
|
|
106.5
|
%
|
|
|
109.9
|
%
|
|
|
(3.4
|
)%
|
|
|
103.2
|
%
|
|
|
109.4
|
%
|
|
|
(6.2
|
)%
|
Homeowner
|
|
|
134.1
|
|
|
|
109.8
|
|
|
|
24.3
|
|
|
|
124.6
|
|
|
|
102.5
|
|
|
|
22.1
|
|
Other Personal
|
|
|
110.4
|
|
|
|
85.3
|
|
|
|
25.1
|
|
|
|
104.6
|
|
|
|
73.7
|
|
|
|
30.9
|
|
Personal line combined ratio
|
|
|
115.5
|
%
|
|
|
108.4
|
%
|
|
|
7.1
|
%
|
|
|
110.2
|
%
|
|
|
105.0
|
%
|
|
|
5.2
|
%
|
Automobile
: Net premiums written and earned increased in our personal automobile line during the three and six months
ended June 30, 2017 compared to 2016 due to rate increases and an increase of policies in force. The loss and combined ratios decreased during the three and six months ended June 30, 2017 compared to 2016 primarily due to an improvement in
rate adequacy somewhat offset by an increase in catastrophe losses.
Homeowners
: Net premiums written and earned increased during the three and six
months ended June 30, 2017 compared to 2016 primarily due to increased sales of homeowner products to renters. The loss and combined ratios increased during the three and six months ended June 30, 2017 compared to 2016 due to an increase
in catastrophe claim activity as well as an increase in non-catastrophe fire and wind/hail losses compared to prior year.
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 and combined ratios increased during the three and
six months ended June 30, 2017 compared to 2016 due to catastrophe losses in the rental-owners line along with a large umbrella coverage loss.
46
Commercial Products
Commercial Products results for the periods indicated were as follows (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Net premiums written
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Commercial
|
|
$
|
60,782
|
|
|
$
|
51,152
|
|
|
$
|
9,630
|
|
|
$
|
114,932
|
|
|
$
|
96,764
|
|
|
$
|
18,168
|
|
Agricultural Business
|
|
|
39,414
|
|
|
|
38,246
|
|
|
|
1,168
|
|
|
|
73,894
|
|
|
|
71,154
|
|
|
|
2,740
|
|
Automobile
|
|
|
29,605
|
|
|
|
28,262
|
|
|
|
1,343
|
|
|
|
59,384
|
|
|
|
56,226
|
|
|
|
3,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net premiums written
|
|
$
|
129,801
|
|
|
$
|
117,660
|
|
|
$
|
12,141
|
|
|
$
|
248,210
|
|
|
$
|
224,144
|
|
|
$
|
24,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Commercial
|
|
$
|
47,095
|
|
|
$
|
40,139
|
|
|
$
|
6,956
|
|
|
$
|
92,057
|
|
|
$
|
78,848
|
|
|
$
|
13,209
|
|
Agricultural Business
|
|
|
34,898
|
|
|
|
33,279
|
|
|
|
1,619
|
|
|
|
68,561
|
|
|
|
65,166
|
|
|
|
3,395
|
|
Automobile
|
|
|
24,814
|
|
|
|
23,440
|
|
|
|
1,374
|
|
|
|
48,793
|
|
|
|
46,136
|
|
|
|
2,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net premiums earned
|
|
$
|
106,807
|
|
|
$
|
96,858
|
|
|
$
|
9,949
|
|
|
$
|
209,411
|
|
|
$
|
190,150
|
|
|
$
|
19,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Commercial
|
|
|
58.2
|
%
|
|
|
64.9
|
%
|
|
|
(6.7
|
)%
|
|
|
56.5
|
%
|
|
|
67.2
|
%
|
|
|
(10.7
|
)%
|
Agricultural Business
|
|
|
63.6
|
|
|
|
74.1
|
|
|
|
(10.5
|
)
|
|
|
75.2
|
|
|
|
76.8
|
|
|
|
(1.6
|
)
|
Automobile
|
|
|
56.2
|
|
|
|
66.2
|
|
|
|
(10.0
|
)
|
|
|
62.8
|
|
|
|
70.1
|
|
|
|
(7.3
|
)
|
Commercial line loss ratio
|
|
|
59.5
|
%
|
|
|
68.4
|
%
|
|
|
(8.9
|
)%
|
|
|
64.0
|
%
|
|
|
71.2
|
%
|
|
|
(7.2
|
)%
|
Combined ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Commercial
|
|
|
91.5
|
%
|
|
|
95.9
|
%
|
|
|
(4.4
|
)%
|
|
|
90.2
|
%
|
|
|
98.8
|
%
|
|
|
(8.6
|
)%
|
Agricultural Business
|
|
|
101.1
|
|
|
|
111.5
|
|
|
|
(10.4
|
)
|
|
|
113.0
|
|
|
|
114.7
|
|
|
|
(1.7
|
)
|
Automobile
|
|
|
79.9
|
|
|
|
90.3
|
|
|
|
(10.4
|
)
|
|
|
87.3
|
|
|
|
94.6
|
|
|
|
(7.3
|
)
|
Commercial line combined ratio
|
|
|
91.9
|
%
|
|
|
99.9
|
%
|
|
|
(8.0
|
)%
|
|
|
97.0
|
%
|
|
|
103.2
|
%
|
|
|
(6.2
|
)%
|
Other Commercial
: Net premiums written and earned increased during the three and six months ended June 30, 2017
compared to 2016 primarily due to increased sales of mortgage security insurance and workers compensation. The decrease in the loss and combined ratios for the three and six months ended June 30, 2017 compared to 2016 are primarily due to
decreased claim activity on the workers compensation and business owners lines of business.
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 the three and six months ended June 30, 2017 compared to 2016 primarily as a result of improved rate adequacy. The loss and combined ratios decreased during the three and six months
ended June 30, 2017 compared to 2016 primarily due to a decrease in catastrophe losses.
Commercial Automobile
: Net premiums written and
earned increased during the six months ended June 30, 2017 compared to 2016, primarily due to increased sales as well as improved rate adequacy. The loss and combined ratios decreased during the three and six months ended June 30, 2017
compared to 2016 primarily due to a decrease in the average severity of losses.
47
Credit Products
Credit-related property product results for the periods indicated were as follows (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Net premiums written
|
|
$
|
31,640
|
|
|
$
|
30,145
|
|
|
$
|
1,495
|
|
|
$
|
74,557
|
|
|
$
|
66,140
|
|
|
$
|
8,417
|
|
Net premiums earned
|
|
|
36,008
|
|
|
|
34,707
|
|
|
|
1,301
|
|
|
|
78,473
|
|
|
|
74,581
|
|
|
|
3,892
|
|
Loss ratio
|
|
|
61.4
|
%
|
|
|
56.4
|
%
|
|
|
5.0
|
%
|
|
|
53.9
|
%
|
|
|
50.2
|
%
|
|
|
3.7
|
%
|
Combined ratio
|
|
|
117.1
|
%
|
|
|
113.6
|
%
|
|
|
3.5
|
%
|
|
|
111.5
|
%
|
|
|
107.7
|
%
|
|
|
3.8
|
%
|
Credit-related property products are offered on automobiles, 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 the three and six months ended June 30, 2017 compared to 2016 primarily due to increases in our
Collateral Protection and debt cancellation business. The loss and combined ratios increased during the three and six months ended June 30, 2017 compared to 2016 primarily due to an increase in claims in our Guaranteed Auto Protection (GAP)
business.
Corporate and Other
Corporate and Other
segment financial results for the periods indicated were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
Other revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
23,697
|
|
|
$
|
15,451
|
|
|
$
|
8,246
|
|
|
$
|
33,767
|
|
|
$
|
23,064
|
|
|
$
|
10,703
|
|
Realized investment gains, net
|
|
|
9,932
|
|
|
|
3,415
|
|
|
|
6,517
|
|
|
|
17,157
|
|
|
|
9,001
|
|
|
|
8,156
|
|
Other Income
|
|
|
954
|
|
|
|
858
|
|
|
|
96
|
|
|
|
2,234
|
|
|
|
2,120
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other revenues
|
|
|
34,583
|
|
|
|
19,724
|
|
|
|
14,859
|
|
|
|
53,158
|
|
|
|
34,185
|
|
|
|
18,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits, losses and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions
|
|
|
(5
|
)
|
|
|
|
|
|
|
(5
|
)
|
|
|
(6
|
)
|
|
|
(2
|
)
|
|
|
(4
|
)
|
Other operating expenses
|
|
|
20,599
|
|
|
|
13,317
|
|
|
|
7,282
|
|
|
|
32,132
|
|
|
|
25,118
|
|
|
|
7,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits, losses and expenses
|
|
|
20,594
|
|
|
|
13,317
|
|
|
|
7,277
|
|
|
|
32,126
|
|
|
|
25,116
|
|
|
|
7,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before other items and federal income taxes
|
|
$
|
13,989
|
|
|
$
|
6,407
|
|
|
$
|
7,582
|
|
|
$
|
21,032
|
|
|
$
|
9,069
|
|
|
$
|
11,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings increased during the three and six months ended June 30, 2017 compared to 2016 primarily due to an increase in
net investment income primarily attributable to increased prepayment fees on mortgage loans and realized investment gains reflecting increased sales of certain real estate investments. These increases were partially offset by an increase in other
operating expenses which includes a pension cost of $7.2 million relating to the completion of the one-time pension payment window.
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 our insurance companies are domiciled. Investment activities, including setting investment policies and defining acceptable risk
levels, are subject to oversight by our Board of Directors, which is assisted by our Finance Committee and 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.
48
We also monitor the composition of our fixed maturity securities classified as held-to-maturity and
available-for-sale and adjust the mix within the portfolio as investments mature or new investments are purchased. We invest in commercial mortgage loans when the yield and credit risk compare favorably with fixed maturity securities. Individual
residential mortgage loans including sub-prime or Alt-A mortgage loans have not been and are not expected to be part of our investment portfolio. We purchase real estate and equity investments based on a risk and reward analysis where we believe
there are opportunities for enhanced returns.
The following summarizes the carrying values of our invested assets (other than investments in
unconsolidated affiliates) by asset class (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Bonds held-to-maturity, at amortized cost
|
|
$
|
7,149,494
|
|
|
|
34.3
|
%
|
|
$
|
7,251,385
|
|
|
|
35.8
|
%
|
Bonds available-for-sale, at fair value
|
|
|
5,918,462
|
|
|
|
28.2
|
|
|
|
5,803,276
|
|
|
|
28.7
|
|
Equity securities, at fair value
|
|
|
1,641,900
|
|
|
|
7.8
|
|
|
|
1,541,676
|
|
|
|
7.6
|
|
Mortgage loans, net of allowance
|
|
|
4,647,426
|
|
|
|
22.1
|
|
|
|
4,348,046
|
|
|
|
21.5
|
|
Policy loans
|
|
|
383,928
|
|
|
|
1.8
|
|
|
|
384,376
|
|
|
|
1.9
|
|
Investment real estate, net of accumulated depreciation
|
|
|
555,797
|
|
|
|
2.6
|
|
|
|
593,417
|
|
|
|
2.9
|
|
Short-term investments
|
|
|
576,878
|
|
|
|
2.7
|
|
|
|
192,226
|
|
|
|
1.0
|
|
Other invested assets
|
|
|
108,985
|
|
|
|
0.5
|
|
|
|
113,550
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
20,982,870
|
|
|
|
100.0
|
%
|
|
$
|
20,227,952
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in our total investments at June 30, 2017 compared to 2016 was primarily a result of an increase in mortgage
loans, and short-term investments.
Bonds
We allocate most of our fixed maturity securities to support our insurance business. At
June 30, 2017, our fixed maturity securities had an estimated fair value of $13.3 billion, which was $0.5 billion, or 3.8%, above amortized cost. 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. The estimated fair value for securities due in one year or less remained constant at $0.7 billion at June 30, 2017 and December 31, 2016. For additional information regarding
total bonds by credit quality rating refer to Note 4, Investments in Securities, of the Notes to the Unaudited Consolidated Financial Statements.
Equity Securities
We invest in companies publicly traded on national U.S. stock exchanges. See Note 4, Investments in Securities, of the
Notes to the Unaudited 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% at June 30, 2017 and December 31, 2016.
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 June 30, 2017, we had $383.9 million in policy loans with a loan to surrender value of 65.6%, and at December 31, 2016, we had $384.4 million in policy
loans with a loan to surrender value of 64.6%. 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.
49
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.
Net Investment Income and Net Realized Gains (Losses)
Net investment income increased $56.4 million during the six months ended June 30, 2017 compared to 2016 primarily due to an increase in realized and
unrealized gain of equity-indexed options as a result of increases in the S&P 500 and an increase in mortgage loan income. Equity-indexed options 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 increased $9.4 million during the six months ended June 30, 2017 compared to 2016 primarily due to an increase in investment gain on
securities. Other-than-temporary impairment on investment securities increased $1.2 million during the six months ended June 30, 2017 compared to 2016.
Net Unrealized Gains and Losses
The unrealized
gains and losses of our fixed maturity and equity securities investment portfolio are shown below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2017
|
|
|
December 31,
2016
|
|
|
Change
|
|
Held-to-Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains
|
|
$
|
300,368
|
|
|
$
|
285,315
|
|
|
$
|
15,053
|
|
Losses
|
|
|
(23,086
|
)
|
|
|
(40,008
|
)
|
|
|
16,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Gain
|
|
|
277,282
|
|
|
|
245,307
|
|
|
|
31,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains
|
|
|
1,142,242
|
|
|
|
986,635
|
|
|
|
155,607
|
|
Losses
|
|
|
(33,561
|
)
|
|
|
(43,100
|
)
|
|
|
9,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Gain
|
|
|
1,108,681
|
|
|
|
943,535
|
|
|
|
165,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,385,963
|
|
|
$
|
1,188,842
|
|
|
$
|
197,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes bonds and equity securities
|
The net change in the unrealized gains on fixed maturity securities
between December 31, 2016 and June 30, 2017 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 $901.3 million and $809.2 million at June 30, 2017 and December 31, 2016,
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.
50
Changes in interest rates during 2017 and market expectations for potentially higher rates through 2018, 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 Unaudited Consolidated Financial Statements.
Our cash and cash equivalents and short-term investment position increased from $481.6 million at December 31, 2016 to $1.0 billion at June 30,
2017.
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 16, Commitments and Contingencies, of the Notes to
the Unaudited Consolidated Financial Statements.
Capital Resources
Our capital resources are summarized below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
American National stockholders equity, excluding accumulated other comprehensive income, net
of tax (AOCI)
|
|
$
|
4,230,447
|
|
|
$
|
4,196,279
|
|
AOCI
|
|
|
560,511
|
|
|
|
455,899
|
|
|
|
|
|
|
|
|
|
|
Total American National stockholders equity
|
|
$
|
4,790,958
|
|
|
$
|
4,652,178
|
|
|
|
|
|
|
|
|
|
|
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 $30.5 million and $31.8 million at June 30, 2017 and December 31, 2016, respectively.
51
The changes in our capital resources are summarized below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2017
|
|
|
|
Capital and
Retained
Earnings
|
|
|
AOCI
|
|
|
Total
|
|
Net income attributable to American National
|
|
$
|
75,799
|
|
|
$
|
|
|
|
$
|
75,799
|
|
Dividends to shareholders
|
|
|
(44,168
|
)
|
|
|
|
|
|
|
(44,168
|
)
|
Change in net unrealized gains on securities
|
|
|
|
|
|
|
96,588
|
|
|
|
96,588
|
|
Defined benefit pension plan adjustment
|
|
|
|
|
|
|
7,741
|
|
|
|
7,741
|
|
Foreign currency transaction and translation adjustment
|
|
|
|
|
|
|
283
|
|
|
|
283
|
|
Other
|
|
|
2,537
|
|
|
|
|
|
|
|
2,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
34,168
|
|
|
$
|
104,612
|
|
|
$
|
138,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory Capital and Surplus and Risk-based Capital
Statutory capital and surplus is the capital of our insurance companies reported in accordance with accounting practices prescribed or permitted by the
applicable state insurance departments. RBC is calculated using formulas applied to certain financial balances and activities that consider, among other things, investment risks related to the type and quality of investments, insurance risks
associated with products and liabilities, interest rate risks and general business risks. Insurance companies that do not maintain capital and surplus at a level of at least 200% of the authorized control level RBC are required to take certain
actions. At June 30, 2017 and December 31, 2016, American National Insurance Companys statutory capital and surplus was $3,028,989,000 and $2,985,909,000, respectively. American National Insurance Company and each of its insurance
subsidiaries had statutory capital and surplus at June 30, 2017 and December 31, 2016, 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
Our future cash payments
associated with claims and claims adjustment expenses, life, annuity and disability obligations, contractual obligations pursuant to operating leases for office space and equipment, and notes payable have not materially changed since
December 31, 2016. We expect to have the capacity to pay our obligations as they come due.
One-Time Pension Payout Window
The one-time window offering to terminated, vested participants of our qualified defined benefit pension plans allowing participants to take a lump sum or
annuity payout of their pension benefit, closed in March 2017. Payments to participants that elected to take a lump sum payout were made from pension plan assets in April, 2017. A portion of the pension actuarial loss included in Accumulated Other
Comprehensive Income was recognized as pension costs in proportion to the reduction of the pension plans total benefit obligations. The after-tax expense recognized in the second quarter of 2017 was approximately $4,673,000.
Off-Balance Sheet Arrangements
We have off-balance sheet
arrangements relating to third-party marketing operation bank loans as discussed in Note 16, Commitments and Contingencies, of the Notes to the Unaudited 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.
52
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 17, Related Party Transactions, of the Notes to the Unaudited Consolidated Financial Statements.