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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
FORM 10-Q

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2020
or
☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File No. 001-34280

ANAT-20200331_G1.JPG
American National Insurance Company
(Exact name of registrant as specified in its charter)
 

Texas 74-0484030
(State or other jurisdiction of
incorporation or organization) 		  (I.R.S. Employer
Identification No.)
One Moody Plaza
Galveston, Texas 77550-7999
(Address of principal executive offices) (Zip Code)
(409) 763-4661
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol Name of Each Exchange on which Registered
Common Stock, par value $1.00 ANAT NASDAQ
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   ☒  Yes    ☐  No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Sections 15(d) of the Exchange Act. Yes  ☐    No  ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes    ☐  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☒  Yes    ☐  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer   ☒ Accelerated filer   ☐
Non-accelerated filer   ☐ Smaller reporting company   ☐
Emerging growth company   ☐  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
As of April 29, 2020, there were 26,887,200 shares of the registrant’s voting common stock, $1.00 par value per share, outstanding.

AMERICAN NATIONAL INSURANCE COMPANY
TABLE OF CONTENTS
ITEM 1.
3
4
5
6
7
8
ITEM 2.
37
ITEM 3.
59
ITEM 4.
59
ITEM 1.
59
ITEM 1A.
59
ITEM 2.
61
ITEM 3.
61
ITEM 4.
61
ITEM 5.
61
ITEM 6.
62



2
AMERICAN NATIONAL INSURANCE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited and in thousands, except share data)
March 31, 2020 December 31, 2019
ASSETS
Fixed maturity, bonds held-to-maturity, at amortized cost, net of allowance for credit losses of $21,385 in 2020
   (Fair value $8,501,656 in 2020 and $8,968,690 in 2019)
$ 8,554,809    $ 8,631,261   
Fixed maturity, bonds available-for-sale, at fair value (Amortized cost $6,447,577 in 2020 and $6,435,670 in 2019)
6,480,374    6,725,085   
Equity securities, at fair value (Cost $693,708 in 2020 and $663,058 in 2019)
1,375,083    1,700,960   
Mortgage loans on real estate, net of allowance for credit losses of $59,445 in 2020
5,125,365    5,097,017   
Policy loans 380,084    379,657   
Investment real estate, net of accumulated depreciation of $260,893 in 2020 and $256,757 in 2019
545,646    551,219   
Short-term investments 418,882    425,321   
Other invested assets 74,135    76,569   
Total investments 22,954,378    23,587,089   
Cash and cash equivalents 328,752    452,001   
Investments in unconsolidated affiliates 757,737    705,721   
Accrued investment income 192,252    200,856   
Reinsurance recoverables, net of allowance for credit losses of $17,713 in 2020
405,623    411,830   
Prepaid reinsurance premiums 38,807    44,669   
Premiums due and other receivables 377,782    341,924   
Deferred policy acquisition costs 1,514,005    1,423,007   
Property and equipment, net of accumulated depreciation of $263,857 in 2020 and $257,907 in 2019
105,709    106,303   
Prepaid pension 81,962    78,990   
Other assets 187,950    171,285   
Separate account assets 893,856    1,073,891   
Total assets $ 27,838,813    $ 28,597,566   
LIABILITIES
Future policy benefits
Life $ 3,098,444    $ 3,087,578   
Annuity 1,565,202    1,571,263   
Health 49,842    49,886   
Policyholders’ account balances 12,857,448    12,957,989   
Policy and contract claims 1,470,080    1,489,979   
Unearned premium reserve 945,808    933,559   
Other policyholder funds 348,594    361,059   
Liability for retirement benefits 65,305    67,435   
Notes payable 156,943    157,997   
Deferred tax liabilities, net 269,650    394,528   
Current tax payable 31,824    9,757   
Other liabilities 478,728    446,882   
Separate account liabilities 893,856    1,073,891   
Total liabilities 22,231,724    22,601,803   
EQUITY
American National stockholders’ equity:
Common stock, $1.00 par value, Authorized 50,000,000 in 2020 and 2019, Issued 30,832,449 in 2020 and 2019
   Outstanding 26,887,200 shares in 2020 and 2019
30,832    30,832   
Additional paid-in capital 21,031    21,011   
Accumulated other comprehensive income (loss) (12,053)   99,518   
Retained earnings 5,669,664    5,946,857   
Treasury stock, at cost (108,469)   (108,469)  
Total American National stockholders’ equity 5,601,005    5,989,749   
Noncontrolling interest 6,084    6,014   
Total equity 5,607,089    5,995,763   
Total liabilities and equity $ 27,838,813    $ 28,597,566   
See accompanying notes to the unaudited condensed consolidated financial statements.
3
AMERICAN NATIONAL INSURANCE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and in thousands, except share and per share data)
  Three months ended March 31,
  2020 2019
PREMIUMS AND OTHER REVENUES
Premiums
Life $ 89,516    $ 86,468   
Annuity 15,509    39,907   
Health 43,086    38,681   
Property and casualty 388,657    371,181   
Other policy revenues 79,605    74,248   
Net investment income 115,284    292,346   
Net realized investment gains 4,148    2,947   
Change in investment credit loss (44,678)   —   
Net gains (losses) on equity securities (332,575)   206,377   
Other income 11,133    11,538   
Total premiums and other revenues 369,685    1,123,693   
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits
Life 110,466    109,465   
Annuity 34,802    58,761   
Claims incurred
Health 34,885    25,767   
Property and casualty 229,709    238,144   
Interest credited to policyholders’ account balances (4,323)   141,234   
Commissions for acquiring and servicing policies 130,435    138,645   
Other operating expenses 133,926    133,610   
Change in deferred policy acquisition costs (1,672)   (6,631)  
Total benefits, losses and expenses 668,228    838,995   
Income (loss) before federal income tax and other items (298,543)   284,698   
Less: Provision (benefit) for federal income taxes
Current 24,503    13,780   
Deferred (86,171)   53,597   
Total provision (benefit) for federal income taxes (61,668)   67,377   
Income (loss) after federal income tax (236,875)   217,321   
Equity in earnings of unconsolidated affiliates 15,707    40,460   
Other components of net periodic pension benefit (costs), net of tax 571    (914)  
Net income (loss) (220,597)   256,867   
Less: Net loss attributable to noncontrolling interest, net of tax (153)   (1,350)  
Net income (loss) attributable to American National $ (220,444)   $ 258,217   
Amounts available to American National common stockholders
Earnings (loss) per share
Basic $ (8.20)   $ 9.60   
Diluted (8.20)   9.60   
Cash dividends to common stockholders 0.82    0.82   
Weighted average common shares outstanding 26,881,700    26,885,719   
Weighted average common shares outstanding and dilutive potential common shares 26,891,675    26,891,904   

See accompanying notes to the unaudited condensed consolidated financial statements.
4
AMERICAN NATIONAL INSURANCE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited and in thousands)
  Three months ended March 31,
  2020 2019
Net income (loss) $ (220,597)   $ 256,867   
Other comprehensive income (loss), net of tax
  Change in net unrealized gains (losses) on securities (112,403)   85,514   
  Foreign currency transaction and translation adjustments (924)   (156)  
  Defined benefit pension plan adjustment 1,756    1,416   
Total other comprehensive income (loss), net of tax (111,571)   86,774   
Total comprehensive income (loss) (332,168)   343,641   
Less: Comprehensive loss attributable to noncontrolling interest (153)   (1,350)  
Total comprehensive income (loss) attributable to American National $ (332,015)   $ 344,991   

See accompanying notes to the unaudited condensed consolidated financial statements.

5
AMERICAN NATIONAL INSURANCE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited and in thousands)
  Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Treasury Stock Noncontrolling Interest Total Equity
Balance at December 31, 2019 $ 30,832    $ 21,011    $ 99,518    $ 5,946,857    $ (108,469)   $ 6,014    $ 5,995,763   
Amortization of restricted stock —    20    —    —    —    —    20   
Cumulative effect of accounting change
—    —    —    (34,702)   —    —    (34,702)  
Other comprehensive loss —    —    (111,571)   —    —    —    (111,571)  
Net loss attributable to American National
—    —    —    (220,444)   —    —    (220,444)  
Cash dividends to common stockholders
—    —    —    (22,047)   —    —    (22,047)  
Contributions —    —    —    —    —    546    546   
Distributions —    —    —    —    —    (323)   (323)  
Net loss attributable to noncontrolling interest
—    —    —    —    —    (153)   (153)  
Balance at March 31, 2020 $ 30,832    $ 21,031    $ (12,053)   $ 5,669,664    $ (108,469)   $ 6,084    $ 5,607,089   


  Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Treasury Stock Noncontrolling Interest Total Equity
Balance at December 31, 2018 $ 30,832    $ 20,694    $ (99,738)   $ 5,413,952    $ (108,492)   $ 14,267    $ 5,271,515   
Reissuance of treasury shares
—    237    —    —    23    —    260   
Amortization of restricted stock —    20    —    —    —    —    20   
Cumulative effect of accounting change
—    —    (785)   785    —    —    —   
Other comprehensive income —    —    86,774    —    —    —    86,774   
Net income attributable to American National
—    —    —    258,217    —    —    258,217   
Cash dividends to common stockholders
—    —    —    (22,101)   —    —    (22,101)  
Contributions —    —    —    —    —    3    3   
Distributions —    —    —    —    —    (419)   (419)  
Net loss attributable to noncontrolling interest
—    —    —    —    —    (1,350)   (1,350)  
Balance at March 31, 2019 $ 30,832    $ 20,951    $ (13,749)   $ 5,650,853    $ (108,469)   $ 12,501    $ 5,592,919   

See accompanying notes to the unaudited condensed consolidated financial statements.
6
AMERICAN NATIONAL INSURANCE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
(Unaudited and in thousands)
  Three months ended March 31,
  2020 2019
OPERATING ACTIVITIES
Net income (loss) $ (220,597)   $ 256,867   
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized investment gains (4,148)   (2,947)  
Investment credit loss 44,678    —   
Accretion of premiums, discounts and loan origination fees 1,845    (2,099)  
Net capitalized interest on policy loans and mortgage loans (6,351)   (10,094)  
Depreciation 12,614    13,840   
Interest credited to policyholders’ account balances (4,323)   141,234   
Charges to policyholders’ account balances (79,605)   (74,248)  
Deferred federal income tax expense (benefit) (86,171)   53,597   
Equity in earnings of unconsolidated affiliates (15,707)   (40,460)  
Distributions from unconsolidated affiliates 27,246    23,607   
Changes in:
Policyholder liabilities (4,203)   45,592   
Deferred policy acquisition costs (1,672)   (6,631)  
Reinsurance recoverables 6,207    7,575   
Premiums due and other receivables (35,858)   1,395   
Prepaid reinsurance premiums 5,862    1,525   
Accrued investment income 8,604    2,808   
Current tax receivable/payable 22,392    17,059   
Liability for retirement benefits (2,879)   (984)  
Fair value of option securities 108,095    (66,483)  
Fair value of equity securities 332,575    (206,377)  
Other, net 3,447    12,893   
    Net cash provided by operating activities 112,051    167,669   
INVESTING ACTIVITIES
Proceeds from sale/maturity/prepayment of:
Held-to-maturity securities 360,849    85,182   
Available-for-sale securities 274,697    74,411   
Equity securities 27,620    56,466   
Investment real estate 964    1,752   
Mortgage loans 105,964    271,430   
Policy loans 12,414    12,787   
Other invested assets 32,609    10,364   
Distributions from unconsolidated affiliates 11,711    40,233   
Payment for the purchase/origination of:
Held-to-maturity securities (345,112)   (244,869)  
Available-for-sale securities (250,954)   (105,772)  
Equity securities (34,350)   (18,280)  
Investment real estate (3,361)   (8,999)  
Mortgage loans (166,933)   (106,108)  
Policy loans (6,520)   (5,920)  
Other invested assets (10,192)   (17,355)  
Additions to property and equipment (5,354)   (3,204)  
Contributions to unconsolidated affiliates (82,065)   (45,599)  
Change in short-term investments 6,439    (519,999)  
Change in collateral held for derivatives (128,078)   67,523   
Other, net 4,400    373   
    Net cash used in investing activities (195,252)   (455,584)  
FINANCING ACTIVITIES
Policyholders’ account deposits 294,297    743,275   
Policyholders’ account withdrawals (310,921)   (368,810)  
Change in notes payable (1,054)   (473)  
Dividends to stockholders (22,047)   (22,101)  
Payments to noncontrolling interest (323)   (419)  
    Net cash provided by (used in) financing activities (40,048)   351,472   
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (123,249)   63,557   
Cash and cash equivalents at beginning of the period 452,001    268,164   
Cash and cash equivalents at end of the period $ 328,752    $ 331,721   
See accompanying notes to the unaudited condensed consolidated financial statements.
7

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




Note 1 – Nature of Operations

American National Insurance Company and its consolidated subsidiaries (collectively “American National” or the "Company”) offer a broad portfolio of insurance products, including individual and group life insurance, annuities, health insurance, and property and casualty insurance. Business is conducted in all 50 states, the District of Columbia and Puerto Rico.

Note 2 – Summary of Significant Accounting Policies and Practices

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

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

The interim condensed consolidated financial statements and notes should be read in conjunction with the annual consolidated financial statements and notes thereto included in American National’s Annual Report on Form 10-K as of and for the year ended December 31, 2019. The condensed consolidated results of operations for the interim periods should not be considered indicative of results to be expected for the full year.

The preparation of the condensed consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the reported consolidated financial statement balances. Actual results could differ from those estimates.
8

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

Standard Description Effective Date and Method of Adoption Impact on Financial Statements
ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments The new standard significantly changes how entities measure or estimate credit losses for most financial assets, reinsurance recoverables and certain other instruments that are not measured at fair value. Changes in expected credit losses are now recognized through net income. The guidance replaces 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 a direct write down of the investment, as required by the current other-than-temporary impairment model. The standard also requires additional disclosures. The Company adopted this standard on its required effective date of January 1, 2020 using a modified retrospective transition.
Adoption of this guidance resulted in an allowance for credit losses primarily on the commercial mortgage loans and related off-balance sheet unfunded loan commitments, held-to-maturity bonds and reinsurance recoverables. The Company recorded a cumulative effect adjustment to retained earnings of $34.7 million, net of tax, which reduced stockholders' equity. The impact is attributable to a $43.9 million allowance for credit losses on the aforementioned financial assets. See table below for additional detail.
ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement The new guidance modifies the disclosure requirements on fair value measurements. Certain disclosure requirements are removed, modified or added to improve the relevancy of the fair value measurement disclosures. The Company adopted this standard on its required effective date of January 1, 2020 using a prospective transition for certain amendments and retrospective transition for all other amendments. The adoption of this standard did not have a material impact to the Company’s Notes to the Condensed Consolidated Financial Statements.
ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract The new standard aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. Current GAAP does not specifically address the implementation costs of a cloud computing arrangement that is a service contract. The Company adopted this standard on its required effective date of January 1, 2020 using a prospective transition. The adoption of this standard did not have a material impact to the Company’s Condensed Consolidated Financial Statements or Notes to the Condensed Consolidated Financial Statements.

As of January 1, 2020, changes related to the adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASC 326"), had the following effect on assets and liabilities:
Pre-ASC 326 Adoption Adjustment to Adopt ASC 326 Balance as of January 1, 2020
Assets:
Allowance for Credit Losses
Fixed maturity, bonds held-to-maturity, at amortized cost $ —    $ (21,664)   $ (21,664)  
Mortgage loans on real estate (19,160)   (11,224)   (30,384)  
Reinsurance recoverables (8,220)   (7,920)   (16,140)  
Liabilities:
Allowance for credit losses on loans
Off-Balance Sheet Credit Exposures —    (3,126)   (3,126)  
Total $ (27,380)   $ (43,934)   $ (71,314)  

9

Note 3 – Recently Issued Accounting Pronouncements – (Continued)
Future Adoption of New Accounting Standards— The FASB issued the following accounting guidance relevant to American National:
Standard Description Effective Date and Method of Adoption Impact on Financial Statements
ASU 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts The guidance will improve the timeliness of recognizing changes in the liability for future policy benefits for traditional and limited payment long-duration contracts and will modify the rate used to discount future cash flows. The guidance will also simplify the accounting for certain market-based options or guarantees associated with deposit (or account balance) contracts (market risk benefits), simplify the amortization of deferred acquisition costs and add significant qualitative and quantitative disclosures. This standard will become effective for the Company for all annual and interim periods beginning January 1, 2022. The guidance allows for one of two adoption methods, a modified retrospective transition or a full retrospective transition except for the changes to accounting for market risk benefits, which will require a retrospective transition. This standard will have a material impact on our Condensed Consolidated Financial Statements and Notes to the Condensed Consolidated Financial Statements.
ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans The new standard modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The guidance removes certain defined benefit pension or other postretirement plan disclosures that are no longer cost beneficial, clarifies the specific requirements for each disclosure and adds disclosure requirements. This standard will become effective for the annual period ending December 15, 2020 using a retrospective transition. The Company does not expect the adoption of this standard to have a material impact on our Condensed Consolidated Financial Statements or Notes to the Condensed Consolidated Financial Statements.
ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes The amendments simplify the accounting for income taxes by removing certain exceptions in the existing guidance including those related to intra-period tax allocation when there is a loss from continuing operations and income or a gain from other items. The amendments require an entity to recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax as well as other minor changes. This standard will become effective for the Company for all annual and interim periods beginning January 1, 2021. The new guidance specifies which amendments should be applied prospectively, retrospective to all periods presented or on a modified retrospective basis through a cumulative-effect adjustment to retained income as of the beginning of the year of adoption. The Company does not expect the adoption of this standard to have a material impact on our Condensed Consolidated Financial Statements or Notes to the Consolidated Financial Statements.
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting The amendments in this Update provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The guidance only applies to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments in this Update are effective for all entities as of March 12, 2020 and will sunset through December 31, 2022, at which time the application of exceptions and optional expedients will no longer be permitted. We are evaluating our current exposure to LIBOR and the impact this standard would have on the Condensed Consolidated Financial Statements.



















10

Note 4 – Investment in Securities
The cost or amortized cost and fair value of investments in securities are shown below (in thousands):
  March 31, 2020
  Cost or
Amortized
Cost 		Gross
Unrealized
Gains 		Gross
Unrealized
(Losses) 		Allowance for Credit Losses Fair Value
Fixed maturity securities, bonds held-to-maturity
U.S. states and political subdivisions $ 155,151    $ 4,778    $ —    $ —    $ 159,929   
Foreign governments 3,894    525    (5)   5    4,419   
Corporate debt securities 8,029,559    193,701    (248,247)   (18,401)   7,956,612   
Residential mortgage-backed securities 179,087    8,578    (743)   (3)   186,919   
Collateralized debt securities 208,501    —    (11,738)   (2,986)   193,777   
         Total bonds held-to-maturity 8,576,192    207,582    (260,733)   (21,385)   8,501,656   
Fixed maturity securities, bonds available-for-sale
U.S. treasury and government 29,500    804    —    —    30,304   
U.S. states and political subdivisions 1,028,590    50,335    (8)   —    1,078,917   
Foreign governments 5,000    1,432    —    —    6,432   
Corporate debt securities 5,338,626    128,845    (135,711)   (12,499)   5,319,261   
Residential mortgage-backed securities 29,599    229    (7)   (236)   29,585   
Collateralized debt securities 16,262    462    (719)   (130)   15,875   
         Total bonds available-for-sale 6,447,577    182,107    (136,445)   (12,865)   6,480,374   
Total investments in fixed maturity securities $ 15,023,769    $ 389,689    $ (397,178)   $ (34,250)   $ 14,982,030   

  December 31, 2019
  Cost or
Amortized
Cost 		Gross
Unrealized
Gains 		Gross
Unrealized
(Losses) 		Allowance for Credit Losses Fair Value
Fixed maturity securities, bonds held-to-maturity
U.S. states and political subdivisions $ 165,109    $ 5,005    $ —    $ —    $ 170,114   
Foreign governments 3,907    442    —    —    4,349   
Corporate debt securities 8,099,098    332,410    (6,539)   —    8,424,969   
Residential mortgage-backed securities 237,516    6,460    (1,148)   —    242,828   
Collateralized debt securities 125,631    1,146    (347)   —    126,430   
         Total bonds held-to-maturity 8,631,261    345,463    (8,034)   —    8,968,690   
Fixed maturity securities, bonds available-for-sale
U.S. treasury and government 29,505    441    (5)   —    29,941   
U.S. states and political subdivisions 1,030,309    47,865    (9)   —    1,078,165   
Foreign governments 5,000    1,287    —    —    6,287   
Corporate debt securities 5,338,007    251,408    (12,795)   —    5,576,620   
Residential mortgage-backed securities 23,405    739    (201)   —    23,943   
Collateralized debt securities 9,444    686    (1)   —    10,129   
         Total bonds available-for-sale 6,435,670    302,426    (13,011)   —    6,725,085   
Total investments in fixed maturity securities $ 15,066,931    $ 647,889    $ (21,045)   $ —    $ 15,693,775   


11

Note 4 – Investment in Securities – (Continued)
The amortized cost and fair value, by contractual maturity, of fixed maturity securities are shown below (in thousands):
  March 31, 2020
  Bonds Held-to-Maturity Bonds Available-for-Sale
  Amortized Cost Fair Value Amortized Cost Fair Value
Due in one year or less $ 905,262    $ 907,767    $ 524,449    $ 524,574   
Due after one year through five years 3,178,976    3,191,015    3,040,598    3,015,422   
Due after five years through ten years 3,403,404    3,342,208    2,180,525    2,207,898   
Due after ten years 1,088,550    1,060,666    702,005    732,480   
Total $ 8,576,192    $ 8,501,656    $ 6,447,577    $ 6,480,374   
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 presented 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 March 31,
  2020 2019
Proceeds from sales of fixed maturity available-for-sale securities $ 46,513    $ 285   
Gross realized gains 412    —   
Gross realized losses (4,072)   (23)  
Gains and losses are determined using specific identification of the securities sold. During the three months ended March 31, 2019, bonds below investment grade with a carrying value of $157,939,000 were transferred from held-to-maturity to available-for-sale after a deterioration in the issuers’ creditworthiness. There was no transfer of bonds from held-to-maturity to available-for-sale during the three months ended March 31, 2020. No realized losses were recorded at March 31, 2020 and 2019.
The components of the change in net unrealized gains (losses) on debt securities are shown below (in thousands):
  Three months ended March 31,
  2020 2019
Bonds available-for-sale: change in unrealized gains (losses) $ (244,361)   $ 154,167   
Adjustments for
Deferred policy acquisition costs 89,326    (38,893)  
Participating policyholders’ interest 11,151    (7,690)  
Deferred federal income tax (expense) 31,481    (22,070)  
Change in net unrealized gains (losses) on debt securities, net of tax $ (112,403)   $ 85,514   
The components of the change in net gains (losses) on equity securities are shown below (in thousands):
  Three months ended March 31,
  2020 2019
Unrealized gains (losses) on equity securities $ (333,601)   $ 203,022   
Net gains on equity securities sold 1,026    3,355   
Net gains (losses) on equity securities $ (332,575)   $ 206,377   



12

Note 4 – Investment in Securities – (Continued)
The gross unrealized losses and fair value of available-for-sale debt securities, aggregated by investment category and length of time individual securities have been in a continuous unrealized loss position due to noncredit related factors at March 31, 2020 are shown below (in thousands):
  March 31, 2020
  Less than 12 months 12 months or more Total
  Gross
Unrealized
(Losses) 		Fair
Value 		Gross
Unrealized
(Losses) 		Fair
Value 		Gross
Unrealized
(Losses) 		Fair
Value
Fixed maturity securities, bonds available-for-sale
U.S. states and political subdivisions $ (8)   $ 1,471    $ —    $ 121    $ (8)   $ 1,592   
Corporate debt securities (20,013)   165,169    (115,698)   1,587,397    (135,711)   1,752,566   
Residential mortgage-backed securities —    —    (7)   618    (7)   618   
Collateralized debt securities —    —    (719)   13,545    (719)   13,545   
Total $ (20,021)   $ 166,640    $ (116,424)   $ 1,601,681    $ (136,445)   $ 1,768,321   

Unrealized losses on available-for-sale debt securities where an allowance for credit loss was not recorded are due to noncredit related factors caused by market liquidity events related to COVID-19 and the economic downturn. A number of assumptions and estimates are inherent in evaluating whether an allowance for credit loss is necessary, which include the financial condition, near term and long-term prospects of the issue or issuer, including relevant industry conditions and trends and implications of rating agency actions and offering prices.
December 31, 2019
  Less than 12 months 12 months or more Total
  Gross
Unrealized
(Losses) 		Fair
Value 		Gross
Unrealized
(Losses) 		Fair
Value 		Gross
Unrealized
(Losses) 		Fair
Value
Fixed maturity securities, bonds available-for-sale
U.S. treasury and government $ —    $ —    $ (5)   $ 8,299    $ (5)   $ 8,299   
U.S. states and political subdivisions (9)   1,733    —    —    (9)   1,733   
Corporate debt securities (5,257)   94,942    (7,538)   132,626    (12,795)   227,568   
Residential mortgage-backed securities (9)   10,169    (192)   722    (201)   10,891   
Collateralized debt securities (1)   159    —    —    (1)   159   
Total $ (5,276)   $ 107,003    $ (7,735)   $ 141,647    $ (13,011)   $ 248,650   
Equity securities by market sector distribution are shown below, based on fair value:
March 31, 2020 December 31, 2019
Consumer goods 19.7  % 18.9  %
Energy and utilities 6.3    8.0   
Finance 15.7    18.0   
Healthcare 14.2    13.0   
Industrials 7.1    7.6   
Information technology 27.2    25.0   
Other 9.8    9.5   
        Total 100.0  % 100.0  %

13

Note 4 – Investment in Securities – (Continued)
Allowance for Credit Losses

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

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

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

The rollforward of the allowance for credit losses for held-to-maturity securities is shown below (in thousands):
Foreign governments Corporate debt securities Collateralized debt securities Residential mortgage backed securities Total
Allowance for credit losses
Cumulative adjustment at January 1, 2020 $ 4    $ (18,563)   $ (2,968)   $ (137)   $ (21,664)  
Provision 1    162    (18)   134    279   
Ending balance at March 31, 2020 $ 5    $ (18,401)   $ (2,986)   $ (3)   $ (21,385)  


The rollforward of the allowance for credit losses for available-for-sale debt securities is shown below (in thousands):
Corporate debt securities Residential mortgage backed securities Collateralized debt securities Total
Allowance for credit losses
Current period adjustments $ (12,499)   $ (236)   $ (130)   $ (12,865)  


The change in allowance for the three months ended March 31, 2020 was impacted by economic changes due to the COVID-19 pandemic on the bond market.
14

Note 4 – Investment in Securities – (Continued)
Credit Quality Indicators

The Company monitors the credit quality of debt securities held-to-maturity through the use of credit ratings, which are updated on a monthly basis.

The credit quality indicators for the amortized cost of held-to-maturity debt securities as of March 31, 2020 are shown below (in thousands):
Amortized cost of held-to-maturity debt securities by credit rating
Fixed maturity securities, bonds held-to-maturity AAA AA A BBB BB and below Total
U.S. state and political subdivisions $ 54,145    $ 71,923    $ 23,814    $ —    $ 5,269    $ 155,151   
Foreign governments —    2,852    1,042    —    —    3,894   
Corporate debt securities 1,942    366,335    3,517,245    3,962,838    181,199    8,029,559   
Residential mortgage backed securities 80,387    —    4,745    —    93,955    179,087   
Collateralized debt securities —    —    164,765    16,053    27,683    208,501   
Total $ 136,474    $ 441,110    $ 3,711,611    $ 3,978,891    $ 308,106    $ 8,576,192   

At March 31, 2020, a held-to-maturity bond with amortized cost of $38,000 was past due over 90 days with non accrual status.

Note 5 - Mortgage Loans

Generally, commercial mortgage loans are secured by first liens on income-producing real estate. American National attempts to maintain a diversified portfolio by considering the location of the underlying collateral. The geographic categories come from the US Census Bureau's "Census Regions and Divisions of the United States." The distribution based on carrying amount of mortgage loans by location is as follows (in thousands, except percentages):
March 31, 2020 December 31, 2019
East North Central $ 670,432    13.1  % $ 667,150    13.1  %
East South Central 149,651    2.9    144,887    2.8   
Mountain 1,222,815    23.9    1,200,434    23.6   
Pacific 889,300    17.4    852,574    16.7   
South Atlantic 620,658    12.1    621,875    12.2   
West South Central 1,248,628    24.4    1,272,522    25.0   
Other 323,881    6.2    337,575    6.6   
Total $ 5,125,365    100.0  % $ 5,097,017    100.0  %
During the three months ended March 31, 2020, American National did not foreclose on any loans, and only one loan with a recorded investment of $9,230,000 was in the process of foreclosure at March 31, 2020. For the year ended December 31, 2019, American National foreclosed on two loans with a total recorded investment of $16,008,000, and there were two loans with a total recorded investment of $13,345,000 in the process of foreclosure at December 31, 2019. American National did not sell any loans during the three months ended March 31, 2020 or during the year ended December 31, 2019.


15

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
March 31, 2020 Past Due Past Due 90 Days Total Current Amount Percent
Apartment $ —    $ —    $ —    $ —    $ 432,155    $ 432,155    8.3  %
Hotel —    —    —    —    899,012    899,012    17.3   
Industrial 13,068    —    4,091    17,159    638,947    656,106    12.7   
Office 4,535    9,230    —    13,765    1,557,472    1,571,237    30.3   
Retail —    —    —    —    857,863    857,863    16.6   
Other 4,637    —    —    4,637    763,800    768,437    14.8   
Total $ 22,240    $ 9,230    $ 4,091    $ 35,561    $ 5,149,249    $ 5,184,810    100.0  %
Allowance for credit losses (59,445)  
Total, net of allowance $ 5,125,365   
December 31, 2019
Apartment $ —    $ —    $ —    $ —    $ 416,865    $ 416,865    8.1  %
Hotel —    —    —    —    901,044    901,044    17.6   
Industrial —    13,076    4,091    17,167    589,721    606,888    11.9   
Office 22,870    —    —    22,870    1,587,591    1,610,461    31.5   
Retail —    —    4,122    4,122    843,467    847,589    16.6   
Other 11,759    —    —    11,759    721,571    733,330    14.3   
Total $ 34,629    $ 13,076    $ 8,213    $ 55,918    $ 5,060,259    $ 5,116,177    100.0  %
Allowance for loan losses (19,160)  
Total, net of allowance $ 5,097,017   
There were no unamortized purchase discounts as of March 31, 2020 or during the year ended December 31, 2019. Total mortgage loans were net of unamortized origination fees of $29,231,000 and $29,294,000 at March 31, 2020 and December 31, 2019, respectively. No unearned income is included in these amounts.
Troubled Debt Restructurings
There were no loans determined to be a troubled debt restructuring for the three months ended March 31, 2020. There were no commitments to lend additional funds to debtors whose loans have been modified in a troubled debt restructuring during the periods presented.

Allowance for Credit Losses

Mortgage loans on real estate are stated at unpaid principal balance, adjusted for any unamortized discount, deferred expenses and allowances. The allowance for current expected losses per ASC 326 at the effective date will be based upon the current expected credit loss model. The model considers past loss experience, current economic conditions, and reasonable and supportable forecasts of future conditions. Reversion for the allowance calculation is implicit in the models used to determine the allowance. The methodology uses a discounted cash flow approach based on expected cash flows. The model also considers nonaccrual status and loans past due more than 90 days still on accrual as of March 31, 2020:
Nonaccrual
January 1, 2020 March 31, 2020
Mortgage loans
Commercial loans $ 4,091    $ 4,091   










16

Note 5 - Mortgage Loans - (Continued)
The rollforward of the allowance for credit losses for mortgage loans is shown below (in thousands):
Commercial Mortgage Loans
Beginning balance at January 1, 2020 $ 19,160   
Cumulative adjustment at January 1, 2020 11,216   
Provision 29,069   
Ending balance at March 31, 2020 $ 59,445   
The change in allowance for the three months ended March 31, 2020 was driven by the economic disruption caused by COVID-19 and subsequent to March 31, 2020 we are working with many of our mortgage loan borrowers, primarily those related to hotels, retail and parking operations, on loan modifications.

The asset and allowance balances for credit losses for mortgage loans by property type are shown below (in thousands):
March 31, 2020
Asset Balance Allowance
Apartment $ 429,600    $ 2,555   
Hotel 872,450    26,563   
Industrial 652,257    3,849   
Office 1,565,346    5,891   
Retail 852,213    5,650   
Other 753,499    14,937   
Total $ 5,125,365    $ 59,445   
Credit Quality Indicators

Mortgage loans are segregated by property-type and quantitative and qualitative allowance factors are applied. Qualitative factors are developed quarterly based on the pooling of assets with similar risk characteristics and historical loss experience adjusted for the expected trend in the current market environment. Credit losses are pooled by collateral type as it represents the most similar and reliable risk characteristics in our portfolio. The amortized cost of mortgage loans by year of origination by property-type are shown below (in thousands):
Amortized Cost Basis by Origination Year
2020 2019 2018 2017 2016 Prior Total
Apartment $ —    $ 82,319    $ 39,362    $ 189,540    $ 69,053    $ 52,107    $ 432,381   
Hotel —    54,043    203,956    219,528    148,142    274,135    899,804   
Industrial 53,193    164,383    123,825    51,638    125,680    137,387    656,106   
Office —    53,326    189,338    349,173    315,911    663,489    1,571,237   
Retail 22,584    41,237    108,546    81,359    224,469    379,668    857,863   
Other 27,672    81,643    142,748    89,545    238,104    187,707    767,419   
Total $ 103,449    $ 476,951    $ 807,775    $ 980,783    $ 1,121,359    $ 1,694,493    $ 5,184,810   
Allowance for loan losses (59,445)  
Total, net of allowance $ 5,125,365   
Generally, mortgage loans are secured by first liens on income-producing real estate with a loan-to-value ratio of up to 75%. It is the Company's policy to not accrue interest on loans that are 90 days delinquent and where amounts are determined to be uncollectible.
Off-Balance-Sheet Credit Exposures
The company has off-balance-sheet credit exposures related to non-cancellable unfunded commitment amounts on commercial mortgage loans. We estimate the allowance for these exposures by applying the allowance rate we computed for each property type to the related outstanding commitment amounts. As of March 31, 2020, we have included a $6,150,000 liability in other liabilities on the balance sheet based on unfunded loan commitments totaling $687,287,000.
17

Note 6 – Real Estate and Other Investments

Investment real estate by property-type and geographic distribution are as follows (in thousands, except percentages):
March 31, 2020 December 31, 2019
Industrial $ 69,051    12.7  % $ 68,809    12.5  %
Office 216,464    39.7    219,490    39.8   
Retail 215,142    39.4    215,800    39.1   
Other 44,989    8.2    47,120    8.6   
Total $ 545,646    100.0  % $ 551,219    100.0  %

  March 31, 2020 December 31, 2019
East North Central $ 32,818    6.0  % $ 32,539    5.9  %
East South Central 33,864    6.2    34,248    6.2   
Mountain 67,719    12.4    68,498    12.4   
Pacific 39,911    7.3    40,462    7.3   
South Atlantic 83,079    15.2    83,552    15.2   
West South Central 274,967    50.4    278,833    50.6   
Other 13,288    2.5    13,087    2.4   
Total $ 545,646    100.0  % $ 551,219    100.0  %

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

The assets and liabilities relating to the VIEs included in the condensed consolidated financial statements are as follows (in thousands):
March 31, 2020 December 31, 2019
Investment real estate $ 134,148    $ 134,534   
Short-term investments 501    500   
Cash and cash equivalents 9,843    11,155   
Other receivables 3,030    3,673   
Other assets 14,238    15,355   
Total assets of consolidated VIEs $ 161,760    $ 165,217   
Notes payable $ 156,943    $ 157,997   
Other liabilities 9,210    9,731   
Total liabilities of consolidated VIEs $ 166,153    $ 167,728   
The notes payable in the condensed consolidated statements of financial position pertain to the borrowings of the consolidated VIEs. The liability of American National relating to notes payable of the consolidated VIEs is limited to the amount of its direct or indirect investment in the respective ventures, which totaled $3,309,000 and $4,304,000 at March 31, 2020 and December 31, 2019, respectively.
The total long-term notes payable of the consolidated VIEs consists of the following (in thousands):
Interest rate Maturity March 31, 2020 December 31, 2019
LIBOR
2021 $ 10,835    $ 10,836   
4% fixed
2022 80,935    81,709   
4.18% fixed
2024 65,173    65,452   
Total $ 156,943    $ 157,997   


18

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




For other VIEs in which American National is a partner, it is not the primary beneficiary, and these entities are not consolidated, as the major decisions that most significantly impact the economic activities of the VIE require consent of all partners. The carrying amount and maximum exposure to loss relating to unconsolidated VIEs follows (in thousands):
  March 31, 2020 December 31, 2019
  Carrying
Amount 		Maximum
Exposure
to Loss 		Carrying
Amount 		Maximum
Exposure
to Loss
Investment in unconsolidated affiliates $ 330,527    $ 330,527    $ 332,742    $ 332,742   
Mortgage loans 684,991    684,991    657,528    657,528   
Accrued investment income 2,428    2,428    2,198    2,198   
As of March 31, 2020, one real estate investment with a carrying value of $3,364,000 met the criteria as held-for-sale.

Note 7 – Derivative Instruments

American National purchases over-the-counter equity-indexed options as economic hedges against fluctuations in the equity markets to which equity-indexed products are exposed. These options are not designated as hedging instruments for accounting purposes under U.S. GAAP. Equity-indexed contracts include a fixed host universal-life insurance or annuity contract and an equity-indexed embedded derivative. The detail of derivative instruments is shown below (in thousands, except number of instruments):
Derivatives Not Designated
as Hedging Instruments 		Location in the Condensed Consolidated Statements of Financial Position March 31, 2020 December 31, 2019
Number of
Instruments 		Notional
Amounts 		Estimated
Fair Value 		Number of
Instruments 		Notional
Amounts 		Estimated
Fair Value
Equity-indexed options Other invested assets 466    $ 2,669,500    $ 125,988    473    $ 2,654,600    $ 256,005   
Equity-indexed embedded derivative Policyholders’ account balances 103,593    2,545,271    630,952    101,950    2,527,205    731,552   

Derivatives Not Designated
as Hedging Instruments 		Location in the Condensed Consolidated Statements of Operations Gains (Losses) Recognized in Income on Derivatives
Three months ended March 31,
2020 2019
Equity-indexed options Net investment income $ (108,095)   $ 66,485   
Equity-indexed embedded derivative Interest credited to policyholders’ account balances 89,581    (58,156)  

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


19

Note 7 – Derivative Instruments - (Continued)

Information regarding the Company’s exposure to credit loss on the options it holds is presented below (in thousands):
    March 31, 2020
Counterparty Moody/S&P
Rating 		Options Fair
Value 		Collateral  Held in Cash Collateral Held in Invested Assets Total
Collateral Held 		Collateral Amounts used to Offset Exposure Excess Collateral Exposure
Net of
Collateral
Barclays Baa2/BBB $ 26,494    $ (87)   $ 28,000    $ 27,913    $ 26,494    $ 1,419    $ —   
Credit Suisse Baa2/BBB+ 1,459    1,590    —    1,590    1,459    131    —   
Goldman-Sachs A3/BBB+ 709    640    —    640    640    —    69   
ING Baa1/A- 23,193    7,560    16,000    23,560    23,193    367    —   
Morgan Stanley A3/BBB+ 10,421    3,136    9,000    12,136    10,421    1,715    —   
NATIXIS* A1/A+ 19,961    21,250    —    21,250    19,961    1,289    —   
SunTrust A3/A- 25,018    10,040    17,000    27,040    25,018    2,022    —   
Wells Fargo A2/A- 18,733    5,350    15,000    20,350    18,733    1,617    —   
       Total $ 125,988    $ 49,479    $ 85,000    $ 134,479    $ 125,919    $ 8,560    $ 69   

    December 31, 2019
Counterparty Moody/S&P
Rating 		Options Fair
Value 		Collateral  Held in Cash Collateral Held in Invested Assets Total
Collateral Held 		Collateral Amounts used to Offset Exposure Excess Collateral Exposure
Net of
Collateral
Barclays Baa3/BBB $ 54,583    $ 27,343    $ 28,000    $ 55,343    $ 54,583    $ 760    $ —   
Credit Suisse Baa2/BBB+ 7,117    7,390    —    7,390    7,009    381    108   
Goldman-Sachs A3/BBB+ 1,053    930    —    930    930    —    123   
ING Baa1/A- 30,330    14,940    16,000    30,940    30,330    610    —   
Morgan Stanley A3/BBB+ 34,988    25,926    9,000    34,926    34,926    —    62   
NATIXIS* A1/A+ 29,918    30,200    —    30,200    29,918    282    —   
SunTrust A3/A- 60,360    41,720    17,000    58,720    58,645    75    1,715   
Wells Fargo A2/A- 37,656    24,110    15,000    39,110    37,656    1,454    —   
       Total $ 256,005    $ 172,559    $ 85,000    $ 257,559    $ 253,997    $ 3,562    $ 2,008   

* Collateral is prohibited from being held in invested assets























20

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


Net investment income is shown below (in thousands):
  Three months ended March 31,
  2020 2019
Bonds $ 146,119    $ 147,557   
Equity securities 7,847    8,292   
Mortgage loans 59,328    63,199   
Real estate 1,713    1,855   
Equity indexed options (108,095)   66,485   
Other invested assets 8,372    4,958   
Total $ 115,284    $ 292,346   
Net realized investment gains (losses) are shown below (in thousands):
  Three months ended March 31,
  2020 2019
Bonds $ 5,478    $ 2,602   
Mortgage loans —    455   
Real estate (1,307)   (158)  
Other invested assets (23)   48   
Total $ 4,148    $ 2,947   

There were no other-than-temporary impairment losses during the three months ended March 31, 2020 and 2019.

21

Note 9 – Fair Value of Financial Instruments

The carrying amount and fair value of financial instruments are shown below (in thousands):
  March 31, 2020 December 31, 2019
Carrying
Amount 		Fair Value Carrying
Amount 		Fair Value
Financial assets
      Fixed maturity securities, bonds held-to-maturity $ 8,554,809    $ 8,501,656    $ 8,631,261    $ 8,968,690   
      Fixed maturity securities, bonds available-for-sale 6,480,374    6,480,374    6,725,085    6,725,085   
Equity securities 1,375,083    1,375,083    1,700,960    1,700,960   
Equity-indexed options 125,988    125,988    256,005    256,005   
Mortgage loans on real estate, net of allowance 5,125,365    5,497,500    5,097,017    5,309,005   
Policy loans 380,084    380,084    379,657    379,657   
Short-term investments 418,882    418,882    425,321    425,321   
Separate account assets ($871,196 and $1,049,938 included in fair value hierarchy)
893,856    893,856    1,073,891    1,073,891   
Separately managed accounts 50,583    50,583    50,503    50,503   
                Total financial assets $ 23,405,024    $ 23,724,006    $ 24,339,700    $ 24,889,117   
Financial liabilities
Investment contracts $ 10,242,029    $ 10,242,029    $ 10,254,959    $ 10,254,959   
Embedded derivative liability for equity-indexed contracts 630,952    630,952    731,552    731,552   
Notes payable 156,943    156,943    157,997    157,997   
Separate account liabilities ($871,196 and $1,049,938 included in fair value hierarchy)
893,856    893,856    1,073,891    1,073,891   
                Total financial liabilities $ 11,923,780    $ 11,923,780    $ 12,218,399    $ 12,218,399   

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability. A fair value hierarchy is used to determine fair value based on a hypothetical transaction at the measurement date from the perspective of a market participant. American National has evaluated the types of securities in its investment portfolio to determine an appropriate hierarchy level based upon trading activity and the observability of market inputs. The classification of assets or liabilities within the fair value hierarchy is based on the lowest level of significant input to its valuation. The input levels are defined as follows:
Level 1   Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2   Quoted prices in markets that are not active or inputs that are observable directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities other than quoted prices in Level 1; quoted prices in markets that are not active; or other inputs that are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3   Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. Unobservable inputs reflect American National’s own assumptions about the assumptions that market participants would use in pricing the asset or liability. Level 3 assets and liabilities include financial instruments whose values are determined using pricing models and third-party evaluation, as well as instruments for which the determination of fair value requires significant management judgment or estimation.


22

Note 9 – Fair Value of Financial Instruments – (Continued)
Valuation Techniques for Financial Instruments Recorded at Fair Value
Fixed Maturity Securities and Equity Options—American National utilizes SS&C Technologies, Inc. pricing service to estimate fair value measurements. The estimates of fair value for most fixed maturity securities, including municipal bonds, provided by the pricing service are disclosed as Level 2 measurements as the estimates are based on observable market information rather than market quotes. The pricing service utilizes market quotations for fixed maturity securities that have quoted prices in active markets. Since fixed maturity securities generally do not trade on a daily basis, the pricing service prepares estimates of fair value measurements for these securities using its proprietary pricing applications, which include available relevant market information, benchmark curves, benchmarking of like securities, sector groupings and matrix pricing. Additionally, an option adjusted spread model is used to develop prepayment and interest rate scenarios.
The pricing service evaluates each asset class based on relevant market information, credit information, perceived market movements and sector news. The market inputs utilized in the pricing evaluation, listed in the approximate order of priority, include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and economic events. The extent of the use of each market input depends on the asset class and the market conditions. Depending on the security, the priority of the use of inputs may change or some market inputs may not be relevant. For some securities, additional inputs may be necessary.
American National has reviewed the inputs and methodology used and the techniques applied by the pricing service to produce quotes that represent the fair value of a specific security. The review confirms that the pricing service is utilizing information from observable transactions or a technique that represents a market participant’s assumptions. American National does not adjust quotes received from the pricing service. The pricing service utilized by American National has indicated that they will only produce an estimate of fair value if there is objectively verifiable information available.
American National holds a small amount of private placement debt and fixed maturity securities that have characteristics that make them unsuitable for matrix pricing. For these securities, a quote from an independent broker (typically a market maker) is obtained. Due to the disclaimers on the quotes that indicate the price is indicative only, American National includes these fair value estimates in Level 3.
For securities priced using a quote from an independent broker, such as the equity-indexed options and certain fixed maturity securities, American National uses a market-based fair value analysis to validate the reasonableness of prices received. Price variances above a certain threshold are analyzed further to determine if any pricing issue exists. This analysis is performed quarterly.
Equity Securities—For publicly-traded equity securities, prices are received from a nationally recognized pricing service that are based on observable market transactions, and these securities are classified as Level 1 measurements. For certain preferred stock, current market quotes in active markets are unavailable. In these instances, an estimated fair value is received from the pricing service. The service utilizes similar methodologies to price preferred stocks as it does for fixed maturity securities. If applicable, these estimates would be disclosed as Level 2 measurements. American National tests the accuracy of the information provided by reference to other services annually.
Short-term investments—Short-term investments are primarily commercial paper rated A2 or P2 or better by Standard & Poor's and Moody's, respectively. Commercial paper is carried at amortized cost which approximates fair value. These investments are classified as Level 2 measurements.
Separate account assets and liabilities—Separate account assets and liabilities are funds that are held separate from the general assets and liabilities of American National and that represent the investments of variable insurance product contract holders, who bear the investment risk of such funds. Investment income and investment gains and losses from these separate funds accrue to the benefit of the contract holders. Separate accounts are established in conformity with insurance laws and are not chargeable with liabilities that arise from any other business of American National. American National reports separately, as assets and liabilities, investments held in separate accounts and liabilities of the separate accounts if (i) such separate accounts are legally recognized; (ii) assets supporting the contract liabilities are legally insulated from American National’s general account liabilities; (iii) investments are directed by the contract holder; and (iv) all investment performance, net of contract fees and assessments, is passed through to the contract holder. The assets of these accounts are carried at fair value. Deposits, net investment income and realized investment gains and losses for these accounts are excluded from revenues, and related liability increases are excluded from benefits and expenses in the condensed consolidated statements of operations.

23

Note 9 – Fair Value of Financial Instruments – (Continued)
The separate account assets included on the quantitative disclosures fair value hierarchy table are comprised of short-term investments, equity securities, and fixed maturity available-for-sale bonds. Equity securities are classified as Level 1 measurements. Short-term investments and fixed maturity securities are classified as Level 2 measurements. These classifications for separate account assets reflect the same fair value level methodologies as listed above as they are derived from the same vendors and follow the same process.
The separate account assets also include cash and cash equivalents, investments in unconsolidated affiliates, accrued investment income, and receivables for securities. These are not financial instruments and are not included in the quantitative disclosures of fair value hierarchy table.
Embedded Derivative—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 contract’s surrender charge period and then higher once the surrender charge period has ended. Decreases to the assumed lapse rates generally increase the fair value of the liability as more policyholders persist to collect the crediting interest pertaining to the indexed product. Increases to the lapse rate assumption decrease the fair value.
•Mortality rate assumptions vary by age and gender based on company and industry experience. Decreases to the assumed mortality rates increase the fair value of the liabilities as more policyholders earn crediting interest. Increases to the assumed mortality rates decrease the fair value as higher decrements reduce the potential for future interest credits.
•Equity volatility assumptions begin with current market volatilities and grow to long-term values. Increases to the assumed volatility will increase the fair value of liabilities, as future projections will produce higher increases in the linked index. At March 31, 2020 and December 31, 2019, the one year implied volatility used to estimate embedded derivative value was 46.1% and 11.3%, respectively.
Fair values of indexed life and annuity liabilities are calculated using the discounted cash flow technique. Shown below are the significant unobservable inputs used to calculate the Level 3 fair value of the embedded derivatives within policyholder contract deposits (in millions, except range percentages):
  Fair Value   Range
  March 31, 2020 December 31, 2019 Unobservable Input March 31, 2020 December 31, 2019
Indexed Annuities $ 625.6    $ 706.5    Lapse Rate 1-70% 1-70%
Mortality Multiplier 90-100% 90-100%
Equity Volatility 18-90% 11-46%
Indexed Life 5.4    25.1    Equity Volatility 18-90% 11-46%

24

Note 9 – Fair Value of Financial Instruments – (Continued)
Quantitative Disclosures
The fair value hierarchy measurements of the financial instruments are shown below (in thousands):
  Assets and Liabilities Carried at Fair Value by Hierarchy Level as of March 31, 2020
  Total
Fair Value 		Level 1 Level 2 Level 3
Financial assets
Fixed maturity securities, bonds available-for-sale
U.S. treasury and government $ 30,304    $ —    $ 30,304    $ —   
U.S. states and political subdivisions 1,078,917    —    1,078,917    —   
Foreign governments 6,432    —    6,432    —   
Corporate debt securities 5,319,261    —    5,265,871    53,390   
Residential mortgage-backed securities 29,585    —    29,585    —   
Collateralized debt securities 15,875    —    15,875    —   
                  Total bonds available-for-sale 6,480,374    —    6,426,984    53,390   
Equity securities
Common stock 1,358,605    1,358,142    —    463   
Preferred stock 16,478    16,478    —    —   
Total equity securities 1,375,083    1,374,620    —    463   
Options 125,988    —    —    125,988   
Short-term investments 418,882    —    418,882    —   
Separate account assets 871,196    215,339    655,857    —   
Separately managed accounts 50,583    —    —    50,583   
Total financial assets $ 9,322,106    $ 1,589,959    $ 7,501,723    $ 230,424   
Financial liabilities
Embedded derivative for equity-indexed contracts $ 630,952    $ —    $ —    $ 630,952   
Separate account liabilities 871,196    215,339    655,857    —   
Total financial liabilities $ 1,502,148    $ 215,339    $ 655,857    $ 630,952   

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

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 March 31, 2020
  Assets Liability
Investment
Securities 		Equity-Indexed
Options 		Separately Managed Accounts Embedded
Derivative
Beginning balance $ 45,307    $ 256,005    $ 50,503    $ 731,552   
Net loss for derivatives included in net investment income —    (108,095)   —    —   
Net change included in interest credited —    —    —    (89,581)  
Net fair value change included in other comprehensive income —    —    80    —   
Purchases, sales and settlements or maturities
Purchases 22,702    14,164    —    —   
Sales (14,156)   —    —    —   
Settlements or maturities —    (36,086)   —    —   
Premiums less benefits —    —    —    (11,019)  
Ending balance at March 31, 2020 $ 53,853    $ 125,988    $ 50,583    $ 630,952   
Change in unrealized gains or losses for the period included in other
comprehensive income for assets held at March 31, 2020 		$ —    $ 80   
Level 3
Three months ended March 31, 2019
Assets Liability
Investment
Securities 		Equity-Indexed
Options 		Separately Managed Accounts Embedded
Derivative
Beginning balance $ 4,346    $ 148,006    $ —    $ 596,075   
Net gain for derivatives included in net investment income —    66,485    16,532    —   
Net change included in interest credited —    —    —    58,156   
Net fair value change included in other comprehensive income —    —    9    —   
Purchases, sales and settlements or maturities
Purchases —    17,356    4,505    —   
Sales —    —    —    —   
Settlements or maturities —    (15,691)   —    —   
Premiums less benefits —    —    —    14,254   
Ending balance at March 31, 2019 $ 4,346    $ 216,156    $ 21,046    $ 668,485   
Within the net gain for derivatives included in net investment income were unrealized gains of $127,219,000 and $69,005,000, relating to assets still held at March 31, 2020 and 2019, respectively.
26

Note 9 – Fair Value of Financial Instruments – (Continued)
Fair Value Information About Financial Instruments Not Recorded at Fair Value

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

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

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

Policy loans—The carrying value of policy loans is the outstanding balance plus any accrued interest. Due to the collateralized nature of policy loans such that they cannot be separated from the policy contracts, the unpredictable timing of repayments and the fact that settlement is at outstanding value, American National believes the carrying value of policy loans approximates fair value.
Separately managed accounts—The amounts reported in separately managed accounts consist primarily of notes and private equity. These investments are private placements and do not have a readily determinable fair value. The carrying value of the separately managed accounts is cost or market value if available from the separately managed account manager. Market value is provided by the separately managed account manager in subsequent quarters. American National believes that cost approximates fair value at initial recognition during the quarter of investment.
Investment contracts—The carrying value of investment contracts is equivalent to the accrued account balance. The accrued account balance consists of deposits, net of withdrawals, plus or minus interest credited, fees and charges assessed and other adjustments. American National believes that the carrying value of investment contracts approximates fair value because the majority of these contracts’ interest rates reset at anniversary.
Notes payable—Notes payable are carried at outstanding principal balance. The carrying value of the notes payable approximates fair value because the underlying interest rates approximate market rates at the balance sheet date.

27

Note 9 – Fair Value of Financial Instruments – (Continued)
The carrying value and estimated fair value of financial instruments not recorded at fair value on a recurring basis are shown below (in thousands):
  March 31, 2020
FV Hierarchy Level Carrying
Amount 		Fair Value
Financial assets
Fixed maturity securities, bonds held-to-maturity
U.S. states and political subdivisions Level 2 $ 155,151    $ 159,929   
Foreign governments Level 2 3,899    4,419   
Corporate debt securities Level 2 8,011,160    7,956,612   
Residential mortgage-backed securities Level 2 179,084    186,919   
Collateralized debt securities Level 2 205,515    193,777   
Total fixed maturity securities, bonds held-to-maturity 8,554,809    8,501,656   
Mortgage loans on real estate, net allowance
Level 3 5,125,365    5,497,500   
Policy loans Level 3 380,084    380,084   
Separately managed accounts Level 3 50,583    50,583   
Total financial assets $ 14,110,841    $ 14,429,823   
Financial liabilities
Investment contracts Level 3 $ 10,242,029    $ 10,242,029   
Notes payable Level 3 156,943    156,943   
Total financial liabilities $ 10,398,972    $ 10,398,972   

  December 31, 2019
FV Hierarchy Level Carrying
Amount 		Fair Value
Financial assets
Fixed maturity securities, bonds held-to-maturity
U.S. states and political subdivisions Level 2 $ 165,109    $ 170,114   
Foreign governments Level 2 3,907    4,349   
Corporate debt securities Level 2 8,099,098    8,424,969   
Residential mortgage-backed securities Level 2 237,516    242,828   
Collateralized debt securities Level 2 125,631    126,430   
Total fixed maturity securities, bonds held-to-maturity 8,631,261    8,968,690   
Mortgage loans on real estate, net allowance
Level 3 5,097,017    5,309,005   
Policy loans Level 3 379,657    379,657   
Separately managed accounts Level 3 50,503    50,503   
Total financial assets $ 14,158,438    $ 14,707,855   
Financial liabilities
Investment contracts Level 3 $ 10,254,959    $ 10,254,959   
Notes payable Level 3 157,997    157,997   
Total financial liabilities $ 10,412,956    $ 10,412,956   

Note 10 – Deferred Policy Acquisition Costs
Deferred policy acquisition costs are shown below (in thousands):
Life Annuity Health Property
& Casualty 		Total
Beginning balance at January 1, 2020 $ 852,900    $ 415,380    $ 32,578    $ 122,149    $ 1,423,007   
Additions 33,353    11,525    5,378    84,409    134,665   
Amortization (25,515)   (18,811)   (5,355)   (83,312)   (132,993)  
Effect of change in unrealized gains on available-for-sale debt securities 7,619    81,707    —    —    89,326   
Net change 15,457    74,421    23    1,097    90,998   
Ending balance at March 31, 2020 $ 868,357    $ 489,801    $ 32,601    $ 123,246    $ 1,514,005   
Commissions comprise the majority of the additions to deferred policy acquisition costs.
28

Note 11 – Liability for Unpaid Claims and Claim Adjustment Expenses
The liability for unpaid claims and claim adjustment expenses (“claims”) for health and property and casualty insurance is included in “Policy and contract claims” in the condensed consolidated statements of financial position and is the amount estimated for incurred but not reported (“IBNR”) claims and claims that have been reported but not settled. The liability for unpaid claims is estimated based upon American National’s historical experience and actuarial assumptions that consider the effects of current developments, anticipated trends and risk management programs, less anticipated salvage and subrogation. The effects of the changes are included in the condensed consolidated results of operations in the period in which the changes occur. The time value of money is not taken into account for the purposes of calculating the liability for unpaid claims. There have been no significant changes in methodologies or assumptions used to calculate the liability for unpaid claims and claim adjustment expenses.
Information regarding the liability for unpaid claims is shown below (in thousands): 
  Three months ended March 31,
  2020 2019
Unpaid claims balance, beginning $ 1,322,837    $ 1,305,225   
Less: Reinsurance recoverables 246,447    254,466   
Net beginning balance 1,076,390    1,050,759   
Incurred related to
Current 260,025    278,864   
Prior years 4,172    (17,296)  
Total incurred claims 264,197    261,568   
Paid claims related to
Current 95,635    93,273   
Prior years 174,986    168,879   
Total paid claims 270,621    262,152   
Net balance 1,069,966    1,050,175   
Plus: Reinsurance recoverables 244,230    244,098   
Unpaid claims balance, ending $ 1,314,196    $ 1,294,273   
The net and gross reserve calculations have shown unfavorable development in 2020 as a result of unfavorable 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 increased by approximately $4,172,000 during the first three months of 2020 and decreased by $17,296,000 during the same period in 2019. The unfavorable development in 2020 was a reflection of higher-than-anticipated losses in the Managing General Underwriting and Collateral Protection Insurance lines of business. The favorable development for the first three months in 2019 reflects lower-than-anticipated losses in the business owner and commercial package policy lines of business.
For short-duration health insurance claims, the total of IBNR plus expected development on reported claims included in the liability for unpaid claims and claim adjustment expenses at March 31, 2020 and December 31, 2019 was $23,092,000 and $21,379,000 respectively.


29

Note 12 – Federal Income Taxes
A reconciliation of the effective tax rate to the statutory federal tax rate is shown below (in thousands, except percentages):
  Three months ended March 31,
  2020 2019
  Amount Rate Amount Rate
Income tax expense (benefit) before tax on equity in earnings of unconsolidated affiliates
$ (62,694)   22.2  % $ 59,787    18.4  %
Tax on equity in earnings of unconsolidated affiliates
3,298    (1.2)   8,497    2.6   
Total expected income tax expense at the statutory rate
(59,396)   21.0    68,284    21.0   
Tax-exempt investment income (1,027)   0.4    (809)   (0.2)  
Dividend exclusion (862)   0.3    (921)   (0.3)  
Miscellaneous tax credits, net (2,395)   0.8    (1,692)   (0.5)  
Low income housing tax credit expense 1,774    (0.6)   1,158    0.3   
Change in valuation allowance 112    —    —    —   
Other items, net 126    (0.1)   1,357    0.4   
Provision (benefit) for federal income taxes
$ (61,668)   21.8  % $ 67,377    20.7  %
American National did not make tax payments during the three months ended March 31, 2020. Income tax payments of $23,600,000 were made during the three months ended March 31, 2019.

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

American National’s federal income tax returns for years 2016 to 2018 are subject to examination by the Internal Revenue Service. Tax returns for 2013 to 2015 are subject to examination with certain limitations. In April 2019, American National received notice from the Internal Revenue Service of its intent to audit tax years 2013 to 2016. The audit is ongoing. In the opinion of management, all prior year deficiencies have been paid or adequate provisions have been made for any tax deficiencies that may be upheld. As of March 31, 2020, American National had no provision for uncertain tax positions and no provision for penalties or interest were established. In addition, management does not believe there are any uncertain tax benefits that could be recognized within the next twelve months that would impact American National’s effective tax rate.

Note 13 – Accumulated Other Comprehensive Income (Loss)

The components of and changes in the accumulated other comprehensive income (“AOCI”), and the related tax effects, are shown below (in thousands):
Net Unrealized
Gains (Losses)
on Securities 		Defined
Benefit
Pension Plan
Adjustments 		Foreign
Currency
Adjustments 		Accumulated
Other
Comprehensive
Income (Loss)
Beginning balance at January 1, 2020 $ 157,851    $ (55,232)   $ (3,101)   $ 99,518   
Amounts reclassified from AOCI (net of tax expense $2,554 and $467)
9,606    1,756    —    11,362   
Unrealized holding losses arising during the period (net of tax benefit $53,533)
(201,385)   —    —    (201,385)  
Unrealized adjustment to DAC (net of tax expense $18,759)
70,567    —    —    70,567   
Unrealized losses on investments attributable to participating policyholders’ interest (net of tax expense $2,342)
8,809    —    —    8,809   
Foreign currency adjustment (net of tax benefit $246)
—    —    (924)   (924)  
Ending balance at March 31, 2020 $ 45,448    $ (53,476)   $ (4,025)   $ (12,053)  
Beginning balance at January 1, 2019 $ (42,469)   $ (54,236)   $ (3,033)   $ (99,738)  
Amounts reclassified from AOCI (net of tax benefit $490 and expense $376)
(1,843)   1,416    —    (427)  
Unrealized holding gains arising during the period (net of tax expense $33,004)
124,158    —    —    124,158   
Unrealized adjustment to DAC (net of tax benefit $8,167)
(30,726)   —    —    (30,726)  
Unrealized gains on investments attributable to participating policyholders’ interest (net of tax benefit $1,615)
(6,075)   —    —    (6,075)  
Foreign currency adjustment (net of tax benefit $41)
—    —    (156)   (156)  
Cumulative effect of changes in accounting 16,166    (16,493)   (458)   (785)  
Ending balance at March 31, 2019 $ 59,211    $ (69,313)   $ (3,647)   $ (13,749)  


30

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:
March 31, 2020 December 31, 2019
Common stock
Shares issued 30,832,449    30,832,449   
Treasury shares (3,945,249)   (3,945,249)  
Outstanding shares 26,887,200    26,887,200   
Restricted shares (10,000)   (10,000)  
Unrestricted outstanding shares 26,877,200    26,877,200   
Stock-based compensation
American National has made grants of Stock Appreciation Rights (“SAR”), Restricted Stock (“RS”) Awards, and Restricted Stock Units (“RSU”), pursuant to a stock-based compensation plan. The term for granting additional awards under such plan expired in 2019. Pursuant to the plan, grants were made to certain officers meeting established performance objectives, and grants were made to directors as compensation and to align their interests with those of other shareholders. In addition, American National has made grants to directors and advisory directors of RSUs that are cash-settled only, with no provision for conversion to stock. Such cash-settled RSUs are the only RSUs that remain outstanding, and they are included in the table below.
SAR, RS and RSU information for the periods indicated are shown below:
  SAR RS Shares RSUs
  Shares Weighted-Average
Grant Date
Fair Value 		Shares Weighted-Average
Grant Date
Fair Value 		Units Weighted-Average
Grant Date
Fair Value
Outstanding at December 31, 2019 66    $ 110.83    10,000    $ 80.05    8,250    $ 113.19   
Granted —    —    —    —    —    —   
Exercised —    —    —    —    —    —   
Forfeited —    —    —    —    —    —   
Expired —    —    —    —    —    —   
Outstanding at March 31, 2020 66    $ 110.83    10,000    $ 80.05    8,250    $ 113.19   

SAR RS Shares RSUs
Weighted-average contractual remaining life (in years) 0.09 2.92 0.08
Exercisable shares 66    N/A    N/A   
Weighted-average exercise price $ 110.83    $ 80.05    $ 113.19   
Weighted-average exercise price exercisable shares 110.83    N/A    N/A   
Compensation expense (credit)
Three months ended March 31, 2020 $ (1,000)   $ 20,000    $ (171,000)  
Three months ended March 31, 2019 (2,000)   20,000    363,000   
Fair value of liability award
March 31, 2020 $ —    N/A    $ 680,000   
December 31, 2019 1,000    N/A    971,000   
The SARs give the holder the right to cash compensation based on the difference between the stock price on the grant date and the stock price on the exercise date. The SARs vest at a rate of 20% per year for five years and expire five years after vesting.
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 10,000 shares are unvested.
RSU awards to our directors and advisory directors are settled in cash based upon the market price of our common stock after one-year or earlier upon death, disability or retirement from service after age 65.
31

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 March 31,
  2020 2019
Weighted average shares outstanding 26,881,700    26,885,719   
Incremental shares from RS awards and RSUs 9,975    6,185   
Total shares for diluted calculations 26,891,675    26,891,904   
Net income (loss) attributable to American National (in thousands) $ (220,444)   $ 258,217   
Basic earnings per share $ (8.20)   $ 9.60   
Diluted earnings per share $ (8.20)   $ 9.60   

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 March 31, 2020 and December 31, 2019, American National Insurance Company’s statutory capital and surplus was $3,465,660,000 and $3,477,727,000, respectively. American National Insurance Company and each of its insurance subsidiaries had statutory capital and surplus at March 31, 2020 and December 31, 2019, 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 National’s insurance subsidiaries has been granted a permitted practice from the Missouri Department of Insurance to record as the valuation of its investment in a wholly-owned subsidiary that is the attorney-in-fact for a Texas domiciled insurer, the statutory capital and surplus of the Texas domiciled insurer. This permitted practice increases the statutory capital and surplus of both American National Insurance Company and the Missouri domiciled insurance subsidiary by $72,979,000 and $70,339,000 at March 31, 2020 and December 31, 2019, respectively. The statutory capital and surplus of both American National Insurance Company and the Missouri domiciled insurance subsidiary would have remained substantially above the Company action level RBC had it not used the permitted practice.
The statutory capital and surplus and net income of our life and property and casualty insurance entities in accordance with statutory accounting practices are shown below (in thousands):
March 31, 2020 December 31, 2019
Statutory capital and surplus
Life insurance entities $ 2,159,481    $ 2,159,770   
Property and casualty insurance entities 1,315,987    1,329,782   

  Three months ended March 31,
  2020 2019
Statutory net income (loss)
Life insurance entities $ 52,975    $ (7,084)  
Property and casualty insurance entities 48,254    38,120   
32

Note 14 – Stockholders’ Equity and Noncontrolling Interests - (Continued)
Dividends
We paid a dividend of $0.82 for the three months ended March 31, 2020 and December 31, 2019. We expect to continue to pay regular cash dividends, although there is no assurance as to future dividends because they depend on future earnings, capital requirements and financial conditions.
American National Insurance Company’s payment of dividends to 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 year’s statutory net income from operations, or 10% of prior year statutory surplus. American National Insurance Company is permitted without prior approval of the Texas Department of Insurance to pay total dividends of $347,773,000 during 2020. Similar restrictions on amounts that can transfer in the form of dividends, loans, or advances to American National Insurance Company apply to its insurance subsidiaries.
Noncontrolling interests
American National County Mutual Insurance Company (“County Mutual”) is a mutual insurance company owned by its policyholders. American National has a management agreement that effectively gives it control of County Mutual. As a result, County Mutual is included in the condensed consolidated financial statements of American National. Policyholder interests in the financial position of County Mutual are reflected as noncontrolling interest of $6,750,000 at March 31, 2020 and December 31, 2019.
American National Insurance Company and its subsidiaries exercise control or ownership of various joint ventures, resulting in their consolidation into American National’s condensed consolidated financial statements. The interests of the other partners in the consolidated joint ventures are shown as a noncontrolling deficit of $666,000 and $736,000 at March 31, 2020 and December 31, 2019, respectively.

Note 15 – Segment Information

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

The accounting policies of the segments are the same as those described in Note 2 of American National’s 2019 annual report on Form 10-K. All revenues and expenses specifically attributable to policy transactions are recorded directly to the appropriate operating segment. Revenues and expenses not specifically attributable to policy transactions are allocated to each segment as follows:
•Recurring income from bonds and mortgage loans is allocated based on the assets allocated to each line of business at the average yield available from these assets.
•Net investment income from all other assets is allocated to the insurance segments in accordance with the amount of capital allocated to each segment, with the remainder recorded in the Corporate and Other segment.
•Expenses are charged to segments through direct identification and allocations based upon various factors.
33

Note 15 – Segment Information – (Continued)
The results of operations measured as the income (loss) before federal income tax and other items by operating segments are summarized below (in thousands):
  Three months ended March 31, 2020
Property Corporate
  Life Annuity Health & Casualty & Other Total
PREMIUMS AND OTHER REVENUES
Premiums $ 89,516    $ 15,509    $ 43,086    $ 388,657    $ —    $ 536,768   
Other policy revenues 75,540    4,065    —    —    —    79,605   
Net investment income 45,575    41,541    2,233    16,085    9,850    115,284   
Realized investment gains —    —    —    —    4,148    4,148   
Change in investment credit loss —    —    —    —    (44,678)   (44,678)  
Net losses on equity securities —    —    —    —    (332,575)   (332,575)  
Other income 736    638    4,527    3,733    1,499    11,133   
Total premiums and other revenues
211,367    61,753    49,846    408,475    (361,756)   369,685   
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits 110,466    34,802    —    —    —    145,268   
Claims incurred —    —    34,885    229,709    —    264,594   
Interest credited to policyholders’ account balances (1,903)   (2,420)   —    —    —    (4,323)  
Commissions for acquiring and servicing policies
39,467    10,248    8,024    72,696    —    130,435   
Other operating expenses 47,480    11,876    10,629    53,004    10,937    133,926   
Change in deferred policy acquisition costs
(7,838)   7,286    (23)   (1,097)   —    (1,672)  
Total benefits, losses and expenses 187,672    61,792    53,515    354,312    10,937    668,228   
Income (loss) before federal income tax and other items $ 23,695    $ (39)   $ (3,669)   $ 54,163    $ (372,693)   $ (298,543)  

  Three months ended March 31, 2019
Property Corporate
  Life Annuity Health & Casualty & Other Total
PREMIUMS AND OTHER REVENUES
Premiums $ 86,468    $ 39,907    $ 38,681    $ 371,181    $ —    $ 536,237   
Other policy revenues 70,244    4,004    —    —    —    74,248   
Net investment income 68,756    190,711    2,420    15,022    15,437    292,346   
Realized investment gains —    —    —    —    2,947    2,947   
Net gains on equity securities —    —    —    —    206,377    206,377   
Other income 676    689    5,385    2,722    2,066    11,538   
Total premiums and other revenues
226,144    235,311    46,486    388,925    226,827    1,123,693   
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits 109,465    58,761    —    —    —    168,226   
Claims incurred —    —    25,767    238,144    —    263,911   
Interest credited to policyholders’ account balances
20,319    120,915    —    —    —    141,234   
Commissions for acquiring and servicing policies
37,742    26,866    6,878    67,159    —    138,645   
Other operating expenses 48,978    12,474    10,992    51,885    9,281    133,610   
Change in deferred policy acquisition costs
(4,835)   (3,020)   807    417    —    (6,631)  
Total benefits, losses and expenses 211,669    215,996    44,444    357,605    9,281    838,995   
Income before federal income tax and other items
$ 14,475    $ 19,315    $ 2,042    $ 31,320    $ 217,546    $ 284,698   






34

Note 16 – Commitments and Contingencies
Commitments

American National and its subsidiaries lease insurance sales office space, technological equipment, and automobiles. The remaining long-term lease commitments at March 31, 2020 were approximately $13,767,000.

American National had aggregate commitments at March 31, 2020, to purchase, expand or improve real estate, to fund fixed interest rate mortgage loans, and to purchase other invested assets of $1,279,058,000 of which $495,590,000 is expected to be funded in 2020 with the remainder funded in 2021 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 March 31, 2020 and December 31, 2019, the outstanding letters of credit were $3,484,000, and there were no borrowings on this facility. This facility expires on October 31, 2020.

Federal Home Loan Bank (FHLB) Agreements

In May 2018, the Company became a member of the Federal Home Loan Bank of Dallas (“FHLB”) to augment its liquidity resources. As membership requires the ownership of member stock, the Company initially purchased $7.0 million of stock to meet the FHLB’s membership requirement. The FHLB member stock is recorded in other invested assets on the Company’s condensed consolidated statements of financial position. Through its membership, the Company has access to the FHLB’s financial services including advances that provide an attractive funding source for short-term borrowing and for access to other funding agreements. As of March 31, 2020, certain municipal bonds and collateralized mortgage obligations (CMO’s) with a fair value of approximately $112.7 million and commercial mortgage loans of approximately $1.5 billion were on deposit with the FHLB as collateral for amounts subject to funding agreements, and there were no outstanding advances. The deposited securities and commercial mortgage loans are included in the Company’s condensed consolidated statements of financial position within fixed maturity securities and mortgage loans on real estate, net of allowance, respectively. See Note 18, Subsequent Events, of the Notes to the Unaudited Condensed Consolidated Financial Statements for information regarding borrowing from the FHLB during April 2020.

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 March 31, 2020, was approximately $121,379,000, while the total cash value of the related life insurance policies was approximately $143,762,000.

Litigation

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

Such speculation warrants caution, as the frequency of large damage awards, which bear little or no relation to the economic damages incurred by plaintiffs in some jurisdictions, continues to create the potential for an unpredictable judgment in any given lawsuit. These lawsuits are in various stages of development, and future facts and circumstances could result in management changing its conclusions. It is possible that, if the defenses in these lawsuits are not successful, and the judgments are greater than management can anticipate, the resulting liability could have a material impact on our condensed consolidated financial position, liquidity or results of operations. With respect to the existing litigation, management currently believes that the possibility of a material judgment adverse to American National is remote and no estimate of range can be made for loss contingencies that are at least reasonably possible but not accrued.
35

Note 17 – Related Party Transactions
American National has entered into recurring transactions and agreements with certain related parties. These include mortgage loans, management contracts, agency commission contracts, marketing agreements, health insurance contracts, and legal services. The impact on the condensed consolidated financial statements of significant related party transactions is shown below (in thousands):
    Dollar Amount of Transactions
    Three months ended March 31, Amount due to (from) American National
Related Party Financial Statement Line Impacted 2020 2019 March 31, 2020 December 31, 2019
Gal-Tex Hotel Corporation Mortgage loan on real estate $ —    $ 431    $ —    $ —   
Gal-Tex Hotel Corporation Net investment income —    8    —    —   
Greer, Herz & Adams, LLP Other operating expenses 3,843    2,889    (595)   (519)  
Mortgage Loans to Gal-Tex Hotel Corporation (“Gal-Tex”): American National held a first mortgage loan which originated in 1999, with an interest rate of 7.25% and final maturity date of April 1, 2019 issued to a subsidiary of Gal-Tex, which was collateralized by a hotel property in San Antonio, Texas. This loan has been paid in full. The Moody Foundation owns 34.0% of Gal-Tex and 22.75% of American National, and the Libbie Shearn Moody Trust owns 50.2% of Gal-Tex and 37.0% of American National.
Transactions with Greer, Herz & Adams, LLP: Irwin M. Herz, Jr. is a director on the American National Board of Directors and a Partner with Greer, Herz & Adams, LLP, which serves as American National’s General Counsel.

Note 18 – Subsequent Events

Liquidity

The COVID-19 pandemic created significant economic uncertainty and volatility in the credit and capital markets beginning in March 2020, which has persisted. On April 13, 2020, the Company borrowed from the Federal Home Loan Bank of Dallas' COVID-19 Relief Advance Program. The net amount of the advance was approximately $240 million after a required capital stock purchase of approximately $10 million. The loan has an interest rate of 0.25% with a final maturity date of October 13, 2020. On April 28, 2020, the Company took an additional advance from the Federal Home Loan Bank of Dallas. The net amount of the advance was approximately $245 million after a required capital stock purchase of approximately $5 million. The loan has an interest rate of 0.38% with a final maturity date of April 28, 2021. We are closely monitoring the effect of the COVID-19 pandemic on our operations and our customers. While we believe current capital is sufficient to support operations, the Company took the advance from the FHLB in the event additional liquidity is needed for potential operational needs. Should the Company require additional liquidity to respond to the effects of COVID-19, we currently have approximately $622 million of additional credit available to us from the FHLB.

April and May Policy Credits for Personal Automobile Policyholders
On April 14, 2020, American National announced a 15% credit for its personal automobile policyholders based upon their premiums for April and May. The credit is expected to affect approximately 338,000 policyholders for an estimated $15 million. We estimate that the monetary impact of these policy credits will be offset by a reduction in auto claims as policyholders drive fewer miles due to shelter-in-place orders.
In response to the impacts of COVID-19, state insurance departments across the country have issued regulations that require us to not cancel policies for non payment for varying amounts of time but generally for at least 60 day periods which began in March and early April 2020. As a result, we expect to see a reduction in the cash flows typically received from policyholders during these periods.





36
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following pages provide management’s discussion and analysis (“MD&A”) of financial condition and results of operations for the three months ended March 31, 2020 and 2019 of American National Insurance Company and its subsidiaries (referred to in this document as “we,” “our,” “us,” or the “Company”). This information should be read in conjunction with our condensed consolidated financial statements included in Item 1, Financial Statements (unaudited), of this Form 10-Q.
Caution Regarding Forward-Looking Statements
Certain statements made in this report, including but not limited to the accompanying condensed consolidated financial statements, and the notes thereto appearing in Item 1 herein, Management's Discussion and Analysis of Financial Condition and Results of Operations in this Item 2 ("MD&A"), and the exhibits and financial statement schedules filed as a part hereof or incorporated by reference herein, may contain or incorporate by reference information that includes or is based upon forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally are indicated by words such as “expects,” “intends,” “anticipates,” “plans,” “believes,” “estimates,” “will” or words of similar meaning, and include, without limitation, statements regarding the outlook of our business and expected financial performance, and statements relating to the COVID-19 pandemic and its effects on the Company. These forward-looking statements are subject to changes and uncertainties which are, in many instances, beyond our control and have been made based upon our assumptions, expectations and beliefs concerning future developments and their potential effect upon us. There can be no assurance that future developments will be in accordance with our expectations, or that the effect of future developments on us will be as anticipated, particularly given the uncertainty relating to the COVID-19 pandemic. We do not make public specific projections relating to future earnings, and we do not endorse any projections regarding future performance made by others. Additionally, we do not publicly update or revise forward-looking statements based on the outcome of various foreseeable or unforeseeable events. Forward-looking statements are not guarantees of future performance and involve various risks and uncertainties. There are certain important factors that could cause actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements, including without limitation risks, uncertainties and other factors discussed in Item 1A, Risk Factors in our 2019 Form 10-K filed with the SEC on February 28, 2020, in Part II, Item 1A Risk Factors below, and elsewhere in this report, such as:
•Economic & Investment Risk Factors
•potential for difficult conditions in the economy, which may not improve in the near future, and risks related to persistently low or unpredictable interest rates;
•fluctuations in the markets for fixed maturity securities, equity securities, and commercial real estate, which could adversely affect the valuation of our investment portfolio, our net investment income, our retirement expense, and sales of or fees from certain of our products;
•lack of liquidity for certain of our investments;
•the potential for adverse effects on interest rates and the value of certain assets as a result of the discontinuation of the London Inter-Bank Offered Rate (LIBOR);
•risk of investment losses and defaults;
•Operational Risk Factors
•differences between actual experience regarding mortality, morbidity, persistency, expense, surrenders and investment returns, and our assumptions for product pricing, establishing liabilities and reserves or for other purposes;
•potential ineffectiveness of our risk management policies and procedures;
•changes in our experience related to deferred policy acquisition costs;
•failures or limitations of our computer, information security and administration systems;
•failure to complete and implement technology initiatives in a timely manner;
37

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











•potential employee error or misconduct, which may result in fraud or adversely affect the execution and administration of our policies and claims;
•potential ineffectiveness of our internal controls over financial reporting;
•Catastrophic Event Risk Factors
•natural or man-made catastrophes, pandemic disease such as COVID-19, or other events resulting in increased claims activity from catastrophic loss of life or property;
•the effects of unanticipated events on our disaster recovery and business continuity planning;
•the effects of global climate change;
•Marketplace Risk Factors
•the highly competitive nature of the insurance and annuity business;
•potential difficulty in attraction and retention of qualified employees and agents;
•the introduction of alternative healthcare solutions or changes in federal healthcare policy, both of which could impact our supplemental healthcare business;
•Litigation and Regulation Risk Factors
•adverse determinations in litigation or regulatory proceedings which may result in significant financial losses and harm to our reputation;
•significant changes in government regulation;
•changes in tax law;
•changes in statutory or U.S. Generally Accepted Accounting Principles (“GAAP”), practices or policies;
•Reinsurance and Counterparty Risk Factors
•potential changes in the availability, affordability, adequacy and collectability of reinsurance protection;
•potential default or failure to perform by the counterparties to our reinsurance arrangements and derivative instruments;
•Other Risk Factors
•potentially adverse rating agency actions;
•control of our company by a small number of stockholders; and
•advances in medical technology and testing, which may increase our adverse selection risk.

38

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











COVID-19 Response
On March 11, 2020, the World Health Organization formally declared the outbreak of the novel coronavirus COVID-19 to be a pandemic. The spread of COVID-19 has caused illness, quarantines, cancellation of events and travel, business and school shutdowns, reduction in business activity, widespread unemployment, and overall economic and financial market instability. To the date of this report, we are for the most part conducting our business operations normally. However, because of the impacts of COVID-19 we have approximately 98% of our back-office employees working remotely. The Company was able to quickly scale the remote access technologies and security measures that were already in place prior to the start of the COVID-19 pandemic and by doing so, the Company mitigated the risks associated with “on the fly IT engineering” that can create unforeseen vulnerabilities.
Below is a summary of significant actions we have taken through the date of this report to manage the risks of disruption to business operation from COVID-19:
•We have taken steps to protect employees with the goals of maintaining their health and sustaining an adequate workforce, including directing as many employees as possible to work from home and offering flexibility for employees negotiating scheduling conflicts due to the impacts of COVID-19, such as caring for family, school closures, self-isolation or personal illness, including granting additional paid time off to address these hardships.
•We are currently communicating on a regular basis with our Board of Directors, senior management and employees regarding the ongoing developments of the COVID-19 pandemic.
•We have implemented multiple communication avenues to keep our customers, vendors and producers informed, including:
•Providing regular communications to producers with updates on home office operations and service, contacts for support, available resources, and expectations;
•Engaging in ongoing communications with critical vendors related to their business continuity plans; and
•Providing an overview of our response to COVID-19 on our corporate website.
•We are offering leniency on premium payments and other deadlines, in some cases pursuant to recent regulatory requirements, for customers impacted by the COVID-19 outbreak, as discussed elsewhere in this report.
•We have assessed our facilities, systems, policies and procedures and have implemented plans to continue critical operations and services while many employees are working off-site. The implementation of these plans across all locations was addressed simultaneously in accordance with standards and procedures for remote access that existed prior to the current challenges COVID-19 has introduced. We are continuing to evaluate our cybersecurity program for the next challenges that COVID-19 is likely to create. We also have plans for increasing capacity in critical operations should employees in any of our locations become unavailable to work due to COVID-19 health issues.
•We are developing return to work programs as we transition through the different reopening situations at our locations.

No assurance can be given that these actions will be successful, nor can we predict the level of disruption that will occur should the COVID-19 pandemic and its related macroeconomic risks continue for an extended period of time. Given this uncertainty, we are currently unable to quantify the expected impact of the COVID-19 pandemic on our future operations, financial condition, liquidity and results of operations. The full financial impact cannot be accurately assessed given the high uncertainty related to the wide-ranging social, economic and financial consequences and the possible effects of ongoing and future governmental actions. American National may see an increased level of claims, a reduction in sales, an increased level of asset impairments and reduced investment income during 2020 related to COVD-19. Additional information regarding risks and uncertainties related to the COVID-19 pandemic are set forth in Part II, Item 1A of this report.
Many of these risks and uncertainties have been exacerbated by the COVID-19 pandemic, particularly those described in the Economic and Investment Risk Factors, Litigation and Regulation Risk Factors, and Reinsurance and Counterparty Risk Factors. In addition, other risks and uncertainties arise from COVID-19, as described in Part II, Item 1A Risk Factors below. This MD&A should be read in conjunction with our condensed consolidated financial statements and related notes included in Part I - Financial Information - Item 1, Financial Statements. For comparison of 2019 to 2018, see "Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2019, filed with the SEC on May 7, 2019.

39

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











Overview
Chartered in 1905, we are a diversified insurance and financial services company offering a broad spectrum of insurance products in all 50 states, the District of Columbia and Puerto Rico. Our headquarters are in Galveston, Texas.
General Trends
During the first quarter of 2020, American National had no material changes to the general trends discussed in the MD&A included in our 2019 Annual Report on Form 10-K filed with the SEC on February 28, 2020.
Critical Accounting Estimates
The unaudited interim condensed consolidated financial statements have been prepared in conformity with GAAP. In addition to GAAP, insurance companies apply specific SEC regulations when preparing the condensed consolidated financial statements. The preparation of the condensed consolidated financial statements and notes requires us to make estimates and assumptions that affect the amounts reported. Actual results could differ from results reported using those estimates and assumptions. Our accounting policies inherently require the use of judgment relating to a variety of assumptions and estimates, particularly expectations of current and future mortality, morbidity, persistency, expenses, interest rates, and property and casualty loss frequency, severity, claim reporting and settlement patterns. Due to the inherent uncertainty when using the assumptions and estimates, the effect of certain accounting policies under different conditions or assumptions could vary from those reported in the condensed consolidated financial statements.
For a discussion of our critical accounting estimates, see the MD&A in our 2019 Annual Report on Form 10-K filed with the SEC on February 28, 2020. There have been no material changes in accounting policies since December 31, 2019.
Recently Issued Accounting Pronouncements
Refer to Note 3, Recently Issued Accounting Pronouncements, of the Notes to the Unaudited Condensed Consolidated Financial Statements in Item 1.
40

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












Condensed Consolidated Results of Operations
The following sets forth the condensed consolidated results of operations (in thousands):
  Three months ended March 31,  
  2020 2019 Change
PREMIUMS AND OTHER REVENUES
Premiums $ 536,768    $ 536,237    $ 531   
Other policy revenues 79,605    74,248    5,357   
Net investment income 115,284    292,346    (177,062)  
Net realized investments gains 4,148    2,947    1,201   
Change in investment credit loss (44,678)   —    (44,678)  
Net gains (losses) on equity securities
(332,575)   206,377    (538,952)  
Other income 11,133    11,538    (405)  
Total premiums and other revenues
369,685    1,123,693    (754,008)  
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits 145,268    168,226    (22,958)  
Claims incurred 264,594    263,911    683   
Interest credited to policyholders’ account balances
(4,323)   141,234    (145,557)  
Commissions for acquiring and servicing policies
130,435    138,645    (8,210)  
Other operating expenses 133,926    133,610    316   
Change in deferred policy acquisition costs (1)
(1,672)   (6,631)   4,959   
Total benefits, losses and expenses 668,228    838,995    (170,767)  
Income (loss) before federal income taxes other items
$ (298,543)   $ 284,698    $ (583,241)  
 
(1)A negative amount of net change indicates more expense was deferred than amortized and represents a decrease to expenses in the period indicated.

Income before other items and federal income taxes (“Earnings”)
Earnings comparison of 2020 to 2019
Income from operations decreased primarily due to the following:
•A net loss on equity securities of $332.6 million attributable to the COVID-19 pandemic and related economic conditions
•The change in investment credit loss due to the adoption of new accounting guidance for the first three months of 2020
The decrease in income from operations was partially offset by the following:
•Improvement in earnings generated from our Property and Casualty segment primarily driven by Commercial Agribusiness and Personal Auto lines of business
•Improvement in earnings generated from our Life segment primarily driven by a decrease in reserves related to benefits for our participating policies as well as an increase in renewals for traditional life premiums and universal life cost of insurance
Additional information:
•Unfavorable market conditions resulted in offsetting decreases in net investment income and interest credited to policyholders. These unfavorable market conditions resulted in negative interest credited to policyholders on indexed products


41

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












Life
Life segment financial results for the periods indicated were as follows (in thousands):
  Three months ended March 31,  
  2020 2019 Change
PREMIUMS AND OTHER REVENUES
Premiums $ 89,516    $ 86,468    $ 3,048   
Other policy revenues 75,540    70,244    5,296   
Net investment income 45,575    68,756    (23,181)  
Other income 736    676    60   
Total premiums and other revenues
211,367    226,144    (14,777)  
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits 110,466    109,465    1,001   
Interest credited to policyholders’ account balances
(1,903)   20,319    (22,222)  
Commissions for acquiring and servicing policies
39,467    37,742    1,725   
Other operating expenses 47,480    48,978    (1,498)  
Change in deferred policy acquisition costs (1)
(7,838)   (4,835)   (3,003)  
Total benefits, losses and expenses 187,672    211,669    (23,997)  
Income before federal income taxes and other items
$ 23,695    $ 14,475    $ 9,220   

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

Earnings comparison of 2020 to 2019
Income from operations for our Life segment increased primarily due to the following:
•Decrease in reserves related to benefits for our participating policies
•Increase in renewals for traditional life premiums and universal life cost of insurance
The increase in income from operations was partially offset by:
•Higher mortality, primarily in traditional life claims
Additional information:
•Unfavorable market conditions resulted in offsetting decreases in net investment income and interest credited to policyholders. These unfavorable market conditions resulted in negative interest credited to policyholders on indexed products

Change in Deferred Policy Acquisition Costs
The change in DAC represents acquisition costs capitalized less the amortization of existing DAC.
  Three months ended March 31,  
  2020 2019 Change
Acquisition cost capitalized $ (33,353)   $ (30,763)   $ (2,590)  
Amortization of DAC 25,515    25,928    (413)  
Change in DAC $ (7,838)   $ (4,835)   $ (3,003)  

The change in acquisition costs is strongly correlated with the change in commissions, which have increased driven by higher premium.


42

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












Life insurance sales
The following table presents life insurance sales as measured by annualized premium, a statistical measure used by the insurance industry, which allows a comparison of new policies sold by an insurance company during the period (in thousands):
  Three months ended March 31,  
  2020 2019 Change
Traditional life $ 14,974    $ 13,987    $ 987   
Universal life 6,150    6,140    10   
Indexed UL 6,802    7,966    (1,164)  
Total recurring $ 27,926    $ 28,093    $ (167)  
Single and excess (1)
$ 202    $ 433    $ (231)  
Credit life (1)
2,184    2,613    (429)  
Total annualized premium $ 30,312    $ 31,139    $ (827)  
 
(1)These are weighted amounts representing 10% of single and excess premiums.
Life insurance sales are based on the total yearly premium that insurance companies would expect to receive if all recurring premium policies would remain in force, plus 10% of single and excess premiums. Life insurance sales measure activity associated with gaining new insurance business in the current period, and includes deposits received related to interest sensitive life and universal life-type products. GAAP premium revenues, on the other hand, are associated with policies sold in current and prior periods, and deposits received related to interest sensitive life and universal life-type products are recorded in a policyholder account which is reflected as a liability. Therefore, a reconciliation of premium revenues and insurance sales is not meaningful.
Life insurance sales were consistent during the three months ended March 31, 2020 compared to 2019.
Policy in-force information
The following table summarizes changes in the Life segment’s in-force amounts (in thousands):
March 31, 2020 December 31, 2019 Change
Life insurance in-force
Traditional life $ 85,620,906    $ 84,129,193    $ 1,491,713   
Interest-sensitive life 34,413,426    33,975,092    438,334   
Total life insurance in-force
$ 120,034,332    $ 118,104,285    $ 1,930,047   
The following table summarizes changes in the Life segment’s number of policies in-force:
March 31, 2020 December 31, 2019 Change
Number of policies in-force
Traditional life 1,897,733    1,911,305    (13,572)  
Interest-sensitive life 258,636    256,146    2,490   
Total number of policies in-force 2,156,369    2,167,451    (11,082)  
Life insurance in-force increased during the three months ended March 31, 2020 compared to December 31, 2019 despite a reduction of policies in-force due an increase in sales of higher face amount policies.





43

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












Annuity
Annuity segment financial results for the periods indicated were as follows (in thousands):
  Three months ended March 31,
  2020 2019 Change
PREMIUMS AND OTHER REVENUES
Premiums $ 15,509    $ 39,907    $ (24,398)  
Other policy revenues 4,065    4,004    61   
Net investment income 41,541    190,711    (149,170)  
Other income 638    689    (51)  
Total premiums and other revenues
61,753    235,311    (173,558)  
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits 34,802    58,761    (23,959)  
Interest credited to policyholders’ account balances
(2,420)   120,915    (123,335)  
Commissions for acquiring and servicing policies
10,248    26,866    (16,618)  
Other operating expenses 11,876    12,474    (598)  
Change in deferred policy acquisition costs (1)
7,286    (3,020)   10,306   
Total benefits, losses and expenses 61,792    215,996    (154,204)  
Income (loss) before federal income taxes and other items
$ (39)   $ 19,315    $ (19,354)  

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

Earnings comparison of 2020 to 2019
Income from operations for our Annuity segment decreased primarily due to the following:
•Significant change of $21.4 million in mark-to-market reserves for indexed annuity products driven by lower interest rates and unfavorable market conditions
Additional information:
•Unfavorable market conditions resulted in offsetting decreases in net investment income and interest credited to policyholders. These unfavorable market conditions resulted in negative interest credited to policyholders on indexed products
•Policyholder benefits consist of annuity payments and reserve increases for SPIA contracts. Reserve increases are highly correlated to the sales volume of SPIA contracts, which explains the change in benefits for the period.
Change in Deferred Policy Acquisition Costs
The change in DAC represents acquisition costs capitalized less the amortization of existing DAC, which is calculated in proportion to expected gross profits. The following shows the components of the change in DAC (in thousands):
  Three months ended March 31,  
  2020 2019 Change
Acquisition cost capitalized $ (11,525)   $ (25,077)   $ 13,552   
Amortization of DAC 18,811    22,057    (3,246)  
Change in DAC $ 7,286    $ (3,020)   $ 10,306   
The change in acquisition costs capitalized strongly correlated with the change in commissions, which have declined due to lower sales.
44

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












Annuity premium and deposit amounts received are shown below (in thousands):
  Three months ended March 31,  
  2020 2019 Change
Fixed deferred annuity $ 118,410    $ 521,248    $ (402,838)  
Single premium immediate annuity 22,758    56,128    (33,370)  
Equity-indexed deferred annuity 57,976    100,747    (42,771)  
Variable deferred annuity 15,681    16,099    (418)  
Total premium and deposits 214,825    694,222    (479,397)  
Less: Policy deposits 199,316    654,315    (454,999)  
Total earned premiums $ 15,509    $ 39,907    $ (24,398)  
Annuity premium and deposits decreased primarily for fixed deferred products during the three months ended March 31, 2020 compared to 2019. The low interest rate environment and choices we made on setting crediting rates negatively impacted sales of fixed deferred annuities in the first quarter of 2020.


































45

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












Shown below are the changes in account values (in thousands):
  Three months ended March 31,
  2020 2019
Fixed deferred annuity
Reserve, beginning of period $ 6,893,174    $ 6,773,603   
Premiums 118,410    521,248   
Death and other benefits (45,937)   (57,100)  
Surrenders (127,941)   (208,183)  
Fees (463)   (767)  
Interest and mortality 47,912    47,523   
Reserve, end of period 6,885,155    7,076,324   
Equity-indexed annuity
Reserve, beginning of period 3,985,166    3,668,645   
Premiums 57,976    100,747   
Death and other benefits (11,811)   (7,029)  
Surrenders (73,332)   (43,019)  
Fees (915)   (1,066)  
Interest and mortality (52,018)   72,241   
Reserve, end of period 3,905,066    3,790,519   
Single premium immediate annuity
Reserve, beginning of period 1,874,942    1,826,137   
Premiums 22,758    56,128   
Payments (54,249)   (52,857)  
Interest and mortality 18,216    15,871   
Reserve, end of period 1,861,667    1,845,279   
Variable deferred annuity
Account value, beginning of period 385,736    332,898   
Premiums 15,681    16,099   
Other flows 959    819   
Surrenders (30,486)   (20,880)  
Fees (1,063)   (1,025)  
Change in market value and other (54,898)   35,749   
Reserve, end of period 315,929    363,660   
Total reserve, end of period $ 12,967,817    $ 13,075,782   


46

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












Interest Margin
Margins decreased during the three months ended March 31, 2020 compared to 2019 primarily due to indexed annuities. Indexed annuity margins declined due to the impact of interest and equity market conditions on our options purchased to hedge our equity-indexed annuities. The following table summarizes the interest margin due to the impact of the investment performance, interest credited to policyholder’s account balances, and the end of period assets measured by account balance (in thousands):
  Three months ended March 31,  
  2020 2019 Change
Fixed annuity
Fixed investment income $ 93,620    $ 94,392    $ (772)  
Interest credited and mortality (66,128)   (63,394)   (2,734)  
Interest and mortality margin 27,492    30,998    (3,506)  
Equity-indexed annuity
Fixed investment income 39,699    37,022    2,677   
Option return (91,778)   59,297    (151,075)  
Interest credited and mortality 52,018    (72,241)   124,259   
Interest and mortality margin (61)   24,078    (24,139)  
Variable annuity
Separate account management fees 940    975    (35)  
Interest and mortality margin
940    975    (35)  
Total interest and mortality margin $ 28,371    $ 56,051    $ (27,680)  

47

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












Health
Health segment financial results for the periods indicated were as follows (in thousands):
  Three months ended March 31,  
  2020 2019 Change
PREMIUMS AND OTHER REVENUES
Premiums $ 43,086    $ 38,681    $ 4,405   
Net investment income 2,233    2,420    (187)  
Other income 4,527    5,385    (858)  
Total premiums and other revenues
49,846    46,486    3,360   
BENEFITS, LOSSES AND EXPENSES
Claims incurred 34,885    25,767    9,118   
Commissions for acquiring and servicing policies
8,024    6,878    1,146   
Other operating expenses 10,629    10,992    (363)  
Change in deferred policy acquisition costs (1)
(23)   807    (830)  
Total benefits, losses and expenses 53,515    44,444    9,071   
Income (loss) before federal income taxes and other items
$ (3,669)   $ 2,042    $ (5,711)  
 
(1) A negative amount of net change indicates more expense was deferred than amortized and represents a decrease to expenses in the period indicated.
Earnings comparison of 2020 to 2019
Income from operations for our Health segment decreased primarily due to the following:
•Higher loss ratio in our Medicare Supplement line of business
•Increase in claims from our Medical expense block primarily due to increased reserves for a single large claim of $2.1 million

Change in Deferred Policy Acquisition Costs
The following table presents the components of the change in DAC (in thousands):
  Three months ended March 31,  
  2020 2019 Change
Acquisition cost capitalized $ (5,378)   $ (3,087)   $ (2,291)  
Amortization of DAC 5,355    3,894    1,461   
Change in DAC $ (23)   $ 807    $ (830)  


48

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











Health earned premiums for the periods indicated were as follows (in thousands):
  Three months ended March 31,
  2020 2019 Change
Medicare Supplement $ 21,576    $ 18,358    $ 3,218   
MGU 5,471    6,424    (953)  
Supplemental insurance 4,981    5,456    (475)  
Credit Health 4,174    4,401    (227)  
Medical expense 2,197    2,436    (239)  
Worksite 3,555    766    2,789   
All other 1,132    840    292   
Total $ 43,086    $ 38,681    $ 4,405   
Health claims incurred for the periods indicated were as follows (in thousands):
  Three months ended March 31,
  2020 2019 Change
Medicare Supplement $ 19,704    $ 15,136    $ 4,568   
MGU 4,643    6,096    (1,453)  
Supplemental insurance 3,158    2,011    1,147   
Credit Health 728    1,037    (309)  
Medical expense 4,025    1,101    2,924   
Worksite 1,442    407    1,035   
All other 1,185    (21)   1,206   
Total $ 34,885    $ 25,767    $ 9,118   


49

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












Property and Casualty
Property and Casualty segment financial results for the periods indicated were as follows (in thousands, except percentages):
  Three months ended March 31,  
  2020 2019 Change
PREMIUMS AND OTHER REVENUES
Net premiums written $ 407,588    $ 385,675    $ 21,913   
Net premiums earned $ 388,657    $ 371,181    $ 17,476   
Net investment income 16,085    15,022    1,063   
Other income 3,733    2,722    1,011   
Total premiums and other revenues
408,475    388,925    19,550   
BENEFITS, LOSSES AND EXPENSES
Claims incurred 229,709    238,144    (8,435)  
Commissions for acquiring and servicing policies
72,696    67,159    5,537   
Other operating expenses 53,004    51,885    1,119   
Change in deferred policy acquisition costs (1)
(1,097)   417    (1,514)  
Total benefits, losses and expenses
354,312    357,605    (3,293)  
Income before federal income taxes and other items
$ 54,163    $ 31,320    $ 22,843   
Loss and Loss adjustment expense ratio 59.1  % 64.2  % (5.1) %
Underwriting expense ratio 32.1    32.1    —   
Combined ratio 91.2  % 96.3  % (5.1) %
Impact of catastrophe events on combined ratio
3.0    4.0    (1.0)  
Combined ratio without impact of catastrophe events
88.2  % 92.3  % (4.1) %
Gross catastrophe losses $ 12,566    $ 15,775    $ (3,209)  
Net catastrophe losses $ 11,479    $ 15,593    $ (4,114)  
 
(1) A negative amount of net change indicates more expense was deferred than amortized and represents a decrease to expenses in the period indicated.

Earnings comparison 2020 to 2019
Income from operations for our Property and Casualty segment increased primarily due to the following:
• Improvements in the Commercial Agribusiness and Personal Auto lines of business
Additional information:
•Increases in commissions and operating expenses correlated to the increases in premiums written and earned, with our overall underwriting expense ratio being consistent in 2020 compared to 2019




50

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











Products
Our Property and Casualty segment consists of: (i) Personal products, marketed primarily to individuals, representing 54% of net premiums written; (ii) Commercial products, focused primarily on agricultural and other business related markets, representing 32% of net premiums written; and (iii) Specialty markets group products, marketed through independent managing general agents and managing general underwriters, representing 14% of net premiums written.

Personal Products
Personal Products results for the periods indicated were as follows (in thousands, except percentages):
  Three months ended March 31,  
  2020 2019 Change
Net premiums written
Automobile $ 145,011    $ 146,309    $ (1,298)  
Homeowner 61,250    54,922    6,328   
Other Personal 12,986    12,436    550   
Total net premiums written $ 219,247    $ 213,667    $ 5,580   
Net premiums earned
Automobile $ 137,483    $ 137,608    $ (125)  
Homeowner 66,699    60,411    6,288   
Other Personal 12,454    11,894    560   
Total net premiums earned $ 216,636    $ 209,913    $ 6,723   
Loss and loss adjustment expense ratio
Automobile 62.1  % 67.3  % (5.2) %
Homeowner 65.5  % 67.5  % (2.0) %
Other Personal 55.2  % 60.7  % (5.5) %
Personal line loss and loss adjustment expense ratio 62.7  % 67.0  % (4.3) %
Combined Ratio
Automobile 86.2  % 90.5  % (4.3) %
Homeowner 98.3  % 101.0  % (2.7) %
Other Personal 89.5  % 105.3  % (15.8) %
Personal line combined ratio 90.1  % 94.4  % (4.3) %

Comparison of 2020 to 2019

Automobile: Net premiums written and earned decreased in our personal automobile line due primarily to exposure changes on existing policies. The loss and loss adjustment expense and combined ratios improved due to a decrease in claim frequency.

Homeowners: Net premiums written and earned increased primarily due to rate increases and more premium being retained by us as a result of lower amounts of catastrophe reinsurance. The loss and loss adjustment expense and combined ratios improved due to increased premium from rate actions.

Other Personal: These products include coverages for individuals seeking to protect their personal property and liability not covered within their home and auto policies, such as coverages for watercraft, personal umbrella, and rental owners. The loss and loss adjustment expense and combined ratios improved due to both increased premium and decreased expenses.





51

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












Commercial Products
Commercial Products results for the periods indicated were as follows (in thousands, except percentages):
  Three months ended March 31,  
  2020 2019 Change
Net premiums written
Agricultural Business $ 40,982    $ 38,003    $ 2,979   
Automobile 37,712    34,482    3,230   
Business Owner 21,378    19,049    2,329   
Workers Compensation 21,012    21,674    (662)  
Other Commercial 9,339    9,759    (420)  
Total net premiums written $ 130,423    $ 122,967    $ 7,456   
Net premiums earned
Agricultural Business $ 39,073    $ 36,608    $ 2,465   
Automobile 30,464    27,482    2,982   
Business Owner 18,413    16,283    2,130   
Workers Compensation 17,596    18,722    (1,126)  
Other Commercial 8,090    8,673    (583)  
Total net premiums earned $ 113,636    $ 107,768    $ 5,868   
Loss and loss adjustment expense ratio
Agricultural Business 39.7  % 82.0  % (42.3) %
Automobile 63.5  % 73.1  % (9.6) %
Business Owner 94.6  % 55.5  % 39.1  %
Workers Compensation 52.9  % 46.4  % 6.5  %
Other Commercial 68.8  % 29.0  % 39.8  %
Commercial line loss and loss adjustment expense ratio 59.1  % 65.3  % (6.2) %
Combined ratio
Agricultural Business 77.2  % 120.1  % (42.9) %
Automobile 86.8  % 98.6  % (11.8) %
Business Owner 130.1  % 95.4  % 34.7  %
Workers Compensation 71.1  % 64.7  % 6.4  %
Other Commercial 111.4  % 72.0  % 39.4  %
Commercial line combined ratio
89.8  % 97.4  % (7.6) %

Comparison of 2020 to 2019

Agricultural Business: Our agricultural business product allows policyholders to customize and cover their agriculture exposure using a package policy, which includes coverage for residences and household contents, farm and ranch buildings and building contents, personal and commercial liability and personal property. Net premiums written and earned increased primarily due to rate increases and an increase in policies in-force. The loss and loss adjustment expense and combined ratios improved primarily due to favorable claim development.
Commercial Automobile: Net premiums written and earned increased primarily due to rate increases and an increase in policies in-force. The loss and loss adjustment expense and combined ratios improved primarily due to a decrease in claim frequency.
Business Owner: Our business owner product allows policyholders to customize and cover their property and liability exposures using a package policy. Net premiums written and earned increased primarily due to rate increases and an increase in policies in-force. The loss and loss adjustment expense and combined ratios increased primarily due to the increase in claim frequency.
Workers Compensation: Net premiums written and earned decreased primarily due to rate decreases. The loss and loss adjustment expense and combined ratios increased primarily due to an increase in allocated LAE reserves.
Other Commercial: Other commercial products primarily provide umbrella and other liability coverages. Net premiums written and earned decreased primarily due to an increase in ceded premiums for reinsurance coverage. The loss and loss adjustment expense and combined ratios increased primarily due to an increase in claim frequency.


52

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












Specialty Markets Group Products
Specialty Markets Group product results for the periods indicated were as follows (in thousands, except percentages):
  Three months ended March 31,  
  2020 2019 Change
Net premiums written $ 57,916    $ 49,042    $ 8,874   
Net premiums earned 58,383    53,500    4,883   
Loss and loss adjustment expense ratio(1)
45.6  % 50.8  % (5.2) %
Combined ratio(1)
97.6  % 101.9  % (4.3) %
(1) Ratio does not include fee income

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

Net written and earned premiums increased primarily due to higher production on Mortgage Security Insurance (“MSI”) and Collateral Protection Insurance (“CPI”) due to addition of new accounts. The loss and loss adjustment expense and combined ratios decreased mainly due to the improvement of loss ratios on GAP products, MSI and Investor Property Protection.

Corporate and Other
Corporate and Other segment financial results for the periods indicated were as follows (in thousands):
  Three months ended March 31,  
  2020 2019 Change
OTHER REVENUES
Net investment income $ 9,850    $ 15,437    $ (5,587)  
Realized investment gains 4,148    2,947    1,201   
Change in investment credit loss (44,678)   —    (44,678)  
Net gains (losses) on equity securities
(332,575)   206,377    (538,952)  
Other income 1,499    2,066    (567)  
Total other revenues (361,756)   226,827    (588,583)  
BENEFITS, LOSSES AND EXPENSES
Other operating expenses 10,937    9,281    1,656   
Total benefits, losses and expenses
10,937    9,281    1,656   
Income (loss) before federal income taxes and other items
$ (372,693)   $ 217,546    $ (590,239)  

Earnings comparison of 2020 to 2019
Income from operations for our Corporate and Other segment decreased primarily due to the following:
•The S&P 500 Index decreased 20.0% compared to an increase of 13.1% during the same period in 2019 driving the decrease in net gains on equity securities
•The change in investment credit loss for the first three months of 2020 due to the adoption of ASC 326

53

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












Investments
We manage our investment portfolio to optimize the rate of return commensurate with sound and prudent asset selection and to maintain a well-diversified portfolio in support of our products and capital. Our investment operations are regulated primarily by the state insurance departments where our insurance companies are domiciled. Investment activities, including setting investment policies and defining acceptable risk levels, are subject to oversight by our Board of Directors, which is assisted by our Finance Committee and Enterprise Risk Management Committee.
Our insurance and annuity products are generally supported by investment-grade bonds and commercial mortgage loans. We also invest in equity options as a hedge for our indexed products. We purchase fixed maturity securities and designate them as either held-to-maturity or available-for-sale considering our estimated future cash flow needs. We also monitor the composition of our fixed maturity securities classified as held-to-maturity and available-for-sale and adjust the mix within the portfolio as investments mature or new investments are purchased.
We invest in commercial mortgage loans when the yield and credit risk compare favorably with fixed maturity securities. Individual residential mortgage loans including sub-prime or Alt-A mortgage loans have not been and are not expected to be part of our investment portfolio. We purchase real estate and equity investments based on a risk and reward analysis where we believe there are opportunities for enhanced returns.
The following summarizes the carrying values of our invested assets (other than investments in unconsolidated affiliates) by asset class (in thousands, except percentages):
  March 31, 2020 December 31, 2019
Fixed maturity, bond held-to-maturity, at amortized cost $ 8,554,809    37.3  % $ 8,631,261    36.6  %
Fixed maturity, bond available-for-sale, at fair value 6,480,374    28.2    6,725,085    28.5   
Equity securities, at fair value 1,375,083    6.0    1,700,960    7.2   
Mortgage loans on real estate, net of allowance 5,125,365    22.3    5,097,017    21.6   
Policy loans 380,084    1.7    379,657    1.6   
Investment real estate, net of accumulated depreciation
545,646    2.4    551,219    2.3   
Short-term investments 418,882    1.8    425,321    1.8   
Other invested assets 74,135    0.3    76,569    0.3   
Total investments $ 22,954,378    100.0  % $ 23,587,089    100.0  %
The decrease in our total investments at March 31, 2020 compared to year-end 2019 was primarily the result of decreases in bonds available for sale, bonds held-to-maturity and equity securities. These decreases were somewhat offset by an increase in mortgage loans. The decrease was due to the reduction in fair value reflecting the impact of COVID-19 on financial markets as well as the adoption of ASC 326.

Bonds—We allocate most of our fixed maturity securities to support our insurance business. At March 31, 2020, our fixed maturity securities had an estimated fair value of $15.0 billion, which is comparatively equivalent with the amortized cost for the period. At December 31, 2019, our fixed maturity securities had an estimated fair value of $15.7 billion, which was $0.6 billion, or 4.2%, above amortized cost. The estimated fair value for securities due in one year or less was $1.4 billion as of March 31, 2020 and $1.2 billion as of December 31, 2019. For additional information regarding total bonds by credit quality rating refer to Note 4, Investments in Securities, of the Notes to the Unaudited Condensed Consolidated Financial Statements.
Equity Securities—We invest in companies publicly traded on national U.S. stock exchanges. See Note 4, Investments in Securities, of the Notes to the Unaudited Condensed Consolidated Financial Statements for the unrealized and realized gains and losses of equity securities.
Mortgage Loans—We invest in commercial mortgage loans that are diversified by property-type and geography. Generally, mortgage loans are secured by first liens on income-producing real estate with a loan-to-value ratio of up to 75%. Mortgage loans are generally carried at outstanding principal balances, adjusted for any unamortized premium or discount, deferred fees or expenses, and net of allowances. The weighted average coupon yield on the principal funded for mortgage loans was 4.3% and 4.8% at March 31, 2020 and December 31, 2019, respectively. For additional information regarding mortgage loans refer to Note 5, Mortgage Loans, of the Notes to the Unaudited Condensed Consolidated Financial Statements.
54

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












Policy Loans—For certain life insurance products, policyholders may borrow funds using the policy’s cash value as collateral. The maximum amount of the policy loan depends upon the policy’s surrender value. As of March 31, 2020, we had $380.1 million in policy loans with a loan to surrender value of 56%, and at December 31, 2019, we had $379.7 million in policy loans with a loan to surrender value of approximately 56%. Interest rates on policy loans primarily range from 3.0% to 12.0% per annum. Policy loans may be repaid at any time by the policyholder and have priority to any claims on the policy. If the policyholder fails to repay the policy loan, funds are withdrawn from the policy’s benefits.

Investment Real Estate—We invest in commercial real estate where positive cash flows and/or appreciation in value is expected. Real estate may be owned directly by our insurance companies or non-insurance affiliates or indirectly in joint ventures with real estate developers or investors we determine share our perspective regarding risk and return relationships. The carrying value of real estate is stated at cost, less accumulated depreciation and impairments, if any. Depreciation is provided over the estimated useful lives of the properties.
Short-Term Investments—Short-term investments are primarily commercial paper rated A2 or P2 or better by Standard & Poor’s and Moody’s, respectively. The amount fluctuates depending on our view of the desirability of investing in the available long-term investment opportunities and our liquidity needs, including mortgage investment-funding commitments.
Net Investment Income and Net Realized Gains (Losses)
Net investment income decreased $177.1 million during the three months ended March 31, 2020 compared to 2019 primarily due to losses on options from a decline in the S&P 500 Index.
Interest income on mortgage loans is accrued on the principal amount of the loan at the contractual interest rate. Accretion of discounts is recorded using the effective yield method. Interest income, accretion of discounts and prepayment fees are reported in net investment income. Interest is not accrued on loans generally more than 90 days past due or when the collection of interest is not considered probable. Loans in foreclosure are placed on nonaccrual status. Interest received on nonaccrual status mortgage loans is included in net investment income in the period received.
Net realized investment gains increased $1.2 million during the three months ended March 31, 2020 compared to 2019 primarily attributable to the call of bonds.
Net Unrealized Gains and Losses
The unrealized gains and losses of our fixed maturity securities investment portfolio are shown below (in thousands):
March 31, 2020 December 31, 2019 Change
Held-to-Maturity
Gains $ 207,582    $ 345,463    $ (137,881)  
Losses (260,733)   (8,034)   (252,699)  
Net gains (losses) (53,151)   337,429    (390,580)  
Available-for-Sale
Gains 182,107    302,426    (120,319)  
Losses (136,445)   (13,011)   (123,434)  
Net gains 45,662    289,415    (243,753)  
Total $ (7,489)   $ 626,844    $ (634,333)  
The net change in the unrealized gains on fixed maturity securities between March 31, 2020 and December 31, 2019 is primarily attributable to the decrease in benchmark ten-year interest rates, which were 0.6% and 1.9% respectively. The Company does not expect to be required to sell any of the securities in an unrealized loss position.
55

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












Liquidity
As discussed in Note 18, Subsequent Events, of the Notes to the Unaudited Condensed Consolidated Financial Statements, in April 2020 the Company borrowed approximately $485 million from the FHLB for the uncertainty and market volatility relating to the COVID-19 pandemic. In addition, we announced a 15% policy credit for our personal auto policyholders based on their April and May premiums, which is expected to amount to approximately $15 million. As a result of the impacts of COVID-19, state insurance departments across the country have issued regulations that require us not to cancel policies for non-payment for varying amounts of time but generally for at least 60-day periods which began in March and early April 2020. Because of this, we expect to see a reduction in the cash flows typically received from policyholders during these periods. At this time, however, our liquidity requirements have been and are expected to continue to be met by funds from operations. We are monitoring our liquidity needs closely. Should the Company require additional liquidity to respond to the effects of COVID-19, deposits of certain securities and mortgage loans under the Company's membership with the FHLB provide approximately $622 million of additional available credit to us.
The primary use of cash has been and is expected to continue to be payment of policyholder benefits and claims incurred. Current and expected patterns of claim frequency and severity may change from period to period but continue to be within historical norms. Management currently considers our current liquidity position to be sufficient to meet anticipated demands over the next twelve months. Our contractual obligations are not expected to have a significant negative impact to cash flows from operations.

Increasing interest rates may lead to an increase in annuity surrenders, which may be partially offset by an increase in new annuity sales. 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. Further, we are currently evaluating the renovation and modernization of our home office facilities. This could result in capital expenditures that could aggregate to approximately $100 million over a three year period beginning in 2021. There are no other unusually large capital expenditures expected in the next 12-24 months. We have paid dividends to stockholders for over 110 consecutive years and expect to continue this trend. There are no other known trends or uncertainties regarding product pricing, changes in product lines or rising costs that are expected to have a significant impact to cash flows from operations, although uncertainties relating to the COVID-19 pandemic could still significantly impact one or more of these items.
Funds received as premium payments and deposits that are not used for liquidity requirements are generally invested in bonds and commercial mortgages. Funds are invested with the intent that income from the investments and proceeds from the maturities will meet our ongoing cash flow needs. We historically have not had to liquidate invested assets in order to cover cash flow needs. While our investment portfolio has been significantly impacted by volatility associated with COVID-19, and likely will continue to be, at this time, we believe our portfolio of highly liquid available-for-sale investment securities, including equity securities, is sufficient to meet future liquidity needs as necessary.
As a result of some of the economic disruption caused by COVID-19, we are working with many of our mortgage loan borrowers, primarily those related to hotels, retail and parking operations, on loan modifications. We have developed procedures for reviewing, evaluating and approving potential loan modifications. Such modifications, if approved, result in payment term revisions and, over the short term, generally reduce the cash we expect to receive on these loans.
The Company holds collateral of $134.5 million at March 31, 2020 to offset exposure from its derivative counterparties. Cash flows associated with collateral received from counterparties change as the market value of the underlying derivative contract changes.

Our cash and cash equivalents and short-term investment position decreased from $877.3 million at December 31, 2019 to $747.6 million at March 31, 2020. The decrease primarily relates to a decrease of cash in money market accounts.
A downgrade or a potential downgrade in our financial strength ratings could result in a loss of business and could adversely affect our cash flows from operations.
Further information regarding additional sources or uses of cash is described in Note 16, Commitments and Contingencies, of the Notes to the Unaudited Condensed Consolidated Financial Statements.

56

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












Capital Resources
Our capital resources are summarized below (in thousands):
March 31, 2020 December 31, 2019
American National stockholders’ equity, excluding accumulated other comprehensive income (“AOCI”),net of tax
$ 5,613,058    $ 5,890,231   
Accumulated other comprehensive income (loss) (12,053)   99,518   
Total American National stockholders’ equity $ 5,601,005    $ 5,989,749   
We have notes payable relating to borrowings by real estate joint ventures that we consolidate into our financial statements that are not part of our capital resources. The lenders for the notes payable generally have no recourse against us in the event of default by the joint ventures. Therefore, the liability we have for these notes payable is limited to our investment in the respective ventures, which totaled $3.3 million and $4.3 million at March 31, 2020 and December 31, 2019, respectively.
The changes in our capital resources are summarized below (in thousands):
  March 31, 2020 December 31, 2019
Capital and
Retained
Earnings 		Accumulated
Other
Comprehensive
Income (Loss) 		Total Capital and
Retained
Earnings 		Accumulated
Other
Comprehensive
Income (Loss) 		Total
Net income (loss) attributable to American National $ (220,444)   $ —    $ (220,444)   $ 620,363    $ —    $ 620,363   
Dividends to shareholders (22,047)   —    (22,047)   (88,243)   —    (88,243)  
Change in net unrealized gains (losses) on debt securities
—    (112,403)   (112,403)   —    184,156    184,156   
Foreign currency transaction and translation adjustment —    (924)   (924)   —    390    390   
Defined benefit pension plan adjustment —    1,756    1,756    —    15,495    15,495   
Cumulative effect of accounting change (34,702)   —    (34,702)   785    (785)   —   
Other 20    —    20    340    —    340   
Total $ (277,173)   $ (111,571)   $ (388,744)   $ 533,245    $ 199,256    $ 732,501   
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 March 31, 2020 and December 31, 2019, American National Insurance Company’s statutory capital and surplus was $3,465,660,000 and $3,477,727,000, respectively. American National Insurance Company and each of its insurance subsidiaries had statutory capital and surplus at March 31, 2020 and December 31, 2019 substantially above 200% of the authorized control level.
The achievement of long-term growth will require growth in American National Insurance Company’s and our insurance subsidiaries’ statutory capital and surplus. Our subsidiaries may obtain additional statutory capital through various sources, such as retained statutory earnings or equity contributions from us.
Contractual Obligations
Our future cash payments associated with claims and claims adjustment expenses, life, annuity and disability obligations, contractual obligations pursuant to operating leases for office space and equipment, and notes payable have not materially changed since December 31, 2019. We expect to have the capacity to pay our obligations as they come due.




57

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











Off-Balance Sheet Arrangements
We have off-balance sheet arrangements relating to third-party marketing operation bank loans as discussed in Note 16, Commitments and Contingencies, of the Notes to the Unaudited Condensed Consolidated Financial Statements. We could be exposed to a liability for these loans, which are supported by the cash value of the underlying insurance contracts. The cash value of the life insurance policies is designed to always equal or exceed the balance of the loans. Accordingly, management does not foresee any material loss related to these arrangements.
Related-Party Transactions
We have various agency, consulting and service arrangements with individuals and entities considered to be related parties. Each of these arrangements has been reviewed and approved by our Audit Committee, which retains final decision-making authority for these transactions. The amounts involved, both individually and in the aggregate, with these arrangements are not material to any segment or to our overall operations. For additional details see Note 17, Related Party Transactions, of the Notes to the Unaudited Condensed Consolidated Financial Statements.

58
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risk has not changed materially from those disclosed in our 2019 Annual Report on form 10-K filed with the SEC on February 28, 2020, although the recent economic disruptions caused by the COVID-19 pandemic has added greater uncertainty to the credit risk and equity risk that we face.

ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to provide reasonable assurance that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of March 31, 2020. Based upon that evaluation and subject to the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2020, the design and operation of the Company’s disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
Management has monitored the internal controls over financial reporting, including any material changes to the internal control over financial reporting. There were no changes in the Company’s internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

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

ITEM 1A. RISK FACTORS
The "Risk Factors" discussion in Item 1A of our 2019 Form 10-K filed with the SEC on February 28, 2020 is supplemented by the following:
Major public health issues, such as the novel coronavirus COVID-19, could have an adverse impact on our business and results of operations.
We are closely monitoring developments related to the COVID-19 pandemic to assess its impact on our business; however, due to the evolving and highly uncertain nature of this event, it currently is not possible to estimate the ultimate direct and indirect impact of COVID-19 on our business, results of operations, financial condition, or liquidity. COVID-19 has impacted us, as discussed elsewhere in the report, and COVID-19 or other major public health issues may further impact us in a number of ways. We may face increased costs associated with claims under our life, health, and commercial casualty insurance products. The cost of reinsurance to us for these coverages could increase, and we may encounter decreased availability of such reinsurance.
Our investment portfolio has been and may continue to be adversely affected by market volatility, changes in interest rates, reduced liquidity, deteriorating capacity of our mortgage loan borrowers to meet their obligations to us, possible declining values of collateral securing our mortgage loan portfolio and by a U.S. and global economic slowdown caused by the COVID-19 pandemic or the uncertainty of its outcome. Extreme market volatility may leave us unable to react to market events in a prudent manner consistent with our historical practices in dealing with more orderly markets.

59

ITEM 1A. RISK FACTORS — (Continued)

Our workforce, and the workforces of our vendors, service providers and counterparties, may also be affected, which could result in an adverse impact on our ability to conduct business. We are taking precautions to protect the safety and well-being of our employees while striving to provide uninterrupted service to our policyholders and claimants. However, no assurance can be given that these actions will be sufficient, nor can we predict the level of disruption that will occur to our employees' ability to continue to provide customer support and service as many continue to work from home.
The efforts of governmental and non-governmental organizations in combating the spread and severity of COVID-19 or other major public health issues may not be effective. Further, we cannot predict how legal and regulatory responses to concerns about COVID-19 or other major public health issues, will impact our business. For example, state insurance regulators across the country have restricted our ability to cancel certain policies for non-payment, which has impacted and will continue to impact our cash flows from these policies. In addition, should state regulators force us to extend insurance coverage beyond our policy language, the impact on our business could be significant.
The extent to which COVID-19 impacts our business, results of operations, financial condition, or liquidity will depend on future developments which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions taken to contain or treat its impact.
60
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None

ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable

ITEM 5. OTHER INFORMATION
None


61

ITEM 6. EXHIBITS

Exhibit Number Description
3.1   
3.2   
31.1   
31.2   
32.1   
101.INS    XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH    XBRL Taxonomy Extension Schema Document.
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB    XBRL Taxonomy Extension Label Linkbase Document.
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document.
104    Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101).

62
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
By:   /s/ James E. Pozzi
Name:   James E. Pozzi
Title:   President and Chief Executive Officer
By:   /s/ Timothy A. Walsh
Name:   Timothy A.Walsh
Title:   Executive Vice President, CFO, Treasurer and ML and P&C Operations
Date: May 8, 2020

63
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