Quarterly Report (10-q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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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 September 30, 2019



☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File No. 001-34280

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 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:

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 31, 2019, there were 26,887,200 shares of the registrant’s voting common stock, $1.00 par value per share, outstanding.

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AMERICAN NATIONAL INSURANCE COMPANY

TABLE OF CONTENTS




	PART I – FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS (Unaudited):

	Consolidated Statements of Financial Position as of September 30, 2019 and December 31, 2018	3

	Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018	4

	Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2019 and 2018	5

	Consolidated Statements of Changes in Equity for the three and nine months ended September 30, 2019 and 2018	6

	Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018	8

	Notes to the Unaudited Consolidated Financial Statements	9

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	38

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	58

ITEM 4.	CONTROLS AND PROCEDURES	58

	PART II – OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	58

ITEM 1A.	RISK FACTORS	58

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	58

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	58

ITEM 4.	MINE SAFETY DISCLOSURES	58

ITEM 5.	OTHER INFORMATION	58

ITEM 6.	EXHIBIT INDEX	59

Table of Contents

AMERICAN NATIONAL INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Unaudited and in thousands, except share data)



	September 30, 2019			December 31, 2018
ASSETS
Fixed maturity, bonds held-to-maturity, at amortized cost (Fair value $9,063,688 and $8,130,084)	$	8,715,569		$	8,211,449
Fixed maturity, bonds available-for-sale, at fair value (Amortized cost $6,545,358 and $6,261,621)	6,826,245			6,215,563
Equity securities, at fair value (Cost $700,727 and $714,504)	1,678,657			1,530,228
Mortgage loans on real estate, net of allowance	4,936,605			5,124,707
Policy loans	380,018			376,254
Investment real estate, net of accumulated depreciation of $250,302 and $267,920	556,503			587,516
Short-term investments	398,948			206,760
Other invested assets	63,034			50,087
Total investments	23,555,579			22,302,564
Cash and cash equivalents	436,307			268,164
Investments in unconsolidated affiliates	666,654			571,897
Accrued investment income	191,660			188,630
Reinsurance recoverables	434,793			427,475
Prepaid reinsurance premiums	51,140			53,622
Premiums due and other receivables	361,694			345,705
Deferred policy acquisition costs	1,437,200			1,497,261
Property and equipment, net of accumulated depreciation of $251,832 and $236,922	107,071			109,472
Current tax receivable	14,189			8,855
Prepaid pension	63,822			57,117
Other assets	173,040			163,222
Separate account assets	1,025,370			918,369
Total assets	$	28,518,519		$	26,912,353
LIABILITIES
Future policy benefits
Life	$	3,071,530		$	3,047,421
Annuity	1,586,823			1,524,006
Health	50,185			51,347
Policyholders’ account balances	13,040,007			12,461,833
Policy and contract claims	1,492,965			1,481,294
Unearned premium reserve	960,612			908,856
Other policyholder funds	353,098			318,948
Liability for retirement benefits	71,856			73,631
Notes payable	159,043			137,963
Deferred tax liabilities, net	392,165			264,185
Other liabilities	483,157			452,985
Separate account liabilities	1,025,370			918,369
Total liabilities	22,686,811			21,640,838
EQUITY
American National stockholders’ equity:
Common stock, $1.00 par value, - Authorized 50,000,000, Issued 30,832,449 and 30,832,449 Outstanding 26,887,200 and 26,885,449 shares	30,832			30,832
Additional paid-in capital	20,991			20,694
Accumulated other comprehensive income (loss)	85,444			(99,738		)
Retained earnings	5,797,783			5,413,952
Treasury stock, at cost	(108,469		)	(108,492		)
Total American National stockholders’ equity	5,826,581			5,257,248
Noncontrolling interest	5,127			14,267
Total equity	5,831,708			5,271,515
Total liabilities and equity	$	28,518,519		$	26,912,353

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

AMERICAN NATIONAL INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited and in thousands, except share and per share data)



	Three months ended September 30,						Nine months ended September 30,
	2019			2018			2019			2018
PREMIUMS AND OTHER REVENUES
Premiums
Life	$	93,079		$	91,176		$	265,634		$	257,147
Annuity	41,305			47,296			137,434			185,140
Health	40,676			45,154			121,581			135,039
Property and casualty	382,784			374,842			1,125,704			1,086,862
Other policy revenues	76,784			70,840			226,178			213,317
Net investment income	246,620			285,532			796,696			740,942
Net realized investment gains (losses)	31,933			(1,276		)	31,943			4,775
Other-than-temporary impairments	—			—			(6,968		)	—
Net gains on equity securities	8,589			126,495			282,026			150,487
Other income	10,730			12,177			32,642			33,973
Total premiums and other revenues	932,500			1,052,236			3,012,870			2,807,682
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits
Life	113,652			119,816			327,579			315,320
Annuity	59,699			64,153			191,248			231,002
Claims incurred
Health	28,567			29,751			81,042			90,201
Property and casualty	280,695			272,885			790,447			795,501
Interest credited to policyholders’ account balances	106,782			133,418			371,703			309,694
Commissions for acquiring and servicing policies	128,689			138,979			408,629			433,412
Other operating expenses	128,502			118,761			391,645			373,102
Change in deferred policy acquisition costs	1,548			(8,794		)	(22,391		)	(45,876		)
Total benefits, losses and expenses	848,134			868,969			2,539,902			2,502,356
Income before federal income tax and other items	84,366			183,267			472,968			305,326
Less: Provision (benefit) for federal income taxes
Current	4,433			(39,937		)	32,444			(26,404		)
Deferred	18,042			59,156			79,356			68,769
Total provision for federal income taxes	22,475			19,219			111,800			42,365
Income after federal income tax	61,891			164,048			361,168			262,961
Equity in earnings of unconsolidated affiliates	45,075			13,029			102,325			18,905
Other components of net periodic pension costs, net of tax	(1,023		)	(1,236		)	(2,808		)	(3,705		)
Net income	105,943			175,841			460,685			278,161
Less: Net income attributable to noncontrolling interest, net of tax	13,759			2,377			11,444			1,781
Net income attributable to American National	$	92,184		$	173,464		$	449,241		$	276,380
Amounts available to American National common stockholders
Earnings per share
Basic	$	3.43		$	6.45		$	16.71		$	10.28
Diluted	3.43			6.44			16.71			10.26
Cash dividends to common stockholders	0.82			0.82			2.46			2.46
Weighted average common shares outstanding	26,881,700			26,886,498			26,883,025			26,886,299
Weighted average common shares outstanding and dilutive potential common shares	26,888,172			26,893,013			26,889,338			26,923,540

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

AMERICAN NATIONAL INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited and in thousands)



	Three months ended September 30,						Nine months ended September 30,
	2019			2018			2019		2018
Net income	$	105,943		$	175,841		$	460,685	$	278,161
Other comprehensive income (loss), net of tax
Change in net unrealized gains (losses) on securities	(2,569		)	(14,395		)	181,305		(142,116		)
Foreign currency transaction and translation adjustments	(293		)	(181		)	297		(681		)
Defined benefit pension plan adjustment	1,454			1,601			4,365		3,991
Total other comprehensive income (loss), net of tax	(1,408		)	(12,975		)	185,967		(138,806		)
Total comprehensive income	104,535			162,866			646,652		139,355
Less: Comprehensive income attributable to noncontrolling interest	13,759			2,377			11,444		1,781
Total comprehensive income attributable to American National	$	90,776		$	160,489		$	635,208	$	137,574

See accompanying notes to the unaudited consolidated financial statements.

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AMERICAN NATIONAL INSURANCE COMPANY

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, 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
Amortization of restricted stock	—		20		—			—			—			—			20
Other comprehensive income	—		—		100,601			—			—			—			100,601
Net income attributable to American National	—		—		—			98,840			—			—			98,840
Cash dividends to common stockholders	—		—		—			(22,044		)	—			—			(22,044		)
Contributions	—		—		—			—			—			168			168
Distributions	—		—		—			—			—			(1,957		)	(1,957		)
Net loss attributable to noncontrolling interest	—		—		—			—			—			(965		)	(965		)
Balance at June 30, 2019	$	30,832	$	20,971	$	86,852		$	5,727,649		$	(108,469	)	$	9,747		$	5,767,582
Amortization of restricted stock	—		20		—			—			—			—			20
Other comprehensive loss	—		—		(1,408		)	—			—			—			(1,408		)
Net income attributable to American National	—		—		—			92,184			—			—			92,184
Cash dividends to common stockholders	—		—		—			(22,050		)	—			—			(22,050		)
Contributions	—		—		—			—			—			56			56
Distributions	—		—		—			—			—			(18,435		)	(18,435		)
Net income attributable to noncontrolling interest	—		—		—			—			—			13,759			13,759
Balance at September 30, 2019	$	30,832	$	20,991	$	85,444		$	5,797,783		$	(108,469	)	$	5,127		$	5,831,708

See accompanying notes to the unaudited consolidated financial statements.

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AMERICAN NATIONAL INSURANCE COMPANY

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, 2017	$	30,832	$	19,193	$	642,216		$	4,656,134		$	(101,616	)	$	9,012		$	5,255,771
Reissuance of treasury shares	—		675		—			—			70			—			745
Amortization of restricted stock	—		201		—			—			—			—			201
Cumulative effect of accounting changes	—		—		(637,376		)	697,307			—			—			59,931
Other comprehensive loss	—		—		(90,910		)	—			—			—			(90,910		)
Net income attributable to American National	—		—		—			18,777			—			—			18,777
Cash dividends to common stockholders	—		—		—			(22,089		)	—			—			(22,089		)
Distributions	—		—		—			—			—			(397		)	(397		)
Net loss attributable to noncontrolling interest	—		—		—			—			—			(519		)	(519		)
Balance at March 31, 2018	$	30,832	$	20,069	$	(86,070	)	$	5,350,129		$	(101,546	)	$	8,096		$	5,221,510
Reissuance of treasury shares	—		498		—			—			(6,946		)	—			(6,448		)
Amortization of restricted stock	—		83		—			—			—			—			83
Cumulative effect of accounting changes	—		—		10,257			(10,257		)	—			—			—
Other comprehensive loss	—		—		(34,921		)	—			—			—			(34,921		)
Net income attributable to American National	—		—		—			84,139			—			—			84,139
Cash dividends to common stockholders	—		—		—			(22,046		)	—			—			(22,046		)
Distributions	—		—		—			—			—			(173		)	(173		)
Net loss attributable to noncontrolling interest	—		—		—			—			—			(77		)	(77		)
Balance at June 30, 2018	$	30,832	$	20,650	$	(110,734	)	$	5,401,965		$	(108,492	)	$	7,846		$	5,242,067
Amortization of restricted stock	—		23		—			—			—			—			23
Other comprehensive loss	—		—		(12,975		)	—			—			—			(12,975		)
Net income attributable to American National	—		—		—			173,464			—			—			173,464
Cash dividends to common stockholders	—		—		—			(22,046		)	—			—			(22,046		)
Distributions	—		—		—			—			—			(1,240		)	(1,240		)
Net income attributable to noncontrolling interest	—		—		—			—			—			2,377			2,377
Balance at September 30, 2018	$	30,832	$	20,673	$	(123,709	)	$	5,553,383		$	(108,492	)	$	8,983		$	5,381,670

See accompanying notes to the unaudited consolidated financial statements.

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AMERICAN NATIONAL INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and in thousands)



	Nine months ended September 30,
	2019			2018
OPERATING ACTIVITIES
Net income	$	460,685		$	278,161
Adjustments to reconcile net income to net cash provided by operating activities
Net realized investment gains	(31,943		)	(4,775		)
Other-than-temporary impairments	6,968			—
Accretion of premiums, discounts and loan origination fees	(3,862		)	(4,303		)
Net capitalized interest on policy loans and mortgage loans	(25,719		)	(29,250		)
Depreciation	40,760			39,241
Interest credited to policyholders’ account balances	371,703			309,694
Charges to policyholders’ account balances	(226,178		)	(213,317		)
Deferred federal income tax expense	79,356			68,769
Equity in earnings of unconsolidated affiliates	(102,325		)	(18,905		)
Distributions from equity method investments	103,128			16,375
Changes in
Policyholder liabilities	168,352			281,596
Deferred policy acquisition costs	(22,391		)	(45,876		)
Reinsurance recoverables	(7,318		)	(41,536		)
Premiums due and other receivables	(15,989		)	(63,272		)
Prepaid reinsurance premiums	2,483			7,587
Accrued investment income	(3,030		)	1,249
Current tax receivable/payable	(5,335		)	1,454
Liability for retirement benefits	(2,956		)	(63,249		)
Fair value of option securities	(95,885		)	(58,396		)
Fair value of equity securities	(282,026		)	(150,487		)
Other, net	(13,282		)	53,782
Net cash provided by operating activities	395,196			364,542
INVESTING ACTIVITIES
Proceeds from sale/maturity/prepayment of
Held-to-maturity securities	502,141			492,160
Available-for-sale securities	329,489			348,149
Equity securities	178,817			164,413
Investment real estate	64,459			11,577
Mortgage loans	626,449			467,040
Policy loans	33,096			42,071
Other invested assets	53,350			84,846
Disposals of property and equipment	69			93
Distributions from unconsolidated affiliates	78,014			35,684
Payment for the purchase/origination of
Held-to-maturity securities	(1,121,049		)	(1,011,398		)
Available-for-sale securities	(458,635		)	(436,877		)
Equity securities	(49,016		)	(40,981		)
Investment real estate	(22,218		)	(35,583		)
Mortgage loans	(419,144		)	(834,877		)
Policy loans	(19,935		)	(18,268		)
Other invested assets	(46,221		)	(61,407		)
Additions to property and equipment	(16,094		)	(13,527		)
Contributions to unconsolidated affiliates	(194,846		)	(100,567		)
Change in short-term investments	(192,188		)	441,544
Change in collateral held for derivatives	75,827			40,243
Other, net	3,857			(5,795		)
Net cash used in investing activities	(593,778		)	(431,460		)
FINANCING ACTIVITIES
Policyholders’ account deposits	1,559,231			1,378,325
Policyholders’ account withdrawals	(1,126,580		)	(1,012,522		)
Change in notes payable	21,080			45
Dividends to stockholders	(66,195		)	(66,182		)
Payments to noncontrolling interest	(20,811		)	(1,810		)
Net cash provided by financing activities	366,725			297,856
NET INCREASE IN CASH AND CASH EQUIVALENTS	168,143			230,938
Beginning of the period	268,164			375,837
End of the period	$	436,307		$	606,775

See accompanying notes to the unaudited consolidated financial statements.

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

The interim 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, 2018. The 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 consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the reported consolidated financial statement balances. Actual results could differ from those estimates.

Note 3 – Recently Issued Accounting Pronouncements

Adoption of New Accounting Standards

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, "Revenue from Contracts with Customers," that superseded most existing revenue recognition requirements in GAAP. Insurance contracts generally are excluded from the scope of the guidance. For those contracts which are impacted, the transaction price is attributed to the underlying performance obligations in the contract and revenue is recognized as the entity satisfies the performance obligations and transfers control of a good or service to the customer. The Company’s revenues include premiums, other policy revenues, net investment income, realized investment gains, net gains on equity securities, and other income. Other income includes fee income which is recognized when obligations under the terms specified within a contract with a customer are either (1) satisfied at a point in time or (2) based upon the progress of completion measured over a period of time as the obligation is performed using the input method. The Company adopted the standard on its required effective date of January 1, 2018 using the modified retrospective approach. The majority of our revenue sources are insurance related and not in the scope of the guidance. The adoption of the standard did not have a material impact on the Company’s consolidated financial position, results of operations, equity or cash flows as of the adoption date or for the nine months ended September 30, 2019.

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Note 3 – Recently Issued Accounting Pronouncements - (Continued)

In January 2016, the FASB issued ("ASU") 2016-01, "Financial Instruments," which changed certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The new guidance requires that equity investments, other than those accounted for under the equity method or those that result in consolidation of the investee, be measured at fair value with the changes in fair value recognized through earnings. When the fair value option has been elected for financial liabilities, changes in fair value due to instrument-specific credit risk will be recognized separately in other comprehensive income. The guidance also simplifies the impairment assessment of equity investments and eliminates the disclosure requirements for methods and significant assumptions used to estimate fair value of financial instruments that are measured at amortized cost on the statement of financial position. The Company adopted the standard on its required effective date of January 1, 2018 using a modified retrospective approach. Upon adoption, cumulative unrealized gains on equity securities, net of tax, of $667.7 million, partially offset by $30.4 million participating policyholders’ interest in such gains, net of tax, were reclassified from accumulated other comprehensive income to retained earnings. In April 2018, an additional $10.2 million deferred policy acquisition cost adjustment, net of tax, related to net unrealized gains and losses on equity securities, was reclassified from accumulated other comprehensive income to retained earnings. The change in net gains on equity securities increased earnings by $222.8 million and $118.9 million, net of tax, for the nine months ended September 30, 2019 and 2018, respectively.

In October of 2016, the FASB issued ASU 2016-16, “Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory,” which requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Prior guidance prohibited the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset was sold to an outside party. The Company adopted the standard on its required effective date of January 1, 2018 using a modified retrospective approach. Upon adoption, a liability was released and retained earnings increased by $59.9 million.

In February 2016, the FASB issued ASU 2016-02, “Leases,” that required significant changes to the statement of financial position of lessees. The new standard required lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether the lease is effectively a financed purchase by the lessee. This classification is used to determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months, regardless of their classification. Lessor accounting was less affected by the standard but was updated to align with certain changes in the lessee model and the new revenue recognition standard. The Company adopted the standard on its required effective date of January 1, 2019 using the effective date method, which required a cumulative-effect adjustment to the opening balance of retained earnings. Upon adoption, the Company recorded a right-of-use asset and liability of $13.1 million.

In February 2018, the FASB issued ASU 2018-02, “Income Statement-Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which allows for a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The standard was adopted on its required effective date of January 1, 2019 and resulted in a $0.8 million increase in retained earnings and a corresponding decrease to accumulated other comprehensive income.

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

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments,” which will significantly change how entities measure credit losses for most financial assets, reinsurance recoverables and certain other instruments that are not measured at fair value through net income. The guidance will replace the current “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. For available-for-sale debt securities, entities will be required to record allowances rather than a direct write down of the investment, as required by the current other-than-temporary impairment model. The standard also requires additional disclosures. This standard will become effective for the Company for all annual and interim periods beginning January 1, 2020. The Company is in the process of determining the impact of adopting the standard on our results of operations and financial position.

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Note 3 – Recently Issued Accounting Pronouncements - (Continued)

In August 2018, the FASB issued ASU 2018-12, “Insurance: Targeted Improvements to the Accounting for Long-Duration Contracts,” that impacts financial reporting for insurance companies that issue 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, 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. This standard could have a material impact on our results of operations and financial position.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement: Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement,” guidance that 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 new standard will become effective for the Company for all interim and annual periods beginning January 1, 2020. The Company does not expect the adoption of this guidance to have a material impact on the results of operations or financial position.

In August 2018, the FASB issued ASU 2018-14, “Compensation-Retirement Benefits-Defined Benefit Plans-General: Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans,” which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The guidance removes certain defined benefit pension or other postretirement plan disclosures that are no longer cost beneficial, clarifies the specific requirements for each disclosure and adds disclosure requirements. This standard will become effective for the annual period ending December 31, 2020. The Company does not expect the adoption of this standard to have a material impact on our results of operations or financial position.

In August 2018, the FASB issued ASU 2018-15 “Intangibles-Goodwill and Other-Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” which seeks to align 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 service

contract. This standard will become effective for the Company for all interim and annual periods beginning January 1, 2020. The Company is in the process of determining the impact of adopting the standard.

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Note 4 – Investment in Securities

The cost or amortized cost and fair value of investments in securities are shown below (in thousands):



	September 30, 2019
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
Fixed maturity securities, bonds held-to-maturity
U.S. states and political subdivisions	$	203,858	$	6,969	$	—		$	210,827
Foreign governments	3,921		469		—			4,390
Corporate debt securities	8,152,982		336,960		(5,998		)	8,483,944
Residential mortgage-backed securities	208,752		7,885		(629		)	216,008
Collateralized debt securities	146,056		2,726		(263		)	148,519
Total bonds held-to-maturity	8,715,569		355,009		(6,890		)	9,063,688
Fixed maturity securities, bonds available-for-sale
U.S. treasury and government	29,510		477		(26		)	29,961
U.S. states and political subdivisions	1,053,360		52,394		(9		)	1,105,745
Foreign governments	5,000		1,361		—			6,361
Corporate debt securities	5,424,250		245,034		(19,934		)	5,649,350
Residential mortgage-backed securities	23,699		933		(168		)	24,464
Collateralized debt securities	9,539		825		—			10,364
Total bonds available-for-sale	6,545,358		301,024		(20,137		)	6,826,245
Total investments in securities	$	15,260,927	$	656,033	$	(27,027	)	$	15,889,933



	December 31, 2018
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
Fixed maturity securities, bonds held-to-maturity
U.S. states and political subdivisions	$	245,360	$	5,840	$	(301	)	$	250,899
Foreign governments	3,961		469		—			4,430
Corporate debt securities	7,640,891		58,772		(150,834		)	7,548,829
Residential mortgage-backed securities	315,306		7,237		(2,633		)	319,910
Collateralized debt securities	5,214		71		—			5,285
Other debt securities	717		14		—			731
Total bonds held-to-maturity	8,211,449		72,403		(153,768		)	8,130,084
Fixed maturity securities, bonds available-for-sale
U.S. treasury and government	28,304		338		(243		)	28,399
U.S. states and political subdivisions	848,228		16,827		(3,025		)	862,030
Foreign governments	5,000		1,210		—			6,210
Corporate debt securities	5,345,579		41,812		(103,573		)	5,283,818
Residential mortgage-backed securities	31,735		424		(497		)	31,662
Collateralized debt securities	2,775		675		(6		)	3,444
Total bonds available-for-sale	6,261,621		61,286		(107,344		)	6,215,563
Total investments in securities	$	14,473,070	$	133,689	$	(261,112	)	$	14,345,647

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Note 4 – Investment in Securities – (Continued)

The amortized cost and fair value, by contractual maturity, of fixed maturity securities are shown below (in thousands):



	September 30, 2019
	Bonds Held-to-Maturity				Bonds Available-for-Sale
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	541,108	$	547,409	$	437,371	$	440,611
Due after one year through five years	3,890,976		4,018,966		3,076,222		3,188,171
Due after five years through ten years	3,373,279		3,546,108		2,440,494		2,580,319
Due after ten years	910,206		951,205		591,271		617,144
Total	$	8,715,569	$	9,063,688	$	6,545,358	$	6,826,245

Actual maturities differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Residential and commercial mortgage-backed securities, which are not due at a single maturity, have been allocated to their respective categories based on the year of final contractual maturity.

Proceeds from sales of available-for-sale securities, with the related gross realized gains and losses, are shown below (in thousands):



	Three months ended September 30,					Nine months ended September 30,
	2019		2018			2019			2018
Proceeds from sales of fixed maturity available-for-sale securities	$	14,921	$	18,424		$	15,205		$	64,980
Gross realized gains	56		—			56			376
Gross realized losses	—		(569		)	(23		)	(1,156		)

Gains and losses are determined using specific identification of the securities sold. During the nine months ended September 30, 2019 and 2018, bonds below investment grade with a carrying value of $157,939,000 and $34,850,000, respectively, were transferred from held-to-maturity to available-for-sale after a deterioration in the issuers’ credit worthiness. Further, during 2018, a bond with a carrying value of $38,221,000 was transferred from held-to-maturity to available-for-sale due to an isolated event that could not have been reasonably anticipated by the company. No realized loss was recorded in 2019 or 2018.

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



	Nine months ended September 30,
	2019			2018
Bonds available-for-sale: change in unrealized gains (losses)	$	326,945		$	(232,433	)
Adjustments for
Deferred policy acquisition costs	(82,587		)	38,871
Participating policyholders’ interest	(14,989		)	13,975
Deferred federal income tax benefit (expense)	(48,064		)	37,471
Change in net unrealized gains (losses) on debt securities, net of tax	$	181,305		$	(142,116	)

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



	Three months ended September 30,					Nine months ended September 30,
	2019		2018			2019		2018
Unrealized gains on equity securities	$	3,605	$	133,825		$	258,209	$	145,687
Net gains (losses) on equity securities sold	4,984		(7,330		)	23,817		4,800
Net gains on equity securities	$	8,589	$	126,495		$	282,026	$	150,487

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Note 4 – Investment in Securities – (Continued)

The gross unrealized losses and fair value of the investment securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are shown below (in thousands):



	September 30, 2019
	Less than 12 months					12 months or more					Total
	Unrealized (Losses)			Fair Value		Unrealized (Losses)			Fair Value		Unrealized (Losses)			Fair Value
Fixed maturity securities, bonds held-to-maturity
Corporate debt securities	$	(4,124	)	$	462,267	$	(1,874	)	$	39,440	$	(5,998	)	$	501,707
Residential mortgage-backed securities	(126		)	54,250		(503		)	6,638		(629		)	60,888
Collateralized debt securities	(263		)	37,757		—			—		(263		)	37,757
Total bonds held-to-maturity	(4,513		)	554,274		(2,377		)	46,078		(6,890		)	600,352
Fixed maturity securities, bonds available-for-sale
U.S. treasury and government	(4		)	4,076		(22		)	8,280		(26		)	12,356
U.S. states and political subdivisions	(9		)	1,168		—			—		(9		)	1,168
Corporate debt securities	(5,707		)	162,194		(14,227		)	214,102		(19,934		)	376,296
Residential mortgage-backed securities	—			—		(168		)	766		(168		)	766
Total bonds available-for-sale	(5,720		)	167,438		(14,417		)	223,148		(20,137		)	390,586
Total	$	(10,233	)	$	721,712	$	(16,794	)	$	269,226	$	(27,027	)	$	990,938



	December 31, 2018
	Less than 12 months					12 months or more					Total
	Unrealized (Losses)			Fair Value		Unrealized (Losses)			Fair Value		Unrealized (Losses)			Fair Value
Fixed maturity securities, bonds held-to-maturity
U.S. states and political subdivisions	$	(301	)	$	22,605	$	—		$	—	$	(301	)	$	22,605
Corporate debt securities	(90,931		)	2,969,461		(59,903		)	1,063,679		(150,834		)	4,033,140
Residential mortgage-backed securities	(703		)	58,119		(1,930		)	57,661		(2,633		)	115,780
Total bonds held-to-maturity	(91,935		)	3,050,185		(61,833		)	1,121,340		(153,768		)	4,171,525
Fixed maturity securities, bonds available-for-sale
U.S. treasury and government	(29		)	9,741		(214		)	13,478		(243		)	23,219
U.S. states and political subdivisions	(1,274		)	119,987		(1,751		)	61,992		(3,025		)	181,979
Corporate debt securities	(65,492		)	2,383,548		(38,081		)	572,600		(103,573		)	2,956,148
Residential mortgage-backed securities	(54		)	6,034		(443		)	13,515		(497		)	19,549
Collateralized debt securities	(2		)	158		(4		)	100		(6		)	258
Total bonds available-for-sale	(66,851		)	2,519,468		(40,493		)	661,685		(107,344		)	3,181,153
Total	$	(158,786	)	$	5,569,653	$	(102,326	)	$	1,783,025	$	(261,112	)	$	7,352,678

As of September 30, 2019, the securities with unrealized losses including those exceeding one year were not deemed to be other-than-temporarily impaired. American National has the ability and intent to hold those securities until a market price recovery or maturity. It is not more-likely-than-not that American National will be required to sell them prior to recovery, and recovery is expected in a reasonable period of time. It is possible an issuer’s financial circumstances may be different in the future, which may lead to a different impairment conclusion in future periods.

Table of Contents

Note 4 – Investment in Securities – (Continued)

The following table identifies the total bonds distributed by credit quality rating (in thousands, except percentages):



	September 30, 2019						December 31, 2018
	Amortized Cost		Estimated Fair Value		% of Fair Value		Amortized Cost		Estimated Fair Value		% of Fair Value
AAA	$	764,050	$	795,776	5.0	%	$	690,009	$	702,531	4.9	%
AA	1,219,171		1,274,409		8.0		1,326,947		1,336,380		9.3
A	5,702,178		5,959,712		37.5		5,350,316		5,314,589		37.0
BBB	7,101,873		7,399,545		46.6		6,584,478		6,507,212		45.4
BB and below	473,655		460,491		2.9		521,320		484,935		3.4
Total	$	15,260,927	$	15,889,933	100.0	%	$	14,473,070	$	14,345,647	100.0	%

Equity securities by market sector distribution are shown below:



	September 30, 2019		December 31, 2018
Consumer goods	19.9	%	21.1	%
Energy and utilities	8.5		8.2
Finance	17.8		18.1
Healthcare	12.7		13.5
Industrials	8.1		9.0
Information technology	23.6		22.6
Other	9.4		7.5
Total	100.0	%	100.0	%

Note 5 – Mortgage Loans

Generally, commercial mortgage loans are secured by first liens on income-producing real estate. American National attempts to maintain a diversified portfolio by considering the location of the underlying collateral. The distribution based on carrying amount of mortgage loans by location is as follows:



	September 30, 2019		December 31, 2018
East North Central	13.5	%	13.9	%
East South Central	2.6		2.8
Mountain	22.3		20.0
Pacific	17.5		16.2
South Atlantic	12.3		12.1
West South Central	25.0		27.2
Other	6.8		7.8
Total	100.0	%	100.0	%

During the nine months ended September 30, 2019, American National foreclosed on two loans with a total recorded investment of $16,008,000 and no loans were in the process of foreclosure at September 30, 2019. For the year ended December 31, 2018, American National foreclosed on four loans with a total recorded investment of $22,608,000, and one loan with a total recorded investment of $7,363,000 was in the process of foreclosure. American National did not sell any loans during the nine months ended September 30, 2019 or during the year ended December 31, 2018.

Table of Contents

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
September 30, 2019	Past Due		Past Due		90 Days		Total		Current		Amount			Percent
Industrial	$	—	$	—	$	—	$	—	$	512,812	$	512,812		10.3	%
Office	—		—		—		—		1,610,410		1,610,410			32.5
Retail	—		—		—		—		842,237		842,237			17.0
Other	—		—		—		—		1,990,080		1,990,080			40.2
Total	$	—	$	—	$	—	$	—	$	4,955,539	$	4,955,539		100.0	%
Allowance for loan losses											(18,934		)
Total, net of allowance											$	4,936,605
December 31, 2018
Industrial	$	—	$	—	$	—	$	—	$	761,294	$	761,294		14.8	%
Office	—		—		—		—		1,747,926		1,747,926			34.0
Retail	—		—		—		—		896,429		896,429			17.4
Other	—		4,000		18,888		22,888		1,717,503		1,740,391			33.8
Total	$	—	$	4,000	$	18,888	$	22,888	$	5,123,152	$	5,146,040		100.0	%
Allowance for loan losses											(21,333		)
Total, net of allowance											$	5,124,707

There were no unamortized purchase discounts as of September 30, 2019 or during the year ended December 31, 2018. Total mortgage loans were net of unamortized origination fees of $28,335,000 and $31,586,000 at September 30, 2019 and December 31, 2018, respectively. No unearned income is included in these amounts.

Allowance for Credit Losses

A loan is considered impaired when it is probable that all amounts due will not be collected according to the contractual terms of the loan agreement. Mortgage loans with temporary difficulties are not considered impaired when the borrower has the financial capacity to fund revenue shortfalls from the properties for the foreseeable future. Individual valuation allowances are established for impaired loans to reduce the carrying value to the estimated fair value of the collateral. Loans not evaluated individually for collectability are segregated by property-type and location, and allowance factors are applied. These factors are developed based on historical loss experience adjusted for the expected trend in the rate of foreclosure losses. Allowance factors are higher for loans of certain property types and in certain regions based on loss experience or a blended historical loss factor.

The change in allowance for credit losses in mortgage loans is shown below (in thousands, except number of loans):



	Collectively Evaluated for Impairment								Individually Impaired								Total
	Number of Loans		Recorded Investment			Valuation Allowance			Number of Loans		Recorded Investment			Valuation Allowance			Number of Loans		Recorded Investment			Valuation Allowance
Beginning balance at January 1, 2019	449		$	5,128,417		$	18,607		2		$	17,623		$	2,726		451		$	5,146,040		$	21,333
Change in allowance	—		—			(167		)	—		—			(2,232		)	—		—			(2,399		)
Net change in recorded investment	(28	)	(173,371		)	—			(1	)	(17,129		)	—			(29	)	(190,500		)	—
Ending balance at September 30, 2019	421		$	4,955,046		$	18,440		1		$	494		$	494		422		$	4,955,540		$	18,934

Table of Contents

Note 5 - Mortgage Loans - (Continued)

Troubled Debt Restructurings

American National has granted concessions which are classified as troubled debt restructurings to certain mortgage loan borrowers. Concessions are generally one of, or a combination of, a delay in payment of principal or interest, a reduction of the contractual interest rate or an extension of the maturity date. American National considers the amount, timing and extent of concessions in determining any impairment or changes in the specific allowance for loan losses recorded in connection with a troubled debt restructuring. The carrying value after specific allowance, before and after modification in a troubled debt restructuring, may not change significantly, or may increase if the expected recovery is higher than the pre-modification recovery assessment.

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



	Nine months ended September 30,
	2019					2018
	Number of Loans	Recorded Investment Pre-Modification		Recorded Investment Post Modification		Number of Loans	Recorded Investment Pre-Modification		Recorded Investment Post Modification
Office	1	$	9,271	$	9,271	1	$	5,164	$	5,164
Retail	2	41,354		41,354		—	—		—
Total	3	$	50,625	$	50,625	1	$	5,164	$	5,164

There were three loans determined to be a troubled debt restructuring for the nine months ended September 30, 2019. There were no commitments to lend additional funds to debtors whose loans have been modified in a troubled debt restructuring during the periods presented.

Note 6 – Real Estate and Other Investments

Investment real estate by property-type and geographic distribution are as follows:



	September 30, 2019		December 31, 2018
Industrial	12.5	%	13.1	%
Office	39.7		37.3
Retail	39.0		37.0
Other	8.8		12.6
Total	100.0	%	100.0	%



	September 30, 2019		December 31, 2018
East North Central	5.8	%	5.6	%
East South Central	6.2		5.4
Mountain	12.4		11.9
Pacific	7.4		7.3
South Atlantic	15.1		13.8
West South Central	50.6		53.8
Other	2.5		2.2
Total	100.0	%	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 2019 or 2018.

Table of Contents

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

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



	September 30, 2019		December 31, 2018
Investment real estate	$	136,355	$	141,843
Short-term investments	501		500
Cash and cash equivalents	9,633		10,392
Other receivables	4,345		3,939
Other assets	14,439		13,231
Total assets of consolidated VIEs	$	165,273	$	169,905
Notes payable	$	159,043	$	137,963
Other liabilities	8,841		7,145
Total liabilities of consolidated VIEs	$	167,884	$	145,108

The notes payable in the consolidated statements of financial position pertain to the borrowings of the consolidated VIEs. The liability of American National relating to notes payable of the consolidated VIEs is limited to the amount of its direct or indirect investment in the respective ventures, which totaled $6,071,000 and $26,635,000 at September 30, 2019 and December 31, 2018, respectively.

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



Interest rate	Maturity	September 30, 2019		December 31, 2018
LIBOR	2021	$	10,840	$	10,834
4.18% fixed	2024	65,728		42,399
4% fixed	2022	82,475		84,730
Total		$	159,043	$	137,963

For other VIEs in which American National is a partner, it is not the primary beneficiary, and these entities are not consolidated, as the major decisions that most significantly impact the economic activities of the VIE require consent of all partners. The carrying amount and maximum exposure to loss relating to unconsolidated VIEs follows (in thousands):



	September 30, 2019				December 31, 2018
	Carrying Amount		Maximum Exposure to Loss		Carrying Amount		Maximum Exposure to Loss
Investment in unconsolidated affiliates	$	326,537	$	326,537	$	330,730	$	330,730
Mortgage loans	590,432		590,432		633,533		633,533
Accrued investment income	2,018		2,018		2,191		2,191

As of September 30, 2019, one real estate investment with a carrying value of $3,364,000 met the criteria as held-for-sale.

Table of Contents

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 Consolidated Statements of Financial Position	September 30, 2019					December 31, 2018
		Number of Instruments	Notional Amounts		Estimated Fair Value		Number of Instruments	Notional Amounts		Estimated Fair Value
		Number of Instruments	Notional Amounts		Estimated Fair Value		Number of Instruments	Notional Amounts		Estimated Fair Value
Equity-indexed options	Other invested assets	483	$	2,587,000	$	224,184	493	$	2,391,000	$	148,006
Equity-indexed embedded derivative	Policyholders’ account balances	99,767	2,484,968		691,766		90,440	2,327,769		596,075



Derivatives Not Designated as Hedging Instruments	Location in the Consolidated Statements of Operations	Gains (Losses) Recognized in Income on Derivatives
		Three months ended September 30,						Nine months ended September 30,
		2019			2018			2019			2018
Equity-indexed options	Net investment income	$	6,278		$	50,943		$	95,888		$	58,576
Equity-indexed embedded derivative	Interest credited to policyholders’ account balances	(11,462		)	(52,797		)	(105,873		)	(56,960		)

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 consolidated statements of financial position as an offset to “Other invested assets” with an associated payable to “Other liabilities” for excess collateral.

Information regarding the Company’s exposure to credit loss on the options it holds is presented below (in thousands):



		September 30, 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	$	52,648	$	24,363	$	28,000	$	52,363	$	52,363	$	—	$	285
Credit Suisse	Baa2/BBB+	2,345		2,110		—		2,110		2,110		—		235
Goldman-Sachs	A3/BBB+	934		930		—		930		930		—		4
ING	Baa1/A-	28,587		13,110		16,000		29,110		28,587		523		—
Morgan Stanley	A3/BBB+	27,802		18,716		9,000		27,716		27,716		—		86
NATIXIS*	A1/A+	27,069		27,160		—		27,160		27,069		91		—
SunTrust	Baa1/BBB+	54,475		36,690		17,000		53,690		53,669		21		806
Wells Fargo	A2/A-	30,324		15,370		15,000		30,370		30,247		123		77
Total		$	224,184	$	138,449	$	85,000	$	223,449	$	222,691	$	758	$	1,493



		December 31, 2018
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	$	38,905	$	11,063	$	28,041	$	39,104	$	38,905	$	199	$	—
Goldman-Sachs	A3/BBB+	615		670		—		670		615		55		—
ING	Baa1/A-	24,183		7,960		16,023		23,983		23,983		—		200
Morgan Stanley	A3/BBB+	11,649		2,046		9,013		11,059		11,059		—		590
NATIXIS*	A1/A+	26,786		27,610		—		27,610		26,786		824		—
SunTrust	Baa1/BBB+	23,488		6,520		17,025		23,545		23,464		81		24
Wells Fargo	A2/A-	22,380		7,030		15,022		22,052		22,052		—		328
Total		$	148,006	$	62,899	$	85,124	$	148,023	$	146,864	$	1,159	$	1,142



*	Includes collateral restrictions.

Table of Contents

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

Net investment income is shown below (in thousands):



	Three months ended September 30,				Nine months ended September 30,
	2019		2018		2019		2018
Bonds	$	154,322	$	141,045	$	452,786	$	423,669
Dividends on equity securities	7,985		10,387		25,292		30,725
Mortgage loans	64,753		64,741		191,110		187,608
Real estate	1,005		2,783		7,310		11,278
Options	6,278		50,943		95,888		58,576
Other invested assets	12,277		15,633		24,310		29,086
Total	$	246,620	$	285,532	$	796,696	$	740,942

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



	Three months ended September 30,						Nine months ended September 30,
	2019			2018			2019			2018
Bonds	$	6,075		$	1,858		$	11,288		$	8,595
Mortgage loans	(2,097		)	(2,279		)	(2,186		)	(2,833		)
Real estate	27,388			(886		)	24,502			(1,000		)
Other invested assets	567			31			(1,661		)	13
Total	$	31,933		$	(1,276	)	$	31,943		$	4,775

Other-than-temporary impairment losses are shown below (in thousands):



	Three months ended September 30,				Nine months ended September 30,
	2019		2018		2019			2018
Bonds	$	—	$	—	$	(6,968	)	$	—

Table of Contents

Note 9 – Fair Value of Financial Instruments

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



	September 30, 2019				December 31, 2018
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets
Fixed maturity securities, bonds held-to-maturity	$	8,715,569	$	9,063,688	$	8,211,449	$	8,130,084
Fixed maturity securities, bonds available-for-sale	6,826,245		6,826,245		6,215,563		6,215,563
Equity securities	1,678,657		1,678,657		1,530,228		1,530,228
Equity-indexed options	224,184		224,184		148,006		148,006
Mortgage loans on real estate, net of allowance	4,936,605		5,056,220		5,124,707		5,049,468
Policy loans	380,018		380,018		376,254		376,254
Short-term investments	398,948		398,948		206,760		206,760
Separate account assets ($1,008,309 and $905,824 included in fair value hierarchy)	1,025,370		1,025,370		918,369		918,369
Separately managed accounts	40,093		40,093		16,532		16,532
Total financial assets	$	24,225,689	$	24,693,423	$	22,747,868	$	22,591,264
Financial liabilities
Investment contracts	$	10,394,516	$	10,394,516	$	10,003,990	$	10,003,990
Embedded derivative liability for equity-indexed contracts	691,766		691,766		596,075		596,075
Notes payable	159,043		159,043		137,963		137,963
Separate account liabilities ($1,008,309 and $905,824 included in fair value hierarchy)	1,025,370		1,025,370		918,369		918,369
Total financial liabilities	$	12,270,695	$	12,270,695	$	11,656,397	$	11,656,397

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.

Table of Contents

Note 9 – Fair Value of Financial Instruments – (Continued)

Valuation Techniques

Fixed Maturity Securities and Equity Options—American National utilizes a pricing service to estimate fair value measurements. The estimates of fair value for most fixed maturity securities, including municipal bonds, provided by the pricing service are disclosed as Level 2 measurements as the estimates are based on observable market information rather than market quotes.

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 that the price is indicative only, American National includes these fair value estimates in Level 3.

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

Equity Securities—For publicly-traded equity securities, prices are received from a nationally recognized pricing service that are based on observable market transactions, and these securities are classified as Level 1 measurements. For certain preferred stock, current market quotes in active markets are unavailable. In these instances, an estimate of fair value is received from the pricing service. The service utilizes similar methodologies to price preferred stocks as it does for fixed maturity securities. 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 consolidated financial statements.

Table of Contents

Note 9 – Fair Value of Financial Instruments – (Continued)

The separate account assets included on the quantitative disclosures fair value hierarchy table is made up of short-term investments, equity securities, and fixed maturity securities of 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 account also includes 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 will have the inverse effect decreasing the fair value.


•	Mortality rate assumptions vary by age and by gender based on company and industry experience. Decreases to the assumed mortality rates increase the fair value of the liabilities as more policyholders earn crediting interest. Increases to the assumed mortality rates decrease the fair value as higher decrements reduce the potential for future interest credits.

•

Equity volatility assumptions begin with current market volatilities and grow to long-term values. Increases to the assumed volatility will increase the fair value of liabilities, as future projections will produce higher increases in the linked index. At September 30, 2019 and December 31, 2018, the one year implied volatility used to estimate embedded derivative value was 14.7% and 23.2%, respectively.

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



	Fair Value					Range
	September 30, 2019		December 31, 2018		Unobservable Input	September 30, 2019	December 31, 2018
Indexed Annuities	$	675.4	$	592.8	Lapse Rate	1-70%	1-70%
					Mortality Multiplier	90-100%	90-100%
					Equity Volatility	11-46%	19-26%
Indexed Life	16.4		3.3		Equity Volatility	11-46%	19-26%

Table of Contents

Note 9 – Fair Value of Financial Instruments – (Continued)

Quantitative Disclosures

The fair value hierarchy measurements of the financial instruments are shown below (in thousands):



	Assets and Liabilities Carried at Fair Value by Hierarchy Level as of September 30, 2019
	Total Fair Value		Level 1		Level 2		Level 3
Financial assets
Fixed maturity securities, bonds available-for-sale
U.S. treasury and government	$	29,961	$	—	$	29,961	$	—
U.S. states and political subdivisions	1,105,745		—		1,105,745		—
Foreign governments	6,361		—		6,361		—
Corporate debt securities	5,649,350		—		5,645,117		4,233
Residential mortgage-backed securities	24,464		—		24,464		—
Collateralized debt securities	10,364		—		10,364		—
Total bonds available-for-sale	6,826,245		—		6,822,012		4,233
Equity securities
Common stock	1,657,070		1,657,070		—		—
Preferred stock	21,587		21,124		—		463
Total equity securities	1,678,657		1,678,194		—		463
Options	224,184		—		—		224,184
Short-term investments	398,948		—		398,948		—
Separate account assets	1,008,309		253,925		754,384		—
Separately managed accounts	40,093		—		—		40,093
Total financial assets	$	10,176,436	$	1,932,119	$	7,975,344	$	268,973
Financial liabilities
Embedded derivative liability for equity-indexed contracts	$	691,766	$	—	$	—	$	691,766
Separate account liabilities	1,008,309		253,925		754,384		—
Total financial liabilities	$	1,700,075	$	253,925	$	754,384	$	691,766



	Assets and Liabilities Carried at Fair Value by Hierarchy Level as of December 31, 2018
	Total Fair Value		Level 1		Level 2		Level 3
Financial assets
Fixed maturity securities, bonds available-for-sale
U.S. treasury and government	$	28,399	$	—	$	28,399	$	—
U.S. states and political subdivisions	862,030		—		862,030		—
Foreign governments	6,210		—		6,210		—
Corporate debt securities	5,283,818		—		5,279,585		4,233
Residential mortgage-backed securities	31,662		—		31,662		—
Collateralized debt securities	3,444		—		3,444		—
Total bonds available-for-sale	6,215,563		—		6,211,330		4,233
Equity securities
Common stock	1,509,186		1,509,073		—		113
Preferred stock	21,042		21,042		—		—
Total equity securities	1,530,228		1,530,115		—		113
Options	148,006		—		—		148,006
Short-term investments	206,760		—		206,760		—
Separate account assets	905,824		227,448		678,376		—
Separately managed accounts	16,532		—		—		16,532
Total financial assets	$	9,022,913	$	1,757,563	$	7,096,466	$	168,884
Financial liabilities
Embedded derivative liability for equity-indexed contracts	$	596,075	$	—	$	—	$	596,075
Separate account liabilities	905,824		227,448		678,376		—
Total financial liabilities	$	1,501,899	$	227,448	$	678,376	$	596,075

Table of Contents

Note 9 – Fair Value of Financial Instruments – (Continued)

For financial instruments measured at fair value on a recurring basis using Level 3 inputs during the period, a reconciliation of the beginning and ending balances is shown below (in thousands):



	Level 3
	Three months ended September 30, 2019									Nine months ended September 30, 2019
	Assets						Liability			Assets						Liability
	Investment Securities			Equity-Indexed Options			Embedded Derivative			Investment Securities			Equity-Indexed Options			Embedded Derivative
Beginning balance	$	4,346		$	231,044		$	695,676		$	4,346		$	148,006		$	596,075
Net gain for derivatives included in net investment income	—			6,278			—			—			95,888			—
Net change included in interest credited	—			—			11,462			—			—			105,873
Purchases, sales and settlements or maturities
Purchases	463			17,029			—			463			55,797			—
Sales	(113		)	(13,397		)	—			(113		)	(13,397		)	—
Settlements or maturities	—			(16,770		)	—			—			(62,110		)	—
Premiums less benefits	—			—			(15,372		)	—			—			(10,182		)
Ending balance at September 30, 2019	$	4,696		$	224,184		$	691,766		$	4,696		$	224,184		$	691,766

	Level 3
	Three months ended September 30, 2018									Nine months ended September 30, 2018
	Assets						Liability			Assets						Liability
	Investment Securities			Equity-Indexed Options			Embedded Derivative			Investment Securities			Equity-Indexed Options			Embedded Derivative
Beginning balance	$	—		$	217,341		$	592,913		$	—		$	220,190		$	512,526
Net gain for derivatives included in net investment income	—			50,866			—			—			58,433			—
Net change included in interest credited	—			—			52,797			—			—			56,960
Purchases, sales and settlements or maturities
Purchases	4,233			15,195			—			4,233			58,207			—
Settlements or maturities	—			(26,433		)	—			—			(79,861		)	—
Premiums less benefits	—			—			6,426			—			—			82,650
Ending balance at September 30, 2018	$	4,233		$	256,969		$	652,136		$	4,233		$	256,969		$	652,136

Within the net gain for derivatives included in net investment income were unrealized gains of $79,991,000 and $18,868,000, relating to assets still held at September 30, 2019, and 2018, respectively.

There were no transfers between Level 1 and Level 2 fair value hierarchies during the periods presented. Unless information is obtained from the brokers that indicate observable inputs were used in their pricing, there are not enough observable inputs to enable American National to classify the securities priced by the brokers as other than Level 3. American National’s valuation of these securities involves judgment regarding assumptions market participants would use including quotes from independent brokers. The inputs used by the brokers include recent transactions in the security, similar bonds with same name, ratings, maturity and structure, external dealer quotes in the security, Bloomberg evaluated pricing and prior months pricing. None of them are observable to American National as of September 30, 2019.

Fair Value Information About Financial Instruments Not Measured at Fair Value

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

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.

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Note 9 – Fair Value of Financial Instruments – (Continued)

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.

Table of Contents

Note 9 – Fair Value of Financial Instruments – (Continued)

The carrying value and estimated fair value of financial instruments not recorded at fair value on a recurring basis are shown below (in thousands):



	September 30, 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	$	203,858	$	210,827
Foreign governments	Level 2	3,921		4,390
Corporate debt securities	Level 2	8,148,982		8,479,945
Corporate debt securities	Level 3	4,000		4,000
Residential mortgage-backed securities	Level 2	208,752		216,007
Collateralized debt securities	Level 2	146,056		148,519
Total fixed maturity securities, bonds held-to-maturity		8,715,569		9,063,688
Mortgage loans on real estate, net allowance	Level 3	4,936,605		5,056,220
Policy loans	Level 3	380,018		380,018
Total financial assets		$	14,032,192	$	14,499,926
Financial liabilities
Investment contracts	Level 3	$	10,394,516	$	10,394,516
Notes payable	Level 3	159,043		159,043
Total financial liabilities		$	10,553,559	$	10,553,559



	December 31, 2018
	FV Hierarchy Level	Carrying Amount		Fair Value
Financial assets
Fixed maturity securities, bonds held-to-maturity
U.S. states and political subdivisions	Level 2	$	245,360	$	250,899
Foreign governments	Level 2	3,961		4,430
Corporate debt securities	Level 2	7,640,891		7,548,829
Residential mortgage-backed securities	Level 2	315,306		319,910
Collateralized debt securities	Level 2	5,214		5,285
Other debt securities	Level 2	717		731
Total fixed maturity securities, bonds held-to-maturity		8,211,449		8,130,084
Mortgage loans on real estate, net allowance	Level 3	5,124,707		5,049,468
Policy loans	Level 3	376,254		376,254
Total financial assets		$	13,712,410	$	13,555,806
Financial liabilities
Investment contracts	Level 3	$	10,003,990	$	10,003,990
Notes payable	Level 3	137,963		137,963
Total financial liabilities		$	10,141,953	$	10,141,953

Table of Contents

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, 2019	$	839,133		$	499,588		$	33,960		$	124,580		$	1,497,261
Additions	98,812			61,779			7,629			235,785			404,005
Amortization	(79,692		)	(61,396		)	(8,548		)	(231,978		)	(381,614		)
Effect of change in unrealized gains on available-for-sale debt securities	(12,799		)	(69,653		)	—			—			(82,452		)
Net change	6,321			(69,270		)	(919		)	3,807			(60,061		)
Ending balance at September 30, 2019	$	845,454		$	430,318		$	33,041		$	128,387		$	1,437,200

Commissions comprise the majority of the additions to deferred policy acquisition costs.

Note 11 – Liability for Unpaid Claims and Claim Adjustment Expenses

The liability for unpaid claims and claim adjustment expenses (“claims”) for health and property and casualty insurance is included in “Policy and contract claims” in the 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 consolidated results of operations in the period in which the changes occur. The time value of money is not taken into account for the purposes of calculating the liability for unpaid claims. There have been no significant changes in methodologies or assumptions used to calculate the liability for unpaid claims and claim adjustment expenses.

Information regarding the liability for unpaid claims is shown below (in thousands):



	Nine months ended September 30,
	2019			2018
Unpaid claims balance, beginning	$	1,305,396		$	1,218,652
Less reinsurance recoverables	254,466			241,301
Net beginning balance	1,050,930			977,351
Incurred related to
Current	917,048			897,901
Prior years	(47,048		)	(11,101		)
Total incurred claims	870,000			886,800
Paid claims related to
Current	482,729			481,199
Prior years	370,807			338,946
Total paid claims	853,536			820,145
Net balance	1,067,394			1,044,005
Plus reinsurance recoverables	247,174			266,780
Unpaid claims balance, ending	$	1,314,568		$	1,310,785

The net and gross reserve calculations have shown favorable development as a result of favorable loss emergence compared to what was implied by the loss development patterns used in the original estimation of losses in prior years. Estimates for ultimate incurred claims attributable to insured events of prior years decreased by $47,048,000 during the first nine months of 2019 and decreased by $11,101,000 during the same period in 2018. The favorable development in 2019 was a reflection of lower-than-anticipated losses in the workers compensation and agribusiness lines of business. The decrease for the first nine months in 2018 reflects lower-than-anticipated losses in our workers compensation, other commercial, business owner and commercial package policy line of business.

For short-duration health insurance claims, the total of IBNR plus expected development on reported claims included in the liability for unpaid claims and claim adjustment expenses at September 30, 2019 was $21,362,000.

Table of Contents

Note 12 – Federal Income Taxes

A reconciliation of the effective tax rate to the statutory federal tax rate is shown below (in thousands, except percentages):



	Three months ended September 30,										Nine months ended September 30,
	2019					2018					2019					2018
	Amount			Rate		Amount			Rate		Amount			Rate		Amount			Rate
Income tax expense before tax on equity in earnings of unconsolidated affiliates	$	17,717		13.7	%	$	38,486		20.0	%	$	99,323		17.3	%	$	64,118		19.8	%
Tax on equity in earnings of unconsolidated affiliates	9,465			7.3		2,736			1.0		21,488			3.7		3,970			1.2
Total expected income tax expense at the statutory rate	27,182			21.0		41,222			21.0		120,811			21.0		68,088			21.0
Tax-exempt investment income	(1,027		)	(0.8	)	(830		)	(0.4	)	(2,945		)	(0.5	)	(2,509		)	(0.8	)
Deferred tax change	—			—		—			—		—			—		(909		)	(0.3	)
Dividend exclusion	(817		)	(0.6	)	(1,064		)	(0.5	)	(2,598		)	(0.4	)	(3,050		)	(0.9	)
Miscellaneous tax credits, net	(1,521		)	(1.2	)	(1,252		)	(0.6	)	(6,512		)	(1.1	)	(5,994		)	(1.8	)
Low income housing tax credit expense	1,324			1.0		1,251			0.6		4,265			0.7		3,755			1.2
Noncontrolling interest	(2,284		)	(1.8	)	—			—		(2,284		)	(0.4	)	—			—
Change in valuation allowance	70			0.1		—			—		235			—		2,700			0.8
Tax accrual adjustment	—			—		(2,893		)	(1.5	)	—			—		(2,893		)	(0.9	)
Return to provision	—			—		(18,332		)	(9.3	)	—			—		(18,332		)	(5.7	)
Other items, net	(452		)	(0.3	)	1,117			0.8		828			0.1		1,509			0.5
Provision for federal income taxes	$	22,475		17.4	%	$	19,219		10.1	%	$	111,800		19.4	%	$	42,365		13.1	%

American National made income tax payments of $58,940,000 and $15,064,000 during the nine months ended September 30, 2019 and 2018, respectively.

As of September 30, 2019, American National had a capital loss carryforward of $575,000. Alternative minimum tax and general business credit carryforwards have been fully utilized. The capital loss carryforward will expire in 2022, if not utilized.

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 September 30, 2019, 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.

Table of Contents

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, 2019	$	(42,469	)	$	(54,236	)	$	(3,033	)	$	(99,738	)
Amounts reclassified from AOCI (net of tax expense $401 and $1,160)	1,510			4,365			—			5,875
Unrealized holding gains arising during the period (net of tax expense $68,285)	256,880			—			—			256,880
Unrealized adjustment to DAC (net of tax benefit $17,343)	(65,244		)	—			—			(65,244		)
Unrealized gains on investments attributable to participating policyholders’ interest (net of tax benefit $3,148)	(11,841		)	—			—			(11,841		)
Foreign currency adjustment (net of tax expense $79)	—			—			297			297
Cumulative effect of changes in accounting	16,164			(16,491		)	(458		)	(785		)
Ending balance at September 30, 2019	$	155,000		$	(66,362	)	$	(3,194	)	$	85,444
Beginning balance at January 1, 2018	$	716,878		$	(72,772	)	$	(1,890	)	$	642,216
Amounts reclassified from AOCI (net of tax benefit $606 and expense $1,061)	(2,282		)	3,991			—			1,709
Unrealized holding losses arising during the period (net of tax benefit $47,963)	(181,582		)	—			—			(181,582		)
Unrealized adjustment to DAC (net of tax expense $8,163)	30,708			—			—			30,708
Unrealized losses on investments attributable to participating policyholders’ interest (net of tax expense $2,935)	11,040			—			—			11,040
Foreign currency adjustment (net of tax benefit $181)	—			—			(681		)	(681		)
Cumulative effect of changes in accounting (net of tax benefit $334,955)	(627,119		)	—			—			(627,119		)
Ending balance at September 30, 2018	$	(52,357	)	$	(68,781	)	$	(2,571	)	$	(123,709	)

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:



	September 30, 2019		December 31, 2018
Common stock
Shares issued	30,832,449		30,832,449
Treasury shares	(3,945,249	)	(3,947,000	)
Outstanding shares	26,887,200		26,885,449
Restricted shares	(10,000	)	(10,000	)
Unrestricted outstanding shares	26,877,200		26,875,449

Stock-based compensation

American National has a stock-based compensation plan, which allows for grants of Non-Qualified Stock Options, Stock Appreciation Rights (“SAR”), Restricted Stock (“RS”) Awards, Restricted Stock Units (“RSU”), Performance Awards, Incentive Awards or any combination thereof. This plan is administered by the American National Board Compensation Committee. To date, only SAR, RS and RSU awards have been made. All awards are subject to review and approval by the Board Compensation Committee both at the time of setting applicable performance objectives and at payment of the awards. The number of shares available for grants under the plan cannot exceed 2,900,000 shares, and no more than 200,000 shares may be granted to any one individual in any calendar year. Grants were made to certain officers meeting established performance objectives, and grants are made to directors as compensation and to align their interests with those of other shareholders.

Table of Contents

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

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



	SAR				RS Shares			RS Units
	Shares		Weighted-Average Grant Date Fair Value		Shares	Weighted-Average Grant Date Fair Value		Units		Weighted-Average Grant Date Fair Value
Outstanding at December 31, 2018	335		$	84.41	10,000	$	80.05	18,316		$	111.12
Granted	—		—		—	—		8,250		113.19
Exercised	—		—		—	—		(18,316	)	111.12
Forfeited	—		—		—	—		—		—
Expired	(269	)	77.90		—	—		—		—
Outstanding at September 30, 2019	66		$	110.83	10,000	$	80.05	8,250		$	113.19



	SAR			RS Shares		RS Units
Weighted-average contractual remaining life (in years)	0.59			3.42		0.59
Exercisable shares	66			N/A		N/A
Weighted-average exercise price	$	110.83		$	80.05	$	111.12
Weighted-average exercise price exercisable shares	110.83			N/A		N/A
Compensation expense (credit)
Three months ended September 30, 2019	$	1,000		$	20,000	$	154,000
Three months ended September 30, 2018	7,000			24,000		371,000
Nine months ended September 30, 2019	$	(14,000	)	$	60,000	$	1,094,000
Nine months ended September 30, 2018	(27,000		)	308,000		920,000
Fair value of liability award
September 30, 2019	$	1,000		N/A		$	1,021,000
December 31, 2018	33,000			N/A		2,426,000

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 vest after one-year or upon earlier death, disability or retirement from service after age 65. Upon vesting, RSU awards are settled in cash based upon the market price of our common stock on the date of vesting.

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 September 30,				Nine months ended September 30,
	2019		2018		2019		2018
Weighted average shares outstanding	26,881,700		26,886,498		26,883,025		26,886,299
Incremental shares from RS awards and RSUs	6,472		6,515		6,313		37,241
Total shares for diluted calculations	26,888,172		26,893,013		26,889,338		26,923,540
Net income attributable to American National (in thousands)	$	92,184	$	173,464	$	449,241	$	276,380
Basic earnings per share	$	3.43	$	6.45	$	16.71	$	10.28
Diluted earnings per share	$	3.43	$	6.44	$	16.71	$	10.26

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

Statutory Capital and Surplus

Risk Based Capital (“RBC”) is a measure insurance regulators use to evaluate the capital adequacy of American National Insurance Company and its insurance subsidiaries. RBC is calculated using formulas applied to certain financial balances and activities that consider, among other things, investment risks related to the type and quality of investments, insurance risks associated with products and liabilities, interest rate risks and general business risks. Insurance companies that do not maintain capital and surplus at a level at least 200% of the authorized control level RBC are required to take certain actions. At September 30, 2019 and December 31, 2018, American National Insurance Company’s statutory capital and surplus was $3,552,712,000 and $3,162,808,000, respectively. American National Insurance Company and each of its insurance subsidiaries had statutory capital and surplus at September 30, 2019 and December 31, 2018, 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 $68,527,000 and $69,787,000 at September 30, 2019 and December 31, 2018, 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.

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

The statutory capital and surplus and net income of our life and property and casualty insurance entities in accordance with statutory accounting practices are shown below (in thousands):



	September 30, 2019		December 31, 2018
Statutory capital and surplus
Life insurance entities	$	2,268,400	$	1,989,586
Property and casualty insurance entities	1,295,544		1,183,913



	Three months ended September 30,				Nine months ended September 30,
	2019		2018		2019		2018
Statutory net income
Life insurance entities	$	26,498	$	9,537	$	32,196	$	25,650
Property and casualty insurance entities	15,626		21,382		66,090		30,611

Dividends

We paid a dividend of $0.82 for the three months ended September 30, 2019 and December 31, 2018. 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 $316,281,000 during 2019. Similar restrictions on amounts that can transfer in the form of dividends, loans, or advances to American National Insurance Company apply to its insurance subsidiaries.

Noncontrolling interests

American National County Mutual Insurance Company (“County Mutual”) is a mutual insurance company owned by its policyholders. American National has a management agreement that effectively gives it control of County Mutual. As a result, County Mutual is included in the consolidated financial statements of American National. Policyholder interests in the financial position of County Mutual are reflected as noncontrolling equity of $6,750,000 at September 30, 2019 and December 31, 2018.

American National Insurance Company and its subsidiaries exercise control or ownership of various joint ventures, resulting in their consolidation into American National’s consolidated financial statements. The interests of the other partners in the consolidated joint ventures are shown as a noncontrolling deficit of $1,623,000 and noncontrolling equity of $7,517,000 at September 30, 2019 and December 31, 2018, respectively.

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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 2018 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.

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Note 15 – Segment Information – (Continued)

The results of operations measured as the income before federal income tax and other items by operating segments are summarized below (in thousands):



	Three months ended September 30, 2019
								Property			Corporate
	Life			Annuity		Health		& Casualty			& Other		Total
PREMIUMS AND OTHER REVENUES
Premiums	$	93,079		$	41,305	$	40,676	$	382,784		$	—	$	557,844
Other policy revenues	72,446			4,338		—		—			—		76,784
Net investment income	61,961			141,684		2,381		16,357			24,237		246,620
Net realized investment gains	—			—		—		—			31,933		31,933
Net gains on equity securities	—			—		—		—			8,589		8,589
Other income	441			653		5,021		3,137			1,478		10,730
Total premiums and other revenues	227,927			187,980		48,078		402,278			66,237		932,500
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits	113,652			59,699		—		—			—		173,351
Claims incurred	—			—		28,567		280,695			—		309,262
Interest credited to policyholders’ account balances	22,045			84,737		—		—			—		106,782
Commissions for acquiring and servicing policies	42,023			13,368		7,405		65,893			—		128,689
Other operating expenses	46,873			12,264		9,504		50,111			9,750		128,502
Change in deferred policy acquisition costs	(5,080		)	7,006		258		(636		)	—		1,548
Total benefits, losses and expenses	219,513			177,074		45,734		396,063			9,750		848,134
Income before federal income tax and other items	$	8,414		$	10,906	$	2,344	$	6,215		$	56,487	$	84,366



	Three months ended September 30, 2018
									Property			Corporate
	Life			Annuity			Health		& Casualty			& Other			Total
PREMIUMS AND OTHER REVENUES
Premiums	$	91,176		$	47,296		$	45,154	$	374,842		$	—		$	558,468
Other policy revenues	67,260			3,580			—		—			—			70,840
Net investment income	65,875			174,771			2,233		15,629			27,024			285,532
Net realized investment losses	—			—			—		—			(1,276		)	(1,276		)
Net gains on equity securities	—			—			—		—			126,495			126,495
Other income	492			624			6,631		3,399			1,031			12,177
Total premiums and other revenues	224,803			226,271			54,018		393,870			153,274			1,052,236
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits	119,816			64,153			—		—			—			183,969
Claims incurred	—			—			29,751		272,885			—			302,636
Interest credited to policyholders’ account balances	19,537			113,881			—		—			—			133,418
Commissions for acquiring and servicing policies	39,813			18,515			8,516		72,135			—			138,979
Other operating expenses	45,467			11,350			10,829		45,277			5,838			118,761
Change in deferred policy acquisition costs	(4,458		)	(1,376		)	466		(3,426		)	—			(8,794		)
Total benefits, losses and expenses	220,175			206,523			49,562		386,871			5,838			868,969
Income before federal income tax and other items	$	4,628		$	19,748		$	4,456	$	6,999		$	147,436		$	183,267

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Note 15 – Segment Information – (Continued)



	Nine months ended September 30, 2019
									Property			Corporate
	Life			Annuity			Health		& Casualty			& Other		Total
PREMIUMS AND OTHER REVENUES
Premiums	$	265,634		$	137,434		$	121,581	$	1,125,704		$	—	$	1,650,353
Other policy revenues	213,300			12,878			—		—			—		226,178
Net investment income	194,633			487,750			7,177		48,085			59,051		796,696
Net realized investment gains	—			—			—		—			24,975		24,975
Net gains on equity securities	—			—			—		—			282,026		282,026
Other income	1,586			1,916			15,940		8,689			4,511		32,642
Total premiums and other revenues	675,153			639,978			144,698		1,182,478			370,563		3,012,870
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits	327,579			191,248			—		—			—		518,827
Claims incurred	—			—			81,042		790,447			—		871,489
Interest credited to policyholders’ account balances	57,561			314,142			—		—			—		371,703
Commissions for acquiring and servicing policies	120,646			63,373			22,975		201,635			—		408,629
Other operating expenses	142,520			38,087			31,203		151,677			28,158		391,645
Change in deferred policy acquisition costs	(19,120		)	(383		)	919		(3,807		)	—		(22,391		)
Total benefits, losses and expenses	629,186			606,467			136,139		1,139,952			28,158		2,539,902
Income before federal income tax and other items	$	45,967		$	33,511		$	8,559	$	42,526		$	342,405	$	472,968



	Nine months ended September 30, 2018
									Property			Corporate
	Life			Annuity			Health		& Casualty			& Other		Total
PREMIUMS AND OTHER REVENUES
Premiums	$	257,147		$	185,140		$	135,039	$	1,086,862		$	—	$	1,664,188
Other policy revenues	202,222			11,095			—		—			—		213,317
Net investment income	184,725			436,961			6,850		46,983			65,423		740,942
Net realized investment gains	—			—			—		—			4,775		4,775
Net gains on equity securities	—			—			—		—			150,487		150,487
Other income	1,759			1,980			18,597		7,726			3,911		33,973
Total premiums and other revenues	645,853			635,176			160,486		1,141,571			224,596		2,807,682
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits	315,320			231,002			—		—			—		546,322
Claims incurred	—			—			90,201		795,501			—		885,702
Interest credited to policyholders’ account balances	56,848			252,846			—		—			—		309,694
Commissions for acquiring and servicing policies	118,724			78,874			23,658		212,156			—		433,412
Other operating expenses	144,606			34,522			31,277		138,244			24,453		373,102
Change in deferred policy acquisition costs	(18,150		)	(19,060		)	2,060		(10,726		)	—		(45,876		)
Total benefits, losses and expenses	617,348			578,184			147,196		1,135,175			24,453		2,502,356
Income before federal income tax and other items	$	28,505		$	56,992		$	13,290	$	6,396		$	200,143	$	305,326

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Note 16 – Commitments and Contingencies

Commitments

American National and its subsidiaries lease insurance sales office space, technological equipment, and automobiles. The remaining long-term lease commitments at September 30, 2019 were approximately $18,941,000.

American National had aggregate commitments at September 30, 2019, to purchase, expand or improve real estate, to fund fixed interest rate mortgage loans, and to purchase other invested assets of $1,305,631,000 of which $469,098,000 is expected to be funded in 2019 with the remainder funded in 2020 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 September 30, 2019 and December 31, 2018, the outstanding letters of credit were $3,649,000 and $2,995,000, respectively, 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 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 consolidated statements of financial position. Through its membership, the Company has access to the FHLB’s financial services including advances that provide an attractive funding source for short-term borrowing and for access to other funding agreements. As of September 30, 2019, certain collateralized mortgage obligations (CMO’s) with a fair value of approximately $127.7 million and commercial mortgage loans of approximately $361.8 million were on deposit with the FHLB as collateral for amounts subject to funding agreements. The deposited securities and commercial mortgage loans are included in the Company’s consolidated statements of financial position within bonds held-to-maturity and mortgage loans on real estate, net of allowance, respectively.

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 September 30, 2019, was approximately $123,574,000, while the total cash value of the related life insurance policies was approximately $141,759,000.

Litigation

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

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

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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 consolidated financial statements of significant related party transactions is shown below (in thousands):



		Dollar Amount of Transactions
		Nine months ended September 30,				Amount due to (from) American National
Related Party	Financial Statement Line Impacted	2019		2018		September 30, 2019			December 31, 2018
Gal-Tex Hotel Corporation	Mortgage loan on real estate	$	576	$	1,224	$	—		$	576
Gal-Tex Hotel Corporation	Net investment income	9		92		—			3
Greer, Herz & Adams, LLP	Other operating expenses	9,025		8,008		(560		)	(329		)

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.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following pages provide management’s discussion and analysis (“MD&A”) of financial condition and results of operations for the three and nine months ended September 30, 2019 and 2018 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 consolidated financial statements included in Item 1, Financial Statements (unaudited), of this Form 10-Q.

Forward-Looking Statements

This document contains forward-looking statements that reflect our estimates and assumptions related to business, economic, competitive and legislative developments. 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. Forward-looking statements are not guarantees of future performance and involve various risks and uncertainties. Moreover, forward-looking statements speak only as of the date made, and we undertake no obligation to update them. Certain important factors could cause our actual results to differ, possibly materially, from our expectations or estimates. These factors are described in greater detail in Item IA, Risk Factors, in our 2018 Annual Report on Form 10-K filed with the SEC on February 28, 2019 and they include among others:


•	Economic & Investment Risk Factors


•	the potential for difficult conditions in the economy, which may not improve in the near future, and risks related to persistently low or unpredictable interest rates;


•	fluctuations in the markets for fixed maturity securities, equity securities, and commercial real estate, which could adversely affect the valuation of our investment portfolio, our net investment income, our retirement expense, and sales of or fees from certain of our products;


•	lack of liquidity for certain of our investments;


•	risk of investment losses and defaults;

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•	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;


•	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, 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;


•	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 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.

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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

American National had no material changes to the general trends discussed in the MD&A included in our 2018 Annual Report on Form 10-K filed with the SEC on February 28, 2019.

Critical Accounting Estimates

The unaudited interim consolidated financial statements have been prepared in conformity with GAAP. In addition to GAAP, insurance companies apply specific SEC regulations when preparing the consolidated financial statements. The preparation of the 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 consolidated financial statements.

For a discussion of our critical accounting estimates, see the MD&A in our 2018 Annual Report on Form 10-K filed with the SEC on February 28, 2019. There have been no material changes in accounting policies since December 31, 2018.

Recently Issued Accounting Pronouncements

Refer to Note 3, Recently Issued Accounting Pronouncements, of the Notes to the Unaudited Consolidated Financial Statements in Item 1.

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Consolidated Results of Operations

The following sets forth the consolidated results of operations (in thousands):



	Three months ended September 30,								Nine months ended September 30,
	2019		2018			Change			2019			2018			Change
PREMIUMS AND OTHER REVENUES
Premiums	$	557,844	$	558,468		$	(624	)	$	1,650,353		$	1,664,188		$	(13,835	)
Other policy revenues	76,784		70,840			5,944			226,178			213,317			12,861
Net investment income	246,620		285,532			(38,912		)	796,696			740,942			55,754
Net realized investments gains (losses)	31,933		(1,276		)	33,209			24,975			4,775			20,200
Net gains on equity securities	8,589		126,495			(117,906		)	282,026			150,487			131,539
Other income	10,730		12,177			(1,447		)	32,642			33,973			(1,331		)
Total premiums and other revenues	932,500		1,052,236			(119,736		)	3,012,870			2,807,682			205,188
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits	173,351		183,969			(10,618		)	518,827			546,322			(27,495		)
Claims incurred	309,262		302,636			6,626			871,489			885,702			(14,213		)
Interest credited to policyholders’ account balances	106,782		133,418			(26,636		)	371,703			309,694			62,009
Commissions for acquiring and servicing policies	128,689		138,979			(10,290		)	408,629			433,412			(24,783		)
Other operating expenses	128,502		118,761			9,741			391,645			373,102			18,543
Change in deferred policy acquisition costs ⁽¹⁾	1,548		(8,794		)	10,342			(22,391		)	(45,876		)	23,485
Total benefits, losses and expenses	848,134		868,969			(20,835		)	2,539,902			2,502,356			37,546
Income before federal income taxes other items	$	84,366	$	183,267		$	(98,901	)	$	472,968		$	305,326		$	167,642


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

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

Income before other items and federal income taxes (“Earnings”)

Earnings decreased during the three months ended September 30, 2019 compared to 2018 primarily due to a decrease in net gains on equity securities partially offset by an increase in realized investment gains. Earnings increased during the nine months ended September 30, 2019 compared to 2018 primarily due to an increase in net gains on equity securities, as well as improvements in the earnings generated from our Property and Casualty and Life Segments.

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Life

Life segment financial results for the periods indicated were as follows (in thousands):



	Three months ended September 30,									Nine months ended September 30,
	2019			2018			Change			2019			2018			Change
PREMIUMS AND OTHER REVENUES
Premiums	$	93,079		$	91,176		$	1,903		$	265,634		$	257,147		$	8,487
Other policy revenues	72,446			67,260			5,186			213,300			202,222			11,078
Net investment income	61,961			65,875			(3,914		)	194,633			184,725			9,908
Other income	441			492			(51		)	1,586			1,759			(173		)
Total premiums and other revenues	227,927			224,803			3,124			675,153			645,853			29,300
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits	113,652			119,816			(6,164		)	327,579			315,320			12,259
Interest credited to policyholders’ account balances	22,045			19,537			2,508			57,561			56,848			713
Commissions for acquiring and servicing policies	42,023			39,813			2,210			120,646			118,724			1,922
Other operating expenses	46,873			45,467			1,406			142,520			144,606			(2,086		)
Change in deferred policy acquisition costs ⁽¹⁾	(5,080		)	(4,458		)	(622		)	(19,120		)	(18,150		)	(970		)
Total benefits, losses and expenses	219,513			220,175			(662		)	629,186			617,348			11,838
Income before federal income taxes and other items	$	8,414		$	4,628		$	3,786		$	45,967		$	28,505		$	17,462


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

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

Earnings

The increase in life earnings during the three and nine months ended September 30, 2019 is primarily attributable to improved mortality and persistency experience on traditional life products compared to the same time periods year over year.

Premiums and other revenues

Premiums increased during the three and nine months ended September 30, 2019 compared to 2018 primarily due to continued growth in renewal premium on traditional life products.

Other policy revenues increased during the three and nine months ending September 30, 2019 primarily due to higher cost of insurance charges and earned policy services fees as the size of our interest sensitive block continues to grow, through increased sales and aging of the in-force.

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Life insurance sales

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



	Three months ended September 30,							Nine months ended September 30,
	2019		2018		Change			2019		2018		Change
Traditional Life	$	13,711	$	13,834	$	(123	)	$	42,409	$	44,322	$	(1,913	)
Universal Life	7,062		6,121		941			20,759		18,225		2,534
Indexed UL	9,980		7,761		2,219			26,981		23,045		3,936
Total recurring	$	30,753	$	27,716	$	3,037		$	90,149	$	85,592	$	4,557
Single and excess ⁽¹⁾	$	420	$	934	$	(514	)	$	1,334	$	2,148	$	(814	)
Credit life ⁽¹⁾	2,691		2,010		681			8,159		6,188		1,971
Total annualized premium	$	33,864	$	30,660	$	3,204		$	99,642	$	93,928	$	5,714


(1)	These are weighted amounts representing 10% of single and excess premiums and 44% and 31% of Credit Life premiums for 2019 and 2018, respectively.

Life insurance sales are based on the total yearly premium that insurance companies would expect to receive if all recurring premium policies would remain in force, plus 10% of single and excess premiums and 44% of Credit Life premiums. Life insurance sales measure activity associated with gaining new insurance business in the current period, and includes deposits received related to interest sensitive life and universal life-type products. Whereas GAAP premium revenues, on the other hand, are associated with policies sold in current and prior periods, and deposits received related to interest sensitive life and universal life-type products are recorded in a policyholder account which is reflected as a liability. Therefore, a reconciliation of premium revenues and insurance sales is not meaningful.

Life insurance sales increased during the three and nine months ended September 30, 2019 compared to 2018 primarily due to increased Indexed Universal Life and Universal Life sales, respectively.

Benefits, losses and expenses

Policyholder benefits decreased during the three months ended September 30, 2019 compared to 2018 due to an improvement in mortality experience on traditional life products. Policyholder benefits increased during the nine months ended September 30, 2019 compared to 2018 due to growth in reserves for benefits for our participating policies.

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



	Three months ended September 30,									Nine months ended September 30,
	2019			2018			Change			2019			2018			Change
Acquisition cost capitalized	$	34,393		$	33,040		$	1,353		$	98,812		$	98,617		$	195
Amortization of DAC	(29,313		)	(28,582		)	(731		)	(79,692		)	(80,467		)	775
Change in DAC	$	5,080		$	4,458		$	622		$	19,120		$	18,150		$	970

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Policy in-force information

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



	September 30, 2019		December 31, 2018		Change
Life insurance in-force
Traditional life	$	82,762,147	$	78,872,533	$	3,889,614
Interest-sensitive life	33,274,141		31,483,582		1,790,559
Total life insurance in-force	$	116,036,288	$	110,356,115	$	5,680,173

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



	September 30, 2019	December 31, 2018	Change
Number of policies in-force
Traditional life	1,722,215	1,763,028	(40,813	)
Interest-sensitive life	252,954	243,447	9,507
Total number of policies in-force	1,975,169	2,006,475	(31,306	)

Total life insurance in-force increased during the nine months ended September 30, 2019 compared to December 31, 2018 despite a reduction of policies in-force due to the increased sales of higher face amount policies.

Annuity

Annuity segment financial results for the periods indicated were as follows (in thousands):



	Three months ended September 30,								Nine months ended September 30,
	2019		2018			Change			2019			2018			Change
PREMIUMS AND OTHER REVENUES
Premiums	$	41,305	$	47,296		$	(5,991	)	$	137,434		$	185,140		$	(47,706	)
Other policy revenues	4,338		3,580			758			12,878			11,095			1,783
Net investment income	141,684		174,771			(33,087		)	487,750			436,961			50,789
Other income	653		624			29			1,916			1,980			(64		)
Total premiums and other revenues	187,980		226,271			(38,291		)	639,978			635,176			4,802
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits	59,699		64,153			(4,454		)	191,248			231,002			(39,754		)
Interest credited to policyholders’ account balances	84,737		113,881			(29,144		)	314,142			252,846			61,296
Commissions for acquiring and servicing policies	13,368		18,515			(5,147		)	63,373			78,874			(15,501		)
Other operating expenses	12,264		11,350			914			38,087			34,522			3,565
Change in deferred policy acquisition costs ⁽¹⁾	7,006		(1,376		)	8,382			(383		)	(19,060		)	18,677
Total benefits, losses and expenses	177,074		206,523			(29,449		)	606,467			578,184			28,283
Income before federal income taxes and other items	$	10,906	$	19,748		$	(8,842	)	$	33,511		$	56,992		$	(23,481	)


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

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

Earnings

The decrease in earnings from our Annuity segment for the third quarter of 2019 compared to the same periods in 2018, was primarily attributable to a reduction in the margins on our fixed and indexed annuity products. The margins on our fixed annuity products were reduced primarily from spread compression resulting from a declining portfolio yield. Also, the margins on our indexed annuity products experienced reduced margins due to increases in mark-to-market reserves related to interest rate decreases.

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Premiums and other revenues

Annuity premium and deposit amounts received are shown below (in thousands):



	Three months ended September 30,							Nine months ended September 30,
	2019		2018		Change			2019		2018		Change
Fixed deferred annuity	$	77,342	$	141,480	$	(64,138	)	$	909,859	$	307,374	$	602,485
Single premium immediate annuity	50,815		60,744		(9,929		)	184,823		225,968		(41,145		)
Equity-indexed deferred annuity	74,876		145,487		(70,611		)	281,720		724,097		(442,377		)
Variable deferred annuity	18,400		18,511		(111		)	50,511		51,258		(747		)
Total premium and deposits	221,433		366,222		(144,789		)	1,426,913		1,308,697		118,216
Less: Policy deposits	180,128		318,926		(138,798		)	1,289,479		1,123,557		165,922
Total earned premiums	$	41,305	$	47,296	$	(5,991	)	$	137,434	$	185,140	$	(47,706	)

Sales increased during the nine months ended September 30, 2019 compared to 2018 primarily due to an increase in fixed deferred products partially offset by a decline in equity-indexed products. Sales decreased primarily in fixed deferred and equity-indexed products for the three months ended September 30, 2019 compared to 2018. Deferred products are deposit type contracts and do not contribute to earned premiums. Earned premiums consist of single premium immediate annuity sales, which decreased during the three and nine months ended September 30, 2019 compared to 2018.

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Shown below are the changes in reserves (in thousands):



	Nine months ended September 30,
	2019			2018
Fixed deferred annuity
Reserve, beginning of period	$	6,773,603		$	7,108,254
Premiums	909,859			307,374
Other benefits	(180,120		)	(248,882		)
Surrenders	(617,457		)	(450,058		)
Fees	(2,237		)	(2,264		)
Interest and mortality	153,272			145,688
Reserve, end of period	7,036,920			6,860,112
Equity-indexed annuity
Reserves, beginning period	3,668,645			2,934,430
Premiums	281,720			724,097
Other benefits	(29,426		)	(30,699		)
Surrenders	(135,281		)	(101,810		)
Fees	(2,833		)	(2,974		)
Interest and mortality	157,517			104,334
Reserve, end of period	3,940,342			3,627,378
Single premium immediate annuity
Reserve, beginning of period	1,826,137			1,691,502
Premiums	184,823			225,968
Other benefits	(161,161		)	(151,642		)
Interest and mortality	47,245			42,112
Reserve, end of period	1,897,044			1,807,940
Variable deferred annuity
Account value, beginning of period	332,898			381,903
Premiums	50,511			51,258
Other benefits	152			434
Surrenders	(61,314		)	(71,391		)
Fees	(3,562		)	(3,413		)
Change in market value and other	48,607			24,598
Reserve, end of period	367,292			383,389
Total reserve, end of period	$	13,241,598		$	12,678,819

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Benefits, losses and expenses

Policyholder benefits consist of annuity payments and reserve increases for SPIA contracts. Reserve increases are highly correlated to the sales volume of SPIA contracts, which explains the change in benefits for the three and nine months ended September 30, 2019 compared to 2018.

Commissions decreased during the three and nine months ended September 30, 2019 compared to 2018 driven by a decrease in sales of equity-indexed products, which have a higher commission rate.

The change in DAC represents acquisition costs capitalized less the amortization of existing DAC, which is calculated in proportion to expected gross profits. The following shows the components of the change in DAC (in thousands):



	Three months ended September 30,									Nine months ended September 30,
	2019			2018			Change			2019			2018			Change
Acquisition cost capitalized	$	13,611		$	16,889		$	(3,278	)	$	61,779		$	76,580		$	(14,801	)
Amortization of DAC	(20,617		)	(15,513		)	(5,104		)	(61,396		)	(57,520		)	(3,876		)
Change in DAC	$	(7,006	)	$	1,376		$	(8,382	)	$	383		$	19,060		$	(18,677	)

The change in DAC decreased during the three and nine months ended September 30, 2019 compared to 2018 due to lower commissions. DAC amortization is higher in 2019 due to higher surrenders and declining portfolio yield.

Interest Margin

Fixed annuity margins compressed as a result of declining portfolio yield, and this emerged gradually over the year. Indexed margins experienced unfavorable mark-to-market reserve increases related to interest rate decreases. The following table summarizes the interest margin due to the impact of the investment performance, interest credited to policyholder’s account balances, and the end of period assets measured by account balance (in thousands):



	Three months ended September 30,									Nine months ended September 30,
	2019			2018			Change			2019			2018			Change
Fixed annuity
Fixed investment income	$	97,545		$	94,924		$	2,621		$	289,036		$	287,240		$	1,796
Interest credited and mortality	(69,377		)	(61,388		)	(7,989		)	(200,517		)	(187,800		)	(12,717		)
Interest and mortality margin	28,168			33,536			(5,368		)	88,519			99,440			(10,921		)
Equity-indexed annuity
Fixed investment income	38,471			34,894			3,577			113,186			98,160			15,026
Option return	5,667			44,981			(39,314		)	85,528			51,588			33,940
Interest credited and mortality	(31,063		)	(65,091		)	34,028			(157,517		)	(104,334		)	(53,183		)
Interest and mortality margin	13,075			14,784			(1,709		)	41,197			45,414			(4,217		)
Variable annuity
Separate account management fees	1,085			1,069			16			3,101			3,210			(109		)
Interest and mortality margin	1,085			1,069			16			3,101			3,210			(109		)
Total interest and mortality margin	$	42,328		$	49,389		$	(7,061	)	$	132,817		$	148,064		$	(15,247	)

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Health

Health segment financial results for the periods indicated were as follows (in thousands):



	Three months ended September 30,							Nine months ended September 30,
	2019		2018		Change			2019		2018		Change
PREMIUMS AND OTHER REVENUES
Premiums	$	40,676	$	45,154	$	(4,478	)	$	121,581	$	135,039	$	(13,458	)
Net investment income	2,381		2,233		148			7,177		6,850		327
Other income	5,021		6,631		(1,610		)	15,940		18,597		(2,657		)
Total premiums and other revenues	48,078		54,018		(5,940		)	144,698		160,486		(15,788		)
BENEFITS, LOSSES AND EXPENSES
Claims incurred	28,567		29,751		(1,184		)	81,042		90,201		(9,159		)
Commissions for acquiring and servicing policies	7,405		8,516		(1,111		)	22,975		23,658		(683		)
Other operating expenses	9,504		10,829		(1,325		)	31,203		31,277		(74		)
Change in deferred policy acquisition costs ⁽¹⁾	258		466		(208		)	919		2,060		(1,141		)
Total benefits, losses and expenses	45,734		49,562		(3,828		)	136,139		147,196		(11,057		)
Income before federal income taxes and other items	$	2,344	$	4,456	$	(2,112	)	$	8,559	$	13,290	$	(4,731	)


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

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

Earnings

Earnings decreased during the three and nine months ended September 30, 2019 compared to 2018, primarily due to higher claims in our Medicare Supplement line of business and a reduction in premium.

Premiums and other revenues

Health earned premiums for the periods indicated were as follows (in thousands, except percentages):



	Three months ended September 30,							Nine months ended September 30,
	2019		2018		Change			2019		2018		Change
Medicare Supplement	$	19,982	$	18,155	$	1,827		$	57,211	$	53,094	$	4,117
MGU	6,358		11,659		(5,301		)	21,344		34,661		(13,317		)
Supplemental insurance	5,344		5,895		(551		)	16,233		18,414		(2,181		)
Credit Health	4,492		4,439		53			13,475		13,354		121
Medical expense	2,374		2,738		(364		)	7,221		8,440		(1,219		)
All other	2,126		2,268		(142		)	6,097		7,076		(979		)
Total	$	40,676	$	45,154	$	(4,478	)	$	121,581	$	135,039	$	(13,458	)

Earned premiums decreased during the three and nine months ended September 30, 2019 compared to 2018. The termination of two MGU programs led to the decrease in MGU premium. Supplemental insurance premiums decreased during the three and nine months ended September 30, 2019 primarily due to a decrease in sales for short-term medical and limited benefit products.

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



	Three months ended September 30,							Nine months ended September 30,
	2019		2018		Change			2019		2018		Change
Medicare Supplement	$	16,096	$	13,931	$	2,165		$	46,514	$	40,599	$	5,915
MGU	6,029		9,625		(3,596		)	18,790		30,087		(11,297		)
Supplemental insurance	2,192		1,579		613			6,464		5,915		549
Credit Health	1,020		1,228		(208		)	2,493		3,590		(1,097		)
Medical expense	1,665		1,862		(197		)	3,950		5,465		(1,515		)
All other	1,565		1,526		39			2,831		4,545		(1,714		)
Total	$	28,567	$	29,751	$	(1,184	)	$	81,042	$	90,201	$	(9,159	)

Benefits, losses and expenses

Claims incurred decreased during the three and nine months ended September 30, 2019 compared to 2018 largely driven by lower MGU claims correlated with the decrease in premiums, partially offset by an increase in claims as a percentage of premiums in our Medicare Supplement product.

Commissions decreased during the three and nine months ended September 30, 2019 compared to 2018 primarily due to lower MGU premiums.

Change in Deferred Policy Acquisition Costs

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



	Three months ended September 30,									Nine months ended September 30,
	2019			2018			Change			2019			2018			Change
Acquisition cost capitalized	$	1,085		$	3,337		$	(2,252	)	$	7,629		$	9,268		$	(1,639	)
Amortization of DAC	(1,343		)	(3,803		)	2,460			(8,548		)	(11,328		)	2,780
Change in DAC	$	(258	)	$	(466	)	$	208		$	(919	)	$	(2,060	)	$	1,141

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Property and Casualty

Property and Casualty segment financial results for the periods indicated were as follows (in thousands, except percentages):



	Three months ended September 30,									Nine months ended September 30,
	2019			2018			Change			2019			2018			Change
PREMIUMS AND OTHER REVENUES
Net premiums written	$	390,799		$	388,632		$	2,167		$	1,180,451		$	1,163,814		$	16,637
Net premiums earned	$	382,784		$	374,842		$	7,942		$	1,125,704		$	1,086,862		$	38,842
Net investment income	16,357			15,629			728			48,085			46,983			1,102
Other income	3,137			3,399			(262		)	8,689			7,726			963
Total premiums and other revenues	402,278			393,870			8,408			1,182,478			1,141,571			40,907
BENEFITS, LOSSES AND EXPENSES
Claims incurred	280,695			272,885			7,810			790,447			795,501			(5,054		)
Commissions for acquiring and servicing policies	65,893			72,135			(6,242		)	201,635			212,156			(10,521		)
Other operating expenses	50,111			45,277			4,834			151,677			138,244			13,433
Change in deferred policy acquisition costs ⁽¹⁾	(636		)	(3,426		)	2,790			(3,807		)	(10,726		)	6,919
Total benefits, losses and expenses	396,063			386,871			9,192			1,139,952			1,135,175			4,777
Income before federal income taxes and other items	$	6,215		$	6,999		$	(784	)	$	42,526		$	6,396		$	36,130
Loss ratio	73.3		%	72.8		%	0.5		%	70.2		%	73.2		%	(3.0		)%
Underwriting expense ratio	30.1			30.4			(0.3		)	31.0			31.2			(0.2		)
Combined ratio	103.4		%	103.2		%	0.2		%	101.2		%	104.4		%	(3.2		)%
Impact of catastrophe events on combined ratio	9.6			9.1			0.5			7.2			8.1			(0.9		)
Combined ratio without impact of catastrophe events	93.8		%	94.1		%	(0.3		)%	94.0		%	96.3		%	(2.3		)%
Gross catastrophe losses	$	36,634		$	34,112		$	2,522		$	80,456		$	89,000		$	(8,544	)
Net catastrophe losses	$	36,796		$	34,514		$	2,282		$	81,005		$	91,300		$	(10,295	)


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

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

Earnings

Property and Casualty earnings decreased slightly during the three months ended September 30, 2019 compared to 2018. The largest decrease was in the commercial agricultural business line, primarily due to an increase in non-catastrophe losses during the three months ended September 30, 2019. Earnings increased during the nine months ended September 30, 2019 compared to 2018 with the largest increases in the personal lines of business, primarily due to improved results in the personal automobile line of business.

Premiums and other revenues

Net premiums written and earned increased for all major personal and commercial lines of business during the three and nine months ended September 30, 2019 compared to 2018. The largest increase in net earned premiums for the three and nine month periods was in the personal lines of business.

Benefits, losses and expenses

Claims incurred increased during the three months ended September 30, 2019 compared to 2018 in total dollars and as a percentage of net premiums earned. These increases were primarily attributable to an increase in non-catastrophe losses in commercial agricultural business. Claims incurred decreased during the nine months ended September 30, 2019 compared to 2018 in total dollars and as a percentage of net premiums earned. These decreases were due to decreases in catastrophe losses, particularly in the commercial agricultural business and personal automobile lines of business.

Commissions decreased during the three and nine months ended September 30, 2019 compared to 2018 primarily due to a decrease in the Collateral Protection Insurance (“CPI”) business.

Operating expenses increased during the three and nine months ended September 30, 2019 compared to 2018 correlated to the increase in premiums.

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Products

Our Property and Casualty segment consists of: (i) Personal products, marketed primarily to individuals, representing 59% of net premiums written; (ii) Commercial products, focused primarily on agricultural and other business related markets, representing 34% of net premiums written; and (iii) Credit-related property insurance products, marketed to and through financial institutions and retailers, representing 7% of net premiums written.

Personal Products

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



	Three months ended September 30,									Nine months ended September 30,
	2019			2018			Change			2019			2018			Change
Net premiums written
Automobile	$	145,573		$	145,465		$	108		$	432,795		$	427,202		$	5,593
Homeowner	81,424			78,806			2,618			221,604			213,285			8,319
Other Personal	15,244			13,922			1,322			43,203			39,394			3,809
Total net premiums written	$	242,241		$	238,193		$	4,048		$	697,602		$	679,881		$	17,721
Net premiums earned
Automobile	$	142,475		$	139,532		$	2,943		$	419,666		$	401,672		$	17,994
Homeowner	71,160			67,370			3,790			207,510			196,038			11,472
Other Personal	13,606			12,274			1,332			39,258			35,359			3,899
Total net premiums earned	$	227,241		$	219,176		$	8,065		$	666,434		$	633,069		$	33,365
Loss ratio
Automobile	72.7		%	80.9		%	(8.2		)%	71.9		%	78.6		%	(6.7		)%
Homeowner	102.3		%	98.2		%	4.1		%	83.2		%	86.6		%	(3.4		)%
Other Personal	57.4		%	70.0		%	(12.6		)%	58.2		%	70.0		%	(11.8		)%
Personal line loss ratio	81.1		%	85.6		%	(4.5		)%	71.4		%	80.6		%	(9.2		)%
Combined Ratio
Automobile	95.3		%	102.6		%	(7.3		)%	94.9		%	101.4		%	(6.5		)%
Homeowner	135.5		%	133.7		%	1.8		%	118.3		%	121.3		%	(3.0		)%
Other Personal	102.6		%	104.3		%	(1.7		)%	103.5		%	106.1		%	(2.6		)%
Personal line combined ratio	108.3		%	112.2		%	(3.9		)%	102.8		%	107.8		%	(5.0		)%

Automobile: Net premiums written and earned increased in our personal automobile line during the three and nine months ended September 30, 2019 compared to 2018 due primarily to an increase in rates charged for these policies and to a lesser extent an increase in policies sold. The loss and combined ratios decreased during the three and nine months ended September 30, 2019 compared to 2018 primarily due to decreased claim activity and increased premium.

Homeowners: Net premiums written and earned increased during the three and nine months ended September 30, 2019 compared to 2018 primarily due to increased sales to renters, as well as an increase in rates charged for these policies and due to an increase in the number of policies sold. The loss and combined ratio increased during the three months ended September 30, 2019 compared to 2018 primarily due to increased catastrophe claim activity and decreased during the nine months ended September 30, 2019 compared to 2018 due to increased premium outpacing incurred claims.

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 combined ratio decreased during the three and nine months ended September 30, 2019 compared to 2018 primarily due to a decrease in claim activity and an increase in premium.

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Commercial Products

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



	Three months ended September 30,									Nine months ended September 30,
	2019			2018			Change			2019			2018			Change
Net premiums written
Commercial Business	$	53,182		$	48,172		$	5,010		$	178,928		$	169,614		$	9,314
Agricultural Business	38,783			37,465			1,318			120,080			114,274			5,806
Automobile	27,925			24,892			3,033			97,059			88,191			8,868
Total net premiums written	$	119,890		$	110,529		$	9,361		$	396,067		$	372,079		$	23,988
Net premiums earned
Commercial Business	$	58,280		$	54,474		$	3,806		$	168,061		$	156,016		$	12,045
Agricultural Business	38,038			36,275			1,763			112,044			106,542			5,502
Automobile	29,496			27,245			2,251			85,510			79,086			6,424
Total net premiums earned	$	125,814		$	117,994		$	7,820		$	365,615		$	341,644		$	23,971
Loss ratio
Commercial Business	48.6		%	48.9		%	(0.3		)%	49.6		%	50.3		%	(0.7		)%
Agricultural Business	64.7		%	35.5		%	29.2		%	72.5		%	66.1		%	6.4		%
Automobile	82.9		%	88.8		%	(5.9		)%	79.7		%	85.1		%	(5.4		)%
Commercial line loss ratio	61.5		%	54.0		%	7.5		%	63.7		%	63.3		%	0.4		%
Combined ratio
Commercial Business	81.4		%	81.4		%	—		%	83.0		%	82.8		%	0.2		%
Agricultural Business	100.6		%	72.8		%	27.8		%	109.3		%	104.2		%	5.1		%
Automobile	107.8		%	111.9		%	(4.1		)%	104.6		%	109.1		%	(4.5		)%
Commercial line combined ratio	93.4		%	85.8		%	7.6		%	96.1		%	95.5		%	0.6		%

Commercial Business: Commercial business products primarily relate to workers compensation and business owners lines of business. Net premiums written and earned increased during the three and nine months ended September 30, 2019 compared to 2018 primarily due to the addition of our Investor Property Protection line of business as well as increased sales of business owners insurance. The loss and combined ratios for the three months and nine months ended September 30, 2019 were in line with 2018.

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 during the three and nine months ended September 30, 2019 compared to 2018 due to an increase in policies in force. The loss and combined ratios increased during the three and nine months ended September 30, 2019 compared to 2018 primarily due to an increase in the average severity of non-catastrophe losses.

Commercial Automobile: Net premiums written and earned increased during the three and nine months ended September 30, 2019 compared to 2018 primarily due to an increase in policies in force and rate increases. The loss and combined ratios improved during the three and nine months ended September 30, 2019 compared to 2018 primarily due to the increase in premiums outpacing incurred claims.

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Credit Products

Credit-related property product results for the periods indicated were as follows (in thousands, except percentages):



	Three months ended September 30,									Nine months ended September 30,
	2019			2018			Change			2019			2018			Change
Net premiums written	$	28,669		$	39,910		$	(11,241	)	$	86,782		$	111,854		$	(25,072	)
Net premiums earned	29,731			37,672			(7,941		)	93,656			112,149			(18,493		)
Loss ratio⁽¹⁾	64.3		%	57.2		%	7.1		%	64.0		%	61.5		%	2.5		%
Combined ratio⁽¹⁾	109.1		%	105.2		%	3.9		%	110.8		%	112.5		%	(1.7		)%

(1) Ratio does not include fee income

Credit-related property products are offered on automobiles, furniture and appliances in connection with the financing of those items. These policies pay an amount if the insured property is lost or damaged and the amount paid is not directly related to an event affecting the consumer’s ability to pay the debt.

Net written and earned premiums decreased during the three and nine months ended September 30, 2019 compared to 2018 primarily due to a decrease in Collateral Protection Insurance ("CPI") business. The combined ratio increased for the three months due to a higher loss ratio on CPI product and the combined ratio decreased for the nine months ended September 30, 2019 compared to 2018 primarily due to lower commission expense relating to the decrease in CPI business.

Corporate and Other

Corporate and Other segment financial results for the periods indicated were as follows (in thousands):



	Three months ended September 30,								Nine months ended September 30,
	2019		2018			Change			2019		2018		Change
OTHER REVENUES
Net investment income	$	24,237	$	27,024		$	(2,787	)	$	59,051	$	65,423	$	(6,372	)
Net realized investment gains (losses)	31,933		(1,276		)	33,209			24,975		4,775		20,200
Net gains on equity securities	8,589		126,495			(117,906		)	282,026		150,487		131,539
Other income	1,478		1,031			447			4,511		3,911		600
Total other revenues	66,237		153,274			(87,037		)	370,563		224,596		145,967
BENEFITS, LOSSES AND EXPENSES
Other operating expenses	9,750		5,838			3,912			28,158		24,453		3,705
Total benefits, losses and expenses	9,750		5,838			3,912			28,158		24,453		3,705
Income before federal income taxes and other items	$	56,487	$	147,436		$	(90,949	)	$	342,405	$	200,143	$	142,262

Earnings

Earnings increased during the nine months ended September 30, 2019 compared to 2018 primarily due to an increase in net gains on equity securities resulting from favorable market conditions reflected in the S&P 500 index. Earnings decreased during the three months ended September 30, 2019 compared to 2018 reflecting the impact of less favorable market conditions on equity securities partially offset by higher net realized investment gains from sales of investments in real estate related joint ventures.

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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 Management Risk Committee.

Our insurance and annuity products are generally supported by investment-grade bonds and commercial mortgage loans. We also invest in equity options as a hedge for our indexed products. We purchase fixed maturity securities and designate them as either held-to-maturity or available-for-sale considering our estimated future cash flow needs. We also monitor the composition of our fixed maturity securities classified as held-to-maturity and available-for-sale and adjust the mix within the portfolio as investments mature or new investments are purchased.

We invest in commercial mortgage loans when the yield and credit risk compare favorably with fixed maturity securities. Individual residential mortgage loans including sub-prime or Alt-A mortgage loans have not been and are not expected to be part of our investment portfolio. We purchase real estate and equity investments based on a risk and reward analysis where we believe there are opportunities for enhanced returns.

The following summarizes the carrying values of our invested assets (other than investments in unconsolidated affiliates) by asset class (in thousands, except percentages):



	September 30, 2019				December 31, 2018
Fixed maturity, bond held-to-maturity, at amortized cost	$	8,715,569	37.0	%	$	8,211,449	36.8	%
Fixed maturity, bond available-for-sale, at fair value	6,826,245		29.0		6,215,563		27.9
Equity securities, at fair value	1,678,657		7.1		1,530,228		6.9
Mortgage loans on real estate, net of allowance	4,936,605		21.0		5,124,707		23.0
Policy loans	380,018		1.6		376,254		1.7
Investment real estate, net of accumulated depreciation	556,503		2.3		587,516		2.6
Short-term investments	398,948		1.7		206,760		0.9
Other invested assets	63,034		0.3		50,087		0.2
Total investments	$	23,555,579	100.0	%	$	22,302,564	100.0	%

The increase in our total investments at September 30, 2019 compared to year-end 2018 was primarily the result of an increase in short-term investments and bonds available-for-sale. These increases were somewhat offset by a reduction in mortgage loans.

Bonds—We allocate most of our fixed maturity securities to support our insurance business. At September 30, 2019, our fixed maturity securities had an estimated fair value of $15.9 billion, which was $0.6 billion, or 4.1%, above amortized cost. At December 31, 2018, our fixed maturity securities had an estimated fair value of $14.3 billion, which was $0.1 billion, or 0.9%, below amortized cost. The estimated fair value for securities due in one year or less was $1.0 billion as of September 30, 2019 and $0.5 billion as of December 31, 2018. For additional information regarding total bonds by credit quality rating refer to Note 4, Investments in Securities, of the Notes to the Unaudited Consolidated Financial Statements.

Equity Securities—We invest in companies publicly traded on national U.S. stock exchanges. See Note 4, Investments in Securities, of the Notes to the Unaudited Consolidated Financial Statements for the cost, gross unrealized gains and losses, and fair value of the equity securities.

Mortgage Loans— We invest in commercial mortgage loans that are diversified by property-type and geography. Generally, mortgage loans are secured by first liens on income-producing real estate with a loan-to-value ratio of up to 75%. Mortgage loans are 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 4.8% and 4.9% at September 30, 2019 and December 31, 2018, respectively. For additional information regarding mortgage loans refer to Note 5, Mortgage Loans, of the Notes to the Unaudited Consolidated Financial Statements.

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Policy Loans—For certain life insurance products, policyholders may borrow funds using the policy’s cash value as collateral. The maximum amount of the policy loan depends upon the policy’s surrender value. As of September 30, 2019, we had $380.0 million in policy loans with a loan to surrender value of 56%, and at December 31, 2018, we had $376.3 million in policy loans with a loan to surrender value of approximately 60%. 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 increased $55.8 million during the nine months ended September 30, 2019 compared to 2018 primarily due to gains on options from an improvement in the S&P 500 Index.

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

Net realized investment gains increased $20.2 million during the nine months ended September 30, 2019 compared to 2018. The increase in net realized investment gains in 2019 was primarily attributable to the sale of real estate.

Net Unrealized Gains and Losses

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



	September 30, 2019			December 31, 2018			Change
Held-to-Maturity
Gains	$	355,009		$	72,403		$	282,606
Losses	(6,890		)	(153,768		)	146,878
Net gains (losses)	348,119			(81,365		)	429,484
Available-for-Sale
Gains	301,024			61,286			239,738
Losses	(20,137		)	(107,344		)	87,207
Net gains (losses)	280,887			(46,058		)	326,945
Total	$	629,006		$	(127,423	)	$	756,429

The net change in the unrealized gains on fixed maturity securities between September 30, 2019 and December 31, 2018 is primarily attributable to the decrease in benchmark ten-year interest rates, which were 1.7% and 2.7% respectively. The Company does not expect to be required to sell any of the securities in an unrealized loss position.

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Liquidity

Our liquidity requirements have been and are expected to continue to be met by funds from operations, comprised of premiums received from our customers, collateral for derivative transactions, and investment income and maturities. The primary use of cash has been and is expected to continue to be payment of policyholder benefits and claims incurred. Current and expected patterns of claim frequency and severity may change from period to period but continue to be within historical norms. Management considers our current liquidity position to be sufficient to meet anticipated demands over the next twelve months. Our contractual obligations are not expected to have a significant negative impact to cash flows from operations.

Our defined benefit plans are frozen and currently adequately funded; however, low interest rates, increased longevity of participants, and rising Pension Benefit Guaranty Corporation (“PBGC”) premiums may cause us to increase our funding of the plans. Additionally, due to changes in the tax law, there was an opportunity to realize tax savings on contributions made before September 15, 2018. Consequently, a $60 million contribution was made before the aforementioned deadline. This contribution did not significantly impact cash flow and resulted in an overfunded status on our qualified pension plan. No unusually large capital expenditures are expected in the next 12-24 months. We have paid dividends to stockholders for over 110 consecutive years and expect to continue this trend.

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. We believe our portfolio of highly liquid available-for-sale investment securities, including equity securities, is sufficient to meet future liquidity needs as necessary. Deposits of certain securities under the Company’s membership with the Federal Home Loan Bank of Dallas (“FHLB”) provided approximately $366 million of borrowing capacity as of September 30, 2019 should we require additional liquidity resources.

The Company holds collateral of $223.4 million at September 30, 2019 to offset exposure from its derivative counterparties. Cash flows associated with collateral received from counterparties change as the market value of the underlying derivative contract changes.

Our cash and cash equivalents and short-term investment position increased from $474.9 million at December 31, 2018 to $835.3 million at September 30, 2019. The increase primarily relates to an increase in commercial paper to fund additional investments and other operating requirements.

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 Consolidated Financial Statements.

Capital Resources

Our capital resources are summarized below (in thousands):



	September 30, 2019		December 31, 2018
American National stockholders’ equity, excluding accumulated other comprehensive income, net of tax (“AOCI”)	$	5,741,137	$	5,356,986
Accumulated other comprehensive income (loss)	85,444		(99,738		)
Total American National stockholders’ equity	$	5,826,581	$	5,257,248

We have notes payable relating to borrowings by real estate joint ventures that we consolidate into our financial statements that are not part of our capital resources. The lenders for the notes payable have no recourse against us in the event of default by the joint ventures. Therefore, the liability we have for these notes payable is limited to our investment in the respective ventures, which totaled $6.1 million and $26.6 million at September 30, 2019 and December 31, 2018, respectively.

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The changes in our capital resources are summarized below (in thousands):



	September 30, 2019									December 31, 2018
	Capital and Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total			Capital and Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Net income attributable to American National	$	449,241		$	—		$	449,241		$	158,995		$	—		$	158,995
Dividends to shareholders	(66,195		)	—			(66,195		)	(88,228		)	—			(88,228		)
Change in net unrealized gains (losses) on debt securities	—			181,305			181,305			—			(136,261		)	(136,261		)
Foreign currency transaction and translation adjustment	—			297			297			—			(900		)	(900		)
Defined benefit pension plan adjustment	—			4,365			4,365			—			22,326			22,326
Cumulative effect of accounting change	785			(785		)	—			687,051			(627,119		)	59,932
Other	320			—			320			(5,375		)	—			(5,375		)
Total	$	384,151		$	185,182		$	569,333		$	752,443		$	(741,954	)	$	10,489

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 September 30, 2019 and December 31, 2018, American National Insurance Company’s statutory capital and surplus was $3,552,712,000 and $3,162,808,000, respectively. American National Insurance Company and each of its insurance subsidiaries had statutory capital and surplus at September 30, 2019 and December 31, 2018 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, 2018. We expect to have the capacity to pay our obligations as they come due.

Off-Balance Sheet Arrangements

We have off-balance sheet arrangements relating to third-party marketing operation bank loans as discussed in Note 16, Commitments and Contingencies, of the Notes to the Unaudited Consolidated Financial Statements. We could be exposed to a liability for these loans, which are supported by the cash value of the underlying insurance contracts. The cash value of the life insurance policies is designed to always equal or exceed the balance of the loans. Accordingly, management does not foresee any 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 Consolidated Financial Statements.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our market risk has not changed materially from those disclosed in our 2018 Annual Report on form 10-K filed with the SEC on February 28, 2019.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to provide reasonable assurance that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 30, 2019. Based upon that evaluation and subject to the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2019, 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 nine months ended September 30, 2019 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 Consolidated Financial Statements.

ITEM 1A. RISK FACTORS

There have been no material changes with respect to the risk factors as previously disclosed in our 2018 Annual Report on Form 10-K filed with the SEC on February 28, 2019.

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

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ITEM 6.	EXHIBITS



Exhibit Number		Description

3.1		Restated Articles of Incorporation, as amended (incorporated by reference to Exhibit No. 3.1 to the registrant’s Registration Statement on Form 10-12B filed April 10, 2009).

3.2		Amended and Restated Bylaws (incorporated by reference to Exhibit No. 3.2 to the registrant’s Current Report on Form 8-K filed February 23, 2018).

31.1		Certification of the principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

31.2		Certification of the principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

32.1		Certification of the principal executive officer and principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

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).

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