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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended March 31, 2020


☐			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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☒ Yes ☐ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Sections 15(d) of the Exchange Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

As of April 29, 2020, there were 26,887,200 shares of the registrant’s voting common stock, $1.00 par value per share, outstanding.

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AMERICAN NATIONAL INSURANCE COMPANY

TABLE OF CONTENTS



	PART I – FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS (Unaudited):

	Condensed Consolidated Statements of Financial Position as of March 31 , 2020 and December 31, 2019	3

	Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019	4

	Condensed Consolidated Statements of Comprehensive Income (loss) for the three months ended March 31, 2020 and 2019	5

	Condensed Consolidated Statements of Changes in Equity for the three months ended March 31, 2020 and 2019	6

	Condensed Consolidated Statements of Cash Flows for the three months ended M arch 31, 2020 and 2019	7

	Notes to the Unaudited Condensed Consolidated Financial Statements	8

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	37

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	59

ITEM 4.	CONTROLS AND PROCEDURES	59

	PART II – OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	59

ITEM 1A.	RISK FACTORS	59

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	61

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	61

ITEM 4.	MINE SAFETY DISCLOSURES	61

ITEM 5.	OTHER INFORMATION	61

ITEM 6.	EXHIBITS	62

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AMERICAN NATIONAL INSURANCE COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Unaudited and in thousands, except share data)


	March 31, 2020		December 31, 2019
ASSETS
Fixed maturity, bonds held-to-maturity, at amortized cost, net of allowance for credit losses of $21,385 in 2020 (Fair value $8,501,656 in 2020 and $8,968,690 in 2019)	$	8,554,809	$	8,631,261
Fixed maturity, bonds available-for-sale, at fair value (Amortized cost $6,447,577 in 2020 and $6,435,670 in 2019)	6,480,374		6,725,085
Equity securities, at fair value (Cost $693,708 in 2020 and $663,058 in 2019)	1,375,083		1,700,960
Mortgage loans on real estate, net of allowance for credit losses of $59,445 in 2020	5,125,365		5,097,017
Policy loans	380,084		379,657
Investment real estate, net of accumulated depreciation of $260,893 in 2020 and $256,757 in 2019	545,646		551,219
Short-term investments	418,882		425,321
Other invested assets	74,135		76,569
Total investments	22,954,378		23,587,089
Cash and cash equivalents	328,752		452,001
Investments in unconsolidated affiliates	757,737		705,721
Accrued investment income	192,252		200,856
Reinsurance recoverables, net of allowance for credit losses of $17,713 in 2020	405,623		411,830
Prepaid reinsurance premiums	38,807		44,669
Premiums due and other receivables	377,782		341,924
Deferred policy acquisition costs	1,514,005		1,423,007
Property and equipment, net of accumulated depreciation of $263,857 in 2020 and $257,907 in 2019	105,709		106,303

Prepaid pension	81,962		78,990
Other assets	187,950		171,285
Separate account assets	893,856		1,073,891
Total assets	$	27,838,813	$	28,597,566
LIABILITIES
Future policy benefits
Life	$	3,098,444	$	3,087,578
Annuity	1,565,202		1,571,263
Health	49,842		49,886
Policyholders’ account balances	12,857,448		12,957,989
Policy and contract claims	1,470,080		1,489,979
Unearned premium reserve	945,808		933,559
Other policyholder funds	348,594		361,059
Liability for retirement benefits	65,305		67,435
Notes payable	156,943		157,997
Deferred tax liabilities, net	269,650		394,528
Current tax payable	31,824		9,757
Other liabilities	478,728		446,882
Separate account liabilities	893,856		1,073,891
Total liabilities	22,231,724		22,601,803
EQUITY
American National stockholders’ equity:
Common stock, $1.00 par value, Authorized 50,000,000 in 2020 and 2019, Issued 30,832,449 in 2020 and 2019 Outstanding 26,887,200 shares in 2020 and 2019	30,832		30,832
Additional paid-in capital	21,031		21,011
Accumulated other comprehensive income (loss)	(12,053)		99,518
Retained earnings	5,669,664		5,946,857
Treasury stock, at cost	(108,469)		(108,469)
Total American National stockholders’ equity	5,601,005		5,989,749
Noncontrolling interest	6,084		6,014
Total equity	5,607,089		5,995,763
Total liabilities and equity	$	27,838,813	$	28,597,566

See accompanying notes to the unaudited condensed consolidated financial statements.

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AMERICAN NATIONAL INSURANCE COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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


	Three months ended March 31,
	2020		2019
PREMIUMS AND OTHER REVENUES
Premiums
Life	$	89,516	$	86,468
Annuity	15,509		39,907
Health	43,086		38,681
Property and casualty	388,657		371,181
Other policy revenues	79,605		74,248
Net investment income	115,284		292,346
Net realized investment gains	4,148		2,947

Change in investment credit loss	(44,678)		—
Net gains (losses) on equity securities	(332,575)		206,377
Other income	11,133		11,538
Total premiums and other revenues	369,685		1,123,693
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits
Life	110,466		109,465
Annuity	34,802		58,761
Claims incurred
Health	34,885		25,767
Property and casualty	229,709		238,144
Interest credited to policyholders’ account balances	(4,323)		141,234
Commissions for acquiring and servicing policies	130,435		138,645
Other operating expenses	133,926		133,610
Change in deferred policy acquisition costs	(1,672)		(6,631)
Total benefits, losses and expenses	668,228		838,995
Income (loss) before federal income tax and other items	(298,543)		284,698
Less: Provision (benefit) for federal income taxes
Current	24,503		13,780
Deferred	(86,171)		53,597
Total provision (benefit) for federal income taxes	(61,668)		67,377
Income (loss) after federal income tax	(236,875)		217,321
Equity in earnings of unconsolidated affiliates	15,707		40,460
Other components of net periodic pension benefit (costs), net of tax	571		(914)
Net income (loss)	(220,597)		256,867
Less: Net loss attributable to noncontrolling interest, net of tax	(153)		(1,350)
Net income (loss) attributable to American National	$	(220,444)	$	258,217
Amounts available to American National common stockholders
Earnings (loss) per share
Basic	$	(8.20)	$	9.60
Diluted	(8.20)		9.60
Cash dividends to common stockholders	0.82		0.82
Weighted average common shares outstanding	26,881,700		26,885,719
Weighted average common shares outstanding and dilutive potential common shares	26,891,675		26,891,904

See accompanying notes to the unaudited condensed consolidated financial statements.

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AMERICAN NATIONAL INSURANCE COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited and in thousands)


	Three months ended March 31,
	2020		2019
Net income (loss)	$	(220,597)	$	256,867
Other comprehensive income (loss), net of tax
Change in net unrealized gains (losses) on securities	(112,403)		85,514
Foreign currency transaction and translation adjustments	(924)		(156)
Defined benefit pension plan adjustment	1,756		1,416
Total other comprehensive income (loss), net of tax	(111,571)		86,774
Total comprehensive income (loss)	(332,168)		343,641
Less: Comprehensive loss attributable to noncontrolling interest	(153)		(1,350)
Total comprehensive income (loss) attributable to American National	$	(332,015)	$	344,991

See accompanying notes to the unaudited condensed consolidated financial statements.

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AMERICAN NATIONAL INSURANCE COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited and in thousands)


	Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Treasury Stock		Noncontrolling Interest		Total Equity
Balance at December 31, 2019	$	30,832	$	21,011	$	99,518	$	5,946,857	$	(108,469)	$	6,014	$	5,995,763


Amortization of restricted stock	—		20		—		—		—		—		20
Cumulative effect of accounting change	—		—		—		(34,702)		—		—		(34,702)
Other comprehensive loss	—		—		(111,571)		—		—		—		(111,571)
Net loss attributable to American National	—		—		—		(220,444)		—		—		(220,444)
Cash dividends to common stockholders	—		—		—		(22,047)		—		—		(22,047)
Contributions	—		—		—		—		—		546		546
Distributions	—		—		—		—		—		(323)		(323)
Net loss attributable to noncontrolling interest	—		—		—		—		—		(153)		(153)
Balance at March 31, 2020	$	30,832	$	21,031	$	(12,053)	$	5,669,664	$	(108,469)	$	6,084	$	5,607,089


	Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Treasury Stock		Noncontrolling Interest		Total Equity
Balance at December 31, 2018	$	30,832	$	20,694	$	(99,738)	$	5,413,952	$	(108,492)	$	14,267	$	5,271,515

Reissuance of treasury shares	—		237		—		—		23		—		260
Amortization of restricted stock	—		20		—		—		—		—		20
Cumulative effect of accounting change	—		—		(785)		785		—		—		—
Other comprehensive income	—		—		86,774		—		—		—		86,774
Net income attributable to American National	—		—		—		258,217		—		—		258,217
Cash dividends to common stockholders	—		—		—		(22,101)		—		—		(22,101)
Contributions	—		—		—		—		—		3		3
Distributions	—		—		—		—		—		(419)		(419)
Net loss attributable to noncontrolling interest	—		—		—		—		—		(1,350)		(1,350)
Balance at March 31, 2019	$	30,832	$	20,951	$	(13,749)	$	5,650,853	$	(108,469)	$	12,501	$	5,592,919

See accompanying notes to the unaudited condensed consolidated financial statements.

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AMERICAN NATIONAL INSURANCE COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and in thousands)


	Three months ended March 31,
	2020		2019
OPERATING ACTIVITIES
Net income (loss)	$	(220,597)	$	256,867
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized investment gains	(4,148)		(2,947)

Investment credit loss	44,678		—
Accretion of premiums, discounts and loan origination fees	1,845		(2,099)
Net capitalized interest on policy loans and mortgage loans	(6,351)		(10,094)
Depreciation	12,614		13,840
Interest credited to policyholders’ account balances	(4,323)		141,234
Charges to policyholders’ account balances	(79,605)		(74,248)
Deferred federal income tax expense (benefit)	(86,171)		53,597
Equity in earnings of unconsolidated affiliates	(15,707)		(40,460)
Distributions from unconsolidated affiliates	27,246		23,607
Changes in:
Policyholder liabilities	(4,203)		45,592
Deferred policy acquisition costs	(1,672)		(6,631)
Reinsurance recoverables	6,207		7,575
Premiums due and other receivables	(35,858)		1,395
Prepaid reinsurance premiums	5,862		1,525
Accrued investment income	8,604		2,808
Current tax receivable/payable	22,392		17,059
Liability for retirement benefits	(2,879)		(984)
Fair value of option securities	108,095		(66,483)
Fair value of equity securities	332,575		(206,377)
Other, net	3,447		12,893
Net cash provided by operating activities	112,051		167,669
INVESTING ACTIVITIES
Proceeds from sale/maturity/prepayment of:
Held-to-maturity securities	360,849		85,182
Available-for-sale securities	274,697		74,411
Equity securities	27,620		56,466
Investment real estate	964		1,752
Mortgage loans	105,964		271,430
Policy loans	12,414		12,787
Other invested assets	32,609		10,364

Distributions from unconsolidated affiliates	11,711		40,233
Payment for the purchase/origination of:
Held-to-maturity securities	(345,112)		(244,869)
Available-for-sale securities	(250,954)		(105,772)
Equity securities	(34,350)		(18,280)
Investment real estate	(3,361)		(8,999)
Mortgage loans	(166,933)		(106,108)
Policy loans	(6,520)		(5,920)
Other invested assets	(10,192)		(17,355)
Additions to property and equipment	(5,354)		(3,204)
Contributions to unconsolidated affiliates	(82,065)		(45,599)
Change in short-term investments	6,439		(519,999)
Change in collateral held for derivatives	(128,078)		67,523
Other, net	4,400		373
Net cash used in investing activities	(195,252)		(455,584)
FINANCING ACTIVITIES
Policyholders’ account deposits	294,297		743,275
Policyholders’ account withdrawals	(310,921)		(368,810)
Change in notes payable	(1,054)		(473)
Dividends to stockholders	(22,047)		(22,101)
Payments to noncontrolling interest	(323)		(419)
Net cash provided by (used in) financing activities	(40,048)		351,472
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(123,249)		63,557
Cash and cash equivalents at beginning of the period	452,001		268,164
Cash and cash equivalents at end of the period	$	328,752	$	331,721

See accompanying notes to the unaudited condensed consolidated financial statements.

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Nature of Operations

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

Note 2 – Summary of Significant Accounting Policies and Practices

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

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

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

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

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Note 3 – Recently Issued Accounting Pronouncements

Adoption of New Accounting Standards


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

As of January 1, 2020, changes related to the adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASC 326"), had the following effect on assets and liabilities:


	Pre-ASC 326 Adoption		Adjustment to Adopt ASC 326		Balance as of January 1, 2020
Assets:
Allowance for Credit Losses
Fixed maturity, bonds held-to-maturity, at amortized cost	$	—	$	(21,664)	$	(21,664)

Mortgage loans on real estate	(19,160)		(11,224)		(30,384)
Reinsurance recoverables	(8,220)		(7,920)		(16,140)
Liabilities:
Allowance for credit losses on loans
Off-Balance Sheet Credit Exposures	—		(3,126)		(3,126)
Total	$	(27,380)	$	(43,934)	$	(71,314)

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Note 3 – Recently Issued Accounting Pronouncements – (Continued)

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


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

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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):


	March 31, 2020
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Allowance for Credit Losses		Fair Value
Fixed maturity securities, bonds held-to-maturity
U.S. states and political subdivisions	$	155,151	$	4,778	$	—	$	—	$	159,929
Foreign governments	3,894		525		(5)		5		4,419
Corporate debt securities	8,029,559		193,701		(248,247)		(18,401)		7,956,612
Residential mortgage-backed securities	179,087		8,578		(743)		(3)		186,919
Collateralized debt securities	208,501		—		(11,738)		(2,986)		193,777

Total bonds held-to-maturity	8,576,192		207,582		(260,733)		(21,385)		8,501,656
Fixed maturity securities, bonds available-for-sale
U.S. treasury and government	29,500		804		—		—		30,304
U.S. states and political subdivisions	1,028,590		50,335		(8)		—		1,078,917
Foreign governments	5,000		1,432		—		—		6,432
Corporate debt securities	5,338,626		128,845		(135,711)		(12,499)		5,319,261
Residential mortgage-backed securities	29,599		229		(7)		(236)		29,585
Collateralized debt securities	16,262		462		(719)		(130)		15,875
Total bonds available-for-sale	6,447,577		182,107		(136,445)		(12,865)		6,480,374
Total investments in fixed maturity securities	$	15,023,769	$	389,689	$	(397,178)	$	(34,250)	$	14,982,030


	December 31, 2019
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Allowance for Credit Losses		Fair Value
Fixed maturity securities, bonds held-to-maturity
U.S. states and political subdivisions	$	165,109	$	5,005	$	—	$	—	$	170,114
Foreign governments	3,907		442		—		—		4,349
Corporate debt securities	8,099,098		332,410		(6,539)		—		8,424,969
Residential mortgage-backed securities	237,516		6,460		(1,148)		—		242,828
Collateralized debt securities	125,631		1,146		(347)		—		126,430

Total bonds held-to-maturity	8,631,261		345,463		(8,034)		—		8,968,690
Fixed maturity securities, bonds available-for-sale
U.S. treasury and government	29,505		441		(5)		—		29,941
U.S. states and political subdivisions	1,030,309		47,865		(9)		—		1,078,165
Foreign governments	5,000		1,287		—		—		6,287
Corporate debt securities	5,338,007		251,408		(12,795)		—		5,576,620
Residential mortgage-backed securities	23,405		739		(201)		—		23,943
Collateralized debt securities	9,444		686		(1)		—		10,129

Total bonds available-for-sale	6,435,670		302,426		(13,011)		—		6,725,085
Total investments in fixed maturity securities	$	15,066,931	$	647,889	$	(21,045)	$	—	$	15,693,775

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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):


	March 31, 2020
	Bonds Held-to-Maturity						Bonds Available-for-Sale
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	905,262	$	907,767	$	524,449	$	524,574
Due after one year through five years	3,178,976		3,191,015		3,040,598		3,015,422
Due after five years through ten years	3,403,404		3,342,208		2,180,525		2,207,898
Due after ten years	1,088,550		1,060,666		702,005		732,480
Total	$	8,576,192	$	8,501,656	$	6,447,577	$	6,480,374

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

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


	Three months ended March 31,
	2020		2019
Proceeds from sales of fixed maturity available-for-sale securities	$	46,513	$	285
Gross realized gains	412		—
Gross realized losses	(4,072)		(23)

Gains and losses are determined using specific identification of the securities sold. During the three months ended March 31, 2019, bonds below investment grade with a carrying value of $157,939,000 were transferred from held-to-maturity to available-for-sale after a deterioration in the issuers’ creditworthiness. There was no transfer of bonds from held-to-maturity to available-for-sale during the three months ended March 31, 2020. No realized losses were recorded at March 31, 2020 and 2019.

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


	Three months ended March 31,
	2020		2019
Bonds available-for-sale: change in unrealized gains (losses)	$	(244,361)	$	154,167
Adjustments for
Deferred policy acquisition costs	89,326		(38,893)
Participating policyholders’ interest	11,151		(7,690)
Deferred federal income tax (expense)	31,481		(22,070)
Change in net unrealized gains (losses) on debt securities, net of tax	$	(112,403)	$	85,514

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


	Three months ended March 31,
	2020		2019
Unrealized gains (losses) on equity securities	$	(333,601)	$	203,022
Net gains on equity securities sold	1,026		3,355
Net gains (losses) on equity securities	$	(332,575)	$	206,377

Table of Contents

Note 4 – Investment in Securities – (Continued)

The gross unrealized losses and fair value of available-for-sale debt securities, aggregated by investment category and length of time individual securities have been in a continuous unrealized loss position due to noncredit related factors at March 31, 2020 are shown below (in thousands):


	March 31, 2020
	Less than 12 months						12 months or more						Total
	Gross Unrealized (Losses)		Fair Value		Gross Unrealized (Losses)		Fair Value		Gross Unrealized (Losses)		Fair Value






Fixed maturity securities, bonds available-for-sale

U.S. states and political subdivisions	$	(8)	$	1,471	$	—	$	121	$	(8)	$	1,592
Corporate debt securities	(20,013)		165,169		(115,698)		1,587,397		(135,711)		1,752,566
Residential mortgage-backed securities	—		—		(7)		618		(7)		618
Collateralized debt securities	—		—		(719)		13,545		(719)		13,545

Total	$	(20,021)	$	166,640	$	(116,424)	$	1,601,681	$	(136,445)	$	1,768,321

Unrealized losses on available-for-sale debt securities where an allowance for credit loss was not recorded are due to noncredit related factors caused by market liquidity events related to COVID-19 and the economic downturn. A number of assumptions and estimates are inherent in evaluating whether an allowance for credit loss is necessary, which include the financial condition, near term and long-term prospects of the issue or issuer, including relevant industry conditions and trends and implications of rating agency actions and offering prices.


	December 31, 2019
	Less than 12 months						12 months or more						Total
	Gross Unrealized (Losses)		Fair Value		Gross Unrealized (Losses)		Fair Value		Gross Unrealized (Losses)		Fair Value





Fixed maturity securities, bonds available-for-sale
U.S. treasury and government	$	—	$	—	$	(5)	$	8,299	$	(5)	$	8,299
U.S. states and political subdivisions	(9)		1,733		—		—		(9)		1,733
Corporate debt securities	(5,257)		94,942		(7,538)		132,626		(12,795)		227,568
Residential mortgage-backed securities	(9)		10,169		(192)		722		(201)		10,891
Collateralized debt securities	(1)		159		—		—		(1)		159
Total	$	(5,276)	$	107,003	$	(7,735)	$	141,647	$	(13,011)	$	248,650

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


	March 31, 2020		December 31, 2019
Consumer goods	19.7	%	18.9	%
Energy and utilities	6.3		8.0
Finance	15.7		18.0
Healthcare	14.2		13.0
Industrials	7.1		7.6
Information technology	27.2		25.0
Other	9.8		9.5
Total	100.0	%	100.0	%

Table of Contents

Note 4 – Investment in Securities – (Continued)

Allowance for Credit Losses

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

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

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

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


	Foreign governments		Corporate debt securities		Collateralized debt securities		Residential mortgage backed securities		Total
Allowance for credit losses
Cumulative adjustment at January 1, 2020	$	4	$	(18,563)	$	(2,968)	$	(137)	$	(21,664)



Provision	1		162		(18)		134		279

Ending balance at March 31, 2020	$	5	$	(18,401)	$	(2,986)	$	(3)	$	(21,385)

The rollforward of the allowance for credit losses for available-for-sale debt securities is shown below (in thousands):


	Corporate debt securities		Residential mortgage backed securities		Collateralized debt securities		Total
Allowance for credit losses





Current period adjustments	$	(12,499)	$	(236)	$	(130)	$	(12,865)

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

Table of Contents

Note 4 – Investment in Securities – (Continued)

Credit Quality Indicators

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

The credit quality indicators for the amortized cost of held-to-maturity debt securities as of March 31, 2020 are shown below (in thousands):


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

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

Note 5 - Mortgage Loans

Generally, commercial mortgage loans are secured by first liens on income-producing real estate. American National attempts to maintain a diversified portfolio by considering the location of the underlying collateral. The geographic categories come from the US Census Bureau's "Census Regions and Divisions of the United States." The distribution based on carrying amount of mortgage loans by location is as follows (in thousands, except percentages):


	March 31, 2020						December 31, 2019
East North Central	$	670,432	13.1	%	$	667,150	13.1	%
East South Central	149,651		2.9		144,887		2.8
Mountain	1,222,815		23.9		1,200,434		23.6
Pacific	889,300		17.4		852,574		16.7
South Atlantic	620,658		12.1		621,875		12.2
West South Central	1,248,628		24.4		1,272,522		25.0
Other	323,881		6.2		337,575		6.6
Total	$	5,125,365	100.0	%	$	5,097,017	100.0	%

During the three months ended March 31, 2020, American National did not foreclose on any loans, and only one loan with a recorded investment of $9,230,000 was in the process of foreclosure at March 31, 2020. For the year ended December 31, 2019, American National foreclosed on two loans with a total recorded investment of $16,008,000, and there were two loans with a total recorded investment of $13,345,000 in the process of foreclosure at December 31, 2019. American National did not sell any loans during the three months ended March 31, 2020 or during the year ended December 31, 2019.

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
March 31, 2020	Past Due		Past Due		90 Days		Total		Current		Amount		Percent
Apartment	$	—	$	—	$	—	$	—	$	432,155	$	432,155	8.3	%
Hotel	—		—		—		—		899,012		899,012		17.3
Industrial	13,068		—		4,091		17,159		638,947		656,106		12.7
Office	4,535		9,230		—		13,765		1,557,472		1,571,237		30.3
Retail	—		—		—		—		857,863		857,863		16.6
Other	4,637		—		—		4,637		763,800		768,437		14.8
Total	$	22,240	$	9,230	$	4,091	$	35,561	$	5,149,249	$	5,184,810	100.0	%
Allowance for credit losses											(59,445)
Total, net of allowance											$	5,125,365
December 31, 2019
Apartment	$	—	$	—	$	—	$	—	$	416,865	$	416,865	8.1	%
Hotel	—		—		—		—		901,044		901,044		17.6
Industrial	—		13,076		4,091		17,167		589,721		606,888		11.9
Office	22,870		—		—		22,870		1,587,591		1,610,461		31.5
Retail	—		—		4,122		4,122		843,467		847,589		16.6
Other	11,759		—		—		11,759		721,571		733,330		14.3
Total	$	34,629	$	13,076	$	8,213	$	55,918	$	5,060,259	$	5,116,177	100.0	%
Allowance for loan losses											(19,160)
Total, net of allowance											$	5,097,017

There were no unamortized purchase discounts as of March 31, 2020 or during the year ended December 31, 2019. Total mortgage loans were net of unamortized origination fees of $29,231,000 and $29,294,000 at March 31, 2020 and December 31, 2019, respectively. No unearned income is included in these amounts.

Troubled Debt Restructurings

There were no loans determined to be a troubled debt restructuring for the three months ended March 31, 2020. There were no commitments to lend additional funds to debtors whose loans have been modified in a troubled debt restructuring during the periods presented.

Allowance for Credit Losses

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


	Nonaccrual
	January 1, 2020		March 31, 2020
Mortgage loans
Commercial loans	$	4,091	$	4,091

Table of Contents

Note 5 - Mortgage Loans - (Continued)

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


	Commercial Mortgage Loans
Beginning balance at January 1, 2020	$	19,160



Cumulative adjustment at January 1, 2020	11,216
Provision	29,069

Ending balance at March 31, 2020	$	59,445

The change in allowance for the three months ended March 31, 2020 was driven by the economic disruption caused by COVID-19 and subsequent to March 31, 2020 we are working with many of our mortgage loan borrowers, primarily those related to hotels, retail and parking operations, on loan modifications.

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


	March 31, 2020
	Asset Balance		Allowance
Apartment	$	429,600	$	2,555
Hotel	872,450		26,563
Industrial	652,257		3,849
Office	1,565,346		5,891
Retail	852,213		5,650
Other	753,499		14,937
Total	$	5,125,365	$	59,445

Credit Quality Indicators

Mortgage loans are segregated by property-type and quantitative and qualitative allowance factors are applied. Qualitative factors are developed quarterly based on the pooling of assets with similar risk characteristics and historical loss experience adjusted for the expected trend in the current market environment. Credit losses are pooled by collateral type as it represents the most similar and reliable risk characteristics in our portfolio. The amortized cost of mortgage loans by year of origination by property-type are shown below (in thousands):


	Amortized Cost Basis by Origination Year
	2020		2019		2018		2017		2016		Prior		Total
Apartment	$	—	$	82,319	$	39,362	$	189,540	$	69,053	$	52,107	$	432,381
Hotel	—		54,043		203,956		219,528		148,142		274,135		899,804
Industrial	53,193		164,383		123,825		51,638		125,680		137,387		656,106
Office	—		53,326		189,338		349,173		315,911		663,489		1,571,237
Retail	22,584		41,237		108,546		81,359		224,469		379,668		857,863
Other	27,672		81,643		142,748		89,545		238,104		187,707		767,419
Total	$	103,449	$	476,951	$	807,775	$	980,783	$	1,121,359	$	1,694,493	$	5,184,810
Allowance for loan losses													(59,445)
Total, net of allowance													$	5,125,365

Generally, mortgage loans are secured by first liens on income-producing real estate with a loan-to-value ratio of up to 75%. It is the Company's policy to not accrue interest on loans that are 90 days delinquent and where amounts are determined to be uncollectible.

Off-Balance-Sheet Credit Exposures

The company has off-balance-sheet credit exposures related to non-cancellable unfunded commitment amounts on commercial mortgage loans. We estimate the allowance for these exposures by applying the allowance rate we computed for each property type to the related outstanding commitment amounts. As of March 31, 2020, we have included a $6,150,000 liability in other liabilities on the balance sheet based on unfunded loan commitments totaling $687,287,000.

Table of Contents

Note 6 – Real Estate and Other Investments

Investment real estate by property-type and geographic distribution are as follows (in thousands, except percentages):


	March 31, 2020						December 31, 2019
Industrial	$	69,051	12.7	%	$	68,809	12.5	%
Office	216,464		39.7		219,490		39.8
Retail	215,142		39.4		215,800		39.1
Other	44,989		8.2		47,120		8.6
Total	$	545,646	100.0	%	$	551,219	100.0	%


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

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

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


	March 31, 2020		December 31, 2019
Investment real estate	$	134,148	$	134,534
Short-term investments	501		500
Cash and cash equivalents	9,843		11,155
Other receivables	3,030		3,673
Other assets	14,238		15,355
Total assets of consolidated VIEs	$	161,760	$	165,217
Notes payable	$	156,943	$	157,997
Other liabilities	9,210		9,731
Total liabilities of consolidated VIEs	$	166,153	$	167,728

The notes payable in the condensed consolidated statements of financial position pertain to the borrowings of the consolidated VIEs. The liability of American National relating to notes payable of the consolidated VIEs is limited to the amount of its direct or indirect investment in the respective ventures, which totaled $3,309,000 and $4,304,000 at March 31, 2020 and December 31, 2019, respectively.

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


Interest rate	Maturity	March 31, 2020		December 31, 2019
LIBOR	2021	$	10,835	$	10,836
4% fixed	2022	80,935		81,709
4.18% fixed	2024	65,173		65,452
Total		$	156,943	$	157,997

Table of Con t e n t s

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

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


	March 31, 2020						December 31, 2019
	Carrying Amount		Maximum Exposure to Loss		Carrying Amount		Maximum Exposure to Loss
Investment in unconsolidated affiliates	$	330,527	$	330,527	$	332,742	$	332,742
Mortgage loans	684,991		684,991		657,528		657,528
Accrued investment income	2,428		2,428		2,198		2,198

As of March 31, 2020, one real estate investment with a carrying value of $3,364,000 met the criteria as held-for-sale.

Note 7 – Derivative Instruments

American National purchases over-the-counter equity-indexed options as economic hedges against fluctuations in the equity markets to which equity-indexed products are exposed. These options are not designated as hedging instruments for accounting purposes under U.S. GAAP. Equity-indexed contracts include a fixed host universal-life insurance or annuity contract and an equity-indexed embedded derivative. The detail of derivative instruments is shown below (in thousands, except number of instruments):


Derivatives Not Designated as Hedging Instruments	Location in the Condensed Consolidated Statements of Financial Position	March 31, 2020												December 31, 2019
					Number of Instruments			Notional Amounts		Estimated Fair Value			Number of Instruments			Notional Amounts	Estimated Fair Value

Equity-indexed options	Other invested assets	466	$	2,669,500		$	125,988		473		$	2,654,600		$	256,005
Equity-indexed embedded derivative

AMERICAN NATIONAL INSURANCE CO 10-Q