Premiums increased during the year ended December 31, 2018 compared to 2017 and 2017 compared to 2016 primarily due to continued growth in renewal premium on traditional life products.
The amortization of DAC as a percentage of gross profits is an important ratio for the Annuity segment. Changes in this ratio reflect the impact of emerging experience. The ratios for the years ended December 31, 2018, 2017 and 2016 were 35.0%, 36.8% and 35.5%, respectively. A higher ratio is less favorable due to a higher proportion of the margin used to amortize DAC.
A.M. Best rating as of the most current information available February 15, 2019.
Claims increased during the year ended December 31, 2018 compared to 2017 due to increases in non-catastrophe losses in the personal, commercial automobile and homeowners lines. Claims incurred increased during 2017 compared to 2016, as a result of increases in catastrophe losses and premium growth.
Agricultural Business: Our agricultural business product allows policyholders to customize and cover their agriculture exposure using a package policy, which includes coverage for residences and household contents, farm buildings and building contents, personal and commercial liability and personal property. Net premiums written and earned increased during the year ended December 31, 2018 compared to 2017 primarily due to increased sales. The loss and combined ratios increased during the year ended December 31, 2018 compared to 2017 primarily due to an increase in catastrophe losses. Net premiums written and earned increased during 2017 compared to 2016 primarily as a result of an increase in policies in force. The loss and combined ratios were relatively constant during 2017 compared to 2016.
A.M. Best rating as of the most current information available February 20, 2019.
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
Note 2 - Summary of Significant Accounting Policies and Practices - (Continued)
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.
American National made income tax payments of $22,234,000, $33,640,000 and $33,367,000 during 2018, 2017, and 2016, respectively.
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 $69,787,000 and $66,625,000 at December 31, 2018 and 2017, 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.
American National has a $100,000,000 short-term variable rate borrowing facility containing a $55,000,000 sub-feature for the issuance of letters of credit. Borrowings under the facility are at the discretion of the lender and would be used only for funding working capital requirements. The combination of borrowings and outstanding letters of credit cannot exceed $100,000,000 at any time. As of December 31, 2018 and 2017, the outstanding letters of credit were $2,995,000 and $4,586,000, respectively, and there were no borrowings on this facility. This facility expires on October 31, 2019.
Transactions with Greer, Herz & Adams, LLP: Irwin M. Herz, Jr. is an American National director and a Partner with Greer, Herz & Adams, LLP, which serves as American National’s General Counsel.