EDGAR 10-K Filing

Company CIK: 1801075
Filing Year: 2022
Filename: 1801075_10-K_2022_0001801075-22-000004.json

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ITEM 1. BUSINESS
ITEM 1. BUSINESS
Company Overview
We have conducted business from our headquarters in Galveston, Texas since 1905. Our core business segments are life insurance, annuities, and property and casualty insurance. We also offer limited health insurance. We provide personalized service to approximately six million policyholders throughout the United States, the District of Columbia, and Puerto Rico. In addition, as of December 31, 2021, we have over $136.9 billion of life insurance in-force.
On July 1, 2020, American National Insurance Company, a Texas insurance company (“ANICO”), completed its previously announced holding company reorganization, which was approved by its shareholders at its Annual Meeting of Shareholders held on April 23, 2020. As a result of such reorganization, ANICO became a wholly owned subsidiary of American National Group, Inc., a Delaware corporation (“ANAT”), and ANAT replaced ANICO as the publicly held company. Consequently, all filings with the Securities and Exchange Commission from July 2, 2020 forward have been filed by ANAT under CIK No. 0001801075.
On August 6, 2021, ANAT entered into an Agreement and Plan of Merger (the "Merger Agreement") with Brookfield Asset Management Reinsurance Partners Ltd. ("Brookfield Reinsurance"), an exempted company limited by shares existing under the laws of Bermuda, and Freestone Merger Sub Inc., a Delaware corporation and an indirect wholly-owned subsidiary of Brookfield Reinsurance ("Merger Sub"). On the terms and subject to the conditions of the Merger Agreement, at the closing, Merger Sub will merge with and into ANAT (the "Merger"), with ANAT continuing as the surviving entity, which will become an indirect, wholly-owned subsidiary of Brookfield Reinsurance. On the terms and subject to the conditions of the Merger Agreement, at the effective time of the Merger, each issued and outstanding share of the Company's common stock will be converted into the right to receive $190.00 in cash without interest (the "Merger Consideration"), for total Merger Consideration of approximately $5.1 billion. The Merger was unanimously approved by the ANAT's board of directors. See Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, for further information regarding the Merger.
In this document, we refer to ANAT and its subsidiaries as "American National," the "Company,” “we,” “our,” and “us.”
Our vision is to be a leading provider of financial products and services for current and future generations. For more than a century, we have maintained a conservative business approach and corporate culture. We have an unwavering commitment to serve our policyholders, agents, and shareholders by providing excellent service and competitively priced products and services through a diversified network of distribution channels. We are committed to profitable growth, which enables us to remain financially strong. We invest regularly in our distribution channels, technology, and our human resources to fuel our capacity for profitable growth.
We are committed to excellence and maintaining high ethical standards in all our business dealings. Disciplined adherence to our values has allowed us to deliver consistently high levels of service through talented people, who are at the heart of our business. We define our values with the acronym FIRST, which stands for Financial strength, Integrity, Respect, Service, and Teamwork. Additionally, we describe our culture as ACE which stands for Agility, Collaboration, and Engagement, three characteristics that describe how we want to operate as a team dedicated to the success of our stakeholders. In 2021, we instituted ACE Culture 2.0 with additional emphasis on diversity, equity, and inclusion.
Business Segments
Our family of companies includes five life insurance companies, eight property and casualty insurance companies, and numerous non-insurance subsidiaries. We organize and operate our businesses in the following business segments: Life, Annuity, Property and Casualty, Health, and Corporate and Other. The following discussion provides an overview of the products we offer within these segments.
ITEM 1. BUSINESS - (Continued)
Life Segment
Whole Life. Whole life products provide a guaranteed benefit upon the death of the insured in return for the periodic payment of a fixed premium over a predetermined period. Premium payments may be required for the entire life of the contract, to a specified age or a fixed number of years, and may be level or change in accordance with a predetermined schedule. Whole life insurance includes some policies that provide a participation feature in the form of dividends. Policyholders may receive dividends in cash or apply them to increase death benefits or cash values available upon surrender, or reduce the premiums required to maintain the contract in-force.
Term Life. Term life products provide a guaranteed benefit upon the death of the insured for a specified time period in return for the periodic payment of premiums. Coverage periods typically range from one to thirty years, but in no event longer than the period over which premiums are paid.
Universal Life. Universal life insurance products provide coverage through a contract that gives the policyholder flexibility in premium payments and coverage amounts. Universal life products may allow the policyholder, within certain limits, to increase or decrease the amount of death benefit coverage over the term of the contract and to adjust the frequency and amount of premium payments. Universal life products are interest rate sensitive, and we determine the interest crediting rates during the contract period, subject to policy specific minimums.
An equity-indexed universal life product is credited with interest using a return that is based, in part, on changes in an index, such as the Standard & Poor’s 500 Index (“S&P 500”), subject to a specified minimum.
Variable Universal Life. Variable universal life products provide insurance coverage on a similar basis as universal life, except that the policyholder bears the investment risk because the value of the policyholder’s account balance varies with the investment experience of the securities selected by the policyholder held in the separate account.
Credit Life Insurance. Credit life insurance products are sold in connection with a loan or other credit account. Credit life insurance products are designed to pay to the lender the borrower’s remaining debt on a loan or credit account if the borrower dies during the coverage period.
Annuity Segment
Deferred Annuity. A deferred annuity is an asset accumulation product. Deposits are received as a single premium deferred annuity or in a series of payments for a flexible premium deferred annuity. Deposits are credited with interest at our determined rates subject to policy minimums. For certain limited periods of time, usually from one to ten years, interest rates are guaranteed not to change. Deferred annuities usually have surrender charges that begin at issue and reduce over time and may have market value adjustments that can increase or decrease any surrender value.
An equity-indexed deferred annuity is credited with interest using a return that is based, in part, on changes in an index, such as the S&P 500, subject to a specified minimum.
Single Premium Immediate Annuity (“SPIA”). A SPIA is purchased with one premium payment, providing periodic (usually monthly or annual) payments to the annuitant for a specified period, such as for the remainder of the annuitant’s life. Return of the original deposit may or may not be guaranteed, depending on the terms of the annuity contract.
Variable Annuity. With a variable annuity, the policyholder bears the investment risk because the value of the policyholder’s account balance varies with the investment experience of the separate account investment options selected by the policyholder. Our variable annuity products have no guaranteed minimum withdrawal benefits.
ITEM 1. BUSINESS - (Continued)
Health Segment
Medicare Supplement. Medicare supplement insurance is a type of private health insurance designed to supplement or pay the costs of certain medical services not covered by Medicare. Due to competitive pressures and a marketing shift toward more profitable lines of business, we are completing the process of withdrawing from the Medicare Supplement market. New business sales ceased as of January 31, 2022. Going forward, existing policies will be in run-off and lapse at the end of the policy period.
Supplemental Insurance. Supplemental insurance is designed to provide supplemental coverage for specific events or illnesses such as cancer, accidental injury or death, or disability for short periods of time.
Stop-Loss. Stop-loss coverage is used by employers to limit their exposure under self-insured medical plans. Two coverages, which are usually offered concurrently, are available. Specific stop-loss provides coverage when claims for an individual reach a threshold; after the threshold is reached, the policy reimburses claims paid by the employer up to a coverage limit for each individual. Aggregate stop-loss reimburses the employer once the group’s total paid claims reach a threshold.
Credit Disability. Credit disability (also called credit health) insurance pays a limited number of monthly payments on a loan or credit account if the borrower becomes disabled during the coverage period.
Medical Expense. Medical expense insurance covers most health expenses including hospitalization, surgery, and outpatient services (excluding dental and vision costs). We no longer market these products and existing contracts are in run-off.
Short-Term Medical Insurance. Short-term medical provides temporary medical expense coverage for policyholders between jobs, waiting for other coverages to begin, or currently without other medical expense coverage. Under current federal regulation, short-term medical may be renewed up to 36 months.
Property and Casualty Segment
Personal Lines. Personal lines include insurance policies sold to individuals for auto, homeowners, and other similar exposures. Auto insurance covers specific risks involved in owning and operating an automobile. Homeowners insurance provides coverage that protects the insured owner’s property against loss from perils. Other personal insurance provides coverage for property such as boats, motorcycles and recreational vehicles, and umbrella protection coverage.
Commercial Lines. Commercial lines are primarily focused on providing insurance to agricultural related operations and small to midsize businesses. This includes property and casualty coverage tailored for a farm, ranch, or other agricultural-related businesses. Commercial auto insurance is typically issued in conjunction with the sale of our policies covering farms, ranches, and businesses and covers specific risks involved in owning and operating motor vehicles. Business owners' property and liability insurance, workers' compensation insurance, and other commercial insurance encompassing umbrella protection coverage and other liability coverages, are also offered.
Specialty Markets. Specialty markets products include renters, mortgage security, aviation, private flood, and credit insurance. Credit insurance provides protection to borrowers and the creditors that extend credit to them against unpaid indebtedness as a result of death, disability, involuntary unemployment, or untimely loss to the collateral securing a personal or mortgage loan. Coverage available for the segment includes:
•Collateral or Creditor Protection Insurance (“CPI”). CPI provides insurance against loss, expense to recover, or damage to personal property pledged as collateral (typically automobiles and homes) resulting from fire, burglary, collision, or other loss occurrence that would either impair a creditor’s interest or adversely affect the value of the collateral. The coverage is purchased from us by the lender according to the terms of the credit obligation and charged to the borrower by the lender when the borrower fails to provide the required insurance.
•Guaranteed Auto Protection or Guaranteed Asset Protection (“GAP”). GAP insures the excess outstanding indebtedness over the primary property insurance benefits that may occur when there is a total loss to or an unrecovered theft of the collateral. GAP can be written on a variety of assets that are used as collateral to secure credit; however, it is most commonly written on automobiles.
ITEM 1. BUSINESS - (Continued)
Corporate and Other Segment
Our Corporate and Other segment includes our non-insurance subsidiaries and other invested assets not matched with insurance activities.
Marketing Channels
Our diversified product distribution network is designed to satisfy the needs of the markets we serve.
Career Sales and Service Division (“CSSD”)-can be traced to the Company's founding in 1905, and offers life insurance, annuities, and limited benefit health insurance products through employee agents primarily to the lower and middle-income market. CSSD's business model is structured to enable agents located throughout the United States to efficiently distribute new products and provide personalized service to the customer. CSSD has evolved its operations to offer a wider variety of products and electronic processing to meet the ever-changing needs of the customer and the agents that serve them.
Independent Marketing Group (“IMG”)-distributes our life insurance and annuity products and solutions through independent agents, financial institutions, large marketing organizations, employee benefit firms, broker-dealers and brokers. IMG provides these products and services to clients in need of wealth protection, accumulation, distribution, and transfer. IMG also markets to individuals who favor purchasing life insurance directly from an insurance company, through call centers.
Multiple Line Agencies-offers life insurance, annuities, and property and casualty insurance and a limited amount of health insurance primarily through agents, who, for the most part, primarily or exclusively represent the Company. This distribution channel serves individuals, families, farmers, ranchers, other agricultural clients, and small business owners across the country. Policyholders can generally obtain all their insurance solutions through our multiple line agents, which has been identified as an important driver to client satisfaction.
Health Insurance Division-serves the needs of a variety of markets including middle-income seniors, self-insured employers, and the special needs of individuals with supplemental products which are sold direct to consumer, and by independent agents, brokers, and Managing General Underwriters (“MGU”). The Health Insurance Division primarily offers health insurance products, supplemental health insurance products, health reinsurance, and traditional medicare supplement products.
Specialty Markets Group ("SMG")-primarily offers property and casualty products, including some credit property and casualty products. Credit product distribution includes general agents who market to financial institutions, automobile dealers, and furniture dealers. Our SMG distribution channel also provides property and casualty products for renters, mortgage security, aviation for small hull aircraft, self-storage contents, and private flood insurance through general agents and managing general agents. Some of the products distributed by SMG, including aviation and private flood, are fully reinsured. In addition, SMG sells some credit life and credit disability products.
Policyholder Liabilities
We record the amounts for policyholder liabilities in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) and the standards of practice of the American Academy of Actuaries. We carry liabilities for future policy benefits associated with base policies and riders, unearned mortality charges and future disability benefits, for other policyholder liabilities associated with unearned premiums and claims payable, and for unearned revenue from front-end fees. We also establish liabilities for unpaid claims and claim adjustment expenses, including those that have been incurred but not yet reported. In addition, we carry liabilities for secondary guarantees relating to certain life policies and fair value reserves associated with embedded derivatives on equity-indexed products.
Additional information regarding our policyholder liabilities may be found in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates - Reserves section, and Part II, Item 8, Financial Statements and Supplementary Data - Note 11, Liability for Future Policy Benefits and Policyholder Account Balances, and Note 12, Liability for Unpaid Claims and Claim Adjustment Expenses, of the Notes to the Consolidated Financial Statements.
ITEM 1. BUSINESS - (Continued)
Risk Management
A conservative operating philosophy was a founding principle for our Company and continues to be a guiding principle for us. We manage risks across the Company by employing controls throughout our business operations. These controls are designed to both place limits on activities and provide internal reporting information that helps us monitor our businesses and shape decisions and actions. The Company’s Board of Directors oversees a formal enterprise risk management program to coordinate risk management efforts and to provide reasonable assurance that risk taking activities are aligned with strategic objectives. The Board Audit Committee assists the Board in its risk management oversight. The risk management program includes a Corporate Risk Officer to ensure consistent application of the enterprise risk management process across all business segments. The Enterprise Risk Management Committee is supported by three sub-committees, one focusing on life and annuity business risks, one focusing on property and casualty business risks, and another focusing on health and credit life business risks. In addition, several other senior management committees support the discussion and enforcement of risk controls in the management of the Company.
Our insurance products are designed to balance features desired by the marketplace with provisions that mitigate our risk exposures across our insurance products portfolio. We employ underwriting standards to help ensure proper rates are charged to different classes of risks. In our life insurance and annuity products, we seek to mitigate disintermediation risk, the risk of large outflows of cash at times when it is disadvantageous to us to dispose of invested assets, with surrender charges and market value adjustment features.
The process of linking the timing and the amount of payment obligations related to our insurance and annuity contracts and the cash flows and valuations of the invested assets supporting those obligations is commonly referred to as asset-liability management (“ALM”). Our ALM Committee, including many of our Company's senior executive officers, regularly monitors the level of risk in the interaction of assets and liabilities and helps shape actions intended to attain our desired risk-return profile. Investment allocations and duration targets are also intended to manage the risk exposure in our annuity products by setting the credited rate within a range supported by our investments. Tools that help shape investment decisions include deterministic and stochastic interest rate scenario analyses using a licensed third-party economic scenario generator and detailed insurance ALM models. These models also use experience related to surrenders and claims.
We also manage risk by purchasing reinsurance to limit exposure in our Life, Health, and Property and Casualty segments. In our Life segment, we currently retain 100% of newly developed permanent and term products up to our retention limit and cede the excess exposure to reinsurers that are evaluated for their credit strength. Consistent with our corporate risk management strategy, we periodically adjust our Life reinsurance program and retention limits as market conditions warrant. In our Health segment, we use reinsurance on an excess of loss basis for our MGU stop-loss business. In our Property and Casualty segment, our reinsurance program provides coverage for some individual risks with exposures above certain amounts as well as exposure to catastrophes including hurricanes, tornadoes, wind and hail events, earthquakes, fires following earthquakes, winter storms, and wildfires. In all segments, we purchase reinsurance from multiple providers and regularly review the financial strength ratings of our reinsurers. Reinsurance does not remove our liability to pay our policyholders, and we remain liable to our policyholders for the risks we insure. See Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, for retention limits.
In our Property and Casualty segment, the use of catastrophic event models is an important element of risk management. These models assist in the measurement and management of exposure concentrations and the amount and structure of reinsurance purchases. In addition to reinsurance, we manage exposure to catastrophic risk by limiting property exposure in areas with heightened brush fire risks and exposures and in coastal areas, implementing hurricane, wind and hail deductible requirements where appropriate, and not renewing coverage, when permitted by applicable law, in regions where we believe exposure to risky events exceeds our risk appetite.
Pricing
We establish premium rates for life, annuity, and health products using assumptions as to future mortality, morbidity, persistency, investments, and expenses, all of which are estimates generally based on our experience, industry data, projected investment earnings, competition, regulation and legislation. These assumptions are also considered when setting crediting rates for interest sensitive life and annuity products. Premium rates for property and casualty insurance are influenced by many factors, including the estimated frequency and severity of claims, expenses, state regulation and legislation, and general business and economic conditions, including market interest rates and inflation. Profitability is affected to the extent actual experience deviates from our pricing assumptions.
ITEM 1. BUSINESS - (Continued)
Payments we receive for certain annuity and life products are not recognized as revenues, but are deposits added to policyholder account balances. Revenues from these products result from charges to the account balances for the cost of insurance risk and administrative fees and, in some cases, surrender fees. Profits are earned to the extent these revenues exceed actual costs. Profits are also earned from investment income on assets invested from the deposits in excess of the amounts credited to policyholders.
Premiums for health policies with medical expense components must take into account the rising utilization and cost of medical care. The annual rate of medical cost inflation has historically been higher than the general rate of inflation, requiring frequent rate increases, most of which are subject to approval by state regulatory agencies.
Credit life and health rates are set by each state. These rates are the maximum amounts that may be charged. We may charge a lower rate to reflect a variety of factors including better than expected experience, compensation adjustments, and competitive forces. If an account's experience is poor and less than our pricing assumptions, we may request a rate increase from the applicable state.
Competition
We compete principally on the breadth of our product offerings, reputation, the overall ease of doing business with us, marketing expertise and support, the scope of our distribution systems, financial strength and ratings, product features and prices, customer service, claims handling, and in the case of producers, service as well as compensation. The market for insurance, retirement and investment products continues to be highly fragmented and competitive. We compete with a large number of domestic and foreign insurance companies, many of which offer one or more similar products. In addition, for products that include an asset accumulation component, our competition includes domestic and foreign securities firms, investment advisors, mutual funds, banks, and other financial institutions.
Several competing insurance carriers are larger than we are, have brands that are more commonly known, and spend significantly more on advertising than we do. We endeavor to remain competitive with these commonly known brands by managing costs, providing attractive coverage and service, maintaining positive relationships with our agents and our policyholders, and by maintaining our financial strength.
Ratings
Rating agencies provide independent opinions or ratings. These ratings are based on each rating agency’s quantitative and qualitative evaluation of a company. The rating agencies do not provide ratings as a recommendation to purchase insurance or annuities, nor as a guarantee of an insurer’s current or future ability to meet contractual obligations. Each agency’s rating should be evaluated independently of any other rating. Ratings may be changed, suspended, or withdrawn at any time.
ANICO's current insurer financial strength rating from two of the most widely referenced rating organizations as of the date of this filing are as follows:
•A.M. Best Company: A (Excellent) (1)
•Standard & Poor’s (“S&P”): A (Strong) (2)
(1)A.M. Best's active company rating scale consists of thirteen ratings ranging from A++ (Superior) to D (poor).
(2)S&P’s active company ratings scale ‘AAA’ to ‘R’ may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories.
A.M. Best has placed American National’s issuer credit and financial strength ratings under review with developing implications and S&P Global Ratings has placed the ratings on CreditWatch with negative implications due to the pending Merger with Brookfield Reinsurance. See Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations for additional details.
ITEM 1. BUSINESS - (Continued)
Regulations Applicable to Our Business
Our insurance operations are subject to extensive regulation, primarily at the state level. Such regulation varies by state but generally has its source in statutes that establish requirements for the business of insurance and that grant broad regulatory authority to a state agency. Insurance regulation has a substantial effect on us and governs a wide variety of matters, such as insurance company licensing, agent and adjuster licensing, policy benefits, price setting, accounting practices, product suitability, the payment of dividends, the nature and amount of investments, underwriting practices, reserve requirements, sales and advertising practices, privacy practices, information systems security, policy forms, reinsurance reserve requirements, risk and solvency assessments, mergers and acquisitions, corporate governance practices, capital adequacy, transactions with affiliates, participation in shared markets and guaranty associations, claims practices, the remittance of unclaimed property, and enterprise risk management requirements. The models for state laws and regulations often emanate from the National Association of Insurance Commissioners (“NAIC”). While it is not mandatory for insurers to comply with an NAIC model law, nor for states to adopt a model law, state and federal legislators and regulators are likely to look to the model law for guidance in proposing new legislation and regulation.
State insurance departments monitor compliance with regulations through periodic reporting procedures and examinations. At any given time, financial, market conduct or other examinations of our insurance companies may be occurring.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) expanded the U.S. federal government presence in insurance oversight. Dodd-Frank also established the Federal Insurance Office within the U.S. Department of Treasury, which is authorized to, among other things, gather data and information to monitor aspects of the insurance industry, identify certain issues in the regulation of insurers, and preempt state insurance measures under certain circumstances. Provisions of Dodd-Frank are or may become applicable to us, our competitors, or certain entities with which we do business. For example, it is possible that regulations issued by the Consumer Financial Protection Bureau may extend, or be interpreted to extend, to the sale of certain insurance products by covered financial institutions, which could adversely affect sales of such products. The Federal Insurance Office, as a result of various studies it conducts, may also recommend changes in laws or regulations that affect our business. There may be further federal involvement in the business of insurance in the future, which may add significant legal complexity and associated costs to our business.
Regulatory matters having the most significant effects on our insurance operations and financial reporting are described further below. In addition, Item 1A, Risk Factors, Litigation and Regulation Risk Factors, below discusses significant risks presented to our business by extensive regulation and describes certain other laws and regulations that are or may become applicable to us.
Holding Company Regulation. We are an insurance holding company system under the insurance laws of the states where we do business. Our insurance companies are organized under the laws of Texas, Missouri, New York, Louisiana, and California. Insurance holding company system laws and regulations in such states generally require periodic reporting to state insurance regulators of various business, enterprise risk management, corporate governance, and financial matters, as well as advance notice to, and in some cases approval by, such regulators prior to certain transactions between insurers and their affiliates. These laws also generally require regulatory approval prior to the acquisition of a controlling interest in an insurance company. These requirements may deter or delay certain transactions considered desirable by management or our stockholders.
Limitations on Dividends by Insurance Subsidiaries. Dividends received from ANICO are the sole source of cash for ANAT. ANICO and its insurance subsidiaries’ ability to pay dividends is generally limited by state law and is also impacted by federal income tax considerations. Our insurance subsidiaries' ability to pay dividends is important to ANAT's ability to pay dividends to shareholders.
Rate Regulation. Nearly all states have laws that require life, health, credit, and property and casualty insurers to file rate schedules and require most insurers to file policy or coverage forms and other information with the state’s insurance regulatory authority. In many cases these must be approved prior to use. The objectives of rate laws vary, but generally a price cannot be excessive, inadequate, or unfairly discriminatory. Prohibitions on discriminatory underwriting practices apply in the context of certain products as well.
Our ability to adjust premium rates, particularly with certain property and casualty and health insurance products, is often dependent on the applicable pricing law and our ability to demonstrate to the particular regulator that current or proposed pricing complies with such law. Rate increases that we believe are necessary for our profitability may be delayed or denied as a result of such laws. We manage our risk of loss by charging a price that reflects the cost and expense of providing insurance products and by being selective in underwriting. When a state has significant underwriting and pricing restrictions, it becomes more difficult to manage our risk of loss, which can adversely impact our ability to market products profitably in such states.
ITEM 1. BUSINESS - (Continued)
Guaranty Associations and Involuntary Markets. State laws allow insurers to be assessed, subject to prescribed limits, insurance guaranty fund fees to pay certain obligations of insolvent insurance companies. In addition, to maintain our licenses to write property and casualty insurance in various states, we are required to participate in assigned risk plans, reinsurance facilities, and joint underwriting associations that provide various insurance coverages to purchasers that otherwise are unable to obtain coverage from private insurers.
Investment Regulation. Insurance company investment regulations require investment portfolio diversification and limit the amount of investment in certain asset categories. Failure to comply with these regulations leads to the treatment of non-conforming investments as non-admitted assets for measuring statutory surplus. In some instances, these rules require the sale of non-conforming investments.
Exiting Geographic Markets, Canceling and Non-Renewing Policies. Most states regulate an insurer’s ability to exit a market by limiting the ability to cancel and non-renew policies. Some states prohibit an insurer from withdrawing one or more types of insurance business from the state, except pursuant to an approved plan. These regulations can restrict our ability to exit unprofitable markets.
Statutory Accounting. Financial reports to state insurance regulators utilize statutory accounting practices as defined in the Accounting Practices and Procedures Manual of the NAIC, which are different from GAAP. Statutory accounting practices, in keeping with the intent to assure the protection of policyholders, are generally based on a solvency concept, while GAAP is based on a going-concern concept. While not a substitute for GAAP performance measures, statutory information is used by industry analysts and reporting sources to compare the performance of insurance companies and impacts the ability of insurance subsidiaries to pay dividends to ANAT. Maintaining both GAAP and statutory financial records increases our business costs.
Pursuant to state insurance laws, we establish statutory reserves, which are reported as liabilities in the separate stand-alone statutory-basis financial statements of ANAT's insurance subsidiaries, and which generally differ from future policy benefits determined using GAAP on our respective policies. These statutory reserves are established in amounts sufficient to meet policy and contract obligations, when taken together with expected future premiums and interest at prescribed rates.
Insurance Reserves. State insurance laws require life and property and casualty insurers to annually analyze the adequacy of statutory reserves. Our appointed actuaries must submit opinions annually for our insurance companies that policyholder and claim reserves are adequate.
Risk-Based Capital and Solvency Requirements. The NAIC has a formula for analyzing capital levels of insurance companies called Risk-Based Capital (“RBC”). The RBC formula has minimum capital thresholds that vary with the size and mix of a company’s business and assets. It is designed to identify companies with capital levels that may require regulatory attention. As of December 31, 2021, the capital level of each of our insurance company subsidiaries exceeded 300% of their respective Authorized Control Levels, the minimum RBC requirement before any action level is triggered or considered.
Own Risk and Solvency Assessment ("ORSA"). The NAIC Risk Management and ORSA Model Act (#505) requires insurers to maintain a framework for identifying, assessing, monitoring, managing, and reporting on the “material and relevant risks” associated with the insurers' (or insurance groups') current and future business plans. The model act, which has been adopted by the state insurance regulators of our insurance companies, requires companies to file an internal assessment of their solvency with insurance regulators annually. Although no specific capital adequacy standard is currently articulated in the ORSA requirement, it is possible that such standard will be developed over time and may increase insurers' minimum capital requirements, which could adversely impact our growth and return on equity. Our own minimum capital requirement, the Defined Security Standard in our 2021 ORSA, is 200% of the 1-in-250 Conditional Tail Expectation event as measured by the American National Internal Capital Model. As of December 31, 2021, GAAP equity exceeds this minimum requirement.
Securities Regulation. The sale and administration of variable life insurance and variable annuities are subject to extensive regulation at the federal and state level, including by the Securities and Exchange Commission (“SEC”) and the Financial Industry Regulatory Authority (“FINRA”). Our variable annuity contracts and variable life insurance policies, other than group unallocated, were issued through separate accounts that are registered with the SEC as investment companies under the Investment Company Act of 1940. Each registered separate account is generally divided into sub-accounts, each of which invests in an underlying mutual fund that is itself a registered investment company under such act. In addition, the variable annuity contracts and variable life insurance policies issued by the separate accounts generally are registered with the SEC under the Securities Act of 1933. The U.S. federal and state regulatory authorities and FINRA, from time to time, make inquiries and conduct examinations regarding our compliance with securities and other laws and regulations.
ITEM 1. BUSINESS - (Continued)
In addition, our periodic reports and proxy statements to stockholders are subject to the requirements of the Securities Exchange Act of 1934 and corresponding rules of the SEC, and our corporate governance processes are subject to regulation by the SEC and the NASDAQ Stock Market. Our registered wholesale broker-dealer and registered investment adviser subsidiaries are subject to regulation and supervision by the SEC, FINRA and, in some cases, state securities administrators.
Suitability. FINRA rules require broker-dealers selling variable insurance products to determine that transactions in such products are “suitable” to the circumstances of the particular customer. In addition, most states have enacted the NAIC’s Suitability in Annuity Transactions Model Regulation that, in adopting states, places suitability responsibilities on insurance companies in the sale of fixed and indexed annuities, including responsibilities for training agents. The NAIC has adopted revisions to this model regulation that would further elevate the standard of care for annuity sales and align it with the SEC's new Regulation Best Interest. Several states have either adopted the model regulation or are considering adopting the model regulation. We anticipate that the revised model will be adopted in some form by many of the states in which we do business. New York has already taken further action, through the adoption by the New York Department of Financial Services ("NYDFS") of a regulation that requires in part that life insurance policies and annuity contracts delivered or issued for delivery in New York be in the best interest of the consumer.
Protection of Consumer Information. U.S. federal laws, such as the Gramm-Leach-Bliley Act ("GLB"), and state laws regulate disclosures of certain customer information and require us to protect the security and confidentiality of such information. Such laws also require us to notify customers about our policies and practices relating to the collection, protection and disclosure of confidential customer information. State and federal laws, such as the federal Health Insurance Portability and Accountability Act ("HIPAA"), regulate our use, protection, and disclosure of certain personal health information. In addition, most states have laws or regulations that require us to notify regulators and affected customers in the event of a data breach, and some of these laws and regulations are becoming more stringent by requiring faster notifications and creating private causes of action for violations.
On June 28, 2018, California enacted a sweeping new privacy law known as the California Consumer Privacy Act of 2018 (“CCPA”). The CCPA requires enhanced customer disclosure about how a business collects and uses personal data, how such data is used in business processes, and with and to whom customer data is shared or sold. In addition, the CCPA also affords a consumer a “right to request deletion” in certain circumstances. On August 31, 2018, the California State Legislature passed SB-1121, a bill that delayed enforcement of the CCPA until July 1, 2020, and made other amendments and clarifications to the law. Such clarifications include exempting from certain requirements of the CCPA information that is collected, processed, sold or disclosed pursuant to the California Financial Information Privacy Act, GLB, the federal Fair Credit Reporting Act ("FCRA"), HIPAA, or the federal Driver’s Privacy Protection Act. The revisions, however, do not exempt such information from the CCPA’s private right of action provision in all instances. Additionally, the definition of “personal information” in the CCPA is broad and may encompass other information that we maintain in our California business beyond that excluded under GLB, FCRA, HIPAA, the Driver’s Privacy Protection Act, or the California Financial Information Privacy Act exemption. In addition, in November 2020, California enacted the Consumer Privacy Rights Act, which is effective January 1, 2023 and grants new consumer rights regarding personal information and strengthens certain provisions of the CCPA. Other states may adopt comprehensive privacy laws like California. For example, on March 2, 2021, Virginia enacted the Virginia Consumer Data Protection Act ("CDPA"). On June 8, 2021, Colorado passed the Colorado Privacy Act ("CPA"). Both the CDPA and CPA give certain consumers data protections rights including the right to opt-out of processing their personal data, the right to delete information, and the right to correct information. The CDPA will go into effect on January 1, 2023 and CPA will go into effect on July 1, 2023.
We anticipate further efforts at the federal and state levels to strengthen the protection of consumer information, and such efforts will continue to have a significant impact on our information practices.
In addition, FCRA is a federal law that governs the use and sharing of consumer credit information provided by a consumer reporting agency. Requirements under FCRA apply to an insurer if such insurer obtains and uses consumer credit information to underwrite insurance. Such requirements may include obtaining the consumer’s consent and providing various notices to the consumer. While the use of consumer credit information in the underwriting process is expressly authorized by FCRA, various states have issued regulations that limit or prohibit the use of consumer credit information by insurers, and some consumer groups continue to criticize the use of credit-based insurance scoring in underwriting and rating processes. There may be additional efforts at the federal or state level to regulate the use of credit-based information by insurers. Any such regulation could force changes in our underwriting practices and impact our profitability.
ITEM 1. BUSINESS - (Continued)
Cybersecurity. In recent years, millions of consumers and businesses have been impacted by data breaches of companies in various industries, increasing the regulatory focus on consumer information protection and data privacy. On August 28, 2017, New York became the first state to adopt minimum cybersecurity standards for certain financial institutions. NYDFS requires financial institutions authorized to do business under New York banking, insurance, or other financial services laws, including certain of our subsidiaries, to develop a cybersecurity program and policy based on an assessment of the institution’s cybersecurity risks, designate a Chief Information Security Officer, maintain written policies and procedures with respect to third-party service providers, limit who has access to data or systems, use qualified cybersecurity personnel to manage cybersecurity risks, notify NYDFS of a cybersecurity event within seventy-two hours, maintain a written incident response plan, and provide NYDFS with an annual certification of compliance.
In addition, the NAIC has adopted the Cybersecurity Bill of Rights, a set of directives aimed at protecting consumer data, and the Insurance Data Security Model Law, a model law patterned after New York's cybersecurity standards. The Insurance Data Security Model Law establishes standards for data security in the insurance industry, including standards for investigating a data breach and requiring certain notifications to regulators, producers and consumers. South Carolina became the first state to adopt the Insurance Data Security Model Law in May 2018. Since then, more states have adopted the model law in some form. In states that have not adopted the Insurance Data Security Model Law, it is not mandatory for insurers to comply with the model law; however, state and federal legislators and regulators are likely to look to the model law, as well as the NYDFS regulation, for guidance in proposing new legislation and regulation. The NAIC has also strengthened and enhanced the cybersecurity guidance included in its handbook for state insurance examiners. We expect a continuing focus at the state and federal levels on the privacy and security of personal information.
Anti-Money Laundering. Federal law and regulations require us to take certain steps to help prevent and detect money laundering activities. The USA PATRIOT Act of 2001 contains anti-money laundering and financial transparency requirements applicable to certain financial services companies, including insurance companies. The Bank Secrecy Act requires insurers to implement a risk-based compliance program to detect, deter and (in some cases) report financial or other illicit crimes including, but not limited to, money laundering and terrorist financing. The Office of Foreign Assets Control (“OFAC”), a division of the U.S. Treasury Department, administers and enforces economic and trade sanctions. For certain transactions, an insurer may be required to search policyholder, agent, vendor and employee databases for specially designated nationals or suspected terrorists, in order to comply with OFAC obligations.
Healthcare Regulation. We are subject to various conditions and requirements of the Patient Protection and Affordable Care Act of 2010 (the “Healthcare Act”). The Healthcare Act affects the small blocks of business we have offered or acquired over the years that are, or are deemed to be, health insurance. The Healthcare Act also influences the design of products sold by our Health segment, which may influence consumer acceptance of such products and the cost of monitoring compliance with the Healthcare Act. Moreover, the Healthcare Act affects the benefit plans we sponsor for employees, retirees and their dependents, our expense to provide such benefits, our tax liabilities in connection with the provision of such benefits, and our ability to attract or retain employees. Any repeal, replacement or amendment of the Healthcare Act, or judicial decisions impacting the Healthcare Act, could have similar effects on us.
Environmental Considerations. As an owner and operator of real property, we are subject to extensive federal, state and local environmental laws and regulations. Inherent in such ownership and operation is the risk that there may be potential environmental liabilities and costs in connection with any required remediation of such properties. We routinely have environmental assessments performed with respect to real estate being acquired for investment or through foreclosure, but we cannot provide assurance that unexpected environmental liabilities will not arise. In addition, we hold equity interests in companies that could potentially be subject to environmental liabilities. Based on information currently available to us, management believes that any costs associated with compliance with environmental laws and regulations or any required remediation will not have a material adverse effect on our business, results of operations or financial condition.
Other types of regulations that affect us include insurable interest laws, employee benefit plan laws, antitrust laws, employment and labor laws, and federal and state tax laws. Failure to comply with federal and state laws and regulations may result in censure; the issuance of cease-and-desist orders; reputational damage; suspension, termination or limitation of the activities of our operations and/or our employees and agents; or the obligation to pay fines, penalties, assessments, interest, or additional taxes and wages. In some cases, severe penalties may be imposed for breach of these laws. We cannot predict the impact of these actions on our business, results of operations or financial condition.
ITEM 1. BUSINESS - (Continued)
Human Capital Resources
As of December 31, 2021, we employed approximately 4,545 employees in 45 states. Most employees work from one of our four primary office locations in Galveston, Texas; Springfield, Missouri; League City, Texas; and Glenmont, New York. As a result of COVID-19, a majority of employees have transitioned to a hybrid work model that combines on-premise and remote work. We also have employees working at other locations, primarily employees of our CSSD division, which has 57 district offices operating in 15 states. Approximately 985 of our employees are covered under a collective bargaining agreement, the majority of whom are within CSSD.
In addition to our employees, we have approximately 143,000 non-employee producers who are appointed by the Company to market specific products and insurance to the various markets we serve. These non-employee producers are vital to our long-term success in the financial services industry, which is a human-capital intensive business. As such, we support and monitor these relationships through our commitment to attracting, developing and retaining producers who are client-focused and align with our company values.
During 2021, the Company’s total employee voluntary turnover was less than 12.2%. We believe we have good relationships with our employees. We consider our employees to be the foundation for our continued growth and success through demonstration of our FIRST values and Code of Business Conduct and Ethics, which speak to who we are and define the expectation for how we conduct ourselves.
Engagement. We periodically conduct employee surveys managed through a third-party vendor to capture the voice of our employees, to provide current data on the level of employee engagement, and to identify strengths and opportunities for improvement. Our corporate values drive who we are, which directly relates to the consistently high marks for ethics that we receive in our employee surveys.
Employee survey input is routinely integrated into new and existing programs, policies and practices. Culture initiatives focused on increasing agility, collaboration, and engagement ("ACE"), ongoing since 2016, continue to evolve and benefit with direct input from employees. Through our ACE culture efforts, we promote diverse discussion and value ideas from all employees on how to work more effectively and more inclusively.
Diversity, Equity and Inclusion ("DEI"). ACE culture includes focus and commitment towards diversity, equity and inclusion. American National is committed to fostering a culture that welcomes diverse talents and perspectives and uses varied insights to make us better. We believe our company is strongest when each member of our team is respected, treated fairly and is comfortable to be who they are. We value the creativity and vitality an inclusive workforce creates and strive to embrace what makes each of us unique, including: race, ethnicity, culture, sexual orientation, gender, religion, age, personal style and physical ability, as well as diverse opinions, perspectives, lifestyles and ideas.
•DEI Statement. In 2020, we released a diversity, equity and inclusion commitment statement and formed an executive-led ACE culture task force to build a strategy and roadmap of actions aimed at continuing to grow diversity, equity and inclusion within the company
•Inclusive Leadership Development. We believe inclusive leaders are necessary for building diverse teams, leveraging diverse perspectives to innovate and are critical to achieving organizational growth in the 21st century. Inclusive behavioral expectations are reflected in all manager goal forms and are considered when evaluating performance and compensation. Our leadership development program, Ascend, is designed to address and sharpen leaders’ skills we believe engage and retain employees. Leadership skills and behaviors are reviewed and calibrated in the annual succession planning process.
•Women's Leadership Forum. Our Women’s Leadership Forum was created in 2018 for female leaders to discuss important issues and share advice for working and advancing within American National.
•Texas Competes. We are members of Texas Competes, a partnership of business leaders that is welcoming to people in the LGBTQIA+ community.
•Celebrating Diversity. Our annual calendar campaign recognizes, celebrates and educates that which makes us unique and includes commemorative months such as Black History Month, Women's History Month, Asian American Pacific Islander Month, LGBTQIA+ Pride Month, National Hispanic Heritage Month, National Disability Employment Awareness Month and National American Indian Heritage Month.
ITEM 1. BUSINESS - (Continued)
•Recruitment and Retention. We have steadily increased our efforts in recent years to attract, retain, develop and promote qualified women and diverse candidates in our company. We use a variety of opportunities and programs to reach a broader range of applicants and talented individuals. Our talent acquisition team attends job fairs, provides internships and visits many colleges and universities, including certain historically black institutions, to find exceptional talent. We also participate in the U.S. Army Partnership for Youth Success to help honorably discharged soldiers find civilian careers.
•Females constitute approximately 61% of our workforce. In the past five years, the percentage of women in officer positions grew from 25% to 34% with additional growth in all people-leader positions from 51% to 55%. Diversity in people-leader positions grew from 16% to 20% and diversity in officer positions grew from 6% to 10%.
Compensation and Benefits. We invest in our employees’ development and well-being and place a focus on providing a competitive total rewards package that includes the following:
•Base salaries that are consistent with position, skill level, experience and location. Base salaries are reviewed annually and have an opportunity to be increased based on performance. With the current competitive talent market, we routinely review critical positions against the market and adjust as necessary.
•Employees are eligible for health benefits, health savings/flexible spending accounts, paid and unpaid leaves - including tenure-based paid time off and floating holidays - a 401(k) plan with a 4% company match, company-paid life insurance and disability/accident coverage, and dental and vision insurance
•Our employees’ personal well-being and professional development are critical to our long-term success. We provide all employees with the opportunity for paid volunteer time, a strong Employee Assistance Program to support individuals on a variety of topics impacting them, access to wellness coaching, health risk assessments, and onsite gyms.
Development and Training. American National is committed to supporting the advancement of all employees through formal and informal learning opportunities, all of which are driven by our company goals, values and culture initiatives. All employees have opportunities to increase their insurance knowledge through certifications. The company partners with LOMA (Life Office Management Association) and The Institutes (Risk & Insurance Knowledge Group) to further employee education and professional development.
Employee Health and Welfare. During the COVID-19 pandemic, American National has devoted key resources to make employee health and safety a top priority. A majority of the workforce has transitioned to a hybrid work model that combines on-premise and remote work. This approach has reduced the daily volume of people on-site and has created a more flexible environment for employees. These efforts are having a positive impact as reflected in recent employee engagement survey results. As we proceed through the pandemic, we believe employee safety, productivity and retention are vital to meeting important business goals and objectives. Refer to Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional discussion on management’s response to COVID-19.
Succession Planning. Succession planning is part of a larger talent management process which feeds organizational strategy to capitalize on the full potential of American National leaders. The talent management process touches on all key human resource areas of the employee life cycle and is aimed at retaining and growing high potential leaders, increasing performance and engagement, supporting internal mobility and future organizational structure.
Available Information
We file periodic and current reports, proxy statements and other information with the SEC. The SEC maintains a website (www.sec.gov) that contains reports, proxy statements, and other information regarding issuers that file electronically with the SEC, including us.
Our press releases, financial information and reports filed with the SEC (for example, Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those forms) are also available online through www.americannational.com. The reference to our website does not constitute the incorporation by reference of information contained at such website into this, or any other, report. Copies of any documents on our website are available without charge, and reports filed with or furnished to the SEC will be available as soon as reasonably practicable after they are filed with or furnished to the SEC.

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ITEM 1A. RISK FACTORS
ITEM 1A. RISK FACTORS
We are exposed to numerous risk factors that individually or in the aggregate could cause actual results to differ materially from recent results or anticipated future results. The following discussion details the material risk factors to our Company. While our enterprise risk management framework contains various strategies, processes, policies and procedures to address these risks and uncertainties, we cannot be certain that these measures will be implemented successfully in all circumstances. In addition, we could experience risks that we failed to identify, or risks of a magnitude greater than expected. Readers are advised to consider all of these factors along with the other information included in this 2021 Annual Report, including the important factors relating to the Merger set forth under the caption "Caution Regarding Forward-Looking Statements" in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, and to consult any further disclosures we make on related subjects in our filings with the SEC.
Economic and Investment Market Risk Factors
Our results of operations are materially affected by economic and political conditions in the U.S. and elsewhere. The strength and sustainability of economic activity is inherently uncertain. Factors such as unemployment, workforce participation levels, inflation, domestic political uncertainty and strife, geopolitical and international trade issues, energy prices, stagnant or declining family incomes, consumer confidence and spending, and increased student and consumer debt can adversely affect the economy and demand for our products. Unfavorable economic developments could adversely affect us if our customers have less need for insurance coverage, cancel existing insurance policies, modify coverage, or choose not to renew with us. Challenging economic conditions may impair the ability of our customers to pay premiums as they come due. These risks are exacerbated by the ongoing COVID-19 pandemic.
The low-interest rate environment is a challenge for life and annuity insurers as the spreads on deposit-type contracts remain narrow, especially as interest rates have approached minimum crediting rates. Low market interest rates reduce the spreads between the amounts we credit to fixed annuity and individual life policyholders and the amounts we earn on the investments that support these obligations. Our ALM Committee actively manages the profitability of these in-force blocks of business. In previous years, we reduced the guaranteed minimum crediting rates on new fixed annuity contracts, which has afforded us the flexibility to respond to the unusually low-interest rate environment. We have also reduced crediting rates on in-force contracts, where permitted to do so. These actions help mitigate the adverse impact of low interest rates on the profitability of these products, although sales volume may be negatively impacted as a result. We also maintain assets with various maturities to support product liabilities and ensure liquidity. A gradual increase in longer-term interest rates relative to short-term rates generally will have a favorable effect on the profitability of our products. Rapidly rising interest rates could result in reduced persistency of our spread-based products if contract holders shift assets into higher yielding investments. We believe our ability to react quickly to the changing marketplace will help us manage this risk.
Interest rates have a significant impact on our business and on consumer demand for our products. When interest rates rise, the value of our investment portfolio may decline due to decreases in the fair value of our fixed maturity securities. In addition, increasing rates on other insurance or investment products offered by competitors can lead to higher surrenders by our customers at a time when fixed maturity investment asset values are lower. We may react to market conditions by increasing crediting rates, which narrows our “spread,” or the difference between the amounts we earn on investments and the amount we must pay under our contracts. Decreasing interest rates also can adversely affect our spreads, particularly with interest-sensitive life insurance and fixed annuities. An environment of persistently low (or lower) interest rates, as in recent years, compounds this spread compression. Further, when market interest rates decrease or remain at relatively low levels, prepayments and redemptions affecting our investment securities and mortgage loan investments may increase as issuers and borrowers seek to refinance at a lower rate. Proceeds from maturing, prepaid or sold bonds or mortgage loan investments may be reinvested at lower yields, reducing our spread. Our ability to decrease product crediting rates in response may be limited by market and competitive conditions and by regulatory or contractual minimum rate guarantees. While we use ALM processes to mitigate the effect on our spreads of changes in interest rates, they may not be fully effective. See the Risk Management discussion in Part I, Item 1, Business above and Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations - General Trends below for further details about interest rates and our ALM processes.
The interest rate environment affects estimated future profit projections, which could impact the amortization of our deferred policy acquisition costs ("DAC") assets and the estimates of policyholder liabilities. Significantly lower future estimated profits may cause us to accelerate the amortization of DAC or require us to establish additional policyholder liabilities, thereby reducing earnings. We periodically review assumptions with respect to future earnings to ensure they remain appropriate considering the current interest rate environment.
ITEM 1A. RISK FACTORS - (Continued)
Low interest rates are also challenging for property and casualty insurers. Investment income is an important element in earning an acceptable return on capital. Lower interest rates resulting in lower investment income require us to achieve better underwriting results. We have adjusted policy prices to help mitigate the adverse impact of low interest rates on our property and casualty business.
Fluctuations in the markets for fixed maturity securities, equity securities, alternative investments, and commercial real estate could adversely affect our business. Investment returns are an important part of our profitability. Substantially all investments, including our fixed maturity, equity, alternative investments, real estate, and mortgage loan investment portfolios, are subject to market and credit risks, including market volatility and deterioration in the credit or prospects of companies or governmental entities in which we invest. We could incur significant losses from such risks, particularly during extreme market events. The concentration of our investments in any particular industry, group of related industries or government issuers, or geographic area can compound these risks. Moreover, the Board of Governors of the Federal Reserve System may move further towards normalizing monetary policy from the programs of recent years that have fostered a historically low interest rate environment. In addition to resulting in higher interest rates, such a move may generate volatility in debt and equity markets. During the fourth quarter 2021, the Company sold the majority of our equity securities portfolio.
In addition to negatively affecting investment returns, equity market downturns and volatility can have other adverse effects on us. First, equity market downturns and volatility may discourage new purchases of our products that have returns linked to the performance of the equity market and may cause some existing customers to withdraw cash values or reduce investments in such products, in turn reducing our fee revenues. Second, the guarantees provided under certain products may cost more than expected in volatile or declining equity market conditions, which could negatively affect our earnings. Third, our estimates of liabilities and expenses for pension and other postretirement benefits incorporate assumptions regarding the rate used to discount estimated future liabilities and the long-term rate of return on plan assets. Declines in the discount rate or the rate of return on plan assets, both of which are influenced by potential investment returns, could increase our required cash contributions or pension-related expenses in future periods.
Some of our investments are relatively illiquid. Investments in privately placed securities, mortgage loans, and real estate, including real estate joint ventures and certain other equity interests, are relatively illiquid. If we suddenly require significant amounts of cash in excess of ordinary cash requirements, it may be difficult or not possible to sell these investments in an orderly manner for a favorable price.
Risk Factors Relating to Our Business and Industry
Major public health issues, such as the novel coronavirus identified in 2019, COVID-19, could have an adverse impact on our business and results of operations. We are continuing to closely monitor developments related to the COVID-19 pandemic to assess its impact on our business; however, due to the wide-ranging and highly uncertain nature of this event, it currently is not possible to estimate the ultimate direct and indirect impact of COVID-19 on our business, results of operations, financial condition, or liquidity with reasonable certainty. The COVID-19 pandemic has resulted in, and is expected to continue to result in, significant disruptions in economic activity and financial markets. COVID-19 has impacted us, as discussed below and elsewhere in the report, and COVID-19 or other major public health issues may further impact us in a number of ways.
As a result of COVID-19, we have incurred increased death claims and due to supply chain issues and inflation, which appear to be connected with the impact of the pandemic, we are facing increased costs associated with claims under our life, health, and commercial property and casualty insurance products. COVID-19 has directly and indirectly increased mortality. The cost of reinsurance to us for these coverages has increased and could increase further, and we may encounter decreased availability of reinsurance. With respect to our commercial property and casualty insurance business, reinsurers generally have excluded reinsurance coverage for losses attributable to COVID-19 and other communicable diseases beginning January 1, 2021. Our commercial property and casualty policies generally exclude coverage for losses attributable to communicable diseases. However, courts, legislatures or state insurance regulators could invalidate or refuse to give effect to such exclusions, forcing us to extend coverage beyond our policy language and underwriting intent. Without adequate reinsurance coverage available for such losses, the resulting impact on our commercial property and casualty business could be significant. In particular, there is much litigation in the industry regarding whether losses from business closures attributable to the COVID-19 pandemic are insured under the business interruption coverages of many commercial property and casualty insurance policies. As of February 4, 2022, we have received 321 business interruption claims related to COVID-19; all claims received have been closed without payment based on applicable exclusions. See Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, for additional information regarding the impact of COVID-19.
ITEM 1A. RISK FACTORS - (Continued)
Our investment portfolio has been and may continue to be adversely affected by market volatility, changes in interest rates, reduced liquidity, deteriorating capacity of our mortgage loan borrowers to meet their obligations to us, possible declining values of collateral securing our mortgage loan portfolio, and by the impact of the COVID-19 pandemic on the U.S. and global economies and the uncertainty of its outcome. Extreme market volatility may leave us unable to react to market events in a prudent manner consistent with our historical practices in dealing with more orderly markets. For additional information regarding the impact of COVID-19 to mortgage loans, see Part II, Item 8, Financial Statements and Supplementary Data -Note 5, Mortgage Loans, of the Notes to the Consolidated Financial Statements.
Our workforce, and the workforces of our vendors, service providers and counterparties, could be affected by COVID-19, which could result in an adverse impact on our ability to conduct business. We are continuing to take precautions to protect the safety and well-being of our employees while striving to provide uninterrupted service to our policyholders and claimants. Since the onset of the pandemic, we have continued to support our business operations. However, no assurance can be given that these actions will be sufficient, nor can we predict the level of disruption that will occur to our employees' ability to continue to provide customer support and service as many continue to work remotely. In addition, the increase in the number of our employees working remotely has increased certain risks to our business, including increased demand on our information technology resources and systems, greater potential for phishing and other cybersecurity attacks, and an increase in the number of points of potential attack. Any failure to manage these risks effectively and to identify and respond to any cyberattacks on a timely basis may adversely affect our business. We continue to monitor our internal controls over financial reporting for adverse impacts due to the large number of our employees working remotely. New processes, procedures, and controls may be required to respond to any changes in our business environment. Further, should any key employees become ill from COVID-19 and unable to work, our ability to operate our internal controls may be adversely impacted.
The efforts of governmental and non-governmental organizations in combating the spread and severity of COVID-19 or other major public health issues may not be effective. Further, we cannot predict how legal and regulatory responses to concerns about COVID-19 or other major public health issues will impact our business. For example, during the height of the pandemic, state insurance regulators across the country restricted our ability to cancel certain policies for non-payment. Such actions impacted our cash flows from these policies. In addition, some state insurance regulators have restricted the introduction of new communicable disease exclusions by property and casualty insurers.
Thus far, throughout the pandemic, we believe we have successfully navigated the risks associated with COVID-19 and have been able to successfully maintain our business operations. However, as the pandemic continues, the extent to which COVID-19 impacts our business, results of operations, financial condition, or liquidity will depend on future developments which remain highly uncertain.
Our actual experience could differ from our estimates and assumptions. Our product pricing includes long-term assumptions such as investment returns, mortality, morbidity (the rate of incidence of illness), persistency (the rate at which policies remain in-force), and operating expenses. Our profitability substantially depends on actual experience being consistent with or better than these assumptions. If we fail to appropriately price our insured risks, or if claims experience is more severe than we assumed, our earnings and financial condition may be negatively affected. Conversely, significantly overpriced risks may negatively impact new business sales and retention of existing business.
Our liabilities for losses are estimates of amounts needed to pay and administer incurred claims and, as such, are inherently uncertain; they do not and cannot represent exact measures of liability. Inflationary events, especially events outside of historical norms, or regulatory changes that affect the assumptions underlying our estimates can cause variability. For example, increases in costs for auto parts and repair services, construction costs, and commodities (whether as a result of market forces, tariffs or other conditions or events) result in higher losses for property damage claims. Accordingly, our liabilities for losses could prove to be inadequate to cover our actual losses and related expenses. See Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates - Reserves, for additional information.
With respect to our investments, the determination of estimates for allowances and impairments varies by investment type and is based upon our periodic evaluation of known and inherent risks associated with the respective asset class. Historical trends and assumed changes may not be indicative of future impairments or allowances. See Part II, Item 8, Financial Statements and Supplementary Data - Note 2, Summary of Significant Accounting Policies and Practices, of the Notes to the Consolidated Financial Statements for further description of our evaluation of impairments.
ITEM 1A. RISK FACTORS - (Continued)
Assumptions regarding the future realization of deferred tax assets are dependent upon estimating the generation of sufficient future taxable income, including capital gains. If future events differ from our current forecasts and it is determined that deferred tax assets cannot be realized, a deferred tax valuation allowance must be established, with a charge to tax expense.
Interest rate fluctuations and other events may require us to accelerate the amortization of DAC. When interest rates rise, life and annuity surrenders and withdrawals may increase as policyholders seek to buy products with higher or perceived higher returns, impacting estimates of future profits. When interest rates fall, we would have the opposite effect. Significantly lower future profits may cause us to accelerate DAC amortization, and such acceleration could adversely affect our results of operations to the extent such amortization exceeds any surrender or other charges earned as income upon surrender and withdrawal. See also Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates, and Part II, Item 8, Financial Statements and Supplementary Data - Note 2, Summary of Significant Accounting Policies and Practices, and Note 10, Deferred Policy Acquisition Costs, of the Notes to the Consolidated Financial Statements, for additional information.
Our business operations depend on our ability to appropriately distribute, execute and administer our policies and claims. Our primary business is writing and servicing life, annuity, property and casualty, and health insurance for individuals, families and businesses. Any problems or discrepancies that arise in our pricing, underwriting, billing, processing, claims handling or other practices, whether as a result of employee error, vendor error, or technological problems, could have a negative effect on operations and reputation, particularly if such problems or discrepancies are replicated through multiple policies.
Our financial strength ratings could be downgraded. Various Nationally Recognized Statistical Rating Organizations (“NRSROs”) publish financial strength ratings as their opinion of an insurance company’s creditworthiness and ability to meet policyholder and contractholder obligations. As with other rated companies, our ratings could be downgraded at any time and without any notice by any NRSRO. A downgrade or an announced potential downgrade of our financial strength ratings could have multiple adverse effects on us including:
•reducing new sales of insurance and annuity products or increasing the number or amount of surrenders and withdrawals;
•affecting our relationships with our sales force, independent sales intermediaries, and credit counterparties;
•requiring us to offer higher crediting rates or greater policyholder guarantees on our insurance products in order to remain competitive; and
•affecting our ability to obtain reinsurance at reasonable prices.
It is likely that the NRSROs will continue to apply a high level of scrutiny to financial institutions, including us and our competitors, and may adjust the capital, risk management and other requirements employed in the NRSRO models for maintenance of certain ratings levels.
Advances in medical technology may adversely affect our business. Genetic testing and diagnostic imaging technology is advancing rapidly. Increases in the prevalence, availability (particularly in the case of direct to consumer genetic testing) and accuracy of such testing may increase our adverse selection risk, as people who learn that they are predisposed to certain medical conditions associated with reduced life expectancy may be more likely to purchase and maintain life insurance. Conversely, people who learn that they lack genetic predisposition to conditions associated with reduced life expectancy may forego the purchase of life insurance, or permit existing policies to lapse, and may be more likely to purchase certain annuity products. Our access to and ability to use medical information, including the results of genetic and diagnostic testing, that is known to our prospective policyholders is important to our underwriting of life insurance and annuities. Some states restrict insurers’ access and use of genetic information, and similar additional regulations and legislation may be adopted. Such regulation and legislation likely would exacerbate adverse risk selection related to genetic and diagnostic testing.
In addition to earlier diagnosis and knowledge of disease risk, medical advances may increase overall health and longevity. If this were to occur, the duration of payments made under certain of our annuity products would be extended beyond our actuarial assumptions, reducing the profitability of such business. This may require us to modify our assumptions, models or reserves.
ITEM 1A. RISK FACTORS - (Continued)
Information Technology Risk Factors
We may be unable to maintain the availability and performance of our systems and to safeguard our data and our customers' confidential information and privacy. We rely on the availability, reliability, and security of internet technologies, our internal networks, information-processing infrastructure, system platforms, business applications and third-party providers (collectively “systems”) to operate our businesses. We use these systems to receive, store, process, retrieve, calculate and evaluate customer and company information, including to provide insurance quotes, process premium payments, administer our products, provide customer support, process claims and make changes to existing policies, among many other functions. We also rely on systems for investment management, financial reporting and data analysis to support our policyholder reserves and other actuarial estimates.
We have strategies and processes to secure, maintain and enhance our existing internal networks, technology and processing infrastructure and our information systems, including updating or replacing certain information systems to keep pace with advancing technology, changing customer preferences and expectations, and increasingly stringent industry and regulatory standards. However, despite these efforts, we still may experience system failures, extended unavailability or other outages, or damage or destruction to internal or external networks or systems, whether caused by intentional or unintentional acts or events, as well as difficulties arising from the implementation of system-security vulnerability patches, third-party system upgrades, and new systems and technologies, any of which could compromise our ability to perform critical functions on a timely basis. For instance, if these systems were inaccessible or inoperable, or if they fail to function properly, the resulting disruptions may impede or interrupt our business operations, cause misstated or unreliable financial data, or impact the effectiveness of our internal controls over financial reporting.
In certain lines of our business, our information technology and telecommunication systems interface with and rely upon third-party services, over which we have no direct control, including providers of computing infrastructure platforms or externally hosted systems commonly known as the “cloud.” We are highly dependent on our ability to access these external services for necessary business functions, such as acquiring new business, managing existing business, paying claims, and ensuring timely and accurate financial reporting. If we do not effectively develop, implement and monitor these relationships, if third-party providers do not perform as anticipated, if technological or other problems are incurred with a transition, or if outsourcing relationships relevant to our business process functions are terminated or otherwise interrupted, we may not realize expected productivity improvements or cost-efficiencies, and we may experience operational difficulties, increased costs and a loss of business.
We receive and transmit legally protected information with and among customers, agents, financial institutions and selected third-party vendors and service providers, including personally identifiable information and non-public information. We have invested significant time and resources towards preventing and mitigating the risks associated with unauthorized access to this data through security penetration and vulnerability assessments, vulnerability patching processes and several layers of data intrusion and detection protection technologies, designs and authentication capabilities. However, because the techniques used to obtain unauthorized access, disable or degrade service, deposit ransomware or sabotage systems constantly evolve and may be difficult to detect for long periods of time, we may be unable to implement adequate preventive measures. In addition, hardware, software or applications we develop or procure from third parties may contain vulnerability defects in design or manufacture or other problems that could unexpectedly compromise information security or access thereto. Consequently, our cybersecurity efforts may not be effective against all security threats and breach attempts in light of increasingly complex and advanced persistent threat techniques and the evolving sophistication of individual and nation state-sponsored cyber-attacks. A breach, whether from external or internal sources, or from the theft or loss of equipment, can result in access, viewing, misappropriation, altering or deleting information in our or a third-party’s systems on which we rely, including customers’, agents’ and employees’ sensitive personal and financial information and our proprietary business information.
ITEM 1A. RISK FACTORS - (Continued)
Like other companies, we have experienced threats to our data and systems through phishing campaigns, malware, ransomware and other fraudulent and deceptive activities, and we have experienced certain incidents of unauthorized access to our data and systems. In addition, spoofing attacks have been carried out by individuals impersonating customers, which have resulted in unauthorized withdrawals from a limited number of customer accounts. Such withdrawals were refunded by us, and we believe that implemented business process changes have helped mitigate the impact of new attacks. We have also implemented technology to further assist in the identification of these bad actors. These various threats, attacks and incidents that have occurred to date have not been material to our operations and are not expected to be material to our operations based on information presently known to management. However, any significant attacks, unauthorized access or disclosures, disruptions or other security breaches, whether affecting us or third parties, could result in substantial business disruption and consequences, including without limitation, costs of repairing or replacing systems, increased security costs, costs of customer notifications and credit monitoring services, lost revenues, litigation, regulatory action, fines and penalties, and harm to customer and producer confidence and our reputation. While we have purchased cybersecurity risk insurance and intend to assess the adequacy of this insurance annually, this insurance may not be sufficient in scope or amount to cover all of our losses from breaches of our data.
Our failure to complete and implement technology initiatives in a timely manner could result in the loss of business and incurrence of software development costs that may not be recoverable. Digital strategies, data, and analytics play an increasingly important role in the insurance industry. We may initiate multi-year technology projects from time to time to enhance the client experience, operations or replace aging systems. While technology developments can enhance the utility and value of data and analytics, deliver on client expectations, streamline business processes and ultimately reduce the cost of operations, technology initiatives can also present significant economic and organizational challenges, short-term costs and implementation risks. In addition, projections of expenses and implementation schedules could change materially and costs could escalate over time, while the ultimate utility of a technology initiative could deteriorate over time.
Due to the highly-regulated nature of the insurance industry, we also face increasing costs and competing time constraints in adapting technology to meet compliance requirements of new and proposed regulations. The costs to develop and implement systems to replace our aging systems and to comply with new regulatory requirements as needed over time are expected to be significant. Due to the complexities involved, there can be no assurances that new multi-year projects will be successful and that the costs incurred to develop and implement replacement systems will be recoverable. Furthermore, failure to implement replacement systems in a timely manner could result in loss of business from our delay or inability to design and introduce new insurance systems and solutions that meet emerging consumer needs and competitive trends.
Catastrophic Event Risk Factors
We may incur significant losses resulting from catastrophic events. Our property and casualty operations are exposed to catastrophes caused by natural events, such as hurricanes, tornadoes, wildfires, droughts, earthquakes, snow, hail and windstorms, and manmade events, such as terrorism, riots, explosions, hazardous material releases, and utility outages. Our life and health insurance operations are exposed to the risk of catastrophic mortality or illness, such as a pandemic, an outbreak of an easily communicable disease, or another event that causes a large number of deaths or high morbidity. Our investment operations are exposed to catastrophes as a result of direct investments and mortgages related to real estate. Our operating results may vary significantly from one period to the next since the likelihood, timing, severity, number or type of catastrophe events cannot be accurately predicted. Our losses in connection with catastrophic events are primarily a function of the severity of the event and the amount of our exposure in the affected area.
Climate change, and increasing regulation with respect to climate change, may adversely impact our results of operations. There are concerns that the increased frequency and severity of weather-related catastrophes and other losses, such as hurricanes and wildfires, incurred by the industry in recent years are indicative of changing weather patterns, whether as a result of global climate change caused by human activities or otherwise, which could cause such events to persist. Increased weather-related catastrophes would lead to higher overall losses, which we may not be able to recoup, particularly in a highly regulated and competitive environment, and higher reinsurance costs. Increased weather-related catastrophes could also result in increased credit exposure to reinsurers and other counterparties we do business with. Certain catastrophe models assume an increase in frequency and severity of certain weather or other events, which could result in a disproportionate impact on insurers with certain geographic concentrations of risk. This would also likely increase the risks of writing property insurance in coastal areas or areas susceptible to wildfires or flooding, particularly in jurisdictions that restrict pricing and underwriting flexibility. The threat of rising seas or other catastrophe losses as a result of climate change may also cause property values in coastal or such other communities to decrease, reducing the total amount of insurance coverage that is required.
ITEM 1A. RISK FACTORS - (Continued)
In addition, climate change could have an impact on assets in which we invest, resulting in realized and unrealized losses in future periods that could have a material adverse impact on our results of operations and/or financial position. Such investment risks can include, but are not limited to, changes in supply and demand characteristics for fossil fuels, advances in low-carbon technology and renewable energy development, effects of extreme weather events on the physical and operating exposure of industries and issuers, and the transition that issuers make towards addressing climate risk in their own businesses. It is not possible to foresee with certainty which, if any, assets, industries or markets will be materially and adversely affected, nor is it possible to foresee the magnitude of such effect.
Moreover, we cannot predict how legal, regulatory and social responses to concerns about climate change will impact our business or the value of our investments. We are subject to complex and changing regulation and public policy debates relating to climate change that are difficult to predict and quantify and that may have an adverse impact on our business. For example, in November of 2021, NYDFS finalized its “Guidance for Domestic Insurers on Managing the Financial Risks from Climate Change.” In general, the guidance provides that a New York-domiciled insurer should integrate consideration of climate risks into its governance structure at the insurer or group level, consider the impact of climate-related factors on its business decisions using time horizons that are tailored to the insurer and its activities, incorporate climate risks into its existing financial risk management framework, use scenario analysis to inform business strategies and risk identification and assessment, and disclose its climate risks and engage with the Task Force on Climate-related Financial Disclosures and other initiatives when developing disclosure approaches. In addition, the NAIC and federal agencies, including the SEC and Federal Insurance Office, are increasingly focused on assessment and disclosure of climate change risks. Governmental guidance or regulations relating to climate change, or our own leadership decisions implemented as a result of assessing the impact of climate change on our business, may increase our costs of doing business.
Marketplace Risk Factors
Our future results are dependent in part on successfully operating in insurance and annuity industries that are highly competitive with regard to customers, employees and producers. Strong competition for customers has led to increased marketing and advertising by our competitors, many of whom have well-established national reputations and greater financial and marketing resources, as well as the introduction of new insurance products and aggressive pricing. These competitive pressures could result in increased pricing pressures on a number of our products and services, particularly as competitors seek to win market share, and may limit our ability to maintain or increase our profitability. Because of its relatively low cost of entry, the Internet has emerged as a significant place of new competition, both from existing competitors and new competitors. In addition, product development and life-cycles have shortened in many product segments, leading to intense competition with respect to product features.
We compete for customers’ funds with a variety of investment products offered by financial services companies other than insurance companies, such as banks, investment advisors, mutual fund companies and other financial institutions. Moreover, customer expectations are evolving as technology advances and consumers become accustomed to enjoying tailored, easy to-use-services and products from various industries. This is reshaping and raising consumer expectations when dealing with insurance. We are addressing these changing consumer expectations by investing in technology with a particular focus on consumer-facing sales and service platforms, by internally promoting a strategically-focused innovative culture initiative, and by creating internal forums to drive next generation solutions based on consumer insights. However, if we cannot effectively respond to increased competition and such increased consumer expectations, we may not be able to grow our business or we may lose market share.
We compete with other insurers for producers primarily on the basis of our financial position, reputation, longevity, support services, compensation, product features and pricing. We may be unable to compete for producers with insurers that adopt more aggressive pricing or compensation, that offer a broader array of products or packages of products, or that have extensive promotional and advertising campaigns. Attracting qualified individuals and retaining existing employees continues to be a challenge for employers. Businesses have become extremely competitive in the ever-changing landscape of the talent marketplace. As a result, it is an increasing challenge to distinguish us as an employer of choice.
ITEM 1A. RISK FACTORS - (Continued)
Our supplemental health business could be negatively affected by alternative healthcare providers or changes in federal healthcare policy. Our Medicare Supplement business is impacted by market trends in the senior-aged healthcare industry that provide alternatives to traditional Medicare such as HMO and other managed care or private plans. The success of these alternative healthcare solutions for seniors could negatively affect the sales and premium growth of traditional Medicare Supplement and impact our ability to offer such products. Additionally, other supplemental products in our portfolio, including Short-Term Care and Limited Benefit plans could be impacted by future federal and state legislation. These products are excluded from coverage requirements in the Healthcare Act. They are designed to fill the niche for consumers unable to get full coverage at any given time. State and federal legislation, either through Congress or the U.S. Department of Health & Human Services ("HHS"), could impact marketing by enacting laws and regulations restricting these products in the market. Changes to healthcare policy could limit the ability to renew/rewrite, impose limitations on the length of coverage periods or limit benefit amounts available in plans.
Litigation and Regulation Risk Factors
Litigation may result in significant financial losses and harm our reputation. Plaintiffs have brought and may bring lawsuits, including class actions, against us relating to, among other things, sales or underwriting practices, alleged agent misconduct, product design, product disclosure, product administration, fees charged, denial or delay of claims and benefits, product suitability, claims-handling practices (including the permitted use of aftermarket, non-original equipment manufacturer auto parts), loss valuation methodology, refund practices, employment and producer contracting matters, and breaches of duties to customers. Plaintiffs may seek very large or indeterminate amounts, including punitive and treble damages, and our reputation could be harmed. The damages claimed and the amount of any probable and estimable liability, if any, may remain unknown for substantial periods of time. Even when successful in the defense of such actions, we incur significant attorneys’ fees, direct litigation costs and substantial amounts of management time that otherwise would be devoted to our business.
We are subject to extensive regulation, and potential further regulation may increase our operating costs, restrict our ability to innovate and limit our growth. We are subject to extensive insurance laws and regulations that affect nearly every aspect of our business. We are also subject to additional laws and regulations administered and enforced by a number of different governmental authorities, such as state securities and workforce regulators, the SEC, the Internal Revenue Service (“IRS”), FINRA, the U.S. Department of Justice, the U.S. Department of Labor (“DOL”), the U.S. Department of Housing and Urban Development (“HUD”), HHS, the Federal Trade Commission and state attorneys general, each of which exercises a degree of interpretive latitude. We face the risk that any particular regulator’s or enforcement authority’s interpretation of a legal issue may conflict with that of another regulator or enforcement authority or may change over time to our detriment. Regulatory investigations and examinations, which can be broad and unpredictable, may raise issues not identified previously and could result in new legal actions against us and industry-wide regulations that could adversely affect us. Further, we are experiencing increasing information requests from regulators without corresponding direct regulation being applicable to us, on issues such as climate change, diversity and our investments in certain companies or industries. Responding to such requests adds to our compliance costs.
The laws and regulations applicable to us are complex and subject to change, and compliance is time consuming and personnel-intensive. Changes in these laws and regulations, or interpretations by courts or regulators, may materially increase our costs of doing business and may result in changes to our practices that may limit our ability to grow and improve our profitability. Regulatory developments or actions against us could have material adverse financial effects and could harm our reputation. Among other things, we could be fined, prohibited from engaging in some or all of our business activities, or made subject to limitations or conditions on our business activities.
ITEM 1A. RISK FACTORS - (Continued)
As insurance industry practices and legal, judicial, social, and other conditions outside of our control change, unexpected issues related to claims and coverage may emerge. These changes may include modifications to long established business practices or policy interpretations, which may adversely affect us by extending coverage beyond our underwriting intent or by increasing the type, number, or size of claims. For example, in January 2019, NYDFS issued Circular Letter No. 1, in which the department set out its views concerning the use of external consumer data sources in the underwriting of life insurance. NYDFS contends that external data sources can be unreliable and that many are not subject to regulatory oversight. Circular Letter No. 1 further highlights two particular areas of immediate concern for NYDFS involving the use of external data sources by life insurers. First, the department states that the use of external data sources has a significant potential to negatively impact protected classes of consumers in violation of state and federal anti-discrimination laws, and that insurers should not use an external data source unless the insurer can prove that such source does not violate anti-discrimination laws. Second, NYDFS contends that an insurer’s use of external data sources is often accompanied by a lack of transparency to consumers, which may implicate unfair trade practice law. Other states may undertake regulatory efforts similar to Circular Letter No. 1. For example, on July 6, 2021, the governor of Colorado signed Senate Bill 21-169, which also regulates an insurer’s use of external consumer data and information sources. In addition, the NAIC formed a committee on race and insurance which is focused on underwriting practices that may be an unintentional proxy for discrimination. As a result of these regulatory efforts, there is a great deal of uncertainty whether traditional underwriting criteria will be restricted by new state laws or regulations. Such regulatory efforts may significantly hinder our use of technological and innovative advances to underwrite and price life insurance accurately and deter the use of what is commonly called “big data” in the underwriting of property and casualty insurance.
Federal regulatory changes and initiatives have a growing impact on us. For example, certain federal regulation may impact our property and casualty operations. In 2013, HUD finalized a regulation under the Fair Housing Act that applies to home lenders, landlords and other housing providers (the "2013 Rule"). Such regulation prohibits lending and housing practices having a disparate impact against protected classes, even if there is no intent to discriminate. Various legal challenges to this regulation were pursued, culminating in a decision of the U.S. Supreme Court in 2015 generally viewed as favorable to the regulation. In September 2020, HUD adopted a regulation that substantially revises the 2013 Rule, making it more difficult for plaintiffs to bring disparate impact claims under the Fair Housing Act (the "2020 Rule"). Prior to the 2020 Rule’s effective date, the U.S. District Court for the District of Massachusetts issued a preliminary injunction to stay HUD’s implementation and enforcement of the 2020 Rule. On June 25, 2021, HUD reconsidered the 2020 Rule and instead proposed to recodify the 2013 Rule. While the recodification of the 2013 Rule is not yet final, finalization appears likely. There is concern among property and casualty insurers that such regulation may impact property and casualty industry underwriting practices and could be applied in a manner that adversely impacts price differentiation for homeowners’ policies using traditional risk selection analysis. Such an outcome, could increase litigation costs, force changes in underwriting practices, and impair our ability to write homeowners business profitably. In addition, Congress or states may enact legislation affecting insurers’ ability to use credit-based insurance scores as part of the property and casualty underwriting or rating process, which also could force changes in underwriting practices and impair our property and casualty operations’ ability to write homeowners business profitably.
There have been federal efforts to change the standards of care applicable to broker-dealers and investment advisers. We have previously reported that in April 2016, the DOL issued a regulation that significantly expanded the range of activities considered to be fiduciary investment advice under the Employee Retirement and Income Security Act of 1974 ("ERISA") and the Internal Revenue Code of 1986 (the “fiduciary rule”). The fiduciary rule would have applied ERISA’s fiduciary standard to many insurance agents, broker-dealers, advisers and others not previously subject to the standard when they sell annuities through IRA’s and qualified retirement plans. The fiduciary rule ultimately was vacated on June 21, 2018, by the U.S. Court of Appeals for the Fifth Circuit, ending the rule's effectiveness. Effective February 16, 2021, the DOL adopted a rule that formally reinstated the investment advice fiduciary definition that existed before the 2016 fiduciary rule was enacted and that included new interpretations that expanded the definition’s reach to include advice to roll over assets from a qualified plan to an IRA. The new regulation also included certain new exemptions. Nevertheless, there are indications that the DOL may propose an alternative fiduciary rule under the Biden Administration.
In addition, the SEC adopted "Regulation Best Interest," which was effective June 1, 2020 and addresses the standards of care applicable to broker-dealers and investment advisers. Regulation Best Interest requires a broker-dealer to act in the best interest of a retail customer when making a recommendation of any securities transaction or investment strategy involving securities. The rule also requires broker-dealers and investment advisers to provide retail customers a Client Relationship Summary (“Form CRS”) to disclose certain information about the nature of the customer’s relationship with their investment professional, including fees and costs associated with services and conflicts of interest the firm may have.
ITEM 1A. RISK FACTORS - (Continued)
There have also been state efforts to change the standards of care applicable to broker-dealers, investment advisers and insurance producers, including through the NAIC's Suitability in Annuity Transactions Model Regulation and the “Suitability and Best Interests in Life Insurance and Annuity Transactions” regulation adopted by the NYDFS. The NAIC model regulation places suitability responsibilities on insurance companies in the sale of fixed and indexed annuities, including responsibilities for training agents. The NAIC recently has adopted revisions to this model regulation that would further elevate the standard of care for annuity sales and harmonize it with the SEC's new Regulation Best Interest. The revised model has been adopted in some form by many of the states in which we do business, including Texas, and is pending or under consideration in several others. The NYDFS regulation addresses the duties and obligations of insurers and their producers and provides that any transactions with respect to life insurance policies and annuity contracts delivered or issued for delivery in New York must be in the best interest of the consumer and appropriately address the insurance needs and financial objectives of the consumer at the time of the transaction. It further requires that any recommendation must be based on an evaluation of the suitability information of the consumer and reflect the care, skill, prudence and diligence that a prudent person acting in a like capacity and familiar with such matters would use under the prevailing circumstances. Further, a producer’s compensation and other incentives must not influence his or her recommendations. The New York regulation became effective for annuity products on August 1, 2019 and for life insurance products on February 1, 2020.
All or any of the above-described federal and state efforts to address the standards of care applicable to broker-dealers, investment advisers and insurance producers could materially affect how our life insurance and annuity products are designed, marketed and serviced. We may find it necessary to change our producer compensation practices, limit the assistance producers can provide to contract owners, replace or engage additional producers, or otherwise change how we design and support sales of our annuities. Any of these regulatory or legislative measures, or judicial rulings regarding the same, or consumer and producer reaction to such measures, could have a material adverse impact on our ability to sell annuities and certain other products and to retain in-force business.
Lastly, international standards continue to emerge in response to the globalization of the insurance industry and evolving standards of regulation, privacy, solvency measurement and risk management. Any international conventions or mandates that directly or indirectly impact or influence the nature of U.S. regulation or industry operations could negatively affect us.
For further discussions of the kinds of regulation applicable to us, see Part I, Item 1, Business - Regulations Applicable to Our Business section.
Changes in tax laws could adversely affect our business. Under current U.S. federal and state income tax laws, certain products we offer, primarily life insurance and annuities, receive tax treatment designed to encourage consumers to purchase these products. This treatment may encourage some consumers to select our products over non-insurance products. The U.S. Congress from time to time may consider legislation that would change the taxation of insurance products and/or reduce the taxation of competing products. Such legislation, if adopted, could materially change consumer behavior, which may harm our ability to sell such products and result in the surrender of some existing contracts and policies. In addition, changes in the U.S. federal and state estate tax laws could negatively affect the demand for the types of life insurance used in estate planning. Uncertainty regarding the tax structure in the future may also cause some current or future purchasers to delay or indefinitely postpone the purchase of products we offer. Finally, changes in federal corporate income tax laws could adversely affect the federal income taxation of our ongoing operations and have a material adverse impact on our business and results of operations.
New accounting rules or changes to existing accounting rules could negatively impact our business. We are required to comply with GAAP. A number of organizations are instrumental in the development and interpretation of GAAP, such as the SEC, the Financial Accounting Standards Board (“FASB”), and the American Institute of Certified Public Accountants. GAAP is subject to review by these organizations and others and is, therefore, subject to change in ways that could change the current accounting treatments we apply.
We also must comply with Statutory Accounting Principles (“SAP”) in our insurance operations. SAP and various components of SAP (such as actuarial reserving methodology) are subject to review by the NAIC and its taskforces and committees, as well as state insurance departments.
ITEM 1A. RISK FACTORS - (Continued)
Future changes to GAAP or SAP could impact our product profitability, reserve and capital requirements, financial condition or results of operations. For example, in August 2018, the FASB released Accounting Standards Update ("ASU") 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts, which is expected to result in significant changes to accounting and disclosures for long-duration insurance contracts, which primarily relates to our life and annuity products as well as certain health products, among others. See Part II, Item 8, Financial Statements and Supplementary Data - Note 3, Recently Issued Accounting Pronouncements, of the Notes to the Consolidated Financial Statements for a detailed discussion regarding the impact of the recently issued accounting pronouncements and the future adoption of new accounting standards on the Company.
Reinsurance and Counterparty Risk Factors
Reinsurance may not be available, affordable, adequate or collectible to protect us against losses. As part of our risk management strategy, we purchase reinsurance for certain risks that we underwrite. Market conditions, catastrophes, significant public health events (such as the COVID-19 pandemic) and geo-political events beyond our control, including the continued threat of terrorism, influence the availability and cost of reinsurance for new business. In certain circumstances, the price of existing reinsurance contracts may also increase. Reinsurance does not relieve us of our direct liability to our policyholders, even when the reinsurer is liable to us. Our reinsurers may not pay the reinsurance recoverables owed to us or they may not pay these balances on a timely basis.
The counterparties to derivative instruments we use to hedge our business risks could default or fail to perform. We enter into derivative contracts, such as options, with a number of counterparties to hedge various business risks. If our counterparties fail or refuse to honor their obligations, our economic hedges of the related risks will be ineffective. Such counterparty failures could have a material adverse effect on us. See Part II, Item 8, Financial Statements and Supplementary Data - Note 7, Derivative Instruments, of the Notes to the Consolidated Financial Statements for additional details.
Risk Factors Relating to Our Corporate Structure and Ownership of Our Common Stock
We depend on dividends from our operating subsidiaries to pay dividends to our stockholders. The amount of dividends paid by our insurance subsidiaries is limited by law. American National Group, Inc. (ticker symbol ANAT) is a Delaware holding company with no business operations of its own. Its only significant assets are the capital stock of its subsidiaries. As a result, ANAT relies on funds from its current subsidiaries and any subsidiaries that it may form or acquire in the future to pay dividends to stockholders and to meet its obligations.
The amount of dividends that ANAT’s insurance company subsidiaries can pay is restricted under applicable insurance law and regulations. These restrictions are based, in part, on the prior year’s statutory income and surplus. In general, dividends up to specified levels are considered ordinary and may be paid without prior regulatory approval. Dividends in larger amounts, or extraordinary dividends, are subject to approval by the insurance commissioner of the relevant state of domicile. For example, restrictions applicable to Texas-domiciled life insurance companies like ANICO limit the payment of dividends to the greater of the prior year’s statutory net gain from operations before realized capital gains, or 10% of prior year statutory surplus, in each case determined in accordance with statutory accounting principles.
From time to time, the NAIC has considered, and may in the future consider, proposals to further limit dividend payments that an insurance company may make without regulatory approval. No assurance is given that more stringent restrictions will not be adopted from time to time by the State of Texas or other states in which our insurance subsidiaries are domiciled, and such restrictions could have the effect, under certain circumstances, of significantly reducing dividends or other amounts payable to ANAT by its insurance company subsidiaries without prior approval from regulatory authorities.
We are controlled by a small number of stockholders. As of December 31, 2021, the Moody Foundation, a charitable trust, beneficially owned approximately 22.8% of our common stock. In addition, Moody National Bank, in its capacity as trustee or agent of various accounts, had the power to vote approximately 47.7% of our common stock as of such date. As a result, these institutions have the ability to exercise a controlling influence over matters submitted for stockholder approval, including the composition of our Board of Directors and extraordinary transactions, such as the Merger Agreement with Brookfield Reinsurance. It may also adversely affect the trading price of our common stock if controlling stockholders sell a significant number of shares or if investors perceive disadvantages in owning stock in a company controlled by a small number of stockholders.
ITEM 1A. RISK FACTORS - (Continued)
Our Certificate of Incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for substantially all disputes between our stockholders and us, to the fullest extent permitted by law. Such provision could limit the ability of our stockholders to obtain a favorable judicial forum for disputes with us or our directors, officers, stockholders, employees or agents. ANAT’s Certificate of Incorporation provides that, to the fullest extent permitted by law, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for the following: any derivative action or proceeding brought on behalf of ANAT; any action asserting a claim of breach of a fiduciary duty owed to ANAT or ANAT’s stockholders by any of ANAT’s directors, officers or other employees; any action asserting a claim against ANAT arising pursuant to any provision of the Delaware General Corporation Law or ANAT’s organizational documents; or any action asserting a claim against ANAT that is governed by the internal affairs doctrine.
This exclusive forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, or other employees, which may discourage lawsuits and increase the costs with respect to such claims. With respect to the federal securities laws and the rules and regulations thereunder, this provision does not apply to suits brought to enforce a duty or liability created by the Securities Exchange Act of 1934, as amended, which provides for the exclusive jurisdiction of the federal courts with respect to such claims. This provision could apply, however, to a suit that falls within one or more of the categories enumerated in the exclusive forum provision and asserts claims under the Securities Act of 1933, as amended (the “Securities Act”), because Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by such act or the rules and regulations thereunder. There is uncertainty as to whether a court would enforce the exclusive forum provision with respect to claims under the Securities Act, and our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder. If a court were to find the exclusive forum provision contained in our Certificate of Incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations and financial condition.
General Risk Factors
We are subject to environmental, social and governance (“ESG”) risks that could adversely affect our reputation, the market price of our common stock and/or our business, operations and earnings. Governments, investors, rating agencies, customers and the general public are increasingly focused on the ESG practices and disclosures of companies. In addition, certain organizations that provide corporate governance and other corporate risk information to investors and shareholders have developed scores and ratings to evaluate companies based on ESG metrics. Currently, there are no universal standards for such scores or ratings, but the importance of ESG evaluations is becoming more broadly accepted by investors and shareholders. Investors have begun to consider how issuers are addressing ESG matters when making investment decisions. Any negative publicity regarding ESG or low ESG scores or ratings, or shifts in investing priorities relating to ESG, may adversely affect the market price of our common stock, our ability to attract and retain customers and employees, and/or our business, operations and earnings if investors, shareholders, ratings agencies or other stakeholders determine that we have not adequately considered and addressed ESG matters. In addition, regulatory efforts with respect to ESG matters, including climate change, may increase our costs of doing business.
Employee and agent error and misconduct may be difficult to detect and prevent and may result in significant losses. The actions or inaction of our employees, agents, producers, managing general agents, managing general underwriters and third-party administrators could result in losses arising from, among other things, fraud, errors, failure to properly document transactions, failure to obtain proper internal authorization, failure to maintain effective internal controls, or failure to comply with underwriting guidelines or regulatory requirements. It is not always possible to deter or prevent misconduct, and the precautions we take to prevent and detect this activity may not be effective in all cases.
If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results, which may adversely impact our Company. It is necessary for us to maintain effective internal controls over financial reporting to prevent fraud and errors and to maintain effective disclosure controls and procedures to provide timely and reliable financial and other information. However, we cannot be certain that we will be able to prevent future material weaknesses or that there are no existing, but as yet undiscovered, weaknesses that we need to address. A failure to maintain adequate internal controls may adversely affect our ability to provide information that accurately reflects our financial condition on a timely basis. This could cause an adverse effect on our business, results of operations and the market price of our stock if investors, customers, rating agencies, regulators or others lose confidence in our reported financial and other information, if we become subject to SEC or other regulatory review and sanctions, or if we become subject to litigation that results in substantial fines, penalties or liabilities.
ITEM 1A. RISK FACTORS - (Continued)
The occurrence of events that are unanticipated in our business continuity and disaster recovery planning could impair our ability to conduct business effectively. Our corporate headquarters are located in Galveston, Texas, on the coast of the Gulf of Mexico and in the past has been impacted by hurricanes. Our League City, Texas offices are designed to support our operations and service our policyholders in the event of a hurricane or other natural disaster affecting Galveston. The primary offices of our property and casualty insurance companies are in Springfield, Missouri and Glenmont, New York, which helps to insulate these facilities and their operations from coastal catastrophes. While we periodically test our business continuity and disaster recovery plans, the severity, timing, duration or extent of an event may be unanticipated by such plans, which could result in an adverse impact on our ability to conduct business. In the event a significant number of our employees or agents were unavailable or unable to work following such a disaster, or if our computer-based data processing, transmission, storage and retrieval systems were affected, our ability to effectively conduct our business could be compromised.
See also Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, for additional details regarding certain risks that we face.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS
None

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ITEM 2. PROPERTIES
ITEM 2. PROPERTIES
We own and occupy our corporate headquarters in Galveston, Texas. We also own and occupy the following properties that are materially important to our operations:
•Three buildings in League City, Texas, which are used primarily by our backup datacenter and Life, Health, and Corporate and Other segments.
•Five buildings, four in Springfield, Missouri and the other in Glenmont, New York, which are used primarily by our Property and Casualty segment.
We believe our properties are adequate and suitable for our business as currently conducted and are adequately maintained. The above does not include properties we own only for investment purposes.

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS
Information required for Item 3 is incorporated by reference to the discussion under the heading “Litigation” in Part II, Item 8, Financial Statements and Supplementary Data - Note 19, Commitments and Contingencies, of the Notes to the Consolidated Financial Statements.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Stockholder Information
Our common stock is traded on the NASDAQ Global Select Market under the symbol “ANAT.”
On December 31, 2021, our year-end closing stock price was $188.84 per share, and there were 596 holders of record of our issued and outstanding shares of common stock.
Securities Authorized for Issuance under Equity Compensation Plans
The following table provides information regarding securities issued under American National’s 1999 Stock and Incentive Plan as of December 31, 2021. The term for granting additional awards under such plan expired in 2019.
Equity Compensation Plan Information
Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
(a) (b) (c)
Plan category
Equity compensation plans
Approved by security holders - $ 80.05 -
Not approved by security holders - - -
Total - $ 80.05 -
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES - (Continued)
Performance Graph
The following graph compares the cumulative stockholder return for our common stock for the last five years with the performance of the NASDAQ Stock Market and a NASDAQ Insurance Stock index using NASDAQ OMX Global Indexes. It shows the cumulative changes in value of an initial $100 investment on December 31, 2016, with all dividends reinvested.
Value at each year-end of a $100 initial investment made on December 31, 2016:
December 31,
2016 2017 2018 2019 2020 2021
American National (ANAT) $ 100.00 $ 104.52 $ 105.89 $ 100.45 $ 85.46 $ 162.27
NASDAQ Total OMX 100.00 121.38 114.78 150.55 182.58 229.84
NASDAQ Insurance OMX 100.00 116.95 109.08 133.15 132.39 170.09
This performance graph shall not be deemed to be incorporated by reference into our SEC filings or to constitute soliciting material or otherwise be considered filed under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. [RESERVED]
Not applicable

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This MD&A should be read in conjunction with our consolidated financial statements and related notes included in Part II, Item 8, Financial Statements and Supplementary Data. For comparison of 2020 to 2019, see Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 4, 2021.
Introductory Note Regarding Pending Merger
On August 6, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Brookfield Asset Management Reinsurance Partners Ltd. (“Brookfield Reinsurance”), an exempted company limited by shares existing under the laws of Bermuda, and Freestone Merger Sub Inc., a Delaware corporation and an indirect wholly-owned subsidiary of Brookfield Reinsurance (“Merger Sub”). Upon completion of the transactions contemplated by the Merger Agreement, the Company will become an indirect wholly owned subsidiary of Brookfield Reinsurance in consideration for the payment of $190.00 per share in cash, for total merger consideration of $5.1 billion.
Regulatory Approval Process. The completion of the Merger contemplated by the Merger Agreement (the “Merger”) is subject to satisfaction or waiver of certain customary closing conditions, including obtaining the required regulatory approval from the insurance authorities in Texas, Missouri, New York, Louisiana and California. The required insurance regulatory process has been moving forward consistent with our prior disclosures, and we continue to expect to complete the Merger before the end of the first half of 2022. However, because state insurance regulatory approval remains outstanding, the Company cannot provide assurance the Merger will be completed on the terms or timeline currently contemplated, or at all.
Merger Agreement's Restrictions on Interim Operations. The Company has agreed to certain covenants in the Merger Agreement restricting the conduct of its business between the date of the Merger Agreement and the earlier of the Effective Time and the termination of the Merger Agreement. The general effect of these covenants is that, during such interim period, the Company will be limited in its ability to pursue strategic and operational matters outside the ordinary course of business. The Company has agreed that it and its subsidiaries will conduct their business in the ordinary course consistent with past practice in all material respects and use reasonable best efforts to preserve their business organizations, goodwill and assets, keep available the services of their current key officers and employees, and preserve their present relationships with governmental entities and other key third parties, including customers, reinsurers, distributors, suppliers and other persons with whom the Company and its subsidiaries have business relationships.
In addition, the Company has agreed to specific restrictions relating to the conduct of its business between the date of the Merger Agreement and the earlier of the Effective Time and the termination of the Merger Agreement, including, but not limited to, not to take (or permit any of its subsidiaries to take) the following actions (subject, in each case, to exceptions specified below and in the Merger Agreement or previously disclosed in writing to Brookfield Reinsurance as provided in the Merger Agreement or as consented to in writing in advance by Brookfield Reinsurance (which consent shall not be unreasonably withheld, delayed or conditioned) or as required by law:
•subject to certain limited exceptions, offer, issue, sell, transfer, pledge, dispose of or encumber any shares of, or securities convertible into or exchangeable for, or options, warrants, calls, commitments or rights of any kind to acquire, any shares of capital stock or other voting or equity interests of any class or series of the Company or its subsidiaries;
•amend or propose to amend the Company’s or its subsidiaries’ certificate of incorporation, bylaws or other comparable organizational documents, in each case, whether by merger, consolidation or otherwise;
•authorize, recommend, propose, enter into or adopt a plan or agreement of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of the Company or any of its subsidiaries;
•subject to certain limited exceptions (including permitting the Company to execute investment portfolio transactions in the ordinary course of business consistent with past practice and in accordance with its existing investment plan and investment guidelines), acquire or agree to acquire any business or any corporation, partnership, association or other business organization or division thereof;
•make or authorize capital expenditures that are, on an individual basis, in excess of 110% of the Company’s capital expenditure budget or in excess of 105% of the aggregate capital expenditure budget, except for (i) planned capital expenditures disclosed to Brookfield Reinsurance at signing of the Merger Agreement and (ii) reasonable emergency capital expenditures (after consultation with Brookfield Reinsurance) necessary to maintain its ability to operate its businesses in the ordinary course or for the safety of individuals, assets or the environment;
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
•subject to certain limited exceptions, sell, lease, license, transfer, pledge, subject to any encumbrance or otherwise dispose of any of its or their assets or properties;
•incur, guarantee or assume any indebtedness, subject to certain limited exceptions, including investment portfolio transactions in the ordinary course of business consistent with past practice and other incurrences of indebtedness not to exceed $10,000,000 in the aggregate;
•enter into any material contract or reinsurance contract other than in the ordinary course of business consistent with past practice; and
•terminate, amend, modify, assign or waive any material right under any material contract or reinsurance contract except in the ordinary course of business consistent with past practice.
The Merger Agreement permits the Company to continue to pay regular quarterly cash dividends not to exceed $0.82 per share of common stock prior to completion of the Merger.
The above is a summary of certain material terms of the Merger Agreement and is qualified in its entirety by the terms and conditions of the Merger Agreement, which was filed as an exhibit to the Company’s current report on Form 8-K filed on August 9, 2021.
Caution Regarding Forward-Looking Statements
Certain statements made in this report, including but not limited to the accompanying consolidated financial statements, and the notes thereto appearing in Part II, Item 8, Financial Statements and Supplementary Data herein, Management's Discussion and Analysis of Financial Condition and Results of Operations in this Item 7 ("MD&A"), and the exhibits and financial statement schedules filed as a part hereof or incorporated by reference herein, may contain or incorporate by reference information that includes or is based upon forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally are indicated by words such as “expects,” “intends,” “anticipates,” “plans,” “believes,” “estimates,” “will” or words of similar meaning, and include, without limitation, statements regarding the outlook of our business and expected financial performance, and certain statements relating to the COVID-19 pandemic and its potential effects on the Company. These forward-looking statements are subject to changes and uncertainties which are, in many instances, beyond our control and have been made based upon our assumptions, expectations and beliefs concerning future developments and their potential effect upon us. There can be no assurance that future developments will be in accordance with our expectations, that the effect of future developments on us will be as anticipated, or that our risk management policies and procedures will be effective, particularly given the uncertainty relating to the COVID-19 pandemic. We do not make public specific projections relating to future earnings, and we do not endorse any projections regarding future performance made by others. Additionally, we do not publicly update or revise forward-looking statements based on the outcome of various foreseeable or unforeseeable events. Forward-looking statements are not guarantees of future performance and involve various risks and uncertainties. Forward-looking statements relate to the transaction contemplated by the Merger Agreement (the "Proposed Transaction"), as well as to the Company’s financial and operating performance on a stand-alone basis prior to the consummation of the Merger or if the Merger is not consummated. There are certain important factors that could cause actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements, including without limitation risks, uncertainties and other factors discussed in Part I, Item 1A, Risk Factors, above and elsewhere in this report, and the following factors relating the Proposed Transaction:
•conditions to the closing of the Proposed Transaction may not be satisfied;
•regulatory approvals required for the Proposed Transaction may not be obtained, or required regulatory approvals may delay the Proposed Transaction or result in the imposition of conditions that could have a material adverse effect on the Company or Brookfield Reinsurance or cause certain conditions to closing not to be satisfied, which could result in the termination of the Merger Agreement;
•the timing of completion of the Proposed Transaction is uncertain;
•the business of the Company or Brookfield Reinsurance could suffer as a result of uncertainty surrounding the Proposed Transaction;
•events, changes or other circumstances could occur that could give rise to the termination of the Merger Agreement;
•there are risks related to disruption of management’s attention from the ongoing business operations of the Company or Brookfield Reinsurance due to the Proposed Transaction;
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
•the announcement or pendency of the Proposed Transaction could affect the relationships of the Company or Brookfield Reinsurance with its clients, and operating results and business generally, including on our ability to retain and attract employees;
•the outcome of any legal proceedings initiated against the Company or Brookfield Reinsurance following the announcement of the Proposed Transaction could adversely affect the Company or Brookfield Reinsurance, including their ability to consummate the Proposed Transaction; and
•the Company or Brookfield Reinsurance may be adversely affected by other economic, business, and/or competitive factors as well as management’s response to any of the aforementioned factors.
The foregoing review of important factors related to the Proposed Transaction should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included herein and elsewhere, including the risk factors included in Brookfield Reinsurance’s Registration Statement on Form and in this 2021 Annual Report and other documents of the Company and Brookfield Reinsurance on file with the SEC. Neither the Company nor Brookfield Reinsurance undertakes any obligation to update, correct or otherwise revise any forward-looking statements. All subsequent written and oral forward-looking statements attributable to the Company or Brookfield Reinsurance and/or any person acting on behalf of either of them are expressly qualified in their entirety by this paragraph. The information contained on any websites referenced in this Annual Report on Form 10-K is not incorporated by reference into this Annual Report on Form 10-K.
COVID-19 Response
On March 11, 2020, the World Health Organization formally declared the outbreak of the novel coronavirus COVID-19 to be a pandemic. A summary of significant actions the Company took in response to COVID-19 through December 31, 2020 is disclosed in our 2020 Annual Report on form 10-K filed with the SEC on March 4, 2021. Below is a summary of significant subsequent developments in our COVID-19 response:
•We continue to take steps to protect employees with the goals of maintaining their health and sustaining an adequate workforce, including employees working from home and offering flexibility for employees negotiating scheduling conflicts due to the impacts of COVID-19, such as caring for family, alternative arrangements and shutdowns for business and schools, self-isolation or personal illness, including granting additional paid time off for vaccinations and to address these hardships.
•We suspended our summer Internship Program for 2020, and in 2021 piloted a program which combined both virtual and in-person elements for a small group of interns. In 2022, we will be offering a hybrid program with virtual and in-person elements, to an expanded group of interns.
•We have developed and are continually refining our return-to-office plans for our locations. Beginning in June 2021, we gradually re-introduced more employees to our office locations but had to lessen our in-office presence in the latter part of the year due to a surge in the Omicron variant. We are continually monitoring the situation with a longer-term plan to offer employees hybrid work schedules, where possible.
Although we have been able to maintain our business operations since the onset of the pandemic, no assurance can be given that these actions will continue to be successful, nor can we predict the level of disruption that will occur should the COVID-19 pandemic and its related macroeconomic risks continue for further extended periods of time. Given this uncertainty, we are unable to quantify with reasonable confidence the total expected impact of the COVID-19 pandemic on our future operations, financial condition, liquidity and results of operations. The wide-ranging social, economic and financial consequences of the COVID-19 pandemic and the possible effects of ongoing and future governmental action in response to COVID-19 compound this uncertainty. Additional information regarding risks and uncertainties related to the COVID-19 pandemic are set forth in Part I, Item 1A, Risk Factors. For additional information regarding the direct and indirect impact to mortality refer to Part II, Item 7, MD&A, Life.
This MD&A should be read in conjunction with our consolidated financial statements and related notes included in Part II, Item 8, Financial Statements and Supplementary Data.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Overview
American National Group, Inc. ("ANAT") is a family of companies that has $31.3 billion in assets, $24.3 billion in liabilities and $7.0 billion in stockholders' equity as of December 31, 2021. American National Insurance Company ("ANICO"), founded in 1905 and headquartered in Galveston, Texas, and other ANAT subsidiaries offer a broad spectrum of products and services, which include life insurance, annuities, property and casualty insurance, health insurance, credit insurance, and pension products. The American National companies operate in all 50 states, the District of Columbia and Puerto Rico. In addition to ANICO, major subsidiaries include American National Life Insurance Company of Texas, American National Life Insurance Company of New York, American National Property and Casualty Company, Garden State Life Insurance Company, Standard Life and Accident Insurance Company, Farm Family Casualty Insurance Company and United Farm Family Insurance Company.
Our business has been and will continue to be influenced by several industry-wide, segment or product-specific trends and conditions. In our discussion below, we first outline the broad macro-economic or industry trends (General Trends) that we expect to impact our overall business. Second, we discuss certain segment-specific trends we believe may impact individual segments or specific products within these segments.
General Trends
Our business, financial condition and results of operations are materially affected by economic and financial market conditions. The U.S. and global economies, as well as the capital markets, continue to show mixed signals, and uncertainties continue to be significant factors in the markets in which we operate. Factors such as consumer spending, business investment, the volatility of the capital markets, the level of interest rates, unemployment, the level of participation in the workforce and the risk of inflation or deflation will affect the business and economic environment and, in turn, impact the demand for the type of financial and insurance products we offer. Adverse changes in the economy could have a material adverse effect on us. However, we believe those risks are somewhat mitigated by our financial strength, active enterprise risk management and disciplined underwriting for our products. Our diverse product mix and distribution channels across insurance segments is a strength that we expect will help us adapt to the volatile economic environment and give us the ability to serve the changing needs of our customers. Additionally, through our long-term business approach, we believe we are financially strong, and we are committed to providing a steady and reliable source of financial protection for policyholders.
Interest Rates: The low-interest rate environment is a challenge for life and annuity insurers as the spreads on deposit-type contracts remain narrow, especially as interest rates have approached minimum crediting rates. Low market interest rates reduce the spreads between the amounts we credit to fixed annuity and individual life policyholders and the amounts we earn on the investments that support these obligations. Our ALM Committee actively manages the profitability of these blocks of business. In previous years, we reduced the guaranteed minimum crediting rates on new fixed annuity contracts, which has afforded us the flexibility to respond to the unusually low-interest rate environment. We have also reduced crediting rates on in-force contracts, where permitted to do so. These actions help mitigate the adverse impact of low interest rates on the profitability of these products, although sales volume may be negatively impacted as a result. We also maintain assets with various maturities to support product liabilities and ensure liquidity. A gradual increase in longer-term interest rates relative to short-term rates generally will have a favorable effect on the profitability of our products. Rapidly rising interest rates could result in reduced persistency of our spread-based products, if contract holders shift assets into higher yielding investments. We believe our ability to react quickly to the changing marketplace will help us manage this risk.
The interest rate environment affects estimated future profit projections, which could impact the amortization of our DAC assets and the estimates of policyholder liabilities. Significantly lower future estimated profits may cause us to accelerate the amortization of DAC or require us to establish additional policyholder liabilities, thereby reducing earnings. We periodically review assumptions with respect to future earnings to ensure they remain appropriate considering the current interest rate environment.
Low interest rates are also challenging for property and casualty insurers. Investment income is an important element in earning an acceptable return on capital. Lower interest rates resulting in lower investment income require us to achieve better underwriting results. We have adjusted policy prices to help mitigate the adverse impact of low interest rates on our property and casualty business.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Changing Regulatory Environment: The insurance industry is primarily regulated at the state level, although some life and annuity products and services are also subject to U.S. federal regulation. We are regularly subjected to additional or changing regulation that requires us to update systems, change product structure, increase the amount of reporting or adopt changes to distribution. These changes may increase the capital requirements for us and the industry, increase operating costs, change our operating practices and change our ability to provide products with pricing attractive to the marketplace.
Importance of Operating Efficiencies: The volatile economic environment and costs associated with greater regulation create a further need for operating efficiencies. We manage our cost base while maintaining our commitment to provide superior customer service to policyholders and agents. Investments in technology are coordinated through a disciplined project management process. We anticipate continuous improvement in our use of technology to enhance our policyholders’ and agents’ experience and increase our overall operating effectiveness.
Increased Role of Advanced Technology: The use of mobile technology has changed the way consumers want to conduct their business, including real-time access to information. Many customers expect to complete transactions in a digital format instead of traditional methods that require a phone call or submission of paper forms. Social media and other customer-facing technologies also reshape the way companies communicate and collaborate with key stakeholders, and new tools exist to better collect and analyze information for potential business opportunities and better management of risks. For example, we have mobile-enabled all internet-based access and leveraged social media channels to reach out to potential customers to promote awareness of the company, including the products and services offered. We expect that technology will continue to evolve, offering new and more effective ways to reach and service our customers and shareholders. We evaluate available and evolving technologies and incorporate those we believe offer appropriate benefits to the company and its customers.
Continued Challenges of Talent Attraction and Retention: Attracting qualified individuals and retaining existing employees continues to be a challenge for employers. Businesses have become extremely competitive in the ever-changing landscape of the talent marketplace. As a result, it is an increasing challenge to distinguish us as an employer of choice.
To address these challenges, we continue to seek out new and expanded uses for technology and social media that enhance our employer brand and educate candidates on the many benefits of working for us. Our planning and outreach efforts to develop a more diverse and inclusive workplace continue and help to strengthen the engagement of current employees as well as attract future employees. We continue to amplify the voice of our employees with regular surveys which help us grow and innovate. We actively value the perspectives that each employee brings and encourage broader employee influence on how decisions are made. As a result, we continue to experience increase in overall employee engagement. Providing robust career development conversations and career paths, personal growth opportunities and effective succession planning are also important elements of our retention and employee development efforts.
During the COVID-19 pandemic, the Company has devoted key resources to make employee health and safety a top priority. These efforts are having a positive impact as reflected in recent employee engagement survey results. Additionally, as we speak with candidates during the talent acquisition process, our precautions and protocols to ensure employee safety have been important to them when making the decision to join us. As we proceed though the pandemic, employee safety, productivity and retention are vital to meeting business goals and objectives.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Life and Annuity
Effective management of invested assets and associated liabilities using crediting rates and, where applicable, financial hedging instruments (which we use as economic hedges of equity-indexed life and annuity products), is important to the success of our Life and Annuity segments. Asset “disintermediation,” the risk of large outflows of cash at times when it is disadvantageous to us to dispose of invested assets, is a risk associated with these segments as are rates of mortality and surrenders that exceed our assumptions.
Demographics: We believe a key driver shaping the actions of the life insurance industry is the rising income protection, wealth accumulation and insurance needs of an increasing number of retirees. As a result of increasing longevity and uncertainty regarding the Social Security System and an ongoing transition from defined benefit pension plans to 401(k) type retirement plans, retirees will need to accumulate sufficient savings to support retirement income requirements.
We believe we are well positioned to address the increasing need for savings tools and income protection. We believe our overall financial strength and broad distribution channels position us to respond with a variety of products for individuals approaching retirement age, who seek information to plan for and manage their retirement needs. We believe our products that offer guaranteed income flows are well suited to serve this market.
Competitive Pressures: In recent years, the competitive landscape of the U.S. life insurance industry has shifted. Established insurers are competing against each other and also against new market entrants that are developing products to attract the interest of the growing number of retirees. Competition exists in terms of retaining and acquiring consumers’ business and also in terms of access to producers and distributors. Consolidation among distributors coupled with the aging sales force remains a challenge among insurers. In addition, the increased technological sophistication of consumers necessitates that insurers and distributors invest significant resources in technology to adapt to consumer expectations. We believe we possess sufficient scale, financial strength, resources and flexibility to compete effectively.
We believe we will continue to be competitive in the life and annuity markets through our broad line of products, diverse distribution channels, and consistent high level of customer service. We modify our products to meet customer needs and to expand our reach where we believe we can obtain profitable growth.
Property and Casualty
We offer our personal and commercial property and casualty lines of business primarily through our multiple line agencies. We favor a balanced, focused and collaborative approach to both growth and profitability through the development of successful agencies.
To acquire and retain profitable business, we use sophisticated pricing models and risk segmentation, along with a focused distribution force. We believe this approach allows us to make product enhancements and offer programs that are charging an appropriate premium for the risk.
Demand for property and casualty credit-related insurance products continues to increase. We continue to update credit-related insurance product offerings and pricing to meet changing market needs, as well as adding new agents to expand market share in the credit-related insurance market. We are reviewing and implementing procedures to enhance customer service while, simultaneously, looking for efficiencies to reduce administrative costs.
Competitive Pressures: The property and casualty insurance industry remains highly competitive. Despite the competitive environment, we expect to identify profitable opportunities through our strong distribution channels, expanding geographic coverage, marketing efforts, new product development and pricing sophistication.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Health
As a result of the Healthcare Acts of 2010 new opportunities were created in the limited benefit and supplemental product markets. In recent years, we built a portfolio of such products to be sold in the worksite market as well as to individuals. We believe that changes to the Healthcare Acts that removed the tax consequences for not having health coverage and the current removal of limitations on Short-Term Medical products could significantly increase our production. We constantly monitor the legislative environment for new changes that would impact our outlook on these products.
We also continue to expand our presence and product portfolio in the worksite market to generate new opportunities in the broker market, as well as developing and implementing a captive sales force.
We expect our Managing General Underwriter (“MGU”) business to remain stable during 2022. We generally retain only 10% of the premiums and risks produced by MGUs. The majority of the revenue generated from this business is fee income included in “Other income” of the Health segment’s operating results.
We have decided to exit the Medicare Supplement market due to increasing pricing pressures and deterioration of new sales and operational performance. Marketing efforts are refocused to MGU, Worksite and Individual Supplemental lines of business.
Sale of Equity Securities Portfolio
During the fourth quarter of 2021, we sold the majority of our equity securities portfolio. Such sale was based upon senior management's assessment of market conditions and the potential for changes in the U.S. federal corporate income tax rate. The sale resulted in net proceeds of $1.7 billion and did not have a significant impact on our stockholders' equity.
Proceeds from the sale of the equity securities portfolio will be reinvested primarily in fixed income investments. We expect that such sale, coupled with the reinvestment of proceeds in primarily fixed income investments, will have a positive impact on our net investment income and cash flows, as well as on the Risk Based Capital of our insurance company subsidiaries that held equity security investments. Such actions will also mitigate fluctuations in net income associated with non-cash earnings from net gains (losses) from the change in fair value of equity securities.
Critical Accounting Estimates
The preparation of financial statements in accordance with GAAP requires estimates and assumptions that often involve a significant degree of judgment. These estimates and judgments include expectations of current and future mortality, morbidity, persistency, claims and claim adjustment expenses, recoverability of receivables, investment returns and interest rates which extend well into the future. In developing these estimates there is inherent uncertainty, and material changes to facts and circumstances may develop. Although variability is inherent in these estimates, we believe the amounts as reported are appropriate based upon the facts available upon compilation of the consolidated financial statements.
On an ongoing basis, management reviews the estimates and assumptions used in preparing the financial statements. If current facts and circumstances warrant modifications in estimates and assumptions, our financial position and results of operations as reported in the consolidated financial statements could change significantly.
A description of these critical accounting estimates is presented below. Also, see Part II, Item 8, Financial Statements and Supplementary Data - Notes to the Consolidated Financial Statements for additional information.
Future Policy Benefits
Life and Annuity Liability for Unpaid Claims
Life Reserving-Principal assumptions used in the determination of the reserves for future policy benefits are mortality, policy lapse rates, investment return, inflation, expenses and other contingent events as appropriate to the respective product type. Reserves for incurred but not reported (“IBNR”) claims on life policies are calculated using historical claims information. Reserves for interest-sensitive and variable universal life insurance policies are equal to the current account value calculated for the policyholder. Some of our universal life policies contain secondary guarantees, for which additional reserves are recorded based on the term of the policy.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Annuity Reserving-Reserves for payout annuities with more than insignificant amounts of mortality risk are calculated in accordance with the applicable accounting guidance for limited pay insurance contracts. Benefit and maintenance expense reserves are calculated by using assumptions reflecting our expectations of future costs, including an appropriate margin for adverse deviation. These assumptions are locked-in at issue and generally reflect pricing assumptions from that period. If the resulting reserve would otherwise cause profits to be recognized at the issue date, additional reserves are recorded. The resulting recognition of profits would be gradual over the expected life of the contract.
Reserves for fixed deferred annuities are established equivalent to the account value held on behalf of the policyholder. Reserves for indexed annuities are calculated in accordance with derivative accounting guidance which defines a host liability for return of principal and guaranteed interest, and an embedded derivative liability for funded benefits in excess of the host guarantee. Additional reserves for benefits that can exceed contract fund value, such as lifetime income riders, are determined as needed in accordance with the applicable accounting guidance. The profit recognition on deferred annuity contracts is gradual over the expected life of the contract. No immediate profit is recognized on the sale of the contract.
Key Assumptions-The following assumptions reflect our best estimates and may impact our life and annuity reserves:
•Future lapse rates will remain reasonably consistent with our current expectations;
•Mortality rates will remain reasonably consistent within standard industry mortality table ranges; and
•Future interest spreads will remain reasonably consistent with our current expectations.
Recoverability-At least annually, we test the adequacy of the net benefit reserves (policy benefit reserves less DAC) recorded for life insurance and annuity products. To perform the tests, we use our current best-estimate assumptions as to policyholder mortality, persistency, maintenance expenses and invested asset returns.
For interest-sensitive business, best-estimate assumptions are updated to reflect observed changes based on experience studies and current economic conditions. We reflect the effect of such assumption changes in DAC and reserve balances accordingly. Due to the long-term nature of many of the liabilities, small changes in certain assumptions may cause large changes in profitability. In particular, changes in estimates of the future invested asset return have a large effect on the degree of reserve adequacy and DAC recoverability.
For traditional business, a “lock-in” principle applies, whereby the assumptions used to calculate the benefit reserves and DAC are set when a policy is issued and do not change with changes in actual experience. These include margins for adverse deviation in the event that actual experience differs from the original assumptions.
Health Liability for Unpaid Claims
Health liabilities for unpaid claims are established using the following methods:
Completion Factor Approach-This method assumes that the historical claim patterns will be an accurate representation of unpaid claim liabilities. An estimate of the unpaid claims is calculated by subtracting period-to-date paid claims from an estimate of the ultimate “complete” payment for all incurred claims in the period. Completion factors are calculated which “complete” the current period-to-date payment totals for each incurred month to estimate the ultimate expected payout.
Tabular Claims Reserves-This method is used to calculate the reserves for long-term care and disability income blocks of business. These reserves rely on published valuation continuance tables created using industry experience regarding assumptions of continued morbidity and subsequent recovery. Reserves are calculated by applying these continuance tables, along with appropriate company experience adjustments, to the stream of contractual benefit payments. These expected benefit payments are discounted at the required interest rate.
Future Policy Benefits-Reserves are equal to the aggregate of the present value of expected future benefit payments, less the present value of expected future premiums. Morbidity and termination assumptions are based on our experience or published valuation tables when available and appropriate.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Premium Deficiency Reserves-Deficiency reserves are established when the expected future claim payments and expenses for a classification of policies are in excess of the expected premiums for these policies. The determination of a deficiency reserve takes into consideration the likelihood of premium rate increases, the timing of these increases, future net investment income, and the expected benefit utilization patterns. We have established premium deficiency reserves for portions of the major medical business and the long-term care business that are in run-off. The assumptions and methods used to determine the deficiency reserves are reviewed periodically for reasonableness, and the reserve amount is monitored against emerging losses.
Property and Casualty Liability for Unpaid Claims and Claim Adjustment Expenses
Liability for unpaid claims and Claim Adjustment Expense (“CAE”)-Property and casualty liability for unpaid claims and CAE are established to provide for the estimated cost of settling and paying both reported as well as IBNR claims. The two major categories of CAE are defense and cost containment expense, and adjusting and other expense. The details of property and casualty liability for unpaid claims are shown below (in thousands):
December 31, 2021 December 31, 2020
Gross Ceded Net Gross Ceded Net
Case $ 673,929 $ 71,408 $ 602,521 $ 628,729 $ 60,081 $ 568,648
IBNR 549,223 37,788 511,435 518,358 32,926 485,432
Total $ 1,223,152 $ 109,196 $ 1,113,956 $ 1,147,087 $ 93,007 $ 1,054,080
Case Reserves-Reserves for reported losses are determined on either a judgment or a formula basis, depending on the timing and type of the loss. The formula reserve is a fixed amount for each claim of a given type based on historical paid loss data for similar claims with a provision for claim inflation. Judgment reserve amounts replace initial formula reserves and are set for each loss based on facts and circumstances of each case and the expectation of damages. We regularly monitor the adequacy of reserves on a case-by-case basis and change the amount of such reserves as necessary.
IBNR-IBNR liabilities are estimated based on many variables including historical statistical information, inflation, legal environment, economic conditions, trends in claim severity and frequency as well as other factors affecting the adequacy of claim reserves. Loss and premium data is aggregated by exposure class and by accident year. IBNR liabilities are estimated by projecting ultimate losses on each class of business and subtracting paid losses and case reserves. Our overall reserve practice provides for ongoing claims evaluation and adjustment based on the development of related data and other relevant information pertaining to claims. Adjustments in aggregate reserves, if any, are included in the results of operations for the period during which such adjustments are made.
The property and casualty liabilities for unpaid claims are established to recognize future development on reported losses for each line of business. The estimation of these amounts is subject to significant uncertainty due to the volatile nature of property and casualty insurance liabilities. The estimation process is based significantly on the assumption that past developments are an appropriate predictor of future events and involves a variety of actuarial techniques that analyze experience, trends and other relevant factors. See the following paragraphs as well as Part II, Item 8, Financial Statements and Supplementary Data - Note 12, Liability for Unpaid Claims and Claim Adjustment Expenses, of the Notes to the Consolidated Financial Statements for additional information.
The evaluation process to determine liability for unpaid claims involves the collaboration of underwriting, claims and actuarial departments. The process also includes consultation with independent actuarial firms as part of our process of gaining reassurance that claims and CAE liability estimate sufficiently, all obligations arising from all losses incurred as of year-end.
Premium Deficiency Reserve-Deficiency reserves are recorded when the expected claims payments and policy maintenance costs for a product line exceed the expected premiums for that product line. The estimation of a deficiency reserve considers the current profitability of a product line using anticipated claims, CAE, and policy maintenance costs. The assumptions and methods used to determine the need for deficiency reserves are reviewed periodically for reasonableness. There were no reserves of this type at December 31, 2021 and December 31, 2020, respectively.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Property and Casualty Reserving Methodology-The following methods are utilized:
•Initial Expected Loss Ratio-This method calculates an estimate of ultimate losses by applying an estimated loss ratio to actual earned premium for each calendar/accident year. This method is appropriate for classes of business where the actual paid or reported loss experience is not yet mature enough to influence initial expectations of the ultimate loss ratios.
•Pegged Frequency and Severity-This method uses actual claims count data and emergence patterns of older accident periods to project the ultimate number of reported claims for a given accident year. A similar process projects the ultimate average severity per claim so that the product of the two projections results in a projection of ultimate loss for a given accident year.
•Bornhuetter-Ferguson-This method uses, as a starting point, either an assumed Initial Expected Loss Ratio Method or Pegged Frequency and Severity method and blends in the loss ratio or frequency and severity implied by the claims experience to date by using loss development patterns based on our historical experience. This method is generally appropriate where there are few reported claims and an unstable pattern of reported losses.
•Loss or Expense Development (Chain Ladder)-This method uses actual loss or defense and cost containment expense data and the historical development profiles on older accident periods to project more recent, less developed periods to their ultimate total. This method is appropriate when there is a relatively stable pattern of loss and expense emergence and a relatively large number of reported claims.
•Ratio of Paid Defense and Cost Containment Expense to Paid Loss Development-This method uses the ratio of paid defense and cost containment expense to paid loss data and the historical development profiles on older accident periods to project more recent, less developed periods to their ultimate total. In this method, an ultimate ratio of paid defense and cost containment expense to paid loss is selected for each accident period. The selected paid defense and cost containment expense to paid loss ratio is then applied to the selected ultimate loss for each accident period to estimate the ultimate defense and cost containment expense. Paid defense and cost containment expense is then subtracted from the ultimate defense and cost containment expense to calculate the unpaid defense and cost containment expense for that accident period.
•Calendar Year Paid Adjusting and Other Expense to Paid Loss-This method uses a selected prior calendar years’ paid expense to paid loss ratio to project ultimate loss adjustment expenses for adjusting and other expense. A percentage of the selected ratio is applied to the case reserves (depending on the line of insurance) and 100% to the indicated IBNR reserves. These ratios assume that a percentage of the expense is incurred when a claim is opened and the remaining percentage is paid throughout the claim's life.
The basis of our selected single point best estimate on a particular line of business is often a blended result from two or more methods (e.g. weighted averages). Our estimate is highly dependent on actuarial and management judgment as to which method(s) is most appropriate for a particular accident year and class of business. Our methodology changes over time, as new information emerges regarding underlying loss activity and other factors.
Key Assumptions-The following assumptions reflect our best estimates and may impact our property and casualty reserves:
•The expected loss development patterns, estimated primarily using our historical loss experience;
•The expected loss ratios, claim frequency and severity, estimated primarily using our historical loss experience;
•Consistent claims handling, reserving and payment processes;
•No unusual growth patterns or unexpected changes in the mix of business; and
•No significant prospective changes in laws that would significantly affect future payouts.
Management believes our reserves at December 31, 2021 are adequate. New information, regulation, events or circumstances unknown at the original valuation date, however, may result in future development resulting in ultimate losses being significantly greater or less than the recorded reserves at December 31, 2021.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Deferred Policy Acquisition Costs (DAC)
We had a DAC asset of approximately $1.5 billion and $1.4 billion at December 31, 2021 and 2020, respectively. See Part II, Item 8, Financial Statements and Supplementary Data - Note 10, Deferred Policy Acquisition Costs, of the Notes to the Consolidated Financial Statements for additional details.
We believe the estimates used in our DAC calculations provide insight into how variations in assumptions and estimates would affect our business. The following table displays the sensitivity of reasonably likely changes in assumptions in the DAC amortization for our long-duration business at December 31, 2021 (in thousands):
Increase (Decrease) in DAC
Increase in future investment margins of 25 basis points $ 50,772
Decrease in future investment margins of 25 basis points (57,127)
Decrease in future life mortality by 1% 2,189
Increase in future life mortality by 1% (2,258)
Allowance for Credit Losses
On January 1, 2020, we adopted ASC 326, Financial Instruments-Credit Losses, accounting guidance related to the allowance for credit losses. The new standard significantly changed how entities measure credit losses for most financial assets and reinsurance recoverables that are not measured at fair value through net income. The guidance replaced the current “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. Refer to Part II, Item 8, Financial Statements and Supplementary Data - Note 4, Investment in Securities, and Note 5, Mortgage Loans, of the Notes to the Consolidated Financial Statements for further discussion of the accounting policies and methodologies for establishing the allowance for credit losses.
The accounting estimates relating to the allowance for credit losses over financial assets held at amortized cost have been evaluated and monitored since adoption and management has deemed these estimates to be critical for the following reasons:
•Changes in the provision for credit losses can be material to the financial position and results of operations for the Company;
•Estimates relating to the allowance for credit losses require us to project future cash flows, delinquencies, collateral values, occupancy rates, prepayments based on a reasonable and supportable forecast in order to estimate probability of default and the loss given default;
•The allowance for credit losses is also affected by factors outside of our control including, but not limited to, market volatility, deterioration in the credit or prospects of companies and governmental entities, political uncertainty, industry trends, pandemics, and trends in interest rates; and
•Management judgment is required to determine which models, methodologies, and scenario conditions are used to calculate the allowance for credit losses to produce a reasonable estimate that encompasses the expected lifetime credit losses.
Since our estimate for the allowance for credit losses relies on management judgment and is sensitive to factors outside of our control, as noted above, there are inherent uncertainties within the estimates. As a result, the changes in the allowance for credit losses could materially impact our consolidated financial statements.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Valuation of Financial Instruments
The fair value of available-for-sale fixed maturity and equity securities is determined by management using one of the three primary sources of information: the quoted prices in active markets, third-party pricing services, or independent broker quotations. Estimated fair value of securities based on quoted prices in active markets is readily and regularly available; therefore, valuation of these securities generally does not involve management judgment. For securities without quoted prices, fair value measurement is determined using third-party pricing services’ proprietary pricing applications. Typical inputs used by the models are relevant market information, benchmark curves, benchmark pricing of like securities, sector groupings and matrix pricing. Any securities remaining unpriced after utilizing the first two pricing methods are submitted to independent brokers for prices. We have analyzed the third-party pricing services and independent brokers’ valuation methodologies and related inputs, and have evaluated the various types of securities in our investment portfolio to determine an appropriate fair value hierarchy level based upon trading activity and the observability of market inputs. Management completes certain tests throughout the year and at year-end to determine that prices provided by our pricing services are reasonable.
The Company sells equity-indexed universal life and equity-indexed deferred annuity contracts with guaranteed minimum benefits, some of which contain embedded derivatives that are required to be bifurcated from a host reserve, separately accounted for, and measured at fair value. We utilize over-the-counter equity options to hedge our exposure to equity-indexed universal life and equity-indexed deferred annuity benefits, and the fair values for these options are sourced from broker quotations. Accounting guidance requires a fair value calculation as part of equity-indexed policy reserves. This is called the value of embedded derivative ("VED") and the other part of the indexed policy reserve is called the host reserve. The embedded derivative represents future benefit cash flows in excess of the minimum guarantee cash flows. The host covers the minimum guarantee cash flows. Both the VED and the host reserve are calculated by a vendor-sourced reserve valuation system. The VED calculation model incorporates assumptions related to current option pricing (such as implied volatility and interest rates), future policyholder behavior (such as surrenders and withdrawals), and factors affecting the value of future indexed interest periods (such as option budgets). These assumptions are evaluated annually by management with any changes in the estimated fair value resulting in a cumulative charge or credit to income from operations.
Litigation Contingencies
Based on information currently available, we believe that amounts ultimately paid, if any, arising from existing and currently potential litigation would not have a material effect on our results of operations and financial condition. However, it should be noted that the frequency of large damage awards, which bear little or no relation to the economic damages incurred by plaintiffs, continues to create the potential for an unpredictable judgment in any given lawsuit. It is possible that, if the defenses in these lawsuits are not successful, and the judgments are greater than we anticipate, the resulting liability could have a material impact on the consolidated financial statements.
Segments
Our insurance segments do not directly own assets. Rather, assets are allocated to support the liabilities and capital allocated to each segment. The mix of assets allocated to each of the insurance segments is intended to support the characteristics of the insurance liabilities within each segment including expected cash flows and pricing assumptions, and is intended to be sufficient to support each segment’s business activities. We have utilized this methodology consistently over all periods presented.
The Corporate and Other segment acts as the owner of all invested assets of the Company. The investment income from the invested assets is allocated to the insurance segments in accordance with the assets allocated to each insurance segment. Earnings of the Corporate and Other segment are derived from income related to invested assets not allocated to the insurance segments and from our non-insurance subsidiaries. All realized investment gains and losses, which includes other-than-temporary impairments (“OTTI”) and credit losses, are recorded in this segment.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Consolidated Results of Operations
The following sets forth the consolidated results of operations (in thousands):
Years ended December 31, Change over prior year
2021 2020 2019 2021 2020
PREMIUMS AND OTHER REVENUES
Premiums $ 2,301,053 $ 2,218,074 $ 2,182,794 $ 82,979 $ 35,280
Other policy revenues 359,707 310,746 305,256 48,961 5,490
Net investment income 1,171,654 976,152 1,180,907 195,502 (204,755)
Net realized investment gains 64,628 35,660 30,751 28,968 4,909
(Increase) decrease in investment credit loss 28,778 (102,603) - 131,381 (102,603)
Net gains on equity securities 420,283 356,281 422,535 64,002 (66,254)
Other income 45,688 40,556 51,401 5,132 (10,845)
Total premiums and other revenues 4,391,791 3,834,866 4,173,644 556,925 (338,778)
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits 755,655 748,083 667,828 7,572 80,255
Claims incurred 1,192,155 1,121,742 1,151,166 70,413 (29,424)
Interest credited to policyholders’ account balances 448,654 321,042 511,999 127,612 (190,957)
Commissions for acquiring and servicing policies 640,097 553,600 532,634 86,497 20,966
Other operating expenses 571,869 515,413 524,888 56,456 (9,475)
Change in deferred policy acquisition costs (1)
(79,632) (5,678) (12,749) (73,954) 7,071
Total benefits, losses and expenses 3,528,798 3,254,202 3,375,766 274,596 (121,564)
Income before federal income taxes and other items $ 862,993 $ 580,664 $ 797,878 $ 282,329 $ (217,214)
(1)A negative change indicates more expense was deferred than amortized and represents a decrease to expenses in the period indicated.
Comparison of the year ended December 31, 2021 to 2020
Earnings increased primarily due to the following:
•An increase in net investment income driven by increases from investment funds and mortgage loan profit participation and prepayment income
•A favorable change in investment credit loss due to improvement in our commercial mortgage loans driven by improvement in cash flows and a positive economic outlook from our properties, and improving conditions in travel and leisure
The increase in earnings was partially offset by the following:
•A decrease in Life segment earnings driven by an overall increase in mortality which includes claims directly and indirectly attributable to COVID-19
•A decrease in Property and Casualty segment earnings driven by an increase in net catastrophe losses and higher claim frequency in our personal automobile products as miles driven have increased
•An increase in operating expenses primarily due to Merger-related expenses of $21.5 million
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Life
Life segment financial results for the periods indicated were as follows (in thousands):
Years ended December 31, Change over prior year
2021 2020 2019 2021 2020
PREMIUMS AND OTHER REVENUES
Premiums $ 412,769 $ 396,099 $ 359,419 $ 16,670 $ 36,680
Other policy revenues 336,136 295,263 288,061 40,873 7,202
Net investment income 277,962 261,389 263,788 16,573 (2,399)
Other income 1,577 2,084 1,967 (507) 117
Total premiums and other revenues 1,028,444 954,835 913,235 73,609 41,600
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits 605,724 533,925 449,252 71,799 84,673
Interest credited to policyholders’ account balances 84,005 75,943 80,950 8,062 (5,007)
Commissions for acquiring and servicing policies 186,470 167,548 162,203 18,922 5,345
Other operating expenses 195,127 182,395 190,104 12,732 (7,709)
Change in deferred policy acquisition costs (1)
(50,134) (53,756) (26,036) 3,622 (27,720)
Total benefits, losses and expenses 1,021,192 906,055 856,473 115,137 49,582
Income before federal income taxes and other items $ 7,252 $ 48,780 $ 56,762 $ (41,528) $ (7,982)
(1)A negative change indicates more expense was deferred than amortized and represents a decrease to expenses in the period indicated.
Comparison of the year ended December 31, 2021 to 2020
Earnings for our Life segment decreased primarily due to the following:
•An overall increase in mortality which includes claims directly and indirectly attributable to COVID-19
The decrease in earnings was partially offset by the following:
•Strong persistency resulting in an increase in premiums and other policy revenues
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Life Insurance Sales
The following table presents life insurance sales as measured by annualized premium, which allows a comparison of new policies sold by an insurance company during the period (in thousands):
Years ended December 31, Change over prior year
2021 2020 2019 2021 2020
Traditional Life $ 64,178 $ 62,044 $ 56,681 $ 2,134 $ 5,363
Universal Life 32,989 28,900 28,673 4,089 227
Indexed UL 36,333 30,643 36,906 5,690 (6,263)
Total recurring 133,500 121,587 122,260 11,913 (673)
Single and excess (1)
2,097 1,509 2,193 588 (684)
Credit life (1)
7,714 8,140 10,723 (426) (2,583)
Total annualized premium $ 143,311 $ 131,236 $ 135,176 $ 12,075 $ (3,940)
(1)Weighted amounts with single and excess premiums counted at 10%
Life insurance sales are based on the total yearly premium that insurance companies would expect to receive if all recurring premium policies remain in-force, plus 10% of single and excess premiums. Life insurance sales measure activity associated with gaining new insurance business in the current period, and includes deposits received related to interest sensitive life and universal life-type products. Whereas GAAP premium revenues 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.
Total Life sales increased 9.2% during the twelve months ended December 31, 2021 compared to 2020 as new life sales rebounded from the COVID-19 economic uncertainties and social distancing practices during 2020.
Policy In-force Information
The following table summarizes changes in the Life segment’s in-force amounts (in thousands):
December 31, Change over prior year
2021 2020 2019 2021 2020
Life insurance in-force
Traditional life $ 98,142,544 $ 91,920,577 $ 84,129,193 $ 6,221,967 $ 7,791,384
Interest-sensitive life 38,789,008 36,326,621 33,975,092 2,462,387 2,351,529
Total life insurance in-force
$ 136,931,552 $ 128,247,198 $ 118,104,285 $ 8,684,354 $ 10,142,913
The following table summarizes changes in the Life segment’s number of policies in-force:
December 31, Change over prior year
2021 2020 2019 2021 2020
Number of policies in-force
Traditional life 1,696,145 1,832,536 1,911,305 (136,391) (78,769)
Interest-sensitive life 281,380 269,668 256,146 11,712 13,522
Total number of policies in-force 1,977,525 2,102,204 2,167,451 (124,679) (65,247)
Life insurance in-force increased during the twelve months ended December 31, 2021 compared to 2020 despite a reduction of policies in-force due to an increase in sales of higher face amount policies.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Change in Deferred Policy Acquisition Costs
The change in DAC represents acquisition costs capitalized less the amortization of existing DAC. The following shows the components of the change in DAC (in thousands):
Years ended December 31, Change over prior year
2021 2020 2019 2021 2020
Acquisition cost capitalized $ (161,898) $ (148,142) $ (139,336) $ (13,756) $ (8,806)
Amortization of DAC 111,764 94,386 113,300 17,378 (18,914)
Change in DAC $ (50,134) $ (53,756) $ (26,036) $ 3,622 $ (27,720)
Reinsurance
The table below summarizes reinsurance reserves and premium amounts assumed and ceded (in thousands):
Reserves Premiums
Years ended December 31, Years ended December 31,
2021 2020 2019 2021 2020 2019
Reinsurance assumed $ 2,902 $ 1,067 $ 1,103 $ 5,035 $ 1,419 $ 507
Reinsurance ceded (221,898) (195,251) (203,011) (87,721) (77,444) (86,017)
Total $ (218,996) $ (194,184) $ (201,908) $ (82,686) $ (76,025) $ (85,510)
We use reinsurance to mitigate certain risks to the Life segment. During 2021, our retention limits were $5.0 million for issue ages 75 and under, and $2.0 million for issue ages 76 through 80, and $1.0 million for issue ages 81 and older for traditional and universal life. In our Life segment, we currently retain 100% of newly developed permanent and term products up to our retention limit and cede the excess. American National utilizes facultative reinsurance when a case requires support that does not follow the Company’s standard underwriting guidelines. Accidental death and premium waiver benefits are mostly retained on new business. The reduction in reinsurance ceded is due to a change in retention limits effective January 1, 2019.
For 2021, the companies to whom we have ceded reinsurance for the Life segment are shown below (in thousands, except percentages):
Reinsurer A.M. Best Rating (1)
Ceded Premium Percentage of Ceded Premium
Swiss Re Life & Health of America Inc. A+ $ 25,133 30.1 %
SCOR Global Life Reinsurance Company of Delaware A+ 18,039 21.6
Munich American Reassurance Company A+ 13,091 15.7
Canada Life Reinsurance A+ 7,543 9.0
Reinsurance Group of America
A+ 5,576 6.7
General Re Life Corporation A++ 4,807 5.8
Other Reinsurers with no single company with greater than 5% of the total ceded premium 9,262 11.1
Total life reinsurance ceded $ 83,451 100.0 %
(1)A.M. Best rating as of the most current information available February 9, 2022.
In addition, reinsurance is used in the credit life business primarily to provide producers of credit-related insurance products the opportunity to participate in the underwriting risk through producer-owned captive reinsurance companies often domiciled outside of the United States. A majority of the treaties entered into by our Specialty Markets Group are written on a 100% coinsurance basis with benefit limits of $0.1 million on credit life.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Annuity
Annuity segment financial results for the periods indicated were as follows (in thousands):
Years ended December 31, Change over prior year
2021 2020 2019 2021 2020
PREMIUMS AND OTHER REVENUES
Premiums $ 74,925 $ 92,866 $ 147,139 $ (17,941) $ (54,273)
Other policy revenues 23,571 15,483 17,195 8,088 (1,712)
Net investment income 629,417 570,003 663,895 59,414 (93,892)
Other income 3,282 2,716 2,727 566 (11)
Total premiums and other revenues 731,195 681,068 830,956 50,127 (149,888)
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits 149,931 214,158 218,576 (64,227) (4,418)
Interest credited to policyholders’ account balances
364,649 245,099 431,049 119,550 (185,950)
Commissions for acquiring and servicing policies
98,842 55,910 71,350 42,932 (15,440)
Other operating expenses 53,379 48,359 50,507 5,020 (2,148)
Change in deferred policy acquisition costs (1)
(22,838) 48,298 9,474 (71,136) 38,824
Total benefits, losses and expenses 643,963 611,824 780,956 32,139 (169,132)
Income before federal income taxes and other items $ 87,232 $ 69,244 $ 50,000 $ 17,988 $ 19,244
(1)A negative change indicates more expense was deferred than amortized and represents a decrease to expenses in the period indicated.
Comparison of the year ended December 31, 2021 to 2020
Earnings for our Annuity segment increased primarily due to the following:
•An increase in net investment income due to higher option gains resulting from favorable market conditions
•A favorable mark-to-market impact to equity-indexed annuity reserves primarily due to higher treasury rates
•Lower DAC amortization for fixed deferred products due to an increase in estimated gross profits driven by higher projected future interest rates compared to previous expectations
The increase in earnings was partially offset by the following:
•A change in estimate in the fourth quarter of 2020 related to our equity-indexed annuity products that resulted in an increase of $23.0 million in earnings from our Annuity segment. The impacts of the change in estimate consist of an increase to policyholder benefits of $47.1 million, deferred policy acquisition costs of $26.3 million and a reduction in interest credited to policyholders' account balances of $96.4 million
Annuity premium and deposit amounts received are shown below (in thousands):
Years ended December 31, Change over prior year
2021 2020 2019 2021 2020
Fixed deferred annuity $ 920,541 $ 366,384 $ 944,128 $ 554,157 $ (577,744)
Single premium immediate annuity 90,336 125,175 203,314 (34,839) (78,139)
Equity-indexed deferred annuity 793,068 394,178 330,744 398,890 63,434
Variable deferred annuity 62,719 60,279 69,178 2,440 (8,899)
Total premium and deposits 1,866,664 946,016 1,547,364 920,648 (601,348)
Less: Policy deposits 1,791,739 853,150 1,400,225 938,589 (547,075)
Total earned premiums $ 74,925 $ 92,866 $ 147,139 $ (17,941) $ (54,273)
Annuity premiums and deposits increased primarily for equity-indexed and fixed deferred products during the year ended December 31, 2021 compared to 2020 reflecting improved competitiveness of the product. The decrease in earned premium is due to a decline in single premium annuity sales.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Change in Deferred Policy Acquisition Costs
The change in DAC represents acquisition costs capitalized less the amortization of existing DAC, which is calculated in proportion to expected gross profits. The following shows the components of the change in DAC (in thousands):
Years ended December 31, Change over prior year
2021 2020 2019 2021 2020
Acquisition cost capitalized $ (99,971) $ (55,411) $ (70,272) $ (44,560) $ 14,861
Amortization of DAC 77,133 103,709 79,746 (26,576) 23,963
Change in DAC $ (22,838) $ 48,298 $ 9,474 $ (71,136) $ 38,824
The change in acquisition costs capitalized relates to increased commissions from sales. The change in amortization of DAC includes the unlocking of assumptions to our equity-indexed annuities largely offset by the effects of increases in interest rates, and as mentioned above, the change in estimate related to our equity-indexed annuities resulted in a $26.3 million increase in the amortization of DAC in 2020.
Shown below are the changes in reserve (in thousands):
Years ended December 31,
2021 2020 2019
Fixed deferred annuity
Reserve, beginning of period $ 6,635,203 $ 6,893,174 $ 6,773,603
Premiums 920,541 366,384 944,128
Death and other benefits (234,912) (215,330) (237,346)
Surrenders (484,048) (594,253) (787,617)
Fees (1,557) (968) (2,616)
Interest and mortality 184,060 186,196 203,022
Reserve, end of period 7,019,287 6,635,203 6,893,174
Equity-indexed annuity
Reserve, beginning of period 4,097,012 3,985,165 3,668,645
Premiums 793,068 394,178 330,744
Death and other benefits (57,070) (48,451) (40,670)
Surrenders (298,181) (331,359) (193,957)
Fees (3,358) (2,990) (3,640)
Interest and mortality 176,620 100,469 224,043
Reserve, end of period 4,708,091 4,097,012 3,985,165
Single premium immediate annuity
Reserve, beginning of period 1,851,955 1,874,942 1,826,137
Premiums 90,336 125,175 203,314
Payments (203,115) (218,469) (216,782)
Interest and mortality 60,767 70,307 62,273
Reserve, end of period 1,799,943 1,851,955 1,874,942
Variable deferred annuity
Reserve, beginning of period 418,508 385,735 332,898
Premiums 62,719 60,279 69,178
Other flows 614 1,356 (97)
Surrenders (79,465) (87,068) (85,994)
Fees (5,262) (4,479) (4,703)
Change in market value and other 58,036 62,685 74,453
Reserve, end of period 455,150 418,508 385,735
Total reserve, end of period $ 13,982,471 $ 13,002,678 $ 13,139,016
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Interest and Mortality Margin
Margins decreased for fixed annuities over the past two years due to declining portfolio rates and increased for indexed annuities in 2020 due to the aforementioned change in estimate. The increased margin for indexed annuities was sustained in 2021 due to the favorable impact of increases in treasury rates on mark-to-market reserves. 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):
Years ended December 31, Change over prior year
2021 2020 2019 2021 2020
Fixed annuity
Fixed investment income $ 352,392 $ 369,795 $ 384,700 $ (17,403) $ (14,905)
Interest credited and mortality (244,827) (256,503) (265,295) 11,676 8,792
Interest and mortality margin 107,565 113,292 119,405 (5,727) (6,113)
Equity-indexed annuity
Fixed investment income 174,479 160,271 152,101 14,208 8,170
Option return 102,546 39,937 127,094 62,609 (87,157)
Interest credited and mortality (176,620) (100,469) (224,043) (76,151) 123,574
Interest and mortality margin 100,405 99,739 55,152 666 44,587
Variable annuity
Separate account management fees 5,073 4,164 4,122 909 42
Interest and mortality margin 5,073 4,164 4,122 909 42
Total interest and mortality margin $ 213,043 $ 217,195 $ 178,679 $ (4,152) $ 38,516
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Health
Health segment financial results for the periods indicated were as follows (in thousands):
Years ended December 31, Change over prior year
2021 2020 2019 2021 2020
PREMIUMS AND OTHER REVENUES
Premiums $ 143,484 $ 168,805 $ 165,035 $ (25,321) $ 3,770
Net investment income 8,153 8,637 9,467 (484) (830)
Other income 21,743 19,598 20,762 2,145 (1,164)
Total premiums and other revenues 173,380 197,040 195,264 (23,660) 1,776
BENEFITS, LOSSES AND EXPENSES
Claims incurred 98,029 116,122 109,013 (18,093) 7,109
Commissions for acquiring and servicing policies
24,231 30,182 31,624 (5,951) (1,442)
Other operating expenses 42,284 39,265 41,475 3,019 (2,210)
Change in deferred policy acquisition costs (1)
3,537 (307) 1,382 3,844 (1,689)
Total benefits, losses and expenses 168,081 185,262 183,494 (17,181) 1,768
Income before federal income taxes and other items $ 5,299 $ 11,778 $ 11,770 $ (6,479) $ 8
(1)A negative change indicates more expense was deferred than amortized and represents a decrease to expenses in the period indicated.
Comparison of the year ended December 31, 2021 to 2020
Earnings for our Health segment decreased primarily due to the following:
•An increase in the amortization of deferred policy acquisition costs ("DAC") related to corrective actions impacting contract issue and administration processes, as well as an increase in claims in our Worksite line of business driven by short-term disability
•A reduction in premiums and an increase in DAC amortization driven by policy lapses in our Medicare Supplement line of business
The decrease in earnings was partially offset by the following:
•An increase in fee income from various MGU programs
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Health earned premiums for the periods indicated were as follows (in thousands):
Years ended December 31, Change over prior year
2021 2020 2019 2021 2020
Medicare Supplement $ 70,679 $ 85,201 $ 78,779 $ (14,522) $ 6,422
MGU 20,285 22,166 27,205 (1,881) (5,039)
Supplemental insurance 14,076 18,586 21,633 (4,510) (3,047)
Credit Health 13,140 14,576 17,938 (1,436) (3,362)
Medical expense 7,475 8,541 9,496 (1,066) (955)
Worksite 13,002 14,594 4,817 (1,592) 9,777
Group health 1,766 1,809 1,964 (43) (155)
All other 3,061 3,332 3,203 (271) 129
Total $ 143,484 $ 168,805 $ 165,035 $ (25,321) $ 3,770
Policy lapses as a result of rate increases drove a decrease in premiums for Medicare Supplement during 2021. In addition, Supplemental insurance premiums decreased due to a reduction in sales across all product lines, primarily in short-term medical.
Health claims incurred for the periods indicated were as follows (in thousands):
Years ended December 31, Change over prior year
2021 2020 2019 2021 2020
Medicare Supplement $ 54,324 $ 66,492 $ 63,705 $ (12,168) $ 2,787
MGU 15,219 19,657 23,498 (4,438) (3,841)
Supplemental insurance 7,409 9,945 8,508 (2,536) 1,437
Credit Health 3,673 3,501 3,400 172 101
Medical expense 5,434 7,212 5,857 (1,778) 1,355
Worksite 9,744 6,732 1,958 3,012 4,774
Group health 578 1,142 639 (564) 503
All other 1,648 1,441 1,448 207 (7)
Total $ 98,029 $ 116,122 $ 109,013 $ (18,093) $ 7,109
Medicare Supplement claims decreased driven by policy lapses. In addition, claims experience for our Medical Expense, MGU and Supplemental health lines of business improved but was partially offset by an increase in short-term disability claims from our Worksite line of business.
Change in Deferred Policy Acquisition Costs
The following table presents the components of the change in DAC (in thousands):
Years ended December 31, Change over prior year
2021 2020 2019 2021 2020
Acquisition cost capitalized $ (14,369) $ (15,926) $ (19,940) $ 1,557 $ 4,014
Amortization of DAC 17,906 15,619 21,322 2,287 (5,703)
Change in DAC $ 3,537 $ (307) $ 1,382 $ 3,844 $ (1,689)
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Reinsurance
We cede or retrocede the majority of the premium and risk associated with our stop-loss and other MGU programs. We maintain reinsurance on a quota share basis for our long-term care and long-term disability income business.
For 2021, the companies to which we have ceded reinsurance for the Health segment are shown below (in thousands, except percentages):
Reinsurer A.M. Best Rating (1)
Ceded Premium Percentage of Ceded Premium
Roundstone Insurance, Ltd. N/A (2)
$ 84,287 29.4 %
RGA Reinsurance Company A+ 39,975 13.9
AXIS Insurance Company A 26,455 9.2
PartnerRe America Insurance Company A+ 21,811 7.6
Swiss Re Life & Health America Inc. A+ 16,098 5.6
Transatlantic Reinsurance Company A+ 15,516 5.4
AmFirst Insurance Company A- 15,403 5.4
Other reinsurers with no single company with greater than 5.0% of the total ceded premium 67,543 23.5
Total health reinsurance ceded $ 287,088 100.0 %
(1) A.M. Best rating as of the most current information available February 9, 2022.
(2) N/A reflects no A.M. Best rating available.
We also utilize reinsurance in our credit health business. In certain cases, we may also reinsure the policy written through non-U.S. producer-owned captive reinsurers to allow the dealer to participate in the performance of these credit health contracts. A majority of the treaties entered into by our Specialty Markets Group are written on a 100% coinsurance basis with benefit limits of $1,000 per month.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Property and Casualty
Property and Casualty segment financial results for the periods indicated were as follows (in thousands, except percentages):
Years ended December 31, Change over prior year
2021 2020 2019 2021 2020
PREMIUMS AND OTHER REVENUES
Net premiums written $ 1,726,151 $ 1,590,740 $ 1,546,144 $ 135,411 $ 44,596
Net premiums earned $ 1,669,875 $ 1,560,304 $ 1,511,201 $ 109,571 $ 49,103
Net investment income 62,140 63,949 64,263 (1,809) (314)
Other income 15,807 12,779 11,897 3,028 882
Total premiums and other revenues
1,747,822 1,637,032 1,587,361 110,790 49,671
BENEFITS, LOSSES AND EXPENSES
Claims incurred 1,094,126 1,005,620 1,042,153 88,506 (36,533)
Commissions for acquiring and servicing policies
330,554 299,960 267,457 30,594 32,503
Other operating expenses 213,486 202,503 201,580 10,983 923
Change in deferred policy acquisition costs (1)
(10,197) 87 2,431 (10,284) (2,344)
Total benefits, losses and expenses 1,627,969 1,508,170 1,513,621 119,799 (5,451)
Income before federal income taxes and other items $ 119,853 $ 128,862 $ 73,740 $ (9,009) $ 55,122
Loss and loss adjustment expense ratio 65.5 % 64.5 % 69.0 % 1.0 % (4.5) %
Underwriting expense ratio 32.0 32.2 31.2 (0.2) 1.0
Combined ratio 97.5 % 96.7 % 100.2 % 0.8 % (3.5) %
Less: Impact of catastrophe events on combined ratio 9.4 9.2 5.9 0.2 3.3
Combined ratio without impact of catastrophe events 88.1 % 87.5 % 94.3 % 0.6 % (6.8) %
Gross catastrophe losses $ 184,803 $ 176,824 $ 91,265 $ 7,979 $ 85,559
Net catastrophe losses $ 154,871 $ 140,512 $ 89,063 $ 14,359 $ 51,449
(1)A negative change indicates more expense was deferred than amortized and represents a decrease to expenses in the period indicated.
Comparison of the year ended December 31, 2021 to 2020
Earnings for our Property and Casualty segment decreased primarily due to the following:
•An increase in net catastrophe losses and higher claim frequency in our personal automobile products as miles driven have increased
The decrease in earnings was partially offset primarily due to the following:
•Improvement in the combined ratio for our commercial and specialty markets products
Additional Information:
•Net premiums written and earned were reduced by COVID-19 relief policy credits of $1.9 million for personal automobile policies in 2021 compared to $16.8 million for the same period in 2020. Policy credits were $0.9 million for commercial automobile policies in 2020
•The increase in commissions was primarily attributable to an increase in premiums written for our specialty markets products. The growth in specialty markets products was also the primary driver for the increase in operating expenses and the deferral of policy acquisition expenses outpacing amortization
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Products
Our Property and Casualty segment consists of: (i) Personal products, marketed primarily to individuals, representing 52% of net premiums written; (ii) Commercial products, focused primarily on agricultural and other business related markets, representing 30% of net premiums written; and (iii) Specialty Markets Group products, marketed through independent managing general agents and managing general underwriters, representing 18% of net premiums written.
Personal Products
Personal Products results for the periods indicated were as follows (in thousands, except percentages):
Years ended December 31, Change over prior year
2021 2020 2019 2021 2020
Net premiums written
Automobile $ 535,653 $ 540,645 $ 569,675 $ (4,992) $ (29,030)
Homeowner 304,473 286,560 266,849 17,913 19,711
Other Personal 54,070 52,290 50,834 1,780 1,456
Total net premiums written $ 894,196 $ 879,495 $ 887,358 $ 14,701 $ (7,863)
Net premiums earned
Automobile $ 537,356 $ 536,376 $ 559,524 $ 980 $ (23,148)
Homeowner 290,084 274,350 251,228 15,734 23,122
Other Personal 53,163 51,552 49,475 1,611 2,077
Total net premiums earned $ 880,603 $ 862,278 $ 860,227 $ 18,325 $ 2,051
Loss and loss adjustment expense ratio
Automobile 69.1 % 59.5 % 72.7 % 9.6 % (13.2) %
Homeowner 88.6 % 87.7 % 79.2 % 0.9 % 8.5 %
Other Personal 54.3 % 62.0 % 58.0 % (7.7) % 4.0 %
Personal lines loss and loss adjustment expense ratio 74.6 % 68.6 % 73.8 % 6.0 % (5.2) %
Combined Ratio
Automobile 93.2 % 83.9 % 95.9 % 9.3 % (12.0) %
Homeowner 118.5 % 118.9 % 112.1 % (0.4) % 6.8 %
Other Personal 84.5 % 94.4 % 99.1 % (9.9) % (4.7) %
Personal lines combined ratio 101.0 % 95.7 % 100.8 % 5.3 % (5.1) %
Comparison of the year ended December 31, 2021 to 2020
Automobile: Net premiums written decreased primarily due to fewer policies in-force. Net premiums earned increased primarily due to a decrease in COVID-19 relief policy credits which were $1.9 million in 2021 compared to $16.8 million in 2020. The loss and loss adjustment expense and combined ratios increased primarily due to an increase in claim frequency compared to the prior year due to the lessening impact of COVID-19.
Homeowners: Net premiums written and earned increased primarily due to rate increases.
Other Personal: These products include coverages for personal property and liability not covered within home and auto policies, such as watercraft, personal umbrella, and rental owners. Net premiums written and earned increased due to rate increases in the rental owners product. The loss and loss adjustment expense and combined ratios improved due to fewer non-catastrophe losses.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Commercial Products
Commercial Products results for the periods indicated were as follows (in thousands, except percentages):
Years ended December 31, Change over prior year
2021 2020 2019 2021 2020
Net premiums written
Agricultural Business $ 180,575 $ 165,112 $ 154,408 $ 15,463 $ 10,704
Automobile 140,058 128,701 122,938 11,357 5,763
Business Owner 87,209 80,383 72,008 6,826 8,375
Workers Compensation 70,901 69,092 74,077 1,809 (4,985)
Other Commercial 36,541 33,205 36,454 3,336 (3,249)
Total net premiums written $ 515,284 $ 476,493 $ 459,885 $ 38,791 $ 16,608
Net premiums earned
Agricultural Business $ 173,686 $ 161,450 $ 150,632 $ 12,236 $ 10,818
Automobile 135,301 126,365 116,329 8,936 10,036
Business Owner 83,485 76,920 69,109 6,565 7,811
Workers Compensation 70,783 70,179 75,648 604 (5,469)
Other Commercial 35,980 32,919 35,603 3,061 (2,684)
Total net premiums earned $ 499,235 $ 467,833 $ 447,321 $ 31,402 $ 20,512
Loss and loss adjustment expense ratio
Agricultural Business 55.1 % 56.4 % 63.4 % (1.3) % (7.0) %
Automobile 65.5 % 76.6 % 84.5 % (11.1) % (7.9) %
Business Owner 73.4 % 86.1 % 54.8 % (12.7) % 31.3 %
Workers Compensation 65.2 % 51.7 % 55.6 % 13.5 % (3.9) %
Other Commercial 52.8 % 70.2 % 50.8 % (17.4) % 19.4 %
Commercial lines loss and loss adjustment expense ratio 62.2 % 67.0 % 65.2 % (4.8) % 1.8 %
Combined ratio
Agricultural Business 91.1 % 93.9 % 101.2 % (2.8) % (7.3) %
Automobile 88.0 % 99.0 % 109.3 % (11.0) % (10.3) %
Business Owner 107.2 % 120.8 % 93.6 % (13.6) % 27.2 %
Workers Compensation 80.5 % 68.5 % 73.4 % 12.0 % (4.9) %
Other Commercial 93.7 % 109.9 % 92.8 % (16.2) % 17.1 %
Commercial lines combined ratio 91.7 % 97.0 % 96.8 % (5.3) % 0.2 %
Comparison of the year ended December 31, 2021 to 2020
Agricultural Business: Our agricultural business product allows policyholders to customize and cover their agriculture exposure using a package policy, which includes coverage for residences and household contents, farm and ranch buildings and building contents, personal and commercial liability and personal property. Net premiums written and earned increased primarily due to increases in policies in-force and rate increases.
Commercial Automobile: Net premiums written and earned increased primarily due to rate increases. The loss and loss adjustment expense and combined ratios improved primarily due to favorable prior year claim development and rate increases.
Business Owner: Our business owner product allows policyholders to customize and cover their property and liability exposures using a package policy. Net premiums written and earned increased primarily due to increases in policies in-force and rate increases. The loss and loss adjustment expense and combined ratios improved primarily due to more favorable claim development compared to prior year.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Workers Compensation: The loss and loss adjustment expense and combined ratios increased primarily due to an increase in claim severity.
Other Commercial: Other commercial products primarily provide umbrella and other liability coverages. Net premiums written and earned increased primarily due to an increase in premium for umbrella products. The loss and loss adjustment expense and combined ratios improved primarily due to favorable prior year claim development.
Specialty Markets Products
Specialty markets products results for the periods indicated were as follows (in thousands, except percentages):
Years ended December 31, Change over prior year
2021 2020 2019 2021 2020
Net premiums written $ 316,671 $ 234,752 $ 198,901 $ 81,919 $ 35,851
Net premiums earned 290,035 230,192 203,653 59,843 26,539
Loss and loss adjustment expense ratio 43.4 % 43.7 % 56.8 % (0.3) % (13.1) %
Combined ratio 96.8 % 99.7 % 104.7 % (2.9) % (5.0) %
Specialty markets products provide protection to borrowers and the creditors that extend credit to them. Products offer coverage against unpaid indebtedness as a result of death, disability, involuntary unemployment or untimely loss to the collateral securing a personal or mortgage loan. Specialty markets products also include renters, mortgage security, aviation, and private flood insurance.
Comparison of the year ended December 31, 2021 to 2020
Net written and earned premiums increased primarily due to higher production on renters products and the addition of new accounts related to the investor property protection products. The loss and loss adjustment expense and combined ratios improved primarily due to lower losses for Credit GAP products, partially offset by an increase in net catastrophe losses from $4.2 million in 2020 to $12.3 million in 2021.
Reinsurance
We reinsure a portion of the risks that we underwrite to manage our loss exposure. In return for ceded premiums, reinsurers assume a portion of the claims incurred. In addition to our reinsurance coverage, we are partially protected by the Terrorism Risk Insurance Program Reauthorization Act of 2015 and its predecessors. We participate in the National Flood Insurance Program administered by the Federal Emergency Management Agency.
During 2021, we retained the first $2.0 million of loss per risk. Our catastrophe reinsurance retention covering property and casualty companies in total is $35.0 million.
The following table summarizes the Company’s catastrophe reinsurance coverage effective during 2021:
Layer of Loss Catastrophe Reinsurance Coverage In-Force
Less than $35.0 million 100% of loss retained except for certain losses covered by the Property Catastrophe Top and Drop and Aggregate Property Catastrophe Excess covers (coverage described below)
$35.0 million - $470.0 million 95% of multiple peril losses covered by Corporate Program (1) (all perils)
$470.0 million - $500.0 million 100% of multiple peril losses covered by Corporate Program (1) (all perils)
(1)The Corporate Program covers all non-credit property and casualty business, subject to certain limits and is not specific to the Company or any of its subsidiaries or any state or region. The program also covers the renters, mortgage security, investor protection, and auto GAP business written by the Specialty Markets Group.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Each per-event coverage above includes one automatic reinstatement except for a 12.5% portion of the Corporate Program (12.5% of $35.0 million to $470.0 million). The automatic reinstatement requires us to pay additional reinsurance premium for any losses into each reinsurance layer. The reinstatement premium is prorated by the percentage of actual loss to the coverage, with the exception of 47.5% of losses from $35.0 million to $100.0 million, that reflects a 50% reduction on the prorated amount. The 12.5% placement of non-reinstateable coverage reduces the amount of reinstatement premium we are obligated to pay.
The Property Catastrophe Top and Drop cover consists of $30.0 million of annual limit available either wholly or in part across two layers of coverage. The first layer is 100% of $30.0 million excess of $470.0 million on an occurrence basis. The second layer provides aggregate protection where subject loss is $15.0 million excess of $20.0 million of each catastrophe, and recoveries follow satisfaction of a $15.0 million annual aggregate deductible. The second layer acts to reduce the retention on large second and third catastrophe events to $20.0 million following a first large catastrophe. This cover was placed at 100% for 2021 and does not include a reinstatement.
The Aggregate Property Catastrophe Excess cover provides for $30.0 million of limit excess of $160.0 million of aggregated catastrophe losses. Qualifying losses include amounts of retained losses net of other reinsurance below $35.0 million on Property Claims Services (“PCS”) declared catastrophe events and internally declared catastrophe events exceeding $5.0 million. This cover was placed at 55% for 2021 and does not include a reinstatement.
We use multiple reinsurers with each reinsurer absorbing part of the overall risk ceded. The primary reinsurers in the 2021 programs and the coverage each provides are shown in the following table:
A.M. Best Rating (1)
Percent of Risk Covered
Reinsurer Non-Catastrophe Catastrophe
Lloyd’s Syndicates A 56.3 % 37.8 %
Hannover Re A+ 19.6 2.2
Convex A- 5.1 4.6
Swiss Re A+ 2.8 6.5
Fidelis A - 9.0
Other Reinsurers with no single company with greater than a 4.6% share 16.2 39.9
Total reinsurance coverage 100.0 % 100.0 %
(1)A.M. Best rating as of the most current information available February 9, 2022.
Reserve Development
While we believe that our claims reserves at December 31, 2021 are adequate, new information, events or circumstances, unknown at the original valuation date, may lead to future developments in ultimate losses in amounts significantly greater or less than the reserves currently recorded. The actual final cost of settling both claims outstanding at December 31, 2021 and claims expected to arise from unexpired periods of risk is uncertain. There are many other possible changes that would cause losses to increase or decrease, which include but are not limited to claim severity; the expected level of reported claims; judicial action changing the scope or liability of coverage; the regulatory, social and economic environment; and unexpected changes in loss inflation. For additional information regarding prior year development of our claims and CAE reserves, refer to Part II, Item 8, Financial Statements and Supplementary Data - Note 12, Liability for Unpaid Claims and Claim Adjustment Expenses, of the Notes to the Consolidated Financial Statements.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Corporate and Other
Corporate and Other segment financial results for the periods indicated were as follows (in thousands):
Years ended December 31, Change over prior year
2021 2020 2019 2020 2019
OTHER REVENUES
Net investment income $ 193,982 $ 72,174 $ 179,494 $ 121,808 $ (107,320)
Net realized investment gains 64,628 35,660 30,751 28,968 4,909
(Increase) decrease in investment credit loss* 28,778 (102,603) - 131,381 (102,603)
Net gains on equity securities 420,283 356,281 422,535 64,002 (66,254)
Other income 3,279 3,379 14,048 (100) (10,669)
Total other revenues 710,950 364,891 646,828 346,059 (281,937)
BENEFITS, LOSSES AND EXPENSES
Other expenses 67,593 42,891 41,222 24,702 1,669
Total benefits, losses and expenses 67,593 42,891 41,222 24,702 1,669
Income before federal income taxes and other items $ 643,357 $ 322,000 $ 605,606 $ 321,357 $ (283,606)
*Effective January 1, 2020, the Company adopted ASU No. 2016-13. Adoption of this guidance resulted in an allowance for credit losses primarily on our commercial mortgage loans and related off-balance sheet unfunded loan commitments, held-to-maturity bonds and reinsurance recoverables. The results for 2019 have not been restated to conform to the current presentation.
Comparison of the year ended December 31, 2021 to 2020
Earnings for our Corporate and Other segment increased primarily due to the following:
•A favorable change in investment credit loss due to improvement in our commercial mortgage loans driven by improvement in cash flows and a positive economic outlook from our properties, and improving conditions in travel and leisure
•An increase in net investment income from investment funds and mortgage loan profit participation and prepayment income
•An increase in net gains on equity securities due to more favorable market conditions in 2021 compared to the negative impact from the pandemic in 2020 on the fair value of our equity securities
The increase in earnings was partially offset primarily by the following:
• An increase in operating expenses primarily due to Merger-related expenses of $21.5 million
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, ALM Committee and Enterprise Risk Management Committee.
Our insurance and annuity products are generally supported by investment-grade bonds and commercial mortgage loans. We also invest in equity options as a hedge for our indexed products. We purchase fixed maturity securities and designate them as either held-to-maturity or available-for-sale considering our estimated future cash flow needs. We also monitor the composition of our fixed maturity securities classified as held-to-maturity and available-for-sale and adjust the mix within the portfolio as investments mature or new investments are purchased.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
The following summarizes the carrying values of our invested assets by asset class (in thousands, except percentages):
December 31, 2021 December 31, 2020
Fixed maturity, bonds held-to-maturity, at amortized cost $ 7,088,981 28.3 % $ 7,354,970 29.2 %
Fixed maturity, bonds available-for-sale, at fair value 8,380,248 33.5 7,597,180 30.1
Equity securities, at fair value 135,433 0.5 2,070,766 8.2
Mortgage loans on real estate, net of allowance 5,199,334 20.8 5,242,531 20.8
Policy loans 365,208 1.5 373,014 1.5
Real estate and real estate partnerships, net of accumulated depreciation (1)
928,412 3.7 960,572 3.8
Investment funds (1)
961,763 3.8 477,135 1.9
Short-term investments 1,840,732 7.4 1,028,379 4.1
Other invested assets 125,795 0.5 94,415 0.4
Total investments $ 25,025,906 100.0 % $ 25,198,962 100.0 %
(1)Refer to Part II, Item 8, Financial Statements and Supplementary Data - Note 2, Summary of Significant Accounting Policies and Practices, of the Notes to the Consolidated Financial Statements for explanation of prior year retrospective adjustment
The decrease in our total investments at December 31, 2021 compared to December 31, 2020 was a result of a decrease in held-to-maturity bonds and the sale of equity securities which caused a temporary increase in cash which we intend to reinvest.
Bonds-We allocate most of our fixed maturity securities to support our insurance business. At December 31, 2021, our fixed maturity securities had an estimated fair value of $15.8 billion, which was $0.6 billion, or 4.2%, above amortized cost. At December 31, 2020, our fixed maturity securities had an estimated fair value of $15.6 billion, which was $1.2 billion, or 8.0%, above amortized cost. Unrealized gains decreased on our fixed maturity due to an increase in benchmark ten-year interest rates. For additional information regarding unrealized gains and losses, refer to Part II, Item 7, Investments, Net Unrealized Gains and Losses table. The estimated fair value for securities due in one year or less was $1.4 billion as of December 31, 2021 and $1.1 billion as of December 31, 2020. For additional information regarding total bonds by credit quality rating, refer to Part II, Item 8, Financial Statements and Supplementary Data - Note 4, Investments in Securities, of the Notes to the Consolidated Financial Statements.
Equity Securities-We have invested in the equity securities of companies traded on national U.S. stock exchanges. See Part II, Item 8, Financial Statements and Supplementary Data - Note 4, Investments in Securities, of the Notes to the Consolidated Financial Statements for the unrealized and realized gains and losses of equity securities. The Company sold the majority of its equity securities portfolio in the fourth quarter of 2021. For additional information regarding the Sale of Equity Securities Portfolio, see General Trends above.
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 4.6% and 4.8% at December 31, 2021 and 2020, respectively. For additional information regarding mortgage loans refer to Part II, Item 8, Financial Statements and Supplementary Data - Note 5, Mortgage Loans, of the Notes to the Consolidated Financial Statements.
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 December 31, 2021, we had $365.2 million in policy loans with a loan to surrender value of approximately 54%, and at December 31, 2020, we had $373.0 million in policy loans with a loan to surrender value of approximately 56%. Interest rates on policy loans primarily range from 3.0% to 12.0% per annum. Policy loans may be repaid at any time by the policyholder and have priority to any claims on the policy. If the policyholder fails to repay the policy loan, funds are withdrawn from the policy’s benefits.
Real Estate and Real Estate Partnerships-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. The carrying value of our real estate partnerships is determined by using the equity method of accounting.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Investment Funds-Our investment funds are primarily comprised of senior secured and second lien private loans that are secured by assets, revenues and credit/balance sheet lending. We recognize our share of fund earnings in net investment income on a one-quarter lag under the equity method of accounting. Cash distributions are received from fund earnings and from liquidation of underlying investments.
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.
Other Invested Assets-Other invested assets are comprised primarily of pooled loans to mid-sized businesses which are initiated and administered by third-party managers and are carried at fair value. Other invested assets also include equity-indexed options, carried at fair value, net of collateral provided by counterparties; such collateral is restricted to the Company’s use. Additionally, other invested assets include FHLB capital stock, mineral rights, mezzanine loans and lease financing arrangements, all of which are carried at cost.
Net Investment Income and Net Realized Gains (Losses)
Net investment income increased $195.5 million during 2021 compared to 2020 primarily due to higher gains on options, an increase in investment income from investment funds and mortgage loan prepayment and profit participation income.
Interest income on mortgage loans is accrued on the principal amount of the loan at the contractual interest rate. Accretion of discounts is recorded using the effective yield method. Interest income, accretion of discounts and prepayment fees are reported in net investment income. Interest is not accrued on loans generally more than 90 days past due or when the collection of interest is not considered probable. Loans in foreclosure are placed on non-accrual status. Interest received on non-accrual status mortgage loans is included in net investment income in the period received.
Net realized investment gains increased $29.0 million during 2021 compared to 2020 primarily attributable to realized gains from bonds. Net realized investment gains (losses) are shown below (in thousands):
December 31,
2021 2020 2019
Bonds $ 54,941 $ 23,318 $ 16,361
Mortgage loans (768) - (2,412)
Real estate 10,240 12,401 25,555
Other invested assets 215 (59) (1,785)
Total $ 64,628 $ 35,660 $ 37,719
Net Unrealized Gains and Losses
The unrealized gains and losses of our fixed maturity securities investment portfolio are shown below (in thousands):
December 31,
2021 2020 Change over prior year
Held-to-maturity
Gains $ 394,900 $ 639,648 $ (244,748)
Losses (25,092) (11,437) (13,655)
Net gains 369,808 628,211 (258,403)
Available-for-sale
Gains 321,861 548,996 (227,135)
Losses (39,097) (17,476) (21,621)
Net gains 282,764 531,520 (248,756)
Total $ 652,572 $ 1,159,731 $ (507,159)
The net change in the unrealized gains on fixed maturity securities between December 31, 2021 and December 31, 2020 is primarily attributable to the increase in benchmark ten-year interest rates which were 1.5% and 0.9%, respectively. The Company does not currently intend to sell nor does it expect to be required to sell any of the securities in an unrealized loss position.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Liquidity
ANAT's source of liquidity is solely derived from dividends received from its wholly owned subsidiary, ANICO.
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. American National has agreed to pay our financial advisor in connection with the Merger, Citigroup Global Markets Inc. ("Citi"), for its Merger-related services an aggregate fee of $40.0 million, of which $3.0 million was paid upon delivery of Citi’s fairness opinion related to the Merger entered into on August 6, 2021 and the remaining $37.0 million is payable contingent upon consummation of the Merger, which has not been reflected in the consolidated statement of operations. In addition, the Company agreed to reimburse Citi for expenses, including fees and expenses of counsel, and to indemnify Citi and related parties against certain liabilities, including liabilities under federal securities laws, arising from Citi’s engagement.
In April 2020, the Company borrowed $500 million from the Federal Home Loan Bank of Dallas' COVID-19 Relief Advance Program. As of December 31, 2021, there are no advances outstanding; the final advance was repaid on its maturity date of April 28, 2021. The available liquidity at February 9, 2022 was approximately $879.3 million.
As a result of the impacts of COVID-19, state insurance departments across the country issued regulations that required us not to cancel policies for non-payment for varying amounts of time but generally for at least 90-day periods which began in March and April of 2020. The cancellation and grace periods have been lifted in most states.
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.
We are currently evaluating the renovation and modernization of our home office facilities. This could result in capital expenditures that could aggregate to approximately $100.0 million over a three-year period; however, current uncertainties relating to the COVID-19 pandemic have caused us to delay this project at this time. There are no other unusually large capital expenditures expected in the next 12-24 months.
We have consistently paid dividends to our stockholders and expect to continue this tradition in the foreseeable future. There are no other known trends or uncertainties regarding product pricing, changes in product lines or rising costs that are expected to have a significant impact to cash flows from operations, although uncertainties relating to the COVID-19 pandemic could still significantly impact one or more of these items.
Funds received as premium payments and deposits that are not used for liquidity requirements are generally invested in bonds and commercial mortgages. Funds are invested with the intent that income from the investments and proceeds from the maturities will meet our ongoing cash flow needs. We historically have not had to liquidate invested assets in order to cover cash flow needs. We believe our portfolio of highly liquid bonds and available-for-sale investment securities coupled with our ability to borrow funds through the FHLB, are sufficient to meet future liquidity needs as necessary.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
As a result of the economic impact associated with COVID-19, American National modified 93 mortgage loans with a total balance of $1.6 billion during 2020. These modifications were in the form of forbearance of principal and interest payments for up to six months, extensions of maturity dates, and/or provisions for interest only payments. The modifications were primarily related to our loans to hotels, retail and parking operations. Due to the ongoing economic stress brought on by the pandemic, additional modifications for 33 of these loans with a total balance of $725.7 million were made during 2021. These additional modifications extended the forbearance of principal and interest payments and interest only provisions with a requirement for the payment of at least 20% of the total interest due during the extended modification period. The modified loans had an aggregate deferred interest of $5.6 million as of December 31, 2021. There are no commitments to lend additional funds to debtors whose loans have been modified in a troubled debt restructuring during the periods presented. The decrease in loans determined to be a troubled debt restructuring during 2021 is primarily attributable to improved economic conditions after lifting of COVID-19 related restrictions.
The Company holds collateral of $264.2 million at December 31, 2021 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 $1.4 billion at December 31, 2020 to $3.8 billion at December 31, 2021. The increase primarily relates to the fourth quarter 2021 sale of a majority of the Company's equity securities portfolio which resulted in an excess cash position. We intend to reinvest the cash proceeds consistent with our investment guidelines during 2022.
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. A.M. Best has placed American National’s issuer credit and financial strength ratings under review with developing implications and S&P Global Ratings has placed the ratings on CreditWatch with negative implications of which are due to the pending Merger with Brookfield Reinsurance.
Further information regarding additional sources or uses of cash is described in Note 19, Commitments and Contingencies, of the Notes to the Consolidated Financial Statements.
Capital Resources
Our capital resources are summarized below (in thousands):
December 31,
2021 2020 2019
American National stockholders’ equity, excluding accumulated other comprehensive income (“AOCI”), net of tax
$ 6,847,314 $ 6,236,100 $ 5,890,231
Accumulated other comprehensive income 147,054 222,170 99,518
Total American National stockholders’ equity $ 6,994,368 $ 6,458,270 $ 5,989,749
We have notes payable relating to borrowings by real estate joint ventures that we consolidate into our financial statements that are not part of our capital resources. The lenders for the notes payable generally have no recourse against us in the event of default by the joint ventures. Therefore, the liability 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 $3.0 million at December 31, 2021 and 2020.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
The changes in our capital resources are summarized below (in thousands):
Years ended
2021 2020
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
$ 699,325 $ - $ 699,325 $ 467,505 $ - $ 467,505
Dividends to shareholders (88,190) - (88,190) (88,190) - (88,190)
Change in net unrealized gains on debt securities - (142,854) (142,854) - 134,315 134,315
Foreign currency transaction and translation adjustment
- 62 62 - 235 235
Defined benefit pension plan adjustment - 67,676 67,676 - (11,898) (11,898)
Cumulative effect of accounting changes (1)
- - - (33,500) - (33,500)
Other 79 - 79 54 - 54
Total $ 611,214 $ (75,116) $ 536,098 $ 345,869 $ 122,652 $ 468,521
(1)Result of adoption of ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.
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 100% of the company action level RBC are required to take certain actions. At December 31, 2021 and December 31, 2020, ANICO’s statutory capital and surplus was $4.0 billion and $3.6 billion, respectively. ANICO and each of our insurance subsidiaries had statutory capital and surplus at December 31, 2021 and 2020 above 200% of the company action level except ANPAC Louisiana Insurance Company ("ANPLA"), which had an RBC level of 194% at December 31, 2020, which increased to 242% at December 31, 2021.
The achievement of long-term growth will require growth in 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.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Contractual Obligations
The following summarizes our contractual obligations as of December 31, 2021 (in thousands):
Payments Due by Period
Total Less than
1 year 1-3 years 3-5 years More than
5 years
Life insurance obligations (1)
$ 4,504,925 $ (58,739) $ (116,014) $ (36,030) $ 4,715,708
Annuity obligations (1)
15,483,714 1,373,520 3,496,133 2,434,695 8,179,366
Property and casualty insurance obligations (2)
1,098,017 487,133 371,074 138,250 101,560
Health insurance obligations (3)
263,837 183,260 29,599 9,428 41,550
Purchase obligations
Commitments to purchase and fund investments
899,017 361,222 321,503 95,230 121,062
Mortgage loan commitments 647,841 424,971 222,870 - -
Lease obligations 12,680 4,300 6,612 1,685 83
Defined benefit pension plans (4)
60,145 17,638 14,362 10,834 17,311
Notes payable (5)
149,248 75,293 73,955 - -
Total $ 23,119,424 $ 2,868,598 $ 4,420,094 $ 2,654,092 $ 13,176,640
(1)Life and annuity obligations include undiscounted estimated claim, benefit, surrender and commission obligations offset by expected future premiums and deposits on in-force insurance policies and annuity contracts. All amounts are gross of any reinsurance recoverable. Estimated claim, benefit and surrender obligations are based on mortality and lapse assumptions comparable with historical experience. Estimated payments on interest-sensitive life and annuity obligations include interest credited to those products. The interest crediting rates are derived by deducting current product spreads from a constant investment yield. As a result, the estimated obligations for insurance liabilities included in the table exceed the liabilities recorded in the liability for future policy benefits and policy and contract claims. Due to the significance of the assumptions used, the amounts presented could materially differ from actual payments. Separate account obligations have not been included in the table since those obligations are not part of the general account obligations and will be funded by cash flows from separate account assets. The general account obligations for insurance liabilities will be funded by cash flows from general account assets and future premiums and deposits. Participating policyholder dividends payable consists of liabilities related to dividends payable in the following calendar year and are presented in the less than one-year category. All estimated cash payments are net of estimated future premiums on policies currently in-force net of future policyholder dividends payable. The participating policyholders’ share obligation included in other policyholder funds and the timing and amount of the ultimate participating policyholder obligation is subject to significant uncertainty and the amount of the participating policyholder obligation is based upon a long-term projection of the performance of the participating policy block.
(2)Includes undiscounted case reserves for reported claims and reserves for IBNR with the timing of future payments based on our historical payment patterns. The timing of these payments may vary significantly from the pattern shown in the preceding table. The ultimate losses may vary materially from the recorded amounts, which are our best estimates.
(3)Reflects estimated future claim payments for claims incurred based on mortality and morbidity assumptions that are consistent with historical claims experience. These are not discounted with interest and will exceed the liabilities recorded in reserves for future claim payment, which are discounted with interest. Due to the significance of the assumptions used, the amounts presented could materially differ from actual payments.
(4)Estimated payments through continuing operations for benefit obligations of the non-qualified defined benefit pension plan. A liability has been established for the full amount of benefits accrued.
(5)The estimated payments due by period for notes payable reflect the contractual maturities of principal for amounts borrowed by real estate joint ventures and collateralized by real-estate owned by the respective entity. The entity's liability is limited to its investment in the respective joint venture. See Part II, Item 8, Financial Statements and Supplementary Data - Note 6, Real Estate and Other Investments, of the Notes to the Consolidated Financial Statements for additional details.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Off-Balance Sheet Arrangements
We have off-balance sheet arrangements relating to third-party marketing operation bank loans as discussed in Part II, Item 8, Financial Statements and Supplementary Data - Note 19, Commitments and Contingencies, of the Notes to the 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 Part II, Item 8, Financial Statements and Supplementary Data - Note 20, Related Party Transactions, of the Notes to the Consolidated Financial Statements.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our investments and some of our products are subject to various market risks associated with changes in interest rates, credit spreads, issuer defaults, equity prices and market indices. Adverse changes due to these market risks may occur as a result of various factors, including changes in market liquidity, risk tolerances and market perceptions of creditworthiness.
We emphasize prudent risk management throughout all our operations. Our enterprise risk management procedures help us to identify, prioritize and manage various risks including market risk. Under the leadership of our Board of Directors and Corporate Risk Officer, we have instituted a framework based on the principles of enterprise risk management designed to provide reasonable assurance regarding the achievement of our strategic objectives. Related activities include:
•identifying evolving and potential risks and events that may affect us;
•managing risks within our risk profile;
•appropriate escalation of risks and disclosure of any risk limit breaches within the enterprise, along with the correction method if appropriate;
•tracking actual risk levels against predetermined thresholds; and
•monitoring our capital adequacy.
We expect ongoing enterprise risk management efforts will expand the management tools used to support an efficient allocation of capital and enhance the measurement of possible diversification benefits across business segments and risk classes.
A key component of our risk management program is our ALM Committee. The ALM Committee monitors the level of our risk exposure in managing our assets and liabilities to attain the desired risk-return profile for our diverse mix of assets and liabilities and their resultant cash flows. This process includes maintaining adequate reserves, monitoring claims and surrender experience, managing interest rate spreads, evaluating alternate investment strategies and protecting against disintermediation risk for life insurance and annuity products.
As a part of the ALM process, we have asset portfolios for each major line of business, which represent the investment strategies used to fund liabilities within acceptable levels of risk. We monitor these strategies through regular review of portfolio metrics, such as effective duration, yield curve sensitivity and liquidity. In executing these ALM strategies, we regularly reevaluate the estimates used in determining the approximate amounts and timing of payments to or on behalf of policyholders for insurance liabilities. Many of these estimates are inherently subjective and could impact our ability to achieve our ALM goals and objectives. Our Finance Committee and ALM Committee also review the risks associated with evaluation of alternate investment strategies and the specific investments made to support our business and the consistency of such strategies and investments with our overall investment strategy.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - (Continued)
Interest Rate Risk
Interest rate risk is the risk that the value of our interest sensitive assets or liabilities will change with changes in market interest rates. The fair market value of fixed maturity securities is inversely related to changes in market interest rates. As interest rates fall, the cash flow from the interest coupon and dividend streams of existing fixed rate investments becomes more valuable and the market values of fixed maturity securities rise. As interest rates rise, the reverse occurs and the market value of fixed maturity securities falls. These general assumptions hold all other variables influencing the values of fixed maturity securities constant and would not fully reflect any prepayment to the portfolio, changes in corporate spreads or non-parallel changes in interest rates for different maturities, or changes in credit quality, any of which could cause changes in the values of fixed maturity securities that differ materially from our assumptions and estimates.
The carrying values of our investment in fixed maturity securities, which comprise 61.8% of our portfolio, are summarized below (in thousands, except percentages):
December 31,
2021 2020
Amount Percent Amount Percent
Fixed maturity, bonds held-to-maturity $ 7,088,981 45.8 % $ 7,354,970 49.2 %
Fixed maturity, bonds available-for-sale 8,380,248 54.2 7,597,180 50.8
Net unrealized gains on available-for-sale bonds 282,764 3.4 531,520 7.0
The unrealized gain on available-for-sale bonds was primarily the result of an increase in unrealized gains on corporate debt securities. Information regarding our unrealized gains or losses is disclosed in Note 4, Investments in Securities, of the Notes to the Consolidated Financial Statements. Our exposure to cash flow changes is discussed further in the Liquidity and Capital Resources section of the MD&A.
Our mortgage loans also have interest rate risk. As of December 31, 2021, these mortgage loans have fixed rates ranging from 3.25% to 10.0%. Most of the mortgage loan contracts require periodic payments of both principal and interest, and have amortization periods of three to 30 years. Many of our mortgage loans contain prepayment restrictions or fees or both that reduce the risk of payment before maturity or compensate us for all or a portion of the investment income lost through early payment of the loan principal.
Rising interest rates can cause increases in policy loans associated with life insurance policies and surrenders relating to life insurance or annuities. Policyholders may move their assets into new products offering higher rates if there were sudden or significant changes in interest rates. We may have to sell assets earlier than anticipated to pay for these withdrawals. Our life insurance and annuity product designs reduce the financial impact of early surrenders through the use of restrictions on withdrawal, surrender charges and market value adjustment features. ALM guidelines, including duration targets and asset allocation tolerances, help ensure this risk is managed within the constraints of established criteria. Consistent monitoring of and periodic changes to our product pricing help us to better match the duration of assets and liabilities.
Falling interest rates can have an adverse impact on our general account annuities. We aim to manage interest margin, which is the difference between yields on investments supporting our liabilities and amounts credited to policyholder account balances and reserves. As portfolio yields decline, we can reduce crediting rates on some deferred annuities, to a limit defined by contractual minimum guarantees, but we cannot adjust immediate annuity benefits and reserves. Assuming a 10 basis point decline in current portfolio yield, our annual interest margin would decline $7.1 million.
Interest Rate sensitivity analysis: The table below shows the estimated change in pre-tax market values of our investments in fixed maturity securities caused by instantaneous, one time parallel shifts in the corresponding year-end U.S. Treasury yield curves of +/- 100bps and +/- 50bps (in thousands):
Increase (Decrease) in Market Value Given an Interest Rate
Increase (Decrease) of Basis Points
(100) (50) 50 100
December 31, 2021 $ 824,630 $ 402,145 $ (384,130) $ (753,265)
December 31, 2020 703,957 345,427 (333,613) (658,118)
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - (Continued)
Credit Risk
We are exposed to credit risk, which is the uncertainty of whether a counterparty will honor its obligation under the terms of a security, loan or contract. To help manage credit risk, we have an Investment Plan approved by our Board of Directors. This plan provides issuer and geographic concentration limits, investment size limits, mortgage loan-to-value guidelines and other applicable investment parameters. Investment activity, including the setting of investment policies and defining acceptable risk levels, is subject to review by our Board of Directors, Finance Committee and, to a certain extent, by the Enterprise Risk Management Committee.
We are also exposed to risks created by changes in market prices and cash flows associated with fluctuations in the credit spread or the market’s perception of the relative risk and reward to hold fixed maturity securities of borrowers with different credit characteristics or credit ratings. Credit spread widening will reduce the fair value of our existing investment portfolio and will increase investment income on new purchases. Credit spread tightening would have the opposite effect. Information regarding the credit quality of our fixed maturity securities can be found in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, Investments section of the MD&A.
We are subject to credit risk associated with our reinsurance agreements. While we believe our reinsurers are reputable and have the financial strength to meet their obligations to us, reinsurance does not eliminate our liability to pay our policyholders, and we remain primarily liable to our policyholders for the risks we insure. We regularly monitor the financial strength of our reinsurers and the levels of concentration to individual reinsurers to verify they meet established thresholds.
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. For additional information regarding counterparties used and collateral received, see Part II, Item 8, Financial Statements and Supplementary Data - Note 7, Derivative Instruments, of the Notes to the Consolidated Financial Statements.
We are exposed to risks on our mortgage loans when there are economic disruptions, such as the COVID-19 pandemic. The challenging economic conditions impair borrowers' ability to meet loan terms. The Company granted concessions to certain mortgage loan borrowers during 2021 and 2020. For additional information regarding the impact of COVID-19 to mortgage loans, see Part II, Item 8, Financial Statements and Supplementary Data - Note 5, Mortgage Loans, of the Notes to the Consolidated Financial Statements.
Equity Risk
Equity risk is the risk that we will incur realized or unrealized losses due to changes in the overall equity investment markets or specific investments within our portfolio. As a result of FASB issued guidance, the change in fair value of equity securities is recognized in earnings, which could increase the level of volatility in our consolidated statements of operations. At December 31, 2021, we held approximately $135.4 million of equity investments, approximately 0.5% of total investment assets, which are subject to equity risk. Our exposure to the equity markets is managed by sector and individual security and is intended to track the S&P 500 with minor variations. We mitigate our equity risk by diversification of the investment portfolio.
We also have equity risk associated with the equity-indexed life and annuity products we issue. We have entered into derivative transactions, primarily over-the-counter equity call options, to hedge our exposure to equity-index changes.
Recent Accounting Pronouncements
Refer to Part II, Item 8, Financial Statements and Supplementary Data - Note 3, Recently Issued Accounting Pronouncements, of the Notes to the Consolidated Financial Statements for a discussion of recently issued accounting pronouncements not yet adopted.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Annual Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34)
Consolidated Statements of Financial Position as of December 31, 2021 and 2020
Consolidated Statements of Operations for the years ended December 31, 2021, 2020, and 2019
Consolidated Statements of Comprehensive Income for the years ended December 31, 2021, 2020, and 2019
Consolidated Statements of Changes in Equity for the years ended December 31, 2021, 2020, and 2019
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020, and 2019
Notes to the Consolidated Financial Statements
Note 1 - Nature of Operations
Note 2 - Summary of Significant Accounting Policies and Practices
Note 3 - Recently Issued Accounting Pronouncements
Note 4 - Investment in Securities
Note 5 - Mortgage Loans
Note 6 - Real Estate and Other Investments
Note 7 - Derivative Instruments
Note 8 - Net Investment Income and Realized Investment Gains (Losses)
Note 9 - Fair Value of Financial Instruments
Note 10 - Deferred Policy Acquisition Costs
Note 11 - Liability for Future Policy Benefits and Policyholder Account Balances
Note 12 - Liability for Unpaid Claims and Claim Adjustment Expenses
Note 13 - Reinsurance
Note 14 - Federal Income Taxes
Note 15 - Accumulated Other Comprehensive Income
Note 16 - Stockholder's Equity and Noncontrolling Interests
Note 17 - Segment Information
Note 18 - Pension and Postretirement Benefits
Note 19 - Commitments and Contingencies
Note 20 - Related Party Transactions
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of
American National Group, Inc.
Galveston, Texas
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statements of financial position of American National Group, Inc. and subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows for the years ended December 31, 2021 and 2020, and the related notes and the schedules listed in the Index at Item 15 (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years ended December 31, 2021 and 2020, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
Basis for Opinions
The Company’s management is responsible for these financial statements, 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 Item 9A, Controls and Procedures. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (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.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Policyholders’ Account Balances - Valuation of embedded derivative liabilities for equity-indexed contracts - Refer to Notes 7 and 9 to the financial statements
Critical Audit Matter Description
The Company sells equity-indexed universal life and equity-indexed deferred annuity contracts with guaranteed minimum benefits, some of which contain embedded derivatives that are required to be bifurcated from a host reserve, separately accounted for, and measured at fair value. The embedded derivative represents future benefit cash flows in excess of the minimum guaranteed cash flows. As of December 31, 2021, the fair value of the embedded derivative liabilities was $833 million. Management utilizes various assumptions in order to measure the fair value of the embedded derivatives including assumptions related to lapse rate and equity volatility. These assumptions are evaluated annually by management with any changes in the estimated fair value resulting in a cumulative charge or credit to income from operations.
Given the valuation of the embedded derivative liabilities is sensitive to changes in these assumptions, the related audit effort in evaluating management’s selection of the assumptions related to the lapse rate and equity volatility required a high degree of auditor judgment and an increased extent of effort, including involvement of our actuarial and fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our principal audit procedures related to the lapse rate and equity volatility assumptions selected by management for the valuation of embedded derivative liabilities included the following, among others:
•We tested the effectiveness of management’s controls over the valuation of embedded derivative liabilities, including those over the development, selection, and implementation of the assumptions related to lapse rate and equity volatility.
•With the assistance of our fair value specialists, we tested the completeness and accuracy of the underlying data used to determine the equity volatility assumptions.
•We tested the completeness and accuracy of the historical company experience used to determine the lapse rate assumptions.
•With the assistance of our actuarial specialists, we evaluated the appropriateness of the assumptions, evaluated the consistency of the selected assumptions used in the Company’s valuation model, and tested the mathematical accuracy of the valuation model.
Policy and Contract Claims - Property and casualty liability for unpaid claims and claim adjustment expenses - Refer to Notes 2 and 12 to the financial statements
Critical Audit Matter Description
The Company establishes a liability for unpaid claims and claim adjustment expenses to provide for the estimated costs of paying claims under property and casualty insurance policies written by the Company. The property and casualty liability for unpaid claims is included within Policy and Contract Claims in the statements of financial position, which had a balance of $1.7 billion as of December 31, 2021. This liability, which includes estimates for both claims that have been reported and claims that have been incurred but not reported, represents the estimate of all claim and claim adjustment expenses associated with processing and settling the claims. The liability for unpaid claims is estimated using actuarial assumptions for loss development patterns that are based upon the Company’s historical experience and consider the effects of current developments, anticipated trends and risk management programs.
Given the subjectivity of estimating the ultimate cost to settle the liability for property and casualty insurance reported and incurred but not reported claims, the related audit effort in evaluating the assumptions for loss development patterns required a high degree of auditor judgment and an increased extent of effort, including involvement of our actuarial specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our principal audit procedures related to the assumptions for loss development patterns selected by management to estimate the property and casualty liability for unpaid claims and claim adjustment expenses included the following, among others:
•We tested the effectiveness of management’s controls over the property and casualty liability for unpaid claims and claim adjustment expenses, including those over the development, selection, and implementation of the assumptions for loss development patterns used in the actuarial estimates.
•With the assistance of our actuarial specialists, we tested the completeness and accuracy of the underlying data, including historical claims, used to determine the assumptions for loss development patterns, evaluated the appropriateness of the assumptions, evaluated the consistency of the selected assumptions used in the Company’s valuation model, and tested the mathematical accuracy of the valuation model.
•We evaluated the reasonableness of the Company’s estimated property and casualty liability for unpaid losses and loss adjustment expenses by comparing to those independently derived by our actuarial specialists.
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
February 25, 2022
We have served as the Company's auditor since 2020.
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
American National Group, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of operations, comprehensive income, changes in equity, and cash flows of American National Group, Inc. (formerly American National Insurance Company) and subsidiaries (the Company) for the year ended December 31, 2019, and the related notes and financial statement schedules II to IV (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of operations of the Company and its cash flows for the year ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (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.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ KPMG LLP
We served as the Company’s auditor from 2000 to 2020.
Houston, Texas
February 28, 2020
AMERICAN NATIONAL GROUP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands, except share data)
December 31,
2021 2020
ASSETS
Fixed maturity, bonds held-to-maturity, at amortized cost, net of allowance for credit losses of $13,129 in 2021 and $12,442 in 2020 (Fair value $7,458,789 in 2021 and $7,983,181 in 2020)
$ 7,088,981 $ 7,354,970
Fixed maturity, bonds available-for-sale, at fair value (Allowance for credit losses of $10,310 in 2021 and $7,482 in 2020) (Amortized cost $8,107,794 in 2021 and $7,073,142 in 2020)
8,380,248 7,597,180
Equity securities, at fair value (Cost $94,732 in 2021 and $754,625 in 2020)
135,433 2,070,766
Mortgage loans on real estate, net of allowance for credit losses of $97,079 in 2021 and $125,703 in 2020
5,199,334 5,242,531
Policy loans 365,208 373,014
Real estate and real estate partnerships, net of accumulated depreciation of $287,387 in 2021 and $269,626 in 2020
928,412 960,572
Investment funds 961,763 477,135
Short-term investments 1,840,732 1,028,379
Other invested assets 125,795 94,415
Total investments 25,025,906 25,198,962
Cash and cash equivalents 1,930,882 339,947
Accrued investment income 192,913 216,389
Reinsurance recoverables, net of allowance for credit losses of $14,553 in 2021 and $14,353 in 2020
459,621 414,359
Prepaid reinsurance premiums 47,789 42,804
Premiums due and other receivables 382,562 351,972
Deferred policy acquisition costs 1,498,124 1,360,211
Property and equipment, net of accumulated depreciation of $302,936 in 2021 and $281,738 in 2020
137,466 121,578
Prepaid pension 167,587 80,526
Other assets 156,768 155,600
Separate account assets 1,320,703 1,185,467
Total assets $ 31,320,321 $ 29,467,815
LIABILITIES
Future policy benefits
Life $ 3,216,626 $ 3,149,067
Annuity 1,598,365 1,617,774
Health 45,715 49,658
Policyholders’ account balances 13,879,198 12,812,155
Policy and contract claims 1,692,295 1,575,288
Unearned premium reserve 1,013,830 956,343
Other policyholder funds 379,545 358,601
Liability for retirement benefits 79,089 70,254
Notes payable 149,248 153,703
Deferred tax liabilities, net 200,510 478,347
Current tax payable 321,926 10,372
Federal Home Loan Bank advance - 250,000
Other liabilities 421,212 335,219
Separate account liabilities 1,320,703 1,185,467
Total liabilities 24,318,262 23,002,248
EQUITY
American National Group, Inc. stockholders’ equity:
Common stock, $0.01 par value; 50,000,000 shares authorized; 26,887,200 shares issued and outstanding in 2021 and 2020
269 269
Additional paid-in capital 47,762 47,683
Accumulated other comprehensive income 147,054 222,170
Retained earnings 6,799,283 6,188,148
Total American National stockholders’ equity 6,994,368 6,458,270
Noncontrolling interest 7,691 7,297
Total stockholders' equity 7,002,059 6,465,567
Total liabilities and stockholders' equity $ 31,320,321 $ 29,467,815
See accompanying notes to the consolidated financial statements.
AMERICAN NATIONAL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
Years ended December 31,
2021 2020 2019
PREMIUMS AND OTHER REVENUES
Premiums
Life $ 412,769 $ 396,099 $ 359,419
Annuity 74,925 92,866 147,139
Health 143,484 168,805 165,035
Property and casualty 1,669,875 1,560,304 1,511,201
Other policy revenues 359,707 310,746 305,256
Net investment income 1,171,654 976,152 1,180,907
Net realized investment gains 64,628 35,660 37,719
Other-than-temporary impairments - - (6,968)
(Increase) decrease in investment credit loss 28,778 (102,603) -
Net gains on equity securities 420,283 356,281 422,535
Other income 45,688 40,556 51,401
Total premiums and other revenues 4,391,791 3,834,866 4,173,644
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits
Life 605,724 533,925 449,252
Annuity 149,931 214,158 218,576
Claims incurred
Health 98,029 116,122 109,013
Property and casualty 1,094,126 1,005,620 1,042,153
Interest credited to policyholders’ account balances 448,654 321,042 511,999
Commissions for acquiring and servicing policies 640,097 553,600 532,634
Other operating expenses 571,869 515,413 524,888
Change in deferred policy acquisition costs (79,632) (5,678) (12,749)
Total benefits, losses and expenses 3,528,798 3,254,202 3,375,766
Income before federal income tax and other items 862,993 580,664 797,878
Less: Provision (benefit) for federal income taxes
Current 408,551 57,697 87,032
Deferred (241,966) 58,910 78,385
Total provision for federal income taxes 166,585 116,607 165,417
Income after federal income tax 696,408 464,057 632,461
Other components of net periodic pension benefit (costs), net of tax
3,574 4,456 (684)
Net income 699,982 468,513 631,777
Less: Net income attributable to noncontrolling interest, net of tax
657 1,008 11,414
Net income attributable to American National $ 699,325 $ 467,505 $ 620,363
Amounts available to American National common stockholders
Earnings per share
Basic $ 26.02 $ 17.39 $ 23.08
Diluted 26.01 17.38 23.07
Weighted average common shares outstanding 26,877,200 26,878,679 26,882,691
Weighted average common shares outstanding and dilutive potential common shares
26,884,679 26,887,125 26,891,243
See accompanying notes to the consolidated financial statements.
AMERICAN NATIONAL GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Years ended December 31,
2021 2020 2019
Net income $ 699,982 $ 468,513 $ 631,777
Other comprehensive income (loss), net of tax
Change in net unrealized gains (losses) on securities (142,854) 134,315 184,156
Foreign currency transaction and translation adjustments 62 235 390
Defined benefit pension plan adjustment 67,676 (11,898) 15,495
Total other comprehensive income (loss), net of tax (75,116) 122,652 200,041
Total comprehensive income 624,866 591,165 831,818
Less: Comprehensive income attributable to noncontrolling interest 657 1,008 11,414
Total comprehensive income attributable to American National $ 624,209 $ 590,157 $ 820,404
See accompanying notes to the consolidated financial statements.
AMERICAN NATIONAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except per share data)
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 - 80 - - - - 80
Cumulative effect of accounting change
- - (785) 785 - - -
Other comprehensive income - - 200,041 - - - 200,041
Net income attributable to American National
- - - 620,363 - - 620,363
Cash dividends to common stockholders (declared per share of $3.28)
- - - (88,243) - - (88,243)
Contributions - - - - - 388 388
Distributions - - - - - (20,055) (20,055)
Net income attributable to noncontrolling interest
- - - - - 11,414 11,414
Balance at December 31, 2019 $ 30,832 $ 21,011 $ 99,518 $ 5,946,857 $ (108,469) $ 6,014 $ 5,995,763
Reclassification of par value due to reorganization (26,618) 26,618 - - - - -
Retirement of treasury shares (3,945) - - (104,524) 108,469 - -
Amortization of restricted stock - 54 - - - - 54
Cumulative effect of accounting change
- - - (33,500) - - (33,500)
Other comprehensive income - - 122,652 - - - 122,652
Net income attributable to American National
- - - 467,505 - - 467,505
Cash dividends to common stockholders (declared per share of $3.28)
- - - (88,190) - - (88,190)
Contributions - - - - - 856 856
Distributions - - - - - (581) (581)
Net income attributable to noncontrolling interest
- - - - - 1,008 1,008
Balance at December 31, 2020 $ 269 $ 47,683 $ 222,170 $ 6,188,148 $ - $ 7,297 $ 6,465,567
Amortization of restricted stock - 79 - - - - 79
Other comprehensive loss - - (75,116) - - - (75,116)
Net income attributable to American National - - - 699,325 - - 699,325
Cash dividends to common stockholders (declared per share of $3.28)
- - - (88,190) - - (88,190)
Contributions - - - - - 386 386
Distributions - - - - - (649) (649)
Net income attributable to noncontrolling interest - - - - - 657 657
Balance at December 31, 2021 $ 269 $ 47,762 $ 147,054 $ 6,799,283 $ - $ 7,691 $ 7,002,059
See accompanying notes to the consolidated financial statements.
AMERICAN NATIONAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years ended December 31,
2021 2020 2019
OPERATING ACTIVITIES
Net income $ 699,982 $ 468,513 $ 631,777
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized investment gains (64,628) (35,660) (37,719)
Other-than-temporary impairments - - 6,968
Increase (decrease) in investment credit loss (28,778) 102,603 -
Accretion of premiums, discounts and loan origination fees 18,932 9,479 (4,394)
Net capitalized interest on policy loans and mortgage loans (31,620) (30,367) (34,081)
Depreciation 49,983 52,551 53,160
Interest credited to policyholders’ account balances 448,654 321,042 511,999
Charges to policyholders’ account balances (359,707) (310,746) (305,256)
Deferred federal income tax expense (benefit) (241,966) 58,910 78,385
Income from equity method investments (188,677) (42,467) (103,501)
Distributions from unconsolidated affiliates 150,024 82,045 111,848
Changes in:
Policyholder liabilities 271,202 210,397 145,396
Deferred policy acquisition costs (79,632) (5,678) (12,749)
Reinsurance recoverables (45,262) (2,529) 15,645
Premiums due and other receivables (30,590) (10,048) 3,780
Prepaid reinsurance premiums (4,985) 1,865 8,952
Accrued investment income 23,476 (15,533) (12,227)
Current tax payable 311,554 339 18,893
Liability for retirement benefits 7,440 (13,765) (8,454)
Fair value of option securities (127,681) (51,931) (144,978)
Fair value of equity securities (420,283) (356,281) (422,535)
Other, net (6,651) (100,276) 5,503
Net cash provided by operating activities 350,787 332,463 506,412
INVESTING ACTIVITIES
Proceeds from sale/maturity/prepayment of:
Held-to-maturity securities 1,274,488 1,615,811 864,481
Available-for-sale securities 1,224,242 977,051 500,724
Equity securities 2,467,165 117,866 294,798
Real estate and real estate partnerships 21,139 61,548 66,725
Mortgage loans 951,602 522,900 837,732
Policy loans 51,105 52,767 48,079
Other invested assets 239,767 148,101 120,455
Disposals of property and equipment 65 268 69
Distributions from real estate and real estate partnerships 120,019 6,866 61,075
Distributions from investment funds 131,186 91,178 37,926
Payment for the purchase/origination of:
Held-to-maturity securities (944,443) (498,149) (1,468,253)
Available-for-sale securities (2,244,974) (1,473,808) (528,495)
Equity securities (93,663) (131,238) (49,016)
Real estate and real estate partnerships (12,252) (31,518) (24,163)
Mortgage loans (854,496) (752,244) (784,408)
Policy loans (20,527) (22,338) (27,722)
Other invested assets (164,426) (98,371) (109,074)
Additions to property and equipment (37,150) (39,863) (21,402)
Contributions to real estate and real estate partnerships (123,061) (119,463) (85,105)
Contributions to investment funds (591,324) (256,638) (185,140)
Change in short-term investments (812,353) (603,058) (190,511)
Change in collateral held for derivatives 20,604 (15,648) 107,133
Other, net 2,633 2,657 10,369
Net cash provided by (used in) investing activities 605,346 (445,323) (523,723)
AMERICAN NATIONAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
Years ended December 31,
2021 2020 2019
FINANCING ACTIVITIES
Policyholders’ account deposits 2,229,554 1,232,520 1,770,646
Policyholders’ account withdrawals (1,251,458) (1,388,649) (1,481,234)
Proceeds from Federal Home Loan Bank borrowings - 500,000 -
Repayment of Federal Home Loan Bank borrowings (250,000) (250,000) -
Change in notes payable (4,455) (4,294) 20,034
Dividends to stockholders (88,190) (88,190) (88,243)
Payments to noncontrolling interest (649) (581) (20,055)
Net cash provided by financing activities 634,802 806 201,148
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,590,935 (112,054) 183,837
Cash and cash equivalents at beginning of the period 339,947 452,001 268,164
Cash and cash equivalents at end of the period $ 1,930,882 $ 339,947 $ 452,001
Supplemental cash flow information:
Interest paid $ 387 $ 805 $ -
Income taxes paid, net 89,600 50,800 86,440
See accompanying notes to the consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Nature of Operations
American National Group, Inc. ("ANAT" or the "Company"), through its consolidated subsidiaries (collectively “American National”) offers 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.
On August 6, 2021, ANAT entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Brookfield Asset Management Reinsurance Partners Ltd. (“Brookfield Reinsurance”), an exempted company limited by shares existing under the laws of Bermuda, and Freestone Merger Sub Inc., a Delaware corporation and an indirect wholly-owned subsidiary of Brookfield Reinsurance (“Merger Sub”). On the terms and subject to the conditions of the Merger Agreement, at the closing, Merger Sub will merge with and into the Company (the “Merger”), with the Company continuing as the surviving entity, which will become an indirect, wholly-owned subsidiary of Brookfield Reinsurance. The Merger was unanimously approved by the Company’s board of directors. The Merger has received the requisite stockholder approval required under Delaware law. The only remaining significant closing condition pursuant to the Merger is the required regulatory approval from the insurance authorities in Texas, Missouri, New York, Louisiana and California.
Note 2 - Summary of Significant Accounting Policies and Practices
The consolidated financial statements and notes thereto have been prepared in conformity with 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, which include real estate partnerships and investment funds, are accounted for using the equity method of accounting. Certain amounts in prior years have been reclassified to conform to current year presentation.
During the first quarter of 2021, we reclassified the Company's earnings from equity method investments in the condensed consolidated statements of operations from "Equity in earnings of unconsolidated affiliates" to "Net investment income." For the years ended December 31, 2020 and 2019, $42.5 million and $103.5 million were reclassified, with no impact to net income. We also reclassified the related asset balances in the consolidated statements of financial position from "Investments in unconsolidated affiliates" to "Real estate and real estate partnerships" and "Investment funds," with no impact to total assets. Management believes these reclassifications result in increased transparency to the users of the financial statements as it relates to the Company's invested assets and the performance of these investments that are tied to the primary operations of the Company.
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.
Investments
Investment securities are comprised of bonds classified as held-to-maturity that are carried at amortized cost net of credit loss allowance and bonds classified as available-for-sale that are carried at fair value. In addition, equity investments, other than those accounted for under the equity method or those that result in consolidation of the investee, are measured at fair value with changes in fair value recognized in earnings.
Mortgage loans on real estate are stated at unpaid principal balance, adjusted for any unamortized discount, deferred expenses, and allowances. Accretion of discounts is recorded using the effective yield method. Interest income, prepayment fees, and accretion of discounts and origination fees are reported in “Net investment income” in the consolidated statements of operations. Interest income earned is accrued on the principal amount of the loan based on contractual interest rate. However, interest ceases to accrue for loans on which interest is more than 90 days past due, when the collection of interest is not probable, or when a loan is in foreclosure. Income on past due loans is reported on a cash basis. When a loan becomes current, it is placed back into accrual status. Cash receipts on impaired loans are recorded as a reduction of principal, interest income, expense reimbursement, or other manner in accordance with the loan agreement. In the consolidated statements of operations, gains and losses from the sale of loans are reported in “Net realized investment gains,” and changes in allowances are reported in "(Increase) decrease in investment credit loss."
Note 2 - Summary of Significant Accounting Policies and Practices - (Continued)
Mortgage loans are presented net of the Company's recorded allowance for expected credit loss, which represents the portion of amortized cost basis on mortgage loans that the Company does not expect to collect. In determining the Company’s allowance for credit losses, management: (i) pools and evaluates mortgage loans with similar risk characteristics, (ii) considers expected lifetime credit losses adjusted for prepayments and extensions, and (iii) considers past events, current economic conditions and forecasts of future economic conditions. The allowance is calculated quarterly for each property type based on inputs unique to each loan property type.
On an ongoing basis, mortgage loans with dissimilar risk characteristics (i.e., loans with significant declines in credit quality), collateral dependent mortgage loans (i.e., when the borrower is experiencing financial difficulty, including when foreclosure is reasonably possible or probable), and reasonably expected troubled debt restructurings (i.e., the Company grants concessions to a borrower that is experiencing financial difficulties) may be evaluated individually for credit loss. The allowance for credit losses for loans evaluated individually is established using the same methodologies for the overall commercial portfolio segment except for collateral dependent loans. The allowance for a collateral dependent loan is established as the excess of amortized cost over the estimated fair value of the loan’s underlying collateral, less selling cost when foreclosure is probable. Accordingly, the change in the estimated fair value of collateral dependent loans is recorded as a change in the allowance for credit losses which is recorded on a quarterly basis as a charge or credit to earnings.
Policy loans are carried at the outstanding balance plus any accrued interest which approximates fair value.
Investment real estate including related improvements are stated at cost less accumulated depreciation. Depreciation is provided on a straight-line basis over the estimated useful life of the asset (typically 15 to 50 years). Rental income is recognized on a straight-line basis over the term of the respective lease. American National classifies a property as held-for-sale if it commits to a plan to sell a property within one year and actively markets the property in its current condition for a price that is reasonable in comparison to its estimated fair value. Real estate held-for-sale is stated at the lower of depreciated cost or estimated fair value less expected disposition costs and is not depreciated while it is classified as held-for-sale. American National periodically reviews its investment real estate for impairment and tests properties for recoverability whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable and the carrying value of the property exceeds its estimated fair value. Properties whose carrying values are greater than their undiscounted cash flows are written down to their estimated fair value, with the impairment loss included as an adjustment to “Net realized investment gains” in the consolidated statements of operations. Impairment losses are based upon the estimated fair value of real estate, which is generally computed using the present value of expected future cash flows from the real estate discounted at a rate commensurate with the underlying risks as well as other appraisal methods. Real estate acquired upon foreclosure is recorded at the lower of its cost or its estimated fair value at the date of foreclosure.
Real estate joint ventures and other limited partnership interests in which the Company has more than a minor interest or influence over the investee’s operations, but it does not have a controlling interest and is not the primary beneficiary, are accounted for using the equity method. These investments are reported as "Real estate and real estate partnerships” in the consolidated statements of financial position. For certain joint ventures, American National records its share of earnings using a lag methodology of one to three months when timely financial information is not available, and the contractual right does not exist to receive such financial information. In addition to the investees’ impairment analysis of their underlying investments, American National routinely evaluates its investments in those investees for impairments. American National considers financial and other information provided by the investee, other known information, and inherent risks in the underlying investments, as well as future capital commitments, in determining whether impairment has occurred. When an impairment is deemed to have occurred at the joint venture level, American National recognizes its share as an adjustment to “Net investment income” to record the investment at its fair value. When an impairment results from American National’s separate analysis, an adjustment is made through “Net realized investment gains” to record the investment at its fair value.
Investment funds are primarily comprised of senior secured and second lien private loans that are secured by assets, revenues and credit/balance sheet lending. We recognize our share of the fund’s earnings in net investment income on a one-quarter lag under the equity method of accounting. Cash distributions are received from the earnings and from liquidation of underlying investments. All investment funds are reevaluated quarterly by the fund manager and are audited annually by an independent audit firm.
Short-term investments comprised of commercial paper are carried at amortized cost, which approximates fair value. Short-term investments have a maturity of less than one year.
Note 2 - Summary of Significant Accounting Policies and Practices - (Continued)
Other invested assets comprised primarily of equity-indexed options are carried at fair value and may be collateralized by counterparties; such collateral is restricted to the Company’s use. Separately managed accounts and Federal Home Loan Bank stock are also included in other invested assets and are carried at cost or market value if available from the account manager. Other invested assets also include tax credit partnerships and mineral rights less allowance for depletion, where applicable.
Credit losses on fixed maturity securities, held-to-maturity, receive a lifetime expected credit loss allowance upon initial recognition of the security representing the net amount expected to be collected. Expected credit losses are measured on a collective (pool) basis by major security type with the credit loss allowance determined based on the difference between the net present value of the expected cash flows from those pooled securities with the amortized cost basis. The expected cash flows are discounted at the effective interest rate of the security and consider historical credit loss information that is adjusted for current market conditions and reasonable and supportable economic forecasts based upon a third-party valuation model. The valuation model calculates expected cash flows based on scenario conditioned probability of default and loss given default. Probability of default measures the likelihood of default over a specified time period, and the loss given default measures the amount that the Company could lose in the event of a counterparty default.
For fixed maturity securities, available-for-sale, in unrealized loss positions which American National does not intend to sell and for which it is not more-likely-than-not that it will be required to sell before its anticipated recovery, American National assesses whether the amortized cost basis of securities will be recovered by comparing the net present value of the expected cash flows from those securities with its amortized cost basis. Management estimates the expected cash flows using a third-party valuation model similar to that used for held-to-maturity securities. The net present value of the expected cash flows is calculated by discounting management’s best estimate of expected cash flows at the effective interest rate implicit in the fixed maturity security when acquired. If the net present value of the expected cash flows is less than the amortized cost, a credit loss allowance is recorded. The credit loss is recorded as the excess of amortized cost over the net present value of the expected cash flows limited by the amount the fair value is less than the amortized cost (fair-value floor). If the fair value is less than the net present value of its expected cash flows at the impairment measurement date, a non-credit loss exists which is recorded in other comprehensive income (loss) for the difference between the fair value and the net present value of the expected cash flows.
Additions to or releases of the allowance on all fixed maturity securities are reported in “(Increase) decrease in investment credit loss” in the consolidated statements of operations.
Prior to January 1, 2020, an other-than-temporary impairment (“OTTI”) loss was recorded when management believed the carrying value would not be realized. After the recognition of a credit loss, fixed maturity securities were accounted for as if they had been purchased on the OTTI measurement date, with a cost basis equal to their previous amortized cost less the related OTTI losses recognized in earnings. The new cost basis of an other-than-temporarily impaired security was not adjusted for subsequent increases in estimated fair value. Should there have been a significant increase in the estimate of cash flows expected to be collected from previously impaired securities, the increase would have been accounted for prospectively by accreting it as interest income over its remaining life.
Derivative instruments in the form of equity-indexed options are purchased to hedge against future interest rate increases in liabilities indexed to market rates and are recorded in the consolidated statements of financial position within other invested assets at fair value, net of collateral provided by counterparties. The change in fair value of derivative assets and liabilities is reported in the consolidated statements of operations as “Net investment income” and “Interest credited to policyholders’ account balances,” respectively. American National does not apply hedge accounting treatment to its derivative instruments. The Company uses derivative instruments to hedge its business risk and holds collateral to offset exposure from its counterparties. Collateral that supports credit risk is reported in the consolidated statements of financial position as an offset to “Other invested assets” with an associated payable to “Other liabilities” for excess collateral.
Cash and cash equivalents have durations that do not exceed 90 days at the date of acquisition, include cash on-hand and in banks, as well as amounts invested in money market funds, and are reported as “Cash and cash equivalents” in the consolidated statements of financial position.
Property and equipment consist of buildings occupied by American National, data processing equipment, software, furniture and equipment, and automobiles which are carried at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful life of the asset (typically 3 to 50 years).
Note 2 - Summary of Significant Accounting Policies and Practices - (Continued)
Insurance specific assets and liabilities
Deferred policy acquisition costs (“DAC”) are capitalized costs related directly to the successful acquisition of new or renewal insurance contracts. Significant costs are incurred to acquire insurance and annuity contracts, including commissions and certain underwriting, policy issuance, and processing expenses.
DAC on traditional life, including limited-pay contracts, and health products is amortized with interest over the anticipated premium-paying period of the related policies in proportion to the ratio of annual premium revenue expected to be received over the life of the policies. Expected premium revenue is estimated by using the same mortality, morbidity, and withdrawal assumptions used in computing liabilities for future policy benefits. DAC is reduced by a provision for possible inflation of maintenance and settlement expenses determined by means of grading interest rates.
DAC on universal life and investment-type contracts is amortized as a level percentage of the present value of anticipated gross profits from investment yields, mortality, and surrender charges. The effect of the realization of unrealized gains (losses) on DAC is recognized within AOCI in the consolidated statements of financial position as of the reporting date. A change in interest rates could have a significant impact on DAC calculated for these contracts.
DAC associated with property and casualty business is amortized over the coverage period of the related policies, in relation to premiums earned.
DAC on participating whole life products is amortized in proportion to estimated gross margins. Estimated gross margins are equal to premiums, plus investment income, less benefits, less expenses not included in DAC, less the change in reserves, less dividends.
For short-duration and long-duration contracts, DAC is grouped consistent with the manner in which insurance contracts are acquired, serviced, and measured for profitability and is reviewed for recoverability based on the profitability of the underlying insurance contracts. Investment income is anticipated in assessing the recoverability of DAC for short-duration contracts.
Liabilities for future policy benefits for traditional products have been provided on a net level premium method based on estimated investment yields, withdrawals, mortality, and other assumptions that were appropriate at the time the policies were issued. Estimates are based on historical experience adjusted for possible adverse deviation. These estimates are periodically reviewed and compared with actual experience. When it is determined that future expected experience differs significantly from existing assumptions, the estimates are revised for current and future issues.
Policyholders’ account balances represent the contract value that has accrued to the benefit of the policyholders related to universal-life and investments-type contracts. For fixed products, these are generally equal to the accumulated deposits plus interest credited, reduced by withdrawals, payouts, and accumulated policyholder assessments. Indexed product account balances are equal to the sum of host and embedded derivative reserves computed per derivative accounting guidance.
Liabilities for unpaid claims and claim adjustment expenses (“CAE”) are established to provide for the estimated costs of paying claims. These reserves include estimates for both case reserves and IBNR claim liabilities. Case reserves include the liability for reported but unpaid claims. IBNR liabilities include a provision for potential development on case reserves, losses on claims currently closed which may reopen in the future, as well as IBNR claims. These liabilities also include an estimate of the expense associated with settling claims, including legal and other fees, and the general expenses of administering the claims adjustment process.
Reinsurance recoverables are estimated amounts due to American National from reinsurers related to paid and unpaid ceded claims and CAE and are presented net of a reserve for collectability. Recoveries of gross ultimate losses under our non-catastrophe reinsurance are estimated by a review of individual large claims and the ceded portion of IBNR using assumed distribution of loss by percentage retained. Recoveries of gross ultimate losses under our catastrophe reinsurance are estimated by applying reinsurance treaty terms to estimates of gross ultimate losses. The most significant assumption is the average size of the individual losses for those claims that have occurred but have not yet been reported and our estimate of gross ultimate losses. The ultimate amount of the reinsurance ceded recoverable is unknown until all losses settle.
Note 2 - Summary of Significant Accounting Policies and Practices - (Continued)
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. Separate account assets include funds representing 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. American National reports separately, as assets and liabilities, investments held in such 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. In addition, American National's qualified pension plan assets are included in separate accounts. 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 statements of operations. Separate accounts are established in conformity with insurance laws and are not chargeable with liabilities that arise from any other business of American National.
Premiums, benefits, claims incurred, and expenses
Traditional ordinary life and health premiums are recognized as revenue when due. Benefits and expenses are associated with earned premiums to result in recognition of profits over the term of the insurance contracts.
Annuity premiums received on limited-pay and supplemental annuity contracts involving a significant life contingency are recognized as revenue when due. Deferred annuity premiums are recorded as deposits rather than recognized as revenue. Revenues from deferred annuity contracts are principally surrender charges and, in the case of variable annuities, administrative fees assessed to contract holders.
Universal life and single premium whole life revenues represent amounts assessed to policyholders including mortality charges, surrender charges actually paid, and earned policy service fees. Amounts included in expenses are benefits in excess of account balances returned to policyholders.
Property and casualty premiums are recognized as revenue over the period of the contract in proportion to the amount of insurance protection, which is generally evenly over the contract period, net of reinsurance ceded. Claims incurred consist of claims and CAE paid and the change in reserves, net of reinsurance received and recoverable.
Participating insurance policies
Participating business comprised approximately 4.0% of the life insurance in-force at December 31, 2021 and 16.5% of life premiums in 2021.
For the majority of this participating business, profits earned are reserved for the payment of dividends to policyholders, except for the stockholders’ share of profits on participating policies, which is limited to the greater of 10% of the profit on participating business, or 50 cents per thousand dollars of the face amount of participating life insurance in-force. Participating policyholders’ interest includes the accumulated net income from participating policies reserved for payment to such policyholders in the form of dividends (less net income allocated to stockholders as indicated above) as well as a pro rata portion of unrealized investment gains (losses). Dividends to participating policyholders were $8.1 million, $7.0 million, and $8.4 million for the years ended 2021, 2020, and 2019, respectively. Income of $18.3 million, $5.8 million, and $34.0 million was allocated to participating policyholders for the years ended 2021, 2020, and 2019, respectively.
For all other participating business, the allocation of dividends to participating policyowners is based upon a comparison of experienced rates of mortality, interest and expenses, as determined periodically for representative plans of insurance, issue ages and policy durations, with the corresponding rates assumed in the calculation of premiums.
Federal income taxes
American National files a consolidated life and non-life federal income tax return. Certain subsidiaries that are consolidated for financial reporting are not eligible to be included in the consolidated federal income tax return; accordingly, they file separate returns.
Note 2 - Summary of Significant Accounting Policies and Practices - (Continued)
Deferred income tax assets and liabilities are recognized to reflect the future tax consequences attributable to differences between the financial statement amounts of assets and liabilities and their respective tax bases. Deferred taxes are measured using enacted tax rates expected to apply in the years in which those temporary differences are expected to be recovered or settled.
American National recognizes tax benefits on uncertain tax positions if it is “more-likely-than-not” the position based on its technical merits will be sustained by taxing authorities. American National recognizes the largest benefit that is greater than 50% likely of being ultimately realized upon settlement. Tax benefits not meeting the “more-likely-than-not” threshold, if applicable, are included with “Other liabilities” in the consolidated statements of financial position. American National recognizes interest expense and penalties related to uncertain tax positions, if applicable, as income tax expense in the consolidated statements of operations. Accrued interest expense and penalties related to uncertain tax positions are reported as "Other liabilities" in the consolidated statements of financial position.
Pension and postretirement benefit plans
Pension and postretirement benefit obligations and costs for our frozen benefit plans are estimated using assumptions including demographic factors such as retirement age and mortality.
American National uses a discount rate to determine the present value of future benefits on the measurement date. The guideline for setting this rate is a high-quality long-term corporate bond rate. For this purpose, a hypothetical bond portfolio to match the expected monthly benefit payments under the pension plan was constructed with the resulting yield of the portfolio used as a discount rate.
In developing the investment return assumption, we relied on a model that utilizes the following factors:
•Current yield to maturity of fixed income securities
•Forecasts of inflation, GDP growth, and total return for each asset class
•Historical plan performance
•Target asset allocation
•Standard deviations and correlations related to historical and expected future returns of each asset class and inflation
The resulting assumption is the assumed rate of return for the plans’ target asset allocation, net of investment expenses, and reflects anticipated returns of the plans’ current and future assets.
Using this approach, the calculated return will fluctuate from year to year; however, it is American National’s policy to hold this long-term assumption relatively constant.
Stock-based compensation
Stock Appreciation Rights (“SARs”) liability and compensation cost is based on the fair value of the grants and is remeasured each reporting period through the settlement date. The fair value of the SARs is calculated using the Black-Scholes-Merton option-pricing model. The key assumptions used in the model include: the grant date and remeasurement date stock prices, expected life of the SARs, and the risk-free rate of return. The compensation liability related to the SAR award is reported as “Other liabilities” in the consolidated statements of financial position.
Restricted Stock (“RS”) equity and compensation cost is based on the fair value of the underlying stock at grant date. The compensation cost accrued is reported as “Additional paid-in capital” in the consolidated statements of financial position.
Restricted Stock Units (“RSUs”) are settled in cash, resulting in classifying RSUs as a liability award. The liability is remeasured each reporting period through the vesting date and is adjusted for changes in fair value. The compensation liability related to the RSUs is reported as “Other Liabilities” in the consolidated statements of financial position.
Litigation contingencies
Existing and potential litigation is reviewed quarterly to determine if any adjustments to liabilities for possible losses are necessary. Reserves for losses are established whenever they are probable and reasonably estimable. If no one estimate within the range of possible losses is more probable than any other, a reserve is recorded based on the lowest amount of the range.
Note 3 - Recently Issued Accounting Pronouncements
Adoption of New Accounting Standards
Standard Description Effective Date and Method of Adoption Impact on 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 that an entity 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 became 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 earnings as of the beginning of the year of adoption.
The adoption of this standard did not have a material impact to the Company's Consolidated Financial Statements or Notes to the Consolidated Financial Statements.
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, 2023, which was extended from the previous effective date of January 1, 2022 through the issuance of ASU 2020-11. 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.
Considerable progress in the implementation of the new standard has been made; however, we have not yet estimated the impact the new guidance will have on the consolidated financial statements. Accounting and actuarial policy elections have mostly been determined, data flows are being established, actuarial models are being developed, and implementation of a financial reporting disclosure system is in progress.
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting The amendments in this guidance provide optional expedients and exceptions for applying 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 guidance 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. The FASB is currently deliberating an ASU that would extend the sunset date through December 31, 2024.
The inventory of LIBOR exposures has been completed and is primarily limited to floating rate bonds, alternative investments, and borrowings within joint venture investments. Some of the contracts included in these categories will mature prior to December 31, 2021, the start of LIBOR rates cessations. The transition from LIBOR is expected to result in an immaterial impact to the Company's Consolidated Financial Statements or Notes to the Consolidated Financial Statements.
Note 4 - Investment in Securities
The cost or amortized cost and fair value of investments in securities are shown below (in thousands):
December 31, 2021
Cost or Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Fair Value
Fixed maturity, bonds held-to-maturity
U.S. treasury and government $ 12,284 $ - $ (287) $ - $ 11,997
U.S. states and political subdivisions 104,039 1,676 (1,906) - 103,809
Foreign governments 14,369 137 (159) - 14,347
Corporate debt securities 6,810,518 388,726 (21,213) (11,467) 7,166,564
Residential mortgage-backed securities 48,491 2,684 (481) (516) 50,178
Collateralized debt securities 112,409 1,677 (1,046) (1,146) 111,894
Total bonds held-to-maturity
7,102,110 394,900 (25,092) (13,129) 7,458,789
Fixed maturity, bonds available-for-sale
U.S. treasury and government 26,887 121 (255) - 26,753
U.S. states and political subdivisions 1,028,331 51,124 (2,312) (14) 1,077,129
Foreign governments 5,000 841 - - 5,841
Corporate debt securities 6,809,610 268,964 (35,285) (7,141) 7,036,148
Residential mortgage-backed securities 32,234 342 (341) (268) 31,967
Collateralized debt securities 205,732 469 (904) (2,887) 202,410
Total bonds available-for-sale
8,107,794 321,861 (39,097) (10,310) 8,380,248
Total investments in fixed maturity $ 15,209,904 $ 716,761 $ (64,189) $ (23,439) $ 15,839,037
December 31, 2020
Cost or Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Fair Value
Fixed maturity, bonds held-to-maturity
U.S. treasury and government $ 7,733 $ 11 $ - $ - $ 7,744
U.S. states and political subdivisions 109,445 4,101 (11) - 113,535
Foreign governments 3,851 374 - - 4,225
Corporate debt securities 6,992,095 623,233 (9,117) (7,475) 7,598,736
Residential mortgage-backed securities 114,579 5,065 (1,464) (452) 117,728
Collateralized debt securities 139,709 6,864 (845) (4,515) 141,213
Total bonds held-to-maturity
7,367,412 639,648 (11,437) (12,442) 7,983,181
Fixed maturity, bonds available-for-sale
U.S. treasury and government 28,766 418 (1) - 29,183
U.S. states and political subdivisions 1,066,627 73,976 (145) - 1,140,458
Foreign governments 14,995 1,393 - - 16,388
Corporate debt securities 5,887,756 471,205 (17,207) (7,275) 6,334,479
Residential mortgage-backed securities 20,544 964 (29) (188) 21,291
Collateralized debt securities 54,454 1,040 (94) (19) 55,381
Total bonds available-for-sale
7,073,142 548,996 (17,476) (7,482) 7,597,180
Total investments in fixed maturity $ 14,440,554 $ 1,188,644 $ (28,913) $ (19,924) $ 15,580,361
Note 4 - Investment in Securities - (Continued)
The amortized cost and fair value, by contractual maturity, of fixed maturity securities are shown below (in thousands):
December 31, 2021
Bonds Held-to-Maturity Bonds Available-for-Sale
Amortized Cost Fair Value Amortized Cost Fair Value
Due in one year or less $ 853,273 $ 865,103 $ 574,056 $ 580,191
Due after one year through five years 2,232,939 2,355,707 3,015,864 3,156,717
Due after five years through ten years 2,969,115 3,145,270 2,474,224 2,576,325
Due after ten years 1,046,783 1,092,709 2,043,650 2,067,015
Total $ 7,102,110 $ 7,458,789 $ 8,107,794 $ 8,380,248
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 bonds available-for-sale, with the related gross realized gains and losses, are shown below (in thousands):
Years ended December 31,
2021 2020 2019
Proceeds from sales of fixed maturity, bonds available-for-sale $ 55,558 $ 164,372 $ 45,017
Gross realized gains 59 624 250
Gross realized losses - (4,145) (1,124)
Gains and losses are determined using specific identification of the securities sold. There was no transfer of bonds from held-to-maturity to available-for-sale during 2021. During 2020, bonds below investment grade with a carrying value of $142.7 million, were transferred from held-to-maturity to available-for-sale after a deterioration in the issuers’ creditworthiness.
In accordance with various regulations, American National has bonds on deposit with regulating authorities with a carrying value of $53.5 million and $47.7 million at December 31, 2021 and 2020, respectively. In addition, American National has pledged bonds in connection with agreements and transactions, such as financing and reinsurance agreements. The carrying value of bonds pledged was $67.1 million and $111.0 million at December 31, 2021 and 2020, respectively.
The components of the change in net unrealized gains (losses) on debt securities are shown below (in thousands):
Years ended December 31,
2021 2020 2019
Bonds available-for-sale: change in unrealized gains (losses) $ (248,756) $ 242,105 $ 335,473
Adjustments for
Deferred policy acquisition costs 58,281 (68,474) (87,003)
Participating policyholders’ interest 8,275 (3,010) (16,056)
Deferred federal income tax benefit (expense) 39,346 (36,306) (48,258)
Change in net unrealized gains (losses) on debt securities, net of tax $ (142,854) $ 134,315 $ 184,156
The components of the change in net gains on equity securities are shown below (in thousands):
Years ended December 31,
2021 2020
Unrealized gains on equity securities $ 38,771 $ 349,999
Net gains on equity securities sold 381,512 6,282
Net gains on equity securities $ 420,283 $ 356,281
Note 4 - Investment in Securities - (Continued)
The gross unrealized losses and fair value of bonds available-for-sale, aggregated by investment category and length of time individual securities have been in a continuous unrealized loss position due to market factors are shown below (in thousands, except number of issues):
December 31, 2021
Less than 12 months 12 months or more Total
Number of Issues Gross Unrealized Losses Fair Value Number of Issues Gross Unrealized Losses Fair Value Number of Issues Gross Unrealized Losses Fair Value
Fixed maturity, bonds available-for-sale
U.S. treasury and government 10 $ (230) $ 18,378 1 $ (25) $ 2,844 11 $ (255) $ 21,222
U.S. states and political subdivisions 13 (618) 50,025 4 (1,694) 33,644 17 (2,312) 83,669
Corporate debt securities 184 (27,335) 1,596,811 32 (7,950) 146,597 216 (35,285) 1,743,408
Residential mortgage-backed securities 2 (339) 13,193 2 (2) 496 4 (341) 13,689
Collateralized debt securities 26 (885) 191,342 3 (19) 4,447 29 (904) 195,789
Total 235 $ (29,407) $ 1,869,749 42 $ (9,690) $ 188,028 277 $ (39,097) $ 2,057,777
December 31, 2020
Less than 12 months 12 months or more Total
Number of Issues Gross Unrealized Losses Fair Value Number of Issues Gross Unrealized Losses Fair Value Number of Issues Gross Unrealized Losses Fair Value
Fixed maturity, bonds available-for-sale
U.S. treasury and government 1 $ (1) $ 2,868 - $ - $ - 1 $ (1) $ 2,868
U.S. states and political subdivisions 2 (145) 10,205 - - - 2 (145) 10,205
Corporate debt securities 43 (8,507) 270,249 8 (8,700) 13,270 51 (17,207) 283,519
Residential mortgage-backed securities 1 (21) 1,391 3 (8) 593 4 (29) 1,984
Collateralized debt securities 3 (93) 12,752 1 (1) 158 4 (94) 12,910
Total 50 $ (8,767) $ 297,465 12 $ (8,709) $ 14,021 62 $ (17,476) $ 311,486
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. Based on this evaluation, unrealized losses on bonds available-for-sale where an allowance for credit loss was not recorded were concentrated in the Company's fixed maturity securities within the finance and investment sector.
Equity securities by market sector distribution are shown below, based on fair value:
December 31,
2021 2020
Consumer goods 9.6 % 19.3 %
Energy and utilities 6.4 5.2
Finance 35.6 21.6
Healthcare 9.0 15.0
Industrials 3.5 7.4
Information technology 15.1 27.1
Other 20.8 4.4
Total 100.0 % 100.0 %
Note 4 - Investment in Securities - (Continued)
Allowance for Credit Losses
Held-to-Maturity Securities-Management measures expected credit losses on bonds held-to-maturity on a qualitative adjustment 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 cost basis. If either of these criteria are met, the security’s amortized cost basis is written down to fair value through income. For bonds 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 fair 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 through income, 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 consolidated statement of operations as (increase) decrease in investment credit loss.
No accrued interest receivables were written off as of December 31, 2021.
The rollforward of the allowance for credit losses for bonds held-to-maturity is shown below (in thousands):
Corporate Debt Securities Collateralized Debt Securities Residential Mortgage-Backed Securities Total
Balance at January 1, 2021 $ (7,475) $ (4,515) $ (452) $ (12,442)
Purchases (1,412) (168) - (1,580)
Disposition 441 551 - 992
Provision (3,021) 2,986 (64) (99)
Balance at December 31, 2021 $ (11,467) $ (1,146) $ (516) $ (13,129)
Foreign Governments Corporate Debt Securities Collateralized Debt Securities Residential Mortgage-Backed Securities Total
Balance at January 1, 2020 $ 4 $ (18,563) $ (2,968) $ (137) $ (21,664)
Purchases - (783) (329) 134 (978)
Disposition - 9,501 800 - 10,301
Provision (4) 2,370 (2,018) (449) (101)
Balance at December 31, 2020 $ - $ (7,475) $ (4,515) $ (452) $ (12,442)
Note 4 - Investment in Securities - (Continued)
The rollforward of the allowance for credit losses for available-for-sale debt securities is shown below (in thousands):
U.S. Treasury and Government U.S. State and Political Subdivisions Corporate Debt Securities Collateralized Debt Securities Residential Mortgage-Backed Securities Total
Beginning balance at January 1, 2021 $ - $ - $ (7,275) $ (19) $ (188) $ (7,482)
Increase in allowance related to purchases - - (3,158) (538) - (3,696)
Reduction in allowance related to disposition - - 4,117 182 - 4,299
Allowance on securities that had an allowance recorded in a previous period 3 12 3,680 (1,507) (29) 2,159
Allowance on securities where credit losses were not previously recorded (3) (26) (4,505) (1,005) (51) (5,590)
Balance at December 31, 2021 $ - $ (14) $ (7,141) $ (2,887) $ (268) $ (10,310)
Corporate Debt Securities Collateralized Debt Securities Residential Mortgage-Backed Securities Total
Beginning balance at January 1, 2020 $ - $ - $ - $ -
Increase in allowance related to purchases (217) - - (217)
Reduction in allowance related to disposition 63 6 3 72
Allowance on securities that had an allowance recorded in a previous period (1,074) (25) (191) (1,290)
Allowance on securities where credit losses were not previously recorded (6,047) - - (6,047)
Balance at December 31, 2020 $ (7,275) $ (19) $ (188) $ (7,482)
Credit Quality Indicators
The Company monitors the credit quality of bonds held-to-maturity through the use of credit ratings, which are updated on a monthly basis. Information is also gathered regarding the asset performance of held-to-maturity bonds. The two traditional metrics for assessing interest rate risks are interest-coverage ratios and capitalization ratios, which can also be used in the assessment of credit risk. These risks are mitigated through the diversification of bond investments. Categories of diversification include credit ratings, geographic locations, maturities, and market sector.
The credit quality indicators for the amortized cost of bonds held-to-maturity are shown below (in thousands):
December 31, 2021
Amortized cost of bonds held-to-maturity by credit rating
Fixed maturity, bonds held-to-maturity AAA AA A BBB BB and below Total
U.S. treasury and government $ - $ 12,284 $ - $ - $ - $ 12,284
U.S. state and political subdivisions 14,364 49,327 9,188 25,770 5,390 104,039
Foreign governments - 13,355 1,014 - - 14,369
Corporate debt securities 31,176 400,666 3,212,688 3,061,595 104,393 6,810,518
Collateralized debt securities - - 66,715 40,858 4,836 112,409
Residential mortgage-backed securities - 47,304 - - 1,187 48,491
Total $ 45,540 $ 522,936 $ 3,289,605 $ 3,128,223 $ 115,806 $ 7,102,110
Note 4 - Investment in Securities - (Continued)
December 31, 2020
Amortized cost of bonds held-to-maturity by credit rating
Fixed maturity, bonds held-to-maturity AAA AA A BBB BB and below Total
U.S. treasury and government $ - $ 7,733 $ - $ - $ - $ 7,733
U.S. state and political subdivisions 25,831 43,964 34,893 - 4,757 109,445
Foreign governments - 2,820 1,031 - - 3,851
Corporate debt securities 1,956 262,830 2,976,571 3,647,496 103,242 6,992,095
Collateralized debt securities - - 107,795 31,914 - 139,709
Residential mortgage-backed securities - 112,995 - - 1,584 114,579
Total $ 27,787 $ 430,342 $ 3,120,290 $ 3,679,410 $ 109,583 $ 7,367,412
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 both the location of the underlying collateral as well as the type of mortgage loan. The geographic categories come from the U.S. 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):
December 31,
2021 2020
Amount Percentage Amount Percentage
East North Central $ 747,661 14.4 % $ 783,614 14.9 %
East South Central 117,574 2.3 146,052 2.8
Mountain 1,250,562 24.0 1,284,555 24.5
Pacific 878,820 16.9 806,426 15.4
South Atlantic 627,295 12.0 619,405 11.8
West South Central 1,261,659 24.3 1,313,848 25.1
Other 315,763 6.1 288,631 5.5
Total $ 5,199,334 100.0 % $ 5,242,531 100.0 %
As of December 31, 2021 and 2020, loans in foreclosure and loans foreclosed are as follows (in thousands, except number of loans):
December 31,
2021 2020
Foreclosure and foreclosed Number of Loans Recorded Investment Number of Loans Recorded Investment
In foreclosure - $ - 1 $ 5,168
Filed for bankruptcy* - - 1 9,230
Total in foreclosure - $ - 2 $ 14,398
Foreclosed 1 $ 5,168 2 $ 8,603
*Borrower filed for bankruptcy after foreclosure proceedings had begun.
Note 5 - Mortgage Loans - (Continued)
The age analysis of past due loans is shown below (in thousands, except percentages):
30-59 Days Past Due 60-89 Days Past Due More Than 90 Days Past Due Total
December 31, 2021 Total Current Amount Percentage
Apartment $ - $ - $ - $ - $ 522,595 $ 522,595 9.9 %
Hotel - - - - 962,345 962,345 18.2
Industrial - - - - 912,645 912,645 17.2
Office - - - - 1,347,384 1,347,384 25.4
Parking - - - - 392,310 392,310 7.4
Retail 4,872 - - 4,872 838,163 843,035 15.9
Storage - - - - 163,685 163,685 3.1
Other - - - - 152,414 152,414 2.9
Total $ 4,872 $ - $ - $ 4,872 $ 5,291,541 $ 5,296,413 100.0 %
Allowance for credit losses (97,079)
Total, net of allowance $ 5,199,334
December 31, 2020
Apartment $ - $ - $ - $ - $ 557,159 $ 557,159 10.5 %
Hotel 30,315 30,158 - 60,473 853,522 913,995 17.0
Industrial 14,930 - 5,168 20,098 836,105 856,203 15.9
Office 24,804 - 9,230 34,034 1,522,197 1,556,231 29.0
Parking 48,825 29,355 - 78,180 286,107 364,287 6.8
Retail 4,991 - 25,779 30,770 760,907 791,677 14.7
Storage - - - - 165,561 165,561 3.1
Other - - - - 163,121 163,121 3.0
Total $ 123,865 $ 59,513 $ 40,177 $ 223,555 $ 5,144,679 $ 5,368,234 100.0 %
Allowance for credit losses (125,703)
Total, net of allowance $ 5,242,531
As a result of the economic impact associated with COVID-19, American National modified 93 loans with a total balance of $1.6 billion during 2020. These modifications were in the form of forbearance of principal and interest payments for up to six months, extensions of maturity dates, and/or provision for interest only payments. The modifications were primarily related to our loans to hotels, retail and parking operations. Due to ongoing economic stress brought on by the pandemic, additional modifications for 33 of these loans with a total balance of $725.7 million were made during 2021. These additional modifications extended the forbearance of principal and interest payments and interest only provisions with a requirement for the payment of at least 20% of the total interest due during the extended modification period. The modified loans had an aggregate deferred interest of $5.6 million as of December 31, 2021.
There were no unamortized purchase discounts as of December 31, 2021 and 2020. Total mortgage loans were net of unamortized origination fees of $27.5 million and $26.1 million at December 31, 2021 and 2020, respectively. No unearned income is included in these amounts.
Note 5 - Mortgage Loans - (Continued)
Troubled Debt Restructurings
American National has granted concessions 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. Loans that have these concessions could be classified as troubled debt restructurings. The carrying value could change based on the expected recovery of the loan, which is evaluated quarterly. Loan modifications executed due to COVID-19 resulting in a total delay of more than six months were evaluated for troubled debt restructuring status under current GAAP guidance.
American National considers the amount, timing and extent of concessions in determining credit loss allowances for loan losses recorded in connection with a troubled debt restructuring.
Loans determined to be troubled debt restructuring during the periods presented are as follows (in thousands, except number of loans):
Years ended December 31,
2021 2020
Number of Loans Recorded Investment
Pre-Modification Recorded Investment
Post-Modification Number of Loans Recorded Investment
Pre-Modification Recorded Investment
Post-Modification
Office 2 $ 37,985 $ 37,985 7 $ 76,220 $ 76,220
Retail 3 32,325 32,325 6 79,943 79,943
Industrial - - - 2 11,565 11,565
Hotel - - - 34 811,131 811,131
Parking 1 9,257 9,257 16 248,465 248,465
Storage 1 8,890 8,890 - - -
Apartment - - - 2 40,097 40,097
Total 7 $ 88,457 $ 88,457 67 $ 1,267,421 $ 1,267,421
For the year ended December 31, 2021, a total of 72 loans with a recorded investment of $1.3 billion were designated as a troubled debt restructuring. There are no commitments to lend additional funds to debtors whose loans have been modified in a troubled debt restructuring during the periods presented. The decrease in loans determined to be a troubled debt restructuring in 2021 is primarily attributable to improved economic conditions after lifting of COVID-19 related restrictions.
Note 5 - Mortgage Loans - (Continued)
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 credit losses is 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 rollforward of the allowance for credit losses for mortgage loans is shown below (in thousands):
Commercial Mortgage Loans
Balance at January 1, 2021 $ (125,703)
Provision 28,624
Balance at December 31, 2021 $ (97,079)
Commercial Mortgage Loans
Balance at January 1, 2020 $ (19,160)
Cumulative adjustment at January 1, 2020 (11,216)
Provision (95,327)
Balance at December 31, 2020 $ (125,703)
The change in allowance in 2021 was primarily driven by the favorable response of the hospitality and retail industries to re-opening of the economy and resulting increases in travel and brick-and-mortar shopping.
Note 5 - Mortgage Loans - (Continued)
The asset and allowance balances for credit losses for mortgage loans by property-type are shown below (in thousands):
December 31,
2021 2020
Asset Balance Allowance Asset Balance Allowance
Apartment $ 522,595 $ (1,366) $ 557,159 $ (8,845)
Hotel 962,345 (39,272) 913,995 (45,596)
Industrial 912,645 (4,051) 856,203 (2,516)
Office 1,347,384 (26,988) 1,556,231 (33,373)
Parking 392,310 (16,037) 364,287 (18,178)
Retail 843,035 (6,685) 791,677 (10,856)
Storage 163,685 (459) 165,561 (2,509)
Other 152,414 (2,221) 163,121 (3,830)
Total $ 5,296,413 $ (97,079) $ 5,368,234 $ (125,703)
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 property-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
2021 2020 2019 2018 2017 Prior Total
Apartment $ 50,747 $ 79,673 $ 210,011 $ 22,166 $ 122,472 $ 37,526 $ 522,595
Hotel 32,312 35,041 94,618 203,151 218,129 379,094 962,345
Industrial 180,229 265,167 135,810 99,716 38,170 193,553 912,645
Office 4,812 24,919 62,260 162,412 314,931 778,050 1,347,384
Parking 31,618 28,651 13,783 26,676 8,446 283,136 392,310
Retail 115,290 69,329 38,761 74,464 74,198 470,993 843,035
Storage 23,184 28,936 48,401 37,156 17,095 8,913 163,685
Other 54,114 - 21,662 29,884 1,650 45,104 152,414
Total $ 492,306 $ 531,716 $ 625,306 $ 655,625 $ 795,091 $ 2,196,369 $ 5,296,413
Allowance for credit losses (97,079)
Total, net of allowance $ 5,199,334
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. At December 31, 2021, no commercial loans were past due over 90 days and in non-accrual status.
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 December 31, 2021, we have included a $7.7 million liability in other liabilities on the consolidated statements of financial position based on unfunded loan commitments of $1.0 billion.
Note 6 - Real Estate and Other Investments
The carrying amount of real estate and real estate partnerships, net of accumulated depreciation, by property-type and geographic distribution are as follows (in thousands, except percentages):
December 31, 2021 December 31, 2020
Amount Percentage Amount Percentage
Hotel $ 56,198 6.1 % $ 67,857 7.1 %
Industrial 119,698 12.9 132,757 13.8
Land 39,760 4.3 51,220 5.3
Office 277,034 29.8 299,500 31.2
Retail 269,941 29.1 268,588 28.0
Apartments 153,871 16.6 120,847 12.6
Other 11,910 1.2 19,803 2.0
Total $ 928,412 100.0 % $ 960,572 100.0 %
December 31, 2021 December 31, 2020
Amount Percentage Amount Percentage
East North Central $ 122,148 13.2 % $ 81,310 8.5 %
East South Central 59,122 6.4 65,302 6.8
Mountain 127,542 13.7 133,233 13.9
Pacific 112,714 12.1 127,421 13.3
South Atlantic 67,573 7.3 97,801 10.1
West South Central 428,272 46.1 434,722 45.3
Other 11,041 1.2 20,783 2.1
Total $ 928,412 100.0 % $ 960,572 100.0 %
As of December 31, 2021, no real estate partnerships met the criteria as held-for-sale.
American National regularly invests in real estate partnerships and frequently participates in the design with the sponsor, but in most cases, its involvement is limited to financing. Through analysis performed by American National, some of these partnerships 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. 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 2021 or 2020.
The assets and liabilities relating to the VIEs included in the consolidated financial statements are as follows (in thousands):
December 31,
2021 2020
Real estate and real estate partnerships $ 126,708 $ 131,405
Investment funds 100,374 -
Short-term investments 500 500
Cash and cash equivalents 10,341 8,070
Premiums due and other receivables 3,201 3,484
Other assets 12,992 13,796
Total assets of consolidated VIEs $ 254,116 $ 157,255
Notes payable $ 149,248 $ 153,703
Other liabilities 8,250 8,490
Total liabilities of consolidated VIEs $ 157,498 $ 162,193
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 $3.0 million at December 31, 2021 and 2020.
Note 6 - Real Estate and Other Investments - (Continued)
The total long-term notes payable of the consolidated VIE’s consists of the following (in thousands):
December 31,
Interest rate Maturity 2021 2020
LIBOR
2023 $ 10,819 $ 10,819
4% fixed
2022 75,293 78,565
4.18% fixed
2024 63,136 64,319
Total $ 149,248 $ 153,703
For other real estate partnership VIEs, American National is not the primary beneficiary as major decisions impacting the economic activities of the VIE require consent from both partners. The carrying amount and maximum exposure to loss relating to these unconsolidated VIEs follows (in thousands):
December 31,
2021 2020
Carrying Amount Maximum Exposure to Loss Carrying Amount Maximum Exposure to Loss
Real estate and real estate partnerships $ 332,351 $ 332,351 $ 368,588 $ 368,588
Mortgage loans on real estate 690,779 690,779 722,917 722,917
Accrued investment income 2,878 2,878 4,980 4,980
American National’s net investment income of real estate partnerships is the Company’s share of operating earnings and realized gains from investments in real estate joint ventures and other limited partnership interests ("joint ventures") using the equity method of accounting. In 2021 and 2020 certain joint ventures took advantage of market opportunities to generate realized gains on the sale of real estate held or developed by the ventures.
The Company’s income from and investment in each joint venture did not exceed 20% and therefore no separate financial disclosure is required. The Company’s income from, assets held, and investment in each joint venture did not exceed 10% of operating income before tax. Additionally, American National’s investment in joint ventures is less than 3% of the Company’s total assets, and investments in individual joint ventures is not considered to be material to the Company in relation to its financial position or ongoing results of operations. Therefore, summarized financial information of equity method investees has not been included.
The Company’s total investment in investment funds, real estate partnerships, and other partnerships, of which substantially all are limited liability companies ("LLCs") or limited partnerships, consists of the following (in thousands):
December 31,
2021 2020
Investment funds $ 947,856 $ 458,776
Real estate partnerships 439,341 443,279
Other 13,907 18,359
Total investments in partnerships $ 1,401,104 $ 920,414
Years ended December 31,
2021 2020 2019
Income from operations $ 103,826 $ 14,958 $ 7,407
Net gain on sales 84,851 27,509 96,094
Net investment income from partnerships $ 188,677 $ 42,467 $ 103,501
Table of Content
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 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):
December 31,
Derivatives Not Designated as Hedging Instruments Location in the Consolidated Statements of Financial Position 2021 2020
Number of Instruments Notional Amounts Estimated Fair Value Number of Instruments Notional Amounts Estimated Fair Value
Equity-indexed options Other invested assets 473 $ 3,523,000 $ 259,383 455 $ 2,867,600 $ 242,201
Equity-indexed embedded derivative
Policyholders’ account balances
125,523 3,419,992 832,579 112,103 2,748,540 705,013
Gains (Losses) Recognized in Income on Derivatives
Derivatives Not Designated as Hedging Instruments Location in the Consolidated Statements of Operations Years ended December 31,
2021 2020 2019
Equity-indexed options Net investment income $ 127,681 $ 51,931 $ 144,980
Equity-indexed embedded derivative Interest credited to policyholders’ account balances (107,162) (22,977) (162,011)
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):
December 31, 2021
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
Bank of America A2/A- $ 6,289 $ 5,950 $ - $ 5,950 $ 5,950 $ - $ 339
Barclays Baa2/BBB 45,410 28,173 18,100 46,273 45,410 863 -
Credit Suisse Baa1/BBB+ 34,411 35,300 - 35,300 34,411 889 -
ING Baa1/A- 13,280 3,030 10,300 13,330 13,280 50 -
Morgan Stanley A1/BBB+ 61,817 57,716 5,700 63,416 61,817 1,599 -
NATIXIS* A1/A 26,490 26,660 - 26,660 26,490 170 -
Truist A3/A- 39,589 30,010 11,000 41,010 39,530 1,480 59
Wells Fargo A1/BBB+ 32,097 22,320 9,900 32,220 32,065 155 32
Total $ 259,383 $ 209,159 $ 55,000 $ 264,159 $ 258,953 $ 5,206 $ 430
December 31, 2020
Counterparty Moody/S&P Rating Options Fair Value Collateral Held in Cash Collateral Held in Invested Assets Total Collateral Held Collateral Amounts used to Offset Exposure Excess Collateral Exposure Net of Collateral
Barclays Baa2/BBB $ 51,489 $ 31,513 $ 18,100 $ 49,613 $ 49,613 $ - $ 1,876
Credit Suisse Baa1/BBB+ 9,447 8,680 - 8,680 8,680 - 767
Goldman-Sachs A3/BBB+ 1,227 1,170 - 1,170 1,170 - 57
ING Baa1/A- 20,606 10,450 10,300 20,750 20,606 144 -
Morgan Stanley A2/BBB+ 37,406 30,616 5,700 36,316 36,316 - 1,090
NATIXIS* A1/A+ 30,567 30,720 - 30,720 30,567 153 -
Truist A3/A- 52,127 43,960 11,000 54,960 52,127 2,833 -
Wells Fargo A2/BBB+ 39,332 29,370 9,900 39,270 39,270 - 62
Total $ 242,201 $ 186,479 $ 55,000 $ 241,479 $ 238,349 $ 3,130 $ 3,852
*Collateral is prohibited from being held in invested assets.
Note 8 - Net Investment Income and Net Realized Investment Gains (Losses)
Net investment income is shown below (in thousands):
Years ended December 31,
2021 2020 2019
Bonds $ 523,422 $ 560,811 $ 602,054
Equity securities 28,102 31,325 33,502
Mortgage loans 260,721 251,414 254,720
Real estate and real estate partnerships 99,483 28,810 106,446
Investment funds 99,007 19,454 5,904
Equity-indexed options 127,681 51,931 144,980
Other invested assets 33,238 32,407 33,301
Total $ 1,171,654 $ 976,152 $ 1,180,907
Net investment income from equity method investments, comprised of real estate partnerships and investment funds, was $188.7 million, $42.5 million, and $103.5 million for the twelve months ended December 31, 2021, 2020, and 2019 respectively.
Net realized investment gains (losses) are shown below (in thousands):
Years ended December 31,
2021 2020 2019
Bonds $ 54,941 $ 23,318 $ 16,361
Mortgage loans (768) - (2,412)
Real estate and real estate partnerships 10,240 12,401 25,555
Other invested assets 215 (59) (1,785)
Total $ 64,628 $ 35,660 $ 37,719
Net realized investment gains (losses) by transaction type are shown below (in thousands):
Years ended December 31,
2021 2020 2019
Sales $ 16,045 $ 10,249 $ 27,161
Calls and maturities 55,526 26,948 17,372
Paydowns 385 (108) (156)
Impairments (5,913) (1,276) (6,505)
Loss allowance - - 21
Other (1,415) (153) (174)
Total $ 64,628 $ 35,660 $ 37,719
Other-than-temporary impairment losses are shown below (in thousands):
Years ended December 31,
2021 2020 2019
Bonds* $ - $ - $ (6,968)
*Effective January 1, 2020, the Company adopted ASU No. 2016-13. Adoption of this guidance resulted in an allowance for credit losses primarily on our commercial mortgage loans and related off-balance sheet unfunded loan commitments, held-to-maturity bonds and reinsurance recoverables. The results for 2019 have not been restated to conform to the current presentation.
Note 9 - Fair Value of Financial Instruments
The carrying amount and fair value of financial instruments are shown below (in thousands):
December 31,
2021 2020
Carrying Amount Fair Value Carrying Amount Fair Value
Financial assets
Fixed maturity, bonds held-to-maturity $ 7,088,981 $ 7,458,789 $ 7,354,970 $ 7,983,181
Fixed maturity, bonds available-for-sale 8,380,248 8,380,248 7,597,180 7,597,180
Equity securities 135,433 135,433 2,070,766 2,070,766
Equity-indexed options 259,383 259,383 242,201 242,201
Mortgage loans on real estate, net of allowance 5,199,334 5,271,950 5,242,531 5,451,152
Policy loans 365,208 365,208 373,014 373,014
Short-term investments 1,840,732 1,840,732 1,028,379 1,028,379
Separate account assets ($1,278,380 and $1,153,702 included in fair value hierarchy)
1,320,703 1,320,703 1,185,467 1,185,467
Separately managed accounts 99,884 99,884 64,424 64,424
Total financial assets $ 24,689,906 $ 25,132,330 $ 25,158,932 $ 25,995,764
Financial liabilities
Investment contracts $ 10,947,958 $ 10,947,958 $ 10,101,764 $ 10,101,764
Embedded derivative liability for equity-indexed contracts
832,579 832,579 705,013 705,013
Notes payable 149,248 149,248 153,703 153,703
Federal Home Loan Bank advance - - 250,000 250,227
Separate account liabilities ($1,278,380 and $1,153,702 included in fair value hierarchy)
1,320,703 1,320,703 1,185,467 1,185,467
Total financial liabilities $ 13,250,488 $ 13,250,488 $ 12,395,947 $ 12,396,174
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.
Note 9 - Fair Value of Financial Instruments - (Continued)
Valuation Techniques for Financial Instruments Recorded at Fair Value
Fixed Maturity Securities and Equity Options-American National utilizes a pricing service to estimate fair value measurements. The fair value for fixed maturity securities that are disclosed as Level 1 measurements are based on unadjusted quoted market prices for identical assets that are readily available in an active market. 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, pricing source 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 pricing source (typically a market maker) is obtained. Due to the disclaimers on the quotes that indicate the price is indicative only, American National includes these fair value estimates in Level 3.
For securities priced using a quote from an independent pricing source, such as the equity-indexed options and certain fixed maturity securities, American National uses a market-based fair value analysis to validate the reasonableness of prices received. Price variances above a certain threshold are analyzed further to determine if any pricing issue exists. This analysis is performed quarterly.
Equity Securities-For publicly-traded equity securities, prices are received from a nationally recognized pricing service that are based on observable market transactions, and these securities are classified as Level 1 measurements. For certain preferred stock, current market quotes in active markets are unavailable. In these instances, an estimated fair value is received from the pricing service. The service utilizes similar methodologies to price preferred stocks as it does for fixed maturity securities. If applicable, these estimates would be disclosed as Level 2 measurements. American National tests the accuracy of the information provided by reference to other services annually.
Short-Term Investments-Short-term investments are primarily commercial paper rated A2 or P2 or better by Standard & Poor's and Moody's, respectively. Commercial paper is carried at amortized cost which approximates fair value. These investments are classified as Level 2 measurements.
Note 9 - Fair Value of Financial Instruments - (Continued)
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. Separate account assets include funds representing 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. American National reports separately, as assets and liabilities, investments held in such 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. In addition, American National's qualified pension plan assets are included in separate accounts. 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 statements of operations. Separate accounts are established in conformity with insurance laws and are not chargeable with liabilities that arise from any other business of American National.
The separate account assets included on the quantitative disclosures fair value hierarchy table are comprised of short-term investments, equity securities, and fixed maturity bonds available-for-sale. Equity securities are classified as Level 1 measurements. Short-term investments and fixed maturity securities are classified as Level 2 measurements. These classifications for separate account assets reflect the same fair value level methodologies as listed above as they are derived from the same vendors and follow the same process.
The separate account assets also include cash and cash equivalents, investment funds, 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.
No gains or losses were recognized on assets transferred to separate accounts for the years ended December 31, 2021, 2020, and 2019.
Embedded Derivative-The amounts reported within policyholder contract deposits include equity linked interest crediting rates based on the S&P 500 within indexed annuities and indexed life. The following unobservable inputs are used for measuring the fair value of the embedded derivatives associated with the policyholder contract liabilities:
•Lapse rate assumptions are determined by company experience. Lapse rates are generally assumed to be lower during a contract’s surrender charge period and then higher once the surrender charge period has ended. Decreases to the assumed lapse rates generally increase the fair value of the liability as more policyholders persist to collect the crediting interest pertaining to the indexed product. Increases to the lapse rate assumption decrease the fair value.
•Mortality rate assumptions vary by age and gender based on company and industry experience. Decreases to the assumed mortality rates increase the fair value of the liabilities as more policyholders earn crediting interest. Increases to the assumed mortality rates decrease the fair value as higher decrements reduce the potential for future interest credits.
•Equity volatility assumptions begin with current market volatilities and grow to long-term values. Increases to the assumed volatility will increase the fair value of liabilities, as future projections will produce higher increases in the linked index. At December 31, 2021 and 2020, the one-year implied volatility used to estimate embedded derivative value was 19.6% and 17.6%, 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
December 31, December 31,
2021 2020 Unobservable Input 2021 2020
Security type
Embedded derivative
Indexed Annuities $ 799.3 $ 670.8 Lapse Rate 1-50%
1-50%
Mortality Multiplier 100%
100%
Equity Volatility 12-64%
16-69%
Indexed Life 33.3 34.2 Equity Volatility 12-64%
16-69%
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 at December 31, 2021
Total Fair Value Level 1 Level 2 Level 3
Financial assets
Fixed maturity, bonds available-for-sale
U.S. treasury and government $ 26,753 $ 26,753 $ - $ -
U.S. states and political subdivisions 1,077,129 - 1,077,129 -
Foreign governments 5,841 - 5,841 -
Corporate debt securities 7,036,148 - 6,789,991 246,157
Residential mortgage-backed securities 31,967 - 31,967 -
Collateralized debt securities 202,410 - 202,410 -
Total bonds available-for-sale 8,380,248 26,753 8,107,338 246,157
Equity securities
Common stock 94,895 93,315 - 1,580
Preferred stock 40,538 7,570 - 32,968
Total equity securities 135,433 100,885 - 34,548
Options 259,383 - - 259,383
Short-term investments 1,840,732 - 1,840,732 -
Separate account assets 1,278,380 381,414 896,966 -
Separately managed accounts 99,884 - - 99,884
Total financial assets $ 11,994,060 $ 509,052 $ 10,845,036 $ 639,972
Financial liabilities
Embedded derivative for equity-indexed contracts $ 832,579 $ - $ - $ 832,579
Notes payable 149,248 - - 149,248
Separate account liabilities 1,278,380 381,414 896,966 -
Total financial liabilities $ 2,260,207 $ 381,414 $ 896,966 $ 981,827
Assets and Liabilities Carried at Fair Value by Hierarchy Level at December 31, 2020
Total Fair Value Level 1 Level 2 Level 3
Financial assets
Fixed maturity, bonds available-for-sale
U.S. treasury and government $ 29,183 $ - $ 29,183 $ -
U.S. states and political subdivisions 1,140,458 - 1,140,458 -
Foreign governments 16,388 - 16,388 -
Corporate debt securities 6,334,479 - 6,224,042 110,437
Residential mortgage-backed securities 21,291 - 21,291 -
Collateralized debt securities 55,381 - 55,381 -
Total bonds available-for-sale 7,597,180 - 7,486,743 110,437
Equity securities
Common stock 2,055,229 2,054,789 - 440
Preferred stock 15,537 14,909 - 628
Total equity securities 2,070,766 2,069,698 - 1,068
Options 242,201 - - 242,201
Short-term investments 1,028,379 - 1,028,379 -
Separate account assets 1,153,702 309,425 844,277 -
Separately managed accounts 64,424 - - 64,424
Total financial assets $ 12,156,652 $ 2,379,123 $ 9,359,399 $ 418,130
Financial liabilities
Embedded derivative for equity-indexed contracts $ 705,013 $ - $ - $ 705,013
Notes payable 153,703 - - 153,703
Separate account liabilities 1,153,702 309,425 844,277 -
Total financial liabilities $ 2,012,418 $ 309,425 $ 844,277 $ 858,716
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
Assets Liability
Investment Securities Equity-Indexed Options Separately Managed Accounts Embedded Derivative
Balance at December 31, 2018 $ 4,346 $ 148,006 $ 16,532 $ 596,075
Net gain for derivatives included in net investment income - 144,980 - -
Net change included in interest credited - - - 162,011
Net fair value change included in other comprehensive income - - 60 -
Purchases, sales and settlements or maturities
Purchases 45,307 75,163 33,911 -
Sales (113) (13,396) - -
Settlements or maturities - (98,748) - -
Premiums less benefits - - - (26,534)
Gross transfers out of Level 3 (4,233) - - -
Balance at December 31, 2019 45,307 256,005 50,503 731,552
Net gain for derivatives included in net investment income - 51,931 - -
Net change included in interest credited - - - 22,977
Net fair value change included in other comprehensive income 80 - (312) -
Purchases, sales and settlements or maturities
Purchases 191,960 80,705 25,343 -
Sales (70,842) (8,063) (11,110) -
Settlements or maturities - (138,377) - -
Premiums less benefits - - - (49,516)
Gross transfers out of Level 3 (55,000) - - -
Balance at December 31, 2020 111,505 242,201 64,424 705,013
Net gain for derivatives included in net investment income - 127,681 - -
Net change included in interest credited
- - - 107,162
Net fair value change included in other comprehensive income 3,269 - 1,444 -
Purchases, sales and settlements or maturities
Purchases 225,063 97,712 56,712 -
Sales (58,593) - (22,696) -
Settlements or maturities - (208,211) - -
Premiums less benefits - - - 20,404
Gross transfers into Level 3 1,479 - - -
Gross transfers out of Level 3 (2,018) - - -
Balance at December 31, 2021 $ 280,705 $ 259,383 $ 99,884 $ 832,579
Within the net gain for derivatives included in net investment income were unrealized gains of $4.4 million, unrealized losses of $11.2 million, and unrealized gains of $113.3 million relating to assets still held at December 31, 2021, 2020, and 2019, respectively.
The associated embedded derivative decrease during 2020 is largely driven by classification changes to declared funds within indexed products and by changes to the embedded derivative discount rate.
There was $26.8 million transferred between Level 1 and Level 2 fair value hierarchies during the periods presented for U.S. treasury and government bonds available-for-sale. It was determined these securities will be disclosed as Level 1 since valuations are based on quoted prices readily available in an active market. American National’s valuation of financial instruments categorized as Level 3 in the fair value hierarchy are based on valuation techniques that use significant inputs that are unobservable or had a decline in market activity that obscured observability. The indicators considered in determining whether a significant decrease in the volume and level of activity for a specific asset has occurred include the level of new issuances in the primary market, trading volume in the secondary market, the level of credit spreads over historical levels, applicable bid-ask spreads, and price consensus among market participants and other pricing sources. The transfers into Level 3 during 2021 were the result of securities not being priced by the third-party service at the end of the period.
Note 9 - Fair Value of Financial Instruments - (Continued)
Equity-Index Options-Certain over the counter equity options are valued using models that are widely accepted in the financial services industry. These are categorized as Level 3 as a result of the significance of non-market observable inputs such as volatility and forward price/dividend assumptions. Other primary inputs include interest rate assumptions (risk-free rate assumptions), and underlying equity quoted index prices for identical or similar assets in markets that exhibit less liquidity relative to those markets.
The following summarizes the fair value (in thousands), valuation techniques and unobservable inputs of the Level 3 fair value measurements:
Fair Value at December 31, 2021
Valuation Technique Unobservable Input Range/Weighted Average
Security type
Investment securities
Common stock $ 1,580 Guideline public company method (1)
Recurring Revenue Multiple (2)
8x
Option pricing method LTM EBITDA Multiple (3)
7.6x
CVM NCY EBITDA Multiple (5)
4.8x
Preferred stock 32,968 Guideline public company method (1)
LTM Revenue Multiple (4)
6.3x
Priced at cost LTM EBITDA Multiple (3)
4.2x
NCY EBITDA Multiple (5)
4.8x
Term (Years) 1.80
Volatility 60.00%
Bonds 246,157 Priced at cost Coupon rate 2.63-8.00%
Separately managed accounts 99,884 Discounted cash flows (yield analysis) Discount rate 4.80-16.40%
CVM NCY EBITDA Multiple (5)
4.8x
Market transaction N/A N/A
Fair Value at December 31, 2020
Valuation Technique Unobservable Input Range/Weighted Average
Security type
Investment securities
Common stock $ 440 Option pricing method Term (years) 2.83
Volatility 45.00%
Market transaction N/A N/A
Preferred stock 628 Option pricing method Term (years) 2.83
Volatility 45.00%
Market transaction N/A N/A
Bonds 110,437 Priced at cost Coupon rate 2.72-8.00%
Separately managed accounts 64,424 Discounted cash flows (yield analysis) Discount rate 7.25-14.71%
Market transaction N/A N/A
(1)Guideline public company method uses price multiples from data on comparable public companies. Multiples are then adjusted to account for differences between what is being valued and comparable firms.
(2)Recurring Revenue Multiple for the most relevant period of time, measures the value of the equity or a business relative to the revenues it generates.
(3)Last Twelve Months (“LTM”) EBITDA Multiple valuation metric shows earnings before interest, taxes, depreciation and amortization adjustments for the past 12 month period.
(4)LTM Revenue Multiple valuation metric shows revenue for the past 12 month period.
(5)Next Calendar Year (“NCY”) EBITDA Multiple is the forecasted EBITDA expected to be achieved over the next calendar year.
Investment Securities-These bonds use cost as the best estimate of fair value. They are valued at cost because the value would not change unless there is a fundamental deterioration in the portfolio. There is no observable market valuation price or third-party sources that provide market values for these securities since they are not publicly traded. The common and preferred stock are valued at market transaction, option pricing method, or guideline public company method based on the best available information.
Separately Managed Accounts-The separately managed account manager uses the mid-point of a range from a third-party to price these securities. Discounted cash flows (yield analysis) and market transactions approach are used in the valuation. They use discount rate which is considered an unobservable input.
Note 9 - Fair Value of Financial Instruments - (Continued)
Fair Value Information About Financial Instruments Not Recorded at Fair Value
Information about fair value estimates for financial instruments not measured at fair values is discussed below:
Fixed Maturity Securities-The fair value of bonds held-to-maturity is determined to be consistent with the disclosure under Valuation Techniques for the Financial Instrument Recorded at Fair Value section.
Mortgage Loans-The fair value of mortgage loans is estimated using discounted cash flow analyses on a loan by loan basis by applying a discount rate to expected cash flows from future installment and balloon payments. The discount rate takes into account general market trends and specific credit risk trends for the individual loan. Factors used to arrive at the discount rate include inputs from spreads based on U.S. Treasury notes and the loan’s credit quality, region, property-type, lien priority, payment type and current status.
Policy Loans-The carrying value of policy loans is the outstanding balance plus any accrued interest. Due to the collateralized nature of policy loans such that they cannot be separated from the policy contracts, the unpredictable timing of repayments and the fact that settlement is at outstanding value, American National believes the carrying value of policy loans approximates fair value.
Separately Managed Accounts-The amounts reported in separately managed accounts consist primarily of notes and private equity. These investments are private placements and do not have a readily determinable fair value. The carrying value of the separately managed accounts is cost or market value, if available from the separately managed account manager. Market value is provided by the separately managed account manager in subsequent quarters. American National believes that cost approximates fair value at initial recognition during the quarter of investment.
Investment Contracts-The carrying value of investment contracts is equivalent to the accrued account balance. The accrued account balance consists of deposits, net of withdrawals, net of 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.
Federal Home Loan Bank Advance-The Federal Home Loan Bank advance was carried at outstanding principal balance. The fair value of the advance was obtained from the Federal Home Loan Bank of Dallas. The Company does not have outstanding loans from FHLB as of December 31, 2021.
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):
December 31, 2021
FV Hierarchy Level Carrying Amount Fair Value
Financial assets
Fixed maturity, bonds held-to-maturity
U.S. treasury and government Level 1 $ 12,284 $ 11,997
U.S. states and political subdivisions Level 2 104,039 103,809
Foreign governments Level 2 14,369 14,347
Corporate debt securities Level 2 6,799,051 7,166,564
Residential mortgage-backed securities Level 2 47,975 50,178
Collateralized debt securities Level 2 111,263 111,894
Total fixed maturity, bonds held-to-maturity 7,088,981 7,458,789
Mortgage loans on real estate, net of allowance
Level 3 5,199,334 5,271,950
Policy loans Level 3 365,208 365,208
Total financial assets $ 12,653,523 $ 13,095,947
Financial liabilities
Investment contracts Level 3 $ 10,947,958 $ 10,947,958
Notes payable Level 3 149,248 149,248
Total financial liabilities $ 11,097,206 $ 11,097,206
December 31, 2020
FV Hierarchy Level Carrying Amount Fair Value
Financial assets
Fixed maturity, bonds held-to-maturity
U.S. treasury and government Level 2 $ 7,732 $ 7,744
U.S. states and political subdivisions Level 2 109,445 113,535
Foreign governments Level 2 3,851 4,225
Corporate debt securities Level 2 6,981,597 7,595,712
Corporate debt securities Level 3 3,024 3,024
Residential mortgage-backed securities Level 2 114,127 117,728
Collateralized debt securities Level 2 135,194 141,213
Total fixed maturity, bonds held-to-maturity 7,354,970 7,983,181
Mortgage loans on real estate, net of allowance
Level 3 5,242,531 5,451,152
Policy loans Level 3 373,014 373,014
Total financial assets $ 12,970,515 $ 13,807,347
Financial liabilities
Investment contracts Level 3 $ 10,101,764 $ 10,101,764
Notes payable Level 3 153,703 153,703
Federal Home Loan Bank advance Level 2 250,000 250,227
Total financial liabilities $ 10,505,467 $ 10,505,694
Note 10 - Deferred Policy Acquisition Costs
Deferred policy acquisition costs are shown below (in thousands):
Life Annuity Health Property & Casualty Total
Balance at December 31, 2018 $ 839,133 $ 499,588 $ 33,960 $ 124,580 $ 1,497,261
Additions 139,336 70,272 19,940 313,710 543,258
Amortization (113,300) (79,746) (21,322) (316,141) (530,509)
Effect of change in unrealized gains on available-for-sale debt securities
(12,269) (74,734) - - (87,003)
Net change 13,767 (84,208) (1,382) (2,431) (74,254)
Balance at December 31, 2019 852,900 415,380 32,578 122,149 1,423,007
Additions 148,142 55,411 15,926 335,744 555,223
Amortization (94,386) (103,709) (15,619) (335,831) (549,545)
Effect of change in unrealized gains on available-for-sale debt securities
(10,448) (58,026) - - (68,474)
Net change 43,308 (106,324) 307 (87) (62,796)
Balance at December 31, 2020 896,208 309,056 32,885 122,062 1,360,211
Additions 161,898 99,971 14,369 366,167 642,405
Amortization (111,764) (77,133) (17,906) (355,970) (562,773)
Effect of change in unrealized gains on available-for-sale debt securities
9,703 48,578 - - 58,281
Net change 59,837 71,416 (3,537) 10,197 137,913
Balance at December 31, 2021 $ 956,045 $ 380,472 $ 29,348 $ 132,259 $ 1,498,124
Commissions comprise the majority of the additions to deferred policy acquisition costs.
Note 11 - Liability for Future Policy Benefits and Policyholder Account Balances
American National estimates liabilities for amounts payable under insurance and annuity policies. Generally, amounts are payable over an extended period of time and related liabilities are calculated as the present value of expected benefit payments reduced by the present value of expected premiums. Such liabilities are established on a block of business based on methods and underlying assumptions in accordance with GAAP and applicable actuarial standards. Principal assumptions used in the establishment of liabilities for future policy benefits are mortality, morbidity, policy lapse, renewal, retirement, disability incidence, disability termination, investment return, inflation, expenses, and other contingent events as appropriate to the respective product type.
Future policy benefits for non-participating traditional life insurance are equal to the aggregate of the present value of expected benefit payments and related expenses less the present value of expected net premiums. Assumptions as to mortality and persistency are based upon American National’s experience when the basis of the liability is established. Interest rates for the aggregate future policy benefit liabilities range from 3.0% to 8.0%.
Future policy benefit liabilities for participating traditional life insurance are equal to the aggregate of (i) net level premium reserves for death and endowment policy benefits (calculated based upon the non-forfeiture interest rate, ranging from 2.5% to 5.5%) and mortality rates guaranteed in calculating the cash surrender values described in such contracts; and (ii) the liability for terminal dividends.
Future policy benefit liabilities for individual fixed deferred annuities after annuitization and single premium immediate annuities are equal to the present value of expected future payments. The interest rate used in establishing such liabilities range from 3.0% to 6.0% for all policies in-force.
Future policy benefit liabilities for non-medical health insurance are calculated using the net level premium method and assumptions as to future morbidity, withdrawals and interest, which provide a margin for adverse deviation. The interest rate used in establishing such liabilities range from 3.5% to 8.0%.
Future policy benefit liabilities for disabled lives are estimated using the present value of benefits method and experience assumptions as to claim terminations, expenses and interest. The interest rates used in establishing such liabilities range from 3.0% to 6.0%.
Liabilities for universal life secondary guarantees and paid-up guarantees are determined by estimating the expected value of death benefits payable when the account balance is projected to be zero and recognizing those benefits ratably over the accumulation period based on total expected assessments. American National regularly evaluates estimates used and adjusts the additional liability balances with a related charge or credit to benefit expense, if actual experience or other evidence suggests that earlier assumptions should be revised. The assumptions used in estimating the secondary and paid-up guarantee liabilities are consistent with those used for amortizing DAC, and are thus subject to the same variability and risk. The assumptions of investment performance and volatility for variable products are consistent with historical Standard & Poor’s experience. The benefits used in calculating the liabilities are based on the average benefits payable over a range of scenarios.
American National periodically reviews its estimates of actuarial liabilities for future policy benefits and compares them with its actual experience. Differences between actual experience and the assumptions used in pricing these policies, guarantees and riders and in the establishment of the related liabilities result in variances in profit and could result in losses. The effects of changes in such estimated liabilities are included in the consolidated statements of operations in the period in which the changes occur.
Policyholder account balances relate to investment-type contracts and universal life-type policies. Investment-type contracts principally include traditional individual fixed annuities in the accumulation phase and non-variable group annuity contracts. Policyholder account balances are equal to (i) policy account values, which consist of an accumulation of gross premium payments; (ii) credited interest, ranging from 1.0% to 8.0% (some annuities have enhanced first year crediting rates ranging from 1.0% to 7.0%), less expenses, mortality charges, and withdrawals; and (iii) fair value adjustment.
Note 12 - 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):
Years ended December 31,
2021 2020 2019
Unpaid claims balance, beginning $ 1,354,213 $ 1,322,837 $ 1,305,225
Less: Reinsurance recoverables 243,084 246,447 254,466
Net beginning balance 1,111,129 1,076,390 1,050,759
Incurred related to
Current 1,277,798 1,177,634 1,207,796
Prior years (93,357) (61,659) (57,979)
Total incurred claims 1,184,441 1,115,975 1,149,817
Paid claims related to
Current 735,968 681,960 688,544
Prior years 392,881 399,276 435,642
Total paid claims 1,128,849 1,081,236 1,124,186
Net balance 1,166,721 1,111,129 1,076,390
Plus: Reinsurance recoverables 288,358 243,084 246,447
Unpaid claims balance, ending $ 1,455,079 $ 1,354,213 $ 1,322,837
The net and gross reserve calculations have shown favorable development as a result of favorable loss emergence compared to what was implied by the loss development patterns used in the original estimation of losses in prior years. Estimates for ultimate incurred claims attributable to insured events of prior years decreased by approximately $93.4 million, $61.7 million, $58.0 million in 2021, 2020, and 2019, respectively. The favorable development in 2021 was a reflection of lower-than-anticipated settlement costs of losses arising from commercial automobile, agribusiness, private passenger automobile, guaranteed asset protection waiver, and collateral protection insurance lines of business. The favorable development in 2020 was a reflection of lower rates of claim severity emergence than previously expected in the worker's compensation line of business, and lower liability claim settlement costs emerging from agribusiness and private passenger automobile lines of business.
For short-duration health insurance claims, the total of IBNR plus expected development on reported claims included in the liability for unpaid claims and claim adjustment expenses at December 31, 2021 and December 31, 2020 was $18.9 million and $20.5 million respectively.
Note 12 - Liability for Unpaid Claims and Claim Adjustment Expenses - (Continued)
The reconciliation of the net incurred and paid claims development tables to the liability for claims and claim adjustment expenses in the consolidated statement of financial position is as follows (in thousands):
December 31, 2021
Net outstanding liabilities
Auto Liability $ 458,517
Non-Auto Liability 303,662
Commercial Multi-Peril 150,783
Homeowners 84,625
Short Tail Property 38,998
Credit Property and Casualty 16,004
Credit Life 1,435
Health 23,329
Credit Health 4,557
Other 897
Liabilities for unpaid claims and claim adjustment expenses, net of reinsurance 1,082,807
Reinsurance recoverable on unpaid claims
Auto Liability 11,554
Non-Auto Liability 40,650
Commercial Multi-Peril 8,419
Homeowners 13,746
Short Tail Property 12,818
Credit Property and Casualty 11,782
Credit Life 673
Health 193,065
Credit Health 1,657
Other 7,020
Total reinsurance recoverable on unpaid claims 301,384
Insurance lines other than short-duration 244,418
Unallocated claim adjustment expenses 63,686
308,104
Total gross liability for unpaid claims and claim adjustment expense $ 1,692,295
Note 12 - Liability for Unpaid Claims and Claim Adjustment Expenses - (Continued)
Property and Casualty Reserving Methodology-The following methods are utilized:
•Initial Expected Loss Ratio-This method calculates an estimate of ultimate losses by applying an estimated loss ratio to actual earned premium for each calendar/accident year. This method is appropriate for classes of business where the actual paid or reported loss experience is not yet mature enough to influence initial expectations of the ultimate loss ratios.
•Pegged Frequency and Severity-This method uses actual claims count data and emergence patterns of older accident periods to project the ultimate number of reported claims for a given accident year. A similar process projects the ultimate average severity per claim so that the product of the two projections results in a projection of ultimate loss for a given accident year.
•Bornhuetter-Ferguson-This method uses, as a starting point, either an assumed Initial Expected Loss Ratio Method or Pegged Frequency and Severity method and blends in the loss ratio or frequency and severity implied by the claims experience to date by using loss development patterns based on our historical experience. This method is generally appropriate where there are few reported claims and an unstable pattern of reported losses.
•Loss or Expense Development (Chain Ladder)-This method uses actual loss or defense and cost containment expense data and the historical development profiles on older accident periods to project more recent, less developed periods to their ultimate total. This method is appropriate when there is a relatively stable pattern of loss and expense emergence and a relatively large number of reported claims.
•Ratio of Paid Defense and Cost Containment Expense to Paid Loss Development-This method uses the ratio of paid defense and cost containment expense to paid loss data and the historical development profiles on older accident periods to project more recent, less developed periods to their ultimate total. In this method, an ultimate ratio of paid defense and cost containment expense to paid loss is selected for each accident period. The selected paid defense and cost containment expense to paid loss ratio is then applied to the selected ultimate loss for each accident period to estimate the ultimate defense and cost containment expense. Paid defense and cost containment expense is then subtracted from the ultimate defense and cost containment expense to calculate the unpaid defense and cost containment expense for that accident period.
•Calendar Year Paid Adjusting and Other Expense to Paid Loss-This method uses a selected prior calendar years’ paid expense to paid loss ratio to project ultimate loss adjustment expenses for adjusting and other expense. A percentage of the selected ratio is applied to the case reserves (depending on the line of insurance) and 100% to the indicated IBNR reserves. These ratios assume that a percentage of the expense is incurred when a claim is opened and the remaining percentage is paid throughout the claim’s life.
For most credit property and casualty products, IBNR liability is calculated as a percentage of pro rata unearned premium, with the specific percentage for a given product line informed by a traditional completion factor claim reserve analysis.
The expected development on reported claims is the sum of a pay-to-current reserve and a future reserve. The pay-to-current reserve is calculated for each open claim having a monthly indemnity and contains the amount required to pay the open claim from the last payment date to the current valuation date. The future reserve is calculated by assigning to each open claim a fixed reserve amount based on the historical average severity. For debt cancellation products and involuntary unemployment insurance, this reserve is calculated using published valuation tables.
Cumulative claim frequency information is calculated on a per claim basis. Claims that do not result in a liability are not considered in the determination of unpaid liabilities.
For any given line of business, none of these methods are relied on exclusively. With minor exceptions, multiple methods may be used for a line of business as a check for reasonableness of our reselected reserve value.
The following contains information about incurred and paid claims development as of December 31, 2021, net of reinsurance, as well as cumulative claim frequency and the total of IBNR liabilities plus expected development on reported claims included within the net incurred claims amounts. The information about incurred and paid claims development for the years ended December 31, 2012 to 2020 is presented as supplementary information.
Note 12 - Liability for Unpaid Claims and Claim Adjustment Expenses - (Continued)
Auto Liability-Consists of personal and commercial auto. Claims and claim adjustment expenses are shown below (in thousands):
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance As of December 31, 2021
Years ended December 31, IBNR Plus Expected Development Cumulative Number of Reported Claims
Accident Year 2012* 2013* 2014* 2015* 2016* 2017* 2018* 2019* 2020* 2021
2012 $ 251,593 $ 242,255 $ 231,312 $ 228,013 $ 229,426 $ 228,559 $ 228,864 $ 228,486 $ 228,236 $ 228,181 $ 58 44,691
2013 242,364 236,432 233,068 231,301 228,285 226,608 227,234 227,102 226,943 134 38,817
2014 232,146 223,386 217,819 215,419 214,870 214,557 214,326 214,253 203 36,011
2015 237,578 240,697 239,421 245,775 244,798 244,621 243,304 374 36,097
2016 259,177 256,080 261,400 259,128 257,633 256,294 1,434 37,114
2017 269,803 280,012 275,850 273,551 270,464 4,607 38,591
2018 314,467 299,512 288,806 282,805 12,541 37,826
2019 330,988 313,636 305,312 26,749 36,267
2020 277,597 254,808 46,637 26,166
2021 299,746 89,756 26,556
Total $ 2,582,110
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Years ended December 31,
Accident Year 2012* 2013* 2014* 2015* 2016* 2017* 2018* 2019* 2020* 2021
2012 $ 82,531 $ 150,323 $ 183,448 $ 204,980 $ 214,467 $ 219,170 $ 222,117 $ 222,865 $ 224,585 $ 224,799
2013 79,358 143,709 181,535 204,480 215,280 219,303 223,739 224,675 226,211
2014 72,838 134,376 166,947 187,375 204,057 209,401 210,994 212,522
2015 78,861 149,366 186,281 211,908 231,530 237,792 239,986
2016 86,492 153,911 198,326 225,869 237,592 247,640
2017 88,357 175,175 218,435 241,823 255,530
2018 95,777 185,317 227,312 248,183
2019 98,545 193,389 231,892
2020 78,699 151,722
2021 85,916
Total $ 2,124,401
All outstanding liabilities before 2012, net of reinsurance* 808
Liabilities for claims and claim adjustment expenses, net of reinsurance $ 458,517
*Unaudited supplementary information.
Note 12 - Liability for Unpaid Claims and Claim Adjustment Expenses - (Continued)
Non-Auto Liability-Consists of workers’ compensation and other liability occurrence. Claims and claim adjustment expenses are shown below (in thousands):
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance As of December 31, 2021
Years ended December 31, IBNR Plus Expected Development Cumulative Number of Reported Claims
Accident Year 2012* 2013* 2014* 2015* 2016* 2017* 2018* 2019* 2020* 2021
2012 $ 83,146 $ 80,470 $ 78,644 $ 75,226 $ 68,017 $ 63,630 $ 64,118 $ 63,336 $ 63,552 $ 63,304 $ 1,623 4,877
2013 74,183 75,815 70,772 67,841 65,096 64,564 63,284 62,926 62,159 1,738 4,556
2014 83,084 75,550 72,624 67,339 67,865 67,267 67,268 66,250 3,168 6,111
2015 83,897 78,968 76,724 67,548 64,189 63,326 63,523 3,593 5,563
2016 86,935 83,179 73,764 73,195 68,178 67,347 4,153 4,501
2017 102,616 88,902 81,240 77,322 76,540 6,397 8,176
2018 88,986 85,910 79,493 75,207 16,115 13,684
2019 96,064 95,340 92,544 26,473 11,875
2020 90,197 83,339 37,431 10,028
2021 102,869 65,428 8,512
Total $ 753,082
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Years ended December 31,
Accident Year 2012* 2013* 2014* 2015* 2016* 2017* 2018* 2019* 2020* 2021
2012 $ 13,862 $ 27,574 $ 38,826 $ 49,585 $ 55,194 $ 57,863 $ 59,528 $ 60,900 $ 61,450 $ 61,858
2013 12,794 22,743 32,474 42,504 47,987 51,672 54,323 55,426 56,916
2014 11,201 26,587 36,220 45,206 51,853 55,307 57,497 58,559
2015 11,979 23,488 37,059 46,285 51,303 53,478 55,434
2016 12,733 24,633 35,502 45,820 50,596 55,205
2017 14,865 37,139 48,654 53,996 59,582
2018 13,156 26,115 37,574 45,316
2019 12,204 30,199 40,729
2020 9,596 23,838
2021 12,389
Total $ 469,826
All outstanding liabilities before 2012, net of reinsurance* 20,406
Liabilities for claims and claim adjustment expenses, net of reinsurance $ 303,662
*Unaudited supplementary information.
Note 12 - Liability for Unpaid Claims and Claim Adjustment Expenses - (Continued)
Commercial Multi-Peril-Consists of business owners insurance and mortgage fire business. Claims and claim adjustment expenses are shown below (in thousands):
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance As of December 31, 2021
Years ended December 31, IBNR Plus Expected Development Cumulative Number of Reported Claims
Accident Year 2012* 2013* 2014* 2015* 2016* 2017* 2018* 2019* 2020* 2021
2012 $ 35,169 $ 28,548 $ 26,805 $ 23,258 $ 23,385 $ 23,090 $ 22,481 $ 22,045 $ 22,033 $ 22,381 $ 151 2,717
2013 33,979 27,592 27,867 26,970 25,948 26,028 24,790 24,681 24,733 231 2,228
2014 36,852 31,220 34,911 33,962 36,132 34,279 34,004 33,836 292 2,311
2015 33,997 31,488 29,023 32,282 31,285 33,059 34,282 821 2,240
2016 38,115 33,475 33,080 31,615 33,628 32,705 875 4,798
2017 42,411 37,079 40,611 43,367 47,660 3,631 6,815
2018 50,784 50,182 51,519 51,035 4,595 5,678
2019 56,062 59,789 58,262 11,129 3,587
2020 68,226 63,281 16,924 4,012
2021 95,708 39,566 4,999
Total $ 463,883
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Years ended December 31,
Accident Year 2012* 2013* 2014* 2015* 2016* 2017* 2018* 2019* 2020* 2021
2012 $ 11,525 $ 14,454 $ 16,263 $ 18,670 $ 20,716 $ 21,026 $ 21,352 $ 21,415 $ 21,453 $ 21,499
2013 9,374 12,723 15,426 18,406 20,816 21,718 23,210 23,348 23,513
2014 12,001 16,484 20,199 24,602 27,339 31,448 32,702 32,934
2015 9,820 12,956 16,402 21,680 25,188 27,201 28,566
2016 11,327 17,193 19,085 22,339 25,686 26,690
2017 12,458 20,828 23,294 26,202 28,420
2018 18,027 30,078 32,490 35,781
2019 22,098 32,295 37,408
2020 25,492 38,415
2021 41,452
Total $ 314,678
All outstanding liabilities before 2012, net of reinsurance* 1,578
Liabilities for claims and claim adjustment expenses, net of reinsurance $ 150,783
*Unaudited supplementary information.
Note 12 - Liability for Unpaid Claims and Claim Adjustment Expenses - (Continued)
Homeowners-Consists of homeowners and renters business. Claims and claim adjustment expenses are shown below (in thousands):
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance As of December 31, 2021
Years ended December 31, IBNR Plus Expected Development Cumulative Number of Reported Claims
Accident Year 2012* 2013* 2014* 2015* 2016* 2017* 2018* 2019* 2020* 2021
2012 $ 181,284 $ 177,664 $ 175,523 $ 175,509 $ 175,178 $ 175,032 $ 174,611 $ 174,276 $ 174,239 $ 174,238 $ - 30,999
2013 152,208 149,080 149,272 148,231 147,927 147,444 147,359 147,234 147,246 - 20,041
2014 132,651 131,634 130,287 131,546 130,895 130,747 130,799 130,713 - 18,183
2015 125,430 124,199 123,619 123,824 123,731 123,357 123,312 2 17,758
2016 147,264 145,373 144,376 145,019 144,828 144,766 17 21,559
2017 164,284 172,274 172,491 169,524 169,430 45 23,589
2018 174,495 179,561 176,317 176,681 61 22,576
2019 177,854 176,005 173,763 1,181 20,260
2020 227,298 228,441 2,876 24,788
2021 240,732 31,342 19,762
Total $ 1,709,322
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Years ended December 31,
Accident Year 2012* 2013* 2014* 2015* 2016* 2017* 2018* 2019* 2020* 2021
2012 $ 143,797 $ 169,415 $ 171,842 $ 173,170 $ 173,676 $ 174,139 $ 174,247 $ 174,256 $ 174,239 $ 174,238
2013 115,605 140,309 145,152 146,650 146,920 147,145 147,233 147,232 147,245
2014 96,300 122,601 126,245 129,467 130,059 130,305 130,542 130,577
2015 86,617 114,696 119,331 122,585 122,955 123,065 123,161
2016 105,415 136,796 140,972 144,000 144,596 144,635
2017 116,075 159,107 166,009 167,638 168,241
2018 121,631 165,203 170,850 174,077
2019 122,530 163,400 170,229
2020 166,352 217,224
2021 175,265
Total $ 1,624,892
All outstanding liabilities before 2012, net of reinsurance* 195
Liabilities for claims and claim adjustment expenses, net of reinsurance $ 84,625
*Unaudited supplementary information.
Note 12 - Liability for Unpaid Claims and Claim Adjustment Expenses - (Continued)
Short Tail Property-Consists of auto physical damage, fire, rental owners, standard fire policy, country estates, inland marine and watercraft. This line of business has substantially all claims settled and paid in less than two years. Claims and claim adjustment expenses are shown below (in thousands):
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance As of December 31, 2021
Years ended December 31, IBNR Plus Expected Development Cumulative Number of Reported Claims
Accident Year 2020* 2021
2020 $ 237,332 $ 229,857 $ 282 53,008
2021 269,065 (3,599) 53,068
Total $ 498,922
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Years ended December 31,
Accident Year 2020* 2021
2020 $ 203,827 $ 227,495
2021 235,425
Total $ 462,920
All outstanding liabilities before 2020, net of reinsurance* 2,996
Liabilities for claims and claim adjustment expenses, net of reinsurance $ 38,998
*Unaudited supplementary information
Credit Property and Casualty-Consists of credit property insurance, vendor’s or lender’s single interest insurance, GAP insurance, GAP waiver, debt cancellation products, involuntary unemployment insurance and collateral protection insurance. This line of business has substantially all claims settled and paid in less than two years. Claims and claim adjustment expenses are shown below (in thousands):
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance As of December 31, 2021
Years ended December 31, IBNR Plus Expected Development Cumulative Number of Reported Claims
Accident Year 2020* 2021
2020 $ 65,260 $ 65,269 $ - 22,385
2021 51,002 12,188 14,443
Total $ 116,271
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Years ended December 31,
Accident Year 2020* 2021
2020 $ 46,417 $ 65,269
2021 34,998
Total $ 100,267
All outstanding liabilities before 2020, net of reinsurance* -
Liabilities for claims and claim adjustment expenses, net of reinsurance $ 16,004
*Unaudited supplementary information.
Note 12 - Liability for Unpaid Claims and Claim Adjustment Expenses - (Continued)
Credit Life-For credit life products, IBNR is calculated as a percentage of life insurance in-force. This line of business has substantially all claims settled and paid in less than two years. Claims and claim adjustment expenses are shown below (in thousands):
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance As of December 31, 2021
Years ended December 31, IBNR Plus Expected Development Cumulative Number of Reported Claims
Accident Year 2020* 2021
2020 $ 7,265 $ 8,397 $ 35 48
2021 10,291 1,300 50
Total $ 18,688
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Years ended December 31,
Accident Year 2020* 2021
2020 $ 6,201 $ 8,359
2021 8,894
Total $ 17,253
All outstanding liabilities before 2020, net of reinsurance* -
Liabilities for claims and claim adjustment expenses, net of reinsurance $ 1,435
*Unaudited supplementary information.
Health Reserving Methodology-The following methods are utilized:
•Completion Factor Approach-This method assumes that the historical claim patterns will be an accurate representation of unpaid claim liabilities. An estimate of the unpaid claims is calculated by subtracting period-to-date paid claims from an estimate of the ultimate “complete” payment for all incurred claims in the period. Completion factors are calculated which “complete” the current period-to-date payment totals for each incurred month to estimate the ultimate expected payout.
•Tabular Claims Reserves-This method is used to calculate the reserves for long-term care and disability income blocks of business. These reserves rely on published valuation continuance tables created using industry experience regarding assumptions of continued morbidity and subsequent recovery. Reserves are calculated by applying these continuance tables, along with appropriate company experience adjustments, to the stream of contractual benefit payments. These expected benefit payments are discounted at the required interest rate.
•Future Policy Benefits-Reserves are equal to the aggregate of the present value of expected future benefit payments, less the present value of expected future premiums. Morbidity and termination assumptions are based on our experience or published valuation tables when available and appropriate.
•Premium Deficiency Reserves-Deficiency reserves are established when the expected future claim payments and expenses for a classification of policies are in excess of the expected premiums for these policies. The determination of a deficiency reserve takes into consideration the likelihood of premium rate increases, the timing of these increases, future net investment income, and the expected benefit utilization patterns. We have established premium deficiency reserves for portions of the major medical business and the long-term care business that are in run-off. The assumptions and methods used to determine the deficiency reserves are reviewed periodically for reasonableness, and the reserve amount is monitored against emerging losses.
There is no expected development on reported claims in the health blocks. Claim frequency is determined by totaling the number of unique claim numbers during the period as each unique claim number represents a claim event for an individual claimant.
Note 12 - Liability for Unpaid Claims and Claim Adjustment Expenses - (Continued)
Health-Consists of stop-loss and other supplemental health products. This line of business has substantially all claims settled and paid in less than five years. Claims and claim adjustment expenses are shown below (in thousands):
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance As of December 31, 2021
Years ended December 31, IBNR Plus Expected Development Cumulative Number of Reported Claims
Accident Year 2017* 2018* 2019* 2020* 2021
2017 $ 41,544 $ 39,930 $ 35,466 $ 35,447 $ 35,451 $ - 29,216
2018 64,686 63,729 57,676 57,682 - 30,004
2019 48,175 52,508 47,294 1 30,614
2020 38,461 37,871 3,816 24,946
2021 43,153 14,174 20,877
Total $ 221,451
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Years ended December 31,
Accident Year 2017* 2018* 2019* 2020* 2021
2017 $ 25,358 $ 35,392 $ 35,420 $ 35,420 $ 35,420
2018 34,894 57,759 57,616 57,617
2019 33,353 47,270 47,245
2020 23,398 34,118
2021 27,889
Total $ 202,289
All outstanding liabilities before 2017, net of reinsurance* 4,167
Liabilities for claims and claim adjustment expenses, net of reinsurance $ 23,329
*Unaudited supplementary information.
Credit Health Reserving Methodology-The following methods are utilized:
Tabular Claims Reserves-These reserves rely on published valuation continuance tables. The insured's age at disablement, the duration of the claim and the remaining term of the policy are used to provide a factor which is applied to the remaining exposure to calculate the present value of future benefits for insureds on claim.
The claim liability consists of IBNR and Due/Unpaid. The IBNR utilizes an inventory type method based on historical patterns of claim payments incurred but not reported within the last six months of the valuation date.
The Due/Unpaid reserves are the amount needed to pay an open claim from the last date of payment to the reserve valuation date.
Credit Health-The claim liability consists of credit disability. This line of business has substantially all claims settled and paid in less than five years. Claims and claim adjustment expenses are shown below (in thousands):
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance As of December 31, 2021
Years ended December 31, IBNR Plus Expected Development Cumulative Number of Reported Claims
Accident Year 2017* 2018* 2019* 2020* 2021
2017 $ 4,555 $ 4,852 $ 4,773 $ 4,820 $ 4,873 $ 46 3,803
2018 4,631 4,163 4,155 4,303 76 3,572
2019 3,902 3,705 3,631 97 2,999
2020 3,736 3,741 222 2,605
2021 3,415 457 1,533
Total $ 19,963
*Unaudited supplementary information.
Note 12 - Liability for Unpaid Claims and Claim Adjustment Expenses - (Continued)
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
Years ended December 31,
Accident Year 2017* 2018* 2019* 2020* 2021
2017 $ 1,389 $ 3,328 $ 4,058 $ 4,438 $ 4,639
2018 1,473 2,930 3,598 3,918
2019 1,208 2,618 3,138
2020 1,179 2,613
2021 1,098
Total $ 15,406
All outstanding liabilities before 2017, net of reinsurance* -
Liabilities for claims and claim adjustment expenses, net of reinsurance $ 4,557
*Unaudited supplementary information.
The following table is supplementary information. A 10-year average annual percentage payout of incurred claims is shown below:
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Auto Liability 33.0 % 29.5 % 15.3 % 9.5 % 5.7 % 2.6 % 1.2 % 0.5 % 0.7 % 2.0 %
Non-Auto Liability 17.1 % 19.9 % 15.9 % 13.4 % 8.3 % 5.1 % 3.3 % 1.9 % 1.6 % 13.5 %
Commercial Multi-Peril 37.1 % 16.2 % 8.1 % 10.5 % 8.7 % 5.2 % 3.8 % 0.5 % 0.5 % 9.4 %
Homeowners 73.1 % 21.3 % 3.3 % 1.7 % 0.3 % 0.1 % 0.1 % - % - % 0.1 %
Short Tail Property 88.1 % 11.9 % - % - % - % - % - % - % - % - %
Credit Property and Casualty 69.9 % 30.1 % - % - % - % - % - % - % - % - %
Credit Life 80.1 % 19.9 % - % - % - % - % - % - % - % - %
Note 13 - Reinsurance
American National reinsures portions of certain life insurance policies to provide a greater diversification of risk and manage exposure on larger risks. The maximum amounts that would be retained by one life insurance company (ANICO) by issue ages are shown below (in thousands):
0-75 Years 76-80 Years 81 and Over
Individual life $ 5,000 $ 2,000 $ 1,000
Individual accidental death 250 250 250
Credit life 100 100 100
Group life 100 100 100
Total $ 5,450 $ 2,450 $ 1,450
For the Property and Casualty segment, American National retains the first $2.0 million of loss per risk. Reinsurance covers up to $6.0 million of property and liability losses per risk. Additional excess property per risk coverage is purchased to cover risks up to $20.0 million, and excess casualty clash coverage is purchased to cover losses up to $60.0 million. Excess casualty clash covers losses incurred as a result of one casualty event involving multiple policies, excess policy limits and extra contractual obligations. Facultative reinsurance is purchased for individual risks attaching at $20.0 million as needed. Corporate catastrophe coverage is in place for losses up to $470.0 million ($500.0 million if the top layer of the Property Catastrophe Top and Drop contract is included). American National retains the first $35.0 million of each catastrophe. Catastrophe aggregate reinsurance coverage is also purchased and is provided by two contracts.
The first contract is the Property Catastrophe Top and Drop cover that consists of $30.0 million of annual limit available either wholly or in part across two layers of coverage. The first layer is 100% of $30.0 million excess of $470.0 million on an occurrence basis. The second layer provides aggregate protection where subject loss is $15.0 million excess of $20.0 million of each catastrophe, and recoveries follow satisfaction of a $15.0 million annual aggregate deductible. The second layer acts to reduce the retention on large second and third catastrophe events to $20.0 million following a first large catastrophe. This cover was placed at 100% for 2021 and does not include a reinstatement. The second aggregate contract provides for $30.0 million of coverage after $160.0 million of annual aggregated catastrophe losses has been reached. Qualifying losses include amounts of retained losses net of other reinsurance below $35.0 million on Property Claims Services (“PCS”) declared catastrophe events and internally declared catastrophe events exceeding $5.0 million. This cover was placed at 55% for 2021 and does not include a reinstatement.
American National remains primarily liable with respect to any reinsurance ceded and would bear the entire loss if the reinsurer does not meet their obligations under any reinsurance treaties. American National had the following recoverables from reinsurance, net of allowance for credit losses (in thousands):
December 31,
2021 2020
Reinsurance recoverables $ 459,621 $ 414,359
None of the amount outstanding at December 31, 2021 is the subject of litigation or is in dispute with the reinsurers involved. Management believes the unfavorable resolution of any dispute that may arise would not have a material impact on American National’s consolidated financial statements.
Note 13 - Reinsurance - (Continued)
The amounts in the consolidated financial statements include the impact of reinsurance. Premiums written and earned are shown below (in thousands):
Years ended December 31,
2021 2020 2019
WRITTEN
Direct $ 2,650,696 $ 2,533,278 $ 2,500,176
Reinsurance assumed 644,858 591,457 578,656
Reinsurance ceded (944,194) (883,187) (865,369)
Net $ 2,351,360 $ 2,241,548 $ 2,213,463
EARNED
Direct $ 2,716,632 $ 2,629,403 $ 2,464,870
Reinsurance assumed 317,081 291,945 236,504
Reinsurance ceded (732,660) (703,274) (518,580)
Net $ 2,301,053 $ 2,218,074 $ 2,182,794
Life insurance in-force and related reinsurance amounts are shown below (in thousands):
December 31,
2021 2020 2019
Direct life insurance in-force $ 136,710,529 $ 128,075,765 $ 117,886,265
Reinsurance risks assumed from other companies 221,023 171,433 218,020
Reinsurance risks ceded to other companies (22,835,954) (24,006,683) (24,913,905)
Net life insurance in-force $ 114,095,598 $ 104,240,515 $ 93,190,380
Note 14 - Federal Income Taxes
A reconciliation of the effective tax rate to the statutory federal tax rate is shown below (in thousands, except percentages):
Years ended December 31,
2021 2020 2019
Amount Rate Amount Rate Amount Rate
Total expected income tax expense at the statutory rate $ 181,229 21.0 % $ 121,939 21.0 % $ 167,554 21.0 %
Tax-exempt investment income (3,929) (0.5) (4,262) (0.7) (3,969) (0.5)
Deferred tax change (8,375) (1.0) 2,816 0.5 (519) (0.1)
Dividend exclusion (3,459) (0.4) (3,097) (0.5) (3,628) (0.5)
Tax credits, net (4,988) (0.6) (7,484) (1.3) (7,090) (0.9)
Low income housing tax credit expense 4,744 0.5 4,923 0.8 6,394 0.8
Change in valuation allowance (138) - (625) (0.1) 383 -
Other items, net 1,501 0.3 2,397 0.4 6,292 0.7
Total $ 166,585 19.3 % $ 116,607 20.1 % $ 165,417 20.5 %
As of December 31, 2021, American National had no material net operating loss or tax credit carryforwards.
American National’s federal income tax returns for tax years 2018 to 2020 are subject to examination by the Internal Revenue Service. In the opinion of management, all prior year taxes have been paid or adequate provisions have been made for any tax deficiencies that may be assessed.
As of December 31, 2021, American National had no provision for uncertain tax positions and no provision for penalties or interest. In addition, management does not believe there are any uncertain tax benefits that could be recognized within the next twelve months that would impact American National’s effective tax rate.
Note 14 - Federal Income Taxes - (Continued)
The tax effects of temporary differences that gave rise to the deferred tax assets and liabilities are shown below (in thousands):
December 31,
2021 2020
DEFERRED TAX ASSETS
Mortgage loans on real estate $ 27,784 $ 34,341
Future policy benefits, policyholders' account balances and claims 43,538 57,572
Unearned premium reserve 25,142 23,225
Participating policyholders’ liability 67,367 41,593
Deferred compensation 11,427 9,057
Tax carryforwards 1,748 1,643
Gross deferred tax assets before valuation allowance 177,006 167,431
Valuation allowance (2,552) (2,458)
Gross deferred tax assets after valuation allowance 174,454 164,973
DEFERRED TAX LIABILITIES
Bonds 69,089 122,326
Equity securities 8,386 262,017
Real estate, real estate partnerships and investment funds 16,319 12,499
Other invested assets 30,452 29,664
Deferred acquisition costs 218,252 199,152
Property and equipment 6,272 7,689
Pension and liability for retirement benefits 20,640 1,549
Other liabilities 5,554 8,424
Gross deferred tax liabilities 374,964 643,320
Total net deferred tax liability $ 200,510 $ 478,347
In 2021, our deferred tax liabilities decreased from $478.3 million at December 31, 2020 to $200.5 million at December 31, 2021. The decrease was primarily due to the sale of equity securities. Upon sale, deferred tax liabilities on unrealized gains became realized for tax purposes resulting in a decrease in deferred tax liabilities and an increase in current tax liability.
GAAP requires us to evaluate the recoverability of our deferred tax assets and establish a valuation allowance, if necessary, to reduce our deferred tax assets to an amount that is more-likely-than-not to be realized. Considerable judgment is required in determining whether a valuation allowance is necessary, and if so, the amount of such valuation allowance. There were no material changes to our valuation allowance recorded during the years ended December 31, 2021 and 2020. Although realization is not assured, management believes it is more-likely-than-not that our remaining deferred tax assets will be realized and that as of December 31, 2021, no additional valuation allowance is required.
Note 15 - 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)
Balance at December 31, 2018 $ (42,469) $ (54,236) $ (3,033) $ (99,738)
Amounts reclassified from AOCI (net of tax benefit $213 and expense $1,491)
(800) 5,607 - 4,807
Unrealized holding gains arising during the period (net of tax expense $70,808)
266,373 - - 266,373
Unrealized adjustment to DAC (net of tax benefit $18,270)
(68,733) - - (68,733)
Unrealized gains on investments attributable to participating policyholders’ interest (net of tax benefit $3,372)
(12,684) - - (12,684)
Actuarial gain arising during the period (net of tax expense of $2,629)
- 9,888 - 9,888
Foreign currency adjustment (net of tax expense $104)
- - 390 390
Cumulative effect of changes in accounting 16,164 (16,491) (458) (785)
Balance at December 31, 2019 157,851 (55,232) (3,101) 99,518
Amounts reclassified from AOCI (net of tax benefit $2,092 and expense $1,018)
(7,870) 3,831 - (4,039)
Unrealized holding gains arising during the period (net of tax expense $52,808)
198,657 - - 198,657
Unrealized adjustment to DAC (net of tax benefit $14,380)
(54,094) - - (54,094)
Unrealized gains on investments attributable to participating policyholders’ interest (net of tax benefit $632)
(2,378) - - (2,378)
Actuarial loss arising during the period (net of tax benefit $4,181)
- (15,729) - (15,729)
Foreign currency adjustment (net of tax expense $62)
- - 235 235
Balance at December 31, 2020 292,166 (67,130) (2,866) 222,170
Amounts reclassified from AOCI (net of tax benefit $8,608 and expense $2,016)
(32,382) 7,584 - (24,798)
Unrealized holding losses arising during the period (net of tax benefit $43,343)
(163,051) - - (163,051)
Unrealized adjustment to DAC (net of tax expense $12,239)
46,042 - - 46,042
Unrealized losses on investments attributable to participating policyholders’ interest (net of tax expense $1,738)
6,537 - - 6,537
Actuarial gain arising during the period (net of tax expense $15,974)
- 60,092 - 60,092
Foreign currency adjustment (net of tax expense $65)
- - 62 62
Balance at December 31, 2021 $ 149,312 $ 546 $ (2,804) $ 147,054
Note 16 - Stockholders’ Equity and Noncontrolling Interests
ANAT has one class of common stock with a par value of $0.01 per share and 50,000,000 authorized shares. Each issued and outstanding share of the Company's common stock will be converted into the right to receive $190.00 in cash without interest pursuant to the Merger Agreement with Brookfield Reinsurance. Refer to Note 1, Nature of Operations, for more information. The number of shares outstanding at the dates indicated are shown below:
Years ended December 31,
2021 2020 2019
Common stock
Shares issued 26,887,200 26,887,200 30,832,449
Treasury shares - - (3,945,249)
Outstanding shares 26,887,200 26,887,200 26,887,200
Restricted shares (10,000) (10,000) (10,000)
Unrestricted outstanding shares 26,877,200 26,877,200 26,877,200
Stock-based Compensation
American National has made grants of Stock Appreciation Rights (“SAR”), Restricted Stock (“RS”) Awards, and Restricted Stock Units (“RSU”), pursuant to a stock-based compensation plan. The term for granting additional awards under such plan expired in 2019. Pursuant to the plan, grants were made to certain officers meeting established performance objectives, and grants were made to directors as compensation and to align their interests with those of other shareholders. In addition, American National has made grants to directors and advisory directors of RSUs that are cash-settled only, with no provision for conversion to stock. During 2021, 10,197 of such cash-settled RSUs were granted and remain outstanding at December 31, 2021 as shown in the table below.
SAR, RS and RSU information for the periods indicated are shown below:
SAR RS Shares RSUs
Shares Weighted-Average Grant Date Fair Value Shares Weighted-Average Grant Date Fair Value Units Weighted-Average Grant Date Fair Value
Outstanding at December 31, 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 December 31, 2019 66 110.83 10,000 80.05 8,250 113.19
Granted - - - - 8,250 75.35
Exercised - - - - (8,250) 113.19
Forfeited - - - - - -
Expired (66) 110.83 - - - -
Outstanding at December 31, 2020 - - 10,000 80.05 8,250 75.35
Granted - - - - 10,197 113.35
Exercised - - - - (8,250) 75.35
Forfeited - - - - - -
Expired - - - - - -
Outstanding at December 31, 2021 - $ - 10,000 $ 80.05 10,197 $ 113.35
Note 16 - Stockholders' Equity and Noncontrolling Interests - (Continued)
SAR RS Shares RSUs
Weighted-average contractual remaining life (in years) 0.0 1.16 0.33
Exercisable shares - N/A N/A
Weighted-average exercise price $ - $ 80.05 $ 113.35
Weighted-average exercise price exercisable shares - N/A N/A
Compensation expense (credit)
Year ended December 31, 2021 $ - $ 80,000 $ 1,989,000
Year ended December 31, 2020 (1,000) 80,000 449,000
Year ended December 31, 2019 15,000 80,000 1,168,000
Fair value of liability award
December 31, 2021 $ - N/A $ 1,926,000
December 31, 2020 - N/A 793,000
The SARs gave 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 expired five years after vesting. All remaining SARs expired on May 1, 2020.
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 feature a graded vesting schedule in the case of the retirement, death or disability of an award holder or change in control. Restricted stock awards for 350,334 shares have been granted at an exercise price of zero, of which 10,000 shares are unvested.
RSU awards to our directors and advisory directors are settled in cash based upon the market price of our common stock after one-year or earlier upon death, disability or retirement from service after age 65 or change in control. During the twelve months ended December 31, 2021, 8,250 RSUs were granted and vested on May 1, 2021 and were settled in cash. A new grant of 10,197 RSUs was awarded to directors and advisory directors on May 1, 2021 with one-year cliff vesting which will be settled in cash.
Pursuant to the Merger Agreement with Brookfield Reinsurance, each outstanding and unvested restricted share award and restricted stock unit award will vest and be converted into the right to receive cash payment equal to $190.00 multiplied by the total number of shares of common stock subject to such award prior to the effective date of the merger with Brookfield Reinsurance. Refer to Note 1, Nature of Operations, for more information.
Earnings per Share
Basic earnings per share were calculated using a weighted average number of shares outstanding. Diluted earnings per share include RS awards and RSU award shares issued in 2019. RSUs issued in 2021 and 2020 may only be settled in cash.
Years ended December 31,
2021 2020 2019
Weighted average shares outstanding 26,877,200 26,878,679 26,882,691
Incremental shares from RS awards and RSUs 7,479 8,446 8,552
Total shares for diluted calculations 26,884,679 26,887,125 26,891,243
Net income attributable to American National (in thousands) $ 699,325 $ 467,505 $ 620,363
Basic earnings per share $ 26.02 $ 17.39 $ 23.08
Diluted earnings per share $ 26.01 $ 17.38 $ 23.07
Note 16 - 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's 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 100% of the company action level RBC are required to take certain actions. At December 31, 2021 and 2020, ANICO’s statutory capital and surplus was $4.0 billion and $3.6 billion, respectively, which resulted in an RBC level above 200% of the company action level. All of our other insurance subsidiaries had statutory capital and surplus at December 31, 2021 and 2020 above 200% of the company action level except ANPAC Louisiana Insurance Company ("ANPLA"), which had an RBC level of 194% at December 31, 2020, which increased to 242% at December 31, 2021.
American National's insurance subsidiaries prepare financial statements in accordance with statutory accounting practices prescribed or permitted by the insurance department of each subsidiary's 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 our 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 ANICO and American National Lloyds Insurance Company by $68.1 million and $75.3 million at December 31, 2021 and 2020, respectively. The statutory capital and surplus of both ANICO and American National Lloyds Insurance Company would have remained above the authorized control level RBC had it not used the permitted practice.
The statutory capital and surplus and net income (loss) of our life and property and casualty insurance entities in accordance with statutory accounting practices are shown below (in thousands):
December 31,
2021 2020
Statutory capital and surplus
Life insurance entities $ 2,425,759 $ 2,188,808
Property and casualty insurance entities 1,570,501 1,463,179
Years ended December 31,
2021 2020 2019
Statutory net income (loss)
Life insurance entities $ 956,053 $ (25,178) $ 47,133
Property and casualty insurance entities 383,962 127,207 96,269
Statutory net income for our life insurance entities increased as a result of a $1.0 billion dividend payment to ANICO from ANH Investments, LLC, as a result of proceeds received from the sale of the majority of the equity securities portfolio. Statutory net income for our property and casualty entities increased driven by an increase in net realized gains as a result of the sale of the majority of the companies’ equity securities portfolios.
Note 16 - Stockholders' Equity and Noncontrolling Interests - (Continued)
Dividends
Dividends are paid on a quarterly basis. We paid a quarterly dividend of $0.82 per share for each quarter for the years ended December 31, 2021 and 2020, and we expect to continue to pay regular quarterly cash dividends, not to exceed $0.82 per share, prior to the completion of the merger with Brookfield Reinsurance, although there is no assurance as to future dividends because they depend on future earnings, capital requirements and financial conditions. Refer to Note 1, Nature of Operations, for more information regarding the Merger Agreement with Brookfield Reinsurance.
The amount of dividends paid by our insurance company subsidiaries is restricted by insurance law. These restrictions are based, in part, on the prior year’s statutory income and surplus. In general, dividends up to specified levels are considered ordinary and may be paid without prior regulatory approval. Dividends in larger amounts, or extraordinary dividends, are subject to approval by the insurance commissioner of the relevant state of domicile. For example, restrictions applicable to Texas-domiciled life insurance companies like ANICO limit the payment of dividends to the greater of the prior year’s statutory net gain from operations before realized capital gains, or 10% of prior year statutory surplus, in each case determined in accordance with statutory accounting principles. ANICO is permitted, without prior approval of the Texas Department of Insurance, to pay total dividends of $792.4 million during 2022, subject to the terms and conditions of the Merger Agreement with Brookfield Reinsurance.
Noncontrolling Interests
American National County Mutual Insurance Company (“County Mutual”) is a mutual insurance company owned by its policyholders. ANICO has a management agreement that effectively gives it control of County Mutual. As a result, County Mutual is included in the consolidated financial statements of American National. Policyholder interests in the financial position of County Mutual are reflected as noncontrolling interest of $6.8 million at December 31, 2021 and 2020, respectively.
American National Group, Inc. 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 interest of $0.9 million and a noncontrolling deficit of $0.9 million at December 31, 2021 and 2020, respectively.
Note 17 - 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, Summary of Significant Accounting Policies and Practices, of the Notes to the Consolidated Financial Statements. 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 segment 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.
The following summarizes total assets by operating segments (in thousands):
Years ended December 31,
2021 2020
Total assets
Life $ 7,491,012 $ 7,111,991
Annuity 14,803,297 13,642,357
Health 532,809 515,841
Property and Casualty 2,888,696 2,716,896
Corporate and Other 5,604,507 5,480,730
Total $ 31,320,321 $ 29,467,815
Note 17 - Segment Information - (Continued)
The results of operations measured as the income before federal income taxes and other items by operating segments are summarized below (in thousands):
Year ended December 31, 2021
Life Annuity Health Property & Casualty Corporate & Other Total
PREMIUMS AND OTHER REVENUES
Premiums $ 412,769 $ 74,925 $ 143,484 $ 1,669,875 $ - $ 2,301,053
Other policy revenues 336,136 23,571 - - - 359,707
Net investment income 277,962 629,417 8,153 62,140 193,982 1,171,654
Net realized investment gains - - - - 64,628 64,628
Decrease in investment credit loss - - - - 28,778 28,778
Net gains on equity securities - - - - 420,283 420,283
Other income 1,577 3,282 21,743 15,807 3,279 45,688
Total premiums and other revenues
1,028,444 731,195 173,380 1,747,822 710,950 4,391,791
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits 605,724 149,931 - - - 755,655
Claims incurred - - 98,029 1,094,126 - 1,192,155
Interest credited to policyholders' account balances
84,005 364,649 - - - 448,654
Commissions for acquiring and servicing policies
186,470 98,842 24,231 330,554 - 640,097
Other operating expenses 195,127 53,379 42,284 213,486 67,593 571,869
Change in deferred policy acquisition costs
(50,134) (22,838) 3,537 (10,197) - (79,632)
Total benefits, losses and expenses
1,021,192 643,963 168,081 1,627,969 67,593 3,528,798
Income before federal income tax and other items $ 7,252 $ 87,232 $ 5,299 $ 119,853 $ 643,357 $ 862,993
Year ended December 31, 2020
Life Annuity Health Property & Casualty Corporate & Other Total
PREMIUMS AND OTHER REVENUES
Premiums $ 396,099 $ 92,866 $ 168,805 $ 1,560,304 $ - $ 2,218,074
Other policy revenues 295,263 15,483 - - - 310,746
Net investment income 261,389 570,003 8,637 63,949 72,174 976,152
Net realized investment gains - - - - 35,660 35,660
Increase in investment credit loss - - - - (102,603) (102,603)
Net gains on equity securities - - - - 356,281 356,281
Other income 2,084 2,716 19,598 12,779 3,379 40,556
Total premiums and other revenues
954,835 681,068 197,040 1,637,032 364,891 3,834,866
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits 533,925 214,158 - - - 748,083
Claims incurred - - 116,122 1,005,620 - 1,121,742
Interest credited to policyholders' account balances
75,943 245,099 - - - 321,042
Commissions for acquiring and servicing policies
167,548 55,910 30,182 299,960 - 553,600
Other operating expenses 182,395 48,359 39,265 202,503 42,891 515,413
Change in deferred policy acquisition costs
(53,756) 48,298 (307) 87 - (5,678)
Total benefits, losses and expenses
906,055 611,824 185,262 1,508,170 42,891 3,254,202
Income before federal income tax and other items
$ 48,780 $ 69,244 $ 11,778 $ 128,862 $ 322,000 $ 580,664
Note 17 - Segment Information - (Continued)
Year ended December 31, 2019
Life Annuity Health Property & Casualty Corporate & Other Total
PREMIUMS AND OTHER REVENUES
Premiums $ 359,419 $ 147,139 $ 165,035 $ 1,511,201 $ - $ 2,182,794
Other policy revenues 288,061 17,195 - - - 305,256
Net investment income 263,788 663,895 9,467 64,263 179,494 1,180,907
Net realized investment gains - - - - 30,751 30,751
Net gains on equity securities - - - - 422,535 422,535
Other income 1,967 2,727 20,762 11,897 14,048 51,401
Total premiums and other revenues 913,235 830,956 195,264 1,587,361 646,828 4,173,644
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits 449,252 218,576 - - - 667,828
Claims incurred - - 109,013 1,042,153 - 1,151,166
Interest credited to policyholders' account balances 80,950 431,049 - - - 511,999
Commissions for acquiring and servicing policies 162,203 71,350 31,624 267,457 - 532,634
Other operating expenses 190,104 50,507 41,475 201,580 41,222 524,888
Change in deferred policy acquisition costs (26,036) 9,474 1,382 2,431 - (12,749)
Total benefits, losses and expenses 856,473 780,956 183,494 1,513,621 41,222 3,375,766
Income before federal income tax and other items $ 56,762 $ 50,000 $ 11,770 $ 73,740 $ 605,606 $ 797,878
Note 18 - Pension and Postretirement Benefits
Savings Plans
American National sponsors a qualified defined contribution (401(k) plan) for all employees, and non-qualified defined contribution plans for certain employees whose otherwise eligible earnings exceed the statutory limits under the qualified plans. The total expense associated with matching contributions to these plans was $10.8 million, $9.9 million, and $9.5 million for 2021, 2020, and 2019, respectively.
Pension Benefits
American National sponsors qualified and non-qualified defined benefit pension plans, all of which have been frozen. As such, no additional benefits are accrued through these plans for additional years of service credit or future salary increase credit, and no new participants are added to the plans. Benefits earned by eligible employees prior to the plans being frozen have not been affected.
The qualified pension plans are noncontributory. The plans provide benefits for salaried and management employees and corporate clerical employees subject to a collective bargaining agreement based on years of service and employee compensation. The non-qualified pension plans cover key employees and restore benefits that would otherwise be curtailed by statutory limits on qualified plan benefits.
Note 18 - Pension and Postretirement Benefits - (Continued)
Amounts recognized in the consolidated statements of financial position consist of (in thousands):
Qualified Non-qualified
2021 2020 2021 2020
Reconciliation of benefit obligation
Obligation at beginning of year $ 427,745 $ 387,273 $ 65,791 $ 65,733
Service cost 589 543 - -
Interest cost on projected benefit obligation 10,290 13,079 917 1,789
Actuarial (gain) loss (11,640) 50,620 2,496 6,775
Benefits paid (27,604) (23,770) (8,510) (8,506)
Obligation at end of year 399,380 427,745 60,694 65,791
Reconciliation of fair value of plan assets
Fair value of plan assets at beginning of year 511,989 470,101 - -
Actual return on plan assets 90,822 65,700 - -
Employer contributions - - 8,510 8,506
Benefits paid (27,597) (23,812) (8,510) (8,506)
Fair value of plan assets at end of year 575,214 511,989 - -
Funded status at end of year $ 175,834 $ 84,244 $ (60,694) $ (65,791)
The components of net periodic benefit cost for the defined benefit pension plans are shown below (in thousands):
Years ended December 31,
2021 2020 2019
Service cost $ 589 $ 543 $ 523
Interest cost 11,207 14,868 17,421
Expected return on plan assets (25,921) (26,109) (24,248)
Amortization of net actuarial loss 7,628 4,848 7,070
Settlement recognition 1,973 - -
Net periodic cost (benefit) $ (4,524) $ (5,850) $ 766
Amounts related to the defined benefit pension plans recognized as a component of AOCI are shown below (in thousands):
Years ended December 31,
2021 2020 2019
Actuarial gain (loss) $ 85,666 $ (15,061) $ 19,615
Deferred tax benefit (expense) (17,990) 3,163 (4,120)
Cumulative effect of change in accounting - - (16,491)
Other comprehensive income (loss), net of tax $ 67,676 $ (11,898) $ (996)
Amounts recognized as a component of AOCI that have not been recognized as a component of the combined net periodic benefit cost of the defined benefit pension plans, are shown below (in thousands):
Years ended December 31,
2021 2020
Net actuarial gain (loss) $ 690 $ (84,976)
Deferred tax benefit (expense) (144) 17,846
Amounts included in AOCI $ 546 $ (67,130)
Note 18 - Pension and Postretirement Benefits - (Continued)
The weighted average assumptions used are shown below:
Used for Net Benefit Cost for year ended December 31, 2021 Used for Benefit Obligations as of December 31, 2021
Discount rate 2.52 % 2.86 %
Long-term rate of return 5.25 -
American National’s funding policy for the qualified pension plans is to make annual contributions to meet the minimum funding standards of the Pension Protection Act of 2006. American National and its affiliates did not contribute to its qualified plans in 2021, 2020 and 2019 due to the substantial contribution over minimum funding standards of $60 million made in 2018. The benefits paid from the non-qualified plans were $8.5 million, $8.5 million and $8.7 million in 2021, 2020 and 2019, respectively. Future payments from the non-qualified pension benefit plans will be funded out of general corporate assets.
The following table shows pension benefit payments expected to be paid (in thousands):
2022 $ 49,048
2023 33,243
2024 32,891
2025 30,522
2026 29,648
2027-2031 135,164
American National utilizes third-party pricing services to estimate fair value measurements of its pension plan assets. Refer to Note 9, Fair Value of Financial Instruments for further information concerning the valuation methodologies and related inputs utilized by the third-party pricing services. The fair values (hierarchy measurements) of the pension plan assets by asset category are shown below (in thousands):
December 31, 2021
Total Level 1 Level 2 Level 3
Asset Category
Corporate debt securities $ 144,770 $ - $ 144,770 $ -
Residential mortgage-backed securities 61 - 61 -
Equity securities by sector
Consumer goods 63,296 63,296 - -
Energy and utilities 27,078 27,078 - -
Finance 48,401 48,401 - -
Healthcare 60,972 60,972 - -
Industrials 29,375 29,375 - -
Information technology 103,379 103,379 - -
Other 86,256 86,256 - -
Commercial paper 3,104 - 3,104 -
Unallocated group annuity contract 498 - 498 -
Other 8,024 8,024 - -
Total $ 575,214 $ 426,781 $ 148,433 $ -
Note 18 - Pension and Postretirement Benefits - (Continued)
December 31, 2020
Total Level 1 Level 2 Level 3
Asset Category
Corporate debt securities $ 157,933 $ - $ 157,243 $ 690
Residential mortgage-backed securities 3,521 - 3,521 -
Equity securities by sector
Consumer goods 57,684 57,684 - -
Energy and utilities 22,007 22,007 - -
Finance 40,161 40,161 - -
Healthcare 51,641 51,641 - -
Industrials 25,827 25,827 - -
Information technology 78,720 78,720 - -
Other 70,230 70,230 - -
Commercial paper 872 - 872 -
Unallocated group annuity contract 1,940 - 1,940 -
Other 1,453 1,453 - -
Total $ 511,989 $ 347,723 $ 163,576 $ 690
The investment policy for the retirement plan assets is designed to provide the highest return commensurate with sound and prudent underwriting practices. The investment diversification goals are to have investments in cash and cash equivalents as necessary for liquidity, debt securities up to 100% and equity securities up to 75% of the total invested plan assets. The amount invested in any particular investment is limited based on credit quality, and no single investment may at the time of purchase be more than 5% of the total invested assets.
The corporate debt securities category are investment grade bonds of U.S. and foreign issuers denominated and payable in U.S. dollars from diverse industries, with a maturity of 1 to 30 years. Foreign bonds in the aggregate shall not exceed 20% of the bond portfolio. Residential mortgage-backed securities represent asset-backed securities with a maturity date 1 to 30 years with a Level 1 or 2 rating.
Equity portfolio managers have discretion to choose the degree of concentration in various issues and industry sectors for the equity securities. Permitted securities are those for which there is an active market providing liquidity for the specific security. Commercial paper investments generally have a credit rating of A2 by Moody’s or P2 by Standard & Poor’s with at least BBB rating on the issuer’s outstanding debt, or selected issuers with no outstanding debt.
Postretirement Life and Health Benefits
Under American National’s various group benefit plans for active employees, life insurance benefits are provided upon retirement for eligible participants who meet certain age and length of service requirements.
The accrued postretirement benefit obligation, included in the liability for retirement benefits, was $12.2 million and $5.3 million at December 31, 2021 and 2020, respectively. These amounts were approximately equal to the unfunded accumulated postretirement benefit obligation.
Note 19 - 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 December 31, 2021 were approximately $12.7 million.
American National had aggregate commitments at December 31, 2021 to purchase, expand or improve real estate, to fund fixed interest rate mortgage loans, and to purchase other invested assets of $1.5 billion of which $786.2 million is expected to be funded in 2022 with the remainder funded in 2023 and beyond.
American National had outstanding letters of credit in the amount of $3.5 million as of December 31, 2021 and 2020.
The Merger Agreement contains certain termination rights for both the Company and Brookfield Reinsurance. If the Merger has not closed by May 6, 2022 (“Outside Date”), either the Company or Brookfield Reinsurance may terminate the Merger Agreement. However, if the closing has not occurred because the required insurance regulatory approvals have not been obtained, and all other conditions to closing have been satisfied (other than those conditions that by their terms are to be satisfied at the closing, each of which is capable of being satisfied at the closing) or waived, the Outside Date will be August 6, 2022. The Merger Agreement requires the Company to pay Brookfield Reinsurance a $178.5 million termination fee under certain circumstances. Those circumstances are relatively limited, since the Company has already received the required stockholder approval for the Merger. Specifically, a termination fee would be payable by the Company if (i) Brookfield Reinsurance terminates the merger agreement due to the occurrence of a terminable breach by the Company, (ii) a competing acquisition proposal from a third party was announced prior to the termination that was not withdrawn and (iii) within 12 months after the termination, the Company enters into a definitive agreement with respect to, or otherwise consummates, the competing acquisition proposal (or does not oppose it, in the case of a tender or exchange offer).
Federal Home Loan Bank (FHLB) Agreements
In May 2018, the Company became a member of the Federal Home Loan Bank of Dallas to augment its liquidity resources. The Company initially purchased $7.0 million of stock to meet the FHLB’s membership requirement. The FHLB member stock is recorded in other invested assets on the Company’s 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 December 31, 2021, certain collateralized mortgage obligations with a fair value of approximately $28.0 million and commercial mortgage loans of approximately $1.5 billion were on deposit with the FHLB as collateral for borrowing. As of December 31, 2021, the collateral provided borrowing capacity of approximately $902.7 million. The deposited securities and commercial mortgage loans are included in the Company’s consolidated statements of financial position within fixed maturity securities and mortgage loans on real estate, net of allowance, respectively.
Guarantees
ANICO 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 ANICO. The loans are secured by the cash values of the life insurance policies. If the customer were to default on a bank loan, ANICO 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 December 31, 2021, was approximately $121.4 million, while the total cash value of the related life insurance policies was approximately $143.1 million.
Restrictions of the Merger Agreement limit the Company's ability, without Brookfield Reinsurance's consent, to incur guarantee or assume any indebtedness, subject to certain limited exceptions, including investment portfolio transactions in the ordinary course of business consistent with past practice and other incurrences of indebtedness not to exceed $10,000,000 in the aggregate.
Note 19 - Commitments and Contingencies - (Continued)
Litigation
American National and certain subsidiaries are defendants in various lawsuits concerning alleged breaches of contracts, various employment matters, allegedly deceptive insurance sales and marketing practices, and miscellaneous other causes of action arising in the ordinary course of operations. Certain of these lawsuits include claims for compensatory and punitive damages. We provide accruals for these items to the extent we deem the losses probable and reasonably estimable. After reviewing these matters with legal counsel, based upon information presently available, management is of the opinion that the ultimate resultant liability, if any, would not have a material adverse effect on American National’s 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. Accruals for losses are established whenever they are probable and reasonably estimable. If no one estimate within the range of possible losses is more probable than any other, an accrual is recorded based on the lowest amount of the range.
Note 20 - 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 Amount due from American National
Years ended December 31, December 31,
Related Party Financial Statement Line Impacted 2021 2020 2019 2021 2020
Gal-Tex Hotel Corporation Mortgage loan on real estate $ - $ - $ 576 $ - $ -
Gal-Tex Hotel Corporation Net investment income - - 9 - -
Greer, Herz & Adams, LLP Other operating expenses 13,203 13,451 12,088 (310) (441)
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 member of the Board of Directors of American National Group, Inc. and certain of its subsidiaries, and a Partner with Greer, Herz & Adams, LLP, which serves as American National’s General Counsel.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. 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 December 31, 2021. Based upon that evaluation and subject to the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2021, the design and operation of the Company’s disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.
Management’s Annual Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
Because of inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluations of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management, including the Chief Executive Officer and Chief Financial Officer, has conducted an assessment, including testing, of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021, based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - An Integrated Framework (2013). Based on this evaluation, management has concluded that our internal control over financial reporting was effective as of December 31, 2021.
The effectiveness of the company’s internal control over financial reporting as of December 31, 2021, has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report.
Changes in Internal Control Over Financial Reporting
Management has monitored the internal controls over financial reporting, including any material changes to the internal control over financial reporting. There were no changes in the Company’s internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION
None

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item is incorporated by reference from our definitive proxy statement for our Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2021.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from our definitive proxy statement for our Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2021.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated by reference from our definitive proxy statement for our Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2021.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated by reference from our definitive proxy statement for our Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2021.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated by reference from our definitive proxy statement for our Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2021.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements-(See Part II, Item 8, Financial Statements and Supplementary Data)
(a)(2) Supplementary Data and Financial Statement Schedules-are attached hereto at the following pages
Schedules Page
Schedule I - Summary of Investments - Other than Investments in Related Parties
Schedule II - Condensed Financial Information of Registrant
Schedule III - Supplementary Insurance Information
Schedule IV - Reinsurance Information
All other schedules are omitted as the required information is inapplicable or the information is presented in the financial statements or related notes.
(b) Exhibits
Exhibit Number Description
2.1 Agreement and Plan of Merger, dated February 11, 2020, among American National Insurance Company, a Texas insurance company ("ANICO"), American National Group, Inc., a Delaware corporation ("ANAT"), and AN MergerCo., Inc., a Texas corporation (incorporated by reference to Annex I to the Proxy Statement/Prospectus filed on March 25, 2020).
2.2 Agreement and Plan of Merger, dated as of August 6, 2021, by and among Brookfield Asset Management Reinsurance Partners Ltd., Freestone Merger Sub Inc. and American National Group, Inc. (incorporated by reference to Exhibit 2.1 of the registrant's Current Report on Form 8-K filed on August 9, 2021).
3.1 Amended and Restated Certificate of Incorporation of ANAT (incorporated by reference to Annex II of the Proxy Statement/Prospectus filed with the SEC on March 25, 2020).
3.2 Restated Articles of Incorporation, as amended, of ANICO (incorporated by reference to Exhibit No. 3.1 to the registrant's Registration Statement on Form 10-12B filed April 10, 2009).
3.3 Amended and Restated Bylaws of ANAT (incorporated by reference to Annex III of the Proxy Statement/Prospectus filed with the SEC on March 25, 2020).
3.4 Amended and Restated Bylaws of ANICO (incorporated by reference to Exhibit No. 3.2 to the registrant's Current Report on Form 8-K filed on February 23, 2018).
4.1 Specimen copy of Stock Certificate of ANICO (incorporated by reference to Exhibit No. 4.1 to ANICO’s Registration Statement on Form 10-12B filed April 10, 2009).
4.2 Description of ANAT's Common Stock (incorporated by reference to Exhibit No. 99.1 to ANAT's Form 8K-12B filed on July 2, 2020.
10.1* American National Insurance Company Amended and Restated 1999 Stock and Incentive Plan (the “Stock and Incentive Plan”)(incorporated by reference to Exhibit No. 10.2 to ANICO's Registration Statement on Form 10-12B filed April 10, 2009).
10.2* Form of Restricted Stock Agreement for Officers under the Stock and Incentive Plan (incorporated by reference to Exhibit No. 10.12 to ANICO’s Quarterly Report on Form 10-Q filed May 7, 2013).
10.3* Form of Stock Appreciation Right Agreement under the Stock and Incentive Plan (incorporated by reference to Exhibit No. 10.5 to ANICO's Annual Report on Form 10-K filed March 2, 2011).
10.4* American National Insurance Company Nonqualified Retirement Plan for Certain Salaried Employees (incorporated by reference to Exhibit No. 10.6 to ANICO’s Registration Statement on Form 10-12B filed on April 10, 2009).
10.5* Amendment to the American National Insurance Company Nonqualified Retirement Plan for Certain Salaried Employees (incorporated by reference to Exhibit No. 10.2 to ANICO’s amended Current Report on Form 8-K/A filed on November 6, 2013).
10.6* American National Family of Companies Executive Supplemental Savings Plan (incorporated by reference to Exhibit No. 10.3 to ANICO’s amended Current Report on Form 8-K/A filed on November 6, 2013).
10.7* Amendments One and Two to the American National Family of Companies Executive Supplemental Savings plan (incorporated by reference to Exhibit No. 10.15 to ANICO’s Quarterly Report on Form 10-Q filed on May 8, 2015).
10.8* Form of Restricted Stock Unit Agreement for Directors (incorporated by reference to Exhibit No. 10.1 to ANAT's Quarterly Report on Form 10-Q filed on May 6, 2021).
10.9* Amendments Three and Four to the American National Family of Companies Executive Supplemental Savings Plan (incorporated by reference to Exhibit No. 10.10 to ANICO's Quarterly Report on Form 10-Q filed on August 6, 2019).
10.10* Form of Letter Agreement amending outstanding book value units granted to certain employees of American National Group, Inc. (incorporated by reference to Exhibit No. 10.1 to ANAT's Quarterly Report on Form 10-Q filed on November 4, 2021).
10.11* American National Group, Inc. Executive Severance Plan (the “Severance Plan”) (incorporated by reference to Exhibit No. 99.1 to ANAT’s Current Report on Form 8-K filed on April 26, 2021).
10.12* Form of Participation Agreement under the Severance Plan (incorporated by reference to Exhibit No. 99.2 to ANAT’s Current Report on Form 8-K filed on April 26, 2021).
21 Subsidiaries (filed herewith).
23.1 Consent of Deloitte & Touche LLP (filed herewith).
23.2 Consent of KPMG LLP (filed herewith).
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).
*Management contract or compensatory plan or arrangement.