ANAT 10-Q Quarterly Report Sept. 30, 2021

AMERICAN NATIONAL GROUP INC

10-Ks and 10-Qs

10-Q	Quarter ended March 31, 2022
10-K	Fiscal year ended Dec. 31, 2021
10-Q	Quarter ended Sept. 30, 2021
10-Q	Quarter ended June 30, 2021
10-Q	Quarter ended March 31, 2021
10-K	Fiscal year ended Dec. 31, 2020
10-Q	Quarter ended Sept. 30, 2020
10-Q	Quarter ended June 30, 2020

PROXIES

DEF 14A

Filed on March 29, 2021

anat-20210930

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended September 30, 2021


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

Commission File No. 001-39369

American National Group, Inc.

(Exact name of registrant as specified in its charter)


Delaware						30-1221711
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

One Moody Plaza

Galveston , Texas 77550-7999

(Address of principal executive offices) (Zip Code)

( 409 ) 763-4661

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol

Name of Each Exchange on which Registered

Common Stock, par value $0.01

ANAT

NASDAQ

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

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

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

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

As of October 29, 2021, there were 26,887,200 shares of the registrant’s voting common stock, $0.01 par value per share, outstanding.

Table of Contents

AMERICAN NATIONAL GROUP, INC.

TABLE OF CONTENTS



	PART I – FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS:

	Condensed Consolidated Statements of Financial Position as of September 30, 2021 and December 31, 2020 (unaudited)	3

	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020 (unaudited)	4

	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2021 and 2020 (unaudited)	5

	Condensed Consolidated Statements of Changes in Equity for the three and nine months ended September 30, 2021 and 2020 (unaudited)	6

	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 (unaudited)	8

	Notes to the Condensed Consolidated Financial Statements (unaudited)	10

	Note 1 – Nature of Operations	10

	Note 2 – Summary of Significant Accounting Policies and Practices	10

	Note 3 – Recently Issued Accounting Pronouncements	11

	Note 4 – Investment in Securities	12

	Note 5 – Mortgage Loans	19

	Note 6 - Real Estate and Other Investments	22

	Note 7 – Derivative Instruments	24

	Note 8 – Net Investment Income and Realized Investment Gains (Losses)	26

	Note 9 – Fair Value of Financial Instruments	27

	Note 10 – Deferred Policy Acquisition Costs	35

	Note 11 – Liability for Unpaid Claims and Claim Adjustment Expenses	35

	Note 12 – Federal Income Taxes	36

	Note 13 – Accumulated Other Comprehensive Income (Loss)	36

	Note 14 – Stockholders’ Equity and Noncontrolling Interests	37

	Note 15 – Segment Information	40

	Note 16 – Commitments and Contingencies	43

	Note 17 – Related Party Transactions	44

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	45

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	71

ITEM 4.	CONTROLS AND PROCEDURES	71

	PART II – OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	71

ITEM 1A.	RISK FACTORS	71









ITEM 6.	EXHIBITS	72

SIGNATURES		73

Table of Contents

AMERICAN NATIONAL GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)

(In thousands, except share data)


	September 30, 2021		December 31, 2020
ASSETS
Fixed maturity, bonds held-to-maturity, at amortized cost, net of allowance for credit losses of $ 13,492 in 2021 and $ 12,442 in 2020 (Fair value $ 7,747,031 in 2021 and $ 7,983,181 in 2020)	$	7,277,801	$	7,354,970
Fixed maturity, bonds available-for-sale, at fair value (Allowance for credit losses of $ 4,529 in 2021 and $ 7,482 in 2020) (Amortized cost $ 8,207,687 in 2021 and $ 7,073,142 in 2020)	8,573,081		7,597,180
Equity securities, at fair value (Cost $ 838,872 in 2021 and $ 754,625 in 2020)	2,383,478		2,070,766
Mortgage loans on real estate, net of allowance for credit losses of $ 106,897 in 2021 and $ 125,703 in 2020	5,002,978		5,242,531
Policy loans	364,960		373,014
Real estate and real estate partnerships, net of accumulated depreciation of $ 282,248 in 2021 and $ 269,626 in 2020	926,154		960,572
Investment funds	814,527		477,135
Short-term investments	536,621		1,028,379
Other invested assets	123,337		94,415
Total investments	26,002,937		25,198,962
Cash and cash equivalents	504,465		339,947

Accrued investment income	207,473		216,389
Reinsurance recoverables, net of allowance for credit losses of $ 15,196 in 2021 and $ 14,353 in 2020	443,756		414,359
Prepaid reinsurance premiums	44,098		42,804
Premiums due and other receivables	402,054		351,972
Deferred policy acquisition costs	1,448,905		1,360,211
Property and equipment, net of accumulated depreciation of $ 297,807 in 2021 and $ 281,738 in 2020	133,447		121,578
Current tax receivable	23,913		—
Prepaid pension	91,214		80,526
Other assets	155,780		155,600
Separate account assets	1,260,427		1,185,467
Total assets	$	30,718,469	$	29,467,815
LIABILITIES
Future policy benefits
Life	$	3,194,176	$	3,149,067
Annuity	1,608,952		1,617,774
Health	47,017		49,658
Policyholders’ account balances	13,632,812		12,812,155
Policy and contract claims	1,668,898		1,575,288
Unearned premium reserve	1,032,713		956,343
Other policyholder funds	363,729		358,601
Liability for retirement benefits	81,268		70,254
Notes payable	150,378		153,703
Deferred tax liabilities, net	516,331		478,347
Current tax payable	—		10,372
Federal Home Loan Bank advance	—		250,000
Other liabilities	407,954		335,219
Separate account liabilities	1,260,427		1,185,467
Total liabilities	23,964,655		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	47,742		47,683
Accumulated other comprehensive income	127,159		222,170
Retained earnings	6,571,202		6,188,148

Total American National stockholders’ equity	6,746,372		6,458,270
Noncontrolling interest	7,442		7,297
Total stockholders' equity	6,753,814		6,465,567
Total liabilities and stockholders' equity	$	30,718,469	$	29,467,815

See accompanying notes to the unaudited condensed consolidated financial statement s.

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AMERICAN NATIONAL GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except share and per share data)


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
PREMIUMS AND OTHER REVENUES
Premiums
Life	$	104,802	$	101,182	$	306,365	$	282,368
Annuity	18,698		27,960		63,436		69,413
Health	36,201		40,934		108,914		126,965
Property and Casualty	426,887		391,388		1,235,778		1,152,749
Other policy revenues	88,687		79,344		265,749		238,736
Net investment income	261,140		271,285		828,520		676,002
Net realized investment gains	20,138		17,387		49,979		25,474

(Increase) decrease in investment credit loss	5,969		( 4,175 )		25,562		( 101,163 )
Net gains on equity securities	681		152,147		267,425		118,397
Other income	12,026		9,683		32,813		31,152
Total premiums and other revenues	975,229		1,087,135		3,184,541		2,620,093
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits
Life	161,633		153,957		447,309		389,364
Annuity	29,222		46,424		116,662		126,209
Claims incurred
Health	23,935		27,933		74,376		89,544
Property and Casualty	299,956		258,412		824,697		768,682
Interest credited to policyholders’ account balances	82,251		128,946		301,274		271,406
Commissions for acquiring and servicing policies	171,219		138,365		488,817		409,290
Other operating expenses	151,971		126,413		435,380		385,516
Change in deferred policy acquisition costs	( 7,088 )		( 8,387 )		( 64,049 )		( 14,762 )
Total benefits, losses and expenses	913,099		872,063		2,624,466		2,425,249
Income before federal income tax and other items	62,130		215,072		560,075		194,844
Less: Provision (benefit) for federal income taxes
Current	12,624		20,789		50,811		31,578
Deferred	( 814 )		23,123		62,499		2,863
Total provision for federal income taxes	11,810		43,912		113,310		34,441
Income after federal income tax	50,320		171,160		446,765		160,403

Other components of net periodic pension benefit, net of tax	917		543		2,778		1,471
Net income	51,237		171,703		449,543		161,874
Less: Net income attributable to noncontrolling interest, net of tax	189		651		346		721
Net income attributable to American National	$	51,048	$	171,052	$	449,197	$	161,153
Amounts available to American National common stockholders
Earnings per share
Basic	$	1.90	$	6.36	$	16.71	$	6.00
Diluted	1.90		6.36		16.71		5.99

Weighted average common shares outstanding	26,877,200		26,877,200		26,877,200		26,879,178
Weighted average common shares outstanding and dilutive potential common shares	26,884,582		26,884,758		26,884,700		26,887,874

See accompanying notes to the unaudited condensed consolidated financial statements.

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AMERICAN NATIONAL GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(In thousands)


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Net income	$	51,237	$	171,703	$	449,543	$	161,874
Other comprehensive income (loss), net of tax
Change in net unrealized gains (losses) on securities	( 46,717 )		28,573		( 103,585 )		89,946
Foreign currency transaction and translation adjustments	( 297 )		371		122		( 214 )
Defined benefit pension plan adjustment	2,322		1,851		8,452		5,456
Total other comprehensive income (loss), net of tax	( 44,692 )		30,795		( 95,011 )		95,188
Total comprehensive income	6,545		202,498		354,532		257,062
Less: Comprehensive income attributable to noncontrolling interest	189		651		346		721
Total comprehensive income attributable to American National	$	6,356	$	201,847	$	354,186	$	256,341

See accompanying notes to the unaudited condensed consolidated financial statements.

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AMERICAN NATIONAL GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)

(In thousands, except per share data)


	Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Noncontrolling Interest		Total Equity
Balance at January 1, 2021	$	269	$	47,683	$	222,170	$	6,188,148	$	7,297	$	6,465,567


Amortization of restricted stock	—		19		—		—		—		19

Other comprehensive loss	—		—		( 102,211 )		—		—		( 102,211 )
Net income attributable to American National	—		—		—		170,173		—		170,173
Cash dividends to common stockholders (declared per share of $ 0.82 )	—		—		—		( 22,048 )		—		( 22,048 )
Contributions	—		—		—		—		259		259
Distributions	—		—		—		—		( 380 )		( 380 )
Net income attributable to noncontrolling interest	—		—		—		—		100		100
Balance at March 31, 2021	$	269	$	47,702	$	119,959	$	6,336,273	$	7,276	$	6,511,479


Amortization of restricted stock	—		20		—		—		—		20

Other comprehensive income	—		—		51,892		—		—		51,892
Net income attributable to American National	—		—		—		227,976		—		227,976
Cash dividends to common stockholders (declared per share of $ 0.82 )	—		—		—		( 22,047 )		—		( 22,047 )
Contributions	—		—		—		—		—		—
Distributions	—		—		—		—		( 339 )		( 339 )
Net income attributable to noncontrolling interest	—		—		—		—		57		57
Balance at June 30, 2021	$	269	$	47,722	$	171,851	$	6,542,202	$	6,994	$	6,769,038




Amortization of restricted stock	—		20		—		—		—		20

Other comprehensive loss	—		—		( 44,692 )		—		—		( 44,692 )
Net income attributable to American National	—		—		—		51,048		—		51,048
Cash dividends to common stockholders (declared per share of $ 0.82 )	—		—		—		( 22,048 )		—		( 22,048 )
Contributions	—		—		—		—		64		64
Distributions	—		—		—		—		195		195
Net income attributable to noncontrolling interest	—		—		—		—		189		189
Balance at September 30, 2021	$	269	$	47,742	$	127,159	$	6,571,202	$	7,442	$	6,753,814

See accompanying notes to the unaudited condensed consolidated financial statements.

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AMERICAN NATIONAL GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)

(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 January 1, 2020	$	30,832	$	21,011	$	99,518	$	5,946,857	$	( 108,469 )	$	6,014	$	5,995,763


Amortization of restricted stock	—		20		—		—		—		—		20
Cumulative effect of accounting change	—		—		—		( 34,702 )		—		—		( 34,702 )
Other comprehensive loss	—		—		( 111,571 )		—		—		—		( 111,571 )
Net loss attributable to American National	—		—		—		( 220,444 )		—		—		( 220,444 )
Cash dividends to common stockholders (declared per share of $ 0.82 )	—		—		—		( 22,047 )		—		—		( 22,047 )
Contributions	—		—		—		—		—		546		546
Distributions	—		—		—		—		—		( 323 )		( 323 )
Net loss attributable to noncontrolling interest	—		—		—		—		—		( 153 )		( 153 )
Balance at March 31, 2020	$	30,832	$	21,031	$	( 12,053 )	$	5,669,664	$	( 108,469 )	$	6,084	$	5,607,089


Amortization of restricted stock	—		20		—		—		—		—		20
Cumulative effect of accounting change	—		—		—		1,199		—		—		1,199
Other comprehensive income	—		—		175,964		—		—		—		175,964
Net income attributable to American National	—		—		—		210,545		—		—		210,545
Cash dividends to common stockholders (declared per share of $ 0.82 )	—		—		—		( 22,047 )		—		—		( 22,047 )
Contributions	—		—		—		—		—		310		310
Distributions	—		—		—		—		—		( 362 )		( 362 )
Net income attributable to noncontrolling interest	—		—		—		—		—		223		223
Balance at June 30, 2020	$	30,832	$	21,051	$	163,911	$	5,859,361	$	( 108,469 )	$	6,255	$	5,972,941
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	—		20		—		—		—		—		20

Other comprehensive income	—		—		30,795		—		—		—		30,795
Net income attributable to American National	—		—		—		171,052		—		—		171,052
Cash dividends to common stockholders (declared per share of $ 0.82 )	—		—		—		( 22,046 )		—		—		( 22,046 )
Contributions	—		—		—		—		—		—		—
Distributions	—		—		—		—		—		( 599 )		( 599 )
Net income attributable to noncontrolling interest	—		—		—		—		—		651		651
Balance at September 30, 2020	$	269	$	47,689	$	194,706	$	5,903,843	$	—	$	6,307	$	6,152,814

See accompanying notes to the unaudited condensed consolidated financial statements.

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AMERICAN NATIONAL GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)


	Nine months ended September 30,
	2021		2020
OPERATING ACTIVITIES
Net income	$	449,543	$	161,874
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized investment gains	( 49,979 )		( 25,474 )

Increase (decrease) in investment credit loss	( 25,562 )		101,163
Accretion of premiums, discounts and loan origination fees	12,971		12,457
Net capitalized interest on policy loans and mortgage loans	( 24,130 )		( 22,596 )
Depreciation	38,211		39,389
Fair value of option securities	( 70,434 )		2,200
Fair value of equity securities	( 267,425 )		( 118,397 )
Interest credited to policyholders’ account balances	301,274		271,406
Charges to policyholders’ account balances	( 265,749 )		( 238,736 )
Deferred federal income tax expense	62,499		2,863
Income from equity method investments	( 111,307 )		( 19,114 )
Distributions from unconsolidated affiliates	89,625		45,233
Changes in:
Policyholder liabilities	252,913		187,393
Deferred policy acquisition costs	( 64,049 )		( 14,762 )
Reinsurance payables	( 29,397 )		( 66,074 )
Premiums due and other receivables	( 50,082 )		( 30,611 )
Prepaid reinsurance premiums	( 1,294 )		4,095
Accrued investment income	8,916		( 10,799 )
Current tax receivable	( 34,285 )		( 4,711 )
Liability for retirement benefits	11,025		( 8,404 )
Other, net	41,075		( 17,352 )
Net cash provided by operating activities	274,359		251,043
INVESTING ACTIVITIES
Proceeds from sale/maturity/prepayment of:
Held-to-maturity securities	965,803		1,167,417
Available-for-sale securities	920,882		803,665
Equity securities	51,159		79,623
Real estate and real estate partnerships	19,976		45,645
Mortgage loans	727,848		313,009
Policy loans	40,038		40,502

Other invested assets	170,386		98,975
Disposals of property and equipment	65		16
Distributions from real estate and real estate partnerships	92,815		224
Distributions from investment funds	84,997		38,966
Payment for the purchase/origination of:
Held-to-maturity securities	( 882,092 )		( 351,036 )
Available-for-sale securities	( 2,058,148 )		( 1,027,856 )
Equity securities	( 80,188 )		( 101,090 )
Real estate and real estate partnerships	( 8,328 )		( 12,232 )
Mortgage loans	( 450,916 )		( 466,472 )
Policy loans	( 14,974 )		( 17,196 )
Other invested assets	( 120,900 )		( 83,820 )
Additions to property and equipment	( 28,003 )		( 29,799 )
Contributions to real estate and real estate partnerships	( 89,200 )		( 56,578 )
Contributions to investment funds	( 401,467 )		( 147,170 )
Change in short-term investments	491,758		( 375,472 )
Change in collateral held for derivatives	( 8,946 )		( 43,816 )
Other, net	2,454		( 2,816 )
Net cash used in investing activities	( 574,981 )		( 127,311 )

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AMERICAN NATIONAL GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)

(In thousands)


	Nine months ended September 30,
	2021		2020
FINANCING ACTIVITIES
Policyholders’ account deposits	$	1,722,108	$	905,424
Policyholders’ account withdrawals	( 936,976 )		( 1,026,953 )
Proceeds from Federal Home Loan Bank borrowings	—		500,000
Repayment of Federal Home Loan Bank borrowings	( 250,000 )		—
Change in notes payable	( 3,325 )		( 3,209 )

Dividends to stockholders	( 66,143 )		( 66,140 )
Payments to noncontrolling interest	( 524 )		( 772 )
Net cash provided by financing activities	465,140		308,350
NET INCREASE IN CASH AND CASH EQUIVALENTS	164,518		432,082
Cash and cash equivalents at beginning of the period	339,947		452,001
Cash and cash equivalents at end of the period	$	504,465	$	884,083

Supplemental cash flow information:
Interest paid	$	328	$	512
Income taxes paid, net	82,911		30,800

See accompanying notes to the unaudited condensed consolidated financial statements.

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Nature of Operations

American National 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.

Note 2 – Summary of Significant Accounting Policies and Practices

The condensed consolidated financial statements and notes thereto have been prepared in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) and are reported in U.S. currency. American National consolidates entities that are wholly-owned and those in which American National owns less than 100 % but controls the voting rights, as well as variable interest entities in which American National is the primary beneficiary. Intercompany balances and transactions with consolidated entities have been eliminated. Investments in unconsolidated affiliates, which include real estate partnerships and investment funds, are accounted for using the equity method of accounting. Changes in prior period presentation were made to conform to the current period 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 three and nine months ended September 30, 2020, $ 17.0 million and $ 19.1 million were reclassified, with no impact to net income. We also reclassified the related asset balances in the condensed 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 interim condensed consolidated financial statements and notes should be read in conjunction with the annual consolidated financial statements and notes thereto included in American National’s Annual Report on Form 10-K as of and for the year ended December 31, 2020. The condensed consolidated results of operations for the interim periods should not be considered indicative of results to be expected for the full year.

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

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Note 3 – Recently Issued Accounting Pronouncements

Adoption of New Accounting Standards


Standard	Description	Effective Date and Method of Adoption	Impact on Financial Statements
ASU 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 Condensed Consolidated Financial Statements or Notes to the Condensed Consolidated Financial Statements.

Future Adoption of New Accounting Standards —The Financial Accounting Standards Board 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.	We are currently evaluating the impact of the amendment to the Company. Based on the nature of the standard, we expect the impact of adoption to be material to our Condensed Consolidated Financial Statements and Notes to the Condensed Consolidated Financial Statements.


ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting	The amendments in this 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 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 Condensed Consolidated Financial Statements or Notes to the Condensed Consolidated Financial Statements.

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Note 4 – Investment in Securities

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


	September 30, 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	$	12,320	$	—	$	( 157 )	$	—	$	12,163
U.S. states and political subdivisions	108,155		2,226		( 2,059 )		—		108,322
Foreign governments	14,403		240		( 110 )		—		14,533
Corporate debt securities	6,995,994		479,215		( 14,470 )		( 11,977 )		7,448,762
Residential mortgage-backed securities	54,319		3,395		( 448 )		( 506 )		56,760
Collateralized debt securities	106,102		1,697		( 299 )		( 1,009 )		106,491
Total bonds held-to-maturity	7,291,293		486,773		( 17,543 )		( 13,492 )		7,747,031
Fixed maturity, bonds available-for-sale
U.S. treasury and government	25,880		180		( 56 )		—		26,004
U.S. states and political subdivisions	1,029,345		53,553		( 2,394 )		( 16 )		1,080,488
Foreign governments	5,000		980		—		—		5,980
Corporate debt securities	6,905,556		341,990		( 24,882 )		( 3,569 )		7,219,095
Residential mortgage-backed securities	32,321		602		( 84 )		( 257 )		32,582
Collateralized debt securities	209,585		688		( 654 )		( 687 )		208,932
Total bonds available-for-sale	8,207,687		397,993		( 28,070 )		( 4,529 )		8,573,081
Total investments in fixed maturity	$	15,498,980	$	884,766	$	( 45,613 )	$	( 18,021 )	$	16,320,112


	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

Table of Contents

Note 4 – Investment in Securities – (Continued)

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


	September 30, 2021
	Bonds Held-to-Maturity				Bonds Available-for-Sale
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	730,763	$	742,347	$	441,452	$	446,036
Due after one year through five years	2,547,132		2,713,348		3,153,728		3,347,317
Due after five years through ten years	3,046,253		3,272,173		2,663,455		2,801,606
Due after ten years	967,145		1,019,163		1,949,052		1,978,122
Total	$	7,291,293	$	7,747,031	$	8,207,687	$	8,573,081

Actual maturities may 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):


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Proceeds from sales of fixed maturity, bonds available-for-sale	$	5,907	$	32,859	$	31,080	$	164,372
Gross realized gains	—		212		59		624
Gross realized losses	—		( 73 )		—		( 4,145 )

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 the nine months ended September 30, 2021. During the nine months ended September 30, 2020, bonds below investment grade with a carrying value of $ 88.7 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 $ 48.1 million and $ 47.7 million at September 30, 2021 and December 31, 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 $ 70.9 million and $ 111.0 million at September 30, 2021 and December 31, 2020, respectively.

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


	Nine months ended September 30,
	2021		2020
Bonds available-for-sale: change in unrealized gains (losses)	$	( 161,597 )	$	160,045
Adjustments for
Deferred policy acquisition costs	24,645		( 37,329 )
Participating policyholders’ interest	5,458		( 7,962 )
Deferred federal income tax benefit (expense)	27,909		( 24,808 )
Change in net unrealized gains (losses) on debt securities, net of tax	$	( 103,585 )	$	89,946

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


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Unrealized gains on equity securities	$	397	$	154,104	$	269,536	$	119,296
Net gains (losses) on equity securities sold	284		( 1,957 )		( 2,111 )		( 899 )
Net gains on equity securities	$	681	$	152,147	$	267,425	$	118,397

Table of Contents

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):


	September 30, 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	8	$	( 49 )	$	17,451	1	$	( 7 )	$	2,861	9	$	( 56 )	$	20,312
U.S. states and political subdivisions	15	( 1,888 )		68,227		1	( 506 )		4,752		16	( 2,394 )		72,979
Corporate debt securities	168	( 22,525 )		1,341,169		15	( 2,357 )		65,833		183	( 24,882 )		1,407,002
Residential mortgage-backed securities	2	( 81 )		13,468		2	( 3 )		528		4	( 84 )		13,996
Collateralized debt securities	22	( 602 )		158,176		2	( 52 )		4,455		24	( 654 )		162,631

Total	215	$	( 25,145 )	$	1,598,491	21	$	( 2,925 )	$	78,429	236	$	( 28,070 )	$	1,676,920


	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 Oil, Gas and Coal exploration, production, and refining sector.

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


	September 30, 2021		December 31, 2020
Consumer goods	16.8	%	19.3	%
Energy and utilities	5.6		5.2
Finance	24.5		21.6
Healthcare	14.0		15.0
Industrials	7.2		7.4
Information technology	26.7		27.1
Other	5.2		4.4
Total	100.0	%	100.0	%

Table of Contents

Note 4 – Investment in Securities – (Continued)

Allowance for Credit Losses

Held-to-Maturity Securities —Management measures expected credit losses on 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 condensed consolidated statement of operations as change in investment credit loss.

No accrued interest receivables were written off as of September 30, 2021.

Table of Contents

Note 4 – Investment in Securities – (Continued)

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	( 228 )		—		—		( 228 )
Disposition	125		—		—		125
Provision	( 4,215 )		( 2,004 )		( 90 )		( 6,309 )
Balance at March 31, 2021	$	( 11,793 )	$	( 6,519 )	$	( 542 )	$	( 18,854 )



Purchases	( 974 )		—		—		( 974 )
Disposition	104		551		—		655
Provision	( 2,289 )		4,244		16		1,971

Balance at June 30, 2021	$	( 14,952 )	$	( 1,724 )	$	( 526 )	$	( 17,202 )



Purchases	( 101 )		—		—		( 101 )
Disposition	194		—		—		194
Provision	2,882		715		20		3,617

Balance at September 30, 2021	$	( 11,977 )	$	( 1,009 )	$	( 506 )	$	( 13,492 )


	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	—		( 622 )		( 323 )		—		( 945 )
Disposition	—		6,901		106		134		7,141
Provision	1		( 6,117 )		199		—		( 5,917 )

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



Purchases	—		( 116 )		—		—		( 116 )
Disposition	—		200		—		—		200
Provision	( 5 )		( 1,565 )		454		3		( 1,113 )

Balance at June 30, 2020	$	—	$	( 19,882 )	$	( 2,532 )	$	—	$	( 22,414 )



Purchases	—		( 4 )		( 6 )		—		( 10 )
Disposition	—		1,607		—		—		1,607
Provision	—		( 231 )		( 408 )		( 35 )		( 674 )

Balance at September 30, 2020	$	—	$	( 18,510 )	$	( 2,946 )	$	( 35 )	$	( 21,491 )

Table of Contents

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

Balance at January 1, 2021	$	—	$	—	$	( 7,275 )	$	( 19 )	$	( 188 )	$	( 7,482 )


Allowance on securities that had an allowance recorded in a previous period	—		—		( 733 )		( 488 )		( 10 )		( 1,231 )
Allowance on securities where credit losses were not previously recorded	( 3 )		—		—		—		—		( 3 )

Balance at March 31, 2021	$	( 3 )	$	—	$	( 8,008 )	$	( 507 )	$	( 198 )	$	( 8,716 )

Increase in allowance related to purchases	—		—		( 981 )		( 192 )		—		( 1,173 )
Reduction in allowance related to disposition	—		—		4,039		182		—		4,221

Allowance on securities that had an allowance recorded in a previous period	3		—		1,181		87		( 5 )		1,266



Allowance on securities where credit losses were not previously recorded	—		( 8 )		( 720 )		( 26 )		( 2 )		( 756 )


Balance at June 30, 2021	$	—	$	( 8 )	$	( 4,489 )	$	( 456 )	$	( 205 )	$	( 5,158 )

Increase in allowance related to purchases	—		—		( 2,177 )		( 346 )		—		( 2,523 )
Reduction in allowance related to disposition	—		—		56		—		—		56
Allowance on securities that had an allowance recorded in a previous period	—		8		3,339		238		( 3 )		3,582
Allowance on securities where credit losses were not previously recorded	—		( 16 )		( 298 )		( 123 )		( 49 )		( 486 )





Balance at September 30, 2021	$	—	$	( 16 )	$	( 3,569 )	$	( 687 )	$	( 257 )	$	( 4,529 )


	Corporate Debt Securities		Collateralized Debt Securities		Residential Mortgage Backed Securities		Total

Balance at January 1, 2020	$	—	$	—	$	—	$	—
Allowance on securities that had an allowance recorded in a previous period	( 12,499 )		( 236 )		( 130 )		( 12,865 )
Balance at March 31, 2020	$	( 12,499 )	$	( 236 )	$	( 130 )	$	( 12,865 )

Increase in allowance related to purchases	( 73 )		—		—		( 73 )
Reduction in allowance related to disposition	7		—		3		10

Allowance on securities that had an allowance recorded in a previous period	10,017		155		( 83 )		10,089



Allowance on securities where credit losses were not previously recorded	( 1,276 )		—		—		( 1,276 )


Balance at June 30, 2020	$	( 3,824 )	$	( 81 )	$	( 210 )	$	( 4,115 )

Increase in allowance related to purchases	( 28 )		—		—		( 28 )
Reduction in allowance related to disposition	33		—		—		33

Allowance on securities that had an allowance recorded in a previous period	1,153		74		16		1,243



Allowance on securities where credit losses were not previously recorded	( 4,771 )		—		—		( 4,771 )


Balance at September 30, 2020	$	( 7,437 )	$	( 7 )	$	( 194 )	$	( 7,638 )

Table of Contents

Note 4 – Investment in Securities – (Continued)

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):


	September 30, 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	$	—	$	12,320	$	—	$	—	$	—	$	12,320
U.S. state and political subdivisions	14,867		52,852		9,193		25,853		5,390		108,155
Foreign governments	—		13,385		1,018		—		—		14,403
Corporate debt securities	31,259		401,106		3,240,129		3,230,894		92,606		6,995,994
Collateralized debt securities	—		—		67,866		33,339		4,897		106,102
Residential mortgage backed securities	—		53,031		—		—		1,288		54,319
Total	$	46,126	$	532,694	$	3,318,206	$	3,290,086	$	104,181	$	7,291,293


	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

Table of Contents

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):


	September 30, 2021				December 31, 2020
	Amount		Percentage		Amount		Percentage
East North Central	$	736,044	14.7	%	$	783,614	14.9	%
East South Central	112,150		2.3		146,052		2.8
Mountain	1,243,779		24.9		1,284,555		24.5
Pacific	797,586		15.9		806,426		15.4
South Atlantic	550,256		11.0		619,405		11.8
West South Central	1,247,386		24.9		1,313,848		25.1
Other	315,777		6.3		288,631		5.5
Total	$	5,002,978	100.0	%	$	5,242,531	100.0	%

As of September 30, 2021 and December 31, 2020, loans in foreclosure and loans foreclosed are as follows (in thousands, except number of loans):


	September 30, 2021			December 31, 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	—	$	—	2	$	8,603

* Borrower filed for bankruptcy after foreclosure proceedings had begun.

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		Current		Total
September 30, 2021											Amount		Percentage
Apartment	$	—	$	—	$	—	$	—	$	506,243	$	506,243	9.9	%
Hotel	—		—		—		—		923,268		923,268		18.1
Industrial	—		—		—		—		904,189		904,189		17.7
Office	—		—		—		—		1,412,399		1,412,399		27.6
Parking	—		—		—		—		362,168		362,168		7.1
Retail	—		—		—		—		740,439		740,439		14.5
Storage	—		—		—		—		139,186		139,186		2.7
Other	—		2,258		—		2,258		119,725		121,983		2.4
Total	$	—	$	2,258	$	—	$	2,258	$	5,107,617	$	5,109,875	100.0	%
Allowance for credit losses											( 106,897 )
Total, net of allowance											$	5,002,978
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

Table of Contents

Note 5 – Mortgage Loans – (Continued)

There were no unamortized purchase discounts as of September 30, 2021 and December 31, 2020. Total mortgage loans were net of unamortized origination fees of $ 24.5 million and $ 26.1 million at September 30, 2021 and December 31, 2020, respectively. No unearned income is included in these amounts.

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 restructured 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 restructures during the periods presented is as follows (in thousands, except number of loans):


	Nine months ended September 30,
	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	3	$	44,828	$	44,828	7	$	76,201	$	76,201
Retail	3	32,711		32,711		6	79,911		79,911
Industrial	—	—		—		2	11,473		11,473
Hotel	—	—		—		34	811,007		811,007
Parking	1	9,716		9,716		13	168,740		168,740
Storage	1	8,947		8,947		—	—		—
Other	—	—		—		5	119,738		119,738
Total	8	$	96,202	$	96,202	67	$	1,267,070	$	1,267,070

As of September 30, 2021, a total of 74 loans with a recorded investment of $ 1.4 billion were designated a troubled debt restructure. 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 the nine months ended September 30, 2021 is primarily attributable to improved economic conditions after lifting of COVID-19 related restrictions.

Table of Contents

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	( 885 )

Balance at March 31, 2021	$	( 126,588 )
Provision	17,630
Balance at June 30, 2021	$	( 108,958 )



Provision	2,061

Balance at September 30, 2021	$	( 106,897 )

	Commercial Mortgage Loans
Balance at January 1, 2020	$	( 19,160 )
Cumulative adjustment at January 1, 2020	( 11,216 )
Provision	( 29,069 )
Balance at March 31, 2020	$	( 59,445 )
Provision	( 52,035 )
Balance at June 30, 2020	$	( 111,480 )



Provision	( 1,436 )

Balance at September 30, 2020	$	( 112,916 )

The change in allowance for the nine months ended September 30, 2021 was primarily driven by a favorable response of the hospitality and retail industries to re-opening of the economy and resulting increases in travel and brick-and-mortar shopping.

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


	September 30, 2021				December 31, 2020
	Asset Balance		Allowance		Asset Balance		Allowance
Apartment	$	506,243	$	( 2,241 )	$	557,159	$	( 8,845 )
Hotel	923,268		( 43,365 )		913,995		( 45,596 )
Industrial	904,189		( 5,043 )		856,203		( 2,516 )
Office	1,412,399		( 30,022 )		1,556,231		( 33,373 )
Parking	362,168		( 17,018 )		364,287		( 18,178 )
Retail	740,439		( 6,823 )		791,677		( 10,856 )
Storage	139,186		( 610 )		165,561		( 2,509 )
Other	121,983		( 1,775 )		163,121		( 3,830 )
Total	$	5,109,875	$	( 106,897 )	$	5,368,234	$	( 125,703 )

Table of Contents

Note 5 – Mortgage Loans – (Continued)

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	$	1,697	$	69,866	$	254,562	$	22,166	$	120,436	$	37,516	$	506,243
Hotel	—		33,010		88,011		203,828		218,931		379,488		923,268
Industrial	125,914		269,948		153,789		113,858		38,406		202,274		904,189
Office	2,759		31,598		60,917		198,379		316,907		801,839		1,412,399
Parking	—		28,658		13,803		26,970		8,498		284,239		362,168
Retail	4,672		69,132		38,831		72,046		74,557		481,201		740,439
Storage	—		27,430		48,360		37,354		17,095		8,947		139,186
Other	24,466		—		21,656		30,046		1,650		44,165		121,983
Total	$	159,508	$	529,642	$	679,929	$	704,647	$	796,480	$	2,239,669	$	5,109,875
Allowance for credit losses													( 106,897 )
Total, net of allowance													$	5,002,978

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 September 30, 2021, no commercial loans were past due over 90 days or 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 September 30, 2021, we have included a $ 6.7 million liability in other liabilities on the condensed consolidated statements of financial position based on unfunded loan commitments of $ 839.5 million.

Note 6 - Real Estate and Other Investments

The carrying amount of investment real estate, net of accumulated depreciation, and real estate partnerships by property-type and geographic distribution are as follows (in thousands, except percentages):


	September 30, 2021				December 31, 2020
	Amount		Percentage		Amount		Percentage
Hotel	$	56,817	6.1	%	$	67,857	7.1	%
Industrial	130,546		14.1		132,757		13.8
Land	38,564		4.2		51,220		5.3
Office	281,120		30.4		299,500		31.2
Retail	272,665		29.4		268,588		28.0
Apartments	133,977		14.5		120,847		12.6
Other	12,465		1.3		19,803		2.0
Total	$	926,154	100.0	%	$	960,572	100.0	%

Table of Contents

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


	September 30, 2021				December 31, 2020
	Amount		Percentage		Amount		Percentage
East North Central	$	100,276	10.8	%	$	81,310	8.5	%
East South Central	60,771		6.6		65,302		6.8
Mountain	122,528		13.2		133,233		13.9
Pacific	113,520		12.3		127,421		13.3
South Atlantic	73,807		8.0		97,801		10.1
West South Central	445,499		48.1		434,722		45.3
Other	9,753		1.0		20,783		2.1
Total	$	926,154	100.0	%	$	960,572	100.0	%

As of September 30, 2021, no real estate investments met the criteria as held-for-sale.

American National regularly invests in real estate partnerships and joint ventures. American National frequently participates in the design of these joint venture or partnership entities with the sponsor, but in most cases, our involvement is limited to financing. Through analysis performed by American National, some of these partnerships and joint ventures have been determined to be variable interest entities (“VIEs”). In certain instances, in addition to an economic interest in the entity, American National holds the power to direct the most significant activities of the entity and is deemed the primary beneficiary or consolidator of the entity. The assets of the consolidated VIEs are restricted and must first be used to settle their liabilities. Creditors or beneficial interest holders of these VIEs have no recourse to the general credit of American National, as American National’s obligation is limited to the amount of its committed investment. American National has not provided financial or other support to the VIEs in the form of liquidity arrangements, guarantees, or other commitments to third-parties that may affect the fair value or risk of its variable interest in the VIEs in 2021 or 2020.

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


	September 30, 2021		December 31, 2020
Real estate and real estate partnerships	$	128,746	$	131,405
Investment funds	50,000		—
Short-term investments	500		500
Cash and cash equivalents	9,441		8,070
Premiums due and other receivables	2,929		3,484
Other assets	11,784		13,796
Total assets of consolidated VIEs	$	203,400	$	157,255
Notes payable	$	150,378	$	153,703
Other liabilities	7,003		8,490
Total liabilities of consolidated VIEs	$	157,381	$	162,193

The notes payable in the condensed consolidated statements of financial position pertain to the borrowings of the consolidated VIEs. The liability of American National relating to notes payable of the consolidated VIEs is limited to the amount of its direct or indirect investment in the respective ventures, which totaled $ 3.0 million at September 30, 2021 and December 31, 2020, respectively.

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


Interest rate	Maturity	September 30, 2021		December 31, 2020
LIBOR	2023	$	10,819	$	10,819
4 % fixed	2022	76,123		78,565
4.18 % fixed	2024	63,436		64,319
Total		$	150,378	$	153,703

Table of Contents

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

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


	September 30, 2021				December 31, 2020
	Carrying Amount		Maximum Exposure to Loss		Carrying Amount		Maximum Exposure to Loss
Real estate and real estate partnerships	$	349,007	$	349,007	$	368,588	$	368,588
Mortgage loans on real estate	715,410		715,410		722,917		722,917
Accrued investment income	3,557		3,557		4,980		4,980

American National’s equity in earnings 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 are 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 and other partnerships, of which substantially all are limited liability companies ("LLCs") or limited partnerships, was comprised of $ 814.5 million and $ 477.1 million at September 30, 2021 and December 31, 2020, respectively.

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):


Derivatives Not Designated as Hedging Instruments	Location in the Condensed Consolidated Statements of Financial Position	September 30, 2021					December 31, 2020
		Number of Instruments	Notional Amounts		Estimated Fair Value		Number of Instruments	Notional Amounts		Estimated Fair Value

Equity-indexed options	Other invested assets	454	$	3,357,400	$	229,690	455	$	2,867,600	$	242,201
Equity-indexed embedded derivative	Policyholders’ account balances	120,467	3,267,671		767,920		112,103	2,748,540		705,013


Derivatives Not Designated as Hedging Instruments	Location in the Condensed Consolidated Statements of Operations	Gains (Losses) Recognized in Income on Derivatives
		Three months ended September 30,				Nine months ended September 30,
		2021		2020		2021		2020
Equity-indexed options	Net investment income	$	1,365	$	38,738	$	70,434	$	( 2,200 )
Equity-indexed embedded derivative	Interest credited to policyholders’ account balances	9,607		( 44,792 )		( 45,542 )		( 17,702 )

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

Table of Contents

Note 7 – Derivative Instruments – (Continued)

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


		September 30, 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-	$	676	$	390	$	—	$	390	$	390	$	—	$	286
Barclays	Baa2/BBB	41,501		24,233		18,100		42,333		41,501		832		—

Credit Suisse	Baa1/BBB+	25,194		26,360		—		26,360		25,194		1,166		—
ING	Baa1/A-	12,171		2,100		10,300		12,400		12,171		229		—
Morgan Stanley	A1/BBB+	59,145		54,516		5,700		60,216		59,145		1,071		—
NATIXIS*	A1/A	25,731		26,170		—		26,170		25,731		439		—
Truist	A3/A-	32,235		21,890		11,000		32,890		32,235		655		—
Wells Fargo	A1/BBB+	33,037		24,180		9,900		34,080		33,037		1,043		—
Total		$	229,690	$	179,839	$	55,000	$	234,839	$	229,404	$	5,435	$	286


		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.

Table of Contents

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

Net investment income is shown below (in thousands):


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Bonds	$	132,725	$	138,743	$	392,838	$	426,624
Equity securities	8,316		7,905		24,116		23,671
Mortgage loans	60,722		61,561		199,910		181,334
Real estate and real estate partnerships	15,796		5,091		44,725		20,360
Investment funds	32,962		11,817		71,950		2,080
Equity-indexed options	1,365		38,738		70,434		( 2,200 )
Other invested assets	9,254		7,430		24,547		24,133
Total	$	261,140	$	271,285	$	828,520	$	676,002

Net investment income from equity method investments, comprised of real estate partnerships and investment funds was $ 46.4 million and $ 17.0 million for the three months ended September 30, 2021 and 2020 and $ 109.3 million and $ 19.1 million for the nine months ended September 30, 2021 and 2020, respectively.

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


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Bonds	$	22,939	$	6,117	$	42,106	$	15,547
Mortgage loans	—		—		( 768 )		—
Real estate and real estate partnerships	( 1,705 )		11,265		9,387		9,951
Other invested assets	( 1,096 )		5		( 746 )		( 24 )
Total	$	20,138	$	17,387	$	49,979	$	25,474

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


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Sales	$	( 1,209 )	$	11,417	$	11,716	$	7,799
Calls and maturities	23,081		5,986		41,657		19,131
Paydowns	( 142 )		( 7 )		390		( 61 )
Impairments	( 1,380 )		—		( 3,413 )		( 1,276 )

Other	( 212 )		( 9 )		( 371 )		( 119 )
Total	$	20,138	$	17,387	$	49,979	$	25,474

Table of Contents

Note 9 – Fair Value of Financial Instruments

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


	September 30, 2021				December 31, 2020
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets
Fixed maturity, bonds held-to-maturity	$	7,277,801	$	7,747,031	$	7,354,970	$	7,983,181
Fixed maturity, bonds available-for-sale	8,573,081		8,573,081		7,597,180		7,597,180
Equity securities	2,383,478		2,383,478		2,070,766		2,070,766
Equity-indexed options, included in other invested assets	229,690		229,690		242,201		242,201
Mortgage loans on real estate, net of allowance	5,002,978		5,241,982		5,242,531		5,451,152
Policy loans	364,960		364,960		373,014		373,014
Short-term investments	536,621		536,621		1,028,379		1,028,379
Separate account assets ($ 1,223,525 and $ 1,153,702 included in fair value hierarchy)	1,260,427		1,260,427		1,185,467		1,185,467
Separately managed accounts, included in other invested assets	97,157		97,157		64,424		64,424
Total financial assets	$	25,726,193	$	26,434,427	$	25,158,932	$	25,995,764
Financial liabilities
Investment contracts	$	10,794,070	$	10,794,070	$	10,101,764	$	10,101,764
Embedded derivative liability for equity-indexed contracts	767,920		767,920		705,013		705,013
Notes payable	150,378		150,378		153,703		153,703
Federal Home Loan Bank advance	—		—		250,000		250,227
Separate account liabilities ($ 1,223,525 and $ 1,153,702 included in fair value hierarchy)	1,260,427		1,260,427		1,185,467		1,185,467
Total financial liabilities	$	12,972,795	$	12,972,795	$	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.

Table of Contents

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.

Table of Contents

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 condensed 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 nine months ended September 30, 2021 and 2020, respectively.

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 September 30, 2021 and December 31, 2020, the one year implied volatility used to estimate embedded derivative value was 20.9 % 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
	September 30, 2021		December 31, 2020		Unobservable Input	September 30, 2021	December 31, 2020
Security type
Embedded derivative
Indexed Annuities	$	741.5	$	670.8	Lapse Rate	1 - 50 %	1 - 50 %
					Mortality Multiplier	100 %	100 %
					Equity Volatility	14 - 67 %	16 - 69 %
Indexed Life	26.4		34.2		Equity Volatility	14 - 67 %	16 - 69 %

Table of Contents

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

Quantitative Disclosures

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


	Assets and Liabilities Carried at Fair Value by Hierarchy Level at September 30, 2021
	Total Fair Value		Level 1		Level 2		Level 3
Financial assets
Fixed maturity, bonds available-for-sale
U.S. treasury and government	$	26,004	$	26,004	$	—	$	—
U.S. states and political subdivisions	1,080,488		—		1,080,488		—
Foreign governments	5,980		—		5,980		—
Corporate debt securities	7,219,095		—		7,050,921		168,174
Residential mortgage-backed securities	32,582		—		32,582		—
Collateralized debt securities	208,932		—		208,932		—
Total bonds available-for-sale	8,573,081		26,004		8,378,903		168,174
Equity securities
Common stock	2,337,313		2,335,668		—		1,645
Preferred stock	46,165		13,136		—		33,029
Total equity securities	2,383,478		2,348,804		—		34,674
Options	229,690		—		—		229,690
Short-term investments	536,621		—		536,621		—
Separate account assets	1,223,525		351,433		872,092		—
Separately managed accounts	97,157		—		—		97,157
Total financial assets	$	13,043,552	$	2,726,241	$	9,787,616	$	529,695
Financial liabilities
Embedded derivative for equity-indexed contracts	$	767,920	$	—	$	—	$	767,920
Notes payable	150,378		—		—		150,378
Separate account liabilities	1,223,525		351,433		872,092		—
Total financial liabilities	$	2,141,823	$	351,433	$	872,092	$	918,298


	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

Table of Contents

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

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


	Level 3
	Three months ended September 30, 2021								Nine months ended September 30, 2021
	Assets						Liability		Assets						Liability
	Investment Securities		Equity-Indexed Options		Separately Managed Accounts		Embedded Derivative		Investment Securities		Equity-Indexed Options		Separately Managed Accounts		Embedded Derivative
Beginning balance	$	137,790	$	260,053	$	77,904	$	776,430	$	111,505	$	242,201	$	64,424	$	705,013


Net gain for derivatives included in net investment income	—		1,365		—		—		—		70,434		—		—
Net change included in interest credited	—		—		—		( 9,607 )		—		—		—		45,542
Net fair value change included in other comprehensive income	541		—		( 195 )		—		2,422		—		427		—
Purchases, sales and settlements or maturities
Purchases	72,443		23,487		23,250		—		118,623		69,917		45,961		—
Sales	( 5,907 )		—		( 3,802 )		—		( 29,162 )		—		( 13,655 )		—
Settlements or maturities	—		( 55,215 )		—		—		—		( 152,862 )		—		—
Premiums less benefits	—		—		—		1,097		—		—		—		17,365

Gross transfers into Level 3	—		—		—		—		1,479		—		—		—
Gross transfers out of Level 3	( 2,019 )		—		—		—		( 2,019 )		—		—		—

Ending balance at September 30, 2021	$	202,848	$	229,690	$	97,157	$	767,920	$	202,848	$	229,690	$	97,157	$	767,920


	Level 3
	Three months ended September 30, 2020								Nine months ended September 30, 2020
	Assets						Liability		Assets						Liability
	Investment Securities		Equity-Indexed Options		Separately Managed Accounts		Embedded Derivative		Investment Securities		Equity-Indexed Options		Separately Managed Accounts		Embedded Derivative
Beginning balance	$	104,138	$	191,486	$	51,537	$	675,970	$	45,307	$	256,005	$	50,503	$	731,552


Net gain (loss) for derivatives included in net investment income	—		38,738		—		—		—		( 2,200 )		—		—
Net change included in interest credited	—		—		—		44,792		—		—		—		17,702
Net fair value change included in other comprehensive income	6		—		3,663		—		4		—		( 397 )		—
Purchases, sales and settlements or maturities
Purchases	15,222		19,257		7,421		—		124,390		57,695		16,463		—
Sales	( 380 )		—		( 569 )		—		( 50,715 )		—		( 4,517 )		—
Settlements or maturities	—		( 35,699 )		—		—		—		( 97,718 )		—		—
Premiums less benefits	—		—		—		( 26,982 )		—		—		—		( 55,474 )



Ending balance at September 30, 2020	$	118,986	$	213,782	$	62,052	$	693,780	$	118,986	$	213,782	$	62,052	$	693,780

Within the net gain (loss) for derivatives included in net investment income were unrealized losses of $ 20.7 million and unrealized gains of $ 38.8 million, relating to assets still held at September 30, 2021 and 2020, respectively.

There were no transfers between Level 1 and Level 2 fair value hierarchies during the periods presented. 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 the three months ended September 30, 2021 were the result of securities not being priced by the third-party service at the end of the period.

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.

Table of Contents

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

The following summarizes the fair value (in thousands), valuation techniques and unobservable inputs of the Level 3 fair value measurements:

Fair Value at September 30, 2021

Valuation Technique

Unobservable Input

Range/Weighted Average

Security type

Investment securities

Common stock

1,645

Guideline public company method (1)

Recurring Revenue Multiple (2)

7.75 x

Option pricing method

LTM EBITDA Multiple (3)

20 x

Preferred stock

33,029

Guideline public company method

LTM Revenue Multiple (4)

5.50 x

Priced at cost

LTM EBITDA Multiple

5.30 x

Term (years)

2.08

Volatility

55.00

Bonds

168,174

Priced at cost

Coupon rate

2.65 - 9.75 %

Separately managed accounts

97,157

Discounted cash flows (yield analysis)

Discount rate

6.78 - 15.53 %

Market transaction

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

Preferred stock

628

Option pricing method

Term (years)

2.83

Volatility

45.00

Market transaction

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

(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) LTM EBITDA multiple valuation metric shows earnings before interest, taxes, depreciation and amortization adjustments for the past 12 month period.

(4) LTM EBITDA multiple valuation metric shows revenue for the past 12 month period.

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.

Table of Contents

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 value 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.

Table of Contents

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

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


	September 30, 2021
	FV Hierarchy Level	Carrying Amount		Fair Value
Financial assets
Fixed maturity, bonds held-to-maturity
U.S. Treasury and government	Level 1	$	12,320	$	12,163
U.S. states and political subdivisions	Level 2	108,155		108,322
Foreign governments	Level 2	14,403		14,533
Corporate debt securities	Level 2	6,984,017		7,448,762
Residential mortgage-backed securities	Level 2	53,813		56,760
Collateralized debt securities	Level 2	105,093		106,491
Total fixed maturity, bonds held-to-maturity		7,277,801		7,747,031
Mortgage loans on real estate, net of allowance	Level 3	5,002,978		5,241,982
Policy loans	Level 3	364,960		364,960

Total financial assets		$	12,645,739	$	13,353,973
Financial liabilities
Investment contracts	Level 3	$	10,794,070	$	10,794,070
Notes payable	Level 3	150,378		150,378

Total financial liabilities		$	10,944,448	$	10,944,448


	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

Table of Contents

Note 10 – Deferred Policy Acquisition Costs

Deferred policy acquisition costs (“DAC”) are shown below (in thousands):


	Life		Annuity		Health		Property & Casualty		Total
Beginning balance at January 1, 2021	$	896,208	$	309,056	$	32,885	$	122,062	$	1,360,211
Additions	122,234		78,775		9,211		275,071		485,291
Amortization	( 80,995 )		( 65,037 )		( 11,907 )		( 263,303 )		( 421,242 )
Effect of change in unrealized gains on available-for-sale debt securities	6,939		17,706		—		—		24,645
Net change	48,178		31,444		( 2,696 )		11,768		88,694
Ending balance at September 30, 2021	$	944,386	$	340,500	$	30,189	$	133,830	$	1,448,905

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

Note 11 – Liability for Unpaid Claims and Claim Adjustment Expenses

The liability for unpaid claims and claim adjustment expenses (“claims”) for health and property and casualty insurance is included in “Policy and contract claims” in the condensed consolidated statements of financial position and is the amount estimated for incurred but not reported (“IBNR”) claims and claims that have been reported but not settled. The liability for unpaid claims is estimated based upon American National’s historical experience and actuarial assumptions that consider the effects of current developments, anticipated trends and risk management programs, less anticipated salvage and subrogation. The effects of the changes are included in the condensed consolidated results of operations in the period in which the changes occur. The time value of money is not taken into account for the purposes of calculating the liability for unpaid claims. There have been no significant changes in methodologies or assumptions used to calculate the liability for unpaid claims and claim adjustment expenses.

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


	Nine months ended September 30,
	2021		2020
Unpaid claims balance, beginning	$	1,354,213	$	1,322,837
Less: Reinsurance recoverables	243,084		246,447
Net beginning balance	1,111,129		1,076,390
Incurred related to
Current	960,748		904,890
Prior years	( 65,493 )		( 53,090 )
Total incurred claims	895,255		851,800
Paid claims related to
Current	512,515		495,325
Prior years	335,065		334,054
Total paid claims	847,580		829,379
Net balance	1,158,804		1,098,811
Plus: Reinsurance recoverables	277,109		286,188
Unpaid claims balance, ending	$	1,435,913	$	1,384,999

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 $ 65.5 million during the first nine months of 2021 and decreased by $ 53.1 million during the same period in 2020. The favorable development in 2021 was a reflection of lower-than-anticipated settlement 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-than-anticipated settlement of losses in the private passenger automobile, agribusiness, and workers compensation 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 September 30, 2021 and December 31, 2020 was $ 18.3 million and $ 20.5 million, respectively.

Table of Contents

Note 12 – Federal Income Taxes

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


	Three months ended September 30,								Nine months ended September 30,
	2021				2020				2021				2020
	Amount		Rate		Amount		Rate		Amount		Rate		Amount		Rate


Total expected income tax expense at the statutory rate	$	13,048	21.0	%	$	45,165	21.0	%	$	117,616	21.0	%	$	40,917	21.0	%
Tax-exempt investment income	( 1,182 )		( 1.9 )		( 1,062 )		( 0.5 )		( 3,465 )		( 0.6 )		( 3,149 )		( 1.6 )

Dividend exclusion	( 1,127 )		( 1.8 )		10		—		( 2,719 )		( 0.5 )		( 2,295 )		( 1.2 )
Tax credits, net	( 782 )		( 1.3 )		( 2,127 )		( 1.0 )		( 3,747 )		( 0.7 )		( 6,056 )		( 3.1 )
Low income housing tax credit expense	955		1.5		997		0.5		3,843		0.7		3,753		1.9
Change in valuation allowance	580		0.9		11		—		613		0.1		134		0.1


Other items, net	318		0.6		918		0.4		1,169		0.2		1,137		0.6


Total	$	11,810	19.0	%	$	43,912	20.4	%	$	113,310	20.2	%	$	34,441	17.7	%

As of September 30, 2021, American National had no m aterial net operating loss or tax credit carryforwards.

American National’s federal income tax returns for tax years 2016 and 2018 to 2020 are subject to examination by the Internal Revenue Service. In the opinion of management, all prior year deficiencies have been paid or adequate provisions have been made for any tax deficiencies that may be upheld.

As of September 30, 2021, American National had no provision for uncertain tax positions and no provis ion for penalties or interest. In addition, management does not b elieve there are any uncertain tax benefits that could be recognized within the next twelve months that would impact American National’s effective tax rate.

Note 13 – Accumulated Other Comprehensive Income (Loss)

The components of and changes in the accumulated other comprehensive income (“AOCI”), and the related tax effects, are shown below (in thousands):


	Net Unrealized Gains (Losses) on Securities		Defined Benefit Pension Plan Adjustments		Foreign Currency Adjustments		Accumulated Other Comprehensive Income (Loss)
Beginning balance at January 1, 2021	$	292,166	$	( 67,130 )	$	( 2,866 )	$	222,170
Amounts reclassified from AOCI (net of tax benefit $ 6,493 and expense $ 2,247 )	( 24,424 )		8,452		—		( 15,972 )
Unrealized holding losses arising during the period (net of tax benefit $ 27,364 )	( 102,943 )		—		—		( 102,943 )
Unrealized adjustment to DAC (net of tax expense $ 5,175 )	19,470		—		—		19,470
Unrealized losses on investments attributable to participating policyholders’ interest (net of tax expense $ 1,146 )	4,312		—		—		4,312
Foreign currency adjustm ent (net of tax expense $ 32 )	—		—		122		122
Ending balance at September 30, 2021	$	188,581	$	( 58,678 )	$	( 2,744 )	$	127,159

	Net Unrealized Gains (Losses) on Securities		Defined Benefit Pension Plan Adjustments		Foreign Currency Adjustments		Accumulated Other Comprehensive Income (Loss)
Beginning balance at January 1, 2020	$	157,851	$	( 55,232 )	$	( 3,101 )	$	99,518
Amounts reclassified from AOCI (net of tax benefit $ 1,179 and expense $ 1,450 )	( 4,434 )		5,456		—		1,022
Unrealized holding gains arising during the period (net of tax expense $ 34,600 )	130,160		—		—		130,160
Unrealized adjustment to DAC (net of tax benefit $ 7,839 )	( 29,490 )		—		—		( 29,490 )
Unrealized gains on investments attributable to participating policyholders’ interest (net of tax benefit $ 1,672 )	( 6,290 )		—		—		( 6,290 )
Foreign currency adjustment (net of tax benefit $ 57 )	—		—		( 214 )		( 214 )

Ending balance at September 30, 2020	$	247,797	$	( 49,776 )	$	( 3,315 )	$	194,706

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Note 14 – Stockholders’ Equity and Noncontrolling Interests

ANAT has one class of common stock with a par value $ 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:


	September 30, 2021	December 31, 2020
Common stock
Shares issued	26,887,200	26,887,200


Restricted shares	( 10,000 )	( 10,000 )
Unrestricted outstanding shares	26,877,200	26,877,200

Stock-based Compensation

American National has made grants of Stock Appreciation Rights (“SAR”), Restricted Stock (“RS”) Awards, and Restricted Stock Units (“RSU”), pursuant to a stock-based compensation plan. The term for granting additional awards under such plan expired in 2019. Pursuant to the plan, grants were made to certain officers meeting established performance objectives, and grants were made to directors as compensation and to align their interests with those of other shareholders. In addition, American National has made grants to directors and advisory directors of RSUs that are cash-settled only, with no provision for conversion to stock. During the second quarter of 2021, 10,197 of such cash-settled RSUs were granted and remain outstanding at September 30, 2021 as shown in the table below.

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


	RS Shares		RSUs
		Shares	Weighted-Average Grant Date Fair Value		Units	Weighted-Average Grant Date Fair Value
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 September 30, 2021		10,000	$	80.05	10,197	$	113.35


	SAR		RS Shares		RSUs
Weighted-average contractual remaining life (in years)	0.00		1.42		0.58
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)
Three months ended September 30, 2021	$	—	$	20,000	$	464,000
Three months ended September 30, 2020	—		20,000		360,000
Nine months ended September 30, 2021	$	—	$	60,000	$	1,815,000
Nine months ended September 30, 2020	( 1,000 )		60,000		176,000
Fair value of liability award
September 30, 2021	$	—	N/A		$	1,928,000
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 vested 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.

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

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, 2020, 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. RSUs may only be settled in cash.


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Weighted average shares outstanding	26,877,200		26,877,200		26,877,200		26,879,178
Incremental shares from RS awards	7,382		7,558		7,500		8,696
Total shares for diluted calculations	26,884,582		26,884,758		26,884,700		26,887,874
Net income attributable to American National (in thousands)	$	51,048	$	171,052	$	449,197	$	161,153
Basic earnings per share	$	1.90	$	6.36	$	16.71	$	6.00
Diluted earnings per share	$	1.90	$	6.36	$	16.71	$	5.99

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 September 30, 2021 and December 31, 2020, ANICO's statutory capital and surplus was $ 3.7 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 September 30, 2021 and December 31, 2020, above 200 % of the company action level, except for ANPAC Louisiana Insurance Company ("ANPLA"). At September 30, 2021 and December 31, 2020, ANPLA's statutory capital and surplus was $ 42.1 million and $ 68.5 million respectively, which resulted in an RBC level of 119 % and 194 % of the company action level. This decrease in RBC of ANPLA is primarily driven by an increase in homeowners catastrophe losses impacting the operating results in 2021 and 2020. We are actively managing our homeowners exposure of ANPLA, will continue to monitor the surplus levels and will be addressing rate adequacy through future planned underwriting and rate actions.

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.

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

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 $ 67.0 million a nd $ 75.3 million at September 30, 2021 and December 31, 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):


	September 30, 2021		December 31, 2020
Statutory capital and surplus
Life insurance entities	$	2,189,438	$	2,188,808
Property and casualty insurance entities	1,567,841		1,463,179


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Statutory net income (loss)
Life insurance entities	$	( 16,116 )	$	( 11,638 )	$	( 67,290 )	$	13,036
Property and casualty insurance entities	10,825		33,816		67,976		69,094

Dividends

Dividends are paid on a quarterly basis. We paid a quarterly dividend of $ 0.82 per share for each quarter during the nine months ended September 30, 2021 and September 30, 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 income from operations, 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 $ 363.9 million during 2021 and subject to the terms and conditions of the Merger Agreement with Brookfield Reinsurance.

Noncontrolling Interest

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 condensed consolidated financial statements of American National. Policyholder interests in the financial position of County Mutual are reflected as noncontrolling interest $ 6.8 million at September 30, 2021 and December 31, 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 condensed consolidated financial statements. The interests of the other partners in the consolidated joint ventures are shown as a noncontrolling interest of $ 0.6 million and a noncontrolling deficit of $ 0.9 million at September 30, 2021 and December 31, 2020, respectively.

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Note 15 – Segment Information

Management organizes the business into five operating segments:

• Life —consists of whole, term, universal, indexed and variable life insurance. Products are primarily sold through career, multiple-line, and independent agents as well as direct marketing channels.

• Annuity —consists of fixed, indexed, and variable annuity products. Products are primarily sold through independent agents, brokers, and financial institutions, along with multiple-line and career agents.

• Health —consists of Medicare Supplement, stop-loss, other supplemental health products and credit disability insurance. Products are typically distributed through independent agents and managing general underwriters ("MGU").

• 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.

All revenues and expenses specifically attributable to policy transactions are recorded directly to the appropriate operating segment. Revenues and expenses not specifically attributable to policy transactions are allocated to each segment as follows:

• Recurring income from bonds and mortgage loans is allocated based on the assets allocated to each line of business at the average yield available from these assets.

• Net investment income from all other assets is allocated to the insurance segments in accordance with the amount of capital allocated to each segment, with the remainder recorded in the Corporate and Other segment.

• Expenses are charged to segments through direct identification and allocations based upon various factors.

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Note 15 – Segment Information – (Continued)

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


	Three months ended September 30, 2021

	Life		Annuity		Health		Property & Casualty		Corporate & Other		Total
PREMIUMS AND OTHER REVENUES
Premiums	$	104,802	$	18,698	$	36,201	$	426,887	$	—	$	586,588
Other policy revenues	83,331		5,356		—		—		—		88,687
Net investment income	63,379		132,236		1,941		15,929		47,655		261,140
Net realized investment gains	—		—		—		—		20,138		20,138

Decrease in investment credit loss	—		—		—		—		5,969		5,969
Net gains on equity securities	—		—		—		—		681		681
Other income	431		972		6,045		3,863		715		12,026
Total premiums and other revenues	251,943		157,262		44,187		446,679		75,158		975,229
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits	161,633		29,222		—		—		—		190,855
Claims incurred	—		—		23,935		299,956		—		323,891
Interest credited to policyholders’ account balances	10,180		72,071		—		—		—		82,251
Commissions for acquiring and servicing policies	50,461		24,865		6,010		89,883		—		171,219
Other operating expenses	51,114		14,653		11,294		53,364		21,546		151,971
Change in deferred policy acquisition costs	( 13,311 )		8,982		311		( 3,070 )		—		( 7,088 )
Total benefits, losses and expenses	260,077		149,793		41,550		440,133		21,546		913,099
Income (loss) before federal income tax and other items	$	( 8,134 )	$	7,469	$	2,637	$	6,546	$	53,612	$	62,130


	Three months ended September 30, 2020

	Life		Annuity		Health		Property & Casualty		Corporate & Other		Total
PREMIUMS AND OTHER REVENUES
Premiums	$	101,182	$	27,960	$	40,934	$	391,388	$	—	$	561,464
Other policy revenues	75,317		4,027		—		—		—		79,344
Net investment income	69,235		163,125		2,033		16,049		20,843		271,285
Net realized investment gains	—		—		—		—		17,387		17,387

Increase in investment credit loss	—		—		—		—		( 4,175 )		( 4,175 )
Net gains on equity securities	—		—		—		—		152,147		152,147
Other income	358		733		4,971		3,079		542		9,683
Total premiums and other revenues	246,092		195,845		47,938		410,516		186,744		1,087,135
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits	153,957		46,424		—		—		—		200,381
Claims incurred	—		—		27,933		258,412		—		286,345
Interest credited to policyholders’ account balances	24,522		104,424		—		—		—		128,946
Commissions for acquiring and servicing policies	41,974		16,119		7,608		72,664		—		138,365
Other operating expenses	45,080		12,115		10,013		48,576		10,629		126,413
Change in deferred policy acquisition costs	( 15,499 )		8,555		( 542 )		( 901 )		—		( 8,387 )
Total benefits, losses and expenses	250,034		187,637		45,012		378,751		10,629		872,063
Income (loss) before federal income tax and other items	$	( 3,942 )	$	8,208	$	2,926	$	31,765	$	176,115	$	215,072

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Note 15 – Segment Information – (Continued)



	Nine months ended September 30, 2021

	Life		Annuity		Health		Property & Casualty		Corporate & Other		Total
PREMIUMS AND OTHER REVENUES
Premiums	$	306,365	$	63,436	$	108,914	$	1,235,778	$	—	$	1,714,493
Other policy revenues	248,366		17,383		—		—		—		265,749
Net investment income	203,401		449,456		6,028		47,167		122,468		828,520
Net realized investment gains	—		—		—		—		49,979		49,979
Decrease in investment credit loss	—		—		—		—		25,562		25,562
Net gains on equity securities	—		—		—		—		267,425		267,425
Other income	1,311		2,760		16,032		10,138		2,572		32,813
Total premiums and other revenues	759,443		533,035		130,974		1,293,083		468,006		3,184,541
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits	447,309		116,662		—		—		—		563,971
Claims incurred	—		—		74,376		824,697		—		899,073
Interest credited to policyholders’ account balances	53,276		247,998		—		—		—		301,274
Commissions for acquiring and servicing policies	142,278		77,833		18,561		250,145		—		488,817
Other operating expenses	147,381		39,718		31,769		157,926		58,586		435,380
Change in deferred policy acquisition costs	( 41,239 )		( 13,738 )		2,696		( 11,768 )		—		( 64,049 )
Total benefits, losses and expenses	749,005		468,473		127,402		1,221,000		58,586		2,624,466
Income before federal income tax and other items	$	10,438	$	64,562	$	3,572	$	72,083	$	409,420	$	560,075



	Nine months ended September 30, 2020

	Life		Annuity		Health		Property & Casualty		Corporate & Other		Total
PREMIUMS AND OTHER REVENUES
Premiums	$	282,368	$	69,413	$	126,965	$	1,152,749	$	—	$	1,631,495
Other policy revenues	227,083		11,653		—		—		—		238,736
Net investment income	188,455		394,508		6,480		48,171		38,388		676,002
Net realized investment gains	—		—		—		—		25,474		25,474
Increase in investment credit loss	—		—		—		—		( 101,163 )		( 101,163 )
Net gains on equity securities	—		—		—		—		118,397		118,397
Other income	1,534		2,166		15,001		9,656		2,795		31,152
Total premiums and other revenues	699,440		477,740		148,446		1,210,576		83,891		2,620,093
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits	389,364		126,209		—		—		—		515,573
Claims incurred	—		—		89,544		768,682		—		858,226
Interest credited to policyholders’ account balances	47,820		223,586		—		—		—		271,406
Commissions for acquiring and servicing policies	122,728		38,024		22,792		225,746		—		409,290
Other operating expenses	137,065		35,737		30,118		151,660		30,936		385,516
Change in deferred policy acquisition costs	( 34,872 )		28,147		( 582 )		( 7,455 )		—		( 14,762 )
Total benefits, losses and expenses	662,105		451,703		141,872		1,138,633		30,936		2,425,249
Income before federal income tax and other items	$	37,335	$	26,037	$	6,574	$	71,943	$	52,955	$	194,844

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Note 16 – Commitments and Contingencies

Commitments

American National and its subsidiaries lease insurance sales office space, technological equipment, and automobiles. The remaining long-term lease commitments at September 30, 2021 were approximately $ 7.0 million.

American National had aggregate commitments at September 30, 2021 to purchase, expand or improve real estate, to fund fixed interest rate mortgage loans, and to purchase other invested assets of $ 2.1 billion of which $ 708.5 million is expected to be funded in 2021 with the remainder funded in 2022 and beyond.

American National had outstanding letters of credit in the amount of $ 3.5 million as of September 30, 2021 and December 31, 2020.

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 condensed consolidated statements of financial position. Through its membership, the Company has access to the FHLB’s financial services including advances that provide an attractive funding source for short-term borrowing and for access to other funding agreements. As of September 30, 2021, certain municipal bonds and collateralized mortgage obligations with a fair value of approximately $ 32.1 million and commercial mortgage loans of approximately $ 1.4 billion were on deposit with the FHLB as collateral for borrowing. As of September 30, 2021, the collateral provided borrowing capacity of approximately $ 990.6 million. The deposited securities and commercial mortgage loans are included in the Company’s condensed consolidated statements of financial position within fixed maturity securities and mortgage loans on real estate, net of allowance, respectively.

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 September 30, 2021, was approximately $ 121.4 million, while the total cash value of the related life insurance policies was approximately $ 142.1 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. Refer to Part I, Item 2, MD&A, Introductory Note Regarding Pending Merger for more information.

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Note 16 – 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 condensed consolidated financial position, liquidity or results of operations; however, assessing the eventual outcome of litigation necessarily involves forward-looking speculation as to judgments to be made by judges, juries and appellate courts in the future.

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

Note 17 – Related Party Transactions

American National has entered into recurring transactions and agreements with certain related parties. These include mortgage loans, management contracts, agency commission contracts, marketing agreements, health insurance contracts, and legal services. The impact on the condensed consolidated financial statements of significant related party transactions is shown below (in thousands):


		Dollar Amount of Transactions
	Financial Statement Line Impacted	Three months ended September 30,				Nine months ended September 30,				Amount due from American National
Related Party		2021		2020		2021		2020		September 30, 2021		December 31, 2020


Greer, Herz & Adams, LLP	Other operating expenses	$	3,184	$	3,033	$	10,276	$	10,127	$	( 496 )	$	( 441 )

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

The following pages provide management’s discussion and analysis (“MD&A”) of financial condition and results of operations for the three and nine months ended September 30, 2021 and 2020 of American National Group, Inc. and its subsidiaries (referred to in this document as “we,” “our,” “us,” or the “Company”). This information should be read in conjunction with our condensed consolidated financial statements included in Item 1, Financial Statements, of this Form 10-Q.

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”). 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.

On the terms and subject to the conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), 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. On the terms and subject to the conditions of the Merger Agreement, at the Effective Time, each outstanding and unvested restricted share award and restricted stock unit award will vest and be converted into the right to receive a cash payment equal to the Merger Consideration multiplied by the total number of shares of common stock subject to such award prior to the Effective Time.

Closing Conditions. The completion of the Merger is subject to satisfaction or waiver of certain closing conditions, including: (i) there being no law or injunction prohibiting consummation of the Merger; (ii) subject to specified materiality standards, the accuracy of the representations and warranties of the other party; and (iii) compliance by the other party in all material respects with its covenants. Brookfield Reinsurance’s and Merger Sub’s obligations are also conditioned upon the absence of a material adverse effect on the Company and the absence of any burdensome condition (as defined in the Merger Agreement) imposed by any regulators as part of the regulatory approval process.

The completion of the Merger is also subject to antitrust clearance (or termination of the applicable waiting period) from the U.S. Department of Justice or Federal Trade Commission. On August 27, 2021, the Company and Brookfield Reinsurance filed the required notifications for antitrust clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR Act"). The waiting period under the HSR Act expired on September 27, 2021.

Financing. Brookfield Reinsurance has received an equity commitment letter from Brookfield Asset Management Inc., the aggregate proceeds of which will provide Brookfield Reinsurance with the funds needed to consummate the Merger, including to pay the aggregate Merger Consideration pursuant to the Merger Agreement. The equity commitment will be reduced by the amount of any debt actually funded at closing if and to the extent that such debt financing is used to fund the payment of Merger Consideration. The completion of the Merger is not conditioned on receipt of financing by Brookfield Reinsurance.

Stockholder Approval. The Merger Agreement has already received the requisite stockholder approval required under Delaware law. Under the Company’s certificate of incorporation, stockholders are permitted to take action by majority written consent in lieu of a stockholder meeting. Under the Merger Agreement, the Company agreed to take all actions necessary, immediately after the execution of the Merger Agreement, to seek and obtain stockholder written consents from certain stockholders holding a majority of the outstanding shares of our common stock. These stockholder written consents, representing a majority of the outstanding shares of our common stock, were timely delivered to the Company. No further approval of the stockholders of the Company is required to adopt and approve the Merger Agreement. As a result, after those stockholder consents were delivered, the Company's board of directors no longer had the right to consider unsolicited competing acquisition proposals from third parties or to exercise a "fiduciary out" and no such third party proposal has been received.

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

Mailing of Information Statement and Appraisal Rights. On September 17, 2021, the Company began mailing the definitive information statement and appraisal rights notice to the Company's stockholders, and that document is available in the EDGAR system on the SEC's website at www.sec.gov. As disclosed in the definitive information statement, any stockholder who wished to demand appraisal rights for its shares was required to deliver its demand no later than October 7, 2021, the 20th day after the information statement was first mailed to stockholders. Prior to that deadline, the Company received only one purported appraisal demand, which was submitted by the owner of 2,000 shares of common stock (less than 0.01% of the Company's outstanding shares).

Termination Rights and Termination Date. The Merger Agreement contains certain termination rights for both the Company and Brookfield Reinsurance and further provides that, upon termination of the Merger Agreement, under certain circumstances, the Company may be required to pay Brookfield Reinsurance a termination fee equal to $178.5 million. 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 (a) any applicable waiting period under any antitrust law relating to the Merger has not expired or been terminated or (b) certain governmental approvals or prior written non-disapprovals 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.

Interim Operating Covenants. 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;

• 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;

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

• 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.

Anticipated Timing; No Assurance that Closing will Occur. Because, as disclosed above, (i) the required stockholder approval for the Merger has been obtained, (ii) the information statement and appraisal rights notice has been sent to stockholders and (iii) the HSR Act waiting period has expired, the only remaining significant closing condition is the receipt of the required regulatory approval from the insurance authorities in Texas, Missouri, New York, Louisiana and California. On September 3, 2021, Brookfield Reinsurance made the required Form A filings with each of these state insurance regulators, and those regulators are reviewing the filings. The Merger is expected to close in 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.

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 condensed consolidated financial statements, and the notes thereto appearing in Item 1 herein, Management's Discussion and Analysis of Financial Condition and Results of Operations in this Item 2 ("MD&A"), and the exhibits and financial statement schedules filed as a part hereof or incorporated by reference herein, may contain or incorporate by reference information that includes or is based upon forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally are indicated by words such as “expects,” “intends,” “anticipates,” “plans,” “believes,” “estimates,” “will” or words of similar meaning, and include, without limitation, statements regarding the outlook of our business and expected financial performance, and statements relating to the COVID-19 pandemic and its effects on the Company. These forward-looking statements are subject to changes and uncertainties which are, in many instances, beyond our control and have been made based upon our assumptions, expectations and beliefs concerning future developments and their potential effect upon us. There can be no assurance that future developments will be in accordance with our expectations, 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. There are certain important factors that could cause actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements, including without limitation risks, uncertainties and other factors discussed in Item 1A of our 2020 Form 10-K filed with the SEC on March 4, 2021 and elsewhere in this report.

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

These 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. Important factors that could cause actual results and outcomes to differ materially from those in the forward-looking statements include, but are not limited to those summarized below:

• Factors Relating to the Proposed Transaction with Brookfield Reinsurance

• 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;

• the announcement or pendency of the Proposed Transaction could affect the relationships of the Company or Brookfield Reinsurance with its clients, operating results and business generally, including on our ability to retain 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 F-1 and the Company’s most recent Annual Report on Form 10-K 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 Quarterly Report on Form 10-Q is not incorporated by reference into this Quarterly Report on Form 10-Q.

• Economic & Investment Factors

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

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

• lack of liquidity for certain of our investments;

• risk of investment losses and defaults;

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

• Factors Relating to Our Business and Industry

• the impact of major public health issues, like COVID-19;

• differences between actual experience regarding mortality, morbidity, persistency, expense, surrenders and investment returns, and our assumptions for product pricing, establishing liabilities and reserves or for other purposes;

• changes in our experience related to deferred policy acquisition costs;

• advances in medical technology and testing, which may increase our adverse selection risk;

• potentially adverse rating agency actions;

• Information Technology Factors

• failures or limitations of our computer, information security and administration systems;

• failure to complete and implement technology initiatives in a timely manner;

• Catastrophic Event Factors

• natural or man-made catastrophes resulting in increased claims activity from catastrophic loss of life or property;

• the effects of global climate change;

• Marketplace Factors

• the highly competitive nature of the insurance and annuity business;

• difficulty in attraction and retention of qualified employees and agents;

• the introduction of alternative healthcare solutions or changes in federal healthcare policy, both of which could impact our supplemental healthcare business;

• Litigation and Regulation Factors

• adverse determinations in litigation or regulatory proceedings which may result in significant financial losses and harm to our reputation;

• significant changes in government regulation;

• changes in tax law;

• changes in statutory or U.S. Generally Accepted Accounting Principles ("GAAP") practices or policies;

• Reinsurance and Counterparty Factors

• potential changes in the availability, affordability, adequacy and collectability of reinsurance protection;

• potential default or failure to perform by the counterparties to our reinsurance arrangements and derivative instruments;

• Factors Relating to Our Corporate Structure and Ownership of Our Common Stock

• state law limitations on the payment of dividends by our subsidiaries, which could limit the amount of dividends we pay;

• control of our Company by a small number of stockholders;

• anti-takeover provisions in our governing documents;

• the designation in our governing documents of the Delaware Court of Chancery as the exclusive forum for substantially all disputes between our stockholders and us;

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

• General Factors

• potential employee error or misconduct, which may result in fraud or adversely affect the execution and administration of our policies and claims;

• potential ineffectiveness of our risk management policies and procedures;

• the effects of unanticipated events on our disaster recovery and business continuity planning; and

• potential ineffectiveness of our internal controls over financial reporting.

COVID-19 Response

A summary of actions the Company has taken 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 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 combines both virtual and in-person elements for a small group of interns.

• We have developed and are continually refining our return-to-office plans for our locations. Beginning in June, we gradually re-introduced more employees to our office locations and are in the process of implementing longer-term plans to offer employees hybrid work schedules, where possible.

Although since the onset of the pandemic we have been able to maintain our business operations, 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 an extended period of time. Given this uncertainty, we are unable to quantify with reasonable confidence the ex pected 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 II, Item 1A, Risk Factors of our 2020 Form 10-K filed with the SEC on March 4, 2021. For additional information regarding the direct and indirect impact to mortality refer to Part I, Item 2, MD&A, Life.

This MD&A should be read in conjunction with our condensed consolidated financial statements and related notes included in Part I, Financial Information, Item 1, Financial Statements.

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ITEM 2. 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, on a consolidated GAAP basis, $30.7 billion in assets, $23.9 billion in liabilities and $6.8 billion in stockholders’ equity as of September 30, 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.

General Trends

During the third quarter of 2021, American National had no material changes to the general trends discussed in the MD&A included in our 2020 Annual Report on Form 10-K filed with the SEC on March 4, 2021. However, please see the "COVID-19 Response" discussion above for general information about the pandemic's impact on us, as well as "Introductory Note Regarding Pending Merger" above for general information about the pending Merger with Brookfield Reinsurance.

Anticipated Sale of Equity Securities Portfolio

We have recently received the required corporate approval to sell our equity securities portfolio before the end of 2021. That approval follows our assessment, including by our board of directors and senior management, of market conditions and the potential for changes in the U.S. federal corporate income tax rate. As of October 29, 2021, the total fair value of our equity securities portfolio was $2.4 billion.

We expect that the sale of the equity securities portfolio, and the reinvestment of the proceeds primarily in 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 currently hold equity security investments.

The sale of the equity securities is expected to generate a taxable gain and will not have a significant impact on our stockholders' equity. We do expect it to impact net income, as future non-cash earnings from net gains (losses) from the change in fair value of equity securities will be significantly reduced once these securities are sold.

Critical Accounting Estimates

The unaudited interim condensed consolidated financial statements have been prepared in conformity with GAAP. In addition to GAAP, insurance companies apply specific SEC regulations when preparing the condensed consolidated financial statements. The preparation of the condensed consolidated financial statements and notes requires us to make estimates and assumptions that affect the amounts reported. Actual results could differ from results reported using those estimates and assumptions. Our accounting policies inherently require the use of judgment relating to a variety of assumptions and estimates, particularly expectations of current and future mortality, morbidity, persistency, expenses, interest rates, and property and casualty loss frequency, severity, claim reporting and settlement patterns. Due to the inherent uncertainty when using the assumptions and estimates, the effect of certain accounting policies under different conditions or assumptions could vary from those reported in the condensed consolidated financial statements.

For a discussion of our critical accounting estimates, see the MD&A in our 2020 Annual Report on Form 10-K filed with the SEC on March 4, 2021.

Recently Issued Accounting Pronouncements

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

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

Condensed Consolidated Results of Operations

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


	Three months ended September 30,						Nine months ended September 30,
	2021		2020		Change		2021		2020		Change
PREMIUMS AND OTHER REVENUES
Premiums	$	586,588	$	561,464	$	25,124	$	1,714,493	$	1,631,495	$	82,998
Other policy revenues	88,687		79,344		9,343		265,749		238,736		27,013
Net investment income	261,140		271,285		(10,145)		828,520		676,002		152,518
Net realized investments gains	20,138		17,387		2,751		49,979		25,474		24,505

(Increase) decrease in investment credit loss	5,969		(4,175)		10,144		25,562		(101,163)		126,725
Net gains on equity securities	681		152,147		(151,466)		267,425		118,397		149,028
Other income	12,026		9,683		2,343		32,813		31,152		1,661
Total premiums and other revenues	975,229		1,087,135		(111,906)		3,184,541		2,620,093		564,448
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits	190,855		200,381		(9,526)		563,971		515,573		48,398
Claims incurred	323,891		286,345		37,546		899,073		858,226		40,847
Interest credited to policyholders’ account balances	82,251		128,946		(46,695)		301,274		271,406		29,868
Commissions for acquiring and servicing policies	171,219		138,365		32,854		488,817		409,290		79,527
Other operating expenses	151,971		126,413		25,558		435,380		385,516		49,864
Change in deferred policy acquisition costs (1)	(7,088)		(8,387)		1,299		(64,049)		(14,762)		(49,287)
Total benefits, losses and expenses	913,099		872,063		41,036		2,624,466		2,425,249		199,217
Income before federal income taxes and other items	$	62,130	$	215,072	$	(152,942)	$	560,075	$	194,844	$	365,231

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

Comparison of the three months ended September 30, 2021 to 2020

Earnings decreased primarily due to the following:

• A decrease in net gains on equity securities as a result of less favorable market conditions for equity securities

• A decrease in Life segment earnings driven by an overall increase in mortality

• A decrease in Property and Casualty segment earnings resulting from losses from Hurricane Ida and an increase in claim frequency in our personal automobile products

Comparison of the nine months ended September 30, 2021 to 2020

Earnings increased primarily due to the following:

• An increase in net gains on equity securities due to favorable market conditions for equity securities in 2021 and the negative impact that the pandemic had on the market values of equity securities in 2020

• Favorable change in expected investment credit loss due to improvement in our commercial mortgage loans driven by GDP growth and improved economic outlook

• An increase in net investment income driven by higher investment income from mortgage loan profit participation and prepayment income and investment funds

The increase in earnings was partially offset due to 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

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

Life

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


	Three months ended September 30,						Nine months ended September 30,
	2021		2020		Change		2021		2020		Change
PREMIUMS AND OTHER REVENUES
Premiums	$	104,802	$	101,182	$	3,620	$	306,365	$	282,368	$	23,997
Other policy revenues	83,331		75,317		8,014		248,366		227,083		21,283
Net investment income	63,379		69,235		(5,856)		203,401		188,455		14,946
Other income	431		358		73		1,311		1,534		(223)
Total premiums and other revenues	251,943		246,092		5,851		759,443		699,440		60,003
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits	161,633		153,957		7,676		447,309		389,364		57,945
Interest credited to policyholders’ account balances	10,180		24,522		(14,342)		53,276		47,820		5,456
Commissions for acquiring and servicing policies	50,461		41,974		8,487		142,278		122,728		19,550
Other operating expenses	51,114		45,080		6,034		147,381		137,065		10,316
Change in deferred policy acquisition costs (1)	(13,311)		(15,499)		2,188		(41,239)		(34,872)		(6,367)
Total benefits, losses and expenses	260,077		250,034		10,043		749,005		662,105		86,900
Income (loss) before federal income taxes and other items	$	(8,134)	$	(3,942)	$	(4,192)	$	10,438	$	37,335	$	(26,897)

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

Comparison of the three months ended September 30, 2021 to 2020

Earnings for our Life segment decreased primarily due to the following:

• An increase in policyholder benefits due to improvement in the participating policyholder share of change in investment credit loss, primarily associated with mortgage loans

• Annual assumption review resulting in an unlocking expense due to an expected increase in future mortality

The decrease in earnings was partially offset by the following:

• Improved persistency resulting in an increase in premiums and other policy revenues

Comparison of the nine months ended September 30, 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:

• Improved persistency resulting in an increase in premiums and other policy revenues

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

Life Insurance Sales

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


	Three months ended September 30,						Nine months ended September 30,
	2021		2020		Change		2021		2020		Change
Traditional life	$	15,578	$	16,071	$	(493)	$	48,674	$	46,056	$	2,618
Universal life	7,097		7,859		(762)		23,371		20,613		2,758
Indexed UL	9,299		8,328		971		25,991		21,972		4,019
Total recurring	31,974		32,258		(284)		98,036		88,641		9,395
Single and excess (1)	523		387		136		1,368		852		516
Credit life (1)	2,044		2,015		29		5,765		6,063		(298)
Total annualized premium	$	34,541	$	34,660	$	(119)	$	105,169	$	95,556	$	9,613

(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 Recurring Life sales increased during the nine months ended September 30, 2021 compared to 2020. Life sales were impacted in 2020 by stay-at-home orders and economic uncertainty related to COVID-19.

Policy In-force Information

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


	September 30, 2021		December 31, 2020		Change
Life insurance in-force
Traditional life	$	96,834,072	$	91,920,577	$	4,913,495
Interest-sensitive life	38,243,519		36,326,621		1,916,898
Total life insurance in-force	$	135,077,591	$	128,247,198	$	6,830,393

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


	September 30, 2021	December 31, 2020	Change
Number of policies in-force
Traditional life	1,716,003	1,832,536	(116,533)
Interest-sensitive life	279,188	269,668	9,520
Total number of policies in-force	1,995,191	2,102,204	(107,013)

Life insurance in-force increased during the nine months ended September 30, 2021 compared to December 31, 2020 despite a reduction of policies in-force due to an increase in sales of higher face amount policies.

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):


	Three months ended September 30,						Nine months ended September 30,
	2021		2020		Change		2021		2020		Change
Acquisition cost capitalized	$	(41,586)	$	(34,498)	$	(7,088)	$	(122,234)	$	(100,210)	$	(22,024)
Amortization of DAC	28,275		18,999		9,276		80,995		65,338		15,657

Change in DAC	$	(13,311)	$	(15,499)	$	2,188	$	(41,239)	$	(34,872)	$	(6,367)

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

Annuity

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


	Three months ended September 30,						Nine months ended September 30,
	2021		2020		Change		2021		2020		Change
PREMIUMS AND OTHER REVENUES
Premiums	$	18,698	$	27,960	$	(9,262)	$	63,436	$	69,413	$	(5,977)
Other policy revenues	5,356		4,027		1,329		17,383		11,653		5,730
Net investment income	132,236		163,125		(30,889)		449,456		394,508		54,948
Other income	972		733		239		2,760		2,166		594
Total premiums and other revenues	157,262		195,845		(38,583)		533,035		477,740		55,295
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits	29,222		46,424		(17,202)		116,662		126,209		(9,547)
Interest credited to policyholders’ account balances	72,071		104,424		(32,353)		247,998		223,586		24,412
Commissions for acquiring and servicing policies	24,865		16,119		8,746		77,833		38,024		39,809
Other operating expenses	14,653		12,115		2,538		39,718		35,737		3,981
Change in deferred policy acquisition costs (1)	8,982		8,555		427		(13,738)		28,147		(41,885)
Total benefits, losses and expenses	149,793		187,637		(37,844)		468,473		451,703		16,770
Income before federal income taxes and other items	$	7,469	$	8,208	$	(739)	$	64,562	$	26,037	$	38,525

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

Comparison of the three months ended September 30, 2021 to 2020

Earnings for our Annuity segment remained consistent; however, there were offsetting variances as follows:

• Decline in net investment income and interest credited for equity-indexed annuity products due to less favorable market conditions

Comparison of the nine months ended September 30, 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

• Favorable mark-to-market impact to equity-indexed annuity reserves due to higher interest 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

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

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


	Three months ended September 30,						Nine months ended September 30,
	2021		2020		Change		2021		2020		Change
Fixed deferred annuity	$	241,621	$	126,820	$	114,801	$	716,544	$	318,629	$	397,915
Single premium immediate annuity	20,721		36,217		(15,496)		73,703		92,327		(18,624)
Equity-indexed deferred annuity	195,088		95,105		99,983		627,085		230,485		396,600
Variable deferred annuity	16,906		16,816		90		46,740		46,673		67
Total premium and deposits	474,336		274,958		199,378		1,464,072		688,114		775,958
Less: Policy deposits	455,638		246,998		208,640		1,400,636		618,701		781,935
Total earned premiums	$	18,698	$	27,960	$	(9,262)	$	63,436	$	69,413	$	(5,977)

Annuity premium and deposits increased primarily for equity-indexed and fixed deferred products during the three and nine months ended September 30, 2021 compared to 2020 reflecting improved competitiveness of the product.

Change in Deferred Policy Acquisition Costs

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


	Three months ended September 30,						Nine months ended September 30,
	2021		2020		Change		2021		2020		Change
Acquisition cost capitalized	$	(24,864)	$	(14,899)	$	(9,965)	$	(78,775)	$	(37,217)	$	(41,558)
Amortization of DAC	33,846		23,454		10,392		65,037		65,364		(327)

Change in DAC	$	8,982	$	8,555	$	427	$	(13,738)	$	28,147	$	(41,885)

The change in acquisition costs capitalized for the nine months ended September 30, 2021 relates to increased commissions from sales. The change in amortization of DAC for the three months ended September 30, 2021 was primarily related to an annual review and unlocking of assumptions. The change in amortization for the nine months ended September 30, 2021 includes the unlocking effects largely offset by the effects of increases in interest rates.

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

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


	Nine months ended September 30,
	2021		2020
Fixed deferred annuity
Reserve, beginning of period	$	6,635,203	$	6,893,174
Premiums	716,544		318,629
Death and other benefits	(181,806)		(162,750)
Surrenders	(360,943)		(417,390)
Fees	(1,265)		(754)
Interest and mortality	140,217		141,895
Reserve, end of period	6,947,950		6,772,804
Equity-indexed annuity
Reserve, beginning of period	4,097,013		3,985,166
Premiums	627,085		230,485
Death and other benefits	(42,260)		(35,891)
Surrenders	(222,928)		(258,140)
Fees	(2,390)		(2,443)
Interest and mortality	103,248		77,996
Reserve, end of period	4,559,768		3,997,173
Single premium immediate annuity
Reserve, beginning of period	1,851,955		1,874,942
Premiums	73,703		92,327
Payments	(149,091)		(162,248)
Interest and mortality	44,560		53,741
Reserve, end of period	1,821,127		1,858,762
Variable deferred annuity
Reserve, beginning of period	418,510		385,736
Premiums	46,740		46,673
Other flows	103		637
Surrenders	(60,965)		(60,605)
Fees	(3,870)		(3,301)
Change in market value and other	38,243		21,154
Reserve, end of period	438,761		390,294
Total reserve, end of period	$	13,767,606	$	13,019,033

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

Interest and Mortality Margin

Margins increased during the three and nine months ended September 30, 2021 compared to 2020 due to favorable changes in mark-to-market reserves for indexed annuities and a $13.8 million decrease in indexed annuity reserve related to modeling refinements, including a related offsetting $12.4 million reduction in DAC. The following table summarizes the interest margin due to the impact of the investment performance, interest credited to policyholder’s account balances, and the end of period assets measured by account balance (in thousands):


	Three months ended September 30,						Nine months ended September 30,
	2021		2020		Change		2021		2020		Change
Fixed annuity
Fixed investment income	$	87,310	$	92,020	$	(4,710)	$	263,653	$	279,175	$	(15,522)
Interest credited and mortality	(65,984)		(64,637)		(1,347)		(184,777)		(195,637)		10,860
Interest and mortality margin	21,326		27,383		(6,057)		78,876		83,538		(4,662)
Equity-indexed annuity
Fixed investment income	43,840		39,634		4,206		128,478		119,685		8,793
Option return	1,087		31,471		(30,384)		57,325		(4,352)		61,677
Interest credited and mortality	(12,486)		(56,131)		43,645		(103,248)		(77,996)		(25,252)
Interest and mortality margin	32,441		14,974		17,467		82,555		37,337		45,218




Variable annuity
Separate account management fees	1,202		1,078		124		3,739		3,021		718
Interest and mortality margin	1,202		1,078		124		3,739		3,021		718
Total interest and mortality margin	$	54,969	$	43,435	$	11,534	$	165,170	$	123,896	$	41,274

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

Health

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


	Three months ended September 30,						Nine months ended September 30,
	2021		2020		Change		2021		2020		Change
PREMIUMS AND OTHER REVENUES
Premiums	$	36,201	$	40,934	$	(4,733)	$	108,914	$	126,965	$	(18,051)
Net investment income	1,941		2,033		(92)		6,028		6,480		(452)
Other income	6,045		4,971		1,074		16,032		15,001		1,031
Total premiums and other revenues	44,187		47,938		(3,751)		130,974		148,446		(17,472)
BENEFITS, LOSSES AND EXPENSES
Claims incurred	23,935		27,933		(3,998)		74,376		89,544		(15,168)
Commissions for acquiring and servicing policies	6,010		7,608		(1,598)		18,561		22,792		(4,231)
Other operating expenses	11,294		10,013		1,281		31,769		30,118		1,651
Change in deferred policy acquisition costs (1)	311		(542)		853		2,696		(582)		3,278
Total benefits, losses and expenses	41,550		45,012		(3,462)		127,402		141,872		(14,470)
Income before federal income taxes and other items	$	2,637	$	2,926	$	(289)	$	3,572	$	6,574	$	(3,002)

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

Comparison of the three months ended September 30, 2021 to 2020

Earnings for our Health segment decreased primarily due to the following:

• Policy lapses in our Medicare Supplement line of business, resulting in a reduction in premiums and an increase in deferred policy acquisition costs ("DAC") amortization

• Higher loss ratio for Medical Expense, legacy long-term care and Credit disability products

The decrease in earnings was mostly offset due to the following:

• Increased fee income from various MGU programs and a non-recurring 2020 increase in allowance for uncollectible reinsurance receivables

Comparison of the nine months ended September 30, 2021 to 2020

Earnings for our Health segment decreased primarily due to the following:

• Additional expense related to policy processing revisions, as well as an increase in short-term disability claims in our Worksite line of business

• Policy lapses in our Medicare Supplement line of business, resulting in a reduction in premiums and an increase in DAC amortization

The decrease in earnings was partially offset by the following:

• Favorable reserve releases, increased fee income from various MGU programs and a non-recurring 2020 increase in allowance for uncollectible reinsurance receivables

• Improved claim experience in the Supplemental health line of business

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

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


	Three months ended September 30,						Nine months ended September 30,
	2021		2020		Change		2021		2020		Change
Medicare Supplement	$	17,310	$	21,137	$	(3,827)	$	54,567	$	64,336	$	(9,769)
MGU	4,839		4,702		137		15,777		16,306		(529)
Supplemental insurance	3,539		4,417		(878)		10,684		14,152		(3,468)
Credit Health	3,350		3,460		(110)		9,893		11,196		(1,303)
Medical expense	1,880		2,075		(195)		5,687		6,468		(781)
Worksite	4,056		3,808		248		8,681		10,800		(2,119)
Group health	484		505		(21)		1,343		1,303		40
All other	743		830		(87)		2,282		2,404		(122)
Total	$	36,201	$	40,934	$	(4,733)	$	108,914	$	126,965	$	(18,051)

Policy lapses as a result of rate increases drove a decrease in premiums for Medicare Supplement during 2021. In addition, Supplemental insurance premiums decreased during the nine months ended September 30, 2021 due to a reduction in sales across all product lines, primarily in short-term medical. Worksite premiums decreased for the nine months ended September 30, 2021 as a result of revisions to policy processing.

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


	Three months ended September 30,						Nine months ended September 30,
	2021		2020		Change		2021		2020		Change
Medicare Supplement	$	13,188	$	15,969	$	(2,781)	$	42,288	$	50,695	$	(8,407)
MGU	2,942		5,947		(3,005)		12,149		15,556		(3,407)
Supplemental insurance	1,614		2,226		(612)		4,838		8,029		(3,191)
Credit Health	1,552		1,072		480		3,092		2,328		764
Medical expense	1,214		807		407		4,458		5,918		(1,460)
Worksite	2,818		2,144		674		6,550		4,898		1,652
Group health	287		23		264		241		898		(657)
All other	320		(255)		575		760		1,222		(462)
Total	$	23,935	$	27,933	$	(3,998)	$	74,376	$	89,544	$	(15,168)

Medicare Supplement claims decreased for the three and nine months ended September 30, 2021 driven by policy lapses. In addition, claim experience for our Medical Expense and Supplemental health lines of business improved during the nine months ended September 30, 2021 and 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):


	Three months ended September 30,						Nine months ended September 30,
	2021		2020		Change		2021		2020		Change
Acquisition cost capitalized	$	(3,327)	$	(4,534)	$	1,207	$	(9,211)	$	(12,117)	$	2,906
Amortization of DAC	3,638		3,992		(354)		11,907		11,535		372
Change in DAC	$	311	$	(542)	$	853	$	2,696	$	(582)	$	3,278

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

Property and Casualty

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


	Three months ended September 30,									Nine months ended September 30,
	2021			2020			Change			2021			2020			Change
PREMIUMS AND OTHER REVENUES
Net premiums written	$	442,061		$	397,780		$	44,281		$	1,313,885		$	1,211,444		$	102,441
Net premiums earned	$	426,887		$	391,388		$	35,499		$	1,235,778		$	1,152,749		$	83,029
Net investment income	15,929			16,049			(120)			47,167			48,171			(1,004)
Other income	3,863			3,079			784			10,138			9,656			482
Total premiums and other revenues	446,679			410,516			36,163			1,293,083			1,210,576			82,507
BENEFITS, LOSSES AND EXPENSES
Claims incurred	299,956			258,412			41,544			824,697			768,682			56,015
Commissions for acquiring and servicing policies	89,883			72,664			17,219			250,145			225,746			24,399
Other operating expenses	53,364			48,576			4,788			157,926			151,660			6,266
Change in deferred policy acquisition costs (1)	(3,070)			(901)			(2,169)			(11,768)			(7,455)			(4,313)
Total benefits, losses and expenses	440,133			378,751			61,382			1,221,000			1,138,633			82,367
Income before federal income taxes and other items	$	6,546		$	31,765		$	(25,219)		$	72,083		$	71,943		$	140
Loss and loss adjustment expense ratio	70.3		%	66.0		%	4.3		%	66.7		%	66.7		%	—		%
Underwriting expense ratio	32.8			30.7			2.1			32.1			32.1			—
Combined ratio	103.1		%	96.7		%	6.4		%	98.8		%	98.8		%	—		%
Less: Impact of catastrophe events on combined ratio	15.6			10.2			5.4			11.7			13.5			(1.8)
Combined ratio without impact of catastrophe events	87.5		%	86.5		%	1.0		%	87.1		%	85.3		%	1.8		%
Gross catastrophe losses	$	83,479		$	80,054		$	3,425		$	150,479		$	180,410		$	(29,931)
Net catastrophe losses	$	57,139		$	27,141		$	29,998		$	120,664		$	127,179		$	(6,515)

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

Comparison of the three months ended September 30, 2021 to 2020

Earnings for our Property and Casualty segment decreased primarily due to the following:

• Primarily as a result of losses from Hurricane Ida and an increase in the loss and loss adjustment expense ratio due to an increase in claim frequency in our personal automobile products primarily as miles driven have increased

Comparison of the nine months ended September 30, 2021 to 2020

Earnings for our Property and Casualty segment was in line with the prior year primarily due to the following:

• Improvement in the combined ratio for each product line except for personal automobile and workers compensation

The increase in earnings was partially offset primarily by the following:

• An increase in the loss and loss adjustment expense ratio for our personal automobile products primarily due to an increase in claim frequency compared to the prior year due to the lessening impact of COVID-19

Additional Information

• Net premiums written and earned were reduced by COVID-19 relief policy credits as follows:

◦ $0.5 million for personal automobile policies in the third quarter of 2021 compared to $0.7 million for personal automobile policies in 2020

◦ $1.9 million for personal automobile policies for the first nine months of 2021 compared to $16.8 million for personal automobile policies and $0.9 million for commercial automobile policies in 2020

• The increase in commissions expense for the third quarter was primarily attributable to an increase in premiums written for our Specialty Markets products

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

Products

Our Property and Casualty segment consists of: (i) Personal products, marketed primarily to individuals, representing 52% of net premiums written; (ii) Commercial products, focused primarily on agricultural and other business related markets, representing 31% of net premiums written; and (iii) Specialty Markets Group products, marketed through independent managing general agents and managing general underwriters, representing 17% of net premiums written.

Personal Products

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


	Three months ended September 30,									Nine months ended September 30,
	2021			2020			Change			2021			2020			Change
Net premiums written
Automobile	$	135,703		$	142,702		$	(6,999)		$	408,366		$	408,509		$	(143)
Homeowner	83,636			77,267			6,369			230,817			215,854			14,963
Other Personal	13,678			13,668			10			41,341			40,032			1,309
Total net premiums written	$	233,017		$	233,637		$	(620)		$	680,524		$	664,395		$	16,129
Net premiums earned
Automobile	$	134,786		$	139,155		$	(4,369)		$	403,217		$	397,088		$	6,129
Homeowner	73,270			66,472			6,798			215,786			200,354			15,432
Other Personal	13,323			13,142			181			39,148			37,922			1,226
Total net premiums earned	$	221,379		$	218,769		$	2,610		$	658,151		$	635,364		$	22,787
Loss and loss adjustment expense ratio
Automobile	72.0		%	57.9		%	14.1		%	68.8		%	58.6		%	10.2		%
Homeowner	111.3		%	101.3		%	10.0		%	94.8		%	102.0		%	(7.2)		%
Other Personal	51.6		%	51.6		%	—		%	55.9		%	63.0		%	(7.1)		%
Personal lines loss and loss adjustment expense ratio	83.7		%	70.7		%	13.0		%	76.7		%	72.6		%	4.1		%
Combined Ratio
Automobile	96.4		%	79.1		%	17.3		%	93.1		%	82.9		%	10.2		%
Homeowner	142.0		%	132.4		%	9.6		%	124.8		%	133.3		%	(8.5)		%
Other Personal	81.8		%	79.2		%	2.6		%	86.0		%	95.1		%	(9.1)		%
Personal lines combined ratio	110.6		%	95.3		%	15.3		%	103.1		%	99.5		%	3.6		%

Comparison of 2021 to 2020

Automobile : Net premiums written and earned for the third quarter and net premiums written for the first nine months decreased primarily due to fewer policies in-force. Net premiums earned for the first nine months increased primarily due to COVID-19 relief policy credits of $1.9 million in 2021 compared to $16.8 million in 2020. The loss and loss adjustment expense and combined ratios increased for the third quarter and first nine months primarily due to an increase in claim frequency compared to the prior year due to the lessening impact of COVID-19.

Homeowner : Net premiums written and earned increased for the third quarter and first nine months primarily due to rate increases. The loss and loss adjustment expense and combined ratios increased for the third quarter due to an increase in catastrophe losses and decreased for the first nine months due to rate increases and decreases in catastrophe and non-catastrophe losses. Catastrophe losses, net of reinsurance, increased by $20.0 million, to $38.6 million in the third quarter compared to $18.6 million in 2020, and decreased by $3.1 million, to $80.2 million for the first nine months compared to $83.3 million in 2020.

Other Personal : These products include coverages for individuals seeking to protect their personal property and liability not covered within their home and auto policies, such as coverages for watercraft, personal umbrella, and rental owners. Net premiums written and earned increased for the first nine months due to rate increases in the rental owners product. The loss and loss adjustment expense and combined ratios improved for the first nine months due to fewer non-catastrophe losses.

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

Commercial Products

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


	Three months ended September 30,									Nine months ended September 30,
	2021			2020			Change			2021			2020			Change
Net premiums written
Agricultural Business	$	45,364		$	40,201		$	5,163		$	140,111		$	127,679		$	12,432
Automobile	31,144			27,700			3,444			111,607			102,078			9,529
Business Owner	19,689			17,893			1,796			67,931			62,674			5,257
Workers Compensation	13,909			12,935			974			56,948			56,202			746
Other Commercial	8,636			7,920			716			29,174			26,664			2,510
Total net premiums written	$	118,742		$	106,649		$	12,093		$	405,771		$	375,297		$	30,474
Net premiums earned
Agricultural Business	$	44,387		$	40,145		$	4,242		$	128,886		$	119,605		$	9,281
Automobile	34,474			32,492			1,982			100,112			93,790			6,322
Business Owner	21,331			19,498			1,833			61,705			56,935			4,770
Workers Compensation	18,049			17,634			415			52,394			52,709			(315)
Other Commercial	9,102			8,310			792			27,010			24,704			2,306
Total net premiums earned	$	127,343		$	118,079		$	9,264		$	370,107		$	347,743		$	22,364
Loss and loss adjustment expense ratio
Agricultural Business	54.2		%	47.8		%	6.4		%	53.2		%	56.3		%	(3.1)		%
Automobile	70.2		%	84.9		%	(14.7)		%	66.1		%	73.1		%	(7.0)		%
Business Owner	76.8		%	81.5		%	(4.7)		%	77.5		%	85.9		%	(8.4)		%
Workers Compensation	78.1		%	63.5		%	14.6		%	66.9		%	60.5		%	6.4		%
Other Commercial	71.1		%	67.8		%	3.3		%	53.3		%	62.9		%	(9.6)		%
Commercial lines loss and loss adjustment expense ratio	66.9		%	67.3		%	(0.4)		%	62.7		%	66.8		%	(4.1)		%
Combined ratio
Agricultural Business	90.8		%	85.6		%	5.2		%	89.1		%	93.8		%	(4.7)		%
Automobile	93.3		%	105.7		%	(12.4)		%	88.3		%	95.7		%	(7.4)		%
Business Owner	111.2		%	115.9		%	(4.7)		%	111.2		%	120.8		%	(9.6)		%
Workers Compensation	93.7		%	79.6		%	14.1		%	82.4		%	77.7		%	4.7		%
Other Commercial	111.7		%	106.9		%	4.8		%	93.9		%	102.8		%	(8.9)		%
Commercial lines combined ratio	96.8		%	96.7		%	0.1		%	92.0		%	96.9		%	(4.9)		%

Comparison of 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 for the third quarter and first nine months primarily due to increases in policies in-force and rate increases. The loss and loss adjustment expense and combined ratios increased for the third quarter primarily due to a increase in catastrophe losses and improved the first nine months primarily due to a decrease in catastrophe losses. Catastrophe losses, net of reinsurance, increased by $4.0 million, to $6.3 million in the third quarter compared to $2.3 million in 2020, and decreased by $3.6 million, to $14.5 million for the first nine months compared to $18.1 million in 2020.

Commercial Automobile : Net premiums written and earned increased for the third quarter and first nine months primarily due to rate increases. The loss and loss adjustment expense ratio and combined ratio improved for the third quarter and first nine months primarily due to favorable prior year claim development and rate increases.

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

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 for the third quarter and first nine months primarily due to increases in policies in-force and rate increases. The loss and loss adjustment expense and combined ratios improved for the third quarter and first nine months primarily due to a decrease in allocated loss adjustment expense reserves.

Workers Compensation : Net premiums written increased for the third quarter primarily due to a decrease in ceded premiums for reinsurance coverage. The loss and loss adjustment expense and combined ratio increased for the third quarter and first nine months 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 for the third quarter and first nine months primarily due to an increase in premium for umbrella products. The loss and loss adjustment expense and combined ratios increased for the third quarter primarily due to an increase in allocated loss adjustment expense reserves and improved for the first nine months primarily due to favorable prior year claim development .

Specialty Markets Products

Specialty Markets product results for the periods indicated were as follows (in thousands, except percentages):


	Three months ended September 30,									Nine months ended September 30,
	2021			2020			Change			2021			2020			Change
Net premiums written	$	90,301		$	57,494		$	32,807		$	227,589		$	171,752		$	55,837
Net premiums earned	78,165			54,539			23,626			207,519			169,641			37,878

Loss and loss adjustment expense ratio	37.4		%	44.5		%	(7.1)		%	42.6		%	44.5		%	(1.9)		%
Combined ratio	92.1		%	102.6		%	(10.5)		%	97.3		%	99.8		%	(2.5)		%

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 2021 to 2020

Net written and earned premiums increased for the third quarter and first nine months 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 for the third quarter and first nine months primarily due to lower losses for Credit GAP products.

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ITEM 2. 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):


	Three months ended September 30,						Nine months ended September 30,
	2021		2020		Change		2021		2020		Change
OTHER REVENUES
Net investment income	$	47,655	$	20,843	$	26,812	$	122,468	$	38,388	$	84,080
Realized investment gains	20,138		17,387		2,751		49,979		25,474		24,505

(Increase) decrease in investment credit loss	5,969		(4,175)		10,144		25,562		(101,163)		126,725
Net gains on equity securities	681		152,147		(151,466)		267,425		118,397		149,028
Other income	715		542		173		2,572		2,795		(223)
Total other revenues	75,158		186,744		(111,586)		468,006		83,891		384,115
BENEFITS, LOSSES AND EXPENSES
Other operating expenses	21,546		10,629		10,917		58,586		30,936		27,650
Total benefits, losses and expenses	21,546		10,629		10,917		58,586		30,936		27,650
Income before federal income taxes and other items	$	53,612	$	176,115	$	(122,503)	$	409,420	$	52,955	$	356,465

Comparison of the three months ended September 30, 2021 to 2020

Earnings for our Corporate and Other segment decreased primarily due to the following:

• A decrease in net gains on equity securities as a result of less favorable market conditions for equity securities

• An increase in operating expenses due to Merger-related expenses

Comparison of the nine months ended September 30, 2021 to 2020

Earnings for our Corporate and Other segment increased primarily due to the following:

• An increase in net gains on equity securities due to more favorable market conditions in 2021 compared to the negative impact on the fair values of equity securities from the pandemic in 2020

• Favorable change in investment credit loss due to improvement in our commercial mortgage loans driven by GDP growth and positive economic outlook

• An increase in net investment income driven by increases in investment income from mortgage loan profit participation and prepayment income and investment funds

The increase in earnings was partially offset primarily by the following:

• An increase in operating expenses due to retirement benefit and Merger-related expenses

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

Investments

We manage our investment portfolio to optimize the rate of return commensurate with sound and prudent asset selection and to maintain a well-diversified portfolio in support of our products and capital. Our investment operations are regulated primarily by the state insurance departments where our insurance companies are domiciled. Investment activities, including setting investment policies and defining acceptable risk levels, are subject to oversight by our Board of Directors, which is assisted by our Finance Committee, 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.

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


	September 30, 2021				December 31, 2020
Fixed maturity, bond held-to-maturity, at amortized cost	$	7,277,801	28.0	%	$	7,354,970	29.2	%
Fixed maturity, bond available-for-sale, at fair value	8,573,081		32.9		7,597,180		30.1
Equity securities, at fair value	2,383,478		9.2		2,070,766		8.2
Mortgage loans on real estate, net of allowance	5,002,978		19.2		5,242,531		20.8
Policy loans	364,960		1.4		373,014		1.5
Real estate and real estate partnerships, net of accumulated depreciation	926,154		3.6		960,572		3.8
Investment funds	814,527		3.1		477,135		1.9
Short-term investments	536,621		2.1		1,028,379		4.1
Other invested assets	123,337		0.5		94,415		0.4
Total investments	$	26,002,937	100.0	%	$	25,198,962	100.0	%

The increase in our total investments at September 30, 2021 compared to year-end 2020 was primarily the result of an increase in held-to-maturity bonds, available-for-sale bonds, and equity securities.

Bonds —We allocate most of our fixed maturity securities to support our insurance business. At September 30, 2021, our fixed maturity securities had an estimated fair value of $16.3 billion, which was $0.8 billion, or 5.4%, 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. The estimated fair value for securities due in one year or less was $1.2 billion and $1.1 billion as of September 30, 2021 and December 31, 2020, respectively. For additional information regarding total bonds by credit quality rating, refer to Note 4, Investments in Securities, of the Notes to the Unaudited Condensed Consolidated Financial Statements.

Equity Securities —We have invested in the equity securities of companies traded on national U.S. stock exchanges. See Note 4, Investments in Securities, of the Notes to the Unaudited Condensed Consolidated Financial Statements for the unrealized and realized gains and losses of equity securities. However, we intend to sell nearly all of our equity securities portfolio prior to the end of 2021. For additional information please see the Anticipated Sale of Equity Securities Portfolio discussion in the General Trends section 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 4.7% and 4.8% at September 30, 2021 and December 31, 2020, respectively. For additional information regarding mortgage loans refer to Note 5, Mortgage Loans, of the Notes to the Unaudited Condensed Consolidated Financial Statements.

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

Policy Loans —For certain life insurance products, policyholders may borrow funds using the policy’s cash value as collateral. The maximum amount of the policy loan depends upon the policy’s surrender value. As of September 30, 2021, we had $365.0 million in policy loans with a loan to surrender value of 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 over 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.

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 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.

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. These loans 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 $152.5 million during the nine months ended September 30, 2021 compared to 2020 primarily due to higher gains on options from an improvement in the S&P 500 Index, and an increase in income from mortgage loan profit participation and prepayment income, real estate partnerships and investment funds.

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 $24.5 million during the nine months ended September 30, 2021 compared to 2020 primarily attributable to bond call activity. Net realized investment gains (losses) are shown below (in thousands):


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Bonds	$	22,939	$	6,117	$	42,106	$	15,547
Mortgage loans	—		—		(768)		—
Real estate and real estate partnerships	(1,705)		11,265		9,387		9,951
Other invested assets	(1,096)		5		(746)		(24)
Total	$	20,138	$	17,387	$	49,979	$	25,474

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

Net Unrealized Gains (Losses)

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


	September 30, 2021		December 31, 2020		Change
Held-to-maturity
Gains	$	486,773	$	639,648	$	(152,875)
Losses	(17,543)		(11,437)		(6,106)
Net gains	469,230		628,211		(158,981)
Available-for-sale
Gains	397,993		548,996		(151,003)
Losses	(28,070)		(17,476)		(10,594)
Net gains	369,923		531,520		(161,597)




Total	$	839,153	$	1,159,731	$	(320,578)

The net change in the unrealized gains on fixed maturity securities between September 30, 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.

Liquidity

ANAT's source of liquidity is solely derived from dividends received from ANICO.

The primary use of cash has been and is expected to continue to be the 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 opinion related to the Merger 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 condensed 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 $500.0 million from the Federal Home Loan Bank of Dallas' COVID-19 Relief Advance Program. As of September 30, 2021, there are no advances outstanding; the final advance was repaid on its maturity date of April 28, 2021. The available liquidity through the FHLB at September 30, 2021 was approximately $990.6 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 early April 2020. The cancellation and grace periods have been lifted in all 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 beginning in 2022; 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.

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

We have consistently paid dividends to our stockholders and expect to continue this tradition prior to the completion of the Merger. 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, available-for-sale investment securities, and equity securities, coupled with our ability to borrow funds through the FHLB, are sufficient to meet future liquidity needs as necessary.

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 the second and third quarters of 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 $739.7 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 $8.0 million as of September 30, 2021. As of September 30, 2021, a total of 74 loans with a recorded investment of $1.4 billion were designated a troubled debt restructure. 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 the nine months ended September 30, 2021 is primarily attributable to improved economic conditions after lifting of COVID-19 related restrictions.

The Company holds collateral of $234.8 million at September 30, 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 decreased from $1.4 billion at December 31, 2020 to $1.0 billion at September 30, 2021. The decrease primarily relates to a decrease in commercial paper.

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 due to the pending Merger with Brookfield Reinsurance.

Further information regarding additional sources or uses of cash is described in Note 16, Commitments and Contingencies, of the Notes to the Unaudited Condensed Consolidated Financial Statements.

Capital Resources

Our capital resources are summarized below (in thousands):


	September 30, 2021		December 31, 2020
American National stockholders’ equity, excluding accumulated other comprehensive income (“AOCI”), net of tax	$	6,619,213	$	6,236,100
Accumulated other comprehensive income	127,159		222,170
Total American National stockholders’ equity	$	6,746,372	$	6,458,270

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 September 30, 2021 and December 31, 2020.

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

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


	September 30, 2021						December 31, 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	$	449,197	$	—	$	449,197	$	467,505	$	—	$	467,505
Dividends to shareholders	(66,143)		—		(66,143)		(88,190)		—		(88,190)
Change in net unrealized gains (losses) on debt securities	—		(103,585)		(103,585)		—		134,315		134,315
Foreign currency transaction and translation adjustment	—		122		122		—		235		235
Defined benefit pension plan adjustment	—		8,452		8,452		—		(11,898)		(11,898)
Cumulative effect of accounting change (1)	—		—		—		(33,500)		—		(33,500)
Other	59		—		59		54		—		54
Total	$	383,113	$	(95,011)	$	288,102	$	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 September 30, 2021 and December 31, 2020, ANICO’s statutory capital and surplus was $3.7 billion and $3.6 billion, respectively. ANICO and each of our other insurance subsidiaries had statutory capital and surplus at September 30, 2021 and December 31, 2020 above 200% of the company action level, except for ANPAC Louisiana Insurance Company ("ANPLA").

At September 30, 2021 and December 31, 2020, ANPLA's statutory capital and surplus was $42.1 million and $68.5 million respectively, which resulted in an RBC level of 119% and 194% of the company action level. This decrease in RBC of ANPLA is primarily driven by an increase in homeowners catastrophe losses impacting the operating results in 2021 and 2020. We are actively managing our homeowners exposure in ANPLA and will be addressing rate adequacy through future planned underwriting and rate actions.

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.

Contractual Obligations

Our future cash payments associated with claims and claims adjustment expenses, life, annuity and disability obligations, contractual obligations pursuant to operating leases for office space and equipment, and notes payable have not materially changed since December 31, 2020. We expect to have the capacity to pay our obligations as they come due.

Off-Balance Sheet Arrangements

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

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

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 regarding significant related party transactions, see Note 17, Related Party Transactions, of the Notes to the Unaudited Condensed Consolidated Financial Statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our market risk has not changed materially from the description in our 2020 Annual Report on form 10-K filed with the SEC on March 4, 2021, although the recent economic disruptions caused by the COVID-19 pandemic has added greater uncertainty to the credit risk and equity risk that we face.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 30, 2021. Based upon that evaluation and subject to the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2021, the design and operation of the Company’s disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

Management has monitored the internal controls over financial reporting, including any material changes to the internal control over financial reporting. There were no changes in the Company’s internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

Please see the "Factors Relating to the Proposed Transaction with Brookfield Reinsurance" in the "Introductory Note Regarding Pending Merger" at the beginning of Item 2 above. There have been no other material changes to the Risk Factors discussion in Item 1A of our 2020 Form 10-K filed with the SEC on March 4, 2021.

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ITEM 6.						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 February 23, 2018).

10.1*						Form of Letter Agreement amending outstanding book value units granted to certain employees of American National Group, Inc. (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.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


By:						/s/ James E. Pozzi
Name:						James E. Pozzi
Title:						President and Chief Executive Officer

By:						/s/ Brody J. Merrill
Name:						Brody J. Merrill
Title:						Senior Vice President, Chief Financial Officer and Treasurer

Date: November 4, 2021

TABLE OF CONTENTS

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 4 Investment in Securities (continued)Note 5 Mortgage Loans Note 5 Mortgage Loans (continued)Note 6 - Real Estate and Other Investments Note 6 Real Estate and Other Investments (continued)Note 7 Derivative Instruments Note 7 Derivative Instruments (continued)Note 8 Net Investment Income and Realized Investment Gains (losses)Note 9 Fair Value Of Financial Instruments Note 9 Fair Value Of Financial Instruments (continued)Note 10 Deferred Policy Acquisition Costs Note 11 Liability For Unpaid Claims and Claim Adjustment Expenses Note 12 Federal Income Taxes Note 13 Accumulated Other Comprehensive Income (loss)Note 14 Stockholders Equity and Noncontrolling Interests Note 14 Stockholders Equity and Noncontrolling Interests (continued)Note 15 Segment Information Note 15 Segment Information (continued)Note 16 Commitments and Contingencies Note 16 Commitments and Contingencies (continued)Note 17 Related Party Transactions Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations (continued)Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II Other Information Part II Item 1. Legal Proceedings Item 1A. Risk Factors Item 6. Exhibits

Exhibits

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). 3.2 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). 3.4 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 February 23, 2018). 10.1* Form of Letter Agreement amending outstanding book value units granted to certain employees of American National Group, Inc. (filed herewith). 31.1 Certification of the principal executive officer pursuant to Section302 of the Sarbanes-Oxley Act of 2002 (filed herewith). 31.2 Certification of the principal financial officer pursuant to Section302 of the Sarbanes-Oxley Act of 2002 (filed herewith). 32.1 Certification of the principal executive officer and principal financial officer pursuant to Section906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

ANAT 10-Q Quarter ended Sept. 30, 2021

Exhibits