UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
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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. ¨
Introductory Note.
On May 8, 2024, American National Group Inc. (formerly known as American Equity Investment Life Holding Company), a Delaware corporation (“ANGI” or the “Company”) filed a Current Report on Form 8-K (the “Original Form 8-K”) disclosing, among other things, the completion of its previously announced merger (the “Merger”) with American National Group, LLC, a Delaware limited liability company (“ANAT”) on May 7, 2024. ANGI is filing this Form 8-K/A to include the historical financial statements of ANAT and the condensed combined pro forma financial information required by Items 9.01(a) and 9.01(b) of Form 8-K. This Form 8-K/A should be read in conjunction with the Original Form 8-K.
The pro forma financial information included as Exhibit 99.4 to this Form 8-K/A has been presented for illustrative purposes only, as required by Form 8-K, and is not intended to, and does not purport to, represent what the combined company’s actual results or financial condition would have been if the transactions had occurred on the relevant date, and is not intended to project the future results or financial condition that the combined company may achieve following the Merger.
| Item 9.01. | Financial Statements and Exhibits. |
| (a) | Financial Statements of the Business Acquired |
(i) The audited consolidated financial statements of ANAT as of December 31, 2023 (successor) and 2022 (successor) and for the year ended December 31, 2023 (successor), for the period from May 25, 2022 through December 31, 2022 (successor), the period from January 1, 2022 through May 24, 2022 (predecessor), and for the year ended December 31, 2021 (predecessor), including the related notes and independent auditor’s report, are filed as Exhibit 99.1 to this Form 8-K/A and incorporated by reference herein.
(ii) The unaudited condensed consolidated financial statements of ANAT as of March 31, 2024 (successor) and December 31, 2023 (successor) and for the three months ended March 31, 2024 (successor) and 2023 (successor), including the related notes, are filed as Exhibit 99.2 to this Form 8-K/A and incorporated by reference herein.
(iii) Also included herewith as Exhibit 99.3 and incorporated by reference herein is the Management’s Discussion and Analysis of Financial Condition and Results of Operations of ANAT as of March 31, 2024 (successor) and December 31, 2023 (successor) and for the three months ended March 31, 2024 (successor) and 2023 (successor), and for the year ended December 31, 2023 (successor), for the period from May 25, 2022 through December 31, 2022 (successor), the period from January 1, 2022 through May 24, 2022 (predecessor), and for the year ended December 31, 2021 (predecessor).
| (b) | Pro Forma Financial Information |
The unaudited condensed combined pro forma financial information of ANGI giving effect to the Merger as of and for the three months ended March 31, 2024 and for the year ended December 31, 2023 is filed as Exhibit 99.4 to this Form 8-K/A and incorporated by reference herein.
| (d) | Exhibits |
SIGNATURE
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 hereunto duly authorized.
| AMERICAN NATIONAL GROUP INC. | ||
| Date: July 23, 2024 | By: | /s/ Reza Syed |
| Reza Syed | ||
| Chief Financial Officer & Executive Vice President | ||
Exhibit 99.1
AMERICAN NATIONAL GROUP, LLC
Consolidated Financial Statements
December 31, 2023
AMERICAN NATIONAL GROUP, LLC
TABLE OF CONTENTS
| FINANCIAL STATEMENTS: | |
| INDEPENDENT AUDITOR'S REPORT | |
| Consolidated Statements of Financial Position as of December 31, 2023 (Successor) and 2022 (Successor) | 3 |
| Consolidated Statements of Operations for the year ended December 31, 2023 (Successor), for the period from May 25, 2022 through December 31, 2022 (Successor), for the period from January 1, 2022 through May 24, 2022 (Predecessor), and the year ended December 31, 2021 (Predecessor) | 4 |
| Consolidated Statements of Comprehensive Income (Loss) for the year ended December 31, 2023 (Successor), for the period from May 25, 2022 through December 31, 2022 (Successor), for the period from January 1, 2022 through May 24, 2022 (Predecessor), and the year ended December 31, 2021 (Predecessor) | 5 |
| Consolidated Statements of Changes in Equity for the year ended December 31, 2023 (Successor), for the period from May 25, 2022 through December 31, 2022 (Successor), for the period from January 1, 2022 through May 24, 2022 (Predecessor), and the year ended December 31, 2021 (Predecessor) | 6 |
| Consolidated Statements of Cash Flows for the year ended December 31, 2023 (Successor), for the period from May 25, 2022 through December 31, 2022 (Successor), for the period from January 1, 2022 through May 24, 2022 (Predecessor), and the year ended December 31, 2021 (Predecessor) | 7 |
| Notes to the Consolidated Financial Statements | 9 |
| Note 1 – Nature of Operations | 9 |
| Note 2 – Summary of Significant Accounting Policies and Practices | 10 |
| Note 3 – Recently Issued Accounting Pronouncements | 19 |
| Note 4 – Investment in Securities | 24 |
| Note 5 – Mortgage Loans | 30 |
| Note 6 – Real Estate and Other Investments | 34 |
| Note 7 – Derivative Instruments | 37 |
| Note 8 – Net Investment Income and Realized Investment Gains (Losses) | 39 |
| Note 9 – Fair Value of Financial Instruments | 40 |
| Note 10 – Deferred Policy Acquisition Costs and Value of Business Acquired | 52 |
| Note 11 – Liability for Unpaid Claims and Claim Adjustment Expenses | 53 |
| Note 12 – Federal Income Taxes | 64 |
| Note 13 – Accumulated Other Comprehensive Income (Loss) | 67 |
| Note 14 – Equity and Noncontrolling Interests | 68 |
| Note 15 – Debt | 69 |
| Note 16 – Commitments and Contingencies | 70 |
| Note 17 – Related Party Transactions | 71 |
| Note 18 – Liability for Future Policy Benefits | 72 |
| Note 19 – Policyholders' Account Balances | 74 |
| Note 20 – Market Risk Benefits | 78 |
| Note 21 – Reinsurance | 79 |
| Note 22 – Pension and Postretirement Benefits | 80 |
| Note 23 – Segment Information | 83 |
| Note 24 – Subsequent Events | 86 |
INDEPENDENT AUDITOR’S REPORT
To the Audit Committee and Board of Directors
American National Group, LLC
One Moody Plaza
Galveston, Texas 77550
Opinion
We have audited the consolidated financial statements of American National Group, LLC and subsidiaries (the “Company”), which comprise the consolidated statements of financial position as of December 31, 2023 (successor) and 2022 (successor), and the related consolidated statements of operations, comprehensive income (loss), changes in equity, and cash flows for the year ended December 31, 2023 (successor), for the periods from May 25, 2022 through December 31, 2022 (successor), the period from January 1, 2022 through May 24, 2022 (predecessor), and for the year ended December 31, 2021 (predecessor), and the related notes to the consolidated financial statements (collectively referred to as the "financial statements").
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 (successor) and 2022 (successor), and the results of its operations and its cash flows for the year ended December 31, 2023 (successor), for the periods from May 25, 2022 through December 31, 2022 (successor), the period from January 1, 2022 through May 24, 2022 (predecessor), and for the year ended December 31, 2021 (predecessor), in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Emphasis of Matter
As discussed in Note 1 to the financial statements, the financial statements give effect to the May 25, 2022 acquisition of 100% of the equity of the Company by Brookfield Reinsurance Ltd., which was accounted for as a business combination. As a result, the financial statements present both predecessor and successor periods as of and for the year ended December 31, 2022.
As discussed in Note 3 to the financial statements, the Company changed its method of measurement and presentation and disclosure of long-duration insurance contracts effective January 1, 2023, using the full retrospective approach applied as of the transition date of May 25, 2022, due to the adoption of ASU 2018-12, Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts.
Our opinion is not modified with respect to these matters.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
1
In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date that the financial statements are available to be issued.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
In performing an audit in accordance with GAAS, we:
| • | Exercise professional judgment and maintain professional skepticism throughout the audit. |
| • | Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. |
| • | Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion is expressed. |
| • | Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. |
| • | Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. |
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
July 23, 2024
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AMERICAN NATIONAL GROUP, LLC
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands)
| Successor | ||||||||
| December 31, 2023 | December 31, 2022 | |||||||
| ASSETS | ||||||||
| Fixed maturity, bonds available-for-sale, at estimated fair value (Allowance for credit losses of $24,218 in 2023 and $28,708 in 2022) (Amortized cost $13,475,451 in 2023 and $14,447,537 in 2022) | $ | 13,070,576 | $ | 13,512,819 | ||||
| Equity securities, at fair value (Cost $1,336,218 in 2023 and $456,723 in 2022) | 1,404,247 | 428,369 | ||||||
| Mortgage loans on real estate, net of allowance for credit losses of $53,407 in 2023 and $38,266 in 2022 | 5,658,023 | 5,546,175 | ||||||
| Policy loans | 390,393 | 374,481 | ||||||
| Real estate and real estate partnerships, net of accumulated depreciation of $320,088 in 2023 and $304,402 in 2022 | 3,610,853 | 1,035,719 | ||||||
| Investment funds | 1,591,768 | 1,226,471 | ||||||
| Short-term investments | 2,396,504 | 1,836,678 | ||||||
| Other invested assets | 120,818 | 198,079 | ||||||
| Total investments | 28,243,182 | 24,158,791 | ||||||
| Cash and cash equivalents | 3,192,369 | 1,388,943 | ||||||
| Accrued investment income | 196,163 | 288,841 | ||||||
| Reinsurance recoverables | 426,911 | 444,170 | ||||||
| Prepaid reinsurance premiums | 44,666 | 46,754 | ||||||
| Premiums due and other receivables | 483,834 | 436,264 | ||||||
| Deferred policy acquisition costs | 944,469 | 699,151 | ||||||
| Market risk benefits, at estimated fair value | 33,658 | 10,330 | ||||||
| Property and equipment, net of accumulated depreciation of $332,951 in 2023 and $314,288 in 2022 | 167,946 | 151,335 | ||||||
| Deferred tax asset | 291,340 | 439,114 | ||||||
| Current tax receivable | 97,439 | 22,326 | ||||||
| Prepaid pension | 247,624 | 158,704 | ||||||
| Other assets | 205,359 | 133,170 | ||||||
| Goodwill | 121,097 | 121,097 | ||||||
| Separate account assets | 1,188,989 | 1,045,217 | ||||||
| Total assets | $ | 35,885,046 | $ | 29,544,207 | ||||
| LIABILITIES | ||||||||
| Future policy benefits | ||||||||
| Life | $ | 3,675,387 | $ | 3,336,141 | ||||
| Annuity | 2,373,100 | 1,466,192 | ||||||
| Health | 59,472 | 56,938 | ||||||
| Policyholders’ account balances | 17,177,476 | 14,309,971 | ||||||
| Policy and contract claims | 1,869,970 | 1,786,275 | ||||||
| Market risk benefits, at estimated fair value | 33,572 | 54,340 | ||||||
| Unearned premium reserve | 1,138,937 | 1,085,882 | ||||||
| Other policyholder funds | 334,892 | 322,067 | ||||||
| Liability for retirement benefits | 26,395 | 66,938 | ||||||
| Long-term debt | 1,493,326 | 1,503,400 | ||||||
| Notes payable | 174,017 | 150,913 | ||||||
| Other liabilities | 440,709 | 604,480 | ||||||
| Separate account liabilities | 1,188,989 | 1,045,217 | ||||||
| Total liabilities | 29,986,242 | 25,788,754 | ||||||
| EQUITY | ||||||||
| American National’s equity: | ||||||||
| Additional paid-in capital | 5,184,682 | 3,805,072 | ||||||
| Accumulated other comprehensive income / (loss) | (109,196 | ) | (447,707 | ) | ||||
| Retained earnings | 715,836 | 323,820 | ||||||
| Total American National’s equity | 5,791,322 | 3,681,185 | ||||||
| Noncontrolling interest | 107,482 | 74,268 | ||||||
| Total equity | 5,898,804 | 3,755,453 | ||||||
| Total liabilities and equity | $ | 35,885,046 | $ | 29,544,207 | ||||
See accompanying notes to the consolidated financial statements.
3
AMERICAN NATIONAL GROUP, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
| Successor | Predecessor | |||||||||||||||
| Year ended | Period from May 25, 2022 | Period from January 1, 2022 through | Year ended | |||||||||||||
| December 31, 2023 | December 31, 2022 | May 24, 2022 | December 31, 2021 | |||||||||||||
| PREMIUMS AND OTHER REVENUE | ||||||||||||||||
| Premiums | ||||||||||||||||
| Life | $ | 428,230 | $ | 253,508 | $ | 174,290 | $ | 412,769 | ||||||||
| Annuity | 1,027,725 | 15,723 | 10,221 | 74,925 | ||||||||||||
| Health | 72,292 | 75,709 | 53,810 | 143,484 | ||||||||||||
| Property and casualty | 1,993,200 | 1,108,572 | 741,011 | 1,669,875 | ||||||||||||
| Other policy revenues | 414,249 | 225,740 | 158,515 | 359,707 | ||||||||||||
| Net investment income | 1,501,160 | 662,516 | 384,808 | 1,171,654 | ||||||||||||
| Net realized investment gains (losses) | (73,311 | ) | (22,889 | ) | 21,073 | 64,628 | ||||||||||
| Increase (Decrease) in investment credit loss | (26,648 | ) | (65,298 | ) | (14,857 | ) | 28,778 | |||||||||
| Net gains (losses) on equity securities | 96,827 | 49,360 | (13,082 | ) | 420,283 | |||||||||||
| Other income | 83,375 | 24,112 | 18,887 | 45,688 | ||||||||||||
| Total premiums and other revenues | 5,517,099 | 2,327,053 | 1,534,676 | 4,391,791 | ||||||||||||
| BENEFITS, LOSSES AND EXPENSES | ||||||||||||||||
| Policyholder benefits and claims incurred | 3,260,801 | 1,188,220 | 831,019 | 1,947,810 | ||||||||||||
| Change in fair value of market risk benefit | (69,310 | ) | (101,699 | ) | — | — | ||||||||||
| Interest credited to policyholders’ account balances | 627,843 | 155,946 | 52,825 | 448,654 | ||||||||||||
| Future policy benefit remeasurement losses | 28,377 | 1,490 | — | — | ||||||||||||
| Other operating expenses | 713,121 | 365,689 | 256,218 | 569,561 | ||||||||||||
| Amortization of deferred policy acquisition costs | 520,675 | 321,632 | 227,408 | 562,773 | ||||||||||||
| Total benefits, losses and expenses | 5,081,507 | 1,931,278 | 1,367,470 | 3,528,798 | ||||||||||||
| Income before federal income tax and other items | 435,592 | 395,775 | 167,206 | 862,993 | ||||||||||||
| Less: Provision (benefit) for federal income taxes | ||||||||||||||||
| Current | (8,909 | ) | 20,826 | 56,562 | 408,551 | |||||||||||
| Deferred | 55,584 | 52,670 | (23,585 | ) | (241,966 | ) | ||||||||||
| Total provision for federal income taxes | 46,675 | 73,496 | 32,977 | 166,585 | ||||||||||||
| Income after federal income tax | 388,917 | 322,279 | 134,229 | 696,408 | ||||||||||||
| Other components of net periodic pension benefit (costs), net of tax | 8,362 | 3,805 | (1,625 | ) | 3,574 | |||||||||||
| Net income | 397,279 | 326,084 | 132,604 | 699,982 | ||||||||||||
| Less: Net income attributable to noncontrolling interest, net of tax | 5,263 | 2,264 | 1,554 | 657 | ||||||||||||
| Net income attributable to American National | $ | 392,016 | $ | 323,820 | $ | 131,050 | $ | 699,325 | ||||||||
| Earnings per share | ||||||||||||||||
| Basic | N/A | N/A | $ | 4.88 | $ | 26.02 | ||||||||||
| Diluted | N/A | N/A | $ | 4.87 | $ | 26.01 | ||||||||||
See accompanying notes to the consolidated financial statements.
4
AMERICAN NATIONAL GROUP, LLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
| Successor | Predecessor | |||||||||||||||
| Year ended | Period from May 25, 2022 | Period from January 1, 2022 through | Year ended | |||||||||||||
| December 31, 2023 | December 31, 2022 | May 24, 2022 | December 31, 2021 | |||||||||||||
| Net income | $ | 397,279 | $ | 326,084 | $ | 132,604 | $ | 699,982 | ||||||||
| Other comprehensive income (loss), net of tax | ||||||||||||||||
| Change in net unrealized gains (losses) on securities | 422,645 | (721,536 | ) | (620,710 | ) | (142,854 | ) | |||||||||
| Change in discount rate for liability for future policyholders’ benefit | (148,889 | ) | 253,126 | — | — | |||||||||||
| Change in instrument specific credit risk for market risk benefit | (19,958 | ) | 20,779 | — | — | |||||||||||
| Foreign currency transaction and translation adjustments | 13 | (1,237 | ) | 312 | 62 | |||||||||||
| Defined benefit pension plan adjustment | 84,700 | 1,161 | 4,800 | 67,676 | ||||||||||||
| Total other comprehensive income (loss), net of tax | 338,511 | (447,707 | ) | (615,598 | ) | (75,116 | ) | |||||||||
| Total comprehensive income (loss) | 735,790 | (121,623 | ) | (482,994 | ) | 624,866 | ||||||||||
| Less: Comprehensive income (loss) attributable to noncontrolling interest | 5,263 | 2,264 | 1,554 | 657 | ||||||||||||
| Total comprehensive income (loss) attributable to American National | $ | 730,527 | $ | (123,887 | ) | $ | (484,548 | ) | $ | 624,209 | ||||||
See accompanying notes to the consolidated financial statements.
5
AMERICAN NATIONAL GROUP, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except per share data)
| Successor | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Noncontrolling Interest | Total Equity | |||||||||||||||
| Balance at May 25, 2022 | $ | 3,612,783 | $ | — | $ | — | $ | 9,881 | $ | 3,622,664 | ||||||||||
| Share issuance | 191,123 | — | — | — | 191,123 | |||||||||||||||
| Accelerated vesting of RSAs | 1,166 | — | — | — | 1,166 | |||||||||||||||
| Other comprehensive loss | — | (447,707 | ) | — | — | (447,707 | ) | |||||||||||||
| Net income attributable to American National | — | — | 323,820 | — | 323,820 | |||||||||||||||
| Contributions/(Distributions) | — | — | — | 62,123 | 62,123 | |||||||||||||||
| Net income attributable to noncontrolling interest | — | — | — | 2,264 | 2,264 | |||||||||||||||
| Balance at December 31, 2022 | $ | 3,805,072 | $ | (447,707 | ) | $ | 323,820 | $ | 74,268 | $ | 3,755,453 | |||||||||
| Other comprehensive income | — | 338,511 | — | — | 338,511 | |||||||||||||||
| Net income attributable to American National | — | — | 392,016 | — | 392,016 | |||||||||||||||
| Capital contribution | 2,129,610 | — | — | — | 2,129,610 | |||||||||||||||
| Dividends | (750,000 | ) | — | — | — | (750,000 | ) | |||||||||||||
| Contributions/(Distributions) | — | — | — | 27,951 | 27,951 | |||||||||||||||
| Net income attributable to noncontrolling interest | — | — | — | 5,263 | 5,263 | |||||||||||||||
| Balance at December 31, 2023 | $ | 5,184,682 | $ | (109,196 | ) | $ | 715,836 | $ | 107,482 | $ | 5,898,804 | |||||||||
| Predecessor | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Noncontrolling Interest | Total Equity | ||||||||||||||||||
| Balance at December 31, 2020 | $ | 269 | $ | 47,683 | $ | 222,170 | $ | 6,188,148 | $ | 7,297 | $ | 6,465,567 | ||||||||||||
| Amortization of restricted stock | — | 79 | — | — | — | 79 | ||||||||||||||||||
| Other comprehensive loss | — | — | (75,116 | ) | — | — | (75,116 | ) | ||||||||||||||||
| Net income attributable to American National | — | — | — | 699,325 | — | 699,325 | ||||||||||||||||||
| Cash dividends to common stockholders (declared per share of $3.28) | — | — | — | (88,190 | ) | — | (88,190 | ) | ||||||||||||||||
| Contributions/(Distributions) | — | — | — | — | (263 | ) | (263 | ) | ||||||||||||||||
| Net income attributable to noncontrolling interest | — | — | — | — | 657 | 657 | ||||||||||||||||||
| Balance at January 1, 2022 | $ | 269 | $ | 47,762 | $ | 147,054 | $ | 6,799,283 | $ | 7,691 | $ | 7,002,059 | ||||||||||||
| Amortization of restricted stock | — | (707 | ) | — | — | — | (707 | ) | ||||||||||||||||
| Other comprehensive loss | — | — | (615,598 | ) | — | — | (615,598 | ) | ||||||||||||||||
| Net income attributable to American National | — | — | — | 131,050 | — | 131,050 | ||||||||||||||||||
| Cash dividends to common stockholders (declared per share of $0.82) | — | — | (22,048 | ) | — | (22,048 | ) | |||||||||||||||||
| Contributions/Distributions | — | — | — | — | 636 | 636 | ||||||||||||||||||
| Net income attributable to noncontrolling interest | — | — | — | — | 1,554 | 1,554 | ||||||||||||||||||
| Balance at May 24, 2022 | $ | 269 | $ | 47,055 | $ | (468,544 | ) | $ | 6,908,285 | $ | 9,881 | $ | 6,496,946 | |||||||||||
See accompanying notes to the consolidated financial statements.
6
AMERICAN NATIONAL GROUP, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| Successor | Predecessor | |||||||||||||||
| Year ended | Period from May 25, 2022 | Period from January 1, 2022 through | Year ended | |||||||||||||
| December 31, 2023 | December 31, 2022 | May 24, 2022 | December 31, 2021 | |||||||||||||
| OPERATING ACTIVITIES | ||||||||||||||||
| Net income | 397,279 | $ | 326,084 | $ | 132,604 | $ | 699,982 | |||||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||||||||||
| Realized investment losses (gains) | 73,311 | 22,889 | (21,073 | ) | (64,628 | ) | ||||||||||
| Unrealized (gains) loss on investments and derivatives | (174,343 | ) | (19,279 | ) | 207,508 | 1,269,670 | ||||||||||
| Realized (gain) loss on investments and derivatives | (35,029 | ) | 8,250 | (16,228 | ) | (1,817,634 | ) | |||||||||
| Income tax expense (benefit) | (11,942 | ) | 20,826 | 56,562 | 311,554 | |||||||||||
| Increase (Decrease) in investment credit loss | 26,648 | 65,298 | 14,857 | (28,778 | ) | |||||||||||
| Accretion of premiums, discounts and loan origination fees | (172,776 | ) | (48,856 | ) | 7,016 | 18,932 | ||||||||||
| Net capitalized interest on policy loans and mortgage loans | (11,072 | ) | (16,635 | ) | (12,703 | ) | (31,620 | ) | ||||||||
| Depreciation | 50,927 | 12,139 | 15,571 | 49,983 | ||||||||||||
| Interest credited to policyholders’ account balances | 627,843 | 155,946 | 52,826 | 448,654 | ||||||||||||
| Charges to policyholders’ account balances | (414,249 | ) | (211,901 | ) | (158,514 | ) | (359,707 | ) | ||||||||
| Deferred federal income tax expense (benefit) | 55,584 | 52,670 | (23,585 | ) | (241,966 | ) | ||||||||||
| Equity in earnings of unconsolidated affiliates | (97,863 | ) | (88,365 | ) | (134,100 | ) | (188,677 | ) | ||||||||
| Distributions from unconsolidated affiliates | 80,927 | 87,562 | 138,086 | 150,024 | ||||||||||||
| Gain on sale of business | (35,394 | ) | — | — | — | |||||||||||
| Changes in: | ||||||||||||||||
| Policyholder liabilities | 1,209,795 | 124,090 | 76,277 | 271,202 | ||||||||||||
| Market risk benefits | (69,310 | ) | (101,699 | ) | — | — | ||||||||||
| Deferred policy acquisition costs | (249,281 | ) | (122,502 | ) | (40,956 | ) | (79,632 | ) | ||||||||
| Reinsurance payables | 17,259 | 7,744 | 3,754 | (45,262 | ) | |||||||||||
| Premiums due and other receivables | (47,570 | ) | 1,198 | (54,900 | ) | (30,590 | ) | |||||||||
| Prepaid reinsurance premiums | 2,088 | (1,043 | ) | 2,078 | (4,985 | ) | ||||||||||
| Accrued investment income | 92,678 | (188,297 | ) | 92,369 | 23,476 | |||||||||||
| Liability for retirement benefits | (22,249 | ) | (16,599 | ) | (2,283 | ) | 7,440 | |||||||||
| Other, net | (107,036 | ) | 40,736 | (457,801 | ) | (6,651 | ) | |||||||||
| Net cash provided by (used in) operating activities | 1,186,225 | 110,256 | (122,635 | ) | 350,787 | |||||||||||
| INVESTING ACTIVITIES | ||||||||||||||||
| Proceeds from sale/maturity/prepayment of: | ||||||||||||||||
| Fixed maturities | 3,557,709 | 5,486,472 | 978,717 | 2,284,768 | ||||||||||||
| Equity securities | 108,737 | 844 | 67,410 | 2,467,165 | ||||||||||||
| Commercial paper | — | 7,957,092 | 11,836,896 | 22,405,785 | ||||||||||||
| Real estate and real estate partnerships | 40,790 | 3,621 | 5,375 | 21,139 | ||||||||||||
| Mortgage loans | 623,692 | 779,235 | 520,249 | 1,018,572 | ||||||||||||
| Other invested assets | 185,146 | 102,934 | 96,804 | 437,864 | ||||||||||||
| Disposals of property and equipment | — | — | — | 65 | ||||||||||||
| Disposal of business | 71,928 | — | — | — | ||||||||||||
| Distributions from real estate and real estate partnerships | — | — | — | 120,019 | ||||||||||||
| Distributions from equity method investments | 61,026 | 145,590 | 110,114 | 131,186 | ||||||||||||
| Payment for the purchase/origination of: | ||||||||||||||||
| Fixed maturities | (2,540,284 | ) | (5,078,677 | ) | (2,190,353 | ) | (2,969,164 | ) | ||||||||
| Equity securities | (530,556 | ) | (155,247 | ) | (26,899 | ) | (93,663 | ) | ||||||||
7
AMERICAN NATIONAL GROUP, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
| Successor | Predecessor | |||||||||||||||
| Year ended | Period from May 25, 2022 | Period from January 1, 2022 through | Year ended | |||||||||||||
| December 31, 2023 | December 31, 2022 | May 24, 2022 | December 31, 2021 | |||||||||||||
| Real estate and real estate partnerships | (707,701 | ) | (37,402 | ) | (2,825 | ) | (12,252 | ) | ||||||||
| Mortgages | (717,571 | ) | (1,253,576 | ) | (489,290 | ) | (867,886 | ) | ||||||||
| Other invested assets | (21,127 | ) | (1,244,485 | ) | (121,831 | ) | (391,816 | ) | ||||||||
| Commercial paper | — | (6,583,196 | ) | (11,352,754 | ) | (23,218,138 | ) | |||||||||
| Additions to property and equipment | (133,776 | ) | (22,781 | ) | (14,837 | ) | (37,150 | ) | ||||||||
| Contributions to real estate and real estate partnerships | — | — | — | (123,061 | ) | |||||||||||
| Contributions to equity method investments | (738,812 | ) | (442,535 | ) | (125,114 | ) | (591,324 | ) | ||||||||
| Change in collateral held for derivatives | 109,501 | 8,128 | (147,240 | ) | 20,604 | |||||||||||
| Change in short-term investments | (468,131 | ) | — | — | — | |||||||||||
| Other, net | (201,206 | ) | 47,629 | 99 | 2,633 | |||||||||||
| Net cash provided by (used in) investing activities | (1,300,635 | ) | (286,354 | ) | (855,479 | ) | 605,346 | |||||||||
| FINANCING ACTIVITIES | ||||||||||||||||
| Issuance of equity | — | 45,000 | — | — | ||||||||||||
| Policyholders’ account deposits | 4,920,766 | 1,406,605 | 587,664 | 2,229,554 | ||||||||||||
| Policyholders’ account withdrawals | (2,280,881 | ) | (895,692 | ) | (506,159 | ) | (1,251,458 | ) | ||||||||
| Repayment of Federal Home Loan Bank borrowings | — | — | — | (250,000 | ) | |||||||||||
| Borrowings from related parties | — | 5,371 | — | — | ||||||||||||
| Borrowings from external parties | — | 500,000 | 11,991 | — | ||||||||||||
| Repayment of borrowings to external parties | — | (507,579 | ) | (2,747 | ) | (4,455 | ) | |||||||||
| Debt issuance costs | — | (5,146 | ) | — | — | |||||||||||
| Dividends to stockholders | (750,000 | ) | — | (22,048 | ) | (88,190 | ) | |||||||||
| Payments (Returns) to noncontrolling interest | 27,951 | (4,987 | ) | — | (649 | ) | ||||||||||
| Net cash provided by financing activities | 1,917,836 | 543,572 | 68,701 | 634,802 | ||||||||||||
| Net increase (decrease) in cash and cash equivalents | 1,803,426 | 367,474 | (909,413 | ) | 1,590,935 | |||||||||||
| Cash and cash equivalents at beginning of the period | 1,388,943 | 1,021,469 | 1,930,882 | 339,947 | ||||||||||||
| Cash and cash equivalents at end of the period | $ | 3,192,369 | $ | 1,388,943 | $ | 1,021,469 | $ | 1,930,882 | ||||||||
| Supplementary cash flow disclosure | ||||||||||||||||
| Income taxes paid | $ | 64,000 | $ | 46,600 | $ | 361,000 | $ | — | ||||||||
| Non-cash transactions | ||||||||||||||||
| Equity contribution and invested assets received | $ | 2,129,610 | $ | — | $ | — | $ | — | ||||||||
See accompanying notes to the consolidated financial statements.
8
Note 1 – Nature of Operations
American National Group, LLC (“ANAT”, “American National”, or the “Company”), through its consolidated subsidiaries (collectively “American National”) offers a broad portfolio of insurance products, including individual and group life insurance, annuities, pension risk transfer, 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 Reinsurance Ltd., formerly known as Brookfield Asset Management Reinsurance Partners Ltd., 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 May 25, 2022 (the “Closing Date"”or “Merger Date”), upon the terms and subject to the conditions of the Merger Agreement, Merger Sub merged with and into the Company (the “Merger”), with the Company continuing as the surviving entity, which became an indirect, wholly-owned subsidiary of Brookfield Reinsurance. The Merger was unanimously approved by the Company’s board of directors. The Company received the requisite stockholder approval required under Delaware law for the adoption of the Merger Agreement. Effective September 30, 2022, the Company converted from a Delaware corporation to a Delaware limited liability company. As a result, the successor period consists of the year ended December 31, 2023 and the comparative period from May 25, 2022 to December 31, 2022. The predecessor periods consist of January 1, 2022 through May 24, 2022 and the year ended December 31, 2021.
In June 2023, a subsidiary of ANAT entered into an agreement with Core Specialty Insurance Holdings, Inc. to sell its managing general underwriter (“MGU”) stop-loss business. The business was acquired for cash through the acquisition of 100% of the stock of Standard Life and Accident Insurance Company (“SLAICO”) and certain reinsurance transactions. The life, annuity and non-MGU stop-loss health business in SLAICO was reinsured back to the Company prior to closing. The transaction was completed on December 1, 2023, and the Company recognized a gain of approximately $36 million upon closing.
9
Note 2 – Summary of Significant Accounting Policies and Practices
The consolidated financial statements and notes thereto have been prepared in conformity with 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. Certain amounts in prior years have been reclassified to conform to current year presentation.
Business Combinations
Business combinations are accounted for using the acquisition method. The cost of a business acquisition is measured at the aggregate of the fair values at the date of exchange of assets given, liabilities incurred or assumed, and equity instruments issued in exchange for control of the acquiree. The acquiree’s identifiable assets, liabilities and contingent liabilities are recognized at their fair values at the acquisition date. The interest of non-controlling shareholders in the acquiree, if applicable, is initially measured at the non-controlling shareholders’ proportion of the net fair value of the identifiable assets, liabilities and contingent liabilities recognized.
To the extent the fair value of consideration paid exceeds the fair value of the net identifiable tangible and intangible assets, the excess is recorded as goodwill. To the extent the fair value of consideration paid is less than the fair value of net identifiable tangible and intangible assets, the excess is recognized in net income.
Based on the criteria outlined in ASC 805, Business Combinations the Company was deemed the accounting acquiree in the Merger. As a result of the completed Merger, for accounting purposes, our financial statements and notes are presented as "Predecessor" for historical periods prior to the Closing Date and "Successor" for the periods after the Closing Date. In accordance with accounting for business combinations, assets and liabilities were adjusted to their fair values as of the Closing Date ("Purchase GAAP Accounting" or "PGAAP"). Additionally, we have elected to apply push-down accounting to reflect the Company's assets and liabilities at fair value. To differentiate between periods, our financial statements and notes columns are titled "Predecessor" and "Successor". This division has been placed to recognize Purchase GAAP Accounting adjustments made and the resulting effect on comparability between the two periods.
Accounting for the business combination is finalized. Final valuation of the assets acquired and liabilities assumed and the completion of the purchase price allocation occurred before the end of the measurement period.
If the acquisition had occurred on January 1, 2022, consolidated unaudited pro forma revenue and profit for the year ended December 31, 2022 would have been $3.9 billion and $487 million, respectively. These amounts have been calculated using the Company's results and adjusting them for the revised depreciation and amortization that would have been charged assuming the fair value adjustments to investments, property and equipment and intangible assets had applied from January 1, 2022, together with the consequential tax effects.
10
Note 2 – Summary of Significant Accounting Policies and Practices - (Continued)
Under the acquisition method of accounting, the assets acquired and liabilities assumed are recorded at fair value at the date of acquisition. The following table summarizes the fair value of assets acquired and liabilities assumed as of May 25, 2022 (in thousands):
| American
National Group, LLC Consolidated Balance Sheet |
Company
Opening Balance Sheet |
|||
| ASSETS | ||||
| Fixed maturity securities, bonds available for sale, at estimated fair value | $ | 15,312,504 | ||
| Equity securities, at estimated fair value | 81,925 | |||
| Mortgage loans on real estate | 5,136,421 | |||
| Policy loans | 367,616 | |||
| Real estate and real estate partnerships | 968,264 | |||
| Investment funds | 987,577 | |||
| Short-term investments | 1,465,662 | |||
| Other invested assets | 142,027 | |||
| Total investments | 24,461,996 | |||
| Cash and cash equivalents | 1,021,469 | |||
| Accrued investment income | 100,544 | |||
| Reinsurance recoverables | 454,867 | |||
| Prepaid reinsurance premiums | 45,711 | |||
| Premiums due and other receivables | 437,462 | |||
| Property and equipment | 140,407 | |||
| Deferred tax assets, net | 374,185 | |||
| Prepaid pension | 149,093 | |||
| Intangible asset - VOBA | 573,315 | |||
| Other assets | 166,029 | |||
| Goodwill | 121,097 | |||
| Separate account assets | 1,123,432 | |||
| Total assets | $ | 29,169,607 | ||
| LIABILITIES | ||||
| Future policy benefits | ||||
| Life | $ | 2,761,227 | ||
| Annuity | 1,431,862 | |||
| Health | 46,352 | |||
| Policyholders’ account balances | 13,880,194 | |||
| Policy and contract claims | 1,705,623 | |||
| Market risk benefits, at estimated fair value | 172,012 | |||
| Unearned premium reserve | 1,072,989 | |||
| Other policyholder funds | 323,567 | |||
| Liability for retirement benefits | 73,926 | |||
| Intangible liability - VOBA | 913,886 | |||
| Debt | 1,494,627 | |||
| Notes payable | 158,492 | |||
| Current tax payable | 13,610 | |||
| Other liabilities | 375,144 | |||
| Separate account liabilities | 1,123,432 | |||
| Total liabilities | 25,546,943 | |||
| EQUITY | ||||
| Additional paid-in capital | 3,612,783 | |||
| Total American National equity | 3,612,783 | |||
| Noncontrolling interest | 9,881 | |||
| Total equity | 3,622,664 | |||
| Total liabilities and equity | $ | 29,169,607 | ||
11
Note 2 – Summary of Significant Accounting Policies and Practices - (Continued)
Basis of Presentation
The preparation of the consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the reported consolidated financial statement balances. Actual results could differ from those estimates.
Investments
Investment securities are comprised of bonds classified as available-for-sale that are carried at fair value. Private loans are also presented in fixed maturities and are stated at unpaid principal balance, adjusted for any unamortized discount and allowances. In addition, equity investments, other than those accounted for under the equity method or those that result in consolidation of the investee, are measured at fair value with changes in fair value recognized in earnings.
Mortgage loans on real estate are stated at unpaid principal balance, adjusted for any unamortized discount, deferred expenses, and allowances. Accretion of discounts is recorded using the effective yield method. Interest income, prepayment fees, and accretion of discounts and origination fees are reported in “Net investment income” in the consolidated statements of operations. Interest income earned is accrued on the principal amount of the loan based on contractual interest rate. However, interest ceases to accrue for loans on which interest is more than 90 days past due, when the collection of interest is not probable, or when a loan is in foreclosure. Income on past due loans is reported on a cash basis. When a loan becomes current, it is placed back into accrual status. Cash receipts on impaired loans are recorded as a reduction of principal, interest income, expense reimbursement, or other manner in accordance with the loan agreement. In the consolidated statements of operations, gains and losses from the sale of loans are reported in “Net realized investment gains,” and changes in allowances are reported in "(Increase) decrease in investment credit loss."
Mortgage loans are presented net of the Company's recorded allowance for expected credit loss, which represents the portion of amortized cost basis on mortgage loans that the Company does not expect to collect. In determining the Company’s allowance for credit losses, management: (i) pools and evaluates mortgage loans with similar risk characteristics, (ii) considers expected lifetime credit losses adjusted for prepayments and extensions, and (iii) considers past events, current economic conditions and forecasts of future economic conditions. The allowance is calculated quarterly for each property type based on inputs unique to each loan property type.
On an ongoing basis, mortgage loans with dissimilar risk characteristics (i.e., loans with significant declines in credit quality), collateral dependent mortgage loans (i.e., when the borrower is experiencing financial difficulty, including when foreclosure is reasonably possible or probable) may be evaluated individually for credit loss. The allowance for credit losses for loans evaluated individually is established using the same methodologies for the overall commercial portfolio segment except for collateral dependent loans. The allowance for a collateral dependent loan is established as the excess of amortized cost over the estimated fair value of the loan’s underlying collateral, less selling cost when foreclosure is probable. Accordingly, the change in the estimated fair value of collateral dependent loans is recorded as a change in the allowance for credit losses which is recorded on a quarterly basis as a charge or credit to earnings.
Policy loans are carried at the outstanding balance plus any accrued interest. 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, the carrying value of policy loans approximates fair value.
Real estate and real estate partnerships are comprised of directly owned properties, and interests in both real estate joint ventures and real estate funds which invest in diversified property-types and geographies.
Real estate joint ventures and other limited partnership interests in which the Company has more than a minor interest or influence over the investee’s operations, but it does not have a controlling interest and is not the primary beneficiary, are accounted for using the equity method. These investments are reported as "Real estate and real estate partnerships” in the consolidated statements of financial position. For certain joint ventures, American National records its share of earnings using a lag methodology of one to three months when timely financial information is not available, and the contractual right does not exist to receive such financial information. In addition to the investees’ impairment analysis of their underlying investments, American National routinely evaluates its investments in those investees for impairments. American National considers financial and other information provided by the investee, other known information, and inherent risks in the underlying investments, as well as future capital commitments, in determining whether impairment has occurred.
12
Note 2 – Summary of Significant Accounting Policies and Practices - (Continued)
When an impairment is deemed to have occurred at the joint venture level, American National recognizes its share as an adjustment to “Net investment income” to record the investment at its fair value. When an impairment results from American National’s separate analysis, an adjustment is made through “Net realized investment gains (losses)” to record the investment at its fair value.
Investment real estate including related improvements are stated at cost less accumulated depreciation. Depreciation is provided on a straight-line basis over the estimated useful life of the asset (typically 15 to 50 years). Rental income is recognized on a straight-line basis over the term of the respective lease. American National classifies a property as held-for-sale if it commits to a plan to sell a property within one year and actively markets the property in its current condition for a price that is reasonable in comparison to its estimated fair value. Real estate held-for-sale is stated at the lower of depreciated cost or estimated fair value less expected disposition costs and is not depreciated while it is classified as held-for-sale. American National periodically reviews its investment real estate for impairment and tests properties for recoverability whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable and the carrying value of the property exceeds its estimated fair value. Properties whose carrying values are greater than their undiscounted cash flows are written down to their estimated fair value, with the impairment loss included as an adjustment to “Net realized investment gain (loss)” in the consolidated statements of operations. Impairment losses are based upon the estimated fair value of real estate, which is generally computed using the present value of expected future cash flows from the real estate discounted at a rate commensurate with the underlying risks as well as other appraisal methods. Real estate acquired upon foreclosure is recorded at the lower of its cost or its estimated fair value at the date of foreclosure.
Investment funds are primarily comprised of senior secured and second lien private loans that are secured by assets, revenues and credit/balance sheet lending. We recognize our share of the fund’s earnings in net investment income on a one-quarter lag under the equity method of accounting. Cash distributions are received from the earnings and from liquidation of underlying investments. All investment funds are reevaluated quarterly by the fund manager and are audited annually by an independent audit firm.
Short-term investments include highly liquid securities and other investments with remaining maturities of one year or less, but greater than three months, at the time of purchase. Securities included within short-term investments are stated at estimated fair value, while other investments included within short-term investments are stated at amortized cost less allowances, which approximates estimated fair value.
Other invested assets comprised primarily of equity-indexed options are carried at fair value and may be collateralized by counterparties; such collateral is restricted to the Company’s use. Federal Home Loan Bank stock is also included in other invested assets and are carried at cost. Other invested assets also include separately managed accounts, tax credit partnerships and mineral rights less allowance for depletion, where applicable.
For credit losses on fixed maturity securities, available-for-sale, in unrealized loss positions which American National does not intend to sell and for which it is not more-likely-than-not that it will be required to sell before its anticipated recovery, American National assesses whether the amortized cost basis of securities will be recovered by comparing the net present value of the expected cash flows from those securities with its amortized cost basis. The expected cash flows are discounted at the effective interest rate of the security and consider historical credit loss information that is adjusted for current market conditions and reasonable and supportable economic forecasts based upon a third-party valuation model. The valuation model calculates expected cash flows based on scenario conditioned probability of default and loss given default. Probability of default measures the likelihood of default over a specified time period, and the loss given default measures the amount that the Company could lose in the event of a counterparty default. If the net present value of the expected cash flows is less than the amortized cost, a credit loss allowance is recorded. The credit loss is recorded as the excess of amortized cost over the net present value of the expected cash flows limited by the amount the fair value is less than the amortized cost (fair-value floor). If the fair value is less than the net present value of its expected cash flows at the impairment measurement date, a non-credit loss exists which is recorded in other comprehensive income (loss) for the difference between the fair value and the net present value of the expected cash flows.
Additions to or releases of the allowance on all fixed maturity securities are reported in “Increase (decrease) in investment credit loss” in the consolidated statements of operations.
13
Note 2 – Summary of Significant Accounting Policies and Practices - (Continued)
Derivative instruments in the form of equity-indexed options are purchased to hedge against future interest rate increases in liabilities indexed to market rates and are recorded in the consolidated statements of financial position within other invested assets at fair value, net of collateral provided by counterparties. The change in fair value of derivative assets and liabilities is reported in the consolidated statements of operations as “Net investment income” and “Interest credited to policyholders’ account balances,” respectively. American National does not apply hedge accounting treatment to its derivative instruments. The Company uses derivative instruments to hedge its business risk and holds collateral to offset exposure from its counterparties. Collateral that supports credit risk is reported in the consolidated statements of financial position as an offset to “Other invested assets” with an associated payable to “Other liabilities” for excess collateral.
Cash and cash equivalents have durations that do not exceed 90 days at the date of acquisition, include cash on-hand and in banks, as well as amounts invested in money market funds, and are reported as “Cash and cash equivalents” in the consolidated statements of financial position.
Property and equipment consist of buildings occupied by American National, data processing equipment, software, furniture and equipment, and automobiles which are carried at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful life of the asset (typically 3 to 50 years).
Goodwill represents the excess of amounts paid for acquiring businesses over the fair value of the net assets acquired, less any impairment of goodwill recognized. Goodwill is recognized when acquired.
Goodwill is not amortized but is tested for impairment at least annually. Goodwill is assessed for impairment whenever events or changes in circumstances, such as deteriorating or adverse market conditions, indicate that it is more likely than not that the carrying amount of the reporting unit including goodwill may exceed the fair value.
Goodwill impairment is measured and recognized as the amount by which a reporting unit’s carrying value, including goodwill, exceeds its fair value, not to exceed the carrying amount of goodwill of the reporting unit. There were no impairment adjustments made to goodwill for any period presented.
Insurance specific assets and liabilities
Adoption of ASU 2018-12 - Targeted Improvements to the Accounting for Long-Duration Contracts
The Company adopted ASU 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts ("LDTI") effective January 1, 2023 with a transition date of May 25, 2022 using a full retrospective approach. LDTI resulted in significant changes to the measurement, presentation and disclosure requirements for long-duration insurance contracts. A summary of the most significant changes follows:
(1) Guaranteed benefits associated with certain annuity contracts have been classified and presented separately on the consolidated balance sheets as Market Risk Benefits ("MRB"). MRBs are now measured at estimated fair value through net income and reported separately on the consolidated statements of operations, except for nonperformance risk changes, which will be recognized in Other Comprehensive Income ("OCI").
(2) Cash flow assumptions used to measure the liability for liability for future policy benefits ("LFPB") on traditional long-duration contracts (including term and non-participating whole life insurance and immediate annuities) have been updated on an annual basis.
(3) The discount rate assumption used to measure the liability for traditional long-duration contracts is now based on an upper-medium grade discount rate with changes recognized in OCI.
(4) DAC for all insurance products is required to be amortized on a constant-level basis over the expected term of the contracts, using amortization methods that are not a function of revenue or profit emergence.
(5) There was a significant increase in required disclosures, including disaggregated rollforwards of insurance contract assets and liabilities supplemented by qualitative and quantitative information regarding the cash flows, assumptions, methods and judgements used to measure those balances.
14
Note 2 – Summary of Significant Accounting Policies and Practices - (Continued)
The following table presents the Company's significant accounting policies which have changed as a result of the adoption of LDTI with cross-references to the notes which provide additional information on such policies.
| Accounting Policy | Note | |||
| Deferred policy acquisition costs, value of business acquired, unearned revenue and other intangibles | 10 | |||
| Future policy benefit liabilities | 18 | |||
| Policyholder account balances | 19 | |||
| Market risk benefits | 20 | |||
Deferred policy acquisition costs (“DAC”) are capitalized costs related directly to the successful acquisition of new or renewal insurance contracts. Significant costs are incurred to acquire insurance and annuity contracts, including commissions and certain underwriting, policy issuance, and processing expenses. In accordance with ASC 805, Business Combinations existing DAC balance was written off as a result of the Merger. The beginning balance as of May 25, 2022 consists of the Value of Business Acquired ("VOBA") at that date.
Insurance contracts are grouped into cohorts by contract type and issue year consistent with estimating the associated liability for future policy benefits. DAC is amortized on constant level basis for the grouped contracts over the expected term of the related contracts to approximate straight-line amortization. DAC will be amortized over the following bases, all of which provide a constant level representation of contract term:
| Product(s) | Amortization base | |
| Traditional life products | Nominal face amount | |
| Life contingent payout annuities | Annualized benefit amount in force | |
| Health products | Original annual premium | |
| Fixed deferred annuities, fixed indexed annuities, variable annuities | Policy count | |
| Universal life products | Initial face amount |
The bases used for amortization are projected using mortality and lapse assumptions that are based on American National's experience, industry data, and other factors consistent with those used for the liability for future policy benefits.
Amortization of DAC is included in the change in deferred acquisition costs in the consolidated statements of operations.
For short-duration contracts, DAC is grouped consistent with the manner in which insurance contracts are acquired, serviced, and measured for profitability and is reviewed for recoverability based on the profitability of the underlying insurance contracts. Investment income is anticipated in assessing the recoverability of DAC for short-duration contracts. DAC for short duration contracts is charged to expense in proportion to premium revenue recognized.
Value of business acquired ("VOBA") is an intangible asset or liability resulting from a business combination that represents the difference between the policyholder liabilities measured in accordance with the acquiring company's accounting policies and the estimated fair value of the same acquired policyholder liabilities in-force at the acquisition date. VOBA can be either positive or negative. Positive VOBA is recorded as a component of DAC. Negative VOBA occurs when the estimated fair value of in-force contracts in a life insurance company acquisition is greater than the amount recorded as insurance contract liabilities, and is recorded in future policyholder benefits in the consolidated statements of financial position.
VOBA is amortized on an approximated straight-line basis over the remaining life of the underlying policies consistent with DAC.
Liability for future policy benefits ("LFPB") is equal to the present value of expected benefit payments and claim related expenses to be paid or on behalf of policyholders less the present value of expected net premiums to be collected from policyholders. Principal assumptions used in the establishment of the LFPB are mortality, lapse, claim-related expenses, and other contingent events as appropriate to the respective product type. American National groups contracts into annual cohorts based on product type and contract inception date for the purposes of calculating the liability for future policy benefits. A set of qualitative cohorts includes all business issued prior to the acquisition date. Another set of qualitative cohorts includes business issued between the acquisition date and year end 2022. In 2023 and beyond, there is a set of qualitative cohorts for each issue year.
15
Note 2 – Summary of Significant Accounting Policies and Practices - (Continued)
American National updates its estimate of cash flows over the entire life of a group of contracts using actual historical experience and current future cash flow assumptions. American National will review cash flow assumptions, including assumptions for claim-related expenses annually in the fourth quarter. Assumption revisions will be reflected in the net premium ratio and LFPB calculation in the quarter in which assumptions are revised. The net premium ratio reflects cash flows from contract inception to contract termination (i.e. through the claim paying period) and cannot exceed 100%. Change in the liability due to actual experience is recognized in reserve remeasurement (gains) losses in the consolidated statements of operations.
American National measures the LFPB at each reporting period. The discount rate assumption is determined by developing a yield curve based on market observable yields for upper-medium fixed income instruments derived from an external index. The difference between the updated carrying amount of the liability for future policy benefits measured using the current discount rate assumption and the original discount rate assumption is recognized in other comprehensive income during the period. The net premium ratio is not updated for changes in discount rate assumptions.
Should the present value of actual and future expected benefits less transition LFPB balance exceed the present value of actual and future expected gross premiums, the net premium ratio is capped at 100% and a gross premium LFPB is held. The immediate charge is the amount by which the uncapped net premium ratio exceeds 100% times the present value of future expected gross premium. This assessment is performed at the cohort level.
American National periodically reviews its estimates of actuarial liabilities for future policy benefits and compares them with its actual experience. Differences between actual experience and the assumptions used in pricing these policies, guarantees and riders and in the establishment of the related liabilities result in variances in profit and could result in losses. The effects of changes in such estimated liabilities are included in the consolidated statements of operations in the period in which the changes occur.
Payout annuities include single premium immediate annuities, annuitizations of deferred annuities, and pension risk transfer. These contracts subject the insurer to risks over a period that extends beyond the period or periods in which premiums are collected. These contracts may be either non-life contingent or life contingent. Non-life contingent annuities are accounted for as investment contracts. For life contingent annuities, the Company records a liability at the present value of future annuity payments and estimated future expenses calculated using expected mortality and costs, and expense assumptions. Any gross premiums received in excess of the net premium is the deferred profit liability ("DPL") and is recognized separately in income in a constant relationship with the discounted amount of the expected future benefit payments. These liabilities are recorded in future policy benefits in the consolidated statements of financial position.
Market risk benefits ("MRB") are measured at fair value at the cohort level. Total attributed fees will include explicit rider fees and will not be negative or exceed total contract fees and assessments collectible from the contract holder. There are only rider charges and surrender charges. Surrender charges will not be included in the fair value measurement, as surrender charges do not fund any future benefits. Cash flows are projected using risk-neutral scenarios generated by the company. The Company establishes MRB assets and liabilities for guaranteed minimum withdraw benefits ("GMWB") associated with equity-indexed annuity contracts.
The actuarial assumptions used in the MRB calculation are the company’s best estimate assumptions. Assumptions are adjusted to reflect fair value by applying a margin for non-hedgeable risk and an adjustment for own credit spread through the discount rate. The risk-free discount rate is the scenario specific US treasury rate. The assumptions used for MRB are consistent with other fair value calculations performed by American National.
Policyholders’ account balances represent the contract value that has accrued to the benefit of the policyholders related to universal-life and investments-type contracts. For fixed products, these are generally equal to the accumulated deposits plus interest credited, reduced by withdrawals, payouts, and accumulated policyholder assessments. Indexed product account balances are equal to the sum of host and embedded derivative reserves computed.
Liabilities for unpaid claims and claim adjustment expenses (“CAE”) are established to provide for the estimated costs of paying claims. These reserves include estimates for both case reserves and IBNR claim liabilities. Case reserves include the liability for reported but unpaid claims. IBNR liabilities include a provision for potential development on case reserves, losses on claims currently closed which may reopen in the future, as well as IBNR claims. These liabilities also include an estimate of the expense associated with settling claims, including legal and other fees, and the general expenses of administering the claims adjustment process.
16
Note 2 – Summary of Significant Accounting Policies and Practices - (Continued)
Reinsurance recoverables are estimated amounts due to American National from reinsurers related to paid and unpaid ceded claims and CAE and are presented net of a reserve for collectability. Recoveries of gross ultimate losses under our non-catastrophe reinsurance are estimated by a review of individual large claims and the ceded portion of IBNR using assumed distribution of loss by percentage retained. Recoveries of gross ultimate losses under our catastrophe reinsurance are estimated by applying reinsurance treaty terms to estimates of gross ultimate losses. The most significant assumption is the average size of the individual losses for those claims that have occurred but have not yet been reported and our estimate of gross ultimate losses. The ultimate amount of the reinsurance ceded recoverable is unknown until all losses settle.
Separate account assets and liabilities
Separate account assets and liabilities are funds that are held separate from the general assets and liabilities of American National. Separate account assets include funds representing the investments of variable insurance product contract holders, who bear the investment risk of such funds. Investment income and investment gains and losses from these separate funds accrue to the benefit of the contract holders. American National reports separately, as assets and liabilities, investments held in such separate accounts and liabilities of the separate accounts if (i) such separate accounts are legally recognized; (ii) assets supporting the contract liabilities are legally insulated from American National’s general account liabilities; (iii) investments are directed by the contract holder; and (iv) all investment performance, net of contract fees and assessments, is passed through to the contract holder. In addition, American National's qualified pension plan assets are included in separate accounts. The assets of these accounts are carried at fair value. Deposits, net investment income and realized investment gains and losses for these accounts are excluded from revenues, and related liability increases are excluded from benefits and expenses in the consolidated statements of operations. Separate accounts are established in conformity with insurance laws and are not chargeable with liabilities that arise from any other business of American National.
Premiums, benefits, claims incurred, and expenses
Traditional ordinary life and health premiums are recognized as revenue when due. Benefits and expenses are associated with earned premiums to result in recognition of profits over the term of the insurance contracts.
Annuity premiums received on limited-pay and supplemental annuity contracts involving a significant life contingency are recognized as revenue when due. Deferred annuity premiums are recorded as deposits rather than recognized as revenue. Revenues from deferred annuity contracts are principally surrender charges and, in the case of variable annuities, administrative fees assessed to contract holders.
Universal life and single premium whole life revenues represent amounts assessed to policyholders including mortality charges, surrender charges actually paid, and earned policy service fees. Amounts included in expenses are benefits in excess of account balances returned to policyholders.
Property and casualty premiums are recognized as revenue over the period of the contract in proportion to the amount of insurance protection, which is generally recognized evenly over the contract period, net of reinsurance ceded. Claims incurred consist of claims and CAE paid and the change in reserves, net of reinsurance received and recoverable.
Participating insurance policies
Participating business at December 31, 2023 and 2022 comprised approximately 4.0% and 3.8% of the life insurance in-force and 18.0% and 29.5% of life premiums at December 31, 2023 and 2022, respectively.
For the majority of this participating business, profits earned are reserved for the payment of dividends to policyholders, except for the stockholders’ share of profits on participating policies, which is limited to the greater of 10% of the profit on participating business, or 50 cents per thousand dollars of the face amount of participating life insurance in-force. Participating policyholders’ interest includes the accumulated net income from participating policies reserved for payment to such policyholders in the form of dividends (less net income allocated to stockholders as indicated above) as well as a pro rata portion of unrealized investment gains (losses). Dividends to participating policyholders were $8.8 million and $9.0 million for the years ended December 31, 2023 and 2022, respectively. Income of $19.4 million and $19.0 million was allocated to participating policyholders for the years ended December 31, 2023 and 2022, respectively.
For all other participating business, the allocation of dividends to participating policyowners is based upon a comparison of experienced rates of mortality, interest and expenses, as determined periodically for representative plans of insurance, issue ages and policy durations, with the corresponding rates assumed in the calculation of premiums.
17
Note 2 – Summary of Significant Accounting Policies and Practices - (Continued)
Federal income taxes
American National files a consolidated life and non-life federal income tax return with its parent , BAMR US Holdings LLC ("BAMR US"), a subsidiary of Brookfield Reinsurance Ltd. Certain subsidiaries that are consolidated for financial reporting are not eligible to be included in the consolidated federal income tax return, and therefore file separate returns. In accordance with the Company’s tax sharing agreement with BAMR US, tax liabilities for the consolidated federal income tax return are calculated as if each subsidiary filed a separate federal income tax return. If the Company has taxable income, it pays its share of the consolidated federal income tax liability to BAMR US. However, if the Company incurs a tax loss, the tax benefit is recovered by decreasing subsequent year’s federal income tax payments to BAMR US.
Deferred income tax assets and liabilities are recognized to reflect the future tax consequences attributable to differences between the financial statement amounts of assets and liabilities and their respective tax bases. Deferred taxes are measured using enacted tax rates expected to apply in the years in which those temporary differences are expected to be recovered or settled.
American National recognizes tax benefits on uncertain tax positions if it is “more-likely-than-not” the position based on its technical merits will be sustained by taxing authorities. American National recognizes the largest benefit that is greater than 50% likely of being ultimately realized upon settlement. Tax benefits not meeting the “more-likely-than-not” threshold, if applicable, are included within “Other liabilities” in the consolidated statements of financial position. American National recognizes interest expense and penalties related to uncertain tax positions, if applicable, as income tax expense in the consolidated statements of operations. Accrued interest expense and penalties related to uncertain tax positions are reported as "Other liabilities" in the consolidated statements of financial position.
Pension and postretirement benefit plans
Pension and postretirement benefit obligations and costs for our frozen benefit plans are estimated using assumptions including demographic factors such as retirement age and mortality.
American National uses a discount rate to determine the present value of future benefits on the measurement date. The guideline for setting this rate is a high-quality long-term corporate bond rate. For this purpose, a hypothetical bond portfolio to match the expected monthly benefit payments under the pension plan was constructed with the resulting yield of the portfolio used as a discount rate.
In developing the investment return assumption, we relied on a model that utilizes the following factors:
| · | Current yield to maturity of fixed income securities |
| · | Forecasts of inflation, GDP growth, and total return for each asset class |
| · | Historical plan performance |
| · | Target asset allocation |
| · | Standard deviations and correlations related to historical and expected future returns of each asset class and inflation |
The resulting assumption is the assumed rate of return for the plans’ target asset allocation, net of investment expenses, and reflects anticipated returns of the plans’ current and future assets.
Using this approach, the calculated return will fluctuate from year to year; however, it is American National’s policy to hold this long-term assumption relatively constant.
Litigation contingencies
Existing and potential litigation is reviewed quarterly to determine if any adjustments to liabilities for possible losses are necessary. Reserves for losses are established whenever they are probable and reasonably estimable. If no one estimate within the range of possible losses is more probable than any other, a reserve is recorded based on the lowest amount of the range.
18
Note 3 – Recently Issued Accounting Pronouncements
Transition Date Impacts of the Adoption of ASU 2018-12 - Targeted Improvements to the Accounting for Long-Duration Contracts
Due to the acquisition of American National by Brookfield Reinsurance on May 25, 2022 and the guidelines under ASC 805, Business Combinations, the inception date for all contracts issued before that date became May 25, 2022. Under purchase accounting guidelines, fair value of equity must be equal to the purchase price at the acquisition date. As a result, there will not be any impact to the opening balances of retained earnings or accumulated other comprehensive income due to the adoption of the standard on the transition date of May 25, 2022.
The transition impact of the MRBs and LFPB will be recorded to VOBA liability resulting in no impact to shareholders equity, as noted above.
The following table presents a summary of the Transition Date impacts associated with the implementation of LDTI to the consolidated balance sheet (in thousands):
| Successor | ||||||||||||
| Future Policy Benefits | Market Risk Benefits | VOBA Liability | ||||||||||
| As previously reported May 25, 2022 | $ | 4,662,434 | $ | — | $ | 662,905 | ||||||
| Reclassification of carrying amount of contracts and contract features that are market risk benefits | (107,432 | ) | 107,432 | — | ||||||||
| Adjustment to reflect transition impact to balance established as part of purchase accounting upon the Brookfield acquisition | (315,561 | ) | 64,580 | 250,981 | ||||||||
| As adjusted May 25, 2022 | $ | 4,239,441 | $ | 172,012 | $ | 913,886 | ||||||
The following table represents transition impacts for future policy benefits by product.
| Successor | ||||||||||||
| Term Life | Whole Life | Annuity | ||||||||||
| As previously reported May 25, 2022 | $ | 615,782 | $ | 1,694,351 | $ | 1,439,449 | ||||||
| Reclassification of carrying amount of contracts and contract features that are market risk benefits | — | — | — | |||||||||
| Adjustment to reflect transition impact to balance established as part of purchase accounting upon the Brookfield acquisition | (84,761 | ) | (223,213 | ) | (7,586 | ) | ||||||
| As adjusted May 25, 2022 | $ | 531,021 | $ | 1,471,138 | $ | 1,431,863 | ||||||
The following table represents the transition impact to market risk benefits by product.
| Successor | ||||
| Annuity | ||||
| As previously reported May 25, 2022 | $ | 107,432 | ||
| Adjustment to reflect transition impact to balance established as part of purchase accounting upon the Brookfield acquisition | 64,580 | |||
| As adjusted May 25, 2022 | $ | 172,012 | ||
The Transition Date impacts associated with the implementation of LDTI were applied as follows:
Market risk benefits - The full retrospective transition approach for MRBs required assessing products to determine whether contract or contract features expose the Company to other than nominal capital market risk. The population of MRBs identified was then reviewed to determine the historical measurement model prior to adoption of LDTI.
19
Note 3 - Recently Issued Accounting Pronouncements - (Continued)
At the Transition Date, the impacts to the financial statements of the full retrospective approach for MRBs include the following:
| · | The amounts previously recorded for these contracts within additional insurance liabilities and other insurance liabilities were reclassified to MRB liabilities; |
| · | The difference between the fair value of the MRBs and the previously recorded carrying value at the Transition Date, including the cumulative effect of changes in nonperformance risk of the Company, was recorded as an adjustment to the opening balance of VOBA liability. |
Liability for future policy benefits - The full retrospective transition approach for LFPB utilized a defined valuation premium method. This process required grouping contracts in-force as of the Transition Date into cohorts, and then calculating revised LFPB using an updated net premium ratio, best estimate cash flow assumptions without a provision for adverse deviation and the locked-in discount rate. The decrease to the liability for future policy benefits at transition is driven by unlocking of assumptions and measurement at upper medium grade discount rates for traditional life and life contingent payout annuity business.
Due to the acquisition of American National by Brookfield Reinsurance on May 25, 2022 , the balances of deferred acquisition costs, deferred profit liability, unearned revenue, and sales inducement assets were written down to $0 at the acquisition date. As a result, there is no impact to these balances at transition.
The following table presents amounts previously reported in 2022, the effect on those amounts of the change due to the adoption of ASU 2018-12, and the currently reported amounts in the Consolidated Statements of Financial Position (in thousands).
| Successor | ||||||||||||
| December 31, 2022 | ||||||||||||
| As
Previously Reported | Effect of Adoption | As Adjusted | ||||||||||
| Reinsurance recoverables, net of allowance for credit losses | $ | 447,124 | $ | (2,954 | ) | $ | 444,170 | |||||
| Deferred policy acquisition costs | 716,381 | (17,230 | ) | 699,151 | ||||||||
| Deferred tax asset | 527,768 | (88,654 | ) | 439,114 | ||||||||
| Market risk benefit asset | — | 10,330 | 10,330 | |||||||||
| Total assets | $ | 29,638,489 | $ | (98,508 | ) | $ | 29,539,981 | |||||
| Future policy benefits | ||||||||||||
| Life | $ | 3,584,520 | $ | (248,379 | ) | $ | 3,336,141 | |||||
| Annuity | 1,713,528 | (247,336 | ) | 1,466,192 | ||||||||
| Health | 47,045 | 9,893 | 56,938 | |||||||||
| Market risk benefit liabilities | — | 54,340 | 54,340 | |||||||||
| Total liabilities | 26,216,009 | (431,481 | ) | 25,784,528 | ||||||||
| Member's equity | 4,069,824 | 59,068 | 4,128,892 | |||||||||
| Accumulated other comprehensive income (loss) | (721,612 | ) | 273,905 | (447,707 | ) | |||||||
| Total liabilities and equity | $ | 29,638,489 | $ | (98,508 | ) | $ | 29,539,981 | |||||
20
Note 3 - Recently Issued Accounting Pronouncements - (Continued)
The following table presents amounts previously reported in 2022, the effect on those amounts of the change due to the adoption of ASU 2018-12 and the currently reported amounts in the Consolidated Statement of Operations (in thousands).
| Successor | ||||||||||||
| For the Period from May 25, 2022 through December 31, 2022 | ||||||||||||
| As
Previously Reported | Effect of Adoption | As Adjusted | ||||||||||
| Premiums | $ | 2,327,053 | $ | — | $ | 2,327,053 | ||||||
| BENEFITS, LOSSES AND EXPENSES | ||||||||||||
| Policyholder benefits | 1,165,494 | 24,216 | 1,189,710 | |||||||||
| Change in fair value of market risk benefit | — | (101,699 | ) | (101,699 | ) | |||||||
| Change in deferred policy acquisition costs | (125,215 | ) | 2,713 | (122,502 | ) | |||||||
| Total benefits, losses and expenses | 2,006,048 | (74,770 | ) | 1,931,278 | ||||||||
| Income before federal income tax and other items | 321,005 | 74,770 | 395,775 | |||||||||
| Less: Provision (benefit) for federal income taxes | ||||||||||||
| Current | 20,826 | — | 20,826 | |||||||||
| Deferred | 36,968 | 15,702 | 52,670 | |||||||||
| Total provision for federal income taxes | 57,794 | 15,702 | 73,496 | |||||||||
| Income after federal income tax | 263,211 | 59,068 | 322,279 | |||||||||
| Other components of net periodic pension benefit (costs), net of tax | 3,805 | — | 3,805 | |||||||||
| Net income | 267,016 | 59,068 | 326,084 | |||||||||
| Less: Net income attributable to noncontrolling interest, net of tax | 2,264 | — | 2,264 | |||||||||
| Net income attributable to American National | $ | 264,752 | $ | 59,068 | $ | 323,820 | ||||||
21
Other Adopted Accounting Pronouncements
| Standard | Description | Effective
Date and Method of Adoption |
Impact on Financial Statements |
| ASU 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings ("TDR") and Vintage Disclosures | This ASU eliminates TDR recognition and measurement guidance and, instead, requires that an entity evaluate whether the modification represents a new loan or a continuation of an existing loan. The amendments also enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. | The Company adopted this standard on January 1, 2023 and applied it prospectively. | The adoption of this standard did not have a material impact to the Company's Condensed Consolidated Financial Statements or the Notes to the Condensed Consolidated Financial Statements upon adoption, but could change the future recognition and measurement of modified loans. |
Future Adoption of Accounting Standards
22
Note 3 - Recently Issued Accounting Pronouncements - (Continued)
ASUs not listed below were assessed and either determined to be not applicable or are not expected to have a material impact on the Company’s consolidated financial statements or disclosures.
| Standard | Description | Effective
Date and Method of Adoption |
Impact on Financial Statements |
| ASU 2023-02, Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method | The amendments in this Update permit reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. The amendments in this Update also require specific disclosures that must be applied to all investments that generate income tax credits and other income tax benefits from a tax credit program for which the entity has elected to apply the proportional amortization method. | The amendments in this update are effective for the Company for annual and interim reporting periods beginning January 1, 2024. | The adoption of this standard did not have a material impact to the Company's Condensed Consolidated Financial Statements or the Notes to the Condensed Consolidated Financial Statements. |
| ASU 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures | The amendments in this Update improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses | The amendments in this update are effective for the Company for annual reporting periods beginning January 1, 2024, and interim reporting periods beginning January 1, 2025. | The impact of this amendment to the Company's Consolidated Financial Statements and Notes to the Consolidated Financial Statements is currently under evaluation. |
| ASU 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures | The amendments in this Update require that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income [or loss] by the applicable statutory income tax rate). | The amendments in this update are effective for the Company for annual reporting periods beginning January 1, 2025. | The impact of this amendment to the Company's Consolidated Financial Statements and Notes to the Consolidated Financial Statements is currently under evaluation. |
23
Note 4 – Investment in Securities
The cost or amortized cost and fair value of investments in securities are shown below (in thousands):
| December 31, 2023 | ||||||||||||||||||||
| Cost
or Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Allowance
for Credit Losses | Fair Value | ||||||||||||||||
| Fixed maturity, bonds available-for-sale | ||||||||||||||||||||
| U.S. treasury and government | $ | 63,466 | $ | 116 | $ | (1,354 | ) | $ | — | $ | 62,228 | |||||||||
| U.S. states and political subdivisions | 593,590 | 685 | (16,780 | ) | (181 | ) | 577,314 | |||||||||||||
| Foreign governments | 9,403 | — | (276 | ) | (24 | ) | 9,103 | |||||||||||||
| Corporate debt securities | 11,337,579 | 79,019 | (419,875 | ) | (18,951 | ) | 10,977,772 | |||||||||||||
| Collateralized debt securities | 1,340,141 | 8,724 | (27,243 | ) | (4,367 | ) | 1,317,255 | |||||||||||||
| Residential mortgage-backed securities | 131,272 | 351 | (4,024 | ) | (695 | ) | 126,904 | |||||||||||||
| Total bonds available-for-sale | 13,475,451 | 88,895 | (469,552 | ) | (24,218 | ) | 13,070,576 | |||||||||||||
| Total investments in fixed maturity | $ | 13,475,451 | $ | 88,895 | $ | (469,552 | ) | $ | (24,218 | ) | $ | 13,070,576 | ||||||||
| December 31, 2022 | ||||||||||||||||||||
| Cost
or Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Allowance
for Credit Losses | Fair Value | ||||||||||||||||
| Fixed maturity, bonds available-for-sale | ||||||||||||||||||||
| U.S. treasury and government | $ | 41,384 | $ | 30 | $ | (1,405 | ) | $ | — | $ | 40,009 | |||||||||
| U.S. states and political subdivisions | 880,186 | 123 | (24,706 | ) | (742 | ) | 854,861 | |||||||||||||
| Foreign governments | 9,314 | — | (298 | ) | (12 | ) | 9,004 | |||||||||||||
| Corporate debt securities | 12,104,754 | 6,020 | (830,095 | ) | (23,049 | ) | 11,257,630 | |||||||||||||
| Collateralized debt securities | 1,279,102 | 5,300 | (55,261 | ) | (4,574 | ) | 1,224,567 | |||||||||||||
| Residential mortgage-backed securities | 132,797 | 23 | (5,741 | ) | (331 | ) | 126,748 | |||||||||||||
| Total bonds available-for-sale | 14,447,537 | 11,496 | (917,506 | ) | (28,708 | ) | 13,512,819 | |||||||||||||
| Total investments in fixed maturity | $ | 14,447,537 | $ | 11,496 | $ | (917,506 | ) | $ | (28,708 | ) | $ | 13,512,819 | ||||||||
24
Note 4 – Investment in Securities – (Continued)
The amortized cost and fair value, by contractual maturity, of fixed maturity securities are shown below (in thousands):
| December 31, 2023 | ||||||||
| Bonds Available-for-Sale | ||||||||
| Amortized Cost | Fair Value | |||||||
| Due in one year or less | $ | 484,547 | $ | 481,877 | ||||
| Due after one year through five years | 5,016,193 | 4,935,283 | ||||||
| Due after five years through ten years | 3,850,833 | 3,720,967 | ||||||
| Due after ten years | 4,123,878 | 3,932,449 | ||||||
| Total | $ | 13,475,451 | $ | 13,070,576 | ||||
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):
| Successor | Predecessor | |||||||||||||||
| Year ended | Period from May 25, 2022 through |
Period from January 1, 2022 through |
Year ended | |||||||||||||
| December 31, 2023 | December 31, 2022 | May 24, 2022 | December 31, 2021 | |||||||||||||
| Proceeds from sales of fixed maturity, bonds available-for-sale | $ | 2,515,500 | $ | 2,383,655 | $ | 59,388 | $ | 55,558 | ||||||||
| Gross realized gains | 3,172 | 10,182 | — | 59 | ||||||||||||
| Gross realized losses | (68,255 | ) | (39,520 | ) | — | — | ||||||||||
Gains and losses are determined using specific identification of the securities sold. All held-to-maturity securities were transferred to available-for-sale through a management election allowed under business combination guidance.
In accordance with various regulations, American National has bonds on deposit with regulating authorities with a carrying value of $53.5 million and $51.1 million at December 31, 2023 and December 31, 2022, respectively. In addition, American National has pledged bonds in connection with certain agreements and transactions, such as financing and reinsurance agreements. The carrying value of bonds pledged was $39.2 million and $44.8 million at December 31, 2023 and December 31, 2022, respectively.
The components of the change in net unrealized gains (losses) on debt securities are shown below (in thousands):
| Successor | Predecessor | |||||||||||||||
| Year ended | Period from May 25, 2022 through |
Period from January 1, 2022 through |
Year ended | |||||||||||||
| December 31, 2023 | December 31, 2022 | May 24, 2022 | December 31, 2021 | |||||||||||||
| Bonds available-for-sale: change in unrealized gains (losses) | $ | 525,353 | $ | (906,010 | ) | $ | (997,300 | ) | $ | (248,756 | ) | |||||
| Short-term change in unrealized losses | 12,181 | (13,076 | ) | — | — | |||||||||||
| Adjustments for | ||||||||||||||||
| Deferred policy acquisition costs | — | — | 199,027 | 58,281 | ||||||||||||
| Participating policyholders’ interest | (2,218 | ) | 8,647 | 13,478 | 8,275 | |||||||||||
| Deferred federal income tax benefit (expense) | (112,671 | ) | 188,903 | 164,085 | 39,346 | |||||||||||
| Change in net unrealized gains (losses) on debt securities, net of tax | $ | 422,645 | $ | (721,536 | ) | $ | (620,710 | ) | $ | (142,854 | ) | |||||
25
Note 4 – Investment in Securities – (Continued)
The components of the change in net gains (losses) on equity securities are shown below (in thousands):
| Successor | Predecessor | |||||||||||||||
| Year ended | Period from May 25, 2022 through |
Period from January 1, 2022 through |
Year ended | |||||||||||||
| December 31, 2023 | December 31, 2022 | May 24, 2022 | December 31, 2021 | |||||||||||||
| Unrealized gains (losses) on equity securities | $ | 85,074 | $ | 49,313 | $ | (7,288 | ) | $ | 38,771 | |||||||
| Net gains (losses) on equity securities sold | 11,753 | 47 | (5,794 | ) | 381,512 | |||||||||||
| Net gains (losses) on equity securities | $ | 96,827 | $ | 49,360 | $ | (13,082 | ) | $ | 420,283 | |||||||
The gross unrealized losses and fair value of bonds available-for-sale, aggregated by investment category and length of time individual securities have been in a continuous unrealized loss position due to market factors are shown below (in thousands, except number of issues):
| December 31, 2023 | ||||||||||||||||||||||||||||||||||||
| 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 | 17 | $ | (531 | ) | $ | 27,163 | 35 | $ | (823 | ) | $ | 24,902 | 52 | $ | (1,354 | ) | $ | 52,065 | ||||||||||||||||||
| U.S. states and political subdivisions | 214 | (3,210 | ) | 218,774 | 142 | (13,570 | ) | 284,892 | 356 | (16,780 | ) | 503,666 | ||||||||||||||||||||||||
| Foreign governments | — | — | — | 2 | (276 | ) | 9,103 | 2 | (276 | ) | 9,103 | |||||||||||||||||||||||||
| Corporate debt securities | 1,343 | (141,365 | ) | 2,941,484 | 1,906 | (278,510 | ) | 6,474,799 | 3,249 | (419,875 | ) | 9,416,283 | ||||||||||||||||||||||||
| Collateralized debt securities | 102 | (4,272 | ) | 257,735 | 201 | (22,971 | ) | 781,849 | 303 | (27,243 | ) | 1,039,584 | ||||||||||||||||||||||||
| Residential mortgage-backed securities | 6 | (895 | ) | 39,089 | 39 | (3,129 | ) | 64,057 | 45 | (4,024 | ) | 103,146 | ||||||||||||||||||||||||
| Total | 1,682 | $ | (150,273 | ) | $ | 3,484,245 | 2,325 | $ | (319,279 | ) | $ | 7,639,602 | 4,007 | $ | (469,552 | ) | $ | 11,123,847 | ||||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||||||||||||||||||
| 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 | 18 | $ | (1,405 | ) | $ | 36,692 | — | $ | — | $ | — | 18 | $ | (1,405 | ) | $ | 36,692 | |||||||||||||||||||
| U.S. states and political subdivisions | 580 | (24,706 | ) | 833,315 | — | — | — | 580 | (24,706 | ) | 833,315 | |||||||||||||||||||||||||
| Foreign governments | 1 | (298 | ) | 9,005 | — | — | — | 1 | (298 | ) | 9,005 | |||||||||||||||||||||||||
| Corporate debt securities | 1,212 | (830,095 | ) | 9,951,734 | — | — | — | 1,212 | (830,095 | ) | 9,951,734 | |||||||||||||||||||||||||
| Collateralized debt securities | 71 | (55,261 | ) | 776,938 | — | — | — | 71 | (55,261 | ) | 776,938 | |||||||||||||||||||||||||
| Residential mortgage-backed securities | 46 | (5,741 | ) | 93,008 | — | — | — | 46 | (5,741 | ) | 93,008 | |||||||||||||||||||||||||
| Total | 1,928 | $ | (917,506 | ) | $ | 11,700,692 | — | $ | — | $ | — | 1,928 | $ | (917,506 | ) | $ | 11,700,692 | |||||||||||||||||||
26
Note 4 – Investment in Securities – (Continued)
Several assumptions and underlying estimates are made in the evaluation of allowance for credit loss. Examples include 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 transportation sector.
Equity securities by market sector distribution are shown below, based on fair value:
| December 31, 2023 | December 31, 2022 | |||||||||||||||
| Energy and utilities | $ | 426,087 | 30.2 | % | $ | 30,722 | 7.2 | % | ||||||||
| Finance | 338,052 | 24.0 | 374,688 | 87.4 | ||||||||||||
| Healthcare | 119,620 | 8.5 | — | — | ||||||||||||
| Industrials | 47,506 | 3.4 | — | — | ||||||||||||
| Information technology | 253,859 | 18.0 | — | — | ||||||||||||
| Other | 219,123 | 15.9 | 22,959 | 5.4 | ||||||||||||
| Total | $ | 1,404,247 | 100 | % | $ | 428,369 | 100 | % | ||||||||
Allowance for Credit Losses
Available-for-Sale Securities—For available-for-sale bonds in an unrealized loss position, the Company first assesses whether it intends to sell the security or will be required to sell the security before recovery of its amortized cost basis. If either of these criteria are met, the security’s amortized cost basis is written down to fair value through income. For bonds available-for-sale that do not meet either indicated criteria, the Company evaluates whether the decline in fair value has resulted from credit events or market factors. In making this assessment, management first calculates the extent to which fair value is less than amortized cost, and then may consider any changes to the rating of the security by a rating agency, and any specific conditions related to the security. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded through income, limited to the amount fair value is less than amortized cost. Any remaining unrealized loss is recognized in other comprehensive income.
When the discounted cash flow method is used to determine the allowance for credit losses, management's estimates incorporate expected prepayments, if any. Model inputs are considered reasonable and supportable for three years. A mean reversion is applied in years four and five. Credit loss allowance is not measured on accrued interest receivable because the balance is written
off to net investment income in a timely manner, within 90 days. Changes in the allowance for credit losses are recognized through the consolidated statement of operations as "(Increase) decrease in investment credit loss."
No accrued interest receivables were written off as of December 31, 2023 and 2022.
27
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):
| Successor | U.S.
State and Political Subdivisions | Foreign Governments | Corporate
Debt Securities | Collateralized Debt Securities | Residential Mortgage Backed Securities | Total | ||||||||||||||||||
| Balance at May 25, 2022 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
| Increase in allowance related to purchases | — | — | (1,374 | ) | (364 | ) | (14 | ) | (1,752 | ) | ||||||||||||||
| Reduction in allowance related to dispositions | — | — | 430 | 220 | 82 | 732 | ||||||||||||||||||
| Allowance on securities that had an allowance recorded in a previous period | (15 | ) | — | (1,308 | ) | (1,013 | ) | (270 | ) | (2,606 | ) | |||||||||||||
| Allowance on securities where credit losses were not previously recorded | (727 | ) | (12 | ) | (20,797 | ) | (3,417 | ) | (129 | ) | (25,082 | ) | ||||||||||||
| Balance at December 31, 2022 | (742 | ) | (12 | ) | (23,049 | ) | (4,574 | ) | (331 | ) | (28,708 | ) | ||||||||||||
| Increase in allowance related to purchases | (20 | ) | — | (3,210 | ) | (967 | ) | (2 | ) | (4,199 | ) | |||||||||||||
| Reduction in allowance related to dispositions | 30 | — | 4,467 | 714 | 2 | 5,213 | ||||||||||||||||||
| Allowance on securities that had an allowance recorded in a previous period | 596 | 33 | 38,904 | 7,925 | (61 | ) | 47,397 | |||||||||||||||||
| Allowance on securities where credit losses were not previously recorded | (45 | ) | (45 | ) | (36,063 | ) | (7,465 | ) | (303 | ) | (43,921 | ) | ||||||||||||
| Balance at December 31, 2023 | $ | (181 | ) | $ | (24 | ) | $ | (18,951 | ) | $ | (4,367 | ) | $ | (695 | ) | $ | (24,218 | ) | ||||||
28
Note 4 – Investment in Securities – (Continued)
| Predecessor | U.S.
State and Political Subdivisions | Foreign governments | Corporate
Debt Securities | Collateralized Debt Securities | Residential Mortgage Backed Securities | Total | ||||||||||||||||||
| Beginning balance at January 1, 2021 | $ | — | $ | — | $ | (7,275 | ) | $ | (19 | ) | $ | (188 | ) | $ | (7,482 | ) | ||||||||
| Increase in allowance related to purchases | — | $ | — | (3,158 | ) | (538 | ) | — | (3,696 | ) | ||||||||||||||
| Reduction in allowance related to disposition | — | $ | — | 4,117 | 182 | — | 4,299 | |||||||||||||||||
| Allowance on securities that had an allowance recorded in a previous period | 12 | $ | — | 3,680 | (1,507 | ) | (29 | ) | 2,159 | |||||||||||||||
| Allowance on securities where credit losses were not previously recorded | (26 | ) | $ | — | (4,505 | ) | (1,005 | ) | (51 | ) | (5,590 | ) | ||||||||||||
| Balance at December 31, 2021 | $ | (14 | ) | $ | — | $ | (7,141 | ) | $ | (2,887 | ) | $ | (268 | ) | $ | (10,310 | ) | |||||||
| Increase in allowance related to purchases | — | — | (10,286 | ) | (59 | ) | — | (10,345 | ) | |||||||||||||||
| Reduction in allowance related to disposition | — | — | 459 | — | — | 459 | ||||||||||||||||||
| Allowance on securities that had an allowance recorded in a previous period | (67 | ) | — | 4,729 | (1,134 | ) | (42 | ) | 3,486 | |||||||||||||||
| Allowance on securities where credit losses were not previously recorded | (56 | ) | — | (16,005 | ) | (51 | ) | — | (16,112 | ) | ||||||||||||||
| Balance at May 24, 2022 | $ | (137 | ) | $ | — | $ | (28,244 | ) | $ | (4,131 | ) | $ | (310 | ) | $ | (32,822 | ) | |||||||
Credit Quality Indicators
The Company monitors the credit quality of bonds available-for-sale through the use of credit ratings provided by third party rating agencies, which are updated on a monthly basis. Information is also gathered regarding the asset performance of available-for-sale 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.
29
Note 5 – Mortgage Loans
Generally, commercial mortgage loans are secured by first liens on income-producing real estate. American National attempts to maintain a diversified portfolio by considering both the location of the underlying collateral as well as the type of mortgage loan. The geographic categories come from the U.S. Census Bureau's "Census Regions and Divisions of the United States."
The distribution based on carrying amount of mortgage loans by location is as follows (in thousands, except percentages):
| December 31, 2023 | December 31, 2022 | |||||||||||||||
| Amount | Percentage | Amount | Percentage | |||||||||||||
| East North Central | $ | 822,459 | 14.5 | % | $ | 898,915 | 16.2 | % | ||||||||
| East South Central | 49,219 | 0.9 | 65,548 | 1.2 | ||||||||||||
| Mountain | 1,317,761 | 23.3 | 1,360,837 | 24.5 | ||||||||||||
| Pacific | 899,549 | 15.9 | 924,187 | 16.7 | ||||||||||||
| South Atlantic | 989,930 | 17.5 | 967,353 | 17.4 | ||||||||||||
| West South Central | 1,066,151 | 18.8 | 1,068,239 | 19.3 | ||||||||||||
| Other | 512,954 | 9.1 | 261,096 | 4.7 | ||||||||||||
| Total | $ | 5,658,023 | 100.0 | % | $ | 5,546,175 | 100.0 | % | ||||||||
As of December 31, 2023 and December 31, 2022, loans in foreclosure and loans foreclosed are as follows (in thousands, except number of loans):
| December 31, 2023 | December 31, 2022 | |||||||||||||||
| Foreclosure and foreclosed | Number
of Loans | Recorded Investment | Number of Loans | Recorded Investment | ||||||||||||
| In foreclosure | — | $ | — | 1 | $ | 27,001 | ||||||||||
| Filed for bankruptcy | — | — | — | — | ||||||||||||
| Total in foreclosure | — | $ | — | 1 | $ | 27,001 | ||||||||||
| Foreclosed | 3 | $ | 79,430 | — | $ | — | ||||||||||
30
Note 5 – Mortgage Loans – (Continued)
The age analysis of past due loans is shown below (in thousands, except percentages):
| More Than | ||||||||||||||||||||||||||||
| 30-59 Days | 60-89 Days | 90 Days | Total | |||||||||||||||||||||||||
| December 31, 2023 | Past Due | Past Due | Past Due | Total | Current | Amount | Percentage | |||||||||||||||||||||
| Apartment | $ | — | $ | 50,000 | $ | — | $ | 50,000 | $ | 1,040,743 | $ | 1,090,743 | 17.3 | % | ||||||||||||||
| Hotel | — | 13,212 | — | 13,212 | 952,640 | 965,852 | 17.9 | |||||||||||||||||||||
| Industrial | — | — | — | — | 1,052,491 | 1,052,491 | 19.0 | |||||||||||||||||||||
| Office | 22,182 | — | 5,260 | 27,442 | 971,781 | 999,223 | 16.0 | |||||||||||||||||||||
| Parking | — | — | 9,257 | 9,257 | 404,303 | 413,560 | 7.3 | |||||||||||||||||||||
| Retail | 4,111 | — | — | 4,111 | 776,441 | 780,552 | 14.3 | |||||||||||||||||||||
| Storage | — | — | — | — | 118,448 | 118,448 | 2.1 | |||||||||||||||||||||
| Other | 26,052 | — | — | 26,052 | 264,509 | 290,561 | 6.1 | |||||||||||||||||||||
| Total | $ | 52,345 | $ | 63,212 | $ | 14,517 | $ | 130,074 | $ | 5,581,356 | $ | 5,711,430 | 100.0 | % | ||||||||||||||
| Allowance for credit losses | (53,407 | ) | ||||||||||||||||||||||||||
| Total, net of allowance | $ | 5,658,023 | ||||||||||||||||||||||||||
| More Than | ||||||||||||||||||||||||||||
| 30-59 Days | 60-89 Days | 90 Days | Total | |||||||||||||||||||||||||
| December 31, 2022 | Past Due | Past Due | Past Due | Total | Current | Amount | Percentage | |||||||||||||||||||||
| Apartment | $ | — | $ | — | $ | — | $ | — | $ | 805,690 | $ | 805,690 | 14.4 | % | ||||||||||||||
| Hotel | — | — | — | — | 1,009,560 | 1,009,560 | 18.1 | |||||||||||||||||||||
| Industrial | — | — | — | — | 1,043,305 | 1,043,305 | 18.7 | |||||||||||||||||||||
| Office | — | — | 27,001 | 27,001 | 1,104,981 | 1,131,982 | 20.3 | |||||||||||||||||||||
| Parking | — | — | — | — | 419,878 | 419,878 | 7.5 | |||||||||||||||||||||
| Retail | — | — | — | — | 842,483 | 842,483 | 15.1 | |||||||||||||||||||||
| Storage | — | — | — | — | 118,875 | 118,875 | 2.1 | |||||||||||||||||||||
| Other | — | — | — | — | 212,668 | 212,668 | 3.8 | |||||||||||||||||||||
| Total | $ | — | $ | — | $ | 27,001 | $ | 27,001 | $ | 5,557,440 | $ | 5,584,441 | 100.0 | % | ||||||||||||||
| Allowance for credit losses | (38,266 | ) | ||||||||||||||||||||||||||
| Total, net of allowance | $ | 5,546,175 | ||||||||||||||||||||||||||
Through the COVID-19 pandemic, American National provided modifications to loans 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. As a result of improved economic conditions, all loans have been paid in full or have completed the modified terms and returned to the original loan agreement as of December 31, 2022, except for three loans. These three loans received additional modifications in the form of extended maturity dates or interest only periods. All loans have fully repaid deferred interest on COVID modifications as of December 31, 2023.
Modifications to Borrowers Experiencing Financial Difficulty
The Company may modify the terms of a loan when the borrower is experiencing financial difficulties, as a means to optimize recovery of amounts due on the loan. Modifications may involve temporary relief, such as payment forbearance for a short period of time (where interest continues to accrue) or may involve more substantive changes to a loan. Changes to the terms of a loan, pursuant to a modification agreement, are factored into the analysis of the loan’s expected credit losses, under the allowance model applicable to the loan.
For commercial mortgage loans, modifications for borrowers experiencing financial difficulty are tailored for individual loans and may include interest rate relief, maturity extensions or, less frequently, principal forgiveness. For residential mortgage loans, the most common modifications for borrowers experiencing financial difficulty, aside from insignificant delays in payment, typically involve interest rate relief, deferral of missed payments to the end of the loan term, or maturity extensions.
For the year ended December 31, 2023, the Company granted additional extensions on nine previously restructured loans totaling $141.0 million in amortized cost. The loan term modifications ranged from 3 months to 24 months and represented approximately 2.4% of the portfolio segment.
31
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 Predecessor balance of $92.8 million at May 24, 2022 was closed out and the Successor recovered the entire allowance balance after the Merger as required by PGAAP guidance. The provision of $38.3 million is the net amount of recovery and adjustment for the period from May 25, 2022 through December 31, 2022. Refer to Note 1, Nature of Operations, for more information.
The rollforward of the allowance for credit losses for mortgage loans is shown below (in thousands):
| Successor | Commercial Mortgage Loans | |||
| Balance at May 25, 2022 | $ | — | ||
| Charge offs | — | |||
| Provision | (38,266 | ) | ||
| Balance at December 31, 2022 | (38,266 | ) | ||
| Charge offs | (15,051 | ) | ||
| Recoveries | 15,051 | |||
| Provision | (15,141 | ) | ||
| Balance at December 31, 2023 | $ | (53,407 | ) | |
| Predecessor | Commercial Mortgage Loans | |||
| Balance at December 31, 2020 | $ | (125,703 | ) | |
| Provision | 28,624 | |||
| Balance at December 31, 2021 | $ | (97,079 | ) | |
| Provision | 4,255 | |||
| Balance at May 24, 2022 | $ | (92,824 | ) | |
The $15.1 million increase in allowance from prior year is driven by loans in the deteriorating Office sector.
32
Note 5 – Mortgage Loans – (Continued)
The asset and allowance balances for credit losses for mortgage loans by property-type are shown below (in thousands):
| December 31, 2023 | December 31, 2022 | |||||||||||||||
| Asset Balance | Allowance | Asset Balance | Allowance | |||||||||||||
| Apartment | $ | 1,090,743 | $ | (3,155 | ) | $ | 805,690 | $ | (1,111 | ) | ||||||
| Hotel | 965,852 | (2,162 | ) | 1,009,560 | (5,400 | ) | ||||||||||
| Industrial | 1,052,491 | (871 | ) | 1,043,305 | (4,118 | ) | ||||||||||
| Office | 999,223 | (28,844 | ) | 1,131,982 | (17,420 | ) | ||||||||||
| Parking | 413,560 | (2,729 | ) | 419,878 | (5,566 | ) | ||||||||||
| Retail | 780,552 | (3,324 | ) | 842,483 | (3,740 | ) | ||||||||||
| Storage | 118,448 | (346 | ) | 118,875 | (469 | ) | ||||||||||
| Other | 290,561 | (11,976 | ) | 212,668 | (442 | ) | ||||||||||
| Total | $ | 5,711,430 | $ | (53,407 | ) | $ | 5,584,441 | $ | (38,266 | ) | ||||||
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 | ||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Total | ||||||||||||||||||||||
| Apartment | $ | 69,584 | $ | 491,509 | $ | 269,226 | $ | 83,453 | $ | 76,379 | $ | 100,592 | $ | 1,090,743 | ||||||||||||||
| Hotel | 124,956 | 222,393 | 32,157 | 38,808 | 129,058 | 418,480 | 965,852 | |||||||||||||||||||||
| Industrial | 971 | 316,958 | 159,057 | 215,075 | 128,765 | 231,665 | 1,052,491 | |||||||||||||||||||||
| Office | 93,607 | 101,098 | 6,643 | 23,912 | 45,778 | 728,185 | 999,223 | |||||||||||||||||||||
| Parking | — | 54,731 | 28,848 | 26,810 | 12,677 | 290,494 | 413,560 | |||||||||||||||||||||
| Retail | — | 232,709 | 118,523 | 64,454 | 34,470 | 330,396 | 780,552 | |||||||||||||||||||||
| Storage | — | 8,157 | 20,461 | 36,117 | 37,925 | 15,788 | 118,448 | |||||||||||||||||||||
| Other | 29,437 | 134,284 | 44,544 | — | 28,252 | 54,044 | 290,561 | |||||||||||||||||||||
| Total | $ | 318,555 | $ | 1,561,839 | $ | 679,459 | $ | 488,629 | $ | 493,304 | $ | 2,169,644 | $ | 5,711,430 | ||||||||||||||
| Allowance for credit losses | (53,407 | ) | ||||||||||||||||||||||||||
| Total, net of allowance | $ | 5,658,023 | ||||||||||||||||||||||||||
Generally, mortgage loans are secured by first liens on income-producing real estate with a loan-to-value ratio of up to 75%. It is the Company's policy to not accrue interest on loans that are 90 days delinquent and where amounts are determined to be uncollectible. At December 31, 2023, three 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 December 31, 2023, we have included a $3.5 million liability in other liabilities on the consolidated statements of financial position based on unfunded loan commitments of $468 million.
33
Note 6 - Real Estate and Other Investments
The Company's real estate investment portfolio is diversified by property type, geography and income stream, including income from operating leases, and equity in earnings from equity method real estate joint ventures. Real estate investments were as follows as of December 31, 2023 and 2022 (in thousands, except percentages):
| December 31, | ||||||||
| Successor | ||||||||
| 2023 | 2022 | |||||||
| Income Type | Carrying Value | |||||||
| Leased real estate | $ | 755,011 | $ | 562,375 | ||||
| Real estate partnerships | 2,855,842 | 473,344 | ||||||
| Total real estate and real estate partnerships | $ | 3,610,853 | $ | 1,035,719 | ||||
| December 31, | ||||||||||||||||
| Successor | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| Property Type | Carrying value | |||||||||||||||
| Leased real estate investments | Amount | Percentage | Amount | Percentage | ||||||||||||
| Hotel | $ | 13,933 | 1.8 | % | $ | 14,988 | 2.7 | % | ||||||||
| Industrial | 65,116 | 8.6 | 82,906 | 14.7 | ||||||||||||
| Land | 37,177 | 4.9 | 31,919 | 5.7 | ||||||||||||
| Office | 358,422 | 47.5 | 205,188 | 36.5 | ||||||||||||
| Retail | 218,029 | 28.9 | 194,936 | 34.7 | ||||||||||||
| Apartments | 59,783 | 7.9 | — | — | ||||||||||||
| Other | 2,551 | 0.4 | 32,438 | 5.7 | ||||||||||||
| Total leased real estate investments | $ | 755,011 | 100.0 | % | $ | 562,375 | 100.0 | % | ||||||||
| December 31, | ||||||||||||||||
| Successor | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| Geography Type | Carrying value | |||||||||||||||
| Leased real estate investments | Amount | Percentage | Amount | Percentage | ||||||||||||
| East North Central | $ | 36,393 | 4.8 | % | $ | 40,256 | 7.2 | % | ||||||||
| East South Central | 4,576 | 0.6 | 3,649 | 0.6 | ||||||||||||
| Mountain | 54,942 | 7.3 | 75,273 | 13.4 | ||||||||||||
| Pacific | 70,765 | 9.4 | 81,456 | 14.5 | ||||||||||||
| South Atlantic | 196,507 | 26.0 | 61,631 | 11.0 | ||||||||||||
| West South Central | 313,886 | 41.6 | 249,445 | 44.4 | ||||||||||||
| Other | 77,942 | 10.3 | 50,665 | 8.9 | ||||||||||||
| Total leased real estate investments | $ | 755,011 | 100.0 | % | $ | 562,375 | 100.0 | % | ||||||||
As of December 31, 2023 and 2022, no real estate investments met the criteria as held-for-sale.
34
Note 6 – Real Estate and Other Investments – (Continued)
Consolidated VIEs
American National regularly invests in real estate partnerships and frequently participates in the design with the sponsor, but in most cases, its involvement is limited to financing. Some of these partnerships have been determined to be variable interest entities (“VIEs”). In certain instances, in addition to an economic interest in the entity, American National holds the power to direct significant activities of the entity and is deemed the primary beneficiary. The assets of the consolidated VIEs are restricted and must first be used to settle their liabilities. Creditors or beneficial interest holders of these VIEs have no recourse to the general credit of American National, as American National’s obligation is limited to the amount of its committed investment.
American National has not provided financial or other support to the VIEs in the form of liquidity arrangements, guarantees, or other commitments to third-parties that may affect the fair value or risk of its variable interest in the VIEs in 2023 or 2022.
The assets and liabilities relating to the VIEs included in the consolidated financial statements are as follows (in thousands):
| December 31, 2023 | December 31, 2022 | |||||||
| Fixed maturity securities, bonds available-for-sale, at estimated fair value | $ | 63,025 | $ | 282,535 | ||||
| Private loans, net | 187,849 | — | ||||||
| Equity Securities, at fair value | 15,004 | 44,858 | ||||||
| Real estate and real estate partnerships, net of accumulated depreciation | 172,131 | 123,630 | ||||||
| Investment funds | 4,480 | 799,886 | ||||||
| Short-term investments | 4,100 | 500 | ||||||
| Total investments | 446,589 | 1,251,409 | ||||||
| Cash and cash equivalents | 25,751 | 12,953 | ||||||
| Premiums due and other receivables | 1,867 | 2,221 | ||||||
| Other assets | 59,284 | 74,393 | ||||||
| Total assets of consolidated VIEs | $ | 533,491 | $ | 1,340,976 | ||||
| Notes payable | $ | 174,017 | $ | 150,913 | ||||
| Other liabilities | 13,885 | 1,141,026 | ||||||
| Total liabilities of consolidated VIEs | $ | 187,902 | $ | 1,291,939 | ||||
The notes payable in the consolidated statements of financial position pertain to the borrowings of the consolidated VIEs. The liability of American National relating to notes payable of the consolidated VIEs is limited to the amount of its direct or indirect investment in the respective ventures, which totaled $2.9 million and $10.5 million at December 31, 2023 and December 31, 2022, respectively.
The total long-term notes payable of the consolidated VIEs consists of the following (in thousands):
| Interest rate | Maturity | December 31, 2023 | December 31, 2022 | |||||||||
| LIBOR or Equivalent | 2023 | $ | — | $ | 10,702 | |||||||
| 4.18% | 2024 | 61,478 | 61,905 | |||||||||
| 1M TermSOFR + applicable margin | 2025 | 12,683 | — | |||||||||
| 3.25% | 2026 | 9,842 | 6,420 | |||||||||
| 7.25% | 2026 | 10,600 | — | |||||||||
| 1M SOFR + 2.5%, Rate Floor 3.5% | 2029 | 79,414 | 71,886 | |||||||||
| Total notes payable of consolidated VIEs | $ | 174,017 | $ | 150,913 | ||||||||
35
Note 6 – Real Estate and Other Investments – (Continued)
For other real estate partnership VIEs, American National is not the primary beneficiary as major decisions impacting the economic activities of the VIE require consent from both partners. The carrying amount and maximum exposure to loss relating to these unconsolidated VIEs follows (in thousands):
Unconsolidated VIEs
| December 31, 2023 | December 31, 2022 | |||||||||||||||
| Carrying Amount | Maximum Exposure to Loss | Carrying Amount | Maximum Exposure to Loss | |||||||||||||
| Real estate and real estate partnerships | $ | 300,959 | $ | 300,959 | $ | 316,692 | $ | 316,692 | ||||||||
| Mortgage loans on real estate | 629,840 | 629,840 | 601,198 | 601,198 | ||||||||||||
| Accrued investment income | 2,272 | 2,272 | 1,863 | 1,863 | ||||||||||||
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.
The Company's total investment in investment funds, real estate partnerships, and other partnerships of which substantially all are limited liability companies ("LLCs") or limited partnerships, consists of the following (in thousands):
| December 31, 2023 | December 31, 2022 | |||||||
| Investment funds | $ | 1,591,768 | $ | 1,226,471 | ||||
| Real estate partnerships | 2,855,842 | 473,344 | ||||||
| Other | — | 16,814 | ||||||
| Total investments in partnerships | $ | 4,447,610 | $ | 1,716,629 | ||||
36
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):
| Location in the Consolidated | December 31, 2023 | December 31, 2022 | ||||||||||||||||||||||||
| Derivatives Not Designated as Hedging Instruments | Statements of Financial Position | Number of Instruments | Notional Amounts | Estimated Fair Value | Number of Instruments | Notional Amounts | Estimated Fair Value | |||||||||||||||||||
| Equity-indexed options | Other invested assets | 652 | $ | 4,083,900 | $ | 226,644 | 531 | $ | 3,772,900 | $ | 121,150 | |||||||||||||||
| Equity-indexed embedded derivative | Policyholders’ account balances | 140,382 | 3,845,098 | 872,746 | 134,505 | 3,658,231 | 725,546 | |||||||||||||||||||
| Gains (Losses) Recognized in Income on Derivatives | ||||||||||||||||||
| Successor | Predecessor | |||||||||||||||||
| Derivatives Not Designated as Hedging Instruments |
Location in the Consolidated Statements of Operations |
Year ended December 31, 2023 |
Period from May 25, 2022 through |
Period from January 1, 2022 through May 24, 2022 |
Year ended Dcember 31, 2021 |
|||||||||||||
| Equity-indexed options | Net investment income | $ | (111,764 | ) | $ | (38,284 | ) | $ | (127,587 | ) | $ | 127,681 | ||||||
| Equity-indexed embedded derivative | Interest credited to policyholders’ account balances | (148,432 | ) | 61,173 | 96,815 | (107,162 | ) | |||||||||||
The Company’s use of derivative instruments exposes it to credit risk in the event of non-performance by 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 fair value of open contracts less fair value of collateral held. The Company maintains master netting agreements with its current active trading partners. A right of offset has been applied to collateral that supports credit risk and has been recorded in the consolidated statements of financial position as an offset to “Other invested assets” with an associated payable to “Other liabilities” for excess collateral.
37
Note 7 – Derivative Instruments – (Continued)
Information regarding the Company’s exposure to credit loss on the options it holds is presented below (in thousands):
| December 31, 2023 | ||||||||||||||||||||||||||||||
| 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- | $ | 23,798 | $ | 23,430 | $ | — | $ | 23,430 | $ | 23,430 | $ | — | $ | 368 | |||||||||||||||
| Barclays | Baa2/BBB | 24,363 | 14,193 | 10,000 | 24,193 | 24,193 | — | 169 | ||||||||||||||||||||||
| Credit Suisse | Baa1/BBB | 16,105 | 18,170 | — | 18,170 | 16,105 | 2,065 | — | ||||||||||||||||||||||
| ING | Baa1/A- | 9,867 | 9,810 | — | 9,810 | 9,810 | — | 57 | ||||||||||||||||||||||
| JP Morgan Chase | A1/A- | 12,148 | 12,370 | — | 12,370 | 12,148 | — | — | ||||||||||||||||||||||
| Morgan Stanley | A1/A- | 42,984 | 38,166 | 5,700 | 43,866 | 42,984 | 882 | — | ||||||||||||||||||||||
| NATIXIS* | A1/A | 3,483 | 3,420 | — | 3,420 | 3,420 | — | 63 | ||||||||||||||||||||||
| Truist | A3/A- | 58,877 | 53,810 | 5,000 | 58,810 | 58,755 | 55 | 123 | ||||||||||||||||||||||
| Wells Fargo | A1/BBB+ | 35,018 | 35,710 | — | 35,710 | 35,018 | 692 | — | ||||||||||||||||||||||
| Total | $ | 226,643 | $ | 209,079 | $ | 20,700 | $ | 229,779 | $ | 225,863 | $ | 3,694 | $ | 780 | ||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||||||||||||
| 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- | $ | 4,821 | $ | 5,050 | $ | — | $ | 5,050 | $ | 4,821 | $ | 229 | $ | — | |||||||||||||||
| Barclays | Baa2/BBB | 26,615 | 16,902 | 10,000 | 26,902 | 26,615 | 287 | — | ||||||||||||||||||||||
| Credit Suisse | Baa1/BBB+ | 6,124 | 5,280 | — | 5,280 | 5,280 | — | 844 | ||||||||||||||||||||||
| ING | Baa1/A- | 8,559 | 8,650 | — | 8,650 | 8,559 | 91 | — | ||||||||||||||||||||||
| Morgan Stanley | A1/BBB+ | 23,420 | 17,386 | 5,700 | 23,086 | 23,086 | — | 334 | ||||||||||||||||||||||
| NATIXIS* | A1/A | 18,841 | 19,130 | — | 19,130 | 18,841 | 289 | — | ||||||||||||||||||||||
| Truist | A3/A- | 22,172 | 17,540 | 5,000 | 22,540 | 22,172 | 368 | — | ||||||||||||||||||||||
| Wells Fargo | A1/BBB+ | 10,598 | 10,610 | — | 10,610 | 10,468 | 142 | 130 | ||||||||||||||||||||||
| Total | $ | 121,150 | $ | 100,548 | $ | 20,700 | $ | 121,248 | $ | 119,842 | $ | 1,406 | $ | 1,308 | ||||||||||||||||
| * | Collateral is prohibited from being held in invested assets. |
38
Note 8 – Net Investment Income and Realized Investment Gains (Losses)
Net investment income is shown below (in thousands):
| Successor | Predecessor | |||||||||||||||
| Year ended | Period
from | Period from January 1, 2022 through | Year ended | |||||||||||||
| December 31, 2023 | December 31, 2022 | May 24, 2022 | December 31, 2021 | |||||||||||||
| Bonds | $ | 718,401 | $ | 335,509 | $ | 223,195 | $ | 523,422 | ||||||||
| Short-term investments | 186,934 | 58,298 | 3,870 | — | ||||||||||||
| Equity securities | 7,938 | 2,467 | 629 | 28,102 | ||||||||||||
| Mortgage loans | 299,847 | 180,882 | 123,278 | 260,721 | ||||||||||||
| Real estate and real estate partnerships | 42,366 | 60,450 | 111,344 | 99,483 | ||||||||||||
| Investment funds | 81,416 | 33,951 | 34,431 | 99,007 | ||||||||||||
| Equity-indexed options | 111,764 | (38,284 | ) | (127,587 | ) | 127,681 | ||||||||||
| Other invested assets | 52,494 | 29,243 | 15,648 | 33,238 | ||||||||||||
| Total | $ | 1,501,160 | $ | 662,516 | $ | 384,808 | $ | 1,171,654 | ||||||||
Net investment income from equity method investments, comprised of real estate partnerships and investment funds was $108.0 million, $89.0 million, $120.7 million and $188.7 million for the year ended December 31, 2023, for the period from May 25, 2022 through December 31, 2022, for the period from January 1, 2022 through May 24, 2022 and the year ended December 31, 2021, respectively.
Net realized investment gains (losses) are shown below (in thousands):
| Successor | Predecessor | |||||||||||||||
| Year ended | Period
from | Period from January 1, 2022 through | Year ended | |||||||||||||
| December 31, 2023 | December 31, 2022 | May 24, 2022 | December 31, 2021 | |||||||||||||
| Bonds | $ | (69,064 | ) | $ | (30,493 | ) | $ | 10,339 | $ | 54,941 | ||||||
| Mortgage loans | (9,695 | ) | — | — | (768 | ) | ||||||||||
| Real estate | (4,093 | ) | 7,418 | 10,461 | 10,240 | |||||||||||
| Other invested assets | 9,541 | 186 | 273 | 215 | ||||||||||||
| Total | $ | (73,311 | ) | $ | (22,889 | ) | $ | 21,073 | $ | 64,628 | ||||||
39
Note 9 – Fair Value of Financial Instruments
The carrying amount and fair value of financial instruments are shown below (in thousands):
| December 31, 2023 | December 31, 2022 | |||||||||||||||
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||
| Financial assets | ||||||||||||||||
| Fixed maturity, bonds available-for-sale | $ | 13,070,576 | $ | 13,070,576 | $ | 13,512,819 | $ | 13,512,819 | ||||||||
| Equity securities | 1,404,247 | 1,404,247 | 428,369 | 428,369 | ||||||||||||
| Equity-indexed options, included in other invested assets | 226,644 | 226,644 | 121,150 | 121,150 | ||||||||||||
| Mortgage loans on real estate, net of allowance | 5,658,023 | 5,405,016 | 5,546,175 | 5,306,834 | ||||||||||||
| Policy loans | 390,393 | 390,393 | 374,481 | 374,481 | ||||||||||||
| Short-term investments | 2,396,504 | 2,396,504 | 1,836,678 | 1,836,678 | ||||||||||||
| Separate account assets ($1,163,261 and $1,012,499 included in fair value hierarchy) | 1,188,989 | 1,188,989 | 1,045,217 | 1,045,217 | ||||||||||||
| Separately managed accounts, included in other invested assets | 104,698 | 104,698 | 127,291 | 127,291 | ||||||||||||
| Total financial assets | $ | 24,440,074 | $ | 24,187,067 | $ | 22,992,180 | $ | 22,752,839 | ||||||||
| Financial liabilities | ||||||||||||||||
| Investment contracts | $ | 14,096,714 | $ | 14,096,714 | $ | 9,780,174 | $ | 9,780,174 | ||||||||
| Embedded derivative liability for equity-indexed contracts | 872,746 | 872,746 | 725,546 | 725,546 | ||||||||||||
| Notes payable | 174,017 | 174,017 | 150,913 | 150,913 | ||||||||||||
| Separate account liabilities ($1,163,261 and $1,012,499 included in fair value hierarchy) | 1,188,989 | 1,188,989 | 1,045,217 | 1,045,217 | ||||||||||||
| Total financial liabilities | $ | 16,332,466 | $ | 16,332,466 | $ | 11,701,850 | $ | 11,701,850 | ||||||||
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. | |
40
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 include highly liquid securities and other investments with remaining maturities of one year or less, but greater than three months, at the time of purchase. Securities included within short-term investments are stated at estimated fair value, while other investments included within short-term investments are stated at amortized cost less allowances, which approximates estimated fair value.
41
Note 9 – Fair Value of Financial Instruments – (Continued)
Separate Account Assets and Liabilities—Separate account assets and liabilities are funds that are held separate from the general assets and liabilities of American National. Separate account assets include funds representing the investments of variable insurance product contract holders, who bear the investment risk of such funds. Investment income and investment gains and losses from these separate funds accrue to the benefit of the contract holders. American National reports separately, as assets and liabilities, investments held in such separate accounts and liabilities of the separate accounts if (i) such separate accounts are legally recognized; (ii) assets supporting the contract liabilities are legally insulated from American National’s general account liabilities; (iii) investments are directed by the contract holder; and (iv) all investment performance, net of contract fees and assessments, is passed through to the contract holder. In addition, American National's qualified pension plan assets are included in separate accounts. The assets of these accounts are carried at fair value. Deposits, net investment income and realized investment gains and losses for these accounts are excluded from revenues, and related liability increases are excluded from benefits and expenses in the consolidated statements of operations. Separate accounts are established in conformity with insurance laws and are not chargeable with liabilities that arise from any other business of American National.
The separate account assets included on the quantitative disclosures fair value hierarchy table are comprised of short-term investments, equity securities, and fixed maturity bonds available-for-sale. Equity securities are classified as Level 1 measurements. Short-term investments and fixed maturity securities are classified as Level 2 measurements. These classifications for separate account assets reflect the same fair value level methodologies as listed above as they are derived from the same vendors and follow the same process.
The separate account assets also include cash and cash equivalents, investment funds, accrued investment income, and receivables for securities. These are not financial instruments and are not included in the quantitative disclosures of fair value hierarchy table.
The balances and changes in separate account assets and liabilities for the years ended December 31, 2023 and 2022 were as follows (in thousands):
| December 31, 2023 | ||||||||||||||||
| Variable Life | Variable Annuities | Pension | Total | |||||||||||||
| Balance, beginning of year | $ | 230,148 | $ | 349,820 | $ | 465,249 | $ | 1,045,217 | ||||||||
| Premiums and deposits | 11,015 | 64,415 | 1,585 | 77,015 | ||||||||||||
| Policy charges | (9,513 | ) | (4,602 | ) | (241 | ) | (14,356 | ) | ||||||||
| Surrenders and withdrawals | (17,099 | ) | (73,750 | ) | (261 | ) | (91,110 | ) | ||||||||
| Benefit payments | — | — | (22,959 | ) | (22,959 | ) | ||||||||||
| Investment performance | 50,463 | 60,253 | 92,357 | 203,073 | ||||||||||||
| Net transfers from (to) general account | (2,424 | ) | (5,467 | ) | — | (7,891 | ) | |||||||||
| Balance, end of period | $ | 262,590 | $ | 390,669 | $ | 535,730 | $ | 1,188,989 | ||||||||
| Cash Surrender Value | $ | 260,879 | $ | 382,080 | $ | — | $ | 642,959 | ||||||||
| December 31, 2022 | ||||||||||||||||
| Variable Life | Variable Annuities | Pension | Total | |||||||||||||
| Balance, beginning of year | $ | 303,409 | $ | 455,150 | $ | 562,353 | $ | 1,320,912 | ||||||||
| Premiums and deposits | 11,053 | 62,492 | 1,289 | 74,834 | ||||||||||||
| Policy charges | (9,701 | ) | (4,393 | ) | (201 | ) | (14,295 | ) | ||||||||
| Surrenders and withdrawals | (13,754 | ) | (68,462 | ) | (242 | ) | (82,458 | ) | ||||||||
| Benefit payments | — | — | (26,520 | ) | (26,520 | ) | ||||||||||
| Investment performance | (59,540 | ) | (79,809 | ) | (71,430 | ) | (210,779 | ) | ||||||||
| Net transfers from (to) general account | (1,319 | ) | (15,158 | ) | — | (16,477 | ) | |||||||||
| Balance, end of period | $ | 230,148 | $ | 349,820 | $ | 465,249 | $ | 1,045,217 | ||||||||
| Cash Surrender Value | $ | 229,715 | $ | 346,044 | $ | — | $ | 575,759 | ||||||||
42
Note 9 – Fair Value of Financial Instruments – (Continued)
Embedded Derivatives—The amounts reported within policyholder contract deposits include equity linked interest crediting rates based on the S&P 500 within indexed annuities and indexed life. The following unobservable inputs are used for measuring the fair value of the embedded derivatives associated with the policyholder contract liabilities:
| • | Lapse rate assumptions are determined by company experience. Lapse rates are generally assumed to be lower during a contract’s surrender charge period and then higher once the surrender charge period has ended. Decreases to the assumed lapse rates generally increase the fair value of the liability as more policyholders persist to collect the crediting interest pertaining to the indexed product. Increases to the lapse rate assumption decrease the fair value. |
| • | Mortality rate assumptions vary by age and gender based on company and industry experience. Decreases to the assumed mortality rates increase the fair value of the liabilities as more policyholders earn crediting interest. Increases to the assumed mortality rates decrease the fair value as higher decrements reduce the potential for future interest credits. |
| • | Equity volatility assumptions begin with current market volatilities and grow to long-term values. Increases to the assumed volatility will increase the fair value of liabilities, as future projections will produce higher increases in the linked index. At December 31, 2023 and December 31, 2022, the one year implied volatility used to estimate embedded derivative value was 16.4% and 23.4%, respectively. |
Fair values of indexed life and annuity liabilities are calculated using the discounted cash flow technique. Shown below are the significant unobservable inputs used to calculate the Level 3 fair value of the embedded derivatives within policyholder contract deposits (in millions, except range percentages):
| Fair Value | Range | |||||||||||||||||
| December 31, 2023 | December 31, 2022 | Unobservable Input | December 31, 2023 | December 31, 2022 | ||||||||||||||
| Security type | ||||||||||||||||||
| Embedded derivative | ||||||||||||||||||
| Indexed Annuities | $ | 826.3 | $ | 713.5 | Lapse Rate | 1-50% | 1-50% | |||||||||||
| Mortality Multiplier | 100% | 100% | ||||||||||||||||
| Equity Volatility | 10-62% | 16-66% | ||||||||||||||||
| Indexed Life | $ | 46.4 | $ | 12.1 | Equity Volatility | 10-62% | 16-66% | |||||||||||
43
Note 9 – Fair Value of Financial Instruments – (Continued)
Quantitative Disclosures
The fair value hierarchy measurements of the financial instruments are shown below (in thousands):
| Assets and Liabilities Carried at Fair Value by Hierarchy Level at December 31, 2023 | ||||||||||||||||
| Total Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| Financial assets | ||||||||||||||||
| Fixed maturity, bonds available-for-sale | ||||||||||||||||
| U.S. treasury and government | $ | 62,228 | $ | 62,228 | $ | — | $ | — | ||||||||
| U.S. states and political subdivisions | 577,314 | — | 577,314 | — | ||||||||||||
| Foreign governments | 9,103 | — | 9,103 | — | ||||||||||||
| Corporate debt securities | 10,977,772 | — | 8,570,110 | 2,407,662 | ||||||||||||
| Residential mortgage-backed securities | 126,904 | — | 126,904 | — | ||||||||||||
| Collateralized debt securities | 1,317,255 | — | 416,226 | 901,029 | ||||||||||||
| Total bonds available-for-sale | 13,070,576 | 62,228 | 9,699,657 | 3,308,691 | ||||||||||||
| Equity securities | ||||||||||||||||
| Common stock | 1,307,700 | 313,951 | — | 993,749 | ||||||||||||
| Preferred stock | 96,547 | 21,620 | — | 74,927 | ||||||||||||
| Total equity securities | 1,404,247 | 335,571 | — | 1,068,676 | ||||||||||||
| Options | 226,644 | — | — | 226,644 | ||||||||||||
| Short-term investments | 2,396,504 | 1,099,820 | — | 1,296,684 | ||||||||||||
| Separate account assets | 1,163,260 | 405,737 | 757,523 | — | ||||||||||||
| Separately managed accounts | 104,698 | — | — | 104,698 | ||||||||||||
| Total financial assets | $ | 18,365,929 | $ | 1,903,356 | $ | 10,457,180 | $ | 6,005,393 | ||||||||
| Financial liabilities | ||||||||||||||||
| Embedded derivative for equity-indexed contracts | $ | 872,746 | $ | — | $ | — | $ | 872,746 | ||||||||
| Separate account liabilities | 1,163,260 | 405,737 | 757,523 | — | ||||||||||||
| Total financial liabilities | $ | 2,036,006 | $ | 405,737 | $ | 757,523 | $ | 872,746 | ||||||||
44
Note 9 – Fair Value of Financial Instruments – (Continued)
| Assets and Liabilities Carried at Fair Value by Hierarchy Level at December 31, 2022 | ||||||||||||||||
| Total Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| Financial assets | ||||||||||||||||
| Fixed maturity, bonds available-for-sale | ||||||||||||||||
| U.S. treasury and government | $ | 40,009 | $ | 40,009 | $ | — | $ | — | ||||||||
| U.S. states and political subdivisions | 854,861 | — | 854,861 | — | ||||||||||||
| Foreign governments | 9,004 | — | 9,004 | — | ||||||||||||
| Corporate debt securities | 11,257,630 | — | 10,525,008 | 732,622 | ||||||||||||
| Residential mortgage-backed securities | 126,748 | — | 126,748 | — | ||||||||||||
| Collateralized debt securities | 1,224,567 | — | 362,381 | 862,186 | ||||||||||||
| Total bonds available-for-sale | 13,512,819 | 40,009 | 11,878,002 | 1,594,808 | ||||||||||||
| Equity securities | ||||||||||||||||
| Common stock | 371,836 | 203,034 | — | 168,802 | ||||||||||||
| Preferred stock | 56,533 | 21,917 | — | 34,616 | ||||||||||||
| Total equity securities | 428,369 | 224,951 | — | 203,418 | ||||||||||||
| Options | 121,150 | — | — | 121,150 | ||||||||||||
| Short-term investments | 1,836,678 | 595,098 | — | 1,241,580 | ||||||||||||
| Separate account assets | 1,012,499 | 313,752 | 698,747 | — | ||||||||||||
| Separately managed accounts | 127,291 | — | — | 127,291 | ||||||||||||
| Total financial assets | $ | 17,038,806 | $ | 1,173,810 | $ | 12,576,749 | $ | 3,288,247 | ||||||||
| Financial liabilities | ||||||||||||||||
| Embedded derivative for equity-indexed contracts | $ | 725,546 | $ | — | $ | — | $ | 725,546 | ||||||||
| Notes payable | 150,913 | — | — | 150,913 | ||||||||||||
| Separate account liabilities | 1,012,499 | 313,752 | 698,747 | — | ||||||||||||
| Total financial liabilities | $ | 1,888,958 | $ | 313,752 | $ | 698,747 | $ | 876,459 | ||||||||
45
Note 9 – Fair Value of Financial Instruments – (Continued)
For financial instruments measured at fair value on a recurring basis using Level 3 inputs during the period, a reconciliation of the beginning and ending balances is shown below (in thousands):
| Level 3 | ||||||||||||||||
| Assets | Liability | |||||||||||||||
| Successor | Investment Securities | Equity-Indexed Options | Separately Managed Accounts | Embedded Derivative | ||||||||||||
| Beginning balance, May 25, 2022 | $ | 376,254 | $ | 114,883 | $ | 112,866 | $ | 745,075 | ||||||||
| Net gain (loss) for derivatives included in net investment income | 1,587 | (38,284 | ) | — | — | |||||||||||
| Net change included in interest credited | — | — | — | (61,173 | ) | |||||||||||
| Net fair value change included in other comprehensive income | (158,428 | ) | — | (367 | ) | — | ||||||||||
| Purchases, sales and settlements or maturities | ||||||||||||||||
| Purchases | 2,827,947 | 63,858 | 32,654 | — | ||||||||||||
| Sales | (7,554 | ) | — | (17,862 | ) | — | ||||||||||
| Settlements or maturities | — | (19,307 | ) | — | — | |||||||||||
| Premiums less benefits | — | — | — | 41,644 | ||||||||||||
| Ending balance, December 31, 2022 | $ | 3,039,806 | $ | 121,150 | $ | 127,291 | $ | 725,546 | ||||||||
| Net gain for derivatives and bonds included in net investment income | — | 19,482 | — | — | ||||||||||||
| Net change included in interest credited | — | — | — | 148,432 | ||||||||||||
| Net fair value change included in other comprehensive income | 250,915 | 89,269 | (4,443 | ) | — | |||||||||||
| Purchases, sales and settlements or maturities | ||||||||||||||||
| Purchases | 7,280,080 | 133,133 | 21,127 | — | ||||||||||||
| Sales | (4,896,510 | ) | — | (39,277 | ) | — | ||||||||||
| Settlements or maturities | (240 | ) | (136,390 | ) | — | — | ||||||||||
| Premiums less benefits | — | — | — | (1,232 | ) | |||||||||||
| Ending balance, December 31, 2023 | $ | 5,674,051 | $ | 226,644 | $ | 104,698 | $ | 872,746 | ||||||||
46
Note 9 – Fair Value of Financial Instruments – (Continued)
| Level 3 | ||||||||||||||||
| Assets | Liability | |||||||||||||||
| Predecessor | Investment Securities | Equity-Indexed Options | Separately Managed Accounts | Embedded Derivative | ||||||||||||
| Balance at December 31, 2020 | $ | 111,505 | $ | 242,201 | $ | 64,424 | $ | 705,013 | ||||||||
| Net gain for derivatives included in net investment income | — | 127,681 | — | — | ||||||||||||
| Net change included in interest credited | — | — | — | 107,162 | ||||||||||||
| Net fair value change included in other comprehensive income | 3,269 | — | 1,444 | — | ||||||||||||
| Purchases, sales and settlements or maturities | ||||||||||||||||
| Purchases | 225,063 | 97,712 | 56,712 | — | ||||||||||||
| Sales | (58,593 | ) | — | (22,696 | ) | — | ||||||||||
| Settlements or maturities | — | (208,211 | ) | — | — | |||||||||||
| Premiums less benefits | — | — | — | 20,404 | ||||||||||||
| Gross transfers into Level 3 | 1,479 | — | — | — | ||||||||||||
| Gross transfers out of Level 3 | (2,018 | ) | — | — | — | |||||||||||
| Ending balance, December 31, 2021 | $ | 280,705 | $ | 259,383 | $ | 99,884 | $ | 832,579 | ||||||||
| Net loss for derivatives included in net investment income | — | (127,587 | ) | — | — | |||||||||||
| Net change included in interest credited | — | — | — | (96,815 | ) | |||||||||||
| Net fair value change included in other comprehensive income | 395 | — | (368 | ) | — | |||||||||||
| Purchases, sales and settlements or maturities | ||||||||||||||||
| Purchases | 145,542 | 43,934 | 23,046 | — | ||||||||||||
| Sales | (50,388 | ) | — | (9,696 | ) | — | ||||||||||
| Settlements or maturities | — | (60,847 | ) | — | — | |||||||||||
| Premiums less benefits | — | — | — | 9,311 | ||||||||||||
| Ending balance at May 24, 2022 | $ | 376,254 | $ | 114,883 | $ | 112,866 | $ | 745,075 | ||||||||
Within the net gain (loss) for derivatives included in net investment income were unrealized losses of $59.2 million and unrealized gains of $30.0 million, relating to assets still held at December 31, 2023 and 2022, 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. Level 3 assets and liabilities include financial instruments whose values are determined using pricing models and discounted cash flow methodology based on spread/yield assumptions. Approximately $3,354.0 million of securities were priced by third party services as of December 31, 2023. There were $802.1 million of bonds and $186.4 million equities priced at cost as of December 31, 2023.
Equity-Indexed 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.
47
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 December 31, 2023 | Valuation Technique | Unobservable Input | Range/Weighted Average | |||||||||
| Security type | ||||||||||||
| Investment securities | ||||||||||||
| Common stock | $ | 961 | Guideline public company method (1) | Recurring Revenue Multiple | 6.3 | x | ||||||
| CVM | LTM Revenue Multiple | 2.1 | x | |||||||||
| NCY Cash Flow Multiple | 5.0 | x | ||||||||||
| Preferred stock | $ | 4,771 | Guideline public company method | LTM Revenue Multiple (2) | 4 | x | ||||||
| LTM EBITDA Multiple | 12.7 | x | ||||||||||
| NCY CF Multiple | 5 | x | ||||||||||
| Term (Years) | 1.1 | |||||||||||
| LTM EBITDA (est.) Multiple | 7.5 | x | ||||||||||
| NTM Adj. EBITDA Multiple | 9 | x | ||||||||||
| NCY Cash Flow Multiple | 5 | x | ||||||||||
| Option pricing method, Volatility | 73.6 | x | ||||||||||
| Separately managed accounts | $ | 104,698 | Discounted cash flows (yield analysis) | Discount rate | 8.80-18.50% | |||||||
| CVM | NCY EBITDA | 0 | x | |||||||||
| Market transaction | N/A | |||||||||||
48
Note 9 – Fair Value of Financial Instruments – (Continued)
| Fair Value at December 31, 2022 | Valuation Technique | Unobservable Input | Range/Weighted Average | |||||||||
| Security type | ||||||||||||
| Investment securities | ||||||||||||
| Common stock | $ | 1,131 | Guideline public company method (1) | LTM Revenue Multiple | 3 | xx | ||||||
| CVM | NCY Revenue Multiple (4) | 0.6 | x | |||||||||
| NCY EBITDA Multiple | 5.5 | x | ||||||||||
| LQA Recurring Revenue Multiple | 7.25 | |||||||||||
| Preferred stock | $ | 5,058 | Guideline public company method | LTM Revenue Multiple (2) | 5.40 | x | ||||||
| CVM | NCY Revenue Multiple | 6.82 | x | |||||||||
| LTM EBITDA Multiple | 5.50 | x | ||||||||||
| NCY EBITDA Multiple (3) | 5.50 | x | ||||||||||
| Separately managed accounts | $ | 127,291 | Discounted cash flows (yield analysis) | Discount rate | 7.60-21.10 | % | ||||||
| CVM | NCY EBITDA | 0 | x | |||||||||
| 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) | LTM Revenue Multiple valuation metric shows revenue for the past 12 month period. | |
| (3) | Next Calendar Year (“NCY”) EBITDA Multiple is the forecasted EBITDA expected to be achieved over the next calendar year. | |
| (4) | NCY Revenue forecast revenue over the next calendar year. | |
| (5) | Last quarter annualized recurring revenue. Total recurring revenue realized during the previous quarter multiplied by 4. |
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.
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:
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.
49
Note 9 – Fair Value of Financial Instruments – (Continued)
Policy Loans—The carrying value of policy loans is the outstanding balance plus any accrued interest. Due to the collateralized nature of policy loans such that they cannot be separated from the policy contracts, the unpredictable timing of repayments and the fact that settlement is at outstanding value, American National believes the carrying value of policy loans approximates fair value.
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.
Long-term Debt —Long-term debt is carried at outstanding principal balance less unamortized fees. The carrying value approximates fair value because the underlying interest rates approximate market rates at the balance sheet date.
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.
50
Note 9 – Fair Value of Financial Instruments – (Continued)
The carrying value and estimated fair value of financial instruments not recorded at fair value on a recurring basis are shown below (in thousands):
| December 31, 2023 | ||||||||||
| FV Hierarchy Level | Carrying Amount | Fair Value | ||||||||
| Financial assets | ||||||||||
| Mortgage loans on real estate, net of allowance | Level 3 | $ | 5,658,023 | $ | 5,405,016 | |||||
| Policy loans | Level 3 | 390,393 | 390,393 | |||||||
| Total financial assets | $ | 6,048,416 | $ | 5,795,409 | ||||||
| Financial liabilities | ||||||||||
| Investment contracts | Level 3 | $ | 14,096,714 | $ | 14,096,714 | |||||
| Long-term debt | Level 3 | 1,493,326 | 1,479,000 | |||||||
| Notes payable | Level 3 | 174,017 | 174,017 | |||||||
| Total financial liabilities | $ | 15,764,057 | $ | 15,749,731 | ||||||
| December 31, 2022 | ||||||||||
| FV Hierarchy Level | Carrying Amount | Fair Value | ||||||||
| Financial assets | ||||||||||
| Mortgage loans on real estate, net of allowance | Level 3 | $ | 5,546,175 | $ | 5,306,834 | |||||
| Policy loans | Level 3 | 374,481 | 374,481 | |||||||
| Total financial assets | $ | 5,920,656 | $ | 5,681,315 | ||||||
| Financial liabilities | ||||||||||
| Investment contracts | Level 3 | $ | 9,780,174 | $ | 9,780,174 | |||||
| Long-term debt | Level 3 | 1,503,400 | 1,503,400 | |||||||
| Notes payable | Level 3 | 150,913 | 150,913 | |||||||
| Total financial liabilities | $ | 11,434,487 | $ | 11,434,487 | ||||||
51
Note 10 – Deferred Policy Acquisition Costs and Value of Business Acquired
The changes in the asset for DAC and VOBA for the year ended December 31, 2023 and the period from May 25, 2022 to December 31, 2022 were as follows (in thousands):
| Successor | Life | Annuity | Health | Property & Casualty | Total | |||||||||||||||
| Beginning balance, May 25, 2022 | $ | 343,550 | $ | 44,788 | $ | 3,977 | $ | 181,000 | $ | 573,315 | ||||||||||
| Additions | 113,049 | 47,952 | 9,233 | 273,900 | 444,134 | |||||||||||||||
| Amortization | (39,276 | ) | (2,935 | ) | (6,057 | ) | (270,029 | ) | (318,297 | ) | ||||||||||
| Net change | 73,773 | 45,017 | 3,176 | 3,871 | 125,837 | |||||||||||||||
| Beginning balance at January 1, 2023 | 417,323 | 89,805 | 7,153 | 184,871 | 699,152 | |||||||||||||||
| Additions | 145,012 | 165,727 | 8,575 | 450,642 | 769,956 | |||||||||||||||
| Amortization | (43,182 | ) | (18,552 | ) | (5,436 | ) | (457,469 | ) | (524,639 | ) | ||||||||||
| Net change | 101,830 | 147,175 | 3,139 | (6,827 | ) | 245,317 | ||||||||||||||
| Ending balance at December 31, 2023 | $ | 519,153 | $ | 236,980 | $ | 10,292 | $ | 178,044 | $ | 944,469 | ||||||||||
| Predecessor | Life | Annuity | Health | Property & Casualty | Total | |||||||||||||||
| Balance at December 31, 2020 | $ | 896,208 | $ | 309,056 | $ | 32,885 | 122,062 | $ | 1,360,211 | |||||||||||
| Additions | 161,898 | 99,971 | 14,369 | 366,167 | 642,405 | |||||||||||||||
| Amortization | (111,764 | ) | (77,133 | ) | (17,906 | ) | (355,970 | ) | (562,773 | ) | ||||||||||
| Effect of change in unrealized gains on available-for-sale debt securities | 9,703 | 48,578 | — | — | 58,281 | |||||||||||||||
| Net change | 59,837 | 71,416 | (3,537 | ) | 10,197 | 137,913 | ||||||||||||||
| Balance at December 31, 2021 | $ | 956,045 | $ | 380,472 | $ | 29,348 | $ | 132,259 | $ | 1,498,124 | ||||||||||
| Additions | 64,974 | 27,268 | 5,398 | 170,724 | 268,364 | |||||||||||||||
| Amortization | (51,399 | ) | (9,301 | ) | (6,483 | ) | (160,225 | ) | (227,408 | ) | ||||||||||
| Effect of change in unrealized gains on available-for-sale debt securities | 10,753 | 188,274 | — | — | 199,027 | |||||||||||||||
| Net change | 24,328 | 206,241 | (1,085 | ) | 10,499 | 239,983 | ||||||||||||||
| Ending balance at May 24, 2022 | $ | 980,373 | $ | 586,713 | $ | 28,263 | $ | 142,758 | $ | 1,738,107 | ||||||||||
Commissions comprise the majority of additions to deferred policy acquisition costs.
The following table provides the projected VOBA amortization expenses for a five-year period and thereafter (in thousands):
| Years | Asset | ||||
| 2024 | $ | 32,289 | |||
| 2025 | 29,129 | ||||
| 2026 | 26,569 | ||||
| 2027 | 24,270 | ||||
| 2028 | 22,590 | ||||
| Thereafter | 228,949 | ||||
| Total amortization expense | $ | 363,796 | |||
The amortization of the VOBA asset is included in the change in deferred acquisition costs in the consolidated statements of operations.
52
Note 11 – Liability for Unpaid Claims and Claim Adjustment Expenses
The liability for unpaid claims and claim adjustment expenses (“claims”) for health and property and casualty insurance is included in “Policy and contract claims” in the consolidated statements of financial position and is the amount estimated for incurred but not reported (“IBNR”) claims and claims that have been reported but not settled. The liability for unpaid claims is estimated based upon American National’s historical experience and actuarial assumptions that consider the effects of current developments, anticipated trends and risk management programs, less anticipated salvage and subrogation. The effects of the changes are included in the consolidated results of operations in the period in which the changes occur. The time value of money is not taken into account for the purposes of calculating the liability for unpaid claims. There have been no significant changes in methodologies or assumptions used to calculate the liability for unpaid claims and claim adjustment expenses.
Information regarding the liability for unpaid claims is shown below (in thousands):
| Successor | Predecessor | ||||||||||||
Year ended | Period from May 25, 2022 through December 31, 2022 | Period
from January 1, 2022 through May 24, 2022 | |||||||||||
| Unpaid claims balance, beginning | $ | 1,554,761 | $ | 1,496,156 | $ | 1,455,080 | |||||||
| Less: Reinsurance recoverables | 305,334 | 281,156 | 288,358 | ||||||||||
| Net beginning balance | 1,249,427 | 1,215,000 | 1,166,722 | ||||||||||
| Incurred related to | |||||||||||||
| Current | 1,604,971 | 830,701 | 562,144 | ||||||||||
| Prior years | (80,373 | ) | (31,184 | ) | (21,106 | ) | |||||||
| Total incurred claims | 1,524,598 | 799,517 | 541,038 | ||||||||||
| Paid claims related to | |||||||||||||
| Current | 938,101 | 554,598 | 225,241 | ||||||||||
| Prior years | 480,621 | 196,703 | 267,519 | ||||||||||
| Total paid claims | 1,418,722 | 751,301 | 492,760 | ||||||||||
| Net balance | 1,355,303 | 1,263,216 | 1,215,000 | ||||||||||
| Plus: Reinsurance recoverables | 301,591 | 305,327 | 281,156 | ||||||||||
| Unpaid claims balance, ending | $ | 1,656,894 | $ | 1,568,543 | $ | 1,496,156 | |||||||
Estimates for ultimate incurred claims attributable to insured events of prior years’ decreased by approximately $80.0 million during the year ended December 31, 2023 and decreased by $31.2 million during the period from May 25, 2022 through December 31, 2022. The favorable development in 2023 was a reflection of lower-than-anticipated losses arising from commercial lines of business. The favorable development in 2022 during the "Successor" period was a reflection of lower-than-anticipated settlement of losses emerging from commercial automotive, agribusiness, commercial business owner and guaranteed asset protection waiver lines of business, and for the "Successor" period a reflection of lower-than-anticipated settlement of losses emerging from Managing General Underwriting, credit health, worksite health, personal Auto, commercial auto and agribusiness lines of business.
For short-duration health insurance claims, the total of IBNR plus expected development on reported claims included in the liability for unpaid claims and claim adjustment expenses at December 31, 2023 and December 31, 2022 was $4.2 million and $16.0 million, respectively.
53
Note 11 – Liability for Unpaid Claims and Claim Adjustment Expenses - (Continued)
The reconciliation of the net incurred and paid claims development tables to the liability for claims and claim adjustment expenses in the consolidated statement of financial position is as follows (in thousands):
| December 31, 2023 | December 31, 2022 | |||||||
| Net outstanding liabilities | ||||||||
| Auto Liability | $ | 489,354 | $ | 460,351 | ||||
| Non-Auto Liability | 349,575 | 328,797 | ||||||
| Commercial Multi-Peril | 202,832 | 191,571 | ||||||
| Homeowners | 124,970 | 94,665 | ||||||
| Short Tail Property | 63,920 | 49,170 | ||||||
| Credit Property and Casualty | 26,341 | 18,906 | ||||||
| Credit Life | 1,052 | 959 | ||||||
| Health | 7,925 | 20,321 | ||||||
| Credit Health | 3,858 | 4,056 | ||||||
| Other | 451 | 891 | ||||||
| Liabilities for unpaid claims and claim adjustment expenses, net of reinsurance | 1,270,278 | 1,169,687 | ||||||
| Reinsurance recoverable on unpaid claims | ||||||||
| Auto Liability | 13,435 | 12,604 | ||||||
| Non-Auto Liability | 65,372 | 59,563 | ||||||
| Commercial Multi-Peril | 36,985 | 33,677 | ||||||
| Homeowners | 8,368 | 9,456 | ||||||
| Short Tail Property | 7,746 | 7,963 | ||||||
| Credit Property & Casualty | 19,886 | 13,944 | ||||||
| Credit Life | 259 | 725 | ||||||
| Health | 40,719 | 201,023 | ||||||
| Credit Health | 1,095 | 1,473 | ||||||
| Other | 6,841 | 6,545 | ||||||
| Total reinsurance recoverable on unpaid claims | 200,706 | 346,973 | ||||||
| Insurance lines other than short-duration | 150,923 | 198,548 | ||||||
| Unallocated claims adjustment expenses | 88,519 | 71,067 | ||||||
| Other | 159,544 | — | ||||||
| Total gross liability for unpaid claims and claim adjustment expense | $ | 1,869,970 | $ | 1,786,275 | ||||
54
Note 11 – Liability for Unpaid Claims and Claim Adjustment Expenses - (Continued)
Property and Casualty Reserving Methodology—The following methods are utilized:
| · | Initial Expected Loss Ratio—This method calculates an estimate of ultimate losses by applying an estimated loss ratio to actual earned premium for each calendar/accident year. This method is appropriate for classes of business where the actual paid or reported loss experience is not yet mature enough to influence initial expectations of the ultimate loss ratios. |
| · | Pegged Frequency and Severity—This method uses actual claims count data and emergence patterns of older accident periods to project the ultimate number of reported claims for a given accident year. A similar process projects the ultimate average severity per claim so that the product of the two projections results in a projection of ultimate loss for a given accident year. |
| · | Bornhuetter-Ferguson—This method uses, as a starting point, either an assumed Initial Expected Loss Ratio Method or Pegged Frequency and Severity method and blends in the loss ratio or frequency and severity implied by the claims experience to date by using loss development patterns based on our historical experience. This method is generally appropriate where there are few reported claims and an unstable pattern of reported losses. |
| · | Loss or Expense Development (Chain Ladder)—This method uses actual loss or defense and cost containment expense data and the historical development profiles on older accident periods to project more recent, less developed periods to their ultimate total. This method is appropriate when there is a relatively stable pattern of loss and expense emergence and a relatively large number of reported claims. |
| · | Ratio of Paid Defense and Cost Containment Expense to Paid Loss Development—This method uses the ratio of paid defense and cost containment expense to paid loss data and the historical development profiles on older accident periods to project more recent, less developed periods to their ultimate total. In this method, an ultimate ratio of paid defense and cost containment expense to paid loss is selected for each accident period. The selected paid defense and cost containment expense to paid loss ratio is then applied to the selected ultimate loss for each accident period to estimate the ultimate defense and cost containment expense. Paid defense and cost containment expense is then subtracted from the ultimate defense and cost containment expense to calculate the unpaid defense and cost containment expense for that accident period. |
| · | Calendar Year Paid Adjusting and Other Expense to Paid Loss—This method uses a selected prior calendar years’ paid expense to paid loss ratio to project ultimate loss adjustment expenses for adjusting and other expense. A percentage of the selected ratio is applied to the case reserves (depending on the line of insurance) and 100% to the indicated IBNR reserves. These ratios assume that a percentage of the expense is incurred when a claim is opened and the remaining percentage is paid throughout the claim’s life. |
For most credit property and casualty products, IBNR liability is calculated as a percentage of pro rata unearned premium, with the specific percentage for a given product line informed by a traditional completion factor claim reserve analysis.
The expected development on reported claims is the sum of a pay-to-current reserve and a future reserve. The pay-to-current reserve is calculated for each open claim having a monthly indemnity and contains the amount required to pay the open claim from the last payment date to the current valuation date. The future reserve is calculated by assigning to each open claim a fixed reserve amount based on the historical average severity. For debt cancellation products and involuntary unemployment insurance, this reserve is calculated using published valuation tables.
Cumulative claim frequency information is calculated on a per claim basis. Claims that do not result in a liability are not considered in the determination of unpaid liabilities.
For any given line of business, none of these methods are relied on exclusively. With minor exceptions, multiple methods may be used for a line of business as a check for reasonableness of our reselected reserve value.
The following contains information about incurred and paid claims development as of December 31, 2023, net of reinsurance, as well as cumulative claim frequency and the total of IBNR liabilities plus expected development on reported claims included within the net incurred claims amounts. The information about incurred and paid claims development for the years ended December 31, 2014 to 2022 is presented as supplementary information.
55
Note 11 – Liability for Unpaid Claims and Claim Adjustment Expenses - (Continued)
Auto Liability—Consists of personal and commercial auto. Claims and claim adjustment expenses are shown below (in thousands):
| Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | December 31, 2023 | |||||||||||||||||||||||||||||||||||
| Years ended December 31, | IBNR
Plus Expected | Cumulative Number of Reported | ||||||||||||||||||||||||||||||||||
| Accident Year | 2014* | 2015* | 2016* | 2017* | 2018* | 2019* | 2020* | 2021* | 2022* | 2023 | Development | Claims | ||||||||||||||||||||||||
| 2014 | $ | 232,146 | $ | 223,386 | $ | 217,819 | $ | 215,419 | $ | 214,870 | $ | 214,557 | $ | 214,326 | $ | 214,253 | $ | 214,373 | $ | 214,410 | $ | 78 | 36,043 | |||||||||||||
| 2015 | 237,578 | 240,697 | 239,421 | 245,775 | 244,798 | 244,621 | 243,304 | 243,214 | 242,937 | 62 | 36,129 | |||||||||||||||||||||||||
| 2016 | 259,177 | 256,080 | 261,400 | 259,128 | 257,633 | 256,294 | 256,759 | 256,511 | 327 | 37,153 | ||||||||||||||||||||||||||
| 2017 | 269,803 | 280,012 | 275,850 | 273,551 | 270,464 | 268,775 | 267,984 | 523 | 38,626 | |||||||||||||||||||||||||||
| 2018 | 314,467 | 299,512 | 288,806 | 282,805 | 277,906 | 274,349 | 1,508 | 37,875 | ||||||||||||||||||||||||||||
| 2019 | 330,988 | 313,636 | 305,312 | 295,834 | 292,213 | 4,146 | 36,366 | |||||||||||||||||||||||||||||
| 2020 | 277,597 | 254,808 | 241,381 | 234,547 | 7,698 | 26,420 | ||||||||||||||||||||||||||||||
| 2021 | 299,746 | 294,676 | 286,590 | 18,182 | 29,282 | |||||||||||||||||||||||||||||||
| 2022 | 309,321 | 305,957 | 47,603 | 26,875 | ||||||||||||||||||||||||||||||||
| 2023 | 345,522 | 100,065 | 27,971 | |||||||||||||||||||||||||||||||||
| Total | $ | 2,721,020 | ||||||||||||||||||||||||||||||||||
| Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | |||||||||||||||||||||||||||||||
| Years ended December 31, | |||||||||||||||||||||||||||||||
| Accident Year | 2014* | 2015* | 2016* | 2017* | 2018* | 2019* | 2020* | 2021* | 2022* | 2023 | |||||||||||||||||||||
| 2014 | $ | 72,838 | $ | 134,376 | $ | 166,947 | $ | 187,375 | $ | 204,057 | $ | 209,401 | $ | 210,994 | $ | 212,522 | $ | 212,940 | $ | 213,108 | |||||||||||
| 2015 | 78,861 | 149,366 | 186,281 | 211,908 | 231,530 | 237,792 | 239,986 | 240,829 | 241,681 | ||||||||||||||||||||||
| 2016 | 86,492 | 153,911 | 198,326 | 225,869 | 237,592 | 247,640 | 251,920 | 253,768 | |||||||||||||||||||||||
| 2017 | 88,357 | 175,175 | 218,435 | 241,823 | 255,530 | 261,535 | 263,084 | ||||||||||||||||||||||||
| 2018 | 95,777 | 185,317 | 227,312 | 248,183 | 262,077 | 266,316 | |||||||||||||||||||||||||
| 2019 | 98,545 | 193,389 | 231,892 | 258,959 | 274,221 | ||||||||||||||||||||||||||
| 2020 | 78,699 | 151,722 | 184,874 | 207,391 | |||||||||||||||||||||||||||
| 2021 | 85,916 | 179,363 | 223,116 | ||||||||||||||||||||||||||||
| 2022 | 93,500 | 185,697 | |||||||||||||||||||||||||||||
| 2023 | 106,971 | ||||||||||||||||||||||||||||||
| Total | 2,235,353 | ||||||||||||||||||||||||||||||
| All outstanding liabilities before 2014, net of reinsurance* | 3,687 | ||||||||||||||||||||||||||||||
| Liabilities for claims and claim adjustment expenses, net of reinsurance | $ | 489,354 | |||||||||||||||||||||||||||||
| * | Unaudited supplementary information. |
56
Note 11 – Liability for Unpaid Claims and Claim Adjustment Expenses - (Continued)
Non-Auto Liability—Consists of workers’ compensation and other liability occurrence. Claims and claim adjustment expenses are shown below (in thousands):
| Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | December 31, 2023 | |||||||||||||||||||||||||||||||||||
| Years ended December 31, | IBNR
Plus Expected | Cumulative Number of Reported | ||||||||||||||||||||||||||||||||||
| Accident Year | 2014* | 2015* | 2016* | 2017* | 2018* | 2019* | 2020* | 2021* | 2022* | 2023* | Development | Claims | ||||||||||||||||||||||||
| 2014 | $ | 83,084 | $ | 75,550 | $ | 72,624 | $ | 67,339 | $ | 67,865 | $ | 67,267 | $ | 67,268 | $ | 66,250 | $ | 66,212 | $ | 65,880 | $ | 2,335 | 6,144 | |||||||||||||
| 2015 | 83,897 | 78,968 | 76,724 | 67,548 | 64,189 | 63,326 | 63,523 | 62,929 | 62,644 | 2,714 | 5,572 | |||||||||||||||||||||||||
| 2016 | 86,935 | 83,179 | 73,764 | 73,195 | 68,178 | 67,347 | 68,142 | 66,687 | 3,362 | 4,623 | ||||||||||||||||||||||||||
| 2017 | 102,616 | 88,902 | 81,240 | 77,322 | 76,540 | 74,173 | 74,088 | 4,089 | 8,219 | |||||||||||||||||||||||||||
| 2018 | 88,986 | 85,910 | 79,493 | 75,207 | 74,115 | 72,093 | 9,376 | 13,746 | ||||||||||||||||||||||||||||
| 2019 | 96,064 | 95,340 | 92,544 | 89,475 | 87,888 | 14,387 | 11,954 | |||||||||||||||||||||||||||||
| 2020 | 90,197 | 83,339 | 80,839 | 76,851 | 19,345 | 10,242 | ||||||||||||||||||||||||||||||
| 2021 | 102,869 | 100,813 | 96,477 | 29,411 | 9,683 | |||||||||||||||||||||||||||||||
| 2022 | 109,460 | 106,699 | 43,263 | 9,382 | ||||||||||||||||||||||||||||||||
| 2023 | 117,726 | 64,479 | 13,491 | |||||||||||||||||||||||||||||||||
| Total | $ | 827,033 | ||||||||||||||||||||||||||||||||||
| Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | |||||||||||||||||||||||||||||||
| Years ended December 31, | |||||||||||||||||||||||||||||||
| Accident Year | 2014* | 2015* | 2016* | 2017* | 2018* | 2019* | 2020* | 2021* | 2022* | 2023 | |||||||||||||||||||||
| 2014 | $ | 11,201 | $ | 26,587 | $ | 36,220 | $ | 45,206 | $ | 51,853 | $ | 55,307 | $ | 57,497 | $ | 58,559 | $ | 59,886 | $ | 61,155 | |||||||||||
| 2015 | 11,979 | 23,488 | 37,059 | 46,285 | 51,303 | 53,478 | 55,434 | 56,890 | 57,583 | ||||||||||||||||||||||
| 2016 | 12,733 | 24,633 | 35,502 | 45,820 | 50,596 | 55,205 | 57,958 | 59,210 | |||||||||||||||||||||||
| 2017 | 14,865 | 37,139 | 48,654 | 53,996 | 59,582 | 63,025 | 64,274 | ||||||||||||||||||||||||
| 2018 | 13,156 | 26,115 | 37,574 | 45,316 | 49,940 | 52,983 | |||||||||||||||||||||||||
| 2019 | 12,204 | 30,199 | 40,729 | 49,979 | 59,086 | ||||||||||||||||||||||||||
| 2020 | 9,596 | 23,838 | 36,066 | 43,576 | |||||||||||||||||||||||||||
| 2021 | 12,389 | 32,658 | 43,504 | ||||||||||||||||||||||||||||
| 2022 | 14,029 | 36,188 | |||||||||||||||||||||||||||||
| 2023 | 18,743 | ||||||||||||||||||||||||||||||
| Total | 496,302 | ||||||||||||||||||||||||||||||
| All outstanding liabilities before 2014, net of reinsurance* | 18,844 | ||||||||||||||||||||||||||||||
| Liabilities for claims and claim adjustment expenses, net of reinsurance | $ | 349,575 | |||||||||||||||||||||||||||||
| * | Unaudited supplementary information. |
57
Note 11 – Liability for Unpaid Claims and Claim Adjustment Expenses - (Continued)
Commercial Multi-Peril—Consists of business owners insurance and mortgage fire business. Claims and claim adjustment expenses are shown below (in thousands):
| Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | December 31, 2023 | |||||||||||||||||||||||||||||||||||
| Years ended December 31, | IBNR
Plus Expected | Cumulative Number of Reported | ||||||||||||||||||||||||||||||||||
| Accident Year | 2014* | 2015* | 2016* | 2017* | 2018* | 2019* | 2020* | 2021* | 2022* | 2023 | Development | Claims | ||||||||||||||||||||||||
| 2014 | $ | 36,852 | $ | 31,220 | $ | 34,911 | $ | 33,962 | $ | 36,132 | $ | 34,279 | $ | 34,004 | $ | 33,836 | $ | 33,730 | $ | 33,871 | $ | 165 | 2,314 | |||||||||||||
| 2015 | 33,997 | 31,488 | 29,023 | 32,282 | 31,285 | 33,059 | 34,282 | 33,889 | 33,453 | 467 | 2,251 | |||||||||||||||||||||||||
| 2016 | 38,115 | 33,475 | 33,080 | 31,615 | 33,628 | 32,705 | 32,867 | 33,555 | 728 | 4,810 | ||||||||||||||||||||||||||
| 2017 | 42,411 | 37,079 | 40,611 | 43,367 | 47,660 | 49,825 | 48,621 | 1,456 | 6,817 | |||||||||||||||||||||||||||
| 2018 | 50,784 | 50,182 | 51,519 | 51,035 | 51,124 | 49,996 | 1,444 | 5,693 | ||||||||||||||||||||||||||||
| 2019 | 56,062 | 59,789 | 58,262 | 57,780 | 54,578 | 3,245 | 3,644 | |||||||||||||||||||||||||||||
| 2020 | 68,226 | 63,281 | 64,265 | 62,993 | 6,466 | 4,174 | ||||||||||||||||||||||||||||||
| 2021 | 95,708 | 92,644 | 94,135 | 15,864 | 5,794 | |||||||||||||||||||||||||||||||
| 2022 | 128,960 | 117,713 | 28,245 | 6,027 | ||||||||||||||||||||||||||||||||
| 2023 | 139,797 | 50,801 | 5,656 | |||||||||||||||||||||||||||||||||
| Total | $ | 668,712 | ||||||||||||||||||||||||||||||||||
| Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | |||||||||||||||||||||||||||||||
| Years ended December 31, | |||||||||||||||||||||||||||||||
| Accident Year | 2014* | 2015* | 2016* | 2017* | 2018* | 2019* | 2020* | 2021* | 2022* | 2023 | |||||||||||||||||||||
| 2014 | $ | 12,001 | $ | 16,484 | $ | 20,199 | $ | 24,602 | $ | 27,339 | $ | 31,448 | $ | 32,702 | $ | 32,934 | $ | 33,102 | $ | 33,162 | |||||||||||
| 2015 | 9,820 | 12,956 | 16,402 | 21,680 | 25,188 | 27,201 | 28,566 | 29,692 | 29,833 | ||||||||||||||||||||||
| 2016 | 11,327 | 17,193 | 19,085 | 22,339 | 25,686 | 26,690 | 27,629 | 29,249 | |||||||||||||||||||||||
| 2017 | 12,458 | 20,828 | 23,294 | 26,202 | 28,420 | 34,892 | 38,587 | ||||||||||||||||||||||||
| 2018 | 18,027 | 30,078 | 32,490 | 35,781 | 41,169 | 42,447 | |||||||||||||||||||||||||
| 2019 | 22,098 | 32,295 | 37,408 | 41,045 | 44,916 | ||||||||||||||||||||||||||
| 2020 | 25,492 | 38,415 | 42,677 | 49,483 | |||||||||||||||||||||||||||
| 2021 | 41,452 | 60,141 | 63,057 | ||||||||||||||||||||||||||||
| 2022 | 45,624 | 74,252 | |||||||||||||||||||||||||||||
| 2023 | 63,327 | ||||||||||||||||||||||||||||||
| Total | 468,313 | ||||||||||||||||||||||||||||||
| All outstanding liabilities before 2014, net of reinsurance* | 2,433 | ||||||||||||||||||||||||||||||
| Liabilities for claims and claim adjustment expenses, net of reinsurance | $ | 202,832 | |||||||||||||||||||||||||||||
| * | Unaudited supplementary information. |
58
Note 11 – Liability for Unpaid Claims and Claim Adjustment Expenses - (Continued)
Homeowners—Consists of homeowners and renters business. Claims and claim adjustment expenses are shown below (in thousands):
| Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | December 31, 2023 | |||||||||||||||||||||||||||||||||||
| Years ended December 31, | IBNR
Plus Expected | Cumulative Number of Reported | ||||||||||||||||||||||||||||||||||
| Accident Year | 2014* | 2015* | 2016* | 2017* | 2018* | 2019* | 2020* | 2021* | 2022* | 2023 | Development | Claims | ||||||||||||||||||||||||
| 2014 | $ | 132,651 | $ | 131,634 | $ | 130,287 | $ | 131,546 | $ | 130,895 | $ | 130,747 | $ | 130,799 | $ | 130,713 | $ | 130,705 | $ | 131,078 | $ | — | 18,183 | |||||||||||||
| 2015 | 125,430 | 124,199 | 123,619 | 123,824 | 123,731 | 123,357 | 123,312 | 123,293 | 123,292 | — | 17,759 | |||||||||||||||||||||||||
| 2016 | 147,264 | 145,373 | 144,376 | 145,019 | 144,828 | 144,766 | 144,717 | 144,700 | — | 21,564 | ||||||||||||||||||||||||||
| 2017 | 164,284 | 172,274 | 172,491 | 169,524 | 169,430 | 169,370 | 169,584 | 25 | 23,604 | |||||||||||||||||||||||||||
| 2018 | 174,495 | 179,561 | 176,317 | 176,681 | 177,437 | 177,331 | 62 | 22,605 | ||||||||||||||||||||||||||||
| 2019 | 177,854 | 176,005 | 173,763 | 174,563 | 175,304 | 78 | 20,340 | |||||||||||||||||||||||||||||
| 2020 | 227,298 | 228,441 | 228,215 | 229,652 | 63 | 25,091 | ||||||||||||||||||||||||||||||
| 2021 | 240,732 | 248,886 | 246,327 | 2,128 | 22,310 | |||||||||||||||||||||||||||||||
| 2022 | 247,088 | 251,277 | 5,368 | 23,048 | ||||||||||||||||||||||||||||||||
| 2023 | 338,894 | 53,844 | 24,781 | |||||||||||||||||||||||||||||||||
| Total | $ | 1,987,439 | ||||||||||||||||||||||||||||||||||
| Cumulative Paid Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance | |||||||||||||||||||||||||||||||
| Years ended December 31, | |||||||||||||||||||||||||||||||
| Accident Year | 2014* | 2015* | 2016* | 2017* | 2018* | 2019* | 2020* | 2021* | 2022* | 2023 | |||||||||||||||||||||
| 2014 | $ | 96,300 | $ | 122,601 | $ | 126,245 | $ | 129,467 | $ | 130,059 | $ | 130,305 | $ | 130,542 | $ | 130,577 | $ | 130,588 | $ | 131,078 | |||||||||||
| 2015 | 86,617 | 114,696 | 119,331 | 122,585 | 122,955 | 123,065 | 123,161 | 123,288 | 123,292 | ||||||||||||||||||||||
| 2016 | 105,415 | 136,796 | 140,972 | 144,000 | 144,596 | 144,635 | 144,696 | 144,700 | |||||||||||||||||||||||
| 2017 | 116,075 | 159,107 | 166,009 | 167,638 | 168,241 | 168,661 | 168,803 | ||||||||||||||||||||||||
| 2018 | 121,631 | 165,203 | 170,850 | 174,077 | 176,476 | 176,889 | |||||||||||||||||||||||||
| 2019 | 122,530 | 163,400 | 170,229 | 173,047 | 174,629 | ||||||||||||||||||||||||||
| 2020 | 166,352 | 217,224 | 223,741 | 226,511 | |||||||||||||||||||||||||||
| 2021 | 175,265 | 234,852 | 241,146 | ||||||||||||||||||||||||||||
| 2022 | 174,402 | 236,656 | |||||||||||||||||||||||||||||
| 2023 | 238,585 | ||||||||||||||||||||||||||||||
| Total | 1,862,289 | ||||||||||||||||||||||||||||||
| All outstanding liabilities before 2014, net of reinsurance* | (180 | ) | |||||||||||||||||||||||||||||
| Liabilities for claims and claim adjustment expenses, net of reinsurance | $ | 124,970 | |||||||||||||||||||||||||||||
| * | Unaudited supplementary information. |
59
Note 11 – Liability for Unpaid Claims and Claim Adjustment Expenses - (Continued)
Short Tail Property—Consists of auto physical damage, fire, rental owners, standard fire policy, country estates, inland marine and watercraft. This line of business has substantially all claims settled and paid in less than two years. Claims and claim adjustment expenses are shown below (in thousands):
| Incurred Claims and Allocated Claim | ||||||||||||
| Adjustment Expenses, Net of Reinsurance | As of December 31, 2023 | |||||||||||
| Years ended December 31, | IBNR Plus Expected | Cumulative Number of | ||||||||||
| Accident Year | 2022* | 2023 | Development | Reported Claims | ||||||||
| 2022 | $ | 343,392 | $ | 347,477 | $ | 379 | 56,443 | |||||
| 2023 | 387,100 | 4,816 | 60,768 | |||||||||
| Total | $ | 734,577 | ||||||||||
| Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | |||||||
| Years ended December 31, | |||||||
| Accident Year | 2022* | 2023 | |||||
| 2022 | $ | 297,877 | $ | 344,150 | |||
| 2023 | 329,235 | ||||||
| Total | 673,385 | ||||||
| All outstanding liabilities before 2022, net of reinsurance* | 2,728 | ||||||
| Liabilities for claims and claim adjustment expenses, net of reinsurance | $ | 63,920 | |||||
| * | Unaudited supplementary information. |
Credit Property and Casualty—Consists of credit property insurance, vendor’s or lender’s single interest insurance, GAP insurance, GAP waiver, debt cancellation products, involuntary unemployment insurance and collateral protection insurance. This line of business has substantially all claims settled and paid in less than two years. Claims and claim adjustment expenses are shown below (in thousands):
| Incurred Claims and Allocated Claim | |||||||||||||
| Adjustment Expenses, Net of Reinsurance | As of December 31, 2023 | ||||||||||||
| Years ended December 31, | IBNR Plus Expected | Cumulative Number of | |||||||||||
| Accident Year | 2022* | 2023 | Development | Reported Claims | |||||||||
| 2022 | $ | 58,468 | $ | 53,643 | $ | 216 | 15,587 | ||||||
| 2023 | 102,704 | 16,533 | 16,843 | ||||||||||
| Total | $ | 156,347 | |||||||||||
| Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | |||||||
| Years ended December 31, | |||||||
| Accident Year | 2022* | 2023 | |||||
| 2022 | $ | 39,807 | $ | 52,851 | |||
| 2023 | 77,334 | ||||||
| Total | 130,185 | ||||||
| All outstanding liabilities before 2022, net of reinsurance* | 179 | ||||||
| Liabilities for claims and claim adjustment expenses, net of reinsurance | $ | 26,341 | |||||
| * | Unaudited supplementary information. |
60
Note 11 – Liability for Unpaid Claims and Claim Adjustment Expenses - (Continued)
Credit Life—For credit life products, IBNR is calculated as a percentage of life insurance in-force. This line of business has substantially all claims settled and paid in less than two years. Claims and claim adjustment expenses are shown below (in thousands):
| Incurred Claims and Allocated Claim | ||||||||||||
| Adjustment Expenses, Net of Reinsurance | As of December 31, 2023 | |||||||||||
| Years ended December 31, | IBNR Plus Expected | Cumulative Number of | ||||||||||
| Accident Year | 2022* | 2023 | Development | Reported Claims | ||||||||
| 2022 | $ | 7,634 | $ | 6,009 | $ | 7 | 41 | |||||
| 2023 | 5,293 | 1,009 | 22 | |||||||||
| Total | $ | 11,302 | ||||||||||
| Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | |||||||
| Years ended December 31, | |||||||
| Accident Year | 2022* | 2023 | |||||
| 2022 | $ | 6,709 | $ | 6,002 | |||
| 2023 | 4,248 | ||||||
| Total | 10,250 | ||||||
| All outstanding liabilities before 2022, net of reinsurance* | — | ||||||
| Liabilities for claims and claim adjustment expenses, net of reinsurance | $ | 1,052 | |||||
| * | Unaudited supplementary information. |
Health Reserving Methodology—The following methods are utilized:
| · | Completion Factor Approach—This method assumes that the historical claim patterns will be an accurate representation of unpaid claim liabilities. An estimate of the unpaid claims is calculated by subtracting period-to-date paid claims from an estimate of the ultimate “complete” payment for all incurred claims in the period. Completion factors are calculated which “complete” the current period-to-date payment totals for each incurred month to estimate the ultimate expected payout. |
| · | Tabular Claims Reserves—This method is used to calculate the reserves for long-term care and disability income blocks of business. These reserves rely on published valuation continuance tables created using industry experience regarding assumptions of continued morbidity and subsequent recovery. Reserves are calculated by applying these continuance tables, along with appropriate company experience adjustments, to the stream of contractual benefit payments. These expected benefit payments are discounted at the required interest rate. |
| · | Future Policy Benefits—Reserves are equal to the aggregate of the present value of expected future benefit payments, less the present value of expected future premiums. Morbidity and termination assumptions are based on our experience or published valuation tables when available and appropriate. |
| · | Premium Deficiency Reserves—Deficiency reserves are established when the expected future claim payments and expenses for a classification of policies are in excess of the expected premiums for these policies. The determination of a deficiency reserve takes into consideration the likelihood of premium rate increases, the timing of these increases, future net investment income, and the expected benefit utilization patterns. We have established premium deficiency reserves for portions of the major medical business and the long-term care business that are in run-off. The assumptions and methods used to determine the deficiency reserves are reviewed periodically for reasonableness, and the reserve amount is monitored against emerging losses. |
There is no expected development on reported claims in the health blocks. Claim frequency is determined by totaling the number of unique claim numbers during the period as each unique claim number represents a claim event for an individual claimant.
61
Note 11 – Liability for Unpaid Claims and Claim Adjustment Expenses - (Continued)
Health—Consists of stop-loss and other supplemental health products. This line of business has substantially all claims settled and paid in less than five years. Claims and claim adjustment expenses are shown below (in thousands):
| Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | As of December 31, 2023 | ||||||||||||||||||||
| Years ended December 31, | IBNR
Plus Expected | Cumulative Number of | |||||||||||||||||||
| Accident Year | 2019* | 2020* | 2021* | 2022* | 2023 | Development | Reported Claims | ||||||||||||||
| 2019 | $ | 48,125 | $ | 52,587 | $ | 47,373 | $ | 47,439 | $ | — | $ | — | 3 | ||||||||
| 2020 | 36,717 | 36,406 | 32,779 | 17 | — | 23 | |||||||||||||||
| 2021 | 36,653 | 37,142 | 6,171 | 1 | 590 | ||||||||||||||||
| 2022 | 29,932 | 24,963 | 318 | 17,170 | |||||||||||||||||
| 2023 | 21,682 | 2,657 | 23,325 | ||||||||||||||||||
| Total | $ | 52,833 | |||||||||||||||||||
| Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | ||||||||||||||||
| Years ended December 31, | ||||||||||||||||
| Accident Year | 2019* | 2020* | 2021* | 2022* | 2023 | |||||||||||
| 2019 | $ | 33,207 | $ | 47,312 | $ | 47,371 | $ | 47,373 | $ | — | ||||||
| 2020 | 22,036 | 32,584 | 32,740 | 17 | ||||||||||||
| 2021 | 22,086 | 34,282 | 6,094 | |||||||||||||
| 2022 | 17,480 | 24,680 | ||||||||||||||
| 2023 | 18,501 | |||||||||||||||
| Total | 49,292 | |||||||||||||||
| All outstanding liabilities before 2019, net of reinsurance* | 4,384 | |||||||||||||||
| Liabilities for claims and claim adjustment expenses, net of reinsurance | $ | 7,925 | ||||||||||||||
| * | Unaudited supplementary information. |
Credit Health Reserving Methodology—The following methods are utilized:
Tabular Claims Reserves—These reserves rely on published valuation continuance tables. The insured's age at disablement, the duration of the claim and the remaining term of the policy are used to provide a factor which is applied to the remaining exposure to calculate the present value of future benefits for insureds on claim.
The claim liability consists of IBNR and Due/Unpaid. The IBNR utilizes an inventory type method based on historical patterns of claim payments incurred but not reported within the last six months of the valuation date.
The Due/Unpaid reserves are the amount needed to pay an open claim from the last date of payment to the reserve valuation date.
62
Note 11 – Liability for Unpaid Claims and Claim Adjustment Expenses - (Continued)
Credit Health—The claim liability consists of credit disability. This line of business has substantially all claims settled and paid in less than five years. Claims and claim adjustment expenses are shown below (in thousands):
| Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | As of December 31, 2023 | ||||||||||||||||||||
| Years ended December 31, | IBNR Plus Expected | Cumulative Number of Reported | |||||||||||||||||||
| Accident Year | 2019* | 2020* | 2021* | 2022* | 2023 | Development | Claims | ||||||||||||||
| 2019 | $ | 3,898 | $ | 3,705 | $ | 3,631 | $ | 3,628 | $ | 355 | $ | 30 | 16 | ||||||||
| 2020 | 3,736 | 3,741 | 3,804 | 751 | 86 | 48 | |||||||||||||||
| 2021 | 3,415 | 3,401 | 1,547 | 138 | 188 | ||||||||||||||||
| 2022 | 2,756 | 2,715 | 284 | 1,312 | |||||||||||||||||
| 2023 | 2,772 | 638 | 977 | ||||||||||||||||||
| Total | $ | 8,140 | |||||||||||||||||||
| Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance | ||||||||||||||||
| Years ended December 31, | ||||||||||||||||
| Accident Year | 2019* | 2020* | 2021* | 2022* | 2023 | |||||||||||
| 2019 | $ | 1,207 | $ | 2,618 | $ | 3,138 | $ | 3,424 | $ | 258 | ||||||
| 2020 | 1,179 | 2,613 | 3,100 | 468 | ||||||||||||
| 2021 | 1,098 | 2,274 | 1,093 | |||||||||||||
| 2022 | 930 | 1,784 | ||||||||||||||
| 2023 | 679 | |||||||||||||||
| Total | 4,282 | |||||||||||||||
| All outstanding liabilities before 2019, net of reinsurance* | — | |||||||||||||||
| Liabilities for claims and claim adjustment expenses, net of reinsurance | $ | 3,858 | ||||||||||||||
| * | Unaudited supplementary information. |
The following table is supplementary information. A 10-year average annual percentage payout of incurred claims is shown below:
| Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance | ||||||||||||||||||||||||||||||||||||||||
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6 | Year 7 | Year 8 | Year 9 | Year 10 | |||||||||||||||||||||||||||||||
| Auto Liability | 32.6 | % | 30.6 | % | 15.2 | % | 9.4 | % | 6.0 | % | 2.6 | % | 1.0 | % | 0.6 | % | 0.3 | % | 1.7 | % | ||||||||||||||||||||
| Non-Auto Liability | 16.2 | % | 20.9 | % | 15.4 | % | 11.7 | % | 8.3 | % | 4.9 | % | 3.1 | % | 1.9 | % | 1.5 | % | 16.1 | % | ||||||||||||||||||||
| Commercial Multi-Peril | 37.1 | % | 18.3 | % | 7.0 | % | 9.8 | % | 8.5 | % | 7.4 | % | 4.5 | % | 3.0 | % | 0.5 | % | 3.9 | % | ||||||||||||||||||||
| Homeowner | 70.8 | % | 23.2 | % | 3.2 | % | 1.8 | % | 0.6 | % | 0.2 | % | 0.1 | % | — | % | — | % | 0.1 | % | ||||||||||||||||||||
| Short Tail Property | 85.4 | % | 14.6 | % | — | % | — | % | — | % | — | % | — | % | — | % | — | % | — | % | ||||||||||||||||||||
| Credit P&C | 74.8 | % | 25.2 | % | — | % | — | % | — | % | — | % | — | % | — | % | — | % | — | % | ||||||||||||||||||||
| Credit Life | — | % | — | % | — | % | — | % | — | % | — | % | — | % | — | % | — | % | — | % | ||||||||||||||||||||
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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):
| Successor | Predecessor | |||||||||||||||||||||||||||||||||
| Year ended December 31, 2023 | Period from May 25, 2022 through December 31, 2022 | Period from January 1, 2022 through May 24, 2022 | Year ended December 31, 2021 | |||||||||||||||||||||||||||||||
| Amount | Rate | Amount | Rate | Amount | Rate | Amount | Rate | |||||||||||||||||||||||||||
| Total expected income tax expense at the statutory rate | $ | 91,475 | 21.0 | % | $ | 83,113 | 21.0 | % | $ | 35,113 | 21.0 | % | $ | 181,229 | 21.0 | % | ||||||||||||||||||
| Implementation of new tax legislation | (35,000 | ) | (8.0 | ) | — | — | — | — | — | — | ||||||||||||||||||||||||
| Tax-exempt investment income | (2,968 | ) | (0.7 | ) | (2,082 | ) | (0.5 | ) | (1,811 | ) | (1.1 | ) | (3,929 | ) | (0.5 | ) | ||||||||||||||||||
| Tax credits, net | (14,995 | ) | (3.4 | ) | (12,959 | ) | (3.3 | ) | (2,213 | ) | (1.3 | ) | (4,988 | ) | (0.6 | ) | ||||||||||||||||||
| Low income housing tax credit expense | 3,062 | 0.7 | 2,063 | 0.5 | 1,344 | 0.8 | 4,744 | 0.5 | ||||||||||||||||||||||||||
| Merger transaction costs | — | — | 3,113 | 0.8 | 2,621 | 1.6 | — | — | ||||||||||||||||||||||||||
| Deferred tax adjustment | — | — | — | — | (2,148 | ) | (1.3 | ) | (8,375 | ) | (1.0 | ) | ||||||||||||||||||||||
| Other items, net | 5,101 | 1.1 | 248 | 0.1 | 71 | 0.1 | (2,096 | ) | (0.1 | ) | ||||||||||||||||||||||||
| Total | $ | 46,675 | 10.7 | % | $ | 73,496 | 18.6 | % | $ | 32,977 | 19.8 | % | $ | 166,585 | 19.3 | % | ||||||||||||||||||
American National’s federal income tax returns for tax years 2020 to 2022 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 December 31, 2023, American National had no provision for uncertain tax positions and no provision for penalties or interest. In addition, management does not believe there are any uncertain tax benefits that could be recognized within the next twelve months that would impact American National’s effective tax rate.
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Note 12 - Federal Income Taxes - (Continued)
The tax effects of temporary differences that gave rise to the deferred tax assets and liabilities are shown below (in thousands):
| December 31, 2023 | December 31, 2022 | |||||||
| DEFERRED TAX ASSETS | ||||||||
| Bonds | $ | 257,181 | $ | 399,999 | ||||
| Market Risk | — | 9,242 | ||||||
| Mortgage loans on real estate | 33,891 | 41,420 | ||||||
| Future policy benefits, policyholders' account balances and claims | 49,236 | 13,254 | ||||||
| Unearned premium reserve | 30,356 | 27,531 | ||||||
| Participating policyholders’ liability | 57,970 | 55,273 | ||||||
| Deferred compensation | 8,470 | 8,203 | ||||||
| Other assets | 35,000 | — | ||||||
| Tax carryforwards | 31,449 | 2,255 | ||||||
| Gross deferred tax assets before valuation allowance | 503,553 | 557,177 | ||||||
| Valuation allowance | (4,913 | ) | (2,800 | ) | ||||
| Gross deferred tax assets after valuation allowance | 498,640 | 554,377 | ||||||
| DEFERRED TAX LIABILITIES | ||||||||
| Equity securities | 8,416 | 5,022 | ||||||
| Real estate, real estate partnerships and investment funds | 5,372 | 22,333 | ||||||
| Other invested assets | 17,677 | 17 | ||||||
| Deferred acquisition costs | 80,511 | 40,156 | ||||||
| Market Risk | 18 | — | ||||||
| Property and equipment | 17,013 | 8,717 | ||||||
| Pension and liability for retirement benefits | 48,783 | 21,065 | ||||||
| Other liabilities | 29,510 | 17,953 | ||||||
| Gross deferred tax liabilities | 207,300 | 115,263 | ||||||
| Total net deferred tax asset (liability) | $ | 291,340 | $ | 439,114 | ||||
As of December 31, 2023, American National reported a deferred tax asset of $291.3 million compared to a deferred tax asset at December 31, 2022 of $439.1 million. The decrease from prior year was primarily due to a change in unrealized losses on investments not recognized for tax.
As of December 31, 2023, American National had net operating loss carryforwards of $134 million and foreign tax credit carryovers of $3 million. If not utilized, net operating loss carryforwards of $56 million will expire in 2043 and $55 million may be carried forward indefinitely. Foreign tax credit carryovers, of not utilized, will expire in 2033.
GAAP requires us to evaluate the recoverability of our deferred tax assets and establish a valuation allowance, if necessary, to reduce our deferred tax assets to an amount that is more-likely-than-not to be realized. Considerable judgment is required in determining whether a valuation allowance is necessary, and if so, the amount of such valuation allowance. There were no material changes to our valuation allowance recorded during the years ended December 31, 2023 and 2022. Although realization is not assured, management believes it is more-likely-than-not that our remaining deferred tax assets will be realized and that as of December 31, 2023, no additional valuation allowance is required.
On August 16, 2022, the Inflation Reduction Act (the "Act") was signed into law. The Act included several tax provisions including a corporate alternative minimum tax ("CAMT") effective in 2023. As of December 31, 2023, American National is not an applicable reporting entity and as such, had no provision under CAMT.
Introduction of Pillar Two
The Organization for Economic Cooperation and Development (“OECD”) and its member countries with support from the G20, have proposed the enactment of a global minimum tax of 15% for Multinational Enterprise (“MNE”) groups with global annual revenue of €750 million or more (“Pillar Two”). The Company may become subject to additional income taxes as a result of these proposals, as enacted locally across jurisdictions.
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Note 12 - Federal Income Taxes - (Continued)
American National's wholly owned subsidiary, Freestone Re LTD., is incorporated under the laws of Bermuda and is not required to pay any taxes in Bermuda based upon income or capital gains. However, in December 2023, the Government of Bermuda enacted a corporate income tax (“CIT”) regime, designed to align with the OECD’s global minimum tax rules. Effective January 1, 2025, the regime applies a 15% CIT to Bermuda businesses that are part of MNE groups with annual revenue of €750 million or more. As a result of this new regime, American National recognized a deferred tax asset of $35 million as of December 31, 2023. We will continue to monitor developments prior to the commencement of this regime.
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Note 13 – Accumulated Other Comprehensive Income (Loss)
According to PGAAP Accounting, accumulated other comprehensive income (loss) (“AOCI”), was written off as a result of the Merger with Brookfield Reinsurance. The components of and changes in AOCI are shown below (in thousands):
| Successor | Net Unrealized Gains (Losses) on Securities | Defined Benefit Pension Plan Adjustments | Foreign Currency Adjustments | Change in Discount Rate Used to Measure LFPB | Change in Fair Value of Market Risk Benefits | Accumulated Other Comprehensive Income (Loss) | ||||||||||||||||||
| Beginning balance at May 25, 2022 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
| Amounts reclassified to from AOCI | 18,421 | 1,161 | — | — | 19,582 | |||||||||||||||||||
| Unrealized losses arising during the period | (739,957 | ) | — | — | — | — | (739,957 | ) | ||||||||||||||||
| Unrealized losses on investments attributable to participating policyholders’ interest | — | — | — | — | — | |||||||||||||||||||
| Change in discount rates | — | — | — | 253,126 | — | 253,126 | ||||||||||||||||||
| Change in fair value market risk benefits | — | — | — | — | 20,779 | 20,779 | ||||||||||||||||||
| Foreign currency adjustment | — | — | (1,237 | ) | — | — | (1,237 | ) | ||||||||||||||||
| Ending balance at December 31, 2022 | (721,536 | ) | 1,161 | (1,237 | ) | 253,126 | 20,779 | (447,707 | ) | |||||||||||||||
| Amounts reclassified from AOCI | 74,579 | 107,215 | — | — | — | 181,794 | ||||||||||||||||||
| Unrealized gains arising during the period | 460,737 | — | — | — | — | 460,737 | ||||||||||||||||||
| Unrealized losses on investments attributable to participating policyholders’ interest | — | — | — | — | — | — | ||||||||||||||||||
| Change in discount rates | — | — | — | (188,467 | ) | — | (188,467 | ) | ||||||||||||||||
| Change in fair value market risk benefits | — | — | — | — | (25,263 | ) | (25,263 | ) | ||||||||||||||||
| Foreign currency adjustment | — | — | 13 | — | — | 13 | ||||||||||||||||||
| Deferred income tax benefit (expense) | (112,671 | ) | (22,515 | ) | — | 39,578 | 5,305 | (90,303 | ) | |||||||||||||||
| Ending balance at December 31, 2023 | $ | (298,891 | ) | $ | 85,861 | $ | (1,224 | ) | $ | 104,237 | $ | 821 | $ | (109,196 | ) | |||||||||
| Predecessor | Net Unrealized Gains (Losses) on Securities | Defined Benefit Pension Plan Adjustments | Foreign Currency Adjustments | Accumulated Other Comprehensive Income (Loss) | ||||||||||||
| Balance at December 31, 2020 | $ | 292,166 | $ | (67,130 | ) | $ | (2,866 | ) | $ | 222,170 | ||||||
| Amounts reclassified from AOCI | (32,382 | ) | 7,584 | — | (24,798 | ) | ||||||||||
| Unrealized holding losses arising during the period | (163,051 | ) | — | — | (163,051 | ) | ||||||||||
| Unrealized adjustment to DAC | 46,042 | — | — | 46,042 | ||||||||||||
| Unrealized losses on investments attributable to participating policyholders’ interest | 6,537 | — | — | 6,537 | ||||||||||||
| Actuarial gain arising during the period | — | 60,092 | — | 60,092 | ||||||||||||
| Foreign currency adjustment | — | — | 62 | 62 | ||||||||||||
| Balance at December 31, 2021 | $ | 149,312 | $ | 546 | $ | (2,804 | ) | $ | 147,054 | |||||||
| Amounts reclassified from AOCI | (6,587 | ) | 4,800 | — | (1,787 | ) | ||||||||||
| Unrealized losses arising during the period | (782,002 | ) | — | — | (782,002 | ) | ||||||||||
| Unrealized adjustment to DAC | 157,231 | — | — | 157,231 | ||||||||||||
| Unrealized losses on investments attributable to participating policyholders’ interest | 10,648 | — | — | 10,648 | ||||||||||||
| Foreign currency adjustment | — | — | 312 | 312 | ||||||||||||
| Ending balance at May 24, 2022 | $ | (471,398 | ) | $ | 5,346 | $ | (2,492 | ) | $ | (468,544 | ) | |||||
Unrealized gains increased during the year ended December 31, 2023 as a result of a decrease in the benchmark ten-year interest rates and tightening of credit spreads.
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Note 14 – Equity and Noncontrolling Interests
Prior to the Merger, ANAT had one class of common stock with a par value of $0.01 per share, with 50,000,000 authorized shares and 26,887,200 outstanding shares (including 10,000 shares of restricted stock). On May 25, 2022, the effective date of the Merger, each issued and outstanding share of the Company's common stock was converted into the right to receive $190.00 in cash without interest pursuant to the Merger Agreement. Refer to Note 1, Nature of Operations, for more information. Subsequent to the closing of the Merger, and effective September 30, 2022, ANAT converted from a corporation to a limited liability company. Following such conversion, there is one outstanding member unit, which is indirectly owned by Brookfield Reinsurance.
Earnings per Share
Prior to the Merger, basic earnings per share were calculated using a weighted average number of shares outstanding. Diluted earnings per share include Restricted Stock (“RS”) awards and Restricted Stock Units (“RSU”) award shares issued in 2019. RSUs issued in 2021 may only be settled in cash. All stock-based compensation awards were settled at the closing of the Merger, with no such awards outstanding as of May 25, 2022.
| Predecessor | ||||||||
| Period from January 1, 2022 through May 24, 2022 | Year ended December 31, 2021 | |||||||
| Weighted average shares outstanding | 26,877,200 | 26,877,200 | ||||||
| Incremental shares from RS awards and RSUs | 7,529 | 7,479 | ||||||
| Total shares for diluted calculations | 26,884,729 | 26,884,679 | ||||||
| Net income attributable to American National (in thousands) | $ | 131,050 | $ | 699,325 | ||||
| Basic earnings per share | $ | 4.88 | $ | 26.02 | ||||
| Diluted earnings per share | $ | 4.87 | $ | 26.01 | ||||
Statutory Capital and Surplus
Risk Based Capital (“RBC”) is a measure defined by the National Association of Insurance Commissioners ("NAIC") and is used by insurance regulators 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.
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.
American National has been granted a permitted practice from the Texas Department of Insurance to recognize an admitted asset related to the notional value of coverage defined in an excess of loss reinsurance agreement. The permitted practice increases the statutory capital and surplus of American National by $548.2 million at December 31, 2023. The statutory capital and surplus of American National would have remained above authorized control level RBC had it not used the permitted practice.
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 American National Property And Casualty Company ("ANPAC") by $70.6 million and $79.3 million at December 31, 2023 and December 31, 2022, respectively. The statutory capital and surplus of both ANPAC and American National Lloyds Insurance Company would have remained above the authorized control level RBC had it not used the permitted practice.
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The statutory capital and surplus and net income (loss) of our life and property and casualty insurance entities in accordance with statutory accounting practices are shown below (in thousands):
| December 31, 2023 | December 31, 2022 | |||||||
| Statutory capital and surplus | ||||||||
| Life insurance entities | $ | 2,776,265 | $ | 4,207,301 | ||||
| Property and casualty insurance entities | 1,701,884 | 1,768,116 | ||||||
| Years ended December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| Statutory net income (loss) | ||||||||||||
| Life insurance entities | $ | (354,917 | ) | $ | 353,796 | $ | 956,053 | |||||
| Property and casualty insurance entities | (38,193 | ) | 50,055 | 383,962 | ||||||||
Dividends
We paid a quarterly dividend of $0.82 per share during the three months ended March 31, 2022, prior to the completion of the Merger effective May 25, 2022.
Under the terms of the Merger Agreement with Brookfield Reinsurance, American National was not permitted to pay cash dividends prior to the closing of the Merger, except for quarterly cash dividends of not more than $0.82 per share, with record and payment dates set forth on an agreed schedule that reflected American National’s historical dividend amounts, record dates and payment dates. Consistent with that schedule, American National paid four quarterly cash dividends after the Merger Agreement was signed on August 6, 2021.
On January 1, 2023, ANICO's wholly-owned subsidiary ANH Investments, LLC (“ANH”) distributed the stock of its wholly- owned subsidiary American National Insurance Holdings, Inc. (“ANIH”) to ANICO, and ANICO distributed such stock to ANAT. Such transactions were pursuant to approvals from the domiciliary state insurance regulators of ANICO and the subsidiary insurance companies owned by ANIH as of December 31, 2022. In addition, on January 1, 2023, ANICO distributed its entire interest in its wholly-owned subsidiary, ANTAC, LLC to ANAT.
During the year ended December 31, 2023, ANAT paid dividends of $750.0 million.
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 consolidated financial statements of American National. Policyholder interests in the financial position of County Mutual are reflected as noncontrolling interest of $6.8 million at December 31, 2023 and 2022.
ANAT and its subsidiaries exercise control or ownership of various joint ventures, resulting in their consolidation into American National’s consolidated financial statements. The interests of the other partners in the consolidated joint ventures are shown as a noncontrolling interest of $100.7 million and $67.5 million at December 31, 2023 and December 31, 2022, respectively.
Note 15 – Debt
As a result of the Merger on May 25, 2022, the Company assumed the Term Loan Agreement with a consortium of banks providing for five-year term loans in the aggregate principal amount of $1.5 billion maturing May 23, 2027. Interest is tied to Secured Overnight Financing Rate ("SOFR") and reset and paid quarterly. The all in rate at the end of the fourth quarter was 6.278%. On June 13, 2022, the Company repaid $500 million under the Term Loan Agreement and at December 31, 2023 had $1.0 billion principal amount outstanding. The outstanding debt balance was reduced by $2.6 million in unamortized issuance costs as of December 31, 2023. Interest payments of $64.8 million and $18.5 million were made during the year ended December 31, 2023 and for the period from May 25, 2022 through December 31, 2022, respectively.
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In June 2022, the Company issued $500 million of 6.144% unsecured Senior Notes maturing June 13, 2032. Interest is payable in arrears in June and December of each year. Such notes were offered under Rule 144A of the Securities Act of 1933, as amended. The proceeds from the Senior Notes were used to repay a portion of the Term Loan Agreement. The outstanding note balance was reduced by $4.1 million in unamortized issuance costs as of December 31, 2023. Interest payments of $30.8 million and $15.4 million were made during the year ended December 31, 2023 and for the period from May 25, 2022 through December 31, 2022, respectively.
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 December 31, 2023 were approximately $13.6 million.
American National had aggregate commitments at December 31, 2023 to purchase, expand or improve real estate, to fund fixed interest rate mortgage loans, and to purchase other invested assets of $1.7 billion, of which $1.2 billion is expected to be funded in 2024, with the remainder of $461.5 million funded in 2025 and beyond.
In addition, the Company had revolving commitments of $112.5 million expected to be funded during 2023 and 2024.
American National had outstanding letters of credit in the amount of $3.5 million as of December 31, 2023 and December 31, 2022.
Federal Home Loan Bank ("FHLB") Agreements
The Company has access to the FHLB’s financial services including advances that provide an attractive funding source for short-term borrowing and for access to other funding agreements. As of December 31, 2023, certain municipal bonds and collateralized mortgage obligations with a fair value of approximately $7.6 million and commercial mortgage loans of approximately $977.4 million were on deposit with the FHLB as collateral for borrowing. As of December 31, 2023, the collateral provided borrowing capacity of approximately $646.1 million. The deposited securities and commercial mortgage loans are included in the Company’s consolidated statements of financial position within fixed maturity securities and mortgage loans on real estate, net of allowance, respectively.
Litigation
American National and certain subsidiaries are defendants in various lawsuits concerning alleged breaches of contracts, various employment matters, allegedly deceptive insurance sales and marketing practices, and miscellaneous other causes of action arising in the ordinary course of operations. Certain of these lawsuits include claims for compensatory and punitive damages. We provide accruals for these items to the extent we deem the losses probable and reasonably estimable. After reviewing these matters with legal counsel, based upon information presently available, management is of the opinion that the ultimate resultant liability, if any, would not have a material adverse effect on American National’s consolidated financial position, liquidity or results of operations; however, assessing the eventual outcome of litigation necessarily involves forward-looking speculation as to judgments to be made by judges, juries and appellate courts in the future.
Such speculation warrants caution, as the frequency of large damage awards, which bear little or no relation to the economic damages incurred by plaintiffs in some jurisdictions, continues to create the potential for an unpredictable judgment in any given lawsuit. These lawsuits are in various stages of development, and future facts and circumstances could result in management changing its conclusions. It is possible that, if the defenses in these lawsuits are not successful, and the judgments are greater than management can anticipate, the resulting liability could have a material impact on our consolidated financial position, liquidity, or results of operations. With respect to the existing litigation, management currently believes that the possibility of a material judgment adverse to American National is remote. Accruals for losses are established whenever they are probable and reasonably estimable. If no one estimate within the range of possible losses is more probable than any other, an accrual is recorded based on the lowest amount of the range.
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Note 17 – Related Party Transactions
American National has entered into recurring transactions and agreements with certain related parties. Prior to the Merger, these included mortgage loans, management contracts, agency commission contracts, marketing agreements, health insurance contracts, and legal services. The impact on the consolidated financial statements of significant related party transactions is discussed below.
In 2023, the Company purchased related party investments totaling $4.0 billion, of which $2.2 billion were collateral loans, $1.3 billion in bonds and $492.7 million in common stock and other various investment classes. In 2022, the Company purchased $140.8 million in related party investments, composed of $88.9 million in commercial mortgage loans, and $51.7 million in bonds. Investment transactions with related parties are accounted for in the same manner as those with unrelated parties in the financial statements.
For the year ended December 2023, the Company paid investment management fees due to related party arrangements of $43.4 million. For the period from May 25, 2022 through December 31, 2022, the Company paid investment management fees of $24.2 million.
On November 8, 2022 ANAT and BAMR US Holdings LLC entered into a deposit agreement. The balance at December 31, 2023 and 2022 was $294.3 million and $603.6 million, respectively. The deposit is considered cash and cash equivalent in the Company's consolidated statements of financial position as of December 31, 2023 and 2022.
On August 17, 2023 ANTAC, LLC (a subsidiary of ANAT) and BAMR US Holdings LLC entered into a deposit agreement. The balance at December 31, 2023 was $180.7 million. The deposit is considered cash and cash equivalents in the Company's consolidated statements of financial position as of December 31, 2023.
The Company's subsidiary deposited $250.0 million with the Brookfield Treasury Management Inc (“BTMI”) as of December 31, 2023. This amount is included in cash and cash equivalents. Interest income earned was $2.9 million for the year ended December 31, 2023.
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Note 18 – Liability for Future Policy Benefits
The balances and changes in the liability for future policy benefits for the year ended December 31, 2023 and the period from May 25, 2022 through December 31, 2022 are as follows (in thousands):
| December 31, 2023 | ||||||||||||||||
| Term Life | Whole Life | Annuity | Health | |||||||||||||
| Present value of Expected Net Premiums: | ||||||||||||||||
| Balance, January 1, 2023 | $ | 2,181,520 | $ | 1,338,304 | $ | — | $ | 254,452 | ||||||||
| Beginning balance at original discount rate | 2,400,114 | 1,425,419 | — | 262,239 | ||||||||||||
| Effect of changes in cash flow assumptions | (348,834 | ) | (3,650 | ) | — | 35,898 | ||||||||||
| Effect of actual variances from expected experience | (84,388 | ) | 25,538 | 1,684 | (1,438 | ) | ||||||||||
| Adjusted beginning of period balance | 1,966,892 | 1,447,307 | 1,684 | 296,699 | ||||||||||||
| Net issuances (lapses) | 38,600 | 53,299 | 985,147 | (36,816 | ) | |||||||||||
| Interest accrual | 75,049 | 45,982 | 7,820 | 9,819 | ||||||||||||
| Net premiums collected | (146,150 | ) | (227,487 | ) | (994,651 | ) | (36,461 | ) | ||||||||
| Ending balance at original discount rate | 1,934,391 | 1,319,101 | — | 233,241 | ||||||||||||
| Effect of changes in discount rate assumptions | (74,760 | ) | (34,064 | ) | — | (10,020 | ) | |||||||||
| Balance, December 31, 2023 | $ | 1,859,631 | $ | 1,285,037 | $ | — | $ | 223,221 | ||||||||
| Present value of Expected Future Policy Benefits: | ||||||||||||||||
| Balance, January 1, 2023 | $ | 2,694,329 | $ | 2,635,785 | $ | 1,288,034 | $ | 292,528 | ||||||||
| Beginning balance at original discount rate | 2,960,617 | 2,914,365 | 1,368,141 | 303,469 | ||||||||||||
| Effect of changes in cash flow assumptions | (357,635 | ) | (4,505 | ) | (1,282 | ) | 40,453 | |||||||||
| Effect of actual variances from expected experience | (84,356 | ) | 25,742 | (25,118 | ) | 1,619 | ||||||||||
| Adjusted beginning of period balance | 2,518,626 | 2,935,602 | 1,341,741 | 345,541 | ||||||||||||
| Net issuances (lapses) | 38,485 | 53,282 | 990,191 | (37,202 | ) | |||||||||||
| Interest accrual | 94,482 | 93,533 | 73,322 | 11,682 | ||||||||||||
| Benefit payments | (108,155 | ) | (348,860 | ) | (188,599 | ) | (39,514 | ) | ||||||||
| Ending balance at original discount rate | 2,543,438 | 2,733,557 | 2,216,655 | 280,507 | ||||||||||||
| Effect of changes in discount rate assumptions | (99,726 | ) | (137,193 | ) | (3,770 | ) | (14,823 | ) | ||||||||
| Balance, December 31, 2023 | 2,443,712 | 2,596,364 | 2,212,885 | 265,684 | ||||||||||||
| Gross liability for future policy benefits | 584,081 | 1,311,327 | 2,212,885 | 42,463 | ||||||||||||
| Net liability for future policy benefits | 584,081 | 1,311,327 | 2,212,885 | 42,463 | ||||||||||||
| Less: Reinsurance recoverable | (44,995 | ) | — | — | (14,581 | ) | ||||||||||
| Net liability for future policy benefits, after reinsurance recoverable | $ | 539,086 | $ | 1,311,327 | $ | 2,212,885 | $ | 27,882 | ||||||||
| Weighted-average liability duration of the liability | 13.9 | 17.1 | 8.0 | 6.0 | ||||||||||||
| Undiscounted expected future benefit payments | $ | 4,659 | $ | 5,694 | $ | 3,466 | $ | 403 | ||||||||
| Undiscounted expected gross premiums | $ | 4,834 | $ | 2,707 | $ | — | $ | 470 | ||||||||
| Gross premiums recognized in statement of operations | $ | 188,897 | $ | 263,133 | $ | 1,027,430 | $ | 154,593 | ||||||||
| Interest expense recognized in statement of operations | $ | 26,821 | $ | 68,015 | $ | 83,470 | $ | 4,281 | ||||||||
| Interest accretion rate | 4.8 | % | 4.5 | % | 4.9 | % | 3.8 | % | ||||||||
| Current discount rate | 5.1 | % | 5.0 | % | 4.9 | % | 4.5 | % | ||||||||
72
Note 18 – Liability for Future Policy Benefits (Continued)
| December 31, 2022 | ||||||||||||||||
| Term Life | Whole Life | Annuity | Health | |||||||||||||
| Present value of Expected Net Premiums: | ||||||||||||||||
| Balance, May 25, 2022 | $ | 2,365,603 | $ | 1,477,772 | $ | — | $ | 308,925 | ||||||||
| Beginning balance at original discount rate | 2,365,603 | 1,477,772 | — | 308,017 | ||||||||||||
| Effect of changes in cash flow assumptions | (3,093 | ) | (1,140 | ) | — | (1,894 | ) | |||||||||
| Effect of actual variances from expected experience | (28,618 | ) | 13,997 | 3,228 | 8,227 | |||||||||||
| Adjusted beginning of period balance | 2,333,892 | 1,490,629 | 3,228 | 314,350 | ||||||||||||
| Net issuances (lapses) | 121,292 | 34,304 | 13,050 | (28,883 | ) | |||||||||||
| Interest accrual | 32,751 | 19,692 | 45 | 5,240 | ||||||||||||
| Net premiums collected | (87,821 | ) | (119,206 | ) | (16,323 | ) | (28,468 | ) | ||||||||
| Ending balance at original discount rate | 2,400,114 | 1,425,419 | — | 262,239 | ||||||||||||
| Effect of changes in discount rate assumptions | (218,594 | ) | (87,115 | ) | — | (7,787 | ) | |||||||||
| Balance, December 31, 2022 | $ | 2,181,520 | $ | 1,338,304 | $ | — | $ | 254,452 | ||||||||
| Present value of Expected Future Policy Benefits: | ||||||||||||||||
| Balance, May 25, 2022 | $ | 2,896,654 | $ | 2,948,910 | $ | 1,431,862 | $ | 349,347 | ||||||||
| Beginning balance at original discount rate | 2,896,624 | 2,948,910 | 1,431,862 | 348,419 | ||||||||||||
| Effect of changes in cash flow assumptions | (3,100 | ) | (1,129 | ) | (171 | ) | 7,999 | |||||||||
| Effect of actual variances from expected experience | (28,730 | ) | 13,994 | (571 | ) | (391 | ) | |||||||||
| Adjusted beginning of period balance | 2,864,794 | 2,961,775 | 1,431,120 | 356,027 | ||||||||||||
| Net issuances (lapses) | 121,291 | 34,303 | 12,714 | (29,097 | ) | |||||||||||
| Interest accrual | 40,061 | 39,506 | 18,787 | 5,982 | ||||||||||||
| Benefit payments | (65,529 | ) | (121,219 | ) | (94,479 | ) | (29,443 | ) | ||||||||
| Ending balance at original discount rate | 2,960,617 | 2,914,365 | 1,368,142 | 303,469 | ||||||||||||
| Effect of changes in discount rate assumptions | (266,288 | ) | (278,580 | ) | (80,107 | ) | (10,941 | ) | ||||||||
| Balance, December 31, 2022 | 2,694,329 | 2,635,785 | 1,288,035 | 292,528 | ||||||||||||
| Gross liability for future policy benefits | 512,809 | 1,297,481 | 1,288,035 | 38,076 | ||||||||||||
| Net liability for future policy benefits | 512,809 | 1,297,481 | 1,288,035 | 38,076 | ||||||||||||
| Less: Reinsurance recoverable | (53,943 | ) | — | — | (10,416 | ) | ||||||||||
| Net liability for future policy benefits, after reinsurance recoverable | $ | 458,866 | $ | 1,297,481 | $ | 1,288,035 | $ | 27,660 | ||||||||
| Weighted-average liability duration of the liability | 12.8 | 18.1 | 7.8 | 5.9 | ||||||||||||
| Undiscounted expected future benefit payments | $ | 5,822,884 | $ | 6,231,388 | $ | 2,003,560 | $ | 466,519 | ||||||||
| Undiscounted expected gross premiums | $ | 6,222,388 | $ | 2,809,944 | $ | — | $ | 571,248 | ||||||||
| Gross premiums recognized in statement of operations | $ | 111,515 | $ | 153,458 | $ | 18,089 | $ | 18,840 | ||||||||
| Interest expense recognized in statement of operations | $ | 7,311 | $ | 19,814 | $ | 18,742 | $ | 743 | ||||||||
| Interest accretion rate | 4.6 | % | 4.4 | % | 4.4 | % | 4.1 | % | ||||||||
| Current discount rate | 5.4 | % | 5.3 | % | 5.2 | % | 4.7 | % | ||||||||
73
Note 18 – Liability for Future Policy Benefits – (Continued)
The reconciliation of liability for future policy benefits to the liability for future policy benefits in the consolidated statement of financial position follows (in thousands):
| December 31, 2023 | December 31, 2022 | |||||||
| Term life | $ | 584,081 | $ | 512,809 | ||||
| Whole life | 1,311,327 | 1,297,481 | ||||||
| Annuity | 2,212,885 | 1,288,035 | ||||||
| Health | 42,463 | 38,076 | ||||||
| Deferred profit liability | 129,754 | 23,896 | ||||||
| VOBA | 884,291 | 883,642 | ||||||
| Liability for future policy benefits not subject to LDTI | 943,158 | 815,332 | ||||||
| Total | $ | 6,107,959 | $ | 4,859,271 | ||||
Note 19 – Policyholders' Account Balances
Policyholder account balances relate to investment-type contracts and universal life-type policies. Investment-type contracts principally include traditional individual fixed annuities in the accumulation phase and non-variable group annuity contracts. Policyholder account balances are equal to (i) policy account values, which consist of an accumulation of gross premium payments; (ii) credited interest, ranging from 1.0% to 8.0% (some annuities have enhanced first year crediting rates ranging from 1.0% to 7.0%), less expenses, mortality charges, and withdrawals; and (iii) fair value adjustment.
The balances and changes in policyholders' account balances for the year ended December 31, 2023 and the period from May 25, 2022 through December 31, 2022 were as follows (in thousands):
| December 31, 2023 | ||||||||||||||||
| Universal Life | Equity Indexed Universal Life | Fixed Deferred Annuity | Equity Indexed Annuity | |||||||||||||
| Balance, January 1, 2023 | $ | 1,286,762 | $ | 613,661 | $ | 7,295,531 | $ | 4,745,678 | ||||||||
| Issuances | 37,320 | 46,747 | 3,988,887 | 392,978 | ||||||||||||
| Premiums received | 254,619 | 144,252 | 23,669 | 10,264 | ||||||||||||
| Policy charges | (266,948 | ) | (94,736 | ) | (6,317 | ) | (33,051 | ) | ||||||||
| Surrenders and withdrawals | (89,114 | ) | (21,305 | ) | (1,500,934 | ) | (631,085 | ) | ||||||||
| Interest credited | 35,160 | 61,772 | 304,242 | 239,034 | ||||||||||||
| Balance, December 31, 2023 | $ | 1,257,799 | $ | 750,391 | $ | 10,105,078 | $ | 4,723,818 | ||||||||
| Weighted-average crediting rate | 2.7 | % | 9.1 | % | 3.5 | % | 5.1 | % | ||||||||
| Net amount at risk | $ | 21,585,998 | $ | 16,354,794 | $ | — | $ | 392,017 | ||||||||
| Cash surrender value | $ | 1,122,202 | $ | 594,772 | $ | 9,593,887 | $ | 4,088,713 | ||||||||
74
Note 19 – Policyholder Account Balances - (Continued)
| December 31, 2022 | ||||||||||||||||
| Universal Life | Equity Indexed Universal Life | Fixed Deferred Annuity | Equity Indexed Annuity | |||||||||||||
| Balance, May 25, 2022 | $ | 1,357,668 | $ | 563,314 | $ | 6,922,832 | $ | 4,652,470 | ||||||||
| Issuances | 20,659 | 24,325 | 795,563 | 258,774 | ||||||||||||
| Premiums received | 145,262 | 80,554 | 23,912 | 1,949 | ||||||||||||
| Policy charges | (222,174 | ) | (51,308 | ) | (1,434 | ) | (8,987 | ) | ||||||||
| Surrenders and withdrawals | (29,185 | ) | (8,653 | ) | (554,563 | ) | (184,277 | ) | ||||||||
| Interest credited | 21,105 | 5,429 | 109,221 | 14,962 | ||||||||||||
| Other | (6,573 | ) | — | — | 10,787 | |||||||||||
| Balance, December 31, 2022 | $ | 1,286,762 | $ | 613,661 | $ | 7,295,531 | $ | 4,745,678 | ||||||||
| Weighted-average crediting rate | 1.60 | % | 0.90 | % | 2.70 | % | 0.50 | % | ||||||||
| Net amount at risk | $ | 20,997,901 | $ | 14,901,018 | $ | — | $ | 313,347 | ||||||||
| Cash surrender value | $ | 1,224,061 | $ | 470,048 | $ | 6,660,479 | $ | 4,238,886 | ||||||||
The reconciliation of policyholders’ account balances to the policyholders’ account balances’ liability in the consolidated statement of financial position are shown below (in thousands):
| December 31, 2023 | December 31, 2022 | |||||||
| Universal life | $ | 1,257,799 | $ | 1,286,762 | ||||
| Equity indexed universal life | 750,391 | 613,661 | ||||||
| Fixed deferred annuity | 10,105,078 | 7,295,531 | ||||||
| Equity indexed annuity | 4,723,818 | 4,745,678 | ||||||
| Single premium immediate annuity | 291,146 | 304,677 | ||||||
| Variable universal life | 36,419 | 42,911 | ||||||
| Variable deferred annuity | 8,469 | 16,754 | ||||||
| Other | 4,356 | 3,997 | ||||||
| Total | $ | 17,177,476 | $ | 14,309,971 | ||||
75
Note 19 – Policyholder Account Balances - (Continued)
The balance of account values by range of guaranteed minimum crediting rates and the related range of difference, in basis points, between rates being credited to policyholders and the respective guaranteed minimums are shown below (in thousands):
| December 31, 2023 | ||||||||||||||||||||||
| Range of Guaranteed Minimum Crediting Rate | At Guaranteed Minimum | 1 - 50 Basis Points Above | 51 - 150 Basis Points Above | > 150 Basis Points Above | Total | |||||||||||||||||
| Universal Life | 0.00%-1.00% | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
| 1.00%-2.00% | $ | 22,077 | $ | 2,042 | $ | 11,445 | $ | — | $ | 35,564 | ||||||||||||
| 2.00%-3.00% | 414,979 | — | 148,086 | — | 563,065 | |||||||||||||||||
| Greater than 3.00% | 659,170 | — | — | — | 659,170 | |||||||||||||||||
| Total | $ | 1,096,226 | $ | 2,042 | $ | 159,531 | $ | — | $ | 1,257,799 | ||||||||||||
| Equity Indexed Universal Life | 0.00%-1.00% | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
| 1.00%-2.00% | $ | 153,554 | $ | — | $ | 133,834 | $ | 391,830 | $ | 679,218 | ||||||||||||
| 2.00%-3.00% | — | — | 71,173 | — | 71,173 | |||||||||||||||||
| Greater than 3.00% | — | — | — | — | — | |||||||||||||||||
| Total | $ | 153,554 | $ | — | $ | 205,007 | $ | 391,830 | $ | 750,391 | ||||||||||||
| Fixed Deferred Annuity | 0.00%-1.00% | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
| 1.00%-2.00% | $ | 302,924 | $ | 382,126 | $ | 1,804,089 | $ | 2,055,022 | $ | 4,544,161 | ||||||||||||
| 2.00%-3.00% | 746,465 | 398,243 | 46,630 | 4,088,400 | 5,279,738 | |||||||||||||||||
| Greater than 3.00% | 272,563 | 6,520 | 891 | 1,205 | 281,179 | |||||||||||||||||
| Total | $ | 1,321,952 | $ | 786,889 | $ | 1,851,610 | $ | 6,144,627 | $ | 10,105,078 | ||||||||||||
| Equity Indexed Annuity | 0.00%-1.00% | $ | 2,584,504 | $ | 30,135 | $ | 487,196 | $ | 726,897 | $ | 3,828,732 | |||||||||||
| 1.00%-2.00% | 381,269 | 48,009 | 140,382 | 82,936 | 652,596 | |||||||||||||||||
| 2.00%-3.00% | 85,543 | 11,398 | 9,286 | 136,263 | 242,490 | |||||||||||||||||
| Greater than 3.00% | — | — | — | — | — | |||||||||||||||||
| Total | $ | 3,051,316 | $ | 89,542 | $ | 636,864 | $ | 946,096 | $ | 4,723,818 | ||||||||||||
76
Note 19 – Policyholder Account Balances - (Continued)
| December 31, 2022 | ||||||||||||||||||||||
| Range of Guaranteed Minimum Crediting Rate | At Guaranteed Minimum | 1 - 50 Basis Points Above | 51 - 150 Basis Points Above | > 150 Basis Points Above | Total | |||||||||||||||||
| Universal Life | 0.00%-1.00% | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
| 1.00%-2.00% | 10,840 | 2,111 | 8,614 | — | 21,565 | |||||||||||||||||
| 2.00%-3.00% | 408,839 | — | 149,034 | — | 557,873 | |||||||||||||||||
| Greater than 3.00% | 707,324 | — | — | — | 707,324 | |||||||||||||||||
| Total | $ | 1,127,003 | $ | 2,111 | $ | 157,648 | $ | — | $ | 1,286,762 | ||||||||||||
| Equity Indexed Universal Life | 0.00%-1.00% | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
| 1.00%-2.00% | 389,112 | — | 27,189 | 131,530 | 547,831 | |||||||||||||||||
| 2.00%-3.00% | — | — | 65,830 | — | 65,830 | |||||||||||||||||
| Greater than 3.00% | — | — | — | — | — | |||||||||||||||||
| Total | $ | 389,112 | $ | — | $ | 93,019 | $ | 131,530 | $ | 613,661 | ||||||||||||
| Fixed Deferred Annuity | 0.00%-1.00% | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
| 1.00%-2.00% | 510,502 | 624,421 | 2,049,501 | 2,347,188 | 5,531,612 | |||||||||||||||||
| 2.00%-3.00% | 1,012,392 | 570,158 | 20,137 | 56,949 | 1,659,636 | |||||||||||||||||
| Greater than 3.00% | 97,813 | 4,947 | 1,314 | 209 | 104,283 | |||||||||||||||||
| Total | $ | 1,620,707 | $ | 1,199,526 | $ | 2,070,952 | $ | 2,404,346 | $ | 7,295,531 | ||||||||||||
| Equity Indexed Annuity | 0.00%-1.00% | $ | 3,510,442 | $ | 4,454 | $ | 649,207 | $ | 50,374 | $ | 4,214,477 | |||||||||||
| 1.00%-2.00% | 250,481 | 95,273 | 107,262 | 9,106 | 462,122 | |||||||||||||||||
| 2.00%-3.00% | 62,643 | 3,077 | 3,359 | — | 69,079 | |||||||||||||||||
| Greater than 3.00% | — | — | — | — | — | |||||||||||||||||
| Total | $ | 3,823,566 | $ | 102,804 | $ | 759,828 | $ | 59,480 | $ | 4,745,678 | ||||||||||||
77
Note 20 - Market Risk Benefits
American National classifies the Lifetime Income Rider ("LIR") as an MRB. The LIR is a rider offering guaranteed minimum withdrawal benefits available on certain fixed indexed annuity products.
The balances of and changes in guaranteed minimum withdrawal benefits associated with annuity contracts follow (in thousands).
| For the year ended | For the period from May 25, 2022 through | |||||||
| December 31, 2023 | December 31, 2022 | |||||||
| Balance, beginning of period | $ | 44,010 | $ | 172,012 | ||||
| Effect of changes in the beginning instrument-specific credit risk | 26,303 | 43,734 | ||||||
| Effect of model refinements | (13,050 | ) | — | |||||
| Effect of non-financial assumption update | — | — | ||||||
| Attributed fees collected | 13,175 | 4,527 | ||||||
| Interest Accrual | 3,067 | 2,167 | ||||||
| Adjustment from deterministic to stochastic | 18,972 | 12,026 | ||||||
| Effect of experience variance | (13,051 | ) | (4,298 | ) | ||||
| Effect of changes in financial assumptions | (79,779 | ) | (118,573 | ) | ||||
| Issuance | 1,307 | 2,451 | ||||||
| Balance, end of period, before effect of changes in nonperformance risk | 954 | 114,046 | ||||||
| Effect of changes in the ending instrument-specific credit risk | (1,040 | ) | (70,036 | ) | ||||
| Balance, end of period | (86 | ) | 44,010 | |||||
| Reinsurance recoverable, end of period | — | — | ||||||
| Balance, end of period, net of reinsurance | $ | (86 | ) | $ | 44,010 | |||
| December 31, 2023 | December 31, 2022 | |||||||
| Net amount at risk | $ | — | $ | 453,000 | ||||
| Weighted-average attained age of contract holders amounted | 65 | 64 | ||||||
The reconciliation of market risk benefits by amounts in an asset position and in a liability position to the market risk benefits amount in the consolidated statement of financial position follows (in thousands).
| December 31, 2023 | |||||||||||||
| Asset | Liability | Net | |||||||||||
| Annuity | $ | 33,658 | $ | 33,572 | $ | (86 | ) | ||||||
| December 31, 2022 | |||||||||||||
| Asset | Liability | Net | |||||||||||
| Annuity | $ | 10,330 | $ | 54,340 | $ | 44,010 | |||||||
78
Note 21 – Reinsurance
American National reinsures portions of certain life insurance policies to provide a greater diversification of risk and manage exposure on larger risks. For the Property and Casualty segment during 2023, American National retained the first $2.0 million of loss per risk. Reinsurance covered up to $6.0 million of property and liability losses per risk. Additional excess property per risk coverage was purchased to cover risks up to $20.0 million, and excess casualty clash coverage was purchased to cover losses up to $60.0 million. Excess casualty clash covered losses incurred as a result of one casualty event involving multiple policies, excess policy limits and extra contractual obligations. Facultative reinsurance was purchased for individual risks attaching at $20.0 million as needed. Corporate catastrophe coverage was in place for losses up to $500.0 million.
American National remains primarily liable with respect to any reinsurance ceded and would bear the entire loss if the reinsurer does not meet their obligations under any reinsurance treaties. Coverage is placed with reinsurers that are at least A- rated by AM Best or S&P, and the contracts include downgrade triggers allowing for American National to terminate coverage if certain credit related events for a particular reinsurer take place. American National had the following recoverables from reinsurance, net of allowance for credit losses (in thousands):
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Reinsurance recoverables | $ | 426,911 | $ | 444,170 | ||||
None of the amount outstanding at December 31, 2023 is the subject of litigation or is in dispute with the reinsurers involved. Management believes the unfavorable resolution of any dispute that may arise likely would not have a material impact on American National’s consolidated financial statements.
The amounts in the consolidated financial statements include the impact of reinsurance. Premiums written and earned and Policyholder benefits and claims are shown below (in thousands):
| Successor | Predecessor | |||||||||||||||
| Year ended | Period from May 25, 2022 through | Period from January 1, 2022 through | Year ended | |||||||||||||
| December 31, 2023 | December 31, 2022 | May 24, 2022 | December 31, 2021 | |||||||||||||
| Written | ||||||||||||||||
| Direct | $ | 3,923,761 | $ | 1,632,191 | $ | 1,158,793 | $ | 2,650,696 | ||||||||
| Reinsurance assumed | 848,017 | 492,710 | 308,648 | 644,858 | ||||||||||||
| Reinsurance ceded | (1,298,586 | ) | (661,744 | ) | (425,091 | ) | (944,194 | ) | ||||||||
| Net | $ | 3,473,192 | $ | 1,463,157 | $ | 1,042,350 | $ | 2,351,360 | ||||||||
| Earned | ||||||||||||||||
| Direct | $ | 4,072,039 | $ | 1,701,001 | $ | 1,154,084 | $ | 2,716,632 | ||||||||
| Reinsurance assumed | 835,839 | 208,134 | 128,191 | 317,081 | ||||||||||||
| Reinsurance ceded | (1,386,431 | ) | (455,623 | ) | (302,943 | ) | (732,660 | ) | ||||||||
| Net | $ | 3,521,447 | $ | 1,453,512 | $ | 979,332 | $ | 2,301,053 | ||||||||
| Successor | Predecessor | |||||||||||
| Year ended | Period
from | Period
from | ||||||||||
| December 31, 2023 | December 31, 2022 | May 24, 2022 | ||||||||||
| Policyholder benefits and claims | ||||||||||||
| Direct | $ | 3,676,141 | $ | 1,291,218 | $ | 909,782 | ||||||
| Reinsurance assumed | 398,557 | 272,136 | 179,701 | |||||||||
| Reinsurance ceded | (813,897 | ) | (375,134 | ) | (258,464 | ) | ||||||
| Net | $ | 3,260,801 | $ | 1,188,220 | $ | 831,019 | ||||||
79
Note 22 – Pension and Postretirement Benefits
Savings Plans
American National sponsors a qualified defined contribution (401(k) plan) for all employees, and non-qualified defined contribution plans for certain employees whose otherwise eligible earnings exceed the statutory limits under the qualified plans. The total expense associated with matching contributions to these plans was $11.8 million, $11.6 million and $10.8 million for 2023, 2022 and 2021, respectively.
Pension Benefits
American National sponsors qualified and non-qualified defined benefit pension plans, all of which have been frozen. As such, no additional benefits are accrued through these plans for additional years of service credit or future salary increase credit, and no new participants are added to the plans. Benefits earned by eligible employees prior to the plans being frozen have not been affected.
The qualified pension plans are noncontributory. The plans provide benefits for salaried and management employees and corporate clerical employees subject to a collective bargaining agreement based on years of service and employee compensation. The non-qualified pension plans cover key employees and restore benefits that would otherwise be curtailed by statutory limits on qualified plan benefits.
Amounts recognized in the consolidated statements of financial position consist of (in thousands):
| Qualified | Non-qualified | |||||||||||||||
| December 31, | ||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Reconciliation of benefit obligation | ||||||||||||||||
| Beginning obligation | $ | 308,895 | $ | 343,098 | $ | 51,829 | $ | 54,840 | ||||||||
| Service cost | 652 | 198 | — | — | ||||||||||||
| Interest cost on projected benefit obligation | 14,598 | 8,601 | 2,444 | 1,195 | ||||||||||||
| Actuarial loss | (11,391 | ) | (25,325 | ) | (26,304 | ) | 699 | |||||||||
| Benefits paid | (25,361 | ) | (17,677 | ) | (11,776 | ) | (4,905 | ) | ||||||||
| Obligation at December 31, | 287,393 | 308,895 | 16,193 | 51,829 | ||||||||||||
| Reconciliation of fair value of plan assets | ||||||||||||||||
| Beginning fair value of plan assets | 473,609 | 498,994 | — | — | ||||||||||||
| Actual return on plan assets | 97,763 | (7,749 | ) | — | — | |||||||||||
| Employer contributions | — | — | 11,776 | 4,905 | ||||||||||||
| Benefits paid | (25,414 | ) | (17,636 | ) | (11,776 | ) | (4,905 | ) | ||||||||
| Fair value of plan assets at December 31, | 545,958 | 473,609 | — | — | ||||||||||||
| Funded status at December 31, | $ | 258,565 | $ | 164,714 | $ | (16,193 | ) | $ | (51,829 | ) | ||||||
The components of net periodic benefit cost for the defined benefit pension plans are shown below (in thousands):
| Successor | Predecessor | |||||||||||
| December 31, 2023 | December 31, 2022 | December 31, 2021 | ||||||||||
| Service cost | $ | 652 | $ | 198 | $ | 589 | ||||||
| Interest cost | 17,042 | 9,796 | 11,207 | |||||||||
| Expected return on plan assets | (28,495 | ) | (15,561 | ) | (25,921 | ) | ||||||
| Amortization of net actuarial loss | 249 | — | 7,628 | |||||||||
| Settlement Recognition | 35 | — | 1,973 | |||||||||
| Net periodic benefit cost | $ | (10,517 | ) | $ | (5,567 | ) | $ | (4,524 | ) | |||
80
Note 22 – Pension and Postretirement Benefits - (Continued)
Amounts related to the defined benefit pension plans recognized as a component of AOCI are shown below (in thousands):
| Successor | Predecessor | |||||||||||
| December 31, 2023 | December 31, 2022 | December 31, 2021 | ||||||||||
| Actuarial gain | $ | 107,215 | $ | 1,469 | $ | 85,666 | ||||||
| Deferred tax expense | (22,515 | ) | (308 | ) | (17,990 | ) | ||||||
| Other comprehensive income, net of tax | $ | 84,700 | $ | 1,161 | $ | 67,676 | ||||||
Amounts recognized as a component of AOCI that have not been recognized as a component of the combined net periodic benefit cost of the defined benefit pension plans, are shown below (in thousands):
| Successor | Predecessor | |||||||||||
| December 31, 2023 | December 31, 2022 | December 31, 2021 | ||||||||||
| Net actuarial gain | $ | 108,684 | $ | 1,469 | $ | 690 | ||||||
| Deferred tax expense | (22,824 | ) | (308 | ) | (144 | ) | ||||||
| Amounts included in AOCI | $ | 85,860 | $ | 1,161 | $ | 546 | ||||||
The weighted average assumptions used are shown below:
| Qualified | Non-qualified | |||||||||||||||
| Used for Net Benefit Cost for year ended December 31, 2023 | Used for Benefit Obligations as of December 31, 2023 | Used for Net Benefit Cost for year ended December 31, 2023 | Used for Benefit Obligations as of December 31, 2023 | |||||||||||||
| Discount rate | 5.44 | % | 5.18 | % | 5.32 | % | 5.07 | % | ||||||||
| Long-term rate of return | 6.25 | % | — | % | — | % | — | % | ||||||||
American National’s funding policy for the qualified pension plans is to make annual contributions to meet the minimum funding standards of the Pension Protection Act of 2006. American National and its affiliates did not contribute to its qualified plans in 2023 and 2022 due to the substantial contribution over minimum funding standards of $60.0 million made in 2018. The benefits paid from the non-qualified plans were $11.8 million and $4.9 million in 2023 and 2022, respectively. Future payments from the non-qualified pension benefit plans will be funded out of general corporate assets.
The following table shows pension benefit payments expected to be paid (in thousands):
| 2024 | $ | 35,770 | |||
| 2025 | 25,884 | ||||
| 2026 | 25,403 | ||||
| 2027 | 25,007 | ||||
| 2028 | 24,634 | ||||
| 2029-2033 | 110,327 |
81
Note 22 – Pension and Postretirement Benefits - (Continued)
American National utilizes third-party pricing services to estimate fair value measurements of its pension plan assets. Refer to Note 9, Fair Value of Financial Instruments for further information concerning the valuation methodologies and related inputs utilized by the third-party pricing services. The fair values (hierarchy measurements) of the pension plan assets by asset category are shown below (in thousands):
| December 31, 2023 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Asset Category | ||||||||||||||||
| Corporate debt securities | $ | 107,777 | $ | — | $ | 104,664 | $ | 3,113 | ||||||||
| Collateralized debt securities | 1,507 | — | 1,507 | — | ||||||||||||
| Residential mortgage-backed securities | — | — | — | — | ||||||||||||
| Equity securities by sector | ||||||||||||||||
| Communications Services | 33,108 | 33,108 | — | — | ||||||||||||
| Consumer Discretionary | 43,011 | 43,011 | — | — | ||||||||||||
| Consumer Staples | 24,963 | 24,963 | — | — | ||||||||||||
| Energy | 15,321 | 15,321 | ||||||||||||||
| Finance | 66,517 | 66,517 | — | — | ||||||||||||
| Healthcare | 52,343 | 52,343 | — | — | ||||||||||||
| Industrials | 37,956 | 37,956 | — | — | ||||||||||||
| Information Technology | 117,821 | 117,821 | — | — | ||||||||||||
| Materials | 11,957 | 11,957 | — | — | ||||||||||||
| Real Estate | 18,932 | 18,932 | — | — | ||||||||||||
| Utilities | 9,031 | 9,031 | — | — | ||||||||||||
| Other | 3,834 | 3,834 | — | — | ||||||||||||
| Commercial paper | — | — | — | — | ||||||||||||
| Unallocated group annuity contract | 1,234 | — | 1,234 | — | ||||||||||||
| Other | 646 | 646 | — | — | ||||||||||||
| Total | $ | 545,958 | $ | 435,440 | $ | 107,405 | $ | 3,113 | ||||||||
| December 31, 2022 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Asset Category | ||||||||||||||||
| Corporate debt securities | $ | 119,353 | $ | — | $ | 119,353 | $ | — | ||||||||
| Collateralized debt securities | 1,525 | — | 1,525 | — | ||||||||||||
| Residential mortgage-backed securities | 30 | — | 30 | — | ||||||||||||
| Equity securities by sector | ||||||||||||||||
| Communications Services | 23,059 | 23,059 | — | — | ||||||||||||
| Consumer Discretionary | 32,047 | 32,047 | — | — | ||||||||||||
| Consumer Staples | 23,345 | 23,345 | — | — | ||||||||||||
| Energy | 16,176 | 16,176 | — | — | ||||||||||||
| Finance | 46,463 | 46,463 | — | — | ||||||||||||
| Healthcare | 52,476 | 52,476 | — | — | ||||||||||||
| Industrials | 30,721 | 30,721 | — | — | ||||||||||||
| Information Technology | 87,616 | 87,616 | — | — | ||||||||||||
| Materials | 9,564 | 9,564 | — | — | ||||||||||||
| Real Estate | 14,352 | 14,352 | — | — | ||||||||||||
| Utilities | 9,755 | 9,755 | — | — | ||||||||||||
| Other | 2,951 | 2,951 | — | — | ||||||||||||
| Commercial paper | 358 | — | 358 | — | ||||||||||||
| Unallocated group annuity contract | 174 | — | 174 | — | ||||||||||||
| Other | 3,644 | 3,644 | — | — | ||||||||||||
| Total | $ | 473,609 | $ | 352,169 | $ | 121,440 | $ | — | ||||||||
82
Note 22 – Pension and Postretirement Benefits - (Continued)
The investment policy for the retirement plan assets is designed to provide the highest return commensurate with sound and prudent underwriting practices. The investment diversification goals are to have investments in cash and cash equivalents as necessary for liquidity, debt securities up to 100% and equity securities up to 75% of the total invested plan assets. The amount invested in any particular investment is limited based on credit quality, and no single investment may at the time of purchase be more than 5% of the total invested assets.
The corporate debt securities category are investment grade bonds of U.S. and foreign issuers denominated and payable in U.S. dollars from diverse industries, with a maturity of 1 to 30 years. Foreign bonds in the aggregate shall not exceed 20% of the bond portfolio. Residential mortgage-backed securities represent asset-backed securities with a maturity date of 1 to 30 years with a Level 1 or 2 rating.
Equity portfolio managers have discretion to choose the degree of concentration in various issues and industry sectors for the equity securities. Permitted securities are those for which there is an active market providing liquidity for the specific security. Commercial paper investments generally have a credit rating of A2 by Moody’s or P2 by Standard & Poor’s with at least BBB rating on the issuer’s outstanding debt, or selected issuers with no outstanding debt.
Postretirement Life and Health Benefits
Under American National’s various group benefit plans for active employees, life insurance benefits are provided upon retirement for eligible participants who meet certain age and length of service requirements.
The accrued postretirement benefit obligation, included in the liability for retirement benefits, was $7.9 million and $7.4 million at December 31, 2023 and 2022, respectively. These amounts were approximately equal to the unfunded accumulated postretirement benefit obligation.
Note 23 – Segment Information
Management organizes the business into four 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. |
| • | 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. There are also small amounts of Health insurance, consisting of Medicare Supplement, stop-loss, other supplemental health products and credit disability insurance. Products are typically distributed through independent agents and managing general underwriters. |
| • | Corporate and Other—consists of net investment income from investments and certain expenses not allocated to the insurance segments and revenues and related expenses from non-insurance operations. |
The accounting policies of the segments are the same as those described in Note 2, Summary of Significant Accounting Policies and Practices, of the Notes to the Consolidated Financial Statements. All revenues and expenses specifically attributable to policy transactions are recorded directly to the appropriate operating segment. Revenues and expenses not specifically attributable to policy transactions are allocated to each segment as follows:
| • | Recurring income from bonds and mortgage loans is allocated based on the assets allocated to each segment at the average yield available from these assets. |
| • | Net investment income from all other assets is allocated to the insurance segments in accordance with the amount of capital allocated to each segment, with the remainder recorded in the Corporate and Other segment. |
| • | Expenses are charged to segments through direct identification and allocations based upon various factors. |
The key measure used by the CODM in assessing performance and in making resource allocation decisions is Income before federal income tax and other items.
83
The following summarizes total assets by operating segments (in thousands):
| As of December 31, | ||||||||
| 2023 | 2022 | |||||||
| Total assets | ||||||||
| Life | $ | 7,182,398 | $ | 6,144,188 | ||||
| Annuity | 20,186,149 | $ | 17,268,259 | |||||
| Property and Casualty | 4,881,396 | $ | 4,092,530 | |||||
| Corporate and Other | 3,635,103 | $ | 2,039,230 | |||||
| Total | $ | 35,885,046 | $ | 29,544,207 | ||||
The results of operations measured as the income before federal income taxes and other items by operating segments are summarized below (in thousands):
| Successor | ||||||||||||||||||||
| Year ended December 31, 2023 | ||||||||||||||||||||
| Life | Annuity | Property and Casualty | Corporate and Other | Total | ||||||||||||||||
| PREMIUMS AND OTHER REVENUES | ||||||||||||||||||||
| Premiums | $ | 428,230 | $ | 1,027,725 | $ | 2,065,492 | $ | — | $ | 3,521,447 | ||||||||||
| Other policy revenues | 372,025 | 42,224 | — | — | 414,249 | |||||||||||||||
| Net investment income | 368,209 | 875,002 | 165,897 | 92,052 | 1,501,160 | |||||||||||||||
| Net realized investment gains | — | — | — | (73,311 | ) | (73,311 | ) | |||||||||||||
| Decrease in investment credit loss | — | — | — | (26,648 | ) | (26,648 | ) | |||||||||||||
| Net gains on equity securities | — | — | — | 96,827 | 96,827 | |||||||||||||||
| Other income | — | — | — | 83,375 | 83,375 | |||||||||||||||
| Total premiums and other revenues | $ | 1,168,464 | $ | 1,944,951 | $ | 2,231,389 | $ | 172,295 | $ | 5,517,099 | ||||||||||
| BENEFITS, LOSSES AND EXPENSES | ||||||||||||||||||||
| Policyholder benefits and claims incurred | $ | (664,031 | ) | $ | (1,067,179 | ) | $ | (1,529,591 | ) | $ | — | $ | (3,260,801 | ) | ||||||
| Change in fair value of market risk benefits | — | 69,310 | — | — | 69,310 | |||||||||||||||
| Interest credited to policyholders' account balances | (97,105 | ) | (530,738 | ) | — | — | (627,843 | ) | ||||||||||||
| Future policy benefit remeasurement losses | 16,449 | (37,214 | ) | (7,612 | ) | — | (28,377 | ) | ||||||||||||
| Other operating expenses | (227,234 | ) | (95,036 | ) | (189,985 | ) | (200,866 | ) | (713,121 | ) | ||||||||||
| Amortization of deferred policy acquisition costs | (38,504 | ) | (19,266 | ) | (462,905 | ) | — | (520,675 | ) | |||||||||||
| Total benefits, losses and expenses | $ | (1,010,425 | ) | $ | (1,680,123 | ) | $ | (2,190,093 | ) | $ | (200,866 | ) | $ | (5,081,507 | ) | |||||
| Income before federal income tax and other items | $ | 158,039 | $ | 264,828 | $ | 41,296 | $ | (28,571 | ) | $ | 435,592 | |||||||||
84
| Successor | ||||||||||||||||||||
| Period from May 25, 2022 through December 31, 2022 | ||||||||||||||||||||
| Life | Annuity | Property and Casualty | Corporate and Other | Total | ||||||||||||||||
| PREMIUMS AND OTHER REVENUES | ||||||||||||||||||||
| Premiums | $ | 253,508 | $ | 15,723 | $ | 1,184,281 | $ | — | $ | 1,453,512 | ||||||||||
| Other policy revenues | 210,211 | 15,529 | — | — | 225,740 | |||||||||||||||
| Net investment income | 79,021 | 387,521 | 75,229 | 120,745 | 662,516 | |||||||||||||||
| Net realized investment gains | — | — | — | (22,889 | ) | (22,889 | ) | |||||||||||||
| Decrease in investment credit loss | — | — | — | (65,298 | ) | (65,298 | ) | |||||||||||||
| Net gains on equity securities | — | — | — | 49,360 | 49,360 | |||||||||||||||
| Other income | — | — | — | 24,112 | 24,112 | |||||||||||||||
| Total premiums and other revenues | $ | 542,740 | $ | 418,773 | $ | 1,259,510 | $ | 106,030 | $ | 2,327,053 | ||||||||||
| BENEFITS, LOSSES AND EXPENSES | ||||||||||||||||||||
| Policyholder benefits and claims incurred | $ | (361,256 | ) | $ | (21,917 | ) | $ | (805,047 | ) | $ | — | $ | (1,188,220 | ) | ||||||
| Change in fair value of market risk benefits | — | 101,699 | — | — | 101,699 | |||||||||||||||
| Interest credited to policyholders' account balances | (29,645 | ) | (126,301 | ) | — | — | (155,946 | ) | ||||||||||||
| Future policy benefit remeasurement losses | 359 | (574 | ) | (1,275 | ) | — | (1,490 | ) | ||||||||||||
| Other operating expenses | (105,047 | ) | (51,431 | ) | (101,331 | ) | (107,880 | ) | (365,689 | ) | ||||||||||
| Amortization of deferred policy acquisition costs | (41,916 | ) | (3,504 | ) | (276,212 | ) | — | (321,632 | ) | |||||||||||
| Total benefits, losses and expenses | $ | (537,505 | ) | $ | (102,028 | ) | $ | (1,183,865 | ) | $ | (107,880 | ) | $ | (1,931,278 | ) | |||||
| Income before federal income tax and other items | $ | 5,235 | $ | 316,745 | $ | 75,645 | $ | (1,850 | ) | $ | 395,775 | |||||||||
| Predecessor | ||||||||||||||||||||
| Period from January 1, 2022 through May 24, 2022 | ||||||||||||||||||||
| Life | Annuity | Property and Casualty | Corporate and Other | Total | ||||||||||||||||
| PREMIUMS AND OTHER REVENUES | ||||||||||||||||||||
| Premiums | $ | 174,290 | $ | 10,221 | $ | 794,821 | $ | — | $ | 979,332 | ||||||||||
| Other policy revenues | 148,690 | 9,825 | — | — | 158,515 | |||||||||||||||
| Net investment income | 45,898 | 225,083 | 43,695 | 70,132 | 384,808 | |||||||||||||||
| Net realized investment gains | — | — | — | 21,073 | 21,073 | |||||||||||||||
| Decrease in investment credit loss | — | — | — | (14,857 | ) | (14,857 | ) | |||||||||||||
| Net gains on equity securities | — | — | — | (13,082 | ) | (13,082 | ) | |||||||||||||
| Other income | — | — | — | 18,887 | 18,887 | |||||||||||||||
| Total premiums and other revenues | $ | 368,878 | $ | 245,129 | $ | 838,516 | $ | 82,153 | $ | 1,534,676 | ||||||||||
| BENEFITS, LOSSES AND EXPENSES | ||||||||||||||||||||
| Policyholder benefits and claims incurred | $ | (255,482 | ) | $ | (35,847 | ) | $ | (539,690 | ) | $ | — | $ | (831,019 | ) | ||||||
| Interest credited to policyholders' account balances | (4,798 | ) | (48,027 | ) | — | — | (52,825 | ) | ||||||||||||
| Other operating expenses | (83,527 | ) | (32,231 | ) | (69,798 | ) | (70,662 | ) | (256,218 | ) | ||||||||||
| Amortization of deferred policy acquisition costs | (51,399 | ) | (9,301 | ) | (166,708 | ) | — | (227,408 | ) | |||||||||||
| Total benefits, losses and expenses | $ | (395,206 | ) | $ | (125,406 | ) | $ | (776,196 | ) | $ | (70,662 | ) | $ | (1,367,470 | ) | |||||
| Income before federal income tax and other items | $ | (26,328 | ) | $ | 119,723 | $ | 62,320 | $ | 11,491 | $ | 167,206 | |||||||||
85
| Predecessor | ||||||||||||||||||||
| Year ended December 31, 2021 | ||||||||||||||||||||
| Life | Annuity | Property and Casualty | Corporate and Other | Total | ||||||||||||||||
| PREMIUMS AND OTHER REVENUES | ||||||||||||||||||||
| Premiums | $ | 412,769 | $ | 74,925 | $ | 1,813,359 | $ | — | $ | 2,301,053 | ||||||||||
| Other policy revenues | 336,136 | 23,571 | — | — | 359,707 | |||||||||||||||
| Net investment income | 277,962 | 629,417 | 70,293 | 193,982 | 1,171,654 | |||||||||||||||
| Net realized investment gains | — | — | — | 64,628 | 64,628 | |||||||||||||||
| Decrease in investment credit loss | — | — | — | 28,778 | 28,778 | |||||||||||||||
| Net gains on equity securities | — | — | — | 420,283 | 420,283 | |||||||||||||||
| Other income | 1,577 | 3,282 | 37,550 | 3,279 | 45,688 | |||||||||||||||
| Total premiums and other revenues | $ | 1,028,444 | $ | 731,195 | $ | 1,921,202 | $ | 710,950 | $ | 4,391,791 | ||||||||||
| BENEFITS, LOSSES AND EXPENSES | ||||||||||||||||||||
| Policyholder benefits and claims incurred | (605,724 | ) | (149,931 | ) | (1,192,155 | ) | $ | — | $ | (1,947,810 | ) | |||||||||
| Interest credited to policyholders' account balances | (84,005 | ) | (364,649 | ) | — | — | (448,654 | ) | ||||||||||||
| Other operating expenses | (219,699 | ) | (52,250 | ) | (230,019 | ) | (67,593 | ) | (569,561 | ) | ||||||||||
| Amortization of deferred policy acquisition costs | (111,764 | ) | (77,133 | ) | (373,876 | ) | — | (562,773 | ) | |||||||||||
| Total benefits, losses and expenses | $ | (1,021,192 | ) | $ | (643,963 | ) | $ | (1,796,050 | ) | $ | (67,593 | ) | $ | (3,528,798 | ) | |||||
| Income before federal income tax and other items | $ | 7,252 | $ | 87,232 | $ | 125,152 | $ | 643,357 | $ | 862,993 | ||||||||||
Note 24 - Subsequent Events
The Company evaluated all events and transactions through July 23, 2024, the date the accompanying consolidated financial statements were available to be issued.
On March 1, 2024, certain insurance company subsidiaries of the Company entered into a series of transactions with Core Specialty Insurance Holdings, Inc. ("Core Specialty") for the transfer of American National's Specialty Markets Group "SMG" to Core Specialty. Under prospective quota share reinsurance agreements with Core Specialty, Core Specialty will reinsure 100% of the SMG business (net of applicable reinsurance) commencing January 1, 2024 until such time that necessary product filings have been approved and Core Specialty is writing SMG new and renewal business.
In January 2024, the Company announced a Retirement Incentive Offer to certain eligible employees who have reached age 60 and are pension-eligible under the frozen pension plan. Employees who elect to accept the offer will receive a pension benefit that was enhanced by an additional 1% for each year of service and continued health insurance coverage or medical cash benefits subject to conditions. For employees accepting the offer, final date of employment generally was February 29, 2024.
On May 7, 2024, pursuant to an Agreement and Plan of Merger by and between the Company and American Equity Investment Life Holding Company, an Iowa corporation (“AEL”), the Company merged with and into AEL, with AEL as the surviving entity (the “AEL Merger”). Previously, on May 2, 2024, AEL became an indirect, wholly-owned subsidiary of Brookfield Reinsurance, pursuant to an Agreement and Plan of Merger by and among AEL, Brookfield Reinsurance, and Arches Merger Sub Inc., an Iowa corporation and an indirect, wholly-owned subsidiary of Brookfield Reinsurance. In connection with the AEL Merger, AEL expressly assumed all of the Company’s obligations with respect to the $500 million aggregate principal amount of 6.144% unsecured Senior Notes issued by the Company due June 13, 2032. Following the AEL Merger, and pursuant to a Plan of Domestication dated as of May 7, 2024, AEL discontinued its existence as an Iowa corporation and continued its existence as a Delaware corporation, pursuant to applicable Iowa and Delaware laws, and changed its name to American National Group Inc. (“ANG”). ANGI will file periodic reports as required with the U.S. Securities and Exchange Commission with respect to its Series A Preferred Stock and Series B Preferred Stock, listed on the New York Stock Exchange under the ticker symbols “ANGPRA” and “ANGPRB”, respectively.
86
Exhibit 99.2
AMERICAN NATIONAL GROUP, LLC
Condensed Consolidated Financial Statements
March 31, 2024
AMERICAN NATIONAL GROUP, LLC
TABLE OF CONTENTS
| FINANCIAL STATEMENTS: | |
| Condensed Consolidated Statements of Financial Position as of March 31, 2024 and December 31, 2023 (unaudited) | 1 |
| Condensed Consolidated Statements of Operations for the periods ended March 31, 2024 and 2023 (unaudited) | 2 |
| Condensed Consolidated Statements of Comprehensive Income for the periods ended March 31, 2024 and 2023 (Loss) (unaudited) | 3 |
| Condensed Consolidated Statements of Changes in Equity for the periods ended March 31, 2024 and 2023 (unaudited) | 4 |
| Condensed Consolidated Statements of Cash Flows for the periods ended March 31, 2024 and 2023 (unaudited) | 5 |
| Notes to the Condensed Consolidated Financial Statements (unaudited) | 7 |
| Note 1 – Nature of Operations | 7 |
| Note 2 – Summary of Significant Accounting Policies and Practices | 7 |
| Note 3 – Recently Issued Accounting Pronouncements | 8 |
| Note 4 – Investment in Securities | 9 |
| Note 5 – Mortgage Loans | 14 |
| Note 6 – Real Estate and Other Investments | 18 |
| Note 7 – Derivative Instruments | 21 |
| Note 8 – Net Investment Income and Realized Investment Gains (Losses) | 23 |
| Note 9 – Fair Value of Financial Instruments | 24 |
| Note 10 – Deferred Policy Acquisition Costs and Value of Business Acquired | 35 |
| Note 11 – Liability for Unpaid Claims and Claim Adjustment Expenses | 36 |
| Note 12 – Federal Income Taxes | 37 |
| Note 13 – Accumulated Other Comprehensive Income (Loss) | 38 |
| Note 14 – Equity and Noncontrolling Interests | 39 |
| Note 15 – Debt | 40 |
| Note 16 – Commitments and Contingencies | 40 |
| Note 17 – Related Party Transactions | 42 |
| Note 18 – Liability for Future Policy Benefits | 43 |
| Note 19 – Policyholders' Account Balances | 45 |
| Note 20 – Market Risk Benefits | 49 |
| Note 21 – Segment Information | 50 |
| Note 22 – Subsequent Events | 51 |
AMERICAN NATIONAL GROUP, LLC
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
(In thousands)
| March 31, 2024 | December 31, 2023 | |||||||
| ASSETS | ||||||||
| Fixed maturity, bonds available-for-sale, at fair value (Allowance for credit losses of $27,256 in 2024 and $24,218 in 2023) (Amortized cost $14,638,506 in 2024 and $13,475,451 in 2023) | $ | 14,197,880 | $ | 13,070,576 | ||||
| Equity securities, at fair value (Cost $1,413,094 in 2024 and $1,336,218 in 2023) | 1,426,370 | 1,404,247 | ||||||
| Mortgage loans on real estate, net of allowance for credit losses of $53,845 in 2024 and $53,407 in 2023 | 5,581,631 | 5,658,023 | ||||||
| Policy loans | 395,053 | 390,393 | ||||||
| Real estate and real estate partnerships, net of accumulated depreciation of $281,447 in 2024 and $320,088 in 2023 | 3,554,363 | 3,610,853 | ||||||
| Investment funds | 1,768,959 | 1,591,768 | ||||||
| Short-term investments | 3,242,526 | 2,396,504 | ||||||
| Other invested assets | 161,241 | 120,818 | ||||||
| Total investments | 30,328,023 | 28,243,182 | ||||||
| Cash and cash equivalents | 2,244,390 | 3,192,369 | ||||||
| Accrued investment income | 238,982 | 196,163 | ||||||
| Reinsurance recoverables | 422,420 | 426,911 | ||||||
| Prepaid reinsurance premiums | 212,640 | 44,666 | ||||||
| Premiums due and other receivables | 491,446 | 483,834 | ||||||
| Deferred policy acquisition costs | 971,535 | 944,469 | ||||||
| Market risk benefit | 24,725 | 33,658 | ||||||
| Property and equipment, net of accumulated depreciation of $335,569 in 2024 and $332,951 in 2023 | 170,498 | 167,946 | ||||||
| Deferred tax asset | 252,051 | 291,340 | ||||||
| Current tax receivable | 100,867 | 97,439 | ||||||
| Prepaid pension | 254,200 | 247,624 | ||||||
| Other assets | 221,021 | 205,359 | ||||||
| Goodwill | 121,097 | 121,097 | ||||||
| Separate account assets | 1,284,939 | 1,188,989 | ||||||
| Total assets | $ | 37,338,834 | $ | 35,885,046 | ||||
| LIABILITIES | ||||||||
| Future policy benefits | ||||||||
| Life | $ | 3,805,530 | $ | 3,675,387 | ||||
| Annuity | 2,841,733 | 2,373,100 | ||||||
| Health | 36,909 | 59,472 | ||||||
| Policyholders’ account balances | 17,588,446 | 17,177,476 | ||||||
| Policy and contract claims | 1,853,571 | 1,869,970 | ||||||
| Market risk benefits, at estimated fair value | 55,366 | 33,572 | ||||||
| Unearned premium reserve | 1,147,002 | 1,138,937 | ||||||
| Other policyholder funds | 339,284 | 334,892 | ||||||
| Liability for retirement benefits | 17,767 | 26,395 | ||||||
| Long-term debt | 1,493,636 | 1,493,326 | ||||||
| Notes payable | 184,601 | 174,017 | ||||||
| Other liabilities | 623,345 | 440,709 | ||||||
| Separate account liabilities | 1,284,939 | 1,188,989 | ||||||
| Total liabilities | 31,272,129 | 29,986,242 | ||||||
| EQUITY | ||||||||
| American National’s equity: | ||||||||
| Additional paid-in capital | 5,184,682 | 5,184,682 | ||||||
| Accumulated other comprehensive loss | (59,234 | ) | (109,196 | ) | ||||
| Retained earnings | 829,204 | 715,836 | ||||||
| Total American National’s equity | 5,954,652 | 5,791,322 | ||||||
| Noncontrolling interest | 112,053 | 107,482 | ||||||
| Total equity | 6,066,705 | 5,898,804 | ||||||
| Total liabilities and equity | $ | 37,338,834 | $ | 35,885,046 | ||||
See accompanying notes to the unaudited condensed consolidated financial statements.
1
AMERICAN NATIONAL GROUP, LLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share data)
| Three months ended March 31, 2024 | Three months ended March 31, 2023 | |||||||
| PREMIUMS AND OTHER REVENUES | ||||||||
| Premiums | ||||||||
| Life | $ | 102,433 | $ | 109,998 | ||||
| Annuity | 564,231 | 159,656 | ||||||
| Health | 5,330 | 29,019 | ||||||
| Property and Casualty | 471,742 | 481,718 | ||||||
| Other policy revenues | 112,411 | 96,579 | ||||||
| Net investment income | 470,219 | 341,102 | ||||||
| Net realized investment gain (loss) | 2,295 | (22,367 | ) | |||||
| (Increase) decrease in investment credit loss | 1,309 | (11,466 | ) | |||||
| Net gains (losses) on equity securities | (10,811 | ) | (28,296 | ) | ||||
| Other income | 7,630 | 11,127 | ||||||
| Total premiums and other revenues | 1,726,789 | 1,167,070 | ||||||
| BENEFITS, LOSSES AND EXPENSES | ||||||||
| Policyholder benefits & claims | 1,083,699 | 651,436 | ||||||
| Change in fair value of market risk benefit | 19,052 | 14,318 | ||||||
| Interest credited to policyholders’ account balances | 192,224 | 139,597 | ||||||
| Future policy benefit remeasurement losses | 1,678 | 39,212 | ||||||
| Other operating expenses | 128,453 | 177,755 | ||||||
| Amortization of deferred policy acquisition costs | 160,758 | 131,757 | ||||||
| Total benefits, losses and expenses | 1,585,864 | 1,154,075 | ||||||
| Income before federal income tax and other items | 140,925 | 12,995 | ||||||
| Less: Provision (benefit) for federal income taxes | ||||||||
| Current | 2,343 | 5,938 | ||||||
| Deferred | 26,442 | (8,185 | ) | |||||
| Total provision (benefit) for federal income taxes | 28,785 | (2,247 | ) | |||||
| Income after federal income tax | 112,140 | 15,242 | ||||||
| Other components of net periodic pension benefit (costs), net of tax | 2,613 | (1,591 | ) | |||||
| Net income | 114,753 | 13,651 | ||||||
| Less: Net income attributable to noncontrolling interest, net of tax | 1,385 | 4,758 | ||||||
| Net income attributable to American National | $ | 113,368 | $ | 8,893 | ||||
See accompanying notes to the unaudited condensed consolidated financial statements.
2
AMERICAN NATIONAL GROUP, LLC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(In thousands)
| Three months ended March 31, 2024 | Three months ended March 31, 2023 | |||||||
| Net income | $ | 114,753 | $ | 13,651 | ||||
| Other comprehensive income (loss), net of tax | ||||||||
| Change in net unrealized losses on securities | (43,979 | ) | 339,630 | |||||
| Change in discount rate for liability for future policyholders’ benefit | 102,308 | (105,675 | ) | |||||
| Change in instrument specific credit risk for market risk benefit | (9,223 | ) | (6,790 | ) | ||||
| Foreign currency transaction and translation adjustments | (2,294 | ) | 136 | |||||
| Defined benefit pension plan adjustment | 3,150 | 1,446 | ||||||
| Total other comprehensive income (loss), net of tax | 49,962 | 228,747 | ||||||
| Total comprehensive income (loss) | 164,715 | 242,398 | ||||||
| Less: Comprehensive income attributable to noncontrolling interest | 1,385 | 4,758 | ||||||
| Total comprehensive income (loss) attributable to American National | $ | 163,330 | $ | 237,640 | ||||
See accompanying notes to the unaudited condensed consolidated financial statements.
3
AMERICAN NATIONAL GROUP, LLC
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)
(In thousands)
| Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Noncontrolling Interest | Total Member's Equity | ||||||||||||||||
| Balance as of January 1, 2024 | $ | 5,184,682 | $ | (109,196 | ) | $ | 715,836 | $ | 107,482 | $ | 5,898,804 | |||||||||
| Other comprehensive income | — | 49,962 | — | — | 49,962 | |||||||||||||||
| Net income attributable to American National | — | — | 113,368 | — | 113,368 | |||||||||||||||
| Contributions/Distributions | — | — | — | 3,186 | 3,186 | |||||||||||||||
| Net income attributable to noncontrolling interest | — | — | — | 1,385 | 1,385 | |||||||||||||||
| Balance at March 31, 2024 | $ | 5,184,682 | $ | (59,234 | ) | $ | 829,204 | $ | 112,053 | $ | 6,066,705 | |||||||||
| Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Noncontrolling Interest | Total Member's Equity | ||||||||||||||||
| Balance as of January 1, 2023 | $ | 3,805,072 | $ | (447,707 | ) | $ | 323,820 | $ | 74,268 | $ | 3,755,453 | |||||||||
| Other comprehensive income | — | 228,747 | — | — | 228,747 | |||||||||||||||
| Net income attributable to American National | — | — | 8,893 | — | 8,893 | |||||||||||||||
| Contributions/Distributions | — | — | — | (4,177 | ) | (4,177 | ) | |||||||||||||
| Net income attributable to noncontrolling interest | — | — | — | 4,758 | 4,758 | |||||||||||||||
| Balance at Balance at March 31, 2023 | $ | 3,805,072 | $ | (218,960 | ) | $ | 332,713 | $ | 74,849 | $ | 3,993,674 | |||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
4
AMERICAN NATIONAL GROUP, LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
| Three months ended March 31, 2024 | Three months ended March 31, 2023 | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net income | $ | 114,753 | $ | 13,651 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Net realized investment (gains) losses | (2,295 | ) | 22,367 | |||||
| Unrealized (gains) loss on investments and derivatives | (20,412 | ) | 3,415 | |||||
| Realized (gains) losses on Investments and derivatives | (25,377 | ) | 20,835 | |||||
| Income tax expense | 2,343 | 5,938 | ||||||
| Increase (decrease) in investment credit loss | (1,309 | ) | 11,466 | |||||
| Accretion of premiums, discounts and loan origination fees | (164,332 | ) | (20,044 | ) | ||||
| Net capitalized interest on policy loans and mortgage loans | (2,480 | ) | (18,259 | ) | ||||
| Depreciation | 12,493 | 11,383 | ||||||
| Interest credited to policyholders’ account balances | 192,224 | 139,597 | ||||||
| Charges to policyholders’ account balances | (112,411 | ) | (96,579 | ) | ||||
| Deferred federal income tax expense (benefit) | 26,442 | (8,185 | ) | |||||
| Distributions from unconsolidated affiliates | 60,155 | 36,416 | ||||||
| Income from equity method investments | (43,161 | ) | (28,296 | ) | ||||
| Changes in: | ||||||||
| Policyholder liabilities | 238,261 | 177,212 | ||||||
| Market risk benefit | 19,052 | 4,959 | ||||||
| Deferred policy acquisition costs | (27,265 | ) | (47,938 | ) | ||||
| Reinsurance payables | 4,491 | 20,875 | ||||||
| Premiums due and other receivables | (7,612 | ) | (40,000 | ) | ||||
| Prepaid reinsurance premiums | (167,973 | ) | 4,324 | |||||
| Accrued investment income | (42,819 | ) | (8,629 | ) | ||||
| Liability for retirement benefits | (11,217 | ) | (5,988 | ) | ||||
| Other, net | 220,272 | (6,887 | ) | |||||
| Net cash provided by (used in) operating activities | 261,823 | 191,633 | ||||||
| INVESTING ACTIVITIES | ||||||||
| Proceeds from sale/maturity/prepayment of: | ||||||||
| Fixed maturities | 596,813 | 3,727,996 | ||||||
| Equity securities | 2,247 | 22,912 | ||||||
| Real estate and real estate partnerships | 77,047 | — | ||||||
| Mortgage loans | 112,648 | 96,682 | ||||||
| Other invested assets | 3,821 | 6,856 | ||||||
| Distributions from equity method investments | 51,743 | 18,823 | ||||||
| Payment for the purchase/origination of: | ||||||||
| Fixed maturities | (1,181,080 | ) | (3,525,343 | ) | ||||
| Equity securities | (28,435 | ) | (55,205 | ) | ||||
| Real estate and real estate partnerships | (16,235 | ) | (122,498 | ) | ||||
| Mortgage loans | (70,786 | ) | (245,929 | ) | ||||
| Other invested assets | (40,864 | ) | (8,542 | ) | ||||
5
AMERICAN NATIONAL GROUP, LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
| Three months ended March 31, 2024 | Three months ended March 31, 2023 | |||||||
| Additions to property and equipment | (16,037 | ) | (540 | ) | ||||
| Contributions to equity accounted investments | (216,619 | ) | (25,728 | ) | ||||
| Change in short-term investments | (817,360 | ) | 13,878 | |||||
| Change in collateral held for derivatives | 52,793 | 35,755 | ||||||
| Other, net | (47,497 | ) | (3,395 | ) | ||||
| Net cash used in investing activities | (1,537,801 | ) | (64,278 | ) | ||||
| FINANCING ACTIVITIES | ||||||||
| Policyholders’ account deposits | 991,860 | 724,830 | ||||||
| Policyholders’ account withdrawals | (661,677 | ) | (542,971 | ) | ||||
| Repayment of borrowings to related parties | (5,371 | ) | — | |||||
| Payments to noncontrolling interest | 3,187 | 4,884 | ||||||
| Net cash provided by (used in) financing activities | 327,999 | 186,743 | ||||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (947,979 | ) | 314,098 | |||||
| Cash and cash equivalents at beginning of the period | 3,192,369 | 1,388,943 | ||||||
| Cash and cash equivalents at end of the period | 2,244,390 | 1,703,041 | ||||||
| Supplementary cash flow disclosure | ||||||||
| Income taxes paid (received) | $ | 5,035 | $ | (1,200 | ) | |||
| Non-cash transactions | ||||||||
| Premium in-kind consideration received | $ | 462,382 | $ | — | ||||
See accompanying notes to the unaudited condensed consolidated financial statements.
6
Note 1 - Nature of Operations
American National Group, LLC ("ANAT", "American National", or the "Company"), through its consolidated subsidiaries (collectively “American National”) offers a broad portfolio of insurance products, including individual and group life insurance, annuities, pension risk transfer, and property and casualty insurance. Business is conducted in all 50 states, the District of Columbia and Puerto Rico.
Note 2 - Summary of Significant Accounting Policies and Practices
The condensed consolidated financial statements and notes thereto have been prepared in conformity with 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 entities, which include real estate partnerships and investment funds, are accounted for using the equity method of accounting. Certain amounts in prior years have been reclassified to conform to current year presentation.
The accompanying interim condensed consolidated financial statements are unaudited and reflect all adjustments (including normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented in conformity with GAAP. 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 condensed consolidated financial statement balances. The accompanying interim condensed consolidated financial statements are unaudited and reflect all adjustments (including normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented in conformity with GAAP. Actual results could differ from those estimates.
7
Note 3 - Recently Issued Accounting Pronouncement
Adopted Accounting Standards
| Standard | Description | Effective Date and Method of Adoption |
Impact on Financial Statements |
| ASU 2023-02, Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method | The amendments in this Update permit reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. The amendments in this Update also require specific disclosures that must be applied to all investments that generate income tax credits and other income tax benefits from a tax credit program for which the entity has elected to apply the proportional amortization method. | The amendments in this update are effective for the Company for annual and interim reporting periods beginning January 1, 2024. | The adoption of this standard did not have a material impact to the Company's Condensed Consolidated Financial Statements or the Notes to the Condensed Consolidated Financial Statements. |
Future Adoption of Accounting Standards
ASUs not listed below were assessed and either determined to be not applicable or are not expected to have a material impact on the Company’s interim condensed consolidated financial statements or disclosures.
| Standard | Description | Effective Date and Method of Adoption |
Impact on Financial Statements |
| ASU 2023-07 Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures | The amendments require the disclosure of significant segment expenses by reportable segment, enhance interim disclosure requirements and clarify circumstances in which an entity can disclose multiple segment measures of profit or loss. |
Effective for annual periods beginning January 1, 2024 and interim periods beginning January 1, 2025, to be applied on a retrospective basis unless it is impracticable.
|
The impact of this amendment to the Company's Condensed Consolidated Financial Statements and Notes to the Condensed Consolidated Financial Statements is currently under evaluation. |
| ASU 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures | The amendments in this Update require that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold. In addition, the amendments in this update require that all entities disclose on an annual basis the following information about income taxes paid: (i) the amount of income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign taxes; and (ii) the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than five percent of total income taxes paid (net of refunds received). | The amendments in this update are effective for the Company for annual reporting periods beginning January 1, 2025. | The impact of this amendment to the Company's Condensed Consolidated Financial Statements and Notes to the Condensed Consolidated Financial Statements is currently under evaluation. |
8
Note 4 – Investment in Securities
The cost or amortized cost and fair value of investments in securities are shown below (in thousands):
| March 31, 2024 | ||||||||||||||||||||
| Cost or Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Allowance for Credit Losses | Fair Value | ||||||||||||||||
| Fixed maturity, bonds available-for-sale | ||||||||||||||||||||
| U.S. treasury and government | $ | 66,780 | $ | 6 | $ | (1,928 | ) | $ | — | $ | 64,858 | |||||||||
| U.S. states and political subdivisions | 571,966 | 170 | (21,068 | ) | (91 | ) | 550,977 | |||||||||||||
| Foreign governments | 9,426 | — | (416 | ) | — | 9,010 | ||||||||||||||
| Corporate debt securities | 12,498,201 | 100,554 | (490,156 | ) | (24,230 | ) | 12,084,369 | |||||||||||||
| Collateralized debt securities | 1,362,916 | 13,839 | (11,724 | ) | (2,495 | ) | 1,362,536 | |||||||||||||
| Residential mortgage-backed securities | 129,217 | 916 | (3,563 | ) | (440 | ) | 126,130 | |||||||||||||
| Total bonds available-for-sale | 14,638,506 | 115,485 | (528,855 | ) | (27,256 | ) | 14,197,880 | |||||||||||||
| Total investments in fixed maturity | $ | 14,638,506 | $ | 115,485 | $ | (528,855 | ) | $ | (27,256 | ) | $ | 14,197,880 | ||||||||
| December 31, 2023 | ||||||||||||||||||||
| Cost or Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Allowance for Credit Losses | Fair Value | ||||||||||||||||
| Fixed maturity, bonds available-for-sale | ||||||||||||||||||||
| U.S. treasury and government | $ | 63,466 | $ | 116 | $ | (1,354 | ) | $ | — | $ | 62,228 | |||||||||
| U.S. states and political subdivisions | 593,590 | 685 | (16,780 | ) | (181 | ) | 577,314 | |||||||||||||
| Foreign governments | 9,403 | — | (276 | ) | (24 | ) | 9,103 | |||||||||||||
| Corporate debt securities | 11,337,579 | 79,019 | (419,875 | ) | (18,951 | ) | 10,977,772 | |||||||||||||
| Collateralized debt securities | 1,340,141 | 8,724 | (27,243 | ) | (4,367 | ) | 1,317,255 | |||||||||||||
| Residential mortgage-backed securities | 131,272 | 351 | (4,024 | ) | (695 | ) | 126,904 | |||||||||||||
| Total bonds available-for-sale | 13,475,451 | 88,895 | (469,552 | ) | (24,218 | ) | 13,070,576 | |||||||||||||
| Total investments in fixed maturity | $ | 13,475,451 | $ | 88,895 | $ | (469,552 | ) | $ | (24,218 | ) | $ | 13,070,576 | ||||||||
9
Note 4 – Investment in Securities – (Continued)
The amortized cost and fair value, by contractual maturity, of fixed maturity securities are shown below (in thousands):
| March 31, 2024 | ||||||||
| Bonds Available-for-Sale | ||||||||
| Amortized Cost | Fair Value | |||||||
| Due in one year or less | $ | 729,069 | $ | 725,523 | ||||
| Due after one year through five years | 5,680,845 | 5,590,077 | ||||||
| Due after five years through ten years | 4,020,165 | 3,878,380 | ||||||
| Due after ten years | 4,208,427 | 4,003,900 | ||||||
| Total | $ | 14,638,506 | $ | 14,197,880 | ||||
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 March 31, 2024 | Three Months Ended March 31, 2023 | |||||||
| Proceeds from sales of fixed maturity, bonds available-for-sale | $ | 490,663 | $ | 970,333 | ||||
| Gross realized gains | 2,035 | 608 | ||||||
| Gross realized losses | 2,407 | 25,145 | ||||||
Gains and losses are determined using specific identification of the securities sold. All held-to-maturity securities were transferred to available-for-sale through a management election allowed under business combination guidance.
In accordance with various regulations, American National has bonds on deposit with regulating authorities with a carrying value of $53.3 million and $53.5 million at March 31, 2024 and December 31, 2023, respectively. In addition, American National has pledged bonds in connection with certain agreements and transactions, such as financing and reinsurance agreements. The carrying value of bonds pledged was $37.5 million and $39.2 million at March 31, 2024 and December 31, 2023, respectively.
The components of the change in net unrealized gains (losses) on debt securities are shown below, on a pre-tax basis (in thousands):
| Three months ended March 31, 2024 | Three months ended March 31, 2023 | |||||||
| Bonds available-for-sale: change in unrealized losses | $ | (54,230 | ) | $ | 408,047 | |||
| Short-term change in unrealized gains (losses) | (1,434 | ) | — | |||||
| Adjustments for | ||||||||
| Participating policyholders’ interest | — | — | ||||||
| Change in net unrealized gains (losses) on debt securities | $ | (55,664 | ) | $ | 408,047 | |||
10
Note 4 – Investment in Securities – (Continued)
The components of the change in net gains (losses) on equity securities are shown below (in thousands):
| Three months ended March 31, 2024 | Three months ended March 31, 2023 | |||||||
| Unrealized gains (losses) on equity securities | $ | (10,777 | ) | $ | (28,599 | ) | ||
| Net gains (losses) on equity securities sold | (34 | ) | 303 | |||||
| Net gains (losses) on equity securities | $ | (10,811 | ) | $ | (28,296 | ) | ||
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):
| March 31, 2024 | ||||||||||||||||||||||||||||||||||||
| 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 | 24 | $ | (110 | ) | $ | 13,481 | 38 | $ | (1,818 | ) | $ | 47,589 | 62 | $ | (1,928 | ) | $ | 61,070 | ||||||||||||||||||
| U.S. states and political subdivisions | 166 | (6,208 | ) | 204,434 | 180 | (14,860 | ) | 316,691 | 346 | (21,068 | ) | 521,125 | ||||||||||||||||||||||||
| Foreign governments | — | — | — | 2 | (416 | ) | 9,010 | 2 | (416 | ) | 9,010 | |||||||||||||||||||||||||
| Corporate debt securities | 1,196 | (99,346 | ) | 1,926,760 | 1,957 | (390,810 | ) | 6,829,027 | 3,153 | (490,156 | ) | 8,755,787 | ||||||||||||||||||||||||
| Collateralized debt securities | 39 | (2,531 | ) | 100,257 | 158 | (9,193 | ) | 634,336 | 197 | (11,724 | ) | 734,593 | ||||||||||||||||||||||||
| Residential mortgage-backed securities | 10 | (82 | ) | 11,145 | 43 | (3,481 | ) | 76,707 | 53 | (3,563 | ) | 87,852 | ||||||||||||||||||||||||
| Total | 1,435 | $ | (108,277 | ) | $ | 2,256,077 | 2,378 | $ | (420,578 | ) | $ | 7,913,360 | 3,813 | $ | (528,855 | ) | $ | 10,169,437 | ||||||||||||||||||
| December 31, 2023 | ||||||||||||||||||||||||||||||||||||
| 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 | 17 | $ | (531 | ) | $ | 27,163 | 35 | $ | (823 | ) | $ | 24,902 | 52 | $ | (1,354 | ) | $ | 52,065 | ||||||||||||||||||
| U.S. states and political subdivisions | 214 | (3,210 | ) | 218,774 | 142 | (13,570 | ) | 284,892 | 356 | (16,780 | ) | 503,666 | ||||||||||||||||||||||||
| Foreign governments | — | — | — | 2 | (276 | ) | 9,103 | 2 | (276 | ) | 9,103 | |||||||||||||||||||||||||
| Corporate debt securities | 1,343 | (141,365 | ) | 2,941,484 | 1,906 | (278,510 | ) | 6,474,799 | 3,249 | (419,875 | ) | 9,416,283 | ||||||||||||||||||||||||
| Collateralized debt securities | 102 | (4,272 | ) | 257,735 | 201 | (22,971 | ) | 781,849 | 303 | (27,243 | ) | 1,039,584 | ||||||||||||||||||||||||
| Residential mortgage-backed securities | 6 | (895 | ) | 39,089 | 39 | (3,129 | ) | 64,057 | 45 | (4,024 | ) | 103,146 | ||||||||||||||||||||||||
| Total | 1,682 | $ | (150,273 | ) | $ | 3,484,245 | 2,325 | $ | (319,279 | ) | $ | 7,639,602 | 4,007 | $ | (469,552 | ) | $ | 11,123,847 | ||||||||||||||||||
11
Note 4 – Investment in Securities – (Continued)
Several assumptions and underlying estimates are made in the evaluation of allowance for credit loss. Examples include 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 transportation sector.
Equity securities by market sector distribution are shown below, based on fair value:
| March 31, 2024 | December 31, 2023 | |||||||||||||||
| Energy and utilities | $ | 382,258 | 26.8 | % | $ | 426,087 | 30.2 | % | ||||||||
| Finance | 363,311 | 25.5 | 338,052 | 24.0 | ||||||||||||
| Healthcare | 86,940 | 6.1 | 119,620 | 8.5 | ||||||||||||
| Industrials | 45,579 | 3.2 | 47,506 | 3.4 | ||||||||||||
| Information technology | 302,661 | 21.2 | 253,859 | 18.0 | ||||||||||||
| Other | 245,621 | 17.2 | 219,123 | 15.9 | ||||||||||||
| Total | 1,426,370 | 100 | % | $ | 1,404,247 | 100 | % | |||||||||
Allowance for Credit Losses
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 "(Increase) decrease in investment credit loss."
No accrued interest receivables were written off as of March 31, 2024 and 2023.
12
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. State and Political Subdivisions | Foreign Governments | Corporate Debt Securities | Collateralized Debt Securities | Residential Mortgage Backed Securities | Total | |||||||||||||||||||
| Balance at January 1, 2024 | $ | (181 | ) | $ | (24 | ) | $ | (18,951 | ) | $ | (4,367 | ) | $ | (695 | ) | $ | (24,218 | ) | ||||||
| Increase in allowance related to purchases | — | — | (14,998 | ) | (270 | ) | — | (15,268 | ) | |||||||||||||||
| Reduction in allowance related to dispositions | 154 | — | 918 | 69 | — | 1,141 | ||||||||||||||||||
| Allowance on securities that had an allowance recorded in a previous period | (31 | ) | 24 | 14,272 | 2,135 | 255 | 16,655 | |||||||||||||||||
| Allowance on securities where credit losses were not previously recorded | (33 | ) | — | (5,471 | ) | (62 | ) | — | (5,566 | ) | ||||||||||||||
| Balance at March 31, 2024 | $ | (91 | ) | $ | — | $ | (24,230 | ) | $ | (2,495 | ) | $ | (440 | ) | $ | (27,256 | ) | |||||||
| U.S. State and Political Subdivisions | Foreign Governments | Corporate Debt Securities | Collateralized Debt Securities | Residential Mortgage Backed Securities | Total | |||||||||||||||||||
| Balance at January 1, 2023 | $ | (742 | ) | $ | (12 | ) | $ | (23,049 | ) | $ | (4,574 | ) | $ | (331 | ) | $ | (28,708 | ) | ||||||
| Increase in allowance related to purchases | — | — | (16 | ) | — | — | (16 | ) | ||||||||||||||||
| Reduction in allowance related to dispositions | — | — | 996 | — | — | 996 | ||||||||||||||||||
| Allowance on securities that had an allowance recorded in a previous period | 530 | 12 | 11,219 | 355 | 213 | 12,329 | ||||||||||||||||||
| Allowance on securities where credit losses were not previously recorded | (2 | ) | — | (660 | ) | (5,498 | ) | — | (6,160 | ) | ||||||||||||||
| Balance at March 31, 2023 | $ | (214 | ) | $ | — | $ | (11,510 | ) | $ | (9,717 | ) | $ | (118 | ) | $ | (21,559 | ) | |||||||
Credit Quality Indicators
The Company monitors the credit quality of bonds available-for-sale through the use of credit ratings provided by third party rating agencies, which are updated on a monthly basis. Information is also gathered regarding the asset performance of available-for-sale 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.
13
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):
| March 31, 2024 | December 31, 2023 | |||||||||||||||
| Amount | Percentage | Amount | Percentage | |||||||||||||
| East North Central | $ | 798,883 | 14.3 | % | $ | 822,459 | 14.5 | % | ||||||||
| East South Central | 40,609 | 0.7 | 49,219 | 0.9 | ||||||||||||
| Mountain | 1,305,795 | 23.4 | 1,317,761 | 23.3 | ||||||||||||
| Pacific | 904,771 | 16.2 | 899,549 | 15.9 | ||||||||||||
| South Atlantic | 976,996 | 17.5 | 989,930 | 17.5 | ||||||||||||
| West South Central | 1,033,041 | 18.5 | 1,066,151 | 18.8 | ||||||||||||
| Other | 521,536 | 9.4 | 512,954 | 9.1 | ||||||||||||
| Total | $ | 5,581,631 | 100.0 | % | $ | 5,658,023 | 100.0 | % | ||||||||
As of March 31, 2024 and December 31, 2023, loans in foreclosure and loans foreclosed are as follows (in thousands, except number of loans):
| March 31, 2024 | December 31, 2023 | |||||||||||||||
| Foreclosure and foreclosed | Number of Loans | Recorded Investment | Number of Loans | Recorded Investment | ||||||||||||
| In foreclosure | 3 | $ | 21,535 | — | $ | — | ||||||||||
| Filed for bankruptcy | — | — | — | — | ||||||||||||
| Total in foreclosure | 3 | $ | 21,535 | — | $ | — | ||||||||||
| Foreclosed | 1 | $ | 38,502 | 3 | $ | 79,430 | ||||||||||
14
Note 5 – Mortgage Loans – (Continued)
The age analysis of past due loans is shown below (in thousands, except percentages):
| 30-59 Days | 60-89 Days | More Than 90 Days | Total | |||||||||||||||||||||||||
| March 31, 2024 | Past Due | Past Due | Past Due | Total | Current | Amount | Percentage | |||||||||||||||||||||
| Apartment | $ | 50,000 | $ | 19,965 | $ | — | $ | 69,965 | $ | 1,067,659 | $ | 1,137,624 | 20.2 | % | ||||||||||||||
| Hotel | — | — | — | — | 947,937 | 947,937 | 16.8 | |||||||||||||||||||||
| Industrial | — | — | — | — | 1,053,845 | 1,053,845 | 18.7 | |||||||||||||||||||||
| Office | 2,409 | 94,521 | 27,349 | 124,279 | 804,994 | 929,273 | 16.5 | |||||||||||||||||||||
| Parking | — | — | — | — | 366,692 | 366,692 | 6.5 | |||||||||||||||||||||
| Retail | 10,447 | — | — | 10,447 | 779,011 | 789,458 | 14.0 | |||||||||||||||||||||
| Storage | — | — | — | — | 118,070 | 118,070 | 2.1 | |||||||||||||||||||||
| Other | — | — | — | — | 292,577 | 292,577 | 5.2 | |||||||||||||||||||||
| Total | $ | 62,856 | $ | 114,486 | $ | 27,349 | $ | 204,691 | $ | 5,430,785 | $ | 5,635,476 | 100.0 | % | ||||||||||||||
| Allowance for credit losses | (53,845 | ) | ||||||||||||||||||||||||||
| Total, net of allowance | $ | 5,581,631 | ||||||||||||||||||||||||||
| 30-59 Days | 60-89 Days | More Than 90 Days | Total | |||||||||||||||||||||||||
| December 31, 2023 | Past Due | Past Due | Past Due | Total | Current | Amount | Percentage | |||||||||||||||||||||
| Apartment | $ | — | $ | 50,000 | $ | — | $ | 50,000 | $ | 1,040,743 | $ | 1,090,743 | 17.3 | % | ||||||||||||||
| Hotel | — | 13,212 | — | 13,212 | 952,640 | 965,852 | 17.9 | |||||||||||||||||||||
| Industrial | — | — | — | — | 1,052,491 | 1,052,491 | 19.0 | |||||||||||||||||||||
| Office | 22,182 | — | 5,260 | 27,442 | 971,781 | 999,223 | 16.0 | |||||||||||||||||||||
| Parking | — | — | 9,257 | 9,257 | 404,303 | 413,560 | 7.3 | |||||||||||||||||||||
| Retail | 4,111 | — | — | 4,111 | 776,441 | 780,552 | 14.3 | |||||||||||||||||||||
| Storage | — | — | — | — | 118,448 | 118,448 | 2.1 | |||||||||||||||||||||
| Other | 26,052 | — | — | 26,052 | 264,509 | 290,561 | 6.1 | |||||||||||||||||||||
| Total | $ | 52,345 | $ | 63,212 | $ | 14,517 | $ | 130,074 | $ | 5,581,356 | $ | 5,711,430 | 100.0 | % | ||||||||||||||
| Allowance for credit losses | (53,407 | ) | ||||||||||||||||||||||||||
| Total, net of allowance | $ | 5,658,023 | ||||||||||||||||||||||||||
Modifications to Borrowers Experiencing Financial Difficulty
The Company may modify the terms of a loan when the borrower is experiencing financial difficulties, as a means to optimize recovery of amounts due on the loan. Modifications may involve temporary relief, such as payment forbearance for a short period
of time (where interest continues to accrue) or may involve more substantive changes to a loan. Changes to the terms of a loan, pursuant to a modification agreement, are factored into the analysis of the loan’s expected credit losses, under the allowance
model applicable to the loan.
For commercial mortgage loans, modifications for borrowers experiencing financial difficulty are tailored for individual loans and may include interest rate relief, maturity extensions or, less frequently, principal forgiveness. For residential mortgage loans, the most common modifications for borrowers experiencing financial difficulty, aside from insignificant delays in payment, typically involve interest rate relief, deferral of missed payments to the end of the loan term, or maturity extensions.
For the 12 month period between March 31, 2023 and March 31, 2024, maturity extensions on nine loans to borrowers experiencing financial difficulty were in place. These loan term modifications total $82.0 million in amortized cost and range from 3 to 24 months representing approximately 1.4% of the portfolio segment.
15
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 December 31, 2023 | $ | (53,407 | ) | |
| Provision | (438 | ) | ||
| Balance at March 31, 2024 | $ | (53,845 | ) | |
| Commercial Mortgage Loans | ||||
| Balance at December 31, 2022 | $ | (38,266 | ) | |
| Charge offs | (15,051 | ) | ||
| Provision | 3,886 | |||
| Balance at March 31, 2023 | $ | (49,431 | ) | |
The asset and allowance balances for credit losses for mortgage loans by property-type are shown below (in thousands):
| March 31, 2024 | December 31, 2023 | |||||||||||||||
| Asset Balance | Allowance | Asset Balance | Allowance | |||||||||||||
| Apartment | $ | 1,137,624 | $ | (9,163 | ) | $ | 1,090,743 | $ | (3,155 | ) | ||||||
| Hotel | 947,937 | (1,777 | ) | 965,852 | (2,162 | ) | ||||||||||
| Industrial | 1,053,845 | (4,093 | ) | 1,052,491 | (871 | ) | ||||||||||
| Office | 929,273 | (19,787 | ) | 999,223 | (28,844 | ) | ||||||||||
| Parking | 366,692 | (414 | ) | 413,560 | (2,729 | ) | ||||||||||
| Retail | 789,458 | (2,362 | ) | 780,552 | (3,324 | ) | ||||||||||
| Storage | 118,070 | (579 | ) | 118,448 | (346 | ) | ||||||||||
| Other | 292,577 | (15,670 | ) | 290,561 | (11,976 | ) | ||||||||||
| Total | $ | 5,635,476 | $ | (53,845 | ) | $ | 5,711,430 | $ | (53,407 | ) | ||||||
16
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 | ||||||||||||||||||||||||||||
| 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Total | ||||||||||||||||||||||
| Apartment | $ | — | $ | 72,657 | $ | 526,782 | $ | 278,291 | $ | 83,020 | $ | 176,874 | $ | 1,137,624 | ||||||||||||||
| Hotel | — | 125,705 | 227,062 | 32,056 | 38,629 | 524,485 | 947,937 | |||||||||||||||||||||
| Industrial | — | 2,032 | 319,257 | 160,106 | 214,110 | 358,340 | 1,053,845 | |||||||||||||||||||||
| Office | — | 100,248 | 101,220 | 6,654 | 23,789 | 697,362 | 929,273 | |||||||||||||||||||||
| Parking | — | — | 54,763 | 28,816 | 24,022 | 259,091 | 366,692 | |||||||||||||||||||||
| Retail | — | — | 232,361 | 118,608 | 64,153 | 374,336 | 789,458 | |||||||||||||||||||||
| Storage | — | — | 8,158 | 20,476 | 36,028 | 53,408 | 118,070 | |||||||||||||||||||||
| Other | — | 29,480 | 137,931 | 44,275 | — | 80,891 | 292,577 | |||||||||||||||||||||
| Total | $ | — | $ | 330,122 | $ | 1,607,534 | $ | 689,282 | $ | 483,751 | $ | 2,524,787 | $ | 5,635,476 | ||||||||||||||
| Allowance for credit losses | (53,845 | ) | ||||||||||||||||||||||||||
| Total, net of allowance | $ | 5,581,631 | ||||||||||||||||||||||||||
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 March 31, 2024, four 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 March 31, 2024, we have included a $4.8 million (December 31, 2023 — $3.5 million) liability in other liabilities on the condensed consolidated statements of financial position based on unfunded loan commitments of $433 million (December 31, 2023 — $468 million).
17
Note 6 - Real Estate and Other Investments
The Company's real estate investment portfolio is diversified by property type, geography and income stream, including income from operating leases, and equity in earnings from equity method real estate joint ventures. Real estate investments were as follows (in thousands, except percentages):
| March 31, 2024 | December 31, 2023 | |||||||
| Carrying Value | ||||||||
| Wholly-owned real estate | ||||||||
| Leased real estate | $ | 691,812 | $ | 755,011 | ||||
| Real estate partnerships | 2,862,551 | 2,855,842 | ||||||
| Total real estate and real estate partnerships | $ | 3,554,363 | $ | 3,610,853 | ||||
| March 31, 2024 | December 31, 2023 | |||||||||||||||
| Property Type | Carrying Value | |||||||||||||||
| Leased real estate investments | Amount | Percentage | Amount | Percentage | ||||||||||||
| Hotel | $ | 13,675 | 2.0 | % | $ | 13,933 | 1.8 | % | ||||||||
| Industrial | 27,126 | 3.9 | 65,116 | 8.6 | ||||||||||||
| Land | 36,580 | 5.3 | 37,177 | 4.9 | ||||||||||||
| Office | 317,500 | 45.9 | 358,422 | 47.5 | ||||||||||||
| Retail | 235,244 | 34.0 | 218,029 | 28.9 | ||||||||||||
| Apartments | 59,807 | 8.6 | 59,783 | 7.9 | ||||||||||||
| Other | 1,880 | 0.3 | 2,551 | 0.4 | ||||||||||||
| Total leased real estate investments | $ | 691,812 | 100.0 | % | $ | 755,011 | 100.0 | % | ||||||||
| March 31, 2024 | December 31, 2023 | |||||||||||||||
| Geography Type | Carrying Value | |||||||||||||||
| Leased real estate investments | Amount | Percentage | Amount | Percentage | ||||||||||||
| East North Central | $ | 11,079 | 1.6 | % | $ | 36,393 | 4.8 | % | ||||||||
| East South Central | 4,570 | 0.7 | 4,576 | 0.6 | ||||||||||||
| Mountain | 12,484 | 1.8 | 54,942 | 7.3 | ||||||||||||
| Pacific | 69,491 | 10.0 | 70,765 | 9.4 | ||||||||||||
| South Atlantic | 230,964 | 33.4 | 196,507 | 26.0 | ||||||||||||
| West South Central | 304,163 | 44.0 | 313,886 | 41.6 | ||||||||||||
| Other | 59,062 | 8.5 | 77,942 | 10.3 | ||||||||||||
| Total leased real estate investments | $ | 691,812 | 100.0 | % | $ | 755,011 | 100.0 | % | ||||||||
As of March 31, 2024 and December 31, 2023, no real estate investments met the criteria as held-for-sale.
18
Note 6 – Real Estate and Other Investments – (Continued)
Consolidated VIEs
American National regularly invests in real estate partnerships and frequently participates in the design with the sponsor, but in most cases, its involvement is limited to financing. Some of these partnerships have been determined to be variable interest entities (“VIEs”). In certain instances, in addition to an economic interest in the entity, American National holds the power to direct significant activities of the entity and is deemed the primary beneficiary. The assets of the consolidated VIEs are restricted and must first be used to settle their liabilities. Creditors or beneficial interest holders of these VIEs have no recourse to the general credit of American National, as American National’s obligation is limited to the amount of its committed investment.
American National has not provided financial or other support to the VIEs in the form of liquidity arrangements, guarantees, or other commitments to third-parties that may affect the fair value or risk of its variable interest in the VIEs in 2024 or 2023.
The assets and liabilities relating to the VIEs included in the condensed consolidated financial statements are as follows (in thousands):
| March 31, 2024 | December 31, 2023 | |||||||
| Fixed maturity securities, bonds available-for-sale, at estimated fair value | $ | 191,666 | $ | 63,025 | ||||
| Private loans, net | 192,014 | 187,849 | ||||||
| Equity securities, at fair value | 15,000 | 15,004 | ||||||
| Real estate and real estate partnerships, net of accumulated depreciation | 239,804 | 172,131 | ||||||
| Investment funds | 7,208 | 4,480 | ||||||
| Short-term investments | 4,193 | 4,100 | ||||||
| Total investments | $ | 649,885 | $ | 446,589 | ||||
| Cash and cash equivalents | 72,455 | 25,751 | ||||||
| Premiums due and other receivables | 2,586 | 1,867 | ||||||
| Other assets | 24,763 | 59,284 | ||||||
| Total assets of consolidated VIEs | $ | 749,689 | $ | 533,491 | ||||
| Notes payable | 184,601 | 174,017 | ||||||
| Other liabilities | (3,531 | ) | 13,885 | |||||
| Total liabilities of consolidated VIEs | $ | 181,070 | $ | 187,902 | ||||
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 $2.8 million and $2.9 million at March 31, 2024 and December 31, 2023, respectively.
The total long-term notes payable of the consolidated VIEs consists of the following (in thousands):
| Interest rate | Maturity | March 31, 2024 | December 31, 2023 | |||||||||
| 4.18% fixed | 2024 | 61,465 | 61,478 | |||||||||
| 1M TermSOFR + applicable margin | 2025 | 19,376 | 12,683 | |||||||||
| 3.25% | 2026 | 11,569 | 9,842 | |||||||||
| 7.25% | 2026 | 10,567 | 10,600 | |||||||||
| 1M SOFR + 2.5%, Rate Floor 3.5% | 2029 | 81,624 | 79,414 | |||||||||
| Total notes payable of ANTAC consolidated VIEs | $ | 184,601 | $ | 174,017 | ||||||||
19
Note 6 – Real Estate and Other Investments – (Continued)
Unconsolidated VIEs
| March 31, 2024 | December 31, 2023 | |||||||||||||||
| Carrying Amount | Maximum Exposure to Loss | Carrying Amount | Maximum Exposure to Loss | |||||||||||||
| Real estate and real estate partnerships | $ | 432,659 | $ | 432,659 | $ | 300,959 | $ | 300,959 | ||||||||
| Mortgage loans on real estate | 647,201 | 647,201 | 629,840 | 629,840 | ||||||||||||
| Accrued investment income | 2,730 | 2,730 | 2,272 | 2,272 | ||||||||||||
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.
The Company’s total investment in investment funds, real estate partnerships, and other partnerships of which substantially all are limited liability companies ("LLCs") or limited partnerships, was comprised of $4.7 billion and $4.4 billion at March 31, 2024 and December 31, 2023, respectively.
20
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):
| March 31, 2024 | December 31, 2023 | |||||||||||||||||||||||||
| Derivatives Not Designated as Hedging Instruments | Location in the Condensed Consolidated Statements of Financial Position | Number of Instruments | Notional Amounts | Estimated Fair Value | Number of Instruments | Notional Amounts | Estimated Fair Value | |||||||||||||||||||
| Equity-indexed options | Other invested assets | 647 | $ | 4,142,900 | $ | 256,590 | 652 | $ | 4,083,900 | $ | 226,644 | |||||||||||||||
| Equity-indexed embedded derivative | Policyholders’ account balances | 140,864 | 3,896,000 | 904,077 | 140,382 | 3,845,098 | 872,746 | |||||||||||||||||||
Gains (Losses) Recognized in Income on Derivatives | ||||||||||
| QTD | ||||||||||
| Derivatives Not Designated as Hedging Instruments | Location in the Condensed Consolidated Statements of Operations | Three months ended March 31, 2024 | Three months ended March 31, 2023 | |||||||
| Equity-indexed options | Net investment income | $ | 56,543 | $ | 24,648 | |||||
| Equity-indexed embedded derivative | Interest credited to policyholders’ account balances | (37,541 | ) | (50,683 | ) | |||||
The Company’s use of derivative instruments exposes it to credit risk in the event of non-performance by 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 fair value of open contracts less fair value of collateral held. The Company maintains master netting agreements with its current active trading partners. 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.
21
Note 7 – Derivative Instruments – (Continued)
Information regarding the Company’s exposure to credit loss on the options it holds is presented below (in thousands):
| March 31, 2024 | ||||||||||||||||||||||||||||||
| 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 | A1/A- | $ | 24,504 | $ | 23,160 | $ | — | $ | 23,160 | $ | 23,160 | $ | — | $ | 1,344 | |||||||||||||||
| Barclays | Baa1/BBB+ | 25,122 | 15,103 | 10,000 | 25,103 | 24,988 | 115 | 134 | ||||||||||||||||||||||
| Credit Suisse | WR/NR | 14,577 | 14,380 | — | 14,380 | 14,192 | 188 | 385 | ||||||||||||||||||||||
| ING | Baa1/A- | 7,016 | 7,050 | — | 7,050 | 7,016 | 34 | — | ||||||||||||||||||||||
| JP Morgan Chase | A1/A- | 20,006 | 18,205 | — | 18,205 | 18,205 | — | 1,801 | ||||||||||||||||||||||
| Morgan Stanley | A1/A- | 57,913 | 52,616 | 5,700 | 58,316 | 57,913 | 403 | — | ||||||||||||||||||||||
| NATIXIS* | A1/A | 3,609 | 3,420 | — | 3,420 | 3,420 | — | 188 | ||||||||||||||||||||||
| Truist | A3/A- | 53,423 | 51,570 | 5,000 | 56,570 | 53,173 | 3,397 | 250 | ||||||||||||||||||||||
| Wells Fargo | A1/BBB+ | 50,420 | 51,730 | — | 51,730 | 50,214 | 1,517 | 207 | ||||||||||||||||||||||
| Total | $ | 256,590 | $ | 237,234 | $ | 20,700 | $ | 257,934 | $ | 252,281 | $ | 5,654 | $ | 4,309 | ||||||||||||||||
| December 31, 2023 | ||||||||||||||||||||||||||||||
| 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- | $ | 23,798 | $ | 23,430 | $ | — | $ | 23,430 | $ | 23,430 | $ | — | $ | 368 | |||||||||||||||
| Barclays | Baa2/BBB | 24,363 | 14,193 | 10,000 | 24,193 | 24,193 | — | 170 | ||||||||||||||||||||||
| Credit Suisse | Baa1/BBB+ | 16,105 | 18,170 | — | 18,170 | 16,105 | 2,065 | — | ||||||||||||||||||||||
| ING | Baa1/A- | 9,867 | 9,810 | — | 9,810 | 9,810 | — | 57 | ||||||||||||||||||||||
| JP Morgan Chase | A1/A- | 12,148 | 12,370 | — | 12,370 | 12,148 | — | — | ||||||||||||||||||||||
| Morgan Stanley | A1/A- | 42,984 | 38,166 | 5,700 | 43,866 | 42,984 | 882 | — | ||||||||||||||||||||||
| NATIXIS* | A1/A | 3,483 | 3,420 | — | 3,420 | 3,420 | — | 63 | ||||||||||||||||||||||
| Truist | A3/A- | 58,877 | 53,810 | 5,000 | 58,810 | 58,755 | 55 | 122 | ||||||||||||||||||||||
| Wells Fargo | A1/BBB+ | 35,018 | 35,710 | — | 35,710 | 35,018 | 692 | — | ||||||||||||||||||||||
| Total | $ | 226,643 | $ | 209,079 | $ | 20,700 | $ | 229,779 | $ | 225,863 | $ | 3,694 | $ | 780 | ||||||||||||||||
* Collateral is prohibited from being held in invested assets.
22
Note 8 – Net Investment Income and Realized Investment Gains (Losses)
Net investment income is shown below (in thousands):
| QTD | ||||||||
| Three months ended March 31, 2024 | Three months ended March 31, 2023 | |||||||
| Bonds | $ | 227,820 | $ | 156,623 | ||||
| Short-term investments | 31,737 | 34,078 | ||||||
| Equity securities | 15,385 | (46 | ) | |||||
| Mortgage loans | 77,958 | 69,924 | ||||||
| Real estate and real estate partnerships | 12,936 | 19,869 | ||||||
| Investment funds | 35,055 | 19,038 | ||||||
| Equity-indexed options | 56,543 | 24,648 | ||||||
| Other invested assets | 12,785 | 16,968 | ||||||
| Total | $ | 470,219 | $ | 341,102 | ||||
Net investment income from equity method investments, comprised of real estate partnerships and investment funds was $48.0 million and $40.6 million for the three months ended March 31, 2024 and 2023, respectively.
Net realized investment gains (losses) are shown below (in thousands):
| QTD | ||||||||
| Three months ended March 31, 2024 | Three months ended March 31, 2023 | |||||||
| Bonds | $ | 4,698 | $ | (24,903 | ) | |||
| Mortgage loans | (5,691 | ) | — | |||||
| Real estate | 8,351 | 2,747 | ||||||
| Other invested assets | (5,063 | ) | (211 | ) | ||||
| Total | $ | 2,295 | $ | (22,367 | ) | |||
23
Note 9 – Fair Value of Financial Instruments
The carrying amount and fair value of financial instruments are shown below (in thousands):
| March 31, 2024 | December 31, 2023 | |||||||||||||||
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||
| Financial assets | ||||||||||||||||
| Fixed maturity, bonds available-for-sale | $ | 14,197,880 | $ | 14,197,880 | $ | 13,070,576 | $ | 13,070,576 | ||||||||
| Equity securities | 1,426,370 | 1,426,370 | 1,404,247 | 1,404,247 | ||||||||||||
| Equity-indexed options, included in other invested assets | 256,590 | 256,590 | 226,644 | 226,644 | ||||||||||||
| Mortgage loans on real estate, net of allowance | 5,581,631 | 5,290,171 | 5,658,023 | 5,405,016 | ||||||||||||
| Policy loans | 395,053 | 395,053 | 390,393 | 390,393 | ||||||||||||
| Short-term investments | 3,242,526 | 3,242,526 | 2,396,504 | 2,396,504 | ||||||||||||
| Separate account assets ($1,251,383 and $1,163,261 included in fair value hierarchy) | 1,284,939 | 1,284,939 | 1,188,989 | 1,188,989 | ||||||||||||
| Separately managed accounts, included in other invested assets | 105,796 | 105,796 | 104,698 | 104,698 | ||||||||||||
| Total financial assets | $ | 26,490,785 | $ | 26,199,325 | $ | 24,440,074 | $ | 24,187,067 | ||||||||
| Financial liabilities | ||||||||||||||||
| Investment contracts | $ | 14,437,256 | $ | 14,437,256 | $ | 14,096,714 | $ | 14,096,714 | ||||||||
| Embedded derivative liability for equity-indexed contracts | 904,077 | 904,077 | 872,746 | 872,746 | ||||||||||||
| Notes payable | 184,601 | 184,601 | 174,017 | 174,017 | ||||||||||||
| Separate account liabilities ($1,251,383 and $1,163,261 included in fair value hierarchy) | 1,284,939 | 1,284,939 | 1,188,989 | 1,188,989 | ||||||||||||
| Total financial liabilities | $ | 16,810,873 | $ | 16,810,873 | $ | 16,332,466 | $ | 16,332,466 | ||||||||
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. | |
24
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.
25
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.
The balances and changes in separate account assets and liabilities for the three months ended March 31, 2024 and 2023 were as follows (in thousands):
| March 31, 2024 | ||||||||||||||||
| Variable Life | Variable Annuities | Pension | Total | |||||||||||||
| Balance, beginning of year | $ | 262,590 | $ | 390,669 | $ | 535,730 | $ | 1,188,989 | ||||||||
| Premiums and deposits | 2,816 | 16,518 | — | 19,334 | ||||||||||||
| Policy charges | (2,379 | ) | (1,132 | ) | (244 | ) | (3,755 | ) | ||||||||
| Surrenders and withdrawals | (4,741 | ) | (19,348 | ) | (20,609 | ) | (44,698 | ) | ||||||||
| Benefit payments | — | — | — | — | ||||||||||||
| Investment performance | 30,220 | 30,932 | 44,345 | 105,497 | ||||||||||||
| Net transfers from (to) general account | (963 | ) | 2,349 | 18,186 | 19,572 | |||||||||||
| Balance, end of period | $ | 287,543 | $ | 419,988 | $ | 577,408 | $ | 1,284,939 | ||||||||
| Cash Surrender Value | $ | 287,143 | $ | 413,565 | $ | — | $ | 700,708 | ||||||||
| December 31, 2023 | ||||||||||||||||
| Variable Life | Variable Annuities | Pension | Total | |||||||||||||
| Balance, beginning of year | $ | 230,148 | $ | 349,820 | $ | 465,249 | $ | 1,045,217 | ||||||||
| Premiums and deposits | 11,015 | 64,415 | 1,585 | 77,015 | ||||||||||||
| Policy charges | (9,513 | ) | (4,602 | ) | (241 | ) | (14,356 | ) | ||||||||
| Surrenders and withdrawals | (17,099 | ) | (73,750 | ) | (261 | ) | (91,110 | ) | ||||||||
| Benefit payments | — | — | (22,959 | ) | (22,959 | ) | ||||||||||
| Investment performance | 50,463 | 60,253 | 92,357 | 203,073 | ||||||||||||
| Net transfers from (to) general account | (2,424 | ) | (5,467 | ) | — | (7,891 | ) | |||||||||
| Balance, end of year | $ | 262,590 | $ | 390,669 | $ | 535,730 | $ | 1,188,989 | ||||||||
| Cash Surrender Value | $ | 260,879 | $ | 382,080 | $ | — | $ | 642,959 | ||||||||
26
Note 9 – Fair Value of Financial Instruments – (Continued)
Embedded Derivatives—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 March 31, 2024 and December 31, 2023, the one year implied volatility used to estimate embedded derivative value was 15.6% and 16.4%, 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 | |||||||||||||||||
| March 31, 2024 | December 31, 2023 | Unobservable Input | March 31, 2024 | December 31, 2023 | ||||||||||||||
| Security type | ||||||||||||||||||
| Embedded derivative | ||||||||||||||||||
| Indexed Annuities | $ | 851.6 | $ | 826.3 | Lapse Rate | 1-50% | 1-50% | |||||||||||
| Mortality Multiplier | 100% | 100% | ||||||||||||||||
| Equity Volatility | 11-63% | 10-62% | ||||||||||||||||
| Indexed Life | $ | 52.5 | $ | 46.4 | Equity Volatility | 11-63% | 10-62% | |||||||||||
27
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 March 31, 2024 | ||||||||||||||||
| Total Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| Financial assets | ||||||||||||||||
| Fixed maturity, bonds available-for-sale | ||||||||||||||||
| U.S. treasury and government | $ | 64,858 | $ | 64,858 | $ | — | $ | — | ||||||||
| U.S. states and political subdivisions | 550,977 | — | 550,977 | — | ||||||||||||
| Foreign governments | 9,010 | — | 9,010 | — | ||||||||||||
| Corporate debt securities | 12,084,369 | — | 9,419,851 | 2,664,518 | ||||||||||||
| Residential mortgage-backed securities | 126,129 | — | 126,129 | — | ||||||||||||
| Collateralized debt securities | 1,362,537 | — | 418,628 | 943,909 | ||||||||||||
| Total bonds available-for-sale | 14,197,880 | 64,858 | 10,524,595 | 3,608,427 | ||||||||||||
| Equity securities | ||||||||||||||||
| Common stock | 1,324,714 | 315,793 | — | 1,008,921 | ||||||||||||
| Preferred stock | 96,260 | 24,374 | — | 71,886 | ||||||||||||
| Private equity and other | 5,396 | — | — | 5,396 | ||||||||||||
| Total equity securities | 1,426,370 | 340,167 | — | 1,086,203 | ||||||||||||
| Options | 256,590 | — | — | 256,590 | ||||||||||||
| Short-term investments | 3,242,526 | 2,660,909 | — | 581,617 | ||||||||||||
| Separate account assets | 1,251,383 | 443,516 | 807,867 | — | ||||||||||||
| Separately managed accounts | 105,796 | — | — | 105,796 | ||||||||||||
| Total financial assets | $ | 20,480,545 | $ | 3,509,450 | $ | 11,332,462 | $ | 5,638,633 | ||||||||
| Financial liabilities | ||||||||||||||||
| Embedded derivative for equity-indexed contracts | $ | 904,077 | $ | — | $ | — | $ | 904,077 | ||||||||
| Separate account liabilities | 1,251,383 | 443,516 | 807,867 | — | ||||||||||||
| Total financial liabilities | $ | 2,155,460 | $ | 443,516 | $ | 807,867 | $ | 904,077 | ||||||||
28
Note 9 – Fair Value of Financial Instruments – (Continued)
| Assets and Liabilities Carried at Fair Value by Hierarchy Level at December 31, 2023 | ||||||||||||||||
| Total Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| Financial assets | ||||||||||||||||
| Fixed maturity, bonds available-for-sale | ||||||||||||||||
| U.S. treasury and government | $ | 62,228 | $ | 62,228 | $ | — | $ | — | ||||||||
| U.S. states and political subdivisions | 577,314 | — | 577,314 | — | ||||||||||||
| Foreign governments | 9,103 | — | 9,103 | — | ||||||||||||
| Corporate debt securities | 10,977,772 | — | 8,570,110 | 2,407,662 | ||||||||||||
| Residential mortgage-backed securities | 126,904 | — | 126,904 | — | ||||||||||||
| Collateralized debt securities | 1,317,255 | — | 416,226 | 901,029 | ||||||||||||
| Total bonds available-for-sale | 13,070,576 | 62,228 | 9,699,657 | 3,308,691 | ||||||||||||
| Equity securities | ||||||||||||||||
| Common stock | 1,307,700 | 313,951 | — | 993,749 | ||||||||||||
| Preferred stock | 96,547 | 21,620 | — | 74,927 | ||||||||||||
| Total equity securities | 1,404,247 | 335,571 | — | 1,068,676 | ||||||||||||
| Options | 226,644 | — | — | 226,644 | ||||||||||||
| Short-term investments | 2,396,504 | 1,099,820 | — | 1,296,684 | ||||||||||||
| Separate account assets | 1,163,261 | 405,738 | 757,523 | — | ||||||||||||
| Separately managed accounts | 104,698 | — | — | 104,698 | ||||||||||||
| Total financial assets | $ | 18,365,930 | $ | 1,903,357 | $ | 10,457,180 | $ | 6,005,393 | ||||||||
| Financial liabilities | ||||||||||||||||
| Embedded derivative for equity-indexed contracts | $ | 872,746 | $ | — | $ | — | $ | 872,746 | ||||||||
| Separate account liabilities | 1,163,261 | 405,738 | 757,523 | — | ||||||||||||
| Total financial liabilities | $ | 2,036,007 | $ | 405,738 | $ | 757,523 | $ | 872,746 | ||||||||
29
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 March 31, 2024 | ||||||||||||||||
| Assets | Liability | |||||||||||||||
| Investment Securities | Equity-Indexed Options | Separately Managed Accounts | Embedded Derivative | |||||||||||||
| Beginning Balance | $ | 5,674,051 | $ | 226,644 | $ | 104,698 | $ | 872,746 | ||||||||
| Net loss for derivatives and bonds included in net investment income | — | 56,542 | — | — | ||||||||||||
| Net change included in interest credited | — | — | — | (37,541 | ) | |||||||||||
| Net fair value change included in other comprehensive income | (692,791 | ) | — | (369 | ) | — | ||||||||||
| Purchases, sales and settlements or maturities | ||||||||||||||||
| Purchases | 2,039,038 | 35,178 | 5,290 | — | ||||||||||||
| Sales | (1,744,052 | ) | — | (3,823 | ) | — | ||||||||||
| Settlements or maturities | — | (61,774 | ) | — | — | |||||||||||
| Premiums less benefits | — | — | — | 68,872 | ||||||||||||
| Ending balance at March 31, 2024 | $ | 5,276,246 | $ | 256,590 | $ | 105,796 | $ | 904,077 | ||||||||
30
Note 9 – Fair Value of Financial Instruments – (Continued)
| Level 3 | ||||||||||||||||
| Three Months Ended March 31, 2023 | ||||||||||||||||
| Assets | Liability | |||||||||||||||
| Investment Securities | Equity-Indexed Options | Separately Managed Accounts | Embedded Derivative | |||||||||||||
| Beginning balance | $ | 3,039,806 | $ | 121,150 | $ | 127,291 | $ | 725,546 | ||||||||
| Net loss for derivatives included in net investment income | 85,505 | 24,648 | — | — | ||||||||||||
| Net change included in interest credited | — | — | — | 50,683 | ||||||||||||
| Net fair value change included in other comprehensive income | — | — | (295 | ) | — | |||||||||||
| Purchases, sales and settlements or maturities | ||||||||||||||||
| Purchases | 1,404,527 | 30,427 | 9,156 | — | ||||||||||||
| Sales | (236,805 | ) | — | (8,955 | ) | — | ||||||||||
| Settlements or maturities | (35 | ) | (9,450 | ) | — | — | ||||||||||
| Premiums less benefits | — | — | — | 8,002 | ||||||||||||
| Ending balance at March 31, 2023 | $ | 4,292,998 | $ | 166,775 | $ | 127,197 | $ | 784,231 | ||||||||
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. Level 3 assets and liabilities include financial instruments whose values are determined using pricing models and discounted cash flow methodology based on spread/yield assumptions.
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.
31
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 March 31, 2024 | Valuation Technique | Unobservable Input | Range/Weighted Average | ||||||||
| Security type | |||||||||||
| Investment securities | |||||||||||
| Common stock | $ | 873 | Guideline public company method (1) | 0 | |||||||
| Current Value Method | LTM Revenue Multiple | .05X to 2.20x | |||||||||
| Theatre Cash Flow Multiple | 5.5x | ||||||||||
| Preferred stock | 4,522 | Guideline public company method (1) | LTM Revenue Multiple (4) | 2.20x to 3.5x | |||||||
| Market Approach-Precedent | Recurring Revenue Multiple | 5.50x | |||||||||
| Transaction | Theatre Cash Flow Multiple | 5.50x | |||||||||
| Current Value Method | Center EBITDA Multiple | 12.50x | |||||||||
| LTM Adjustment EBITDA | 11.25x to 12.50x | ||||||||||
| PF Adjustment EBITDA Multiple | 8.00X to 10.50X | ||||||||||
| Separately managed accounts | $ | 105,796 | Discounted cash flows (yield analysis) | Discount rate | 9.42%-29.75% | ||||||
| CVM | NFY EBITDA | 7.50xx | |||||||||
| Market transaction | NFY +1 EBITDA | 5.50x | |||||||||
| Recovery Waterfall | Theatre Cash Flow Multiple | 5.50x | |||||||||
| Broker Quotes | |||||||||||
| Cost + Accrued | |||||||||||
| Guideline public company method (1) | |||||||||||
| Fair Value at December 31, 2023 | Valuation Technique | Unobservable Input | Range/Weighted Average | ||||||||
| Security type | |||||||||||
| Investment securities | |||||||||||
| Common stock | $ | 961 | Guideline public company method (1) | Recurring Revenue Multiple | 6.3x | ||||||
| LTM Revenue Multiple | 2.1x | ||||||||||
| NCY Cash Flow Multiple | 5.0x | ||||||||||
| Preferred stock | $ | 4,771 | Guideline public company method (1) | LTM Revenue Multiple (2) | 4x | ||||||
| LTM EBITDA Multiple | 12.7x | ||||||||||
| NCY CF Multiple | 5x | ||||||||||
| Term (Years) | 1.1 | ||||||||||
| LTM EBITDA (est.) Multiple | 7.5x | ||||||||||
| NTM Adj. EBITDA Multiple | 9x | ||||||||||
| NCY Cash Flow Multiple | 5x | ||||||||||
| Option pricing method, Volatility | 73.6x | ||||||||||
| Separately managed accounts | $ | 104,698 | Discounted cash flows (yield analysis) | Discount rate | 8.80-18.5% | ||||||
| CVM | NCY EBITDA | 0x | |||||||||
| 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) | LTM Revenue Multiple valuation metric shows revenue for the past 12 month period. |
| (3) | Next Calendar Year (“NCY”) EBITDA Multiple is the forecasted EBITDA expected to be achieved over the next calendar year. |
| (4) | NCY Revenue forecast revenue over the next calendar year. |
| (5) | Last quarter annualized recurring revenue. Total recurring revenue realized during the previous quarter multiplied by 4. |
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.
32
Note 9 – Fair Value of Financial Instruments – (Continued)
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.
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:
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.
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.
33
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):
| March 31, 2024 | |||||||||
| FV Hierarchy Level | Carrying Amount | Fair Value | |||||||
| Financial assets | |||||||||
| Mortgage loans on real estate, net of allowance | Level 3 | $ | 5,581,631 | $ | 5,290,171 | ||||
| Policy loans | Level 3 | 395,053 | 395,053 | ||||||
| Total financial assets | $ | 5,976,684 | $ | 5,685,224 | |||||
| Financial liabilities | |||||||||
| Investment contracts | Level 3 | $ | 14,437,256 | $ | 14,437,256 | ||||
| Long-term debt | Level 3 | 1,493,636 | 1,397,000 | ||||||
| Notes payable | Level 3 | 184,601 | 184,601 | ||||||
| Total financial liabilities | $ | 16,115,493 | $ | 16,018,857 | |||||
| December 31, 2023 | |||||||||
| FV Hierarchy Level | Carrying Amount | Fair Value | |||||||
| Financial assets | |||||||||
| Mortgage loans on real estate, net of allowance | Level 3 | $ | 5,658,023 | $ | 5,405,016 | ||||
| Policy loans | Level 3 | 390,393 | 390,393 | ||||||
| Total financial assets | $ | 6,048,416 | $ | 5,795,409 | |||||
| Financial liabilities | |||||||||
| Investment contracts | Level 3 | $ | 14,096,714 | $ | 14,096,714 | ||||
| Long-term debt | Level 3 | 1,493,326 | 1,479,000 | ||||||
| Notes payable | Level 3 | 174,017 | 174,017 | ||||||
| Total financial liabilities | $ | 15,764,057 | $ | 15,749,731 | |||||
34
Note 10 – Deferred Policy Acquisition Costs and Value of Business Acquired
The changes in the asset for DAC and VOBA for the three months ended March 31, 2024 were as follows (in thousands):
| Life | Annuity | Health | Property & Casualty | Total | ||||||||||||||||
| Beginning balance at January 1, 2024 | $ | 519,153 | $ | 236,980 | $ | 10,292 | $ | 178,044 | $ | 944,469 | ||||||||||
| Additions | 30,765 | 39,606 | 7,040 | 110,612 | 188,023 | |||||||||||||||
| Amortization | (10,962 | ) | (5,955 | ) | (8,025 | ) | (135,816 | ) | (160,758 | ) | ||||||||||
| Net change | 19,803 | 33,651 | (985 | ) | (25,204 | ) | 27,265 | |||||||||||||
| Ending balance at March 31, 2024 | $ | 538,956 | $ | 270,631 | $ | 9,307 | $ | 152,840 | $ | 971,734 | ||||||||||
| Life | Annuity | Health | Property & Casualty | Total | ||||||||||||||||
| Beginning balance at January 1, 2023 | 417,323 | 89,805 | 7,153 | 184,871 | 699,152 | |||||||||||||||
| Additions | 145,012 | 165,727 | 8,575 | 450,642 | 769,956 | |||||||||||||||
| Amortization | (43,182 | ) | (18,552 | ) | (5,436 | ) | (457,469 | ) | (524,639 | ) | ||||||||||
| Net change | 101,830 | 147,175 | 3,139 | (6,827 | ) | 245,317 | ||||||||||||||
| Ending balance at December 31, 2023 | $ | 519,153 | $ | 236,980 | $ | 10,292 | $ | 178,044 | $ | 944,469 | ||||||||||
Commissions comprise the majority of additions to deferred policy acquisition costs.
The following table provides the projected VOBA amortization expenses for a five-year period and thereafter (in thousands):
| Years | Asset | |||
| 2024 | $ | 23,745 | ||
| 2025 | 29,183 | |||
| 2026 | 26,620 | |||
| 2027 | 24,317 | |||
| 2028 | 22,634 | |||
| Thereafter | 229,454 | |||
| Total amortization expense | $ | 355,953 | ||
The amortization of the VOBA asset is included in the change in deferred acquisition costs in the condensed consolidated statements of operations.
35
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):
| Three months ended March 31, 2024 | Three months ended March 31, 2023 | |||||||
| Unpaid claims balance, beginning | $ | 1,656,894 | $ | 1,568,543 | ||||
| Less: Reinsurance recoverables | 301,590 | 305,327 | ||||||
| Net beginning balance | 1,355,304 | 1,263,216 | ||||||
| Incurred related to | ||||||||
| Current | 343,742 | 374,938 | ||||||
| Prior years | (18,472 | ) | (10,424 | ) | ||||
| Total incurred claims | 325,270 | 364,514 | ||||||
| Paid claims related to | ||||||||
| Current | 108,631 | 108,329 | ||||||
| Prior years | 226,655 | 230,240 | ||||||
| Total paid claims | 335,286 | 338,569 | ||||||
| Net balance | 1,345,288 | 1,289,161 | ||||||
| Plus: Reinsurance recoverables | 305,815 | 299,969 | ||||||
| Unpaid claims balance, ending | $ | 1,651,103 | $ | 1,589,130 | ||||
Estimates for ultimate incurred claims attributable to insured events of prior years’ decreased by approximately $18.4 million during the first three months of 2024 and decreased by $10.4 million during the same period in 2023. The favorable development in 2024 was a reflection of lower-than-anticipated losses arising from commercial other, business owners, and commercial auto lines of business. The favorable development in 2023 was a reflection of lower-than-anticipated settlement of losses arising from agribusiness, business owners, commercial automotive and commercial other 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 March 31, 2024 and December 31, 2023 was $2.9 million and $4.2 million, respectively.
36
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):
| QTD | ||||||||||||||||
| Three months ended March 31, 2024 | Three months ended March 31, 2023 | |||||||||||||||
| Amount | Rate | Amount | Rate | |||||||||||||
| Total expected income tax expense at the statutory rate | $ | 29,594 | 21.0 | % | $ | 2,729 | 21.0 | % | ||||||||
| Tax-exempt investment income | (518 | ) | (0.4 | ) | (798 | ) | (6.1 | ) | ||||||||
| Dividend exclusion | (258 | ) | (0.2 | ) | (599 | ) | (4.6 | ) | ||||||||
| Tax credits, net | (939 | ) | (0.7 | ) | (4,851 | ) | (37.3 | ) | ||||||||
| Low income housing tax credit expense | 670 | 0.5 | 717 | 5.5 | ||||||||||||
| Other items, net | 236 | 0.2 | 555 | 4.3 | ||||||||||||
| Total | $ | 28,785 | 20.4 | % | $ | (2,247 | ) | (17.2 | )% | |||||||
American National is a party to a tax sharing agreement with its parent, BAMR US Holdings, LLC. In accordance with the agreement, if American National has taxable income, it pays its share of the consolidated federal income tax liability to its parent. However, if American National incurs a tax loss, the tax benefit is recovered by decreasing subsequent year’s federal income tax payments to its parent.
American National’s federal income tax returns for tax years 2020 to 2022 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 March 31, 2024, American National had no provision for uncertain tax positions and no provision for penalties or interest. In addition, management does not believe there are any uncertain tax benefits that could be recognized within the next twelve months that would impact American National’s effective tax rate.
37
Note 13 – Accumulated Other Comprehensive Income (Loss)
The components of and changes in AOCI are shown below (in thousands) for the three months ended March 31, 2024 and 2023:
| Net Unrealized Losses on Securities | Defined Benefit Pension Plan Adjustments | Foreign Currency Adjustments | Change in Discount Rate Used to Measure LFPB | Change in Fair Value of Market Risk Benefits | Accumulated Other Comprehensive Income (Loss) | |||||||||||||||||||
| Beginning balance at January 1, 2024 | $ | (298,891 | ) | $ | 85,860 | $ | (1,224 | ) | $ | 104,237 | $ | 821 | $ | (109,197 | ) | |||||||||
| Amounts reclassified from AOCI | 348 | 3,150 | — | — | — | 3,498 | ||||||||||||||||||
| Unrealized losses arising during the period | (44,326 | ) | — | — | — | — | (44,326 | ) | ||||||||||||||||
| Change in discount rates | — | — | — | 102,308 | — | 102,308 | ||||||||||||||||||
| Change in fair value market risk benefits | — | — | — | — | (9,223 | ) | (9,223 | ) | ||||||||||||||||
| Foreign currency adjustment | — | — | (2,294 | ) | — | — | (2,294 | ) | ||||||||||||||||
| Ending balance March 31, 2024 | $ | (342,869 | ) | $ | 89,010 | $ | (3,518 | ) | $ | 206,545 | $ | (8,402 | ) | $ | (59,234 | ) | ||||||||
| Net Unrealized Gains (Losses) on Securities | Defined Benefit Pension Plan Adjustments | Foreign Currency Adjustments | Change in Discount Rate Used to Measure LFPB | Change in Fair Value of Market Risk Benefits | Accumulated Other Comprehensive Income (Loss) | |||||||||||||||||||
| Beginning balance at January 1, 2023 | $ | (721,536 | ) | $ | 1,161 | $ | (1,237 | ) | $ | 253,126 | 20,779 | $ | (447,707 | ) | ||||||||||
| Amounts reclassified to from AOCI | 19,514 | 1,446 | — | — | — | 20,960 | ||||||||||||||||||
| Unrealized gains arising during the period | 320,184 | — | — | — | — | 320,184 | ||||||||||||||||||
| Unrealized gains (losses) on investments attributable to participating policyholders’ interest | (69 | ) | — | — | — | — | (69 | ) | ||||||||||||||||
| Change in discount rates | — | — | — | (105,674 | ) | — | (105,674 | ) | ||||||||||||||||
| Change in fair value market risk benefits | — | — | — | — | (6,790 | ) | (6,790 | ) | ||||||||||||||||
| Foreign currency adjustment | — | — | 136 | — | — | 136 | ||||||||||||||||||
| Ending balance at March 31, 2023 | $ | (381,907 | ) | $ | 2,607 | $ | (1,101 | ) | $ | 147,452 | $ | 13,989 | $ | (218,960 | ) | |||||||||
Unrealized losses increased during the three months ended March 31, 2024 as a result of an increase in the benchmark ten-year interest rates.
38
Note 14 – Equity and Noncontrolling Interests
As of March 31, 2024, there is one outstanding member unit, which is indirectly owned by Brookfield Reinsurance.
Statutory Capital and Surplus
Risk Based Capital (“RBC”) is a measure defined by the National Association of Insurance Commissioners (“NAIC”) and is used by insurance regulators 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.
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.
American National has been granted a permitted practice from the Texas Department of Insurance to recognize an admitted asset related to the notional value of coverage defined in an excess of loss reinsurance agreement. The permitted practice increases the statutory capital and surplus of American National by $548.2 million at March 31, 2024 and December 31, 2023. The statutory capital and surplus of American National would have remained above authorized control level RBC had it not used the permitted practice.
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 American National Property And Casualty Company ("ANPAC") by $66.6 million and $70.6 million at March 31, 2024 and December 31, 2023, respectively. The statutory capital and surplus of both ANPAC and American National Lloyds Insurance Company would have remained above the authorized control level RBC had it not used the permitted practice.
39
Note 14 – Equity and Noncontrolling Interests - (Continued)
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):
| March 31, 2024 | December 31, 2023 | |||||||
| Statutory capital and surplus | ||||||||
| Life insurance entities | $ | 2,710,988 | $ | 2,776,265 | ||||
| Property and casualty insurance entities | 1,716,020 | 1,701,884 | ||||||
| Three Months Ended March 31 | ||||||||
| 2024 | 2023 | |||||||
| Statutory net income (loss) | ||||||||
| Life insurance entities | $ | (65,021 | ) | $ | 16,012 | |||
| Property and casualty insurance entities | 45,928 | (1,171 | ) | |||||
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 of $6.8 million at March 31, 2024 and December 31, 2023.
ANAT 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 $105.3 million and $100.7 million at March 31, 2024 and December 31, 2023, respectively.
Note 15 – Debt
As a result of the Merger on May 25, 2022, the Company assumed the Term Loan Agreement with a consortium of banks providing for five-year term loans in the aggregate principal amount of $1.5 billion maturing May 23, 2027. Interest is tied to Secured Overnight Financing Rate ("SOFR") and reset and paid quarterly. The all-in rate at the end of the third quarter was 6.278%. On June 13, 2022, the Company repaid $500 million under the Term Loan Agreement and at March 31, 2024 had $1.0 billion principal amount outstanding. The outstanding debt balance was reduced by $2.4 million in unamortized issuance costs as of March 31, 2024. Quarterly interest payments were $17.8 million and $64.8 million for three months ended March 31, 2024 and year ended December 31, 2023, respectively.
In June 2022, the Company issued $500 million of 6.144% unsecured Senior Notes maturing June 13, 2032. Interest is payable in arrears in June and December of each year. Such notes were offered under Rule 144A of the Securities Act of 1933, as amended. The proceeds from the Senior Notes were used to repay a portion of the Term Loan Agreement. The outstanding note balance was reduced by $4.0 million in unamortized issuance costs as of March 31, 2024. An interest payment of $15.4 million was made on December 13, 2023.
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 March 31, 2024 were approximately $9.3 million.
American National had aggregate commitments at March 31, 2024 to purchase, expand or improve real estate, to fund fixed interest rate mortgage loans, and to purchase other invested assets of $1.6 billion, of which $1.1 billion is expected to be funded in 2024. The remaining $501.9 million will be funded in 2025 and beyond.
In addition, the Company had revolving commitments of $112.5 million expected to be funded during 2024.
American National had outstanding letters of credit in the amount of $3.5 million as of March 31, 2024 and December 31, 2023.
40
Federal Home Loan Bank ("FHLB") Agreements
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 March 31, 2024, certain municipal bonds and collateralized mortgage obligations with a fair value of approximately $6.3 million and commercial mortgage loans of approximately $898.6 million were on deposit with the FHLB as collateral for borrowing. As of March 31, 2024, the collateral provided borrowing capacity of approximately $615.0 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.
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. Accruals for losses are established whenever they are probable and reasonably estimable. If no one estimate within the range of possible losses is more probable than any other, an accrual is recorded based on the lowest amount of the range.
41
Note 17 – Related Party Transactions
American National has entered into recurring transactions and agreements with certain related parties. Prior to the Merger, these included 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 discussed below.
In 2024, the Company purchased related party investments totaling $52.7 million, composed of $52.4 million in collateral loans, $0.2 million in bonds, $0.1 million in common stock and other various investment classes. In 2023, the Company purchased $4.0 billion in related party investments, composed of $2.2 billion in collateral loans, $1.3 billion in bonds, $492.7 million in common stock and other various investment classes. Investment transactions with related parties are accounted for in the same manner as those with unrelated parties in the financial statements.
For the three months ended March 31, 2024 the Company paid investment management fees due to related party arrangements of $12.0 million. For the three months ended March 31, 2023 the Company paid investment management fees of $10.1 million.
On November 8, 2022 ANAT and BAMR US Holdings LLC entered into a deposit agreement. The balance at March 31, 2024 was $269.3 million. The deposit is considered a cash and cash equivalent in the Company's condensed consolidated statements of financial position as of March 31, 2024.
On August 17, 2023 ANTAC, LLC (a subsidiary of ANAT) and BAMR US Holdings LLC entered into a deposit agreement. The balance at March 31, 2024 was $183.4 million. The deposit is considered a cash and cash equivalent in the Company's consolidated statements of financial position as of March 31, 2024.
42
Note 18 – Liability for Future Policy Benefits
The balances and changes in the liability for future policy benefits for the three months ended March 31, 2024 are as follows (in thousands):
| March 31, 2024 | ||||||||||||||||
| Term Life | Whole Life | Annuity | Health | |||||||||||||
| Present value of Expected Net Premiums: | ||||||||||||||||
| Balance, beginning of period | $ | 1,859,631 | $ | 1,285,037 | $ | — | $ | 223,221 | ||||||||
| Beginning balance at original discount rate | 1,934,392 | 1,319,100 | — | 265,647 | ||||||||||||
| Effect of changes in cash flow assumptions | 62,489 | (52 | ) | — | 12,933 | |||||||||||
| Effect of actual variances from expected experience | (25,899 | ) | 11,094 | 2,262 | 8,741 | |||||||||||
| Adjusted beginning of period balance | 1,970,982 | 1,330,142 | 2,262 | 287,321 | ||||||||||||
| Net issuances (lapses) | 2,824 | 14,702 | 555,503 | (23,255 | ) | |||||||||||
| Interest accrual | 19,621 | 13,321 | 3,842 | 2,905 | ||||||||||||
| Net premiums collected | (35,815 | ) | (49,373 | ) | (561,607 | ) | (21,118 | ) | ||||||||
| Ending balance at original discount rate | 1,957,612 | 1,308,792 | — | 245,853 | ||||||||||||
| Effect of changes in discount rate assumptions | 47,686 | 21,967 | — | (9,882 | ) | |||||||||||
| Balance, end of period | $ | 2,005,298 | $ | 1,330,759 | $ | — | $ | 235,971 | ||||||||
| Present value of Expected Future Policy Benefits: | ||||||||||||||||
| Balance, beginning of year | $ | 2,443,712 | $ | 2,596,364 | $ | 2,212,885 | $ | 256,684 | ||||||||
| Beginning balance at original discount rate | 2,543,438 | 2,733,557 | 2,214,701 | 312,264 | ||||||||||||
| Effect of changes in cash flow assumptions | 73,570 | 17 | 296 | 13,286 | ||||||||||||
| Effect of actual variances from expected experience | (25,390 | ) | 11,324 | 3,993 | 3,698 | |||||||||||
| Adjusted beginning of period balance | 2,591,618 | 2,744,898 | 2,218,990 | 329,248 | ||||||||||||
| Net issuances (lapses) | 2,824 | 14,699 | 566,796 | (23,809 | ) | |||||||||||
| Interest accrual | 25,828 | 27,383 | 32,284 | 3,462 | ||||||||||||
| Benefit payments | (29,243 | ) | (50,905 | ) | (58,537 | ) | (14,359 | ) | ||||||||
| Ending balance at original discount rate | 2,591,027 | 2,736,075 | 2,759,533 | 294,542 | ||||||||||||
| Effect of changes in discount rate assumptions | 78,180 | 75,100 | 18,699 | (14,906 | ) | |||||||||||
| Balance, end of period | 2,669,207 | 2,811,175 | 2,778,232 | 279,636 | ||||||||||||
| Gross liability for future policy benefits | 663,909 | 1,480,416 | 2,778,232 | 43,665 | ||||||||||||
| Impact of flooring | 292 | — | — | 4 | ||||||||||||
| Net liability for future policy benefits | 664,201 | 1,480,416 | 2,778,232 | 43,669 | ||||||||||||
| Less: Reinsurance recoverable | (48,380 | ) | — | — | (16,427 | ) | ||||||||||
| Net liability for future policy benefits, after reinsurance recoverable | $ | 615,821 | $ | 1,480,416 | $ | 2,778,232 | $ | 27,242 | ||||||||
| Weighted-average liability duration of the liability | 13.4 | 17.0 | 4.7 | 6.0 | ||||||||||||
| Undiscounted expected future benefit payments | $ | 4,705 | $ | 5,706 | $ | 4,422 | $ | 418 | ||||||||
| Undiscounted expected gross premiums | $ | 4,658 | $ | 2,712 | $ | 1,519 | $ | 472 | ||||||||
| Gross premiums recognized in statement of operations | $ | 45,674 | $ | 67,208 | $ | 564,846 | $ | 29,066 | ||||||||
| Interest expense recognized in statement of operations | $ | 6,207 | $ | 14,062 | $ | 28,442 | $ | 557 | ||||||||
| Interest accretion rate | 4.7 | % | 4.5 | % | 5.0 | % | 3.7 | % | ||||||||
| Current discount rate | 4.4 | % | 4.3 | % | 4.9 | % | 4.4 | % | ||||||||
43
Note 18 – Liability for Future Policy Benefits – (Continued)
| December 31, 2023 | ||||||||||||||||
| Term Life | Whole Life | Annuity | Health | |||||||||||||
| Present value of Expected Net Premiums: | ||||||||||||||||
| Balance, January 1, 2023 | $ | 2,181,520 | $ | 1,338,304 | $ | — | $ | 254,452 | ||||||||
| Beginning balance at original discount rate | 2,400,114 | 1,425,419 | — | 262,239 | ||||||||||||
| Effect of changes in cash flow assumptions | (348,834 | ) | (3,650 | ) | — | 35,898 | ||||||||||
| Effect of actual variances from expected experience | (84,388 | ) | 25,538 | 1,684 | (1,438 | ) | ||||||||||
| Adjusted beginning of period balance | 1,966,892 | 1,447,307 | 1,684 | 296,699 | ||||||||||||
| Net issuances (lapses) | 38,600 | 53,299 | 985,147 | (36,816 | ) | |||||||||||
| Interest accrual | 75,049 | 45,982 | 7,820 | 9,819 | ||||||||||||
| Net premiums collected | (146,150 | ) | (227,487 | ) | (994,651 | ) | (36,461 | ) | ||||||||
| Ending balance at original discount rate | 1,934,391 | 1,319,101 | — | 233,241 | ||||||||||||
| Effect of changes in discount rate assumptions | (74,760 | ) | (34,064 | ) | — | (10,020 | ) | |||||||||
| Balance, December 31, 2023 | $ | 1,859,631 | $ | 1,285,037 | $ | — | $ | 223,221 | ||||||||
| Present value of Expected Future Policy Benefits: | ||||||||||||||||
| Balance, January 1, 2023 | $ | 2,694,329 | $ | 2,635,785 | $ | 1,288,034 | $ | 292,528 | ||||||||
| Beginning balance at original discount rate | 2,960,617 | 2,914,365 | 1,368,141 | 303,469 | ||||||||||||
| Effect of changes in cash flow assumptions | (357,635 | ) | (4,505 | ) | (1,282 | ) | 40,453 | |||||||||
| Effect of actual variances from expected experience | (84,356 | ) | 25,742 | (25,118 | ) | 1,619 | ||||||||||
| Adjusted beginning of period balance | 2,518,626 | 2,935,602 | 1,341,741 | 345,541 | ||||||||||||
| Net issuances (lapses) | 38,485 | 53,282 | 990,191 | (37,202 | ) | |||||||||||
| Interest accrual | 94,482 | 93,533 | 73,322 | 11,682 | ||||||||||||
| Benefit payments | (108,155 | ) | (348,860 | ) | (188,599 | ) | (39,514 | ) | ||||||||
| Ending balance at original discount rate | 2,543,438 | 2,733,557 | 2,216,655 | 280,507 | ||||||||||||
| Effect of changes in discount rate assumptions | (99,726 | ) | (137,193 | ) | (3,770 | ) | (14,823 | ) | ||||||||
| Balance, December 31, 2023 | 2,443,712 | 2,596,364 | 2,212,885 | 265,684 | ||||||||||||
| Gross liability for future policy benefits | 584,081 | 1,311,327 | 2,212,885 | 42,463 | ||||||||||||
| Net liability for future policy benefits | 584,081 | 1,311,327 | 2,212,885 | 42,463 | ||||||||||||
| Less: Reinsurance recoverable | (44,995 | ) | — | — | (14,581 | ) | ||||||||||
| Net liability for future policy benefits, after reinsurance recoverable | $ | 539,086 | $ | 1,311,327 | $ | 2,212,885 | $ | 27,882 | ||||||||
| Weighted-average liability duration of the liability | 13.9 | 17.1 | 8.0 | 6.0 | ||||||||||||
| Undiscounted expected future benefit payments | $ | 4,659 | $ | 5,694 | $ | 3,466 | $ | 403 | ||||||||
| Undiscounted expected gross premiums | $ | 4,834 | $ | 2,707 | $ | — | $ | 470 | ||||||||
| Gross premiums recognized in statement of operations | $ | 188,897 | $ | 263,133 | $ | 1,027,430 | $ | 154,593 | ||||||||
| Interest expense recognized in statement of operations | $ | 26,821 | $ | 68,015 | $ | 83,470 | $ | 4,281 | ||||||||
| Interest accretion rate | 4.8 | % | 4.5 | % | 4.9 | % | 3.8 | % | ||||||||
| Current discount rate | 5.1 | % | 5.0 | % | 4.9 | % | 4.5 | % | ||||||||
44
Note 18 – Liability for Future Policy Benefits – (Continued)
The reconciliation of liability for future policy benefits in the condensed consolidated statement of financial position are as follows (in thousands):
| March 31, 2024 | December 31, 2023 | |||||||
| Term life | $ | 663,909 | $ | 584,081 | ||||
| Whole life | 1,480,416 | 1,311,327 | ||||||
| Annuity | 2,778,233 | 2,212,885 | ||||||
| Health | 43,665 | 42,463 | ||||||
| Deferred profit liability | 138,976 | 129,754 | ||||||
| VOBA | 870,287 | 884,291 | ||||||
| Liability for future policy benefits not subject to LDTI | 708,686 | 943,158 | ||||||
| Total | $ | 6,684,172 | $ | 6,107,959 | ||||
Note 19 – Policyholder Account Balances
Policyholder account balances relate to investment-type contracts and universal life-type policies. Investment-type contracts principally include traditional individual fixed annuities in the accumulation phase and non-variable group annuity contracts. Policyholder account balances are equal to (i) policy account values, which consist of an accumulation of gross premium payments; (ii) credited interest, ranging from 1.0% to 8.0% (some annuities have enhanced first year crediting rates ranging from 1.0%to7.0%), less expenses, mortality charges, and withdrawals; and (iii) fair value adjustment.
The balances and changes in policyholders' account balances for the three months ended March 31, 2024 were as follows (in thousands):
| March 31, 2024 | ||||||||||||||||
| Universal Life | Equity Indexed Universal Life | Fixed Deferred Annuity | Equity Indexed Annuity | |||||||||||||
| Balance, beginning of period | $ | 1,257,799 | $ | 750,391 | $ | 10,105,078 | $ | 4,723,818 | ||||||||
| Issuances | 8,124 | 10,649 | 730,286 | 96,734 | ||||||||||||
| Premiums received | 69,489 | 37,879 | 2,557 | 1,677 | ||||||||||||
| Policy charges | (70,470 | ) | (24,986 | ) | (1,037 | ) | (10,475 | ) | ||||||||
| Surrenders and withdrawals | (16,163 | ) | (6,920 | ) | (441,763 | ) | (171,637 | ) | ||||||||
| Interest credited | 9,276 | 22,697 | 98,778 | 61,864 | ||||||||||||
| Balance, end of period | $ | 1,258,055 | $ | 789,710 | $ | 10,493,899 | $ | 4,701,981 | ||||||||
| Weighted-average crediting rate | 0.7 | % | 2.9 | % | 1.0 | % | 1.3 | % | ||||||||
| Net amount at risk | $ | 21,628,368 | $ | 16,520,099 | $ | — | $ | 405,451 | ||||||||
| Cash surrender value | $ | 1,121,604 | $ | 631,857 | $ | 9,951,640 | $ | 4,093,363 | ||||||||
45
Note 19 – Policyholder Account Balances - (Continued)
| December 31, 2023 | ||||||||||||||||
| Universal Life | Equity Indexed Universal Life | Fixed Deferred Annuity | Equity Indexed Annuity | |||||||||||||
| Balance, beginning of period | $ | 1,286,762 | $ | 613,661 | $ | 7,295,531 | $ | 4,745,678 | ||||||||
| Issuances | 37,320 | 46,747 | 3,988,887 | 392,978 | ||||||||||||
| Premiums received | 254,619 | 144,252 | 23,669 | 10,264 | ||||||||||||
| Policy charges | (266,948 | ) | (94,736 | ) | (6,317 | ) | (33,051 | ) | ||||||||
| Surrenders and withdrawals | (89,114 | ) | (21,305 | ) | (1,500,934 | ) | (631,085 | ) | ||||||||
| Interest credited | 35,160 | 61,772 | 304,242 | 239,034 | ||||||||||||
| Balance, end of period | $ | 1,257,799 | $ | 750,391 | $ | 10,105,078 | $ | 4,723,818 | ||||||||
| Weighted-average crediting rate | 2.7 | % | 9.1 | % | 3.5 | % | 5.1 | % | ||||||||
| Net amount at risk | $ | 21,585,998 | $ | 16,354,794 | $ | — | $ | 392,017 | ||||||||
| Cash surrender value | $ | 1,122,202 | $ | 594,772 | $ | 9,593,887 | $ | 4,088,713 | ||||||||
The reconciliation of policyholders’ account balances to the policyholders’ account balances’ liability in the condensed consolidated statement of financial position are shown below (in thousands):
| March 31, 2024 | December 31, 2023 | |||||||
| Universal life | $ | 1,258,055 | $ | 1,257,799 | ||||
| Equity indexed universal life | 789,710 | 750,391 | ||||||
| Fixed deferred annuity | 10,493,899 | 10,105,078 | ||||||
| Equity indexed annuity | 4,701,981 | 4,723,818 | ||||||
| Single premium immediate annuity | 296,319 | 291,146 | ||||||
| Variable universal life | 35,898 | 36,419 | ||||||
| Variable deferred annuity | 8,202 | 8,469 | ||||||
| Pension | 4,382 | — | ||||||
| Total | $ | 17,588,446 | $ | 17,177,476 | ||||
46
Note 19 – Policyholder Account Balances - (Continued)
The balance of account values by range of guaranteed minimum crediting rates and the related range of difference, in basis points, between rates being credited to policyholders and the respective guaranteed minimums are shown below (in thousands):
| March 31, 2024 | ||||||||||||||||||||||
| Range of Guaranteed Minimum Crediting Rate | At Guaranteed Minimum | 1 - 50 Basis Points Above | 51 - 150 Basis Points Above | > 150 Basis Points Above | Total | |||||||||||||||||
| Universal Life | 0.00%-1.00% | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
| 1.00%-2.00% | 25,708 | 2,016 | 10,875 | — | 38,599 | |||||||||||||||||
| 2.00%-3.00% | 417,796 | — | 147,284 | — | 565,080 | |||||||||||||||||
| Greater than 3.00% | 654,376 | — | — | — | 654,376 | |||||||||||||||||
| Total | $ | 1,097,880 | $ | 2,016 | $ | 158,159 | $ | — | $ | 1,258,055 | ||||||||||||
| Equity Indexed Universal Life | 0.00%-1.00% | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
| 1.00%-2.00% | — | — | 134,848 | 583,028 | 717,876 | |||||||||||||||||
| 2.00%-3.00% | — | — | 71,834 | — | 71,834 | |||||||||||||||||
| Greater than 3.00% | — | — | — | — | — | |||||||||||||||||
| Total | $ | — | $ | — | $ | 206,682 | $ | 583,028 | $ | 789,710 | ||||||||||||
| Fixed Deferred Annuity | 0.00%-1.00% | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
| 1.00%-2.00% | 276,850 | 340,291 | 1,773,602 | 1,856,757 | 4,247,500 | |||||||||||||||||
| 2.00%-3.00% | 710,418 | 363,960 | 60,322 | 4,834,263 | 5,968,963 | |||||||||||||||||
| Greater than 3.00% | 267,151 | 6,596 | 1,141 | 2,548 | 277,436 | |||||||||||||||||
| Total | $ | 1,254,419 | $ | 710,847 | $ | 1,835,065 | $ | 6,693,568 | $ | 10,493,899 | ||||||||||||
| Equity Indexed Annuity | 0.00%-1.00% | $ | 2,246,307 | $ | 55,554 | $ | 487,235 | $ | 916,472 | $ | 3,705,568 | |||||||||||
| 1.00%-2.00% | 358,919 | 42,568 | 139,326 | 145,585 | 686,398 | |||||||||||||||||
| 2.00%-3.00% | 147,607 | 10,481 | 29,809 | 122,118 | 310,015 | |||||||||||||||||
| Greater than 3.00% | — | — | — | — | — | |||||||||||||||||
| Total | $ | 2,752,833 | $ | 108,603 | $ | 656,370 | $ | 1,184,175 | $ | 4,701,981 | ||||||||||||
47
| December 31, 2023 | ||||||||||||||||||||||
| Range of Guaranteed Minimum Crediting Rate | At Guaranteed Minimum | 1 - 50 Basis Points Above | 51 - 150 Basis Points Above | > 150 Basis Points Above | Total | |||||||||||||||||
| Universal Life | 0.00%-1.00% | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
| 1.00%-2.00% | 22,077 | 2,042 | 11,445 | — | 35,564 | |||||||||||||||||
| 2.00%-3.00% | 414,979 | — | 148,086 | — | 563,065 | |||||||||||||||||
| Greater than 3.00% | 659,170 | — | — | — | 659,170 | |||||||||||||||||
| Total | $ | 1,096,226 | $ | 2,042 | $ | 159,531 | $ | — | $ | 1,257,799 | ||||||||||||
| Equity Indexed Universal Life | 0.00%-1.00% | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
| 1.00%-2.00% | 153,554 | — | 133,834 | 391,830 | 679,218 | |||||||||||||||||
| 2.00%-3.00% | — | — | 71,173 | — | 71,173 | |||||||||||||||||
| Greater than 3.00% | — | — | — | — | — | |||||||||||||||||
| Total | $ | 153,554 | $ | — | $ | 205,007 | $ | 391,830 | $ | 750,391 | ||||||||||||
| Fixed Deferred Annuity | 0.00%-1.00% | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
| 1.00%-2.00% | 302,924 | 382,126 | 1,804,089 | 2,055,022 | 4,544,161 | |||||||||||||||||
| 2.00%-3.00% | 746,465 | 398,243 | 46,630 | 4,088,400 | 5,279,738 | |||||||||||||||||
| Greater than 3.00% | 272,563 | 6,520 | 891 | 1,205 | 281,179 | |||||||||||||||||
| Total | $ | 1,321,952 | $ | 786,889 | $ | 1,851,610 | $ | 6,144,627 | $ | 10,105,078 | ||||||||||||
| Equity Indexed Annuity | 0.00%-1.00% | $ | 2,584,504 | $ | 30,135 | $ | 487,196 | $ | 726,897 | $ | 3,828,732 | |||||||||||
| 1.00%-2.00% | 381,269 | 48,009 | 140,382 | 82,936 | 652,596 | |||||||||||||||||
| 2.00%-3.00% | 85,543 | 11,398 | 9,286 | 136,263 | 242,490 | |||||||||||||||||
| Greater than 3.00% | — | — | — | — | — | |||||||||||||||||
| Total | $ | 3,051,316 | $ | 89,542 | $ | 636,864 | $ | 946,096 | $ | 4,723,818 | ||||||||||||
48
Note 20 - Market Risk Benefits
American National classifies the Lifetime Income Rider ("LIR") as an MRB. The LIR is a rider offering guaranteed minimum withdrawal benefits available on certain fixed indexed annuity products.
The balances of and changes in guaranteed minimum withdrawal benefits associated with annuity contracts follow (in thousands).
| March 31, 2024 | December 31, 2023 | |||||||
| Annuity | Annuity | |||||||
| Balance, beginning of period | $ | (86 | ) | $ | 44,010 | |||
| Balance, beginning of period, before effect of changes in the instrument-specific credit risk | (86 | ) | 44,010 | |||||
| Effect of changes in the beginning instrument-specific credit risk | 1,040 | 26,303 | ||||||
| Effect of model refinements | — | (13,050 | ) | |||||
| Effect of non-financial assumption update | 162 | — | ||||||
| Attributed fees collected | 3,873 | 13,175 | ||||||
| Interest accrual | 37 | 3,067 | ||||||
| Adjustment from deterministic to stochastic | 5,033 | 18,972 | ||||||
| Effect of experience variance | (3,150 | ) | (13,051 | ) | ||||
| Effect of changes in financial assumptions | 13,283 | (79,779 | ) | |||||
| Issuance | (186 | ) | 1,307 | |||||
| Balance, end of period, before effect of changes in nonperformance risk | 20,006 | 954 | ||||||
| Effect of changes in the ending instrument-specific credit risk | 10,635 | (1,040 | ) | |||||
| Balance, end of period | 30,641 | (86 | ) | |||||
| Balance, end of period, net of reinsurance | $ | 30,641 | $ | (86 | ) | |||
| March 31, 2024 | December 31, 2023 | |||||||
| Annuity | Annuity | |||||||
| Weighted-average attained age of contract holders amounted | $ | 65 | 65 | |||||
The reconciliation of market risk benefits by amounts in an asset position and in a liability position to the market risk benefits amount in the condensed consolidated statement of financial position follows (in thousands).
| March 31, 2024 | ||||||||||||
| Asset | Liability | Net | ||||||||||
| Annuity | $ | 24,725 | $ | 55,366 | $ | 30,641 | ||||||
| December 31, 2023 | ||||||||||||
| Asset | Liability | Net | ||||||||||
| Annuity | $ | 33,658 | $ | 33,572 | $ | (86 | ) | |||||
49
Note 21 – Segment Information
Management organizes the business into four 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. |
| · | 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. There are also small amounts of Health insurance, consisting of Medicare Supplement, stop-loss, other supplemental health products and credit disability insurance. Products are typically distributed through independent agents and managing general underwriters. |
| · | 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 segment at the average yield available from these assets. |
| · | Net investment income from all other assets is allocated to the insurance segments in accordance with the amount of capital allocated to each segment, with the remainder recorded in the Corporate and Other segment. |
| · | Expenses are charged to segments through direct identification and allocations based upon various factors. |
The results of operations measured as the income before federal income taxes and other items by operating segments are summarized below (in thousands):
| Three months ended March 31, 2024 | ||||||||||||||||||||
| Life | Annuity | Property and Casualty | Corporate and Other | Total | ||||||||||||||||
| PREMIUMS AND OTHER REVENUES | ||||||||||||||||||||
| Premiums | $ | 102,433 | $ | 564,231 | $ | 477,072 | $ | — | $ | 1,143,736 | ||||||||||
| Other policy revenues | 97,803 | 14,608 | — | — | 112,411 | |||||||||||||||
| Net investment income | 105,154 | 277,766 | 48,609 | 38,690 | 470,219 | |||||||||||||||
| Net realized investment gains | — | — | — | 2,295 | 2,295 | |||||||||||||||
| Decrease in investment credit loss | — | — | — | 1,309 | 1,309 | |||||||||||||||
| Net gains on equity securities | — | — | — | (10,811 | ) | (10,811 | ) | |||||||||||||
| Other income | — | — | — | 7,630 | 7,630 | |||||||||||||||
| Total premiums and other revenues | $ | 305,390 | $ | 856,605 | $ | 525,681 | $ | 39,113 | $ | 1,726,789 | ||||||||||
| BENEFITS, LOSSES AND EXPENSES | ||||||||||||||||||||
| Policyholder benefits and claims incurred | $ | (137,714 | ) | $ | (625,668 | ) | $ | (320,317 | ) | $ | — | $ | (1,083,699 | ) | ||||||
| Change in fair value of market risk benefits | — | (19,052 | ) | — | — | (19,052 | ) | |||||||||||||
| Interest credited to policyholders' account balances | (32,602 | ) | (159,622 | ) | — | — | (192,224 | ) | ||||||||||||
| Future policy benefit remeasurement losses | (26,419 | ) | 24,710 | 31 | — | (1,678 | ) | |||||||||||||
| Other operating expenses | (65,664 | ) | (27,589 | ) | (13,934 | ) | (21,266 | ) | (128,453 | ) | ||||||||||
| Amortization of deferred policy acquisition costs | (10,962 | ) | (6,154 | ) | (143,642 | ) | — | (160,758 | ) | |||||||||||
| Total benefits, losses and expenses | $ | (273,361 | ) | $ | (813,375 | ) | $ | (477,862 | ) | $ | (21,266 | ) | $ | (1,585,864 | ) | |||||
| Income before federal income tax and other items | $ | 32,029 | $ | 43,230 | $ | 47,819 | $ | 17,847 | $ | 140,925 | ||||||||||
50
| Three months ended March 31, 2023 | ||||||||||||||||||||
| Life | Annuity | Property and Casualty | Corporate and Other | Total | ||||||||||||||||
| PREMIUMS AND OTHER REVENUES | ||||||||||||||||||||
| Premiums | $ | 109,998 | $ | 159,656 | $ | 510,737 | $ | — | $ | 780,391 | ||||||||||
| Other policy revenues | 89,926 | 6,653 | — | — | 96,579 | |||||||||||||||
| Net investment income | 31,663 | 120,176 | 25,907 | 163,356 | 341,102 | |||||||||||||||
| Net realized investment gains | — | — | — | (22,367 | ) | (22,367 | ) | |||||||||||||
| Decrease in investment credit loss | — | — | — | (11,466 | ) | (11,466 | ) | |||||||||||||
| Net gains on equity securities | — | — | — | (28,296 | ) | (28,296 | ) | |||||||||||||
| Other income | — | — | — | 11,127 | 11,127 | |||||||||||||||
| Total premiums and other revenues | $ | 231,587 | $ | 286,485 | $ | 536,644 | $ | 112,354 | $ | 1,167,070 | ||||||||||
| BENEFITS, LOSSES AND EXPENSES | ||||||||||||||||||||
| Policyholder benefits and claims incurred | $ | (121,020 | ) | $ | (184,331 | ) | $ | (346,085 | ) | $ | — | $ | (651,436 | ) | ||||||
| Change in fair value of market risk benefits | — | (14,318 | ) | — | — | (14,318 | ) | |||||||||||||
| Interest credited to policyholders' account balances | (20,674 | ) | (118,923 | ) | — | — | (139,597 | ) | ||||||||||||
| Future policy benefit remeasurement losses | (24,715 | ) | 4,834 | (19,331 | ) | — | (39,212 | ) | ||||||||||||
| Other operating expenses | (55,457 | ) | (23,586 | ) | (50,470 | ) | (48,242 | ) | (177,755 | ) | ||||||||||
| Amortization of deferred policy acquisition costs | (10,028 | ) | (3,035 | ) | (118,694 | ) | — | (131,757 | ) | |||||||||||
| Total benefits, losses and expenses | $ | (231,894 | ) | $ | (339,359 | ) | $ | (534,580 | ) | $ | (48,242 | ) | $ | (1,154,075 | ) | |||||
| Income before federal income tax and other items | $ | (307 | ) | $ | (52,874 | ) | $ | 2,064 | $ | 64,112 | $ | 12,995 | ||||||||
Note 22 - Subsequent Events
The Company evaluated all events and transactions through July 23, 2024, the date the accompanying condensed consolidated financial statements were available to be issued.
On May 7, 2024, pursuant to an Agreement and Plan of Merger by and between the Company and American Equity Investment Life Holding Company, an Iowa corporation (“AEL”), the Company merged with and into AEL, with AEL as the surviving entity (the “AEL Merger”). Previously, on May 2, 2024, AEL became an indirect, wholly-owned subsidiary of Brookfield Reinsurance, pursuant to an Agreement and Plan of Merger by and among AEL, Brookfield Reinsurance, and Arches Merger Sub Inc., an Iowa corporation and an indirect, wholly owned subsidiary of Brookfield Reinsurance. In connection with the AEL Merger, AEL expressly assumed all of the Company’s obligations with respect to the $500 million aggregate principal amount of 6.144% unsecured Senior Notes issued by the Company due June 13, 2032. Following the AEL Merger, and pursuant to a Plan of Domestication dated as of May 7, 2024, AEL discontinued its existence as an Iowa corporation and continued its existence as a Delaware corporation, pursuant to applicable Iowa and Delaware laws, and changed its name to American National Group Inc. (“ANGI”). ANGI will file periodic reports as required with the U.S. Securities and Exchange Commission with respect to its Series A Preferred Stock and Series B Preferred Stock, listed on the New York Stock Exchange under the ticker symbols “ANGPRA” and “ANGPRB,” respectively.
51
Exhibit 99.3
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
This management’s discussion and analysis (“MD&A”) covers the financial position as of March 31, 2024 and December 31, 2023 and the results of operations for the three months ended March 31, 2024 and 2023. Unless the context requires otherwise, when used in this MD&A, the terms “we”, “us”, “our”, or the “Company” means American National Group, LLC (“American National”), together with all of its subsidiaries.
In addition to historical information, this MD&A contains forward-looking statements. Readers are cautioned that these forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. See “Forward-Looking Information” within this MD&A.
The information in this MD&A should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements (“the financial statements”) prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) as of March 31, 2024 and December 31, 2023 and for the three months ended March 31, 2024 and 2023, as well as the December 31, 2023 audited consolidated financial statements (“2023 financial statements”). Interim operating results for the three months ended March 31, 2024 are not necessarily indicative of the results expected for the entire year.
Overview of Our Business
Our Company offers a broad portfolio of insurance products, including individual and group life insurance, annuities, pension risk transfer (“PRT”), and property and casualty (“P&C”) insurance.
Operating Results and Financial Review
CONSOLIDATED RESULTS OF OPERATIONS
The following table summarizes the financial results of our business for the three months ended March 31, 2024 and 2023:
| FOR THE THREE MONTHS ENDED MAR. 31 US$ MILLIONS | 2024 | 2023 | ||||||
| Net premiums | $ | 1,145 | $ | 779 | ||||
| Other policy revenue | 112 | 97 | ||||||
| Net investment income | 470 | 341 | ||||||
| Net realized investment gains | 2 | (22 | ) | |||||
| (Increase) decrease in investment credit loss | 1 | (11 | ) | |||||
| Net gains (losses) on equity securities | (11 | ) | (28 | ) | ||||
| Other income | 8 | 11 | ||||||
| Total revenues | 1,727 | 1,167 | ||||||
| Policyholder benefits and claims incurred | (1,084 | ) | (651 | ) | ||||
| Change in fair value of market risk benefits | (19 | ) | (14 | ) | ||||
| Interest credited to policyholders' account balances | (192 | ) | (140 | ) | ||||
| Future policy benefit remeasurement losses | (2 | ) | (39 | ) | ||||
| Commissions for acquiring and servicing policies | (130 | ) | (180 | ) | ||||
| Other operating expenses | (187 | ) | (178 | ) | ||||
| Change in deferred policy acquisition costs | 27 | 48 | ||||||
| Total benefits and expenses | (1,587 | ) | (1,154 | ) | ||||
| Income before federal income tax and other items | 140 | 13 | ||||||
| Less: Income tax recovery (expense) | (29 | ) | 2 | |||||
| Income after federal income tax | $ | 111 | $ | 15 | ||||
| Other components of net periodic pension benefit (costs), net of tax | 3 | (1 | ) | |||||
| Net income | 114 | 14 | ||||||
| Less: income attributable to non-controlling interests | 1 | 5 | ||||||
| Net income (loss) for the period attributable to American National | $ | 113 | $ | 9 | ||||
Comparison of three months ended March 31, 2024 and 2023
For the three months ended March 31, 2024, we reported net income of $114 million, compared to $14 million in the prior year quarter. The increase of $99 million is primarily due to growth in our PRT business, continued redeployment of capital into higher yielding investments, and favourable P&C results.
Net premiums were $1.1 billion for the three months ended March 31, 2024, compared to $779 million in the prior year quarter. The increase of $366 million is primarily due to the continued growth in our PRT business.
We recorded $470 million net investment income for the three months ended March 31, 2024, an increase of $129 million over the prior year quarter, which recognized income of $341 million. Net investment income is primarily comprised of interest and dividends earned on financial instruments, equity investments and other miscellaneous fee income. The increase from the prior year quarter was driven by the growth in our investment portfolio and the rotation into higher yielding investment strategies.
Investment related gains for the three months ended March 31, 2024 increased by $53 million, relative to the prior year quarter. The increase is primarily driven by mark-to-market movements on our investments and derivative assets.
Policyholder benefits and claims incurred represent reserves from new annuity business and claims incurred from our P&C business. Policyholder benefits and claims incurred for the three months ended March 31, 2024 increased by $433 million, relative to the prior year quarter. The increase was primarily driven by new premiums as our annuities platform continues to expand.
Change in fair value of market risk benefit represents the mark-to-market movements of our liability based on the protection to the policyholder from capital market risk. The loss of $19 million for the three months ended March 31, 2024 is primarily due to movements in interest rates used in the valuation of these liabilities.
Interest credited to policyholders’ account balances is driven by movements our investment contracts with customers, as well as amortization of deferred revenue. Interest credited to policyholders’ account balances increased by $52 million for the three months ended March 31, 2024 compared to the prior year quarter. The increase is driven by new business deposits and appreciation of the underlying indices related to index-linked products.
Commissions for acquiring and servicing policies represent any sales commission payments or incremental costs of obtaining the contract that are amortized over the contract term subsequent to initial capitalization. For the three months ended March 31, 2024, commissions decreased by $50 million compared to the prior year quarter, primarily driven by an increase in ceded commissions resulting from the Standard Life and Accident Insurance Company (“SLAICO”) transaction (see Note 1 in our 2023 financial statements for more details).
Other operating expenses increased by $9 million to $187 million for the three months ended March 31, 2024, compared to the prior year quarter. The increase was primarily driven by additional costs incurred to support the continued growth of our business.
CONSOLIDATED FINANCIAL POSITION
The following table summarizes the financial position as of March 31, 2024 and December 31, 2023:
| AS OF US$ MILLIONS | March 31, 2024 | December 31, 2023 | ||||||
| Assets | ||||||||
| Available-for-sale fixed maturity securities, at fair value | $ | 14,198 | $ | 13,070 | ||||
| Equity securities, at fair value | 1,426 | 1,404 | ||||||
| Mortgage loans on real estate, at amortized cost | 5,582 | 5,658 | ||||||
| Policy loans | 395 | 390 | ||||||
| Real estate and real estate partnerships | 3,554 | 3,611 | ||||||
| Investment funds | 1,769 | 1,592 | ||||||
| Short-term investments | 3,243 | 2,397 | ||||||
| Other invested assets | 161 | 121 | ||||||
| Total investments | 30,328 | 28,243 | ||||||
| Cash and cash equivalents | 2,244 | 3,192 | ||||||
| Accrued investment income | 239 | 196 | ||||||
| Reinsurance recoverables | 422 | 427 | ||||||
| Prepaid reinsurance premiums | 213 | 45 | ||||||
| Premiums due and other receivables | 492 | 484 | ||||||
| Deferred policy acquisition costs | 972 | 944 | ||||||
| Market risk benefit | 25 | 34 | ||||||
| Property and equipment | 170 | 168 | ||||||
| Deferred tax asset | 252 | 291 | ||||||
| Current tax receivable | 101 | 98 | ||||||
| Prepaid pension | 254 | 248 | ||||||
| Other assets | 221 | 205 | ||||||
| Goodwill | 121 | 121 | ||||||
| Separate account assets | 1,285 | 1,189 | ||||||
| Total assets | $ | 37,339 | $ | 35,885 | ||||
| Liabilities | ||||||||
| Future policy benefits | 6,684 | 6,108 | ||||||
| Policyholders’ account balances | 17,588 | 17,177 | ||||||
| Policy and contract claims | 1,854 | 1,870 | ||||||
| Market risk benefits | 55 | 34 | ||||||
| Unearned premium reserve | 1,147 | 1,139 | ||||||
| Other policyholder funds | 339 | 335 | ||||||
| Liability for retirement benefits | 18 | 26 | ||||||
| Long-term debt | 1,494 | 1,493 | ||||||
| Notes payable | 185 | 174 | ||||||
| Other liabilities | 623 | 441 | ||||||
| Separate account liabilities | 1,285 | 1,189 | ||||||
| Total liabilities | $ | 31,272 | $ | 29,986 | ||||
| Equity | ||||||||
| American National member's equity | 6,014 | 5,901 | ||||||
| Accumulated other comprehensive loss | (59 | ) | (109 | ) | ||||
| Non-controlling interests | 112 | 107 | ||||||
| Total equity | $ | 6,067 | $ | 5,899 | ||||
| Total liabilities and equity | $ | 37,339 | $ | 35,885 | ||||
Comparison as of March 31, 2024 and December 31, 2023
Total assets increased by $1.5 billion during the quarter to $37.3 billion, primarily driven by capital deployment from annuity sales during the quarter, including new PRT deals.
Cash and cash equivalents decreased by $948 million from December 31, 2023 to March 31, 2024 primarily driven by the redeployment of cash and cash equivalents into short-term investments and available-for-sale fixed maturity securities.
Total investments increased by $2.1 billion from December 31, 2023 to March 31, 2024, primarily driven by capital deployed from new business wins, coupled with redeployment of cash and cash equivalents into short-term investments and available-for-sale fixed maturity securities.
Reinsurance recoverables are estimated amounts due to the Company from reinsurers or cedants, related to paid and unpaid ceded benefits, claims and expenses and are presented net of reserves for collectability. The balance remained consistent from December 31, 2023 to March 31, 2024 with new business cessions being offset by reinsurance settlements.
Prepaid reinsurance premiums represent a portion of unearned premiums ceded to reinsurers. The increase of $168 million from December 31, 2023 to March 31, 2024 is primarily driven by the Specialty Markets Group reinsurance treaty executed during the quarter.
Deferred policy acquisition costs (“DAC”) are capitalized costs directly related to writing new policyholder contracts and include the value of business acquired (“VOBA”) intangible assets. The balance increased by $28 million from December 31, 2023 to March 31, 2024 as DAC additions arising from new business wins were largely offset by the amortization of DAC and VOBA.
Market risk benefits assets decreased by $9 million and market risk benefit liability increased by $21 million from December 31, 2023 to March 31, 2024, primarily due to movements in interest rates used in the valuation of these assets and liabilities.
Separate account assets and liabilities both increased by $96 million from December 31, 2023 to March 31, 2024, principally due to net realized gains in underlying assets.
Future policy benefits and policyholders’ account balances increased by $986 million from December 31, 2023 to March 31, 2024, primarily driven by new premiums and interest sensitive contract benefits as the PRT and annuities businesses continue to expand.
Other liabilities increased by $182 million from December 31, 2023 to March 31, 2024, primarily due to higher annuity sales in the latter months of the quarter held in policyholder suspense accounts coupled with higher reinsurance payables from the Specialty Markets Group reinsurance treaty.
Segment Review
The Company’s operations are organized into three operating segments: Life, Annuity, and P&C.
We measure operating performance primarily using income before federal income tax and other items.
Refer to the “Line of Business” for further details on our segments.
Life
The following table presents income before federal income tax and other items of our Life segment for the three months ended March 31, 2024 and 2023:
| FOR THE THREE MONTHS ENDED MAR. 31 US$ THOUSANDS | 2024 | 2023 | ||||||
| Income before federal income tax and other items | $ | 32,029 | $ | (307 | ) | |||
Annuity
The following table presents income before federal income tax and other items of our Annuity segment for the three months ended March 31, 2024 and 2023:
| FOR THE THREE MONTHS ENDED MAR. 31 US$ THOUSANDS | 2024 | 2023 | ||||||
| Income before federal income tax and other items | $ | 43,230 | $ | (52,874 | ) | |||
P&C
The following table presents income before federal income tax and other items of our P&C segment for the three months ended March 31, 2024 and 2023:
| FOR THE THREE MONTHS ENDED MAR. 31 US$ THOUSANDS | 2024 | 2023 | ||||||
| Income before federal income tax and other items | $ | 47,819 | $ | 2,064 | ||||
Capital and Liquidity
The primary use of cash has been and is expected to continue to be payment of policyholder benefits and claims incurred. Current and expected patterns of claim frequency and severity may change from period to period but continue to be within historical norms. Management considers our liquidity position to be sufficient to meet our present requirements for the foreseeable future.
Funds received as premium payments and deposits that are not used for liquidity requirements are invested. 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.
Lines of Business
American National offers life insurance, annuities, credit insurance, pension products and P&C insurance for personal lines, agribusiness and certain commercial exposures. Our primary insurance products and coverages are as follows:
Life Insurance
Whole Life – Whole life products provide a guaranteed benefit upon the death of the insured in return for the periodic payment of a fixed premium over a predetermined period. Premium payments may be required for the entire life of the contract, to a specified age or a fixed number of years, and may be level or change in accordance with a predetermined schedule. Whole life insurance includes some policies that provide a participation feature in the form of dividends. Policyholders may receive dividends in cash or apply them to increase death benefits or cash values available upon surrender, or reduce the premiums required to maintain the contract in-force.
Universal Life – Universal life insurance products provide coverage through a contract that gives the policyholder flexibility in premium payments and coverage amounts. Universal life products may allow the policyholder, within certain limits, to increase or decrease the amount of death benefit coverage over the term of the contract and to adjust the frequency and amount of premium payments. Universal life products are interest rate sensitive, and we determine the interest crediting rates during the contract period, subject to policy specific minimums. An equity-indexed universal life product is credited with interest using a return that is based, in part, on changes in an index, such as the Standard & Poor’s 500 Index (“S&P 500”), subject to a specified minimum.
Variable Universal Life – Variable universal life products provide insurance coverage on a similar basis as universal life, except that the policyholder bears the investment risk because the value of the policyholder’s account balance varies with the investment experience of the securities selected by the policyholder held in the separate account.
Credit Life Insurance – Credit life insurance products are sold in connection with a loan or other credit account. Credit life insurance products are designed to pay the lender the borrower’s remaining debt on a loan or credit account if the borrower dies during the coverage period.
Annuities
Deferred Annuities – A deferred annuity is an asset accumulation product. Deposits are received as a single premium deferred annuity or in a series of payments for a flexible premium deferred annuity. Deposits are credited with interest at our determined rates subject to policy minimums. For certain limited periods of time, usually from one to ten years, interest rates are guaranteed not to change. Deferred annuities usually have surrender charges that begin at issue and reduce over time and may have market value adjustments that can increase or decrease any surrender value. An equity-indexed deferred annuity is credited with interest using a return that is based, in part, on changes in an index, such as the S&P 500, subject to a specified minimum.
Single Premium Immediate Annuities – A single premium immediate annuity (“SPIA”) is purchased with one premium payment, providing periodic (usually monthly or annual) payments to the annuitant for a specified period, such as for the remainder of the annuitant’s life. Return of the original deposit may or may not be guaranteed, depending on the terms of the annuity contract.
Variable Annuities – With a variable annuity, the policyholder bears the investment risk because the value of the policyholder’s account balance varies with the investment experience of the separate account investment options selected by the policyholder. Our variable annuity products have no guaranteed minimum withdrawal benefits. This product accounts for less than 1% of our annuity business.
Pension Risk Transfer – PRT is the transfer by a corporate sponsor of the risks, or some of the risks, associated with the sponsorship and administration of a pension plan, in particular, investment risk and longevity risk. Longevity risk represents the risk of an increase in life expectancy of plan beneficiaries. These risks can be transferred either to an insurer like us through a group annuity transaction, or to an individual through a lump-sum settlement payment. PRT using insurance typically involves a single premium group annuity contract that is issued to a pension plan by an insurer, permitting the corporate pension plan sponsor to discharge certain pension plan liabilities from its balance sheet.
A PRT insurance transaction may be structured as either a buy-out annuity or a buy-in annuity. Under a buy-out annuity, a direct insurer enters into a group annuity contract with the plan sponsor and assumes the liability to fund, administer and pay benefits covered under the contract directly to the individual pension plan members covered under the contract. Under a buy-in annuity, the insurer enters into a group annuity contract with the plan sponsor and is liable to fund and pay the benefits covered under the contract to the pension plan fund, with the plan sponsor retaining the liability to administer and pay pension benefits to plan members. In both cases, the insurer assumes the investment and longevity risks. In the U.S., a PRT insurance transaction may further be structured as either a general account annuity or a separate account annuity. A separate account annuity offers an added layer of protection and security to the annuitants as the assets supporting the pension liabilities are held in a separate account, insulated from an insurer’s general account. Under GAAP, buy-out and buy-in annuities are accounted for without distinguishing one another, and separate account annuities are treated as general account products.
Property and Casualty
Personal Lines – Personal lines include insurance policies sold to individuals for auto, homeowners, and other similar exposures. Auto insurance covers specific risks involved in owning and operating an automobile. Homeowner insurance provides coverage that protects the insured owner’s property against loss from perils. Other personal insurance provides coverage for property such as boats, motorcycles and recreational vehicles, and umbrella protection coverage.
Commercial Lines – Commercial lines are primarily focused on providing insurance to agricultural related operations and small to midsize businesses. This includes property and casualty coverage tailored for a farm, ranch, or other agricultural-related businesses. Commercial auto insurance is typically issued in conjunction with the sale of our policies covering farms, ranches, and businesses and covers specific risks involved in owning and operating motor vehicles. Business owners' property and liability insurance, workers' compensation insurance, and other commercial insurance encompassing umbrella protection coverage and other liability coverages, are also offered.
Specialty Markets – Specialty Markets products include renters, mortgage security, aviation, private flood, and credit insurance. Credit insurance provides protection to borrowers and the creditors that extend credit to them against unpaid indebtedness as a result of death, disability, involuntary unemployment, or untimely loss to the collateral securing a personal or mortgage loan.
| · | Collateral or Creditor Protection Insurance (“CPI”). CPI provides insurance against loss, expense to recover, or damage to personal property pledged as collateral (typically automobiles and homes) resulting from fire, burglary, collision, or other loss occurrence that would either impair a creditor’s interest or adversely affect the value of the collateral. The coverage is purchased from us by the lender according to the terms of the credit obligation and charged to the borrower by the lender when the borrower fails to provide the required insurance. |
| · | Guaranteed Auto Protection or Guaranteed Asset Protection (“GAP”). GAP insures the excess outstanding indebtedness over the primary property insurance benefits that may occur when there is a total loss to or an unrecovered theft of the collateral. GAP can be written on a variety of assets that are used as collateral to secure credit; however, it is most commonly written on automobiles. |
Industry Trends and Factors Affecting Our Performance
As an insurance business, we are affected by numerous factors, including global economic and financial market conditions. Price fluctuations within equity, credit, commodity and foreign exchange markets, as well as interest rates, which may be volatile and mixed across geographies, can significantly impact the performance of our business. We also monitor factors such as consumer spending, business investment, the volatility of capital markets, interest rates, unemployment and the risk of inflation or deflation, which affect the business and economic environment and, in turn, impact the demand for the type of financial and insurance products offered by our business.
Critical Accounting Estimates
The preparation of the financial statements requires management to make critical judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses that are not readily apparent from other sources, during the reporting period. These estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the year in which the estimate is revised if the revision affects only that year or in the year of the revision and future years if the revision affects both current and future years. Refer to “Industry Trends and Critical Accounting Estimates” section included within the 2023 MD&A.
Forward-Looking Information
In addition to historical information, this MD&A contains “forward-looking information” within the meaning of applicable securities laws. Forward-looking information may relate to the Company’s outlook and anticipated events or results and may include information regarding the financial position, business strategy, growth strategy, budgets, operations, financial results, taxes, dividends, distributions, plans and objectives of the Company. Particularly, information regarding future results, performance, achievements, prospects or opportunities of the Company or the Canadian, U.S. or international markets is forward-looking information. In some cases, forward-looking information can be identified by the use of forward-looking terminology such as “plans”, “targets”, “expects” or “does not expect”, “is expected”, “an opportunity exists”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate” or “believes”, or variations of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might”, “will” or “will be taken”, “occur” or “be achieved”.
The forward-looking statements are based on our beliefs, assumptions and expectations of future performance, taking into account all information currently available to us. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us or within our control. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements.
We caution that the factors that could cause our actual results to vary from our forward-looking statements described in this MD&A are not exhaustive. The forward-looking statements represent our views as of the date of this MD&A and should not be relied upon as representing our views as of any date subsequent to the date of this MD&A. While we anticipate that subsequent events and developments may cause our views to change, we disclaim any obligation to update the forward-looking statements, other than as required by applicable law.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
This management’s discussion and analysis (“MD&A”) covers the financial position as of December 31, 2023 and 2022 and the results of operations for the years ended December 31, 2023, 2022 and 2021. Unless the context requires otherwise, when used in this MD&A, the terms “we”, “us”, “our”, or the “Company” means American National Group, LLC (“American National”), together with all of its subsidiaries.
In addition to historical information, this MD&A contains forward-looking statements. Readers are cautioned that these forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. See “Forward-Looking Information” within this MD&A.
The information in this MD&A should be read in conjunction with the Consolidated Financial Statements (“the financial statements”) prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) as of December 31, 2023 and 2022 and for the years ended December 31, 2023, 2022 and 2021.
Overview of Our Business
Our Company offers a broad portfolio of insurance products, including individual and group life insurance, annuities, pension risk transfer (“PRT”), and property and casualty (“P&C”) insurance.
Operating Results and Financial Review
CONSOLIDATED RESULTS OF OPERATIONS
The following tables summarize the financial results of our business for the years ended December 31, 2023, 2022 and 2021:
| Successor | ||||||||
| US$ MILLIONS | Year ended December 31, 2023 | Period from May 25, 2022 December 31, 2022 | ||||||
| Net premiums | $ | 3,522 | $ | 1,453 | ||||
| Other policy revenue | 414 | 226 | ||||||
| Net investment income | 1,501 | 663 | ||||||
| Net realized investment gains (loss) | (73 | ) | (23 | ) | ||||
| (Increase) decrease in investment credit loss | (27 | ) | (65 | ) | ||||
| Net gains (losses) on equity securities | 97 | 49 | ||||||
| Other income | 83 | 24 | ||||||
| Total revenues | 5,517 | 2,327 | ||||||
| Policyholder benefits and claims incurred | (3,261 | ) | (1,188 | ) | ||||
| Change in fair value of market risk benefits | 69 | 102 | ||||||
| Interest credited to policyholders' account balances | (628 | ) | (156 | ) | ||||
| Future policy benefit remeasurement losses | (28 | ) | (1 | ) | ||||
| Commissions for acquiring and servicing policies | (743 | ) | (413 | ) | ||||
| Other operating expenses | (739 | ) | (398 | ) | ||||
| Change in deferred policy acquisition costs | 249 | 122 | ||||||
| Total benefits and expenses | (5,081 | ) | (1,932 | ) | ||||
| Income before federal income tax and other items | 436 | 395 | ||||||
| Less: Income tax recovery (expense) | (47 | ) | (73 | ) | ||||
| Income after federal income tax | $ | 389 | $ | 322 | ||||
| Other components of net periodic pension benefit (costs), net of tax | 8 | 4 | ||||||
| Net income | 397 | 326 | ||||||
| Less: income attributable to non-controlling interests | 5 | 2 | ||||||
| Net income (loss) for the period attributable to American National | $ | 392 | $ | 324 | ||||
For the year ended December 31, 2023 vs. Period from May 25, 2022 through December 31, 2022
For the year ended December 31, 2023, we reported net income of $397 million, compared to net income of $326 million in the prior year successor period. The increase of $71 million is primarily driven by higher revenues from comparing full year results to partial prior year successor comparatives.
Net premiums and other policy revenue were $3.9 billion in 2023, compared to $1.7 billion in 2022. The increase of $2.2 billion is primarily driven by comparing full year results to partial prior year successor comparatives coupled with contributions from our institutional annuity platform.
Net investment income increased by $838 million for the year ended December 31, 2023, relative to the prior year. Net investment income is comprised of interest and dividends received on financial instruments, equity investments and other miscellaneous fee income. The increase in 2023 was driven by comparing full year results to partial prior year successor comparatives coupled with the growth in our investment portfolio and the continued rotation into higher yielding investment strategies.
Net realized investment losses in 2023 increased by $50 million relative to the prior year. The realized losses were vastly related to disposals of available-for-sale fixed maturity securities, due to strategies to reposition the fixed maturity security portfolio that result in improved net investment income, credit risk or duration profiles as they pertain to our asset liability management.
Net gains on equity securities increased by $48 million in 2023, relative to 2022. This increase is primarily due to the underlying performance of financial markets, resulting in larger value appreciation on equity securities holdings.
Other income increased by $59 million for the year ended December 31, 2023, relative to the prior year. The increase is primarily driven by the gain on sale of Standard Life and Accident Insurance Company to Core Specialty Insurance Holdings, Inc.
Policyholder benefits and claims incurred represent reserves from new annuity business and claims incurred from our P&C business. Interest credited to policyholders’ account balances represent interest credited to policyholders’ account balances from our investment contracts with customers, as well as amortization of deferred revenue. Policyholder benefits and claims incurred and Interest credited to policyholders’ account balances increased by $2.1 billion and $472 million, respectively, relative to 2022 primarily driven by new premiums and interest sensitive contract benefits as our annuities platform continues to expand.
Change in fair value of market risk benefit (“MRB”) represents the mark-to-market movements of our liability based on protection to the policyholder from capital market risk. The loss of $33 million in the current year is primarily due to movements in interest rates used in the valuation of these liabilities.
Commissions for acquiring and servicing policies represent any sales commission payments or incremental costs of obtaining the contract that are amortized over the contract term subsequent to initial capitalization. During the year, the amount increased by $330 million, driven mainly by comparing full year results to partial prior year successor comparatives coupled with higher annuity and P&C premiums sales.
Other operating expenses were $739 million in the year of 2023, compared to $398 million in the prior year, an increase of $341 million. This increase is primarily driven by comparing full year results to partial prior year successor comparatives coupled with increased borrowing costs arising from the acquisition of the Company by Brookfield Reinsurance Ltd. (“Brookfield Reinsurance”) and additional costs incurred to support the continued growth of our business.
Change in deferred policy acquisition costs (“DAC”) is comprised of the amortization of DAC and value of business acquired (“VOBA”), which arose upon the acquisition by Brookfield Reinsurance, offset by the capitalization of asset balances when new business is written. In 2023, capitalizations from new business outpaced amortization, resulting in an increase in changes in DAC of $127 million, compared to the prior year.
| Predecessor | ||||||||
| US$ MILLIONS | Period from May 24, 2022 | Year ended December 31, 2021 | ||||||
| Net premiums | $ | 979 | $ | 2,300 | ||||
| Other policy revenue | 159 | 360 | ||||||
| Net investment income | 385 | 1,172 | ||||||
| Net realized investment gains (loss) | 21 | 65 | ||||||
| (Increase) decrease in investment credit loss | (15 | ) | 29 | |||||
| Net gains (losses) on equity securities | (13 | ) | 420 | |||||
| Other income | 19 | 46 | ||||||
| Total revenues | 1,535 | 4,392 | ||||||
| Policyholder benefits and claims incurred | (831 | ) | (1,948 | ) | ||||
| Change in fair value of market risk benefits | – | – | ||||||
| Interest credited to policyholders' account balances | (53 | ) | (449 | ) | ||||
| Future policy benefit remeasurement losses | – | – | ||||||
| Commissions for acquiring and servicing policies | (264 | ) | (640 | ) | ||||
| Other operating expenses | (260 | ) | (572 | ) | ||||
| Change in deferred policy acquisition costs | 41 | 80 | ||||||
| Total benefits and expenses | (1,367 | ) | (3,529 | ) | ||||
| Income before federal income tax and other items | 168 | 863 | ||||||
| Less: Income tax recovery (expense) | (33 | ) | (167 | ) | ||||
| Income after federal income tax | $ | 135 | $ | 696 | ||||
| Other components of net periodic pension benefit (costs), net of tax | (2 | ) | 4 | |||||
| Net income | 133 | 700 | ||||||
| Less: income attributable to non-controlling interests | 2 | 1 | ||||||
| Net income (loss) for the period attributable to American National | $ | 131 | $ | 699 | ||||
Period from January 1, 2022 through May 24, 2022 vs. For the year ended December 31, 2021
For the predecessor period ended May 24, 2022, we reported net income of $133 million, compared to $700 million in the prior year.
Net premiums and other policy revenue of $1.1 billion decreased by $1.5 billion for the predecessor period ended May 24, 2022, relative to 2021. The decrease was primarily driven comparing partial year predecessor results to a full year prior period.
Net investment income decreased by $787 million for the predecessor period ended May 24, 2022, relative to 2021. The decrease is primarily driven by comparing partial year predecessor results to a full year prior period coupled with mark-to-market movements on our equity-indexed options. The company began rotating investments into higher yielding investment strategies during the year.
The Company recorded a net realized investment gain of $21 million in 2022, compared to a $65 million gain in 2021. The realized gains related to disposals of available-for-sale fixed maturity securities as part of rotating our investments into higher yielding investment strategies during the year.
In 2022, increases in investment credit losses increased by $44 million, relative to the prior year. This is driven by macroeconomic trends and market performance related to commercial real estate.
The Company recorded net losses on equity securities of $13 million in 2022 compared to $420 million gain in 2021. The decrease is primarily due to the underlying performance of financial markets coupled with comparing partial year predecessor results to a full year prior period.
Policyholder benefits and claims incurred decreased by $1.1 billion for the predecessor period ended May 24, 2022, relative to 2021. The decrease is primarily driven by comparing partial year predecessor results to a full year prior period.
Commissions for acquiring and servicing policies and other operating expenses decreased relative to the prior year period by $376 million and $312 million, respectively, due to comparing partial year predecessor results to a full year prior period.
The change in DAC decreased by $39 mllion compared to 2021. The decrease was driven by comparing partial year predecessor results to a full year prior period.
CONSOLIDATED FINANCIAL POSITION
The following table summarizes the financial position as of December 31, 2023 and 2022:
| AS OF DEC. 31 US$ MILLIONS | 2023 | 2022 | ||||||
| Assets | ||||||||
| Available-for-sale fixed maturity securities, at fair value | $ | 13,070 | $ | 13,514 | ||||
| Equity securities, at fair value | 1,404 | 428 | ||||||
| Mortgage loans on real estate, at amortized cost | 5,658 | 5,546 | ||||||
| Policy loans | 390 | 374 | ||||||
| Real estate and real estate partnerships | 3,611 | 1,036 | ||||||
| Investment funds | 1,592 | 1,226 | ||||||
| Short-term investments | 2,397 | 1,837 | ||||||
| Other invested assets | 121 | 198 | ||||||
| Total investments | 28,243 | 24,159 | ||||||
| Cash and cash equivalents | 3,192 | 1,389 | ||||||
| Accrued investment income | 196 | 289 | ||||||
| Reinsurance recoverables | 427 | 445 | ||||||
| Prepaid reinsurance premiums | 45 | 47 | ||||||
| Premiums due and other receivables | 484 | 436 | ||||||
| Deferred policy acquisition costs | 944 | 699 | ||||||
| Market risk benefit | 34 | 10 | ||||||
| Property and equipment | 168 | 151 | ||||||
| Deferred tax asset | 291 | 439 | ||||||
| Current tax receivable | 98 | 22 | ||||||
| Prepaid pension | 248 | 159 | ||||||
| Other assets | 205 | 133 | ||||||
| Goodwill | 121 | 121 | ||||||
| Separate account assets | 1,189 | 1,045 | ||||||
| Total assets | $ | 35,885 | $ | 29,544 | ||||
| Liabilities | ||||||||
| Future policy benefits | 6,108 | 4,861 | ||||||
| Policyholders’ account balances | 17,177 | 14,310 | ||||||
| Policy and contract claims | 1,870 | 1,786 | ||||||
| Market risk benefits | 34 | 54 | ||||||
| Unearned premium reserve | 1,139 | 1,086 | ||||||
| Other policyholder funds | 335 | 322 | ||||||
| Liability for retirement benefits | 26 | 67 | ||||||
| Long-term debt | 1,493 | 1,503 | ||||||
| Notes payable | 174 | 151 | ||||||
| Other liabilities | 441 | 604 | ||||||
| Separate account liabilities | 1,189 | 1,045 | ||||||
| Total liabilities | $ | 29,986 | $ | 25,789 | ||||
| Equity | ||||||||
| American National member's equity | 5,901 | 4,129 | ||||||
| Accumulated other comprehensive loss | (109 | ) | (448 | ) | ||||
| Non-controlling interests | 107 | 74 | ||||||
| Total equity | $ | 5,899 | $ | 3,755 | ||||
| Total liabilities and equity | $ | 35,885 | $ | 29,544 | ||||
December 31, 2023 vs. 2022
Total assets increased by $6.3 billion during the year to $35.9 billion, primarily driven by approximately $6 billion of additional annuity sales across our retail and newly launched institutional platform.
Total investments increased by $4.1 billion during the year to $28.2 billion, primarily driven by capital deployed from new business wins.
DAC are capitalized costs directly related to writing new policyholder contracts and include the VOBA intangible assets. The balance increased by $245 million during the year to $944 million primarily driven by DAC additions arising from new business offset by the amortization of DAC and VOBA.
MRB assets increased by $24 million and MRB liability decreased by $20 million during the year to $34 million and $34 million respectively. Movements in MRB related to interest rate volatility.
Separate account assets and liabilities both increased by $144 million year over year, mainly due to net realized gains of underlying assets of $170 million and policyholder deposits of $77 million, partially offset by $117 million of policyholder benefits and withdrawals.
Future policy benefits and policyholders’ account balances increased by $4.1 billion during the year to $6.1 billion and $17.1 billion respectively, primarily driven by new premiums and interest sensitive contract benefits as our annuities platform continues to expand.
Segment Review
The Company’s operations are organized into three operating segments: Life, Annuity, and P&C. We measure operating performance primarily using income before federal income tax and other items. Refer to the “Line of Business” for further details on our segments.
Life
The following table presents income before federal income tax and other items of our Life segment for the years ended December 31, 2023, 2022 and 2021:
| Successor | Predecessor | |||||||||||||||
| US$ THOUSANDS | Year ended December 31, 2023 | Period from May 25, 2022 through December 31, 2022 | Period from January 1, 2022 through May 24, 2022 | Year ended December 31, 2021 | ||||||||||||
| Income before federal income tax and other items | $ | 158,039 | $ | 5,235 | $ | (26,328 | ) | $ | 7,252 | |||||||
Annuity
The following table presents income before federal income tax and other items of our Annuity segment for the years ended December 31, 2023, 2022 and 2021:
| Successor | Predecessor | |||||||||||||||
| US$ THOUSANDS | Year ended December 31, 2023 | Period from May 25, 2022 through December 31, 2022 | Period from January 1, 2022 through May 24, 2022 | Year ended December 31, 2021 | ||||||||||||
| Income before federal income tax and other items | $ | 264,828 | $ | 316,745 | $ | 119,723 | $ | 87,232 | ||||||||
Property & Casualty
The following table presents income before federal income tax and other items of our P&C segment for the years ended December 31, 2023, 2022 and 2021:
| Successor | Predecessor | |||||||||||||||
| US$ THOUSANDS | Year ended December 31, 2023 | Period from May 25, 2022 through December 31, 2022 | Period from January 1, 2022 through May 24, 2022 | Year ended December 31, 2021 | ||||||||||||
| Income before federal income tax and other items | $ | 41,296 | $ | 75,645 | $ | 62,320 | $ | 125,152 | ||||||||
Capital and Liquidity
The primary use of cash has been and is expected to continue to be payment of policyholder benefits and claims incurred. Current and expected patterns of claim frequency and severity may change from period to period but continue to be within historical norms. Management considers our liquidity position to be sufficient to meet our present requirements for the foreseeable future.
Funds received as premium payments and deposits that are not used for liquidity requirements are invested. 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.
Lines of Business
American National offers life insurance, annuities, credit insurance, pension products and P&C insurance for personal lines, agribusiness and certain commercial exposures. Our primary insurance products and coverages are as follows:
Life Insurance
Whole Life – Whole life products provide a guaranteed benefit upon the death of the insured in return for the periodic payment of a fixed premium over a predetermined period. Premium payments may be required for the entire life of the contract, to a specified age or a fixed number of years, and may be level or change in accordance with a predetermined schedule. Whole life insurance includes some policies that provide a participation feature in the form of dividends. Policyholders may receive dividends in cash or apply them to increase death benefits or cash values available upon surrender, or reduce the premiums required to maintain the contract in-force.
Universal Life – Universal life insurance products provide coverage through a contract that gives the policyholder flexibility in premium payments and coverage amounts. Universal life products may allow the policyholder, within certain limits, to increase or decrease the amount of death benefit coverage over the term of the contract and to adjust the frequency and amount of premium payments. Universal life products are interest rate sensitive, and we determine the interest crediting rates during the contract period, subject to policy specific minimums. An equity-indexed universal life product is credited with interest using a return that is based, in part, on changes in an index, such as the Standard & Poor’s 500 Index (“S&P 500”), subject to a specified minimum.
Variable Universal Life – Variable universal life products provide insurance coverage on a similar basis as universal life, except that the policyholder bears the investment risk because the value of the policyholder’s account balance varies with the investment experience of the securities selected by the policyholder held in the separate account.
Credit Life Insurance – Credit life insurance products are sold in connection with a loan or other credit account. Credit life insurance products are designed to pay the lender the borrower’s remaining debt on a loan or credit account if the borrower dies during the coverage period.
Annuities
Deferred Annuities – A deferred annuity is an asset accumulation product. Deposits are received as a single premium deferred annuity or in a series of payments for a flexible premium deferred annuity. Deposits are credited with interest at our determined rates subject to policy minimums. For certain limited periods of time, usually from one to ten years, interest rates are guaranteed not to change. Deferred annuities usually have surrender charges that begin at issue and reduce over time and may have market value adjustments that can increase or decrease any surrender value. An equity-indexed deferred annuity is credited with interest using a return that is based, in part, on changes in an index, such as the S&P 500, subject to a specified minimum.
Single Premium Immediate Annuities – A single premium immediate annuity (“SPIA”) is purchased with one premium payment, providing periodic (usually monthly or annual) payments to the annuitant for a specified period, such as for the remainder of the annuitant’s life. Return of the original deposit may or may not be guaranteed, depending on the terms of the annuity contract.
Variable Annuities – With a variable annuity, the policyholder bears the investment risk because the value of the policyholder’s account balance varies with the investment experience of the separate account investment options selected by the policyholder. Our variable annuity products have no guaranteed minimum withdrawal benefits. This product accounts for less than 1% of our annuity business.
Pension Risk Transfer – PRT is the transfer by a corporate sponsor of the risks, or some of the risks, associated with the sponsorship and administration of a pension plan, in particular, investment risk and longevity risk. Longevity risk represents the risk of an increase in life expectancy of plan beneficiaries. These risks can be transferred either to an insurer like us through a group annuity transaction, or to an individual through a lump-sum settlement payment. PRT using insurance typically involves a single premium group annuity contract that is issued to a pension plan by an insurer, permitting the corporate pension plan sponsor to discharge certain pension plan liabilities from its balance sheet.
A PRT insurance transaction may be structured as either a buy-out annuity or a buy-in annuity. Under a buy-out annuity, a direct insurer enters into a group annuity contract with the plan sponsor and assumes the liability to fund, administer and pay benefits covered under the contract directly to the individual pension plan members covered under the contract. Under a buy-in annuity, the insurer enters into a group annuity contract with the plan sponsor and is liable to fund and pay the benefits covered under the contract to the pension plan fund, with the plan sponsor retaining the liability to administer and pay pension benefits to plan members. In both cases, the insurer assumes the investment and longevity risks. In the U.S., a PRT insurance transaction may further be structured as either a general account annuity or a separate account annuity. A separate account annuity offers an added layer of protection and security to the annuitants as the assets supporting the pension liabilities are held in a separate account, insulated from an insurer’s general account. Under GAAP, buy-out and buy-in annuities are accounted for without distinguishing one another, and separate account annuities are treated as general account products.
Property and Casualty
Personal Lines – Personal lines include insurance policies sold to individuals for auto, homeowners, and other similar exposures. Auto insurance covers specific risks involved in owning and operating an automobile. Homeowner insurance provides coverage that protects the insured owner’s property against loss from perils. Other personal insurance provides coverage for property such as boats, motorcycles and recreational vehicles, and umbrella protection coverage.
Commercial Lines – Commercial lines are primarily focused on providing insurance to agricultural related operations and small to midsize businesses. This includes property and casualty coverage tailored for a farm, ranch, or other agricultural-related businesses. Commercial auto insurance is typically issued in conjunction with the sale of our policies covering farms, ranches, and businesses and covers specific risks involved in owning and operating motor vehicles. Business owners' property and liability insurance, workers' compensation insurance, and other commercial insurance encompassing umbrella protection coverage and other liability coverages, are also offered.
Specialty Markets – Specialty Markets products include renters, mortgage security, aviation, private flood, and credit insurance. Credit insurance provides protection to borrowers and the creditors that extend credit to them against unpaid indebtedness as a result of death, disability, involuntary unemployment, or untimely loss to the collateral securing a personal or mortgage loan.
| · | Collateral or Creditor Protection Insurance (“CPI”). CPI provides insurance against loss, expense to recover, or damage to personal property pledged as collateral (typically automobiles and homes) resulting from fire, burglary, collision, or other loss occurrence that would either impair a creditor’s interest or adversely affect the value of the collateral. The coverage is purchased from us by the lender according to the terms of the credit obligation and charged to the borrower by the lender when the borrower fails to provide the required insurance. |
| · | Guaranteed Auto Protection or Guaranteed Asset Protection (“GAP”). GAP insures the excess outstanding indebtedness over the primary property insurance benefits that may occur when there is a total loss to or an unrecovered theft of the collateral. GAP can be written on a variety of assets that are used as collateral to secure credit; however, it is most commonly written on automobiles. |
Industry Trends and Factors Affecting Our Performance
As an insurance business, we are affected by numerous factors, including global economic and financial market conditions. Price fluctuations within equity, credit, commodity and foreign exchange markets, as well as interest rates, which may be volatile and mixed across geographies, can significantly impact the performance of our business. We also monitor factors such as consumer spending, business investment, the volatility of capital markets, interest rates, unemployment and the risk of inflation or deflation, which affect the business and economic environment and, in turn, impact the demand for the type of financial and insurance products offered by our business.
Critical Accounting Estimates
The preparation of the financial statements requires management to make critical judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses that are not readily apparent from other sources, during the reporting period. These estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the year in which the estimate is revised if the revision affects only that year or in the year of the revision and future years if the revision affects both current and future years.
Critical judgments made by management and used in preparing the financial statements, are summarized below:
Credit loss allowances and impairments
Available-for-sale fixed maturity securities
For available-for-sale fixed maturity securities in an unrealized loss position, if the Company does not intend to sell the security or will not be required to sell the securities before recovery of its amortized cost basis, the Company evaluates whether the decline in fair value has resulted from credit loss or market factors.
In making this assessment, management first calculates the extent to which fair value is less than amortized cost, consider any changes to the rating of the security by a rating agency, and any specific conditions related to the security. If this qualitative assessment indicates that a credit loss may exist, the present value of projected future cash flows expected to be collected is compared to the amortized cost basis of the security. The net present value of the expected cash flows is calculated by discounting management’s best estimate of expected cash flows at the effective interest rate implicit in the available-for-sale fixed maturity security when acquired.
If the present value of expected cash flows 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. If the fair value is less than the net present value of its expected cash flows at the impairment measurement date, a non-credit loss exists which is recorded in other comprehensive income (loss) for the difference between the fair value and the net present value of the expected cash flows.
Expected credit losses
The Company records an allowance for credit loss in earnings within “(Increase) decrease in investment credit loss” in an amount that represents the portion of the amortized cost basis of mortgage and private loans that the Company does not expect to collect, resulting in the loans being presented at the net amount expected to be collected. In determining the Company’s credit loss allowances, management applies significant judgment to estimate expected lifetime credit loss, including: (i) pooling loans that share similar risk characteristics, (ii) considering expected lifetime credit loss over the contractual term of its loans adjusted for expected prepayments and any extensions, and (iii) considering past events and current and forecasted economic conditions. The allowance is calculated quarterly for each loan type based on its unique inputs. The Company uses the discounted cash flow model to assess expected credit loss.
Mortgage loans – On an ongoing basis, mortgage loans with dissimilar risk characteristics (i.e., loans with significant declines in credit quality) and collateral dependent mortgage loans (i.e., when the borrower is experiencing financial difficulty, including when foreclosure is probable) may be evaluated individually for credit loss. The allowance for credit losses for loans evaluated individually is established using the same methodologies for the overall portfolio except for collateral dependent loans.
The allowance for a collateral dependent loan, which is typically a mortgage loan, is established as the excess of amortized cost over the estimated fair value of the loan’s underlying collateral, less selling cost when foreclosure is reasonably possible or probable. Accordingly, the change in the estimated fair value of collateral dependent loans is recorded as a change in the allowance for credit losses which is recorded on a quarterly basis as a charge or credit to earnings.
The Company’s mortgage loans are primarily originated and are not purchased in the secondary market; as such, the mortgage loans would not generally be subject to purchased credit deteriorated considerations.
Deferred policy acquisition costs (“DAC”) are capitalized costs related directly to the successful acquisition of new or renewal insurance contracts. Significant costs are incurred to successfully acquire insurance, reinsurance, and annuity contracts, including commissions and certain underwriting, policy issuance, and processing expenses.
Insurance contracts are grouped into cohorts by contract type and issue year consistent with estimating the associated liability for future policy benefits. DAC is amortized on constant level basis for the grouped contracts over the expected term of the related contracts to approximate straight-line amortization. DAC will be amortized over the bases on a straight-line basis, all of which provide a constant level representation of contract term.
| Product(s) | Amortization base | |
| Traditional life products | Nominal face amount | |
| Life contingent payout annuities | Annualized benefit amount in force | |
| Health products | Original annual premium | |
| Fixed deferred annuities, fixed index annuities, variable annuities | Policy count | |
| Universal life products | Initial face amount | |
| Property and Casualty | Earned premium |
The Company reviews and updates actuarial experience assumptions (such as mortality, surrenders, lapse and premium persistency) serving as inputs to the models that establish the expected life for DAC and other actuarial balances during the third quarter of each year, or more frequently if evidence suggests assumptions should be revised. The Company makes model refinements as necessary, and any changes resulting from these assumption updates are applied prospectively. Amortization of DAC is included in the “Net change in deferred policy acquisition costs” on the statement of operations.
For short-duration contracts, DAC is grouped consistent with the manner in which insurance contracts are acquired, serviced, and measured for profitability and is reviewed for recoverability based on the profitability of the underlying insurance contracts. Investment income is anticipated in assessing the recoverability of DAC for short-duration contracts.
Prior to the adoption of LDTI, DAC was amortized with interest over gross profits or premiums with retrospective and prospective unlocking through the statements of operations. Actual and projected deferrals were included in the ratio of the value of deferrable expenses to the value of estimated gross profits. Additionally, DAC was subject to loss recognition testing with changes recognized in the statements of operations, while shadow DAC adjustments for unrealized gains and losses were recognized in the statements of comprehensive income.
Value of business acquired (“VOBA”) is an intangible asset or liability resulting from a business combination that represents the difference between the policyholder liabilities measured in accordance with the acquiring company’s accounting policies and the estimated fair value of the same acquired policyholder liabilities in-force at the acquisition date. VOBA can be either positive or negative. Positive VOBA is recorded as a component of DAC in the statements of financial position. Negative VOBA occurs when the estimated fair value of in-force contracts in a life insurance company acquisition is less than the amount recorded as insurance contract liabilities, and is recorded in the “Future policy benefits” in the statements of financial position.
Future policy benefits (“FPB”) is calculated as the present value of expected future policy benefits to be paid or on behalf of policyholders and certain related expenses, reduced by the present value of expected net premiums to be collected from policyholders. Principal assumptions used in the establishment of the FPB mortality, lapse, incidence, terminations, claim-related expenses and other contingent events are appropriate to the respective product type. The Company groups contracts into annual cohorts based on product type and contract inception date for the purposes of calculating the liability for future policy benefits.
The Company updates its estimate of cash flows over the entire life of a group of contracts using actual historical experience and current future cash flow assumptions. The Company reviews and updates cash flow assumptions at least annually, and at the same time every year by cohort or product. The Company also reviews more frequently and updates its cash flow assumptions during an interim period if evidence suggests cash flow assumptions should be revised. Assumption revisions will be reflected in the net premium ratio and FPB calculation in the quarter in which assumptions are revised. The change in the liability due to actual experience is recognized in “Policyholder benefits and claims incurred” in the statements of operations.
The change in FPB that is recognized in “Policyholder benefits and claims incurred” in the statement of operations is calculated using a locked-in discount rate. The Company measures the FPB at each reporting period using both the locked-in discount rate and the current discount rate curves. For contracts issued subsequent to the transition date of LDTI, the upper-medium grade discount rate used for interest accretion is locked in for the cohort and represents the original discount rate at the issue date of the underlying contracts.
The FPB for all cohorts is remeasured to a current upper-medium grade discount rate at each reporting date through other comprehensive income. The Company generally interprets the original discount rate to be a rate comparable to that of a U.S. corporate single A rate that reflects the duration characteristics of the liability. The upper-medium grade discount rate is determined using observable market data, including published upper-medium grade discount curves. In situations where market data for an upper-medium grade discount curve is not available (e.g., in certain foreign jurisdictions), spreads are applied to adjust the available observable market data to an upper-medium grade discount curve. For certain long-tailed life insurance liabilities with expected future cash flows longer than the last observable tenor (30 years), the discount rate for future cash flows beyond 30 years will be held constant at the ultimate (30 years) observable forward rate.
Prior to the transition date of LDTI, a cohort level locked-in discount rate was developed to reflect the interest accretion rates that were locked in at the inception of the underlying contracts. Should the present value of actual and future expected benefits less transition FPB balance exceed the present value of actual and future expected gross premiums, the net premium ratio will be capped at 100% and a gross premium FPB will be held.
The immediate charge will be the amount by which the uncapped net premium ratio exceeds 100% times the present value of future expected gross premium. This assessment will be performed at the cohort level. The Company periodically reviews its estimates of actuarial liabilities for future policy benefits and compares them with its actual experience. Differences between actual experience and the assumptions used in pricing these policies, guarantees and riders and in the establishment of the related liabilities result in variances in profit and could result in losses. The effects of changes in such estimated liabilities are included in the statements of operations in the period in which the changes occur.
Prior to the transition date of LDTI, net premium liability was recognized with locked-in assumptions at issue with no retrospective unlocking. The assumptions included adverse deviation and incorporated discounts at the Company’s expected earned rate less adverse deviation, with losses being recognized at an aggregate block level.
Deferred Profit Liability (“DPL”)
For limited-payment products, gross premiums received in excess of net premiums are deferred at initial recognition as a DPL. Gross premiums are measured using assumptions consistent with those used in the measurement of the liability for future policy benefits, including discount rate, mortality, lapses and expenses.
The DPL is amortized and recognized as “Policyholder benefits and claims incurred” in the statements of operations in proportion to expected future benefit payments from annuity contracts. Interest is accreted on the balance of the DPL using the discount rate determined at contract issuance. The Company reviews and updates its estimate of cash flows from the DPL at the same time as the estimates of cash flows for the liability for future policy benefits. When cash flows are updated, the updated estimates are used to recalculate the DPL at contract issuance. The recalculated DPL as of the beginning of the current reporting period is compared to the carrying amount of the DPL as of the beginning of the current reporting period, and any difference is recognized as “Policyholder benefits and claims incurred” in the statements of operations.
DPL is recorded in future policy benefits and included as a reconciling item within the disaggregated rollforwards. Prior to the adoption of LDTI, the Company evaluates the actual claims experience and expenses related to insurance contracts. These evaluations are compared to the initial estimates, and adjustments are made to the DPL to ensure it appropriately reflects the Company’s obligations and the profitability of the contracts.
Policyholders’ account balances (“PAB”) represent the contract value that has accrued to the benefit of the policyholders related to universal-life and investments-type contracts. For fixed products, these are generally equal to the accumulated deposits plus interest credited, reduced by withdrawals, payouts and accumulated policyholder assessments. Indexed product account balances are equal to the sum of host and embedded derivative reserves computed. Changes in the fair value of the embedded derivative are included in the “Interest sensitive contract benefits” in the statements of operations.
Liabilities for unpaid claims and claim adjustment expenses (“CAE”) are established to provide for the estimated costs of paying claims. These reserves include estimates for both case reserves and incurred but not reported claims (“IBNR”) liabilities. Case reserves include the liability for reported but unpaid claims. IBNR liabilities include a provision for potential development on case reserves, losses on claims currently closed which may reopen in the future, as well as IBNR claims. These liabilities also include an estimate of the expense associated with settling claims, including legal and other fees, and the general expenses of administering the claims adjustment process.
Liabilities for unpaid claims and claim adjustment expenses for health and property and casualty insurance are included in “Policy and contract claims” in the statements of financial position.
Market risk benefits (“MRB”), which are contracts or contract features that provide protection to the policyholder from other-than-nominal capital market risk and expose the Company to other-than-nominal capital market risk, are measured at fair value, at the individual contract level. The periodic change in fair value is recognized in earnings with the exception of the periodic change in fair value related to the instrument-specific credit risk, which is recognized in other comprehensive income. The Company classifies the Lifetime Income Rider (“LIR”) as an MRB. The LIR is a rider offering guaranteed minimum withdrawal benefits type benefits available on certain fixed indexed annuity products.
Total attributed fees will include explicit rider fees and will not be negative or exceed total contract fees and assessments collectible from the contract holder. There are only rider charges and surrender charges. Surrender charges will not be included in the fair value measurement, as surrender charges do not fund any future benefits. Cash flows are projected using risk-neutral scenarios generated by the Company.
The actuarial assumptions used in the MRB calculation are the Company’s best estimate assumptions. Assumptions are adjusted to reflect fair value by applying a margin for non-hedgeable risk and an adjustment for own credit spread through the discount rate. The risk-free discount rate is the scenario specific US treasury rate. Market risk benefits with positive values are recorded as “Market risk benefits, at estimated fair value” assets and negative fair values are reported as “Market risk benefits, at estimated fair value” liabilities in the statements of financial position.
Prior to the adoption of LDTI, valuation methodologies varied depending on the type of guarantee with all the measurement impacts through the statements of operations.
Participating insurance policies: for the majority of participating business, profits earned are reserved for the payment of dividends to policyholders, except for the stockholders’ share of profits on participating policies, which is limited to the greater of 10% of the profit on participating business, or 50 cents per thousand dollars of the face amount of participating life insurance in-force. Participating policyholders’ interest includes the accumulated net income from participating policies reserved for payment to such policyholders in the form of dividends (less net income allocated to stockholders as indicated above) as well as a pro rata portion of unrealized investment gains (losses).
For all other participating business, the allocation of dividends to participating policy owners is based upon a comparison of experienced rates of mortality, interest and expenses, as determined periodically for representative plans of insurance, issue ages and policy durations, with the corresponding rates assumed in the calculation of premiums.
It is included within “Other policyholder funds” in the statements of financial position.
Forward-Looking Information
In addition to historical information, this MD&A contains “forward-looking information” within the meaning of applicable securities laws. Forward-looking information may relate to the Company’s outlook and anticipated events or results and may include information regarding the financial position, business strategy, growth strategy, budgets, operations, financial results, taxes, dividends, distributions, plans and objectives of the Company. Particularly, information regarding future results, performance, achievements, prospects or opportunities of the Company or the Canadian, U.S. or international markets is forward-looking information. In some cases, forward-looking information can be identified by the use of forward-looking terminology such as “plans”, “targets”, “expects” or “does not expect”, “is expected”, “an opportunity exists”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate” or “believes”, or variations of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might”, “will” or “will be taken”, “occur” or “be achieved”.
The forward-looking statements are based on our beliefs, assumptions and expectations of future performance, taking into account all information currently available to us. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us or within our control. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements.
We caution that the factors that could cause our actual results to vary from our forward-looking statements described in this MD&A are not exhaustive. The forward-looking statements represent our views as of the date of this MD&A and should not be relied upon as representing our views as of any date subsequent to the date of this MD&A. While we anticipate that subsequent events and developments may cause our views to change, we disclaim any obligation to update the forward-looking statements, other than as required by applicable law.
Exhibit 99.4
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Brookfield Reinsurance Ltd. (“Brookfield Reinsurance”) is a Bermuda corporation incorporated on December 10, 2020, and operates a leading wealth solutions provider, focused on securing the financial futures of individuals and institutions through a range of wealth protection and retirement services, and tailored capital solutions. American National Group, LLC (“American National”) is a wholly-owned operating subsidiary of Brookfield Reinsurance.
On May 2, 2024, American National completed the acquisition of American Equity Investment Life Holding Company, an Iowa corporation (“AEL”), by acquiring all of AEL’s issued and outstanding common stock Brookfield Reinsurance did not already own for total consideration of approximately $3.7 billion comprised of $2.5 billion in cash and $1.2 billion in class A limited voting shares of Brookfield Asset Management Ltd. (“BAM”). The consideration was funded by a combination of American National’s and AEL’s existing liquidity, additional term loan financing, and capital contribution from Brookfield Reinsurance. Subsequently on May 7, 2024, American National completed a downstream merger with AEL, with AEL being the surviving entity, which changed its name to American National Group Inc. (“ANGI” or the “Company”) and reincorporated as a Delaware corporation. AEL’s preferred stock were unaffected and continues to be listed on the New York Stock Exchange (“NYSE”) under ANGI with ticker symbols “ANGPRA” and “ANGPRB”. For purposes of the Unaudited Condensed Consolidated Pro Forma Financial Statements, these events are collectively referred to as the “Transaction”.
The Unaudited Condensed Consolidated Pro Forma Financial Statements of ANGI set forth below have been prepared based on the consolidated financial statements of American National and AEL. Both American National and AEL have a financial year end of December 31. The Unaudited Condensed Consolidated Pro Forma Statement of Financial Position of ANGI gives effect to the Transaction as if it had been consummated on March 31, 2024, and the Unaudited Condensed Consolidated Pro Forma Statement of Operating Results of ANGI give effect to the Transaction as if it had been consummated on January 1, 2023. All financial data in the Unaudited Condensed Consolidated Pro Forma Financial Statements is presented in U.S. dollars, and unless otherwise noted, has been prepared using accounting policies that are consistent with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
The Unaudited Pro Forma Financial Statements are based on preliminary estimates, accounting judgments and currently available information and assumptions that management believes are reasonable. The notes to the Unaudited Condensed Consolidated Pro Forma Financial Statements provide a detailed discussion of how such adjustments were derived and presented in the Unaudited Condensed Consolidated Pro Forma Financial Statements. The Unaudited Condensed Consolidated Pro Forma Financial Statements have been prepared for illustrative purposes only and are not necessarily indicative of what ANGI’s financial position or results of operations would be had the Transaction occurred on the dates or for the periods indicated, nor is such pro forma financial information necessarily indicative of the results to be expected for any future period. ANGI’s actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. The Unaudited Condensed Consolidated Pro Forma Financial Statements should be read in conjunction with the accompanying notes and:
| • | the audited financial statements of American National as of December 31, 2023 and 2022 and for each of the years in the three-year period ended December 31, 2023, filed as Exhibit 99.1 to this Form 8-K/A and incorporated by reference herein; |
| • | the unaudited interim financial statements of American National as of March 31, 2024 and December 31, 2023 and for the three months ended March 31, 2024 and 2023, filed as Exhibit 99.2 to this Form 8-K/A and incorporated by reference herein; |
| • | the audited financial statements of AEL as of December 31, 2023 and 2022 and for each of the years in the three-year period ended December 31, 2023, included in the Company’s 10-K filed with the SEC on February 29, 2024; |
| • | and the unaudited interim financial statements of AEL as of March 31, 2024 and December 31, 2023 and for the three months ended March 31, 2024 and 2023, included in the Company’s 10-Q filed with the SEC on May 10, 2024; as well as |
| • | the accompanying notes to such financial statements. |
1
The historical financial statements of American National and AEL have been prepared in accordance with U.S. GAAP. Reclassification adjustments have been made to conform the presentation of these historical financial statements to that of ANGI’s financial statements. Please refer to Note 2 and Note 3 for details on those adjustments.
UNAUDITED PRO FORMA STATEMENT OF FINANCIAL POSITION
As of March 31, 2024
American National Group Inc.
As of March 31, 2024 In USD, millions | American National (2) | AEL (3) | Transaction accounting adjustments (1) | Notes | Pro Forma ANGI | |||||||||||||
| Assets | ||||||||||||||||||
| Available-for-sale fixed maturity securities, at fair value | $ | 14,015 | $ | 32,044 | $ | — | $ | 46,059 | ||||||||||
| Equity securities, at fair value | 1,426 | — | (217 | ) | 1(a), (h) | 1,209 | ||||||||||||
| Mortgage loans on real estate, at amortized cost | 5,582 | 7,282 | (644 | ) | 1(f) | 12,220 | ||||||||||||
| Private loans, at amortized cost | 183 | 853 | — | 1,036 | ||||||||||||||
| Real estate | 460 | 1,355 | 25 | 1(f) | 1,840 | |||||||||||||
| Real estate partnerships | 3,094 | 51 | — | 3,145 | ||||||||||||||
| Investment funds | 1,769 | 1,024 | 82 | 1(f) | 2,875 | |||||||||||||
| Policy loans | 395 | 1 | — | 396 | ||||||||||||||
| Short-term investments | 3,243 | 280 | (1,300 | ) | 1(g) | 2,223 | ||||||||||||
| Other invested assets | 161 | 508 | 1,133 | 1(f) | 1,802 | |||||||||||||
| Total investments | 30,328 | 43,398 | (921 | ) | 72,805 | |||||||||||||
| Cash and cash equivalents | 2,244 | 13,496 | (719 | ) | 1(a), (g) | 15,021 | ||||||||||||
| Accrued investment income | 239 | 431 | — | 670 | ||||||||||||||
| Deferred policy acquisition costs and deferred sales inducements | 616 | 5,626 | (5,626 | ) | 1(c) | 616 | ||||||||||||
| Premiums due and other receivables | 492 | — | — | 492 | ||||||||||||||
| Ceded unearned premiums | 213 | — | — | 213 | ||||||||||||||
| Deferred tax asset | 252 | 115 | (115 | ) | 1(d) | 252 | ||||||||||||
| Reinsurance recoverables and deposit assets | 422 | 15,144 | (160 | ) | 1(f) | 15,406 | ||||||||||||
| Property and equipment | 170 | 39 | 3 | 1(f) | 212 | |||||||||||||
| Goodwill, VOBA and intangible assets | 521 | 37 | 8,748 | 1(b) | 9,306 | |||||||||||||
| Other assets | 557 | 894 | (224 | ) | 1(f) | 1,227 | ||||||||||||
| Separate account assets | 1,285 | — | — | 1,285 | ||||||||||||||
| Total assets | $ | 37,339 | $ | 79,180 | $ | 986 | $ | 117,505 | ||||||||||
| Liabilities | ||||||||||||||||||
| Future policy benefits | 6,684 | 341 | (31 | ) | 1(f) | 6,994 | ||||||||||||
| Policyholders’ account balances | 17,588 | 60,821 | 652 | 1(f) | 79,061 | |||||||||||||
| Policy and contract claims | 1,854 | — | — | 1,854 | ||||||||||||||
| Market risk benefits | 55 | 3,123 | — | 3,178 | ||||||||||||||
| Unearned premium reserve | 1,147 | — | — | 1,147 | ||||||||||||||
| Other policy funds and contract claims | 339 | — | — | 339 | ||||||||||||||
| Notes payable | 185 | 784 | (16 | ) | 1(f) | 953 | ||||||||||||
| Subsidiary borrowings | 1,494 | 79 | 598 | 1(a), (e) | 2,171 | |||||||||||||
| Funds withheld for reinsurance liabilities | — | 8,812 | (211 | ) | 1(f) | 8,601 | ||||||||||||
| Other liabilities | 641 | 2,048 | 742 | 1(d), (f) | 3,431 | |||||||||||||
| Separate account liabilities | 1,285 | — | — | 1,285 | ||||||||||||||
| Total liabilities | $ | 31,272 | $ | 76,008 | $ | 1,734 | $ | 109,014 | ||||||||||
| Equity | ||||||||||||||||||
| Preferred stock | — | — | 685 | 1(a), (f) | 685 | |||||||||||||
| Additional paid-in capital | 5,185 | 1,073 | 726 | 1(a), (h) | 6,984 | |||||||||||||
| Accumulated other comprehensive income (loss) | (59 | ) | (3,190 | ) | 3,190 | 1(a) | (59 | ) | ||||||||||
| Retained earnings | 829 | 5,185 | (5,273 | ) | 1(a), (d) | 741 | ||||||||||||
| Non-controlling interests | 112 | 24 | 4 | 1(a), (f) | 140 | |||||||||||||
| Total equity | $ | 6,067 | $ | 3,092 | $ | (668 | ) | $ | 8,491 | |||||||||
| Total liabilities and equity | $ | 37,339 | $ | 79,100 | $ | 1,066 | $ | 117,505 | ||||||||||
See the accompanying notes to the pro forma financial statements.
2
UNAUDITED PRO FORMA STATEMENT OF OPERATING RESULTS
For the Three Months Ended March 31, 2024
American National Group Inc.
For the three months ended March 31, 2024 In USD, millions | American National (2) | AEL (3) | Transaction accounting adjustments (1) | Notes | Pro Forma ANGI | |||||||||||||
| Net premiums | $ | 1,145 | $ | — | $ | — | $ | 1,145 | ||||||||||
| Other policy revenue | 112 | 119 | — | 231 | ||||||||||||||
| Net investment income | 421 | 555 | (14 | ) | 1(i) | 962 | ||||||||||||
| Investment related gains (losses) | (8 | ) | (94 | ) | (2 | ) | 1(h) | (104 | ) | |||||||||
| Total revenues | 1,670 | 580 | (16 | ) | 2,234 | |||||||||||||
| Policyholder benefits and claims incurred | (1,086 | ) | (4 | ) | — | (1,090 | ) | |||||||||||
| Interest sensitive contract benefits | (154 | ) | (305 | ) | — | (459 | ) | |||||||||||
| Amortization of deferred policy acquisition costs, deferred sales inducements and value of business acquired | (161 | ) | (131 | ) | 23 | 1(c) | (269 | ) | ||||||||||
| Change in fair value of insurance-related derivatives and embedded derivatives | 19 | 248 | — | 267 | ||||||||||||||
| Change in fair value of market risk benefits | (19 | ) | 139 | — | 120 | |||||||||||||
| Operating expenses | (101 | ) | (78 | ) | (12 | ) | 1(b) | (191 | ) | |||||||||
| Interest expense | (25 | ) | (13 | ) | (10 | ) | 1(e) | (48 | ) | |||||||||
| Total benefits and expenses | (1,527 | ) | (144 | ) | 1 | (1,670 | ) | |||||||||||
| Net income (loss) before income taxes | 143 | 436 | (15 | ) | 564 | |||||||||||||
| Income tax recovery (expense) | (29 | ) | (93 | ) | 3 | 1(d) | (119 | ) | ||||||||||
| Net income (loss) for the period | $ | 114 | $ | 343 | $ | (12 | ) | $ | 445 | |||||||||
| Less: preferred stock dividends | — | 11 | — | 11 | ||||||||||||||
| Less: income attributable to non-controlling interests | 1 | — | — | 1 | ||||||||||||||
| Net income (loss) for the period attributable to ANGI | $ | 113 | $ | 332 | $ | (12 | ) | $ | 433 | |||||||||
See the accompanying notes to the pro forma financial statements.
3
UNAUDITED PRO FORMA STATEMENT OF OPERATING RESULTS
For the Year Ended December 31, 2023
American National Group Inc.
For the year ended December 31, 2023 In USD, millions | American National (2) | AEL (3) | Transaction accounting adjustments (1) | Notes | Pro Forma ANGI | |||||||||||||
| Net premiums | $ | 3,522 | $ | 12 | $ | — | $ | 3,534 | ||||||||||
| Other policy revenue | 414 | 391 | — | 805 | ||||||||||||||
| Net investment income | 1,696 | 2,273 | (54 | ) | 1(i) | 3,915 | ||||||||||||
| Investment related gains (losses) | (3 | ) | (99 | ) | (39 | ) | 1(h) | (141 | ) | |||||||||
| Total revenues | 5,629 | 2,577 | (93 | ) | 8,113 | |||||||||||||
| Policyholder benefits and claims incurred | (3,289 | ) | (18 | ) | — | (3,307 | ) | |||||||||||
| Interest sensitive contract benefits | (480 | ) | (567 | ) | — | (1,047 | ) | |||||||||||
| Amortization of deferred policy acquisition costs, deferred sales inducements and value of business acquired | (521 | ) | (472 | ) | 42 | 1(c) | (951 | ) | ||||||||||
| Change in fair value of insurance-related derivatives and embedded derivatives | (260 | ) | (885 | ) | — | (1,145 | ) | |||||||||||
| Change in fair value of market risk benefits | 69 | 15 | — | 84 | ||||||||||||||
| Operating expenses | (602 | ) | (302 | ) | (62 | ) | 1(b), (j) | (966 | ) | |||||||||
| Interest expense | (99 | ) | (51 | ) | (41 | ) | 1(e) | (191 | ) | |||||||||
| Total benefits and expenses | (5,182 | ) | (2,280 | ) | (61 | ) | (7,523 | ) | ||||||||||
| Net income (loss) before income taxes | 447 | 297 | (154 | ) | $ | 590 | ||||||||||||
| Income tax recovery (expense) | (50 | ) | (85 | ) | 33 | 1(d) | (102 | ) | ||||||||||
| Net income (loss) for the year | $ | 397 | $ | 212 | $ | (121 | ) | $ | 488 | |||||||||
| Less: preferred stock dividends | — | 44 | — | 44 | ||||||||||||||
| Less: income attributable to non-controlling interests | 5 | 1 | — | 6 | ||||||||||||||
| Net income (loss) for the year attributable to ANGI | $ | 392 | $ | 167 | $ | (121 | ) | $ | 438 | |||||||||
See the accompanying notes to the pro forma financial statements
4
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL STATEMENTS
| 1. | Transaction Accounting Adjustments |
The foregoing tables and these explanatory notes present the statement of financial position as of March 31, 2024 and the statement of operating results for the three months ended March 31, 2024 and for the year ended December 31, 2023, as adjusted to give effect to the Transaction.
On May 2, 2024, American National, acquired all of the issued and outstanding common stock of AEL that Brookfield Reinsurance did not already own. Each issued and outstanding share of AEL common stock not already owned by American National was converted into the right to receive at closing an aggregate consideration valued at $56.50 per share, comprised of cash and class A limited voting shares of BAM (“BAM Shares”). The acquisition of AEL has been accounted for by American National using the acquisition method under ASC 805 Business Combinations (“ASC 805”) where the acquired assets and assumed liabilities of AEL were remeasured to their acquisition-date fair value. Total consideration transferred under ASC 805 was approximately $5.3 billion, approximately of which $2.5 billion was transferred by American National in cash and approximately $1.2 billion was transferred by Brookfield Reinsurance directly in BAM Shares. American National funded its cash purchase consideration through a combination of existing corporate and AEL liquidity, as well as additional term loan financing. The remainder of the consideration transferred is comprised of fair value of American National’s pre-existing interest in AEL of $217 million, fair value of Brookfield Reinsurance’s pre-existing interest in AEL of $680 million which the Company acquired by issuing common stock as part of the Transaction, fair value of AEL’s preferred stock of $685 million, and fair value of AEL’s non-controlling interests of $28 million.
Shortly after the acquisition of AEL, on May 7, 2024, American National completed a downstream merger with AEL, with AEL being the surviving entity, which was renamed to ANGI and reincorporated as a Delaware corporation. AEL’s issued and outstanding preferred stock were unaffected by the Transaction and remain outstanding as ANGI’s preferred stock. The merger of American National and AEL has been accounted for as a common control transaction as if the parent, American National, acquired the shares of its subsidiary, AEL, similar to that of a reversed acquisition without a change in basis for the assets acquired and liabilities assumed. American National is therefore treated as the ongoing reporting entity from an accounting perspective even though AEL is the surviving legal entity. ANGI will continue applying ANAT’s accounting policies post-Transaction.
5
The following table summarizes, on a preliminary basis, the consideration transferred, the fair value of assets acquired and liabilities assumed of AEL at the acquisition date , as well as the resulting goodwill, value of business acquired (“VOBA”) and intangible assets not previously recognized:
| Fair value of consideration transferred | ||||
| Cash | $ | 2,526 | ||
| BAM Shares transferred by Brookfield Reinsurance | 1,118 | |||
| Fair value of preferred stock | 685 | |||
| Fair value of non-controlling interests | 28 | |||
| Fair value of Brookfield Reinsurance’s pre-existing interest in AEL | 680 | |||
| Fair value of the Company's pre-existing interest in AEL | 217 | |||
| Total | 5,254 | |||
| Cash and cash equivalents | 13,496 | |||
| Investments | 43,994 | |||
| Accrued investment income | 431 | |||
| Reinsurance recoverables and deposit assets | 14,984 | |||
| Property and equipment | 42 | |||
| Other assets | 670 | |||
| Future policy benefits | (310 | ) | ||
| Policyholders’ account balances | (61,473 | ) | ||
| Market risk benefits | (3,123 | ) | ||
| Notes payable | (768 | ) | ||
| Subsidiary borrowings | (83 | ) | ||
| Funds withheld for reinsurance liabilities | (8,601 | ) | ||
| Other liabilities | (2,790 | ) | ||
| Fair value of net identifiable assets acquired | (3,531 | ) | ||
| Goodwill, VOBA & intangibles | $ | 8,785 | ||
The above preliminary purchase price allocation has been used to prepare the transaction accounting adjustments in the Unaudited Condensed Consolidated Pro Forma Financial Statements, and is based on various assumptions, used to determine management’s best estimates of fair value. The final purchase price allocation will be determined when the Company has completed the detailed valuations and necessary calculations to the adjustments referred to in the explanatory notes below, which will be within twelve months of the acquisition date. Accordingly, the transaction accounting adjustments are preliminary and have been made solely for illustrative purposes.
Preliminary ASC 805 and other transaction accounting adjustments include:
| a. | As part of the purchase consideration for AEL, Brookfield Reinsurance transferred BAM Shares valued at approximately $1.1 billion. The fair value of the BAM Shares has been measured using the trading price on the NYSE on the acquisition date. American National, while acquiring 100% of AEL’s issued and outstanding common stock Brookfield Reinsurance did not already own, was not required to pay this portion of the purchase consideration. As such, the transaction accounting adjustments reflect the $1.1 billion billion in additional paid-in capital (“APIC”) as a parent contribution from Brookfield Reinsurance, in addition to $2.5 billion of cash transferred by American National and the removal of $217 million of American National’s interest in AEL prior to the Transaction which were accounted for as equity securities, the addition of $680 million to APIC reflecting the issuance of ANGI shares to Brookfield Reinsurance to acquire its pre-Transaction interest in AEL, as well as the elimination of AEL’s pre-transaction equity balances. The fair value of Brookfield Reinsurance's and American National’s interest in AEL prior to the Transaction has been measured using the trading price of AEL’s common stock on NYSE immediate before the acquisition date. AEL’s non-controlling interest and preferred stock (which are outstanding as the Company’s preferred stock after the Transaction) have been adjusted to reflect their acquisition date fair value. The fair value of the preferred stock has been measured using their trading prices on the NYSE on the acquisition date. |
6
| b. | Includes $8.8 billion related to the recognition of goodwill, Value Of Business Acquired (“VOBA”), as well as intangible assets which primarily include brand name and distribution channels, based on the preliminary purchase price outlined above. The preliminary allocation of the $8.8 billion to goodwill, VOBA and intangibles is estimated to be in the range of $300 million to $600 million, $5 billion to $9 billion and $500 million to $1 billion, respectively. $12 million and $48 million of amortization expense on the intangibles that arose from the acquisition is reflected within “Operating expenses” in the Unaudited Condensed Consolidated Pro Forma Statements of Operating Results, for the three months ended March 31, 2024 and for the year ended December 31, 2023, respectively, based on a weighted average useful life of 20 years. |
| c. | Eliminates the deferred policy acquisition and deferred sales inducement costs previously recognized by AEL which do not represent rights to future cash flows. Deferred policy acquisitions costs will be reset through the finalization of the purchase price allocation. This results in a decrease in amortization of deferred sales inducements and deferred policy acquisition costs of $131 million for the three months ended March 31, 2024 and $472 million for the year ended December 31, 2023. $108 million and $430 million of VOBA amortization have been included in the Unaudited Condensed Consolidated Pro Forma Statement of Operating Results for the three months ended March 31, 2024 and for the year ended December 31, 2023, respectively. VOBA is amortized over the expected remaining life of the underlying policies. |
| d. | Reflects $754 million of deferred tax liabilities that arise from the acquisition accounting adjustments, using a statutory tax rate of 21%. $115 million of the adjustment was made to AEL’s deferred tax assets to reduce it to zero. The Unaudited Condensed Consolidated Pro Forma Statement of Operating Results has been adjusted to reflect the deferred tax impact of the transaction accounting adjustments based on a statutory tax rate of 21%. |
| e. | Reflects an increase of $594 million in incremental term loan borrowings at AEL to fund the cash purchase consideration, as well as an increase of $4 million to adjust AEL’s existing debt to fair value. The Unaudited Condensed Consolidated Pro Forma Statement of Operating Results has been adjusted to reflect the resulted changes in interest expense based on the interest rate of the term loan. |
| f. | Reflects the acquisition accounting adjustments to measure assets acquired and liabilities assumed at their acquisition fair value in accordance with ASC 805. |
| g. | Reflects the sale of short-term investments by American National to fund the cash consideration transferred. |
| h. | Reflects the removal of the $217 million American National’s interest in AEL that was already owned prior to the Transaction. Correspondingly, the associated $40 million and $2 million of fair fair value gains or losses have been removed from “Investment related gains” on the Unaudited Condensed Consolidated Pro Forma Statement of Operating Results for the year ended December 31, 2023 and for the three months ended March 31, 2024, respectively. |
| i. | Reflects the resulted changes to interest income on the mortgage loan portfolio, which has been adjusted to its acquisition date fair value, as a result of acquisition accounting from its carrying amount at amortized cost. The changes to interest income has been computed using a weighted average interest rate for the mortgage loan portfolio. |
| j. | Reflects the estimated transaction costs incurred by American National related to the acquisition. These transaction costs are reflected in the Unaudited Condensed Consolidated Pro Forma Statement of Operating Results for the year ended December 31, 2023 and will not affect the Company’s operating results beyond 12 months after the acquisition date. |
7
2. Reclassification Adjustments to the Historical Financial Statements of American National
The following tables and explanatory notes present American National’s statement of financial position as of March 31, 2024, and the statement of operating results for the three months ended March 31, 2024 and for year ended December 31, 2023, as adjusted to conform the presentation to that of ANGI’s.
American National Group, LLC
Statement of Financial Position
As of March 31, 2024 In USD, millions | American National (Historical) | Reclassification to conform presentation | Notes | American National, Conformed | ||||||||||
| Assets | ||||||||||||||
| Available-for-sale fixed maturity securities, at fair value | $ | 14,198 | $ | (183 | ) | 2(f) | $ | 14,015 | ||||||
| Equity securities, at fair value | 1,426 | — | 1,426 | |||||||||||
| Mortgage loans on real estate, at amortized cost | 5,582 | — | 5,582 | |||||||||||
| Private loans, at amortized cost | — | 183 | 2(f) | 183 | ||||||||||
| Real estate and real estate partnerships | 3,554 | (3,554 | ) | 2(f) | — | |||||||||
| Real estate | — | 460 | 2(f) | 460 | ||||||||||
| Real estate partnerships | — | 3,094 | 2(f) | 3,094 | ||||||||||
| Investment funds | 1,769 | — | 1,769 | |||||||||||
| Policy loans | 395 | — | 395 | |||||||||||
| Short-term investments | 3,243 | — | 3,243 | |||||||||||
| Other invested assets | 161 | — | 161 | |||||||||||
| Total investments | 30,328 | — | 30,328 | |||||||||||
| Cash and cash equivalents | 2,244 | — | 2,244 | |||||||||||
| Accrued investment income | 239 | — | 239 | |||||||||||
| Market risk benefit | 25 | (25 | ) | 2(a) | — | |||||||||
| Deferred policy acquisition costs | 972 | (972 | ) | 2(e) | — | |||||||||
| Deferred policy acquisition costs and deferred sales inducements | — | 616 | 2(e) | 616 | ||||||||||
| Premiums due and other receivables | 492 | — | 492 | |||||||||||
| Ceded unearned premiums | — | 213 | 2(f) | 213 | ||||||||||
| Prepaid reinsurance premiums | 213 | (213 | ) | 2(f) | — | |||||||||
| Deferred tax asset | 252 | — | 252 | |||||||||||
| Reinsurance recoverables and deposit assets | 422 | — | 422 | |||||||||||
| Property and equipment | 170 | — | 170 | |||||||||||
| Goodwill | 121 | (121 | ) | 2(e) | — | |||||||||
| Current tax receivable | 101 | (101 | ) | 2(a) | — | |||||||||
| Prepaid pension | 254 | (254 | ) | 2(a) | — | |||||||||
| Goodwill, VOBA and intangible assets | — | 521 | 2(a),(e),(f) | 521 | ||||||||||
| Other assets | 221 | 336 | 2(a), (f) | 557 | ||||||||||
| Separate account assets | 1,285 | — | 1,285 | |||||||||||
| Total assets | $ | 37,339 | $ | — | $ | 37,339 | ||||||||
| Liabilities | ||||||||||||||
| Future policy benefits | 6,684 | — | 6,684 | |||||||||||
| Policyholders’ account balances | 17,588 | — | 17,588 | |||||||||||
| Policy and contract claims | 1,854 | — | 1,854 | |||||||||||
| Market risk benefits | 55 | — | 55 | |||||||||||
| Unearned premium reserve | 1,147 | — | 1,147 | |||||||||||
| Other policyholder funds | 339 | — | 339 | |||||||||||
| Notes payable | 185 | — | 185 | |||||||||||
| Liability for retirement benefits | 18 | (18 | ) | 2(f) | — | |||||||||
| Long-term debt | 1,494 | (1,494 | ) | 2(f) | — | |||||||||
| Subsidiary borrowings | — | 1,494 | 2(f) | 1,494 | ||||||||||
| Other liabilities | 623 | 18 | 2(f) | 641 | ||||||||||
| Separate account liabilities | 1,285 | — | 1,285 | |||||||||||
| Total liabilities | $ | 31,272 | $ | — | $ | 31,272 | ||||||||
| Equity | ||||||||||||||
| American National’s equity | ||||||||||||||
| Additional paid-in capital | 5,185 | — | 5,185 | |||||||||||
| Accumulated other comprehensive loss | (59 | ) | — | (59 | ) | |||||||||
| Retained earnings | 829 | — | 829 | |||||||||||
| Total American National’s equity | 5,955 | — | 5,955 | |||||||||||
| Non-controlling interests | 112 | — | 112 | |||||||||||
| Total equity | $ | 6,067 | $ | — | $ | 6,067 | ||||||||
| Total liabilities and equity | $ | 37,339 | $ | — | $ | 37,339 | ||||||||
8
American National Group, LLC
Statement of Operating Results
For the three months ended March 31, 2024 In USD, millions | American National (Historical) | Reclassification to conform presentation | Notes | American National, Conformed | ||||||||||
| Net premiums | $ | 1,145 | $ | — | $ | 1,145 | ||||||||
| Other policy revenue | 112 | — | 112 | |||||||||||
| Net investment income | 470 | (49 | ) | 2(b), (f) | 421 | |||||||||
| Net realized investment gains | 2 | (2 | ) | 2(f) | — | |||||||||
| Investment related gains (losses) | — | (8 | ) | 2(f) | (8 | ) | ||||||||
| (Increase) decrease in investment credit loss | 1 | (1 | ) | 2(f) | — | |||||||||
| Net gains (losses) on equity securities | (11 | ) | 11 | 2(f) | — | |||||||||
| Other income | 8 | (8 | ) | 2(f) | — | |||||||||
| Total revenues | 1,727 | (57 | ) | 1,670 | ||||||||||
| Policyholder benefits and claims incurred | (1,084 | ) | (2 | ) | 2(f) | (1,086 | ) | |||||||
| Future policy benefit remeasurement losses | (2 | ) | 2 | 2(f) | — | |||||||||
| Interest credited to policyholders' account balances | (192 | ) | 192 | 2(f) | — | |||||||||
| Interest sensitive contract benefits | — | (154 | ) | 2(b), (f) | (154 | ) | ||||||||
| Change in deferred policy acquisition costs | 27 | (27 | ) | 2(e) | — | |||||||||
| Amortization of deferred policy acquisition costs, deferred sales inducements and value of business acquired | — | (161 | ) | 2(c), (e) | (161 | ) | ||||||||
| Change in fair value of insurance-related derivatives and embedded derivatives | — | 19 | 2(b) | 19 | ||||||||||
| Change in fair value of market risk benefits | (19 | ) | — | (19 | ) | |||||||||
| Commissions for acquiring and servicing policies | (130 | ) | 130 | 2(d) | — | |||||||||
| Other operating expenses | (187 | ) | 187 | 2(f) | — | |||||||||
| Operating expenses | — | (101 | ) | 2(c),(d),(f) | (101 | ) | ||||||||
| Interest expense | — | (25 | ) | 2(f) | (25 | ) | ||||||||
| Total benefits and expenses | (1,587 | ) | 60 | (1,527 | ) | |||||||||
| Income before federal income tax and other items | 140 | 3 | 143 | |||||||||||
| Less: federal income tax | (29 | ) | — | (29 | ) | |||||||||
| Income after tax | 111 | 3 | 114 | |||||||||||
| Other components of net periodic pension benefit (costs), net of tax | 3 | (3 | ) | 2(f) | — | |||||||||
| Net income | $ | 114 | $ | — | $ | 114 | ||||||||
| Less: income attributable to non-controlling interests | 1 | — | 1 | |||||||||||
| Net income for the period attributable to controlling interest | $ | 113 | $ | — | $ | 113 | ||||||||
9
For the year ended December 31, 2023 In USD, millions | American National (Historical) | Reclassification to conform presentation | Notes | American National, Conformed | ||||||||||
| Net premiums | $ | 3,522 | $ | — | $ | 3,522 | ||||||||
| Other policy revenue | 414 | — | 414 | |||||||||||
| Net investment income | 1,501 | 195 | 2(b), (f) | 1,696 | ||||||||||
| Net realized investment gains (loss) | (73 | ) | 73 | 2(f) | — | |||||||||
| Investment related gains (losses) | — | (3 | ) | 2(f) | (3 | ) | ||||||||
| (Increase) decrease in investment credit loss | (27 | ) | 27 | 2(f) | — | |||||||||
| Net gains on equity securities | 97 | (97 | ) | 2(f) | — | |||||||||
| Other income | 83 | (83 | ) | 2(f) | — | |||||||||
| Total revenues | 5,517 | 112 | 5,629 | |||||||||||
| Policyholder benefits and claims incurred | (3,261 | ) | (28 | ) | 2(f) | (3,289 | ) | |||||||
| Future policy benefit remeasurement losses | (28 | ) | 28 | 2(f) | — | |||||||||
| Interest credited to policyholders' account balances | (628 | ) | 628 | 2(f) | — | |||||||||
| Interest sensitive contract benefits | — | (480 | ) | 2(b), (f) | (480 | ) | ||||||||
| Change in deferred policy acquisition costs | 249 | (249 | ) | 2(e) | — | |||||||||
| Amortization of deferred policy acquisition costs, deferred sales inducements and value of business acquired | — | (521 | ) | 2(c), (e) | (521 | ) | ||||||||
| Change in fair value of insurance-related derivatives and embedded derivatives | — | (260 | ) | 2(b) | (260 | ) | ||||||||
| Change in fair value of market risk benefits | 69 | — | 69 | |||||||||||
| Commissions for acquiring and servicing policies | (743 | ) | 743 | 2(d) | — | |||||||||
| Other operating expenses | (739 | ) | 739 | 2(f) | — | |||||||||
| Operating expenses | — | (602 | ) | 2(c),(d),(f) | (602 | ) | ||||||||
| Interest expense | — | (99 | ) | 2(f) | (99 | ) | ||||||||
| Total benefits and expenses | (5,081 | ) | (101 | ) | (5,182 | ) | ||||||||
| Income before federal income tax and other items | 436 | 11 | 447 | |||||||||||
| Less: federal income tax | (47 | ) | (3 | ) | 2(f) | (50 | ) | |||||||
| Income after tax | 389 | 8 | 397 | |||||||||||
| Other components of net periodic pension benefit, net of tax | 8 | (8 | ) | 2(f) | — | |||||||||
| Net income | $ | 397 | $ | — | $ | 397 | ||||||||
| Less: income attributable to non-controlling interests | 5 | — | 5 | |||||||||||
| Net income for the period attributable to controlling interest | $ | 392 | $ | — | $ | 392 | ||||||||
10
The historical financial statements of American National were prepared in accordance with U.S. GAAP. The following reclassification adjustments have been made to conform the presentation of the historical financial statements of American National to the presentation of ANGI’s financial statements:
| a. | “Other assets” is adjusted to include market risk benefits asset, current tax receivable, and prepaid pension. Intangible assets have been presented in “Goodwill, VOBA and intangible assets”; |
| b. | Mark-to-market gains on equity-indexed call options and embedded derivatives within Policyholders’ Account Balances are reclassified from “Net investment income” and “Interest sensitive contract benefits”, respectively, to “Change in fair value of insurance-related derivatives and embedded derivatives”; |
| c. | Capitalization of deferred policy acquisition costs, deferred sales inducements and value of business acquired has been reclassified to “Operating expenses”. “Amortization of deferred policy acquisition costs, deferred sales inducements and value of business acquired” will only include the amortization expense; |
| d. | “Commissions for acquiring and servicing policies” is reclassified to “Operating expenses”; and |
| e. | Deferred policy acquisition costs and VOBA are reclassified from “Deferred policy acquisition costs” to “Deferred policy acquisition costs and deferred sales inducements” and “Goodwill, VOBA and intangible assets”, respectively. Capitalizations of deferred policy acquisition costs are reclassified from “Change in deferred policy acquisition costs” to “Operating expenses”. Amortization of deferred policy acquisition costs is reclassified from “Change in deferred policy acquisition costs” to “Amortization of deferred policy acquisition costs, deferred sales inducements and value of business acquired”. |
| f. | Other reclassifications. |
11
3. Reclassification Adjustments to the Historical Financial Statements of AEL
The following tables and explanatory notes present AEL’s statement of financial position as of March 31, 2024, and AEL’s statement of operating results for the three months ended March 31, 2024 and for the year ended December 31, 2023, as adjusted to conform the presentation to that of ANGI’s.
American Equity Investment Life Holding Company
Statement of Financial Position
As of March 31, 2024 In USD, millions | AEL (Historical) | Reclassification to conform presentation | Notes | AEL, Conformed | ||||||||||
| Assets | ||||||||||||||
| Available-for-sale fixed maturity securities, at fair value | $ | 32,044 | $ | — | $ | 32,044 | ||||||||
| Mortgage loans on real estate, at amortized cost | 7,282 | — | 7,282 | |||||||||||
| Private loans, at amortized cost | — | 853 | 3(a) | 853 | ||||||||||
| Real estate and real estate partnerships | 1,364 | (1,364 | ) | 3(i) | — | |||||||||
| Real estate | — | 1,355 | 3(i) | 1,355 | ||||||||||
| Real estate partnerships | — | 51 | 3(b) | 51 | ||||||||||
| Limited partnerships and limited liability companies | 1,066 | (1,066 | ) | 3(b) | — | |||||||||
| Investment funds | — | 1,024 | 3(b) | 1,024 | ||||||||||
| Policy loans | — | 1 | 3(a) | 1 | ||||||||||
| Short-term investments | — | 280 | 3(a) | 280 | ||||||||||
| Derivative assets | 1,617 | (1,617 | ) | 3(a) | — | |||||||||
| Other invested assets | 1,625 | (1,117 | ) | 3(a) | 508 | |||||||||
| Total investments | 44,998 | (1,600 | ) | 43,398 | ||||||||||
| Cash and cash equivalents | 13,496 | — | 13,496 | |||||||||||
| Coinsurance deposits | 14,744 | (14,744 | ) | 3(c) | — | |||||||||
| Market risk benefits | 525 | (525 | ) | 3(d) | — | |||||||||
| Accrued investment income | 431 | — | 431 | |||||||||||
| Deferred policy acquisition costs | 3,185 | (3,185 | ) | 3(e) | — | |||||||||
| Deferred sales inducements | 2,441 | (2,441 | ) | 3(e) | — | |||||||||
| Deferred policy acquisition costs and deferred sales inducements | — | 5,626 | 3(e) | 5,626 | ||||||||||
| Deferred income taxes | 115 | (115 | ) | 3(i) | — | |||||||||
| Deferred tax asset | — | 115 | 3(i) | 115 | ||||||||||
| Reinsurance recoverables and deposit assets | — | 15,144 | 3(c), (d) | 15,144 | ||||||||||
| Property and equipment | — | 39 | 3(d) | 39 | ||||||||||
| Goodwill, VOBA and intangible assets | — | 37 | 3(d) | 37 | ||||||||||
| Income taxes recoverable | 24 | (24 | ) | 3(d) | — | |||||||||
| Other assets | 821 | 73 | 3(d) | 894 | ||||||||||
| Total assets | $ | 80,780 | $ | (1,600 | ) | $ | 79,180 | |||||||
| Liabilities | ||||||||||||||
| Policy benefits reserves | 60,980 | (60,980 | ) | 3(f) | — | |||||||||
| Future policy benefits | — | 341 | 3(f) | 341 | ||||||||||
| Policyholders’ account balances | — | 60,821 | 3(f) | 60,821 | ||||||||||
| Market risk benefits | 3,123 | — | 3,123 | |||||||||||
| Other policy funds and contract claims | 182 | (182 | ) | 3(f) | — | |||||||||
| Notes and loan payable | 784 | (784 | ) | 3(i) | — | |||||||||
| Notes payable | — | 784 | 3(i) | 784 | ||||||||||
| Subordinated debentures | 79 | (79 | ) | 3(i) | — | |||||||||
| Subsidiary borrowings | — | 79 | 3(i) | 79 | ||||||||||
| Funds withheld for reinsurance liabilities | 8,812 | — | 8,812 | |||||||||||
| Other liabilities | 3,648 | (1,600 | ) | 3(a) | 2,048 | |||||||||
| Total liabilities | $ | 77,608 | $ | (1,600 | ) | $ | 76,008 | |||||||
| Equity | ||||||||||||||
| Preferred stock | — | — | — | |||||||||||
| Common stock | 80 | 80 | ||||||||||||
| Additional paid-in capital | 1,073 | 1,073 | ||||||||||||
| Accumulated other comprehensive income (loss) | (3,190 | ) | — | (3,190 | ) | |||||||||
| Retained earnings | 5,185 | — | 5,185 | |||||||||||
| Non-controlling interests | 24 | — | 24 | |||||||||||
| Total equity | $ | 3,172 | $ | — | $ | 3,172 | ||||||||
| Total liabilities and equity | $ | 80,780 | $ | (1,600 | ) | $ | 79,180 | |||||||
12
American Equity Investment Life Holding Company
Statement of Operating Results
For the three months ended March 31, 2024 In USD, millions | AEL (Historical) | Reclassification to conform presentation | Notes | Subtotal | ||||||||||
| Annuity product charges | 96 | (96 | ) | 3(i) | — | |||||||||
| Other policy revenue | — | 119 | 3(i) | 119 | ||||||||||
| Net investment income | 555 | — | 555 | |||||||||||
| Change in fair value of derivatives | 410 | (410 | ) | 3(g) | — | |||||||||
| Net realized losses on investments | (94 | ) | 94 | 3(i) | — | |||||||||
| Investment related gains (losses) | — | (94 | ) | 3(i) | (94 | ) | ||||||||
| Other revenue | 23 | (23 | ) | 3(i) | — | |||||||||
| Total revenues | 990 | (410 | ) | 580 | ||||||||||
| Insurance policy benefits and change in future policy benefits | (4 | ) | 4 | 3(i) | — | |||||||||
| Policyholder benefits and claims incurred | — | (4 | ) | 3(i) | (4 | ) | ||||||||
| Interest sensitive and index product benefits | (305 | ) | 305 | 3(i) | — | |||||||||
| Interest sensitive contract benefits | — | (305 | ) | 3(i) | (305 | ) | ||||||||
| Amortization of deferred sales inducements | (54 | ) | 54 | 3(h) | — | |||||||||
| Amortization of deferred policy acquisition costs | (77 | ) | 77 | 3(h) | — | |||||||||
| Amortization of deferred policy acquisition costs, deferred sales inducements and value of business acquired | — | (131 | ) | 3(h) | (131 | ) | ||||||||
| Change in fair value of embedded derivatives | (162 | ) | 162 | 3(g) | — | |||||||||
| Change in fair value of insurance-related derivatives and embedded derivatives | — | 248 | 3(g) | 248 | ||||||||||
| Market risk benefits gains (losses) | 139 | (139 | ) | 3(i) | — | |||||||||
| Change in fair value of market risk benefits | — | 139 | 3(i) | 139 | ||||||||||
| Other operating costs and expenses | (78 | ) | 78 | 3(i) | — | |||||||||
| Operating expenses | — | (78 | ) | 3(i) | (78 | ) | ||||||||
| Interest expense on notes and loan payable | (12 | ) | 12 | 3(i) | — | |||||||||
| Interest expense on subordinated debentures | (1 | ) | 1 | 3(i) | — | |||||||||
| Interest expense | — | (13 | ) | 3(i) | (13 | ) | ||||||||
| Total benefits and expenses | (554 | ) | 410 | (144 | ) | |||||||||
| Net income (loss) before income taxes | 436 | — | 436 | |||||||||||
| Income tax recovery (expense) | (93 | ) | — | (93 | ) | |||||||||
| Net income (loss) for the period | $ | 343 | $ | — | $ | 343 | ||||||||
| Less: preferred stock dividends | 11 | — | 11 | |||||||||||
| Net income (loss) for the period attributable to controlling interest | $ | 332 | $ | — | $ | 332 | ||||||||
13
For the year ended December 31, 2023 In USD, millions | AEL (Historical) | Reclassification to conform presentation | Notes | AEL, Conformed | ||||||||||
| Premiums and other considerations | $ | 12 | $ | (12 | ) | 3(i) | $ | — | ||||||
| Net premiums | — | 12 | 3(i) | 12 | ||||||||||
| Annuity product charges | 315 | (315 | ) | 3(i) | — | |||||||||
| Other policy revenue | — | 391 | 3(i) | 391 | ||||||||||
| Net investment income | 2,273 | — | 2,273 | |||||||||||
| Change in fair value of derivatives | 259 | (259 | ) | 3(g) | — | |||||||||
| Net realized losses on investments | (99 | ) | 99 | 3(i) | — | |||||||||
| Investment related gains (losses) | — | (99 | ) | 3(i) | (99 | ) | ||||||||
| Other revenue | 76 | (76 | ) | 3(i) | — | |||||||||
| Total revenues | 2,836 | (259 | ) | 2,577 | ||||||||||
| Insurance policy benefits and change in future policy benefits | (18 | ) | 18 | 3(i) | — | |||||||||
| Policyholder benefits and claims incurred | — | (18 | ) | 3(i) | (18 | ) | ||||||||
| Interest sensitive and index product benefits | (567 | ) | 567 | 3(i) | — | |||||||||
| Interest sensitive contract benefits | — | (567 | ) | 3(i) | (567 | ) | ||||||||
| Amortization of deferred sales inducements | (192 | ) | 192 | 3(h) | — | |||||||||
| Amortization of deferred policy acquisition costs | (280 | ) | 280 | 3(h) | — | |||||||||
| Amortization of deferred policy acquisition costs, deferred sales inducements and value of business acquired | — | (472 | ) | 3(h) | (472 | ) | ||||||||
| Change in fair value of embedded derivatives | (1,144 | ) | 1,144 | 3(g) | — | |||||||||
| Change in fair value of insurance-related derivatives and embedded derivatives | — | (885 | ) | 3(g) | (885 | ) | ||||||||
| Market risk benefits gains (losses) | 15 | (15 | ) | 3(i) | — | |||||||||
| Change in fair value of market risk benefits | — | 15 | 3(i) | 15 | ||||||||||
| Other operating costs and expenses | (302 | ) | 302 | 3(i) | — | |||||||||
| Operating expenses | — | (302 | ) | 3(i) | (302 | ) | ||||||||
| Interest expense on notes and loan payable | (46 | ) | 46 | 3(i) | — | |||||||||
| Interest expense on subordinated debentures | (5 | ) | 5 | 3(i) | — | |||||||||
| Interest expense | — | (51 | ) | 3(i) | (51 | ) | ||||||||
| Total benefits and expenses | (2,539 | ) | 259 | (2,280 | ) | |||||||||
| Net income (loss) before income taxes | 297 | — | 297 | |||||||||||
| Income tax recovery (expense) | (85 | ) | — | (85 | ) | |||||||||
| Net income (loss) for the year | $ | 212 | $ | — | $ | 212 | ||||||||
| Less: preferred stock dividends | 44 | — | 44 | |||||||||||
| Less: income attributable to non-controlling interests | 1 | — | 1 | |||||||||||
| Net income (loss) for the year attributable to controlling interest | $ | 167 | $ | — | $ | 167 | ||||||||
14
The historical financial statements of AEL were prepared in accordance with U.S. GAAP. Management has reviewed and determined that there are no material differences in accounting policies applied by AEL and ANAT. The following adjustments have been made to conform the presentation of the historical financial statements of AEL to that of ANGI:
| a. | “Other invested assets” has been adjusted to include derivative assets. Balances related to “Short-term investments”, “Private loans” and “Policy loans” have been presented as separate line items. Cash collateral on derivative assets has been reclassed out of “Other liabilities” to net off against derivative assets within “Other invested assets”, to align with Brookfield Reinsurance’s balance sheet presentation policy; |
| b. | “Limited partnerships and limited liability companies” is reclassified to “Investment funds” and “Real estate partnerships”; |
| c. | Coinsurance deposits have been reclassified to “Reinsurance recoverables and deposit assets”; |
| d. | “Other assets” has been adjusted to include market risk benefits assets and income taxes recoverable. “Property and equipment” has been presented as a separate line item. The balance related to “Amounts recoverable from reinsurers” is reclassified from “Other assets” to “Reinsurance recoverables and deposit assets”; |
| e. | Deferred policy acquisition costs and deferred sales inducements have been presented as a single line item “Deferred policy acquisition costs and deferred sales inducements”; |
| f. | “Policy benefit reserves” has been bifurcated into “Future policy benefits” and “Policyholders’ account balances”. “Other policy funds and contract claims” has been reclassified to “Policyholders’ account balances”; |
| g. | “Change in fair value of derivatives” and “Change in fair value of embedded derivatives” have been included in “Change in fair value of insurance-related derivatives and embedded derivatives”; |
| h. | Amortization expense of deferred policy acquisition costs and deferred sales inducements have been included in “Amortization of deferred policy acquisition costs, deferred sales inducements and value of business acquired”; and |
| i. | Other reclassifications. |
15
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