XNAS:ANAT American National Insurance Company Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the quarterly period ended June 30, 2012

or

 

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

Commission File No. 001- 34280

 

LOGO

 

 

American National Insurance Company

(Exact name of registrant as specified in its charter)

 

 

 

Texas   74-0484030

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

One Moody Plaza

Galveston, Texas 77550-7999

(Address of principal executive offices) (Zip Code)

(409) 763-4661

(Registrant’s telephone number, including area code)

 

 

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).      x  Yes    ¨  No

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

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer      Smaller reporting company   ¨

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

As of July 31, 2012, there were 26,836,664 shares of the registrant’s voting common stock, $1.00 par value per share, outstanding.

 

 

 


Table of Contents

AMERICAN NATIONAL INSURANCE COMPANY

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION   

ITEM 1. FINANCIAL STATEMENTS (Unaudited):

  

Consolidated Statements of Financial Position as of June 30, 2012 and December 31, 2011

     3   

Consolidated Statements of Operations for the three and six months ended June 30, 2012 and 2011

     4   

Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2012 and 2011

     5   

Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2012 and 2011

     5   

Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011

     6   

Notes to the Unaudited Consolidated Financial Statements

     7   

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

     36   

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     57   

ITEM 4. CONTROLS AND PROCEDURES

     57   
PART II – OTHER INFORMATION   

ITEM 1. LEGAL PROCEEDINGS

     58   

ITEM 1A. RISK FACTORS

     58   

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

     58   

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     58   

ITEM 4. MINE SAFETY DISCLOSURES

     58   

ITEM 5. OTHER INFORMATION

     58   

ITEM 6. EXHIBIT INDEX

     59   

 

2


Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AMERICAN NATIONAL INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

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

 

     June 30,     December 31,  
     2012     2011  
           (As Adjusted)  

ASSETS

    

Fixed maturity, bonds held-to-maturity, at amortized cost

    

        (Fair Value $9,903,566 and $9,857,691)

   $ 9,167,922      $ 9,251,972   

Fixed maturity, bonds available-for-sale, at fair value

    

        (Amortized cost $4,199,573 and $4,135,610)

     4,502,696        4,381,607   

Equity securities, at fair value

    

        (Cost $700,376 and $710,679)

     1,057,182        1,006,080   

Mortgage loans on real estate, net of allowance

     3,060,898        2,925,482   

Policy loans

     392,822        393,195   

Investment real estate, net of accumulated

    

        depreciation of $213,650 and $202,180

     490,305        470,222   

Short-term investments

     341,198        345,330   

Other invested assets

     120,141        109,514   
  

 

 

   

 

 

 

Total investments

     19,133,164        18,883,402   
  

 

 

   

 

 

 

Cash and cash equivalents

     150,746        102,114   

Investments in unconsolidated affiliates

     234,050        241,625   

Accrued investment income

     211,296        213,984   

Reinsurance recoverables

     388,808        405,033   

Prepaid reinsurance premiums

     64,730        68,785   

Premiums due and other receivables

     306,068        280,031   

Deferred policy acquisition costs

     1,293,295        1,320,693   

Property and equipment, net

     82,660        77,909   

Current tax receivable

     2,712        17,150   

Other assets

     137,161        131,403   

Separate account assets

     776,266        747,867   
  

 

 

   

 

 

 

Total assets

   $ 22,780,956      $ 22,489,996   
  

 

 

   

 

 

 

LIABILITIES

    

Future policy benefits:

    

Life

   $ 2,627,688      $ 2,599,224   

Annuity

     786,892        748,675   

Accident and health

     72,175        74,829   

Policyholders’ account balances

     11,577,734        11,506,504   

Policy and contract claims

     1,358,332        1,340,651   

Unearned premium reserve

     816,624        797,398   

Other policyholder funds

     280,756        288,910   

Liability for retirement benefits

     251,635        257,602   

Current portion of long-term notes payable

     47,707        46,387   

Long-term notes payable

     12,500        12,507   

Deferred tax liabilities, net

     49,426        21,851   

Other liabilities

     375,509        397,353   

Separate account liabilities

     776,266        747,867   
  

 

 

   

 

 

 

Total liabilities

     19,033,244        18,839,758   
  

 

 

   

 

 

 

STOCKHOLDERS’ EQUITY

    

Common stock, $1.00 par value, - Authorized 50,000,000

    

Issued 30,832,449 and 30,832,449,

    

Outstanding 26,836,591 and 26,821,284 shares

     30,832        30,832   

Additional paid-in capital

     7,914        —     

Accumulated other comprehensive income

     224,263        159,403   

Retained earnings

     3,569,937        3,545,546   

Treasury stock, at cost

     (98,287     (98,490
  

 

 

   

 

 

 

Total American National stockholders’ equity

     3,734,659        3,637,291   

Noncontrolling interest

     13,053        12,947   
  

 

 

   

 

 

 

Total stockholders’ equity

     3,747,712        3,650,238   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 22,780,956      $ 22,489,996   
  

 

 

   

 

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

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Table of Contents

AMERICAN NATIONAL INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

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

 

     Three months ended June 30,     Six months ended June 30,  
     2012     2011     2012     2011  
           (As Adjusted)           (As Adjusted)  

PREMIUMS AND OTHER REVENUE

    

Premiums

        

Life

   $ 70,699      $ 69,474      $ 137,150      $ 135,860   

Annuity

     34,723        32,110        63,135        51,600   

Accident and health

     54,712        58,384        111,766        117,028   

Property and casualty

     268,431        275,848        541,600        567,162   

Other policy revenues

     49,016        46,379        97,063        95,510   

Net investment income

     240,563        250,172        496,259        489,244   

Realized investments gains (losses)

     10,139        22,926        19,947        44,957   

Other-than-temporary impairments

     (5,261     —          (8,098     —     

Other income

     7,940        6,487        14,815        12,292   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total premiums and other revenues

     730,962        761,780        1,473,637        1,513,653   
  

 

 

   

 

 

   

 

 

   

 

 

 

BENEFITS, LOSSES AND EXPENSES

        

Policyholder Benefits

        

Life

     76,799        79,854        160,622        156,541   

Annuity

     43,722        42,837        82,967        72,810   

Claims incurred

        

Accident and health

     36,475        39,466        81,150        81,073   

Property and casualty

     244,966        254,431        432,518        469,942   

Interest credited to policyholders’ account balances

     91,019        99,139        215,883        205,530   

Commissions for acquiring and servicing policies

     95,528        118,766        191,042        228,401   

Other operating expenses

     120,151        113,111        222,144        235,372   

Change in deferred policy acquisition costs

     3,662        (22,701     5,300        (34,158
  

 

 

   

 

 

   

 

 

   

 

 

 

Total benefits, losses and expenses

     712,322        724,903        1,391,626        1,415,511   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before federal income tax and equity in earnings/losses of unconsolidated affiliates

     18,640        36,877        82,011        98,142   
  

 

 

   

 

 

   

 

 

   

 

 

 

Less: Provision (benefit) for federal income taxes

        

Current

     16,197        13,199        23,484        27,517   

Deferred

     (18,581     (8,807     (8,885     (6,740
  

 

 

   

 

 

   

 

 

   

 

 

 

Total provision (benefit) for federal income taxes

     (2,384     4,392        14,599        20,777   

Equity in earnings (losses) of unconsolidated affiliates, net of tax

     314        (2,099     (1,567     (238
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     21,338        30,386        65,845        77,127   

Less: Net income (loss) attributable to noncontrolling interest, net of tax

     832        1,146        123        359   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to American National Insurance Company and Subsidiaries

   $ 20,506      $ 29,240      $ 65,722      $ 76,768   
  

 

 

   

 

 

   

 

 

   

 

 

 

Amounts available to American National Insurance Company common stockholders

        

Earnings per share:

        

Basic

   $ 0.77      $ 1.10      $ 2.46      $ 2.89   

Diluted

     0.76        1.09        2.45        2.88   

Weighted average common shares outstanding

     26,685,128        26,559,950        26,675,405        26,559,821   

Weighted average common shares outstanding and dilutive potential common shares

     26,854,595        26,706,145        26,848,258        26,701,024   

See accompanying notes to the unaudited consolidated financial statements.

 

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Table of Contents

AMERICAN NATIONAL INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited and in thousands)

 

     Three months ended June 30,     Six months ended June 30,  
     2012     2011     2012      2011  
           (As Adjusted)            (As Adjusted)  

Net income (loss)

   $ 21,338      $ 30,386      $ 65,845       $ 77,127   
  

 

 

   

 

 

   

 

 

    

 

 

 

Other comprehensive income (loss), net of tax

         

Change in net unrealized gain (loss) on securities

     (16,794     13,837        59,737         39,714   

Foreign currency transaction and translation adjustments

     178        34        330         193   

Defined benefit plan adjustment

     2,125        (123     4,793         (188
  

 

 

   

 

 

   

 

 

    

 

 

 

Other comprehensive income (loss)

     (14,491     13,748        64,860         39,719   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total comprehensive income (loss)

     6,847        44,134        130,705         116,846   

Less: comprehensive income attributable to noncontrolling interest

     832        1,146        123         359   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total comprehensive income (loss) attributable to American

         

National Insurance Company and Subsidiaries

   $ 6,015      $ 42,988      $ 130,582       $ 116,487   
  

 

 

   

 

 

   

 

 

    

 

 

 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

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

     Six months ended June 30,  
     2012     2011  
           (As Adjusted)  

Common Stock

    

Balance at beginning and end of the period

   $ 30,832      $ 30,832   
  

 

 

   

 

 

 

Additional Paid-In Capital

    

Balance as of January 1,

     —          15,190   

Issuance of treasury shares as restricted stock

     (203     (4

Income tax effect from restricted stock arrangement

     (534     (14

Amortization of restricted stock

     8,651        2,146   
  

 

 

   

 

 

 

Balance at end of period

     7,914        17,318   
  

 

 

   

 

 

 

Accumulated Other Comprehensive Income (Loss)

    

Balance as of January 1,

     159,403        225,212   

Other comprehensive income (loss)

     64,860        39,719   

Cumulative effect of accounting change - deferred policy acquisition costs

     —          604   
  

 

 

   

 

 

 

Balance at end of the period

     224,263        265,535   
  

 

 

   

 

 

 

Retained Earnings

    

Balance as of January 1,

     3,545,546        3,459,911   

Net income (loss) attributable to American National

    

Insurance Company and Subsidiaries

     65,722        76,768   

Cash dividends to common stockholders ($1.54 per share)

     (41,331     (41,304

Cumulative effect of accounting change - deferred policy acquisition costs

     —          (19,195
  

 

 

   

 

 

 

Balance at end of the period

     3,569,937        3,476,180   
  

 

 

   

 

 

 

Treasury Stock

    

Balance as of January 1,

     (98,490     (98,494

Issuance of treasury shares as restricted stock

     203        4   
  

 

 

   

 

 

 

Balance at end of the period

     (98,287     (98,490
  

 

 

   

 

 

 

Noncontrolling Interest

    

Balance as of January 1,

     12,947        4,042   

Contributions

     —          26   

Distributions

     (17     (12,016

Gain (loss) attributable to noncontrolling interest

     123        359   
  

 

 

   

 

 

 

Balance at end of the period

     13,053        (7,589
  

 

 

   

 

 

 

Total Stockholders’ Equity

    

Balance at end of the period

   $ 3,747,712      $ 3,683,786   
  

 

 

   

 

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

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Table of Contents

AMERICAN NATIONAL INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and in thousands)

 

      Six months ended June 30,  
     2012     2011  
           (As Adjusted)  

OPERATING ACTIVITIES

    

Net income (loss)

   $ 65,845      $ 77,127   

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

    

Realized investments (gains) losses

     (19,947     (44,957

Other-than-temporary impairments

     8,098        —     

Accretion (amortization) of discounts, premiums and loan origination fees

     2,495        5,301   

Net capitalized interest on policy loans and mortgage loans

     (14,469     (14,066

Depreciation

     18,555        20,653   

Interest credited to policyholders’ account balances

     215,883        205,530   

Charges to policyholders’ account balances

     (97,063     (95,510

Deferred federal income tax (benefit) expense

     (8,885     (6,740

Deferral of policy acquisition costs

     (197,789     (234,421

Amortization of deferred policy acquisition costs

     203,089        200,263   

Equity in (earnings) losses of unconsolidated affiliates

     1,567        238   

Changes in:

    

Policyholder liabilities

     88,363        156,478   

Reinsurance recoverables

     16,225        (79,199

Premiums due and other receivables

     (26,037     (23,043

Accrued investment income

     2,688        (10,720

Current tax receivable/payable

     14,438        (7,422

Liability for retirement benefits

     1,407        983   

Prepaid reinsurance premiums

     4,055        105   

Other, net

     (29,680     11,129   
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     248,838        161,729   
  

 

 

   

 

 

 

INVESTING ACTIVITIES

    

Proceeds from sale/maturity/prepayment of:

    

Bonds - held-to-maturity

     703,534        423,820   

Bonds - available-for-sale

     218,876        243,805   

Equity securities

     26,135        57,865   

Investment real estate

     —          90,084   

Mortgage loans

     109,951        214,513   

Policy loans

     33,875        24,649   

Other invested assets

     19,946        20,861   

Disposals of property and equipment

     98        597   

Distributions from unconsolidated affiliates

     18,960        8,142   

Payment for the purchase/origination of:

    

Bonds - held-to-maturity

     (610,789     (1,043,532

Bonds - available-for-sale

     (285,136     (365,393

Equity securities

     (15,807     (27,043

Investment real estate

     (14,593     (6,567

Mortgage loans

     (259,093     (285,974

Policy loans

     (21,495     (19,536

Other invested assets

     (22,418     (19,928

Additions to property and equipment

     (12,218     (8,245

Contributions to unconsolidated affiliates

     (14,423     (40,030

Change in short-term investments

     4,132        10,613   

Other, net

     7,995        (11,465
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (112,470     (732,764
  

 

 

   

 

 

 

FINANCING ACTIVITIES

    

Policyholders’ account deposits

     608,843        1,311,544   

Policyholders’ account withdrawals

     (656,544     (720,846

Change in notes payable

     1,313        (1,704

Dividends to stockholders

     (41,331     (41,304

Proceeds from (payments to) noncontrolling interest

     (17     10   
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (87,736     547,700   
  

 

 

   

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

     48,632        (23,335

Beginning of the year

     102,114        101,449   
  

 

 

   

 

 

 

End of year

   $ 150,746      $ 78,114   
  

 

 

   

 

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

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Table of Contents

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF OPERATIONS

American National Insurance Company and its consolidated subsidiaries (collectively “American National”) operate in the insurance industry. Operating on a multiple product line basis, American National offers a broad line of insurance coverage, including individual and group life insurance, health insurance, annuities, and property and casualty insurance. In addition, through non-insurance subsidiaries, American National invests in stocks and real estate. The majority of revenues are generated by the insurance business. Business is conducted in all states and the District of Columbia, as well as Puerto Rico, Guam and American Samoa. Various distribution systems are utilized, including multiple-line exclusive agents, independent agents, third-party marketing organizations, career agents, and direct sales to the public.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for Form 10-Q. In addition to GAAP, specific SEC requirements applicable to insurance companies are applied to the consolidated financial statements.

The interim consolidated financial statements and notes herein are unaudited. These interim consolidated financial statements reflect all adjustments, which are in the opinion of management, considered necessary for the fair presentation of the consolidated statements of financial position, operations, comprehensive income (loss), changes in stockholders’ equity, and cash flows for the interim periods.

These interim consolidated financial statements and notes should be read in conjunction with the annual consolidated financial statements and notes thereto included in American National’s Annual Report on Form 10-K as of and for the year ended December 31, 2011. The consolidated results of operations for the interim periods should not be considered indicative of results to be expected for the full year.

American National consolidates all entities that are wholly-owned and those in which American National owns less than 100% but controls, as well as any variable interest entities in which American National is the primary beneficiary. Investments in unconsolidated affiliates are accounted for using the equity method of accounting.

Certain amounts in prior years have been reclassified to conform to current year presentation.

The 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.

Effective January 1, 2012, American National adopted a new accounting standard that modified the accounting for deferred policy acquisition costs (“DAC”) associated with acquiring new and renewal insurance and annuity contracts. Previously, acquisition costs were deferred if the costs varied with and were related primarily to the acquisition of new and renewal insurance and annuity contracts. In accordance with the new standard of ASU No. 2010-26, DAC is limited to those costs that are related directly to the successful acquisition of insurance and annuity contracts, costs that result directly from and are essential to the contract acquisition and costs that would have not been incurred had the contract acquisition not occurred. In addition, advertising costs are included in DAC only if the capitalization criteria for direct-response advertising are met. Refer to Note 3 for discussion of the effects of this accounting change.

As of June 30, 2012 all other American National significant accounting policies and practices remain materially unchanged from those disclosed in Note 2, Summary of Significant Accounting Policies and Practices, of the Notes to the Consolidated Financial Statements included in American National’s 2011 Annual Report on Form 10-K.

 

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3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Adoption of New Accounting Standards

In October 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-26, Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts. The new standard redefines the term “acquisition cost” and added the term “incremental direct cost of contract acquisition” to the master glossary. These changes limit the deferrable cost to those costs that are related directly to the successful acquisition of insurance contracts, and those that result directly from and are essential to the contract acquisition and costs that would have not been incurred had the contract acquisition not occurred. The new guidance also specifies that advertising costs should be deferred only if the capitalization criteria for direct-response advertising are met. ASU 2010-26 is effective for interim and annual periods, commencing after December 15, 2011. American National adopted this standard effective January 1, 2012, and applied the retrospective method of adoption to all prior periods presented in the consolidated financial statements. Accordingly, upon adoption, the DAC asset was reduced by approximately $34,260,000 as a result of acquisition costs previously deferred that are no longer eligible for deferral under the new guidance. The after-tax cumulative effect adjustment to the opening balance of stockholders’ equity was approximately $19,745,000.

In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in the U.S. GAAP and IFRSs. ASU 2011-04 clarifies the intent of the FASB about the application of existing fair value measurement and disclosure requirements such as: (1) the application of the highest and best use and valuation premise concepts; (2) a requirement specific to measuring the fair value of an instrument classified in a reporting entity’s shareholders’ equity; and (3) a requirement to disclose unobservable inputs used in the fair value of an instrument categorized within Level 3 of the fair value hierarchy. The new guidance also prohibits the use of block premiums and discounts for all fair value measurement, regardless of hierarchy. In addition, ASU 2011-04 expands the disclosures about fair value measurements. ASU 2011-04 is effective for interim and annual periods, beginning after December 15, 2011. American National’s adoption of this guidance on January 1, 2012 did not have a material effect on the consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income. ASU 2011-05 makes the presentation of other comprehensive income (“OCI”) more prominent by giving reporting entities two presentation options. Reporting entities can present the total net income and total OCI along with their respective components as one continuous statement or as two separate consecutive statements. The new guidance also eliminates the option to present OCI in the statement of changes in stockholders’ equity. In addition, the new guidance requires reporting entities to present reclassification adjustments from OCI to net income on the face of the financial statements. ASU 2011-05 is effective for interim and annual periods, beginning after December 15, 2011. American National’s adoption of this guidance on January 1, 2012 did not have a material effect on its consolidated financial statements.

In September 2011, the FASB issued ASU No. 2011-08, Testing Goodwill for Impairment. ASU 2011-08 allows an assessment of qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying value as a basis to determining whether the two-step goodwill impairment test is necessary. ASU 2011-08 is effective for interim and annual periods beginning after December 15, 2011. American National’s adoption of this guidance on January 1, 2012 did not have a material effect on its consolidated financial statements.

In December 2011, the FASB issued ASU No. 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05. The guidance defers the application of the reclassification adjustment provisions in ASU 2011-05. ASU 2011-12 is effective for interim and annual periods beginning after December 15, 2011. American National’s adoption of this guidance on January 1, 2012 did not have a material effect on its consolidated financial statements.

 

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Future Adoption of New Accounting Standards

In July 2011, the FASB issued ASU No. 2011-06, Fees Paid to the Federal Government by Health Insurers. ASU 2011-06 addresses questions about how health insurers should recognize and classify in their income statements fees mandated by the Patient Protection and Affordable Care Act, which imposes an annual fee on health insurers for each calendar year beginning on or after January 1, 2014. The new guidance specifies that the liability for the fee should be estimated and recorded in full once the entity provides qualifying health insurance in the applicable calendar year. The corresponding deferred cost is then amortized to expense using a straight-line method of allocation unless another method better allocates the fee over the calendar year that it is payable. ASU 2011-06 is effective for calendar years beginning after December 31, 2013. American National’s adoption of this guidance on January 1, 2014 is not expected to have a material effect on its consolidated financial statements.

In December 2011, the FASB issued ASU No. 2011-10, Derecognition of in Substance Real Estate. The new guidance clarifies that when a reporting entity ceases to have a controlling financial interest in a subsidiary that is in substance real estate because of a default on the subsidiary’s nonrecourse debt secured by the real estate, the reporting entity should apply the guidance for real estate sales when evaluating the subsidiary for deconsolidation. ASU 2011-10 is effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2012. American National’s adoption of this guidance on January 1, 2013 is not expected to have a material effect on its consolidated financial statements.

In December 2011, the FASB issued ASU No. 2011-11, Disclosures about Offsetting Assets and Liabilities. The new guidance requires an entity to disclose both gross and net information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. ASU 2011-11 is effective for interim and annual periods beginning on or after January 1, 2013 and the new disclosure requirements should be applied retrospectively for all periods presented. American National’s adoption of this guidance on January 1, 2013 is not expected to have a material effect on its consolidated financial statements.

 

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4. INVESTMENTS IN SECURITIES

The cost or amortized cost and estimated fair value of investments in held-to-maturity and available-for-sale securities are shown below (in thousands):

 

     Six months ended June 30, 2012  
     Cost or
Amortized Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated Fair
Value
 

Fixed maturity securities, bonds held-to-maturity

          

U.S. treasury and other U.S. government corporations and agencies

   $ 10,558       $ 120       $ —        $ 10,678   

States of the U.S. and political subdivisions of the states

     396,375         38,630         (40     434,965   

Foreign governments

     29,057         4,858         —          33,915   

Corporate debt securities

     8,028,635         670,711         (9,387     8,689,959   

Residential mortgage-backed securities

     628,211         51,083         (2,960     676,334   

Commercial mortgage-backed securities

     31,341         —           (19,910     11,431   

Collateralized debt securities

     5,395         350         (952     4,793   

Other debt securities

     38,350         3,141         —          41,491   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total bonds held-to-maturity

     9,167,922         768,893         (33,249     9,903,566   
  

 

 

    

 

 

    

 

 

   

 

 

 

Fixed maturity securities, bonds available-for-sale

          

U.S. treasury and other U.S. government corporations and agencies

     14,358         1,210         (3     15,565   

States of the U.S. and political subdivisions of the states

     571,634         44,680         (168     616,146   

Foreign governments

     5,000         2,396         —          7,396   

Corporate debt securities

     3,417,664         264,647         (21,898     3,660,413   

Residential mortgage-backed securities

     160,483         10,432         (942     169,973   

Collateralized debt securities

     16,348         1,584         (115     17,817   

Other debt securities

     14,086         1,300         —          15,386   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total bonds available-for-sale

     4,199,573         326,249         (23,126     4,502,696   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total fixed maturity securities

     13,367,495         1,095,142         (56,375     14,406,262   
  

 

 

    

 

 

    

 

 

   

 

 

 

Equity securities

          

Common stock

     673,686         361,590         (13,675     1,021,601   

Preferred stock

     26,690         8,895         (4     35,581   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total equity securities

     700,376         370,485         (13,679     1,057,182   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total investments in securities

   $ 14,067,871       $ 1,465,627       $ (70,054   $ 15,463,444   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

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Table of Contents
     Year ended December 31, 2011  
     Cost or
Amortized Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated Fair
Value
 

Fixed maturity securities, bonds held-to-maturity

          

U.S. treasury and other U.S. government corporations and agencies

   $ 13,704       $ 193       $ —        $ 13,897   

States of the U.S. and political subdivisions of the states

     405,526         32,272         (6     437,792   

Foreign governments

     29,044         4,978         —          34,022   

Corporate debt securities

     8,011,901         564,159         (25,316     8,550,744   

Residential mortgage-backed securities

     714,659         50,774         (3,986     761,447   

Commercial mortgage-backed securities

     31,341         —           (20,158     11,183   

Collateralized debt securities

     7,134         —           (1,018     6,116   

Other debt securities

     38,663         3,827         —          42,490   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total bonds held-to-maturity

     9,251,972         656,203         (50,484     9,857,691   
  

 

 

    

 

 

    

 

 

   

 

 

 

Fixed maturity securities, bonds available-for-sale

          

U.S. treasury and other U.S. government corporations and agencies

     11,930         1,156         —          13,086   

States of the U.S. and political subdivisions of the states

     579,008         39,930         (90     618,848   

Foreign governments

     5,000         2,435         —          7,435   

Corporate debt securities

     3,316,083         221,079         (32,016     3,505,146   

Residential mortgage-backed securities

     191,832         11,898         (1,009     202,721   

Collateralized debt securities

     17,636         1,611         (170     19,077   

Other debt securities

     14,121         1,173         —          15,294   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total bonds available-for-sale

     4,135,610         279,282         (33,285     4,381,607   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total fixed maturity securities

     13,387,582         935,485         (83,769     14,239,298   
  

 

 

    

 

 

    

 

 

   

 

 

 

Equity securities

          

Common stock

     679,724         305,269         (16,086     968,907   

Preferred stock

     30,955         7,688         (1,470     37,173   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total equity securities

     710,679         312,957         (17,556     1,006,080   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total investments in securities

   $ 14,098,261       $ 1,248,442       $ (101,325   $ 15,245,378   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

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Actual maturities differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Residential and commercial mortgage-backed securities, which are not due at a single maturity, have been allocated to their respective categories based on the year of final contractual maturity. The amortized cost and estimated fair value, by contractual maturity of fixed maturity securities, are shown below (in thousands):

 

     June 30, 2012  
     Bonds Held-to-Maturity      Bonds Available-for-Sale  
     Amortized Cost      Estimated Fair
Value
     Amortized Cost      Estimated Fair
Value
 

Due in one year or less

   $ 944,866       $ 964,745       $ 339,961       $ 345,689   

Due after one year through five years

     3,015,376         3,253,358         1,735,317         1,859,897   

Due after five years through ten years

     4,379,652         4,783,535         1,677,288         1,807,512   

Due after ten years

     822,178         897,444         442,007         485,442   

Without single maturity date

     5,850         4,484         5,000         4,156   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 9,167,922       $ 9,903,566       $ 4,199,573       $ 4,502,696   
  

 

 

    

 

 

    

 

 

    

 

 

 

Available-for-sale securities are sold throughout the year for various reasons. All gains and losses were determined using specific identification of the securities sold. Proceeds from the sales of these securities, with the realized gains and losses, are shown below (in thousands):

 

     Three months ended June 30,     Six months ended June 30,  
     2012     2011     2012     2011  

Proceeds from sales of available-for-sale securities

   $ 5,632      $ 45,738      $ 38,305      $ 99,350   

Gross realized gains

     947        6,808        12,027        20,977   

Gross realized losses

     (11     (31     (170     (840

There were no securities transferred from held-to-maturity to available-for-sale during the six months ended June 30, 2012 and 2011.

Net unrealized gains (losses) on securities

The components of the net unrealized gains (losses) on securities during the periods indicated are shown below (in thousands):

 

     Six months ended June 30,  
     2012     2011  

Bonds available-for-sale

   $ 57,126      $ 61,855   

Equity securities

     61,405        24,473   
  

 

 

   

 

 

 

Net unrealized gains (losses) on securities during the year

     118,531        86,328   

Adjustments for:

    

Deferred policy acquisition costs

     (22,098     (21,221

Participating policyholders’ interest

     (4,417     (4,055

Deferred federal income tax benefit (expense)

     (32,279     (21,338
  

 

 

   

 

 

 

Net unrealized gains (losses) on securities, net of tax

   $ 59,737      $ 39,714   
  

 

 

   

 

 

 

 

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Table of Contents

Gross unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are shown below (in thousands):

 

     Six months ended June 30, 2012  
     Less than 12 months      12 Months or more      Total  
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
     Fair
Value
 

Fixed maturity securities, bonds held-to-maturity

  

States of the U.S. and political subdivisions of the states

   $ 38       $ 2,794       $ 2       $ 80       $ 40       $ 2,874   

Corporate debt securities

     4,849         258,102         4,538         29,035         9,387         287,137   

Residential mortgage-backed securities

     54         7,995         2,906         32,105         2,960         40,100   

Commercial mortgage-backed securities

     —           —           19,910         11,431         19,910         11,431   

Collateralized debt securities

     —           —           952         1,935         952         1,935   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total bonds held-to-maturity

     4,941         268,891         28,308         74,586         33,249         343,477   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Fixed maturity securities, bonds available-for-sale

                 

U.S. treasury and other U.S. government corporations and agencies

     3         7,105         —           —           3         7,105   

States of the U.S. and political subdivisions of the states

     164         14,588         4         1,194         168         15,782   

Corporate debt securities

     2,583         121,721         19,315         88,976         21,898         210,697   

Residential mortgage-backed securities

     175         12,234         767         12,752         942         24,986   

Collateralized debt securities

     6         236         109         2,175         115         2,411   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total bonds available-for-sale

     2,931         155,884         20,195         105,097         23,126         260,981   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed maturity securities

     7,872         424,775         48,503         179,683         56,375         604,458   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Equity securities

                 

Common stock

     13,675         99,684         —           —           13,675         99,684   

Preferred stock

     4         1,000         —           —           4         1,000   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total equity securities

     13,679         100,684         —           —           13,679         100,684   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total investments in securities

   $ 21,551       $ 525,459       $ 48,503       $ 179,683       $ 70,054       $ 705,142   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     Year ended December 31, 2011  
     Less than 12 months      12 Months or more      Total  
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
     Fair
Value
 

Fixed maturity securities, bonds held-to-maturity

  

States of the U.S. and political subdivisions of the states

   $ —         $ —         $ 6       $ 264       $ 6       $ 264   

Corporate debt securities

     20,204         680,202         5,112         39,280         25,316         719,482   

Residential mortgage-backed securities

     227         19,398         3,759         32,653         3,986         52,051   

Commercial mortgage-backed securities

     —           —           20,158         11,183         20,158         11,183   

Collateralized debt securities

     8         1,605         1,010         4,511         1,018         6,116   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total bonds held-to-maturity

     20,439         701,205         30,045         87,891         50,484         789,096   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Fixed maturity securities, bonds available-for-sale

                 

States of the U.S. and political subdivisions of the states

     10         762         80         1,971         90         2,733   

Corporate debt securities

     12,142         396,761         19,874         85,623         32,016         482,384   

Residential mortgage-backed securities

     202         25,943         807         9,047         1,009         34,990   

Collateralized debt securities

     6         704         164         2,770         170         3,474   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total bonds available-for-sale

     12,360         424,170         20,925         99,411         33,285         523,581   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed maturity securities

     32,799         1,125,375         50,970         187,302         83,769         1,312,677   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Equity securities

                 

Common stock

     16,086         98,731         —           —           16,086         98,731   

Preferred stock

     1,470         6,481         —           —           1,470         6,481   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total equity securities

     17,556         105,212         —           —           17,556         105,212   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total investments in securities

   $ 50,355       $ 1,230,587       $ 50,970       $ 187,302       $ 101,325       $ 1,417,889   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

For all investment securities with an unrealized loss, including those in an unrealized loss position for 12 months or more, American National performs a quarterly analysis to determine if an other-than-temporary impairment (“OTTI”) loss should be recorded. As of June 30, 2012, the available-for-sale securities with unrealized losses were not deemed to be other-than-temporarily impaired. Even though the duration of the unrealized losses on some of the securities exceeds one year, American National has no intent to sell and it is not more-likely-than-not that American National will be required to sell these securities prior to recovery, and recovery is expected in a reasonable period of time.

Credit Risk Management

Management believes American National’s bond portfolio is diversified and of investment grade. The bond portfolio distributed by credit quality rating, using both S&P and Moody’s ratings, is shown below:

 

     June 30, 2012     December 31, 2011  

AAA

     7.2     8.1

AA

     10.2        10.5   

A

     38.7        38.3   

BBB

     39.9        38.6   

BB and below

     4.0        4.5   
  

 

 

   

 

 

 

Total

     100.0     100.0
  

 

 

   

 

 

 

 

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Table of Contents

American National’s equity securities by market sector distribution are shown below:

 

     June 30, 2012     December 31, 2011  

Consumer goods

     22.2     21.5

Financials

     17.8        17.2   

Information technology

     17.4        16.9   

Energy and utilities

     15.6        17.3   

Healthcare

     11.8        11.7   

Industrials

     9.0        9.0   

Communications

     3.6        4.2   

Materials

     2.5        2.1   

Other

     0.1        0.1   
  

 

 

   

 

 

 

Total

     100.0     100.0
  

 

 

   

 

 

 

5. MORTGAGE LOANS

American National makes commercial mortgage loans in areas that offer the potential for property value appreciation. Generally, mortgage loans are secured by first liens on income-producing real estate. American National attempts to maintain a diversified portfolio of mortgage loans by considering the property-type as well as the geographic distribution of the property, which is the underlying mortgage collateral. Mortgage loans by property-type distribution are as follows:

 

     June 30, 2012     December 31, 2011  

Office buildings

     31.7     30.2

Industrial

     25.1        24.6   

Shopping centers

     18.0        19.1   

Hotels and motels

     13.4        13.4   

Other

     11.8        12.7   
  

 

 

   

 

 

 

Total

     100.0     100.0
  

 

 

   

 

 

 

Mortgage loans by geographic distribution are as follows:

 

     June 30, 2012     December 31, 2011  

South Atlantic

     22.7     22.9

West South Central

     22.6        23.1   

East North Central

     18.4        18.8   

Pacific

     11.8        11.4   

Mountain

     7.2        6.7   

East South Central

     6.7        5.7   

Middle Atlantic

     5.1        5.4   

West North Central

     2.7        2.9   

New England

     2.2        2.5   

Other

     0.6        0.6   
  

 

 

   

 

 

 

Total

     100.0     100.0
  

 

 

   

 

 

 

During the six months ended June 30, 2012 American National sold no loans. During the year ended December 31, 2011, American National sold one industrial loan with a recorded investment of $27,532,000 and realized a gain of $4,968,000. During the six months ended June 30, 2012 American National foreclosed on three loans with a recorded investment of $16,523,000. There were no foreclosures during the year ended December 31, 2011.

 

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Table of Contents

Credit Quality

The amounts of commercial mortgage loans placed on nonaccrual status and classified as non-performing are shown in the table below (in thousands):

 

     June 30, 2012      December 31, 2011  

Commercial mortgages

     

Office

   $ —         $ 8,436   

Retail

     493         23,997   
  

 

 

    

 

 

 

Total

   $ 493       $ 32,433   
  

 

 

    

 

 

 

The credit quality of the mortgage loan portfolio is assessed by evaluating the credit risk of each borrower. A loan is classified as performing or non-performing based on whether all of the contractual terms of the loan have been met.

The age analysis of past due commercial mortgage loans is shown in the table below (in thousands):

 

     June 30, 2012  
     30-59 Days      60-89 Days      Greater Than      Total Past             Total  
     Past Due      Past Due      90 Days      Due      Current      Mortgage Loans  

Commerical mortgages

                 

Office

   $ —         $ —         $ 6,213       $ 6,213       $ 969,941       $ 976,154   

Industrial

     —           —           —           —           769,391         769,391   

Retail

     —           —           493         493         552,443         552,936   

Other

     —           —           —           —           774,783         774,783   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —         $ —         $ 6,706       $ 6,706       $ 3,066,558         3,073,264   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Allowance for loan losses

                    12,366   
                 

 

 

 

Mortgage loans on real estate, net of allowance

  

               $ 3,060,898   
                 

 

 

 

 

     December 31, 2011  
     30-59 Days      60-89 Days      Greater Than      Total Past             Total  
     Past Due      Past Due      90 Days      Due      Current      Mortgage Loans  

Commerical mortgages

                 

Office

   $ —         $ —         $ 8,436       $ 8,436       $ 879,923       $ 888,359   

Industrial

     —           —           —           —           721,704         721,704   

Retail

     13,140         —           10,857         23,997         537,665         561,662   

Other

     —           —           —           —           765,078         765,078   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 13,140       $ —         $ 19,293       $ 32,433       $ 2,904,370         2,936,803   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Allowance for loan losses

                    11,321   
                 

 

 

 

Mortgage loans on real estate, net of allowance

  

               $ 2,925,482   
                 

 

 

 

The amounts shown above are net of unamortized discounts of $8,633,000 and $10,189,000 and unamortized origination fees of $12,953,000 and $12,683,000 at June 30, 2012 and December 31, 2011, respectively. No other unearned income is included in these amounts.

Allowance for Credit Losses

Loans not evaluated individually for collectibility are segregated by collateral property-type and location and allowance factors are applied. These factors are developed annually, and reviewed quarterly based on our historical loss experience adjusted for the expected trend in the rate of foreclosure losses. Allowance factors are higher for loans of certain property types and in certain regions based on loss experience or a blended historical loss factor.

 

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The allowance for credit losses and unpaid principal balance in commercial mortgage loans are shown in the table below (in thousands):

 

     Collectively      Individually        
     Evaluated      Evaluated        
     for Impairment      for Impairment     Total  

Allowance for credit losses

       

December 31, 2011

   $ 10,828         493      $ 11,321   

Write down

     —           (2,277     (2,277

Change in allowance

     1,045         2,277        3,322   
  

 

 

    

 

 

   

 

 

 

June 30, 2012

   $ 11,873       $ 493      $ 12,366   
  

 

 

    

 

 

   

 

 

 

Unpaid principal balance

       

June 30, 2012

   $ 2,988,842       $ 106,008      $ 3,094,850   
  

 

 

    

 

 

   

 

 

 

December 31, 2011

   $ 2,725,930       $ 233,745      $ 2,959,675   
  

 

 

    

 

 

   

 

 

 

The detail of loans individually evaluated for impairment with and without an allowance recorded by collateral property-type is shown in the tables below (in thousands):

 

     Six months ended June 30, 2012  
            Unpaid             Average      Interest  
     Recorded      Principal      Related      Recorded      Income  
     Investment      Balance      Allowance      Investment      Recognized  

With an allowance recorded

              

Retail

   $ —         $ 493       $ 493       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Without an allowance recorded

              

Office

   $ 45,226       $ 45,226       $ —         $ 45,358       $ 1,482   

Retail

     14,949         14,949         —           15,224         446   

Other

     45,340         45,340         —           45,354         1,520   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total without an allowance recorded

   $ 105,515       $ 105,515       $ —         $ 105,936       $ 3,448   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     Year ended December 31, 2011  
            Unpaid             Average      Interest  
     Recorded      Principal      Related      Recorded      Income  
     Investment      Balance      Allowance      Investment      Recognized  

With an allowance recorded

              

Retail

   $ —         $ 493       $ 493       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Without an allowance recorded

              

Office

   $ 48,833       $ 48,833       $ —         $ 49,088       $ 3,506   

Industrial

     57,261         57,261         —           57,514         3,628   

Retail

     15,477         15,477         —           15,535         1,514   

Other

     111,681         111,681         —           111,407         7,546   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total without an allowance recorded

   $ 233,252       $ 233,252       $ —         $ 233,544       $ 16,194   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Troubled Debt Restructurings

American National has a high quality, well performing, mortgage loan portfolio. For a very small portion of the portfolio, classified as troubled debt restructurings, American National has granted concessions related to the borrowers’ ability to pay the loan. The types of concessions granted are generally, one of or a combination of, a delay in payment of principal or interest, a reduction of the contractual interest rate or an extension of the maturity date. American National considers the amount, timing and extent of concessions granted in determining any impairment or changes in the specific allowance for loan losses recorded in connection with a troubled debt restructuring. The carrying value after specific allowance, before and after modification in a troubled debt restructuring, may not change significantly, or may increase if the expected recovery is higher than the pre-modification recovery assessment.

At June 30, 2012 and December 31, 2011, three loans which were part of the mortgage loan portfolio had been modified in troubled debt restructurings. The outstanding recorded investment was $45,366,000 both before and after the modification. There are no commitments to lend additional funds to debtors whose loans have been modified in troubled debt restructurings and there have been no defaults on modified loans during the preceding twelve months.

 

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6. INVESTMENT REAL ESTATE

Investment real estate by property-type distribution is as follows:

 

     June 30, 2012     December 31, 2011  

Shopping centers

     42.4     41.1

Office buildings

     22.8        22.0   

Industrial

     15.4        16.3   

Hotels and motels

     1.9        2.1   

Other

     17.5        18.5   
  

 

 

   

 

 

 

Total

     100.0     100.0
  

 

 

   

 

 

 

Investment real estate by geographic distribution is as follows:

 

     June 30, 2012     December 31, 2011  

West South Central

     63.4     66.1

South Atlantic

     11.8        11.6   

East North Central

     6.8        5.2   

Mountain

     6.6        6.9   

East South Central

     5.7        5.2   

West North Central

     3.4        2.7   

Pacific

     2.3        2.3   
  

 

 

   

 

 

 

Total

     100.0     100.0
  

 

 

   

 

 

 

In the normal course of investment activities, American National and its wholly-owned subsidiaries enter into real estate partnership and joint venture agreements. Generally, opportunities are presented by a sponsor, with the significant activities being conducted on behalf of the sponsor. American National participates in the design of these entities, but in most cases, its involvement is limited to financing. Through analysis performed by American National, some of these partnerships and joint ventures have been determined to be variable interest entities (“VIEs”). In certain instances, in addition to an economic interest in the entity, American National holds the power to direct the most significant activities of the entity and is deemed the primary beneficiary or consolidator of the entity. The assets of the consolidated VIEs are restricted and must be used first to settle the liabilities of the VIE. 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. Financial or other support was not provided to investees designated as VIEs in the form of liquidity arrangements, guarantees, or other commitments by third parties that may affect the fair value or risk of American National’s variable interest in the investees designated as VIEs as of June 30, 2012 and December 31, 2011.

 

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The total assets and liabilities relating to VIEs in which American National is the primary beneficiary and which are consolidated in its financial statements for the periods indicated are as follows (in thousands):

 

     June 30, 2012      December 31, 2011  

Investment real estate

   $ 158,795       $ 154,878   

Short-term investments

     1,302         3,364   

Cash and cash equivalents

     2,919         5,777   

Accrued investment income

     2,139         2,299   

Other receivables

     12,017         11,816   

Other assets

     3,791         3,870   
  

 

 

    

 

 

 

Total assets of consolidated VIEs

   $ 180,963       $ 182,004   
  

 

 

    

 

 

 

Notes payable

   $ 60,207       $ 58,894   

Other liabilities

     3,506         5,354   
  

 

 

    

 

 

 

Total liabilities of consolidated VIEs

   $ 63,713       $ 64,248   
  

 

 

    

 

 

 

For other real estate partnerships and joint ventures in which American National is a partner, the major decisions that most significantly impact the economic activities of the partnership and joint venture require unanimous consent of all partners. American National is not the primary beneficiary and these entities were not consolidated. The following table presents the carrying amount and maximum exposure to loss relating to VIEs for which American National holds significant variable interests but is not the primary beneficiary and which have not been consolidated (in thousands):

 

     June 30, 2012      December 31, 2011  
     Carrying
Amount
     Maximum
Exposure
to Loss
     Carrying
Amount
     Maximum
Exposure
to Loss
 

Investment in unconsolidated affiliates

   $ 70,073       $ 70,073       $ 85,509       $ 85,509   

7. DERIVATIVE INSTRUMENTS

American National purchases derivative contracts (equity-indexed options) that serve as economic hedges against fluctuations in the equity markets to which equity-indexed annuity products are exposed. Equity-indexed annuities include a fixed host annuity contract and an equity-indexed embedded derivative. These derivative instruments are not designated as accounting hedges. The following tables detail the volume, estimated fair value and the gains or losses on derivative instruments (in thousands):

 

          June 30, 2012     December 31, 2011  

Derivatives Not Designated
as Hedging Instruments

  

Location in the 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      349       $ 822,100       $ 77,136        332       $ 791,900       $ 65,188   

Equity-indexed annuity embedded derivative

   Future policy benefits - Annuity      18,404         688,500         (72,194     16,727         661,300         (63,275

 

          Gains (Losses) Recognized in Income on Derivatives  
           Three months ended
June 30,
    Six months ended
June 30,
 

Derivatives Not Designated as

Hedging Instruments

  

Location Reported in the Consolidated

Statements of Operations

   2012     2011     2012     2011  

Equity-indexed options

   Net investment income    $ (8,148   $ (1,818   $ 11,499      $ 5,297   

Equity-indexed annuity embedded derivative

   Interest credited to policyholders’ account balances      9,417        2,996        (9,068     (3,608

 

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8. NET INVESTMENT INCOME AND REALIZED INVESTMENT GAINS (LOSSES)

Net investment income, before federal income taxes, is shown below (in thousands):

 

     Three months ended June 30,     Six months ended June 30,  
     2012     2011     2012     2011  

Bonds

   $ 172,005      $ 174,379      $ 345,868      $ 344,399   

Equity securities

     7,626        7,491        13,986        13,407   

Mortgage loans

     51,700        54,976        102,490        102,707   

Real estate

     31,775        31,850        48,992        54,575   

Options

     (8,148     (1,818     11,499        5,297   

Other invested assets

     12,401        10,040        21,466        20,314   
  

 

 

   

 

 

   

 

 

   

 

 

 
     267,359        276,918        544,301        540,699   

Investment expenses

     (26,796     (26,746     (48,042     (51,455
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 240,563      $ 250,172      $ 496,259      $ 489,244   
  

 

 

   

 

 

   

 

 

   

 

 

 

Realized investments gains (losses), before federal income taxes, are shown below (in thousands):

 

     Three months ended June 30,     Six months ended June 30,  
     2012     2011     2012     2011  

Bonds

   $ 9,610      $ 2,784      $ 13,420      $ 13,107   

Equity securities

     2,859        6,278        10,214        18,814   

Mortgage loans

     (2,233     1,450        (3,322     —     

Real estate

     —          12,491        (252     13,113   

Other invested assets

     (97     (77     (113     (77
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 10,139      $ 22,926      $ 19,947      $ 44,957   
  

 

 

   

 

 

   

 

 

   

 

 

 

The OTTI, which are not included in the realized investments gains (losses) above, are shown below (in thousands):

 

     Three months ended June 30,      Six months ended June 30,  
     2012     2011      2012     2011  

Equity securities

   $ (5,261   $ —         $ (8,098   $ —     
  

 

 

   

 

 

    

 

 

   

 

 

 

 

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9. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

 

     June 30, 2012      December 31, 2011  
     Carrying      Estimated      Carrying      Estimated  
     Amount      Fair Value      Amount      Fair Value  

Financial assets

  

Fixed maturity securities, bonds held-to-maturity

           

U.S. treasury and other U.S. government corporations and agencies

   $ 10,558       $ 10,678       $ 13,704       $ 13,897   

States of the U.S. and political subdivisions of the states

     396,375         434,965         405,526         437,792   

Foreign governments

     29,057         33,915         29,044         34,022   

Corporate debt securities

     8,028,635         8,689,959         8,011,901         8,550,744   

Residential mortgage-backed securities

     628,211         676,334         714,659         761,447   

Commercial mortgage-backed securities

     31,341         11,431         31,341         11,183   

Collateralized debt securities

     5,395         4,793         7,134         6,116   

Other debt securities

     38,350         41,491         38,663         42,490   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total bonds held-to-maturity

     9,167,922         9,903,566         9,251,972         9,857,691   
  

 

 

    

 

 

    

 

 

    

 

 

 

Fixed maturity securities, bonds available-for-sale

           

U.S. treasury and other U.S. government corporations and agencies

     15,565         15,565         13,086         13,086   

States of the U.S. and political subdivisions of the states

     616,146         616,146         618,848         618,848   

Foreign governments

     7,396         7,396         7,435         7,435   

Corporate debt securities

     3,660,413         3,660,413         3,505,146         3,505,146   

Residential mortgage-backed securities

     169,973         169,973         202,721         202,721   

Collateralized debt securities

     17,817         17,817         19,077         19,077   

Other debt securities

     15,386         15,386         15,294         15,294   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total bonds available-for-sale

     4,502,696         4,502,696         4,381,607         4,381,607   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed maturity securities

     13,670,618         14,406,262         13,633,579         14,239,298   
  

 

 

    

 

 

    

 

 

    

 

 

 

Equity securities

           

Common stock

     1,021,601         1,021,601         968,907         968,907   

Preferred stock

     35,581         35,581         37,173         37,173   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total equity securities

     1,057,182         1,057,182         1,006,080         1,006,080   
  

 

 

    

 

 

    

 

 

    

 

 

 

Options

     77,136         77,136         65,188         65,188   

Mortgage loans on real estate, net of allowance

     3,060,898         3,290,881         2,925,482         3,178,205   

Policy loans

     392,822         392,822         393,195         393,195   

Short-term investments

     341,198         341,198         345,330         345,330   

Separate account assets

     776,266         776,266         747,867         747,867   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total financial assets

   $ 19,376,120       $ 20,341,747       $ 19,116,721       $ 19,975,163   
  

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities

           

Investment contracts

   $ 10,036,650       $ 10,036,650       $ 9,993,804       $ 9,993,804   

Embedded derivative liability for equity-indexed annuities

     72,194         72,194         63,275         63,275   

Notes payable

     60,207         60,207         58,894         58,894   

Separate account liabilities

     776,266         776,266         747,867         747,867   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total financial liabilities

   $ 10,945,317       $ 10,945,317       $ 10,863,840       $ 10,863,840   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Summary

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. An asset or liability’s classification 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. American National defines active markets based on average trading volume for equity securities. The size of the bid/ask spread is used as an indicator of market activity for fixed maturity securities.

 

  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.

American National has evaluated the types of securities in its investment portfolio to determine an appropriate fair value hierarchy level based upon trading activity and the observability of market inputs. Based on the results of this evaluation and investment class analysis, each financial instrument was classified into Level 1, 2, or 3 measurements.

Fixed Maturity Securities and Equity Options

American National utilizes a pricing service to estimate fair value measurements for approximately 99.0% of fixed maturity securities. 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, the pricing service uses an option adjusted spread model to develop prepayment and interest rate scenarios.

The pricing service evaluates each asset class based on relevant market information, relevant 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, broker/dealer 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 by the pricing service and the techniques applied by the pricing service to produce quotes that represent the fair value of a specific security. The review of the pricing services methodology confirms the service is utilizing information from organized transactions or a technique that represents a market participant’s assumptions. American National does not adjust quotes received by 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.

 

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The fair value estimates of most fixed maturity investments including municipal bonds are based on observable market information rather than market quotes. Accordingly, the estimates of fair value for such fixed maturity securities provided by the pricing service are disclosed as Level 2 measurements.

Additionally, American National holds a small amount of fixed maturity securities that have characteristics that make them unsuitable for matrix pricing. For these fixed maturity securities, a quote from an independent broker (typically a market maker) is obtained. Due to the disclaimers on the quotes that indicate that the price is indicative only, American National includes these fair value estimates in Level 3. The pricing of certain private placement debt also includes significant non-observable inputs, the internally determined credit rating of the security, and an externally provided credit spread, and these securities are classified as Level 3 measurements.

For securities priced using a quote from an independent broker, such as the equity options and certain fixed maturity securities, American National uses a market-based fair value analysis to validate the reasonableness of prices received from an independent broker. Price variances above a certain threshold are analyzed further to determine if any pricing issue exists. This analysis is generally performed on a weekly basis, but no less frequently than on a monthly basis.

Equity Securities

For publicly-traded equity securities, American National receives prices 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, American National receives an estimate of fair value from the pricing service. The service utilizes similar methodologies to price preferred stocks as it does for fixed maturity securities. These estimates for equity securities are disclosed as Level 2 measurements.

Mortgage Loans

The fair value of mortgage loans is estimated using discounted cash flow analyses. Fair value is calculated 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 rating, region, property type, lien number, payment type and current status.

Embedded Derivative

The embedded derivative liability for equity-indexed annuities is measured at fair value. The embedded derivative liability is recalculated each reporting period using equity option pricing models. To validate the assumptions used to price the embedded derivative, American National measures and compares embedded derivative returns against the returns of equity options held to hedge the liability cash flows.

The significant unobservable input used to calculate the fair value of the embedded derivatives is equity option implied volatility. This volatility assumption is the range of implied volatilities that American National has determined market participants would use to price equity options that match the current derivative characteristics of our in-force equity-indexed annuities. Implied volatility can vary by term and strike price. An increase in implied volatility will result in an increase in the value of the equity-indexed annuity embedded derivatives, all other things being equal. At June 30, 2012, the implied volatility used to estimate embedded derivative value ranges from 15.1% to 32.3%.

 

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Table of Contents

Other Financial Instruments

For other financial instruments discussed below, American National believes that their carrying value approximates fair value. This assumption is supported by the qualitative information discussed below. These financial instruments are classified as level 3 measurements.

Policy loans – The carrying value of policy loans is equivalent to outstanding balance plus any accrued interest. Due to the collateralized nature of policy loans, unpredictable timing of repayments and the fact that it cannot be separated from the policy contract, American National believes that the carrying value of policy loans approximates fair value.

Investment contracts liability – The carrying value of investment contracts liability is equivalent to the accrued account balance. The accrued account balance consists of deposits, net of withdrawals, plus or minus interest credited, fees and charges assessed and other adjustments. American National believes that the carrying value of investment contracts liability approximates fair value because the majority of these contracts’ interest rates reset to current rates offered 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.

 

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Quantitative Disclosures

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

 

     Fair Value Measurement as of June 30, 2012 Using:  
     Total Estimated
Fair Value
     Quoted Prices in
Active  Markets for
Identical Assets
(Level 1)
     Significant Other
Observable  Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Financial assets

  

Fixed maturity securities, bonds held-to-maturity

           

U.S. treasury and other U.S. government corporations and agencies

   $ 10,678       $ —         $ 10,678       $ —     

States of the U.S. and political subdivisions of the states

     434,965         —           434,965         —     

Foreign governments

     33,915         —           33,915         —     

Corporate debt securities

     8,689,959         —           8,619,621         70,338   

Residential mortgage-backed securities

     676,334         —           676,331         3   

Commercial mortgage-backed securities

     11,431         —           —           11,431   

Collateralized debt securities

     4,793         —           —           4,793   

Other debt securities

     41,491         —           34,951         6,540   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total bonds held-to-maturity

     9,903,566         —           9,810,461         93,105   
  

 

 

    

 

 

    

 

 

    

 

 

 

Fixed maturity securities, bonds available-for-sale

           

U.S. treasury and other U.S. government corporations and agencies

     15,565         —           15,565         —     

States of the U.S. and political subdivisions of the states

     616,146         —           613,621         2,525   

Foreign governments

     7,396         —           7,396         —     

Corporate debt securities

     3,660,413         —           3,615,024         45,389   

Residential mortgage-backed securities

     169,973         —           169,966         7   

Collateralized debt securities

     17,817         —           17,817         —     

Other debt securities

     15,386         —           15,386         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total bonds available-for-sale

     4,502,696         —           4,454,775         47,921   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed maturity securities

     14,406,262         —           14,265,236         141,026   
  

 

 

    

 

 

    

 

 

    

 

 

 

Equity securities

           

Common stock

     1,021,601         1,021,601         —           —     

Preferred stock

     35,581         35,581         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total equity securities

     1,057,182         1,057,182         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Options

     77,136         —           —           77,136   

Mortgage loans on real estate

     3,290,881         —           3,290,881         —     

Policy loans

     392,822         —           —           392,822   

Short-term investments

     341,198         —           341,198         —     

Separate account assets

     776,266         —           776,266         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total financial assets

   $ 20,341,747       $ 1,057,182       $ 18,673,581       $ 610,984   
  

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities

           

Investment contracts

   $ 10,036,650       $ —         $ —         $ 10,036,650   

Embedded derivative liability for equity-indexed annuities

     72,194         —           —           72,194   

Notes payable

     60,207         —           —           60,207   

Separate account liabilities

     776,266         —           776,266         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total financial liabilities

   $ 10,945,317       $ —         $ 776,266       $ 10,169,051   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     Fair Value Measurement as of December 31, 2011 Using:  
     Total
Estimated
Fair Value
     Quoted Prices in
Active Markets for
Identical Assets

(Level 1)
     Significant Other
Observable Inputs
(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
 

Financial assets

  

Fixed maturity securities, bonds held-to-maturity

           

U.S. treasury and other U.S. government corporations and agencies

   $ 13,897       $ —         $ 13,897       $ —     

States of the U.S. and political subdivisions of the states

     437,792         —           437,792         —     

Foreign governments

     34,022         —           34,022         —     

Corporate debt securities

     8,550,744         —           8,492,957         57,787   

Residential mortgage-backed securities

     761,447         —           759,773         1,674   

Commercial mortgage-backed securities

     11,183         —           —           11,183   

Collateralized debt securities

     6,116         —           —           6,116   

Other debt securities

     42,490         —           35,147         7,343   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total bonds held-to-maturity

     9,857,691         —           9,773,588         84,103   
  

 

 

    

 

 

    

 

 

    

 

 

 

Fixed maturity securities, bonds available-for-sale

           

U.S. treasury and other U.S. government corporations and agencies

     13,086         —           13,086         —     

States of the U.S. and political subdivisions of the states

     618,848         —           616,323         2,525   

Foreign governments

     7,435         —           7,435         —     

Corporate debt securities

     3,505,146         —           3,492,113         13,033   

Residential mortgage-backed securities

     202,721         —           202,715         6   

Collateralized debt securities

     19,077         —           18,826         251   

Other debt securities

     15,294         —           15,294         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total bonds available-for-sale

     4,381,607         —           4,365,792         15,815   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed maturity securities

     14,239,298         —           14,139,380         99,918   
  

 

 

    

 

 

    

 

 

    

 

 

 

Equity securities

           

Common stock

     968,907         968,907         —           —     

Preferred stock

     37,173         37,173         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total equity securities

     1,006,080         1,006,080         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Options

     65,188         —           —           65,188   

Mortgage loans on real estate

     3,178,205         —           3,178,205         —     

Policy loans

     393,195         —           —           393,195   

Short-term investments

     345,330         —           345,330         —     

Separate account assets

     747,867         —           747,867         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total financial assets

   $ 19,975,163       $ 1,006,080       $ 18,410,782       $ 558,301   
  

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities

           

Investment contracts

   $ 9,993,804       $ —         $ —         $ 9,993,804   

Embedded derivative liability for equity-indexed annuities

     63,275         —           —           63,275   

Notes payable

     58,894         —           —           58,894   

Separate account liabilities

     747,867         —           747,867         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total financial liabilities

   $ 10,863,840       $ —         $ 747,867       $ 10,115,973   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

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

 

     Three months ended June 30     Six months ended June 30  
           Equity-     Embedded                 Equity-     Embedded        
     Investment     Indexed     Derivative           Investment     Indexed     Derivative        
     Securities     Options     Liability     Total     Securities     Options     Liability     Total  

Beginning balance, 2011

   $ 77,709      $  72,969      $  (66,180   $ 84,498      $ 90,477      $  66,716      $  (59,644   $ 97,549   

Total realized and unrealized investment gains/losses

                

Included in other comprehensive income

     428        —          —          428        (258     —          —          (258

Net fair value change included in realized gains/losses

     17        —          —          17        168        —          —          168   

Net gain (loss) for derivatives included in net investment income

     —          (1,818     —          (1,818     —          5,297        —          5,297   

Net change included in interest credited

     —          —          2,996        2,996        —          —          (3,608     (3,608

Purchases, sales and settlements or maturities

                

Purchases