Set forth on the following pages is management's discussion and analysis
("MD&A") of financial condition and results of operations for the six months
ended June 30, 2012 and 2011 of American National Insurance Company and its
subsidiaries (referred to in this document as "we", "our", "us", or the
"Company"). This information should be read in conjunction with our consolidated
financial statements included in Item 1, Financial Statements (unaudited), of
this Form 10-Q.
INDEX
Forward-Looking Statements 37
Overview 38
General Trends 38
Critical Accounting Estimates 38
Recently Issued Accounting Pronouncements 38
Consolidated Results of Operations 39
Life 40
Annuity 42
Health 45
Property and Casualty 47
Corporate and Other 51
Investments 51
Liquidity 54
Capital Resources 55
Contractual Obligations 55
Off-Balance Sheet Arrangements 55
Related Party Transactions 56
36
--------------------------------------------------------------------------------
Table of Contents
Forward-Looking Statements
Certain statements contained herein are forward-looking statements. The
forward-looking statements are made pursuant to the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995, and include estimates and
assumptions related to economic, competitive and legislative developments.
Forward-looking statements may be identified by words such as "expects,"
"intends," "anticipates," "plans," "believes," "estimates," "will" or words of
similar meaning; and include, but are not limited to, statements regarding the
outlook of our business and financial performance. These forward-looking
statements are subject to changes and uncertainties, which are, in many
instances, beyond our control and have been made based upon our expectations and
beliefs concerning future developments and their potential effect upon us. There
can be no assurance that future developments will be in accordance with our
expectations, or that the effect of future developments on us will be as
anticipated. These forward-looking statements are not a guarantee of future
performance and involve risks and uncertainties. There are certain important
factors that could cause actual results to differ, possibly materially, from
expectations or estimates reflected in such forward-looking statements. These
factors include among others:
• general economic conditions and financial factors, including the
performance and fluctuations of fixed income, equity, real estate,
credit capital and other financial markets;
• differences between actual experience regarding mortality, morbidity,
persistency, surrenders, investment returns, and our pricing
assumptions establishing liabilities and reserves or for other
purposes;
• the effect of increased claims activity from natural or man-made
catastrophes, pandemic disease, or other events resulting in
catastrophic loss of life or property;
• adverse determinations in litigation or regulatory matters and our
exposure to contingent liabilities, including and in connection with
our divestiture or winding down of businesses;
• inherent uncertainties in the determination of investment allowances
and impairments and in the determination of the valuation allowance on
the deferred income tax asset;
• investment losses and defaults;
• competition in our product lines;
• attraction and retention of qualified employees and agents;
• ineffectiveness of risk management policies and procedures in
identifying, monitoring and managing risks;
• the availability, affordability and adequacy of reinsurance protection;
• the effects of emerging claim and coverage issues;
• the cyclical nature of the insurance business;
• the effects of inflation on claim payments in our property and
casualty and health lines;
• interest rate fluctuations;
• changes in our experiences related to deferred policy acquisition costs;
• the ability and willingness of counterparties to our reinsurance
arrangements and derivative instruments to pay balances due to us;
• rating agencies' actions;
• domestic or international military actions;
• the effects of extensive government regulation of the insurance industry;
• changes in tax and securities law;
• changes in statutory or U.S. generally accepted accounting principles
("GAAP"), practices or policies;
• regulatory or legislative changes or developments;
• the effects of unanticipated events on our disaster recovery and
business continuity planning;
• failures or limitations of our computer, data security and
administration systems;
• risks of employee error or misconduct;
• the introduction of alternative healthcare solutions; and
• changes in assumptions for retirement expense.
37
--------------------------------------------------------------------------------
Table of Contents
We describe these risks and uncertainties in greater detail in Item IA, Risk
Factors, in our 2011 Annual Report on Form 10-K filed with the SEC on March 6,
2012. It is not our corporate policy to make specific projections relating to
future earnings, and we do not endorse any projections regarding future
performance made by others. Additionally, we do not publicly update or revise
forward-looking statements based on the outcome of various foreseeable or
unforeseeable events.
Overview
We are a diversified insurance and financial services company, offering a broad
spectrum of life, annuity, health, and property and casualty insurance products.
Chartered in 1905, we are headquartered in Galveston, Texas. We operate in all
50 states, the District of Columbia, Guam, American Samoa and Puerto Rico.
General Trends
There were no material changes to the general trends we are experiencing, as
discussed in the MD&A included in our 2011 Annual Report on Form 10-K filed with
the SEC on March 6, 2012.
Critical Accounting Estimates
The unaudited interim consolidated financial statements have been prepared in
conformity with GAAP. In addition to GAAP, insurance companies have to apply
specific SEC regulations when preparing the consolidated financial statements.
The preparation of the consolidated financial statements in accordance with GAAP
requires us to make estimates and assumptions that affect the amounts reported
in the consolidated financial statements and notes. Actual results could differ
from results reported using those estimates and assumptions.
Our accounting policies inherently require the use of judgments relating to a
variety of assumptions and estimates, particularly expectations of current and
future mortality, morbidity, persistency, expenses, interest rates, and property
and casualty loss frequency, severity, claim reporting and settlement patterns.
Due to the inherent uncertainty when using the assumptions and estimates, the
effect of certain accounting policies under different conditions or assumptions
could vary from those reported in the consolidated financial statements.
For a discussion of our critical accounting estimates, see the MD&A in our 2011
Annual Report on Form 10-K filed with the SEC on March 6, 2012. Effective
January 1, 2012, we retrospectively adopted a new accounting policy on the
capitalization of deferred policy acquisition costs ("DAC"). Upon adoption of
this change in accounting policy, prior period amounts have been adjusted and
are indicated "As Adjusted" where applicable. Refer to Note 2, Summary of
Significant Accounting Policies and Practices, of the Notes to the Unaudited
Consolidated Financial Statements for additional information. There were no
other material changes in accounting policies since December 31, 2011.
Recently Issued Accounting Pronouncements
Refer to Note 3, Recently Issued Accounting Pronouncements, of the Notes to the
Unaudited Consolidated Financial Statements.
38
--------------------------------------------------------------------------------
Table of Contents
