AMERICAN NATIONAL GROUP INC – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following pages provide management's discussion and analysis ("MD&A") of
financial condition and results of operations for the three and nine months
ended
subsidiaries (referred to in this document as "we," "our," "us," or the
"Company"). This information should be read in conjunction with our condensed
consolidated financial statements included in Item 1, Financial Statements, of
this Form 10-Q.
Introductory Note Regarding Pending Merger
On
"Merger Agreement") with Brookfield Asset Management Reinsurance Partners Ltd.
("Brookfield Reinsurance"), an exempted company limited by shares existing under
the laws of
an indirect wholly-owned subsidiary of Brookfield Reinsurance ("Merger Sub"). On
the terms and subject to the conditions of the Merger Agreement, at the closing,
Merger Sub will merge with and into the Company (the "Merger"), with the Company
continuing as the surviving entity, which will become an indirect, wholly-owned
subsidiary of Brookfield Reinsurance. The Merger was unanimously approved by the
Company's board of directors.
On the terms and subject to the conditions of the Merger Agreement, at the
effective time of the Merger (the "Effective Time"), each issued and outstanding
share of the Company's common stock will be converted into the right to receive
Consideration of approximately
conditions of the Merger Agreement, at the Effective Time, each outstanding and
unvested restricted share award and restricted stock unit award will vest and be
converted into the right to receive a cash payment equal to the Merger
Consideration multiplied by the total number of shares of common stock subject
to such award prior to the Effective Time.
Closing Conditions. The completion of the Merger is subject to satisfaction or
waiver of certain closing conditions, including: (i) there being no law or
injunction prohibiting consummation of the Merger; (ii) subject to specified
materiality standards, the accuracy of the representations and warranties of the
other party; and (iii) compliance by the other party in all material respects
with its covenants. Brookfield Reinsurance's and Merger Sub's obligations are
also conditioned upon the absence of a material adverse effect on the Company
and the absence of any burdensome condition (as defined in the Merger Agreement)
imposed by any regulators as part of the regulatory approval process.
The completion of the Merger is also subject to antitrust clearance (or
termination of the applicable waiting period) from the
Justice
Brookfield Reinsurance filed the required notifications for antitrust clearance
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR Act"). The
waiting period under the HSR Act expired on
Financing. Brookfield Reinsurance has received an equity commitment letter from
Brookfield Asset Management Inc., the aggregate proceeds of which will provide
Brookfield Reinsurance with the funds needed to consummate the Merger, including
to pay the aggregate Merger Consideration pursuant to the Merger Agreement. The
equity commitment will be reduced by the amount of any debt actually funded at
closing if and to the extent that such debt financing is used to fund the
payment of Merger Consideration. The completion of the Merger is not conditioned
on receipt of financing by Brookfield Reinsurance.
Stockholder Approval. The Merger Agreement has already received the requisite
stockholder approval required under
certificate of incorporation, stockholders are permitted to take action by
majority written consent in lieu of a stockholder meeting. Under the Merger
Agreement, the Company agreed to take all actions necessary, immediately after
the execution of the Merger Agreement, to seek and obtain stockholder written
consents from certain stockholders holding a majority of the outstanding shares
of our common stock. These stockholder written consents, representing a majority
of the outstanding shares of our common stock, were timely delivered to the
Company. No further approval of the stockholders of the Company is required to
adopt and approve the Merger Agreement. As a result, after those stockholder
consents were delivered, the Company's board of directors no longer had the
right to consider unsolicited competing acquisition proposals from third parties
or to exercise a "fiduciary out" and no such third party proposal has been
received.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - (Continued)
Mailing of Information Statement and Appraisal Rights. On
the Company began mailing the definitive information statement and appraisal
rights notice to the Company's stockholders, and that document is available in
the EDGAR system on the
definitive information statement, any stockholder who wished to demand appraisal
rights for its shares was required to deliver its demand no later than
7, 2021
stockholders. Prior to that deadline, the Company received only one purported
appraisal demand, which was submitted by the owner of 2,000 shares of common
stock (less than 0.01% of the Company's outstanding shares).
Termination Rights and Termination Date. The Merger Agreement contains certain
termination rights for both the Company and Brookfield Reinsurance and further
provides that, upon termination of the Merger Agreement, under certain
circumstances, the Company may be required to pay Brookfield Reinsurance a
termination fee equal to
2022
terminate the Merger Agreement. However, if the closing has not occurred because
(a) any applicable waiting period under any antitrust law relating to the Merger
has not expired or been terminated or (b) certain governmental approvals or
prior written non-disapprovals have not been obtained, and all other conditions
to closing have been satisfied (other than those conditions that by their terms
are to be satisfied at the closing, each of which is capable of being satisfied
at the closing) or waived, the Outside Date will be
Interim Operating Covenants. The Company has agreed to certain covenants in the
Merger Agreement restricting the conduct of its business between the date of the
Merger Agreement and the earlier of the Effective Time and the termination of
the Merger Agreement. The general effect of these covenants is that, during such
interim period, the Company will be limited in its ability to pursue strategic
and operational matters outside the ordinary course of business. The Company has
agreed that it and its subsidiaries will conduct their business in the ordinary
course consistent with past practice in all material respects and use reasonable
best efforts to preserve their business organizations, goodwill and assets, keep
available the services of their current key officers and employees, and preserve
their present relationships with governmental entities and other key third
parties, including customers, reinsurers, distributors, suppliers and other
persons with whom the Company and its subsidiaries have business relationships.
In addition, the Company has agreed to specific restrictions relating to the
conduct of its business between the date of the Merger Agreement and the earlier
of the Effective Time and the termination of the Merger Agreement, including,
but not limited to, not to take (or permit any of its subsidiaries to take) the
following actions (subject, in each case, to exceptions specified below and in
the Merger Agreement or previously disclosed in writing to Brookfield
Reinsurance as provided in the Merger Agreement or as consented to in writing in
advance by Brookfield Reinsurance (which consent shall not be unreasonably
withheld, delayed or conditioned)) or as required by law:
•subject to certain limited exceptions, offer, issue, sell, transfer, pledge,
dispose of or encumber any shares of, or securities convertible into or
exchangeable for, or options, warrants, calls, commitments or rights of any kind
to acquire, any shares of capital stock or other voting or equity interests of
any class or series of the Company or its subsidiaries;
•amend or propose to amend the Company's or its subsidiaries' certificate of
incorporation, bylaws or other comparable organizational documents, in each
case, whether by merger, consolidation or otherwise;
•authorize, recommend, propose, enter into or adopt a plan or agreement of
complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization of the Company or any of
its subsidiaries;
•subject to certain limited exceptions (including permitting the Company to
execute investment portfolio transactions in the ordinary course of business
consistent with past practice and in accordance with its existing investment
plan and investment guidelines), acquire or agree to acquire any business or any
corporation, partnership, association or other business organization or division
thereof;
•make or authorize capital expenditures that are, on an individual basis, in
excess of 110% of the Company's capital expenditure budget or in excess of 105%
of the aggregate capital expenditure budget, except for (i) planned capital
expenditures disclosed to Brookfield Reinsurance at signing of the Merger
Agreement and (ii) reasonable emergency capital expenditures (after consultation
with Brookfield Reinsurance) necessary to maintain its ability to operate its
businesses in the ordinary course or for the safety of individuals, assets or
the environment;
•subject to certain limited exceptions, sell, lease, license, transfer, pledge,
subject to any encumbrance or otherwise dispose of any of its or their assets or
properties;
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - (Continued)
•incur, guarantee or assume any indebtedness, subject to certain limited
exceptions, including investment portfolio transactions in the ordinary course
of business consistent with past practice and other incurrences of indebtedness
not to exceed
•enter into any material contract or reinsurance contract other than in the
ordinary course of business consistent with past practice; and
•terminate, amend, modify, assign or waive any material right under any material
contract or reinsurance contract except in the ordinary course of business
consistent with past practice.
The Merger Agreement permits the Company to continue to pay regular quarterly
cash dividends not to exceed
of the Merger.
Anticipated Timing; No Assurance that Closing will Occur. Because, as disclosed
above, (i) the required stockholder approval for the Merger has been obtained,
(ii) the information statement and appraisal rights notice has been sent to
stockholders and (iii) the HSR Act waiting period has expired, the only
remaining significant closing condition is the receipt of the required
regulatory approval from the insurance authorities in
required Form A filings with each of these state insurance regulators, and those
regulators are reviewing the filings. The Merger is expected to close in the
first half of 2022. However, because state insurance regulatory approval remains
outstanding, the Company cannot provide assurance the Merger will be completed
on the terms or timeline currently contemplated, or at all.
The above is a summary of certain material terms of the Merger Agreement and is
qualified in its entirety by the terms and conditions of the Merger Agreement,
which was filed as an exhibit to the Company's current report on Form 8-K filed
on
Caution Regarding Forward-Looking Statements
Certain statements made in this report, including but not limited to the
accompanying condensed consolidated financial statements, and the notes thereto
appearing in Item 1 herein, Management's Discussion and Analysis of Financial
Condition and Results of Operations in this Item 2 ("MD&A"), and the exhibits
and financial statement schedules filed as a part hereof or incorporated by
reference herein, may contain or incorporate by reference information that
includes or is based upon forward-looking statements within the meaning of the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. Forward-looking statements generally are indicated by words such as
"expects," "intends," "anticipates," "plans," "believes," "estimates," "will" or
words of similar meaning, and include, without limitation, statements regarding
the outlook of our business and expected financial performance, and statements
relating to the COVID-19 pandemic and its effects on the Company. These
forward-looking statements are subject to changes and uncertainties which are,
in many instances, beyond our control and have been made based upon our
assumptions, expectations and beliefs concerning future developments and their
potential effect upon us. There can be no assurance that future developments
will be in accordance with our expectations, that the effect of future
developments on us will be as anticipated, or that our risk management policies
and procedures will be effective, particularly given the uncertainty relating to
the COVID-19 pandemic. We do not make public specific projections relating to
future earnings, and we do not endorse any projections regarding future
performance made by others. Additionally, we do not publicly update or revise
forward-looking statements based on the outcome of various foreseeable or
unforeseeable events. Forward-looking statements are not guarantees of future
performance and involve various risks and uncertainties. There are certain
important factors that could cause actual results to differ, possibly
materially, from expectations or estimates reflected in such forward-looking
statements, including without limitation risks, uncertainties and other factors
discussed in Item 1A of our 2020 Form 10-K filed with the
and elsewhere in this report.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - (Continued)
These forward-looking statements relate to the transaction contemplated by the Merger Agreement (the "Proposed Transaction"), as well as to the Company's financial and operating performance on a stand-alone basis prior to the consummation of the Merger or if the Merger is not consummated. Important factors that could cause actual results and outcomes to differ materially from those in the forward-looking statements include, but are not limited to those summarized below: •Factors Relating to the Proposed Transaction with Brookfield Reinsurance •conditions to the closing of the Proposed Transaction may not be satisfied; •regulatory approvals required for the Proposed Transaction may not be obtained, or required regulatory approvals may delay the Proposed Transaction or result in the imposition of conditions that could have a material adverse effect on the Company or Brookfield Reinsurance or cause certain conditions to closing not to be satisfied, which could result in the termination of the Merger Agreement; •the timing of completion of the Proposed Transaction is uncertain; •the business of the Company or Brookfield Reinsurance could suffer as a result of uncertainty surrounding the Proposed Transaction; •events, changes or other circumstances could occur that could give rise to the termination of the Merger Agreement; •there are risks related to disruption of management's attention from the ongoing business operations of the Company or Brookfield Reinsurance due to the Proposed Transaction; •the announcement or pendency of the Proposed Transaction could affect the relationships of the Company or Brookfield Reinsurance with its clients, operating results and business generally, including on our ability to retain employees; •the outcome of any legal proceedings initiated against the Company or Brookfield Reinsurance following the announcement of the Proposed Transaction could adversely affect the Company or Brookfield Reinsurance, including their ability to consummate the Proposed Transaction; and •the Company or Brookfield Reinsurance may be adversely affected by other economic, business, and/or competitive factors as well as management's response to any of the aforementioned factors. The foregoing review of important factors related to the Proposed Transaction should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included herein and elsewhere, including the risk factors included in Brookfield Reinsurance's Registration Statement on Form F-1 and the Company's most recent Annual Report on Form 10-K and other documents of the Company and Brookfield Reinsurance on file with theSEC . Neither the Company nor Brookfield Reinsurance undertakes any obligation to update, correct or otherwise revise any forward-looking statements. All subsequent written and oral forward-looking statements attributable to the Company or Brookfield Reinsurance and/or any person acting on behalf of either of them are expressly qualified in their entirety by this paragraph. The information contained on any websites referenced in this Quarterly Report on Form 10-Q is not incorporated by reference into this Quarterly Report on Form 10-Q. •Economic & Investment Factors •difficult conditions in the economy, which may not improve in the near future, and risks related to persistently low or unpredictable interest rates; •fluctuations in the markets for fixed maturity securities, equity securities, and commercial real estate, which could adversely affect the valuation of our investment portfolio, our net investment income, our retirement expense, and sales of or fees from certain of our products; •lack of liquidity for certain of our investments; •risk of investment losses and defaults; 48
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - (Continued)
•Factors Relating to Our Business and Industry •the impact of major public health issues, like COVID-19; •differences between actual experience regarding mortality, morbidity, persistency, expense, surrenders and investment returns, and our assumptions for product pricing, establishing liabilities and reserves or for other purposes; •changes in our experience related to deferred policy acquisition costs; •advances in medical technology and testing, which may increase our adverse selection risk; •potentially adverse rating agency actions; •Information Technology Factors •failures or limitations of our computer, information security and administration systems; •failure to complete and implement technology initiatives in a timely manner; •Catastrophic Event Factors •natural or man-made catastrophes resulting in increased claims activity from catastrophic loss of life or property; •the effects of global climate change; •Marketplace Factors •the highly competitive nature of the insurance and annuity business; •difficulty in attraction and retention of qualified employees and agents; •the introduction of alternative healthcare solutions or changes in federal healthcare policy, both of which could impact our supplemental healthcare business; •Litigation and Regulation Factors •adverse determinations in litigation or regulatory proceedings which may result in significant financial losses and harm to our reputation; •significant changes in government regulation; •changes in tax law; •changes in statutory orU.S. Generally Accepted Accounting Principles ("GAAP") practices or policies; •Reinsurance and Counterparty Factors •potential changes in the availability, affordability, adequacy and collectability of reinsurance protection; •potential default or failure to perform by the counterparties to our reinsurance arrangements and derivative instruments; •Factors Relating to Our Corporate Structure and Ownership of Our Common Stock •state law limitations on the payment of dividends by our subsidiaries, which could limit the amount of dividends we pay; •control of our Company by a small number of stockholders; •anti-takeover provisions in our governing documents; •the designation in our governing documents of theDelaware Court of Chancery as the exclusive forum for substantially all disputes between our stockholders and us; 49
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - (Continued)
•General Factors •potential employee error or misconduct, which may result in fraud or adversely affect the execution and administration of our policies and claims; •potential ineffectiveness of our risk management policies and procedures; •the effects of unanticipated events on our disaster recovery and business continuity planning; and •potential ineffectiveness of our internal controls over financial reporting.
COVID-19 Response
A summary of actions the Company has taken in response to COVID-19 throughDecember 31, 2020 is disclosed in our 2020 Annual Report on form 10-K filed with theSEC onMarch 4, 2021 . Below is a summary of subsequent developments in our COVID-19 response: •We continue to take steps to protect employees with the goals of maintaining their health and sustaining an adequate workforce, including employees working from home and offering flexibility for employees negotiating scheduling conflicts due to the impacts of COVID-19, such as caring for family, alternative arrangements and shutdowns for business and schools, self-isolation or personal illness, including granting additional paid time off for vaccinations and to address these hardships. •We suspended our summer Internship Program for 2020, and in 2021 piloted a program which combines both virtual and in-person elements for a small group of interns. •We have developed and are continually refining our return-to-office plans for our locations. Beginning in June, we gradually re-introduced more employees to our office locations and are in the process of implementing longer-term plans to offer employees hybrid work schedules, where possible.
Although since the onset of the pandemic we have been able to maintain our
business operations, no assurance can be given that these actions will continue
to be successful, nor can we predict the level of disruption that will occur
should the COVID-19 pandemic and its related macroeconomic risks continue for an
extended period of time. Given this uncertainty, we are unable to quantify with
reasonable confidence the expected impact of the COVID-19 pandemic on our future
operations, financial condition, liquidity and results of operations. The
wide-ranging social, economic and financial consequences of the COVID-19
pandemic and the possible effects of ongoing and future governmental action in
response to COVID-19 compound this uncertainty. Additional information regarding
risks and uncertainties related to the COVID-19 pandemic are set forth in Part
II, Item 1A, Risk Factors of our 2020 Form 10-K filed with the
2021
mortality refer to Part I, Item 2, MD&A, Life.
This MD&A should be read in conjunction with our condensed consolidated
financial statements and related notes included in Part I, Financial
Information, Item 1, Financial Statements.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - (Continued)
Overview
American National Group, Inc. ("ANAT") is a family of companies that has, on a
consolidated GAAP basis,
and
National Insurance Company ("ANICO"), founded in 1905 and headquartered in
and services, which include life insurance, annuities, property and casualty
insurance, health insurance, credit insurance, and pension products. The
American National companies operate in all 50 states, the
and
National Life Insurance Company of Texas
Company of New York
State Life Insurance Company
Family Casualty Insurance Company
General Trends
During the third quarter of 2021, American National had no material changes to
the general trends discussed in the MD&A included in our 2020 Annual Report on
Form 10-K filed with the
Response" discussion above for general information about the pandemic's impact
on us, as well as "Introductory Note Regarding Pending Merger" above for general
information about the pending Merger with Brookfield Reinsurance.
Anticipated Sale of Equity Securities Portfolio
We have recently received the required corporate approval to sell our equity
securities portfolio before the end of 2021. That approval follows our
assessment, including by our board of directors and senior management, of market
conditions and the potential for changes in the
tax rate. As of
portfolio was
We expect that the sale of the equity securities portfolio, and the reinvestment
of the proceeds primarily in fixed income investments, will have a positive
impact on our net investment income and cash flows, as well as on the
Capital
security investments.
The sale of the equity securities is expected to generate a taxable gain and
will not have a significant impact on our stockholders' equity. We do expect it
to impact net income, as future non-cash earnings from net gains (losses) from
the change in fair value of equity securities will be significantly reduced once
these securities are sold.
Critical Accounting Estimates
The unaudited interim condensed consolidated financial statements have been
prepared in conformity with GAAP. In addition to GAAP, insurance companies apply
specific
statements. The preparation of the condensed consolidated financial statements
and notes requires us to make estimates and assumptions that affect the amounts
reported. Actual results could differ from results reported using those
estimates and assumptions. Our accounting policies inherently require the use of
judgment relating to a variety of assumptions and estimates, particularly
expectations of current and future mortality, morbidity, persistency, expenses,
interest rates, and property and casualty loss frequency, severity, claim
reporting and settlement patterns. Due to the inherent uncertainty when using
the assumptions and estimates, the effect of certain accounting policies under
different conditions or assumptions could vary from those reported in the
condensed consolidated financial statements.
For a discussion of our critical accounting estimates, see the MD&A in our 2020
Annual Report on Form 10-K filed with the
Recently Issued Accounting Pronouncements
Refer to Note 3, Recently Issued Accounting Pronouncements, of the Notes to the
Unaudited Condensed Consolidated Financial Statements in Item 1.
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