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 months ended
(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").
Upon completion of the transactions contemplated by the Merger Agreement, the
Company will become an indirect wholly owned subsidiary of Brookfield
Reinsurance in consideration for the payment of
total merger consideration of
Regulatory Approval Process. The completion of the merger and other transactions
contemplated by the Merger Agreement (the "Proposed Transaction") is subject to
satisfaction or waiver of certain customary closing conditions, including
obtaining the required regulatory approval from the insurance authorities in
regulatory process has been moving forward consistent with our prior
disclosures, and we continue to expect to complete the Proposed Transaction
before the end of the first half of 2022. However, because state insurance
regulatory approval remains outstanding, the Company cannot provide assurance
the Proposed Transaction will be completed on the terms or timeline currently
contemplated, or at all.
Merger Agreement's Restrictions on Interim Operations. 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;
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - (Continued)
•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;
•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 Proposed Transaction.
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. Forward-looking
statements relate to the Proposed Transaction contemplated by the Merger
Agreement, as well as to the Company's financial and operating performance on a
stand-alone basis prior to the consummation of the Proposed Transaction or if
the Proposed Transaction is not consummated. 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 2021 Form 10-K filed with the
elsewhere in this report, and the following factors relating to the Proposed
Transaction:
•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;
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - (Continued)
•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, and
operating results and business generally, including on our ability to retain and
attract employees;
•the outcome of any legal proceedings initiated against the Company or
Brookfield Reinsurance following the announcement of the Proposed Transaction
could adversely affect the Company or Brookfield Reinsurance, including their
ability to consummate the Proposed Transaction; and
•the Company or Brookfield Reinsurance may be adversely affected by other
economic, business, and/or competitive factors as well as management's response
to any of the aforementioned factors.
The foregoing review of important factors related to the Proposed Transaction
should not be construed as exhaustive and should be read in conjunction with the
other cautionary statements that are included herein and elsewhere, including
the risk factors included in Brookfield Reinsurance's Registration Statement on
Form F-1 and the Company's most recent Annual Report on Form 10-K and other
documents of the Company and Brookfield Reinsurance on file with the
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;
•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;
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - (Continued)
•Marketplace Factors
•the highly competitive nature of the insurance and annuity business;
•difficulty in attraction and retention of qualified employees and agents;
•the introduction of alternative healthcare solutions or changes in federal
healthcare policy, both of which could impact our supplemental healthcare
business;
•Litigation and Regulation Factors
•adverse determinations in litigation or regulatory proceedings which may result
in significant financial losses and harm to our reputation;
•significant changes in government regulation;
•changes in tax law;
•changes in statutory or
practices or policies;
•Reinsurance and Counterparty Factors
•potential changes in the availability, affordability, adequacy and
collectability of reinsurance protection;
•potential default or failure to perform by the counterparties to our
reinsurance arrangements and derivative instruments;
•Factors Relating to Our Corporate Structure and Ownership of Our Common Stock
•state law limitations on the payment of dividends by our subsidiaries, which
could limit the amount of dividends we pay;
•control of our Company by a small number of stockholders;
•anti-takeover provisions in our governing documents;
•the designation in our governing documents of the
the exclusive forum for substantially all disputes between our stockholders and
us;
•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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - (Continued)
COVID-19 Response
A summary of actions the Company has taken in response to COVID-19 through
the
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. Additionally, we closely monitor and align with
federal, state, and local health mandates for the protection of our onsite
workers (masking, social distancing, etc.).
•We suspended our summer Internship Program for 2020. In 2021, we piloted a
hybrid program which combined virtual and in-person elements for a small group
of interns. In 2022, we will offer a hybrid program for an expanded group of
interns.
•We have recently updated return-to-office plans for our locations. Beginning in
early
locations. While some employees have positions requiring them to work onsite,
others can work hybrid schedule, with their management team's approval.
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 2021 Form 10-K filed with the
25, 2022
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
1905 and headquartered in
broad spectrum of products and services, which include life insurance,
annuities, property and casualty insurance, health insurance, credit insurance,
and pension products. The American National companies operate in all 50 states,
the
subsidiaries include
National Life Insurance Company of New York
Casualty Company
Farm Family Insurance Company
General Trends
During the first quarter of 2022, American National had no material changes to
the general trends discussed in the MD&A included in our 2021 Annual Report on
Form 10-K filed with the
"COVID-19 Response" discussion above for general information about the
pandemic's impact on us, as well as "Introductory Note Regarding Pending Merger"
above for general information about the pending Merger with Brookfield
Reinsurance.
Sale of Equity Securities Portfolio
During the fourth quarter of 2021, we sold the majority of our equity securities
portfolio. Such sale was based upon senior management's assessment of market
conditions and the potential for changes in the
tax rate. The sale resulted in net proceeds of
significant impact on our stockholders' equity.
Proceeds from the sale of the equity securities portfolio have been reinvested
primarily in fixed income investments. We expect that such sale, coupled with
the reinvestment of proceeds in primarily fixed income investments, will have a
positive impact on our net investment income and cash flows, as well as on the
security investments. Such actions will also mitigate fluctuations in net income
associated with non-cash earnings from net gains (losses) from the change in
fair value of equity securities.
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 2021
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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EVEREST RE GROUP LTD – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
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