Edgar Filing: AMERICAN NATIONAL INSURANCE CO /TX/

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

10-Q

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 March 31, 2014

¨	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:

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 May 1, 2014, there were 26,871,752 shares of the registrant’s voting common stock, $1.00 par value per share, outstanding.

AMERICAN NATIONAL INSURANCE COMPANY

TABLE OF CONTENTS


	PART I – FINANCIAL INFORMATION	3

ITEM 1.	FINANCIAL STATEMENTS (Unaudited):	3

	Consolidated Statements of Financial Position as of March 31, 2014 and December 31, 2013	3

	Consolidated Statements of Operations for the three months ended March 31, 2014 and 2013	4

	Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2014 and 2013	5

	Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2014 and 2013	5

	Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2013	6

	Notes to the Unaudited Consolidated Financial Statements	7

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	33

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	51

ITEM 4.	CONTROLS AND PROCEDURES	51

	PART II – OTHER INFORMATION	52

ITEM 1.	LEGAL PROCEEDINGS	52

ITEM 1A.	RISK FACTORS	52

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	52

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	52

ITEM 4.	MINE SAFETY DISCLOSURES	52

ITEM 5.	OTHER INFORMATION	52

ITEM 6.	EXHIBIT INDEX	53

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)


	March 31,			December 31,
	2014			2013
ASSETS
Fixed maturity, bonds held-to-maturity, at amortized cost (Fair Value $8,943,092 and $8,823,068)	$	8,498,386		$	8,491,347
Fixed maturity, bonds available-for-sale, at fair value (Amortized cost $4,692,767 and $4,456,391)		4,891,623			4,599,673
Equity securities, at fair value (Cost $739,098 and $741,080)		1,424,143			1,410,608
Mortgage loans on real estate, net of allowance		3,290,795			3,299,242
Policy loans		399,348			397,407
Investment real estate, net of accumulated depreciation of $208,089 and $211,575		491,079			507,142
Short-term investments		245,601			495,386
Other invested assets		178,727			201,442

Total investments		19,419,702			19,402,247

Cash and cash equivalents		169,225			117,946
Investments in unconsolidated affiliates		348,515			341,012
Accrued investment income		204,766			194,830
Reinsurance recoverables		410,307			414,743
Prepaid reinsurance premiums		54,695			57,869
Premiums due and other receivables		275,535			279,929
Deferred policy acquisition costs		1,258,671			1,277,733
Property and equipment, net		109,237			107,070
Current tax receivable		9,638			18,507
Other assets		151,237			142,043
Separate account assets		981,739			970,954

Total assets	$	23,393,267		$	23,324,883

LIABILITIES
Future policy benefits
Life	$	2,723,063		$	2,677,213
Annuity		938,207			903,437
Accident and health		61,520			71,941
Policyholders’ account balances		11,018,772			11,181,650
Policy and contract claims		1,313,157			1,297,646
Unearned premium reserve		749,984			739,878
Other policyholder funds		330,460			326,885
Liability for retirement benefits		147,999			160,853
Notes payable		113,066			113,849
Deferred tax liabilities, net		254,148			220,428
Other liabilities		490,962			456,818
Separate account liabilities		981,739			970,954

Total liabilities		19,123,077			19,121,552

STOCKHOLDERS’ EQUITY
Common stock, $1.00 par value, - Authorized 50,000,000 Issued 30,832,449 and 30,832,449, Outstanding 26,911,752 and 26,895,188 shares		30,832			30,832
Additional paid-in capital		6,776			4,650
Accumulated other comprehensive income		447,297			413,712
Retained earnings		3,870,968			3,838,821
Treasury stock, at cost		(97,219	)		(97,441	)

Total American National stockholders’ equity		4,258,654			4,190,574
Noncontrolling interest		11,536			12,757

Total stockholders’ equity		4,270,190			4,203,331

Total liabilities and stockholders’ equity	$	23,393,267		$	23,324,883

See accompanying notes to the consolidated financial statements.

AMERICAN NATIONAL INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

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


	Three months ended March 31,
	2014			2013
PREMIUMS AND OTHER REVENUE
Premiums
Life	$	71,995		$	68,655
Annuity		66,936			32,696
Accident and health		55,336			52,729
Property and casualty		270,608			265,689
Other policy revenues		55,927			49,998
Net investment income		218,823			251,366
Realized investment gains (losses)		26,446			18,538
Other-than-temporary impairments		(975	)		(1,587	)
Other income		7,340			6,961

Total premiums and other revenues		772,436			745,045

BENEFITS, LOSSES AND EXPENSES
Policyholder benefits
Life		91,280			81,502
Annuity		77,452			40,695
Claims incurred
Accident and health		43,929			38,968
Property and casualty		178,512			189,594
Interest credited to policyholders’ account balances		83,412			111,106
Commissions for acquiring and servicing policies		98,435			85,123
Other operating expenses		118,524			124,575
Change in deferred policy acquisition costs		6,424			11,334

Total benefits, losses and expenses		697,968			682,897

Income (loss) before federal income tax and equity in earnings/losses of unconsolidated affiliates		74,468			62,148

Less: Provision (benefit) for federal income taxes
Current		12,360			4,964
Deferred		9,127			6,353

Total provision (benefit) for federal income taxes		21,487			11,317
Equity in earnings (losses) of unconsolidated affiliates, net of tax		(859	)		8,577

Net income (loss)		52,122			59,408
Less: Net income (loss) attributable to noncontrolling interest, net of tax		(756	)		(563	)

Net income (loss) attributable to American National	$	52,878		$	59,971

Amounts available to American National common stockholders
Earnings per share
Basic	$	1.97		$	2.24
Diluted		1.96			2.23
Cash dividends to common stockholders		0.77			0.77
Weighted average common shares outstanding		26,792,281			26,763,896
Weighted average common shares outstanding and dilutive potential common shares		26,925,152			26,887,151

See accompanying notes to the consolidated financial statements.

AMERICAN NATIONAL INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited and in thousands)


	Three months ended March 31,
	2014			2013
Net income (loss)	$	52,122		$	59,408

Other comprehensive income (loss), net of tax
Change in net unrealized gain (loss) on securities		33,834			62,719
Foreign currency transaction and translation adjustments		(966	)		149
Defined pension benefit plan adjustment		717			2,876

Other comprehensive income (loss), net of tax		33,585			65,744

Total comprehensive income (loss)		85,707			125,152

Less: Comprehensive income (loss) attributable to noncontrolling interest		(756	)		(563	)

Total comprehensive income (loss) attributable to American National	$	86,463		$	125,715

AMERICAN NATIONAL INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

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


	Three months ended March 31,
	2014			2013
Common Stock
Balance at beginning and end of the period	$	30,832		$	30,832

Additional Paid-In Capital
Balance as of January 1,		4,650			—
Reissuance of treasury shares		1,621			2,920
Income tax effect from restricted stock arrangement		—			79
Amortization of restricted stock		505			(297	)

Balance at end of period		6,776			2,702

Accumulated Other Comprehensive Income (Loss)
Balance as of January 1,		413,712			242,010
Other comprehensive income (loss)		33,585			65,744

Balance at end of the period		447,297			307,754

Retained Earnings
Balance as of January 1,		3,838,821			3,653,280
Net income (loss) attributable to American National		52,878			59,971
Cash dividends to common stockholders		(20,731	)		(20,710	)

Balance at end of the period		3,870,968			3,692,541

Treasury Stock
Balance as of January 1,		(97,441	)		(98,286	)
Reissuance of treasury shares		222			821

Balance at end of the period		(97,219	)		(97,465	)

Noncontrolling Interest
Balance as of January 1,		12,757			11,491
Contributions		42			1
Distributions		—			(21	)
Gain (loss) attributable to noncontrolling interest		(756	)		(563	)
Cumulative tax adjustment		(507	)		—

Balance at end of the period		11,536			10,908

Total Stockholders’ Equity	$	4,270,190		$	3,947,272

See accompanying notes to the consolidated financial statements.

AMERICAN NATIONAL INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and in thousands)


	Three months ended March 31,
	2014			2013
OPERATING ACTIVITIES
Net income (loss)	$	52,122		$	59,408
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Realized investment (gains) losses		(26,446	)		(18,538	)
Other-than-temporary impairments		975			1,587
Accretion (amortization) of discounts, premiums and loan origination fees		3,400			389
Net capitalized interest on policy loans and mortgage loans		(8,298	)		(7,633	)
Depreciation		7,350			8,452
Interest credited to policyholders’ account balances		83,412			111,106
Charges to policyholders’ account balances		(55,927	)		(49,998	)
Deferred federal income tax (benefit) expense		9,127			6,353
Equity in (earnings) losses of unconsolidated affiliates		859			(8,577	)
Distributions from equity method investments		2,688			9,760
Changes in
Policyholder liabilities		94,640			23,743
Deferred policy acquisition costs		6,424			11,334
Reinsurance recoverables		4,436			11,446
Premiums due and other receivables		4,245			(3,604	)
Prepaid reinsurance premiums		3,174			3,734
Accrued investment income		(9,936	)		(1,419	)
Current tax receivable/payable		8,869			9,330
Liability for retirement benefits		(12,854	)		2,793
Other, net		17,803			(52,038	)

Net cash provided by (used in) operating activities		186,063			117,628

INVESTING ACTIVITIES
Proceeds from sale/maturity/prepayment of
Held-to-maturity securities		176,063			448,034
Available-for-sale securities		292,496			242,983
Investment real estate		27,650			8,597
Mortgage loans		85,094			111,110
Policy loans		13,357			16,718
Other invested assets		28,700			12,263
Disposals of property and equipment		157			1,613
Distributions from unconsolidated affiliates		994			11,664
Payment for the purchase/origination of
Held-to-maturity securities		(193,554	)		(505,265	)
Available-for-sale securities		(487,904	)		(363,428	)
Investment real estate		(5,539	)		(10,426	)
Mortgage loans		(81,600	)		(136,576	)
Policy loans		(5,524	)		(5,967	)
Other invested assets		(4,640	)		(11,709	)
Additions to property and equipment		(5,449	)		(2,838	)
Contributions to unconsolidated affiliates		(17,260	)		(23,653	)
Change in short-term investments		249,785			79,985
Other, net		4,225			903

Net cash provided by (used in) investing activities		77,051			(125,992	)

FINANCING ACTIVITIES
Policyholders’ account deposits		265,636			219,078
Policyholders’ account withdrawals		(455,999	)		(381,556	)
Change in notes payable		(783	)		1,743
Dividends to stockholders		(20,731	)		(20,710	)
Proceeds from (payments to) noncontrolling interest		42			(20	)

Net cash provided by (used in) financing activities		(211,835	)		(181,465	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		51,279			(189,829	)
Beginning of the period		117,946			303,008

End of period	$	169,225		$	113,179

See accompanying notes to the consolidated financial statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF OPERATIONS

American National Insurance Company and its consolidated subsidiaries (collectively “American National”) offer a broad spectrum of insurance products, including individual and group life insurance, annuities, health insurance, and property and casualty insurance. Business is conducted in 50 states, the District of Columbia, Puerto Rico, Guam and American Samoa.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

The consolidated financial statements and notes thereto have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and are reported in U.S. currency. American National consolidates entities that are wholly-owned and those in which American National owns less than 100% but controls, as well as variable interest entities in which American National is the primary beneficiary. Intercompany balances and transactions with consolidated entities have been eliminated. Investments in unconsolidated affiliates are accounted for using the equity method of accounting. Certain amounts in prior years have been reclassified to conform to current year presentation.

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

The 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, 2013. The consolidated results of operations for the interim periods should not be considered indicative of results to be expected for the full year.

The preparation of the 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.

3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Adoption of New Accounting Standards—The Financial Accounting Standards Board (“FASB”) issued the following accounting guidance relevant to American National, including technical amendments and corrections to make the accounting standards easier to understand and fair value measurement easier to apply. Each became effective for American National on January 1, 2014 and, unless stated otherwise, did not have a material effect on the consolidated financial statements.

Guidance that amends the disclosures about offsetting assets and liabilities. This guidance requires disclosures of both gross and net information about offsetting and related arrangements. Subsequently, amendments were issued to clarify the scope of this guidance covering only those derivatives that are either offsets in accordance with the right of setoff conditions, the balance sheet netting criteria or subject to an enforceable master netting arrangement or similar agreement.

Amended guidance on presentation of Accumulated Other Comprehensive Income (“AOCI”). The amendments require disclosures about the amounts reclassified out of AOCI by component. In addition, an entity is required to present, either on the face of the statement of operations or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts.

Amended guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of the guidance is fixed at the reporting date. The amended guidance requires the entity to measure obligations resulting from joint and several liability arrangements as the sum of the amount the reporting entity agreed with co-obligors to pay and any additional amounts it expects to pay on behalf of one or more co-obligors.

Guidance that allows investors to elect the use of proportional amortization methods to account for investments in qualified affordable housing projects, if certain conditions are met. The new guidance replaces the effective yield method and allows an investor to amortize the cost of its investment, in proportion to the tax credits and other tax benefits it receives, to income tax expense. The guidance requires new disclosure for all investors and for all investments in qualified affordable housing projects, regardless of the accounting method used for those investments.

Future Adoption of New Accounting Standards—The FASB issued various accounting guidance through May 2014, none of which was relevant to American National.

4. INVESTMENTS IN SECURITIES

The cost or amortized cost and fair value of investments in securities are shown below (in thousands):


	March 31, 2014
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
Fixed maturity securities, bonds held-to-maturity
U.S. states and political subdivisions	$	340,902	$	21,994	$	(185	)	$	362,711
Foreign governments		29,107		2,318		—			31,425
Corporate debt securities		7,725,136		460,202		(62,822	)		8,122,516
Residential mortgage-backed securities		384,034		23,142		(2,014	)		405,162
Collateralized debt securities		2,244		205		—			2,449
Other debt securities		16,963		1,866		—			18,829

Total bonds held-to-maturity		8,498,386		509,727		(65,021	)		8,943,092

Fixed maturity securities, bonds available-for-sale
U.S. treasury and government		23,430		779		—			24,209
U.S. states and political subdivisions		656,927		26,722		(8,159	)		675,490
Foreign governments		5,000		1,823		—			6,823
Corporate debt securities		3,938,393		200,597		(25,628	)		4,113,362
Residential mortgage-backed securities		55,475		2,629		(742	)		57,362
Collateralized debt securities		13,542		1,054		(219	)		14,377

Total bonds available-for-sale		4,692,767		233,604		(34,748	)		4,891,623

Equity securities
Common stock		716,266		669,913		(3,021	)		1,383,158
Preferred stock		22,832		18,325		(172	)		40,985

Total equity securities		739,098		688,238		(3,193	)		1,424,143

Total investments in securities	$	13,930,251	$	1,431,569	$	(102,962	)	$	15,258,858


	December 31, 2013
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
Fixed maturity securities, bonds held-to-maturity
U.S. treasury and government	$	1,738	$	6	$	—		$	1,744
U.S. states and political subdivisions		346,240		16,945		(529	)		362,656
Foreign governments		29,099		2,505		—			31,604
Corporate debt securities		7,700,559		410,232		(116,900	)		7,993,891
Residential mortgage-backed securities		400,619		20,711		(2,647	)		418,683
Collateralized debt securities		2,366		225		—			2,591
Other debt securities		10,726		1,173		—			11,899

Total bonds held-to-maturity		8,491,347		451,797		(120,076	)		8,823,068

Fixed maturity securities, bonds available-for-sale
U.S. treasury and government		21,751		725		—			22,476
U.S. states and political subdivisions		630,199		22,118		(13,756	)		638,561
Foreign governments		5,000		1,649		—			6,649
Corporate debt securities		3,689,349		171,717		(54,033	)		3,807,033
Residential mortgage-backed securities		61,135		2,940		(1,068	)		63,007
Commercial mortgage-backed securities		18,223		11,037		—			29,260
Collateralized debt securities		13,884		1,320		(18	)		15,186
Other debt securities		16,850		679		(28	)		17,501

Total bonds available-for-sale		4,456,391		212,185		(68,903	)		4,599,673

Equity securities
Common stock		717,390		653,967		(2,362	)		1,368,995
Preferred stock		23,690		18,301		(378	)		41,613

Total equity securities		741,080		672,268		(2,740	)		1,410,608

Total investments in securities	$	13,688,818	$	1,336,250	$	(191,719	)	$	14,833,349

The amortized costs and fair values, by contractual maturity, of fixed maturity securities are shown below (in thousands):


	March 31, 2014
	Bonds Held-to-Maturity				Bonds Available-for-Sale
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	606,812	$	623,078	$	477,328	$	486,594
Due after one year through five years		2,224,806		2,437,297		975,504		1,065,243
Due after five years through ten years		5,164,391		5,358,905		2,779,775		2,865,769
Due after ten years		496,526		518,787		455,160		469,030
Without single maturity date		5,851		5,025		5,000		4,987

Total	$	8,498,386	$	8,943,092	$	4,692,767	$	4,891,623

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.

Proceeds from sales of available-for-sale securities, with the related gross realized gains and losses, are shown below (in thousands):


	Three months ended March 31,
	2014			2013
Proceeds from sales of available-for-sale securities	$	81,664		$	76,857
Gross realized gains		19,943			10,738
Gross realized losses		(2,122	)		(522	)

All gains and losses for securities sold throughout the quarter were determined using specific identification of the securities sold. During the three months ended March 31, 2014 and 2013, bonds with a carrying value of $14,818,000 and $13,492,000, respectively, were transferred from held-to-maturity to available-for-sale after a significant deterioration in the issuers’ creditworthiness became evident. An unrealized gain of $339,000 and loss of $263,000 were established at the time of the transfers in 2014 and 2013, respectively following the transfers at fair value.

Change in net unrealized gains (losses) on securities

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


	Three months ended March 31,
	2014			2013
Bonds available-for-sale	$	55,574		$	2,026
Equity securities		15,517			101,906

Change in net unrealized gains (losses) on securities during the year		71,091			103,932
Adjustments for
Deferred policy acquisition costs		(12,638	)		(2,106	)
Participating policyholders’ interest		(4,751	)		(5,091	)
Deferred federal income tax benefit (expense)		(19,868	)		(34,016	)

Change in net unrealized gains (losses) on securities, net of tax	$	33,834		$	62,719

The gross unrealized losses and fair value of the investment 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):


	March 31, 2014
	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
U.S. states and political subdivisions	$	(152	)	$	6,183	$	(33	)	$	139	$	(185	)	$	6,322
Corporate debt securities		(54,480	)		1,326,777		(8,342	)		106,517		(62,822	)		1,433,294
Residential mortgage-backed securities		(1,304	)		26,922		(710	)		11,527		(2,014	)		38,449

Total bonds held-to-maturity		(55,936	)		1,359,882		(9,085	)		118,183		(65,021	)		1,478,065

Fixed maturity securities, bonds available-for-sale
U.S. Treasury & other U.S. Gov corporations and agencies		—			1,686		—			—		—			1,686
U.S. states and political subdivisions		(6,726	)		131,622		(1,433	)		18,447		(8,159	)		150,069
Corporate debt securities		(21,546	)		742,755		(4,082	)		109,514		(25,628	)		852,269
Residential mortgage-backed securities		(636	)		12,018		(106	)		1,801		(742	)		13,819
Collateralized debt securities		(205	)		1,850		(14	)		560		(219	)		2,410

Total bonds available-for-sale		(29,113	)		889,931		(5,635	)		130,322		(34,748	)		1,020,253

Equity securities
Common stock		(3,021	)		40,162		—			—		(3,021	)		40,162
Preferred stock		(172	)		2,828		—			—		(172	)		2,828

Total equity securities		(3,193	)		42,990		—			—		(3,193	)		42,990

Total	$	(88,242	)	$	2,292,803	$	(14,720	)	$	248,505	$	(102,962	)	$	2,541,308


	December 31, 2013
	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
U.S. states and political subdivisions	$	(529	)	$	22,430	$	—		$	—	$	(529	)	$	22,430
Corporate debt securities		(104,308	)		1,916,758		(12,592	)		109,603		(116,900	)		2,026,361
Residential mortgage-backed securities		(1,718	)		31,715		(929	)		13,514		(2,647	)		45,229

Total bonds held-to-maturity		(106,555	)		1,970,903		(13,521	)		123,117		(120,076	)		2,094,020

Fixed maturity securities, bonds available-for-sale
U.S. Treasury & other U.S. Gov corporations and agencies		—			725		—			—		—			725
U.S. states and political subdivisions		(13,271	)		168,093		(485	)		2,905		(13,756	)		170,998
Corporate debt securities		(49,198	)		1,083,677		(4,835	)		92,004		(54,033	)		1,175,681
Residential mortgage-backed securities		(978	)		16,835		(90	)		1,872		(1,068	)		18,707
Collateralized debt securities		(3	)		205		(15	)		587		(18	)		792
Other debt securities		(28	)		10,027		—			—		(28	)		10,027

Total bonds available-for-sale		(63,478	)		1,279,562		(5,425	)		97,368		(68,903	)		1,376,930

Equity securities
Common stock		(2,362	)		29,978		—			—		(2,362	)		29,978
Preferred stock		(378	)		6,123		—			—		(378	)		6,123

Total equity securities		(2,740	)		36,101		—			—		(2,740	)		36,101

Total	$	(172,773	)	$	3,286,566	$	(18,946	)	$	220,485	$	(191,719	)	$	3,507,051

As of March 31, 2014, the securities with unrealized losses were not deemed to be other-than-temporarily impaired, including those with the duration of the unrealized losses exceeding one year. American National has the ability and intent to hold those securities until a market price recovery or maturity. Further, it is not more-likely-than-not that American National will be required to sell them prior to recovery, and recovery is expected in a reasonable period of time. It is possible an issuer’s financial circumstances may be different in the future, which may lead to a different impairment conclusion in future periods.

Credit Risk Management

Bonds distributed by credit quality rating, using both S&P and Moody’s ratings, are shown below:


	March 31, 2014			December 31, 2013
AAA		4.8	%		4.9	%
AA		11.4			11.3
A		40.4			40.7
BBB		39.8			39.2
BB and below		3.6			3.9

Total		100.0	%		100.0	%

Equity securities by market sector distribution are shown below:


	March 31, 2014			December 31, 2013
Consumer goods		19.3	%		19.8	%
Energy and utilities		15.1			15.0
Financials		19.3			19.3
Healthcare		13.1			12.7
Industrials		8.8			9.0
Information technology		15.9			15.7
Other		8.5			8.5

Total		100.0	%		100.0	%

5. MORTGAGE LOANS

Generally, commercial mortgage loans are secured by first liens on income-producing real estate. American National attempts to maintain a diversified portfolio by considering the property-type and location of the underlying collateral. Mortgage loans by property-type and geographic distribution are as follows:


	March 31, 2014			December 31, 2013
Hotel and motel		10.1	%		10.0	%
Industrial		24.4			24.9
Office		33.8			34.0
Retail		19.2			19.6
Other		12.5			11.5

Total		100.0	%		100.0	%


	March 31, 2014			December 31, 2013
East North Central		19.8	%		19.3	%
East South Central		5.8			6.8
Mountain		9.6			10.0
Pacific		12.2			12.3
South Atlantic		20.0			19.6
West South Central		27.0			26.4
Other		5.6			5.6

Total		100.0	%		100.0	%

As of March 31, 2014, American National was in the process of foreclosure on one loan with a recorded investment of $5,945,000; there were no loans foreclosed in the same period in 2013. No loans were sold in the three months ended March 31, 2014 and 2013.

Credit Quality

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 below (in thousands):


	30-59 Days		60-89 Days		Greater Than		Total Past				Total
	Past Due		Past Due		90 Days		Due		Current		Mortgage Loans
March 31, 2014
Industrial	$	—	$	—	$	—	$	—	$	803,743	$	803,743
Office		—		—		5,945		5,945		1,109,897		1,115,842
Retail		—		—		—		—		636,817		636,817
Other		—		—		—		—		747,301		747,301

Total	$	—	$	—	$	5,945	$	5,945	$	3,297,758		3,303,703

Allowance for loan losses												12,908

Mortgage loans on real estate, net of allowance											$	3,290,795

December 31, 2013
Industrial	$	—	$	—	$	2,739	$	2,739	$	821,741	$	824,480
Office		—		—		—		—		1,124,818		1,124,818
Retail		—		—		—		—		651,236		651,236
Other		—		—		—		—		710,889		710,889

Total	$	—	$	—	$	2,739	$	2,739	$	3,308,684		3,311,423

Allowance for loan losses												12,181

Mortgage loans on real estate, net of allowance											$	3,299,242

Commercial mortgage loans placed on nonaccrual status are shown below (in thousands):


	March 31,		December 31,
	2014		2013
Industrial	$	—	$	2,739
Office		5,945		—

Total mortgage loans are net of unamortized discounts of $805,000 and $852,000 and unamortized origination fees of $17,110,000 and $15,709,000 at March 31, 2014 and December 31, 2013, respectively. No unearned income is included in these amounts.

Allowance for Credit Losses

Loans not evaluated individually for collectability are segregated by 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.

The change in allowance for credit losses in commercial mortgage loans is shown below (in thousands):


	Three months ended
	March 31,
	Collectively		Individually
	Evaluated		Evaluated
	for Impairment		for Impairment
Beginning balance, 2014	$	11,688	$	493
Change in allowance		728		—

Ending balance, 2014	$	12,416	$	493

At March 31, 2014 and December 31, 2013, the recorded investment for loans collectively evaluated for impairment was $3,286,891,000 and $3,294,235,000 respectively, and the recorded investment for loans individually evaluated for impairment was $16,813,000 and $17,188,000, respectively.

Loans individually evaluated for impairment with and without an allowance are shown below (in thousands):


	March 31, 2014				March 31, 2013
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
With an allowance recorded
Retail	$	493	$	—	$	493	$	—

Total	$	493	$	—	$	493	$	—

Without an allowance recorded
Office	$	12,377	$	204	$	36,489	$	613
Industrial		2,721		45		17,180		283
Other		1,410		17		55,272		924

Total	$	16,508	$	266	$	108,941	$	1,820


	March 31, 2014				December 31, 2013
			Unpaid				Unpaid
	Recorded		Principal		Recorded		Principal
	Investment		Balance		Investment		Balance
With an allowance recorded
Retail	$	493	$	493	$	493	$	493

Total	$	493	$	493	$	493	$	493

Without an allowance recorded
Office	$	12,378	$	12,378	$	12,377	$	12,377
Industrial		2,702		2,702		2,739		2,739
Retail		1,240		1,240		1,579		1,579

Total	$	16,320	$	16,320	$	16,695	$	16,695

Troubled Debt Restructurings

American National has granted concessions to mortgage loan borrowers related to their ability to pay the loans which are classified as troubled debt restructurings. Concessions 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 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 decrease significantly, or may increase if the expected recovery is higher than the pre-modification recovery assessment.

The number of mortgage loans and recorded investment in troubled debt restructuring are as follows (in thousands except for number of contracts):


	Three months ended March 31,
	2014						2013
			Recorded		Recorded				Recorded		Recorded
	Number of		investment pre-		investment post		Number of		investment pre-		investment post
	contracts		modification		modification		contracts		modification		modification
Industrial		—	$	—	$	—		—	$	—	$	—
Office		1		6,432		6,432		—		—		—

Total		1	$	6,432	$	6,432		—	$	—	$	—

There were no commitments to lend additional funds to debtors whose loans have been modified in troubled debt restructuring, and there have been no defaults on modified loans during the period.

6. INVESTMENT REAL ESTATE

Investment real estate by property-type and geographic distribution are as follows:


	March 31, 2014			December 31, 2013
Industrial		12.7	%		12.3	%
Office		22.4			23.1
Retail		41.8			43.4
Other		23.1			21.2

Total		100.0	%		100.0	%


	March 31, 2014			December 31, 2013
East North Central		4.4	%		7.8	%
East South Central		5.5			5.4
Mountain		6.1			6.0
Pacific		6.2			5.5
South Atlantic		12.0			13.4
West South Central		59.1			59.0
Other		6.7			2.9

Total		100.0	%		100.0	%

American National and its wholly-owned subsidiaries regularly invest in real estate partnerships and joint ventures. American National frequently participates in the design of these entities with the sponsor, 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 first be used to settle their liabilities. Creditors or beneficial interest holders of these VIEs have no recourse to the general credit of American National, as American National’s obligation is limited to the amount of its committed investment. American National has not provided financial or other support to the VIEs in the form of liquidity arrangements, guarantees, or other commitments to third parties that may affect the fair value or risk of its variable interest in the VIEs in 2014 or 2013.

The assets and liabilities relating to the VIEs included in the consolidated financial statements are as follows (in thousands):


	March 31, 2014		December 31, 2013
Investment real estate	$	124,702	$	123,624
Cash and cash equivalents		6,522		2,154
Accrued investment income		179		2,197
Other receivables		9,112		8,488
Other assets		7,052		6,016

Total assets of consolidated VIEs	$	147,567	$	142,479

Notes payable	$	113,066	$	113,849
Other liabilities		7,827		6,680

Total liabilities of consolidated VIEs	$	120,893	$	120,529

The notes payable in the consolidated statements of financial position pertain to the borrowings of the consolidated VIEs. The liability of American National Insurance Company relating to notes payable of the consolidated VIEs is limited to the amount of its direct or indirect investment in the respective ventures, which totaled $16,537,000 and $12,782,000 at March 31, 2014 and December 31, 2013, respectively. The current portion of notes payable was $3,025,000 and $3,199,000 at March 31, 2014 and December 31, 2013, respectively. The average interest rate on the current portion of the notes payable was 4.25% during 2014. The total long-term portion of notes payable consists of three notes with the following interest rates: 4.0%, and adjusted LIBOR plus 1.0% LIBOR margin. Of the long-term notes payable, $9,375,000 will mature in 2016, with the remainder maturing beyond 5 years.

For other VIEs in which American National invests, it is not the primary beneficiary and these entities were not consolidated, as the major decisions that most significantly impact the economic activities of the VIE require unanimous consent of all owners. The following table presents the carrying amount and maximum exposure to loss relating to unconsolidated VIEs (in thousands):


	March 31, 2014				December 31, 2013
			Maximum				Maximum
	Carrying		Exposure		Carrying		Exposure
	Amount		to Loss		Amount		to Loss
Investment in unconsolidated affiliates	$	198,872	$	198,872	$	195,794	$	195,794
Mortgage loans		108,375		108,375		101,648		101,648
Accrued investment income		493		493		454		454

7. DERIVATIVE INSTRUMENTS

American National purchases over-the-counter equity-indexed options as economic hedges against fluctuations in the equity markets to which equity-indexed policies are exposed. Equity-indexed policies include a fixed host universal-life insurance or annuity policies and an equity-indexed embedded derivative. The detail of derivative instruments is shown below (in thousands, except the number of instruments):


		March 31, 2014						December 31, 2013
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		371	$	924,400	$	146,147		394	$	951,400	$	164,753
Equity-indexed embedded derivative	Policyholders’ account balances		35,703		863,600		155,191		33,579		819,200		148,435


		Gains (Losses) Recognized in Income on Derivatives
Derivatives Not Designated	Location in the Consolidated	Three months ended March 31,
as Hedging Instruments	Statements of Operations	2014			2013
Equity-indexed options	Net investment income	$	3,985		$	24,340
Equity-indexed embedded derivative	Interest credited to policyholders’ account balances		(2,896	)		(20,647	)

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

Net investment income is shown below (in thousands):


	Three months ended March 31,
	2014			2013
Bonds	$	151,516		$	163,433
Equity securities		9,084			6,815
Mortgage loans		51,454			51,785
Real estate		(4,971	)		(1,421	)
Options		3,985			24,340
Other invested assets		7,755			6,414

Total	$	218,823		$	251,366

Realized investment gains (losses) are shown below (in thousands):


	Three months ended March 31,
	2014			2013
Bonds	$	16,619		$	3,223
Equity securities		6,531			8,683
Mortgage loans		(728	)		288
Real estate		4,963			6,383
Other invested assets		(939	)		(39	)

Total	$	26,446		$	18,538

The other-than-temporary-impairment losses are shown below (in thousands):


	Three months ended March 31,
	2014			2013
Bonds	$	(41	)	$	—
Equity securities		(934	)		(1,587	)

Total	$	(975	)	$	(1,587	)

9. FAIR VALUE OF FINANCIAL INSTRUMENTS

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


	March 31, 2014				December 31, 2013
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
Financial assets
Fixed maturity securities, bonds held-to-maturity	$	8,498,386	$	8,943,092	$	8,491,347	$	8,823,068
Fixed maturity securities, bonds available-for-sale		4,891,623		4,891,623		4,599,673		4,599,673
Equity securities		1,424,143		1,424,143		1,410,608		1,410,608
Equity-indexed options		146,147		146,147		164,753		164,753
Mortgage loans on real estate, net of allowance		3,290,795		3,438,727		3,299,242		3,470,663
Policy loans		399,348		399,348		397,407		397,407
Short-term investments		245,601		245,601		495,386		495,386
Separate account assets		981,739		981,739		970,954		970,954

Total financial assets	$	19,877,782	$	20,470,420	$	19,829,370	$	20,332,512

Financial liabilities
Investment contracts	$	9,236,868	$	9,236,868	$	9,423,122	$	9,423,122
Embedded derivative liability for equity-indexed contracts		155,191		155,191		148,435		148,435
Notes payable		113,066		113,066		113,849		113,849
Separate account liabilities		981,739		981,739		970,954		970,954

Total financial liabilities	$	10,486,864	$	10,486,864	$	10,656,360	$	10,656,360

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability. A fair value hierarchy is used to determine fair value based on a hypothetical transaction at the measurement date from the perspective of a market participant. American National has evaluated the types of securities in its investment portfolio to determine an appropriate hierarchy level based upon trading activity and the observability of market inputs. The classification of assets or liabilities within the fair value hierarchy is based on the lowest level of significant input to its valuation. The input levels are defined as follows:

Level 1

Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2

Quoted prices in markets that are not active or inputs that are observable directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities other than quoted prices in Level 1; quoted prices in markets that are not active; or other inputs that are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3

Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. Unobservable inputs reflect American National’s own assumptions about the assumptions that market participants would use in pricing the asset or liability. Level 3 assets and liabilities include financial instruments whose values are determined using pricing models and third-party evaluation, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Fixed Maturity Securities and Equity Options—American National utilizes a pricing service to estimate fair value measurements. The estimates of fair value for most fixed maturity securities, including municipal bonds, provided by the pricing service are disclosed as Level 2 measurements as the estimates are based on observable market information rather than market quotes.

The pricing service utilizes market quotations for fixed maturity securities that have quoted prices in active markets. Since fixed maturity securities generally do not trade on a daily basis, the pricing service prepares estimates of fair value measurements for these securities using its proprietary pricing applications, which include available relevant market information, benchmark curves, benchmarking of like securities, sector groupings and matrix pricing. Additionally, an option adjusted spread model is used to develop prepayment and interest rate scenarios.

The pricing service evaluates each asset class based on relevant market information, credit information, perceived market movements and sector news. The market inputs utilized in the pricing evaluation, listed in the approximate order of priority, include: benchmark yields, reported trades, 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 and the techniques applied by the pricing service to produce quotes that represent the fair value of a specific security. The review confirms that the pricing service is utilizing information from observable transactions or a technique that represents a market participant’s assumptions. American National does not adjust quotes received from the pricing service. The pricing service utilized by American National has indicated that they will only produce an estimate of fair value if there is objectively verifiable information available.

American National holds a small amount of private placement debt and fixed maturity securities that have characteristics that make them unsuitable for matrix pricing. For these securities, a quote from an independent 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.

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 performed quarterly.

Equity Securities—For publicly-traded equity securities, prices are received from a nationally recognized pricing service that are based on observable market transactions, and these securities are classified as Level 1 measurements. For certain preferred stock, current market quotes in active markets are unavailable. In these instances, an estimate of fair value is received from the pricing service. The service utilizes similar methodologies to price preferred stocks as it does for fixed maturity securities. These estimates are disclosed as Level 2 measurements. American National tests the accuracy of the information provided by reference to other services regularly.

Mortgage Loans—The estimated fair value of mortgage loans is determined on a loan by loan basis by applying a discount rate to expected cash flows from future installment and balloon payments. The discount rate takes into account general market trends and specific credit risk trends for the individual loan. Factors used to arrive at the discount rate include inputs from spreads based on U.S. Treasury notes and the loan’s credit quality, region, property type, lien priority, payment type and current status.

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

A significant unobservable input used to calculate the fair value of the embedded derivatives is equity option implied volatility. An increase in implied volatility will result in an increase in the value of the equity-indexed embedded derivatives, all other things being equal. At both March 31, 2014 and December 31, 2013, the one year implied volatility used to estimate embedded derivative value was 15.0%.

Other Financial Instruments—Other financial instruments classified as Level 3 measurements, as there is little or no market activity, are as follows:

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

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

Quantitative Disclosures

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


	Fair Value Measurement as of March 31, 2014
	Total Fair Value		Level 1		Level 2		Level 3
Financial assets
Fixed maturity securities, bonds held-to-maturity
U.S. states and political subdivisions	$	362,711	$	—	$	362,711	$	—
Foreign governments		31,424		—		31,424		—
Corporate debt securities		8,122,517		—		8,076,602		45,915
Residential mortgage-backed securities		405,162		—		404,169		993
Collateralized debt securities		2,449		—		—		2,449
Other debt securities		18,829		—		18,829		—

Total bonds held-to-maturity		8,943,092		—		8,893,735		49,357

Fixed maturity securities, bonds available-for-sale
U.S. treasury and government		24,209		—		24,209		—
U.S. states and political subdivisions		675,490		—		672,975		2,515
Foreign governments		6,823		—		6,823		—
Corporate debt securities		4,113,362		—		4,107,804		5,558
Residential mortgage-backed securities		57,362		—		55,196		2,166
Collateralized debt securities		14,377		—		12,643		1,734

Total bonds available-for-sale		4,891,623		—		4,879,650		11,973

Equity securities
Common stock		1,383,158		1,383,158		—		—
Preferred stock		40,985		40,985		—		—

Total equity securities		1,424,143		1,424,143		—		—

Options		146,147		—		—		146,147
Mortgage loans on real estate		3,438,727		—		3,438,727		—
Policy loans		399,348		—		—		399,348
Short-term investments		245,601		—		245,601		—
Separate account assets		981,739		—		981,739		—

Total financial assets	$	20,470,420	$	1,424,143	$	18,439,452	$	606,825

Financial liabilities
Investment contracts	$	9,236,868	$	—	$	—	$	9,236,868
Embedded derivative liability for equity-indexed contracts		155,191		—		—		155,191
Notes payable		113,066		—		—		113,066
Separate account liabilities		981,739		—		981,739		—

Total financial liabilities	$	10,486,864	$	—	$	981,739	$	9,505,125


	Fair Value Measurement as of December 31, 2013
	Total Fair Value		Level 1		Level 2		Level 3
Financial assets
Fixed maturity securities, bonds held-to-maturity
U.S. treasury and government	$	1,743	$	—	$	1,743	$	—
U.S. states and political subdivisions		362,657		—		362,657		—
Foreign governments		31,605		—		31,605		—
Corporate debt securities		7,993,891		—		7,950,418		43,473
Residential mortgage-backed securities		418,682		—		417,687		995
Collateralized debt securities		2,591		—		—		2,591
Other debt securities		11,899		—		11,899		—

Total bonds held-to-maturity		8,823,068		—		8,776,009		47,059

Fixed maturity securities, bonds available-for-sale
U.S. treasury and government		22,477		—		22,477		—
U.S. states and political subdivisions		638,560		—		636,040		2,520
Foreign governments		6,649		—		6,649		—
Corporate debt securities		3,807,033		—		3,794,809		12,224
Residential mortgage-backed securities		63,007		—		60,841		2,166
Commercial mortgage-backed securities		29,260		—		—		29,260
Collateralized debt securities		15,186		—		13,052		2,134
Other debt securities		17,501		—		17,501		—

Total bonds available-for-sale		4,599,673		—		4,551,369		48,304

Equity securities
Common stock		1,368,995		1,368,995		—		—
Preferred stock		41,613		41,613		—		—

Total equity securities		1,410,608		1,410,608		—		—

Options		164,753		—		—		164,753
Mortgage loans on real estate		3,470,663		—		3,470,663		—
Policy loans		397,407		—		—		397,407
Short-term investments		495,386		—		495,386		—
Separate account assets		970,954		—		970,954		—

Total financial assets	$	20,332,512	$	1,410,608	$	18,264,381	$	657,523

Financial liabilities
Investment contracts	$	9,423,122	$	—	$	—	$	9,423,122
Embedded derivative liability for equity-indexed contracts		148,435		—		—		148,435
Notes payable		113,849		—		—		113,849
Separate account liabilities		970,954		—		970,954		—

Total financial liabilities	$	10,656,360	$	—	$	970,954	$	9,685,406

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


	Level 3
	Assets						Liability
	Investment Securities			Equity- Indexed Options			Embedded Derivative
Beginning balance, 2014	$	48,304		$	164,753		$	148,435
Total realized and unrealized investment gains/losses included in other comprehensive income		(12,194	)		—			—
Net fair value change included in realized gains/losses		13,056			—			—
Net gain (loss) for derivatives included in net investment income		—			2,112			—
Net change included in interest credited		—			—			2,896
Purchases, sales and settlements or maturities
Purchases		—			4,673			—
Sales		(37,188	)		—			—
Settlements or maturities		(5	)		(25,391	)		—
Premiums less benefits		—			—			3,860

Ending balance March 31, 2014	$	11,973		$	146,147		$	155,191

Beginning balance, 2013	$	107,036		$	82,625		$	75,032
Total realized and unrealized investment gains/losses Included in other comprehensive income		8,409			—			—
Net fair value change included in realized gains/losses		211			—			—
Net gain (loss) for derivatives included in net investment income		—			22,466			—
Net change included in interest credited		—			—			20,647
Purchases, sales and settlements or maturities
Purchases		2,005			3,290			—
Sales		(3,288	)		—			—
Settlements or maturities		—			(3,127	)		—
Premiums less benefits		—			—			(1,691	)

Ending balance March 31, 2013	$	114,373		$	105,254		$	93,988

Within the net gain (loss) for derivatives included in net investment income were an unrealized gain (loss) of ($11,397,000) and $21,580,000 relating to assets still held at March 31, 2014 and 2013, respectively.

10. DEFERRED POLICY ACQUISITION COSTS

Deferred policy acquisition costs are shown below (in thousands):


	Life			Annuity			Accident & Health			Property & Casualty			Total
Beginning balance 2014	$	684,084		$	424,158		$	47,220		$	122,271		$	1,277,733
Additions		23,288			12,521			4,288			51,852			91,949
Amortization		(18,105	)		(19,917	)		(4,519	)		(55,832	)		(98,373	)
Effect of change in unrealized gains on available-for-sale securities		(1,775	)		(10,863	)		—			—			(12,638	)

Net change		3,408			(18,259	)		(231	)		(3,980	)		(19,062	)

Ending balance at March 31, 2014	$	687,492		$	405,899		$	46,989		$	118,291		$	1,258,671

Commissions comprise the majority of the additions to deferred policy acquisition costs for each year.

11. LIABILITY FOR UNPAID CLAIMS AND CLAIM ADJUSTMENT EXPENSES

The liability for unpaid claims and claim adjustment expenses (“claims”) for accident and health, and property and casualty insurance is included in the “Policy and contract claims” in the consolidated statements of financial position and represents the amount estimated for claims that have been reported but not settled and IBNR claims. Liability for unpaid claims are estimated based upon American National’s historical experience and actuarial assumptions that consider the effects of current developments, anticipated trends and risk management programs, reduced for anticipated salvage and subrogation. The effects of the changes are included in the consolidated results of operations in the period in which the changes occur.

Information regarding the liability for unpaid claims is shown below (in thousands):


	Three months ended March 31,
	2014			2013
Unpaid claims balance, beginning	$	1,096,301		$	1,168,047
Less reinsurance recoverables		215,161			256,885

Net beginning balance		881,140			911,162

Incurred related to
Current		229,727			254,035
Prior years		(11,369	)		(23,037	)

Total incurred claims		218,358			230,998

Paid claims related to
Current		94,693			92,894
Prior years		121,876			133,698

Total paid claims		216,569			226,592

Net balance		882,929			915,568
Plus reinsurance recoverables		214,505			240,844

Unpaid claims balance, ending	$	1,097,434		$	1,156,412

The net and gross reserve calculations have shown favorable development for the last several years as a result of favorable loss emergence compared to what was implied by the loss development patterns used in the original estimation of losses in prior years. Estimates for ultimate incurred claims attributable to insured events of prior years decreased by approximately $11,369,000 during the first three months of 2014 and $23,037,000 during the same period in 2013.

12. FEDERAL INCOME TAXES

A reconciliation of the effective tax rate to the statutory federal tax rate is shown below (in thousands, except percentages):


	Three months ended March 31,
	2014						2013
	Amount			Rate			Amount			Rate
Income tax (benefit) on pre-tax income	$	26,064			35.0	%	$	21,752			35.0	%
Tax-exempt investment income		(1,553	)		(2.1	)		(1,623	)		(2.6	)
Dividend exclusion		(1,888	)		(2.5	)		(1,471	)		(2.4	)
Miscellaneous tax credits, net		(1,551	)		(2.1	)		(1,961	)		(3.2	)
Other items, net		415			0.6			(5,380	)		(8.6	)

	$	21,487			28.9	%	$	11,317			18.2	%

American National made a federal tax payment of $808,300 during the three months ended March 31, 2014 and made no payment during the first three months ended March 31, 2013.

Management believes that a sufficient level of taxable income will be achieved over time to utilize the deferred tax assets in the consolidated federal tax return; therefore, no valuation allowance was recorded as of March 31, 2014 and December 31, 2013. However, if not utilized beforehand, approximately $5,396,000 in ordinary loss tax carryforwards will expire on December 31, 2034.

The statute of limitations for the examination of federal income tax returns by the Internal Revenue Service for years 2006 to 2013 either has been extended or has not expired. In the opinion of management, all prior year deficiencies have been paid or adequate provisions have been made for any tax deficiencies that may be upheld. No provision for penalties was established, and no interest expense was incurred for 2014 or 2013, relating to uncertain tax positions. Management does not believe there are any uncertain tax benefits that could be recognized within the next twelve months that would decrease American National’s effective tax rate.

13. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The components of and changes in the accumulated other comprehensive income (loss) (“AOCI”), and the related tax effects, are shown below (in thousands):


	Net Unrealized			Defined Benefit			Foreign
	Gains/(Losses)			Pension Plan			Currency
	on Securities			Adjustments			Adjustments			AOCI
Beginning balance 2014	$	457,937		$	(43,884	)	$	(341	)	$	413,712
Amounts reclassified from AOCI (net of tax benefit $7,289 and expense $386)		(13,536	)		717			—			(12,819	)
Unrealized holding gains (losses) arising during the period (net of tax expense $32,171)		59,745									59,745
Unrealized adjustment to DAC (net of tax benefit $3,351)		(9,287	)								(9,287	)
Unrealized (gains) losses on investments attributable to participating policyholders’ interest (net of tax benefit $1,663)		(3,088	)								(3,088	)
Foreign currency adjustment (net of tax benefit $520)								(966	)		(966	)

Ending balance at March 31, 2014	$	491,771		$	(43,167	)	$	(1,307	)	$	447,297


	Net Unrealized			Defined Benefit			Foreign
	Gains/(Losses)			Pension Plan			Currency
	on Securities			Adjustments			Adjustments			AOCI
Beginning balance 2013	$	370,842		$	(129,003	)	$	171		$	242,010
Amounts reclassified from AOCI (net of tax benefit $3,434 and expense $1,549)		(5,979	)		2,876			—			(3,103	)
Unrealized holding gains (losses) arising during the period (net of tax expense $39,671)		73,674									73,674
Unrealized adjustment to DAC (net of tax benefit $439)		(1,667	)								(1,667	)
Unrealized (gains) losses on investments attributable to participating policyholders’ interest (net of tax benefit $1,782)		(3,309	)								(3,309	)
Foreign currency adjustment (net of tax expense $80)								149			149

Ending balance at March 31, 2013	$	433,561		$	(126,127	)	$	320		$	307,754

14. STOCKHOLDERS’ EQUITY AND NONCONTROLLING INTERESTS

American National has one class of common stock with a par value of $1.00 per share and 50,000,000 authorized shares. The amounts outstanding at the dates indicated are shown below:


	March 31,			December 31,
	2014			2013
Common stock
Shares issued		30,832,449			30,832,449
Treasury shares		(3,920,697	)		(3,937,261	)

Outstanding shares		26,911,752			26,895,188
Restricted shares		(190,667	)		(190,667	)

Unrestricted outstanding shares		26,721,085			26,704,521

Stock-based compensation

American National has one stock-based compensation plan, which allows for grants of Non-Qualified Stock Options, Stock Appreciation Rights (“SAR”), Restricted Stock (“RS”) Awards, Restricted Stock Units (“RSU”), Performance Awards, Incentive Awards or any combination thereof. This plan is administered by the American National Board Compensation Committee. The Board Compensation Committee makes incentive awards under this plan to our executives after meeting established performance objectives. All awards are subject to review and approval by the committee and the Board of Directors, both at the time of setting applicable performance objectives and at the time of payment of the awards. The number of shares available for grants under the plan cannot exceed 2,900,000 shares, and no more than 200,000 shares may be granted to any one individual in any calendar year. Grants are made to certain officers and directors as compensation and to align their interests with those of other shareholders.

SAR, RS and RSU information for the periods indicated is shown below:


	SAR					RS Shares				RS Units
				Weighted-				Weighted-Average					Weighted-Average
				Average Grant				Grant Date Fair					Grant Date Fair
	Shares			Date Fair Value		Shares		Value		Units			Value
Outstanding at December 31, 2013		74,435		$	114.08		190,667	$	107.54		121,369		$	76.23
Granted		—			—		—		—		66,383			113.49
Exercised		(833	)		94.47		—		—		(51,433	)		76.17
Forfeited		—			—		—		—		(50	)		113.49
Expired		—			—		—		—		—			—

Outstanding at March 31, 2014		73,602		$	114.30		190,667	$	107.54		136,269		$	94.83


	SAR		RS Shares		RS Units
Weighted-average contractual remaining life (in years)		2.00		4.20		2.40
Exercisable shares		72,674		N/A		—
Weighted-average exercise price	$	114.30	$	107.54	$	94.83
Weighted-average exercise price exercisable shares		114.66		N/A		N/A
Compensation expense (credits)
Three months ended March 31, 2014	$	9,000	$	505,000	$	4,814,000
Three months ended March 31, 2013		32,000		505,000		5,563,000
Fair value of liability award
March 31, 2014	$	181,000		N/A	$	13,786,000
December 31, 2013		376,000		N/A		15,018,000

The SARs give the holder the right to cash compensation based on the difference between the stock price on the grant date and the stock price on the exercise date. The SARs vest at a rate of 20% per year for five years and expire five years after vesting.

Effective December 31, 2012, the settlement provision within outstanding RSU awards was modified to allow the recipient of the awards to settle the vested RSUs in either cash or American National’s common stock. This change in the settlement provision is expected to apply to all future issuance of RSU awards. Prior to the modification, vested RSUs were converted to American National’s common stock on a one-for-one basis. This modification changes the award classification from an equity to a liability award. At the date of modification, American National recorded a liability of $7,974,000 with a corresponding reduction in additional paid-in capital. The liability will be re-measured and adjusted for changes in the fair value each reporting period through the vesting date. RSUs generally vest after a three-year graded vesting requirement. Certain awards vest over a shorter period as a result of retirement provisions. The modification, which was applied consistently to all participants, resulted in an incremental cost of $5,174,000 and $1,408,000 for the three months ended March 31, 2014 and 2013, respectively.

RS Awards entitle the participant to full dividend and voting rights. Each award has the value of one share of restricted stock and vests 10 years from the grant date. Unvested shares are restricted as to disposition, and are subject to forfeiture under certain circumstances. Compensation expense is recognized over the vesting period. The restrictions on these awards lapse after 10 years, and these awards feature a graded vesting schedule in the case of the retirement of an award holder. Restricted stock for 350,334 shares has been granted at an exercise price of zero, of which 190,667 shares are unvested.

Earnings per share

Basic earnings per share were calculated using a weighted average number of shares outstanding. The Restricted Stock awards and units resulted in diluted earnings per share as follows (in thousands, except share-related data):


	Three months ended March 31,
	2014		2013
Weighted average shares outstanding		26,792,281		26,763,896
Incremental shares from RS awards and RSUs		132,871		123,255

Total shares for diluted calculations		26,925,152		26,887,151

Net income (loss) attributable to American National	$	52,878	$	59,971
Basic earnings per share	$	1.97	$	2.24
Diluted earnings per share		1.96		2.23

Statutory Capital and Surplus

Risk Based Capital (“RBC”) requirements are measures insurance regulators use to evaluate the capital adequacy of American National Insurance Company and its insurance subsidiaries. RBC is calculated using formulas applied to certain financial balances and activities that consider, among other things, risks related to the type and quality of the invested assets, insurance risks associated with an insurer’s products and liabilities, interest rate risks and general business risks. Insurance companies that do not maintain capital and surplus at a level at least 200% of the authorized control level RBC are required to take certain actions. At March 31, 2014 and December 31, 2013, American National Insurance Company’s statutory capital and surplus was $2,696,656,000 and $2,667,589,000, respectively. Additionally, each of the insurance subsidiaries had statutory capital and surplus at March 31, 2014 and December 31, 2013, substantially above each subsidiary’s authorized control level RBC.

American National’s insurance subsidiaries prepare statutory-basis financial statements in accordance with statutory accounting practices prescribed or permitted by the insurance department of the state of domicile which include certain components of the National Association of Insurance Commissioners’ Codification of Statutory Accounting Principles (“NAIC Codification”). NAIC Codification is intended to standardize regulatory accounting and reporting to state insurance departments. However, statutory accounting practices continue to be established by individual state laws and permitted practices. Modifications by the various state insurance departments may impact the statutory capital and surplus of American National Insurance Company and its insurance subsidiaries.

Statutory accounting differs from GAAP primarily by charging policy acquisition costs to expense as incurred, establishing future policy benefit liabilities using different actuarial assumptions, and valuing securities on a different basis. In addition, certain assets are not admitted under statutory accounting principles and are charged directly to surplus.

One of American National’s insurance subsidiaries has been granted a permitted practice from the Missouri Department of Insurance to record as the valuation of its investment in a wholly-owned subsidiary that is the attorney-in-fact for a Texas domiciled insurer, the statutory capital and surplus of the Texas domiciled insurer. This permitted practice increases the statutory capital and surplus of both American National Insurance Company and the Missouri domiciled insurance subsidiary by $59,732,000 and $58,207,000 at March 31, 2014 and 2013, respectively. The statutory capital and surplus of both American National Insurance Company and the Missouri domiciled insurance subsidiary would have remained substantially above the company action level RBC had it not used the permitted practice.

The statutory capital and surplus and net income (loss) of our insurance entities in accordance with statutory accounting practices are shown below (in thousands):


	March 31,		December 31,
	2014		2013
Statutory capital and surplus
Life insurance entities	$	2,117,917	$	2,094,231
Property and casualty insurance entities		578,739		573,358

	Three months ended
	March 31,
	2014		2013
Statutory net income
Life insurance entities	$	55,054	$	42,272
Property and casualty insurance entities		23,176		10,369

Dividends

American National Insurance Company’s payment of dividends to stockholders is restricted by state laws. The restrictions require life insurance companies to maintain minimum amounts of capital and surplus, and in the absence of special approval, limit the payment of dividends to the greater of prior year statutory net income from operations on an annual, non-cumulative basis, or 10% of prior year statutory surplus. Under Texas insurance law, American National Insurance Company is permitted to pay total dividends of $269,666,000 during 2014 without prior approval of the Texas Department of Insurance. Similar restrictions on amounts that can transfer in the form of dividends, loans, or advances to American National Insurance Company apply to its insurance subsidiaries.

Noncontrolling interests

American National County Mutual Insurance Company (“County Mutual”) is a mutual insurance company that is owned by its policyholders. American National has a management agreement that effectively gives it control of County Mutual. As a result, County Mutual is included in the consolidated financial statements of American National. Policyholder interests in the financial position of County Mutual are reflected as noncontrolling interest of $6,750,000 at March 31, 2014 and December 31, 2013.

American National Insurance Company and its subsidiaries exercise significant control or ownership of various joint ventures, resulting in their consolidation into American National’s consolidated financial statements. The interests of the other partners in the consolidated joint ventures are shown as noncontrolling interests of $4,786,000 and $6,007,000 at March 31, 2014 and December 31, 2013, respectively.

15. SEGMENT INFORMATION

Management organizes the business into five operating segments:

•

Life—markets whole, term, universal, indexed and variable life insurance on a national basis primarily through career and multiple-line agents, independent agents and direct marketing channels.

•

Annuity—offers fixed, indexed, and variable annuity products. These products are sold through independent agents, brokers, and financial institutions, along with multiple-line and career agents.

•

Health—primary lines of business are Medicare supplement, stop loss, other supplemental health products and credit disability insurance. Health products are typically distributed through independent agents and managing general underwriters.

•

Property and Casualty—writes personal, agricultural and commercial coverages and credit-related property insurance. These products are sold through multiple-line and independent agents.

•

Corporate and Other—consists of net investment income from investments not allocated to the insurance segments and revenues from non-insurance operations.

The accounting policies of the segments are the same as those described in Note 2 to American National’s annual report on form 10-K. All revenue and expense amounts specifically attributable to policy transactions are recorded directly to the appropriate operating segment. Revenues and expenses not specifically attributable to policy transactions are allocated to each segment as follows:

•

Recurring income from bonds and mortgage loans is allocated based on the assets allocated to each line of business at the average yield available from these assets.

•

Net investment income from all other assets is allocated to the insurance segments in accordance with the amount of capital allocated to each segment, with the remainder recorded in the Corporate and Other business segment.

•

Expenses are allocated based upon various factors, including premium and commission ratios within the respective operating segments.

The following summarizes results of operations by operating segments (in thousands):


	Three months ended March 31,
	2014			2013
Income (loss) from continuing operations before federal income taxes, and equity in earnings/losses of unconsolidated affiliates
Life	$	(1,822	)	$	6,004
Annuity		17,705			27,334
Health		(546	)		(686	)
Property and casualty		29,512			12,909
Corporate and other		29,619			16,587

Total	$	74,468		$	62,148

16. COMMITMENTS AND CONTINGENCIES

Commitments

American National had aggregate commitments at March 31, 2014, to purchase, expand or improve real estate, to fund fixed interest rate mortgage loans, and to purchase other invested assets of $464,057,000 of which $296,391,000 is expected to be funded in 2014. The remaining $167,666,000 will be funded in 2015 and beyond.

American National has a $100,000,000 short-term variable rate borrowing facility containing a $55,000,000 sub-feature for the issuance of letters of credit. Borrowings under the facility are at the discretion of the lender and would be used only for funding working capital requirements. The combination of borrowings and outstanding letters of credit cannot exceed $100,000,000 at any time. As of March 31, 2014 and December 31, 2013, the outstanding letters of credit were $14,277,000 and $15,560,000, respectively, and there were no borrowings on this facility to meet liquidity requirements. This facility expires on September 30, 2014. American National expects it will be renewed on substantially equivalent terms upon expiration.

Guarantees

American National has guaranteed bank loans for customers of a third-party marketing operation. The bank loans are used to fund premium payments on life insurance policies issued by American National. The loans are secured by the cash values of the life insurance policies. If the customer were to default on the bank loan, American National would be obligated to pay off the loans. As the cash values of the life insurance policies always equal or exceed the balance of the loans, management does not foresee any loss on these guarantees. The total amount of the guarantees outstanding as of March 31, 2014, was approximately $206,376,000, while the total cash values of the related life insurance policies was approximately $211,401,000.

Litigation

American National and certain subsidiaries, in common with the insurance industry in general, are defendants in various lawsuits concerning alleged breaches of contracts, various employment matters, allegedly deceptive insurance sales and marketing practices, and miscellaneous other causes of action arising in the ordinary course of operations. Certain of these lawsuits include claims for compensatory and punitive damages. We provide accruals for these items to the extent we deem the losses probable and reasonably estimable. After reviewing these matters with legal counsel, based upon information presently available, management is of the opinion that the ultimate resultant liability, if any, would not have a material adverse effect on American National’s consolidated financial position, liquidity or results of operations; however, assessing the eventual outcome of litigation necessarily involves forward-looking speculation as to judgments to be made by judges, juries and appellate courts in the future. Such speculation warrants caution, as the frequency of large damage awards, which bear little or no relation to the economic damages incurred by plaintiffs in some jurisdictions, continues to create the potential for an unpredictable judgment in any given lawsuit. These lawsuits are in various stages of development, and future facts and circumstances could result in management’s changing its conclusions. It is possible that, if the defenses in these lawsuits are not successful, and the judgments are greater than management can anticipate, the resulting liability could have a material impact on our consolidated financial position, liquidity or results of operations. With respect to the existing litigation, management currently believes that the possibility of a material judgment adverse to American National is remote and no estimate of range can be made for loss contingencies that are at least reasonably possible but not accrued.

17. RELATED PARTY TRANSACTIONS

American National has entered into recurring transactions and agreements with certain related parties. These include mortgage loans, management contracts, agency commission contracts, marketing agreements, accident and health insurance contracts and legal services. The impact on the consolidated financial statements of the significant related party transactions is shown below (in thousands):


		Dollar Amount of Transactions				Amount due to/(from) American National
		Three months ended March 31,				March 31,			December 31,
Related Party	Financial Statement Line Impacted	2014		2013		2014			2013
Gal-Tex Hotel Corporation	Mortgage loan on real estate	$	300	$	280	$	7,442		$	7,742
Gal-Tex Hotel Corporation	Net investment income		139		159		45			47
Greer, Herz and Adams, LLP	Other operating expenses		2,854		2,131		(474	)		(284	)

Mortgage Loans to Gal-Tex Hotel Corporation (“Gal-Tex”): American National holds a first mortgage loan originated in 1999, with an interest rate of 7.30% and final maturity date of April 1, 2019 issued to Gal-Tex, which is collateralized by a hotel property in San Antonio, Texas. This loan is current as to principal and interest payments.

Transactions with Greer, Herz & Adams, L.L.P.: Irwin M. Herz, Jr. is an American National advisory director and a Partner with Greer, Herz Adams, L.L.P., which serves as American National’s General Counsel.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Set forth on the following pages is management’s discussion and analysis (“MD&A”) of financial condition and results of operations for the three months ended March 31, 2014 and 2013 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.

Forward-Looking Statements

This document contains forward-looking statements that reflect our estimates and assumptions related to business, economic, competitive and legislative developments. 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. Forward-looking statements are not a guarantee of future performance and involve various risks and uncertainties. Moreover, forward-looking statements speak only as of the date made, and we undertake no obligation to update them. Certain important factors could cause our actual results to differ, possibly materially, from our expectations or estimates. These factors are described in greater detail in Item IA, Risk Factors, in our 2013 Annual Report on Form 10-K filed with the SEC on February 28^th, 2014, and they include among others:

•

Economic Risk Factors

•

difficult conditions in the economy, which may not improve in the near future, and risks related to persistently low or unpredictable interest rates;

•

Operational Risk Factors

•

differences between actual experience regarding mortality, morbidity, persistency, expense, surrenders and investment returns, and our assumptions for establishing liabilities and reserves or for other purposes;

•

potential ineffectiveness of our risk management policies and procedures;

•

changes in our experience related to deferred policy acquisition costs;

•

failures or limitations of our computer, data security and administration systems;

•

potential employee error or misconduct, which may result in fraud or adversely affect the execution and administration of our policies and claims;

•

Investment and Financial Market Risk Factors

•

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;

•

Catastrophic Event Risk Factors

•

natural or man-made catastrophes, pandemic disease, or other events resulting in increased claims activity from catastrophic loss of life or property;

•

the effects of unanticipated events on our disaster recovery and business continuity planning;

•

Marketplace Risk Factors

•

the highly competitive nature of the insurance and annuity business;

•

potential 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 Medicare Supplement business;

•

Litigation and Regulation Risk Factors

•

adverse determinations in litigation or regulatory proceedings which may result in significant financial losses and harm our reputation;

•

the effects of extensive government regulation;

•

changes in tax law;

•

changes in statutory or U.S. generally accepted accounting principles (“GAAP”), practices or policies;

•

Reinsurance and Counterparty Risk Factors

•

potential changes in the availability, affordability and adequacy of reinsurance protection;

•

potential default or failure to perform by the counterparties to our reinsurance arrangements and derivative instruments;

•

Other Risk Factors

•

potentially adverse rating agency actions; and

•

control of our company by a small number of stockholders.

Overview

We are a diversified insurance and financial services company, offering a broad spectrum of 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

American National had no material changes to the general trends, as discussed in the MD&A included in our 2013 Annual Report on Form 10-K filed with the SEC on February 28, 2014.

Critical Accounting Estimates

The unaudited interim consolidated financial statements have been prepared in conformity with GAAP. In addition to GAAP, insurance companies 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 2013 Annual Report on Form 10-K filed with the SEC on February 28, 2014. There have been no material changes in accounting policies since December 31, 2013.

Recently Issued Accounting Pronouncements

Refer to Note 3, Recently Issued Accounting Pronouncements, of the Notes to the Unaudited Consolidated Financial Statements in Item 1.

Consolidated Results of Operations

The following sets forth the consolidated results of operations (in thousands):


	Three months ended March 31,
	2014		2013		Change
Premiums and other revenues
Premiums	$	464,875	$	419,769	$	45,106
Other policy revenues		55,927		49,998		5,929
Net investment income		218,823		251,366		(32,543	)
Realized investments gains (losses), net		25,471		16,951		8,520
Other income		7,340		6,961		379

Total premiums and other revenues		772,436		745,045		27,391

Benefits, losses and expenses
Policyholder benefits		168,732		122,197		46,535
Claims incurred		222,441		228,562		(6,121	)
Interest credited to policyholders’ account balances		83,412		111,106		(27,694	)
Commissions for acquiring and servicing policies		98,435		85,123		13,312
Other operating expenses		118,524		124,575		(6,051	)
Change in deferred policy acquisition costs ⁽¹⁾		6,424		11,334		(4,910	)

Total benefits and expenses		697,968		682,897		15,071

Income (loss) before other items and federal income taxes	$	74,468	$	62,148	$	12,320

(1)	A negative amount of net change indicates more expense was deferred than amortized and represents a decrease to expenses in the period indicated, a positive net change indicates less expense was deferred than amortized and represents an increase to expenses in the period indicated.

Consolidated earnings increased during the three months ended March 31, 2014 compared to the three months ended March 31, 2013 as a result of a decrease in claims incurred in the Property and Casualty segment, in addition there was an increase in realized gains partially offset by an increase in life insurance claims and lower annuity margins.

Life

Life segment financial results for the periods indicated were as follows (in thousands):


	Three months ended March 31,
	2014			2013			Change
Premiums and other revenues
Premiums	$	71,995		$	68,655		$	3,340
Other policy revenues		51,609			46,358			5,251
Net investment income		57,358			56,949			409
Other income		337			507			(170	)

Total premiums and other revenues		181,299			172,469			8,830

Benefits, losses and expenses
Policyholder benefits		91,280			81,502			9,778
Interest credited to policyholders’ account balances		15,745			12,787			2,958
Commissions for acquiring and servicing policies		29,463			25,589			3,874
Other operating expenses		51,816			52,536			(720	)
Change in deferred policy acquisition costs ⁽¹⁾		(5,183	)		(5,949	)		766

Total benefits and expenses		183,121			166,465			16,656

Income before other item sand federal income taxes	$	(1,822	)	$	6,004		$	(7,826	)

(1)	A negative amount of net change indicates more expense was deferred than amortized and represents a decrease to expenses in the period indicated, a positive net change indicates less expense was deferred than amortized and represents an increase to expenses in the period indicated.

Earnings decreased during the quarter ended March 31, 2014 compared to 2013 primarily due to an increase in policyholder benefits as a percentage of revenues caused by an increase in claims.

Premiums and other policy revenues

Premiums increased during the quarter ended March 31, 2014 compared to 2013 primarily as a result of an increase in term life insurance products.

Other policy revenues include mortality charges, earned policy service fees and surrender charges on interest-sensitive life insurance policies. The increase in interest-sensitive life policies contributed to the increase in these charges during the quarter ended March 31, 2014 compared to 2013.

Life insurance sales

The following table presents life insurance sales as measured by annualized premium, a non-GAAP measure used by the insurance industry, which allows a comparison of new policies written by an insurance company during the period (in thousands):


	Three months ended March 31,
	2014		2013		Change
Whole life	$	6,728	$	6,680	$	48
Term life		7,521		7,401		120
Universal life		8,979		8,124		855

Total recurring	$	23,228	$	22,205	$	1,023

Single and excess ⁽¹⁾	$	455	$	633	$	(178	)
Credit life ⁽¹⁾		903		919		(16	)

⁽¹⁾	These are weighted amounts representing 10% of single and excess premiums and 15% of credit life premuims.

Life insurance sales based on annualized premium aggregate the total yearly premium that insurance companies would expect to receive if all policies remain in force, plus 10% of single and excess premiums and 15% of credit life premium. Life insurance sales measure activity associated with gaining new insurance business in the current period whereas GAAP premium revenues are associated with policies sold in current and prior periods; therefore, a reconciliation of premium revenues and insurance sales is not meaningful.

Life insurance sales increased during the quarter ended March 31, 2014 compared to 2013 driven by a continued focus on the life segment, including enhancements to product features and offerings. Universal life sales consisting primarily of equity-indexed universal life products, contributed to the growing block of interest-sensitive life insurance policies.

Benefits, losses and expenses

Policyholder benefits increased during the first quarter of 2014 compared to 2013 primarily due to an increase in claims.

Commissions increased during the quarter ended March 31, 2014 compared to 2013, primarily due to increased sales.

Other operating expenses were relatively unchanged during the quarter ended March 31, 2014 compared to 2013.

The following table presents the components of the change in DAC (in thousands), which increased expenses due to a decrease in acquisition cost capitalized.


	Three months ended March 31,
	2014			2013			Change
Acquisition cost capitalized	$	23,288		$	25,908		$	(2,620	)
Amortization of DAC		(18,105	)		(19,959	)		1,854

Net change in DAC ⁽¹⁾	$	5,183		$	5,949		$	(766	)

(1)	A positive amount of net change indicates more expense was deferred than amortized and represents a decrease to expenses in the period indicated, a negative net change indicates less expense was deferred than amortized and represents an increase to expenses in the period indicated.

Policy in-force information

The following table summarizes changes in the Life insurance in-force amounts (in thousands) and number of policies in-force:


	March 31,		December 31,
	2014		2013		Change
Life insurance in-force
Traditional life	$	55,924,940	$	54,788,898	$	1,136,042
Interest-sensitive life		25,452,771		25,281,391		171,380

Total life insurance in-force	$	81,377,711	$	80,070,289	$	1,307,422

Number of policies in-force
Traditional life		1,989,463		2,002,602		(13,139	)
Interest-sensitive life		198,881		196,949		1,932

Total number of policies		2,188,344		2,199,551		(11,207	)

Total life insurance in-force increased during 2014 compared to 2013, while the total number of policies decreased over the same period. The increases in traditional life in-force amounts are believed to be attributed to the attractiveness of our portfolio of products and the ease of doing business. The decrease in our policy count for 2014 is attributable to fewer policies being sold as compared to the number of claims, surrenders and lapses.

Annuity

Annuity segment financial results for the periods indicated were as follows (in thousands):


	Three months ended March 31,
	2014		2013		Change
Premiums and other revenues
Premiums	$	66,936	$	32,696	$	34,240
Other policy revenues		4,318		3,640		678
Net investment income		130,314		164,045		(33,731	)
Other income		—		50		(50	)

Total premiums and other revenues		201,568		200,431		1,137

Benefits, losses and expenses
Policyholder benefits		77,452		40,695		36,757
Interest credited to policyholders’ account balances		67,667		98,319		(30,652	)
Commissions for acquiring and servicing policies		13,564		10,393		3,171
Other operating expenses		17,784		14,267		3,517
Change in deferred policy acquisition costs ⁽¹⁾		7,396		9,423		(2,027	)

Total benefits and expenses		183,863		173,097		10,766

Income before other items and federal income taxes	$	17,705	$	27,334	$	(9,629	)

(1)	A negative amount of net change indicates more expense was deferred than amortized and represents a decrease to expenses in the period indicated, a positive net change indicates less expense was deferred than amortized and represents an increase to expenses in the period indicated.

Earnings decreased during the quarter ended March 31, 2014 compared to 2013, primarily due to higher operating expenses attributable to the higher premium volume and a decrease in investment margins, partly due to a decrease in deferred annuity reserves.

Premiums and other policy revenues

Annuity premium and deposit amounts received are shown below (in thousands):


	Three months ended March 31,
	2014		2013		Change
Fixed deferred annuity	$	95,457	$	64,994	$	30,463
Single premium immediate annuity		86,008		56,753		29,255
Equity-indexed deferred annuity		50,585		37,192		13,393
Variable deferred annuity		34,540		29,166		5,374

Total premium and deposits		266,590		188,105		78,485
Less: Policy deposits		199,654		155,409		44,245

Total earned premiums	$	66,936	$	32,696	$	34,240

We monitor account values and changes in those values (shown below in thousands) as key indicators of performance in our Annuity segment. Changes in account values are mainly the result of net inflows, surrenders, policy fees, interest credited and market value changes:


	Three months ended March 31,
	2014			2013
Fixed deferred and equity-indexed annuity
Account value, beginning of period	$	9,355,946		$	9,803,197
Net inflows		104,238			58,397
Surrenders		(343,084	)		(272,265	)
Fees		(2,856	)		(2,362	)
Interest credited		67,460			96,784

Account value, end of period	$	9,181,704		$	9,683,751

Single premium immediate annuity
Reserve, beginning of period	$	1,199,276		$	1,075,638
Net inflows		43,153			17,524
Interest and mortality		7,896			9,419

Reserve, end of period	$	1,250,325		$	1,102,581

Variable deferred annuity
Account value, beginning of period	$	489,305		$	417,645
Net inflows		34,253			28,471
Surrenders		(40,321	)		(30,439	)
Fees		(1,411	)		(1,248	)
Change in market value and other		6,665			25,224

Account value, end of period	$	488,491		$	439,653

Deferred and immediate annuity sales increased compared to last year, which explains the increase in fund inflows to these products. The increase in sales is driven for the most part by higher interest rates.

Variable deferred annuity net inflows increased during the three months ended March 31, 2014 compared to 2013. These products have no guaranteed minimum withdrawal benefits. Our total direct exposure on the guaranteed minimum death benefits associated with these products was $1.4 million and $1.5 million as of March 31, 2014 and 2013, respectively. After reinsurance, which is with reinsurers rated “A” or higher by A.M. Best, the net exposure was $0.3 million and $0.4 million, as of March 31, 2014 and 2013, respectively.

Benefits, losses and expenses

Benefits are highly correlated to the sales volume of SPIA contracts and increased for 2014 compared to 2013. Policyholder benefits consist of annuity payments and reserve increases for SPIA contracts.

Commissions increased for 2014 compared to 2013, primarily due to increased annuity production.

Other operating expenses increased in 2014 primarily for litigation expenses, including but not limited to attorneys’ fees and settlement accruals, in connection with multiple lawsuits involving allegations regarding the sales practice of several former independent agents.

The change in DAC represents acquisition costs capitalized less the amortization of existing DAC, which is calculated in proportion to expected gross profits. The following shows the components of the change in DAC (in thousands):


	Three months ended March 31,
	2014			2013			Change
Acquisition cost capitalized	$	12,521		$	11,569		$	952
Amortization of DAC		(19,917	)		(20,992	)		1,075

Net change in DAC ⁽¹⁾	$	(7,396	)	$	(9,423	)	$	2,027

(1)	A positive amount of net change indicates more expense was deferred than amortized and represents a decrease to expenses in the period indicated, a negative net change indicates less expense was deferred than amortized and represents an increase to expenses in the period indicated.

The amortization of DAC as a percentage of gross profits is an important ratio for the Annuity segment. The ratios for the quarters ended March 31, 2014 and 2013 were 36.8% and 33.9%, respectively. The 2014 ratio increased primarily due to a decrease in estimated gross profits. Estimated gross profits have declined due to a decrease of in-force account values relative to last year, resulting in a smaller basis for interest margins.

Options and Derivatives

Shown below is the incremental impact of option return to net investment income, and the impact of the equity-indexed annuity embedded derivative to interest credited to policyholders’ account balances (in thousands):


	Three months ended March 31,
	2014		2013		Change
Net investment income
Without option return	$	126,727	$	140,178	$	(13,451	)
Option return		3,587		23,867		(20,280	)
Interest credited to policy account balances
Without embedded derivative		65,184		77,900		(12,716	)
Equity-indexed annuity embedded derivative		2,483		20,419		(17,936	)

Net investment income without option return decreased compared to 2013 for the quarter ended March 31, 2014 primarily due to lower aggregate account values and portfolio yield. Fixed interest credited to policyholders’ account balances without embedded derivative decreased during 2014 compared to 2013 also due to a lower account values and a decrease in rates.

The option return, as well as the related equity-indexed annuity embedded derivative return, decreased during the quarter ended March 31, 2014 compared to the same period in 2013, primarily due to the relative change in the S&P 500 Index during the respective periods. These option returns correlate to the 1.3%, and 10.0% change in the S&P 500 Index during the quarter ended March 31, 2014 and 2013, respectively.

Health

Health segment results for the periods indicated were as follows (in thousands):


	Three months ended March 31,
	2014			2013			Change
Premiums and other revenues
Premiums	$	55,336		$	52,729		$	2,607
Net investment income		2,938			2,865			73
Other income		4,613			4,206			407

Total premiums and other revenues		62,887			59,800			3,087

Benefits, losses and expenses
Claims incurred		43,929			38,968			4,961
Commissions for acquiring and servicing policies		8,073			6,572			1,501
Other operating expenses		11,200			13,397			(2,197	)
Change in deferred policy acquisition costs ⁽¹⁾		231			1,549			(1,318	)

Total benefits and expenses		63,433			60,486			2,947

Income before other items and federal income taxes	$	(546	)	$	(686	)	$	140

(1)	A negative amount of net change indicates more expense was deferred than amortized and represents a decrease to expenses in the period indicated, a positive net change indicates less expense was deferred than amortized and represents an increase to expenses in the period indicated.

Earnings were relatively unchanged during the quarter ended March 31, 2014 compared to 2013 as the increase in claims incurred was largely offset by an increase in premium and a decrease in other operating expenses.

Premiums and other revenues

Health earned premiums for the periods indicated are as follows (in thousands, except percentages):


	Three months ended March 31,
	2014					2013
	Amount		Percentage			Amount		Percentage
Medicare Supplement	$	21,993		39.7	%	$	23,460		44.4	%
Medical expense		6,221		11.2			8,219		15.6
Group health		10,239		18.5			8,067		15.3
Credit accident and health		3,737		6.8			3,992		7.6
MGU		5,250		9.5			4,687		8.9
All other		7,896		14.3			4,304		8.2

Total	$	55,336		100.0	%	$	52,729		100.0	%

Premiums increased during the quarter ended March 31, 2014 compared to 2013, primarily from the sales of individual limited benefit products in the all other category. Medicare Supplement premiums declined due to policy lapses outpacing new sales which have a lower average premium per policy.

Our in-force certificates or policies as of the dates indicated are as follows:


	Three months ended March 31,
	2014					2013
	Number		Percentage			Number		Percentage
	of Policies		of Total Policies			of Policies		of Total Policies
Medicare Supplement		39,017		6.0	%		40,306		6.4	%
Medical expense		4,046		0.6			5,409		0.9
Group		16,340		2.5			19,801		3.2
Credit accident and health		229,686		35.4			243,156		38.8
MGU		249,607		38.5			214,337		34.2
All other		110,259		17.0			103,533		16.5

Total		648,955		100.0	%		626,542		100.0	%

Total in-force policies increased during the quarter ended March 31, 2014 compared to 2013 primarily due to an increase in the MGU line. The MGU line increased as a result of our continued expansion in the MGU market as we believe an increasing number of employers are using the stop loss market to manage the cost of providing health insurance for employees. Credit accident and health decreased due to the contraction in that market.

Benefits, losses and expenses

Claims incurred increased during the quarter ended March 31, 2014 compared to 2013 primarily due to a judicial determination that the Company could not rescind a reinsurance agreement in dispute. Although the Company is appealing the determination, it has accrued for claims which the reinsurer has asserted are due under the agreement.

Other operating expenses decreased during the quarter ended March 31, 2014 compared to 2013 due to a one time accrual on the MGU line in 2013, for expenses associated with a state insurance guaranty pool.

Change in Deferred Policy Acquisition Costs

The following table presents the components of the change in DAC (in thousands):


	Three months ended March 31,
	2014			2013			Change
Acquisition cost capitalized	$	4,288		$	2,575		$	1,713
Amortization of DAC		(4,519	)		(4,124	)		(395	)

Net change in DAC ⁽¹⁾	$	(231	)	$	(1,549	)	$	1,318

(1)	A positive amount of net change indicates more expense was deferred than amortized and represents a decrease to expenses in the period indicated, a negative net change indicates less expense was deferred than amortized and represents an increase to expenses in the period indicated.

The amortization of DAC had a smaller impact on expenses during the quarter ended March 31, 2014 compared to 2013 due to an increase in acquisition cost capitalized.

Property and Casualty

Property and Casualty results for the periods indicated were as follows (in thousands, except percentages):


	Three months ended March 31,
	2014			2013			Change
Premiums and other revenues
Net premiums written	$	276,988		$	268,217		$	8,771

Net premiums earned	$	270,608		$	265,689		$	4,919
Net investment income		15,183			16,300			(1,117	)
Other income		1,254			253			1,001

Total premiums and other revenues		287,045			282,242			4,803

Benefits, losses and expenses
Claims incurred		178,512			189,594			(11,082	)
Commissions for acquiring and servicing policies		47,333			42,547			4,786
Other operating expenses		27,708			30,881			(3,173	)
Change in deferred policy acquisition costs ⁽¹⁾		3,980			6,311			(2,331	)

Total benefits and expenses		257,533			269,333			(11,800	)

Income (loss) before other items and federal income taxes	$	29,512		$	12,909		$	16,603

Loss ratio		66.0	%		71.4	%		(5.4	)
Underwriting expense ratio		29.4			30.0			(0.6	)

Combined ratio		95.4	%		101.4	%		(6.0	)

Impact of catastrophe events on combined ratio		5.1			8.1			(3.0	)

Combined ratio without impact of catastrophe events		90.3	%		93.3	%		(3.0	)

Gross catastrophe losses	$	13,060		$	26,797		$	(13,737	)
Net catastrophe losses		13,639			21,688			(8,049	)

(1)	A negative amount of net change indicates more expense was deferred than amortized and represents a decrease to expenses in the period indicated, a positive net change indicates less expense was deferred than amortized and represents an increase to expenses in the period indicated.

Property and Casualty results improved during the quarter ended March 31, 2014 compared to 2013, due to improvement in the loss ratio, primarily as a result of decreases in catastrophe losses and improved rate adequacy.

Premiums and other revenues

Net premiums written and earned increased during the quarter ended March 31, 2014 compared to 2013 due to improvements in our commercial and homeowners lines.

Benefits, losses and expenses

Claims incurred decreased during the quarter ended March 31, 2014 compared to 2013, as a result of decreases in catastrophe and non-catastrophe weather-related losses.

Gross catastrophes losses for the quarter ended March 31, 2014 were $13.1 million compared to $26.8 million for 2013. Although there was an increase in the number of catastrophe events, we experienced a significant decrease in catastrophe losses due primarily to a decrease in the severity of catastrophes in 2014 compared to 2013.

Commissions increased for the quarter ended March 31, 2014 compared to 2013, primarily due to an increase in premium as well as an increase in certain variable commissions driven by the improvement in the loss ratio.

Products

Our Property and Casualty segment consists of: (i) Personal products, which we market primarily to individuals, representing 57.8% of net premiums written, (ii) Commercial products, which focus primarily on agricultural and other commercial markets, representing 34.3% of net premiums written, and (iii) Credit-related property insurance products, which are marketed to and through financial institutions and retailers, representing 7.9% of net premiums written.

Personal Products

Personal Products results for the periods indicated were as follows (in thousands, except percentages):


	Three months ended March 31,
	2014			2013			Change
Net premiums written
Auto	$	102,110		$	103,607		$	(1,497	)
Homeowner		48,499			46,711			1,788
Other Personal		9,584			9,505			79

Total net premiums written	$	160,193		$	159,823		$	370

Net premiums earned
Auto	$	98,857		$	100,409		$	(1,552	)
Homeowner		54,340			51,511			2,829
Other Personal		8,792			8,902			(110	)

Total net premiums earned	$	161,989		$	160,822		$	1,167

Loss ratio
Auto		69.8	%		81.8	%		(12.0	)
Homeowner		68.5			79.4			(10.9	)
Other Personal		40.0			46.7			(6.7	)
Personal line loss ratio		67.8	%		79.1	%		(11.3	)
Combined Ratio
Auto		89.5	%		103.9	%		(14.4	)
Homeowner		89.5			103.6			(14.1	)
Other Personal		55.3			68.5			(13.2	)
Personal line combined ratio		87.6	%		101.8	%		(14.2	)

Personal Automobile: Net premiums written and earned decreased in our personal automobile line during the quarter ended March 31, 2014 compared to 2013, primarily due to a decline in policies in-force. The loss and combined ratios improved during 2014 compared to 2013 due to a decline in both catastrophe and non-catastrophe weather-related losses.

Homeowners: Net premiums written and earned increased during 2014 compared to 2013 primarily due to increasing premium rates over the time period. The loss and combined ratios improved during 2014 compared to 2013 due to a decline in both catastrophe and non-catastrophe weather-related losses and improved rate adequacy.

Other Personal: These products include watercraft, rental-owner and umbrella coverages for individuals seeking to protect their personal property and liability not covered within their homeowner and auto policies. The loss and combined ratios decreased during first quarter 2014 compared to first quarter 2013, in line with trends on the larger personal lines.

Commercial Products

Commercial Products results for the periods indicated were as follows (in thousands, except percentages):


	Three months ended March 31,
	2014			2013			Change
Net premiums written
Other Commercial	$	40,504		$	37,593		$	2,911
Agribusiness		29,236			25,702			3,534
Auto		25,173			23,925			1,248

Total net premiums written	$	94,913		$	87,220		$	7,693

Net premiums earned
Other Commercial	$	33,393		$	30,789		$	2,604
Agribusiness		28,998			26,493			2,505
Auto		19,048			19,182			(134	)

Total net premiums earned	$	81,439		$	76,464		$	4,975

Loss ratio
Other Commercial		75.4	%		48.8	%		26.6
Agribusiness		78.6			105.8			(27.2	)
Auto		67.5			70.6			(3.1	)
Commercial line loss ratio		74.7	%		74.0	%		0.7
Combined ratio
Other Commercial		109.4	%		78.5	%		30.9
Agribusiness		120.5			142.0			(21.5	)
Auto		86.4			96.0			(9.6	)
Commercial line combined ratio		108.0	%		104.9	%		3.1

Other Commercial: Net premiums written and earned increased during 2014 compared to 2013, primarily due to rate increases in the workers’ compensation and business owners’ lines. The loss and combined ratios increased due to reserve increases for a small number of larger workers’ compensation claims.

Agricultural Business: Our agricultural business product allows policyholders to customize and cover their agriculture exposure using a package policy which includes coverage for residences and household contents, farm buildings and building contents, personal and commercial liability and personal property. Net premiums written and earned increased during 2014 compared to 2013, primarily as a result of rate increases and a decrease in ceded premiums. The loss and combined ratio improved primarily due to a decline in net catastrophe losses, as well as a combination of rate and underwriting actions.

Commercial Automobile: Net premiums written increased primarily due to improved rate adequacy. Net premiums earned remained substantially unchanged during 2014 compared to 2013.

Credit Products

Credit-related property products for the periods indicated were as follows (in thousands, except percentages):


	Three months ended March 31,
	2014			2013			Change
Net premiums written	$	21,882		$	21,174		$	708
Net premiums earned		27,180			28,403			(1,223	)
Loss ratio		29.1	%		20.3	%		8.8
Combined ratio		103.5	%		97.8	%		5.7

Credit-related property products are offered on automobiles, furniture and appliances in connection with the financing of those items. These policies pay an amount if the insured property is lost or damaged and the amount paid is not directly related to an event affecting the consumer’s ability to pay the debt.

Net premiums written increased during 2014 compared to 2013 primarily due to an increase in our Guaranteed Auto Protection business. Net premiums earned decreased as premiums shifted from Guaranteed Auto Protection Insurance to Guaranteed Auto Protection Waiver, a lower premium debt protection product.

The loss and combined ratios increased during 2014 compared to 2013 primarily due to an increase in claims in our collateral protection business.

Corporate and Other

Corporate and Other segment financial results for the periods indicated were as follows (in thousands):


	Three months ended March 31,
	2014		2013		Change
Premiums and other revenues
Net investment income	$	13,030	$	11,207	$	1,823
Realized investments gains, net		25,471		16,951		8,520
Other Income		1,136		1,945		(809	)

Total premiums and other revenues		39,637		30,103		9,534

Benefits, losses and expenses
Commissions		2		22		(20	)
Other operating expenses		10,016		13,494		(3,478	)

Total benefits, losses and expenses		10,018		13,516		(3,498	)

Income before other items and federal income taxes	$	29,619	$	16,587	$	13,032

Earnings increased during the quarter ended March 31, 2014 compared to 2013 primarily due to increases in realized gains and net investment income. The increase in realized gains was driven by gains on sales of bonds as well as a reduction in other-than-temporary impairments related to investment securities.

The Corporate and Other business segment recorded other-than-temporary impairments of $975,000 and $1,587,000 in the three months ended March 31, 2014 and 2013, respectively, which are included in “Realized investment gains, net.”

Investments

We manage our investment portfolio to optimize the rate of return commensurate with sound and prudent asset selection and to maintain a well-diversified portfolio. Our investment operations are regulated primarily by the state insurance departments where we or our insurance subsidiaries are domiciled. Investment activities, including setting investment policies and defining acceptable risk levels, are subject to review and approval by our Board of Directors, which is assisted by our Finance Committee and Management Risk Committee.

Our insurance and annuity products are primarily supported by investment-grade bonds, and to a lesser extent collateralized mortgage obligations and commercial mortgage loans. We purchase fixed maturity securities and designate them as either held-to-maturity or available-for-sale considering our estimated future cash flow needs. We also monitor the composition of our fixed maturity securities classified as held-to-maturity and available-for-sale and adjust the mix within the portfolio as investments mature or new investments are purchased.

We invest in commercial mortgage loans when the yield and credit risk compare favorably with fixed maturity securities. Individual residential mortgage loans including sub-prime or Alt A mortgage loans have not been and are not expected to be part of our investment portfolio. We invest in real estate and equity securities based on a risk and reward analysis where we believe there are opportunities for enhanced returns.

The following summarizes the carrying values of our invested assets (other than investments in unconsolidated affiliates) by asset class (in thousands, except percentages):


	March 31, 2014					December 31, 2013
	Amount		Percent			Amount		Percent
Bonds held-to-maturity, at amortized cost	$	8,498,386		43.8	%	$	8,491,347		43.8	%
Bonds available-for-sale, at fair value		4,891,623		25.2			4,599,673		23.7
Equity securities, at fair value		1,424,143		7.3			1,410,608		7.3
Mortgage loans on real estate, net of allowance		3,290,795		16.9			3,299,242		17.0
Policy loans		399,348		2.1			397,407		2.0
Investment real estate, net of accumulated depreciation		491,079		2.5			507,142		2.6
Short-term investments		245,601		1.3			495,386		2.6
Other invested assets		178,727		0.9			201,442		1.0

Total investments	$	19,419,702		100.0	%	$	19,402,247		100.0	%

The increase in our total investments at March 31, 2014 as compared to December 31, 2013 was primarily a result of an increase in bonds and in equity securities partially offset by decreases in short term investments.

Each component of our invested assets and their related revenues are described further in the Notes to the Unaudited Consolidated Financial Statements. Additionally, Note 2, Summary of Significant Accounting Policies and Practices, of the Notes to the Consolidated Financial Statements within our Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on February 28, 2014 contains a detailed description of the Company’s methodology for evaluating other-than-temporary impairment losses on its investments.

Bonds: We allocate most of our fixed maturity securities to support our insurance business. As of March 31, 2014, our fixed maturity securities had an estimated fair value of $13.8 billion, which was $0.6 billion, or 4.9%, above amortized cost. At December 31, 2013, our fixed maturity securities had an estimated fair value of $13.4 billion, which was $0.5 billion, or 3.7%, above amortized cost. Fixed maturity securities’ estimated fair value, due in one year or less, remained relatively unchanged compared to December 31, 2013.

The following table identifies the total bonds by credit quality rating, using both Standard & Poor’s and Moody’s ratings (in thousands, except percentages):


	March 31, 2014							December 31, 2013
	Amortized		Estimated		% of Fair			Amortized		Estimated		% of Fair
	Cost		Fair Value		Value			Cost		Fair Value		Value
AAA	$	624,617		658,700		4.8	%	$	621,527		649,161		4.9	%
AA		1,518,918		1,581,125		11.4			1,472,221		1,511,517		11.3
A		5,312,123		5,588,312		40.4			5,260,435		5,466,136		40.7
BBB		5,251,387		5,502,633		39.8			5,094,589		5,272,246		39.2
BB and below		484,108		503,945		3.6			498,966		523,681		3.9

Total	$	13,191,153	$	13,834,715		100.0	%	$	12,947,738	$	13,422,741		100.0	%

We expect the exposure to below investment grade securities to decrease as these bonds approach maturity. We do not own direct investments in sovereign debt issued by Greece, Ireland, Italy, Portugal or Spain.

Mortgage Loans: We invest in commercial mortgage loans that are diversified by property-type and geography to support our insurance business. Generally, mortgage loans are secured by first liens on income-producing real estate with a loan-to-value ratio of up to 75%. Mortgage loans held-for-investment are carried at outstanding principal balances, adjusted for any unamortized premium or discount, deferred fees or expenses, and net of allowances. The weighted average coupon yield on the principal funded for mortgage loans was 5.4% and 5.2% at March 31, 2014 and December 31, 2013, respectively. It is likely that the weighted average yield on funded mortgage loans will decline as loans mature and new loans are originated with lower rates in the current interest rate environment.

Equity Securities: Our equity portfolio is in companies publicly traded on national U.S. stock exchanges; the cost and estimated fair value of the equity securities are as follows (in thousands):


	March 31, 2014
	Cost		Unrealized Gains		Unrealized Losses			Fair Value		% of Fair Value
Common stock	$	716,266	$	669,913	$	(3,021	)	$	1,383,158		97.1
Preferred stock		22,832		18,325		(172	)		40,985		2.9

Total	$	739,098	$	688,238	$	(3,193	)	$	1,424,143		100.0


	December 31, 2013
	Cost		Unrealized Gains		Unrealized Losses			Fair Value		% of Fair Value
Common stock	$	717,390	$	653,967	$	(2,362	)	$	1,368,995		97.0
Preferred stock		23,690		18,301		(378	)		41,613		3.0

Total	$	741,080	$	672,268	$	(2,740	)	$	1,410,608		100.0

Investment Real Estate: We invest in commercial real estate where positive cash flows and/or appreciation in value is expected. Real estate may be owned directly by our insurance companies or non-insurance affiliates or indirectly in joint ventures with real estate developers or investors we determine share our perspective regarding risk and return relationships. The carrying value of real estate is stated at cost, less accumulated depreciation and valuation allowances, if any. Depreciation is provided over the estimated useful lives of the properties.

Short-Term Investments: Short-term investments are primarily commercial paper rated A2/P2 or better by Standard & Poor’s and Moody’s, respectively. The amount fluctuates depending on the available long-term investment opportunities and our liquidity needs, including mortgage investment-funding commitments.

Policy Loans: For certain life insurance products, policyholders may borrow funds using the policy’s cash value as collateral. The maximum amount of the policy loan depends upon the policy’s surrender value and the number of years since policy origination. As of March 31, 2014, we had $399.3 million in policy loans with a loan to surrender value of 67.4%, and at December 31, 2013, we had $397.4 million in policy loans with a loan to surrender value of 67.9%. Interest rates on policy loans primarily range from 3.0% to 12.0% per annum. Policy loans may be repaid at any time by the policyholder and have priority to any claims on the policy. If the policyholder fails to repay the policy loan, funds are withdrawn from the policy’s benefits.

Net Investment Income and Realized Gains (Losses)

Net investment income decreased $32.5 million during the quarter ended March 31, 2014 primarily due to decreases in net investment income from options and bonds. Net investment income from options decreased $20.4 million during 2014 due to a smaller change during 2014 in the S&P 500 index from which our option values are derived. Net investment income from bonds decreased $11.9 million during the quarter ended March 31, 2014 primarily due to bonds with lower interest yields making up a larger percentage of our portfolio as older bonds, which were purchased when interest rates were higher, matured.

Interest income on mortgage loans is accrued on the principal amount of the loan based on the contractual interest rate. Accretion of discounts is recorded using the effective yield method. Interest income, accretion of discounts and prepayment fees are reported in net investment income. Interest is not accrued on loans generally more than 90 days past due or when the collection of interest is not considered probable. Loans in foreclosure are placed on non-accrual status. Interest received on non-accrual status mortgage loans is included in net investment income in the period received.

Realized gains increased $7.9 million during the quarter ended March 31, 2014 compared to 2013 primarily as a result of realized gains on sales of investment real estate. Other-than-temporary impairment on investment securities decreased $0.6 million during the quarter ended March 31, 2014 compared to 2013.

Net Unrealized Gains and Losses

The net unrealized gains on available-for-sale securities at March 31, 2014 and December 31, 2013 were $883.9 and $812.8 million, respectively. Unrealized gains or losses on available-for-sale securities have no impact on earnings. Rather, they are recognized as other comprehensive income or loss, which directly impacts equity. The gross unrealized gains of available-for-sale securities increased $37.4 million to $921.8 million during 2014 resulting from increases in the value of bonds and equity securities. The gross unrealized losses of available-for-sale securities decreased to $37.9 million at March 31, 2014 from $71.6 million at December 31, 2013. The decrease in gross unrealized losses during 2014 is primarily attributable to corporate debt securities and the impact changes in interest rates have on fixed income securities.

The gross unrealized gains of held-to-maturity securities increased $57.9 million to $509.7 million and gross unrealized losses decreased from $120.1 million in 2013 to $65.0 million in 2014, which was primarily attributable to corporate debt securities and the impact changes in interest rates have on fixed income securities.

The fair value of our investment securities is affected by various factors, including volatility of financial markets, changes in interest rates and fluctuations in credit spread. We have the ability and intent to hold those securities in unrealized loss positions until a market price recovery or maturity. Further, it is unlikely that we will be required to sell them prior to recovery, and recovery is expected in a reasonable period of time.

Liquidity

Our liquidity requirements have been and are expected to continue to be met by funds from operations, comprised of premiums received from our customers and investment income. The primary use of cash has been and is expected to continue to be payment of policyholder benefits and claims incurred. Current and expected patterns of claim frequency and severity may change from period to period but continue to be within historical norms. Management considers our current liquidity position to be sufficient to meet anticipated demands over the next twelve months. Our contractual obligations are not expected to have a significant negative impact to cash flow from operations.

Changes in interest rates during 2014 and market expectations for potentially higher rates through 2015 will likely lead to increases in the volume of annuity contracts, which may be partially offset by increases in surrenders. Freezing our defined benefit pension plans effective December 31, 2013, will lessen the impact of changes in interest rates on our contributions to these plans and future contributions to our defined benefit plans may be smaller than historical contributions. A portion of the contributions will be used for the employer contributions to defined contribution retirement plans, which will provide employees with the potential to accumulate assets for retirement. There are no other known trends or uncertainties regarding product pricing, changes in product lines or rising costs, which would have a significant impact to cash flows from operations. No unusually large capital expenditures are expected in the next 12-24 months. Additionally, we have paid dividends to stockholders for over 100 consecutive years and expect to continue this trend.

To ensure we will be able to continue to pay future commitments, the funds received as premium payments and deposits are invested in bonds and commercial mortgages. Funds are invested with the intent that income from the investments and proceeds from the maturities will meet our ongoing cash flow needs. We historically have not had to liquidate invested assets in order to cover cash flow needs. We believe our portfolio of highly liquid available-for-sale investment securities including equity securities is sufficient to meet future liquidity needs as necessary.

Our cash and cash equivalents and short-term investment position was $414.8 million at March 31, 2014 compared to $613.3 million at December 31, 2013. The decrease relates primarily to a reduction in short-term investments.

A downgrade or a potential downgrade in our financial strength ratings could result in a loss of business and could adversely affect our cash flow from operations. Further information regarding additional sources or uses of cash is described in Note 19, Commitments and Contingencies, of the Notes to the Consolidated Financial Statements.

Capital Resources

Our capital resources are summarized below (in thousands):


	March 31,		December 31,
	2014		2013
American National stockholders’ equity, excluding accumulated other comprehensive income (loss), net of tax (“AOCI”)	$	3,811,357	$	3,776,862
AOCI		447,297		413,712

Total American National stockholders’ equity	$	4,258,654	$	4,190,574

We have notes payable relating to borrowings by real estate joint ventures that we consolidate into our financial statements that are not part of our capital resources. The lenders for the notes payable have no recourse against us in the event of default by the joint ventures. Therefore, the liability we have for these notes payable is limited to our investment in the respective ventures, which totaled $16.5 million at March 31, 2014 and $12.8 million at December 31, 2013, respectively.

The changes in our capital resources are summarized below (in thousands):


	Three months ended
	March 31, 2014
Net income	$	52,878
Increase in net unrealized gains		33,834
Defined benefit pension plan adjustment		717
Dividends to shareholders		(20,731	)
Other		1,382

Total	$	68,080

During March 31, 2014, our capital resources increased substantially compared to March 31, 2013 primarily due to earnings, increases in unrealized gains from our equity investment portfolio partially offset by dividends to stockholders.

Statutory Capital and Surplus and Risk-based Capital

Statutory capital and surplus is the capital of our insurance companies reported in accordance with accounting practices prescribed or permitted by the applicable state insurance departments. RBC is calculated using formulas applied to certain financial balances and activities that consider, among other things, risks related to the type and quality of the invested assets, insurance risks associated with an insurer’s products and liabilities, interest rate risks and general business risks. Insurance companies that do not maintain capital and surplus at a level at least 200% of the authorized control level RBC are required to take certain actions. At March 31, 2014 and December 31, 2013, American National Insurance Company’s statutory capital and surplus was $2,696,656,000 and $2,667,589,000, respectively. Additionally, each of the insurance subsidiaries had statutory capital and surplus at March 31, 2014 and December 31, 2013, substantially above each subsidiary’s authorized control level RBC.

The achievement of long-term growth will require growth in American National Insurance Company’s and our insurance subsidiaries’ statutory capital and surplus. Our subsidiaries may obtain additional statutory capital through various sources, such as retained statutory earnings or equity contributions from us. As of December 31, 2013, the levels of our and our insurance subsidiaries’ capital and surplus exceeded the minimum RBC requirements.

Contractual Obligations

Our future cash payments associated with claims and claims adjustment expenses, life, annuity and disability obligations, contractual obligations pursuant to operating leases for office space and equipment, and notes payable have not materially changed since December 31, 2013. We expect to have the capacity to pay our obligations as they come due.

Off-Balance Sheet Arrangements

We have off-balance sheet arrangements relating to third-party marketing operation bank loans as discussed in Note 16, Commitments and Contingencies, of the Notes to the unaudited Consolidated Financial Statements. We could be exposed to a liability for these loans, which are supported by the cash value of the underlying insurance contracts. The cash value of the life insurance policies is designed to always equal or exceed the balance of the loans. Accordingly, management does not foresee any loss related to these arrangements.

Related-Party Transactions

We have various agency, consulting and service arrangements with individuals and corporations considered to be related parties. Each of these arrangements has been reviewed and approved by our Audit Committee, which retains final decision-making authority for these transactions. The amounts involved, both individually and in the aggregate, with these arrangements are not material to any segment or to our overall operations. For additional details see Note 17, Related Party Transactions, of the Notes to the unaudited Consolidated Financial Statements.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our market risks have not changed materially from those disclosed in our 2013 Annual Report on Form 10-K filed with the SEC on February 28, 2014.

ITEM 4.

CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act)) that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Corporate Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. The Company’s management, with the participation of the Company’s Chief Executive Officer and Corporate Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of March 31, 2014. Based upon that evaluation and subject to the foregoing, the Company’s Chief Executive Officer and Corporate Chief Financial Officer concluded that, as of March 31, 2014, the design and operation of the Company’s disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.

Management has monitored the internal controls over financial reporting, including any material changes to the internal control over financial reporting. There were no changes in the Company’s internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended March 31, 2014 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

Information required for Item 1 is incorporated by reference to the discussion under the heading “Litigation” in Note 16, Commitments and Contingencies, of the Notes to the Unaudited Consolidated Financial Statements.

ITEM 1A.

RISK FACTORS

There have been no material changes with respect to the risk factors as previously disclosed in our 2013 Annual Report on Form 10-K filed with the SEC on February 28, 2014.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5.

OTHER INFORMATION

None.

ITEM 6.

EXHIBITS


Exhibit Number		Basic Documents

3.1		Restated Articles of Incorporation, as amended (incorporated by reference to Exhibit No. 3.1 to the registrant’s Registration Statement on Form 10-12B filed April 10, 2009).

3.2		Amended and Restated Bylaws (incorporated by reference to Exhibit No. 3.2 to the registrant’s Current Report on Form 8-K filed May 2, 2012).

31.1		Certification of the principal executive officer pursuant to Section 302 of the Sarbanes- Oxley Act of 2002 (filed herewith).

31.2		Certification of the principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

32.1		Certification of the principal executive officer and principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

101		The following unaudited financial information from American National Insurance Company’s Quarterly Report on Form 10-Q for three months ended March 31, 2014 formatted in eXtensible Business Reporting Language (“XBRL”): (i) Consolidated Statements of Financial Position, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to the Unaudited Consolidated Financial Statements.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


By:		/s/ Robert L. Moody
		Name: Robert L. Moody
		Title: Chairman of the Board,
		Chief Executive Officer

By:		/s/ John J. Dunn, Jr.
		Name: John J. Dunn, Jr.,
		Title: Executive Vice President,
		Corporate Chief Financial Officer

Date: May 6, 2014