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Form 10-Q AMERICAN NATIONAL INSURA For: Sep 30

November 7, 2014 2:24 PM EST
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September�30, 2014

or

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

Commission File No.�001- 34280

LOGO

American National Insurance Company

(Exact name of registrant as specified in its charter)

Texas 74-0484030

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

One Moody Plaza

Galveston, Texas 77550-7999

(Address of principal executive offices) (Zip Code)

(409) 763-4661

(Registrant�s telephone number, including area code)

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

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

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

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

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

As of October�31, 2014, there were 26,871,942 shares of the registrant�s voting common stock, $1.00 par value per share, outstanding.


Table of Contents

AMERICAN NATIONAL INSURANCE COMPANY

TABLE OF CONTENTS

�� PART I � FINANCIAL INFORMATION ��
ITEM�1. �� FINANCIAL STATEMENTS (Unaudited): �� 3 ��
�� Consolidated Statements of Financial Position as of September 30, 2014 and December 31, 2013 �� 3 ��
�� Consolidated Statements of Operations for the three and nine months ended September 30, 2014 and 2013 �� 4 ��
��

Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2014 and 2013

�� 5 ��
��

Consolidated Statements of Changes in Stockholders� Equity for the nine months ended September 30, 2014 and 2013

�� 5 ��
�� Consolidated Statements of Cash Flows for the nine months ended September 30, 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 �� 32 ��
ITEM 3. �� QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK �� 51 ��
ITEM 4. �� CONTROLS AND PROCEDURES �� 51 ��
�� PART II � OTHER INFORMATION ��
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 ��

2


Table of Contents

PART I�FINANCIAL INFORMATION

ITEM�1. FINANCIAL STATEMENTS

AMERICAN NATIONAL INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

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

�� September�30,
2014
December�31,
2013

ASSETS

��

Fixed maturity, bonds held-to-maturity, at amortized cost
(Fair Value $8,826,253 and $8,823,068)

�� $ 8,364,731 �� $ 8,491,347 ��

Fixed maturity, bonds available-for-sale, at fair value
(Amortized cost $4,700,235 and $4,456,391)

�� 4,926,218 �� 4,599,673 ��

Equity securities, at fair value
(Cost $745,733 and $741,080)

�� 1,494,471 �� 1,410,608 ��

Mortgage loans on real estate, net of allowance

�� 3,318,552 �� 3,299,242 ��

Policy loans

�� 404,705 �� 397,407 ��

Investment real estate, net of accumulated depreciation of $181,125 and $211,575

�� 458,116 �� 507,142 ��

Short-term investments

�� 346,343 �� 495,386 ��

Other invested assets

�� 202,131 �� 201,442 ��
��

Total investments

�� 19,515,267 �� 19,402,247 ��
��

Cash and cash equivalents

�� 136,142 �� 117,946 ��

Investments in unconsolidated affiliates

�� 335,419 �� 341,012 ��

Accrued investment income

�� 198,559 �� 194,830 ��

Reinsurance recoverables

�� 410,525 �� 414,743 ��

Prepaid reinsurance premiums

�� 55,681 �� 57,869 ��

Premiums due and other receivables

�� 294,678 �� 279,929 ��

Deferred policy acquisition costs

�� 1,249,704 �� 1,277,733 ��

Property and equipment, net

�� 119,259 �� 107,070 ��

Current tax receivable

�� 4,403 �� 18,507 ��

Other assets

�� 148,448 �� 142,043 ��

Separate account assets

�� 992,615 �� 970,954 ��
��

Total assets

�� $ 23,460,700 �� $ 23,324,883 ��
��

LIABILITIES

��

Future policy benefits

��

Life

�� $ 2,736,156 �� $ 2,677,213 ��

Annuity

�� 982,720 �� 903,437 ��

Accident and health

�� 70,699 �� 71,941 ��

Policyholders� account balances

�� 10,893,918 �� 11,181,650 ��

Policy and contract claims

�� 1,289,997 �� 1,297,646 ��

Unearned premium reserve

�� 779,934 �� 739,878 ��

Other policyholder funds

�� 332,411 �� 326,885 ��

Liability for retirement benefits

�� 143,400 �� 160,853 ��

Notes payable

�� 109,349 �� 113,849 ��

Deferred tax liabilities, net

�� 286,545 �� 220,428 ��

Other liabilities

�� 433,855 �� 456,818 ��

Separate account liabilities

�� 992,615 �� 970,954 ��
��

Total liabilities

�� 19,051,599 �� 19,121,552 ��
��

STOCKHOLDERS� EQUITY

��

Common stock, $1.00 par value,�Authorized 50,000,000
Issued 30,832,449 and 30,832,449,
Outstanding 26,871,942 and 26,895,188 shares

�� 30,832 �� 30,832 ��

Additional paid-in capital

�� 8,862 �� 4,650 ��

Accumulated other comprehensive income

�� 504,338 �� 413,712 ��

Retained earnings

�� 3,954,731 �� 3,838,821 ��

Treasury stock, at cost

�� (101,941 )� (97,441 )�
��

Total American National stockholders� equity

�� 4,396,822 �� 4,190,574 ��

Noncontrolling interest

�� 12,279 �� 12,757 ��
��

Total stockholders� equity

�� 4,409,101 �� 4,203,331 ��
��

Total liabilities and stockholders� equity

�� $ 23,460,700 �� $ 23,324,883 ��
��

See accompanying notes to the consolidated financial statements.

3


Table of Contents

AMERICAN NATIONAL INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

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

Three�months�ended�September�30, Nine�months�ended�September�30,
2014 2013 2014 2013

PREMIUMS AND OTHER REVENUE

Premiums

Life

$ 79,492 �� $ 75,278 �� $ 224,165 �� $ 215,479 ��

Annuity

34,661 �� 23,412 �� 148,250 �� 89,733 ��

Accident and health

53,454 �� 52,839 �� 164,169 �� 159,100 ��

Property and casualty

279,429 �� 271,270 �� 820,953 �� 801,106 ��

Other policy revenues

55,255 �� 52,975 �� 167,041 �� 152,910 ��

Net investment income

236,489 �� 254,336 �� 697,604 �� 752,488 ��

Realized investment gains (losses)

(649 )� 43,795 �� 27,548 �� 107,473 ��

Other-than-temporary impairments

(1,608 )� (312 )� (3,045 )� (3,503 )�

Other income

9,647 �� 11,911 �� 26,707 �� 29,423 ��

Total premiums and other revenues

746,170 �� 785,504 �� 2,273,392 �� 2,304,209 ��

BENEFITS, LOSSES AND EXPENSES

Policyholder benefits

Life

83,740 �� 83,821 �� 257,505 �� 246,896 ��

Annuity

43,893 �� 34,860 �� 180,372 �� 118,155 ��

Claims incurred

Accident and health

33,193 �� 34,404 �� 109,859 �� 106,378 ��

Property and casualty

180,413 �� 182,809 �� 563,650 �� 581,042 ��

Interest credited to policyholders� account balances

83,746 �� 98,862 �� 258,952 �� 309,738 ��

Commissions for acquiring and servicing policies

97,608 �� 94,504 �� 299,992 �� 273,360 ��

Other operating expenses

118,002 �� 128,115 �� 357,043 �� 381,850 ��

Change in deferred policy acquisition costs

10,800 �� 7,265 �� 10,854 �� 19,568 ��

Total benefits, losses and expenses

651,395 �� 664,640 �� 2,038,227 �� 2,036,987 ��

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

94,775 �� 120,864 �� 235,165 �� 267,222 ��

Less: Provision (benefit) for federal income taxes

Current

23,639 �� 36,541 �� 55,690 �� 63,920 ��

Deferred

3,110 �� (782 )� 9,974 �� 7,959 ��

Total provision (benefit) for federal income taxes

26,749 �� 35,759 �� 65,664 �� 71,879 ��

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

2,735 �� 121 �� 10,405 �� 9,774 ��

Net income (loss)

70,761 �� 85,226 �� 179,906 �� 205,117 ��

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

2,877 �� 2,613 �� 1,883 �� 4,364 ��

Net income (loss) attributable to American National

$ 67,884 �� $ 82,613 �� $ 178,023 �� $ 200,753 ��

Amounts available to American National common stockholders

Earnings per share

Basic

$ 2.53 �� $ 3.08 �� $ 6.64 �� $ 7.49 ��

Diluted

2.52 �� 3.07 �� 6.61 �� 7.46 ��

Cash dividends to common stockholders

0.77 �� 0.77 �� 2.31 �� 2.31 ��

Weighted average common shares outstanding

26,805,535 �� 26,780,313 �� 26,800,835 �� 26,789,564 ��

Weighted average common shares outstanding and dilutive potential common shares

26,911,507 �� 26,905,093 �� 26,919,414 �� 26,910,017 ��

See accompanying notes to the consolidated financial statements.

4


Table of Contents

AMERICAN NATIONAL INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited and in thousands)

�� Three�months�ended�September�30, Nine�months�ended�September�30,
�� 2014 2013 2014 2013

Net income (loss)

�� $ 70,761 �� $ 85,226 �� $ 179,906 �� $ 205,117 ��
��

Other comprehensive income (loss), net of tax

��

Change in net unrealized gain (loss) on securities

�� (17,708 )� 26,747 �� 89,051 �� 31,569 ��

Foreign currency transaction and translation adjustments

�� (476 )� (625 )� (577 )� (211 )�

Defined pension benefit plan adjustment

�� 718 �� 2,876 �� 2,152 �� 8,627 ��
��

Other comprehensive income (loss), net of tax

�� (17,466 )� 28,998 �� 90,626 �� 39,985 ��
��

Total comprehensive income (loss)

�� 53,295 �� 114,224 �� 270,532 �� 245,102 ��

Less: Comprehensive income (loss) attributable to noncontrolling interest

�� 2,877 �� 2,613 �� 1,883 �� 4,364 ��
��

Total comprehensive income (loss) attributable to American National

�� $ 50,418 �� $ 111,611 �� $ 268,649 �� $ 240,738 ��
��

AMERICAN NATIONAL INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS� EQUITY

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

�� Nine�months�ended�September�30,
�� 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

�� 1,635 �� 3,012 ��

Income tax effect from restricted stock arrangement

�� ��� �� 80 ��

Amortization of restricted stock

�� 2,577 �� 1,028 ��
��

Balance at end of period

�� 8,862 �� 4,120 ��
��

Accumulated Other Comprehensive Income (Loss)

��

Balance as of January 1,

�� 413,712 �� 242,010 ��

Other comprehensive income (loss)

�� 90,626 �� 39,985 ��
��

Balance at end of the period

�� 504,338 �� 281,995 ��
��

Retained Earnings

��

Balance as of January 1,

�� 3,838,821 �� 3,653,280 ��

Net income (loss) attributable to American National

�� 178,023 �� 200,753 ��

Cash dividends to common stockholders

�� (62,113 )� (62,122 )�
��

Balance at end of the period

�� 3,954,731 �� 3,791,911 ��
��

Treasury Stock

��

Balance as of January 1,

�� (97,441 )� (98,286 )�

Reissuance (purchases) of treasury shares

�� (4,500 )� 844 ��
��

Balance at end of the period

�� (101,941 )� (97,442 )�
��

Noncontrolling Interest

��

Balance as of January 1,

�� 12,757 �� 11,491 ��

Contributions

�� 478 �� 456 ��

Distributions

�� (2,839 )� (2,675 )�

Gain (loss) attributable to noncontrolling interest

�� 1,883 �� 4,364 ��
��

Balance at end of the period

�� 12,279 �� 13,636 ��
��

Total Stockholders� Equity

�� $ 4,409,101 �� $ 4,025,052 ��
��

See accompanying notes to the consolidated financial statements.

5


Table of Contents

AMERICAN NATIONAL INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and in thousands)

�� Nine�months�ended�September�30,
�� 2014 2013

OPERATING ACTIVITIES

��

Net income (loss)

�� $ 179,906 �� $ 205,117 ��

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

��

Realized investment (gains) losses

�� (27,548 )� (107,473 )�

Other-than-temporary impairments

�� 3,045 �� 3,503 ��

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

�� 6,316 �� 4,460 ��

Net capitalized interest on policy loans and mortgage loans

�� (23,988 )� (20,156 )�

Depreciation

�� 26,421 �� 24,873 ��

Interest credited to policyholders� account balances

�� 258,952 �� 309,738 ��

Charges to policyholders� account balances

�� (167,041 )� (152,910 )�

Deferred federal income tax (benefit) expense

�� 9,974 �� 7,959 ��

Equity in (earnings) losses of unconsolidated affiliates

�� (10,405 )� (9,774 )�

Distributions from equity method investments

�� 679 �� 18,925 ��

Changes in

��

Policyholder liabilities

�� 166,392 �� 48,816 ��

Deferred policy acquisition costs

�� 10,854 �� 19,568 ��

Reinsurance recoverables

�� 4,218 �� 17,883 ��

Premiums due and other receivables

�� (15,189 )� (26,248 )�

Prepaid reinsurance premiums

�� 2,188 �� 4,945 ��

Accrued investment income

�� (3,729 )� 3,630 ��

Current tax receivable/payable

�� 14,104 �� 30,975 ��

Liability for retirement benefits

�� (17,453 )� 8,093 ��

Other, net

�� (44,626 )� (38,730 )�
��

Net cash provided by (used in) operating activities

�� 373,070 �� 353,194 ��
��

INVESTING ACTIVITIES

��

Proceeds from sale/maturity/prepayment of

��

Held-to-maturity securities

�� 442,748 �� 1,209,058 ��

Available-for-sale securities

�� 705,681 �� 702,625 ��

Investment real estate

�� 45,843 �� 84,371 ��

Mortgage loans

�� 421,023 �� 446,480 ��

Policy loans

�� 41,331 �� 43,911 ��

Other invested assets

�� 34,537 �� 11,021 ��

Disposals of property and equipment

�� 2,571 �� 674 ��

Distributions from unconsolidated affiliates

�� 49,403 �� 22,834 ��

Payment for the purchase/origination of

��

Held-to-maturity securities

�� (356,452 )� (856,086 )�

Available-for-sale securities

�� (883,346 )� (737,342 )�

Investment real estate

�� (28,865 )� (35,240 )�

Mortgage loans

�� (444,140 )� (638,690 )�

Policy loans

�� (21,721 )� (19,564 )�

Other invested assets

�� (14,376 )� (13,690 )�

Additions to property and equipment

�� (13,038 )� (17,958 )�

Contributions to unconsolidated affiliates

�� (40,333 )� (94,078 )�

Change in short-term investments

�� 149,043 �� (26,393 )�

Other, net

�� 3,834 �� 8,561 ��
��

Net cash provided by (used in) investing activities

�� 93,743 �� 90,494 ��
��

FINANCING ACTIVITIES

��

Policyholders� account deposits

�� 783,255 �� 654,346 ��

Policyholders� account withdrawals

�� (1,162,898 )� (1,164,806 )�

Change in notes payable

�� (4,500 )� (49,258 )�

Dividends to stockholders

�� (62,113 )� (62,122 )�

Proceeds from (payments to) noncontrolling interest

�� (2,361 )� (2,219 )�
��

Net cash provided by (used in) financing activities

�� (448,617 )� (624,059 )�
��

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

�� 18,196 �� (180,371 )�

Beginning of the period

�� 117,946 �� 303,008 ��
��

End of period

�� $ 136,142 �� $ 122,637 ��
��

See accompanying notes to the consolidated financial statements.

6


Table of Contents

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.

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.

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Table of Contents

Future Adoption of New Accounting Standards�The FASB issued the following accounting standards relevant to American National:

Guidance that allows investors to elect the use of proportional amortization method 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 for all investments in qualified affordable housing projects, regardless of the accounting method used for those investments.

Guidance that will supersede most existing revenue recognition requirements in U.S. Generally Accepted Accounting Principles. The Standard will become effective for American National on January�1, 2017 and allows for both retrospective and prospective methods of adoption. American National is in the process of determining the adoption method and is currently assessing the impact of this standard.

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Table of Contents

4. INVESTMENTS IN SECURITIES

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

�� September�30, 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

�� $ 327,022 �� �� $ 25,144 �� �� $ (67 )� $ 352,099 ��

Foreign governments

�� 29,122 �� �� 1,641 �� �� ��� �� 30,763 ��

Corporate debt securities

�� 7,636,327 �� �� 453,220 �� �� (40,292 )� 8,049,255 ��

Residential mortgage-backed securities

�� 353,444 �� �� 22,178 �� �� (1,921 )� 373,701 ��

Collateralized debt securities

�� 2,236 �� �� 223 �� �� ��� �� 2,459 ��

Other debt securities

�� 16,580 �� �� 1,396 �� �� ��� �� 17,976 ��
��

��

��

Total bonds held-to-maturity

�� 8,364,731 �� �� 503,802 �� �� (42,280 )� 8,826,253 ��
��

��

��

Fixed maturity securities, bonds available-for-sale

�� �� ��

U.S. treasury and government

�� 24,073 �� �� 783 �� �� ��� �� 24,856 ��

U.S. states and political subdivisions

�� 746,801 �� �� 33,661 �� �� (2,940 )� 777,522 ��

Foreign governments

�� 5,000 �� �� 1,900 �� �� ��� �� 6,900 ��

Corporate debt securities

�� 3,866,518 �� �� 206,396 �� �� (16,342 )� 4,056,572 ��

Residential mortgage-backed securities

�� 45,644 �� �� 2,112 �� �� (754 )� 47,002 ��

Collateralized debt securities

�� 12,199 �� �� 1,175 �� �� (8 )� 13,366 ��
��

��

��

Total bonds available-for-sale

�� 4,700,235 �� �� 246,027 �� �� (20,044 )� 4,926,218 ��
��

��

��

Equity securities

�� �� ��

Common stock

�� 722,015 �� �� 734,419 �� �� (3,791 )� 1,452,643 ��

Preferred stock

�� 23,718 �� �� 18,123 �� �� (13 )� 41,828 ��
��

��

��

Total equity securities

�� 745,733 �� �� 752,542 �� �� (3,804 )� 1,494,471 ��
��

��

��

Total investments in securities

�� $ 13,810,699 �� �� $ 1,502,371 �� �� $ (66,128 )� $ 15,246,942 ��
��

��

��

�� 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 ��
��

��

��

9


Table of Contents

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

�� September�30, 2014
�� Bonds Held-to-Maturity �� Bonds Available-for-Sale
�� Amortized�Cost �� Fair Value �� Amortized�Cost �� Fair Value

Due in one year or less

�� $ 902,160 �� �� $ 921,894 �� �� $ 345,538 �� �� $ 351,549 ��

Due after one year through five years

�� 2,046,277 �� �� 2,257,421 �� �� 855,878 �� �� 932,247 ��

Due after five years through ten years

�� 4,988,483 �� �� 5,196,155 �� �� 3,029,503 �� �� 3,154,290 ��

Due after ten years

�� 421,961 �� �� 445,711 �� �� 464,316 �� �� 483,132 ��

Without single maturity date

�� 5,850 �� �� 5,072 �� �� 5,000 �� �� 5,000 ��
��

��

��

��

Total

�� $ 8,364,731 �� �� $ 8,826,253 �� �� $ 4,700,235 �� �� $ 4,926,218 ��
��

��

��

��

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�September�30�, Nine�months�ended�September�30,
2014 2013 2014 2013

Proceeds from sales of available-for-sale securities

$ 2,671 �� $ 33,390 �� $ 139,137 �� $ 189,438 ��

Gross realized gains

228 �� 10,349 �� 24,994 �� 33,699 ��

Gross realized losses

��� �� (97 )� (2,123 )� (623 )�

All gains and losses for securities sold throughout the periods presented were determined using specific identification of the securities sold. During the nine months ended September�30, 2014 and 2013, bonds with a carrying value of $44,781,000 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 $1,301,000 and unrealized loss of $263,000 were established 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):

�� Nine�months�ended�September�30,
�� 2014 2013

Bonds available-for-sale

�� $ 82,701 �� $ (163,493 )�

Equity securities

�� 79,211 �� 165,613 ��
��

Change in net unrealized gains (losses) on securities during the year

�� 161,912 �� 2,120 ��

Adjustments for

��

Deferred policy acquisition costs

�� (17,175 )� 46,643 ��

Participating policyholders� interest

�� (8,526 )� 1,018 ��

Deferred federal income tax benefit (expense)

�� (47,160 )� (18,212 )�
��

Change in net unrealized gains (losses) on securities, net of tax

�� $ 89,051 �� $ 31,569 ��
��

10


Table of Contents

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):

�� September�30, 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

�� $ (2 )� $ 588 �� �� $ (65 )� $ 2,455 �� �� $ (67 )� $ 3,043 ��

Corporate debt securities

�� (7,727 )� 511,249 �� �� (32,565 )� 799,719 �� �� (40,292 )� 1,310,968 ��

Residential mortgage-backed securities

�� (225 )� 18,589 �� �� (1,696 )� 31,203 �� �� (1,921 )� 49,792 ��
��

��

��

Total bonds held-to-maturity

�� (7,954 )� 530,426 �� �� (34,326 )� 833,377 �� �� (42,280 )� 1,363,803 ��
��

��

��

Fixed maturity securities, bonds available-for-sale

�� �� ��

U.S. Treasury & other U.S. Gov corporations and agencies

�� ��� �� 476 �� �� ��� �� ��� �� �� ��� �� 476 ��

U.S. states and political subdivisions

�� (449 )� 37,887 �� �� (2,491 )� 79,485 �� �� (2,940 )� 117,372 ��

Corporate debt securities

�� (5,167 )� 372,578 �� �� (11,175 )� 338,870 �� �� (16,342 )� 711,448 ��

Residential mortgage-backed securities

�� (147 )� 10,908 �� �� (607 )� 13,835 �� �� (754 )� 24,743 ��

Collateralized debt securities

�� (1 )� 117 �� �� (7 )� 361 �� �� (8 )� 478 ��

Other Debt Securities

�� ��� �� ��� �� �� ��� �� ��� �� �� ��� �� ��� ��
��

��

��

Total bonds available-for-sale

�� (5,764 )� 421,966 �� �� (14,280 )� 432,551 �� �� (20,044 )� 854,517 ��
��

��

��

Equity securities

�� �� ��

Common stock

�� (3,791 )� 37,132 �� �� ��� �� ��� �� �� (3,791 )� 37,132 ��

Preferred stock

�� (13 )� 1,874 �� �� ��� �� ��� �� �� (13 )� 1,874 ��
��

��

��

Total equity securities

�� (3,804 )� 39,006 �� �� ��� �� ��� �� �� (3,804 )� 39,006 ��
��

��

��

Total

�� $ (17,522 )� $ 991,398 �� �� $ (48,606 )� $ 1,265,928 �� �� $ (66,128 )� $ 2,257,326 ��
��

��

��

�� 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 September�30, 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.

11


Table of Contents

Credit Risk Management

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

�� September�30,�2014 December�31,�2013

AAA

�� 4.9 %� 4.9 %�

AA

�� 12.5 �� 11.3 ��

A

�� 40.1 �� 40.7 ��

BBB

�� 39.0 �� 39.2 ��

BB and below

�� 3.5 �� 3.9 ��
��

Total

�� 100.0 %� 100.0 %�
��

Equity securities by market sector distribution are shown below:

�� September�30,�2014 December�31,�2013

Consumer goods

�� 19.2 %� 19.8 %�

Energy and utilities

�� 14.7 �� 15.0 ��

Financials

�� 18.8 �� 19.3 ��

Healthcare

�� 13.8 �� 12.7 ��

Industrials

�� 8.4 �� 9.0 ��

Information technology

�� 16.3 �� 15.7 ��

Other

�� 8.8 �� 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:

�� September�30,�2014 December�31,�2013

Hotel and motel

�� 11.3 %� 10.0 %�

Industrial

�� 21.2 �� 24.9 ��

Office

�� 35.6 �� 34.0 ��

Retail

�� 18.2 �� 19.6 ��

Other

�� 13.7 �� 11.5 ��
��

Total

�� 100.0 %� 100.0 %�
��

�� September�30,�2014 December�31,�2013

East North Central

�� 19.5 %� 19.3 %�

East South Central

�� 5.0 �� 6.8 ��

Mountain

�� 10.3 �� 10.0 ��

Pacific

�� 12.3 �� 12.3 ��

South Atlantic

�� 21.0 �� 19.6 ��

West South Central

�� 25.1 �� 26.4 ��

Other

�� 6.8 �� 5.6 ��
��

Total

�� 100.0 %� 100.0 %�
��

As of September�30, 2014, American National was in the process of foreclosure on two loans with a recorded investment of $15,945,000; there was one loan foreclosed in the same period in 2013 with a recorded investment of $5,600,000. No loans were sold in the nine months ended September�30, 2014 and 2013.

12


Table of Contents

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
Past�Due
�� 60-89�Days
Past Due
�� Greater�Than
90 Days
�� Total�Past
Due
�� Current �� Total
Mortgage�Loans

September�30, 2014

�� �� �� �� �� ��

Industrial

�� $ ��� �� �� $ ��� �� �� $ ��� �� �� $ ��� �� �� $ 705,801 �� �� $ 705,801 ��

Office

�� ��� �� �� ��� �� �� ��� �� �� ��� �� �� 1,191,525 �� �� 1,191,525 ��

Retail

�� ��� �� �� ��� �� �� ��� �� �� ��� �� �� 610,335 �� �� 610,335 ��

Other

�� ��� �� �� ��� �� �� ��� �� �� ��� �� �� 828,496 �� �� 828,496 ��
��

��

��

��

��

��

Total

�� $ ��� �� �� $ ��� �� �� $ ��� �� �� $ ��� �� �� $ 3,336,157 �� �� 3,336,157 ��
��

��

��

��

��

��

Allowance for loan losses

�� �� �� �� �� �� 17,605 ��
�� �� �� �� �� ��

Mortgage loans on real estate, net of allowance

��

�� �� �� �� $ 3,318,552 ��
�� �� �� �� �� ��

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):

�� September�30,
2014
�� December�31,
2013

Industrial

�� $ �� �� $ 2,739 ��

Total mortgage loans are net of unamortized discounts of $708,000 and $852,000 and unamortized origination fees of $16,378,000 and $15,709,000 at September�30, 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):

�� Nine�months�ended�September�30,�2014
�� Collectively
Evaluated

for�Impairment
Individually
Evaluated

for�Impairment

Beginning balance, 2014

�� $ 11,688 �� $ 493 ��

Change Due to Factor Development

�� (441 )� ��� ��

Change in allowance

�� 775 �� 5,090 ��
��

Ending balance, 2014

�� $ 12,022 �� $ 5,583 ��
��

At September�30, 2014 and December�31, 2013, the recorded investment for loans collectively evaluated for impairment was $3,279,133,000 and $3,294,235,000, respectively, and the recorded investment for loans individually evaluated for impairment was $57,024,000 and $17,188,000, respectively.

13


Table of Contents

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

�� September�30, 2014 �� September�30, 2013
�� Average
Recorded
Investment
�� Interest
Income
Recognized
�� Average
Recorded
Investment
�� Interest
Income
Recognized

Three months ended

�� �� �� ��

With an allowance recorded

�� �� �� ��

Office

�� $ 27,564 �� �� $ 547 �� �� $ 23,159 �� �� $ 393 ��

Retail

�� ��� �� �� ��� �� �� 493 �� �� ��� ��
��

��

��

��

Total

�� $ 27,564 �� �� $ 547 �� �� $ 23,652 �� �� $ 393 ��
��

��

��

��

Without an allowance recorded

�� �� �� ��

Office

�� $ 26,941 �� �� $ 431 �� �� $ 6,432 �� �� $ 110 ��

Industrial

�� 2,702 �� �� 36 �� �� ��� �� �� ��� ��

Retail

�� 851 �� �� 11 �� �� ��� �� �� ��� ��
��

��

��

��

Total

�� $ 30,494 �� �� $ 478 �� �� $ 6,432 �� �� $ 110 ��
��

��

��

��

Nine months ended

�� �� �� ��

With an allowance recorded

�� �� �� ��

Office

�� $ 29,421 �� �� $ 1,663 �� �� $ 23,234 �� �� $ 1,192 ��

Retail

�� ��� �� �� ��� �� �� 493 �� �� ��� ��
��

��

��

��

Total

�� $ 29,421 �� �� $ 1,663 �� �� $ 23,727 �� �� $ 1,192 ��
��

��

��

��

Without an allowance recorded

�� �� �� ��

Office

�� $ 27,019 �� �� $ 1,298 �� �� $ 6,439 �� �� $ 331 ��

Industrial

�� 2,721 �� �� 110 �� �� ��� �� �� ��� ��

Retail

�� 1,149 �� �� 16 �� �� ��� �� �� ��� ��
��

��

��

��

Total

�� $ 30,889 �� �� $ 1,424 �� �� $ 6,439 �� �� $ 331 ��
��

��

��

��

�� September 30, 2014 �� December 31, 2013
�� Recorded
Investment
�� Unpaid
Principal
Balance
�� Recorded
Investment
�� Unpaid
Principal
Balance

With an allowance recorded

�� �� �� ��

Office

�� $ 26,662 �� �� $ 27,947 �� �� $ ��� �� �� $ ��� ��

Retail

�� ��� �� �� ��� �� �� 493 �� �� 493 ��
��

��

��

��

Total

�� $ 26,662 �� �� $ 27,947 �� �� $ 493 �� �� $ 493 ��
��

��

��

��

Without an allowance recorded

�� �� �� ��

Office

�� $ 26,941 �� �� $ 26,941 �� �� $ 12,377 �� �� $ 12,377 ��

Industrial

�� 2,702 �� �� 2,702 �� �� 2,739 �� �� 2,739 ��

Retail

�� 719 �� �� 719 �� �� 1,579 �� �� 1,579 ��
��

��

��

��

Total

�� $ 30,362 �� �� $ 30,362 �� �� $ 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.

14


Table of Contents

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

Nine months ended September�30,

2014

�� 2013

Number of

contracts

�� Recorded
investment�pre-
modification
�� Recorded
investment�post
modification
�� Number�of
contracts
�� Recorded
investment�pre-
modification
�� Recorded
investment�post
modification

Office

3 �� $ 34,400 �� �� $ 30,996 �� �� 1 �� �� $ 6,432 �� �� $ 6,432 ��

There were no commitments to lend additional funds to debtors whose loans have been modified in troubled debt restructuring. One restructured loan is in the process of foreclosure.

6. INVESTMENT REAL ESTATE

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

�� September�30,�2014 December�31,�2013

Industrial

�� 13.8 %� 12.3 %�

Office

�� 20.7 �� 23.1 ��

Retail

�� 46.4 �� 43.4 ��

Other

�� 19.1 �� 21.2 ��
��

Total

�� 100.0 %� 100.0 %�
��

�� September�30,�2014 December�31,�2013

East North Central

�� 4.8 %� 7.8 %�

East South Central

�� 4.8 �� 5.4 ��

Mountain

�� 6.5 �� 6.0 ��

Pacific

�� 7.4 �� 5.5 ��

South Atlantic

�� 12.7 �� 13.4 ��

West South Central

�� 57.1 �� 59.0 ��

Other

�� 6.7 �� 2.9 ��
��

Total

�� 100.0 %� 100.0 %�
��

American National regularly invests 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.

15


Table of Contents

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

�� September�30,�2014 �� December�31,�2013

Investment real estate

�� $ 138,994 �� �� $ 123,624 ��

Cash and cash equivalents

�� 1,761 �� �� 2,154 ��

Accrued investment income

�� 412 �� �� 2,197 ��

Other receivables

�� 7,986 �� �� 8,488 ��

Other assets

�� 5,686 �� �� 6,016 ��
��

��

Total assets of consolidated VIEs

�� $ 154,839 �� �� $ 142,479 ��
��

��

Notes payable

�� $ 109,349 �� �� $ 113,849 ��

Other liabilities

�� 4,595 �� �� 6,680 ��
��

��

Total liabilities of consolidated VIEs

�� $ 113,944 �� �� $ 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 $14,948,000 and $12,782,000 at September�30, 2014 and December�31, 2013, respectively. The current portion of notes payable was $543,000 and $3,199,000 at September�30, 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%. 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):

�� September�30, 2014 �� December�31, 2013
�� Carrying
Amount
�� Maximum
Exposure
to Loss
�� Carrying
Amount
�� Maximum
Exposure
to Loss

Investment in unconsolidated affiliates

�� $ 195,794 �� �� $ 195,794 �� �� $ 195,794 �� �� $ 195,794 ��

Mortgage loans

�� 153,626 �� �� 153,626 �� �� 101,648 �� �� 101,648 ��

Accrued investment income

�� 617 �� �� 617 �� �� 454 �� �� 454 ��

16


Table of Contents

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 policy and an equity-indexed embedded derivative. The detail of derivative instruments is shown below (in thousands, except the number of instruments):

September�30, 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 416 �� $ 1,034,600 �� $ 170,343 �� 394 �� $ 951,400 �� $ 164,753 ��

Equity-indexed embedded derivative

Policyholders� account balances 39,723 �� 957,600 �� 191,760 �� 33,579 �� 819,200 �� 148,435 ��

Derivatives�Not�Designated

as�Hedging�Instruments

Location in the

Consolidated�Statements�of

Operations

Gains�(Losses)�Recognized�in�Income�on�Derivatives
Three�months�ended�September�30, Nine�months�ended�September�30,
2014 2013 2014 2013

Equity-indexed options

Net investment income $ 6,562 �� $ 13,260 �� $ 29,011 �� $ 48,019 ��

Equity-indexed embedded derivative

Interest�credited�to�policyholders��account�balances (1,762 )� (11,056 )� (16,484 )� (39,750 )�

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

Net investment income is shown below (in thousands):

�� Three�months�ended�September�30, �� Nine�months�ended�September�30,
�� 2014 �� 2013 �� 2014 �� 2013

Bonds

�� $ 148,715 �� �� $ 157,888 �� �� $ 450,110 �� �� $ 479,296 ��

Equity securities

�� 8,146 �� �� 7,417 �� �� 26,488 �� �� 22,653 ��

Mortgage loans

�� 51,652 �� �� 55,629 �� �� 159,010 �� �� 163,497 ��

Real estate

�� 14,245 �� �� 11,297 �� �� 11,347 �� �� 10,228 ��

Options

�� 6,562 �� �� 13,260 �� �� 29,011 �� �� 48,019 ��

Other invested assets

�� 7,169 �� �� 8,845 �� �� 21,638 �� �� 28,795 ��
��

��

��

��

Total

�� $ 236,489 �� �� $ 254,336 �� �� $ 697,604 �� �� $ 752,488 ��
��

��

��

��

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

�� Three�months�ended�September�30, Nine�months�ended�September�30,
�� 2014 2013 2014 2013

Bonds

�� $ 1,925 �� $ 9,907 �� $ 21,837 �� $ 16,826 ��

Equity securities

�� 229 �� 10,149 �� 10,293 �� 30,668 ��

Mortgage loans

�� (1,551 )� (1,561 )� (5,424 )� (1,172 )�

Real estate

�� (1,242 )� 25,311 �� 1,787 �� 61,257 ��

Other invested assets

�� (10 )� (11 )� (945 )� (106 )�
��

Total

�� $ (649 )� $ 43,795 �� $ 27,548 �� $ 107,473 ��
��

17


Table of Contents

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

�� Three�months�ended�September�30, Nine�months�ended�September�30,
�� 2014 2013 2014 2013

Bonds

�� $ ��� �� $ ��� �� $ (41 )� $ ��� ��

Equity securities

�� (1,608 )� (312 )� (3,004 )� (3,503 )�
��

Total

�� $ (1,608 )� $ (312 )� $ (3,045 )� $ (3,503 )�
��

9. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

�� September�30,�2014 �� December�31,�2013
�� Carrying �� �� Carrying ��
�� Amount �� Fair Value �� Amount �� Fair Value

Financial assets

�� �� �� ��

Fixed maturity securities, bonds held-to-maturity

�� $ 8,364,731 �� �� $ 8,826,253 �� �� $ 8,491,347 �� �� $ 8,823,068 ��

Fixed maturity securities, bonds available-for-sale

�� 4,926,218 �� �� 4,926,218 �� �� 4,599,673 �� �� 4,599,673 ��

Equity securities

�� 1,494,471 �� �� 1,494,471 �� �� 1,410,608 �� �� 1,410,608 ��

Equity-indexed options

�� 170,343 �� �� 170,343 �� �� 164,753 �� �� 164,753 ��

Mortgage loans on real estate, net of allowance

�� 3,318,552 �� �� 3,515,463 �� �� 3,299,242 �� �� 3,470,663 ��

Policy loans

�� 404,705 �� �� 404,705 �� �� 397,407 �� �� 397,407 ��

Short-term investments

�� 346,343 �� �� 346,343 �� �� 495,386 �� �� 495,386 ��

Separate account assets

�� 992,615 �� �� 992,615 �� �� 970,954 �� �� 970,954 ��
��

��

��

��

Total financial assets

�� $ 20,017,978 �� �� $ 20,676,411 �� �� $ 19,829,370 �� �� $ 20,332,512 ��
��

��

��

��

Financial liabilities

�� �� �� ��

Investment contracts

�� $ 9,039,356 �� �� $ 9,039,356 �� �� $ 9,423,122 �� �� $ 9,423,122 ��

Embedded derivative liability for equity-indexed contracts

�� 191,760 �� �� 191,760 �� �� 148,435 �� �� 148,435 ��

Notes payable

�� 109,349 �� �� 109,349 �� �� 113,849 �� �� 113,849 ��

Separate account liabilities

�� 992,615 �� �� 992,615 �� �� 970,954 �� �� 970,954 ��
��

��

��

��

Total financial liabilities

�� $ 10,333,080 �� �� $ 10,333,080 �� �� $ 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.

18


Table of Contents

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 produce an estimate of fair value only 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.

19


Table of Contents

The 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 September�30, 2014 and December�31, 2013, the one year implied volatility used to estimate embedded derivative value was 16.0% and 15.0%, respectively.

Other Financial InstrumentsOther 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.

20


Table of Contents

Quantitative Disclosures

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

�� Fair Value Measurement as of September�30, 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

�� $ 352,099 �� �� $ ��� �� �� $ 352,099 �� �� $ ��� ��

Foreign governments

�� 30,763 �� �� ��� �� �� 30,763 �� �� ��� ��

Corporate debt securities

�� 8,049,255 �� �� ��� �� �� 7,998,901 �� �� 50,354 ��

Residential mortgage-backed securities

�� 373,701 �� �� ��� �� �� 372,724 �� �� 977 ��

Collateralized debt securities

�� 2,459 �� �� ��� �� �� ��� �� �� 2,459 ��

Other debt securities

�� 17,976 �� �� ��� �� �� 13,113 �� �� 4,863 ��
��

��

��

��

Total bonds held-to-maturity

�� 8,826,253 �� �� �� �� �� 8,767,600 �� �� 58,653 ��
��

��

��

��

Fixed maturity securities, bonds available-for-sale

�� �� �� ��

U.S. treasury and government

�� 24,856 �� �� ��� �� �� 24,856 �� �� ��� ��

U.S. states and political subdivisions

�� 777,522 �� �� ��� �� �� 775,012 �� �� 2,510 ��

Foreign governments

�� 6,900 �� �� ��� �� �� 6,900 �� �� ��� ��

Corporate debt securities

�� 4,056,572 �� �� ��� �� �� 4,021,030 �� �� 35,542 ��

Residential mortgage-backed securities

�� 47,002 �� �� ��� �� �� 45,076 �� �� 1,926 ��

Collateralized debt securities

�� 13,366 �� �� ��� �� �� 11,200 �� �� 2,166 ��
��

��

��

��

Total bonds available-for-sale

�� 4,926,218 �� �� ��� �� �� 4,884,074 �� �� 42,144 ��
��

��

��

��

Equity securities

�� �� �� ��

Common stock

�� 1,452,643 �� �� 1,452,643 �� �� ��� �� �� ��� ��

Preferred stock

�� 41,828 �� �� 41,828 �� �� ��� �� �� ��� ��
��

��

��

��

Total equity securities

�� 1,494,471 �� �� 1,494,471 �� �� �� �� �� �� ��
��

��

��

��

Options

�� 170,343 �� �� ��� �� �� ��� �� �� 170,343 ��

Mortgage loans on real estate

�� 3,515,463 �� �� ��� �� �� 3,515,463 �� �� ��� ��

Policy loans

�� 404,705 �� �� ��� �� �� ��� �� �� 404,705 ��

Short-term investments

�� 346,343 �� �� ��� �� �� 346,343 �� �� ��� ��

Separate account assets

�� 992,615 �� �� ��� �� �� 992,615 �� �� ��� ��
��

��

��

��

Total financial assets

�� $ 20,676,411 �� �� $ 1,494,471 �� �� $ 18,506,095 �� �� $ 675,845 ��
��

��

��

��

Financial liabilities

�� �� �� ��

Investment contracts

�� $ 9,039,356 �� �� $ ��� �� �� $ ��� �� �� $ 9,039,356 ��

Embedded derivative liability for equity-indexed contracts

�� 191,760 �� �� ��� �� �� ��� �� �� 191,760 ��

Notes payable

�� 109,349 �� �� ��� �� �� ��� �� �� 109,349 ��

Separate account liabilities

�� 992,615 �� �� ��� �� �� 992,615 �� �� ��� ��
��

��

��

��

Total financial liabilities

�� $ 10,333,080 �� �� $ ��� �� �� $ 992,615 �� �� $ 9,340,465 ��
��

��

��

��

21


Table of Contents
�� 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

�� $ 1,744 �� �� $ ��� �� �� $ 1,744 �� �� $ ��� ��

U.S. states and political subdivisions

�� 362,656 �� �� ��� �� �� 362,656 �� �� ��� ��

Foreign governments

�� 31,604 �� �� ��� �� �� 31,604 �� �� ��� ��

Corporate debt securities

�� 7,993,891 �� �� ��� �� �� 7,950,418 �� �� 43,473 ��

Residential mortgage-backed securities

�� 418,683 �� �� ��� �� �� 417,688 �� �� 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

�� 22,476 �� �� ��� �� �� 22,476 �� �� ��� ��

U.S. states and political subdivisions

�� 638,561 �� �� ��� �� �� 636,041 �� �� 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 ��
��

��

��

��

22


Table of Contents

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
�� Three months ended September�30, Nine months ended September�30,
�� Assets Liability Assets Liability
�� Equity- Equity-
�� Investment Indexed Embedded Investment Indexed Embedded
�� Securities Options Derivative Securities Options Derivative

Beginning balance, 2014

�� $ �11,932 �� $ 163,861 �� $ 186,261 �� $ 48,304 �� $ 164,753 �� $ 148,435 ��

Total realized and unrealized investment gains/losses included in other comprehensive income

�� 138 �� ��� �� ��� �� (11,735 )� ��� �� ��� ��

Net fair value change included in realized gains/losses

�� ��� �� ��� �� ��� �� 13,056 �� ��� �� ��� ��

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

�� ��� �� 4,998 �� ��� �� ��� �� 23,788 �� ��� ��

Net change included in interest credited

�� ��� �� ��� �� 1,762 �� ��� �� ��� �� 16,484 ��

Purchases, sales and settlements or maturities

��

Purchases

�� ��� �� 3,655 �� ��� �� ��� �� 12,345 �� ��� ��

Sales

�� (120 )� ��� �� ��� �� (37,670 )� ��� �� ��� ��

Settlements or maturities

�� (5 )� (2,171 )� ��� �� (10 )� (30,543 )� ��� ��

Premiums less benefits

�� 3,737 �� 26,841 ��

Gross transfers into Level 3

�� 30,199 �� ��� �� ��� �� 30,199 �� ��� �� ��� ��

Gross transfers out of Level 3

�� ��� �� ��� �� ��� �� ��� �� ��� �� ��� ��
��

Ending balance September�30, 2014

�� $ 42,144 �� $ 170,343 �� $ 191,760 �� $ 42,144 �� $ 170,343 �� $ 191,760 ��
��

Beginning balance, 2013

�� $ 55,558 �� $ 115,558 �� $ 100,963 �� $ 107,036 �� $ 82,625 �� $ 75,032 ��

Total realized and unrealized investment gains/losses included in other comprehensive income

�� (633 )� ��� �� ��� �� 10,496 �� ��� �� ��� ��

Net fair value change included in realized gains/losses

�� (1 )� ��� �� ��� �� 218 �� ��� �� ��� ��

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

�� ��� �� 11,775 �� ��� �� ��� �� 42,941 �� ��� ��

Net change included in interest credited

�� ��� �� ��� �� 11,056 �� ��� �� ��� �� 39,750 ��

Purchases, sales and settlements or maturities

��

Purchases

�� 45 �� 4,470 �� ��� �� 2,115 �� 12,178 �� ��� ��

Sales

�� (138 )� ��� �� ��� �� (14,272 )� ��� �� ��� ��

Settlements or maturities

�� ��� �� (2,054 )� ��� �� ��� �� (7,995 )� ��� ��

Premiums less benefits

�� ��� �� ��� �� (730 )� ��� �� ��� �� (3,493 )�

Gross transfers into Level 3

�� 157 �� ��� �� ��� �� 157 �� ��� �� ��� ��

Gross transfers out of Level 3

�� (2,840 )� ��� �� ��� �� (53,602 )� ��� �� ��� ��
��

Ending balance September�30, 2013

�� $ 52,148 �� $ 129,749 �� $ 111,289 �� $ 52,148 �� $ 129,749 �� $ 111,289 ��
��

Within the net gain (loss) for derivatives included in net investment income were unrealized gain/(loss) of $7,395,000 and $39,652,000 relating to assets still held at September�30, 2014 and 2013, respectively.

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10. DEFERRED POLICY ACQUISITION COSTS

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

�� Accident Property &
�� Life Annuity & Health Casualty Total

Beginning balance 2014

�� $ 684,084 �� $ 424,158 �� $ 47,220 �� $ 122,271 �� $ 1,277,733 ��

Additions

�� 77,261 �� 36,413 �� 14,949 �� 161,978 �� 290,601 ��

Amortization

�� (61,488 )� (58,469 )� (14,084 )� (167,414 )� (301,455 )�

Effect of change in unrealized gains on available-for-sale securities

�� (4,147 )� (13,028 )� ��� �� ��� �� (17,175 )�
��

Net change

�� 11,626 �� (35,084 )� 865 �� (5,436 )� (28,029 )�
��

Ending balance at September�30, 2014

�� $ 695,710 �� $ 389,074 �� $ 48,085 �� $ 116,835 �� $ 1,249,704 ��
��

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):

�� Nine�months�ended�September�30,
�� 2014 2013

Unpaid claims balance, beginning

�� $ 1,096,299 �� $ 1,168,047 ��

Less reinsurance recoverables

�� 215,161 �� 256,885 ��
��

Net beginning balance

�� 881,138 �� 911,162 ��
��

Incurred related to

��

Current

�� 706,824 �� 743,194 ��

Prior years

�� (29,044 )� (50,553 )�
��

Total incurred claims

�� 677,780 �� 692,641 ��
��

Paid claims related to

��

Current

�� 410,077 �� 442,100 ��

Prior years

�� 252,082 �� 266,472 ��
��

Total paid claims

�� 662,159 �� 708,572 ��
��

Net balance

�� 896,759 �� 895,231 ��

Plus reinsurance recoverables

�� 235,485 �� 226,822 ��
��

Unpaid claims balance, ending

�� $ 1,132,244 �� $ 1,122,053 ��
��

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 $29,044,000 during the first nine months of 2014 and $50,553,000 during the same period in 2013.

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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 September�30, Nine months ended September�30,
�� 2014 2013 2014 2013
�� Amount Rate Amount Rate Amount Rate Amount Rate

Income tax (benefit) on pre-tax income

�� $ 33,171 �� 35.0 %� $ 42,302 �� 35.0 %� $ 82,308 �� 35.0 %� $ 93,527 �� 35.0 %�

Tax-exempt investment income

�� (1,742 )� (1.8 )� (1,502 )� (1.2 )� (4,897 )� (2.1 )� (4,700 )� (1.8 )�

Dividend exclusion

�� (1,700 )� (1.8 )� (1,710 )� (1.4 )� (5,253 )� (2.2 )� (4,802 )� (1.8 )�

Miscellaneous tax credits, net

�� (2,658 )� (2.8 )� (1,930 )� (1.6 )� (5,873 )� (2.5 )� (5,820 )� (2.2 )�

Other items, net

�� (322 )� (0.3 )� (1,401 )� (1.2 )� (621 )� (0.3 )� (6,326 )� (2.3 )�
��

�� $ 26,749 �� 28.3 %� $ 35,759 �� 29.6 %� $ 65,664 �� 27.9 %� $ 71,879 �� 26.9 %�
��

American National made federal tax payments of $41,121,000 during the nine months ended September�30, 2014 and $37,784,000 during the nine months ended September�30, 2013.

Management believes 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 September�30, 2014 and December�31, 2013. However, if not utilized beforehand, approximately $2,260,000 of 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 2009 has been extended. 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.

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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
Gains/(Losses)
on Securities
Defined Benefit
Pension Plan
Adjustments
Foreign
Currency
Adjustments
AOCI

Beginning balance 2014

�� $ 457,937 �� $ (43,884 )� $ (341 )� $ 413,712 ��

Amounts reclassified from AOCI (net of tax benefit $8,906 and expense $1,159)

�� (16,539 )� 2,152 �� ��� �� (14,387 )�

Unrealized holding gains (losses) arising during the period (net of tax expense $65,575)

�� 121,782 �� 121,782 ��

Unrealized adjustment to DAC (net of tax benefit $6,525)

�� (10,650 )� (10,650 )�

Unrealized (gains) losses on investments attributable to participating policyholders� interest (net of tax benefit $2,984)

�� (5,542 )� (5,542 )�

Foreign currency adjustment (net of tax benefit $311)

�� (577 )� (577 )�
��

Ending balance at September�30, 2014

�� $ 546,988 �� $ (41,732 )� $ (918 )� $ 504,338 ��
��

�� Net Unrealized
Gains/(Losses)
on Securities
Defined�Benefit
Pension Plan
Adjustments
Foreign
Currency
Adjustments
AOCI

Beginning balance 2013

�� $ 370,842 �� $ (129,003 )� $ 171 �� $ 242,010 ��

Amounts reclassified from AOCI (net of tax benefit $12,720 and expense $4,645)

�� (23,095 )� 8,627 �� ��� �� (14,468 )�

Unrealized holding gains (losses) arising during the period (net of tax expense $13,277)

�� 24,658 �� 24,658 ��

Unrealized adjustment to DAC (net of tax expense $17,299)

�� 29,344 �� 29,344 ��

Unrealized (gains) losses on investments attributable to participating policyholders� interest (net of tax expense $356)

�� 662 �� 662 ��

Foreign currency adjustment (net of tax benefit $114)

�� (211 )� (211 )�
��

Ending balance at September�30, 2013

�� $ 402,411 �� $ (120,376 )� $ (40 )� $ 281,995 ��
��

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:

�� September�30, December�31,
�� 2014 2013

Common stock

��

Shares issued

�� 30,832,449 �� 30,832,449 ��

Treasury shares

�� (3,960,507 )� (3,937,261 )�
��

Outstanding shares

�� 26,871,942 �� 26,895,188 ��

Restricted shares

�� (142,667 )� (190,667 )�
��

Unrestricted outstanding shares

�� 26,729,275 �� 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 by the Board of Directors, both when setting applicable performance objectives and at the payment of the awards. The number of shares available for grants under the plan cannot exceed 2,900,000, 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.

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Table of Contents

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

�� SAR �� RS�Shares �� RS Units
�� Shares Weighted-
Average�Grant
Date�Fair�Value
�� Shares Weighted-
Average�Grant
Date�Fair�Value
�� Units Weighted-
Average�Grant
Date�Fair�Value

Outstanding at December�31, 2013

�� 74,435 �� $ 114.08 �� �� 190,667 �� $ 107.54 �� �� 121,369 �� $ 76.23 ��

Granted

�� ��� �� ��� �� �� ��� �� ��� �� �� 66,383 �� 113.49 ��

Exercised

�� (2,817 )� 95.58 �� �� (48,000 )� 108.00 �� �� (59,438 )� 76.53 ��

Forfeited

�� ��� �� ��� �� �� ��� �� ��� �� �� (100 )� 113.49 ��

Expired

�� (15,279 )� 115.23 �� �� ��� �� ��� �� �� ��� �� ��� ��
��

��

��

Outstanding at September 30, 2014

�� 56,339 �� $ 114.69 �� �� 142,667 �� $ 107.39 �� �� 128,214 �� $ 95.82 ��
��

��

��

�� SAR RS Shares �� RS Units

Weighted-average contractual remaining life (in years)

�� 2.0 �� 4.1 �� �� 2.0 ��

Exercisable shares

�� ��

Weighted-average exercise price

�� $ 114.69 �� $ 107.39 �� �� $ 95.82 ��

Weighted-average exercise price exercisable shares

�� 114.78 �� N/A �� �� N/A ��

Compensation expense (credits)

�� ��

Three months ended September�30, 2014

�� $ (19,000 )� $ 496,000 �� �� $ 522,000 ��

Three months ended September�30, 2013

�� 87,000 �� 674,000 �� �� 409,000 ��

Nine months ended September�30, 2014

�� (33,000 )� 2,577,000 �� �� 6,447,000 ��

Nine months ended September�30, 2013

�� 160,000 �� 1,703,000 �� �� 8,692,000 ��

Fair value of liability award

�� ��

September 30, 2014

�� $ 157,000 �� N/A �� �� $ 15,039,000 ��

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 price of a share of stock on the grant date and the price on the exercise date. The SARs vest at a rate of 20%�per year for five years and expire five years after vesting.

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 generally 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 142,667 shares are unvested.

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 equity to 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 remeasured 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 $5,310,000 for the nine months ended September�30, 2014 and added an incremental cost of $2,947,000 during the nine months ended September�30, 2013.

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Table of Contents

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 for share and per share data):

�� Three months ended
September�30,
�� Nine months ended
September�30,
�� 2014 �� 2013 �� 2014 �� 2013

Weighted average shares outstanding

�� 26,805,535 �� �� 26,780,313 �� �� 26,800,835 �� �� 26,789,564 ��

Incremental shares from RS awards and RSUs

�� 105,972 �� �� 124,780 �� �� 118,579 �� �� 120,453 ��
��

��

��

��

Total shares for diluted calculations

�� 26,911,507 �� �� 26,905,093 �� �� 26,919,414 �� �� 26,910,017 ��
��

��

��

��

Net income (loss) attributable to American National

�� $ 67,884 �� �� $ 82,613 �� �� $ 178,023 �� �� $ 200,753 ��

Basic earnings per share

�� $ 2.53 �� �� $ 3.08 �� �� $ 6.64 �� �� $ 7.49 ��

Diluted earnings per share

�� 2.52 �� �� 3.07 �� �� 6.61 �� �� 7.46 ��

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 September�30, 2014 and December�31, 2013, American National Insurance Company�s statutory capital and surplus was $2,842,984,000 and $2,667,858,000, respectively. Additionally, each of the insurance subsidiaries had statutory capital and surplus at September�30, 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 $60,732,000 and $56,205,000 at September�30, 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.

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Table of Contents

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

�� September�30,
2014
�� December�31,
2013

Statutory capital and surplus

�� ��

Life insurance entities

�� $ 1,898,939 �� �� $ 1,771,999 ��

Property�and�casualty�insurance�entities

�� 952,964 �� �� 904,557 ��

�� Three months ended
September 30,
�� Nine months ended
September 30,
�� 2014 �� 2013 �� 2014 �� 2013

Statutory net income

�� �� �� ��

Life insurance entities

�� $ 43,447 �� �� $ 59,602 �� �� $ 139,564 �� �� $ 159,286 ��

Property�and�casualty�insurance�entities

�� 22,718 �� �� 20,205 �� �� 44,852 �� �� 26,136 ��

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 $266,786,000 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 September�30, 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 $5,529,000 and $6,007,000 at September�30, 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 and commercial coverages and credit-related property insurance. These products are sold through multiple-line and independent agents.

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Table of Contents
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
September�30,
�� Nine months ended
September�30,
�� 2014 �� 2013 �� 2014 �� 2013

Income (loss) from continuing operations before federal income taxes, and equity in earnings/losses of unconsolidated affiliates

�� �� �� ��

Life

�� $ 10,794 �� �� $ 9,005 �� �� $ 22,076 �� �� $ 23,420 ��

Annuity

�� 24,366 �� �� 18,631 �� �� 70,415 �� �� 69,633 ��

Health

�� 9,304 �� �� 7,170 �� �� 19,579 �� �� 16,164 ��

Property and casualty

�� 30,088 �� �� 24,634 �� �� 59,790 �� �� 33,198 ��

Corporate and other

�� 20,223 �� �� 61,424 �� �� 63,305 �� �� 124,807 ��
��

��

��

��

Total

�� $ 94,775 �� �� $ 120,864 �� �� $ 235,165 �� �� $ 267,222 ��
��

��

��

��

16. COMMITMENTS AND CONTINGENCIES

Commitments

American National had aggregate commitments at September�30, 2014, to purchase, expand or improve real estate, to fund fixed interest rate mortgage loans, and to purchase other invested assets of $452,166,000 of which $176,259,000 is expected to be funded in 2014. The remaining $275,907,000 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 September�30, 2014 and December�31, 2013, the outstanding letters of credit were $12,191,000 and $15,560,000, respectively, and there were no borrowings on this facility. This facility expires on October�30, 2015. 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 September�30, 2014, was approximately $206,376,000, while the total cash values of the related life insurance policies was approximately $208,418,000.

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Litigation

American National Insurance Company 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
�� �� Nine�months�ended�September�30, �� September�30,
2014
December�31,
2013

Related Party

�� Financial�Statement�Line�Impacted �� 2014 �� 2013 ��

Gal-Tex�Hotel�Corporation

�� Mortgage�loan�on�real�estate �� �� $ 917 �� �� $ 853 �� �� $ 6,825 �� $ 7,742 ��

Gal-Tex�Hotel�Corporation

�� Net investment income �� �� 399 �� �� 463 �� �� 41 �� 47 ��

Greer,�Herz�and�Adams,�LLP

�� Other operating expenses �� �� 8,037 �� �� 7,484 �� �� (404 )� (284 )�

Mortgage Loans to Gal-Tex Hotel Corporation (�Gal-Tex�): The Moody Foundation and the Libbie Shearn Moody Trust own 34.0% and 50.2%, respectively, of Gal-Tex Hotel Corporation. The Moody Foundation and the Libbie Shearn Moody Trust also own approximately 22.9% and 37.1%, respectively, of American National. 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.

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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 and nine months ended September�30, 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 guarantees 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�28th, 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 supplement healthcare business;

Litigation and Regulation Risk Factors

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

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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 and notes requires us to make estimates and assumptions that affect the amounts reported. Actual results could differ from results reported using those estimates and assumptions. Our accounting policies inherently require the use of 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.

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Consolidated Results of Operations

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

�� Three�months�ended�September�30, �� Nine�months�ended�September�30, ��
�� 2014 2013 �� Change 2014 �� 2013 �� Change

Premiums and other revenues

�� �� �� ��

Premiums

�� $ 447,036 �� $ 422,799 �� �� $ 24,237 �� $ 1,357,537 �� �� $ 1,265,418 �� �� $ 92,119 ��

Other policy revenues

�� 55,255 �� 52,975 �� �� 2,280 �� 167,041 �� �� 152,910 �� �� 14,131 ��

Net investment income

�� 236,489 �� 254,336 �� �� (17,847 )� 697,604 �� �� 752,488 �� �� (54,884 )�

Realized investments gains (losses), net

�� (2,257 )� 43,483 �� �� (45,740 )� 24,503 �� �� 103,970 �� �� (79,467 )�

Other income

�� 9,647 �� 11,911 �� �� (2,264 )� 26,707 �� �� 29,423 �� �� (2,716 )�
��

��

��

��

Total premiums and other revenues

�� 746,170 �� 785,504 �� �� (39,334 )� 2,273,392 �� �� 2,304,209 �� �� (30,817 )�
��

��

��

��

Benefits, losses and expenses

�� �� �� ��

Policyholder benefits

�� 127,633 �� 118,681 �� �� 8,952 �� 437,877 �� �� 365,051 �� �� 72,826 ��

Claims incurred

�� 213,606 �� 217,213 �� �� (3,607 )� 673,509 �� �� 687,420 �� �� (13,911 )�

Interest credited to policyholders� account balances

�� 83,746 �� 98,862 �� �� (15,116 )� 258,952 �� �� 309,738 �� �� (50,786 )�

Commissions for acquiring and servicing policies

�� 97,608 �� 94,504 �� �� 3,104 �� 299,992 �� �� 273,360 �� �� 26,632 ��

Other operating expenses

�� 118,002 �� 128,115 �� �� (10,113 )� 357,043 �� �� 381,850 �� �� (24,807 )�

Change in deferred policy acquisition costs (1)

�� 10,800 �� 7,265 �� �� 3,535 �� 10,854 �� �� 19,568 �� �� (8,714 )�
��

��

��

��

Total benefits and expenses

�� 651,395 �� 664,640 �� �� (13,245 )� 2,038,227 �� �� 2,036,987 �� �� 1,240 ��
��

��

��

��

Income (loss) before other items and federal income taxes

�� $ 94,775 �� $ 120,864 �� �� $ (26,089 )� $ 235,165 �� �� $ 267,222 �� �� $ (32,057 )�
��

��

��

��

(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 (income before other items and taxes) decreased for the quarter and nine months ended September�30, 2014 compared to the same periods in 2013, primarily a result of lower realized investment gains (losses) net. Earnings excluding realized investment gains (losses) increased for the quarter and nine months ended September�30, 2014 compared to 2013.

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Life

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

�� Three�months�ended�September�30, Nine�months�ended�September�30,
�� 2014 �� 2013 Change 2014 2013 Change

Premiums and other revenues

�� ��

Premiums

�� $ 79,492 �� �� $ 75,278 �� $ 4,214 �� $ 224,165 �� $ 215,479 �� $ 8,686 ��

Other policy revenues

�� 51,751 �� �� 49,158 �� 2,593 �� 155,355 �� 142,034 �� 13,321 ��

Net investment income

�� 57,598 �� �� 57,008 �� 590 �� 172,633 �� 173,195 �� (562 )�

Other income

�� 338 �� �� 708 �� (370 )� 1,027 �� 2,093 �� (1,066 )�
��

��

Total�premiums�and�other�revenues

�� 189,179 �� �� 182,152 �� 7,027 �� 553,180 �� 532,801 �� 20,379 ��
��

��

Benefits, losses and expenses

�� ��

Policyholder benefits

�� 83,740 �� �� 83,821 �� (81 )� 257,505 �� 246,896 �� 10,609 ��

Interest credited to policyholders� account balances

�� 16,649 �� �� 13,653 �� 2,996 �� 48,265 �� 40,750 �� 7,515 ��

Commissions for acquiring and servicing policies

�� 30,239 �� �� 30,341 �� (102 )� 91,971 �� 86,491 �� 5,480 ��

Other operating expenses

�� 47,622 �� �� 52,042 �� (4,420 )� 149,136 �� 156,269 �� (7,133 )�

Change in deferred policy acquisition costs (1)

�� 135 �� �� (6,710 )� 6,845 �� (15,773 )� (21,025 )� 5,252 ��
��

��

Total benefits and expenses

�� 178,385 �� �� 173,147 �� 5,238 �� 531,104 �� 509,381 �� 21,723 ��
��

��

Income before other items and federal income taxes

�� $ 10,794 �� �� $ 9,005 �� $ 1,789 �� $ 22,076 �� $ 23,420 �� $ (1,344 )�
��

��

(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 increased during the quarter ended September�30, 2014 compared to 2013 due to a decrease in operating expenses. Earnings decreased during the nine months ended September�30, 2014 compared to 2013 primarily due to an increase in policyholder benefits, a result of higher than expected claims in the first quarter of 2014.

Premiums and other policy revenues

Premiums increased during the three and nine months ended September�30, 2014 compared to 2013. The increases were primarily driven by the continued growth of the in-force block of business of term products.

Other policy revenues include mortality charges, earned policy service fees and surrender charges on interest-sensitive life insurance policies. An increase in interest-sensitive life policies contributed to the increases in these charges during the three and nine months ended September�30, 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�September�30, �� Nine�months�ended�September�30, ��
�� 2014 �� 2013 �� Change 2014 �� 2013 �� Change

Whole life

�� $ 5,656 �� �� $ 5,643 �� �� $ 13 �� $ 19,387 �� �� $ 19,044 �� �� $ 343 ��

Term life

�� 6,890 �� �� 7,756 �� �� (866 )� 22,049 �� �� 24,436 �� �� (2,387 )�

Universal life

�� 8,427 �� �� 8,920 �� �� (493 )� 26,409 �� �� 26,759 �� �� (350 )�
��

��

��

��

��

Total recurring

�� $ 20,973 �� �� $ 22,319 �� �� $ (1,346 )� $ 67,845 �� �� $ 70,239 �� �� $ (2,394 )�
��

��

��

��

��

Single and excess (1)

�� $ 505 �� �� $ 584 �� �� $ (79 )� $ 1,466 �� �� $ 1,676 �� �� $ (210 )�

Credit life (1)

�� 1,046 �� �� 1,107 �� �� (61 )� 2,978 �� �� 3,108 �� �� (130 )�

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

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Life insurance sales are based on the total yearly premium that insurance companies would expect to receive if all recurring premium policies would 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 decreased during the three and nine months ended September�30, 2014 compared to 2013 driven primarily by a decline in term life sales. Marketing activities at financial institutions with whom the Company markets life insurance have been curtailed at the financial institutions to ensure compliance with Consumer Financial Protection Bureau views on appropriate marketing practices.

Benefits, losses and expenses

Policyholder benefits increased during the nine months ended September�30, 2014 compared to 2013 primarily due to higher than expected claims in the first quarter of 2014.

The increase in commissions during the nine months ended September�30, 2014 compared to 2013 is primarily due to an increase in first year premiums on term and equity-indexed universal life products.

Other operating expenses decreased during the three and nine months ended September�30, 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�September�30, Nine�months�ended�September�30,
�� 2014 2013 Change 2014 2013 Change

Acquisition cost capitalized

�� $ 26,271 �� $ 30,999 �� $ (4,728 )� $ 77,261 �� $ 80,226 �� $ (2,965 )�

Amortization of DAC

�� (26,406 )� (24,289 )� (2,117 )� (61,488 )� (59,201 )� (2,287 )�
��

Net change in DAC (1)

�� $ (135 )� $ 6,710 �� $ (6,845 )� $ 15,773 �� $ 21,025 �� $ (5,252 )�
��

(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:

�� September�30,
2014
�� December�31,
2013
�� Change

Life insurance in-force

�� �� ��

Traditional life

�� $ 58,249,120 �� �� $ 54,788,898 �� �� $ 3,460,222 ��

Interest-sensitive life

�� 25,803,248 �� �� 25,281,391 �� �� 521,857 ��
��

��

��

Total life insurance in-force

�� $ 84,052,368 �� �� $ 80,070,289 �� �� $ 3,982,079 ��
��

��

��

Number of policies in-force

�� �� ��

Traditional life

�� 1,961,707 �� �� 2,002,602 �� �� (40,895 )�

Interest-sensitive life

�� 202,748 �� �� 196,949 �� �� 5,799 ��
��

��

��

Total number of policies

�� 2,164,455 �� �� 2,199,551 �� �� (35,096 )�
��

��

��

Total life insurance in-force increased during 2014 compared to 2013, while the total number of policies decreased reflecting the transition to fewer but larger face amount policies.

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Annuity

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

�� Three�months�ended�September�30, �� Nine�months�ended�September�30, ��
�� 2014 2013 �� Change 2014 2013 �� Change

Premiums and other revenues

�� �� ��

Premiums

�� $ 34,661 �� $ 23,412 �� �� $ 11,249 �� $ 148,250 �� $ 89,733 �� �� $ 58,517 ��

Other policy revenues

�� 3,504 �� 3,817 �� �� (313 )� 11,686 �� 10,876 �� �� 810 ��

Net investment income

�� 128,890 �� 148,322 �� �� (19,432 )� 404,347 �� 463,530 �� �� (59,183 )�

Other income

�� (1 )� 96 �� �� (97 )� (1 )� 241 �� �� (242 )�
��

��

��

Total premiums and other revenues

�� 167,054 �� 175,647 �� �� (8,593 )� 564,282 �� 564,380 �� �� (98 )�
��

��

��

Benefits, losses and expenses

�� �� ��

Policyholder benefits

�� 43,893 �� 34,860 �� �� 9,033 �� 180,372 �� 118,155 �� �� 62,217 ��

Interest credited to policyholders� account balances

�� 67,097 �� 85,208 �� �� (18,111 )� 210,687 �� 268,987 �� �� (58,300 )�

Commissions for acquiring and servicing policies

�� 10,787 �� 10,303 �� �� 484 �� 37,358 �� 31,890 �� �� 5,468 ��

Other operating expenses

�� 12,465 �� 16,242 �� �� (3,777 )� 43,394 �� 48,053 �� �� (4,659 )�

Change in deferred policy acquisition costs (1)

�� 8,446 �� 10,403 �� �� (1,957 )� 22,056 �� 27,662 �� �� (5,606 )�
��

��

��

Total benefits and expenses

�� 142,688 �� 157,016 �� �� (14,328 )� 493,867 �� 494,747 �� �� (880 )�
��

��

��

Income before other items and federal income taxes

�� $ 24,366 �� $ 18,631 �� �� $ 5,735 �� $ 70,415 �� $ 69,633 �� �� $ 782 ��
��

��

��

(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 increased during the three and nine months ended September�30, 2014 compared to 2013, primarily due to lower operating expenses.

Premiums and other policy revenues

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

�� Three�months�ended�September�30, �� Nine�months�ended�September�30, ��
�� 2014 �� 2013 �� Change 2014 �� 2013 �� Change

Fixed deferred annuity

�� $ 67,414 �� �� $ 53,250 �� �� $ 14,164 �� $ 261,123 �� �� $ 186,765 �� �� $ 74,358 ��

Single premium immediate annuity

�� 40,996 �� �� 32,245 �� �� 8,751 �� 171,244 �� �� 127,146 �� �� 44,098 ��

Equity-indexed deferred annuity

�� 67,524 �� �� 47,405 �� �� 20,119 �� 185,602 �� �� 126,898 �� �� 58,704 ��

Variable deferred annuity

�� 24,514 �� �� 30,485 �� �� (5,971 )� 84,960 �� �� 94,553 �� �� (9,593 )�
��

��

��

��

��

Total premium and deposits

�� 200,448 �� �� 163,385 �� �� 37,063 �� 702,929 �� �� 535,362 �� �� 167,567 ��

Less: Policy deposits

�� 165,787 �� �� 139,973 �� �� 25,814 �� 554,679 �� �� 445,629 �� �� 109,050 ��
��

��

��

��

��

Total earned premiums

�� $ 34,661 �� �� $ 23,412 �� �� $ 11,249 �� $ 148,250 �� �� $ 89,733 �� �� $ 58,517 ��
��

��

��

��

��

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We monitor account values and changes in those values 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 (shown below in thousands):

�� Nine�months�ended�September�30,
�� 2014 2013

Fixed deferred and equity-indexed annuity

��

Account value, beginning of period

�� $ 9,355,946 �� $ 9,803,197 ��

Net inflows

�� 322,605 �� 183,832 ��

Surrenders

�� (875,968 )� (842,436 )�

Fees

�� (7,174 )� (6,795 )�

Interest credited

�� 203,460 �� 262,472 ��
��

Account value, end of period

�� $ 8,998,869 �� $ 9,400,270 ��
��

Single premium immediate annuity

��

Reserve, beginning of period

�� $ 1,199,276 �� $ 1,075,638 ��

Net inflows

�� 75,450 �� 36,436 ��

Interest and mortality

�� 35,374 �� 32,726 ��
��

Reserve, end of period

�� $ 1,310,100 �� $ 1,144,800 ��
��

Variable deferred annuity

��

Account value, beginning of period

�� $ 489,305 �� $ 417,645 ��

Net inflows

�� 83,843 �� 91,664 ��

Surrenders

�� (95,054 )� (84,866 )�

Fees

�� (4,308 )� (3,945 )�

Change in market value and other

�� 19,854 �� 52,440 ��
��

Account value, end of period

�� $ 493,640 �� $ 472,938 ��
��

Deferred and single premium immediate annuity sales increased compared to last year, which resulted in the increase in fund inflows to these products. The Company has increased its focus on the annuity channel, expanding distribution through the introduction of additional marketing programs and the development of new accounts. The Company also introduced a new indexed annuity.

Variable deferred annuities have no guaranteed minimum withdrawal benefits. Our total direct exposure on the guaranteed minimum death benefits associated with these products was $1.3 million and $1.6 million as of September�30, 2014 and 2013, respectively. After reinsurance, which is with reinsurers rated �A� or higher by A.M. Best, the net exposure was $0.2 million and $0.3 million, as of September�30, 2014 and 2013, respectively.

Benefits, losses and expenses

Policyholder benefits are highly correlated to the sales volume of Single Premium Immediate Annuity (�SPIA�) contracts and increased for 2014 compared to 2013.

These benefits consist of annuity payments and reserve increases for annuity contracts. Commissions increased for the three and nine months ended September�30, 2014 compared to 2013 primarily as a result of increased annuity sales.

Other operating expenses decreased during the three and nine months ended September�30, 2014 compared to 2013.

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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 table shows the components of the change in DAC (in thousands):

�� Three�months�ended�September�30, Nine�months�ended�September�30,
�� 2014 2013 Change 2014 2013 Change

Acquisition cost capitalized

�� $ 12,219 �� $ 13,315 �� $ (1,096 )� $ 36,413 �� $ 36,370 �� $ 43 ��

Amortization of DAC

�� (20,665 )� (23,718 )� 3,053 �� (58,469 )� (64,032 )� 5,563 ��
��

Net change in DAC (1)

�� $ (8,446 )� $ (10,403 )� $ 1,957 �� $ (22,056 )� $ (27,662 )� $ 5,606 ��
��

(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. Changes in this ratio reflect the impact of items such as surrenders which impact the DAC amortization relative to gross margins. The ratios for the three months ended September�30, 2014 and 2013 were 36.9% and 42.7%, respectively. The ratios for the nine months ended September�30, 2014 and 2013 were 33.8% and 36.1%, respectively.

Options and Derivatives

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

�� Three�months�ended�September�30, �� Nine�months�ended�September�30, ��
�� 2014 �� 2013 �� Change 2014 �� 2013 �� Change

Net investment income

�� �� �� �� ��

Without option return

�� $ 122,684 �� �� $ 135,304 �� �� $ (12,620 )� $ 376,841 �� �� $ 416,132 �� �� $ (39,291 )�

Option return

�� 6,206 �� �� 13,018 �� �� (6,812 )� 27,506 �� �� 47,398 �� �� (19,892 )�

Interest credited to policy account balances

�� �� �� �� ��

Without embedded derivatives

�� 65,333 �� �� 74,261 �� �� (8,928 )� 194,877 �� �� 229,681 �� �� (34,804 )�

Equity-indexed annuity embedded derivatives

�� 1,764 �� �� 10,947 �� �� (9,183 )� 15,810 �� �� 39,306 �� �� (23,496 )�

Net investment income without option return decreased for the three and nine months ended September�30, 2014 compared to 2013 primarily due to lower portfolio yield and aggregate account values. Fixed interest credited to policyholders� account balances without embedded derivatives decreased during the three and nine months ended September�30, 2014 compared to 2013 due to these same two factors.

The returns from options and the related equity-indexed embedded derivative return, decreased during the three and nine months ended September�30, 2014 compared to the same period in 2013, due to the relative change in the S&P 500 Index during the respective periods. These option returns correlate to the 0.6% and 4.7% change in the S&P 500 Index during the quarters ended September�30, 2014 and 2013, respectively. For the nine months ended September�30, 2014 and 2013 the decrease correlates to the 6.7% and 17.9% return in the S&P 500, respectively.

39


Table of Contents

Health

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

Three�months�ended�September�30, Nine�months�ended�September�30,
2014 2013 Change 2014 2013 Change

Premiums and other revenues

Premiums

$ 53,454 �� $ 52,839 �� $ 615 �� $ 164,169 �� $ 159,100 �� $ 5,069 ��

Net investment income

2,971 �� 2,941 �� 30 �� 8,806 �� 8,645 �� 161 ��

Other income

5,075 �� 4,439 �� 636 �� 15,330 �� 13,255 �� 2,075 ��

Total premiums and other revenues

61,500 �� 60,219 �� 1,281 �� 188,305 �� 181,000 �� 7,305 ��

Benefits, losses and expenses

Claims incurred

33,193 �� 34,404 �� (1,211 )� 109,859 �� 106,378 �� 3,481 ��

Commissions for acquiring and servicing policies

9,688 �� 7,316 �� 2,372 �� 27,031 �� 20,568 �� 6,463 ��

Other operating expenses

10,009 �� 11,222 �� (1,213 )� 32,701 �� 35,810 �� (3,109 )�

Change in deferred policy acquisition costs (1)

(694 )� 107 �� (801 )� (865 )� 2,080 �� (2,945 )�

Total benefits and expenses

52,196 �� 53,049 �� (853 )� 168,726 �� 164,836 �� 3,890 ��

Income before other items and federal income taxes

$ 9,304 �� $ 7,170 �� $ 2,134 �� $ 19,579 �� $ 16,164 �� $ 3,415 ��

(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 increased during the three months ended September�30, 2014 versus 2013 due to a decrease in claims and operating expenses. Earnings increased during the nine months ended September�30, 2014 compared to 2013, primarily due to lower operating expenses and an increase in other income primarily from continued growth in the MGU business block.

Premiums and other revenues

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

�� Three months ended September�30, Nine months ended September�30,
�� 2014 2013 2014 2013
�� Amount �� Percentage Amount �� Percentage Amount �� Percentage Amount �� Percentage

Medicare Supplement

�� $ 21,060 �� �� 39.4 %� $ 22,591 �� �� 42.8 %� $ 64,413 �� �� 39.2 %� $ 68,509 �� �� 43.1 %�

Medical expense

�� 4,985 �� �� 9.3 �� 7,463 �� �� 14.1 �� 16,750 �� �� 10.2 �� 23,168 �� �� 14.6 ��

Group health

�� 7,051 �� �� 13.2 �� 9,291 �� �� 17.6 �� 25,811 �� �� 15.7 �� 27,556 �� �� 17.3 ��

Credit accident and health

�� 3,738 �� �� 7.0 �� 3,721 �� �� 7.0 �� 11,049 �� �� 6.7 �� 11,438 �� �� 7.2 ��

MGU

�� 6,301 �� �� 11.8 �� 4,822 �� �� 9.1 �� 18,183 �� �� 11.1 �� 14,750 �� �� 9.3 ��

Supplemental insurance

�� 8,785 �� �� 16.4 �� 3,409 �� �� 6.5 �� 23,110 �� �� 14.1 �� 8,571 �� �� 5.4 ��

All other

�� 1,534 �� �� 2.9 �� 1,542 �� �� 2.9 �� 4,853 �� �� 3.0 �� 5,108 �� �� 3.1 ��
��

��

��

��

��

Total

�� $ 53,454 �� �� 100.0 %� $ 52,839 �� �� 100.0 %� $ 164,169 �� �� 100.0 %� $ 159,100 �� �� 100.0 %�
��

��

��

��

��

Premiums increased during the three and nine months ended September�30, 2014 compared to 2013, primarily from the sales of individual limited benefit supplemental insurance products as well as growth in the MGU business. Medicare Supplement premiums declined due to policy lapses outpacing new sales which have a lower average premium per policy.

40


Table of Contents

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

�� September�30, 2014 December�31, 2013
�� Number
of�Policies
�� Percentage
of�Total�Policies
Number
of�Policies
�� Percentage
of�Total�Policies

Medicare Supplement

�� 38,120 �� �� 5.7 %� 40,064 �� �� 6.4 %�

Medical expense

�� 3,551 �� �� 0.5 �� 4,633 �� �� 0.7 ��

Group

�� 16,306 �� �� 2.4 �� 19,679 �� �� 3.1 ��

Credit accident and health

�� 229,441 �� �� 34.2 �� 235,014 �� �� 37.5 ��

MGU

�� 270,416 �� �� 40.3 �� 221,811 �� �� 35.3 ��

Supplemental insurance

�� 70,694 �� �� 10.5 �� 61,342 �� �� 9.8 ��

All other

�� 42,341 �� �� 6.4 �� 45,369 �� �� 7.2 ��
��

��

��

Total

�� 670,869 �� �� 100.0 %� 627,912 �� �� 100.0 %�
��

��

��

Total in-force policies increased during the nine months ended September�30, 2014 compared to 2013 primarily due to increases in the MGU and supplemental insurance lines. The MGU line increased as a result of our continued expansion in the MGU market as employers are using the stop loss market to manage the cost of providing health insurance for employees. The supplemental insurance line continues to increase with the demand for individual limited benefit products.

Benefits, losses and expenses

Claims incurred decreased during the quarter ended September�30, 2014 compared to 2013 primarily as a result of the continued decline in the closed medical expense block and a decrease in group claim submissions.

Claims incurred increased during the nine months ended September�30, 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 the reinsurer has asserted are due under the agreement.

Other operating expenses decreased during the three and nine months ended September�30, 2014 compared to 2013.

Change in Deferred Policy Acquisition Costs

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

�� Three�months�ended�September�30, Nine�months�ended�September�30,
�� 2014 2013 Change 2014 2013 Change

Acquisition cost capitalized

�� $ 5,486 �� $ 4,017 �� $ 1,469 �� $ 14,949 �� $ 9,457 �� $ 5,492 ��

Amortization of DAC

�� (4,792 )� (4,124 )� (668 )� (14,084 )� (11,537 )� (2,547 )�
��

Net change in DAC (1)

�� $ 694 �� $ (107 )� $ 801 �� $ 865 �� $ (2,080 )� $ 2,945 ��
��

(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 net change in DAC increased for the three and nine months ended September�30, 2014 compared to 2013, primarily due to higher commissions from increased sales of individual limited benefit supplemental insurance products.

41


Table of Contents

Property and Casualty

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

�� Three months ended
September�30,
Nine months ended
September�30,
�� 2014 2013 Change 2014 2013 Change

Net premiums written

�� $ 282,058 �� $ 272,524 �� $ 9,534 �� $ 854,593 �� $ 823,284 �� $ 31,309 ��
��

Premiums and other revenues

��

Net premiums earned

�� $ 279,429 �� $ 271,270 �� $ 8,159 �� $ 820,953 �� $ 801,106 �� $ 19,847 ��

Net investment income

�� 14,523 �� 17,081 �� (2,558 )� 44,452 �� 50,199 �� (5,747 )�

Other income

�� 905 �� 2,177 �� (1,272 )� 3,550 �� 4,827 �� (1,277 )�
��

Total premiums and other revenues

�� 294,857 �� 290,528 �� 4,329 �� 868,955 �� 856,132 �� 12,823 ��
��

Benefits, losses and expenses

��

Claims incurred

�� 180,413 �� 182,809 �� (2,396 )� 563,650 �� 581,042 �� (17,392 )�

Commissions for acquiring and servicing policies

�� 46,894 �� 46,533 �� 361 �� 143,632 �� 134,190 �� 9,442 ��

Other operating expenses

�� 34,549 �� 33,087 �� 1,462 �� 96,447 �� 96,851 �� (404 )�

Change in deferred policy acquisition costs (1)

�� 2,913 �� 3,465 �� (552 )� 5,436 �� 10,851 �� (5,415 )�
��

Total benefits and expenses

�� 264,769 �� 265,894 �� (1,125 )� 809,165 �� 822,934 �� (13,769 )�
��

Income (loss) before other items and federal income taxes

�� $ 30,088 �� $ 24,634 �� $ 5,454 �� $ 59,790 �� $ 33,198 �� $ 26,592 ��
��

Loss ratio

�� 64.6 %� 67.4 %� (2.8 )� 68.7 %� 72.5 %� (3.8 )�

Underwriting expense ratio

�� 30.2 �� 30.6 �� (0.4 )� 29.9 �� 30.2 �� (0.3 )�
��

Combined ratio

�� 94.8 %� 98.0 %� (3.2 )� 98.6 %� 102.7 %� (4.1 )�
��

Impact of catastrophe events on combined ratio

�� 5.3 �� 4.1 �� 1.2 �� 7.1 �� 9.6 �� (2.5 )�
��

Combined ratio without impact of catastrophe events

�� 89.5 %� 93.9 %� (4.4 )� 91.5 %� 93.1 %� (1.6 )�
��

Gross catastrophe losses

�� $ 14,487 �� $ 10,871 �� $ 3,616 �� $ 55,592 �� $ 84,744 �� $ (29,152 )�

Net catastrophe losses

�� 14,652 �� 11,613 �� 3,039 �� 56,795 �� 76,555 �� (19,760 )�

(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 for the quarter improved compared to 2013 due to an improved rate adequacy and underwriting improvements which were partially offset by increases in catastrophe claims and commissions. Results improved during the nine months ended September�30, 2014 compared to 2013, primarily as a result of decreases in catastrophe losses and improved rate adequacy.

Benefits, losses and expenses

Claims incurred decreased during the three months ended September�30, 2014 compared to 2013, as a result of lower non-catastrophe losses. Claims incurred decreased during the nine months ended September�30, 2014 compared to 2013, as a result of fewer catastrophe losses. The decrease year-to-date is due primarily to the decreases in the severity of catastrophes in 2014 compared to 2013.

Commissions increased for the three and nine months ended September�30, 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.

42


Table of Contents

Products

Our Property and Casualty segment consists of: (i)�Personal products, which we market primarily to individuals, representing 62.2% of net premiums written, (ii)�Commercial products, which focus primarily on agricultural and other commercial markets, representing 29.6% of net premiums written, and (iii)�Credit-related property insurance products, which are marketed to and through financial institutions and retailers, representing 8.2% of net premiums written.

Personal Products

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

�� Three months�ended
September�30,
Nine months ended
September�30,
�� 2014 2013 Change 2014 2013 Change

Net premiums written

��

Auto

�� $ 102,678 �� $ 102,643 �� $ 35 �� $ 304,776 �� $ 306,640 �� $ (1,864 )�

Homeowner

�� 63,073 �� 60,515 �� 2,558 �� 172,294 �� 164,661 �� 7,633 ��

Other Personal

�� 9,718 �� 9,556 �� 162 �� 28,998 �� 28,712 �� 286 ��
��

Total net premiums written

�� $ 175,469 �� $ 172,714 �� $ 2,755 �� $ 506,068 �� $ 500,013 �� $ 6,055 ��
��

Net premiums earned

��

Auto

�� $ 99,957 �� $ 101,478 �� $ (1,521 )� $ 298,612 �� $ 302,711 �� $ (4,099 )�

Homeowner

�� 56,720 �� 53,351 �� 3,369 �� 164,799 �� 154,752 �� 10,047 ��

Other Personal

�� 9,303 �� 9,234 �� 69 �� 27,055 �� 27,106 �� (51 )�
��

Total net premiums earned

�� $ 165,980 �� $ 164,063 �� $ 1,917 �� $ 490,466 �� $ 484,569 �� $ 5,897 ��
��

Loss ratio

��

Auto

�� 79.4 %� 75.9 %� 3.5 �� 76.1 %� 77.7 %� (1.6 )�

Homeowner

�� 55.3 �� 80.0 �� (24.7 )� 73.3 �� 96.8 �� (23.5 )�

Other Personal

�� 69.3 �� 57.0 �� 12.3 �� 42.3 �� 53.7 �� (11.4 )�

Personal line loss ratio

�� 70.6 %� 76.2 %� (5.6 )� 73.3 %� 82.5 %� (9.2 )�

Combined Ratio

��

Auto

�� 103.8 %� 99.4 %� 4.4 �� 99.1 %� 100.6 %� (1.5 )�

Homeowner

�� 81.6 �� 105.7 �� (24.1 )� 98.5 �� 121.8 �� (23.3 )�

Other Personal

�� 92.3 �� 79.6 �� 12.7 �� 61.7 �� 76.3 �� (14.6 )�

Personal line combined ratio

�� 95.5 %� 100.3 %� (4.8 )� 96.8 %� 106.0 %� (9.2 )�

Personal Automobile: Net premiums written and earned decreased in our personal automobile line during the nine months ended September�30, 2014 compared to 2013, primarily due to a decline in policies in-force. The loss and combined ratios improved year-to-date during 2014 compared to 2013 due to a decline in catastrophe losses.

Homeowners: Net premiums written and earned increased during the three and nine months ended September�30, 2014 compared to 2013 primarily due to increasing premium rates over the time period. The loss and combined ratios improved for the three and nine months ended September�30, 2014 compared to 2013 due to a decrease in 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. Low volume and volatility with these lines can lead to some quarterly fluctuations. The loss and combined ratios decreased during the nine months ended September�30, 2014 compared to 2013, in line with trends on the larger personal lines.

43


Table of Contents

Commercial Products

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

�� Three months ended
September�30,
Nine months ended
September�30,
�� 2014 2013 Change 2014 2013 Change

Net premiums written

��

Other Commercial

�� $ 33,072 �� $ 31,116 �� $ 1,956 �� $ 117,594 �� $ 109,437 �� $ 8,157 ��

Agricultural Business

�� 31,515 �� 27,976 �� 3,539 �� 94,311 �� 83,655 �� 10,656 ��

Commercial Automobile

�� 18,952 �� 17,471 �� 1,481 �� 69,103 �� 64,635 �� 4,468 ��
��

Total net premiums written

�� $ 83,539 �� $ 76,563 �� $ 6,976 �� $ 281,008 �� $ 257,727 �� $ 23,281 ��
��

Net premiums earned

��

Other Commercial

�� $ 37,820 �� $ 32,826 �� $ 4,994 �� $ 106,026 �� $ 95,058 �� $ 10,968 ��

Agricultural Business

�� 28,545 �� 28,073 �� 472 �� 87,408 �� 81,759 �� 5,649 ��

Commercial Automobile

�� 22,595 �� 19,698 �� 2,897 �� 61,377 �� 58,243 �� 3,134 ��
��

Total net premiums earned

�� $ 88,960 �� $ 80,597 �� $ 8,363 �� $ 254,811 �� $ 235,060 �� $ 19,751 ��
��

Loss ratio

��

Other Commercial

�� 60.3 %� 42.1 %� 18.2 �� 79.6 %� 58.3 %� 21.3 ��

Agricultural Business

�� 61.7 �� 78.0 �� (16.3 )� 62.2 �� 78.8 �� (16.6 )�

Commercial Automobile

�� 66.2 �� 81.5 �� (15.3 )� 69.1 �� 74.9 �� (5.8 )�

Commercial line loss ratio

�� 62.2 %� 64.2 %� (2.0 )� 71.1 %� 69.5 %� 1.6 ��

Combined ratio

��

Other Commercial

�� 86.2 %� 69.6 %� 16.6 �� 107.2 %� 86.8 %� 20.4 ��

Agricultural Business

�� 101.7 �� 115.5 �� (13.8 )� 99.6 �� 115.7 �� (16.1 )�

Commercial Automobile

�� 87.6 �� 103.7 �� (16.1 )� 93.1 �� 98.7 �� (5.6 )�

Commercial line combined ratio

�� 91.5 %� 93.9 %� (2.4 )� 101.2 %� 99.8 %� 1.4 ��

Other Commercial: Net premiums written and earned increased during the three and nine months ended September�30, 2014 compared to 2013, primarily attributable to increased sales in the workers� compensation and business owners� lines. The loss and combined ratios for the three and nine months ended September�30, 2014 increased due to larger than anticipated reserve increases on 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 the three and nine months ended September�30, 2014 compared to 2013, primarily as a result of rate increases and a decrease in ceded premiums. The loss and combined ratio improved for the three and nine months ended September�30, 2014 primarily due to a reduction in overall claim frequency, as well as a combination of rate and underwriting actions.

Commercial Automobile: Net premiums written and earned increased primarily due to rate increases over the three and nine months ended September�30, 2014 compared to 2013. The loss and combined ratio improved for the three and nine months ended September�30, 2014 primarily due to a reduction in overall claim frequency.

44


Table of Contents

Credit Products

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

�� Three months ended
September�30,
�� Nine months ended
September�30,
��
�� 2014 �� 2013 �� Change 2014 �� 2013 �� Change

Net premiums written

�� $ 23,050 �� �� $ 23,247 �� �� $ (197 )� $ 67,518 �� �� $ 65,544 �� �� $ 1,974 ��

Net premiums earned

�� 24,489 �� �� 26,610 �� �� (2,121 )� 75,676 �� �� 81,477 �� �� (5,801 )�

Loss ratio

�� 32.2 �� �� 22.9 �� �� 9.3 �� 30.2 �� �� 22.2 �� �� 8.0 ��

Combined ratio

�� 101.6 �� �� 100.0 �� �� 1.6 �� 102.2 �� �� 97.2 �� �� 5.0 ��

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 for the nine months ended September�30, 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 the three and nine months ended 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
September�30,
�� Nine months ended
September�30,
��
�� 2014 2013 �� Change 2014 �� 2013 �� Change

Premiums and other revenues

�� �� �� ��

Net investment income

�� $ 32,507 �� $ 28,984 �� �� $ 3,523 �� $ 67,366 �� �� $ 56,919 �� �� $ 10,447 ��

Realized investments gains, net

�� (2,257 )� 43,483 �� �� (45,740 )� 24,503 �� �� 103,970 �� �� (79,467 )�

Other Income

�� 3,330 �� 4,491 �� �� (1,161 )� 6,801 �� �� 9,007 �� �� (2,206 )�
��

��

��

��

Total premiums and other revenues

�� 33,580 �� 76,958 �� �� (43,378 )� 98,670 �� �� 169,896 �� �� (71,226 )�
��

��

��

��

Benefits, losses and expenses

�� �� �� ��

Commissions

�� ��� �� 11 �� �� (11 )� ��� �� �� 221 �� �� (221 )�

Other operating expenses

�� 13,357 �� 15,523 �� �� (2,166 )� 35,365 �� �� 44,868 �� �� (9,503 )�
��

��

��

��

Total benefits, losses and expenses

�� 13,357 �� 15,534 �� �� (2,177 )� 35,365 �� �� 45,089 �� �� (9,724 )�
��

��

��

��

Income before other items and federal income taxes

�� $ 20,223 �� $ 61,424 �� �� $ (41,201 )� $ 63,305 �� �� $ 124,807 �� �� $ (61,502 )�
��

��

��

��

Earnings decreased during the three months ended September�30, 2014 compared to 2013 primarily due to lower realized investment gains. The decrease in realized gains is attributable to lower gains in equity securities and less real estate sale activity.

The Corporate and Other business segment recorded other-than-temporary impairments of $3,045,000 and $3,503,000 in the nine months ended September�30, 2014 and 2013, respectively, which are included in �Realized investment gains, net.�

45


Table of Contents

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):

�� September�30, 2014 December�31, 2013
�� Amount �� Percent Amount �� Percent

Bonds held-to-maturity, at amortized cost

�� $ 8,364,731 �� �� 42.9 %� $ 8,491,347 �� �� 43.8 %�

Bonds available-for-sale, at fair value

�� 4,926,218 �� �� 25.2 �� 4,599,673 �� �� 23.7 ��

Equity securities, at fair value

�� 1,494,471 �� �� 7.7 �� 1,410,608 �� �� 7.3 ��

Mortgage loans on real estate, net of allowance

�� 3,318,552 �� �� 17.0 �� 3,299,242 �� �� 17.0 ��

Policy loans

�� 404,705 �� �� 2.1 �� 397,407 �� �� 2.0 ��

Investment real estate, net of accumulated depreciation

�� 458,116 �� �� 2.3 �� 507,142 �� �� 2.6 ��

Short-term investments

�� 346,343 �� �� 1.8 �� 495,386 �� �� 2.6 ��

Other invested assets

�� 202,131 �� �� 1.0 �� 201,442 �� �� 1.0 ��
��

��

��

Total investments

�� $ 19,515,267 �� �� 100.0 %� $ 19,402,247 �� �� 100.0 %�
��

��

��

The increase in our total investments at September�30, 2014 as compared to December�31, 2013 was primarily a result of an increase in bonds and the market value of 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 September�30, 2014, our fixed maturity securities had an estimated fair value of $13.8 billion, which was $0.7 billion, or 5.3%, 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. At September�30, 2014 fixed maturity securities� estimated fair value, due in one year or less, were $1.2 billion which was unchanged compared to December�31, 2013.

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Table of Contents

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

�� September�30, 2014 �� December�31, 2013
�� Amortized
Cost
�� Estimated
Fair Value
�� %�of�Fair
Value
�� Amortized
Cost
�� Estimated
Fair Value
�� %�of�Fair
Value

AAA

�� $ 629,985 �� �� $ 667,466 �� �� 4.9 �� �� $ 621,527 �� �� $ 649,161 �� �� 4.9 ��

AA

�� 1,636,392 �� �� 1,715,944 �� �� 12.5 �� �� 1,472,221 �� �� 1,511,517 �� �� 11.3 ��

A

�� 5,228,300 �� �� 5,511,482 �� �� 40.0 �� �� 5,260,435 �� �� 5,466,136 �� �� 40.7 ��

BBB

�� 5,094,673 �� �� 5,367,709 �� �� 39.0 �� �� 5,094,589 �� �� 5,272,246 �� �� 39.2 ��

BB and below

�� 477,080 �� �� 489,870 �� �� 3.6 �� �� 498,966 �� �� 523,681 �� �� 3.9 ��
��

��

��

��

��

��

Total

�� $ 13,066,430 �� �� $ 13,752,471 �� �� 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 5.3% and 5.2% at September�30, 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):

�� September�30, 2014
�� Cost �� Unrealized
Gains
�� Unrealized
Losses
Fair Value �� %�of�Fair
Value

Common stock

�� $ 722,015 �� �� $ 734,419 �� �� $ (3,791 )� $ 1,452,643 �� �� 97.2 ��

Preferred stock

�� 23,718 �� �� 18,123 �� �� (13 )� 41,828 �� �� 2.8 ��
��

��

��

��

Total

�� $ 745,733 �� �� $ 752,542 �� �� $ (3,804 )� $ 1,494,471 �� �� 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 prior impairments, 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 September�30, 2014, we had $404.7 million in policy loans with a loan to surrender value of 56.7%, 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.

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Table of Contents

Net Investment Income and Realized Gains (Losses)

Net investment income decreased $54.9 million during the nine months ended September�30, 2014 primarily due to a decrease in income from options and bonds. Net investment income from options decreased $19.0 million during 2014 due to a smaller change in the S&P 500 index from which our option values are derived. Net investment income from bonds decreased $29.2 million during the nine months ended September�30, 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.

Realized gains decreased $79.9 million during the nine months ended September�30, 2014 compared to 2013 primarily as a result of decrease in realized gains on sales of investment real estate. Other-than-temporary impairment on investment securities increased $0.5 million during the nine months ended September�30, 2014 compared to 2013.

Net Unrealized Gains and Losses

The net unrealized gains on available-for-sale securities at September�30, 2014 and December�31, 2013 were $974.7 million and $812.8 million, respectively. Unrealized gains or losses on available-for-sale securities are recognized as other comprehensive income or loss which has no impact on earnings. The gross unrealized gains on available-for-sale securities increased $114.0 million to $998.6 million during 2014 resulting from increases in the value of bonds and equity securities. The gross unrealized losses on available-for-sale securities decreased to $23.8 million at September�30, 2014 from $71.6 million at December�31, 2013. The gross unrealized gains on held-to-maturity securities increased $52.0 million to $503.8 million, and gross unrealized losses decreased from $120.1 million in 2013 to $42.3 million in 2014. The decrease in gross unrealized losses of available-for-sale and held-to-maturity securities during 2014 is 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 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.

48


Table of Contents

Our cash and cash equivalents and short-term investment position was $482.5 million at September�30, 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):

�� September�30,
2014
�� December�31,
2013

American National stockholders� equity, excluding accumulated other comprehensive income (loss), net of tax (�AOCI�)

�� $ 3,892,484 �� �� $ 3,776,862 ��

AOCI

�� 504,338 �� �� 413,712 ��
��

��

Total American National stockholders� equity

�� $ 4,396,822 �� �� $ 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 $14.9 million at September�30, 2014 and $12.8 million at December�31, 2013, respectively.

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

�� Nine�months�ended
September�30,�2014

Net income

�� $ 178,023 ��

Increase in net unrealized gains

�� 89,051 ��

Defined benefit pension plan adjustment

�� 2,152 ��

Dividends to shareholders

�� (62,113 )�

Other

�� (865 )�
��

Total

�� $ 206,248 ��
��

During the nine months ended September�30, 2014, our capital resources increased substantially compared to the same period in 2013 primarily due to net income and 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 regulatory actions. At September�30, 2014 and December�31, 2013, American National Insurance Company�s statutory capital and surplus was $2,842,984,000 and $2,667,858,000, respectively. Additionally, each of the insurance subsidiaries had statutory capital and surplus at September�30, 2014 and December�31, 2013, substantially above its authorized control level RBC.

49


Table of Contents

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 entities 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.

50


Table of Contents
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 September�30, 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 September�30, 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 September�30, 2014 that have materially affected, or are reasonably likely to materially affect, the Company�s internal control over financial reporting.

51


Table of Contents

PART IIOTHER 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.

52


Table of Contents
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 Nine months ended September�30, 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: November�07, 2014

53

Exhibit�31.1

CERTIFICATION

I, Robert L. Moody, certify that:

1. I have reviewed this Quarterly Report on Form�10-Q of American National Insurance Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant�s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules�13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules�13a-15(f) and 15d-15(f)) for the registrant and have:

(a)�Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)�Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with the generally accepted accounting principles;

(c)�Evaluated the effectiveness of the registrant�s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation;�and

(d)�Disclosed in this report any change in the registrant�s internal control over financial reporting that occurred during the registrant�s most recent fiscal quarter (the registrant�s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant�s internal control over financial reporting;�and

5. The registrant�s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant�s auditors and the audit committee of registrant�s board of directors (or persons performing the equivalent functions):

(a)�All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant�s ability to record, process, summarize and report financial information;�and

(b)�Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant�s internal controls over financial reporting.

/s/ Robert L. Moody

Robert L. Moody,
Chairman of the Board,
Chief Executive Officer
(Principal Executive Officer)
Date: November�07, 2014

Exhibit�31.2

CERTIFICATION

I, John J. Dunn, Jr., certify that:

1. I have reviewed this Quarterly Report on Form�10-Q of American National Insurance Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant�s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules�13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules�13a-15(f) and 15d-15(f)) for the registrant and have:

(a)�Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)�Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with the generally accepted accounting principles;

(c)�Evaluated the effectiveness of the registrant�s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation;�and

(d)�Disclosed in this report any change in the registrant�s internal control over financial reporting that occurred during the registrant�s most recent fiscal quarter (the registrant�s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant�s internal control over financial reporting;�and

5. The registrant�s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant�s auditors and the audit committee of registrant�s board of directors (or persons performing the equivalent functions):

(a)�All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant�s ability to record, process, summarize and report financial information;�and

(b)�Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant�s internal controls over financial reporting.

/s/ John J. Dunn, Jr.

John J. Dunn, Jr.,
Executive Vice President,
Corporate Chief Financial Officer
(Principal Financial Officer)
Date: November�07, 2014

Exhibit�32.1

SECTION�906 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER

AMERICAN NATIONAL INSURANCE COMPANY

In connection with the Quarterly Report of American National Insurance Company (the �Company�) on Form�10-Q for the quarter ended September�30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the �Report�),�We, Robert L. Moody, Chief Executive Officer of the Company and John J. Dunn, Jr., Corporate Chief Financial Officer of the Company certify, pursuant to 18�U.S.C. ��1350, as adopted pursuant to Section�906 of the Sarbanes-Oxley Act of 2002, that to our knowledge:

(1)�The Report fully complies with the requirements of Section�13(a) or 15(d) of the Securities Exchange Act of 1934, as amended;�and

(2)�The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Robert L. Moody

Robert L. Moody
Chairman of the Board,
Chief Executive Officer
(Principal Executive Officer)

/s/ John J. Dunn, Jr.

John J. Dunn, Jr.
Executive Vice President,
Corporate Chief Financial Officer
(Principal Financial Officer)

Dated: November�07, 2014

This certification is being furnished as an exhibit to the Report pursuant to Item�601(b)(32) of Regulation�S-K and Section�906 of the Sarbanes-Oxley Act of 2002 (subsections�(a) and (b)�of Section�1350, Chapter�63 of Title�18, United States Code) and, accordingly, will not be deemed �filed� for purposes of Section�18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. This certification will not be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.



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