American National 10-Q 2011 Q1 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2011

or

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

Commission File No. 001- 34280

American National Insurance Company

(Exact name of registrant as specified in its charter)

Texas
(State or other jurisdiction of
incorporation or organization) 74-0484030
(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.þ Yeso 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).o Yeso 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 filero Accelerated filerþ Non-accelerated filero Smaller reporting companyo

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

As of April 29, 2011, there were 26,821,284 shares of the registrant’s voting common stock, $1.00 par value per share, outstanding.

AMERICAN NATIONAL INSURANCE COMPANY

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited):
Consolidated Statements of Operations for the three months ended March 31, 2011 and 2010	3
Consolidated Statements of Financial Position as of March 31, 2011 and December 31, 2010	4
Consolidated Statements of Changes in Equity for the three months ended March 31, 2011 and 2010	5
Consolidated Statements of Comprehensive Income for the three months ended March 31, 2011 and 2010	5
Consolidated Statements of Cash Flows for the three months ended March 31, 2011 and 2010	6
Notes to the Consolidated Financial Statements	7
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	39
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	61
ITEM 4. CONTROLS AND PROCEDURES	61
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS	62
ITEM 1A. RISK FACTORS	62
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	62
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	62
ITEM 4. REMOVED AND RESERVED	62
ITEM 5. OTHER INFORMATION	62
ITEM 6. EXHIBITS	63
SIGNATURES
EXHIBIT INDEX
EX-10.1
EX-10.2
EX-31.1
EX-31.2
EX-32.1
EX-32.2

2

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AMERICAN NATIONAL INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

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

	Three months ended March 31,
	2011			2010
PREMIUMS AND OTHER REVENUES
Premiums
Life	$	66,386		$	69,445
Annuity		32,241			40,352
Accident and health		58,644			68,424
Property and casualty		291,314			286,472
Other policy revenues		49,131			44,996
Net investment income		239,072			218,102
Realized investments gains		22,031			17,747
Other-than-temporary impairments		—			(1,245	)
Other income		6,286			5,915
Total premiums and other revenues		765,105			750,208
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits
Life		76,687			72,538
Annuity		42,977			47,695
Claims incurred
Accident and health		41,607			52,839
Property and casualty		215,511			235,203
Interest credited to policyholders’ account balances		106,016			94,362
Commissions for acquiring and servicing policies		110,226			106,877
Other operating expenses		122,399			113,208
Change in deferred policy acquisition costs		(13,050	)		(14,883	)
Total benefits, losses and expenses		702,373			707,839
Income from continuing operations before federal income tax, and equity in earnings of unconsolidated affiliates		62,732			42,369
Provision for federal income taxes
Current		14,318			9,500
Deferred		2,580			516
Total provision for federal income taxes		16,898			10,016
Equity in earnings of unconsolidated affiliates, net of tax		1,861			7
Income from continuing operations		47,695			32,360
Income from discontinued operations, net of tax (See Note 17)		—			223
Net income		47,695			32,583
Less:Net loss attributable to noncontrolling interest, net of tax		(787	)		(2,195	)
Net income attributable to American National Insurance Company and Subsidiaries	$	48,482		$	34,778
Amounts available to American National Insurance Company common stockholders
Earnings per share:
Basic	$	1.83		$	1.31
Diluted		1.82			1.30
Weighted average common shares outstanding		26,559,643			26,558,832
Weighted average common shares outstanding and dilutive potential common shares		26,690,498			26,652,210

See accompanying notes to the unaudited consolidated financial statements.

3

AMERICAN NATIONAL INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

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

	March 31,			December 31,
	2011			2010
ASSETS
Fixed maturity, bonds held-to-maturity, at amortized cost	$	8,955,317		$	8,513,550
Fixed maturity, bonds available-for-sale, at fair value		4,174,498			4,123,613
Equity securities, at fair value		1,118,203			1,082,755
Mortgage loans on real estate, net of allowance		2,816,832			2,679,909
Policy loans		383,480			380,505
Investment real estate, net of accumulated depreciation of $204,743 and $202,111		513,901			521,768
Short-term investments		461,069			486,206
Other invested assets		122,718			119,251
Total investments		18,546,018			17,907,557
Cash and cash equivalents		110,414			101,449
Investments in unconsolidated affiliates		207,761			195,472
Accrued investment income		203,324			201,286
Reinsurance recoverables		370,147			355,188
Prepaid reinsurance premiums		77,031			75,542
Premiums due and other receivables		320,885			287,184
Deferred policy acquisition costs		1,325,458			1,318,426
Property and equipment, net		78,379			77,974
Current tax receivable		—			7,764
Other assets		148,653			138,978
Separate account assets		791,950			780,563
Total assets	$	22,180,020		$	21,447,383
LIABILITIES
Future policy benefits:
Life	$	2,550,010		$	2,539,334
Annuity		878,600			865,480
Accident and health		78,449			81,266
Policyholders’ account balances		10,900,350			10,475,159
Policy and contract claims		1,325,537			1,298,457
Participating policyholder share		182,990			177,794
Other policyholder funds		921,280			923,790
Liability for retirement benefits		187,194			187,453
Current portion of long-term notes payable		48,090			47,632
Long-term notes payable		12,508			12,508
Current tax payable		7,858			—
Deferred tax liabilities, net		71,218			53,737
Other liabilities		534,631			368,332
Separate account liabilities		791,950			780,563
Total liabilities		18,490,665			17,811,505
STOCKHOLDERS’ EQUITY
Common stock, $1.00 par value, — Authorized 50,000,000 Issued 30,832,449, Outstanding 26,820,977 shares		30,832			30,832
Additional paid-in capital		16,143			15,190
Accumulated other comprehensive income		251,101			225,212
Retained earnings		3,487,741			3,459,911
Treasury stock, at cost		(98,494	)		(98,494	)
Total American National stockholders’ equity		3,687,323			3,632,651
Noncontrolling interest		2,032			3,227
Total stockholders’ equity		3,689,355			3,635,878
Total liabilities and stockholders’ equity	$	22,180,020		$	21,447,383

See accompanying notes to the unaudited consolidated financial statements.

4

AMERICAN NATIONAL INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

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

	Three months ended March 31,
	2011			2010
Common Stock
Balance at beginning and end of the period	$	30,832		$	30,832
Additional Paid-In Capital
Balance as of January 1,		15,190			11,986
Amortization of restricted stock		953			696
Balance as of March 31,		16,143			12,682
Accumulated Other Comprehensive Income
Balance as of January 1,		225,212			117,649
Change in unrealized gain on available-for-sale securities, net		25,795			57,273
Foreign exchange adjustments		159			159
Defined benefit plan adjustment		(65	)		—
Balance as of March 31,		251,101			175,081
Retained Earnings
Balance as of January 1,		3,459,911			3,398,492
Net income attributable to American National Insurance Company and Subsidiaries		48,482			34,778
Cash dividends to common stockholders ($0.77 per share)		(20,652	)		(20,651	)
Balance as of March 31,		3,487,741			3,412,619
Treasury Stock
Balance at beginning and end of the period		(98,494	)		(98,505	)
Noncontrolling Interest
Balance as of January 1,		3,227			11,955
Contributions		17			50
Distributions		(2	)		(882	)
Loss attributable to noncontrolling interest		(1,210	)		(3,377	)
Balance as of March 31,		2,032			7,746
Total Equity
Balance as of March 31,	$	3,689,355		$	3,540,455

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited and in thousands)

	Three months ended March 31,
	2011			2010
Net income attributable to American National Insurance Company and Subsidiaries	$	48,482		$	34,778
Other comprehensive income, net of tax
Change in unrealized gain on available-for-sale securities, net		25,795			57,273
Foreign exchange adjustments		159			159
Defined benefit plan adjustment		(65	)		—
Total other comprehensive income		25,889			57,432
Total comprehensive income attributable to American National Insurance Company and Subsidiaries	$	74,371		$	92,210

See accompanying notes to the unaudited consolidated financial statements.

5

AMERICAN NATIONAL INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and in thousands)

	Three months ended March 31,
	2011			2010
OPERATING ACTIVITIES
Net income attributable to American National Insurance Company and Subsidiaries	$	48,482		$	34,778
Adjustments to reconcile net income to net cash provided by operating activities:
Realized gains on investments		(22,031	)		(17,742	)
Other-than-temporary impairments		—			1,245
Amortization of discounts and premiums on bonds		4,302			4,359
Net capitalized interest on policy loans and mortgage loans		(6,806	)		(7,504	)
Depreciation		10,211			11,176
Interest credited to policy account balances		106,016			94,381
Charges to policy account balances		(49,131	)		(44,996	)
Deferred federal income tax expense		2,580			530
Deferral of policy acquisition costs		(126,010	)		(120,690	)
Amortization of deferred policy acquisition costs		112,960			105,807
Equity in earnings of unconsolidated affiliates		(2,863	)		(10	)
Changes in:
Policyholder liabilities		48,889			51,477
Reinsurance recoverables		(14,959	)		(228	)
Premiums due and other receivables		(33,701	)		(1,211	)
Accrued investment income		(2,038	)		(1,911	)
Current tax receivable/payable		15,622			9,287
Liability for retirement benefits		(259	)		701
Prepaid reinsurance premiums		(1,489	)		2,548
Other, net		54,046			11,633
Net cash provided by operating activities		143,821			133,630
INVESTING ACTIVITIES
Proceeds from sale/maturity/prepayment of:
Bonds — held-to-maturity		263,749			68,779
Bonds — available-for-sale		164,472			156,041
Equity securities		36,441			38,767
Real estate		5,412			13,954
Mortgage loans		27,138			19,109
Policy loans		11,935			10,381
Other invested assets		10,955			2,173
Disposals of property and equipment		260			484
Distributions from unconsolidated affiliates		3,758			472
Payment for the purchase/origination of:
Bonds — held-to-maturity		(614,848	)		(181,671	)
Bonds — available-for-sale		(185,554	)		(72,116	)
Equity securities		(22,785	)		(10,758	)
Real estate		(3,350	)		(19,214	)
Mortgage loans		(158,257	)		(118,424	)
Policy loans		(9,308	)		(6,692	)
Other invested assets		(9,605	)		(11,622	)
Additions to property and equipment		(4,707	)		(1,214	)
Contributions to unconsolidated affiliates		(14,881	)		(2,727	)
Change in short-term investments		25,137			(203,975	)
Other, net		(8,930	)		13,658
Net cash used in investing activities		(482,968	)		(304,595	)
FINANCING ACTIVITIES
Policyholders’ account deposits		670,506			401,027
Policyholders’ account withdrawals		(302,200	)		(239,821	)
Change in notes payable		458			(680	)
Dividends to stockholders		(20,652	)		(20,651	)
Net cash provided by financing activities		348,112			139,875
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		8,965			(31,090	)
Beginning of the year		101,449			161,483
Balance as of March 31,	$	110,414		$	130,393

See accompanying notes to the unaudited consolidated financial statements.

6

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF OPERATIONS

American National Insurance Company and its consolidated subsidiaries (collectively “American National”) operate in the insurance industry. Operating on a multiple product line basis, American National offers a broad line of insurance coverage, including individual and group life insurance, health insurance, annuities, and property and casualty insurance. In addition, through non-insurance subsidiaries, American National invests in stocks and real estate. The majority of revenues are generated by the insurance business. Business is conducted in all states and the District of Columbia, as well as Puerto Rico, Guam and American Samoa. Various distribution systems are utilized, including multiple-line exclusive agents, independent agents, third-party marketing organizations, career agents, and direct sales to the public.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for Form 10-Q. In addition to GAAP, specific SEC requirements applicable to insurance companies are applied to the financial statements.

The interim consolidated financial statements and notes herein are unaudited. These interim consolidated financial statements reflect all adjustments which are, in the opinion of management, considered necessary for the fair presentation of the consolidated financial position, consolidated statements of operations, cash flows and changes in equity and comprehensive income for the interim periods. These 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, 2010. The consolidated results of operations for the interim periods should not be considered indicative of results to be expected for the full year.

American National consolidates all entities that are wholly-owned and those in which American National owns less than 100% but controls, as well as any variable interest entities in which American National is the primary beneficiary. 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 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. The following estimates have been identified as critical in that they involve a high degree of judgment and are subject to a significant degree of variability:

• Other-than-temporary impairment (“OTTI”);

• Deferred policy acquisition costs;

• Reserves;

• Reinsurance;

• Pension and postretirement benefit plans;

• Litigation contingencies; and

• Federal income taxes.

As of March 31, 2011, American National’s significant accounting policies and practices remain materially unchanged from those disclosed in Note 2 of the Notes to Consolidated Financial Statements incorporated within American National’s 2010 Annual Report on Form 10-K.

7

3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Adoption of New Accounting Standards

In January 2010, the FASB issued ASU No. 2010-06, Improving Disclosures about Fair Value Measurements. ASU 2010-06 was issued to improve and expand fair value disclosures. Newly required disclosures are as follows: 1) provide information about movements of assets among Levels 1 and 2 of the three-tier fair value hierarchy; 2) provide a reconciliation of purchases, sales, issuance, and settlements of anything valued with a Level 3 method; and 3) provide fair value disclosures for each class of assets and liabilities. This guidance is effective for interim and annual periods commencing after December 15, 2009, except for the disclosure of the reconciliation of the Level 3 activities, which is effective for annual periods commencing after December 15, 2010. American National adopted this guidance on January 1, 2010, except for the disclosure of the reconciliation of the Level 3 activities, which was adopted effective January 1, 2011. American National’s adoption of this guidance did not have a material impact on American National’s consolidated financial statements.

In April 2010, the FASB issued ASU No. 2010-15, How Investments Held through Separate Accounts Affect an Insurer’s Consolidation Analysis of Those Investments. For accounting purposes, ASU 2010-15 clarifies that an insurance entity should not consider any separate account interests held for the benefit of policyholders in an investment to be the insurer’s interests and should not combine those interests with its general account interest in the same investment when assessing the investment for consolidation, unless the separate account interests are held for the benefit of a related-party policyholder. This guidance also clarifies that for the purpose of evaluating whether the retention of specialized accounting for investments in consolidation is appropriate, a separate account arrangement should be considered a subsidiary. The amendments do not require an insurer to consolidate an investment in which a separate account holds a controlling financial interest if the investment is not or would not be consolidated in the stand-alone financial statements of the separate account. ASU 2010-15 is effective for interim and annual periods commencing after December 15, 2010. American National’s adoption of this guidance effective January 1, 2011 did not have a material effect on American National’s consolidated financial statements.

In July 2010, the FASB issued ASU No. 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. Additional disclosures are now required that enable readers of the financial statements to understand the nature of the credit risk inherent in the financing receivable portfolio, how the portfolio’s credit risk is analyzed and assessed in order to arrive at the allowance for credit losses for each portfolio, and the changes and underlying reason for the changes in the allowance for credit losses for each portfolio. Disclosures previously required for financing receivables are now required to be disclosed on a disaggregated basis. In addition, new disclosures under ASU 2010-20 are required for each financing receivable class including credit quality indicators of financing receivables at the end of the reporting period, aging of past due financing receivables, the nature and extent of troubled debt restructurings that occurred during the reporting period, the nature and extent of financing receivables modified as troubled debt restructurings within the previous 12 months that defaulted during the reporting period, and significant purchases and sales of financing receivables during the reporting period. The ASU 2010-20 disclosures required as of the end of a reporting period are effective for interim and annual periods ending on or after December 15, 2010. Disclosures concerning the activity that occurs during a reporting period are effective for interim and annual periods beginning on or after December 15, 2010. American National adopted this guidance effective January 1, 2010, except for the disclosure requirements for activities that occur during a reporting period, which was adopted effective January 1, 2011. American National’s adoption of this guidance did not have a material impact on American National’s consolidated financial statements.

In January 2011, the FASB issued ASU No. 2011-01, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20. This update temporarily delays the effective date of the disclosures about troubled debt restructuring required within ASU 2010-20. The delay was intended to allow the FASB time to complete its deliberations on what constitutes a troubled debt restructuring. FASB issued the revised guidance, ASU 2011-02. effective for interim and annual periods that end after June 15, 2011. ASU 2011-01 is effective upon issuance. Accordingly, this update was retrospectively adopted on December 31, 2010 and did not have a material effect on American National’s consolidated financial statements.

8

Future Adoption of New Accounting Standards

In October 2010, the FASB issued ASU No. 2010-26, Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts. The new guidance redefines the term “acquisition cost” and added the term “incremental direct cost of contract acquisition” to the master glossary. These changes limit the deferrable cost to those costs that are related directly to the successful acquisition of insurance contracts and those that result directly from and are essential to the contract acquisition and costs that would have not been incurred had the contract acquisition not occurred. The new guidance also specifies that advertising costs should be deferred only if the capitalization criteria for direct-response advertising are met. ASU 2010-26 is effective for interim and annual periods, commencing after December 15, 2011. This guidance is expected to be adopted by American National on January 1, 2012. American National is currently assessing the effect of ASU 2010-26 on its consolidated financial statements.

In April 2011, the FASB issued ASU No. 2011-02, A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring. The new guidance clarifies the creditor’s evaluation of whether it has granted a concession and whether a borrower is experiencing financial difficulties. In addition, the new guidance precludes the creditor from using the effective interest rate test in the borrower’s guidance on restructuring payables when evaluating whether a restructuring constitutes a trouble debt restructuring. ASU 2011-02 is effective for public companies for interim and annual periods beginning on or after June 15, 2011 and must be applied retrospectively to restructurings occurring on or after the beginning of the year. This new guidance is expected to be adopted by American National on July 1, 2011. American National is currently assessing the effect of ASU 2011-02 on its consolidated financial statements.

9

4. INVESTMENTS

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

	Three months ended March 31, 2011
			Gross		Gross
	Cost or		Unrealized		Unrealized			Estimated Fair
	Amortized Cost		Gains		Losses			Value
Fixed maturity securities
Bonds held-to-maturity
U.S. treasury and other U.S. government corporations and agencies	$	21,957	$	237	$	—		$	22,194
States of the U.S. and political subdivisions of the states		415,556		6,233		(6,825	)		414,964
Foreign governments		29,026		4,659		—			33,685
Corporate debt securities		7,717,181		455,862		(30,716	)		8,142,327
Residential mortgage-backed securities		694,143		32,363		(2,765	)		723,741
Commercial mortgage-backed securities		31,341		—		(9,363	)		21,978
Collateralized debt securities		7,159		50		(323	)		6,886
Other debt securities		38,954		3,751		—			42,705
Total bonds held-to-maturity		8,955,317		503,155		(49,992	)		9,408,480
Bonds available-for-sale
U.S. treasury and other U.S. government corporations and agencies		13,378		603		—			13,981
States of the U.S. and political subdivisions of the states		583,854		13,444		(5,153	)		592,145
Foreign governments		5,000		1,701		—			6,701
Corporate debt securities		3,093,571		204,491		(18,607	)		3,279,455
Residential mortgage-backed securities		236,033		12,935		(1,190	)		247,778
Collateralized debt securities		18,247		1,370		(227	)		19,390
Other debt securities		14,171		877		—			15,048
Total bonds available-for-sale		3,964,254		235,421		(25,177	)		4,174,498
Total fixed maturity securities		12,919,571		738,576		(75,169	)		13,582,978
Equity securities
Common stock
Consumer goods		149,536		65,301		(1,983	)		212,854
Energy and utilities		119,035		81,137		(688	)		199,484
Finance		119,976		61,237		(1,187	)		180,026
Healthcare		78,104		39,379		(1,440	)		116,043
Industrials		61,849		55,481		—			117,330
Information technology		111,942		62,841		(633	)		174,150
Materials		16,469		16,816		—			33,285
Telecommunication services		31,675		13,894		(38	)		45,531
Total common stock		688,586		396,086		(5,969	)		1,078,703
Preferred stock		30,958		8,576		(34	)		39,500
Total equity securities		719,544		404,662		(6,003	)		1,118,203
Total investments in securities	$	13,639,115	$	1,143,238	$	(81,172	)	$	14,701,181

10

	Year ended December 31, 2010
			Gross		Gross
	Cost or		Unrealized		Unrealized			Estimated Fair
	Amortized Cost		Gains		Losses			Value
Fixed maturity securities
Bonds held-to-maturity
U.S. treasury and other U.S. government corporations and agencies	$	23,117	$	288	$	—		$	23,405
States of the U.S. and political subdivisions of the states		422,249		7,117		(6,920	)		422,446
Foreign governments		29,020		4,910		—			33,930
Corporate debt securities		7,293,501		478,353		(33,077	)		7,738,777
Residential mortgage-backed securities		661,516		33,702		(3,398	)		691,820
Commercial mortgage-backed securities		31,340		—		(17,758	)		13,582
Collateralized debt securities		8,562		80		(327	)		8,315
Other debt securities		44,245		3,314		—			47,559
Total bonds held-to-maturity		8,513,550		527,764		(61,480	)		8,979,834
Bonds available-for-sale
U.S. treasury and other U.S. government corporations and agencies		13,268		643		(4	)		13,907
States of the U.S. and political subdivisions of the states		583,163		15,142		(4,193	)		594,112
Foreign governments		5,000		1,967		—			6,967
Corporate debt securities		3,030,671		197,485		(26,587	)		3,201,569
Residential mortgage-backed securities		259,560		13,250		(1,417	)		271,393
Collateralized debt securities		19,468		1,459		(218	)		20,709
Other debt securities		14,187		769		—			14,956
Total bonds available-for-sale		3,925,317		230,715		(32,419	)		4,123,613
Total fixed maturity securities		12,438,867		758,479		(93,899	)		13,103,447
Equity securities
Common stock
Consumer goods		154,106		63,538		(1,052	)		216,592
Energy and utilities		121,727		72,471		(933	)		193,265
Finance		119,975		55,175		(1,571	)		173,579
Healthcare		78,256		31,907		(1,654	)		108,509
Industrials		59,856		47,649		—			107,505
Information technology		108,178		62,284		(161	)		170,301
Materials		16,469		15,540		—			32,009
Telecommunication services		31,678		12,484		(34	)		44,128
Total common stock		690,245		361,048		(5,405	)		1,045,888
Preferred stock		30,420		6,714		(267	)		36,867
Total equity securities		720,665		367,762		(5,672	)		1,082,755
Total investments in securities	$	13,159,532	$	1,126,241	$	(99,571	)	$	14,186,202

11

Investment securities

Actual maturities will 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. The amortized cost and estimated fair value, by contractual maturity of fixed maturity securities are shown below (in thousands):

	March 31, 2011
	Bonds Held-to-Maturity				Bonds Available-for-Sale
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	$	636,977	$	658,835	$	157,312	$	161,881
Due after one year through five years		3,729,410		3,992,460		1,903,321		2,029,287
Due after five years through ten years		3,524,044		3,676,278		1,400,068		1,461,926
Due after ten years		1,059,036		1,075,876		498,553		516,556
		8,949,467		9,403,449		3,959,254		4,169,650
Without single maturity date		5,850		5,031		5,000		4,848
Total	$	8,955,317	$	9,408,480	$	3,964,254	$	4,174,498

Available-for-sale securities are sold throughout the year for various reasons. All gains and losses were determined using specific identification of the securities sold. Proceeds from the sales of these securities, with the realized gains and losses, are shown below (in thousands):

	Three months ended March 31,
	2011			2010
Proceeds from sales of available-for-sale securities	$	53,612		$	116,913
Gross realized gains		14,169			14,483
Gross realized losses		(809	)		(266	)

There were no securities transferred from held-to-maturity to available-for-sale during the three months ended March 31, 2011 and 2010.

12

Derivative Instruments

American National purchases derivative contracts (equity-indexed options) that serve as economic hedges against fluctuations in the equity markets to which equity-indexed annuity products are exposed. Equity-indexed annuities include a fixed host annuity contract and an embedded equity derivative. These derivative instruments are not designated as hedges. The following tables detail the estimated fair value and the gain or loss on derivatives related to equity-indexed annuities (in thousands):

	Location of Asset (Liability)	Estimated Fair Value
Derivatives Not Designated	Reported in the Consolidated	March 31,			December 31,
as Hedging Instruments	Statements of Financial Position	2011			2010
Equity-indexed options	Other invested assets	$	72,969		$	66,716
Equity-indexed annuity embedded derivative	Future policy benefits - Annuity		(66,180	)		(59,644	)

		Gains (Losses) Recognized
	Location of Gains (Losses)	in Income on Derivatives
Derivatives Not Designated	Recognized in the Consolidated	Three months ended March 31,
as Hedging Instruments	Statements of Operations	2011			2010
Equity-indexed options	Net investment income	$	7,115		$	(1,637	)
Equity-indexed annuity embedded derivative	Interest credited to policy account balances		(6,305	)		283

Unrealized gains (losses) on securities

Unrealized gains (losses) on available-for-sale securities, presented in the stockholders’ equity section of the consolidated statements of financial position, are net of deferred tax expense of $179,041,000 and $133,539,000 as of March 31, 2011 and 2010, respectively.

The change in the net unrealized gains (losses) on available-for-sale securities are shown below (in thousands):

	Three months ended March 31,
	2011			2010
Bonds available-for-sale	$	11,948		$	73,956
Common stocks		34,474			47,027
Preferred stocks		2,095			2,321
Adjustment to deferred policy acquisition costs		(6,018	)		(31,677	)
		42,499			91,627
Less: Provision for federal income taxes		14,848			32,000
		27,651			59,627
Change in unrealized gains of investments attributable to participating policyholders’ interest		(1,856	)		(2,354	)
Total	$	25,795		$	57,273

13

Gross unrealized losses on investment securities and the estimated fair value of the related 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):

	Three months ended March 31, 2011
	Less than 12 months				12 Months or more				Total
	Unrealized		Estimated		Unrealized		Estimated		Unrealized		Estimated
	Losses		Fair Value		Losses		Fair Value		Losses		Fair Value
Fixed maturity securities
Bonds held-to-maturity
States of the U.S. and political subdivisions of the states	$	6,812	$	203,010	$	13	$	220	$	6,825	$	203,230
Corporate debt securities		24,098		1,184,646		6,618		94,600		30,716		1,279,246
Residential mortgage-backed securities		424		37,254		2,341		49,179		2,765		86,433
Commercial mortgage-backed securities		—		—		9,363		21,977		9,363		21,977
Collateralized debt securities		—		—		323		5,209		323		5,209
Total bonds held-to-maturity		31,334		1,424,910		18,658		171,185		49,992		1,596,095
Bonds available-for-sale
States of the U.S. and political subdivisions of the states		5,153		175,916		—		—		5,153		175,916
Corporate debt securities		6,168		343,286		12,439		131,618		18,607		474,904
Residential mortgage-backed securities		125		16,835		1,065		15,163		1,190		31,998
Collateralized debt securities		—		—		227		3,569		227		3,569
Total bonds available-for-sale		11,446		536,037		13,731		150,350		25,177		686,387
Total fixed maturity securities		42,780		1,960,947		32,389		321,535		75,169		2,282,482
Equity securities
Common stock
Consumer goods		870		20,266		1,113		12,687		1,983		32,953
Energy and utilities		346		5,487		342		1,240		688		6,727
Finance		345		6,404		842		9,429		1,187		15,833
Healthcare		509		7,033		931		6,942		1,440		13,975
Information technology		627		9,862		6		42		633		9,904
Telecommunications services		38		621		—		—		38		621
Total common stock		2,735		49,673		3,234		30,340		5,969		80,013
Preferred stock		9		997		25		4,475		34		5,472
Total equity securities		2,744		50,670		3,259		34,815		6,003		85,485
Total investments in securities	$	45,524	$	2,011,617	$	35,648	$	356,350	$	81,172	$	2,367,967

14

	Year ended December 31, 2010
	Less than 12 months				12 Months or more				Total
	Unrealized		Estimated		Unrealized		Estimated		Unrealized		Estimated
	Losses		Fair Value		Losses		Fair Value		Losses		Fair Value
Fixed maturity securities
Bonds held-to-maturity
States of the U.S. and political subdivisions of the states	$	6,898	$	195,634	$	22	$	878	$	6,920	$	196,512
Corporate debt securities		22,493		912,554		10,584		128,721		33,077		1,041,275
Residential mortgage-backed securities		579		57,160		2,819		64,798		3,398		121,958
Commercial mortgage-backed securities		—		—		17,758		13,583		17,758		13,583
Collateralized debt securities		—		—		327		5,465		327		5,465
Total bonds held-to-maturity		29,970		1,165,348		31,510		213,445		61,480		1,378,793
Bonds available-for-sale
U.S. treasury and other U.S. government corporations and agencies		4		7,040		—		—		4		7,040
States of the U.S. and political subdivisions of the states		4,193		151,860		—		—		4,193		151,860
Corporate debt securities		8,378		249,240		18,209		159,227		26,587		408,467
Residential mortgage-backed securities		81		26,909		1,336		29,393		1,417		56,302
Collateralized debt securities		—		—		218		4,664		218		4,664
Total bonds available-for-sale		12,656		435,049		19,763		193,284		32,419		628,333
Total fixed maturity securities		42,626		1,600,397		51,273		406,729		93,899		2,007,126
Equity securities
Common stock
Consumer goods		440		25,333		612		19,419		1,052		44,752
Energy and utilities		642		7,093		291		1,289		933		8,382
Finance		1,217		7,954		354		11,204		1,571		19,158
Healthcare		813		14,927		841		5,523		1,654		20,450
Information technology		156		2,013		5		44		161		2,057
Telecommunications services		34		393		—		—		34		393
Total common stock		3,302		57,713		2,103		37,479		5,405		95,192
Preferred stock		231		6,133		36		4,464		267		10,597
Total equity securities		3,533		63,846		2,139		41,943		5,672		105,789
Total investments in securities	$	46,159	$	1,664,243	$	53,412	$	448,672	$	99,571	$	2,112,915

For all investment securities with an unrealized loss, including those in an unrealized loss position for 12 months or more, American National performs a quarterly analysis to determine if an OTTI loss should be recorded. As of March 31, 2011, the securities with unrealized losses were not deemed to be other-than-temporarily impaired. Even though the duration of the unrealized losses on some of the securities exceeds one year, American National has no intent to sell, and it is not more-likely-than-not that American National will be required to sell these securities prior to recovery. Recovery is expected in the near term for equity securities.

15

Net investment income and realized investments gains (losses)

Net investment income and realized investments gains (losses) before federal income taxes are shown below (in thousands):

	Net Investment Income						Realized Investment Gains (Losses)
	Three months ended March 31,						Three months ended March 31,
	2011			2010			2011			2010
Bonds	$	170,020		$	162,088		$	10,323		$	9,699
Equity securities		5,916			6,047			12,536			6,152
Mortgage loans		47,731			39,893			—			—
Real estate		22,725			27,881			622			2,125
Options		7,117			329			—			—
Other invested assets		10,272			9,658			—			(31	)
		263,781			245,896			23,481			17,945
Investment expenses		(24,709	)		(27,794	)		—			—
Increase in valuation allowances		—			—			(1,450	)		(198	)
Total	$	239,072		$	218,102		$	22,031		$	17,747

Other-than-temporary impairments

The other-than-temporary impairments for the periods indicated are shown below (in thousands):

	Three months ended March 31,
	2011		2010
Equity securities	$	—	$	(1,245	)

16

5. VARIABLE INTEREST ENTITIES

In the normal course of investment activities, American National and its wholly-owned subsidiaries, enter into various real estate partnership agreements. Generally, real estate partnership opportunities are presented to American National by a sponsor, with the significant activities being conducted on behalf of the sponsor. American National participates in the design of these entities, but in most cases American National’s involvement is limited to financing. Through analysis performed by American National, some of these partnerships 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 to be the primary beneficiary or consolidator of the entity. The assets of the consolidated VIEs are restricted and must be used first to settle the liabilities of the VIE. 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. The total assets and liabilities relating to VIEs in which American National is the primary beneficiary and which are consolidated in American National’s financial statements for the periods indicated are as follows (in thousands):

	March 31,		December 31,
	2011		2010
Investment real estate	$	155,776	$	156,441
Short-term investments		951		1,991
Cash and cash equivalents		1,245		1,164
Accrued investment income		1,773		2,035
Other receivables		17,028		16,524
Other assets		3,723		3,884
Total assets of consolidated VIEs	$	180,496	$	182,039
Notes payable	$	161,545	$	161,126
Other liabilities		2,617		3,499
Total liabilities of consolidated VIEs	$	164,162	$	164,625

For other real estate partnerships in which American National is involved, the major decisions that most significantly impact the economic activities of the partnership require unanimous consent of all partners. As a result, American National is not the primary beneficiary and these entities were not consolidated. The following table presents the carrying amount and maximum exposure to loss relating to VIEs for which American National holds significant variable interests but is not the primary beneficiary and which have not been consolidated (in thousands):

	March 31, 2011				December 31, 2010
			Maximum				Maximum
	Carrying		Exposure to		Carrying		Exposure to
	Amount		Loss		Amount		Loss
Investment in unconsolidated affiliates	$	46,111	$	46,111	$	36,226	$	36,226

Financial or other support was not provided to investees designated as VIEs in the form of liquidity arrangements, guarantees, and/or other commitments by third parties that may affect the fair value or risk of American National’s variable interest in the investees designated as VIEs as of March 31, 2011.

17

6. CREDIT LOSSES

A financing receivable is a contractual right to receive money on demand or on fixed or determinable dates that is recognized as an asset in a company’s statement of financial position. Mortgage loans on real estate are the only financing receivables reported by American National.

Nonaccrual and Past Due Mortgage Loans

Interest ceases to be accrued for loans on which interest is more than 90 days past due, when the collection of interest is not considered probable, or when a loan is in foreclosure. Interest received on non-accrual status mortgage loans is included in net investment income in the period received. Once a loan becomes current, it is placed back into accrual status.

The amount of commercial mortgage loans placed on nonaccrual status is shown in the table below (in thousands):

	March 31, 2011		December 31, 2010
Retail	$	12,264	$	3,685

The age analysis of past due commercial mortgage loans is shown in the table below (in thousands):

	March 31, 2011
	30-59 Days		60-89 Days		Greater Than		Total Past				Total
	Past Due		Past Due		90 Days		Due		Current		Mortgage Loans
Office	$	—	$	—	$	—	$	—	$	824,092	$	824,092
Industrial		—		—		—		—		886,228		886,228
Retail		—		—		12,264		12,264		511,598		523,862
Other		—		—		—		—		631,014		631,014
Total	$	—	$	—	$	12,264	$	12,264	$	2,852,932	$	2,865,196

	December 31, 2010
	30-59 Days		60-89 Days		Greater Than		Total Past				Total
	Past Due		Past Due		90 Days		Due		Current		Mortgage Loans
Office	$	—	$	—	$	—	$	—	$	798,651	$	798,651
Industrial		—		—		—		—		858,241		858,241
Retail		8,579		—		3,685		12,264		456,983		469,247
Other		—		—		—		—		596,763		596,763
Total	$	8,579	$	—	$	3,685	$	12,264	$	2,710,638	$	2,722,902

Allowance for Credit Losses

Each loan is evaluated quarterly and placed in a watchlist if events occurred or circumstances exist that could indicate that American National will be unable to collect all amounts due according to the contractual terms of the loan. If, in evaluating loans for inclusion in the watchlist, sufficient analysis is performed to conclude that a loan is fully collectible, no allowance is required. All loans in the watchlist are then analyzed individually for impairment. Fair value is determined by estimating the present value of future cash flows or the fair value of the underlying collateral. Estimation techniques vary depending on the quality of available data, the type of collateral, and other factors. When the fair value analysis shows that all of the amounts due are not collectable, the difference between the estimated fair value and the loan balance is recorded as an allowance (a loss), reducing the carrying value of the loan. The allowance is reviewed quarterly to determine whether further allowance is required, or whether recovery of the asset is assured and the allowance can be reduced.

Loans that are not evaluated individually for collectability are segregated by collateral 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 types and in certain regions based on loss experience or a blended historical loss factor. Receivables are charged off as uncollectable only when the receivable is forgiven by a legal agreement. Prior to charging off the receivable, an allowance is recorded based on the estimated recoverable amount. Upon forgiveness, the allowance is reduced, and the loan balance is reduced which results in no further gain or loss.

18

The allowance for credit losses and recorded investment in commercial mortgage loans are shown in the table below (in thousands):

	Collectively		Individually
	Evaluated		Evaluated
	for Impairment		for Impairment			Total
Allowance for credit losses:
December 31, 2010	$	11,395	$	2,393		$	13,788
Charge-offs		—		(1,900	)		(1,900	)
March 31, 2011	$	11,395	$	493		$	11,888
Mortgage Loans:
March 31, 2011	$	2,310,093	$	555,103		$	2,865,196
December 31, 2010	$	2,381,878	$	341,024		$	2,722,902

Impaired loans

Mortgage loans on real estate are considered impaired when, based on current information and events, it is probable that American National will be unable to collect all amounts due according to the contractual terms of the loan agreement. American National closely monitors its commercial mortgage loan portfolio on a loan-by-loan basis. Loans with an estimated collateral value less than the loan balance, as well as loans with other characteristics indicative of higher than normal credit risks are reviewed quarterly for purposes of establishing valuation allowances and placing loans on non-accrual status as necessary. The valuation allowance account for mortgage loans on real estate is maintained at a level believed adequate by management and reflects management’s best estimate of probable credit losses, including losses incurred at the reporting date but not yet identified by specific loan. Management’s periodic evaluation of the adequacy of the allowance for losses is based on past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of the underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors.

The detail of impaired loans with an allowance recorded by collateral type is shown in the table below (in thousands):

	Three months ended March 31, 2011
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
Retail	$	6,679	$	9,072	$	493	$	6,679	$	—

	Year ended December 31, 2010
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
Retail	$	6,679	$	9,072	$	2,393	$	7,573	$	406

During the three months ended March 31, 2011, American National did not record interest income on impaired loans using a cash-basis method of accounting.

19

Credit Quality Indicators

The credit quality of the mortgage loan portfolio is assessed to determine 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. As of March 31, 2011 and December 31, 2010, there were two commercial mortgages collateralized by retail properties that were classified as non-performing, totaling $12,264,000. All other loans were classified as performing.

7. CREDIT RISK MANAGEMENT

American National employs a strategy to invest funds at the highest return possible commensurate with sound and prudent underwriting practices to ensure a well-diversified investment portfolio.

Bonds

Management believes American National’s bond portfolio is diversified and of investment grade. The bond portfolio distributed by credit quality rating, using both S&P and Moody’s ratings, is shown below:

	March 31,			December 31,
	2011			2010
AAA		9.8	%		10.0	%
AA		10.2			10.2
A		36.6			37.0
BBB		38.2			37.2
BB and below		5.2			5.6
Total		100.0	%		100.0	%

Equity Securities

American National’s equity securities by market sector distribution is shown below:

	March 31,			December 31,
	2011			2010
Consumer goods		19.0	%		20.7	%
Energy and utilities		18.0			18.5
Financials		19.3			16.6
Information technology		15.6			16.3
Healthcare		10.4			10.4
Industrials		10.5			10.3
Communications		4.1			4.2
Materials		3.1			3.0
Total		100.0	%		100.0	%

20

Mortgage loans and investment real estate

American National makes mortgage loans and invests in real estate primarily in the commercial sector in areas that offer the potential for property value appreciation. Generally, mortgage loans are secured by first liens on income-producing real estate. American National attempts to maintain a diversified portfolio of mortgage loans and real estate properties by considering the property-type as well as the geographic distribution of the property which is the underlying mortgage collateral or investment property.

Mortgage loans and investment real estate by property-type distribution are as follows:

	Mortgage Loans						Investment Real Estate
	March 31,			December 31,			March 31,			December 31,
	2011			2010			2011			2010
Industrial		30.7	%		31.5	%		23.5	%		24.1	%
Office buildings		28.7			29.3			21.2			20.8
Shopping centers		18.4			17.3			35.7			35.6
Hotels and motels		11.8			12.5			2.0			2.0
Other		10.4			9.4			17.6			17.5
Total		100.0	%		100.0	%		100.0	%		100.0	%

Mortgage loans and investment real estate by geographic distribution are as follows:

	Mortgage Loans						Investment Real Estate
	March 31,			December 31,			March 31,			December 31,
	2011			2010			2011			2010
West South Central		23.2	%		23.0	%		61.8	%		61.2	%
East North Central		21.5			20.4			4.9			5.6
South Atlantic		19.3			19.3			18.5			18.4
Pacific		9.1			9.4			2.2			2.2
Mountain		7.1			7.4			1.3			1.3
East South Central		6.4			6.5			10.2			10.1
Middle Atlantic		5.8			6.2			—			—
West North Central		3.9			4.1			1.1			1.2
New England		2.9			3.1			—			—
Other		0.8			0.6			—			—
Total		100.0	%		100.0	%		100.0	%		100.0	%

21

8. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

	March 31, 2011				December 31, 2010
	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value
Financial assets:
Fixed maturity securities
Bonds held-to-maturity
U.S. treasury and other U.S. government corporations and agencies	$	21,957	$	22,194	$	23,117	$	23,405
States of the U.S. and political subdivisions of the states		415,556		414,964		422,249		422,446
Foreign governments		29,026		33,685		29,020		33,930
Corporate debt securities		7,717,181		8,142,327		7,293,501		7,738,777
Residential mortgage-backed securities		694,143		723,741		661,516		691,820
Commercial mortgage-backed securities		31,341		21,978		31,340		13,582
Collateralized debt securities		7,159		6,886		8,562		8,315
Other debt securities		38,954		42,705		44,245		47,559
Total bonds held-to-maturity		8,955,317		9,408,480		8,513,550		8,979,834
Bonds available-for-sale
U.S. treasury and other U.S. government corporations and agencies		13,981		13,981		13,907		13,907
States of the U.S. and political subdivisions of the states		592,145		592,145		594,112		594,112
Foreign governments		6,701		6,701		6,967		6,967
Corporate debt securities		3,279,455		3,279,455		3,201,569		3,201,569
Residential mortgage-backed securities		247,778		247,778		271,393		271,393
Collateralized debt securities		19,390		19,390		20,709		20,709
Other debt securities		15,048		15,048		14,956		14,956
Total bonds available-for-sale		4,174,498		4,174,498		4,123,613		4,123,613
Total fixed maturity securities		13,129,815		13,582,978		12,637,163		13,103,447
Equity securities
Common stock
Consumer goods		212,854		212,854		216,592		216,592
Energy and utilities		199,484		199,484		193,265		193,265
Finance		180,026		180,026		173,579		173,579
Healthcare		116,043		116,043		108,509		108,509
Industrials		117,330		117,330		107,505		107,505
Information technology		174,150		174,150		170,301		170,301
Materials		33,285		33,285		32,009		32,009
Telecommunication services		45,531		45,531		44,128		44,128
Preferred stock		39,500		39,500		36,867		36,867
Total equity securities		1,118,203		1,118,203		1,082,755		1,082,755
Options		72,969		72,969		66,716		66,716
Mortgage loans on real estate, net of allowance		2,816,832		2,975,667		2,679,909		2,865,187
Policy loans		383,480		383,480		380,505		380,505
Short-term investments		461,069		461,069		486,206		486,206
Total financial assets	$	17,982,368	$	18,594,366	$	17,333,254	$	17,984,816
Financial liabilities:
Investment contracts	$	8,974,617		8,974,617	$	8,586,041	$	8,586,041
Liability for embedded derivatives of equity-indexed annuities		66,180		66,180		59,644		59,644
Notes payable		60,598		60,598		60,140		60,140
Total financial liabilities	$	9,101,395	$	9,101,395	$	8,705,825	$	8,705,825

22

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. An asset or liability’s classification 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. American National defines active markets based on average trading volume for equity securities. The size of the bid/ask spread is used as an indicator of market activity for fixed maturity securities.

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.

American National has evaluated the various types of securities in its investment portfolio to determine an appropriate fair value hierarchy level based upon trading activity and the observability of market inputs. Based on the results of this evaluation and investment class analysis, each price was classified into Level 1, 2, or 3.

American National utilizes a pricing service to estimate fair value measurements for approximately 99.0% of fixed maturity securities. 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, the pricing service uses an Option Adjusted Spread model to develop prepayment and interest rate scenarios.

The pricing service evaluates each asset class based on relevant market information, relevant 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 by the pricing service and the techniques applied by the pricing service to produce quotes that represent the fair value of a specific security. The review of the pricing services methodology confirms the service is utilizing information from organized transactions or a technique that represents a market participant’s assumptions. American National does not adjust quotes received by the pricing service.

The pricing service utilized by American National has indicated that they will only produce an estimate of fair value if there is objectively verifiable information available. If the pricing service discontinues pricing an investment, American National would be required to produce an estimate of fair value using some of the same methodologies as the pricing service, but would have to make assumptions for market-based inputs that are unavailable due to market conditions.

23

The fair value estimates of most fixed maturity securities including municipal bonds are based on observable market information rather than market quotes. Accordingly, the estimates of fair value for such fixed maturity securities provided by the pricing service are included in the amount disclosed in Level 2 of the hierarchy.

Additionally, American National holds a small amount of fixed maturity securities that have characteristics that make them unsuitable for matrix pricing. For these fixed maturity securities, a quote from a 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. The pricing of certain private placement debt also includes significant non-observable inputs, the internally determined credit rating of the security and an externally provided credit spread, and are classified in Level 3.

For public common and preferred stocks, American National receives prices from a nationally recognized pricing service that are based on observable market transactions and these securities are disclosed in Level 1. For certain preferred stock held, current market quotes in active markets are unavailable. In these instances, American National receives an estimate of fair value from the pricing service that provides fair value estimates for the fixed maturity securities. The service utilizes some of the same methodologies to price the preferred stocks as it does for the fixed maturity securities. These estimates for equity securities are disclosed in Level 2.

Some assets and liabilities do not fit the hierarchical model for determining fair value. For policy loans, the carrying amount approximates their fair value, because the policy loans cannot be separated from the policy contract. The fair value of investment contract liabilities is determined in accordance with GAAP rules on insurance products and is estimated using a discounted cash flow model, assuming American National’s current interest rates on new products. The carrying value for these contracts approximates their fair value. The carrying amount for notes payable approximates their fair value.

24

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

	Fair Value Measurement as of March 31, 2011 Using:
			Quoted Prices in				Significant
			Active Markets for		Significant Other		Unobservable
	Total Estimated		Identical Assets		Observable Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Fixed maturity securities
Bonds held-to-maturity
U.S. treasury and other U.S. government corporations and agencies	$	22,194	$	—	$	22,194	$	—
States of the U.S. and political subdivisions of the states		414,964		—		414,826		138
Foreign governments		33,685		—		33,685		—
Corporate debt securities		8,142,327		—		8,084,895		57,432
Residential mortgage-backed securities		723,741		—		721,665		2,076
Commercial mortgage-backed securities		21,978		—		21,978		—
Collateralized debt securities		6,886		—		—		6,886
Other debt securities		42,705		—		42,705		—
Total bonds held-to-maturity		9,408,480		—		9,341,948		66,532
Bonds available-for-sale
U.S. treasury and other U.S. government corporations and agencies		13,981		—		13,981		—
States of the U.S. and political subdivisions of the states		592,145		—		589,620		2,525
Foreign governments		6,701		—		6,701		—
Corporate debt securities		3,279,455		—		3,271,080		8,375
Residential mortgage-backed securities		247,778		—		247,762		16
Collateralized debt securities		19,390		—		19,129		261
Other debt securities		15,048		—		15,048		—
Total bonds available-for-sale		4,174,498		—		4,163,321		11,177
Total fixed maturity securities		13,582,978		—		13,505,269		77,709
Equity securities
Common stock
Consumer goods		212,854		212,854		—		—
Energy and utilities		199,484		199,484		—		—
Finance		180,026		180,026		—		—
Healthcare		116,043		116,043		—		—
Industrials		117,330		117,330		—		—
Information technology		174,150		174,150		—		—
Materials		33,285		33,285		—		—
Telecommunication services		45,531		45,531		—		—
Preferred stock		39,500		39,500		—
Total equity securities		1,118,203		1,118,203		—		—
Options		72,969		—		—		72,969
Mortgage loans on real estate		2,975,667		—		2,975,667		—
Short-term investments		461,069		—		461,069		—
Total financial assets	$	18,210,886	$	1,118,203	$	16,942,005	$	150,678
Financial liabilities:
Liability for embedded derivatives of equity-indexed annuities	$	66,180	$	—	$	—	$	66,180
Total financial liabilities	$	66,180	$	—	$	—	$	66,180

25

	Fair Value Measurement as of December 31, 2010 Using:
			Quoted Prices in				Significant
			Active Markets for		Significant Other		Unobservable
	Tota Estimated		Identical Assets		Observable Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Fixed maturity securities
Bonds held-to-maturity
U.S. treasury and other U.S. government corporations and agencies	$	23,405	$	—	$	23,405	$	—
States of the U.S. and political subdivisions of the states		422,446		—		422,308		138
Foreign governments		33,930		—		33,930		—
Corporate debt securities		7,738,777		—		7,680,834		57,943
Residential mortgage-backed securities		691,820		—		689,487		2,333
Commercial mortgage-backed securities		13,582		—		13,582		—
Collateralized debt securities		8,315		—		—		8,315
Other debt securities		47,559		—		47,559		—
Total bonds held-to-maturity		8,979,834		—		8,911,105		68,729
Bonds available-for-sale
U.S. treasury and other U.S. government corporations and agencies		13,907		—		13,907		—
States of the U.S. and political subdivisions of the states		594,112		—		591,587		2,525
Foreign governments		6,967		—		6,967		—
Corporate debt securities		3,201,569		—		3,182,625		18,944
Residential mortgage-backed securities		271,393		—		271,376		17
Collateralized debt securities		20,709		—		20,447		262
Other debt securities		14,956		—		14,956		—
Total bonds available-for-sale		4,123,613		—		4,101,865		21,748
Total fixed maturity securities		13,103,447		—		13,012,970		90,477
Equity securities
Common stock
Consumer goods		216,592		216,592		—		—
Energy and utilities		193,265		193,265		—		—
Finance		173,579		173,579		—		—
Healthcare		108,509		108,509		—		—
Industrials		107,505		107,505		—		—
Information technology		170,301		170,301		—		—
Materials		32,009		32,009		—		—
Telecommunication services		44,128		44,128		—		—
Preferred stock		36,867		36,867		—		—
Total equity securities		1,082,755		1,082,755		—		—
Options		66,716		—		—		66,716
Mortgage loans on real estate		2,865,187		—		2,865,187		—
Short-term investments		486,206		—		486,206		—
Total financial assets	$	17,604,311	$	1,082,755	$	16,364,363	$	157,193
Financial liabilities:
Liability for embedded derivatives of equity-indexed annuities	$	59,644	$	—	$	—	$	59,644
Total financial liabilities	$	59,644	$	—	$	—	$	59,644

26

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

	Investment						Embedded
	Securities			Options			Derivatives			Total
Balance at December 31, 2009	$	36,966		$	32,801		$	(22,487	)	$	47,280
Total realized and unrealized investment gains/ losses
Included in other comprehensive income		(491	)		—			—			(491	)
Net fair value change included in realized gains/ losses		(24	)		—			—			(24	)
Net loss for derivatives included in net investment income		—			(1,637	)		—			(1,637	)
Net fair value change included in interest credited		—			—			(9,658	)		(9,658	)
Purchases and settlements/maturities
Purchases		50,099			11,600			—			61,699
Sales		(633	)		—			—			(633	)
Settlements/maturities		(291	)		(1,762	)		—			(2,053	)
Gross transfers into Level 3		13,319			—			—			13,319
Gross transfers out of Level 3		(6,246	)		—			—			(6,246	)
Balance at March 31, 2010	$	92,699		$	41,002		$	(32,145	)	$	101,556
Balance at December 31, 2010	$	90,477		$	66,716		$	(59,644	)	$	97,549
Total realized and unrealized investment gains/ losses
Included in other comprehensive income		(686	)		—			—			(686	)
Net fair value change included in realized gains/ losses		151			—			—			151
Net gain for derivatives included in net investment income		—			7,115			—			7,115
Net fair value change included in interest credited		—			—			(6,536	)		(6,536	)
Purchases and settlements/maturities
Purchases		13			3,660			—			3,673
Sales		(10,181	)		—			—			(10,181	)
Settlements/maturities		(2,070	)		(4,522	)		—			(6,592	)
Gross transfers into Level 3		5			—			—			5
Balance at March 31, 2011	$	77,709		$	72,969		$	(66,180	)	$	84,498

The transfers into Level 3 were the result of existing securities no longer being priced by the third-party pricing service at the end of the period. In accordance with American National’s pricing methodology, these securities are being valued using similar techniques as the pricing service; however, the service-developed data is used in the process, which results in unobservable inputs and a corresponding transfer into Level 3.

The transfers out of Level 3 were securities being priced by a third-party service at the end of the period, using inputs that are observable or derived from market data, which resulted in classification of these assets as Level 2.

There were no significant transfers between Level 1 and Level 2 fair value hierarchies.

27

9. DEFERRED POLICY ACQUISITION COSTS

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

							Accident			Property &
	Life			Annuity			& Health			Casualty			Total
Balance at December 31, 2010	$	661,377		$	446,996		$	64,967		$	145,086		$	1,318,426
Additions		20,389			35,537			3,019			67,065			126,010
Amortization		(17,840	)		(22,935	)		(5,352	)		(66,833	)		(112,960	)
Effect of change in unrealized gains on available-for-sale securities		(1,024	)		(4,994	)		—			—			(6,018	)
Net change		1,525			7,608			(2,333	)		232			7,032
Balance at March 31, 2011	$	662,902		$	454,604		$	62,634		$	145,318		$	1,325,458
Premiums for the three months ended:
March 31, 2011	$	66,386		$	32,241		$	58,644		$	291,314		$	448,585
March 31, 2010	$	69,445		$	40,352		$	68,424		$	286,472		$	464,693

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

All amounts for the present value of future profits resulting from the acquisition of life insurance portfolios have been accounted for in accordance with the relevant accounting literature and are immaterial in all periods presented.

10. LIABILITY FOR UNPAID CLAIMS AND CLAIM ADJUSTMENT EXPENSES

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

Activities in the liability for unpaid claims and claim adjustment expenses (“claims”) are shown below (in thousands):

	2011			2010
Unpaid claims balance at January 1	$	1,210,126		$	1,214,996
Less reinsurance recoverables		222,635			252,502
Net beginning balance		987,491			962,494
Incurred claims related to:
Current		295,872			325,884
Prior years		(35,899	)		(37,821	)
Total incurred claims		259,973			288,063
Paid claims related to:
Current		119,736			133,309
Prior years		145,158			135,855
Total paid claims		264,894			269,164
Net balance		982,570			981,393
Plus reinsurance recoverables		230,243			249,591
Unpaid claims balance at March 31	$	1,212,813		$	1,230,984

28

The potential uncertainty caused by volatility in loss development profiles is adjusted for through the selection of loss development factor patterns for each line of insurance. The net and gross reserve calculations have shown favorable development for the last several years as a result of 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 and claims adjustment expenses attributable to insured events of prior years decreased by approximately $35,899,000 during the first three months of 2011 and $37,821,000 during the same period in 2010.

11. NOTES PAYABLE

American National’s real estate holding subsidiaries are partners in certain ventures determined to be VIEs, and these are consolidated in American National’s consolidated financial statements. The current portion and long-term portion of the notes payable to third-party lenders associated with these consolidated VIEs were $48,090,000 and $12,508,000, respectively at March 31, 2011. The current portion and long-term portion of the notes payable to third-party lenders associated with these consolidated VIEs were $47,632,000 and $12,508,000, respectively at December 31, 2010. The interest rate on the current portion of the notes payable is equivalent to the Wall Street Journal prime rate minus half of one percent. The average interest rate on the current portion of the notes payable during the first three months of 2011 and during 2010 was 2.75%. The long-term portion of the notes payable have interest rates equivalent to adjusted LIBOR plus 1.00% and 2.50% margins. The average interest rate on the long-term portion of the notes payable during the first quarter of 2011 and 2010 was 4.63%, and will mature in 2016 and 2049. Each of these notes is secured by the real estate owned through the respective venture entity, and American National’s liability for these notes is limited to the amount of its investment in the respective venture, which totaled $21,159,000 at March 31, 2011 and $21,224,000 at December 31, 2010.

12. FEDERAL INCOME TAXES

The federal income tax provisions vary from the amounts computed when applying the statutory federal income tax rate. A reconciliation of the effective tax rate to the statutory federal income tax rate is shown below (in thousands, except percentages):

	Three Months Ended March 31,
	2011						2010
	Amount			Rate			Amount			Rate
Income tax expense on pre-tax income	$	21,956			35.0	%	$	14,829			35.0	%
Tax-exempt investment income		(2,043	)		(3.3	)		(2,284	)		(5.4	)
Dividend exclusion		(1,264	)		(2.0	)		(1,491	)		(3.5	)
Miscellaneous tax credits, net		(2,000	)		(3.2	)		(1,734	)		(4.1	)
Other items, net		249			0.4			696			1.6
Total	$	16,898			26.9	%	$	10,016			23.6	%

29

The tax effects of temporary differences that gave rise to the deferred tax assets and liabilities are shown below (in thousands):

	March 31,			December 31,
	2011			2010
DEFERRED TAX ASSETS:
Investments, principally due to impairment losses	$	104,723		$	106,445
Investment in real estate and other invested assets principally due to investment valuation allowances		9,645			9,237
Policyholder funds, principally due to policy reserve discount		236,090			230,496
Policyholder funds, principally due to unearned premium reserve		32,728			31,840
Non-qualified pension		28,716			29,345
Participating policyholders’ surplus		32,350			31,180
Pension		38,470			37,759
Commissions and other expenses		15,486			13,870
Tax carryforwards		20,941			26,599
Gross deferred tax assets		519,149			516,771
DEFERRED TAX LIABILITIES:
Available-for-sale securities, principally due to net unrealized gains		(212,797	)		(195,840	)
Investment in bonds, principally due to accrual of discount on bonds		(16,178	)		(16,639	)
Deferred policy acquisition costs, due to difference between GAAP and tax amortization methods		(352,341	)		(350,981	)
Property, plant and equipment, principally due to difference between GAAP and tax depreciation methods		(4,920	)		(5,668	)
Other liabilities		(4,131	)		(1,380	)
Gross deferred tax liabilities		(590,367	)		(570,508	)
Total net deferred tax liability	$	(71,218	)	$	(53,737	)

Management believes that a sufficient level of taxable income will be achieved to utilize the net deferred tax assets of the companies in the consolidated federal tax return, therefore, no valuation allowance was recorded as of March 31, 2011 and December 31, 2010. However, if not utilized beforehand, approximately $20,941,000 in ordinary loss tax carryforwards will expire at the end of tax year 2030.

American National recognizes interest expense and penalties related to uncertain tax positions. Interest expense and penalties are included in the “Other operating expenses” line in the consolidated statements of operations. No interest expense was incurred for the three months ended March 31, 2011 and for the year ended December 31, 2010. Also, no provision for penalties was established for uncertain tax positions.

Management does not believe that there are any uncertain tax benefits that could be recognized within the next twelve months that would decrease American National’s effective tax rate.

The statute of limitations for the examination of federal income tax returns by the Internal Revenue Service (“IRS”) for years 2006 to 2009 has either been extended or has not expired. In the opinion of management, all prior year deficiencies have been paid or adequate provisions have been made for any tax deficiencies that may be upheld.

No federal income taxes were paid to or refunded by the IRS during the three months ended March 31, 2011. Federal income taxes netting to approximately $512,000 were paid to the IRS during the same period in 2010.

30

13. COMPONENTS OF COMPREHENSIVE INCOME

The details on the unrealized gains and losses included in comprehensive income, and the related tax effects thereon, are shown below (in thousands):

	Before Federal			Federal Income			Net of Federal
	Income Tax			Tax Expense			Income Tax
March 31, 2011
Total holding gain during the period	$	62,021		$	21,707		$	40,314
Reclassification adjustment for net gain realized in net income		(13,504	)		(4,750	)		(8,754	)
Unrealized gains on available-for-sale securities		48,517			16,957			31,560
Adjustment to deferred policy acquisition costs		(6,018	)		(2,109	)		(3,909	)
Unrealized gain on investments attributable to participating policyholders’ interest		(2,855	)		(999	)		(1,856	)
Net unrealized gain component of comprehensive income	$	39,644		$	13,849		$	25,795
March 31, 2010
Total holding gain during the period	$	137,659		$	48,181		$	89,478
Reclassification adjustment for net gain realized in net income		(14,355	)		(5,057	)		(9,298	)
Unrealized gains on available-for-sale securities		123,304			43,124			80,180
Adjustment to deferred policy acquisition costs		(31,677	)		(11,124	)		(20,553	)
Unrealized gain on investments attributable to participating policyholders’ interest		(3,622	)		(1,268	)		(2,354	)
Net unrealized gain component of comprehensive income	$	88,005		$	30,732		$	57,273

14. STOCKHOLDERS’ EQUITY AND NONCONTROLLING INTERESTS

Common stock

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

	March 31,		December 31,
	2011		2010
Common stock
Shares issued		30,832,449		30,832,449
Treasury shares		4,011,472		4,011,472
Restricted shares		261,334		261,334
Unrestricted outstanding shares		26,559,643		26,559,643

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 of these. The number of shares available for grants under the plan cannot exceed 2,900,000 shares, and no more than 200,000 shares may be granted to any one individual in any calendar year.

RS Awards entitle the participant to full dividend and voting rights. 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 feature a graded vesting schedule in the case of the retirement of an award holder. Restricted stock has been granted, with a total of 340,334 shares granted at an exercise price of zero, of which 261,334 shares are unvested. The compensation expense recorded for the three months ended March 31, 2011 and 2010 was $663,000 and $673,000, respectively.

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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 5 years and expire 5 years after the vesting period. American National uses the Black-Scholes option pricing model to calculate the fair value and compensation expense for SARs. The fair value of the SARs was $13,000 and $17,000 at March 31, 2011 and December 31, 2010, respectively. Compensation income was recorded totaling $4,000 and $445,000 for the three months ended March 31, 2011 and 2010, respectively.

RSUs are awarded after achieving the objectives of a performance based incentive compensation plan. In 2011, RSUs were also awarded as part of the Board of Directors compensation. The RSUs vest after two or three years when they will be converted to American National’s common stock on a one for one basis. These awards result in compensation expense to American National over the vesting period. Compensation expense was $290,000 and $23,000 for the three months ended March 31, 2011 and 2010, respectively.

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

				SAR Weighted-					RS Weighted-					RSU Weighted-
				Average Grant					Average Grant					Average Grant
				Date Fair				Date Fair					Date Fair
	SAR Shares			Value		RS Shares		Value		RS Units			Value
Outstanding at December 31, 2010		144,727		$	109.40		261,334	$	102.98		9,419		$	109.29
Granted		—			—		—		—		61,481			79.63
Forfeited		(1,967	)		115.93		—		—		(197	)		109.29
Expired		(3,400	)		105.12		—		—		—			—
Outstanding at March 31, 2011		139,360			109.32		261,334		102.98		70,703			83.53

The weighted-average contractual remaining life for the outstanding SAR shares as of March 31, 2011, is 4.0 years. The weighted-average exercise price, which is the same with the weighted-average grant date fair value above, for these shares is $109.32 per share. Of the shares outstanding, 86,153 are exercisable at a weighted-average exercise price of $106.67 per share.

The weighted-average contractual remaining life for the outstanding RS shares as of March 31, 2011, is 5.7 years. The weighted-average price at the date of grant for these shares is $102.98 per share. None of the shares outstanding were exercisable.

The weighted-average contractual remaining life for the outstanding RSUs as of March 31, 2011, is 2.74 years. The weighted-average price at the date of grant for these units is $83.53 per share. None of the outstanding units were exercisable.

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Earnings per share

Basic earnings per share was calculated using a weighted-average number of shares outstanding of 26,559,643 and 26,558,832 at March 31, 2011 and 2010, respectively. The Restricted Stock resulted in diluted earnings per share as follows:

	Three months ended March 31,
	2011		2010
Weighted average shares outstanding		26,559,643		26,558,832
Incremental shares from restricted stock		130,855		93,378
Total shares for diluted calculations		26,690,498		26,652,210
Net income from continuing operations attributable to American National Insurance Company and Subsidiaries	$	48,482,000	$	34,555,000
Net income from discontinued operations		—		223,000
Net income attributable to American National Insurance Company and Subsidiaries	$	48,482,000	$	34,778,000
Basic earnings per share from continued operations	$	1.83	$	1.30
Basic earnings per share from discontinued operations		—	$	0.01
Basic earnings per share	$	1.83	$	1.31
Diluted earnings per share from continued operations	$	1.82	$	1.30
Diluted earnings per share from discontinued operations		—		—
Diluted earnings per share	$	1.82	$	1.30

Dividends

American National’s payment of dividends to stockholders is restricted by statutory regulations. 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 statutory net gain from operations on an annual, non-cumulative basis, or 10% of statutory surplus. Additionally, insurance companies are not permitted to distribute the excess of stockholders’ equity, as determined on a GAAP basis over that determined on a statutory basis. At March 31, 2011 and December 31, 2010 American National’s statutory capital and surplus was $1,997,898,000 and $1,954,149,000, respectively.

The same restrictions on amounts that can transfer in the form of dividends, loans, or advances to the parent company apply to American National’s insurance subsidiaries. Dividends received by the parent company from its non-insurance subsidiaries was zero for the three months ended March 31, 2011 and 2010.

At March 31, 2011 approximately $1,403,852,000 of American National’s consolidated stockholders’ equity represents net assets of its insurance subsidiaries, compared to approximately $1,396,736,000 at December 31, 2010. Any transfer of these net assets to American National would be subject to statutory restrictions or approval.

Noncontrolling interests

American National County Mutual Insurance Company (“County Mutual”) is a mutual insurance company that is owned by its policyholders. County Mutual has a management agreement, which effectively gives complete control of County Mutual to American National. As a result, County Mutual is included in the consolidated financial statements of American National. The interests that the policyholders of County Mutual have in the financial position of County Mutual is reflected as noncontrolling interest totaling $6,750,000 at March 31, 2011 and December 31, 2010.

American National’s wholly-owned subsidiary, ANTAC, Inc., is a partner in various joint ventures. ANTAC exercises significant control or ownership of these joint ventures, resulting in their consolidation into the American National consolidated financial statements. As a result of the consolidation, the interest of the other partners of the joint ventures is shown as noncontrolling interests. Noncontrolling interests were a net asset of $4,718,000 and $3,523,000 at March 31, 2011 and December 31, 2010, respectively.

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15. SEGMENT INFORMATION

American National and its subsidiaries are engaged principally in the insurance business. Management organizes the business into five operating segments:

• The Life segment markets whole, term, universal and variable life insurance on a national basis primarily through employee and multiple-line agents, direct marketing channels and independent third-party marketing organizations.

• The Annuity segment develops, sells and supports fixed, equity-indexed, and variable annuity products. These products are primarily sold through independent agents and brokers, but are also sold through financial institutions, multiple-line agents and employee agents.

• The Health segment’s 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.

• The Property and Casualty segment writes personal, commercial and credit-related property insurance. These products are primarily sold through multiple-line agents and independent agents.

• The Corporate and Other business segment consists of net investment income on the investments not allocated to the insurance segments and the operations of non-insurance lines of business.

The accounting policies of the segments are the same as those referred to in Note 2. Many of the principal factors that drive the profitability of each operating segment are separate and distinct. All income and expense amounts specifically attributable to policy transactions are recorded directly to the appropriate operating segment. Income 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 funds accumulated by 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 equity allocated to each segment, with the remainder going to Corporate and Other.

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

• Realized gains or losses on investments and equity in earnings of unconsolidated affiliates are allocated to the Corporate and Other business segment.

• Federal income taxes have been applied to the net earnings of each segment based on a fixed tax rate. Any difference between the amount allocated to the segments and the total federal income tax amount is allocated to the Corporate and Other business segment.

Beginning in 2011, in order to improve the comparability for measuring business results between segments and between periods, American National discontinued the allocation of a “default charge” to its segments. This default charge represented compensation to the Corporate and Other segment for the risk it assumed for realized investment losses through a charge to the insurance segments, which reduced the amount of net investment income allocated to those segments.

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

	Three months ended March 31, 2011
									Property &			Corporate &
	Life			Annuity			Health		Casualty			Other		TOTAL
Premiums and other revenues:
Premiums	$	66,386		$	32,241		$	58,644	$	291,314		$	—	$	448,585
Other policy revenues		44,843			4,288			—		—			—		49,131
Net investment income		59,082			147,885			3,416		18,066			10,623		239,072
Other income		800			57			2,917		1,944			568		6,286
Total operating revenues		171,111			184,471			64,977		311,324			11,191		743,074
Realized gains on investments		—			—			—		—			22,031		22,031
Total premium and other revenues		171,111			184,471			64,977		311,324			33,222		765,105
Benefits, losses and expenses:
Policyholder benefits		76,687			42,977			—		—			—		119,664
Claims incurred		—			—			41,607		215,511			—		257,118
Interest credited to policy account balances		15,056			90,960			—		—			—		106,016
Commissions for acquiring and servicing policies		20,862			29,973			6,466		52,922			3		110,226
Other operating expenses		40,543			27,561			11,577		30,738			11,980		122,399
Change in deferred policy acquisition costs		(2,549	)		(12,602	)		2,333		(232	)		—		(13,050	)
Total benefits, losses and expenses		150,599			178,869			61,983		298,939			11,983		702,373
Income from continuing operations before federal income taxes, and equity in earnings of unconsolidated affiliates	$	20,512		$	5,602		$	2,994	$	12,385		$	21,239	$	62,732

	Three months ended March 31, 2010
										Property &			Corporate &
	Life			Annuity			Health			Casualty			Other		TOTAL
Premiums and other revenues:
Premiums	$	69,445		$	40,352		$	68,424		$	286,472		$	—	$	464,693
Other policy revenues		41,086			3,910			—			—			—		44,996
Net investment income		58,885			125,108			4,054			18,851			11,204		218,102
Other income		837			76			2,336			2,038			628		5,915
Total operating revenues		170,253			169,446			74,814			307,361			11,832		733,706
Realized gains on investments		—			—			—			—			16,502		16,502
Total premiums and other revenues		170,253			169,446			74,814			307,361			28,334		750,208
Benefits, losses and expenses:
Policyholder benefits		72,538			47,695			—			—			—		120,233
Claims incurred		—			—			52,839			235,203			—		288,042
Interest credited to policy account balances		14,692			79,670			—			—			—		94,362
Commissions for acquiring and servicing policies		19,708			24,693			9,753			52,722			1		106,877
Other operating expenses		43,392			16,080			12,139			30,666			10,931		113,208
Change in deferred policy acquisition costs		(2,610	)		(14,257	)		1,912			72			—		(14,883	)
Total benefits, losses and expenses		147,720			153,881			76,643			318,663			10,932		707,839
Income from continuing operations before federal income taxes, and equity in earnings of unconsolidated affiliates	$	22,533		$	15,565		$	(1,829	)	$	(11,302	)	$	17,402	$	42,369

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16. COMMITMENTS AND CONTINGENCIES

Commitments

In the ordinary course of operations, American National and its subsidiaries had commitments outstanding at March 31, 2011, to purchase, expand or improve real estate, to fund mortgage loans, and to purchase other invested assets aggregating $233,149,000, of which $224,579,000 is expected to be funded in 2011. The remaining balance of $8,570,000 will be funded in 2012 and beyond. As of March 31, 2011, all of the mortgage loan commitments have fixed interest rates.

In September 2010, American National renewed a 365-day $100,000,000 short-term variable rate borrowing facility containing a $55,000,000 subfeature 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 American National’s working capital requirements. The combination of borrowings and outstanding letters of credit cannot exceed $100,000,000 at any time. As of March 31, 2011 and December 31, 2010 the outstanding letters of credit were $36,585,000 and $37,452,000, respectively, and there were no borrowings on this facility to meet working capital requirements.

Guarantees

In the normal course of business, 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 equals or exceeds the balance of the loans, management does not foresee any loss on these guarantees. The total amount of the guarantees outstanding as of March 31, 2011, was approximately $206,513,000 while the total cash values of the related life insurance policies was approximately $212,253,000.

Litigation

American National is a defendant in a putative class action lawsuit wherein the Plaintiff proposes to certify a class of persons who purchased certain American National proprietary deferred annuity products in the State of California (Rand v. American National Insurance Company, U.S. District Court for the Northern District of California, filed February 12, 2009). Plaintiff alleges that American National violated the California Insurance, Business and Professions, Welfare and Institutions, and Civil Codes through its fixed and equity-indexed deferred annuity sales and marketing practices by not sufficiently providing proper disclosure notices on the nature of surrender fees, commissions and bonus features and not considering the suitability of the product. Certain claims raised by Plaintiff relate to sales of annuities to the elderly. Plaintiff seeks statutory penalties, restitution, interest, penalties, attorneys’ fees, punitive damages and rescissionary and/or injunctive relief in an unspecified amount. In September 2010, the Court granted partial summary judgment for American National due to the nonexistence of certain California Insurance Code violations, and granted partial summary judgment against American National as to whether the Plaintiff received a disclosure notice required by the California Insurance Code. Plaintiff contends that the alleged disclosure violation will support a California Unfair Competition Law claim.

The parties negotiated a tentative agreement on financial settlement terms between American National and potential class members and are working on finalizing other specific terms to resolve this case. During the quarter ended March 31, 2011, American National reserved $12,000,000 for this tentative agreement. Any such class settlement must be reviewed and approved by the Court and will go through other procedural steps before being finalized. The parties anticipate documenting the terms before the end of spring 2011 and presenting the terms to the Court shortly thereafter.

If the settlement is not finalized or accepted, American National maintains that it has meritorious defenses which will be vigorously pursued. In such event, no prediction can be made as to the probability or remoteness of Plaintiff’s recovery, if any, against American National.

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American National and certain subsidiaries are also defendants in various other lawsuits concerning alleged failure to honor certain loan commitments, alleged breach of certain agency and real estate contracts, various employment matters, allegedly deceptive insurance sales and marketing practices, and other litigation arising in the ordinary course of operations. Certain of these lawsuits include claims for compensatory and punitive damages. After reviewing these matters with legal counsel, 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 or results of operations. However, these lawsuits are in various stages of development, and future facts and circumstances could result in management’s changing its conclusions.

In addition, it should be noted that the frequency of large damage awards, which bear little or no relation to the economic damages incurred by plaintiffs in some jurisdictions, continue to create the potential for an unpredictable judgment in any given lawsuit. 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 the consolidated financial statements.

17. DISCONTINUED OPERATIONS

On December 31, 2010, American National sold its wholly-owned broker-dealer subsidiary, Securities Management & Research, Inc. (“SM&R”). Pursuant to a stock purchase agreement American National agreed to sell all of the outstanding capital stock of SM&R to a third-party financial services corporation. The sale qualifies for discontinued operations accounting and accordingly, the results of operations for this subsidiary are presented as discontinued operations in American National’s consolidated statements of operations for the three months ended March 31, 2010. SM&R had previously been a component of the Corporate and Other business segment.

The following table summarizes income from discontinued operations:

	Three months
	ended March 31,
	2010
Revenues:
Net investment income	$	109
Realized investment losses		(5	)
Other Income		3,449
Total revenues		3,553
Expenses
Other operating costs		3,253
Total expenses		3,253
Income from discontinued operations before
income tax expense		300
Income tax expense		77
Income from discontinued operations, net of tax	$	223

Cash flows related to discontinued operations have been combined with cash flows from continuing operations within each category of the statements of cash flows, the effect of which is immaterial to all periods presented.

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18. RELATED PARTY TRANSACTIONS

American National has entered into recurring transactions and agreements with certain related parties as a part of its ongoing operations. 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 for the periods indicated, is shown below (in thousands):

		Dollar Amount of Transactions				Amount due to
		Three months ended March 31,				March 31,		December 31,
Related Party	Financial Statement Line Impacted	2011		2010		2011		2010
Gal-Tex Hotel Corporation	Mortgage loans on real estate	$	242	$	11,653	$	10,709	$	10,951
Gal-Tex Hotel Corporation	Net investment income		197		213		65		66
Gal-Tex Hotel Corporation	Other operating expenses		57		52		21		21
Gal-Tex Hotel Corporation	Accident and health premiums		15		20		15		56
Moody Insurance Group, Inc.	Commissions for acquiring and servicing policies		1,002		915		419		717
Moody Insurance Group, Inc.	Other operating expenses		32		29		—		—
National Western Life Ins. Co.	Accident and health premiums		60		42		35		14
National Western Life Ins. Co.	Other operating expenses		275		240		106		71
Moody Foundation	Accident and health premiums		69		85		11		7
Greer, Herz and Adams, LLP	Other operating expenses		1,862		2,733		288		251

Information Regarding Related Parties and Transactions

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 (“Gal-Tex”). The Moody Foundation and the Libbie Shearn Moody Trust also own approximately 22.9% and 37.1%, respectively, of American National. American National held a first mortgage loan issued to Gal-Tex secured by hotel property in San Antonio, Texas. This loan was originated in 1999, had a balance of $10,709,000 as of March 31, 2011, has a current interest rate of 7.30%, and has a final maturity date of April 1, 2019. This loan is current as to principal and interest payments.

Management Contracts with Gal-Tex: American National entered into management contracts with Gal-Tex for the management of a hotel and adjacent fitness center owned by American National. Such contracts can be terminated upon thirty days’ prior written notice.

Transactions with Moody Insurance Group, Inc.: Robert L. Moody, Jr. (“RLM Jr.”) is the son of American National’s Chairman and Chief Executive Officer, brother of two of American National’s directors, and he is one of American National’s advisory directors. RLM Jr., mainly through his wholly-owned insurance agency, Moody Insurance Group, Inc. (“MIG”), has entered into a number of agency agreements with American National and some of its subsidiaries in connection with the marketing of insurance products.

MIG and American National are also parties to a Consulting and Special Marketing Agreement concerning development and marketing of new products. In addition to consulting fees paid under such agreement, compensation also includes dividends on shares of American National’s Restricted Stock granted to MIG as a consultant.

Health Insurance Contracts with Certain Affiliates: American National’s Merit Plan is insured by National Western Life Insurance Company (“National Western”). Robert L. Moody, Sr., American National’s Chairman of the Board and Chief Executive Officer, is also the Chairman of the Board, Chief Executive Officer, and controlling stockholder of National Western. The Merit Plan is an insured medical plan that supplements American National’s core medical insurance plan for certain officers by providing coverage for co-pays, deductibles, and other out-of-pocket expenses that are not covered by the core medical insurance plan, limited to medical expenses that could be deducted by the recipient for federal income tax purposes.

In addition, American National insures substantially similar plans offered by National Western, Gal-Tex, and The Moody Foundation to certain of their officers. American National also insures The Moody Foundation’s basic health insurance plan.

Transactions with Greer, Herz & Adams, L.L.P.: Irwin M. Herz, Jr. is one of American National’s advisory directors 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 months ended March 31, 2011 and 2010 of American National Insurance Company and its subsidiaries (referred to in this document as “we”, “our”, “us”, or the “Company”). Such information should be read in conjunction with our consolidated financial statements included in Item 1, Financial Statements (unaudited), of this Form 10-Q.

INDEX

Forward-Looking Statements	40
Overview	40
General Trends	41
Critical Accounting Estimates	41
Recently Issued Accounting Pronouncements	41
Consolidated Results of Operations	42
Life	43
Annuity	45
Health	49
Property and Casualty	51
Corporate and Other	55
Investments	55
Discontinued Operations	58
Liquidity	59
Capital Resources	59
Contractual Obligations	60
Off-Balance Sheet Arrangements	60
Related Party Transactions	60

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Forward-Looking Statements

Certain statements contained herein are forward-looking statements. The forward-looking statements are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, and include estimates and assumptions related to economic, competitive and legislative developments. Forward looking statements may be identified by words such as “expects,” “intends,” “anticipates,” “plans,” “believes,” “estimates,” “will” or words of similar meaning; and include, but are not limited to, statements regarding the outlook of our business and financial performance. These forward-looking statements are subject to change and uncertainty, which are, in many instances, beyond our control and have been made based upon our expectations and beliefs concerning future developments and their potential effect upon us. There can be no assurance that future developments will be in accordance with our expectations, or that the effect of future developments on us will be as anticipated. These forward-looking statements are not a guarantee of future performance and involve risks and uncertainties. There are certain important factors that could cause actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements. These factors include among others:

• international economic and financial factors, including the performance and fluctuations of fixed income, equity, real estate, credit capital and other financial markets;

• interest rate fluctuations;

• estimates of our reserves for future policy benefits and claims;

• differences between actual experience regarding mortality, morbidity, persistency, surrender experience, interest rates or market returns, and the assumptions we use in pricing our products, establishing liabilities and reserves or for other purposes;

• changes in our experiences related to deferred policy acquisition costs;

• changes in our claims-paying or credit ratings;

• investment losses and defaults;

• competition in our product lines and for personnel;

• changes in tax law;

• regulatory or legislative changes;

• adverse determinations in litigation or regulatory matters and our exposure to contingent liabilities, including and in connection with our divestiture or winding down of businesses;

• domestic or international military actions, natural or man-made disasters, including terrorist activities or pandemic disease, or other events resulting in catastrophic loss of life;

• ineffectiveness of risk management policies and procedures in identifying, monitoring and managing risks;

• effects of acquisitions, divestitures and restructurings, including possible difficulties in integrating and realizing the projected results of acquisitions;

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

• changes in assumptions for retirement expense.

We describe these risks and uncertainties in greater detail in Item IA, Risk Factors, in our 2010 Annual Report on Form 10-K filed with the SEC on March 2, 2011. It has never been a matter of corporate policy for us to make specific projections relating to future earnings, and we do not endorse any projections regarding future performance made by others. Additionally, we do not publicly update or revise forward-looking statements based on the outcome of various foreseeable or unforeseeable events.

Overview

We are a diversified insurance and financial services company, offering a broad spectrum of life, annuity, health, and property and casualty insurance products. Chartered in 1905, we are headquartered in Galveston, Texas. We operate in all 50 states, the District of Columbia, Guam, American Samoa and Puerto Rico.

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General Trends

There were no material changes to the general trends we are experiencing, as discussed in the MD&A included in our 2010 Annual Report on Form 10-K filed with the SEC on March 2, 2011.

Critical Accounting Estimates

The unaudited interim consolidated financial statements have been prepared in conformity with GAAP. In addition to GAAP, insurance companies have to apply specific SEC regulations when preparing the consolidated financial statements. The preparation of the consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and notes. Actual results could differ from results reported using those estimates.

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 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 be different from those reported in the consolidated financial statements.

For a discussion of our critical accounting estimates, see the MD&A in our 2010 Annual Report on Form 10-K filed with the SEC on March 2, 2011. There were no material changes in accounting policies from December 31, 2010.

Recently Issued Accounting Pronouncements

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

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Consolidated Results of Operations

The following is a discussion of our consolidated results of operations. For discussions of our segment results, see the “Results of Operations and Related Information by Segment”section. The following table sets forth the consolidated results of operations (in thousands):

	Three months ended March 31,
	2011			2010			Change
Premiums and other revenues:
Premiums	$	448,585		$	464,693		$	(16,108	)
Other policy revenues		49,131			44,996			4,135
Net investment income		239,072			218,102			20,970
Realized investments gains, net		22,031			16,502			5,529
Other income		6,286			5,915			371
Total premiums and other revenues		765,105			750,208			14,897
Benefits, losses and expenses:
Policyholder benefits		119,664			120,233			(569	)
Claims incurred		257,118			288,042			(30,924	)
Interest credited to policy account balances		106,016			94,362			11,654
Commissions for acquiring and servicing policies		110,226			106,877			3,349
Other operating expenses		122,399			113,208			9,191
Change in deferred policy acquisition costs(1)		(13,050	)		(14,883	)		1,833
Total benefits and expenses		702,373			707,839			(5,466	)
Income before other items and federal income taxes	$	62,732		$	42,369		$	20,363

(1) A negative amount of net change indicates more expense was deferred than amortized and represents a decrease to expenses in the periods indicated.

Consolidated earnings increased during the first three months of 2011 compared to 2010. The increase was primarily driven by the following:

• a decrease in Property and Casualty claims incurred,

• an increase in net investment income greater than the increase to interest credited to policy account balances.

The increases were partially offset by a decrease in Accident and Health premiums and an increase in other operating expenses in our Annuity line.

In the Consolidated Results of Operations above and in the segment discussions that follow, certain amounts in prior year have been reclassified to conform to current year presentation. See Note 15, Segment Information, of the Notes to the Consolidated Financial Statements.

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Results of Operations and Related Information by Segment

Life

The Life segment markets traditional life insurance products such as whole life and term life, and interest-sensitive life insurance products such as universal life and variable universal life as well as indexed universal life. These products are marketed on a nationwide basis through employee agents, multiple-line agents, independent agents, brokers and direct marketing channels. Life segment financial results for the periods indicated were as follows (in thousands):

	Three months ended March 31,
	2011			2010			Change
Premiums and other revenues:
Premiums	$	66,386		$	69,445		$	(3,059	)
Other policy revenues		44,843			41,086			3,757
Net investment income		59,082			58,885			197
Other income		800			837			(37	)
Total premiums and other revenues		171,111			170,253			858
Benefits, losses and expenses:
Policyholder benefits		76,687			72,538			4,149
Interest credited to policy account balances		15,056			14,692			364
Commissions for acquiring and servicing policies		20,862			19,708			1,154
Other operating expenses		40,543			43,392			(2,849	)
Change in deferred policy acquisition costs		(2,549	)		(2,610	)		61
Total benefits, losses and expenses		150,599			147,720			2,879
Income before other items and federal income taxes	$	20,512		$	22,533		$	(2,021	)

For the three months ended March 31, 2011, earnings decreased compared to the same period in 2010. The overall decrease in earnings was primarily attributable to an increase in policyholder benefits, partially offset by a decrease in other operating expenses.

Premiums

Revenues from traditional life insurance products include scheduled premium payments from policyholders on whole life and term life products. These premiums are in exchange for financial protection from a specific insurable event, such as death or disability. The change in these premiums is impacted by new sales during the period and the persistency of in-force policies.

Premiums decreased for the three months ended March 31, 2011 compared to the same period in 2010. The decrease was a result of higher reinsurance premiums due to increasing policy face values, and a decrease in the credit-related life products as a result of lower sales.

Other Policy Revenues

Other policy revenues include mortality charges, earned policy service fees, and surrender charges on interest-sensitive life insurance policies. These revenues increased for the three months ended March 31, 2011 compared to 2010 primarily due to terminations of jumbo size policies, those larger than $1.0 million, and the resulting surrender charges and related fees.

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Policyholder Benefits

Benefits increased for the three months ended March 31, 2011 compared to 2010. The increase was primarily the result of mortality experience fluctuations on our life insurance policies as well as an increase in net reinsurance costs.

Other Operating Expenses

Other operating expenses decreased for the three months ended March 31, 2011 compared to 2010. The decrease was primarily the result of the release of a litigation liability.

Change in Deferred Policy Acquisition Costs

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

	Three months ended March 31,
	2011			2010			Change
Acquisition cost capitalized	$	20,389		$	18,098		$	2,291
Amortization of DAC		(17,840	)		(15,488	)		(2,352	)
Change in deferred policy acquisition costs(1)	$	2,549		$	2,610		$	(61	)

(1) A positive amount of net change indicates more expense was deferred than amortized and represents a decrease to expenses in the periods indicated.

The net change in deferred policy acquisition costs capitalized remained relatively flat for the three months ended March 31, 2011 compared to 2010.

Policy In-Force Information

The following tables summarize changes in the Life segment’s in-force amounts and number of policies in-force (in thousands):

	Three months ended March 31,
	2011		2010		Change
Life insurance in-force:
Traditional life	$	46,068,891	$	45,166,506	$	902,385
Interest-sensitive life		23,750,154		24,217,790		(467,636	)
Total life insurance in-force	$	69,819,045	$	69,384,296	$	434,749

	Three months ended March 31,
	2011		2010		Change
Number of policies in-force
Traditional life		2,248		2,322		(74	)
Interest-sensitive life		176		175		1
Total number of policies		2,424		2,497		(73	)

There was a slight increase in total life insurance in-force for the three months ended March 31, 2011 when compared to 2010. The increase to our traditional life products was the result of consumers seeking these products’ contract guarantees due to the economic environment in recent years. This increase was partially offset by the decrease in our interest-sensitive life policies.

The decrease in our policy count is attributable to new business activity being comprised of fewer, but larger face-value policies.

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Annuity

We develop, sell and support a variety of immediate and deferred annuities, including fixed, equity-indexed and variable products. We sell these products through independent agents, brokers, financial institutions, multiple-line and employee agents. Annuity segment financial results for the periods indicated were as follows (in thousands):

	Three months ended March 31,
	2011			2010			Change
Premiums and other revenues:
Premiums	$	32,241		$	40,352		$	(8,111	)
Other policy revenues		4,288			3,910			378
Net investment income		147,885			125,108			22,777
Other income		57			76			(19	)
Total premiums and other revenues		184,471			169,446			15,025
Benefits, losses and expenses:
Policyholder benefits		42,977			47,695			(4,718	)
Interest credited to policy account balances		90,960			79,670			11,290
Commissions for acquiring and servicing policies		29,973			24,693			5,280
Other operating expenses		27,561			16,080			11,481
Change in deferred policy acquisition costs		(12,602	)		(14,257	)		1,655
Total benefits, losses and expenses		178,869			153,881			24,988
Income before other items and federal income taxes	$	5,602		$	15,565		$	(9,963	)

Earnings decreased for the three months ended March 31, 2011 compared to 2010 primarily due to an increase in other operating expenses. This increase was primarily a result of a litigation accrual for an outstanding legal matter. For additional information, see Note 16, Commitments and Contingencies, of the Notes to the Consolidated Financial Statements. Without this accrual, earnings would have increased $2.0 million compared to the first quarter of 2010.

Premiums

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

	Three months ended March 31,
	2011		2010		Change
Fixed deferred annuity	$	548,346	$	190,275	$	358,071
Equity-indexed deferred annuity		33,694		124,164		(90,470	)
Single premium immediate annuity		33,810		40,974		(7,164	)
Variable deferred annuity		26,279		25,627		652
Total		642,129		381,040		261,089
Less: policy deposits		609,888		340,688		269,200
Total earned premiums	$	32,241	$	40,352	$	(8,111	)

Fixed deferred annuity deposits increased significantly for the three months ended March 31, 2011 compared to 2010. The increase was primarily a result of our marketing efforts to expand bank distribution through the development of new accounts. In addition, continued depressed interest rates help make our fixed deferred annuity rates more attractive than certificates of deposit and other competing financial products.

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Equity-indexed annuities allow policyholders to participate in equity returns while also having certain downside protection resulting from the guaranteed minimum returns defined in the product. Deposits for this product decreased during the three months ended March 31, 2011 as compared to the same period in 2010. This decrease was primarily due to lower fixed investment yields providing a smaller option budget, resulting in declared indexed crediting terms that are less favorable to the policyholder.

Single premium immediate annuities (“SPIA”) decreased for the three months ended March 31, 2011 compared to 2010. Premiums for this product decreased during the three months ended March 31, 2011 as compared to the same period in 2010 as a result of lower investment yields, restraining demand for this product in anticipation of increased income payments in the future.

Net Investment Income

Net investment income, a key component of the profitability of the Annuity segment, increased for the three months ended March 31, 2011 compared to 2010. The increase was mainly attributed to a 12.9% increase in the assets backing the in-force fixed deferred annuity account balances.

For a number of years, earnings in the Annuity segment have been pressured by lower average yield rates on the bonds and mortgage loans supporting the reserves. Offsetting the effect of lower yield rates, crediting rates on interest-sensitive products have been decreased accordingly where permitted by policy terms. Since approximately 90% of the Annuity segment is interest-sensitive, offsetting credited rate adjustments are usually possible subject to minimum interest rate guarantees that may apply. We have reconfigured the product portfolio to lower those guarantees in response to the current low interest rate environment.

We utilize equity options as a means to hedge equity-indexed deferred annuity benefits. The realized and unrealized gains or losses on the equity options cause fluctuations in net investment income. Accordingly, we analyze net investment income with and without equity option returns. Shown below is the analysis of net investment income with and without equity options (in thousands):

	With Options				Without Options				Attributable to Options
	Three months ended March 31,				Three months ended March 31,				Three months ended March 31,
	2011		2010		2011		2010		2011		2010
Net investment income	$	147,885	$	125,108	$	140,770	$	126,745	$	7,115	$	(1,637	)

The fluctuations in net investment income due to equity option returns were primarily offset in part by changes in equity-indexed deferred annuity interest credited (which has an implied embedded derivative gain/(loss) component). See the discussion in the Interest Credited to Policy Account Balances section for presentation of interest credited with and without the effect of equity-indexed deferred annuity.

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Account Values

We monitor account values and changes in those values as a key indicator of the performance of 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 are the changes in account values (in thousands):

	Three months ended March 31,
	2011			2010
Fixed deferred annuity:
Account value, beginning of period	$	9,006,692		$	8,151,366
Net inflows		324,670			115,095
Fees		(3,049	)		(2,671	)
Interest credited		92,033			81,139
Account value, end of period	$	9,420,346		$	8,344,929
Variable deferred annuity:
Account value, beginning of period	$	415,757		$	400,624
Net inflows/(outflows)		(15,410	)		4,198
Fees		(1,233	)		(1,187	)
Change in market value and other		16,010			16,251
Account value, end of period	$	415,124		$	419,886
Single premium immediate annuity:
Reserve, beginning of period	$	903,126		$	820,295
Net inflows		3,725			9,109
Interest and mortality		9,724			9,362
Reserve, end of period	$	916,575		$	838,766

Account values of fixed deferred annuities and SPIA increased during the first quarter of 2011 compared to the same period in 2010 primarily as a result of new deposits and interest credited.

Variable deferred annuity account values decreased during the first quarter of 2011 compared to the first quarter of 2010 primarily as a result of outflows of deposits and fees offsetting new deposits and market value increases.

Policyholder Benefits

Benefits consist of annuity payments and reserve increases on SPIA contracts. Benefits decreased for the three months ended March 31, 2011 compared to 2010 as a result of lower SPIA premium receipts.

Interest Credited to Policy Account Balances

Interest credited to policy account balances is generally comprised of interest accruals to fixed deferred annuity account balances. Equity-indexed deferred annuities include a fixed host annuity contract and an embedded equity derivative. In addition to the accrual of interest on the host contract, the gain or loss on the embedded equity derivative is also recognized as interest credited to policy account balances. Embedded derivative gain/loss can introduce material fluctuations in interest credited from one period to the next. For this reason, we analyze interest credited to policy account balances with and without equity-indexed deferred annuities. A comparison of interest credited to policy account balances with and without equity-indexed deferred annuities are shown in the table below (in thousands):

	With Equity-Indexed				Without Equity-Indexed				Attributable to the Equity-Indexed
	Deferred Annuities				Deferred Annuities				Deferred Annuities
	Three months ended March 31,				Three months ended March 31,				Three months ended March 31,
	2011		2010		2011		2010		2011		2010
Interest credited to policy account balances	$	90,960	$	79,670	$	80,374	$	75,955	$	10,586	$	3,715

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The fluctuations in interest credited due to the embedded equity derivative returns were primarily offset by changes in equity option investment income (loss), since the equity options are held to hedge the equity-indexed deferred annuity benefits. See the discussion in the Net Investment Income section for presentation of investment income with and without investment income (loss) from equity options.

The increase in the interest credited without equity-indexed deferred annuities during 2011 was primarily attributable to the growth of in-force account balances.

Interest credited attributable to equity-indexed deferred annuities increased during the three months ended March 31, 2011 as compared to the same period in 2010 primarily due to improved performance of the equity-indexed annuity product.

The profits on fixed deferred annuity contracts are driven by interest spreads and, to a lesser extent, other policy fees. When determining crediting rates for fixed deferred annuities, management considers current investment yields in setting new money crediting rates and looks at average portfolio yields when setting renewal rates. In setting rates, management takes into account target spreads established by pricing models while also factoring in price levels needed to maintain a competitive position. Target interest spreads vary by product depending on specific attributes.

Commissions

Commissions increased for the three months ended March 31, 2011 compared to 2010 primarily due to the $261.1 million increase in annuity deposits during the period.

Other Operating Expenses

Other operating expenses increased during the three months ended March 31, 2011 compared to 2010 primarily as a result of the previously mentioned legal matter. Without this accrual, other operating expenses would have decreased $0.5 million.

Change in Deferred Policy Acquisition Costs

The change in DAC represents acquisition costs capitalized, net of amortization of existing DAC. The amortization of DAC is calculated in proportion to gross profits. The following table presents the components of change in DAC (in thousands):

	Three months ended March 31,
	2011			2010			Change
Acquisition cost capitalized	$	35,537		$	31,154		$	4,383
Amortization of DAC		(22,935	)		(16,897	)		(6,038	)
Change in deferred policy acquisition costs(1)	$	12,602		$	14,257		$	(1,655	)

(1) A positive amount of net change indicates more expense was deferred than amortized and is a decrease to expense in the periods indicated.

An important measure of the Annuity segment is amortization of DAC as a percentage of gross profits. The amortization of DAC as a percentage of gross profits for the three months ended March 31, 2011, and 2010 was 52.2%, and 46.7%, respectively. The increase in the ratio was primarily driven by an increase in surrenders during the first quarter of 2011 compared to 2010.

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Health

The Health segment primarily focuses on supplemental and limited benefit coverage products including Medicare Supplement insurance for the aged population as well as hospital surgical and cancer policies for the general population. In 2011, premium volume was concentrated in our Medicare Supplement (44.5%) and medical expense (22.7%) lines. Our other health products include credit accident and health policies, stop loss, and dental coverage. Health products are distributed through our network of independent agents and Managing General Underwriters (“MGU”). Health segment results for the periods indicated were as follows (in thousands):

	Three months ended March 31,
	2011		2010			Change
Premiums and other revenues:
Premiums	$	58,644	$	68,424		$	(9,780	)
Net investment income		3,416		4,054			(638	)
Other income		2,917		2,336			581
Total premiums and other revenues		64,977		74,814			(9,837	)
Benefits and expenses:
Claims incurred		41,607		52,839			(11,232	)
Commissions for acquiring and servicing policies		6,466		9,753			(3,287	)
Other operating expenses		11,577		12,139			(562	)
Change in deferred policy acquisition costs		2,333		1,912			421
Total benefits and expenses		61,983		76,643			(14,660	)
Income (loss) before other items and federal income taxes	$	2,994	$	(1,829	)	$	4,823

Earnings improved for the three months ended March 31, 2011 compared to 2010, primarily as a result of reductions in claims incurred and a decrease in commissions. A decrease in premiums resulting from a reduction of in-force policies partially offsets the decreases in claims incurred and commissions.

Premiums

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

	Three months ended March 31,
	2011					2010
	Premiums					Premiums
	dollars		percentage			dollars		percentage
Medicare Supplement	$	26,100		44.5	%	$	30,391		44.4	%
Medical expense		13,284		22.6			18,874		27.6
Group		7,096		12.1			7,099		10.4
Credit accident and health		5,142		8.8			5,422		7.9
MGU		2,988		5.1			2,174		3.2
All other		4,034		6.9			4,464		6.5
Total	$	58,644		100.0	%	$	68,424		100.0	%

Earned premiums decreased during the three months ended March 31, 2011 compared to 2010, primarily due to the discontinuation of sales of our medical expense insurance plans effective June 30, 2010 and decreased sales of our Medicare Supplement product.

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

	Three months ended March 31,
	2011					2010
	number		percentage			number		percentage
Medicare Supplement		45,071		7.4	%		56,891		9.2	%
Medical expense		9,828		1.6			16,501		2.7
Group		16,584		2.7			13,553		2.2
Credit accident and health		284,944		46.6			300,481		48.4
MGU		106,009		17.3			70,870		11.4
All other		149,624		24.4			162,049		26.1
Total		612,060		100.0	%		620,345		100.0	%

Our total in-force policies had a net decrease during the three months ended March 31, 2011 compared to 2010 primarily due to a decrease in the credit accident and health line as a result of a reduction in short-term furniture and finance company credit products sales. Management expects a decreasing trend on this product to continue into the near future. Also contributing to the decrease in the in-force policies were the reduction in Medicare Supplement sales resulting from current market conditions and a decrease in the medical expense line as a result of discontinuance of sales. These decreases were partially offset by an increase in the MGU line.

Claims Incurred

Claims incurred decreased during the three months ended March 31, 2011 compared to the same period in 2010. The decrease was primarily due to the discontinuance of sales of our medical expense insurance plan as well as the decrease in sales of our Medicare Supplement product.

Commissions

Commissions decreased for the three months ended March 31, 2011 as compared to the same period in 2010. The decrease was consistent with lower sales and lower commission products.

Change in Deferred Policy Acquisition Costs

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

	Three months ended March 31,
	2011			2010			Change
Acquisition cost capitalized	$	3,019		$	4,342		$	(1,323	)
Amortization of DAC		(5,352	)		(6,254	)		902
Change in deferred policy acquisition costs(1)	$	(2,333	)	$	(1,912	)	$	(421	)

(1) A negative amount of net change indicates less expense was deferred than amortized and represents an increase to expenses in the periods indicated.

Acquisition cost capitalized decreased for the three months ended March 31, 2011 as compared to the same period in 2010. The decrease was due to the discontinuance of our medical expense line and the decline in sales of our Medicare Supplement product.

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Property and Casualty

Property and Casualty business is written through our Multiple-Line and Credit Insurance Division agents. Property and Casualty segment results for the periods indicated were as follows (in thousands, except percentages):

	Three months ended March 31,
	2011			2010			Change
Premiums and other revenues:
Net premiums written	$	290,261		$	292,748		$	(2,487	)
Net premiums earned	$	291,314		$	286,472		$	4,842
Net investment income		18,066			18,851			(785	)
Other income		1,944			2,038			(94	)
Total premiums and other revenues		311,324			307,361			3,963
Benefits and expenses:
Claims incurred		215,511			235,203			(19,692	)
Commissions for acquiring and servicing policies		52,922			52,722			200
Other operating expenses		30,738			30,666			72
Change in deferred policy acquisition costs		(232	)		72			(304	)
Total benefits and expenses		298,939			318,663			(19,724	)
Income (loss) before other items and federal income taxes	$	12,385		$	(11,302	)	$	23,687
Loss ratio		74.0	%		82.1	%		(8.1	)
Underwriting expense ratio		28.6			29.1			(0.5	)
Combined ratio		102.6	%		111.2	%		(8.6	)
Effect of net catastrophe losses on combined ratio		9.6	%		13.4	%		(3.8	)

The Property and Casualty segment results improved to a net gain during the three months ended March 31, 2011 compared to 2010 primarily due to improved underwriting results.

Net Premiums Written and Earned

Net premiums written remained relatively flat for the three months ended March 31, 2011 compared to 2010, primarily due to a slight decrease in our personal lines partially offset by an increase in our commercial and credit-related property product lines.

Net premiums earned increased during 2011 compared to 2010 primarily as a result of a $6.7 million increase in our personal and commercial lines offset by a $1.9 million decrease in our credit-related property product lines.

Claims Incurred

Claims incurred include losses and loss adjustment expenses (“LAE”) on property and casualty policies. Claims incurred decreased during the three months ended March 31, 2011 compared to 2010 across personal automobile, other commercial, and agribusiness lines of business offset by an increase in the homeowner’s line. The loss ratios have improved as a result of this favorable experience during the three months ended March 31, 2011 compared to the same period in 2010.

For the three months ended March 31, 2011, gross catastrophe losses decreased to $37.0 million compared to $41.3 million in 2010. Net catastrophe losses decreased to $28.0 million from $38.5 million, which included additional catastrophe reinsurance recovery in 2011 compared to 2010. The number of catastrophes for the three months ended March 31, 2011 increased to 8 compared to 7 during the same period in 2010. The catastrophe losses for the first quarter of 2011 were less severe compared to 2010.

Net catastrophe losses contributed to a 9.6% and 13.4% increase in the combined ratio during 2011, and 2010, respectively. We continue to evaluate and manage our aggregate catastrophe risk exposures. We manage our risk with targeted rate activity and reinsurance coverage where we believe it is cost efficient to do so.

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For the three months ended March 31, 2011, net favorable prior year loss and LAE development was $25.4 million compared to $26.6 million for the same period in 2010. This favorable development is being driven primarily by our personal auto and commercial liability lines which show better than expected loss emergence compared to what was implied by the loss development patterns used in the previous estimation of losses.

Products

Our Property and Casualty segment consists of three product lines: (i) Personal Lines, which we market primarily to individuals, represent 60.2% of net premiums written, (ii) Commercial Lines, which focus primarily on businesses engaged in agricultural and other targeted markets, represent 29.7% of net premiums written, and (iii) Credit-related property insurance products which are marketed to financial institutions and retailers and represent 10.1% of net premiums written.

Personal Products

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

	Three months ended March 31,
	2011			2010			Change
Net premiums written
Auto	$	117,448		$	119,226		$	(1,778	)
Homeowner		47,924			48,987			(1,063	)
Other Personal		9,293			10,268			(975	)
Total net premiums written		174,665			178,481			(3,816	)
Net premiums earned
Auto		117,543			113,568			3,975
Homeowner		55,474			53,843			1,631
Other Personal		9,305			9,447			(142	)
Total net premiums earned	$	182,322		$	176,858		$	5,464
Loss ratio
Auto		67.5	%		76.7	%		(9.2	)
Homeowner		95.6			83.5			12.1
Other Personal		78.7			60.8			17.9
Personal line loss ratio		76.6	%		77.9	%		(1.3	)
Combined Ratio
Auto		88.5	%		98.5	%		(10.0	)
Homeowner		120.4			108.4			12.0
Other Personal		83.8			68.7			15.1
Personal line combined ratio		98.0	%		99.9	%		(1.9	)

Personal Automobile: Net premiums earned increased in our personal automobile line during the first three months of 2011 compared to the same period in 2010 due to rate increases implemented in prior years now being fully realized. On the other hand, net premiums written have declined as a result of a reduction in retention rates due to rate increases, competition and general economic conditions.

The loss and combined ratios have improved for the three months ended March 31, 2011 compared to the same period in 2010 primarily due rate increases.

Homeowners: Net premiums written and earned remained relatively flat during the three months ended March 31, 2011 compared to the same period in 2010.

The loss and combined ratios increased during the three months ended March 31, 2011 compared to the same period in 2010 due to an increase in catastrophe claims.

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Other Personal: This product line is comprised primarily of watercraft, rental-owner and umbrella coverages for individuals seeking to protect their personal property not covered within their homeowner and auto policies. Net premiums written and earned remained relatively level during the three months ended March 31, 2011 as compared to the same period in 2010. Premiums are trending commensurate with the production in the homeowners and personal automobile lines as policies are typically sold in conjunction with one another.

The loss and combined ratios increased during the three months ended March 31, 2011 compared to the same period in 2010 due to increased umbrella claims. As this is currently our smallest line of business in our Personal Products line, minor fluctuations in results can more easily cause volatility in these ratios.

Commercial Products

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

	Three months ended March 31,
	2011			2010			Change
Net premiums written
Other Commercial	$	35,858		$	34,431		$	1,427
Agribusiness		24,301			25,448			(1,147	)
Auto		25,938			25,613			325
Total net premiums written		86,097			85,492			605
Net premiums earned
Other Commercial		29,974			29,493			481
Agribusiness		26,136			26,268			(132	)
Auto		22,134			21,273			861
Total net premiums earned	$	78,244		$	77,034		$	1,210
Loss ratio
Other Commercial		62.9	%		97.1	%		(34.2	)
Agribusiness		150.3			182.7			(32.4	)
Auto		54.8			48.8			6.0
Commercial line loss ratio		89.8	%		112.9	%		(23.1	)
Combined ratio
Other Commercial		91.3	%		125.0	%		(33.7	)
Agribusiness		184.4			215.8			(31.4	)
Auto		77.9			73.8			4.1
Commercial line combined ratio		118.6	%		141.8	%		(23.2	)

Other Commercial: Net premiums written and earned increased during the first three months of 2011 compared to the same period in 2010, primarily as a result of workers’ compensation rate increases in the New York and New Jersey markets implemented in the latter part of 2010 and the first quarter of 2011.

The loss and combined ratios improved during the first three months of 2011 compared to 2010, primarily as a result of a decrease in claims in our business-owner lines and less severe losses in the workers’ compensation product.

Agribusiness Product: Our agribusiness product allows policyholders to customize and combine their coverage for residential and household contents, buildings and building contents, farm personal property and liability. Net premiums written decreased while net premiums earned remained relatively flat during the first three months of 2011 compared to 2010. This is primarily the result of rate increases offset by a decrease in policies in-force.

The loss and combined ratios decreased during the first three months of 2011 compared to 2010 primarily as a result of a decrease in catastrophe losses. We expect variability in this line, which is sensitive to the frequency and severity of storm and weather related losses.

Commercial Automobile:Net premiums written and earned remained stable during the first three months of 2011 compared to 2010 primarily as a result of reduced polices in-force offset by rate increases. The loss and combined ratios increased as a result of an increased frequency and severity of claims.

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Credit Products

Credit-related property insurance 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 is not directly related to an event affecting the consumer’s ability to pay the debt. The primary distribution channel for credit-related property insurance is general agents who market to auto dealers, furniture stores and financial institutions.

Net premiums written increased to $29.5 million for the first three months of 2011 compared to $28.8 million for the same period in 2010. Net premiums earned decreased to $30.7 million, from $32.6 million for the three months ended March 31, 2011 and 2010, respectively. The primary driver for the increase in net premiums written, while net premiums earned decreased, was the continued shift in our product mix from shorter duration Collateral Protection products, which fell 6.0%, to our longer duration Guaranteed Asset Protection (“GAP”) products, which increased 32.1%. Shorter duration products generally earn out premiums within 12 months from the effective date, while our longer duration products may take up to 84 months before they are fully earned.

The loss ratios decreased to 18.2% from 31.8% during the three months ended March 31, 2011 compared to 2010. This decrease is attributable to an overall decline in claims incurred as a result of lower frequency and severity of claims. Specifically, the GAP line of business experienced a positive trend in claims incurred as a result of automobile fair values rebounding from the recent financial crisis. The combined ratios decreased to 90.0% from 100.4% during the first three months of 2011 compared to 2010.

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Corporate and Other

Our Corporate and Other segment primarily includes the capital not allocated to support our insurance business segments. Our capital and surplus is invested and managed by internal investment staff. Investments include publicly traded equities, real estate, mortgage loans, high-yield bonds, venture capital partnerships, mineral interests and tax-advantaged instruments. See the “Investments” section of the MD&A for a more detailed discussion of our investments.

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

	Three months ended March 31,
	2011		2010		Change
Premiums and other revenues:
Net investment income	$	10,623	$	11,204	$	(581	)
Realized gains on investments		22,031		16,502		5,529
Other income		568		628		(60	)
Total premiums and other revenues		33,222		28,334		4,888
Expenses:
Other operating expenses		11,983		10,932		1,051
Total expenses		11,983		10,932		1,051
Income before other items and federal income taxes	$	21,239	$	17,402	$	3,837

Earnings for the three months ended March 31, 2011 improved compared to the same period in 2010. This was primarily due to the increase in realized gains on investments as a result of improved financial markets.

Investments

General

We manage our investment portfolio to optimize the rate of return that is commensurate with sound and prudent underwriting practices and to maintain a well-diversified portfolio. Our investment operations are governed by various regulatory authorities, including but not limited to, the state insurance departments where we or our insurance subsidiaries are domiciled. Investment activities, including the setting of investment policies and defining acceptable risk levels, are subject to review and approval by our Finance Committee, made up of two members of the Board of Directors, senior executives and investment professionals.

Our insurance and annuity products are primarily supported by investment-grade bonds, collateralized mortgage obligations, and commercial mortgage loans. We purchase fixed maturity securities and designate them as either held-to-maturity or available-for-sale as necessary to match our estimated future cash flow needs. We use statistical measures, such as duration and the modeling of future cash flows using stochastic interest rate scenarios, to balance our investment portfolio to match the pricing objectives of our underlying insurance products. As part of our asset-liability management program, we monitor the composition of our fixed maturity securities between held-to-maturity and available-for-sale securities and adjust the concentrations within the portfolio as investments mature or with the purchase of new investments.

We invest directly in quality commercial mortgage loans when the yield and quality compare favorably with other fixed maturity securities. Investments in individual residential mortgage loans have not been part of our investment portfolio, and we do not anticipate investing in them in the future.

Our strong historic capitalization has enabled us to invest in equity securities and investment real estate where there are opportunities for enhanced returns. We invest in real estate and equity securities based on a risk and reward analysis.

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Composition of Invested Assets

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

	March 31, 2011					December 31, 2010
	Amount		Percent			Amount		Percent
Bonds held-to-maturity, at amortized cost	$	8,955,317		48.3	%	$	8,513,550		47.5	%
Bonds available-for-sale, at fair value		4,174,498		22.5			4,123,613		23.0
Equity Securities		1,118,203		6.0			1,082,755		6.0
Mortgage loans at amortized cost		2,816,832		15.2			2,679,909		15.0
Policy loans, at outstanding balance		383,480		2.1			380,505		2.1
Investment real estate, net of depreciation		513,901		2.8			521,768		2.9
Short-term investments		461,069		2.5			486,206		2.7
Other invested assets		122,718		0.6			119,251		0.8
Total Invested Assets	$	18,546,018		100.0	%	$	17,907,557		100.0	%

The increase in our total invested assets was primarily a result of net purchases.

Each of the components of our invested assets is described further in Note 4, Investments; Note 7, Credit Risk Management; and Note 8, Fair Value of Financial Instruments, of the Notes to the Consolidated Financial Statements. In addition, net investment income and realized investments gains (losses), before federal income taxes, are summarized within Note 4, Investments, of the Notes to the 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, 2010 filed with the SEC on March 2, 2011 contains a detailed description of the Company’s methodology for evaluating other-than-temporary impairment losses on its investments.

Investments to Support Our Insurance Business

Bonds-We allocate most of our fixed maturity securities to support our insurance business.

At March 31, 2011, our fixed maturity securities had an estimated fair market value of $13.6 billion, which was $663.4 million (5.1%) above amortized cost. At December 31, 2010, our fixed maturity securities had an estimated fair market value of $13.1 billion, which was $664.6 million (5.3%) above amortized cost. The increase in total fair market value was the result of new purchases to support annuity sales as well as market value increases.

Fixed maturity securities’ estimated fair value, due in one year or less, increased to $820.7 million as of March 31, 2011 from $685.3 million as of December 31, 2010, primarily as a result of approaching maturity dates of long-term bonds.

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

	March 31, 2011							December 31, 2010
	Amortized		Estimated		% of Fair			Amortized		Estimated		% of Fair
	Cost		Fair Value		Value			Cost		Fair Value		Value
AAA	$	1,272,777	$	1,323,943		9.8	%	$	1,258,952	$	1,311,152		10.0	%
AA		1,341,352		1,387,303		10.2			1,289,870		1,343,653		10.2
A		4,685,820		4,968,545		36.6			4,551,294		4,848,986		37.0
BBB		4,929,071		5,192,670		38.2			4,613,315		4,871,583		37.2
BB and below		690,551		710,517		5.2			725,436		728,073		5.6
Total	$	12,919,571	$	13,582,978		100.0	%	$	12,438,867	$	13,103,447		100.0	%

The slight shifts in our credit quality diversification, including exposure to below investment grade securities, at March 31, 2011 compared to December 31, 2010, was primarily the result of purchase transactions and maturities. At 5.2% of our total bond portfolio, the exposure to below investment grade securities is acceptable to management, and we expect this portion of our bond portfolio to decrease as these bonds approach maturity.

Mortgage Loans-We invest in commercial mortgage loans that are diversified by property-type and geography. We do not make individual residential mortgage loans. Therefore, we have no direct exposure to sub-prime or Alt A mortgage loans in the mortgage loan portfolio. 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 are used to support our insurance liabilities. 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 6.3% and 6.8% for the three months ended March 31, 2011 and year ended December 31, 2010, respectively.

Equity Securities-As of March 31, 2011, 96.5% of our equity securities were invested in publicly traded (on a national U.S. stock exchange) common stock. The remaining 3.5% of the equity portfolio was invested in publicly traded preferred stock. As of December 31, 2010, 96.6% of our equity securities were invested in publicly traded common stock, and the remaining 3.4% were invested in publicly traded preferred stock. The increase in the fair value of our equity securities during the first three months of 2011 reflects purchases and market value increases within the portfolio.

We carry our equity portfolio at fair value based on quoted estimated fair value prices obtained from external pricing services. The cost and estimated market value of the equity portfolio are as follows (in thousands):

										��
	Three months ended March 31, 2011
			Unrealized		Unrealized			Estimated
	Cost		Gains		Losses			Fair Value
Common stock	$	688,586	$	396,086	$	(5,969	)	$	1,078,703
Preferred stock		30,958		8,576		(34	)		39,500
Total	$	719,544	$	404,662	$	(6,003	)	$	1,118,203

	Year ended December 31, 2010
			Unrealized		Unrealized			Estimated
	Cost		Gains		Losses			Fair Value
Common stock	$	690,245	$	361,048	$	(5,405	)	$	1,045,888
Preferred stock		30,420		6,714		(267	)		36,867
Total	$	720,665	$	367,762	$	(5,672	)	$	1,082,755

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Investment Real Estate-We invest in commercial real estate with positive cash flows or where appreciation in value is expected. Real estate may be owned directly by our insurance companies, through non-insurance affiliates or joint ventures. The carrying value of real estate is stated at cost, less accumulated depreciation, and valuation allowance. Depreciation is provided over the estimated useful lives of the properties.

Short-Term Investments-Short-term investments are composed primarily of 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 investment-funding commitments.

Policy Loans-Certain life insurance products we offer permit policyholders to borrow funds from us using their policy as collateral. The maximum amount of the policy loan depends upon the policy’s surrender value and the number of years since policy origination. As of March 31, 2011 we had $383.5 million in policy loans with a loan to surrender value of 59.0%, and at December 31, 2010, we had $380.5 million in policy loans with a loan to surrender value of 61.2%. Interest rates on policy loans primarily range from 4.5% to 8.0% 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 death benefits.

Net Investment Income and Realized Gains (Losses)

Net investment income from bonds and mortgage loans used to support our insurance products increased consistently over the period as assets increased with net annuity sales and policyholder benefits each year. Net investment income in other asset classes (equities and real estate) fluctuated in response to investment decisions based on valuations and financial markets movement.

Mortgage loan interest income is accrued on the principal amount of the loan based on the loan’s contractual interest rate. Amortization of premiums and discounts is recorded using the effective yield method. Interest income, amortization of premiums and discounts, and prepayment fees are reported in net investment income. Interest income earned on impaired loans is accrued on the principal amount of the loan based on the loan’s contractual interest rate. However, interest ceases to be accrued for loans on which interest is generally more than 90 days past due or when the collection of interest is not considered probable. Loans in foreclosure are placed on non-accrual status. Interest received on non-accrual status mortgage loans is included in net investment income in the period received.

Unrealized Gains and Losses:

The net change in unrealized gains (losses) on marketable securities, as presented in the stockholders’ equity section of the consolidated statements of financial position, was an unrealized gain of $25.8 million at March 31, 2011 and $109.0 million at December 31, 2010.

Discontinued Operations

On December 31, 2010, the Company sold its wholly-owned broker-dealer subsidiary, Securities Management & Research, Inc. (“SM&R”). Pursuant to a stock purchase agreement we agreed to sell all of the outstanding capital stock of SM&R to a third-party financial services corporation. The sale qualified for discontinued operations accounting and accordingly, the results of operations for this subsidiary are presented as discontinued operations in our consolidated statements of operations for all periods presented. The sale resulted in a $1,000,000 loss before taxes for year end 2010. SM&R had previously been a component of the Corporate and Other business segment.

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Liquidity

Our liquidity requirements have been and are expected to continue to be met by funds from operations. 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.

To ensure that we will be able to continue to pay future commitments, the funds received as premium payments and deposits are invested in high quality investments, primarily fixed maturity securities and individual 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; however, our portfolio of highly liquid marketable debt and equity securities are available to meet our liquidity needs.

In September 2010, we renewed a 365-day $100 million short-term variable rate borrowing facility containing a $55 million subfeature 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 our working capital requirements. The combination of borrowings and outstanding letters of credit cannot exceed $100 million at any time. As of March 31, 2011 and December 31, 2010, the outstanding letters of credit were $36.6 million and $37.5 million, respectively, and there were no borrowings on this facility to meet liquidity requirements.

Capital Resources

Our capital resources consisted of American National stockholders’ equity, summarized as follows (in thousands):

	March 31,		December 31,
	2011		2010
American National stockholders’ equity, excluding accumulated other comprehensive income (loss), net of tax (“AOCI”)	$	3,436,222	$	3,407,439
AOCI		251,101		225,212
Total American National stockholders’ equity	$	3,687,323	$	3,632,651

We have notes payable in our consolidated statements of financial position that are not part of our capital resources. These notes payable represent amounts borrowed by real estate joint ventures that we consolidate into our financial statements. The lenders for the notes payable have no recourse against us in the event of default by the joint ventures. Therefore, the only amount of liability we have for these notes payable is limited to our investment in the respective venture, which totaled $21.2 million at March 31, 2011 and December 31, 2010.

Total stockholders’ equity in the first three months of 2011 increased primarily due to the $48.5 million net income earned during the period and $25.8 million unrealized gains on available-for-sale securities, offset by $20.7 million in dividends paid to stockholders.

Statutory Surplus and Risk-based Capital

Statutory surplus represents the capital of our insurance companies reported in accordance with accounting practices prescribed or permitted by the applicable state insurance departments. State laws specify regulatory actions if an insurer’s risk-based capital (“RBC”), a measure of an insurer’s solvency, falls below certain levels. The National Association of Insurance Commissioners (“NAIC”) has standard formulas for annually assessing RBC, which seek to identify companies that are undercapitalized.

The RBC formula for life companies establishes capital requirements relating to insurance, business, asset and interest rate risks, as well as the equity, interest rate and expense recovery risks associated with variable and group annuities that contain death benefits or certain living benefits.

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RBC is calculated for property and casualty companies after adjusting capital for certain underwriting, asset, credit and off-balance sheet risks. The achievement of long-term growth will require growth in the statutory capital of our insurance subsidiaries. Our subsidiaries may obtain additional statutory capital through various sources, such as retained statutory earnings or equity contributions from us. As of December 31, 2010, the levels of our and our insurance subsidiaries’ surplus and RBC exceeded the NAIC’s 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, 2010. We expect to have the capacity to repay and/or refinance these obligations as they come due.

Off-Balance Sheet Arrangements

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

Related-Party Transactions

We have various agency, consulting and investment arrangements with individuals and corporations that are considered to be related parties. Each of these arrangements has been reviewed and approved by our Audit Committee. The total amount involved in these arrangements, both individually and in the aggregate, is not material to any segment or to our overall operations. For additional details see Note 18, Related Party Transactions, of the Notes to the Consolidated Financial Statements.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our market risks have not changed materially from those disclosed in our 2010 Annual Report on Form 10-K filed with the SEC on March 2, 2011.

ITEM 4. CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act)) that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Corporate Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. The Company’s management, with the participation of the Company’s Chief Executive Officer and Corporate Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of March 31, 2011. Based upon that evaluation and subject to the foregoing, the Company’s Chief Executive Officer and Corporate Chief Financial Officer concluded that, as of March 31, 2011, the design and operation of the Company’s disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.

Management has monitored the internal controls over financial reporting, including any material changes to the internal control over financial reporting. There were no changes in the Company’s internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended March 31, 2011 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

There have been no material changes with respect to the risk factors as previously disclosed in our 2010 Annual Report on Form 10-K filed with the SEC on March 2, 2011.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. REMOVED AND RESERVED

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

(a) Exhibits

Exhibit
Number:		Basic Documents:
	3.1	Articles of Incorporation (incorporated by reference to Exhibit No. 3.1 to the registrant’s Registration Statement on Form 10-12B filed April 10, 2009)
	3.2	Bylaws (incorporated by reference to Exhibit No. 3.2 to the registrant’s Current Report on Form 8-K filed May 4, 2011)
	10.1	Form of Restricted Stock Unit Agreement for Officers under the American National Insurance Company Amended and Restated 1999 Stock and Incentive Plan (the “Stock and Incentive Plan”)
	10.2	Form of Restricted Stock Unit Agreement for Directors under the Stock and Incentive Plan.
	31.1	Certification of the principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2	Certification of the principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1	Certification of the principal executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32.2	Certification of the principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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:	Corporate Chief Financial Officer

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