American National 10-Q 2014 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2014

or

¨ 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	74-0484030
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

One Moody Plaza

Galveston, Texas 77550-7999

(Address of principal executive offices) (Zip Code)

(409) 763-4661

(Registrant’s telephone number, including area code)

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

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

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

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

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

As of August 4, 2014, there were 26,871,752 shares of the registrant’s voting common stock, $1.00 par value per share, outstanding.

AMERICAN NATIONAL INSURANCE COMPANY

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS (Unaudited):
	Consolidated Statements of Financial Position as of June 30, 2014 and December 31, 2013	3
	Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013	4
	Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2014 and 2013	5
	Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2014 and 2013	5
	Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013	6
	Notes to the Unaudited Consolidated Financial Statements	7
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	32
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	50
ITEM 4.	CONTROLS AND PROCEDURES	50
PART II – OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	51
ITEM 1A.	RISK FACTORS	51
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	51
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	51
ITEM 4.	MINE SAFETY DISCLOSURES	51
ITEM 5.	OTHER INFORMATION	51
ITEM 6.	EXHIBIT INDEX	52

2

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AMERICAN NATIONAL INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

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

	June 30, 2014			December 31, 2013
ASSETS
Fixed maturity, bonds held-to-maturity, at amortized cost     (Fair Value $8,853,771 and $8,823,068)	$	8,320,345		$	8,491,347
Fixed maturity, bonds available-for-sale, at fair value     (Amortized cost $4,669,307 and $4,456,391)		4,927,864			4,599,673
Equity securities, at fair value     (Cost $743,049 and $741,080)		1,501,863			1,410,608
Mortgage loans on real estate, net of allowance		3,311,380			3,299,242
Policy loans		399,927			397,407
Investment real estate, net of accumulated depreciation of $215,008 and $211,575		492,407			507,142
Short-term investments		341,508			495,386
Other invested assets		196,433			201,442
Total investments		19,491,727			19,402,247
Cash and cash equivalents		134,716			117,946
Investments in unconsolidated affiliates		340,784			341,012
Accrued investment income		195,395			194,830
Reinsurance recoverables		413,720			414,743
Prepaid reinsurance premiums		54,591			57,869
Premiums due and other receivables		291,844			279,929
Deferred policy acquisition costs		1,246,842			1,277,733
Property and equipment, net		110,650			107,070
Current tax receivable		17,890			18,507
Other assets		153,575			142,043
Separate account assets		1,006,320			970,954
Total assets	$	23,458,054		$	23,324,883
LIABILITIES
Future policy benefits
Life	$	2,714,771		$	2,677,213
Annuity		982,398			903,437
Accident and health		72,530			71,941
Policyholders’ account balances		10,893,608			11,181,650
Policy and contract claims		1,305,640			1,297,646
Unearned premium reserve		777,215			739,878
Other policyholder funds		338,095			326,885
Liability for retirement benefits		145,689			160,853
Notes payable		112,450			113,849
Deferred tax liabilities, net		292,183			220,428
Other liabilities		438,917			456,818
Separate account liabilities		1,006,320			970,954
Total liabilities		19,079,816			19,121,552
STOCKHOLDERS’ EQUITY
Common stock, $1.00 par value, - Authorized 50,000,000     Issued 30,832,449 and 30,832,449,     Outstanding 26,871,752 and 26,895,188 shares		30,832			30,832
Additional paid-in capital		8,352			4,650
Accumulated other comprehensive income		521,804			413,712
Retained earnings		3,907,539			3,838,821
Treasury stock, at cost		(101,795	)		(97,441	)
Total American National stockholders’ equity		4,366,732			4,190,574
Noncontrolling interest		11,506			12,757
Total stockholders’ equity		4,378,238			4,203,331
Total liabilities and stockholders’ equity	$	23,458,054		$	23,324,883

See accompanying notes to the consolidated financial statements.

3

AMERICAN NATIONAL INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

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

	Three months ended June 30,						Six months ended June 30,
	2014			2013			2014			2013
PREMIUMS AND OTHER REVENUE
Premiums
Life	$	72,678		$	71,546		$	144,673		$	140,201
Annuity		46,653			33,625			113,589			66,321
Accident and health		55,379			53,532			110,715			106,261
Property and casualty		270,916			264,147			541,524			529,836
Other policy revenues		55,859			49,937			111,786			99,935
Net investment income		242,292			246,786			461,115			498,152
Realized investment gains (losses)		1,751			45,140			28,197			63,678
Other-than-temporary impairments		(462	)		(1,604	)		(1,437	)		(3,191	)
Other income		9,720			10,551			17,060			17,512
Total premiums and other revenues		754,786			773,660			1,527,222			1,518,705
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits
Life		82,485			81,573			173,765			163,075
Annuity		59,027			42,600			136,479			83,295
Claims incurred
Accident and health		32,737			33,006			76,666			71,974
Property and casualty		204,725			208,639			383,237			398,233
Interest credited to policyholders’ account balances		91,794			99,770			175,206			210,876
Commissions for acquiring and servicing policies		103,949			93,733			202,384			178,856
Other operating expenses		120,517			129,160			239,041			253,735
Change in deferred policy acquisition costs		(6,370	)		969			54			12,303
Total benefits, losses and expenses		688,864			689,450			1,386,832			1,372,347
Income (loss) before federal income tax and equity in earnings/losses of unconsolidated affiliates		65,922			84,210			140,390			146,358
Less: Provision (benefit) for federal income taxes
Current		22,345			22,415			32,051			27,379
Deferred		(787	)		2,388			10,994			8,741
Total provision (benefit) for federal income taxes		21,558			24,803			43,045			36,120
Equity in earnings (losses) of unconsolidated affiliates, net of tax		12,659			1,076			11,800			9,653
Net income (loss)		57,023			60,483			109,145			119,891
Less:Net income (loss) attributable to noncontrolling interest, net of tax		(238	)		2,314			(994	)		1,751
Net income (loss) attributable to American National	$	57,261		$	58,169		$	110,139		$	118,140
Amounts available to American National common stockholders
Earnings per share
Basic	$	2.14		$	2.17		$	4.11		$	4.41
Diluted		2.12			2.16			4.09			4.39
Cash dividends to common stockholders		0.77			0.77			1.54			1.54
Weighted average common shares outstanding		26,802,896			26,779,969			26,799,648			26,777,029
Weighted average common shares outstanding and dilutive potential common shares		26,926,351			26,901,347			26,924,629			26,894,798

See accompanying notes to the consolidated financial statements.

4

AMERICAN NATIONAL INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited and in thousands)

	Three months ended June 30,						Six months ended June 30,
	2014			2013			2014			2013
Net income (loss)	$	57,023		$	60,483		$	109,145		$	119,891
Other comprehensive income (loss), net of tax
Change in net unrealized gain (loss) on securities		72,925			(57,897	)		106,759			4,822
Foreign currency transaction and translation adjustments		865			265			(101	)		414
Defined pension benefit plan adjustment		717			2,875			1,434			5,751
Other comprehensive income (loss), net of tax		74,507			(54,757	)		108,092			10,987
Total comprehensive income (loss)		131,530			5,726			217,237			130,878
Less: Comprehensive income (loss) attributable to noncontrolling interest		(238	)		2,314			(994	)		1,751
Total comprehensive income (loss) attributable to American National	$	131,768		$	3,412		$	218,231		$	129,127

AMERICAN NATIONAL INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

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

	Six months ended June 30,
	2014			2013
Common Stock
Balance at beginning and end of the period	$	30,832		$	30,832
Additional Paid-In Capital
Balance as of January 1,		4,650			—
Reissuance of treasury shares		1,621			2,926
Income tax effect from restricted stock arrangement		—			79
Amortization of restricted stock		2,081			255
Balance at end of period		8,352			3,260
Accumulated Other Comprehensive Income (Loss)
Balance as of January 1,		413,712			242,010
Other comprehensive income (loss)		108,092			10,987
Balance at end of the period		521,804			252,997
Retained Earnings
Balance as of January 1,		3,838,821			3,653,280
Net income (loss) attributable to American National		110,139			118,140
Cash dividends to common stockholders		(41,421	)		(41,418	)
Balance at end of the period		3,907,539			3,730,002
Treasury Stock
Balance as of January 1,		(97,441	)		(98,286	)
Reissuance of treasury shares		(4,354	)		823
Balance at end of the period		(101,795	)		(97,463	)
Noncontrolling Interest
Balance as of January 1,		12,757			11,491
Contributions		255			1
Distributions		(5	)		(21	)
Gain (loss) attributable to noncontrolling interest		(994	)		1,751
Cumulative tax adjustment		(507	)		—
Balance at end of the period		11,506			13,222
Total Stockholders’ Equity	$	4,378,238		$	3,932,850

See accompanying notes to the consolidated financial statements.

5

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and in thousands)

	Six months ended June 30,
	2014			2013
OPERATING ACTIVITIES
Net income (loss)	$	109,145		$	119,891
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Realized investment (gains) losses		(28,197	)		(63,678	)
Other-than-temporary impairments		1,437			3,191
Accretion (amortization) of discounts, premiums and loan origination fees		5,636			1,479
Net capitalized interest on policy loans and mortgage loans		(16,268	)		(13,172	)
Depreciation		12,874			14,973
Interest credited to policyholders’ account balances		175,206			210,876
Charges to policyholders’ account balances		(111,786	)		(99,935	)
Deferred federal income tax (benefit) expense		10,994			8,741
Equity in (earnings) losses of unconsolidated affiliates		(11,800	)		(9,653	)
Distributions from equity method investments		23,132			15,873
Changes in
Policyholder liabilities		163,271			29,894
Deferred policy acquisition costs		54			12,303
Reinsurance recoverables		1,023			25,775
Premiums due and other receivables		(12,235	)		(25,155	)
Prepaid reinsurance premiums		3,278			4,051
Accrued investment income		(565	)		7,723
Current tax receivable/payable		617			7,879
Liability for retirement benefits		(15,164	)		5,428
Other, net		(54,785	)		(12,848	)
Net cash provided by (used in) operating activities		255,867			243,636
INVESTING ACTIVITIES
Proceeds from sale/maturity/prepayment of
Held-to-maturity securities		344,981			762,394
Available-for-sale securities		514,707			484,501
Investment real estate		25,278			78,067
Mortgage loans		299,528			252,379
Policy loans		28,171			29,714
Other invested assets		31,849			7,527
Disposals of property and equipment		1,012			783
Distributions from unconsolidated affiliates		1,150			21,149
Payment for the purchase/origination of
Held-to-maturity securities		(218,764	)		(706,980	)
Available-for-sale securities		(655,266	)		(552,322	)
Investment real estate		(10,593	)		(19,822	)
Mortgage loans		(314,774	)		(344,240	)
Policy loans		(12,542	)		(12,012	)
Other invested assets		(8,623	)		(9,370	)
Additions to property and equipment		(8,128	)		(10,337	)
Contributions to unconsolidated affiliates		(14,907	)		(67,235	)
Change in short-term investments		153,878			141,301
Other, net		(2,022	)		744
Net cash provided by (used in) investing activities		154,935			56,241
FINANCING ACTIVITIES
Policyholders’ account deposits		528,732			444,357
Policyholders’ account withdrawals		(880,194	)		(843,286	)
Change in notes payable		(1,399	)		(48,648	)
Dividends to stockholders		(41,421	)		(41,418	)
Proceeds from (payments to) noncontrolling interest		250			(20	)
Net cash provided by (used in) financing activities		(394,032	)		(489,015	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		16,770			(189,138	)
Beginning of the period		117,946			303,008
End of period	$	134,716		$	113,870

See accompanying notes to the consolidated financial statements.

6

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF OPERATIONS

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

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

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

The interim consolidated financial statements and notes should be read in conjunction with the annual consolidated financial statements and notes thereto included in American National’s Annual Report on Form 10-K as of and for the year ended December 31, 2013. The consolidated results of operations for the interim periods should not be considered indicative of results to be expected for the full year.

The preparation of the consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the reported consolidated financial statement balances. Actual results could differ from those estimates.

3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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

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

7

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

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

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

8

4. INVESTMENTS IN SECURITIES

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

	June 30, 2014
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
Fixed maturity securities, bonds held-to-maturity
U.S. states and political subdivisions	$	336,690	$	25,148	$	(120	)	$	361,718
Foreign governments		29,114		1,990		—			31,104
Corporate debt securities		7,565,940		514,662		(32,720	)		8,047,882
Residential mortgage-backed securities		369,391		24,515		(1,954	)		391,952
Collateralized debt securities		2,240		241		—			2,481
Other debt securities		16,970		1,664		—			18,634
Total bonds held-to-maturity		8,320,345		568,220		(34,794	)		8,853,771
Fixed maturity securities, bonds available-for-sale
U.S. treasury and government		23,424		813		—			24,237
U.S. states and political subdivisions		705,786		30,663		(4,414	)		732,035
Foreign governments		5,000		1,899		—			6,899
Corporate debt securities		3,870,075		237,928		(11,092	)		4,096,911
Residential mortgage-backed securities		50,818		2,269		(809	)		52,278
Collateralized debt securities		12,214		1,342		(12	)		13,544
Other debt securities		1,990				(30	)		1,960
Total bonds available-for-sale		4,669,307		274,914		(16,357	)		4,927,864
Equity securities
Common stock		719,331		741,190		(1,736	)		1,458,785
Preferred stock		23,718		19,364		(4	)		43,078
Total equity securities		743,049		760,554		(1,740	)		1,501,863
Total investments in securities	$	13,732,701	$	1,603,688	$	(52,891	)	$	15,283,498
	December 31, 2013
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
Fixed maturity securities, bonds held-to-maturity
U.S. treasury and government	$	1,738	$	6	$	—		$	1,744
U.S. states and political subdivisions		346,240		16,945		(529	)		362,656
Foreign governments		29,099		2,505		—			31,604
Corporate debt securities		7,700,559		410,232		(116,900	)		7,993,891
Residential mortgage-backed securities		400,619		20,711		(2,647	)		418,683
Collateralized debt securities		2,366		225		—			2,591
Other debt securities		10,726		1,173		—			11,899
Total bonds held-to-maturity		8,491,347		451,797		(120,076	)		8,823,068
Fixed maturity securities, bonds available-for-sale
U.S. treasury and government		21,751		725		—			22,476
U.S. states and political subdivisions		630,199		22,118		(13,756	)		638,561
Foreign governments		5,000		1,649		—			6,649
Corporate debt securities		3,689,349		171,717		(54,033	)		3,807,033
Residential mortgage-backed securities		61,135		2,940		(1,068	)		63,007
Commercial mortgage-backed securities		18,223		11,037		—			29,260
Collateralized debt securities		13,884		1,320		(18	)		15,186
Other debt securities		16,850		679		(28	)		17,501
Total bonds available-for-sale		4,456,391		212,185		(68,903	)		4,599,673
Equity securities
Common stock		717,390		653,967		(2,362	)		1,368,995
Preferred stock		23,690		18,301		(378	)		41,613
Total equity securities		741,080		672,268		(2,740	)		1,410,608
Total investments in securities	$	13,688,818	$	1,336,250	$	(191,719	)	$	14,833,349

9

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

	June 30, 2014
	Bonds Held-to-Maturity				Bonds Available-for-Sale
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	737,686	$	758,211	$	463,325	$	471,836
Due after one year through five years		2,170,952		2,407,061		889,951		979,564
Due after five years through ten years		4,942,711		5,193,871		2,845,895		2,986,961
Due after ten years		463,146		489,544		465,136		484,503
Without single maturity date		5,850		5,084		5,000		5,000
Total	$	8,320,345	$	8,853,771	$	4,669,307	$	4,927,864

Actual maturities differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Residential and commercial mortgage-backed securities, which are not due at a single maturity, have been allocated to their respective categories based on the year of final contractual maturity.

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

	Three months ended June 30,						Six months ended June 30,
	2014			2013			2014			2013
Proceeds from sales of available-for-sale securities	$	54,802		$	79,191		$	136,466		$	156,048
Gross realized gains		4,823			12,612			24,765			23,350
Gross realized losses		(2	)		(4	)		(2,123	)		(526	)

All gains and losses for securities sold throughout the quarter were determined using specific identification of the securities sold. During the six months ended June 30, 2014 and 2013, bonds with a carrying value of $44,781,000 and $13,492,000, respectively, were transferred from held-to-maturity to available-for-sale after a significant deterioration in the issuers’ creditworthiness became evident. An unrealized gain of $1,301,000 and loss of $263,000 were established at the time of the transfers in 2014 and 2013, respectively following the transfers at fair value.

Change in net unrealized gains (losses) on securities

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

	Six months ended June 30,
	2014			2013
Bonds available-for-sale	$	115,275		$	(149,796	)
Equity securities		89,286			117,153
Change in net unrealized gains (losses) on securities during the year		204,561			(32,643	)
Adjustments for
Deferred policy acquisition costs		(30,837	)		40,596
Participating policyholders’ interest		(10,378	)		248
Deferred federal income tax benefit (expense)		(56,587	)		(3,379	)
Change in net unrealized gains (losses) on securities, net of tax	$	106,759		$	4,822

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The gross unrealized losses and fair value of the investment securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are shown below (in thousands):

	June 30, 2014
	Less than 12 months					12 Months or more					Total
	Unrealized (Losses)			Fair Value		Unrealized (Losses)			Fair Value		Unrealized (Losses)			Fair Value
Fixed maturity securities, bonds held-to-maturity
U.S. states and political subdivisions	$	(11	)	$	1,177	$	(109	)	$	2,590	$	(120	)	$	3,767
Corporate debt securities		(4,686	)		140,730		(28,034	)		992,305		(32,720	)		1,133,035
Residential mortgage-backed securities		(229	)		12,585		(1,725	)		32,288		(1,954	)		44,873
Total bonds held-to-maturity		(4,926	)		154,492		(29,868	)		1,027,183		(34,794	)		1,181,675
Fixed maturity securities, bonds available-for-sale
U.S. states and political subdivisions		(398	)		19,646		(4,016	)		111,151		(4,414	)		130,797
Corporate debt securities		(723	)		72,895		(10,369	)		464,311		(11,092	)		537,206
Residential mortgage-backed securities		(206	)		12,872		(603	)		13,885		(809	)		26,757
Collateralized debt securities		—			—		(12	)		507		(12	)		507
Other debt securities		(30	)		1,959		—			—		(30	)		1,959
Total bonds available-for-sale		(1,357	)		107,372		(15,000	)		589,854		(16,357	)		697,226
Equity securities
Common stock		(1,736	)		21,500		—			—		(1,736	)		21,500
Preferred stock		(4	)		997		—			—		(4	)		997
Total equity securities		(1,740	)		22,497		—			—		(1,740	)		22,497
Total	$	(8,023	)	$	284,361	$	(44,868	)	$	1,617,037	$	(52,891	)	$	1,901,398
	December 31, 2013
	Less than 12 months					12 Months or more					Total
	Unrealized (Losses)			Fair Value		Unrealized (Losses)			Fair Value		Unrealized (Losses)			Fair Value
Fixed maturity securities, bonds held-to-maturity
U.S. states and political subdivisions	$	(529	)	$	22,430	$	—		$	—	$	(529	)	$	22,430
Corporate debt securities		(104,308	)		1,916,758		(12,592	)		109,603		(116,900	)		2,026,361
Residential mortgage-backed securities		(1,718	)		31,715		(929	)		13,514		(2,647	)		45,229
Total bonds held-to-maturity		(106,555	)		1,970,903		(13,521	)		123,117		(120,076	)		2,094,020
Fixed maturity securities, bonds available-for-sale
U.S. Treasury & other U.S. Gov corporations and agencies		—			725		—			—		—			725
U.S. states and political subdivisions		(13,271	)		168,093		(485	)		2,905		(13,756	)		170,998
Corporate debt securities		(49,198	)		1,083,677		(4,835	)		92,004		(54,033	)		1,175,681
Residential mortgage-backed securities		(978	)		16,835		(90	)		1,872		(1,068	)		18,707
Collateralized debt securities		(3	)		205		(15	)		587		(18	)		792
Other debt securities		(28	)		10,027		—			—		(28	)		10,027
Total bonds available-for-sale		(63,478	)		1,279,562		(5,425	)		97,368		(68,903	)		1,376,930
Equity securities
Common stock		(2,362	)		29,978		—			—		(2,362	)		29,978
Preferred stock		(378	)		6,123		—			—		(378	)		6,123
Total equity securities		(2,740	)		36,101		—			—		(2,740	)		36,101
Total	$	(172,773	)	$	3,286,566	$	(18,946	)	$	220,485	$	(191,719	)	$	3,507,051

As of June 30, 2014, the securities with unrealized losses were not deemed to be other-than-temporarily impaired, including those with the duration of the unrealized losses exceeding one year. American National has the ability and intent to hold those securities until a market price recovery or maturity. Further, it is not more-likely-than-not that American National will be required to sell them prior to recovery, and recovery is expected in a reasonable period of time. It is possible an issuer’s financial circumstances may be different in the future, which may lead to a different impairment conclusion in future periods.

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Credit Risk Management

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

	June 30, 2014			December 31, 2013
AAA		4.8	%		4.9	%
AA		12.3			11.3
A		40.1			40.7
BBB		39.2			39.2
BB and below		3.6			3.9
Total		100.0	%		100.0	%

Equity securities by market sector distribution are shown below:

	June 30, 2014			December 31, 2013
Consumer goods		18.9	%		19.8	%
Energy and utilities		16.0			15.0
Financials		18.8			19.3
Healthcare		13.1			12.7
Industrials		8.5			9.0
Information technology		15.8			15.7
Other		8.9			8.5
Total		100.0	%		100.0	%

5. MORTGAGE LOANS

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

	June 30, 2014			December 31, 2013
Hotel and motel		11.1	%		10.0	%
Industrial		22.3			24.9
Office		35.3			34.0
Retail		18.7			19.6
Other		12.6			11.5
Total		100.0	%		100.0	%
	June 30, 2014			December 31, 2013
East North Central		17.3	%		19.3	%
East South Central		5.6			6.8
Mountain		10.2			10.0
Pacific		12.4			12.3
South Atlantic		21.3			19.6
West South Central		26.2			26.4
Other		7.0			5.6
Total		100.0	%		100.0	%

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

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Credit Quality

The credit quality of the mortgage loan portfolio is assessed by evaluating the credit risk of each borrower. A loan is classified as performing or non-performing based on whether all of the contractual terms of the loan have been met.

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

	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Mortgage Loans
June 30, 2014
Industrial	$	—	$	—	$	—	$	—	$	739,782	$	739,782
Office		—		—		5,945		5,945		1,171,698		1,177,643
Retail		—		—		—		—		625,473		625,473
Other		—		—		—		—		784,537		784,537
Total	$	—	$	—	$	5,945	$	5,945	$	3,321,490		3,327,435
Allowance for loan losses												16,055
Mortgage loans on real estate, net of allowance											$	3,311,380
December 31, 2013
Industrial	$	—	$	—	$	2,739	$	2,739	$	821,741	$	824,480
Office		—		—		—		—		1,124,818		1,124,818
Retail		—		—		—		—		651,236		651,236
Other		—		—		—		—		710,889		710,889
Total	$	—	$	—	$	2,739	$	2,739	$	3,308,684		3,311,423
Allowance for loan losses												12,181
Mortgage loans on real estate, net of allowance											$	3,299,242

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

	June 30,		December 31,
	2014		2013
Industrial	$	—	$	2,739
Office		5,945		—

Total mortgage loans are net of unamortized discounts of $757,000 and $852,000 and unamortized origination fees of $17,428,000 and $15,709,000 at June 30, 2014 and December 31, 2013, respectively. No unearned income is included in these amounts.

Allowance for Credit Losses

Loans not evaluated individually for collectability are segregated by property-type and location, and allowance factors are applied. These factors are developed annually and reviewed quarterly based on our historical loss experience adjusted for the expected trend in the rate of foreclosure losses. Allowance factors are higher for loans of certain property types and in certain regions based on loss experience or a blended historical loss factor.

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

	Six months ended June 30,
	Collectively		Individually
	Evaluated		Evaluated
	for Impairment		for Impairment
Beginning balance, 2014	$	11,688	$	493
Change in allowance		470		3,404
Ending balance, 2014	$	12,158	$	3,897

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At June 30, 2014 and December 31, 2013, the recorded investment for loans collectively evaluated for impairment was $3,287,071,000 and $3,294,235,000 respectively, and the recorded investment for loans individually evaluated for impairment was $40,364,000 and $17,188,000, respectively.

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

	June 30, 2014				June 30, 2013
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Three months ended
With an allowance recorded
Office	$	11,763	$	209	$	22,209	$	799
Retail		—		—		—		—
Total	$	11,763	$	209	$	22,209	$	799
Without an allowance recorded
Office	$	6,256	$	85	$	27,904	$	30
Industrial		7,877		144		—		—
Retail		—		—		17,166		282
Other		—		—		55,043		907
Total	$	14,133	$	229	$	100,113	$	1,219
Six months ended
With an allowance recorded
Office	$	11,763	$	207	$	23,450	$	799
Retail		—		20		—		—
Total	$	11,763	$	227	$	23,450	$	799
Without an allowance recorded
Office	$	18,649	$	288	$	19,417	$	643
Industrial		10,598		173		—		—
Retail		1,280		6		17,166		565
Other		—		—		55,125		1,831
Total	$	30,527	$	467	$	91,708	$	3,039
	June 30, 2014				December 31, 2013
	Recorded Investment		Unpaid Principal Balance		Recorded Investment		Unpaid Principal Balance
With an allowance recorded
Office	$	10,000	$	13,404	$	—	$	—
Retail		—		493		493		493
Total	$	10,000	$	13,897	$	493	$	493
Without an allowance recorded
Office	$	18,617	$	18,617	$	12,377	$	12,377
Industrial		10,766		10,766		2,739		2,739
Retail		982		982		1,579		1,579
Total	$	30,365	$	30,365	$	16,695	$	16,695

Troubled Debt Restructurings

American National has granted concessions to mortgage loan borrowers related to their ability to pay the loans which are classified as troubled debt restructurings. Concessions are generally one of, or a combination of, a delay in payment of principal or interest, a reduction of the contractual interest rate or an extension of the maturity date. American National considers the amount, timing and extent of concessions in determining any impairment or changes in the specific allowance for loan losses recorded in connection with a troubled debt restructuring. The carrying value after specific allowance, before and after modification in a troubled debt restructuring, may not decrease significantly, or may increase if the expected recovery is higher than the pre-modification recovery assessment.

14

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

	Six months ended June 30,
	2014						2013
	Number of contracts		Recorded investment pre- modification		Recorded investment post		Number of contracts		Recorded investment pre- modification		Recorded investment post
Office		2	$	19,836	$	19,836		—	$	—	$	—

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

6. INVESTMENT REAL ESTATE

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

	June 30, 2014			December 31, 2013
Industrial		12.1	%		12.3	%
Office		22.9			23.1
Retail		42.5			43.4
Other		22.5			21.2
Total		100.0	%		100.0	%
	June 30, 2014			December 31, 2013
East North Central		4.4	%		7.8	%
East South Central		4.6			5.4
Mountain		6.1			6.0
Pacific		6.5			5.5
South Atlantic		11.9			13.4
West South Central		60.0			59.0
Other		6.5			2.9
Total		100.0	%		100.0	%

American National regularly invests in real estate partnerships and joint ventures. American National frequently participates in the design of these entities with the sponsor, but in most cases, its involvement is limited to financing. Through analysis performed by American National, some of these partnerships and joint ventures have been determined to be variable interest entities (“VIEs”). In certain instances, in addition to an economic interest in the entity, American National holds the power to direct the most significant activities of the entity and is deemed the primary beneficiary or consolidator of the entity. The assets of the consolidated VIEs are restricted and must first be used to settle their liabilities. Creditors or beneficial interest holders of these VIEs have no recourse to the general credit of American National, as American National’s obligation is limited to the amount of its committed investment. American National has not provided financial or other support to the VIEs in the form of liquidity arrangements, guarantees, or other commitments to third parties that may affect the fair value or risk of its variable interest in the VIEs in 2014 or 2013.

15

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

	June 30, 2014		December 31, 2013
Investment real estate	$	132,875	$	123,624
Cash and cash equivalents		3,343		2,154
Accrued investment income		295		2,197
Other receivables		8,326		8,488
Other assets		5,029		6,016
Total assets of consolidated VIEs	$	149,868	$	142,479
Notes payable	$	112,450	$	113,849
Other liabilities		4,596		6,680
Total liabilities of consolidated VIEs	$	117,046	$	120,529

The notes payable in the consolidated statements of financial position pertain to the borrowings of the consolidated VIEs. The liability of American National Insurance Company relating to notes payable of the consolidated VIEs is limited to the amount of its direct or indirect investment in the respective ventures, which totaled $16,539,000 and $12,782,000 at June 30, 2014 and December 31, 2013, respectively. The current portion of notes payable was $3,024,000 and $3,199,000 at June 30, 2014 and December 31, 2013, respectively. The average interest rate on the current portion of the notes payable was 4.25% during 2014. The total long-term portion of notes payable consists of three notes with the following interest rates: 4.0 %, and adjusted LIBOR plus 1.0% LIBOR margin. Of the long-term notes payable, $9,375,000 will mature in 2016, with the remainder maturing beyond 5 years.

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

	June 30, 2014				December 31, 2013
			Maximum				Maximum
	Carrying		Exposure		Carrying		Exposure
	Amount		to Loss		Amount		to Loss
Investment in unconsolidated affiliates	$	186,460	$	186,460	$	195,794	$	195,794
Mortgage loans		146,817		146,817		101,648		101,648
Accrued investment income		621		621		454		454

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7. DERIVATIVE INSTRUMENTS

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

Derivatives Not Designated as Hedging Instruments	Location in the Consolidated Statements of Financial Position	June 30, 2014						December 31, 2013
		Number of Instruments		Notional Amounts		Estimated Fair Value		Number of Instruments		Notional Amounts		Estimated Fair Value
Equity-indexed options	Other invested assets		395	$	976,500	$	163,861		394	$	951,400	$	164,753
Equity-indexed embedded derivative	Policyholders’ account balances		37,728		893,400		186,261		33,579		819,200		148,435

	Location in the Consolidated Statements	Gains (Losses) Recognized in Income on Derivatives
Derivatives Not Designated		Three months ended June 30,						Six months ended June 30,
as Hedging Instruments	of Operations	2014			2013			2014			2013
Equity-indexed options	Net investment income	$	18,464		$	10,419		$	22,449		$	34,759
Equity-indexed embedded derivative	Interest credited to policyholders’ account balances		(11,826	)		(8,047	)		(14,722	)		(28,694	)

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

Net investment income is shown below (in thousands):

	Three months ended June 30,				Six months ended June 30,
	2014		2013		2014			2013
Bonds	$	149,879	$	157,975	$	301,395		$	321,408
Equity securities		9,258		8,421		18,342			15,236
Mortgage loans		55,904		56,083		107,358			107,868
Real estate		2,073		352		(2,898	)		(1,069	)
Options		18,464		10,419		22,449			34,759
Other invested assets		6,714		13,536		14,469			19,950
Total	$	242,292	$	246,786	$	461,115		$	498,152

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

	Three months ended June 30,						Six months ended June 30,
	2014			2013			2014			2013
Bonds	$	3,293		$	3,696		$	19,912		$	6,919
Equity securities		3,533			11,836			10,064			20,519
Mortgage loans		(3,145	)		101			(3,873	)		389
Real estate		(1,934	)		29,563			3,029			35,946
Other invested assets		4			(56	)		(935	)		(95	)
Total	$	1,751		$	45,140		$	28,197		$	63,678

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

	Three months ended June 30,						Six months ended June 30,
	2014			2013			2014			2013
Bonds	$	—		$	—		$	(41	)	$	—
Equity securities		(462	)		(1,604	)		(1,396	)		(3,191	)
Total	$	(462	)	$	(1,604	)	$	(1,437	)	$	(3,191	)

9. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

	June 30, 2014				December 31, 2013
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
Financial assets
Fixed maturity securities, bonds held-to-maturity	$	8,320,345	$	8,853,771	$	8,491,347	$	8,823,068
Fixed maturity securities, bonds available-for-sale		4,927,864		4,927,864		4,599,673		4,599,673
Equity securities		1,501,863		1,501,863		1,410,608		1,410,608
Equity-indexed options		163,861		163,861		164,753		164,753
Mortgage loans on real estate, net of allowance		3,311,380		3,535,188		3,299,242		3,470,663
Policy loans		399,927		399,927		397,407		397,407
Short-term investments		341,508		341,508		495,386		495,386
Separate account assets		1,006,320		1,006,320		970,954		970,954
Total financial assets	$	19,973,068	$	20,730,302	$	19,829,370	$	20,332,512
Financial liabilities
Investment contracts	$	9,061,887	$	9,061,887	$	9,423,122	$	9,423,122
Embedded derivative liability forequity-indexed contracts		186,261		186,261		148,435		148,435
Notes payable		112,450		112,450		113,849		113,849
Separate account liabilities		1,006,320		1,006,320		970,954		970,954
Total financial liabilities	$	10,366,918	$	10,366,918	$	10,656,360	$	10,656,360

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

Level 1	Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2	Quoted prices in markets that are not active or inputs that are observable directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities other than quoted prices in Level 1; quoted prices in markets that are not active; or other inputs that are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3	Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. Unobservable inputs reflect American National’s own assumptions about the assumptions that market participants would use in pricing the asset or liability. Level 3 assets and liabilities include financial instruments whose values are determined using pricing models and third-party evaluation, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

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

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

The pricing service evaluates each asset class based on relevant market information, credit information, perceived market movements and sector news. The market inputs utilized in the pricing evaluation, listed in the approximate order of priority, include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and economic events. The extent of the use of each market input depends on the asset class and the market conditions. Depending on the security, the priority of the use of inputs may change or some market inputs may not be relevant. For some securities, additional inputs may be necessary.

American National has reviewed the inputs and methodology used and the techniques applied by the pricing service to produce quotes that represent the fair value of a specific security. The review confirms that the pricing service is utilizing information from observable transactions or a technique that represents a market participant’s assumptions. American National does not adjust quotes received from the pricing service. The pricing service utilized by American National has indicated that they will produce an estimate of fair value only if there is objectively verifiable information available.

American National holds a small amount of private placement debt and fixed maturity securities that have characteristics that make them unsuitable for matrix pricing. For these securities, a quote from an independent broker (typically a market maker) is obtained. Due to the disclaimers on the quotes that indicate that the price is indicative only, American National includes these fair value estimates in Level 3.

For securities priced using a quote from an independent broker, such as the equity options and certain fixed maturity securities, American National uses a market-based fair value analysis to validate the reasonableness of prices received from an independent broker. Price variances above a certain threshold are analyzed further to determine if any pricing issue exists. This analysis is performed quarterly.

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

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

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

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The significant unobservable input used to calculate the fair value of the embedded derivatives is equity option implied volatility. An increase in implied volatility will result in an increase in the value of the equity-indexed embedded derivatives, all other things being equal. At June 30, 2014 and December 31, 2013, the one year implied volatility used to estimate embedded derivative value was 14.23% and 15.01%, respectively.

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

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

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

Notes payable—Notes payable are carried at outstanding principal balance. The carrying value of the notes payable approximates fair value because the underlying interest rates approximate market rates at the balance sheet date.

20

Quantitative Disclosures

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

	Fair Value Measurement as of June 30, 2014
	Total
	Fair Value		Level 1		Level 2		Level 3
Financial assets
Fixed maturity securities, bonds held-to-maturity
U.S. states and political subdivisions	$	361,718	$	—	$	361,718	$	—
Foreign governments		31,104		—		31,104		—
Corporate debt securities		8,047,882		—		8,001,421		46,461
Residential mortgage-backed securities		391,952		—		390,965		987
Collateralized debt securities		2,481		—		—		2,481
Other debt securities		18,634		—		13,309		5,325
Total bonds held-to-maturity		8,853,771		—		8,798,517		55,254
Fixed maturity securities, bonds available-for-sale
U.S. treasury and government		24,237		—		24,237		—
U.S. states and political subdivisions		732,035		—		729,520		2,515
Foreign governments		6,899		—		6,899		—
Corporate debt securities		4,096,911		—		4,091,691		5,220
Residential mortgage-backed securities		52,278		—		50,352		1,926
Collateralized debt securities		13,544		—		11,274		2,270
Other debt securities		1,960		—		1,960		—
Total bonds available-for-sale		4,927,864		—		4,915,933		11,931
Equity securities
Common stock		1,458,785		1,458,785		—		—
Preferred stock		43,078		43,078		—		—
Total equity securities		1,501,863		1,501,863		—		—
Options		163,861		—		—		163,861
Mortgage loans on real estate		3,535,188		—		3,535,188		—
Policy loans		399,927		—		—		399,927
Short-term investments		341,508		—		341,508		—
Separate account assets		1,006,320		—		1,006,320		—
Total financial assets	$	20,730,302	$	1,501,863	$	18,597,466	$	630,973
Financial liabilities
Investment contracts	$	9,061,887	$	—	$	—	$	9,061,887
Embedded derivative liability for equity-indexed contracts		186,261		—		—		186,261
Notes payable		112,450		—		—		112,450
Separate account liabilities		1,006,320		—		1,006,320		—
Total financial liabilities	$	10,366,918	$	—	$	1,006,320	$	9,360,598

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	Fair Value Measurement as of December 31, 2013
	Total
	Fair Value		Level 1		Level 2		Level 3
Financial assets
Fixed maturity securities, bonds held-to-maturity
U.S. treasury and government	$	1,744	$	—	$	1,744	$	—
U.S. states and political subdivisions		362,656		—		362,656		—
Foreign governments		31,604		—		31,604		—
Corporate debt securities		7,993,891		—		7,950,418		43,473
Residential mortgage-backed securities		418,683		—		417,688		995
Collateralized debt securities		2,591		—		—		2,591
Other debt securities		11,899		—		11,899		—
Total bonds held-to-maturity		8,823,068		—		8,776,009		47,059
Fixed maturity securities, bonds available-for-sale
U.S. treasury and government		22,476		—		22,476		—
U.S. states and political subdivisions		638,561		—		636,041		2,520
Foreign governments		6,649		—		6,649		—
Corporate debt securities		3,807,033		—		3,794,809		12,224
Residential mortgage-backed securities		63,007		—		60,841		2,166
Commercial mortgage-backed securities		29,260		—		—		29,260
Collateralized debt securities		15,186		—		13,052		2,134
Other debt securities		17,501		—		17,501		—
Total bonds available-for-sale		4,599,673		—		4,551,369		48,304
Equity securities
Common stock		1,368,995		1,368,995		—		—
Preferred stock		41,613		41,613		—		—
Total equity securities		1,410,608		1,410,608		—		—
Options		164,753		—		—		164,753
Mortgage loans on real estate		3,470,663		—		3,470,663		—
Policy loans		397,407		—		—		397,407
Short-term investments		495,386		—		495,386		—
Separate account assets		970,954		—		970,954		—
Total financial assets	$	20,332,512	$	1,410,608	$	18,264,381	$	657,523
Financial liabilities
Investment contracts	$	9,423,122	$	—	$	—	$	9,423,122
Embedded derivative liability for equity-indexed contracts		148,435		—		—		148,435
Notes payable		113,849		—		—		113,849
Separate account liabilities		970,954		—		970,954		—
Total financial liabilities	$	10,656,360	$	—	$	970,954	$	9,685,406

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

	Level 3
	Three months ended June 30,									Six months ended June 30,
	Assets						Liability			Assets						Liability
				Equity-									Equity-
	Investment			Indexed			Embedded			Investment			Indexed			Investment
	Securities			Options			Derivative			Securities			Options			Contracts
Beginning balance, 2014	$	11,973		$	146,147		$	155,191		$	48,304		$	164,753		$	148,435
Total realized and unrealized investment gains/losses included in other comprehensive income		321			—			—			(11,873	)		—			—
Net fair value change included in realized gains/losses		—			—			—			13,056			—			—
Net gain (loss) for derivatives included in net investment income		—			16,678			—			—			18,790			—
Net change included in interest credited		—			—			11,826			—			—			14,722
Purchases, sales and settlements or maturities
Purchases		—			4,017			—			—			8,690			—
Sales		(362	)		—			—			(37,550	)		—			—
Settlements or maturities		—			(2,981	)		—			(5	)		(28,372	)		—
Premiums less benefits		—			—			19,244			—			—			23,104
																	��
Ending balance June 30, 2014	$	11,932		$	163,861		$	186,261		$	11,932		$	163,861		$	186,261
Beginning balance, 2013	$	114,373		$	105,254		$	93,988		$	107,036		$	82,625		$	75,032
Total realized and unrealized investment gains/losses included in other comprehensive income		2,720			—			—			11,129			—			—
Net fair value change included in realized gains/losses		8			—			—			219			—			—
Net gain (loss) for derivatives included in net investment income		—			8,700			—			—			31,166			—
Net change included in interest credited		—			—			8,047			—			—			28,694
Purchases, sales and settlements or maturities
Purchases		63			4,418			—			2,070			7,708			—
Sales		(10,844	)		—			—			(14,134	)		—			—
Settlements or maturities		—			(2,814	)		—			—			(5,941	)		—
Premiums less benefits		—			—			(1,072	)		—			—			(2,763	)
Gross transfers out of Level 3		(50,762	)		—			—			(50,762	)		—			—
Ending balance June 30, 2013	$	55,558		$	115,558		$	100,963		$	55,558		$	115,558		$	100,963

Within the net gain (loss) for derivatives included in net investment income were an unrealized gain/(loss) of $3,641,000 and $28,651,000 relating to assets still held at June 30, 2014 and 2013, respectively.

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10. DEFERRED POLICY ACQUISITION COSTS

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

							Accident			Property &
	Life			Annuity			& Health			Casualty			Total
Beginning balance 2014	$	684,084		$	424,158		$	47,220		$	122,271		$	1,277,733
Additions		50,990			24,194			9,463			109,103			193,750
Amortization		(35,082	)		(37,804	)		(9,292	)		(111,626	)		(193,804	)
Effect of change in unrealized gains on available-for-sale securities		(5,716	)		(25,121	)		—			—			(30,837	)
Net change		10,192			(38,731	)		171			(2,523	)		(30,891	)
Ending balance at June 30, 2014	$	694,276		$	385,427		$	47,391		$	119,748		$	1,246,842

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

11. LIABILITY FOR UNPAID CLAIMS AND CLAIM ADJUSTMENT EXPENSES

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

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

	Six months ended June 30,
	2014			2013
Unpaid claims balance, beginning	$	1,096,301		$	1,168,047
Less reinsurance recoverables		215,161			256,885
Net beginning balance		881,140			911,162
Incurred related to
Current		472,008			492,192
Prior years		(10,860	)		(18,633	)
Total incurred claims		461,148			473,559
Paid claims related to
Current		224,618			262,490
Prior years		199,925			210,013
Total paid claims		424,543			472,503
Net balance		917,745			912,218
Plus reinsurance recoverables		228,340			241,079
Unpaid claims balance, ending	$	1,146,085		$	1,153,297

The net and gross reserve calculations have shown favorable development for the last several years as a result of favorable loss emergence compared to what was implied by the loss development patterns used in the original estimation of losses in prior years. Estimates for ultimate incurred claims attributable to insured events of prior years’ decreased by approximately $10,860,000 during the first six months of 2014 and $18,633,000 during the same period in 2013.

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12. FEDERAL INCOME TAXES

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

	Three months ended June 30,												Six months ended June 30,
	2014						2013						2014						2013
	Amount			Rate			Amount			Rate			Amount			Rate			Amount			Rate
Income tax (benefit) on pre-tax income	$	23,073			35.0	%	$	29,473			35.0	%	$	49,137			35.0	%	$	51,225			35.0	%
Tax-exempt investment income		(1,602	)		(2.4	)		(1,575	)		(1.9	)		(3,155	)		(2.2	)		(3,198	)		(2.2	)
Dividend exclusion		(1,665	)		(2.5	)		(1,621	)		(1.9	)		(3,553	)		(2.5	)		(3,092	)		(2.1	)
Miscellaneous tax credits, net		(1,664	)		(2.5	)		(1,929	)		(2.3	)		(3,215	)		(2.3	)		(3,890	)		(2.6	)
Other items, net		3,416			5.2			455			0.6			3,831			2.7			(4,925	)		(3.4	)
	$	21,558			32.8	%	$	24,803			29.5	%	$	43,045			30.7	%	$	36,120			24.7	%

American National made federal tax payments of $30,913,000 during the six months ended June 30, 2014 and made payments of $24,083,000 during the first six months ended June 30, 2013.

Management believes that a sufficient level of taxable income will be achieved over time to utilize the deferred tax assets in the consolidated federal tax return; therefore, no valuation allowance was recorded as of June 30, 2014 and December 31, 2013. However, if not utilized beforehand, approximately $4,650,000 in ordinary loss tax carryforwards will expire on December 31, 2034.

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

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13. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

	Net Unrealized			Defined Benefit
	Gains/(Losses)			Pension Plan			Foreign Currency
	on Securities			Adjustments			Adjustments			AOCI
Beginning balance 2014	$	457,937		$	(43,884	)	$	(341	)	$	413,712
Amounts reclassified from AOCI (net of tax benefit $9,225 and expense $772)		(17,133	)		1,434			—			(15,699	)
Unrealized holding gains (losses) arising during the period (net of tax expense $80,821)		150,098									150,098
Unrealized adjustment to DAC (net of tax benefit $11,377)		(19,460	)								(19,460	)
Unrealized (gains) losses on investments attributable to participating policyholders’ interest (net of tax benefit $3,632)		(6,746	)								(6,746	)
Foreign currency adjustment (net of tax benefit $54)								(101	)		(101	)
Ending balance at June 30, 2014	$	564,696		$	(42,450	)	$	(442	)	$	521,804
	Net Unrealized			Defined Benefit
	Gains/(Losses)			Pension Plan			Foreign Currency
	on Securities			Adjustments			Adjustments			AOCI
Beginning balance 2013	$	370,842		$	(129,003	)	$	171		$	242,010
Amounts reclassified from AOCI (net of tax benefit $7,902 and expense $3,097)		(14,374	)		5,751			—			(8,623	)
Unrealized holding gains (losses) arising during the period (net of tax benefit $3,628)		(6,739	)								(6,739	)
Unrealized adjustment to DAC (net of tax expense $14,822)		25,774									25,774
Unrealized (gains) losses on investments attributable to participating policyholders’ interest (net of tax expense $87)		161									161
Foreign currency adjustment (net of tax expense $223)								414			414
Ending balance at June 30, 2013	$	375,664		$	(123,252	)	$	585		$	252,997

14. STOCKHOLDERS’ EQUITY AND NONCONTROLLING INTERESTS

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

	June 30,			December 31,
	2014			2013
Common stock
Shares issued		30,832,449			30,832,449
Treasury shares		(3,960,697	)		(3,937,261	)
Outstanding shares		26,871,752			26,895,188
Restricted shares		(150,667	)		(190,667	)
Unrestricted outstanding shares		26,721,085			26,704,521

Stock-based compensation

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

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

	SAR					RS Shares					RS Units
				Weighted-					Weighted-					Weighted-
				Average Grant					Average Grant					Average Grant
	Shares			Date Fair Value		Shares			Date Fair Value		Units			Date Fair Value
Outstanding at December 31, 2013		74,435		$	113.86		190,667		$	107.54		121,369		$	76.23
Granted		—			—		—			—		66,383			113.49
Exercised		(2,667	)		95.62		(40,000	)		109.54		(57,640	)		75.94
Forfeited		—			—		—			—		50			113.49
Expired		(14,729	)		115.92		—			—		—			—
Outstanding at June 30, 2014		57,039		$	114.46		150,667		$	107.01		130,162			95.82

	SAR			RS Shares		RS Units
Weighted-average contractual remaining life (in years)		2.3			4.2		2.2
Exercisable shares
Weighted-average exercise price	$	114.46		$	107.01	$	95.82
Weighted-average exercise price exercisable shares	$	114.58			N/A		N/A
Compensation expense (credits)
Three months ended June 30, 2014	$	(4,000	)	$	1,576,000	$	465,000
Three months ended June 30, 2013		42,000			524,000		1,906,000
Six months ended June 30, 2014		(13,000	)		2,081,000		668,000
Six months ended June 30, 2013		73,000			1,029,000		3,610,000
Fair value of liability award
June 30, 2014	$	177,000			N/A	$	14,529,000
December 31, 2013		376,000			N/A		15,018,000

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

Effective December 31, 2012, the settlement provision within outstanding RSU awards was modified to allow the recipient of the awards to settle the vested RSUs in either cash or American National’s common stock. This change in the settlement provision is expected to apply to all future issuance of RSU awards. Prior to the modification, vested RSUs were converted to American National’s common stock on a one-for-one basis. This modification changes the award classification from equity to liability award. At the date of modification, American National recorded a liability of $7,974,000 with a corresponding reduction in additional paid-in capital. The liability will be remeasured and adjusted for changes in the fair value each reporting period through the vesting date. RSU generally vest after a three-year graded vesting requirement. Certain awards vest over a shorter period as a result of retirement provisions. The modification, which was applied consistently to all participants, resulted in an incremental cost of $5,448,000 for the six months ended June 30, 2014 and added an incremental cost of $3,031,000 during the six months ended June 30, 2013.

RS Awards entitle the participant to full dividend and voting rights. Each award has the value of one share of restricted stock and vests 10 years from the grant date. Unvested shares are restricted as to disposition, and are subject to forfeiture under certain circumstances. Compensation expense is recognized over the vesting period. The restrictions on these awards lapse after 10 years and these awards feature a graded vesting schedule in the case of the retirement of an award holder. Restricted stock for 350,334 shares has been granted at an exercise price of zero, of which 150,667 shares are unvested.

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Earnings per share

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

	Three months ended June 30,				Six months ended June 30,
	2014		2013		2014		2013
Weighted average shares outstanding		26,802,896		26,779,969		26,799,648		26,777,029
Incremental shares from RS awards and RSUs		123,455		121,378		124,981		117,769
Total shares for diluted calculations		26,926,351		26,901,347		26,924,629		26,894,798
Net income (loss) attributable to American National	$	57,261	$	58,169	$	110,139	$	118,140
Basic earnings per share	$	2.14	$	2.17	$	4.11	$	4.41
Diluted earnings per share		2.12		2.16		4.09		4.39

Statutory Capital and Surplus

Risk Based Capital (“RBC”) requirements are measures insurance regulators use to evaluate the capital adequacy of American National Insurance Company and its insurance subsidiaries. RBC is calculated using formulas applied to certain financial balances and activities that consider, among other things, risks related to the type and quality of the invested assets, insurance risks associated with an insurer’s products and liabilities, interest rate risks and general business risks. Insurance companies that do not maintain capital and surplus at a level at least 200% of the authorized control level RBC are required to take certain actions. At June 30, 2014 and December 31, 2013, American National Insurance Company’s statutory capital and surplus was $ 2,780,280,000 and $2,667,858,000, respectively. Additionally, each of the insurance subsidiaries had statutory capital and surplus at June 30, 2014 and December 31, 2013, substantially above each subsidiary’s authorized control level RBC.

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

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

One of American National’s insurance subsidiaries has been granted a permitted practice from the Missouri Department of Insurance to record as the valuation of its investment in a wholly-owned subsidiary that is the attorney-in-fact for a Texas domiciled insurer, the statutory capital and surplus of the Texas domiciled insurer. This permitted practice increases the statutory capital and surplus of both American National Insurance Company and the Missouri domiciled insurance subsidiary by $ 58,560,000 and $ 58,207,000 at June 30, 2014 and 2013, respectively. The statutory capital and surplus of both American National Insurance Company and the Missouri domiciled insurance subsidiary would have remained substantially above the company action level RBC had it not used the permitted practice.

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

	June 30, 2014		December 31, 2013
Statutory capital and surplus
Life insurance entities	$	1,858,161	$	1,771,999
Property and casualty insurance entities		931,100		904,557

	Three months ended June 30,						Six months ended June 30,
	2014			2013			2014		2013
Statutory net income
Life insurance entities	$	41,064		$	57,412		$	96,118	$	99,684
Property and casualty insurance entities		(1,045	)		(4,431	)		22,134		5,945

Dividends

American National Insurance Company’s payment of dividends to stockholders is restricted by state laws. The restrictions require life insurance companies to maintain minimum amounts of capital and surplus, and in the absence of special approval, limit the payment of dividends to the greater of prior year statutory net income from operations on an annual, non-cumulative basis, or 10% of prior year statutory surplus. Under Texas insurance law, American National Insurance Company is permitted to pay total dividends of $ 266,786,000 during 2014 without prior approval of the Texas Department of Insurance. Similar restrictions on amounts that can transfer in the form of dividends, loans, or advances to American National Insurance Company apply to its insurance subsidiaries.

Noncontrolling interests

American National County Mutual Insurance Company (“County Mutual”) is a mutual insurance company that is owned by its policyholders. American National has a management agreement that effectively gives it control of County Mutual. As a result, County Mutual is included in the consolidated financial statements of American National. Policyholder interests in the financial position of County Mutual are reflected as noncontrolling interest of $6,750,000 at June 30, 2014 and December 31, 2013.

American National Insurance Company and its subsidiaries exercise significant control or ownership of various joint ventures, resulting in their consolidation into American National’s consolidated financial statements. The interests of the other partners in the consolidated joint ventures are shown as noncontrolling interests of $4,756,000 and $6,007,000 at June 30, 2014 and December 31, 2013, respectively.

15. SEGMENT INFORMATION

Management organizes the business into five operating segments:

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

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

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

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

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

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

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

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

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

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

	Three months ended June 30,					Six months ended June 30,
	2014		2013			2014		2013
Income (loss) from continuing operations before federal income taxes, and equity in earnings/losses of unconsolidated affiliates
Life	$	13,104	$	8,411		$	11,282	$	14,415
Annuity		28,344		23,668			46,049		51,002
Health		10,821		9,680			10,275		8,994
Property and casualty		190		(4,345	)		29,702		8,564
Corporate and other		13,463		46,796			43,082		63,383
Total	$	65,922	$	84,210		$	140,390	$	146,358

16. COMMITMENTS AND CONTINGENCIES

Commitments

American National had aggregate commitments at June 30, 2014, to purchase, expand or improve real estate, to fund fixed interest rate mortgage loans, and to purchase other invested assets of $412,437,000 of which $200,841,000 is expected to be funded in 2014. The remaining $211,596,000 will be funded in 2015 and beyond.

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

Guarantees

American National has guaranteed bank loans for customers of a third-party marketing operation. The bank loans are used to fund premium payments on life insurance policies issued by American National. The loans are secured by the cash values of the life insurance policies. If the customer were to default on the bank loan, American National would be obligated to pay off the loans. As the cash values of the life insurance policies always equal or exceed the balance of the loans, management does not foresee any loss on these guarantees. The total amount of the guarantees outstanding as of June 30, 2014, was approximately $206,376,000, while the total cash values of the related life insurance policies was approximately $210,615,000.

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Litigation

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

17. RELATED PARTY TRANSACTIONS

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

		Dollar Amount of Transactions				Amount due to/(from) American National
		Six months ended June 30,				June 30,			December 31,
Related Party	Financial Statement Line Impacted	2014		2013		2014			2013
Gal-Tex Hotel Corporation	Mortgage loan on real estate	$	606	$	564	$	7,136		$	7,742
Gal-Tex Hotel Corporation	Net investment income		272		314		43			47
Greer, Herz and Adams, LLP	Other operating expenses		5,709		4,872		(460	)		(284	)

Mortgage Loans to Gal-Tex Hotel Corporation (“Gal-Tex”): The Moody Foundation and the Libbie Shearn Moody Trust own 34.0% and 50.2%, respectively, of Gal-Tex Hotel Corporation. The Moody Foundation and the Libbie Shearn Moody Trust also own approximately 22.9% and 37.1%, respectively, of American National. American National holds a first mortgage loan originated in 1999, with an interest rate of 7.30% and final maturity date of April 1, 2019 issued to Gal-Tex, which is collateralized by a hotel property in San Antonio, Texas. This loan is current as to principal and interest payments.

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

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

Set forth on the following pages is management’s discussion and analysis (“MD&A”) of financial condition and results of operations for the six months ended June 30, 2014 and 2013 of American National Insurance Company and its subsidiaries (referred to in this document as “we”, “our”, “us”, or the “Company”). This information should be read in conjunction with our consolidated financial statements included in Item 1, Financial Statements (unaudited), of this Form 10-Q.

Forward-Looking Statements

This document contains forward-looking statements that reflect our estimates and assumptions related to business, economic, competitive and legislative developments. Forward-looking statements generally are indicated by words such as “expects,” “intends,” “anticipates,” “plans,” “believes,” “estimates,” “will” or words of similar meaning and include, without limitation, statements regarding the outlook of our business and expected financial performance. Forward-looking statements are not guarantees of future performance and involve various risks and uncertainties. Moreover, forward-looking statements speak only as of the date made, and we undertake no obligation to update them. Certain important factors could cause our actual results to differ, possibly materially, from our expectations or estimates. These factors are described in greater detail in Item IA, Risk Factors, in our 2013 Annual Report on Form 10-K filed with the SEC on February 28^th, 2014, and they include among others:

• Economic Risk Factors

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

• Operational Risk Factors

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

• potential ineffectiveness of our risk management policies and procedures;

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

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

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

• Investment and Financial Market Risk Factors

• fluctuations in the markets for fixed maturity securities, equity securities, and commercial real estate, which could adversely affect the valuation of our investment portfolio, our net investment income, our retirement expense, and sales of or fees from certain of our products;

• lack of liquidity for certain of our investments;

• risk of investment losses and defaults;

• Catastrophic Event Risk Factors

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

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

• Marketplace Risk Factors

• the highly competitive nature of the insurance and annuity business;

• potential difficulty in attraction and retention of qualified employees and agents;

• the introduction of alternative healthcare solutions or changes in federal healthcare policy, both of which could impact our Medicare Supplement business;

• Litigation and Regulation Risk Factors

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

• the effects of extensive government regulation;

• changes in tax law;

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

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• Reinsurance and Counterparty Risk Factors

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

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

• Other Risk Factors

• potentially adverse rating agency actions; and

• control of our company by a small number of stockholders.

Overview

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

General Trends

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

Critical Accounting Estimates

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

Our accounting policies inherently require the use of judgments relating to a variety of assumptions and estimates, particularly expectations of current and future mortality, morbidity, persistency, expenses, interest rates, and property and casualty loss frequency, severity, claim reporting and settlement patterns. Due to the inherent uncertainty when using the assumptions and estimates, the effect of certain accounting policies under different conditions or assumptions could vary from those reported in the consolidated financial statements.

For a discussion of our critical accounting estimates, see the MD&A in our 2013 Annual Report on Form 10-K filed with the SEC on February 28, 2014. There have been no material changes in accounting policies since December 31, 2013.

Recently Issued Accounting Pronouncements

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

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Consolidated Results of Operations

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

	Three months ended June 30,								Six months ended June 30,
	2014			2013		Change			2014		2013		Change
Premiums and other revenues
Premiums	$	445,626		$	422,850	$	22,776		$	910,501	$	842,619	$	67,882
Other policy revenues		55,859			49,937		5,922			111,786		99,935		11,851
Net investment income		242,292			246,786		(4,494	)		461,115		498,152		(37,037	)
Realized investments gains (losses), net		1,289			43,536		(42,247	)		26,760		60,487		(33,727	)
Other income		9,720			10,551		(831	)		17,060		17,512		(452	)
Total premiums and other revenues		754,786			773,660		(18,874	)		1,527,222		1,518,705		8,517
Benefits, losses and expenses
Policyholder benefits		141,512			124,173		17,339			310,244		246,370		63,874
Claims incurred		237,462			241,645		(4,183	)		459,903		470,207		(10,304	)
Interest credited to policyholders’ account balances		91,794			99,770		(7,976	)		175,206		210,876		(35,670	)
Commissions for acquiring and servicing policies		103,949			93,733		10,216			202,384		178,856		23,528
Other operating expenses		120,517			129,160		(8,643	)		239,041		253,735		(14,694	)
Change in deferred policy acquisition costs(1)		(6,370	)		969		(7,339	)		54		12,303		(12,249	)
Total benefits and expenses		688,864			689,450		(586	)		1,386,832		1,372,347		14,485
Income (loss) before other items and federal income taxes	$	65,922		$	84,210	$	(18,288	)	$	140,390	$	146,358	$	(5,968	)

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

Consolidated earnings decreased during the quarter and year-to-date ended June 30, 2014 compared to 2013 primarily as a result of a decrease in realized investments gains. Increases in premiums and decreases in claims incurred and other operating expenses resulted in increased earnings from our insurance segments during the same periods.

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Life

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

	Three months ended June 30,									Six months ended June 30,
	2014			2013			Change			2014			2013			Change
Premiums and other revenues
Premiums	$	72,678		$	71,546		$	1,132		$	144,673		$	140,201		$	4,472
Other policy revenues		51,995			46,518			5,477			103,604			92,876			10,728
Net investment income		57,677			59,238			(1,561	)		115,035			116,187			(1,152	)
Other income		352			878			(526	)		689			1,385			(696	)
Total premiums and other revenues		182,702			178,180			4,522			364,001			350,649			13,352
Benefits, losses and expenses
Policyholder benefits		82,485			81,573			912			173,765			163,075			10,690
Interest credited to policyholders’ account balances		15,871			14,310			1,561			31,616			27,097			4,519
Commissions for acquiring and servicing policies		32,269			30,561			1,708			61,732			56,150			5,582
Other operating expenses		49,698			51,691			(1,993	)		101,514			104,227			(2,713	)
Change in deferred policy acquisition costs(1)		(10,725	)		(8,366	)		(2,359	)		(15,908	)		(14,315	)		(1,593	)
Total benefits and expenses		169,598			169,769			(171	)		352,719			336,234			16,485
Income before other items and federal income taxes	$	13,104		$	8,411		$	4,693		$	11,282		$	14,415		$	(3,133	)

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

Earnings increased during the quarter ended June 30, 2014 compared to 2013 primarily due to increases in premiums on traditional products and other policy revenues on interest-sensitive products. Earnings decreased during the six months ended June 30, 2014 compared to 2013 due to an increase in claims.

Premiums and other policy revenues

Premiums increased during the quarter and year-to-date ended June 30, 2014 compared to 2013. The increases were primarily driven by the continued growth of the in-force block of business of term products.

Other policy revenues include mortality charges, earned policy service fees and surrender charges on interest-sensitive life insurance policies. An increase in interest-sensitive life policies contributed to the increases in these charges during the quarter and year-to-date ended June 30, 2014 compared to 2013.

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Life insurance sales

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

	Three months ended June 30,							Six months ended June 30,
	2014		2013		Change			2014		2013		Change
Whole life	$	6,689	$	6,720	$	(31	)	$	13,417	$	13,400	$	17
Term life		7,626		9,279		(1,653	)		15,147		16,680		(1,533	)
Universal life		9,002		9,715		(713	)		17,981		17,839		142
Total recurring	$	23,317	$	25,714	$	(2,397	)	$	46,545	$	47,919	$	(1,374	)
Single and excess(1)	$	506	$	459	$	47		$	962	$	1,092	$	(130	)
Credit life(1)		1,029		1,082		(54	)		1,932		2,002		(70	)

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

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

Life insurance sales decreased during the quarter and year-to date ended June 30, 2014 compared to 2013 driven primarily by a decline in term life sales. Marketing activities at financial institutions with whom The Company markets life insurance have been curtailed at the financial institutions to ensure compliance with Consumer Financial Protection Bureau views on appropriate marketing practices.

Benefits, losses and expenses

Policyholder benefits increased during the six months ended June 30, 2014 compared to 2013 primarily due to an increase in the number of large claims. The maximum benefits that would be payable is limited, through the effects of reinsurance, to $1.5 million.

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

Other operating expenses were down slightly during the quarter and year-to-date ended June 30, 2014 compared to 2013.

The following table presents the components of the change in DAC (in thousands), which decreased expenses due to an increase in acquisition cost capitalized.

	Three months ended June 30,									Six months ended June 30,
	2014			2013			Change			2014			2013			Change
Acquisition cost capitalized	$	27,702		$	23,319		$	4,383		$	50,990		$	49,227		$	1,763
Amortization of DAC		(16,977	)		(14,953	)		(2,024	)		(35,082	)		(34,912	)		(170	)
Net change in DAC(1)	$	10,725		$	8,366		$	2,359		$	15,908		$	14,315		$	1,593

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

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Policy in-force information

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

	June 30,		December 31,
	2014		2013		Change
Life insurance in-force
Traditional life	$	57,334,893	$	54,788,898	$	2,545,995
Interest-sensitive life		25,638,466		25,281,391		357,075
Total life insurance in-force	$	82,973,359	$	80,070,289	$	2,903,070
Number of policies in-force
Traditional life		1,973,831		2,002,602		(28,771	)
Interest-sensitive life		201,104		196,949		4,155
Total number of policies		2,174,935		2,199,551		(24,616	)

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

Annuity

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

	Three months ended June 30,							Six months ended June 30,
	2014		2013		Change			2014		2013		Change
Premiums and other revenues
Premiums	$	46,653	$	33,625	$	13,028		$	113,589	$	66,321	$	47,268
Other policy revenues		3,864		3,419		445			8,182		7,059		1,123
Net investment income		145,143		151,163		(6,020	)		275,457		315,208		(39,751	)
Other income		—		95		(95	)		—		145		(145	)
Total premiums and other revenues		195,660		188,302		7,358			397,228		388,733		8,495
Benefits, losses and expenses
Policyholder benefits		59,027		42,600		16,427			136,479		83,295		53,184
Interest credited to policyholders’ account balances		75,923		85,460		(9,537	)		143,590		183,779		(40,189	)
Commissions for acquiring and servicing policies		13,007		11,194		1,813			26,571		21,587		4,984
Other operating expenses		13,145		17,544		(4,399	)		30,929		31,811		(882	)
Change in deferred policy acquisition costs(1)		6,214		7,836		(1,622	)		13,610		17,259		(3,649	)
Total benefits and expenses		167,316		164,634		2,682			351,179		337,731		13,448
Income before other items and federal income taxes	$	28,344	$	23,668	$	4,676		$	46,049	$	51,002	$	(4,953	)

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

Earnings increased during the quarter ended June 30, 2014 compared to 2013, primarily due to lower operating expenses. Earnings decreased during the year-to-date ended June 30, 2014 compared to 2013 primarily due to a decrease in investment income resulting from lower account balances and lower option and derivative investing results.

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Premiums and other policy revenues

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

	Three months ended June 30,							Six months ended June 30,
	2014		2013		Change			2014		2013		Change
Fixed deferred annuity	$	95,533	$	66,367	$	29,166		$	193,709	$	133,515	$	60,194
Single premium immediate annuity		54,440		47,648		6,792			130,248		94,901		35,347
Equity-indexed deferred annuity		67,342		42,301		25,041			118,078		79,493		38,585
Variable deferred annuity		25,906		34,902		(8,996	)		60,446		64,068		(3,622	)
Total premium and deposits		243,221		191,218		52,003			502,481		371,977		130,504
Less: Policy deposits		196,568		157,593		38,975			388,892		305,656		83,236
Total earned premiums	$	46,653	$	33,625	$	13,028		$	113,589	$	66,321	$	47,268

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

	Six months ended June 30,
	2014			2013
Fixed deferred and equity-indexed annuity
Account value, beginning of period	$	9,355,946		$	9,803,197
Net inflows		229,045			136,213
Surrenders		(687,317	)		(635,095	)
Fees		(5,234	)		(4,361	)
Interest credited		140,103			180,614
Account value, end of period	$	9,032,543		$	9,480,568
Single premium immediate annuity
Reserve, beginning of period	$	1,199,276		$	1,075,638
Net inflows		67,856			34,452
Interest and mortality		23,330			19,517
Reserve, end of period	$	1,290,462		$	1,129,607
Variable deferred annuity
Account value, beginning of period	$	489,305		$	417,645
Net inflows		59,974			61,873
Surrenders		(71,185	)		(60,070	)
Fees		(2,842	)		(2,573	)
Change in market value and other		23,602			22,778
Account value, end of period	$	498,854		$	439,653

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

Variable deferred annuity net inflows were relatively flat during the year-to-date ended June 30, 2014 compared to 2013. These products have no guaranteed minimum withdrawal benefits. Our total direct exposure on the guaranteed minimum death benefits associated with these products was $1.1 million and $1.5 million as of June 30, 2014 and 2013, respectively. After reinsurance, which is with reinsurers rated “A” or higher by A.M. Best, the net exposure was $0.2 million and $0.4 million, as of June 30, 2014 and 2013, respectively.

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Benefits, losses and expenses

Benefits are highly correlated to the sales volume of Single Premium Immediate Annuity (“SPIA”) contracts and increased for 2014 compared to 2013. Policyholder benefits consist of annuity payments and reserve increases for annuity contracts.

Commissions increased for the year-to-date ended June 30, 2014 compared to 2013 primarily due to increased annuity sales.

Other operating expenses decreased during the quarter ended June 30, 2014 compared to 2013 primarily due to lower account values. Other operating expenses were relatively flat during the year-to-date ended June 30, 2014 compared to 2013.

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

	Three months ended June 30,								Six months ended June 30,
	2014			2013			Change		2014			2013			Change
Acquisition cost capitalized	$	11,673		$	11,486		$	187	$	24,194		$	23,055		$	1,139
Amortization of DAC		(17,887	)		(19,322	)		1,435		(37,804	)		(40,314	)		2,510
Net change in DAC(1)	$	(6,214	)	$	(7,836	)	$	1,622	$	(13,610	)	$	(17,259	)	$	3,649

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

The amortization of DAC as a percentage of gross profits is an important ratio for the Annuity segment. The ratios for the year-to-date ended June 30, 2014 and 2013 were 32.3% and 33.1%, respectively.

Options and Derivatives

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

	Three months ended June 30,							Six months ended June 30,
	2014		2013		Change			2014		2013		Change
Net investment income
Without option return	$	127,430	$	140,650	$	(13,220	)	$	254,157	$	280,828	$	(26,671	)
Option return		17,713		10,513		7,200			21,300		34,380		(13,080	)
Interest credited to policy account balances
Without embedded derivative		64,360		77,520		(13,160	)		129,544		155,420		(25,876	)
Equity-indexed annuity embedded derivative		11,563		7,940		3,623			14,046		28,359		(14,313	)

Net investment income without option return decreased for the quarter and year-to-date ended June 30, 2014 compared to 2013 primarily due to lower aggregate account values and portfolio yield. Fixed interest credited to policyholders’ account balances without embedded derivative decreased during the quarter and year-to-date ended June 30, 2014 compared to 2013 due to lower account values coupled with a decrease in rates.

The option return, as well as the related equity-indexed embedded derivative return, increased during the quarter ended and decreased during the year-to-date ended June 30, 2014 compared to the same period in 2013, primarily due to the relative change in the S&P 500 Index during the respective periods. These option returns correlate to the 4.7%, and 2.4% change in the S&P 500 Index during the quarter ended June 30, 2014 and 2013, respectively. The year-to-date decrease correlates to the 6.1% and 12.6% return in the S&P 500 for 2014 and 2013, respectively.

39

Health

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

	Three months ended June 30,								Six months ended June 30,
	2014			2013		Change			2014			2013		Change
Premiums and other revenues
Premiums	$	55,379		$	53,532	$	1,847		$	110,715		$	106,261	$	4,454
Net investment income		2,897			2,839		58			5,835			5,704		131
Other income		5,642			4,610		1,032			10,255			8,816		1,439
Total premiums and other revenues		63,918			60,981		2,937			126,805			120,781		6,024
Benefits, losses and expenses
Claims incurred		32,737			33,006		(269	)		76,666			71,974		4,692
Commissions for acquiring and servicing policies		9,270			6,680		2,590			17,343			13,252		4,091
Other operating expenses		11,492			11,191		301			22,692			24,588		(1,896	)
Change in deferred policy acquisition costs(1)		(402	)		424		(826	)		(171	)		1,973		(2,144	)
Total benefits and expenses		53,097			51,301		1,796			116,530			111,787		4,743
Income before other items and federal income taxes	$	10,821		$	9,680	$	1,141		$	10,275		$	8,994	$	1,281

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

Earnings increased during the quarter and year-to-date ended June 30, 2014 compared to 2013 due to an increase in premiums as well as an increase in other income primarily from continued growth in the MGU business block.

Premiums and other revenues

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

	Three months ended June 30,										Six months ended June 30,
	2014					2013					2014					2013
	Amount		Percentage			Amount		Percentage			Amount		Percentage			Amount		Percentage
Medicare Supplement	$	21,360		38.6	%	$	22,457		42.0	%	$	43,353		39.2	%	$	45,917		43.2	%
Medical expense		5,534		10.0			7,486		14.0			11,765		10.6			15,705		14.8
Group health		8,522		15.4			10,198		19.1			18,761		16.9			18,265		17.2
Credit accident and health		3,574		6.5			3,725		7.0			7,311		6.6			7,717		7.3
MGU		6,634		12.0			5,241		9.8			11,882		10.7			9,928		9.3
Supplemental insurance		8,167		14.7			2,738		5.1			14,325		12.9			5,162		4.9
All other		1,588		2.8			1,687		3.2			3,318		3.1			3,567		3.3
Total	$	55,379		100.0	%	$	53,532		100.0	%	$	110,715		100.0	%	$	106,261		100.0	%

Premiums increased during the quarter ended June 30, 2014 compared to 2013, primarily from the sales of individual limited benefit supplemental insurance products. Medicare Supplement premiums declined due to policy lapses outpacing new sales which have a lower average premium per policy.

40

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

	June 30, 2014					December 31, 2013
	Number		Percentage			Number		Percentage
	of Policies		of Total Policies			of Policies		of Total Policies
Medicare Supplement		38,526		5.9	%		40,064		6.4	%
Medical expense		3,690		0.6			4,633		0.7
Group		16,107		2.5			19,679		3.1
Credit accident and health		225,048		34.5			235,014		37.5
MGU		254,882		39.0			221,811		35.3
Supplemental insurance		70,921		10.8			61,342		9.8
All other		43,252		6.7			45,369		7.2
Total		652,426		100.0	%		627,912		100.0	%

Total in-force policies increased during the quarter ended June 30, 2014 compared to 2013 primarily due to an increase in the MGU line. The MGU line increased as a result of our continued expansion in the MGU market as employers are using the stop loss market to manage the cost of providing health insurance for employees.

Benefits, losses and expenses

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

Claims incurred increased during the six months ended June 30, 2014 compared to 2013 primarily due to a judicial determination that The Company could not rescind a reinsurance agreement in dispute. Although The Company is appealing the determination, it has accrued for claims which the reinsurer has asserted are due under the agreement.

Other operating expenses increased during the quarter ended June 30, 2014 compared to 2013 due to a non recurring accrual in 2013, for expenses associated with a state insurance guaranty pool.

Change in Deferred Policy Acquisition Costs

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

	Three months ended June 30,									Six months ended June 30,
	2014			2013			Change			2014			2013			Change
Acquisition cost capitalized	$	5,175		$	2,865		$	2,310		$	9,463		$	5,440		$	4,023
Amortization of DAC		(4,773	)		(3,289	)		(1,484	)		(9,292	)		(7,413	)		(1,879	)
Net change in DAC(1)	$	402		$	(424	)	$	826		$	171		$	(1,973	)	$	2,144

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

The net change in DAC increased for the quarter and year- to- date June 30, 2014 compared to 2013 primarily from commissions from increased sales of individual limited benefit supplemental insurance products.

41

Property and Casualty

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

	Three months ended June 30,									Six months ended June 30,
	2014			2013			Change			2014			2013			Change
Net premiums written	$	295,538		$	282,543		$	12,995		$	572,536		$	550,760		$	21,776
Premiums and other revenues
Net premiums earned	$	270,916		$	264,147		$	6,769		$	541,524		$	529,836		$	11,688
Net investment income		14,746			16,818			(2,072	)		29,929			33,118			(3,189	)
Other income		1,391			2,397			(1,006	)		2,645			2,650			(5	)
Total premiums and other revenues		287,053			283,362			3,691			574,098			565,604			8,494
Benefits, losses and expenses
Claims incurred		204,725			208,639			(3,914	)		383,237			398,233			(14,996	)
Commissions for acquiring and servicing policies		49,405			45,110			4,295			96,738			87,657			9,081
Other operating expenses		34,190			32,883			1,307			61,898			63,764			(1,866	)
Change in deferred policy acquisition costs(1)		(1,457	)		1,075			(2,532	)		2,523			7,386			(4,863	)
Total benefits and expenses		286,863			287,707			(844	)		544,396			557,040			(12,644	)
Income (loss) before other items and federal income taxes	$	190		$	(4,345	)	$	4,535		$	29,702		$	8,564		$	21,138
Loss ratio		75.6	%		79.0	%		(3.4	)		70.8	%		75.2	%		(4.4	)
Underwriting expense ratio		30.4			29.9			0.5			29.9			30.0			(0.1	)
Combined ratio		106.0	%		108.9	%		(2.9	)		100.8	%		105.2	%		(4.5	)
Impact of catastrophe events on combined ratio		10.8			16.7			(5.9	)		8.1			12.5			(4.4	)
Combined ratio without impact of catastrophe events		95.2	%		92.2	%		3.0			92.7	%		92.7	%		—
Gross catastrophe losses	$	28,046		$	47,076		$	(19,030	)	$	41,106		$	73,873		$	(32,767	)
Net catastrophe losses		28,504			43,254			(14,750	)		42,143			64,942			(22,799	)

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

Property and Casualty results for the quarter improved compared to 2013 due to a decrease in catastrophe losses partially offset by increases in non-catastrophe claims and commissions. Results improved during the year ended June 30, 2014 compared to 2013, due to improvement in the loss ratio, primarily as a result of decreases in catastrophe losses and improved rate adequacy.

Benefits, losses and expenses

Claims incurred decreased during the quarter and year-to-date ended June 30, 2014 compared to 2013, as a result of decreases in catastrophe losses.

Net catastrophes losses for the quarter and year-to-date ended June 30, 2014 were $28.5 million and $42.1 million, respectively, compared to $43.3 million and $64.9 million for 2013. The decrease is due primarily to the decreases in the severity of catastrophes in 2014 compared to 2013.

Commissions increased for the quarter and year-to-date ended June 30, 2014 compared to 2013, primarily due to an increase in premium as well as an increase in certain variable commissions driven by the improvement in the loss ratio.

Products

Our Property and Casualty segment consists of: (i) Personal products, which we market primarily to individuals, representing 57.7% of net premiums written, (ii) Commercial products, which focus primarily on agricultural and other commercial markets, representing 34.5% of net premiums written, and (iii) Credit-related property insurance products, which are marketed to and through financial institutions and retailers, representing 7.8% of net premiums written.

42

Personal Products

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

	Three months ended June 30,									Six months ended June 30,
	2014			2013			Change			2014			2013			Change
Net premiums written
Auto	$	99,988		$	100,390		$	(402	)	$	202,098		$	203,997		$	(1,899	)
Homeowner		60,722			57,435			3,287			109,221			104,146			5,075
Other Personal		9,696			9,651			45			19,280			19,156			124
Total net premiums written	$	170,406		$	167,476		$	2,930		$	330,599		$	327,299		$	3,300
Net premiums earned
Auto	$	99,799		$	100,824		$	(1,025	)	$	198,655		$	201,233		$	(2,578	)
Homeowner		53,739			49,890			3,849			108,079			101,401			6,678
Other Personal		8,960			8,970			(10	)		17,752			17,872			(120	)
Total net premiums earned	$	162,498		$	159,684		$	2,814		$	324,486		$	320,506		$	3,980
Loss ratio
Auto		79.1	%		75.4	%		3.7			74.5	%		78.6	%		(4.1	)
Homeowner		97.2			127.8			(30.6	)		82.8			105.6			(22.8	)
Other Personal		16.5			57.2			(40.7	)		28.1			52.0			(23.9	)
Personal line loss ratio		81.6	%		90.8	%		(9.2	)		74.7	%		85.7	%		(11.0	)
Combined Ratio
Auto		103.8	%		98.0	%		5.8			96.7	%		101.2	%		(4.5	)
Homeowner		125.5			152.5			(27.0	)		107.4			130.2			(22.8	)
Other Personal		36.3			79.8			(43.5	)		45.7			74.5			(28.8	)
Personal line combined ratio		107.5	%		114.0	%		(6.5	)		97.5	%		108.9	%		(11.4	)

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

Homeowners: Net premiums written and earned increased during the quarter and year-to-date ended June 30, 2014 compared to 2013 primarily due to increasing premium rates over the time period. The loss and combined ratios improved during the quarter and year-to-date ended June 30, 2014 compared to 2013 due to a decline in both catastrophe and non-catastrophe weather-related losses and improved rate adequacy.

Other Personal: These products include watercraft, rental-owner and umbrella coverages for individuals seeking to protect their personal property and liability not covered within their homeowner and auto policies. The loss and combined ratios decreased for the year-to-date ended June 30, 2014 compared to 2013tracking with the general trends on the auto and homeowners lines. The decrease in the loss and combined ratios for the quarter ended June 30, 2014 compared to 2013 followed the general trend for the homeowners line.

43

Commercial Products

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

	Three months ended June 30,									Six months ended June 30,
	2014			2013			Change			2014			2013			Change
Net premiums written
Other Commercial	$	44,018		$	40,728		$	3,290		$	84,522		$	78,321		$	6,201
Agribusiness		33,560			29,977			3,583			62,796			55,679			7,117
Auto		24,978			23,239			1,739			50,151			47,164			2,987
Total net premiums written	$	102,556		$	93,944		$	8,612		$	197,469		$	181,164		$	16,305
Net premiums earned
Other Commercial	$	34,813		$	31,443		$	3,370		$	68,206		$	62,232		$	5,974
Agribusiness		29,865			27,193			2,672			58,863			53,686			5,177
Auto		19,734			19,363			371			38,782			38,545			237
Total net premiums earned	$	84,412		$	77,999		$	6,413		$	165,851		$	154,463		$	11,388
Loss ratio
Other Commercial		104.7	%		84.7	%		20.0			90.4	%		66.9	%		23.5
Agribusiness		46.8			62.0			(15.2	)		62.4			79.2			(16.8	)
Auto		74.0			72.5			1.5			70.8			71.5			(0.7	)
Commercial line loss ratio		77.0	%		73.7	%		3.3			75.9	%		72.3	%		3.6
Combined ratio
Other Commercial		127.9	%		113.7	%		14.2			118.9	%		96.0	%		22.9
Agribusiness		77.2			100.1			(22.9	)		98.5			115.8			(17.3	)
Auto		106.0			96.9			9.1			96.4			96.0			0.4
Commercial line combined ratio		104.8	%		104.8	%		—			106.4	%		102.9	%		3.5

Other Commercial: Net premiums written and earned increased during the quarter and year-to-date ended June 30, 2014 compared to 2013, primarily due to increases in sales related to the workers’ compensation and business owners’ lines. The loss and combined ratios for the quarter and year-to-date ended June 30, 2014 increased due to reserve increases on workers’ compensation claims.

Agricultural Business: Our agricultural business product allows policyholders to customize and cover their agriculture exposure using a package policy which includes coverage for residences and household contents, farm buildings and building contents, personal and commercial liability and personal property. Net premiums written and earned increased during the quarter and year-to-date ended June 30, 2014 compared to 2013, primarily as a result of rate increases and a decrease in ceded premiums. The loss and combined ratio improved in both periods primarily due to a decline in net catastrophe losses, as well as a combination of rate and underwriting actions.

Commercial Automobile: Net premiums written and earned increased primarily due to rate increases over the quarter and year-to-date ended June 30, 2014 compared to 2013.

Credit Products

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

	Three months ended June 30,									Six months ended June 30,
	2014			2013			Change			2014			2013			Change
Net premiums written	$	22,586		$	21,123		$	1,463		$	44,468		$	42,297		$	2,171
Net premiums earned		24,007			26,464			(2,457	)		51,187			54,867			(3,680	)
Loss ratio		29.3	%		23.5	%		5.8			29.2	%		21.8	%		7.4
Combined ratio		101.2	%		93.8	%		7.4			102.5	%		95.9	%		6.6

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

44

Net premiums written increased during the quarter and year-to-date ended June 30, 2014 compared to 2013 primarily due to an increase in our Guaranteed Auto Protection business. Net premiums earned decreased as premiums shifted from Guaranteed Auto Protection Insurance to Guaranteed Auto Protection Waiver, a lower premium debt protection product.

The loss and combined ratios increased during the quarter and year-to-date ended 2014 compared to 2013 primarily due to an increase in claims in our collateral protection business.

Corporate and Other

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

	Three months ended June 30,								Six months ended June 30,
	2014			2013		Change			2014		2013		Change
Premiums and other revenues
Net investment income	$	21,829		$	16,728	$	5,101		$	34,859	$	27,935	$	6,924
Realized investments gains, net		1,289			43,536		(42,247	)		26,760		60,487		(33,727	)
Other Income		2,335			2,571		(236	)		3,471		4,516		(1,045	)
Total premiums and other revenues		25,453			62,835		(37,382	)		65,090		92,938		(27,848	)
Benefits, losses and expenses
Commissions		(2	)		188		(190	)		—		210		(210	)
Other operating expenses		11,992			15,851		(3,859	)		22,008		29,345		(7,337	)
Total benefits, losses and expenses		11,990			16,039		(4,049	)		22,008		29,555		(7,547	)
Income before other items and federal income taxes	$	13,463		$	46,796	$	(33,333	)	$	43,082	$	63,383	$	(20,301	)

Earnings decreased during the quarter ended June 30, 2014 compared to 2013 primarily due to decreases in realized gains. The decrease in realized gains is attributable to lower gains in equity securities and less real estate sale activity.

The Corporate and Other business segment recorded other-than-temporary impairments of $1,437,000 and $3,191,000 in the six months ended June 30, 2014 and 2013, respectively, which are included in “Realized investment gains, net.”

Investments

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

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

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

45

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

	June 30, 2014					December 31, 2013
	Amount		Percent			Amount		Percent
Bonds held-to-maturity, at amortized cost	$	8,320,345		42.7	%	$	8,491,347		43.8	%
Bonds available-for-sale, at fair value		4,927,864		25.3			4,599,673		23.7
Equity securities, at fair value		1,501,863		7.7			1,410,608		7.3
Mortgage loans on real estate, net of allowance		3,311,380		17.0			3,299,242		17.0
Policy loans		399,927		2.0			397,407		2.0
Investment real estate, net of accumulated depreciation		492,407		2.5			507,142		2.6
Short-term investments		341,508		1.8			495,386		2.6
Other invested assets		196,433		1.0			201,442		1.0
Total investments	$	19,491,727		100.0	%	$	19,402,247		100.0	%

The increase in our total investments at June 30, 2014 as compared to December 31, 2013 was primarily a result of an increase in bonds and the market value of equity securities partially offset by decreases in short term investments.

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

Bonds: We allocate most of our fixed maturity securities to support our insurance business. As of June 30, 2014, our fixed maturity securities had an estimated fair value of $13.8 billion, which was $0.8 billion, or 6.1%, above amortized cost. At December 31, 2013, our fixed maturity securities had an estimated fair value of $13.4 billion, which was $0.5 billion, or 3.7%, above amortized cost. Fixed maturity securities’ estimated fair value, due in one year or less, remained relatively unchanged compared to December 31, 2013.

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

	June 30, 2014							December 31, 2013
	Amortized Cost		Estimated Fair Value		% of Fair Value			Amortized Cost		Estimated Fair Value		% of Fair Value
AAA	$	624,569	$	663,188		4.8	%	$	621,527	$	649,161		4.9	%
AA		1,610,789		1,691,483		12.3			1,472,221		1,511,517		11.3
A		5,199,549		5,527,777		40.1			5,260,435		5,466,136		40.7
BBB		5,079,433		5,404,072		39.2			5,094,589		5,272,246		39.2
BB and below		475,312		495,114		3.6			498,966		523,681		3.9
Total	$	12,989,652	$	13,781,634		100.0	%	$	12,947,738	$	13,422,741		100.0	%

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

Mortgage Loans:We invest in commercial mortgage loans that are diversified by property-type and geography to support our insurance business. Generally, mortgage loans are secured by first liens on income-producing real estate with a loan-to-value ratio of up to 75%. Mortgage loans held-for-investment are carried at outstanding principal balances, adjusted for any unamortized premium or discount, deferred fees or expenses, and net of allowances. The weighted average coupon yield on the principal funded for mortgage loans was 5.5% and 5.2% at June 30, 2014 and December 31, 2013, respectively. It is likely that the weighted average yield on funded mortgage loans will decline as loans mature and new loans are originated with lower rates in the current interest rate environment.

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

	June 30, 2014
	Cost		Unrealized Gains		Unrealized Losses			Fair Value		% of Fair Value
Common stock	$	719,331	$	741,190	$	(1,736	)	$	1,458,785		97.1
Preferred stock		23,718		19,364		(4	)		43,078		2.9
Total	$	743,049	$	760,554	$	(1,740	)	$	1,501,863		100.0
	December 31, 2013
	Cost		Unrealized Gains		Unrealized Losses			Fair Value		% of Fair Value
Common stock	$	717,390	$	653,967	$	(2,362	)	$	1,368,995		97.0
Preferred stock		23,690		18,301		(378	)		41,613		3.0
Total	$	741,080	$	672,268	$	(2,740	)	$	1,410,608		100.0

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

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

Policy Loans: For certain life insurance products, policyholders may borrow funds using the policy’s cash value as collateral. The maximum amount of the policy loan depends upon the policy’s surrender value and the number of years since policy origination. As of June 30, 2014, we had $399.9 million in policy loans with a loan to surrender value of 56.7%, and at December 31, 2013, we had $397.4 million in policy loans with a loan to surrender value of 67.9%. Interest rates on policy loans primarily range from 3.0% to 12.0% per annum. Policy loans may be repaid at any time by the policyholder and have priority to any claims on the policy. If the policyholder fails to repay the policy loan, funds are withdrawn from the policy’s benefits.

Net Investment Income and Realized Gains (Losses)

Net investment income decreased $37.0 million during the six months ended June 30, 2014 primarily due to a decrease in income from options and bonds. Net investment income from options decreased $12.3 million during 2014 due to a smaller change during 2014 in the S&P 500 index from which our option values are derived. Net investment income from bonds decreased $20.0 million during the six months ended June 30, 2014 primarily due to bonds with lower interest yields making up a larger percentage of our portfolio as older bonds, which were purchased when interest rates were higher, matured.

Realized gains decreased $30.2 million during the six months ended June 30, 2014 compared to 2013 primarily as a result of decrease in realized gains on sales of investment real estate. Other-than-temporary impairment on investment securities decreased $1.8 million during the six months ended June 30, 2014 compared to 2013.

Net Unrealized Gains and Losses

The net unrealized gains on available-for-sale securities at June 30, 2014 and December 31, 2013 were $1,017.4 million and $812.8 million, respectively. Unrealized gains or losses on available-for-sale securities are recognized as other comprehensive income or loss which has no impact on earnings. The gross unrealized gains of available-for-sale securities increased $151.0 million to $1,035.5 million during the 2014 resulting from increases in the value of bonds and equity securities. The gross unrealized losses of available-for-sale securities decreased to $18.1 million at June 30, 2014 from $71.6 million at December 31, 2013. The gross unrealized gains of held-to-maturity securities increased $116.4 million to $568.2 million and gross unrealized losses decreased from $120.1 million in 2013 to $34.8 million in 2014. The decrease in gross unrealized losses of available-for-sale and held-to-maturity securities during 2014 is primarily attributable to corporate debt securities and the impact changes in interest rates have on fixed income securities.

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

Liquidity

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

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

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

Our cash and cash equivalents and short-term investment position was $476.2 million at June 30, 2014 compared to $613.3 million at December 31, 2013. The decrease relates primarily to a reduction in short-term investments.

A downgrade or a potential downgrade in our financial strength ratings could result in a loss of business and could adversely affect our cash flow from operations. Further information regarding additional sources or uses of cash is described in Note 16, Commitments and Contingencies, of the Notes to the Consolidated Financial Statements.

Capital Resources

Our capital resources are summarized below (in thousands):

	June 30,		December 31,
	2014		2013
American National stockholders’ equity, excluding accumulated other comprehensive income (loss), net of tax (“AOCI”)	$	3,844,928	$	3,776,862
AOCI		521,804		413,712
Total American National stockholders’ equity	$	4,366,732	$	4,190,574

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We have notes payable relating to borrowings by real estate joint ventures that we consolidate into our financial statements that are not part of our capital resources. The lenders for the notes payable have no recourse against us in the event of default by the joint ventures. Therefore, the liability we have for these notes payable is limited to our investment in the respective ventures, which totaled $16.5 million at June 30, 2014 and $12.8 million at December 31, 2013, respectively.

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

	Six months ended
	June 30, 2014
Net income	$	110,139
Increase in net unrealized gains		106,759
Defined benefit pension plan adjustment		1,434
Dividends to shareholders		(41,421	)
Other		(753	)
Total	$	176,158

During June 30, 2014, our capital resources increased substantially compared to June 30, 2013 primarily due to net income and increases in unrealized gains from our equity investment portfolio partially offset by dividends to stockholders.

Statutory Capital and Surplus and Risk-based Capital

Statutory capital and surplus is the capital of our insurance companies reported in accordance with accounting practices prescribed or permitted by the applicable state insurance departments. RBC is calculated using formulas applied to certain financial balances and activities that consider, among other things, risks related to the type and quality of the invested assets, insurance risks associated with an insurer’s products and liabilities, interest rate risks and general business risks. Insurance companies that do not maintain capital and surplus at a level at least 200% of the authorized control level RBC are required to take certain actions. At June 30, 2014 and December 31, 2013, American National Insurance Company’s statutory capital and surplus was $2,780,280,000 and $2,667,858,000, respectively. Additionally, each of the insurance subsidiaries had statutory capital and surplus at June 30, 2014 and December 31, 2013, substantially above its authorized control level RBC.

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

Contractual Obligations

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

Off-Balance Sheet Arrangements

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

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Related-Party Transactions

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

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

Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. The Company’s management, with the participation of the Company’s Chief Executive Officer and Corporate Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of June 30, 2014. Based upon that evaluation and subject to the foregoing, the Company’s Chief Executive Officer and Corporate Chief Financial Officer concluded that, as of June 30, 2014, the design and operation of the Company’s disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.

Management has monitored the internal controls over financial reporting, including any material changes to the internal control over financial reporting. There were no changes in the Company’s internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 2014 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 Unaudited Consolidated Financial Statements.

ITEM 1A. RISK FACTORS

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

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

Exhibit Number	Basic Documents
3.1	Restated Articles of Incorporation, as amended (incorporated by reference to Exhibit No. 3.1 to the registrant’s Registration Statement on Form 10-12B filed April 10, 2009).
3.2	Amended and Restated Bylaws (incorporated by reference to Exhibit No. 3.2 to the registrant’s Current Report on Form 8-K filed May 2, 2012).
31.1	Certification of the principal executive officer pursuant to Section 302 of the Sarbanes- Oxley Act of 2002 (filed herewith).
31.2	Certification of the principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1	Certification of the principal executive officer and principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
101	The following unaudited financial information from American National Insurance Company’s Quarterly Report on Form 10-Q for Six months ended June 30, 2014 formatted in eXtensible Business Reporting Language (“XBRL”): (i) Consolidated Statements of Financial Position, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to the Unaudited Consolidated Financial Statements.

SIGNATURES

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

By:	/s/ Robert L. Moody
	Name: Robert L. Moody
	Title:Chairman of the Board,
	Chief Executive Officer
By:	/s/ John J. Dunn, Jr.
	Name: John J. Dunn, Jr.,
	Title:Executive Vice President,
	Corporate Chief Financial Officer

Date: August 8, 2014

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