Edgar Filing: AMERICAN NATIONAL INSURANCE CO /TX/

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2015

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

Commission File No. 001- 34280

LOGO

American National Insurance Company

(Exact name of registrant as specified in its charter)

Texas

74-0484030

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

One Moody Plaza

Galveston, Texas 77550-7999

(Address of principal executive offices) (Zip Code)

(409) 763-4661

(Registrant’s telephone number, including area code)

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

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

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

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

As of August 3, 2015, there were 26,894,169 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, 2015 and December 31, 2014	3

	Consolidated Statements of Operations for the three and six months ended June 30, 2015 and 2014	4

	Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2015 and 2014	5

	Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2015 and 2014	5

	Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014	6

	Notes to the Unaudited Consolidated Financial Statements	7

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

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	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

AMERICAN NATIONAL INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

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


	June 30, 2015			December 31, 2014
				(As Adjusted)
ASSETS
Fixed maturity, bonds held-to-maturity, at amortized cost (Fair Value $8,184,118 and $8,652,913)	$	7,834,732		$	8,225,050
Fixed maturity, bonds available-for-sale, at fair value (Amortized cost $4,974,683 and $4,694,716)		5,131,957			4,921,807
Equity securities, at fair value (Cost $759,975 and $739,384)		1,516,244			1,516,978
Mortgage loans on real estate, net of allowance		3,311,017			3,359,586
Policy loans		405,400			405,979
Investment real estate, net of accumulated depreciation of $200,652 and $193,611		514,497			479,062
Short-term investments		430,242			431,000
Other invested assets		228,087			220,255

Total investments		19,372,176			19,559,717

Cash and cash equivalents		158,981			209,455
Investments in unconsolidated affiliates		318,216			311,779
Accrued investment income		176,295			185,943
Reinsurance recoverables		409,514			428,654
Prepaid reinsurance premiums		66,879			56,019
Premiums due and other receivables		315,970			280,587
Deferred policy acquisition costs		1,264,148			1,253,544
Property and equipment, net		119,514			110,794
Current tax receivable		—			8,669
Other assets		143,230			137,856
Separate account assets		974,233			1,001,515

Total assets	$	23,319,156		$	23,544,532

LIABILITIES
Future policy benefits
Life	$	2,795,388		$	2,770,232
Annuity		1,035,475			1,006,748
Accident and health		67,882			58,364
Policyholders’ account balances		10,475,859			10,781,285
Policy and contract claims		1,280,923			1,297,708
Unearned premium reserve		802,725			755,051
Other policyholder funds		354,334			344,090
Liability for retirement benefits		190,387			195,712
Notes payable		122,464			108,177
Current tax liability		6,792			—
Deferred tax liabilities, net		277,220			287,175
Other liabilities		440,248			498,528
Separate account liabilities		974,233			1,001,515

Total liabilities		18,823,930			19,104,585

STOCKHOLDERS’ EQUITY
Common stock, $1.00 par value, - Authorized 50,000,000, Issued 30,832,449 and 30,832,449, Outstanding 26,894,169 and 26,871,942 shares		30,832			30,832
Additional paid-in capital		12,898			9,248
Accumulated other comprehensive income		446,861			490,782
Retained earnings		4,095,306			3,998,642
Treasury stock, at cost		(101,805	)		(101,941	)

Total American National stockholders’ equity		4,484,092			4,427,563
Noncontrolling interest		11,134			12,384

Total stockholders’ equity		4,495,226			4,439,947

Total liabilities and stockholders’ equity	$	23,319,156		$	23,544,532

See accompanying notes to the consolidated financial statements.

AMERICAN NATIONAL INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

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


	Three months ended June 30,						Six months ended June 30,
	2015			2014			2015			2014
				(As Adjusted)						(As Adjusted)
PREMIUMS AND OTHER REVENUE
Premiums
Life	$	75,071		$	72,678		$	147,153		$	144,673
Annuity		25,088			46,653			66,531			113,589
Accident and health		51,135			55,379			102,972			110,715
Property and casualty		281,909			270,916			558,390			541,524
Other policy revenues		57,597			55,859			115,121			111,786
Net investment income		203,662			242,292			412,875			461,115
Net realized investment gains		16,768			1,751			56,070			28,197
Other-than-temporary impairments		(3,472	)		(462	)		(3,497	)		(1,437	)
Other income		9,748			9,720			18,458			17,060

Total premiums and other revenues		717,506			754,786			1,474,073			1,527,222

BENEFITS, LOSSES AND EXPENSES
Policyholder benefits
Life		91,184			82,485			179,188			173,765
Annuity		36,150			59,027			90,517			136,479
Claims incurred
Accident and health		32,256			32,737			64,053			76,666
Property and casualty		211,920			204,725			404,172			383,237
Interest credited to policyholders’ account balances		69,215			91,794			144,968			175,206
Commissions for acquiring and servicing policies		103,557			103,949			196,672			202,384
Other operating expenses		123,203			120,517			246,661			239,041
Change in deferred policy acquisition costs		614			(6,370	)		7,076			54

Total benefits, losses and expenses		668,099			688,864			1,333,307			1,386,832

Income before federal income tax and equity in earnings of unconsolidated affiliates		49,407			65,922			140,766			140,390

Less: Provision for federal income taxes
Current		10,955			23,106			26,543			36,887
Deferred		4,093			(1,323	)		14,391			7,804

Total provision for federal income taxes		15,048			21,783			40,934			44,691
Equity in earnings of unconsolidated affiliates, net of tax		300			12,797			37,080			12,735

Net income		34,659			56,936			136,912			108,434
Less: Net income (loss) attributable to noncontrolling interest, net of tax		(394	)		(238	)		(1,123	)		(994	)

Net income attributable to American National	$	35,053		$	57,174		$	138,035		$	109,428

Amounts available to American National common stockholders
Earnings per share
Basic	$	1.30		$	2.13		$	5.14		$	4.08
Diluted		1.30			2.11			5.12			4.06
Cash dividends to common stockholders		0.77			0.77			1.54			1.54
Weighted average common shares outstanding		26,877,833			26,802,896			26,847,936			26,799,648
Weighted average common shares outstanding and dilutive potential common shares		26,952,107			26,926,351			26,941,477			26,924,629

See accompanying notes to the consolidated financial statements.

AMERICAN NATIONAL INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited and in thousands)


	Three months ended June 30,						Six months ended June 30,
	2015			2014			2015			2014
				(As Adjusted)						(As Adjusted)
Net income	$	34,659		$	56,936		$	136,912		$	108,434

Other comprehensive income (loss), net of tax
Change in net unrealized gain (losses) on securities		(54,139	)		72,925			(46,303	)		106,759
Foreign currency transaction and translation adjustments		1,188			865			(650	)		(101	)
Defined pension benefit plan adjustment		1,589			717			3,032			1,434

Other comprehensive income (loss), net of tax		(51,362	)		74,507			(43,921	)		108,092

Total comprehensive income (loss)		(16,703	)		131,443			92,991			216,526
Less: Comprehensive income (loss) attributable to noncontrolling interest		(394	)		(238	)		(1,123	)		(994	)

Total comprehensive income (loss) attributable to American National	$	(16,309	)	$	131,681		$	94,114		$	217,520

AMERICAN NATIONAL INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited and in thousands)


	Six months ended June 30,
	2015			2014
				(As Adjusted)
Common Stock
Balance at beginning and end of the period	$	30,832		$	30,832

Additional Paid-In Capital
Balance as of January 1,		9,248			4,650
Reissuance of treasury shares		2,997			1,621
Amortization of restricted stock		653			2,081

Balance at end of period		12,898			8,352

Accumulated Other Comprehensive Income
Balance as of January 1,		490,782			413,712
Other comprehensive income (loss)		(43,921	)		108,092

Balance at end of the period		446,861			521,804

Retained Earnings
Balance as of January 1,		3,998,642			3,836,112
Net income attributable to American National		138,035			109,428
Cash dividends to common stockholders		(41,371	)		(41,421	)

Balance at end of the period		4,095,306			3,904,119

Treasury Stock
Balance as of January 1,		(101,941	)		(97,441	)
Reinsurance (purchase) of treasury shares		136			(4,354	)

Balance at end of the period		(101,805	)		(101,795	)

Noncontrolling Interest
Balance as of January 1,		12,384			12,757
Contributions		27			255
Distributions		(154	)		(5	)
Loss attributable to noncontrolling interest		(1,123	)		(994	)
Cumulative tax adjustment		—			(507	)

Balance at end of the period		11,134			11,506

Total Stockholders’ Equity	$	4,495,226		$	4,374,818

See accompanying notes to the consolidated financial statements.

AMERICAN NATIONAL INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and in thousands)


	Six months ended June 31,
	2015			2014
				(As Adjusted)
OPERATING ACTIVITIES
Net income	$	136,912		$	108,434
Adjustments to reconcile net income to net cash provided by operating activities
Net realized investment gains		(56,070	)		(28,197	)
Other-than-temporary impairments		3,497			1,437
Amortization of premiums, discounts and loan origination fees		1,098			5,636
Net capitalized interest on policy loans and mortgage loans		(15,668	)		(16,268	)
Depreciation		18,669			12,874
Interest credited to policyholders’ account balances		144,968			175,206
Charges to policyholders’ account balances		(115,121	)		(111,786	)
Deferred federal income tax expense		14,391			7,804
Equity in earnings of unconsolidated affiliates		(37,080	)		(12,735	)
Distributions from equity method investments		359			23,132
Changes in
Policyholder liabilities		107,256			163,271
Deferred policy acquisition costs		7,076			54
Reinsurance recoverables		19,140			1,023
Premiums due and other receivables		(35,837	)		(12,235	)
Prepaid reinsurance premiums		(10,860	)		3,278
Accrued investment income		9,648			(565	)
Current tax receivable/payable		15,461			617
Liability for retirement benefits		(5,325	)		(15,164	)
Other, net		(62,163	)		(49,949	)

Net cash provided by operating activities		140,351			255,867

INVESTING ACTIVITIES
Proceeds from sale/maturity/prepayment of
Held-to-maturity securities		619,477			344,981
Available-for-sale securities		303,836			514,707
Investment real estate		13,413			25,278
Mortgage loans		399,600			299,528
Policy loans		28,702			28,171
Other invested assets		12,332			31,849
Disposals of property and equipment		817			1,012
Distributions from unconsolidated affiliates		79,514			1,150
Payment for the purchase/origination of
Held-to-maturity securities		(205,446	)		(218,764	)
Available-for-sale securities		(600,818	)		(655,266	)
Investment real estate		(25,985	)		(10,593	)
Mortgage loans		(358,011	)		(314,774	)
Policy loans		(11,859	)		(12,542	)
Other invested assets		(25,386	)		(8,623	)
Additions to property and equipment		(17,614	)		(8,128	)
Contributions to unconsolidated affiliates		(55,550	)		(14,907	)
Change in short-term investments		758			153,878
Other, net		13,879			(2,022	)

Net cash provided by investing activities		171,659			154,935

FINANCING ACTIVITIES
Policyholders’ account deposits		461,687			528,732
Policyholders’ account withdrawals		(796,960	)		(880,194	)
Change in notes payable		14,287			(1,399	)
Dividends to stockholders		(41,371	)		(41,421	)
Proceeds from (payments to) noncontrolling interest		(127	)		250

Net cash used in financing activities		(362,484	)		(394,032	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(50,474	)		16,770
Beginning of the period		209,455			117,946

End of period	$	158,981		$	134,716

See accompanying notes to the consolidated financial statements.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Nature of Operations

American National Insurance Company and its consolidated subsidiaries (collectively “American National” or “the Company”) 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 all 50 states, the District of Columbia and Puerto Rico.

Note 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, 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, 2014. 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.

Note 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:

In January 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-01, Accounting for Investments in Qualified Affordable Housing Projects. The new standard allows a proportional amortization approach and treats the net investment performance as a component of income tax expense. Previously, these investments were accounted for under the equity method that records changes to investment value as a component of investment income and generates a deferred tax balance until the investment terminates. American National adopted this standard effective January 1, 2015, with retrospective adoption back to January 1, 2013. Accordingly, upon adoption the investment in unconsolidated affiliate’s asset was reduced by $7,504,000 with a release of a related deferred tax liability of $2,937,000 resulting in a $4,567,000 reduction in the opening balance of stockholders’ equity at January 1, 2015.

Note 3 – Recently Issued Accounting Pronouncements – (Continued)

Financial statement amounts previously reported were revised as shown below (in thousands):


	As of December 31, 2014
	As Reported			As Adjusted			Effect of Change
Investment in unconsolidated affiliates	$	319,283		$	311,779		$	(7,504	)
Deferred tax liabilities, net		290,112			287,175			(2,937	)
Retained earnings		4,003,209			3,998,642			(4,567	)

	As Reported			As Adjusted			Effect of Change
Three months ended June 30, 2014
Provision for federal income taxes, current	$	22,345		$	23,106		$	761
Provision for federal income taxes, deferred		(787	)		(1,323	)		(536	)
Equity in earnings of unconsolidated affiliates, net of tax		12,659			12,797			138
Net Income attributable to American National		57,261			57,174			(87	)
Six months ended June 30, 2014
Provision for federal income taxes, current	$	34,705		$	36,887		$	2,182
Provision for federal income taxes, deferred		8,340			7,804			(536	)
Equity in earnings of unconsolidated affiliates, net of tax		11,800			12,735			935
Net Income attributable to American National		110,139			109,428			(711	)

American National held investments in Qualified Affordable Housing Projects totaling $33,304,000 and $27,595,000 as of June 30, 2015 and December 31, 2014, respectively. For the six month periods ending June 30, 2015 and June 30, 2014, American National recognized tax credits and other tax benefits of $4,427,000 and $3,164,000, respectively, and amortized cost of $3,889,000 and $2,560,000, relating to these investments. At June 30, 2015 American National had commitments to provide additional funding to these investments during the following fiscal years as follows (in thousands):


Expected year of payment	2015		2016		2017		2018		2019		Total
Equity commitments	$	16,470		4,148		1,314		726		1,078	$	23,736

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

In May 2014, the FASB issued guidance that will supersede most existing revenue recognition requirements in U.S. GAAP. Insurance contracts are excluded from the scope of the new guidance. For those contracts which are impacted by the guidance, the transaction price is attributed to the underlying performance obligations in the contract and revenue is recognized as the entity satisfies the performance obligations and transfers control of a good or service to the customer. The guidance is effective for reporting periods beginning after December 15, 2017 and is to be applied retrospectively. The Company is evaluating the impact of adoption, which is not expected to be material to the Company’s financial statements.

In February 2015, the FASB issued guidance that amends the consolidation analysis. The guidance modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities. The guidance eliminates the presumption that a general partner should consolidate a limited partnership and affects the consolidation analysis of reporting entities that are involved with VIEs. The amended guidance is effective for reporting periods beginning after December 15, 2015. The impact of the adoption is not expected to be material to the Company’s financial statements.

In May 2015, the FASB issued guidance to expand the disclosures that an insurance entity must provide about its short duration contracts. The additional disclosure about the liability for unpaid claims and claim adjustment expenses is intended to increase the transparency of significant estimates made in the measuring of those liabilities. It will also provide additional insight into an insurance entity’s ability to underwrite and anticipate costs associated with claims. The amended guidance is effective for annual reporting periods beginning after December 15, 2015 and for interim reporting periods beginning after December 15, 2016. The impact of the adoption is not expected to be material to the Company’s financial statements.

Note 4 – Investment in Securities

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


	June 30, 2015
	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	$	306,665	$	23,704	$	(97	)	$	330,272
Foreign governments		4,122		916		—			5,038
Corporate debt securities		7,204,630		357,262		(53,315	)		7,508,577
Residential mortgage-backed securities		301,196		21,202		(1,237	)		321,161
Commercial mortgage-backed securities		—		—		—			—
Collateralized debt securities		1,931		151		—			2,082
Other debt securities		16,188		800		—			16,988

Total bonds held-to-maturity		7,834,732		404,035		(54,649	)		8,184,118

Fixed maturity securities, bonds available-for-sale
U.S. treasury and government		24,038		771		(1	)		24,808
U.S. states and political subdivisions		880,206		26,476		(8,018	)		898,664
Foreign governments		5,000		1,827		—			6,827
Corporate debt securities		4,024,062		161,807		(27,367	)		4,158,502
Residential mortgage-backed securities		32,313		1,718		(506	)		33,525
Collateralized debt securities		9,064		693		(126	)		9,631

Total bonds available-for-sale		4,974,683		193,292		(36,018	)		5,131,957

Equity securities
Common stock		744,742		759,886		(13,854	)		1,490,774
Preferred stock		15,233		10,238		(1	)		25,470

Total equity securities		759,975		770,124		(13,855	)		1,516,244

Total investments in securities	$	13,569,390	$	1,367,451	$	(104,522	)	$	14,832,319


	December 31, 2014
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
Fixed maturity securities, bonds held-to-maturity
U.S. states and political subdivisions	$	323,053	$	26,800	$	(93	)	$	349,760
Foreign governments		29,130		1,293		—			30,423
Corporate debt securities		7,517,195		424,845		(47,315	)		7,894,725
Residential mortgage-backed securities		336,853		22,317		(1,535	)		357,635
Commercial mortgage-backed securities		—		—		—			—
Collateralized debt securities		2,232		238		—			2,470
Other debt securities		16,587		1,313		—			17,900

Total bonds held-to-maturity		8,225,050		476,806		(48,943	)		8,652,913

Fixed maturity securities, bonds available-for-sale
U.S. treasury and government		22,415		825		(7	)		23,233
U.S. states and political subdivisions		802,846		36,151		(1,381	)		837,616
Foreign governments		5,000		2,021		—			7,021
Corporate debt securities		3,812,771		203,048		(15,770	)		4,000,049
Residential mortgage-backed securities		40,988		1,903		(492	)		42,399
Collateralized debt securities		10,696		863		(70	)		11,489

Total bonds available-for-sale		4,694,716		244,811		(17,720	)		4,921,807

Equity securities
Common stock		719,651		774,650		(7,176	)		1,487,125
Preferred stock		19,733		10,121		(1	)		29,853

Total equity securities		739,384		784,771		(7,177	)		1,516,978

Total investments in securities	$	13,659,150	$	1,506,388	$	(73,840	)	$	15,091,698

Note 4 – Investment in Securities – (Continued)

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


	June 30, 2015
	Bonds Held-to-Maturity				Bonds Available-for-Sale
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	633,129	$	643,485	$	351,266	$	358,911
Due after one year through five years		2,043,445		2,233,333		895,628		960,265
Due after five years through ten years		4,780,423		4,906,961		3,156,290		3,235,340
Due after ten years		371,884		395,314		566,499		572,479
Without single maturity date		5,851		5,025		5,000		4,962

Total	$	7,834,732	$	8,184,118	$	4,974,683	$	5,131,957

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,
	2015			2014			2015			2014
Proceeds from sales of available-for-sale securities	$	23,894		$	54,802		$	39,476		$	136,466
Gross realized gains		7,226			4,823			14,009			24,765
Gross realized losses		(65	)		(2	)		(65	)		(2,123	)

Gains and losses are determined using specific identification of the securities sold. During the six months ended June 30, 2015 there were no bonds transferred from held-to-maturity to available-for-sale. During the six months ended June 30, 2014 bonds with a carrying value of $44,781,000, were transferred from held-to-maturity to available-for-sale after a significant deterioration in the issuers’ creditworthiness became evident. Unrealized gains of $1,301,000 were established following the transfer at fair value.

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


	Six months ended June 30,
	2015			2014
Bonds available-for-sale	$	(69,817	)	$	115,275
Equity securities		(21,325	)		89,286

Change in net unrealized gains (losses) on securities during the year		(91,142	)		204,561
Adjustments for
Deferred policy acquisition costs		17,680			(30,837	)
Participating policyholders’ interest		2,722			(10,378	)
Deferred federal income tax expense		24,437			(56,587	)

Change in net unrealized gains (losses) on securities, net of tax	$	(46,303	)	$	106,759

Note 4 – Investment in Securities – (Continued)

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, 2015
	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	$	(43	)	$	2,480	$	(54	)	$	116	$	(97	)	$	2,596
Corporate debt securities		(37,141	)		1,472,709		(16,174	)		176,016		(53,315	)		1,648,725
Residential mortgage-backed securities		(337	)		20,801		(900	)		17,080		(1,237	)		37,881

Total bonds held-to-maturity		(37,521	)		1,495,990		(17,128	)		193,212		(54,649	)		1,689,202

Fixed maturity securities, bonds available-for-sale
U.S. treasury and government		(1	)		3,922		—			—		(1	)		3,922
U.S. states and political subdivisions		(7,653	)		328,492		(365	)		2,636		(8,018	)		331,128
Corporate debt securities		(23,866	)		1,192,265		(3,501	)		51,336		(27,367	)		1,243,601
Residential mortgage-backed securities		(275	)		10,954		(231	)		7,085		(506	)		18,039
Collateralized debt securities		(119	)		2,060		(7	)		306		(126	)		2,366

Total bonds available-for-sale		(31,914	)		1,537,693		(4,104	)		61,363		(36,018	)		1,599,056

Equity securities
Common stock		(13,850	)		86,894		(4	)		22		(13,854	)		86,916
Preferred stock		—			—		(1	)		—		(1	)		—

Total equity securities		(13,850	)		86,894		(5	)		22		(13,855	)		86,916

Total	$	(83,285	)	$	3,120,577	$	(21,237	)	$	254,597	$	(104,522	)	$	3,375,174


	December 31, 2014
	Less than 12 months					12 Months or more					Total
	Unrealized (Losses)			Fair Value		Unrealized (Losses)			Fair Value		Unrealized (Losses)			Fair Value
Fixed maturity securities, bonds held-to-maturity
U.S. states and political subdivisions	$	(37	)	$	3,388	$	(56	)	$	2,465	$	(93	)	$	5,853
Corporate debt securities		(20,575	)		523,766		(26,740	)		662,362		(47,315	)		1,186,128
Residential mortgage-backed securities		(232	)		12,186		(1,303	)		31,163		(1,535	)		43,349

Total bonds held-to-maturity		(20,844	)		539,340		(28,099	)		695,990		(48,943	)		1,235,330

Fixed maturity securities, bonds available-for-sale
U.S. treasury and government		(7	)		14,552		—			—		(7	)		14,552
U.S. states and political subdivisions		(166	)		27,719		(1,215	)		78,851		(1,381	)		106,570
Corporate debt securities		(8,852	)		384,451		(6,918	)		288,808		(15,770	)		673,259
Residential mortgage-backed securities		(170	)		9,386		(322	)		14,042		(492	)		23,428
Collateralized debt securities		(63	)		2,033		(7	)		339		(70	)		2,372

Total bonds available-for-sale		(9,258	)		438,141		(8,462	)		382,040		(17,720	)		820,181

Equity securities
Common stock		(7,176	)		43,907		—			—		(7,176	)		43,907
Preferred stock		(1	)		—		—			—		(1	)		—

Total equity securities		(7,177	)		43,907		—			—		(7,177	)		43,907

Total	$	(37,279	)	$	1,021,388	$	(36,561	)	$	1,078,030	$	(73,840	)	$	2,099,418

As of June 30, 2015, the securities with unrealized losses including those exceeding one year were not deemed to be other-than-temporarily impaired. American National has the ability and intent to hold those securities until a market price recovery or maturity. 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.

Note 4 – Investment in Securities – (Continued)

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


	June 30, 2015			December 31, 2014
AAA		5.3	%		5.0	%
AA		12.4			12.8
A		39.5			39.4
BBB		39.6			39.5
BB and below		3.2			3.3

Total		100.0	%		100.0	%

Equity securities by market sector distribution are shown below:


	June 30, 2015			December 31, 2014
Consumer goods		20.5	%		20.4	%
Energy and utilities		14.5			13.3
Financials		19.6			19.1
Healthcare		15.5			14.0
Industrials		8.2			8.4
Information technology		16.3			16.2
Other		5.4			8.6

Total		100.0	%		100.0	%

Note 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 location of the underlying collateral. The distribution based on carrying amount of mortgage loans by location are as follows:


	June 30, 2015			December 31, 2014
East North Central		19.7	%		19.4	%
East South Central		5.3			5.0
Mountain		11.9			11.0
Pacific		9.5			10.8
South Atlantic		21.0			21.9
West South Central		26.3			24.9
Other		6.3			7.0

Total		100.0	%		100.0	%

As of June 30, 2015, American National had foreclosed on two loans with a recorded investment of $19,328,000; there were no loans foreclosed for the same period in 2014. American National sold one commercial loan with a recorded investment of $2,702,000 resulting in a realized loss of $1,602,000 for the six months ended June 30, 2015. No loans were sold in the same period in 2014.

Note 5 – Mortgage Loans – (Continued)

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
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Amount			Percent
June 30, 2015
Industrial	$	—	$	—	$	—	$	—	$	718,732	$	718,732			21.7	%
Office		—		—				—		1,195,041		1,195,041			35.9
Retail		—		—		—		—		579,299		579,299			17.3
Other		—		—		—		—		831,352		831,352			25.1

Total	$	—	$	—	$	—	$	—	$	3,324,424		3,324,424			100.0	%

Allowance for loan losses												(13,407	)

Mortgage loans on real estate, net of allowance											$	3,311,017

December 31, 2014
Industrial	$	—	$	—	$	—	$	—	$	702,541	$	702,541			20.9	%
Office		—		—		19,327		19,327		1,201,833		1,221,160			36.1
Retail		—		—		—		—		615,813		615,813			18.1
Other		—		—		—		—		837,932		837,932			24.9

Total	$	—	$	—	$	19,327	$	19,327	$	3,358,119	$	3,377,446			100.0	%

Allowance for loan losses												(17,860	)

Mortgage loans on real estate, net of allowance											$	3,359,586

Total mortgage loans are net of unamortized discounts of $557,000 and $658,000 and unamortized origination fees of $17,463,000 and $15,659,000 at June 30, 2015 and December 31, 2014, respectively. No unearned income is included in these amounts.

Allowance for Credit Losses

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.

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 Evaluated for Impairment			Individually Evaluated for Impairment
Beginning balance, 2015	$	12,277		$	5,583
Change in allowance		(1,049	)		(3,404	)

Ending balance, 2015	$	11,228		$	2,179

At June 30, 2015 and December 31, 2014, the recorded investment for loans collectively evaluated for impairment was $3,298,423,000 and $3,321,241,000, respectively, and the recorded investment for loans individually evaluated for impairment was $26,001,000 and $56,205,000, respectively.

Note 5 – Mortgage Loans – (Continued)

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


	June 30, 2015				June 30, 2014
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Three months ended
With an allowance recorded
Office	$	—	$	—	$	11,763	$	209
Industrial		—		—		—		—
Retail		—		—		—		—

Total	$	—	$	—	$	11,763	$	209

Without an allowance recorded
Office	$	20,996	$	340	$	6,256	$	85
Industrial		—		—		7,877		144
Retail		2,503		88		—		—

Total	$	23,499	$	428	$	14,133	$	229

Six months ended
With an allowance recorded
Office	$	—	$	—	$	11,763	$	207
Industrial		—		—		—		—
Retail		—		—		—		20

Total	$	—	$	—	$	11,763	$	227

Without an allowance recorded
Office	$	20,996	$	681	$	18,649	$	288
Industrial		—		—		10,598		173
Retail		5,032		177		1,280		6

Total	$	26,028	$	858	$	30,527	$	467


	June 30, 2015				December 31, 2014
	Recorded Investment		Unpaid Principal Balance		Recorded Investment		Unpaid Principal Balance
With an allowance recorded
Office	$	—	$	—	$	26,563	$	31,653
Industrial		—		—		—		—
Retail		—		—		—		493

Total	$	—	$	—	$	26,563	$	32,146

Without an allowance recorded
Office	$	20,996	$	20,996	$	26,941	$	26,941
Industrial		—		—		2,702		2,702
Retail		5,005		5,005		—		—

Total	$	26,001	$	26,001	$	29,643	$	29,643

Troubled Debt Restructurings

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

The number of mortgage loans and recorded investment in troubled debt restructuring are as follows:


	Six months ended June 30,
	2015						2014
	Number of contracts		Recorded investment pre- modification		Recorded investment post modification		Number of contracts		Recorded investment pre- modification		Recorded investment post modification
Office		1	$	6,432	$	6,432		2	$	19,836	$	19,836

There are 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 periods presented.

Note 6 – Investment Real Estate

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


	June 30, 2015			December 31, 2014
Industrial		11.9	%		13.0	%
Office		29.8			25.0
Retail		42.1			44.1
Other		16.2			17.9

Total		100.0	%		100.0	%


	June 30, 2015			December 31, 2014

East North Central		8.3	%		4.5	%
East South Central		4.1			4.6
Mountain		8.4			9.6
Pacific		6.5			7.1
South Atlantic		11.5			12.2
West South Central		55.0			55.6
Other		6.2			6.4

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 2015 or 2014.

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


	June 30, 2015		December 31, 2014
Investment real estate	$	161,744	$	140,032
Short-term investments		1		1
Cash and cash equivalents		3,118		2,495
Accrued investment income		170		683
Other receivables		8,176		7,999
Other assets		6,142		8,483

Total assets of consolidated VIEs	$	179,351	$	159,693

Notes payable	$	122,464	$	108,177
Other liabilities		10,629		8,954

Total liabilities of consolidated VIEs	$	133,093	$	117,131

Note 6 – Investment Real Estate – (Continued)

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 $32,358,000 and $15,016,000 at June 30, 2015 and December 31, 2014, respectively. The total long-term portion of notes payable consists of four notes with the following interest rates: 4.0%, prime plus 0.5%, and two notes with adjusted LIBOR plus LIBOR margin. Of the long-term notes payable, $24,937,000 will mature in 2016, with the remainder maturing beyond 5 years.

For other VIEs in which American National is a partner, 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 partners. The following table presents the carrying amount and maximum exposure to loss relating to unconsolidated VIEs (in thousands):


	June 30, 2015				December 31, 2014
	Carrying Amount		Maximum Exposure to Loss		Carrying Amount		Maximum Exposure to Loss
Investment in unconsolidated affiliates	$	202,818	$	202,818	$	157,620	$	157,620
Mortgage loans		202,864		202,864		172,408		172,408
Accrued investment income		868		868		721		721

As of June 30, 2015, a real estate investment with a carrying value of $4,028,000 was classified as held for sale.

Note 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 products are exposed. Equity-indexed contracts include a fixed host universal-life insurance or annuity contract and an equity-indexed embedded derivative. The detail of derivative instruments is shown below (in thousands, except number of instruments):


Derivatives Not Designated as Hedging Instruments	Location in the Consolidated Statements of Financial Position	June 30, 2015						December 31, 2014
Derivatives Not Designated as Hedging Instruments		Number of Instruments		Notional Amounts		Estimated Fair Value		Number of Instruments		Notional Amounts		Estimated Fair Value
Equity-indexed options	Other invested assets		456	$	1,189,400	$	183,963		436	$	1,095,300	$	189,449
Equity-indexed embedded derivative	Policyholders’ account balances		46,307		931,300		208,827		42,287		961,300		208,187


Derivatives Not Designated as Hedging Instruments	Location in the Consolidated Statements of Operations	Gains (Losses) Recognized in Income on Derivatives
		Three months ended June 30,						Six months ended June 30,
		2015			2014			2015			2014
Equity-indexed options	Net investment income	$	(2,095	)	$	18,464		$	(964	)	$	22,449
Equity-indexed embedded derivative	Interest credited to policyholders’ account balances		4,413			(11,826	)		3,217			(14,722	)

Note 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,
	2015			2014		2015			2014
Bonds	$	139,095		$	149,879	$	282,836		$	301,395
Equity securities		10,049			9,258		18,516			18,342
Mortgage loans		49,502			55,904		99,001			107,358
Real estate		147			2,073		(1,606	)		(2,898	)
Options		(2,095	)		18,464		(964	)		22,449
Other invested assets		6,964			6,714		15,092			14,469

Total	$	203,662		$	242,292	$	412,875		$	461,115

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


	Three months ended June 30,						Six months ended June 30,
	2015			2014			2015			2014
Bonds	$	8,799		$	3,293		$	10,097		$	19,912
Equity securities		8,283			3,533			36,910			10,064
Mortgage loans		(209	)		(3,145	)		(733	)		(3,873	)
Real estate		(78	)		(1,934	)		9,833			3,029
Other invested assets		(27	)		4			(37	)		(935	)

Total	$	16,768		$	1,751		$	56,070		$	28,197

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


	Three months ended June 30,						Six months ended June 30,
	2015			2014			2015			2014
Bonds	$	—		$	—		$	—		$	(41	)
Equity securities		(3,472	)		(462	)		(3,497	)		(1,396	)

Total	$	(3,472	)	$	(462	)	$	(3,497	)	$	(1,437	)

Note 9 – Fair Value of Financial Instruments

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


	June 30, 2015				December 31, 2014
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets
Fixed maturity securities, bonds held-to-maturity	$	7,834,732	$	8,184,118	$	8,225,050	$	8,652,913
Fixed maturity securities, bonds available-for-sale		5,131,957		5,131,957		4,921,807		4,921,807
Equity securities		1,516,244		1,516,244		1,516,978		1,516,978
Equity-indexed options		183,963		183,963		189,449		189,449
Mortgage loans on real estate, net of allowance		3,311,017		3,524,217		3,359,586		3,618,944
Policy loans		405,400		405,400		405,979		405,979
Short-term investments		430,242		430,242		431,000		431,000
Separate account assets		974,233		974,233		1,001,515		1,001,515

Total financial assets	$	19,787,788	$	20,350,374	$	20,051,364	$	20,738,585

Financial liabilities
Investment contracts	$	8,557,961	$	8,557,961	$	8,894,747	$	8,894,747
Embedded derivative liability for
equity-indexed contracts		208,827		208,827		208,187		208,187
Notes payable		122,464		122,464		108,177		108,177
Separate account liabilities		974,233		974,233		1,001,515		1,001,515

Total financial liabilities	$	9,863,485	$	9,863,485	$	10,212,626	$	10,212,626

Summary

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

Level 1

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

Level 2

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

Level 3

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

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

Note 9 – Fair Value of Financial Instruments – (Continued)

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

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

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

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

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

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

Mortgage Loans—The fair value of mortgage loans is estimated using discounted cash flow analyses 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.

Note 9 – Fair Value of Financial Instruments – (Continued)

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, 2015 and December 31, 2014, the one year implied volatility used to estimate embedded derivative value was 16.5% and 17.3%, 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 such that they cannot be separated from the policy contracts and the unpredictable timing of repayments and the fact 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.

Note 9 – Fair Value of Financial Instruments – (Continued)

Quantitative Disclosures

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


	Fair Value Measurement as of June 30, 2015
	Total Fair Value		Level 1		Level 2		Level 3
Financial assets
Fixed maturity securities, bonds held-to-maturity
U.S. states and political subdivisions	$	330,272	$	—	$	330,272	$	—
Foreign governments		5,038		—		5,038		—
Corporate debt securities		7,508,577		—		7,453,341		55,236
Residential mortgage-backed securities		321,161		—		320,215		946
Collateralized debt securities		2,082		—		—		2,082
Other debt securities		16,988		—		12,682		4,306

Total bonds held-to-maturity		8,184,118		—		8,121,548		62,570

Fixed maturity securities, bonds available-for-sale
U.S. treasury and government		24,808		—		24,808		—
U.S. states and political subdivisions		898,664		—		896,164		2,500
Foreign governments		6,827		—		6,827		—
Corporate debt securities		4,158,502		—		4,097,421		61,081
Residential mortgage-backed securities		33,525		—		31,719		1,806
Collateralized debt securities		9,631		—		7,818		1,813

Total bonds available-for-sale		5,131,957		—		5,064,757		67,200

Equity securities
Common stock		1,490,774		1,490,774		—		—
Preferred stock		25,470		25,470		—		—

Total equity securities		1,516,244		1,516,244		—		—

Options		183,963		—		—		183,963
Mortgage loans on real estate		3,524,217		—		3,524,217		—
Policy loans		405,400		—		—		405,400
Short-term investments		430,242		—		430,242		—
Separate account assets		974,233		—		974,233		—

Total financial assets	$	20,350,374	$	1,516,244	$	18,114,997	$	719,133

Financial liabilities
Investment contracts	$	8,557,961	$	—	$	—	$	8,557,961
Embedded derivative liability for equity-indexed contracts		208,827		—		—		208,827
Notes payable		122,464		—		—		122,464
Separate account liabilities		974,233		—		974,233		—

Total financial liabilities	$	9,863,485	$	—	$	974,233	$	8,889,252

Note 9 – Fair Value of Financial Instruments – (Continued)


	Fair Value Measurement as of December 31, 2014
	Total Fair Value		Level 1		Level 2		Level 3
Financial assets
Fixed maturity securities, bonds held-to-maturity
U.S. states and political subdivisions	$	349,760	$	—	$	349,760	$	—
Foreign governments		30,423		—		30,423		—
Corporate debt securities		7,894,725		—		7,833,564		61,161
Residential mortgage-backed securities		357,635		—		356,670		965
Collateralized debt securities		2,470		—		—		2,470
Other debt securities		17,900		—		12,975		4,925

Total bonds held-to-maturity		8,652,913		—		8,583,392		69,521

Fixed maturity securities, bonds available-for-sale
U.S. treasury and government		23,233		—		23,233		—
U.S. states and political subdivisions		837,616		—		835,106		2,510
Foreign governments		7,021		—		7,021		—
Corporate debt securities		4,000,049		—		3,941,925		58,124
Residential mortgage-backed securities		42,399		—		40,473		1,926
Collateralized debt securities		11,489		—		9,616		1,873

Total bonds available-for-sale		4,921,807		—		4,857,374		64,433

Equity securities
Common stock		1,487,125		1,487,125		—		—
Preferred stock		29,853		29,853		—		—

Total equity securities		1,516,978		1,516,978		—		—

Options		189,449		—		—		189,449
Mortgage loans on real estate		3,618,944		—		3,618,944		—
Policy loans		405,979		—		—		405,979
Short-term investments		431,000		—		431,000		—
Separate account assets		1,001,515		—		1,001,515		—

Total financial assets	$	20,738,585	$	1,516,978	$	18,492,225	$	729,382

Financial liabilities
Investment contracts	$	8,894,747	$	—	$	—	$	8,894,747
Embedded derivative liability for equity-indexed contracts		208,187		—		—		208,187
Notes payable		108,177		—		—		108,177
Separate account liabilities		1,001,515		—		1,001,515		—

Total financial liabilities	$	10,212,626	$	—	$	1,001,515	$	9,211,111

Note 9 – Fair Value of Financial Instruments – (Continued)

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
	Investment Securities			Equity- Indexed Options			Embedded Derivative			Investment Securities			Equity- Indexed Options			Embedded Derivative
Beginning balance, 2015	$	65,299		$	188,006		$	208,412		$	64,433		$	189,449		$	208,187
Total realized and unrealized investment gains (losses) included in other comprehensive income		(1,105	)		—			—			(168	)		—			—
Net fair value change included in realized gains (losses)		—			—			—			—			—			—
Net gain (loss) for derivatives included in net investment income		—			(3,880	)		—			—			(4,623	)		—
Net change included in interest credited		—			—			(4,413	)		—			—			(3,217	)
Purchases, sales and settlements or maturities
Purchases		—			5,825			—			—			9,588			—
Sales		(60	)		—			—			(121	)		—			—
Settlements or maturities		(332	)		(5,988	)		—			(342	)		(10,451	)		—
Premiums less benefits		—			—			4,828			—			—			3,857
Gross transfers into Level 3		3,398			—			—			3,398			—			—
Gross transfers out of Level 3		—			—			—			—			—			—

Ending balance June 30, 2015	$	67,200		$	183,963		$	208,827		$	67,200		$	183,963		$	208,827

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
Gross transfers into Level 3		—			—			—			—			—			—
Gross transfers out of Level 3		—			—			—			—			—			—

Ending balance June 30, 2014	$	11,932		$	163,861		$	186,261		$	11,932		$	163,861		$	186,261

Within the net gain (loss) for derivatives included in net investment income were unrealized gains (losses) of $(10,602,000) and $3,641,000 relating to assets still held at June 30, 2015 and 2014, respectively.

The transfers during the three and six months ended June 30, 2015 into Level 3 were the result of existing securities no longer being priced by the third-party pricing service at the end of the period. American National’s valuation of these securities involves judgment regarding assumptions market participants would use including quotes from independent brokers. There were no transfers between fair value hierarchies during the three or six months ended June 30, 2014.

Note 10 – Deferred Policy Acquisition Costs

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


	Life			Annuity			Accident & Health			Property & Casualty			Total
Beginning balance, 2015	$	711,469		$	382,441		$	47,784		$	111,850		$	1,253,544
Additions		53,632			20,233			7,041			114,951			195,857
Amortization		(38,567	)		(41,763	)		(8,778	)		(113,825	)		(202,933	)
Effect of change in unrealized gains on available-for-sale securities		4,689			12,991			—			—			17,680

Net change		19,754			(8,539	)		(1,737	)		1,126			10,604

Ending balance at June 30, 2015	$	731,223		$	373,902		$	46,047		$	112,976		$	1,264,148

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

Note 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 “Policy and contract claims” in the consolidated statements of financial position and is 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 and 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,
	2015			2014
Unpaid claims balance, beginning	$	1,132,394		$	1,096,301
Less reinsurance recoverables		245,906			215,161

Net beginning balance		886,488			881,140

Incurred related to
Current		485,872			472,008
Prior years		(14,189	)		(10,860	)

Total incurred claims		471,683			461,148

Paid claims related to
Current		246,056			224,618
Prior years		208,300			199,925

Total paid claims		454,356			424,543

Net balance		903,815			917,745
Plus reinsurance recoverables		222,376			228,340

Unpaid claims balance, ending	$	1,126,191		$	1,146,085

The net and gross reserve calculations have shown favorable development 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 $14,189,000 during the first six months of 2015 and $10,860,000 during the first six months of 2014, reflecting lower-than-anticipated losses on illnesses.

Note 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,
	2015						2014						2015						2014
							(As Adjusted)												(As Adjusted)
	Amount			Rate			Amount			Rate			Amount			Rate			Amount			Rate
Income tax on pre-tax income	$	17,292			35.0	%	$	23,073			35.0	%	$	49,268			35.0	%	$	49,137			35.0	%
Tax-exempt investment income		(1,946	)		(3.9	)		(1,602	)		(2.4	)		(3,825	)		(2.7	)		(3,155	)		(2.2	)
Dividend exclusion		(1,864	)		(3.8	)		(1,665	)		(2.5	)		(3,947	)		(2.8	)		(3,553	)		(2.5	)
Miscellaneous tax credits, net		(2,541	)		(5.1	)		(1,664	)		(2.5	)		(4,472	)		(3.2	)		(3,215	)		(2.3	)
Low income housing tax credit expense		1,221			2.5			225			0.4			2,485			1.8			1,646			1.2
Other items, net		2,886			5.8			3,416			5.2			1,425			1.0			3,831			2.7

Total	$	15,048			30.5	%	$	21,783			33.2	%	$	40,934			29.1	%	$	44,691			31.9	%

American National made payments of $25,080,000 and $30,913,000 during the six months ended June 30, 2015 and 2014, respectively.

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, 2015 and 2014. There are no ordinary loss tax carryforwards that will expire by December 31, 2015.

The statute of limitations for the examination of federal income tax returns by the Internal Revenue Service for years 2006 to 2009 has been extended. In the opinion of management, all prior year deficiencies have been paid or adequate provisions have been made for any tax deficiencies that may be upheld. No provision for penalties was established, and no interest expense was incurred for 2015 or 2014 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.

Note 13 – Accumulated Other Comprehensive Income (Loss)

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


	Net Unrealized Gains/(Losses) on Securities			Defined Benefit Pension Plan Adjustments			Foreign Currency Adjustments			AOCI
Beginning balance, 2015	$	568,151		$	(76,074	)	$	(1,295	)	$	490,782
Amounts reclassified from AOCI (net of tax benefit $12,334 and expense $1,633)		(22,905	)		3,032			—			(19,873	)
Unrealized holding losses arising during the period (net of tax benefit $19,566)		(36,337	)								(36,337	)
Unrealized adjustment to DAC (net of tax expense $6,510)		11,170									11,170
Unrealized gains on investments attributable to participating policyholders’ interest (net of tax expense $953)		1,769									1,769
Foreign currency adjustment (net of tax benefit $350)								(650	)		(650	)

Ending balance at June 30, 2015	$	521,848		$	(73,042	)	$	(1,945	)	$	446,861

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 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 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

Note 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, 2015			December 31, 2014
Common stock
Shares issued		30,832,449			30,832,449
Treasury shares		(3,938,280	)		(3,960,507	)

Outstanding shares		26,894,169			26,871,942
Restricted shares		(78,667	)		(142,667	)

Unrestricted outstanding shares		26,815,502			26,729,275

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. Incentive awards under this plan are made to officers meeting established performance objectives. All awards are subject to review and approval, both at the time of setting applicable performance objectives and at payment of the awards. The number of shares available for grants under the plan cannot exceed 2,900,000 shares, and no more than 200,000 shares may be granted to any one individual in any calendar year. Grants are made to certain officers and directors as compensation and to align their interests with those of other shareholders.

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


	SAR					RS Shares					RS Units
	Shares			Weighted- Average Grant Date Fair Value		Shares			Weighted- Average Grant Date Fair Value		Units			Weighted- Average Grant Date Fair Value
Outstanding at December 31, 2014		54,930		$	114.86		142,667		$	107.39		128,214		$	95.82
Granted		—			—		—			—		83,093			104.75
Exercised		(116	)		73.97		(64,000	)		102.60		(70,494	)		90.56
Forfeited		—			—		—			—		(198	)		—
Expired		(15,196	)		115.10		—			—		—			—

Outstanding at June 30, 2015		39,618		$	114.88		78,667		$	111.28		140,615		$	103.73


	SAR			RS Shares		RS Units
Weighted-average contractual remaining life (in years)		1.64			3.86		2.16
Exercisable shares		39,604			N/A		—
Weighted-average exercise price	$	114.88		$	111.28	$	103.73
Weighted-average exercise price exercisable shares		114.90			N/A		N/A
Compensation expense (credits)
Three months ended June 30, 2015	$	10,000		$	276,000	$	1,127,000
Three months ended June 30, 2014		(4,000	)		1,576,000		465,000
Six months ended June 30, 2015		(67,000	)		653,000		4,307,000
Six months ended June 30, 2014		(13,000	)		2,081,000		668,000
Fair value of liability award
June 30, 2015	$	41,000			N/A	$	18,012,000
December 31, 2014		167,000			N/A		16,301,000

Note 14 – Stockholders’ Equity and Noncontrolling Interests – (Continued)

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

RSU awards allow the recipient of the awards to settle the vested RSUs in either shares of American National’s common stock or cash. RSUs vest after a three-year graded vesting requirement or over a shorter period as a result of death, disability or retirement after age 65.

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 awards for 350,334 shares have been granted at an exercise price of zero, of which 78,667 shares are unvested.

Earnings per share

Basic earnings per share were calculated using a weighted average number of shares outstanding. The Restricted Stock awards and units resulted in diluted earnings per share as follows:


	Three months ended June 30,				Six months ended June 30,
	2015		2014		2015		2014
			(As Adjusted)				(As Adjusted)
Weighted average shares outstanding		26,877,833		26,802,896		26,847,936		26,799,648
Incremental shares from RS awards and RSUs		74,274		123,455		93,541		124,981

Total shares for diluted calculations		26,952,107		26,926,351		26,941,477		26,924,629

Net income attributable to American National (in thousands)	$	35,053	$	57,174	$	138,035	$	109,428
Basic earnings per share	$	1.30	$	2.13	$	5.14	$	4.08
Diluted earnings per share		1.30		2.11		5.12		4.06

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, 2015 and December 31, 2014, American National Insurance Company’s statutory capital and surplus was $2,960,102,000 and $2,879,154,000, respectively. American National Insurance Company and each of its insurance subsidiaries had statutory capital and surplus at June 30, 2015 and December 31, 2014, substantially above their authorized control level RBC.

Note 14 – Stockholders’ Equity and Noncontrolling Interests – (Continued)

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 $64,225,000 and $58,560,000 at June 30, 2015 and June 30, 2014, respectively. Additionally, the statutory capital and surplus of both American National Insurance Company and the Missouri domiciled insurance subsidiary would have remained substantially above the company action level RBC had it not used the permitted practice.

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


							June 30, 2015		December 31, 2014
Statutory capital and surplus
Life insurance entities							$	1,976,079	$	1,904,128
Property and casualty insurance entities								993,086		984,155

	Three months ended June 30,						Six months ended June 30,
	2015			2014			2015		2014
Statutory net income
Life insurance entities	$	33,147		$	41,064		$	79,241	$	96,118
Property and casualty insurance entities		(1,111	)		(1,045	)		13,937		22,134

Dividends

American National Insurance Company’s payment of dividends to stockholders is restricted by statutory regulations. The restrictions require life insurance companies to maintain minimum amounts of capital and surplus, and in the absence of special approval, limit the payment of dividends to the greater of 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 $287,915,000 during 2015, 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.

Note 14 – Stockholders’ Equity and Noncontrolling Interests – (Continued)

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, 2015 and December 31, 2014.

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 $4,384,000 and $5,634,000 at June 30, 2015 and December 31, 2014, respectively.

Note 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, as well as independent agents and direct marketing channels.

•

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

•

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

•

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

•

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

The accounting policies of the segments are the same as those described in Note 2 to American National’s annual report on from 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.

Note 15 – Segment Information – (Continued)

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


	Three months ended June 30,					Six months ended June 30,
	2015			2014		2015		2014
Income from continuing operations before federal income taxes, and equity in earnings/losses of unconsolidated affiliates
Life	$	7,131		$	13,104	$	15,330	$	11,282
Annuity		17,122			28,344		34,235		46,049
Health		5,360			10,821		12,903		10,275
Property and Casualty		(1,444	)		190		8,778		29,702
Corporate and Other		21,238			13,463		69,520		43,082

Total	$	49,407		$	65,922	$	140,766	$	140,390

Note 16 – Commitments and Contingencies

Commitments

American National had aggregate commitments at June 30, 2015, to purchase, expand or improve real estate, to fund fixed interest rate mortgage loans, and to purchase other invested assets of $675,294,000 of which $403,319,000 is expected to be funded in 2015 with the remainder funded in 2016 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, 2015 and December 31, 2014, the outstanding letters of credit were $12,214,000, and there were no borrowings on this facility to meet liquidity requirements. This facility expires on October 30, 2015. American National expects it will be renewed on substantially equivalent terms upon expiration.

Guarantees

American National has guaranteed bank loans for customers of a third-party marketing operation. The bank loans are used to fund premium payments on life insurance policies issued by American National. The loans are secured by the cash values of the life insurance policies. If the customer were to default on the bank loan, American National would be obligated to pay off the loans. As the cash values of the life insurance policies always equal or exceed the balance of the loans, management does not foresee any loss on these guarantees. The total amount of the guarantees outstanding as of June 30, 2015, was approximately $206,376,000, while the total cash value of the related life insurance policies was approximately $210,436,000.

Litigation

American National and certain subsidiaries, in common with the insurance industry in general, are defendants in various lawsuits concerning alleged breaches of contracts, various employment matters, allegedly deceptive insurance sales and marketing practices, and miscellaneous other causes of action arising in the ordinary course of operations. Certain of these lawsuits include claims for compensatory and punitive damages. We provide accruals for these items to the extent we deem the losses probable and reasonably estimable. After reviewing these matters with legal counsel, based upon information presently available, management is of the opinion that the ultimate resultant liability, if any, would not have a material adverse effect on American National’s consolidated financial position, liquidity or results of operations; however, assessing the eventual outcome of litigation necessarily involves forward-looking speculation as to judgments to be made by judges, juries and appellate courts in the future.

Note 16 – Commitments and Contingencies – (Continued)

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.

Note 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 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, 2015			December 31, 2014
Related Party	Financial Statement Line Impacted	2015		2014		June 30, 2015			December 31, 2014
Gal-Tex Hotel Corporation	Mortgage loan on real estate	$	651	$	606	$	5,857		$	6,508
Gal-Tex Hotel Corporation	Net investment income		226		272		35			39
Greer, Herz & Adams, LLP	Other operating expenses		4,012		5,709		(347	)		(309	)

Mortgage Loans to Gal-Tex Hotel Corporation (“Gal-Tex”): American National holds a first mortgage loan originated in 1999, with an interest rate of 7.25% 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, LLP.: Irwin M. Herz, Jr. is an American National advisory director and a Partner with Greer, Herz & Adams, LLP., which serves as American National’s General Counsel.

ITEM 2.

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

Set forth on the following pages is management’s discussion and analysis (“MD&A”) of financial condition and results of operations for the three months ended June 30, 2015 and 2014 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 2014 Annual Report on Form 10-K filed with the SEC on February 27^th, 2015, and they include among others:

•

Economic & Investment 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;

•

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;

•

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;

•

Catastrophic Event Risk Factors

•

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

•

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

•

Marketplace Risk Factors

•

the highly competitive nature of the insurance and annuity business;

•

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

•

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

•

Litigation and Regulation Risk Factors

•

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

•

significant changes in government regulation;

•

changes in tax law;

•

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

•

Reinsurance and Counterparty Risk Factors

•

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

•

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

•

Other Risk Factors

•

potentially adverse rating agency actions; and

•

control of our company by a small number of stockholders.

Overview

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

General Trends

American National had no material changes to the general trends, as discussed in the MD&A included in our 2014 Annual Report on Form 10-K filed with the SEC on February 27, 2015.

Critical Accounting Estimates

The unaudited interim consolidated financial statements have been prepared in conformity with GAAP. In addition to GAAP, insurance companies apply specific SEC regulations when preparing the consolidated financial statements. The preparation of the consolidated financial statements and notes requires us to make estimates and assumptions that affect the amounts reported. Actual results could differ from results reported using those estimates and assumptions. Our accounting policies inherently require the use of judgments relating to a variety of assumptions and estimates, particularly expectations of current and future mortality, morbidity, persistency, expenses, interest rates, and property and casualty loss frequency, severity, claim reporting and settlement patterns. Due to the inherent uncertainty when using the assumptions and estimates, the effect of certain accounting policies under different conditions or assumptions could vary from those reported in the consolidated financial statements.

For a discussion of our critical accounting estimates, see the MD&A in our 2014 Annual Report on Form 10-K filed with the SEC on February 27, 2015. There have been no material changes in accounting policies since December 31, 2014.

Recently Issued Accounting Pronouncements

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

Consolidated Results of Operations

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


	Three months ended June 30,								Six months ended June 30,
	2015		2014			Change			2015		2014		Change
Premiums and other revenues
Premiums	$	433,203	$	445,626		$	(12,423	)	$	875,046	$	910,501	$	(35,455	)
Other policy revenues		57,597		55,859			1,738			115,121		111,786		3,335
Net investment income		203,662		242,292			(38,630	)		412,875		461,115		(48,240	)
Realized investments gains (losses), net		13,296		1,289			12,007			52,573		26,760		25,813
Other income		9,748		9,720			28			18,458		17,060		1,398

Total premiums and other revenues		717,506		754,786			(37,280	)		1,474,073		1,527,222		(53,149	)

Benefits, losses and expenses
Policyholder benefits		127,334		141,512			(14,178	)		269,705		310,244		(40,539	)
Claims incurred		244,176		237,462			6,714			468,225		459,903		8,322
Interest credited to policyholders’ account balances		69,215		91,794			(22,579	)		144,968		175,206		(30,238	)
Commissions for acquiring and servicing policies		103,557		103,949			(392	)		196,672		202,384		(5,712	)
Other operating expenses		123,203		120,517			2,686			246,661		239,041		7,620
Change in deferred policy acquisition costs ⁽¹⁾		614		(6,370	)		6,984			7,076		54		7,022

Total benefits and expenses		668,099		688,864			(20,765	)		1,333,307		1,386,832		(53,525	)

Income before other items and federal income taxes	$	49,407	$	65,922		$	(16,515	)	$	140,766	$	140,390	$	376

(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 three months ended June 30, 2015 compared to 2014 primarily due to a decrease in net investment income, which outpaced the decrease in the related interest credited, partially offset by an increase in realized investment gains. Consolidated earnings increased during the six months ended June 30, 2015 compared to 2014 primarily due to an increase in realized investment gains partially offset by a decrease in net investment income.

Life

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


	Three months ended June 30,									Six months ended June 30,
	2015			2014			Change			2015			2014			Change
Premiums and other revenues
Premiums	$	75,071		$	72,678		$	2,393		$	147,153		$	144,673		$	2,480
Other policy revenues		54,174			51,995			2,179			108,600			103,604			4,996
Net investment income		56,372			57,677			(1,305	)		113,986			115,035			(1,049	)
Other income		607			352			255			1,030			689			341

Total premiums and other revenues		186,224			182,702			3,522			370,769			364,001			6,768

Benefits, losses and expenses
Policyholder benefits		91,184			82,485			8,699			179,188			173,765			5,423
Interest credited to policyholders’ account balances		14,112			15,871			(1,759	)		29,900			31,616			(1,716	)
Commissions for acquiring and servicing policies		32,532			32,269			263			59,848			61,732			(1,884	)
Other operating expenses		48,916			49,698			(782	)		101,568			101,514			54
Change in deferred policy acquisition costs ⁽¹⁾		(7,651	)		(10,725	)		3,074			(15,065	)		(15,908	)		843

Total benefits and expenses		179,093			169,598			9,495			355,439			352,719			2,720

Income before other items and federal income taxes	$	7,131		$	13,104		$	(5,973	)	$	15,330		$	11,282		$	4,048

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

Earnings decreased during the three months ended June 30, 2015 compared to 2014 primarily due to an increase in policyholder benefits. Earnings increased during the six months ended June 30, 2015 compared to 2014 primarily due to increases in premiums on traditional products and other policy revenues on interest-sensitive products.

Premiums and other revenues

Premiums increased during the three and six months ended June 30, 2015 compared to 2014 due to the growth of our traditional insurance business.

Other policy revenues include mortality charges, earned policy service fees and surrender charges on interest-sensitive life insurance policies. The increase in other policy revenue during the three and six months ended June 30, 2015 compared to 2014 is attributable to an increase in surrender charges on interest sensitive life policies.

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 sold by an insurance company during the period (in thousands):


	Three months ended June 30,							Six months ended June 30,
	2015		2014		Change			2015		2014		Change
Whole life	$	6,616	$	6,689	$	(73	)	$	13,712	$	13,417	$	295
Term life		7,596		7,626		(30	)		14,698		15,147		(449	)
Universal life		9,708		8,981		727			18,101		17,811		290

Total recurring	$	23,920	$	23,296	$	624		$	46,511	$	46,375	$	136

Single and excess	$	562	$	479	$	83		$	913	$	935	$	(22	)
Credit life		1,082		1,029		53			2,042		1,932		110

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 increased during the three months ended June 30, 2015 compared to 2014 primarily driven by increased Indexed Universal Life sales. For the six months ended June 30, 2015, total recurring life sales remained relatively constant with 2014.

Benefits, losses and expenses

Policyholder benefits increased during the six months ended June 30, 2015 compared to 2014 primarily due to an increase in reserves.

Commissions were relatively flat during the three months ended June 30, 2015 compared to 2014. Commissions decreased during the six months ended June 30, 2015 compared to 2014 primarily due to the portion of commissions being paid on renewal premiums, which carry a lower commission rate.

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


	Three months ended June 30,									Six months ended June 30,
	2015			2014			Change			2015			2014			Change
Acquisition cost capitalized	$	28,594		$	27,702		$	892		$	53,632		$	50,990		$	2,642
Amortization of DAC		(20,943	)		(16,977	)		(3,966	)		(38,567	)		(35,082	)		(3,485	)

Change in DAC	$	7,651		$	10,725		$	(3,074	)	$	15,065		$	15,908		$	(843	)

Policy in-force information

The following table summarizes changes in the Life segment’s in-force amounts (in thousands):


	June 30, 2015		December 31, 2014		Change
Life insurance in-force
Traditional life	$	61,927,193	$	59,409,750	$	2,517,443
Interest-sensitive life		26,556,767		26,166,314		390,453

Total life insurance in-force	$	88,483,960	$	85,576,064	$	2,907,896

The following table summarizes changes in the Life segment’s number of policies in-force:


	June 30, 2015		December 31, 2014		Change
Number of policies in-force
Traditional life		1,914,036		1,949,119		(35,083	)
Interest-sensitive life		209,661		205,805		3,856

Total number of policies		2,123,697		2,154,924		(31,227	)

Total life insurance in-force increased during the six months ended June 30, 2015 compared to 2014, while the total number of policies decreased for the same period, reflecting the transition to fewer but 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,
	2015		2014		Change			2015		2014		Change
Premiums and other revenues
Premiums	$	25,088	$	46,653	$	(21,565	)	$	66,531	$	113,589	$	(47,058	)
Other policy revenues		3,423		3,864		(441	)		6,521		8,182		(1,661	)
Net investment income		113,205		145,143		(31,938	)		232,867		275,457		(42,590	)
Other income		1,012		—		1,012			1,882		—		1,882

Total premiums and other revenues		142,728		195,660		(52,932	)		307,801		397,228		(89,427	)

Benefits, losses and expenses
Policyholder benefits		36,150		59,027		(22,877	)		90,517		136,479		(45,962	)
Interest credited to policyholders’ account balances		55,103		75,923		(20,820	)		115,068		143,590		(28,522	)
Commissions for acquiring and servicing policies		11,349		13,007		(1,658	)		20,454		26,571		(6,117	)
Other operating expenses		12,948		13,145		(197	)		25,997		30,929		(4,932	)
Change in deferred policy acquisition costs ⁽¹⁾		10,056		6,214		3,842			21,530		13,610		7,920

Total benefits and expenses		125,606		167,316		(41,710	)		273,566		351,179		(77,613	)

Income before other items and federal income taxes	$	17,122	$	28,344	$	(11,222	)	$	34,235	$	46,049	$	(11,814	)

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

Earnings decreased during the three and six months ended June 30, 2015 compared to 2014 as a decrease in premiums reflected the challenges of the continued low interest rate environment. This was partially offset by items that fluctuate with changes in premium, such as policyholder benefits, commissions and allocated expenses. Net investment income declined due to maturing bonds and mortgage loans being replaced by new investments purchased with a decrease in interest yields and account values, as well as a decrease in option return relative to the related embedded derivative.

Premiums and other revenues

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


	Three months ended June 30,							Six months ended June 30,
	2015		2014		Change			2015		2014		Change
Fixed deferred annuity	$	58,151	$	95,533	$	(37,382	)	$	105,710	$	193,709	$	(87,999	)
Single premium immediate annuity		30,243		54,440		(24,197	)		79,853		130,248		(50,395	)
Equity-indexed deferred annuity		82,645		67,342		15,303			134,792		118,078		16,714
Variable deferred annuity		22,364		25,906		(3,542	)		48,827		60,446		(11,619	)

Total premium and deposits		193,403		243,221		(49,818	)		369,182		502,481		(133,299	)
Less: Policy deposits		168,315		196,568		(28,253	)		302,651		388,892		(86,241	)

Total earned premiums	$	25,088	$	46,653	$	(21,565	)	$	66,531	$	113,589	$	(47,058	)

We monitor account values and changes in those values as a key indicator of performance in our Annuity segment.

Shown below are the changes in account values (in thousands):


	Six months ended June 30,
	2015			2014
Fixed deferred and equity-indexed annuity
Account value, beginning of period	$	8,873,398		$	9,355,946
Net inflows		114,330			157,861
Surrenders		(557,427	)		(616,132	)
Fees		(3,378	)		(5,234	)
Interest credited		111,408			140,103

Account value, end of period	$	8,538,331		$	9,032,544

Single premium immediate annuity
Reserve, beginning of period	$	1,274,664		$	1,144,616
Net inflows		5,014			67,133
Interest and mortality		22,086			22,285

Reserve, end of period	$	1,301,764		$	1,234,034

Variable deferred annuity
Account value, beginning of period	$	494,516		$	489,305
Net inflows		47,649			59,974
Surrenders		(83,877	)		(71,185	)
Fees		(2,845	)		(2,842	)
Change in market value and other		(43,420	)		23,602

Account value, end of period	$	412,023		$	498,854

Deferred and Single Premium Immediate Annuity sales decreased during the six months ended June 30, 2015 compared to 2014. Benchmark 10 year treasury yields were 50-100 basis points lower in the first quarter of 2015, leading to less attractive interest crediting rates.

Variable deferred annuity net inflows decreased during the six months ended June 30, 2015 compared to 2014. These products have no guaranteed minimum withdrawal benefits. Our total direct exposure on the guaranteed minimum death benefits associated with these products was $0.7 million and $1.1 million as of June 30, 2015 and 2014, respectively. Reinsurance, from reinsurers rated “A” or higher by A.M. Best, reduced the net exposure to $0.2 million for June 30, 2015 and 2014.

Benefits, losses and expenses

Policyholder benefits consist of annuity payments and reserve increases for SPIA contracts. Reserve increases are highly correlated to the sales volume of SPIA contracts. Sales and benefits decreased for the six months ended June 30, 2015 compared to 2014, driven primarily by the continued low interest rate environment.

Commissions decreased during the six months ended June 30, 2015 compared to 2014 consistent with decreased annuity sales.

Other operating expenses decreased during the six months ended June 30, 2015 compared to 2014 due to a decrease in independent contractor bonuses and lower production.

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,
	2015			2014			Change			2015			2014			Change
Acquisition cost capitalized	$	11,278		$	11,673		$	(395	)	$	20,233		$	24,194		$	(3,961	)
Amortization of DAC		(21,334	)		(17,887	)		(3,447	)		(41,763	)		(37,804	)		(3,959	)

Change in DAC	$	(10,056	)	$	(6,214	)	$	(3,842	)	$	(21,530	)	$	(13,610	)	$	(7,920	)

The amortization of DAC as a percentage of gross profits is an important ratio for the Annuity segment. Changes in this ratio reflect the impact of emerging experience. For example, if surrenders in the year are higher than what was projected in last year’s DAC calculation, then DAC amortization will tend to increase relative to gross margins. The ratios for the six months ended June 30, 2015 and 2014 were 40.9% and 32.3%, respectively. The ratio for 2014 was lower than expected due to lower than projected surrenders in the second quarter of this year. The 2015 ratio is more in line with expectations.

Options and Derivatives

The following table reflects the incremental impact of option return to net investment income, and the impact of the equity-indexed annuity embedded derivatives to interest credited to policyholder’s account balances (in thousands):


	Three months ended June 30,								Six months ended June 30,
	2015			2014		Change			2015			2014		Change
Net investment income
Without option return	$	114,860		$	127,430	$	(12,570	)	$	233,697		$	254,157	$	(20,460	)
Option return		(1,655	)		17,713		(19,368	)		(830	)		21,300		(22,130	)
Interest credited to policy account balances
Without embedded derivatives		58,803			64,360		(5,557	)		117,761			129,544		(11,783	)
Equity-indexed annuity embedded derivatives		(3,700	)		11,563		(15,263	)		(2,693	)		14,046		(16,739	)

Net investment income without option return decreased during the three and six months ended June 30, 2015 compared to 2014, primarily due to a lower net investment portfolio yield and aggregate account values.

The option return, as well as the related equity-indexed annuity embedded derivatives, decreased during the three and six months ended June 30, 2015 compared to 2014, due to the relative change in the S&P 500 Index during the respective periods. These option returns correlate to the 0.2% decrease and 4.7% increase in the S&P 500 Index during the three months ended June 30, 2015 and 2014, respectively. The six months ended decrease correlates to the 0.2% and 6.1% return in the S&P 500 index for 2015 and 2014, respectively. The equity-indexed embedded derivative return also decreased for the three and six months ended June 30, 2015 due to policy surrenders. When a policy surrenders, the policyholder forfeits a portion of interest that was previously expected to be credited to the policy.

Health

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


	Three months ended June 30,								Six months ended June 30,
	2015		2014			Change			2015		2014			Change
Premiums and other revenues
Premiums	$	51,135	$	55,379		$	(4,244	)	$	102,972	$	110,715		$	(7,743	)
Net investment income		2,592		2,897			(305	)		5,245		5,835			(590	)
Other income		5,356		5,642			(286	)		9,925		10,255			(330	)

Total premiums and other revenues		59,083		63,918			(4,835	)		118,142		126,805			(8,663	)

Benefits, losses and expenses
Claims incurred		32,256		32,737			(481	)		64,053		76,666			(12,613	)
Commissions for acquiring and servicing policies		7,955		9,270			(1,315	)		15,146		17,343			(2,197	)
Other operating expenses		12,900		11,492			1,408			24,303		22,692			1,611
Change in deferred policy acquisition costs ⁽¹⁾		612		(402	)		1,014			1,737		(171	)		1,908

Total benefits and expenses		53,723		53,097			626			105,239		116,530			(11,291	)

Income before other items and federal income taxes	$	5,360	$	10,821		$	(5,461	)	$	12,903	$	10,275		$	2,628

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

Earnings decreased during the three months ended June 30, 2015 compared to 2014, primarily due to a decrease in premiums. Earnings increased during the six months ended June 30, 2015 compared to 2014 primarily due to a decrease in claims incurred, partially offset by a decrease in premiums earned. Claims incurred in the first quarter of 2014 included a $4.0 million charge relating to now settled reinsurance litigation.

Premiums and other revenues

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


	Three months ended June 30,								Six months ended June 30,
	2015				2014				2015				2014
Medicare Supplement	$	19,147	37.4	%	$	21,360	38.6	%	$	39,010	37.9	%	$	43,353	39.2	%
Medical expense		4,213	8.2			5,534	10.0			8,785	8.5			11,765	10.6
Group health		8,037	15.7			8,522	15.4			17,407	16.9			18,761	16.9
Credit accident and health		3,195	6.2			3,574	6.5			6,465	6.3			7,311	6.6
MGU		8,214	16.1			6,634	12.0			13,515	13.1			11,882	10.7
Supplemental Insurance		6,822	13.3			8,167	14.7			14,702	14.3			14,325	12.9
All other		1,507	3.1			1,588	2.8			3,088	3.0			3,318	3.1

Total	$	51,135	100.0	%	$	55,379	100.0	%	$	102,972	100.0	%	$	110,715	100.0	%

Earned premiums decreased during the three and six months ended June 30, 2015 compared to 2014 primarily due to the continued contraction of the closed medical expense blocks of business, and a decrease in Medicare Supplement contract sales. The decline in Medicare Supplement earned premium reflects a sales shift to a lower premium high deductible Medicare Supplement Plan. For the three months ended June 30, 2015 there was also a notable decrease in supplemental product sales due to recent Affordable Care Act regulations that required the discontinuation of a previously sold product.

The number of in-force certificates and policies as of the dates indicated are as follows:


	June 30, 2015				December 31, 2014
Medicare Supplement		36,230	6.2	%		38,245	6.0	%
Medical expense		2,892	0.5			3,313	0.5
Group		16,974	2.9			16,877	2.6
Credit accident and health		208,046	35.5			227,790	35.8
MGU		217,092	37.0			239,537	37.6
Supplemental Insurance		65,971	11.3			70,207	11.0
All other		39,097	6.6			41,417	6.5

Total		586,302	100.0	%		637,386	100.0	%

Total in-force policies decreased during the six months ended June 30, 2015 compared to December 31, 2014, primarily due to a decrease in the MGU line, credit accident and health business, and supplemental insurance. MGU inforce certificate counts decreased in the first half of 2015 primarily as a result of removing poorer performing groups by several MGU’s. New Business has been originated during the year to date and it is anticipated that premiums written for these groups will replace portions of the cancelled groups. Credit accident and health decreased due to contraction in that market as distributors continued to shift their marketing emphasis to property and casualty products.

Benefits, losses and expenses

Claims incurred decreased due to the contraction of the Medicare Supplement and Supplemental Insurance blocks consistent with the decline in sales for those two lines. Additionally, the first quarter of 2014 included a $4.0 million charge relating to now settled reinsurance litigation.

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,
	2015			2014			Change			2015			2014			Change
Acquisition cost capitalized	$	3,087		$	5,175		$	(2,088	)	$	7,041		$	9,463		$	(2,422	)
Amortization of DAC		(3,699	)		(4,773	)		1,074			(8,778	)		(9,292	)		514

Change in DAC	$	(612	)	$	402		$	(1,014	)	$	(1,737	)	$	171		$	(1,908	)

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,
	2015			2014			Change			2015			2014			Change
Premiums and other revenues
Net premiums written	$	311,376		$	295,538		$	15,838		$	598,320		$	572,536		$	25,784

Net premiums earned	$	281,909		$	270,916		$	10,993		$	558,390		$	541,524		$	16,866
Net investment income		14,226			14,746			(520	)		28,632			29,929			(1,297	)
Other income		1,432			1,391			41			2,572			2,645			(73	)

Total premiums and other revenues		297,567			287,053			10,514			589,594			574,098			15,496

Benefits, losses and expenses
Claims incurred		211,920			204,725			7,195			404,172			383,237			20,935
Commissions for acquiring and servicing policies		51,722			49,405			2,317			101,225			96,738			4,487
Other operating expenses		37,772			34,190			3,582			76,545			61,898			14,647
Change in deferred policy acquisition costs ⁽¹⁾		(2,403	)		(1,457	)		(946	)		(1,126	)		2,523			(3,649	)

Total benefits and expenses		299,011			286,863			12,148			580,816			544,396			36,420

Income before other items and federal income taxes	$	(1,444	)	$	190		$	(1,634	)	$	8,778		$	29,702		$	(20,924	)

Loss ratio		75.2	%		75.6	%		(0.4	)		72.4	%		70.8	%		1.6
Underwriting expense ratio		30.9			30.4			0.5			31.6			29.9			1.7

Combined ratio		106.1	%		106.0	%		0.1			104.0	%		100.7	%		3.3

Impact of catastrophe events on combined ratio		12.5			10.8			1.7			8.5			8.0			0.5

Combined ratio without impact of catastrophe events		93.6	%		95.2	%		1.6			95.5	%		92.7	%		(2.8	)

Gross catastrophe losses	$	35,008		$	28,046		$	6,962		$	47,639		$	41,106		$	6,533
Net catastrophe losses		34,806			28,504			6,302			47,290			42,143			5,147

(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 decreased during the three and six months ended June 30, 2015 compared to 2014 due to increased claims and other operating expenses.

Premiums and other revenues

Net premiums written and earned increased during the three and six months ended June 30, 2015 compared to 2014 due to increases in the commercial lines.

Benefits, losses and expenses

Claims incurred increased during the six months ended June 30, 2015 compared to 2014, as a result of first quarter increases in non-catastrophe weather related losses and an increase in the severity of losses due to fire. The increase in claims during the three months ended June 30, 2015 compared to 2014, were primarily a result of increases in catastrophe losses.

Operating expenses increased during the three and six months ended June 30, 2015 compared to 2014 as a result of costs related to growth initiatives.

Products

Our Property and Casualty segment consists of: (i) Personal products, marketed primarily to individuals, representing 56.1% of net premiums written (ii) Commercial products, which focus primarily on agricultural and other markets, representing 35.4% of net premiums written and (iii) Credit-related property insurance products, which are marketed to and through financial institutions and retailers, representing 8.5% of net premiums written.

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,
	2015			2014			Change			2015			2014			Change
Net premiums written
Automobile	$	102,100		$	99,988		$	2,112		$	205,775		$	202,098		$	3,677
Homeowner		60,728			60,722			6			108,450			109,221			(771	)
Other Personal		10,932			9,696			1,236			21,457			19,280			2,177

Total net premiums written	$	173,760		$	170,406		$	3,354		$	335,682		$	330,599		$	5,083

Net premiums earned
Automobile	$	101,156		$	99,799		$	1,357		$	200,149		$	198,655		$	1,494
Homeowner		54,649			53,739			910			109,341			108,079			1,262
Other Personal		10,135			8,960			1,175			20,021			17,752			2,269

Total net premiums earned	$	165,940		$	162,498		$	3,442		$	329,511		$	324,486		$	5,025

Loss ratio
Automobile		81.5	%		79.1	%		2.4			79.1	%		74.5	%		4.6
Homeowner		89.9			97.2			(7.3	)		76.1			82.8			(6.7	)
Other Personal		50.1			16.5			33.6			62.4			28.1			34.3
Personal line loss ratio		82.4	%		81.6	%		0.8			77.1	%		74.7	%		2.4
Combined Ratio
Automobile		106.5	%		103.8	%		2.7			104.2	%		96.7	%		7.5
Homeowner		116.7			125.5			(8.8	)		103.2			107.4			(4.2	)
Other Personal		73.0			36.3			36.7			87.2			45.7			41.5
Personal line combined ratio		107.8	%		107.5	%		0.3			102.9	%		97.5	%		5.4

Personal Automobile: Net premiums written and earned increased in our personal automobile line during the three and six months ended June 30, 2015 compared to 2014, due to increases in sales volume and improved rate adequacy. The loss ratio increased during the three and six months ended June 30, 2015 compared to 2014, primarily due to an increase in non-catastrophe weather related claim activity compared to the prior year.

Homeowners: Net premiums written decreased during the six months ended June 30, 2015 compared to 2014, primarily due to decreased writings in higher risk areas. The loss ratio improved during the three and six months ended June 30, 2015 compared to 2014 due to continued improvement in 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 ratio increased during the three and six months ended June 30, 2015 compared to 2014, due to increased catastrophe claim activity in the rental-owners line.

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,
	2015			2014			Change			2015			2014			Change
Net premiums written
Other Commercial	$	49,341		$	44,018		$	5,323		$	93,354		$	84,522		$	8,832
Agricultural Business		35,493			33,560			1,933			65,773			62,796			2,977
Automobile		26,034			24,978			1,056			52,569			50,151			2,418

Total net premiums written	$	110,868		$	102,556		$	8,312		$	211,696		$	197,469		$	14,227

Net premiums earned
Other Commercial	$	38,254		$	34,813		$	3,441		$	74,632		$	68,206		$	6,426
Agricultural Business		29,924			29,865			59			59,164			58,863			301
Automobile		21,616			19,734			1,882			42,851			38,782			4,069

Total net premiums earned	$	89,794		$	84,412		$	5,382		$	176,647		$	165,851		$	10,796

Loss ratio
Other Commercial		65.7	%		104.7	%		(39.0	)		66.4	%		90.4	%		(24.0	)
Agricultural Business		84.3			46.8			37.5			85.9			62.4			23.5
Automobile		70.9			74.0			(3.1	)		72.1			70.8			1.3
Commercial line loss ratio		73.1	%		77.0	%		(3.9	)		74.3	%		75.9	%		(1.6	)
Combined ratio
Other Commercial		94.5	%		127.9	%		(33.4	)		95.3	%		118.9	%		(23.6	)
Agricultural Business		124.8			77.2			47.6			125.5			98.5			27.0
Automobile		96.2			106.0			(9.8	)		97.6			96.4			1.2
Commercial line combined ratio		105.0	%		104.8	%		0.2			106.0	%		106.4	%		(0.4	)

Other Commercial: Net premiums written and earned increased during the three and six months ended June 30, 2015 compared to 2014, primarily due to increased premium per policy in the workers’ compensation and business owners’ lines. Improvement in the loss and combined ratios for the three and six months ended June 30, 2015 compared to 2014 are primarily due to favorable case reserve development on workers compensation claims.

Agricultural Business: Our agricultural business product allows policyholders to customize and cover their agriculture exposure using a package policy which includes coverage for residences and household contents, farm buildings and building contents, personal and commercial liability and personal property. Net premiums written and earned increased during the three and six months ended June 30, 2015 compared to 2014 primarily as a result of improved rate adequacy. The loss and combined ratio increased during the three and six months ended June 30, 2015 compared to 2014 primarily due to an increase in both frequency of catastrophe claims as well as severity of fire losses.

Commercial Automobile: Net premiums written and earned increased during the three and six months ended June 30, 2015 compared to 2014, primarily due to improved rate adequacy. The loss and combined ratios increased during the six months ended June 30, 2015 compared to 2014 primarily due to an increase in overall average severity of losses.

Credit Products

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


	Three months ended June 30,									Six months ended June 30,
	2015			2014			Change			2015			2014			Change
Net premiums written	$	26,748		$	22,586		$	4,162		$	50,942		$	44,468		$	6,474
Net premiums earned		26,175			24,007			2,168			52,232			51,187			1,045
Loss ratio		36.6	%		29.3	%		7.3	%		36.3	%		29.2	%		7.1	%
Combined ratio		104.0	%		101.2	%		2.8	%		105.8	%		102.5	%		3.3	%

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

Net written and earned premiums increased during the three and six months ended June 30, 2015 compared to 2014 primarily due to increases in our Guaranteed Auto Protection (GAP) and Collateral Protection business.

The loss and combined ratios increased during the three and six months ended June 30, 2015 compared to 2014 primarily due to an increase in claims in our GAP and 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,
	2015			2014			Change			2015			2014		Change
Other revenues
Net investment income	$	17,267		$	21,829		$	(4,562	)	$	32,145		$	34,859	$	(2,714	)
Realized investments gains, net		13,296			1,289			12,007			52,573			26,760		25,813
Other Income		1,341			2,335			(994	)		3,049			3,471		(422	)

Total other revenues		31,904			25,453			6,451			87,767			65,090		22,677

Benefits, losses and expenses
Commissions		(1	)		(2	)		1			(1	)		—		(1	)
Other operating expenses		10,667			11,992			(1,325	)		18,248			22,008		(3,760	)

Total benefits, losses and expenses		10,666			11,990			(1,324	)		18,247			22,008		(3,761	)

Income before other items and federal income taxes	$	21,238		$	13,463		$	7,775		$	69,520		$	43,082	$	26,438

Earnings increased during the three and six months ended June 30, 2015 compared to 2014 primarily due to an increase in realized investment gains. The increase in realized gains is attributable to the sale of equity securities and the first quarter 2015 sale of investment real estate property.

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 oversight by our Board of Directors, which is assisted by our Finance Committee and Management Risk Committee.

Our insurance and annuity products are primarily supported by investment-grade bonds, and to a lesser extent collateralized mortgage obligations and commercial mortgage loans. We purchase fixed maturity securities and designate them as either held-to-maturity or available-for-sale considering our estimated future cash flow needs.

We also monitor the composition of our fixed maturity securities classified as held-to-maturity and available-for-sale and adjust the mix within the portfolio as investments mature or new investments are purchased.

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

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


	June 30, 2015				December 31, 2014
Bonds held-to-maturity, at amortized cost	$	7,834,732	40.4	%	$	8,225,050	42.0	%
Bonds available-for-sale, at fair value		5,131,957	26.5			4,921,807	25.2
Equity securities, at fair value		1,516,244	7.8			1,516,978	7.8
Mortgage loans on real estate, net of allowance		3,311,017	17.1			3,359,586	17.2
Policy loans		405,400	2.1			405,979	2.1
Investment real estate, net of accumulated depreciation		514,497	2.7			479,062	2.4
Short-term investments		430,242	2.2			431,000	2.2
Other invested assets		228,087	1.2			220,255	1.1

Total investments	$	19,372,176	100.0	%	$	19,559,717	100.0	%

The decrease in our total investments at June 30, 2015 as compared to December 31, 2014 was primarily a result of lower policyholders’ account balances.

Bonds—We allocate most of our fixed maturity securities to support our insurance business. As of June 30, 2015, our fixed maturity securities had an estimated fair value of $13.3 billion, which was $0.5 billion, or 3.8%, above amortized cost. At December 31, 2014, our fixed maturity securities had an estimated fair value of $13.6 billion, which was $0.7 billion, or 5.1%, above amortized cost. Fixed maturity securities’ estimated fair value, due in one year or less, decreased to $1.0 billion as of June 30, 2015 from $1.3 billion as of December 31, 2014, primarily as a result of maturities.

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, 2015						December 31, 2014
	Amortized Cost		Estimated Fair Value		% of Fair Value		Amortized Cost		Estimated Fair Value		% of Fair Value
AAA	$	670,254	$	701,601		5.3	$	637,613	$	676,728		5.0
AA		1,585,136		1,652,029		12.4		1,647,110		1,733,484		12.8
A		5,031,617		5,259,521		39.5		5,060,934		5,348,438		39.4
BBB		5,087,488		5,272,541		39.6		5,121,394		5,363,342		39.5
BB and below		434,920		430,383		3.2		452,715		452,728		3.3

Total	$	12,809,415	$	13,316,075		100.0	$	12,919,766	$	13,574,720		100.0

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 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 4.3% and 4.9% at June 30, 2015 and December 31, 2014, respectively. It is likely that the weighted average yield on funded mortgage loans will decline as loans mature and new loans are originated with lower rates in the current interest rate environment.

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


	Cost		Unrealized Gains		Unrealized Losses			Fair Value		% of Fair Value
June 30, 2015
Common stock	$	744,742	$	759,886	$	(13,854	)	$	1,490,774		98.3
Preferred stock		15,233		10,238		(1	)		25,470		1.7

Total	$	759,975	$	770,124	$	(13,855	)	$	1,516,244		100.0

December 31, 2014
Common stock	$	719,651	$	774,650	$	(7,176	)	$	1,487,125		98.0
Preferred stock		19,733		10,121		(1	)		29,853		2.0

Total	$	739,384	$	784,771	$	(7,177	)	$	1,516,978		100.0

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

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

Policy Loans—For certain life insurance products, policyholders may borrow funds using the policy’s cash value as collateral. The maximum amount of the policy loan depends upon the policy’s surrender value. As of June 30, 2015, we had $405.4 million in policy loans with a loan to surrender value of 58.8%, and at December 31, 2014, we had $406.0 million in policy loans with a loan to surrender value of 57.6%. 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 Net Realized Gains (Losses)

Net investment income decreased $48.2 million during the six months ended June 30, 2015, primarily from decreased interest rates on bonds and mortgage loans of $26.9 million and decreased option income of $23.4 million due to lower gains on the S&P index, partially offset by improvement in real estate income.

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

Net realized gains increased $27.9 million during the six months ended June 30, 2015 compared to 2014. Other-than-temporary impairment on investment securities decreased $2.1 million during the six months ended June 30, 2015 compared to 2014.

Net Unrealized Gains and Losses

The net unrealized gains on available-for-sale securities at June 30, 2015 and December 31, 2014 were $913.5 million and $1,005.7 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 decreased $66.2 million to $963.4 million during the six months ended June 30, 2015, resulting from decreases in the value of bonds and equity securities. The gross unrealized losses of available-for-sale securities changed unfavorably by $25.0 million, going from $24.9 million at December 31, 2014 to $49.9 million at June 30, 2015. The gross unrealized gains of held-to-maturity securities decreased $72.7 million to $404.0 million and gross unrealized losses decreased from $48.9 million at December 31, 2014 to $54.7 million in June 30, 2015.

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 2015 and market expectations for potentially higher rates through 2016 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 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 matching contributions to defined contribution retirement plans, which will provide employees with the potential to accumulate assets for retirement. No unusually large capital expenditures are expected in the next 12-24 months and we have paid dividends to stockholders for over 100 consecutive years and expect to continue this trend. 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.

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 & cash equivalents and short-term investment position decreased from $640.5 million at December 31, 2014 to $589.2 million at June 30, 2015. The decrease relates to a decrease in cash & cash equivalents as surrenders outpaced inflows in our annuity segment.

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.

Capital Resources

Our capital resources are summarized below (in thousands):


	June 30, 2015		December 31, 2014
			(As Adjusted)
American National stockholders’ equity, excluding accumulated other comprehensive income, net of tax (“AOCI”)	$	4,037,231	$	3,936,781
AOCI		446,861		490,782

Total American National stockholders’ equity	$	4,484,092	$	4,427,563

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 $32.4 million at June 30, 2015 and $15.0 million at December 31, 2014, respectively.

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


	Six months ended June 30, 2015
Net income attributable to American National	$	138,035
Decrease in net unrealized gains		(46,303	)
Defined benefit pension plan adjustment		3,032
Dividends to shareholders		(41,371	)
Other		3,136

Total	$	56,529

During the six months ended June 30, 2015, the change in our capital resources decreased compared to June 30, 2014 primarily due to decreased net investment income.

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 of at least 200% of the authorized control level RBC are required to take certain actions. At June 30, 2015 and December 31, 2014, American National Insurance Company’s statutory capital and surplus was $2,960,102,000 and $2,879,154,000, respectively. American National Insurance Company and each of its insurance subsidiaries had statutory capital and surplus at June 30, 2015 and December 31, 2014, substantially above their 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.

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, 2014. 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 19, Commitments and Contingencies, of the Notes to the Consolidated Financial Statements. We could be exposed to a liability for these loans, which are supported by the cash value of the underlying insurance contracts. The cash value of the life insurance policies is designed to always equal or exceed the balance of the loans. Accordingly, management does not foresee any loss related to these arrangements.

Related-Party Transactions

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

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our market risks have not changed materially from those disclosed in our 2014 Annual Report on Form 10-K filed with the SEC on February 27, 2015.

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, 2015. 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, 2015, 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 six months ended June 30, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II –OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

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

ITEM 1A.

RISK FACTORS

There have been no material changes with respect to the risk factors as previously disclosed in our 2014 Annual Report on Form 10-K filed with the SEC on February 27, 2015.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

The table below represents all share repurchases for the three months ended June 30, 2015:


Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that may yet be Purchased Under the Plans or Programs
April 1 - April 30		—	$	—		—	$	—
May 1 - May 31		2,000		100		—		—
June 1 - June 30		—		—		—		—

Total		2,000	$	100		—	$	—

All of the shares included in the table above represent shares of restricted stock granted pursuant to the Company’s 1999 Stock and Incentive Plan. The Compensation Committee of the Company’s Board of Directors has authorized the settlement of restricted stock awards in cash upon expiration of the forfeiture restrictions with respect to such awards. Consistent with such authorization, the Company repurchased 2,000 shares of restricted stock from a Company director at market value on May 1, 2015, the date of expiration of such shares’ forfeiture restrictions. Similar repurchases may occur in the future upon restricted stock vesting. Further information regarding restricted stock awards is provided in Note 14, Stockholders’ Equity and Noncontrolling Interests, of the Notes to the Consolidated Financial Statements.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5.

OTHER INFORMATION

None.

ITEM 6.

EXHIBITS


Exhibit Number		Basic Documents

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

3.2		Amended and Restated Bylaws (incorporated by reference to Exhibit No. 3.2 to the registrant’s Current Report on Form 8-K filed July 31, 2015).

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, 2015 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/ James E. Pozzi
	Name:	James E. Pozzi
	Title:	President and Chief Executive Officer

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

Date: August 07, 2015