Exhibit 99.1

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of

American National Group, Inc.

Galveston, Texas

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of financial position of American National Group, Inc. and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows for the years ended December 31, 2021 and 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years ended December 31, 2021 and 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Policyholders’ Account Balances – Valuation of embedded derivative liabilities for equity-indexed contracts — Refer to Notes 7 and 9 to the financial statements

Critical Audit Matter Description

The Company sells equity-indexed universal life and equity-indexed deferred annuity contracts with guaranteed minimum benefits, some of which contain embedded derivatives that are required to be bifurcated from a host reserve, separately accounted for, and measured at fair value. The embedded derivative represents future benefit cash flows in excess of the minimum guaranteed cash flows. As of December 31, 2021, the fair value of the embedded derivative liabilities was $833 million. Management utilizes various assumptions in order to measure the fair value of the embedded derivatives including assumptions related to lapse rate and equity volatility. These assumptions are evaluated annually by management with any changes in the estimated fair value resulting in a cumulative charge or credit to income from operations.

Given the valuation of the embedded derivative liabilities is sensitive to changes in these assumptions, the related audit effort in evaluating management’s selection of the assumptions related to the lapse rate and equity volatility required a

 

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high degree of auditor judgment and an increased extent of effort, including involvement of our actuarial and fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our principal audit procedures related to the lapse rate and equity volatility assumptions selected by management for the valuation of embedded derivative liabilities included the following, among others:

 

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We tested the effectiveness of management’s controls over the valuation of embedded derivative liabilities, including those over the development, selection, and implementation of the assumptions related to lapse rate and equity volatility.

 

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With the assistance of our fair value specialists, we tested the completeness and accuracy of the underlying data used to determine the equity volatility assumptions.

 

•

We tested the completeness and accuracy of the historical company experience used to determine the lapse rate assumptions.

 

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With the assistance of our actuarial specialists, we evaluated the appropriateness of the assumptions, evaluated the consistency of the selected assumptions used in the Company’s valuation model, and tested the mathematical accuracy of the valuation model.

Policy and Contract Claims – Property and casualty liability for unpaid claims and claim adjustment expenses — Refer to Notes 2 and 12 to the financial statements

Critical Audit Matter Description

The Company establishes a liability for unpaid claims and claim adjustment expenses to provide for the estimated costs of paying claims under property and casualty insurance policies written by the Company. The property and casualty liability for unpaid claims is included within Policy and Contract Claims in the statements of financial position, which had a balance of $1.7 billion as of December 31, 2021. This liability, which includes estimates for both claims that have been reported and claims that have been incurred but not reported, represents the estimate of all claim and claim adjustment expenses associated with processing and settling the claims. The liability for unpaid claims is estimated using actuarial assumptions for loss development patterns that are based upon the Company’s historical experience and consider the effects of current developments, anticipated trends and risk management programs.

Given the subjectivity of estimating the ultimate cost to settle the liability for property and casualty insurance reported and incurred but not reported claims, the related audit effort in evaluating the assumptions for loss development patterns required a high degree of auditor judgment and an increased extent of effort, including involvement of our actuarial specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our principal audit procedures related to the assumptions for loss development patterns selected by management to estimate the property and casualty liability for unpaid claims and claim adjustment expenses included the following, among others:

 

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We tested the effectiveness of management’s controls over the property and casualty liability for unpaid claims and claim adjustment expenses, including those over the development, selection, and implementation of the assumptions for loss development patterns used in the actuarial estimates.

 

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With the assistance of our actuarial specialists, we tested the completeness and accuracy of the underlying data, including historical claims, used to determine the assumptions for loss development patterns, evaluated the appropriateness of the assumptions, evaluated the consistency of the selected assumptions used in the Company’s valuation model, and tested the mathematical accuracy of the valuation model.

 

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We evaluated the reasonableness of the Company’s estimated property and casualty liability for unpaid losses and loss adjustment expenses by comparing to those independently derived by our actuarial specialists.

 

		/s/ DELOITTE & TOUCHE LLP
		Houston, Texas
		February 25, 2022

We have served as the Company’s auditor since 2020.

 

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AMERICAN NATIONAL GROUP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(In thousands, except share data)

 

		December 31,
		2021				2020
ASSETS
Fixed maturity, bonds held-to-maturity, at amortized cost, net of allowance for credit losses of $13,129 in 2021 and $12,442 in 2020 (Fair value $7,458,789 in 2021 and $7,983,181 in 2020)		$	7,088,981			$	7,354,970
Fixed maturity, bonds available-for-sale, at fair value (Allowance for credit losses of $10,310 in 2021 and $7,482 in 2020) (Amortized cost $8,107,794 in 2021 and $7,073,142 in 2020)			8,380,248				7,597,180
Equity securities, at fair value (Cost $94,732 in 2021 and $754,625 in 2020)			135,433				2,070,766
Mortgage loans on real estate, net of allowance for credit losses of $97,079 in 2021 and $125,703 in 2020			5,199,334				5,242,531
Policy loans			365,208				373,014
Real estate and real estate partnerships, net of accumulated depreciation of $287,387 in 2021 and $269,626 in 2020			928,412				960,572
Investment funds			961,763				477,135
Short-term investments			1,840,732				1,028,379
Other invested assets			125,795				94,415
Total investments			25,025,906				25,198,962
Cash and cash equivalents			1,930,882				339,947
Accrued investment income			192,913				216,389
Reinsurance recoverables, net of allowance for credit losses of $14,553 in 2021 and $14,353 in 2020			459,621				414,359
Prepaid reinsurance premiums			47,789				42,804
Premiums due and other receivables			382,562				351,972
Deferred policy acquisition costs			1,498,124				1,360,211
Property and equipment, net of accumulated depreciation of $302,936 in 2021 and $281,738 in 2020			137,466				121,578
Prepaid pension			167,587				80,526
Other assets			156,768				155,600
Separate account assets			1,320,703				1,185,467
Total assets		$	31,320,321			$	29,467,815
LIABILITIES
Future policy benefits
Life		$	3,216,626			$	3,149,067
Annuity			1,598,365				1,617,774
Health			45,715				49,658
Policyholders’ account balances			13,879,198				12,812,155
Policy and contract claims			1,692,295				1,575,288
Unearned premium reserve			1,013,830				956,343
Other policyholder funds			379,545				358,601
Liability for retirement benefits			79,089				70,254
Notes payable			149,248				153,703
Deferred tax liabilities, net			200,510				478,347
Current tax payable			321,926				10,372
Federal Home Loan Bank advance			—				250,000
Other liabilities			421,212				335,219
Separate account liabilities			1,320,703				1,185,467
Total liabilities			24,318,262				23,002,248
EQUITY
American National Group, Inc. stockholders’ equity:
Common stock, $0.01 par value; 50,000,000 shares authorized; 26,887,200 shares issued and outstanding in 2021 and 2020			269				269
Additional paid-in capital			47,762				47,683
Accumulated other comprehensive income			147,054				222,170
Retained earnings			6,799,283				6,188,148
Total American National stockholders’ equity			6,994,368				6,458,270
Noncontrolling interest			7,691				7,297
Total stockholders’ equity			7,002,059				6,465,567
Total liabilities and stockholders’ equity		$	31,320,321			$	29,467,815

See accompanying notes to the consolidated financial statements.

 

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AMERICAN NATIONAL GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

 

		Years ended December 31,
		2021				2020
PREMIUMS AND OTHER REVENUES
Premiums
Life		$	412,769			$	396,099
Annuity			74,925				92,866
Health			143,484				168,805
Property and casualty			1,669,875				1,560,304
Other policy revenues			359,707				310,746
Net investment income			1,171,654				976,152
Net realized investment gains			64,628				35,660
Other-than-temporary impairments			—				—
(Increase) decrease in investment credit loss			28,778				(102,603	)
Net gains on equity securities			420,283				356,281
Other income			45,688				40,556
Total premiums and other revenues			4,391,791				3,834,866
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits
Life			605,724				533,925
Annuity			149,931				214,158
Claims incurred
Health			98,029				116,122
Property and casualty			1,094,126				1,005,620
Interest credited to policyholders’ account balances			448,654				321,042
Commissions for acquiring and servicing policies			640,097				553,600
Other operating expenses			571,869				515,413
Change in deferred policy acquisition costs			(79,632	)			(5,678	)
Total benefits, losses and expenses			3,528,798				3,254,202
Income before federal income tax and other items			862,993				580,664
Less: Provision (benefit) for federal income taxes
Current			408,551				57,697
Deferred			(241,966	)			58,910
Total provision for federal income taxes			166,585				116,607
Income after federal income tax			696,408				464,057
Other components of net periodic pension benefit (costs), net of tax			3,574				4,456
Net income			699,982				468,513
Less: Net income attributable to noncontrolling interest, net of tax			657				1,008
Net income attributable to American National		$	699,325			$	467,505
Amounts available to American National common stockholders
Earnings per share
Basic		$	26.02			$	17.39
Diluted			26.01				17.38
Weighted average common shares outstanding			26,877,200				26,878,679
Weighted average common shares outstanding and dilutive potential common shares			26,884,679				26,887,125

See accompanying notes to the consolidated financial statements.

 

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AMERICAN NATIONAL GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

 

		Years ended December 31,
		2021				2020
Net income		$	699,982			$	468,513
Other comprehensive income (loss), net of tax
Change in net unrealized gains (losses) on securities			(142,854	)			134,315
Foreign currency transaction and translation adjustments			62				235
Defined benefit pension plan adjustment			67,676				(11,898	)
Total other comprehensive income (loss), net of tax			(75,116	)			122,652
Total comprehensive income			624,866				591,165
Less: Comprehensive income attributable to noncontrolling interest			657				1,008
Total comprehensive income attributable to American National		$	624,209			$	590,157

See accompanying notes to the consolidated financial statements.

 

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AMERICAN NATIONAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In thousands, except per share data)

 

		Common Stock				Additional Paid-In Capital				Accumulated Other Comprehensive Income (Loss)				Retained Earnings				Treasury Stock				Noncontrolling Interest				Total Equity
Balance at January 1, 2020		$	30,832			$	21,011			$	99,518			$	5,946,857			$	(108,469	)		$	6,014			$	5,995,763
Reclassification of par value due to reorganization			(26,618	)			26,618				—				—				—				—				—
Retirement of treasury shares			(3,945	)			—				—				(104,524	)			108,469				—				—
Amortization of restricted stock			—				54				—				—				—				—				54
Cumulative effect of accounting change			—				—				—				(33,500	)			—				—				(33,500	)
Other comprehensive income			—				—				122,652				—				—				—				122,652
Net income attributable to American National			—				—				—				467,505				—				—				467,505
Cash dividends to common stockholders (declared per share of $3.28)			—				—				—				(88,190	)			—				—				(88,190	)
Contributions			—				—				—				—				—				856				856
Distributions			—				—				—				—				—				(581	)			(581	)
Net income attributable to noncontrolling interest			—				—				—				—				—				1,008				1,008
Balance at December 31, 2020		$	269			$	47,683			$	222,170			$	6,188,148			$	—			$	7,297			$	6,465,567
Amortization of restricted stock			—				79				—				—				—				—				79
Other comprehensive loss			—				—				(75,116	)			—				—				—				(75,116	)
Net income attributable to American National			—				—				—				699,325				—				—				699,325
Cash dividends to common stockholders (declared per share of $3.28)			—				—				—				(88,190	)			—				—				(88,190	)
Contributions			—				—				—				—				—				386				386
Distributions			—				—				—				—				—				(649	)			(649	)
Net income attributable to noncontrolling interest			—				—				—				—				—				657				657
Balance at December 31, 2021		$	269			$	47,762			$	147,054			$	6,799,283			$	—			$	7,691			$	7,002,059

See accompanying notes to the consolidated financial statements.

 

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AMERICAN NATIONAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

		Years ended December 31,
		2021				2020
OPERATING ACTIVITIES
Net income		$	699,982			$	468,513
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized investment gains			(64,628	)			(35,660	)
Other-than-temporary impairments			—				—
Increase (decrease) in investment credit loss			(28,778	)			102,603
Accretion of premiums, discounts and loan origination fees			18,932				9,479
Net capitalized interest on policy loans and mortgage loans			(31,620	)			(30,367	)
Depreciation			49,983				52,551
Interest credited to policyholders’ account balances			448,654				321,042
Charges to policyholders’ account balances			(359,707	)			(310,746	)
Deferred federal income tax expense (benefit)			(241,966	)			58,910
Income from equity method investments			(188,677	)			(42,467	)
Distributions from unconsolidated affiliates			150,024				82,045
Changes in:
Policyholder liabilities			271,202				210,397
Deferred policy acquisition costs			(79,632	)			(5,678	)
Reinsurance recoverables			(45,262	)			(2,529	)
Premiums due and other receivables			(30,590	)			(10,048	)
Prepaid reinsurance premiums			(4,985	)			1,865
Accrued investment income			23,476				(15,533	)
Current tax payable			311,554				339
Liability for retirement benefits			7,440				(13,765	)
Fair value of option securities			(127,681	)			(51,931	)
Fair value of equity securities			(420,283	)			(356,281	)
Other, net			(6,651	)			(100,276	)
Net cash provided by operating activities			350,787				332,463
INVESTING ACTIVITIES
Proceeds from sale/maturity/prepayment of:
Held-to-maturity securities			1,274,488				1,615,811
Available-for-sale securities			1,224,242				977,051
Equity securities			2,467,165				117,866
Real estate and real estate partnerships			21,139				61,548
Mortgage loans			951,602				522,900
Policy loans			51,105				52,767
Other invested assets			239,767				148,101
Disposals of property and equipment			65				268
Distributions from real estate and real estate partnerships			120,019				6,866
Distributions from investment funds			131,186				91,178
Payment for the purchase/origination of:
Held-to-maturity securities			(944,443	)			(498,149	)
Available-for-sale securities			(2,244,974	)			(1,473,808	)
Equity securities			(93,663	)			(131,238	)
Real estate and real estate partnerships			(12,252	)			(31,518	)
Mortgage loans			(854,496	)			(752,244	)
Policy loans			(20,527	)			(22,338	)
Other invested assets			(164,426	)			(98,371	)
Additions to property and equipment			(37,150	)			(39,863	)
Contributions to real estate and real estate partnerships			(123,061	)			(119,463	)
Contributions to investment funds			(591,324	)			(256,638	)
Change in short-term investments			(812,353	)			(603,058	)
Change in collateral held for derivatives			20,604				(15,648	)
Other, net			2,633				2,657
Net cash provided by (used in) investing activities			605,346				(445,323	)

 

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AMERICAN NATIONAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(In thousands)

 

		Years ended December 31,
		2021				2020
FINANCING ACTIVITIES
Policyholders’ account deposits			2,229,554				1,232,520
Policyholders’ account withdrawals			(1,251,458	)			(1,388,649	)
Proceeds from Federal Home Loan Bank borrowings			—				500,000
Repayment of Federal Home Loan Bank borrowings			(250,000	)			(250,000	)
Change in notes payable			(4,455	)			(4,294	)
Dividends to stockholders			(88,190	)			(88,190	)
Payments to noncontrolling interest			(649	)			(581	)
Net cash provided by financing activities			634,802				806
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			1,590,935				(112,054	)
Cash and cash equivalents at beginning of the period			339,947				452,001
Cash and cash equivalents at end of the period		$	1,930,882			$	339,947
Supplemental cash flow information:
Interest paid		$	387			$	805
Income taxes paid, net			89,600				50,800

See accompanying notes to the consolidated financial statements.

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Nature of Operations

American National Group, Inc. (“ANAT” or the “Company”), through its consolidated subsidiaries (collectively “American National”) offers a broad portfolio 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.

On August 6, 2021, ANAT entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Brookfield Asset Management Reinsurance Partners Ltd. (“Brookfield Reinsurance”), an exempted company limited by shares existing under the laws of Bermuda, and Freestone Merger Sub Inc., a Delaware corporation and an indirect wholly-owned subsidiary of Brookfield Reinsurance (“Merger Sub”). On the terms and subject to the conditions of the Merger Agreement, at the closing, Merger Sub will merge with and into the Company (the “Merger”), with the Company continuing as the surviving entity, which will become an indirect, wholly-owned subsidiary of Brookfield Reinsurance. The Merger was unanimously approved by the Company’s board of directors. The Merger has received the requisite stockholder approval required under Delaware law. The only remaining significant closing condition pursuant to the Merger is the required regulatory approval from the insurance authorities in Texas, Missouri, New York, Louisiana and California.

Note 2 – Summary of Significant Accounting Policies and Practices

The consolidated financial statements and notes thereto have been prepared in conformity with 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 the voting rights, 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, which include real estate partnerships and investment funds, are accounted for using the equity method of accounting. Certain amounts in prior years have been reclassified to conform to current year presentation.

During the first quarter of 2021, we reclassified the Company’s earnings from equity method investments in the condensed consolidated statements of operations from “Equity in earnings of unconsolidated affiliates” to “Net investment income.” For the year ended December 31, 2020, $42.5 million were reclassified, with no impact to net income. We also reclassified the related asset balances in the consolidated statements of financial position from “Investments in unconsolidated affiliates” to “Real estate and real estate partnerships” and “Investment funds,” with no impact to total assets.

Management believes these reclassifications result in increased transparency to the users of the financial statements as it relates to the Company’s invested assets and the performance of these investments that are tied to the primary operations of the Company.

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.

Investments

Investment securities are comprised of bonds classified as held-to-maturity that are carried at amortized cost net of credit loss allowance and bonds classified as available-for-sale that are carried at fair value. In addition, equity investments, other than those accounted for under the equity method or those that result in consolidation of the investee, are measured at fair value with changes in fair value recognized in earnings.

Mortgage loans on real estate are stated at unpaid principal balance, adjusted for any unamortized discount, deferred expenses, and allowances. Accretion of discounts is recorded using the effective yield method. Interest income, prepayment fees, and accretion of discounts and origination fees are reported in “Net investment income” in the consolidated statements of operations. Interest income earned is accrued on the principal amount of the loan based on contractual interest rate. However, interest ceases to accrue for loans on which interest is more than 90 days past due, when the collection of interest is not probable, or when a loan is in foreclosure. Income on past due loans is reported on a cash basis. When a loan becomes current, it is placed back into accrual status. Cash receipts on impaired loans are recorded as a reduction of principal, interest income, expense reimbursement, or other manner in accordance with the loan agreement. In the consolidated statements of operations, gains and losses from the sale of loans are reported in “Net realized investment gains,” and changes in allowances are reported in “(Increase) decrease in investment credit loss.”

 

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Note 2 – Summary of Significant Accounting Policies and Practices — (Continued)

 

Mortgage loans are presented net of the Company’s recorded allowance for expected credit loss, which represents the portion of amortized cost basis on mortgage loans that the Company does not expect to collect. In determining the Company’s allowance for credit losses, management: (i) pools and evaluates mortgage loans with similar risk characteristics, (ii) considers expected lifetime credit losses adjusted for prepayments and extensions, and (iii) considers past events, current economic conditions and forecasts of future economic conditions. The allowance is calculated quarterly for each property type based on inputs unique to each loan property type.

On an ongoing basis, mortgage loans with dissimilar risk characteristics (i.e., loans with significant declines in credit quality), collateral dependent mortgage loans (i.e., when the borrower is experiencing financial difficulty, including when foreclosure is reasonably possible or probable), and reasonably expected troubled debt restructurings (i.e., the Company grants concessions to a borrower that is experiencing financial difficulties) may be evaluated individually for credit loss. The allowance for credit losses for loans evaluated individually is established using the same methodologies for the overall commercial portfolio segment except for collateral dependent loans. The allowance for a collateral dependent loan is established as the excess of amortized cost over the estimated fair value of the loan’s underlying collateral, less selling cost when foreclosure is probable. Accordingly, the change in the estimated fair value of collateral dependent loans is recorded as a change in the allowance for credit losses which is recorded on a quarterly basis as a charge or credit to earnings.

Policy loans are carried at the outstanding balance plus any accrued interest which approximates fair value.

Investment real estate including related improvements are stated at cost less accumulated depreciation. Depreciation is provided on a straight-line basis over the estimated useful life of the asset (typically 15 to 50 years). Rental income is recognized on a straight-line basis over the term of the respective lease. American National classifies a property as held-for-sale if it commits to a plan to sell a property within one year and actively markets the property in its current condition for a price that is reasonable in comparison to its estimated fair value. Real estate held-for-sale is stated at the lower of depreciated cost or estimated fair value less expected disposition costs and is not depreciated while it is classified as held-for-sale. American National periodically reviews its investment real estate for impairment and tests properties for recoverability whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable and the carrying value of the property exceeds its estimated fair value. Properties whose carrying values are greater than their undiscounted cash flows are written down to their estimated fair value, with the impairment loss included as an adjustment to “Net realized investment gains” in the consolidated statements of operations. Impairment losses are based upon the estimated fair value of real estate, which is generally computed using the present value of expected future cash flows from the real estate discounted at a rate commensurate with the underlying risks as well as other appraisal methods. Real estate acquired upon foreclosure is recorded at the lower of its cost or its estimated fair value at the date of foreclosure.

Real estate joint ventures and other limited partnership interests in which the Company has more than a minor interest or influence over the investee’s operations, but it does not have a controlling interest and is not the primary beneficiary, are accounted for using the equity method. These investments are reported as “Real estate and real estate partnerships” in the consolidated statements of financial position. For certain joint ventures, American National records its share of earnings using a lag methodology of one to three months when timely financial information is not available, and the contractual right does not exist to receive such financial information. In addition to the investees’ impairment analysis of their underlying investments, American National routinely evaluates its investments in those investees for impairments. American National considers financial and other information provided by the investee, other known information, and inherent risks in the underlying investments, as well as future capital commitments, in determining whether impairment has occurred. When an impairment is deemed to have occurred at the joint venture level, American National recognizes its share as an adjustment to “Net investment income” to record the investment at its fair value. When an impairment results from American National’s separate analysis, an adjustment is made through “Net realized investment gains” to record the investment at its fair value.

Investment funds are primarily comprised of senior secured and second lien private loans that are secured by assets, revenues and credit/balance sheet lending. We recognize our share of the fund’s earnings in net investment income on a one-quarter lag under the equity method of accounting. Cash distributions are received from the earnings and from liquidation of underlying investments. All investment funds are reevaluated quarterly by the fund manager and are audited annually by an independent audit firm.

Short-term investments comprised of commercial paper are carried at amortized cost, which approximates fair value. Short- term investments have a maturity of less than one year.

 

11

Note 2 – Summary of Significant Accounting Policies and Practices — (Continued)

 

Other invested assets comprised primarily of equity-indexed options are carried at fair value and may be collateralized by counterparties; such collateral is restricted to the Company’s use. Separately managed accounts and Federal Home Loan Bank stock are also included in other invested assets and are carried at cost or market value if available from the account manager. Other invested assets also include tax credit partnerships and mineral rights less allowance for depletion, where applicable.

Credit losses on fixed maturity securities, held-to-maturity, receive a lifetime expected credit loss allowance upon initial recognition of the security representing the net amount expected to be collected. Expected credit losses are measured on a collective (pool) basis by major security type with the credit loss allowance determined based on the difference between the net present value of the expected cash flows from those pooled securities with the amortized cost basis. The expected cash flows are discounted at the effective interest rate of the security and consider historical credit loss information that is adjusted for current market conditions and reasonable and supportable economic forecasts based upon a third-party valuation model. The valuation model calculates expected cash flows based on scenario conditioned probability of default and loss given default. Probability of default measures the likelihood of default over a specified time period, and the loss given default measures the amount that the Company could lose in the event of a counterparty default.

For fixed maturity securities, available-for-sale, in unrealized loss positions which American National does not intend to sell and for which it is not more-likely-than-not that it will be required to sell before its anticipated recovery, American National assesses whether the amortized cost basis of securities will be recovered by comparing the net present value of the expected cash flows from those securities with its amortized cost basis. Management estimates the expected cash flows using a third- party valuation model similar to that used for held-to-maturity securities. The net present value of the expected cash flows is calculated by discounting management’s best estimate of expected cash flows at the effective interest rate implicit in the fixed maturity security when acquired. If the net present value of the expected cash flows is less than the amortized cost, a credit loss allowance is recorded. The credit loss is recorded as the excess of amortized cost over the net present value of the expected cash flows limited by the amount the fair value is less than the amortized cost (fair-value floor). If the fair value is less than the net present value of its expected cash flows at the impairment measurement date, a non-credit loss exists which is recorded in other comprehensive income (loss) for the difference between the fair value and the net present value of the expected cash flows.

Additions to or releases of the allowance on all fixed maturity securities are reported in “(Increase) decrease in investment credit loss” in the consolidated statements of operations.

Prior to January 1, 2020, an other-than-temporary impairment (“OTTI”) loss was recorded when management believed the carrying value would not be realized. After the recognition of a credit loss, fixed maturity securities were accounted for as if they had been purchased on the OTTI measurement date, with a cost basis equal to their previous amortized cost less the related OTTI losses recognized in earnings. The new cost basis of an other-than-temporarily impaired security was not adjusted for subsequent increases in estimated fair value. Should there have been a significant increase in the estimate of cash flows expected to be collected from previously impaired securities, the increase would have been accounted for prospectively by accreting it as interest income over its remaining life.

Derivative instruments in the form of equity-indexed options are purchased to hedge against future interest rate increases in liabilities indexed to market rates and are recorded in the consolidated statements of financial position within other invested assets at fair value, net of collateral provided by counterparties. The change in fair value of derivative assets and liabilities is reported in the consolidated statements of operations as “Net investment income” and “Interest credited to policyholders’ account balances,” respectively. American National does not apply hedge accounting treatment to its derivative instruments. The Company uses derivative instruments to hedge its business risk and holds collateral to offset exposure from its counterparties. Collateral that supports credit risk is reported in the consolidated statements of financial position as an offset to “Other invested assets” with an associated payable to “Other liabilities” for excess collateral.

Cash and cash equivalents have durations that do not exceed 90 days at the date of acquisition, include cash on-hand and in banks, as well as amounts invested in money market funds, and are reported as “Cash and cash equivalents” in the consolidated statements of financial position.

Property and equipment consist of buildings occupied by American National, data processing equipment, software, furniture and equipment, and automobiles which are carried at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful life of the asset (typically 3 to 50 years).

 

12

Note 2 – Summary of Significant Accounting Policies and Practices — (Continued)

 

Insurance specific assets and liabilities

Deferred policy acquisition costs (“DAC”) are capitalized costs related directly to the successful acquisition of new or renewal insurance contracts. Significant costs are incurred to acquire insurance and annuity contracts, including commissions and certain underwriting, policy issuance, and processing expenses.

DAC on traditional life, including limited-pay contracts, and health products is amortized with interest over the anticipated premium-paying period of the related policies in proportion to the ratio of annual premium revenue expected to be received over the life of the policies. Expected premium revenue is estimated by using the same mortality, morbidity, and withdrawal assumptions used in computing liabilities for future policy benefits. DAC is reduced by a provision for possible inflation of maintenance and settlement expenses determined by means of grading interest rates.

DAC on universal life and investment-type contracts is amortized as a level percentage of the present value of anticipated gross profits from investment yields, mortality, and surrender charges. The effect of the realization of unrealized gains (losses) on DAC is recognized within AOCI in the consolidated statements of financial position as of the reporting date. A change in interest rates could have a significant impact on DAC calculated for these contracts.

DAC associated with property and casualty business is amortized over the coverage period of the related policies, in relation to premiums earned.

DAC on participating whole life products is amortized in proportion to estimated gross margins. Estimated gross margins are equal to premiums, plus investment income, less benefits, less expenses not included in DAC, less the change in reserves, less dividends.

For short-duration and long-duration contracts, DAC is grouped consistent with the manner in which insurance contracts are acquired, serviced, and measured for profitability and is reviewed for recoverability based on the profitability of the underlying insurance contracts. Investment income is anticipated in assessing the recoverability of DAC for short-duration contracts.

Liabilities for future policy benefits for traditional products have been provided on a net level premium method based on estimated investment yields, withdrawals, mortality, and other assumptions that were appropriate at the time the policies were issued. Estimates are based on historical experience adjusted for possible adverse deviation. These estimates are periodically reviewed and compared with actual experience. When it is determined that future expected experience differs significantly from existing assumptions, the estimates are revised for current and future issues.

Policyholders’ account balances represent the contract value that has accrued to the benefit of the policyholders related to universal-life and investments-type contracts. For fixed products, these are generally equal to the accumulated deposits plus interest credited, reduced by withdrawals, payouts, and accumulated policyholder assessments. Indexed product account balances are equal to the sum of host and embedded derivative reserves computed per derivative accounting guidance.

Liabilities for unpaid claims and claim adjustment expenses (“CAE”) are established to provide for the estimated costs of paying claims. These reserves include estimates for both case reserves and IBNR claim liabilities. Case reserves include the liability for reported but unpaid claims. IBNR liabilities include a provision for potential development on case reserves, losses on claims currently closed which may reopen in the future, as well as IBNR claims. These liabilities also include an estimate of the expense associated with settling claims, including legal and other fees, and the general expenses of administering the claims adjustment process.

Reinsurance recoverables are estimated amounts due to American National from reinsurers related to paid and unpaid ceded claims and CAE and are presented net of a reserve for collectability. Recoveries of gross ultimate losses under our non- catastrophe reinsurance are estimated by a review of individual large claims and the ceded portion of IBNR using assumed distribution of loss by percentage retained. Recoveries of gross ultimate losses under our catastrophe reinsurance are estimated by applying reinsurance treaty terms to estimates of gross ultimate losses. The most significant assumption is the average size of the individual losses for those claims that have occurred but have not yet been reported and our estimate of gross ultimate losses. The ultimate amount of the reinsurance ceded recoverable is unknown until all losses settle.

 

13

Note 2 – Summary of Significant Accounting Policies and Practices — (Continued)

 

Separate account assets and liabilities

Separate account assets and liabilities are funds that are held separate from the general assets and liabilities of American National. Separate account assets include funds representing the investments of variable insurance product contract holders, who bear the investment risk of such funds. Investment income and investment gains and losses from these separate funds accrue to the benefit of the contract holders. American National reports separately, as assets and liabilities, investments held in such separate accounts and liabilities of the separate accounts if (i) such separate accounts are legally recognized; (ii) assets supporting the contract liabilities are legally insulated from American National’s general account liabilities; (iii) investments are directed by the contract holder; and (iv) all investment performance, net of contract fees and assessments, is passed through to the contract holder. In addition, American National’s qualified pension plan assets are included in separate accounts. The assets of these accounts are carried at fair value. Deposits, net investment income and realized investment gains and losses for these accounts are excluded from revenues, and related liability increases are excluded from benefits and expenses in the consolidated statements of operations. Separate accounts are established in conformity with insurance laws and are not chargeable with liabilities that arise from any other business of American National.

Premiums, benefits, claims incurred, and expenses

Traditional ordinary life and health premiums are recognized as revenue when due. Benefits and expenses are associated with earned premiums to result in recognition of profits over the term of the insurance contracts.

Annuity premiums received on limited-pay and supplemental annuity contracts involving a significant life contingency are recognized as revenue when due. Deferred annuity premiums are recorded as deposits rather than recognized as revenue. Revenues from deferred annuity contracts are principally surrender charges and, in the case of variable annuities, administrative fees assessed to contract holders.

Universal life and single premium whole life revenues represent amounts assessed to policyholders including mortality charges, surrender charges actually paid, and earned policy service fees. Amounts included in expenses are benefits in excess of account balances returned to policyholders.

Property and casualty premiums are recognized as revenue over the period of the contract in proportion to the amount of insurance protection, which is generally evenly over the contract period, net of reinsurance ceded. Claims incurred consist of claims and CAE paid and the change in reserves, net of reinsurance received and recoverable.

Participating insurance policies

Participating business comprised approximately 4.0% of the life insurance in-force at December 31, 2021 and 16.5% of life premiums in 2021.

For the majority of this participating business, profits earned are reserved for the payment of dividends to policyholders, except for the stockholders’ share of profits on participating policies, which is limited to the greater of 10% of the profit on participating business, or 50 cents per thousand dollars of the face amount of participating life insurance in-force. Participating policyholders’ interest includes the accumulated net income from participating policies reserved for payment to such policyholders in the form of dividends (less net income allocated to stockholders as indicated above) as well as a pro rata portion of unrealized investment gains (losses). Dividends to participating policyholders were $8.1 million and $7.0 million for the years ended 2021 and 2020, respectively. Income of $18.3 million and $5.8 million was allocated to participating policyholders for the years ended 2021 and 2020, respectively.

For all other participating business, the allocation of dividends to participating policyowners is based upon a comparison of experienced rates of mortality, interest and expenses, as determined periodically for representative plans of insurance, issue ages and policy durations, with the corresponding rates assumed in the calculation of premiums.

Federal income taxes

American National files a consolidated life and non-life federal income tax return. Certain subsidiaries that are consolidated for financial reporting are not eligible to be included in the consolidated federal income tax return; accordingly, they file separate returns.

 

14

Note 2 – Summary of Significant Accounting Policies and Practices — (Continued)

 

Deferred income tax assets and liabilities are recognized to reflect the future tax consequences attributable to differences between the financial statement amounts of assets and liabilities and their respective tax bases. Deferred taxes are measured using enacted tax rates expected to apply in the years in which those temporary differences are expected to be recovered or settled.

American National recognizes tax benefits on uncertain tax positions if it is “more-likely-than-not” the position based on its technical merits will be sustained by taxing authorities. American National recognizes the largest benefit that is greater than 50% likely of being ultimately realized upon settlement. Tax benefits not meeting the “more-likely-than-not” threshold, if applicable, are included with “Other liabilities” in the consolidated statements of financial position. American National recognizes interest expense and penalties related to uncertain tax positions, if applicable, as income tax expense in the consolidated statements of operations. Accrued interest expense and penalties related to uncertain tax positions are reported as “Other liabilities” in the consolidated statements of financial position.

Pension and postretirement benefit plans

Pension and postretirement benefit obligations and costs for our frozen benefit plans are estimated using assumptions including demographic factors such as retirement age and mortality.

American National uses a discount rate to determine the present value of future benefits on the measurement date. The guideline for setting this rate is a high-quality long-term corporate bond rate. For this purpose, a hypothetical bond portfolio to match the expected monthly benefit payments under the pension plan was constructed with the resulting yield of the portfolio used as a discount rate.

In developing the investment return assumption, we relied on a model that utilizes the following factors:

 

•

Current yield to maturity of fixed income securities

 

•

Forecasts of inflation, GDP growth, and total return for each asset class

 

•

Historical plan performance

 

•

Target asset allocation

 

•

Standard deviations and correlations related to historical and expected future returns of each asset class and inflation

The resulting assumption is the assumed rate of return for the plans’ target asset allocation, net of investment expenses, and reflects anticipated returns of the plans’ current and future assets.

Using this approach, the calculated return will fluctuate from year to year; however, it is American National’s policy to hold this long-term assumption relatively constant.

Stock-based compensation

Stock Appreciation Rights (“SARs”) liability and compensation cost is based on the fair value of the grants and is remeasured each reporting period through the settlement date. The fair value of the SARs is calculated using the Black-Scholes-Merton option-pricing model. The key assumptions used in the model include: the grant date and remeasurement date stock prices, expected life of the SARs, and the risk-free rate of return. The compensation liability related to the SAR award is reported as “Other liabilities” in the consolidated statements of financial position.

Restricted Stock (“RS”) equity and compensation cost is based on the fair value of the underlying stock at grant date. The compensation cost accrued is reported as “Additional paid-in capital” in the consolidated statements of financial position.

Restricted Stock Units (“RSUs”) are settled in cash, resulting in classifying RSUs as a liability award. The liability is remeasured each reporting period through the vesting date and is adjusted for changes in fair value. The compensation liability related to the RSUs is reported as “Other Liabilities” in the consolidated statements of financial position.

Litigation contingencies

Existing and potential litigation is reviewed quarterly to determine if any adjustments to liabilities for possible losses are necessary. Reserves for losses are established whenever they are probable and reasonably estimable. If no one estimate within the range of possible losses is more probable than any other, a reserve is recorded based on the lowest amount of the range.

 

15

Note 3 – Recently Issued Accounting Pronouncements

Adoption of New Accounting Standards

 

Standard		Description		Effective Date and Method of Adoption		Impact on Financial Statements
ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes		The amendments simplify the accounting for income taxes by removing certain exceptions in the existing guidance including those related to intra-period tax allocation when there is a loss from continuing operations and income or a gain from other items. The amendments require that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax as well as other minor changes.		This standard became effective for the Company for all annual and interim periods beginning January 1, 2021. The new guidance specifies which amendments should be applied prospectively, retrospective to all periods presented or on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption.		The adoption of this standard did not have a material impact to the Company’s Consolidated Financial Statements or Notes to the Consolidated Financial Statements.

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

 

Standard		Description		Effective Date and Method of Adoption		Impact on Financial Statements
ASU 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts		The guidance will improve the timeliness of recognizing changes in the liability for future policy benefits for traditional and limited payment long- duration contracts and will modify the rate used to discount future cash flows. The guidance will also simplify the accounting for certain market-based options or guarantees associated with deposit (or account balance) contracts (market risk benefits), simplify the amortization of deferred acquisition costs and add significant qualitative and quantitative disclosures.		This standard will become effective for the Company for all annual and interim periods beginning January 1, 2023, which was extended from the previous effective date of January 1, 2022 through the issuance of ASU 2020-11. The guidance allows for one of two adoption methods, a modified retrospective transition or a full retrospective transition except for the changes to accounting for market risk benefits which will require a retrospective transition.		Considerable progress in the implementation of the new standard has been made; however, we have not yet estimated the impact the new guidance will have on the consolidated financial statements. Accounting and actuarial policy elections have mostly been determined, data flows are being established, actuarial models are being developed, and implementation of a financial reporting disclosure system is in progress.
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting		The amendments in this guidance provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The guidance only applies to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.		The amendments in this guidance are effective for all entities as of March 12, 2020 and will sunset through December 31, 2022, at which time the application of exceptions and optional expedients will no longer be permitted. The FASB is currently deliberating an ASU that would extend the sunset date through December 31, 2024.		The inventory of LIBOR exposures has been completed and is primarily limited to floating rate bonds, alternative investments, and borrowings within joint venture investments. Some of the contracts included in these categories will mature prior to December 31, 2021, the start of LIBOR rates cessations. The transition from LIBOR is expected to result in an immaterial impact to the Company’s Consolidated Financial Statements or Notes to the Consolidated Financial Statements.

 

16

Note 4 – Investment in Securities

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

 

		December 31, 2021
		Cost or Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Allowance for Credit Losses				Fair Value
Fixed maturity, bonds held-to-maturity
U.S. treasury and government		$	12,284			$	—			$	(287	)		$	—			$	11,997
U.S. states and political subdivisions			104,039				1,676				(1,906	)			—				103,809
Foreign governments			14,369				137				(159	)			—				14,347
Corporate debt securities			6,810,518				388,726				(21,213	)			(11,467	)			7,166,564
Residential mortgage-backed securities			48,491				2,684				(481	)			(516	)			50,178
Collateralized debt securities			112,409				1,677				(1,046	)			(1,146	)			111,894
Total bonds held-to-maturity			7,102,110				394,900				(25,092	)			(13,129	)			7,458,789
Fixed maturity, bonds available-for-sale
U.S. treasury and government			26,887				121				(255	)			—				26,753
U.S. states and political subdivisions			1,028,331				51,124				(2,312	)			(14	)			1,077,129
Foreign governments			5,000				841				—				—				5,841
Corporate debt securities			6,809,610				268,964				(35,285	)			(7,141	)			7,036,148
Residential mortgage-backed securities			32,234				342				(341	)			(268	)			31,967
Collateralized debt securities			205,732				469				(904	)			(2,887	)			202,410
Total bonds available-for-sale			8,107,794				321,861				(39,097	)			(10,310	)			8,380,248
Total investments in fixed maturity		$	15,209,904			$	716,761			$	(64,189	)		$	(23,439	)		$	15,839,037

 

		December 31, 2020
		Cost or Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Allowance for Credit Losses				Fair Value
Fixed maturity, bonds held-to-maturity
U.S. treasury and government		$	7,733			$	11			$	—			$	—			$	7,744
U.S. states and political subdivisions			109,445				4,101				(11	)			—				113,535
Foreign governments			3,851				374				—				—				4,225
Corporate debt securities			6,992,095				623,233				(9,117	)			(7,475	)			7,598,736
Residential mortgage-backed securities			114,579				5,065				(1,464	)			(452	)			117,728
Collateralized debt securities			139,709				6,864				(845	)			(4,515	)			141,213
Total bonds held-to-maturity			7,367,412				639,648				(11,437	)			(12,442	)			7,983,181
Fixed maturity, bonds available-for-sale
U.S. treasury and government			28,766				418				(1	)			—				29,183
U.S. states and political subdivisions			1,066,627				73,976				(145	)			—				1,140,458
Foreign governments			14,995				1,393				—				—				16,388
Corporate debt securities			5,887,756				471,205				(17,207	)			(7,275	)			6,334,479
Residential mortgage-backed securities			20,544				964				(29	)			(188	)			21,291
Collateralized debt securities			54,454				1,040				(94	)			(19	)			55,381
Total bonds available-for-sale			7,073,142				548,996				(17,476	)			(7,482	)			7,597,180
Total investments in fixed maturity		$	14,440,554			$	1,188,644			$	(28,913	)		$	(19,924	)		$	15,580,361

 

17

Note 4 – Investment in Securities — (Continued)

 

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

 

		December 31, 2021
		Bonds Held-to-Maturity								Bonds Available-for-Sale
		Amortized Cost				Fair Value				Amortized Cost				Fair Value
Due in one year or less		$	853,273			$	865,103			$	574,056			$	580,191
Due after one year through five years			2,232,939				2,355,707				3,015,864				3,156,717
Due after five years through ten years			2,969,115				3,145,270				2,474,224				2,576,325
Due after ten years			1,046,783				1,092,709				2,043,650				2,067,015
Total		$	7,102,110			$	7,458,789			$	8,107,794			$	8,380,248

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 presented based on the year of final contractual maturity.

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

 

		Years ended December 31,
		2021				2020
Proceeds from sales of fixed maturity, bonds available-for-sale		$	55,558			$	164,372
Gross realized gains			59				624
Gross realized losses			—				(4,145	)

Gains and losses are determined using specific identification of the securities sold. There was no transfer of bonds from held-to- maturity to available-for-sale during 2021. During 2020, bonds below investment grade with a carrying value of $142.7 million, were transferred from held-to-maturity to available-for-sale after a deterioration in the issuers’ creditworthiness.

In accordance with various regulations, American National has bonds on deposit with regulating authorities with a carrying value of $53.5 million and $47.7 million at December 31, 2021 and 2020, respectively. In addition, American National has pledged bonds in connection with agreements and transactions, such as financing and reinsurance agreements. The carrying value of bonds pledged was $67.1 million and $111.0 million at December 31, 2021 and 2020, respectively.

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

 

		Years ended December 31,
		2021				2020
Bonds available-for-sale: change in unrealized gains (losses)		$	(248,756	)		$	242,105
Adjustments for
Deferred policy acquisition costs			58,281				(68,474	)
Participating policyholders’ interest			8,275				(3,010	)
Deferred federal income tax benefit (expense)			39,346				(36,306	)
Change in net unrealized gains (losses) on debt securities, net of tax		$	(142,854	)		$	134,315

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

 

		Years ended December 31,
		2021				2020
Unrealized gains on equity securities		$	38,771			$	349,999
Net gains on equity securities sold			381,512				6,282
Net gains on equity securities		$	420,283			$	356,281

 

18

Note 4 – Investment in Securities — (Continued)

 

The gross unrealized losses and fair value of bonds available-for-sale, aggregated by investment category and length of time individual securities have been in a continuous unrealized loss position due to market factors are shown below (in thousands, except number of issues):

 

		December 31, 2021
		Less than 12 months												12 months or more												Total
		Number of Issues				Gross Unrealized Losses				Fair Value				Number of Issues				Gross Unrealized Losses				Fair Value				Number of Issues				Gross Unrealized Losses				Fair Value
Fixed maturity, bonds available-for-sale
U.S. treasury and government			10			$	(230	)		$	18,378				1			$	(25	)		$	2,844				11			$	(255	)		$	21,222
U.S. states and political subdivisions			13				(618	)			50,025				4				(1,694	)			33,644				17				(2,312	)			83,669
Corporate debt securities			184				(27,335	)			1,596,811				32				(7,950	)			146,597				216				(35,285	)			1,743,408
Residential mortgage-backed securities			2				(339	)			13,193				2				(2	)			496				4				(341	)			13,689
Collateralized debt securities			26				(885	)			191,342				3				(19	)			4,447				29				(904	)			195,789
Total			235			$	(29,407	)		$	1,869,749				42			$	(9,690	)		$	188,028				277			$	(39,097	)		$	2,057,777
		December 31, 2020
		Less than 12 months												12 months or more												Total
		Number of Issues				Gross Unrealized Losses				Fair Value				Number of Issues				Gross Unrealized Losses				Fair Value				Number of Issues				Gross Unrealized Losses				Fair Value
Fixed maturity, bonds available-for-sale
U.S. treasury and government			1			$	(1	)		$	2,868				—			$	—			$	—				1			$	(1	)		$	2,868
U.S. states and political subdivisions			2				(145	)			10,205				—				—				—				2				(145	)			10,205
Corporate debt securities			43				(8,507	)			270,249				8				(8,700	)			13,270				51				(17,207	)			283,519
Residential mortgage-backed securities			1				(21	)			1,391				3				(8	)			593				4				(29	)			1,984
Collateralized debt securities			3				(93	)			12,752				1				(1	)			158				4				(94	)			12,910
Total			50			$	(8,767	)		$	297,465				12			$	(8,709	)		$	14,021				62			$	(17,476	)		$	311,486

A number of assumptions and estimates are inherent in evaluating whether an allowance for credit loss is necessary, which include the financial condition, near term and long-term prospects of the issue or issuer, including relevant industry conditions and trends and implications of rating agency actions and offering prices. Based on this evaluation, unrealized losses on bonds available-for-sale where an allowance for credit loss was not recorded were concentrated in the Company’s fixed maturity securities within the finance and investment sector.

Equity securities by market sector distribution are shown below, based on fair value:

 

		December 31,
		2021				2020
Consumer goods			9.6	%			19.3	%
Energy and utilities			6.4				5.2
Finance			35.6				21.6
Healthcare			9.0				15.0
Industrials			3.5				7.4
Information technology			15.1				27.1
Other			20.8				4.4
Total			100.0	%			100.0	%

 

19

Note 4 – Investment in Securities — (Continued)

 

Allowance for Credit Losses

Held-to-Maturity Securities—Management measures expected credit losses on bonds held-to-maturity on a qualitative adjustment basis by major security type: corporate bonds, structured products, municipals, specialty products and treasuries. Accrued interest receivable on held-to maturity debt securities are excluded from the estimate of credit losses. The estimate of expected credit losses considers historical credit loss information that is adjusted for current market conditions and reasonable and supportable economic forecasts based upon a third-party valuation model.

Available-for-Sale Securities—For available-for-sale bonds in an unrealized loss position, the Company first assesses whether it intends to sell the security or will be required to sell the security before recovery of its amortized cost basis. If either of these criteria are met, the security’s amortized cost basis is written down to fair value through income. For bonds available-for-sale that do not meet either indicated criteria, the Company evaluates whether the decline in fair value has resulted from credit events or market factors. In making this assessment, management first calculates the extent to which fair value is less than amortized cost, and then may consider any changes to the rating of the security by a rating agency, and any specific conditions related to the security. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded through income, limited to the amount fair value is less than amortized cost. Any remaining unrealized loss is recognized in other comprehensive income.

When the discounted cash flow method is used to determine the allowance for credit losses, management’s estimates incorporate expected prepayments, if any. Model inputs are considered reasonable and supportable for three years. A mean reversion is applied in years four and five. Credit loss allowance is not measured on accrued interest receivable because the balance is written off to net investment income in a timely manner, within 90 days. Changes in the allowance for credit losses are recognized through the consolidated statement of operations as (increase) decrease in investment credit loss.

No accrued interest receivables were written off as of December 31, 2021.

The rollforward of the allowance for credit losses for bonds held-to-maturity is shown below (in thousands):

 

		Corporate Debt Securities				Collateralized Debt Securities				Residential Mortgage- Backed Securities				Total
Balance at January 1, 2021		$	(7,475	)		$	(4,515	)		$	(452	)		$	(12,442	)
Purchases			(1,412	)			(168	)			—				(1,580	)
Disposition			441				551				—				992
Provision			(3,021	)			2,986				(64	)			(99	)
Balance at December 31, 2021		$	(11,467	)		$	(1,146	)		$	(516	)		$	(13,129	)

 

		Foreign Governments				Corporate Debt Securities				Collateralized Debt Securities				Residential Mortgage-Backed Securities				Total
Balance at January 1, 2020		$	4			$	(18,563	)		$	(2,968	)		$	(137	)		$	(21,664	)
Purchases			—				(783	)			(329	)			134				(978	)
Disposition			—				9,501				800				—				10,301
Provision			(4	)			2,370				(2,018	)			(449	)			(101	)
Balance at December 31, 2020		$	—			$	(7,475	)		$	(4,515	)		$	(452	)		$	(12,442	)

 

20

Note 4 – Investment in Securities — (Continued)

 

The rollforward of the allowance for credit losses for available-for-sale debt securities is shown below (in thousands):

 

		U.S. Treasury and Government				U.S. State and Political Subdivisions				Corporate Debt Securities				Collateralized Debt Securities				Residential Mortgage- Backed Securities				Total
Beginning balance at January 1, 2021		$	—			$	—			$	(7,275	)		$	(19	)		$	(188	)		$	(7,482	)
Increase in allowance related to purchases			—				—				(3,158	)			(538	)			—				(3,696	)
Reduction in allowance related to disposition			—				—				4,117				182				—				4,299
Allowance on securities that had an allowance recorded in a previous period			3				12				3,680				(1,507	)			(29	)			2,159
Allowance on securities where credit losses were not previously recorded			(3	)			(26	)			(4,505	)			(1,005	)			(51	)			(5,590	)
Balance at December 31, 2021		$	—			$	(14	)		$	(7,141	)		$	(2,887	)		$	(268	)		$	(10,310	)

 

		Corporate Debt Securities				Collateralized Debt Securities				Residential Mortgage- Backed Securities				Total
Beginning balance at January 1, 2020		$	—			$	—			$	—			$	—
Increase in allowance related to purchases			(217	)			—				—				(217	)
Reduction in allowance related to disposition			63				6				3				72
Allowance on securities that had an allowance recorded in a previous period			(1,074	)			(25	)			(191	)			(1,290	)
Allowance on securities where credit losses were not previously recorded			(6,047	)			—				—				(6,047	)
Balance at December 31, 2020		$	(7,275	)		$	(19	)		$	(188	)		$	(7,482	)

Credit Quality Indicators

The Company monitors the credit quality of bonds held-to-maturity through the use of credit ratings, which are updated on a monthly basis. Information is also gathered regarding the asset performance of held-to-maturity bonds. The two traditional metrics for assessing interest rate risks are interest-coverage ratios and capitalization ratios, which can also be used in the assessment of credit risk. These risks are mitigated through the diversification of bond investments. Categories of diversification include credit ratings, geographic locations, maturities, and market sector.

The credit quality indicators for the amortized cost of bonds held-to-maturity are shown below (in thousands):

 

		December 31, 2021
		Amortized cost of bonds held-to-maturity by credit rating
Fixed maturity, bonds held-to-maturity		AAA				AA				A				BBB				BB and below				Total
U.S. treasury and government		$	—			$	12,284			$	—			$	—			$	—			$	12,284
U.S. state and political subdivisions			14,364				49,327				9,188				25,770				5,390				104,039
Foreign governments			—				13,355				1,014				—				—				14,369
Corporate debt securities			31,176				400,666				3,212,688				3,061,595				104,393				6,810,518
Collateralized debt securities			—				—				66,715				40,858				4,836				112,409
Residential mortgage-backed securities			—				47,304				—				—				1,187				48,491
Total		$	45,540			$	522,936			$	3,289,605			$	3,128,223			$	115,806			$	7,102,110

 

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