10-Q: American National Group Inc. Reports Mixed Results in Q3 2024 Following Merger

American National Group Inc. reports a net loss for Q3 2024, impacted by fair value changes and acquisition-related expenses, despite revenue growth driven by the inclusion of American Equity and strong PRT sales.

Summary

• American National Group Inc. (ANGI) reported a net loss of $288 million for the third quarter of 2024, a significant decrease compared to a net income of $54 million in the same period of 2023.
• The company's total assets reached $123.7 billion as of September 30, 2024, a substantial increase from $35.9 billion at the end of 2023, primarily due to the acquisition of American Equity Investment Life Holding Company (AEL).
• Net premiums for the quarter were $888 million, up from $784 million in Q3 2023, driven by growth in the Pension Risk Transfer (PRT) business.
• Gross annuity sales totaled $4.1 billion in Q3 2024, compared to $1.6 billion in Q3 2023, reflecting the inclusion of AEL's fixed index annuity deposits and strong fixed rate annuity and PRT sales.
• Net investment income increased to $1.024 billion in Q3 2024, compared to $375 million in Q3 2023, due to increased assets under management and higher-yielding investment strategies.
• The company recorded investment-related losses of $128 million in Q3 2024, compared to losses of $12 million in Q3 2023, primarily due to realized losses on investments related to the RGA reinsurance transaction.
• Policyholder benefits and claims incurred were $846 million in Q3 2024, up from $717 million in Q3 2023, due to growth in the PRT business.
• Interest sensitive contract benefits increased to $523 million in Q3 2024, compared to $133 million in Q3 2023, driven by the increase in the in-force block of annuity business.
• Amortization of deferred policy acquisition costs, deferred sales inducements, and value of business acquired increased to $289 million in Q3 2024, compared to $136 million in Q3 2023, due to the increase in VOBA from the AEL acquisition.
• The change in fair value of insurance-related derivatives and embedded derivatives was $344 million in Q3 2024, compared to $54 million in Q3 2023, impacted by interest rates and equity market performance.
• Operating expenses increased to $228 million in Q3 2024, compared to $147 million in Q3 2023, primarily due to the inclusion of AEL's operating expenses.
• For the nine months ended September 30, 2024, the company reported a net income of $80 million, compared to $163 million for the same period in 2023.
• Distributable Operating Earnings (DOE) for the company was $360 million for Q3 2024, compared to $140 million for the same period in 2023, with the increase primarily driven by the annuity segment.
• The company's total liquidity was $42.3 billion as of September 30, 2024, including $42 million of unrestricted cash and cash equivalents.

Sentiment

Score: 5

Explanation: The document presents a mixed picture. While there is significant growth in assets, premiums, and investment income, the net loss and increased expenses raise concerns. The sentiment is neutral to slightly negative due to the net loss and increased expenses, but the growth in other areas prevents a more negative score.

Positives

• Net premiums increased by $104 million year-over-year, driven by growth in the PRT business.
• Gross annuity sales increased by $2.5 billion year-over-year, reflecting the inclusion of AEL's fixed index annuity deposits and strong fixed rate annuity and PRT sales.
• Net investment income increased by $649 million year-over-year, due to increased assets under management and higher-yielding investment strategies.
• Distributable Operating Earnings (DOE) increased by $220 million year-over-year, primarily driven by the annuity segment.
• Total liquidity reached $42.3 billion, providing financial flexibility.

Negatives

• The company reported a net loss of $288 million for Q3 2024, a significant decrease from a net income of $54 million in Q3 2023.
• Investment-related losses were $128 million, primarily due to the RGA reinsurance transaction.
• Policyholder benefits and claims incurred increased by $129 million due to PRT business growth.
• Operating expenses increased by $81 million, primarily due to the inclusion of AEL's expenses.
• Interest expense on borrowings increased by $22 million due to new term loan and debt assumed through the acquisition of AEL.

Risks

• The company's financial performance is sensitive to changes in interest rates and equity market performance, which can impact the fair value of derivatives and market risk benefits.
• The integration of American Equity's operations and assets may present challenges and uncertainties.
• The company is exposed to credit risk through its investments in debt securities and must manage counterparty risk.
• The company's insurance subsidiaries are subject to regulatory restrictions on dividend payments.
• The company is subject to litigation and regulatory risks that could impact its financial results.
• The company's financial results are subject to estimates and assumptions, which may differ from actual results.

Future Outlook

The company's management expects that the integration of American Equity will continue to impact financial results, and they will continue to monitor market conditions and adjust their strategies accordingly. The company will also continue to monitor developments prior to the commencement of the Bermuda corporate income tax regime.

Management Comments

• Management believes that the ultimate resultant liability, if any, from litigation would not have a material adverse effect on the statements of financial position, liquidity or results of operations.
• Management is of the opinion that the company is in compliance with all capital requirements as of September 30, 2024 and December 31, 2023.

Industry Context

The announcement reflects the ongoing trend of consolidation within the insurance industry, with American National Group Inc. acquiring American Equity to expand its market presence and product offerings. The results also highlight the impact of market volatility on insurance companies' financial performance, particularly those with significant exposure to equity markets and interest rate fluctuations. The company's focus on PRT business also reflects a broader trend of insurers seeking to manage risk and capital through reinsurance and other strategic transactions.

Comparison to Industry Standards

• The increase in net premiums and gross annuity sales is a positive sign, indicating strong demand for the company's products, particularly in the PRT segment. This is comparable to other large insurance companies that have been focusing on growth in the retirement and pension risk transfer markets.
• The increase in net investment income is also a positive trend, reflecting the company's ability to generate returns on its investment portfolio. This is in line with industry standards, where insurers seek to maximize investment returns while managing risk.
• However, the net loss for the quarter is a concern, as it indicates that the company's expenses and losses are outpacing its revenues. This is not in line with industry standards, where insurers typically aim for consistent profitability.
• The increase in operating expenses is also a concern, as it suggests that the company may be facing challenges in managing its costs. This is an area that the company will need to address in order to improve its profitability.
• The company's liquidity position is strong, with $42.3 billion in total liquidity. This is a positive sign, as it indicates that the company has sufficient resources to meet its obligations and pursue growth opportunities. This is comparable to other large insurance companies that maintain strong liquidity positions.
• The company's use of non-GAAP measures, such as Distributable Operating Earnings (DOE), is common in the insurance industry, as it provides a more comprehensive view of the company's operating performance. However, it is important to note that these measures are not standardized and may not be comparable to those of other companies.

Legal Proceedings

• Certain of the Company's subsidiaries 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.

Related Party Transactions

• The company's insurance subsidiaries paid investment management fees due to related party arrangements with affiliates of BAM of $40 million and $85 million for the three and nine months ended September 30, 2024, respectively.
• AEILIC has a coinsurance agreement with North End Re (Cayman) SPC, a wholly-owned subsidiary Brookfield Wealth Solutions, to reinsure a portion of fixed indexed annuity product liabilities.
• For the nine months ended September 30, 2024, the Company purchased related party investments totaling $2.6 billion.
• American National and BAMR US Holdings LLC, an indirect wholly-owned subsidiary of Brookfield Wealth Solutions, entered into a demand deposit agreement.
• ANTAC, LLC (a subsidiary of the Company) and Brookfield Wealth Solutions entered into a deposit agreement.
• Freestone had a deposit of $250 million with the Brookfield Treasury Management Inc., a subsidiary of Brookfield Corporation.

Stakeholder Impact

• Shareholders may be concerned about the net loss and the impact of market volatility on the company's financial results.
• Policyholders may be impacted by changes in interest rates and market conditions, which can affect the value of their policies.
• Employees may be affected by the integration of American Equity and any potential changes in the company's operations.
• Creditors may be impacted by the company's debt levels and its ability to meet its obligations.
• Suppliers may be affected by changes in the company's operations and its financial performance.

Next Steps

• The company will continue to monitor developments prior to the commencement of the Bermuda corporate income tax regime.
• The company will continue to integrate the operations of American Equity.
• The company will continue to rotate its investment portfolio into higher yielding investment strategies.

Key Dates

Keywords

American National Group, ANGI, American Equity, AEL, Merger, Reinsurance, Annuities, Life Insurance, Property and Casualty Insurance, Pension Risk Transfer, PRT, Net Investment Income, Distributable Operating Earnings, DOE, Fair Value, Derivatives, Market Risk Benefits, VOBA, Deferred Policy Acquisition Costs, Liquidity