10-Q: American National Group Q2 2025: Net Loss Amidst Growth

American National Group Inc. reports a net loss for the first half of 2025 despite significant asset growth and increased investment income, driven by acquisition-related impacts and market fluctuations.

Summary

• Reported a net loss attributable to common stockholder of $(95) million for the six months ended June 30, 2025, compared to a net income of $357 million in the prior year period.
• Net income for the three months ended June 30, 2025, was $152 million, a decrease from $255 million for the same period in 2024.
• Total assets increased by $5.1 billion to $126.3 billion as of June 30, 2025, from $121.2 billion at December 31, 2024.
• Total investments increased by $4.1 billion to $84.8 billion as of June 30, 2025, from $80.8 billion at December 31, 2024.
• Net premiums decreased by $508 million to $1.641 billion for the six months ended June 30, 2025, compared to $2.149 billion in the prior year period.
• Net investment income increased by $1.1 billion to $2.435 billion for the six months ended June 30, 2025, compared to $1.372 billion in the prior year period.
• Total gross annuity sales increased to $8.090 billion for the six months ended June 30, 2025, from $4.841 billion in the prior year period.
• Distributable Operating Earnings (DOE) increased to $911 million for the six months ended June 30, 2025, from $500 million in the prior year period.
• Operating expenses increased by $53 million to $491 million for the six months ended June 30, 2025, compared to $438 million in the prior year period.
• Amortization of deferred policy acquisition costs, deferred sales inducements, and value of business acquired increased by $290 million to $650 million for the six months ended June 30, 2025.
• The Life Insurance segment ceased selling new life insurance policies through its multiple-line and independent agent distribution channels effective May 31, 2025.

Sentiment

Score: 5

Explanation: While the company experienced a net loss for the six-month period, largely due to non-operating items and tax effects from the prior year's acquisition, core operating earnings (DOE) showed significant growth. Asset and investment growth are positive, but the decline in net premiums and increased expenses related to derivatives and amortization indicate ongoing integration and market volatility challenges. The strategic shift in the Life Insurance segment also introduces an element of transition.

Positives

• Total assets grew by $5.1 billion to $126.3 billion, indicating balance sheet expansion.
• Total investments increased by $4.1 billion to $84.8 billion, reflecting successful deployment of capital.
• Cash and cash equivalents increased by $774 million to $12.1 billion, demonstrating strong liquidity.
• Net investment income significantly increased by $1.1 billion for the six months ended June 30, 2025, driven by the acquisition of AEL and rotation into higher-yielding investment strategies.
• Reported investment related gains of $69 million for the six months ended June 30, 2025, a positive swing from losses of $32 million in the prior year period.
• Total gross annuity sales surged by $3.2 billion for the six months ended June 30, 2025, primarily due to the acquisition of American Equity and issuances of funding agreement backed notes (FABN).
• Distributable Operating Earnings (DOE), a key non-GAAP metric, increased by $411 million for the six months ended June 30, 2025, reflecting strong core operational performance.
• The Property and Casualty segment's DOE increased by $31 million for the six months ended June 30, 2025, attributed to improvements in loss experience from underwriting actions.
• Maintained a strong liquidity position with total liquidity of $49.9 billion as of June 30, 2025.
• The company was in compliance with all capital requirements, including Risk Based Capital (RBC) requirements, as of June 30, 2025.

Negatives

• Reported a net loss of $(95) million for the six months ended June 30, 2025, a significant decline from net income of $368 million in the prior year period.
• Net income for the three months ended June 30, 2025, decreased by $103 million compared to the same period in 2024, primarily due to tax expense in 2025 versus a benefit in 2024.
• Total net premiums decreased by $508 million for the six months ended June 30, 2025, due to phased withdrawal from non-core P&C business, reinsurance agreements in Life Insurance, and variability in PRT business.
• Change in fair value of insurance-related derivatives and embedded derivatives increased by $328 million for the six months ended June 30, 2025, negatively impacting results due to equity market and interest rate movements.
• Change in fair value of market risk benefits increased by $156 million for the six months ended June 30, 2025, also due to market movements and the American Equity acquisition.
• Interest sensitive contract benefits increased by $452 million for the six months ended June 30, 2025, driven by new annuity business, which represents a higher cost.
• Amortization of deferred policy acquisition costs, deferred sales inducements, and value of business acquired increased by $290 million for the six months ended June 30, 2025, reflecting higher capitalized costs.
• The Life Insurance segment's DOE decreased by $48 million for the six months ended June 30, 2025, primarily due to the impact of the RGA reinsurance treaty.
• Unfavorable development in prior accident year claims for property and casualty increased by $17 million for the six months ended June 30, 2025, due to higher than anticipated losses in personal auto, personal other, and specialty market product lines.

Risks

• Results may differ from assumptions, estimates, and models used in financial reporting.
• Changes in interest rate conditions can negatively impact financial performance.
• Investment losses or failure to grow as quickly as expected due to market, credit, liquidity, concentration, default, and other risks.
• Increases in option costs can adversely affect profitability.
• Exposure to counterparty credit risks in derivative transactions.
• Failures of third-party service providers to perform or comply with legal/regulatory requirements.
• Challenges in attracting and retaining customers or distributors due to competitors' greater resources, broader product arrays, and higher ratings.
• Failures or security breaches in information technology and communication systems.
• Credit or financial strength downgrades could increase borrowing costs and reduce competitiveness.
• Inability to raise additional capital on favorable terms to support business and growth.
• Deterioration of U.S. and global capital markets and economic conditions due to major public health issues, political, or social developments.
• Failure to authorize and pay dividends on preferred stock could impact investor confidence.
• Subsidiaries' inability to pay dividends or make other payments to the parent company.
• Failures in reinsurance, investment management, or third-party capital arrangements.
• Failure to prevent excessive risk-taking within the organization.
• Failure of policies and procedures to protect from operational risks.
• Increased litigation, regulatory examinations, and tax audits could result in significant costs or penalties.
• Changes to laws, regulations, accounting, and benchmarking standards could impact operations and financial results.
• Takeover or combination delays or deterrence by laws, corporate governance documents, or change-in-control agreements.
• Effects of climate change, or responses to it, could impact business operations and investments.
• Failure of efforts to meet environmental, social, and governance standards and to enhance sustainability.
• Significant deviations in mortality, morbidity, longevity, and policyholder behavior assumptions could adversely affect insurance risk.
• Litigation concerning alleged breaches of contracts, employment matters, and deceptive insurance sales practices, with potential for unpredictable judgments.
• Operational risk from inadequate or failed internal processes, people, and systems, or from external events.

Future Outlook

The company continues to evaluate the impact of the recently enacted Bermuda corporate income tax regime (Pillar Two) and the U.S. One Big Beautiful Bill Act (OBBBA) on its estimated annual effective tax rate and cash tax position. Interim operating results are not necessarily indicative of the results expected for the entire fiscal year ending December 31, 2025. Management expects to recover the amortized cost on all securities except for those on which an allowance for credit loss was recognized.

Management Comments

• The increase in net investment income in 2025 was driven by the increase in assets under management due to the acquisition of AEL as well as the continued rotation into higher yielding investment strategies.
• The increase in gross annuity sales is primarily due to increased sales activity in our fixed index retail annuity products primarily attributable to the acquisition of American Equity during the second quarter of 2024 as well as issuances of funding agreement backed notes (FABN).
• The decrease in net premiums is primarily due to the phased withdrawal from non-core business in our P&C segment, reinsurance agreements executed on our Life Insurance segment, and variability in our PRT business.
• The increase in Annuities Distributable Operating Earnings (DOE) is primarily attributable to a full period of earnings contributed from AEL as well as increased investment income from our continued deployment into higher yielding investment strategies.
• The decrease in Life Insurance DOE is primarily driven by the impact of the RGA reinsurance treaty executed during the third quarter of 2024.
• The increase in Property and Casualty DOE was driven by improvements in our loss experience arising from underwriting actions implemented over the past twelve months.
• We continue to maintain a strong liquidity position across our segments.
• We strive to maintain sufficient financial liquidity at all times so that we are able to participate in attractive opportunities as they arise, better withstand sudden adverse changes in economic circumstances within our operating subsidiaries and maintain payments to policyholders.
• Management is of the opinion 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 currently believes that the possibility of a material judgment adverse to the Company is remote.

Industry Context

The company's financial results reflect significant integration activities following the acquisition of American Equity, a trend common in the consolidating insurance sector. The substantial increase in net investment income and gross annuity sales aligns with broader industry efforts to capitalize on higher interest rates and strong demand for retirement products. The impact of market fluctuations on insurance-related derivatives and market risk benefits highlights the inherent sensitivity of long-duration liabilities to capital market volatility, a key challenge for life and annuity insurers. Strategic adjustments, such as the phased withdrawal from non-core P&C business and changes in life insurance distribution, indicate a focus on optimizing portfolio profitability and risk management, mirroring industry-wide trends towards specialization and efficiency. The mention of new tax regimes (Bermuda CIT, OBBBA) underscores the evolving regulatory and tax landscape impacting multinational financial institutions.

Comparison to Industry Standards

• The filing does not provide specific comparable companies, projects, or global benchmarks for direct assessment of results against industry standards.
• The company's strategy of rotating its investment portfolio into higher-yielding strategies is a common practice among insurance companies seeking to enhance investment income, particularly in a dynamic interest rate environment.
• The significant increase in gross annuity sales, especially fixed index annuities, is consistent with strong market demand for retirement products that offer principal protection and participation in equity market gains, a trend observed across the annuity industry.
• The impact of changes in fair value of insurance-related derivatives and market risk benefits on net income is typical for insurers with substantial equity-indexed and variable annuity product offerings, reflecting the inherent volatility and hedging costs associated with these liabilities.
• The strategic decision to withdraw from non-core P&C business lines and adjust life insurance distribution channels aligns with broader industry trends where insurers optimize their portfolios to focus on more profitable or strategically aligned segments, often involving reinsurance or divestitures.

Corporate Governance

Legal Proceedings

• Company subsidiaries are defendants in various lawsuits concerning alleged breaches of contracts, employment matters, allegedly deceptive insurance sales and marketing practices, and miscellaneous other causes of action arising in the ordinary course of operations.
• Certain lawsuits include claims for compensatory and punitive damages.
• Management believes that the ultimate resultant liability, if any, from these matters would not have a material adverse effect on the statements of financial position, liquidity, or results of operations.
• Management currently believes that the possibility of a material judgment adverse to the Company is remote.
• Accruals 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, an accrual is recorded based on the lowest amount of the range.

Related Party Transactions

• Paid investment management fees to an affiliate of Brookfield Asset Management (BAM) of $99 million for the six months ended June 30, 2025 ($45 million in the prior year period).
• A coinsurance agreement with North End Re (Cayman) SPC, a wholly-owned subsidiary of Brookfield Wealth Solutions, was terminated effective December 1, 2024.
• Has modified coinsurance agreements with Freestone, an affiliated Bermuda reinsurer wholly owned by the Company, to reinsure a quota share of in-force fixed rate, fixed indexed, and payout annuities (50%) and ongoing flow (70%).
• ANICO ceded 80% of inforce and future flow PRT business, 70% of in-force and future flow single premium immediate annuity business, 100% of fixed deferred and equity-indexed annuity business issued up to December 31, 2021, and 70% of fixed deferred and equity-indexed annuity business in 2022 and later to Freestone.
• Purchased related party investments totaling $2.1 billion for the six months ended June 30, 2025 ($1.2 billion in the prior year period).
• Held investments in related parties of $10.7 billion as of June 30, 2025 ($9.6 billion as of December 31, 2024).
• Entered into deposit agreements with BAMR US Holdings LLC, an indirect wholly-owned subsidiary of Brookfield Wealth Solutions, with balances of $274 million as of June 30, 2025 ($464 million as of December 31, 2024).
• Freestone had a deposit of $260 million with Brookfield Treasury Management Inc. as of June 30, 2025.
• Earned interest income from related parties of $6 million for the six months ended June 30, 2025 ($2 million in the prior year period).
• Assumed a subordinated debt obligation to American Equity Capital Trust II of $84 million as part of the American Equity acquisition.

Stakeholder Impact

• Shareholders (Brookfield Wealth Solutions Ltd. and affiliates) are directly impacted by the reported net loss, but also benefit from the significant growth in Distributable Operating Earnings (DOE) and overall asset expansion.
• Policyholders benefit from the company's strong liquidity position and compliance with capital requirements, which support the ability to meet future policy obligations. The growth in annuity sales indicates continued product appeal.
• Employees may be affected by ongoing cost optimization efforts and strategic shifts, such as the cessation of new life insurance policy sales through certain distribution channels, potentially leading to workforce adjustments in those areas.
• Customers in the life insurance segment who previously purchased policies through multiple-line and independent agents will need to adapt to the change in distribution channels for new policies.
• Creditors are impacted by the company's debt management activities, including new senior note issuances and term loan repayments, and the company's continued compliance with financial covenants.
• Reinsurers are directly involved in the company's risk management strategy, with ongoing and terminated reinsurance agreements affecting their business relationship and financial exposure.

Next Steps

• Continue to evaluate the impact of ASU 2023-09 (Income Taxes) and ASU 2024-03 (Expense Disaggregation Disclosures) on financial statements.
• Monitor legislative changes and future developments in relation to Pillar Two across jurisdictions in which the Company operates.
• Evaluate the impact of the One Big Beautiful Bill Act (OBBBA) on the estimated annual effective tax rate and cash tax position.
• Continue to sell certain life insurance products through the career agent distribution channel.

Key Dates

Recommendation

The company reported a net loss for the six-month period, primarily due to non-cash accounting adjustments related to the prior year's acquisition and tax effects, which is a significant negative. However, core operational performance, as measured by Distributable Operating Earnings (DOE), showed strong growth, indicating underlying business health. The substantial increase in assets under management and gross annuity sales are positive indicators of strategic execution and market demand for their products. The company also maintains a strong liquidity position and is compliant with capital requirements. The strategic withdrawal from non-core P&C business and adjustments in the Life Insurance segment suggest a focus on profitability and efficiency. Given the mixed results, with a GAAP net loss offset by strong operational performance and strategic adjustments, a 'Hold' recommendation is appropriate. Investors should monitor the integration of the acquired businesses, the impact of market fluctuations on liabilities, and the effectiveness of ongoing strategic initiatives.

Keywords

Insurance, Annuities, Life Insurance, Property and Casualty, Financial Services, SEC Filing, 10-Q, Investment Management, Brookfield, Financial Results, Distributable Operating Earnings, Risk Management, Capital Resources, Preferred Stock, Derivatives, Reinsurance