Trademark Trial and Appeal Board Electronic Filing System. http://estta.uspto.gov
`ESTTA375134
`ESTTA Tracking number:
`10/26/2010
`
`Filing date:
`IN THE UNITED STATES PATENT AND TRADEMARK OFFICE
`BEFORE THE TRADEMARK TRIAL AND APPEAL BOARD
`91178996
`Defendant
`American National Insurance Company
`Margaret A. Boulware
`Baker & McKenzie LLP
`711 Louisiana Street, Suite 3400
`Houston, TX 77002-2746
`UNITED STATES
`tanya.m.marshall@bakernet.com, meg.a.boulware@bakernet.com,
`andrea.m.guy@bakernet.com, tan.pham@bakernet.com
`Testimony For Defendant
`Tan Pham
`Tan.Pham@bakermckenzie.com, meg.boulware@bakermckenzie.com,
`tanya.marshall@bakermckenzie.com
`/Tan Pham/
`10/26/2010
`2010-08-18 Deposition of George Crume - Exhibit 5 (7 of 11).pdf ( 72 pages
`)(8400763 bytes )
`
`Proceeding
`Party
`
`Correspondence
`Address
`
`Submission
`Filer's Name
`Filer's e-mail
`
`Signature
`Date
`Attachments
`
`

`
`H.G
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`
`;American National Insurance Company
`has evolved to thtiveifih ever—changing
`
`created a unique corporate culture that
`
`remains the liean‘. of the Company today.
`This cttl1Lt1‘el1¢is helped American National
`V persevere through wars, hurricanes, economic
`volatility, extraordinary technological
`
`advancements, evolving products and the
`
`changing needs ofpolicyholders and agents.
`_ As we end a-year ofztnprecedentedfinancial ’- *
`crisis, American National remains financially
`
`.
`l
`
`strong and committed to providing a steady
`
`T and sure source offinancial protection for
`
`polityliolders and investors alike.
`
`ANICO—0O10S9
`
`

`
`OF—F.I'C ERS .AN'n»,
`
`M l'L o F ,coM P'AN'lE s;
`
`ANICO-001060
`
`

`
`ii
`7 To be a leading prévider
`’ 5ffinanaaz products and“
`
`—services for currentfiand
`
`future generations:
`
`ANICO-001061
`
`

`
`
`
`'
`
`M
`
`_
`
`'
`
`M
`
`Assets were $18,379,439,000, at
`December 31, 2008.
`
`
`
`
`
`_____+_wmm._
`
`Stockholders’ Equity was $3,133,85 6,000,
`
`or $118.35 per share.
`
`Life insurance in force totaled $69,870,85 7,000,
`
`an increase of 1.7% over year—end 2007.
`
`Dividends are currently paid by American
`
`National at a rate of $3.08 per share.
`
`The year 2008 was the 98th consecutive year that
`
` dividends have been paid to stockholders.
`_.__._____,._._............_._.. ..,..e,.,.. . .....,_. .,_..,<,.._..._,___..‘;...‘._“._.,,_..,,,,,_.
`
`
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`
`' ANICO-001062
`
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`
`MEIHIIAN NATIIINM INSIIIIANIIE IIHMPAHY
`
`Ratings reflect current independent opinions of
`
`(”American National”) has been assigned
`
`the financial capacity of an insurance organization
`
`strong ratings by nationally recognized,
`
`to meet the obligations of its insurance policies
`
`independent rating agencies. The ratings are
`
`and contracts in accordance with their terms.
`
`current as of February 1, 2009.
`
`They are based on comprehensive quantitative
`
`A.M. BESI FSII: A+ ISIIPEIIIIIIII
`
`V and qualitative evaluations of the company and
`
`its management strategy. They are not provided
`
`Second highest of 13 active company ratings‘
`
`as a recommendation by the rating companies
`
`"A superior ability to meet their ongoing
`
`to purchase insurance or annuities. These ratings
`
`obligations to policyholders."
`
`are not a warranty of an insurer’s current or future
`
`STMIIIAIIII 1‘. Fllflfl'S: AA- [VERY Slllllfllil
`
`ability to meet its contractual obligations.
`
`Ratings may be changed, suspended,
`
`Fourth highest of 20 active company ratingsz
`”Very strong financial security characteristics,
`
`or withdrawn at any time For the most current
`
`information, visit American Nationa1’s Internet
`
`differing only slightly from those rated higher."
`
`site at WVlW.fllllI}ll.fllllll.
`
`
`
`_ ANICO-001063
`
`
`
`1. AM. Best's active company rating scale is: A++ (Superior-
`B (Adequate), B- (Adequate), C++ (Fair), C+ (Fair)
`
`2. Standard & l’oo1’s active company rating scal
`B (Weak); CCC (Very Weak), and CC (
`fi'om AA to CCC;
`'
`'
`
`

`
`+ Arrierican’Na,tit:inal:Ifi51m1fiI?6EC
`
`m ' 8 (_1]’ld otherfini(1;ncialV_p1jO
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`
`.._.__.
`
`,
`
`_
`
`

`
`
`
`in
`
`ii.Ii|i:’ii’A‘"n rr'iii|uiirsiu” "
`President
`
`‘mi ii i" i. H: n v
`Chainmzn of the Board
`ChiefExecutive Ofiicer
`
`ChiefOperating Officer
`
`A MEHIEIN NITIBNM. Insurance Company
`has evolved to thrive in an ever-changing
`world. In 1905 our founder, W.L. Moody, Ir.,
`
`value in a market where the value does not reflect
`
`the underlying soundness of the security. These
`UITI losses must be recorded as realized even
`
`envisioned a company that would flourish for
`
`though they were not the result of any actual
`
`centuries. His conservative business approach
`
`market transaction. Further, the accounting rules
`
`created a unique corporate culture that remains
`
`do not allow subsequent gains in value to offset
`
`the heart of the Company today. This culture
`
`prior recorded losses using the same process.
`
`has helped American National persevere
`
`through wars, hurricanes, economic volatility,
`
`extraordinary technological advancements,
`
`evolving products and the changing needs of
`
`Although American National has and will
`continue to follow the O'ITI rules in accordance
`
`with GAAP, we believe they result in a distorted
`view of the income of the company.
`
`policyholders and agents. As we end a year of
`
`Excluding the OITI adjustments, the after tax
`
`unprecedented financial crisis, American National
`
`gain was $84.5 million, down $160.9 million
`
`remains financially strong and committed to
`
`.
`
`from prior year earnings excluding OITI of $245.4
`
`providing a steady and sure source of financial
`
`million. This decrease was largely the result of
`
`protection for policyholders and investors alike
`
`catastrophe expenses in our property and casualty
`
`Overall, the Company experienced a $ 154.0
`
`business. Stockholders’ Equity remained healthy
`
`’ million after tax loss during 2008, down $394.8
`million from the prior year gain of $240.8’
`
`million. The largest decrease to earnings was
`
`at $3.1 billion, although it was down 16.1% from
`
`the prior year value of $3.7 billion, due largely to
`the deterioration in the credit market.
`
`the result of other-than-temporaiy impairments
`
`(OTTI) in the Corporate and Other segment, as
`
`W.L. Moody established American National
`with an initial investment of $ 100,000. Since‘
`
`required by GAAP accounting rules. American
`
`1905 the Company has grown to more than
`
`National believes the rules governing OITI are
`
`$18.3 billion in GAAP assets. Even considering
`
`severely flawed. They require companies to record
`losses oninvestments as a function of market
`
`the challenging year we just completed, American
`
`National has maintained assets equal to more
`
`
`
`ANICO-001065
`
`

`
`Atirn-It:,AN _'NA.‘IInNAt=|,s Nari '8
`
`*ANlI__AlWAYS HAS BEEN IIIIMMITIEIJ
`
`120% ofthose required to support the
`Company/s.li_abiliti_es.
`AM. Best and Standard & Poo1’s, independent
`
`American National paid dividends to
`stockholders for the 98th consecutive year. The
`company maintained the prior year annual rate
`
`, -*-rating agencies well recognized-in the insurance
`
`of $3.08 per share.
`
`industry, continue to recognize American National
`as a strong insurer. However,-Standard
`Poo1’s
`did lower the Company’s rating one notch based
`
`partially on impairments taken bythe Company
`during 2008
`the recent decrease eamings,
`(A complete"discussion ofthe rating action can
`be found www.anico.com). Standard 81 Pooi’s
`assigned American National a rating ofAA— (Very
`
`American National is now and always has
`
`been committed to profitable growth. This allows
`
`us to remain strong for our policyholders and
`shareholders. As such, we have found it necessary
`‘to atit particular markets at times. During 2008,
`
`we made the decision to exit our operations in
`
`Mexico. While we believe there is potential within
`this market, American National was not successful
`
`Strong). AM. Best assigned American National a
`
`in making this operation profitable The sale
`
`rating of A+ (Superior).
`American National was named to the 2008
`
`of the company was completed during the
`
`fourth quarter of 2008. This sale will eliminate
`
`' Ward's 50 group of top performing companies.
`
`the negative earnings arperienced from these
`
`Further, American Nationalgis one of only 13
`organizations with affiliated companies ir1 both
`
`property-casualty and life—health Ward's 50 groups
`
`of companies. According to The Ward Group, ”the
`
`Ward's 50 are selected for achieving outstanding
`
`operations in recent years.
`
`Armuity sales were strong at $ 1.8 billion, up
`59% from the $1.1 billion achieved in 2007. We
`
`attribute this large increase to a ”flight to quality”
`as consumers looked toward safer alternatives for
`
`financial results in the areas of safety, consistency and
`
`performance over a five year period (2003 — 2007)’.’
`
`investing money in today's turbulent economic
`environment Health insurance sales increased
`
`
`
`ANICO-001066
`
`

`
`
`
`ANICO—001067ANICO—001067
`
`

`
`more than 40% to $53.4 million in 2008 as the
`
`aimed at ensuring the company's strength and
`
`Company regained position in the Medicare
`
`responsiveness. While American Nationa1’s home
`
`Supplement market and increased distribution in
`other markets.
`
`office building in Galveston was built in 1972,
`
`it was designed to meet the dynamic needs of
`
`Property and Casualty sales were down 2.1°/o
`to $ 1.1 billion in 2008, largely due to the softer
`
`a growing company. Early in 2008 American
`
`National set out to strengthen the building by
`
`market and risk initiatives to limit exposures in
`
`making upgrades to its structural integrity to
`
`certain geographic areas.
`
`enable the building to better survive a direct hit
`
`Weighted life paid premiums, the Company's
`measure of life insurance sales, were down $ 18.3
`
`from strong storms.
`
`During the second quarter of 2008, we
`
`‘million to $109.6 million for the year, partly
`
`opened a new processing center located in San
`
`due to exiting the Mexico operations and an
`
`Antonio, Texas. The center was designed to
`
`anticipated change in the Company's competitive
`
`maintain critical operations and provide the
`
`position in the independent market. Life
`
`instantaneous support clients and agents have
`
`insurance in force increased slightly from $68.7
`
`come to expect, as Well as support additional
`
`billion to $69.9 billion in 2008. This represents a
`
`1 .7°/o increase for 2008. Direct earned premiums
`
`business operations in the event Galveston is
`evacuated due to a catastrophic threat. The center
`
`for life insurance increased 1.5% during 2008 to
`
`served our clients well during the company's
`
`reach $494.2 million.
`
`'
`
`evacuation from Hurricane Ike and we anticipate
`
`Our strong commitment to policyholders,
`
`even better performance in the future as the
`
`shareholders, agents and employees led us
`
`Company strategically adds personnel and
`
`to take many important actions in 2008,
`
`operations to the new location.
`
`
`
`

`
`
`
`
`
`Wltll each era of American National’s history,
`
`failures and bailouts of industry giants in
`
`the company has embraced new technology in
`
`the financial market, including large banks,
`
`order to better serve policyholders and agents.
`
`Today American National has a variety of
`
`investment firms and insurance companies.
`American National’s 2008 financial results were
`
`communication options that range from meeting
`
`largely impacted by the $367.0 million before tax
`
`in person to responding electronically, based on
`
`impairment write—downs related to these failures.
`
`personal preference
`
`New technology allowed us to better respond
`to weather events. The residents of Galveston
`
`had little prior knowledge of the approaching
`
`disastrous storm in 1900. In contrast, manage-
`ment was aware of Hurricane Ike before it
`
`This compares to $7.2 million in write—downs
`
`taken during 2007. Additionally, all segments
`
`have been impacted by lower investment income
`
`on supporting assets.
`I During the year, American National invested
`
`substantial resources preparing for our initial SEC
`
`entered the Gulf of Mexico. We were able to put
`
`previously developed plans into action, enabling
`
`registration, which is anticipated in the first half
`of 2009. We incurred $19.4 million in 2008 for
`
`the company to stay online even when the
`
`consultant costs to prepare for Sarbanes—Oxley
`
`hurricane was directly hitting the home office
`While no catastrophe can be fully mitigated, we
`
`(SOX) and the registration. Consulting costs
`
`are expected to diminish by 2010. Management
`
`are extremely proud of our ability to react to the
`
`anticipates the work product efforts to result in
`
`challenges we experienced and the incredible
`
`efficiencies and better management information.
`
`responsiveness of our employees, many of whom
`
`American National invests in the company’s
`
`realized substantial personal loss in the wake of
`this disaster.
`
`Hurricane Ike was just one of the many
`
`distributions and markets to fuel internal growth.
`
`Over the years we have moved fi'om working
`strictly with career agents to embrace independent
`
`catastrophes that impacted American National.
`
`and direct distributions as well. During 2008, we
`
`In all, 35 natural catastrophes resulted in a net
`
`devoted resources to further establishing a new
`
`if
`
`.
`
`‘ impact of $132.1 million to the Company. This
`compares to a §26.9 million net impact from
`
`'
`
`catastrophes m 2007, an extremely favorable year.
`
`The economic breakdown experienced during
`the last half of 2008 "could also be considered
`
`catastrophic. The collapse of the sub—prime
`l market was followed by declines in both the credit
`and equity markets. Our national and world
`
`marketing program within our Multiple Line
`
`division. We are also working to atablish a new
`company and applying for a certificate of authority
`to sell insurance and armuities in New York
`
`through our independent distribution channels.
`
`Without a doubt, 2008 was a difficult year for
`American National on several fronts. StilL we are
`
`optimistic about the Company’s firture as well as
`
`economies began to experience unprecedented
`
`the future of the economy and nation at large
`
`
`
`ANICO-001069
`
`

`
`
`
`
`
`...l..I.I.,.....!L.:.t.-l..21..mull},‘..1|ul..
`
`
`
`
`
`OmNA
`
`—OO107O
`
`

`
`
`
`ANICO-00107ANICO-00107
`
`

`
`$
`
`iii;-‘iear fiiiaiitiai fifiiiififiiisfiii
`
`iwrlur MIINIHS rnnrn
`
`row.
`ggpgmmglf
`LIFE
`ANNUITY
`M}§‘(§'_§$TY
`HEALTH
`
`(Dollars .-., 401,2;
`
`Gain before allocations
`
`Capital and Surplus
`Independent Marketing Group
`Multiple Line
`Career Sales 81 Service Division
`Health Division
`Credit Insurance Division
`Direct Marketing
`All Other
`Consolidating adjustments
`Total gain before allocations
`Earnings of unconsolidated affiliates
`Allocated federal income taxes
`
`$
`
`$
`
`101,076
`18,836
`(27,903)
`13,737
`(9,646)
`(8,353)
`644
`(403)
`7,983
`80,005
`7,639
`13,668
`
`$
`
`101,076
`—
`—
`——
`1,206
`—
`—
`(4,741)
`7,230
`90,311
`7,639
`17,069
`
`— $
`(2,572)
`10,036
`13,001
`1,902
`(8,366)
`556
`4,317
`59
`18,815
`—
`6,209
`
`— $
`21,408
`(124)
`(474)
`130
`—
`4
`(969)
`—
`19,975
`—
`6,592
`
`— $
`—
`(36,476)
`—
`—
`8,603
`—
`—
`666
`(28,539)
`—
`9,418
`
`—
`V —
`(1,339)
`1,210
`(12,884)
`(8,590)
`84
`990
`28
`(20,557)
`—
`6,784
`
`(13,773)
`(19,121)
`13,383
`12,606
`80,881
`73,976
`Gain from operations after tax
`—
`—
`——
`18,728
`——
`18,728
`Discontinued operations after tax
`—
`——
`—
`—
`246,702
`246,702
`After tax realized gains losses
`Net income loss 13,773 $ 153,998 $ 165,821 $ 31,334 $ 13,383 $ 19,121 $
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`iwrlvr Mums rnurn lliEIIE>MBEglii§j3 2.290“
`
`Gain before allocations
`.
`
` HEALTH $15“)Ommlg PROPERTY“FE “mm AND CASUALTY
`
`Capital and Surplus
`Independent Marketing Group
`Multiple Line
`.
`Health Division
`Credit Insurance Division
`Direct Marketing
`All Other
`'
`Consolidatin adjustments
`Total gain before allocations
`Earnings of unconsolidated affiliates
`Allocated federal income taxes
`
`$
`
`$
`
`95,780
`36,797
`139,463
`18,636
`3,633
`13,305
`4,297
`(989)
`3,962 '
`306,960
`5,947
`93,844
`
`$
`
`95,780
`—
`—
`—
`1,059
`'—
`—
`(3,722)
`4,685
`88,432
`5,947
`21,730
`
`$
`
`—-
`— $
`’ — $
`-—
`34,113
`2,684
`113,450
`2,674
`24,977
`._1.8..1Q8 = ——
`1,989
`366
`—
`3,004
`—
`8,774
`4, 1 99
`34
`—
`3,441
`7
`—
`43
`—
`318
`58,445
`36,949
`122,542
`—
`—
`~—
`19,287
`12,193
`40,439
`
`—
`—
`(1,638)
`173
`219
`1,527
`64
`(715)
`362
`592
`—
`195
`
`397
`82,103
`24,756
`39,158
`72,649
`219,063
`Gain from operations after tax
`—
`—
`—-
`(4,958)
`—
`(4,958)
`Discontinued operations after tax
`—
`—
`——
`—
`26,668
`26,668
`After tax realized gains losses
`Net income 397 $ 240,773 $ 99,317 $ 34,200 $ 24,756 $ 82,103 $
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`13)
`
`ANICO-001072
`
`

`
`
`
`
`JAMES E. PIJZZI
`Seniar Executive Vice President,
`ChiefAdrnivimrative Ofiicer
`
`flllflllll J. Wflflll
`'
`Senior Executive Vice President,
`Corporate Risk Oflicer and ClIiefActuary
`
`AMEIHEAN N Alli] N M. is a family of companies organized into five distinct segments. The Corporate
`
`and Other segment includes all non-insurance operations. The remaining segments (Life, Annuity,
`
`Property and Casualty, and Health) reflect the insurance operations of the company, which are
`
`supported by multiple marketing and shared service areas.
`
` .as=:.—:.—..—.~.-.r_-=.-;-. w
`'5:
`i§ilEPfiflfiiE AH IIHEER
`
`Corporate and Other comprises non-insurance
`operations as well as investments not assigned
`
`million reported in 2007. These earnings exclude
`pre—tax net realized investment losses of $379.7
`
`to support insurance liabilities. Pre-tax operating
`
`million in 2008, In 2007, American National
`
`earnings for the segment Were $98.0 mi11iOI1 in
`2008, an increase of $3.6 million from the $94.4
`
`reported a pre-tax net realized investment gain of
`$41_0 mi1lion_
`
`ANICO—00 I 073
`
`

`
`
`
`contains a higher percentage of equity securities
`
` American National’s investment portfolio
`
`than most comparable insurance companies.
`This level is possible because of the company’
`
`relatively strong capitalization. While earnings
`
`on equities are volatile, American National
`
`has traditionally realized significant positive
`contributions from these investments. This
`
`was not the case in 2008. American National
`
`reported $367.0 million in OTI'Is for the year.
`
`These impairments dominated the results of this
`segment and the company overall. Approximately
`
`43% of the impairments were the result of _
`
`decreases in the market values of equity holdings.
`
`The remaining OITI charges were taken on
`
`investments backing insurance liabilities. The
`
`insurance segments allocate a portion of their
`
`
`
`
`
`
`
`Despite the impact of the financial market
`
`crisis, Stockholders’ Equity was ‘$3.1 billion at the
`
`end of 2008. Clearly, American National remains
`
`financially strong with assets equal to more than
`
`120% of those required to support the company's
`liabilities.
`
`American National has investment guidelines
`
`designed to create and maintain a diversified
`
`investment portfolio. The diversification
`
`objectives include specific credit concentration
`limitations set at conservative levels. However,
`
`market disruptions caused 5y forced mergers and
`
`consolidations among a few financial giants late
`
`in 2008, created unusually large, but manageable,
`
`credit concentrations at year-end. It will take
`time and more normalized market conditions
`
`to restore our concentrations to levels consistent
`
`with company guidelines.
`
`15|
`
`ANICO—00lO74
`
`

`
`
`-
`
`:i.ilFE
`
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`
`.—..—..«
`
`.
`
`Life insurance is the foundation of American
`
`Litigation—related expenses accounted for a major
`
`National. The company sells insurance through
`
`portion of the decrease (refer to footnote 16 in
`
`career, independent and multiple line exclusive
`
`the Financial Statements for further discussion of
`
`(MLEAS) agents, as well as through direct
`distributions. American National first entered
`
`this topic). Other major drivers of the results were
`lower investment income, increased benefits paid
`
`the life insurance business using the debit model
`
`and increased operating expenses associated with
`
`and employee-agents. In the 1950s, the company
`
`investing in new markets and complying with
`
`expanded to sell ordinary insurance. Interest
`sensitive and variable products were created and
`introduced in the 19803.
`
`SOX requirements.
`Weighted paid annualized premium from
`new sales was $ 109.6 million for 2008. This
`
`The life segment reported a pre-tax operating
`gain of $18.8 million, down $39.6 million
`from the $58.4 million gain reported in 2007.
`
`represents a decrease of $ 18.3 million from the
`$128.0 million realized in 2007. This decrease is
`less than anticipated with American National's
`
`repositioning in the older age market and the sale
`
`9
`of the Mexico operations.
`Life insurance in force increased 1.7% from
`
`$68.7 billion at the end of 2007 to $69.9 billion
`
`at the end of 2008. The total amount in force
`
`increased despite a $284.1 million decrease from
`
`exiting the Mexico marketplace.
`
`2008
`
`2007
`
`18,815
`58,445
`
`,
`
`_
`i’f_:§fi1
`
`69,370,357
`120,537
`299,333
`
`68,683,067
`140,747
`315,393
`
`sales
`'
`
`684,732
`
`679,696
`
`
`
`D.\\'ll) .-\. Bl-i|lRF.,\S
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`
`BILL J. GARRISON
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`
`ANICO-001075
`
`
`
`

`
`
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`
`The Annuity segment has grown into a major
`
`‘ segment for American National. The company
`first offered annuities in the 19203, albeit on
`
`of the improvement is due to the current financial
`
`crisis, which is leading investors to seek safer
`investment alternatives.
`7
`
`a limited basis. In the early 19905, American
`National created a new marketing area focused on
`
`While the majority of products sold are
`
`fixed deferred annuities, American National
`
`I N N I! I T Y
`(Dollars in thousands)
`
`
`
`Pre—tax gain from operations
`Paid annualized premium from new sales
`Net retained premiums
`Revenues
`
`distributing products through independent agents.
`
`Fixed annuity sales increased dramatically over the
`
`following years and remain strong today. However,
`
`sales do fluctuate from year to year, depending on
`
`various economic and competitive factors.
`
`In 2008, American National received $1.8
`billion of annuity deposits, a 59% increase
`
`over 2007. Some of the growth is due to a new
`
`paperless submission process available in two
`
`of our largest financial institution marketing
`
`partners. Still, management believes that much A
`
`
`
`,
`
`'s1;,'1§s'5'_
`
`3‘
`
`
` A i 20 A
`
`
`' 19,975 "
`3
`
`p
`1,781,397
`-
`‘
`;.
`1,383,755
`5.o4,45s
`
`I.\\1l:$ \\'. l’.-\N(i|3l|R\J
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`TIMOTHY A. WALSH
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`SCOTT K. Lll(‘.llliSl
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`
`17|
`
`ANICO-001076
`
`

`
`
`
`
`
`also distributes immediate, variable and
`
`The Annuity segment reported a $20.0
`
`indexed annuities. Additionally, pension plans
`
`and pension services for small businesses are
`
`a significant and growing component of the
`
`Annuity segment.
`
`million pre-tax gain from operations, a decrease
`of $17.0 million from the $36.9 million reported
`in 2007. Earnings were negatively impacted by
`lower investment yields, DAC amortization and
`
`American National is in the process of
`
`increased expenses associated with American
`
`obtaining a certificate of authority for a new
`companyin New York. Annuity sales through the
`new company are expected to begin late in 2009.
`
`National’s investment in growth as well as
`
`preparation for SEC registration and meeting
`
`SOX requirements.
`
`PRPEIHY RNII IIASIIAHY
`
`.'13rr.=fi’:'.ns-_-b.-T.'4,'..'-
`
`--
`
`.
`
`-.
`
`.-
`
`Property and Casualty insurance was first sold
`
`by American National in 1974. Since that time,
`
`operations have expanded and the company now
`
`offers these products in 48 states.
`
`In the early years, property and casualty
`
`insurance was focused on selling personal lines of
`
`insurance During the 1990's American National
`
`began offering credit-related property and casualty
`insurance. Credit-related business is a gowing
`portion of the segment, but remains small relative
`to the traditional lines.
`
`In 2001, American National acquired the
`
`Farm Family Insurance group of companies,
`
`which were established by farm bureaus in 1954
`
`to serve farmers, agribusiness and primarily rural
`
`communities in the Northeast. The acquisition
`
`enabled American National to expand personal
`
`line products into the Northeast and enter into
`the farm and ranch, agribusiness and targeted
`small commercial markets in all licensed states.
`
`MLEAs provide clients with comprehensive
`
`insurance solutions to help them address the
`
`multitude of risks they face. American National
`
`offers a broad array of products including several
`
`unique products and features. Through one such
`product feature, American National has refimded
`over $200 million in premiums to clients in
`
`recognition of multiple claim—free years. Targeted
`products are available for specific markets, such as
`young families; classic]antique car, motor home,
`motorcycle, boat, and equine enthusiasts; and
`farm, ranch, and small business owners.
`
`-
`
`2
`
`2007.
`
`
`122,542
`1,081,271
`
` 2008
`
`
`
`_
`
`_
`
`(28,539)
`1,058,936
`
`
`
`ANICO-001077
`
`1,260,347
`
`1,260,881
`
`109.6%
`
`96.1%
`
`

`
`
`
`The property and casualty segment reported
`_ a $28.5 million pre—tax operating loss for the
`
`year, versus a $122.5 million gain in 2007.
`Results of operation for 2008 were primarily
`
`Other adverse impacts to property and
`
`casualty results included lower investment
`income, adverse agriculture and commercial
`lines results in the non-Northeast states, rate
`
`_ impacted by unusually high catastrophe activity.
`These catastrophes led to the 109.6% combined
`
`competition, and litigation costs.
`Net written premiums, American National’s
`
`ratio for the non-credit related property and
`A casualty business, compared to 96.1% for the
`
`prior year.
`
`In 2008, American National incurred
`
`gross losses of $ 187.3 million from a total
`of 35 catastrophes, including Hurricanes Ike
`
`and Gustav, along with $11.9 million in loss
`
`development from prior year catastrophes,
`
`mainly from Hurricane Katrina. The total gross
`
`loss represents a $160.4 million increase over
`the 2007 gross catastrophe loss of $26.9 million.
`Losses in 2008 were partially offset by $60.8
`million of reinsurance recoveries.
`
`measure for property and casualty sales, were
`
`$ 1.0 billion in 2008, down 2.1°/o from 2007,
`
`largely due to the competitive market and
`actions American National has taken in recent
`
`years to limit coastal exposure Nevertheless, the
`company is experiencing strong growth with
`new products, particularly those aimed at young
`families. American National continues to be a
`
`leader in sales providing combined protection for
`
`home, auto and life. Additionally, the company
`
`has achieved very high client satisfaction ratings
`
`leading to better than industry persistency in our
`
`property and casualty business.
`
`llfllllll
`
`
`
`‘The Health segment distributes and administers
`
`81 Services Division (CSSD), Health/Senior Age
`
`
`
`health and disability insurance products to
`employers, individuals and associations. These
`products have transitioned over the years to
`'
`econom gmo a hics and
`
`
`_
`
`Marketing Division and Multiple Line Division.
`The Credit Insurance Division offers disability
`
`insurance that pays the insured’s monthly
`
`IIEMTII
`
`(Dllarsinthau5and.s)
`
` Pre—tax gain from operations
`
`(20,557)
`Paid annualized premium from new sales
`Net retained premiums
`Revenues
`
`53,424
`290,883
`320,701"
`
`
`
`A37-,
`’ -283,17
`I
`'2
`“
`
`19]-
`
`ANICO-001078
`
`-regulatory environment.
`Health insurance is marketed by American
`
`» National’s Credit Insurance Division, Career Sales
`
`

`
`
`
`payment while the insured is disabled. CSSD
`
`The Health segment reported a pre-tax
`
`offers limited benefit products covering cancer
`
`operating loss of $20.6 million in 2008, largely
`
`and accident, which are administered by the
`Health Division.
`
`the result of two independent litigation expenses.
`
`This compares to a gain of $0.6 million for 2007.
`
`American National entered the Medicare
`
`During 2008, American National wrote down
`
`Supplement market after purchasing Standard
`Life and Accident Insurance Company in 1976.
`
`$8.9 million ($5.8 million after-tax) of receivables
`
`related to 9/ 11 after an adverse ruling in a case
`
`Medicare Supplement products, which offer
`
`involving a Managing General Underwriter.
`
`seniors added protection, are highly regulated.
`
`Additionally, American National incurred
`
`Changing government regulationhas caused
`
`expenses on credit health insurance as a result
`
`some profitability challenges in the past, such as
`
`of industry-wide litigation.
`
`subsidized HMOs and Medicare Advantage plans.
`American National chose to remain focused on
`
`traditional plans, which have proven to be viable
`
`over many years. Sales for the company, which
`
`have suffered in some years due to regulatory
`
`changes, began increasing again in 2007 as the
`industry returned to the traditional plans.
`
`Higher loss ratios negatively impacted
`
`results for this segment. Benefit costs increased
`on Medicare Supplement products and some '
`Association Group products that experienced 1-
`large shock claims. American National is
`taking steps to strengthen pricing on all blocks
`
`.
`
`'
`
`of business to bring these loss ratios back to
`
`Over the past ten years, American National
`
`profitable levels.
`
`has moved away from offering the most expensive
`
`Health sales, excluding production from
`
`products to focus on more limited benefit, but
`
`affordable products designed to cover more
`
`Managing General Underwriters, increased}; 3
`40.9% in 2008 to readi $53.4 million. Medicare
`
`extreme medical expenses. This change is expected
`
`Supplement sales made up approximately 38%
`
`to slowly benefit the company's bottom line as
`
`of total health sales for the year.
`
`legacy lines with guaranteed benefits expire.
`
`
`
`
`
`AVICO-001079
`
`
`
`

`
`
`
` Exezrutimz Vire Pmsidznt
`
`MIIHIAEL W. MGIIIIIISKEY
`
`and Treruurzr
`
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`
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`
`Investments supporting insurance liabilities
`
`issuers. Although the company has no direct
`
`exposure to the well publicized problems in the
`
`"sub—prime” or "Alt-A” market, the ripple effect
`
`from those problems has affected all financial
`
`intermediaries. Tight credit markets, tumbling
`
`Treasury yields, forced mergers and acquisitions,
`
`and the press associated with ”bailouts” in the
`insurance and other industries have caused
`
`spreads to widen and prices to fall. Those trends
`
`are reflected in the OTTIS American National was
`
`required to record for the year.
`
`Commercial Mortgage Lending, yet to
`
`experience the defaults or impairments ‘already
`seen in the equity and bond markets, is,
`
`nevertheless, under pressure -Real property
`
`values are falling, tenants are contracting, and
`
`new commercial loan securitizations are at a
`standstill. Liquidity and valuation concerns
`
`have many traditional mortgage lenders on
`the sidelines. The outcome must be a further
`
`4
`_'
`
`include fixed maturity securities and mortgage
`loans. Management balances assets and liabilities
`- to ensureladequate liquidity to meet our
`I policy liabilities under foreseeable interest rate
`in environments. Cash flow testing is used, along
`ith monthly adjustments to crediting rates on
`and existing policies and periodic reviews of
`
`
`
`__anagernent also monitors, and may adjust, the
`omposifion of fixed maturity securities between
`eldilto-l\i'/lattirity and Availableefor-Sale
`“Fixed? income investments (investment-
`' -grade bonds, collateralized mortgage obligations
`‘id-.,c7ommercial mortgages) are allocated
`_ [CM
` . surance product type These portfolios
`
`i provide empirical support for asset/liability
`modeling and are utilized to detennine renewal
`
`
`
`crediting rates to meet product pricing objectives.
`
`
`of foreclosure American National will be affected
`
`by these powerful forces but, our historically
`conservative underwriting criteria, diversification
`
`- discipline, and strong capital position will
`
`provide the company the flexibility and therefore
`the patience to realize the intrinsic collateral
`'
`value of troubled loans.
`
`
`
`21 I
`
`ANIVCO-001080
`
`
`
`Committee works to ensure the highest return
`possble on these portfolios commensurate
`"T
`pnident investment practices.
`securities (principally bonds
`American National’s
`and
`irisurance products are high quality (95%
`grade) and well diversified among
`
`
`
`
`
`

`
`
`
`ANAEEMENI AT AMERIEAN NAIIIIHAL
`
`the variable annuity market, as management
`
`anticipates the economy will remain an
`
`important factor and consideration in 2009. We
`believe there will be continued volatility until
`
`either stimulus plans begin to impact consumer
`
`behavior or an overall sense of investor security
`
`is regained. Either scenario will likely be