American Equity Reports First Quarter 2014 Results
Non-GAAP operating income1 for the first quarter of 2014 was
Highlights for the first quarter of 2014 include:
-
Annuity sales (before coinsurance) were
$921 million compared to first quarter 2013 annuity sales of$930 million . -
Total invested assets were
$32.0 billion (amortized cost basis =$30.4 billion ). - Investment spread was 2.77% compared to 2.73% for the fourth quarter of 2013 and 2.68% for the first quarter of 2013.
-
Estimated risk-based capital (
RBC ) ratio atMarch 31, 2014 remained above A. M. Best’s rating threshold at 351% compared to 344% atDecember 31, 2013 . -
Book value per share (excluding accumulated other comprehensive
income) was
$18.15 atMarch 31, 2014 compared to$18.75 atDecember 31, 2013 .
1 In addition to net income (loss), we have consistently utilized operating income and operating income per common share – assuming dilution, non-GAAP financial measures commonly used in the life insurance industry, as economic measures to evaluate our financial performance. See accompanying tables for reconciliations of net income (loss) to operating income and descriptions of reconciling items. See Company’s Quarterly Report on Form 10-Q for a more complete discussion of the reconciling items and their impact on net income (loss) for the periods presented. Because these items fluctuate from period to period in a manner unrelated to core operations, we believe measures excluding their impact are useful in analyzing operating trends. We believe the combined presentation and evaluation of operating income together with net income (loss), provides information that may enhance an investor’s understanding of our underlying results and profitability.
The diluted share count for first quarter 2014 was 79.6 million shares compared to 68.7 million shares for the first quarter of 2013. This increase was attributable to (i) shares issued for retirement of convertible notes and the exercise of stock options and (ii) greater dilution from convertible notes, warrants and stock options because the Company’s common stock price was substantially higher in the first quarter of 2014 compared to the first quarter of 2013.
SATISFYING START TO YEAR WITH SOLID PERFORMANCE ON KEY METRICS
Commenting
on first quarter results, founder and Executive Chairman
SPREAD WIDENS IN ADVANCE OF FURTHER RENEWAL RATE ADJUSTMENTS
American
Equity’s investment spread of 2.77% for the first quarter of 2014
increased slightly compared to 2.73% for the fourth quarter of 2013.
Spread performance was impacted by the average yield on invested assets,
which declined 0.02% to 4.95% for the first quarter of 2014 from 4.97%
for the fourth quarter of 2013, due to the investment of new premiums
and portfolio cash flows at rates below the portfolio rate. The average
yield on fixed income securities purchased and commercial mortgage loans
funded in the first quarter of 2014 was 4.39%, compared to an average
yield of 4.48% and 4.37% in the fourth and third quarters of 2013,
respectively.
The aggregate cost of money for annuity liabilities was 2.18% in the first quarter of 2014 compared to 2.24% in the fourth quarter of 2013. This decrease reflected continued reductions in crediting rates. In addition, the Company eliminated the 0.03% under hedging cost incurred in the fourth quarter of 2013.
Commenting on investment spread,
Matovina continued, “We remain committed to our objective of restoring
our investment spread to the 3.00% target rate. Earlier this quarter we
initiated additional renewal crediting rate reductions for policies
issued prior to
LONG-TERM BENEFIT FROM RETIREMENT OF CONVERTIBLE DEBT
During
the quarter, the Company continued to improve its capital structure and
financial profile by reducing its debt leverage and eliminating
potential additional dilution from further increases in the Company’s
stock price through the retirement of additional convertible notes.
After retiring
At
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This press
release contains forward-looking statements within the meaning of The
Private Securities Litigation Reform Act of 1995. Forward-looking
statements relate to future operations, strategies, financial results or
other developments, and are subject to assumptions, risks and
uncertainties. Statements such as “guidance”, “expect”, “anticipate”,
“believe”, “goal”, “objective”, “target”, “may”, “should”, “estimate”,
“projects” or similar words as well as specific projections of future
results qualify as forward-looking statements. Factors that may cause
our actual results to differ materially from those contemplated by these
forward looking statements can be found in the company’s Form 10-K filed
with the
CONFERENCE CALL
American Equity will hold a conference call
to discuss first quarter 2014 earnings on
The call may also be accessed by telephone at 866-515-2909, passcode
15834723 (international callers, please dial 617-399-5123). An audio
replay will be available shortly after the call on AEL’s website. An
audio replay will also be available via telephone through
ABOUT AMERICAN EQUITY
Consolidated Statements of Operations (Unaudited)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2014 | 2013 | |||||||
| (Dollars in thousands, | ||||||||
| except per share data) | ||||||||
| Revenues: | ||||||||
| Premiums and other considerations (a) | $ | 7,331 | $ | 13,084 | ||||
| Annuity product charges | 25,272 | 21,481 | ||||||
| Net investment income | 370,005 | 329,690 | ||||||
| Change in fair value of derivatives | 48,493 | 373,962 | ||||||
| Net realized gains (losses) on investments, excluding other than temporary impairment ("OTTI") losses | (714 | ) | 10,585 | |||||
| OTTI losses on investments: | ||||||||
| Total OTTI losses | — | (2,189 | ) | |||||
| Portion of OTTI losses recognized from other comprehensive income | (905 | ) | (1,048 | ) | ||||
| Net OTTI losses recognized in operations | (905 | ) | (3,237 | ) | ||||
| Loss on extinguishment of debt | (3,977 | ) | — | |||||
| Total revenues | 445,505 | 745,565 | ||||||
| Benefits and expenses: | ||||||||
| Insurance policy benefits and change in future policy benefits (a) | 10,095 | 14,760 | ||||||
| Interest sensitive and index product benefits (a) | 317,192 | 223,170 | ||||||
| Amortization of deferred sales inducements | 666 | 28,831 | ||||||
| Change in fair value of embedded derivatives | 92,619 | 363,272 | ||||||
| Interest expense on notes payable | 10,264 | 7,248 | ||||||
| Interest expense on subordinated debentures | 3,008 | 3,009 | ||||||
| Amortization of deferred policy acquisition costs | 7,194 | 46,230 | ||||||
| Other operating costs and expenses | 19,085 | 19,520 | ||||||
| Total benefits and expenses | 460,123 | 706,040 | ||||||
| Income (loss) before income taxes | (14,618 | ) | 39,525 | |||||
| Income tax expense (benefit) | (4,865 | ) | 13,494 | |||||
| Net income (loss) | $ | (9,753 | ) | $ | 26,031 | |||
| Earnings (loss) per common share | $ | (0.13 | ) | $ | 0.41 | |||
| Earnings (loss) per common share - assuming dilution | $ | (0.13 | ) | $ | 0.38 | |||
| Weighted average common shares outstanding (in thousands): | ||||||||
| Earnings (loss) per common share | 72,519 | 63,314 | ||||||
| Earnings (loss) per common share - assuming dilution | 79,616 | 68,706 | ||||||
| (a) | The Company made an immaterial correction in the presentation of premiums, insurance policy benefits and change in future policy benefits and interest sensitive and index product benefits related to life contingent immediate annuities. We have revised the 2013 consolidated statement of operations above to be consistent with the 2014 presentation. These changes had no impact on the Company's consolidated balance sheets, net income (loss) or stockholders' equity. | |
NON-GAAP FINANCIAL MEASURES
In addition to net income (loss), we have consistently utilized operating income and operating income per common share - assuming dilution, non-GAAP financial measures commonly used in the life insurance industry, as economic measures to evaluate our financial performance. Operating income equals net income (loss) adjusted to eliminate the impact of net realized gains and losses on investments including net OTTI losses recognized in operations, fair value changes in derivatives and embedded derivatives, loss on extinguishment of debt and changes in litigation reserves. Because these items fluctuate from quarter to quarter in a manner unrelated to core operations, we believe measures excluding their impact are useful in analyzing operating trends. We believe the combined presentation and evaluation of operating income together with net income (loss) provides information that may enhance an investor’s understanding of our underlying results and profitability.
Reconciliation from Net Income (Loss) to Operating Income (Unaudited)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2014 | 2013 | |||||||
| (Dollars in thousands, | ||||||||
| except per share data) | ||||||||
| Net income (loss) | $ | (9,753 | ) | $ | 26,031 | |||
| Adjustments to arrive at operating income: | ||||||||
| Net realized investment (gains) losses, including OTTI (a) | 564 | (2,804 | ) | |||||
| Change in fair value of derivatives and embedded derivatives - index annuities (a) | 43,708 | 10,973 | ||||||
| Change in fair value of derivatives and embedded derivatives - debt (a) | 1,509 | (736 | ) | |||||
| Litigation reserve (a) | (916 | ) | — | |||||
| Extinguishment of debt (a) | 2,394 | — | ||||||
| Operating income (a non-GAAP financial measure) | $ | 37,506 | $ | 33,464 | ||||
| Per common share - assuming dilution: | ||||||||
| Net income (loss) | $ | (0.13 | ) | $ | 0.38 | |||
| Adjustments to arrive at operating income: | ||||||||
| Anti-dilutive effect of net loss | 0.01 | — | ||||||
| Net realized investment (gains) losses, including OTTI | — | (0.04 | ) | |||||
| Change in fair value of derivatives and embedded derivatives - index annuities | 0.55 | 0.16 | ||||||
| Change in fair value of derivatives and embedded derivatives - debt | 0.02 | (0.01 | ) | |||||
| Litigation reserve | (0.01 | ) | — | |||||
| Extinguishment of debt | 0.03 | — | ||||||
| Operating income (a non-GAAP financial measure) | $ | 0.47 | $ | 0.49 | ||||
| (a) | Adjustments to net income (loss) to arrive at operating income are presented net of income taxes and where applicable, are net of related adjustments to amortization of deferred sales inducements (DSI) and deferred policy acquisition costs (DAC). | |
NON-GAAP FINANCIAL MEASURES
Average Stockholders' Equity and Return on Average Equity
Return on equity measures how efficiently we generate profits from the resources provided by our net assets. Return on equity is calculated by dividing net income and operating income for the trailing twelve months by average equity excluding average accumulated other comprehensive income ("AOCI").
| Twelve Months Ended | ||||
| March 31, 2014 | ||||
| (Dollars in thousands) | ||||
| Average Stockholders' Equity 1 | ||||
| Average equity including average AOCI | $ | 1,692,589 | ||
| Average AOCI | (497,049 | ) | ||
| Average equity excluding average AOCI | $ | 1,195,540 | ||
| Net income | $ | 217,499 | ||
| Operating income | 167,462 | |||
| Return on Average Equity Excluding Average AOCI | ||||
| Net income | 18.19 | % | ||
| Operating income | 14.01 | % | ||
1 - simple average based on stockholders' equity at beginning and end of the twelve month period.
Source:
American Equity Investment Life Holding Company
John M. Matovina,
515-457-1813
Chief Executive Officer
jmatovina@american-equity.com
or
Ted
M. Johnson, 515-457-1980
Chief Financial Officer
tjohnson@american-equity.com
or
Debra
J. Richardson, 515-273-3551
Chief Administrative Officer
drichardson@american-equity.com
or
Julie
L. LaFollette, 515-273-3602
Director of Investor Relations
jlafollette@american-equity.com