American Equity Reports Second Quarter 2016 Results
Company Highlights
-
Second quarter 2016 net income of
$14.7 million or$0.18 per diluted common share -
Second quarter 2016 operating income1 of
$50.1 million or$0.60 per diluted common share -
Second quarter 2016 annuity sales of
$2.1 billion , up 17% from second quarter 2015 -
Policyholder funds under management of
$43.6 billion , up 2.6% from March 31, 2016 - Second quarter 2016 investment spread of 2.62%
- Operating income1 return on average equity1 of 10.1% (trailing twelve months)
-
Estimated risk-based capital (
RBC ) ratio of 312% at June 30, 2016 compared to 336% at December 31, 2015
Operating income1 for the second quarter of 2016 was
SALES EXCEED
Second quarter sales of
Commenting on sales,
Matovina continued, "While gross sales in the first half of 2016 were on
a record pace, we anticipate moderation of sales in the second half of
the year. FIA sales in July have softened further in the independent
agent channel and we've seen a bit of softening from banks and
broker-dealers. Monthly sales in 2016 peaked in March and were
approximately
Commenting on Eagle Life, Matovina added: "Expansion in the
broker-dealer and bank distribution channels, two channels that
represent a significant growth opportunity for FIA sales, has been a key
initiative for us. This initiative has greater significance in light of
the DOL conflict of interest fiduciary rule which favors sales of FIAs
by broker-dealers and banks and poses significant challenges to the
sales of FIAs by independent insurance agents. The new DOL rule becomes
operational in
SPREAD DECLINES SLIGHTLY ON LOWER INVESTMENT YIELD
American Equity’s investment spread was 2.62% for the second quarter of 2016 compared to 2.65% for the first quarter of 2016 and 2.84% for the second quarter of 2015. On a sequential basis, the average yield on invested assets declined four basis points while the cost of money declined one basis point.
Average yield on invested assets continued to be unfavorably impacted by
the investment of new premiums and portfolio cash flows at rates below
the portfolio rate and high cash balances. The average yield on fixed
income securities purchased and commercial mortgage loans funded in the
second quarter of 2016 was 3.95% compared to 4.14% in the first quarter
of 2016. Average yields ranged from 3.73% - 4.03% in the prior year's
quarters. The average balance for cash and short-term investments was
The aggregate cost of money for annuity liabilities decreased by one basis point to 1.92% in the second quarter of 2016 compared to 1.93% in the first quarter of 2016. This decrease reflected continued reductions in crediting rates.
Commenting on investment spread,
Turning to the outlook for investment spread, Matovina added: "Market
conditions changed appreciably at the end of the quarter following the
Brexit vote. Investment yields available since then have been
significantly lower than what we were able to obtain on investment
purchases in the first half of the year. We invested approximately
PHYSICAL SETTLEMENT OF EQUITY FORWARDS SUPPORTS CAPITAL ADEQUACY
As previously reported, the Company physically settled its two equity
forward sales agreements on
In light of the significant sales in 2015 and the first half of 2016, which were appreciably ahead of plan, during the second quarter the Company explored a reinsurance transaction with several potential reinsurance counterparties. Because the Company intended to partially fund the reinsurance transaction with cash and short-term investments, the pricing of the proposed transaction was negatively affected by the declines in investment yields following the Brexit vote in late June and the Company decided not to proceed and suspended the proposed transaction. Although the current outlook for sales has moderated, the Company is considering the issuance of additional debt within parameters that would not jeopardize its current ratings from rating agencies. Additional debt within these parameters would enhance the Company's financial flexibility and can likely be obtained on attractive terms in the current interest rate environment.
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 second quarter
2016 earnings on Thursday, August 4, 2016 at
The call may also be accessed by telephone at 855-865-0606, passcode
47042857 (international callers, please dial 704-859-4382). 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
1 Use of non-GAAP financial measures is discussed in this release in the tables that follow the text of the release.
Consolidated Statements of Operations (Unaudited) |
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Three Months Ended | Six Months Ended | |||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||||||
(Dollars in thousands, except per share data) | ||||||||||||||||||||
Revenues: | ||||||||||||||||||||
Premiums and other considerations | $ | 11,458 | $ | 10,037 | $ | 18,803 | $ | 17,034 | ||||||||||||
Annuity product charges | 41,124 | 32,409 | 77,629 | 61,091 | ||||||||||||||||
Net investment income | 459,830 | 418,176 | 910,656 | 817,845 | ||||||||||||||||
Change in fair value of derivatives | 39,099 | (23,024 | ) | (34,966 | ) | (54,124 | ) | |||||||||||||
Net realized gains (losses) on investments, excluding other than temporary impairment ("OTTI") losses | 2,737 | 4,324 | 5,424 | 9,203 | ||||||||||||||||
OTTI losses on investments: | ||||||||||||||||||||
Total OTTI losses | (762 | ) | — | (6,780 | ) | (132 | ) | |||||||||||||
Portion of OTTI losses recognized in (from) other comprehensive income | (3,684 | ) | (828 | ) | (3,360 | ) | (828 | ) | ||||||||||||
Net OTTI losses recognized in operations | (4,446 | ) | (828 | ) | (10,140 | ) | (960 | ) | ||||||||||||
Total revenues | 549,802 | 441,094 | 967,406 | 850,089 | ||||||||||||||||
Benefits and expenses: | ||||||||||||||||||||
Insurance policy benefits and change in future policy benefits | 13,393 | 12,450 | 22,502 | 21,670 | ||||||||||||||||
Interest sensitive and index product benefits | 111,121 | 306,141 | 208,792 | 588,966 | ||||||||||||||||
Amortization of deferred sales inducements | 30,672 | 75,518 | 58,151 | 86,471 | ||||||||||||||||
Change in fair value of embedded derivatives | 284,303 | (219,601 | ) | 550,160 | (168,388 | ) | ||||||||||||||
Interest expense on notes payable | 6,882 | 7,354 | 13,762 | 14,693 | ||||||||||||||||
Interest expense on subordinated debentures | 3,206 | 3,047 | 6,374 | 6,063 | ||||||||||||||||
Amortization of deferred policy acquisition costs | 50,665 | 104,700 | 100,378 | 118,986 | ||||||||||||||||
Other operating costs and expenses | 26,823 | 24,868 | 53,653 | 45,990 | ||||||||||||||||
Total benefits and expenses | 527,065 | 314,477 | 1,013,772 | 714,451 | ||||||||||||||||
Income (loss) before income taxes | 22,737 | 126,617 | (46,366 | ) | 135,638 | |||||||||||||||
Income tax expense (benefit) | 8,029 | 43,772 | (16,233 | ) | 46,890 | |||||||||||||||
Net income (loss) | $ | 14,708 | $ | 82,845 | $ | (30,133 | ) | $ | 88,748 | |||||||||||
Earnings (loss) per common share | $ | 0.18 | $ | 1.07 | $ | (0.37 | ) | $ | 1.15 | |||||||||||
Earnings (loss) per common share - assuming dilution | $ | 0.18 | $ | 1.05 | $ | (0.37 | ) | $ | 1.12 | |||||||||||
Weighted average common shares outstanding (in thousands): | ||||||||||||||||||||
Earnings (loss) per common share | 82,517 | 77,237 | 82,323 | 77,140 | ||||||||||||||||
Earnings (loss) per common share - assuming dilution | 83,184 | 79,227 | 83,073 | 79,173 | ||||||||||||||||
NON-GAAP FINANCIAL MEASURES
In addition to net income (loss), the Company has 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 its financial performance. Operating income equals net income (loss) adjusted to eliminate the impact of items that fluctuate from quarter to quarter in a manner unrelated to core operations. The most significant adjustments to arrive at operating income eliminate the impact of fair value accounting for our fixed index annuity business and are not economic in nature but rather impact the timing of reported results. The Company believes measures excluding their impact are useful in analyzing operating trends and the combined presentation and evaluation of operating income together with net income (loss) provides information that may enhance an investor’s understanding of its underlying results and profitability.
Reconciliation from Net Income (Loss) to Operating Income (Unaudited) |
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Three Months Ended | Six Months Ended | |||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||||||
(Dollars in thousands, except per share data) | ||||||||||||||||||||
Net income (loss) | $ | 14,708 | $ | 82,845 | $ | (30,133 | ) | $ | 88,748 | |||||||||||
Adjustments to arrive at operating income: (a) | ||||||||||||||||||||
Net realized investment (gains) losses, including OTTI | 605 | (2,556 | ) | 1,760 | (5,377 | ) | ||||||||||||||
Change in fair value of derivatives and embedded derivatives - index annuities | 53,129 | (44,403 | ) | 150,678 | 22,133 | |||||||||||||||
Change in fair value of derivatives and embedded derivatives - debt | 768 | (1,670 | ) | 3,532 | 171 | |||||||||||||||
Income taxes | (19,108 | ) | 16,729 | (54,737 | ) | (5,912 | ) | |||||||||||||
Operating income (a non-GAAP financial measure) | $ | 50,102 | $ | 50,945 | $ | 71,100 | $ | 99,763 | ||||||||||||
Per common share - assuming dilution: | ||||||||||||||||||||
Net income (loss) | $ | 0.18 | $ | 1.05 | $ | (0.37 | ) | $ | 1.12 | |||||||||||
Adjustments to arrive at operating income: | ||||||||||||||||||||
Anti-dilutive effect of net loss | — | — | 0.01 | — | ||||||||||||||||
Net realized investment (gains) losses, including OTTI | — | (0.04 | ) | 0.02 | (0.07 | ) | ||||||||||||||
Change in fair value of derivatives and embedded derivatives - index annuities | 0.64 | (0.56 | ) | 1.81 | 0.28 | |||||||||||||||
Change in fair value of derivatives and embedded derivatives - debt | 0.01 | (0.02 | ) | 0.04 | — | |||||||||||||||
Income taxes | (0.23 | ) | 0.21 | (0.65 | ) | (0.07 | ) | |||||||||||||
Operating income (a non-GAAP financial measure) | $ | 0.60 | $ | 0.64 | $ | 0.86 | $ | 1.26 | ||||||||||||
(a) Adjustments to net income (loss) to arrive at operating income are presented net of related adjustments to amortization of deferred sales inducements (DSI) and deferred policy acquisition costs (DAC) where applicable.
NON-GAAP FINANCIAL MEASURES
Average Stockholders' Equity and Return on Average Equity (Unaudited)
Return on average equity measures how efficiently the Company generates profits from the resources provided by its net assets. Return on average 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"). The Company excludes AOCI because AOCI fluctuates from quarter to quarter due to unrealized changes in the fair value of available for sale investments.
Twelve Months Ended | |||||
June 30, 2016 | |||||
(Dollars in thousands) | |||||
Average Stockholders' Equity 2 |
|||||
Average equity including average AOCI | $ | 2,300,794 | |||
Average AOCI | (641,006 | ) | |||
Average equity excluding average AOCI | $ | 1,659,788 | |||
Net income | $ | 100,949 | |||
Operating income | 167,157 | ||||
Return on Average Equity Excluding Average AOCI | |||||
Net income | 6.08 | % | |||
Operating income | 10.07 | % | |||
2 - The net proceeds received from the Company's public offering of
common stock in
View source version on businesswire.com: http://www.businesswire.com/news/home/20160803006575/en/
Source:
American Equity Investment Life Holding Company
Steven
Schwartz, 515-273-3763
Vice President – Investor Relations
sschwartz@american-equity.com