American Equity Reports First Quarter 2017 Results
Company Highlights
-
First quarter 2017 net income of
$53.9 million or$0.60 per diluted common share -
First quarter 2017 non-GAAP operating income1
of
$59.6 million or$0.66 per diluted common share -
First quarter 2017 annuity sales of
$1.1 billion , down 48% from first quarter 2016 -
Policyholder funds under management of
$46.0 billion , up 1.8% fromDecember 31, 2016 and 8.2% fromMarch 31, 2016 - First quarter 2017 investment spread of 2.71%
-
Estimated risk-based capital ratio of 353% compared to 342% at
December 31, 2016
Non-GAAP operating income1 for the first quarter of 2017 was
POLICYHOLDER FUNDS UNDER MANAGEMENT UP 1.8% ON
Policyholder funds under management at
Commenting on sales,
Total sales by independent agents for
Commenting on the competitive environment and the outlook for FIA sales,
Matovina added: “The market in each of our distribution channels was
quite competitive in the first quarter and we've not seen any indication
that the near term will be any less competitive. We continue to suspect
that uncertainty regarding the
Matovina continued: "We have enhanced our competitive positioning by adding an optional market value adjustment (MVA) feature to our Eagle Select and American Equity Choice series of products. These products accounted for approximately 20% of first quarter 2017 FIA sales but it is too early to assess the impact from the MVA versions which have higher rates than the comparable non-MVA versions. While 2017 FIA sales are off to a slow start, we believe the long-term outlook for FIA sales remains favorable driven by well understood demographic factors and the potential for further increases in interest rates."
COST OF MONEY REDUCTION BENEFITS INVESTMENT SPREAD
American Equity’s investment spread was 2.71% for the first quarter of 2017 compared to 2.62% for the fourth quarter of 2016 and 2.65% for the first quarter of 2016. On a sequential basis, the average yield on invested assets increased approximately one basis point while the cost of money declined eight basis points.
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. The average yield on fixed income securities purchased and commercial mortgage loans funded in the first quarter of 2017 was 4.13% compared to 3.71% and 4.14% in the fourth and first quarters of 2016, respectively. However, the unfavorable impact from new money investment yields was offset by fee income from bond transactions, prepayment income and other non-trendable investment income items which added ten basis points to the first quarter average yield on invested assets compared to seven basis from such items in the fourth quarter of 2016.
The aggregate cost of money for annuity liabilities decreased by eight basis points to 1.77% in the first quarter of 2017 compared to 1.85% in the fourth quarter of 2016. This decrease primarily reflected continued reductions in crediting rates. The benefit from over hedging the obligations for index linked interest was five basis points in the first quarter of 2017 compared to two basis points in the fourth quarter of 2016.
Commenting on investment spread,
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
2017 earnings on Thursday, May 4, 2017 at
The call may also be accessed by telephone at 855-865-0606, passcode
99630301 (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 March 31, |
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2017 | 2016 | |||||||
(Dollars in thousands, except per share data) | ||||||||
Revenues: | ||||||||
Premiums and other considerations | $ | 9,402 | $ | 7,345 | ||||
Annuity product charges | 43,572 | 36,505 | ||||||
Net investment income | 485,597 | 450,826 | ||||||
Change in fair value of derivatives | 386,533 | (74,065 | ) | |||||
Net realized gains on investments, excluding other than temporary impairment ("OTTI") losses | 2,338 | 2,687 | ||||||
OTTI losses on investments: | ||||||||
Total OTTI losses | — | (6,018 | ) | |||||
Portion of OTTI losses recognized in (from) other comprehensive income | (141 | ) | 324 | |||||
Net OTTI losses recognized in operations | (141 | ) | (5,694 | ) | ||||
Total revenues | 927,301 | 417,604 | ||||||
Benefits and expenses: | ||||||||
Insurance policy benefits and change in future policy benefits | 11,875 | 9,109 | ||||||
Interest sensitive and index product benefits | 419,139 | 97,671 | ||||||
Amortization of deferred sales inducements | 62,325 | 27,479 | ||||||
Change in fair value of embedded derivatives | 224,170 | 265,857 | ||||||
Interest expense on notes and loan payable | 7,722 | 6,880 | ||||||
Interest expense on subordinated debentures | 3,336 | 3,168 | ||||||
Amortization of deferred policy acquisition costs | 89,678 | 49,713 | ||||||
Other operating costs and expenses | 27,579 | 26,830 | ||||||
Total benefits and expenses | 845,824 | 486,707 | ||||||
Income (loss) before income taxes | 81,477 | (69,103 | ) | |||||
Income tax expense (benefit) | 27,538 | (24,262 | ) | |||||
Net income (loss) | $ | 53,939 | $ | (44,841 | ) | |||
Earnings (loss) per common share | $ | 0.61 | $ | (0.55 | ) | |||
Earnings (loss) per common share - assuming dilution | $ | 0.60 | $ | (0.55 | ) | |||
Weighted average common shares outstanding (in thousands): | ||||||||
Earnings (loss) per common share | 88,647 | 82,129 | ||||||
Earnings (loss) per common share - assuming dilution | 89,976 | 82,961 | ||||||
NON-GAAP FINANCIAL MEASURES
In addition to net income (loss), the Company has consistently utilized non-GAAP operating income and non-GAAP 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. Non-GAAP 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, and the Company believes measures excluding their impact are useful in analyzing operating trends. The most significant adjustments to arrive at non-GAAP operating income eliminate the impact of fair value accounting for the Company's fixed index annuity business and are not economic in nature but rather impact the timing of reported results. The Company believes the combined presentation and evaluation of non-GAAP 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 Non-GAAP Operating Income (Unaudited) |
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Three Months Ended |
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2017 | 2016 | |||||||
(Dollars in thousands, except per share data) | ||||||||
Net income (loss) | $ | 53,939 | $ | (44,841 | ) | |||
Adjustments to arrive at non-GAAP operating income: (a) | ||||||||
Net realized investment (gains) losses, including OTTI | (1,942 | ) | 1,155 | |||||
Change in fair value of derivatives and embedded derivatives - index annuities | 10,977 | 97,549 | ||||||
Change in fair value of derivatives and embedded derivatives - debt | (247 | ) | 2,764 | |||||
Income taxes | (3,105 | ) | (35,629 | ) | ||||
Non-GAAP operating income | $ | 59,622 | $ | 20,998 | ||||
Per common share - assuming dilution: | ||||||||
Net income (loss) | $ | 0.60 | $ | (0.55 | ) | |||
Adjustments to arrive at non-GAAP operating income: | ||||||||
Anti-dilutive effect of net loss | — | 0.01 | ||||||
Net realized investment (gains) losses, including OTTI | (0.02 | ) | 0.01 | |||||
Change in fair value of derivatives and embedded derivatives - index annuities | 0.12 | 1.18 | ||||||
Change in fair value of derivatives and embedded derivatives - debt | — | 0.03 | ||||||
Income taxes | (0.04 | ) | (0.43 | ) | ||||
Non-GAAP operating income | $ | 0.66 | $ | 0.25 | ||||
(a) | Adjustments to net income (loss) to arrive at non-GAAP 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 non-GAAP 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. |
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Twelve Months Ended | ||||
March 31, 2017 | ||||
(Dollars in thousands) | ||||
Average Stockholders' Equity 1 | ||||
Average equity including average AOCI | $ | 2,357,595 | ||
Average AOCI | (477,331 | ) | ||
Average equity excluding average AOCI | $ | 1,880,264 | ||
Net income | $ | 182,023 | ||
Non-GAAP operating income | 160,968 | |||
Return on Average Equity Excluding Average AOCI | ||||
Net income | 9.68 | % | ||
Non-GAAP operating income | 8.56 | % | ||
1 - The net proceeds received from the Company's settlement of the two
equity forward sales agreements in
View source version on businesswire.com: http://www.businesswire.com/news/home/20170503006531/en/
Source:
American Equity Investment Life Holding Company
Steven D.
Schwartz, 515-273-3763
Vice President - Investor Relations
sschwartz@american-equity.com