American Equity Reports Fourth Quarter and Full Year 2019 Results
Company Highlights
-
Fourth quarter 2019 net income of
$220.2 million or$2.40 per diluted common share; Full year 2019 net income of$246.1 million or$2.68 per diluted common share -
Fourth quarter 2019 non-GAAP operating income1 of
$125.8 million or$1.37 per diluted common share; Full year 2019 non-GAAP operating income1 of$548.2 million or$5.97 per diluted common share -
Fourth quarter 2019 annuity sales of
$921 million -
Policyholder funds under management of
$53.2 billion - Fourth quarter 2019 investment spread of 2.77%
-
Risk-based capital ratio at
December 31, 2019 of 372% -
Issued
$400 million of perpetual preferred stock -
Annual cash dividend of
$0.30 per share
Non-GAAP operating income1 for fourth quarter 2019 was
The year-over-year increases in quarterly non-GAAP operating income1 and non-GAAP operating income1 per share were primarily attributable to an increase in investment spread which benefited from active rate management and lower amortization of deferred policy acquisition costs and deferred sales inducements. The benefit from these items was partially offset by a greater increase in the liability for future benefits to be paid for lifetime income benefit riders. The decline in amortization and the increase in the liability for lifetime income benefit riders reflect the impact of third quarter 2019 revisions to the assumptions utilized in the determination of these items.
POLICYHOLDER FUNDS UNDER MANAGEMENT UP 0.5% ON
Policyholder funds under management at
Total sales by independent agents for
Commenting on sales,
Matovina continued: "In the bank and broker-dealer channels, Eagle Life had distinguished itself with its emphasis on offering attractive participation rates on the
Commenting on the market environment and the outlook for FIA sales, Matovina added: "The market in each of our distribution channels continues to be competitive. However, with the uptick in investment yields during the fourth quarter, we increased caps and participation rates on our accumulation products in mid-December; putting us in a better competitive position than we were for much of the fourth quarter. Our October decreases in guaranteed income were not widely matched by the marketplace and we did not increase guaranteed income levels in December as we expect product pricing and returns for policies issued in 2020 to be negatively impacted by decreases in the prescribed valuation interest rates used to compute regulatory reserves. While in the near term this may be a sales head wind for us with respect to policies with lifetime income benefit riders, we expect competitors will ultimately adjust their guaranteed income pricing to recognize this factor, but the timing and size of any such adjustments is unclear at this time."
Matovina continued: "A significant initiative for Eagle Life in the fourth quarter was the launch of its guaranteed income product, the Eagle Select Income Focus. Distributors have shown substantial interest and several have already agreed to sell the product. We anticipate sales to materialize early in the second quarter. We also finalized a selling agreement with a large independent broker-dealer last quarter and expect to see sales in the near future from this distribution relationship."
INVESTMENT SPREAD INCREASES ON LOWER COST OF MONEY
American Equity’s investment spread was 2.77% for the fourth quarter of 2019 compared to 2.75% for the third quarter of 2019 and 2.56% for the fourth quarter of 2018. On a sequential basis, the average yield on invested assets decreased by 7 basis points while the cost of money fell by 9 basis points.
Average yield on invested assets was 4.52% in the fourth quarter of 2019 compared to 4.59% in the third quarter of 2019. This decrease was attributable to a decrease in the benefit from non-trendable investment income items from 13 basis points in the third quarter to 9 basis points in the fourth quarter of this year. The impact from the decline in short term yields on the
The aggregate cost of money for annuity liabilities of 1.75% in the fourth quarter of 2019 was down 9 basis points from 1.84% in the third quarter of 2019. The cost of money benefited by 5 basis points from over hedging index-linked interest obligations, compared to 2 basis points in the third quarter of 2019.
Commenting on investment spread, Matovina said: “Excluding non-trendable investment spread items, investment spread increased 3 basis points sequentially. Once again, the driver of spread improvement was a decrease in the cost of money resulting from active management of our rates and further declines in option costs. Option costs decreased in the fourth quarter reflecting the actions taken in August and October to reduce caps and participation rates on new and renewal business. The trend of declining option costs, which began in
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 fourth quarter 2019 earnings on
The call may also be accessed by telephone at 855-865-0606, passcode 3083906 (international callers, please dial 704-859-4382). An audio replay will be available shortly after the call on American Equity's website. An audio replay will also be available via telephone through
ABOUT AMERICAN EQUITY
- 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 |
||||||||||||||||
|
Three Months Ended
|
|
Year Ended
|
|||||||||||||
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|||||||||
Revenues: |
|
|
|
|
|
|
|
|||||||||
Premiums and other considerations |
$ |
8,846 |
|
|
$ |
4,430 |
|
|
$ |
23,534 |
|
|
$ |
26,480 |
|
|
Annuity product charges |
62,722 |
|
|
60,394 |
|
|
240,035 |
|
|
224,488 |
|
|||||
Net investment income |
588,217 |
|
|
554,355 |
|
|
2,307,635 |
|
|
2,147,812 |
|
|||||
Change in fair value of derivatives |
466,434 |
|
|
(1,054,281 |
) |
|
906,906 |
|
|
(777,848 |
) |
|||||
Net realized gains (losses) on investments, excluding other than temporary impairment (OTTI) losses |
7,029 |
|
|
3,097 |
|
|
6,962 |
|
|
(37,178 |
) |
|||||
OTTI losses on investments: |
|
|
|
|
|
|
|
|||||||||
Total OTTI losses |
(17,412 |
) |
|
(18,980 |
) |
|
(18,511 |
) |
|
(35,005 |
) |
|||||
Portion of OTTI losses recognized from other comprehensive income |
— |
|
|
— |
|
|
(215 |
) |
|
(1,651 |
) |
|||||
Net OTTI losses recognized in operations |
(17,412 |
) |
|
(18,980 |
) |
|
(18,726 |
) |
|
(36,656 |
) |
|||||
Loss on extinguishment of debt |
(2,001 |
) |
|
— |
|
|
(2,001 |
) |
|
— |
|
|||||
Total revenues |
1,113,835 |
|
|
(450,985 |
) |
|
3,464,345 |
|
|
1,547,098 |
|
|||||
|
|
|
|
|
|
|
|
|||||||||
Benefits and expenses: |
|
|
|
|
|
|
|
|||||||||
Insurance policy benefits and change in future policy benefits |
11,553 |
|
|
7,439 |
|
|
35,418 |
|
|
39,530 |
|
|||||
Interest sensitive and index product benefits |
399,514 |
|
|
255,700 |
|
|
1,287,576 |
|
|
1,610,835 |
|
|||||
Amortization of deferred sales inducements |
91,260 |
|
|
(11,578 |
) |
|
88,585 |
|
|
222,201 |
|
|||||
Change in fair value of embedded derivatives |
147,879 |
|
|
(804,026 |
) |
|
1,454,042 |
|
|
(1,389,491 |
) |
|||||
Interest expense on notes payable |
6,384 |
|
|
6,376 |
|
|
25,525 |
|
|
25,498 |
|
|||||
Interest expense on subordinated debentures |
3,651 |
|
|
4,041 |
|
|
15,764 |
|
|
15,491 |
|
|||||
Amortization of deferred policy acquisition costs |
133,573 |
|
|
(8,750 |
) |
|
87,717 |
|
|
327,991 |
|
|||||
Other operating costs and expenses |
39,194 |
|
|
33,597 |
|
|
154,153 |
|
|
129,301 |
|
|||||
Total benefits and expenses |
833,008 |
|
|
(517,201 |
) |
|
3,148,780 |
|
|
981,356 |
|
|||||
Income before income taxes |
280,827 |
|
|
66,216 |
|
|
315,565 |
|
|
565,742 |
|
|||||
Income tax expense |
60,677 |
|
|
12,393 |
|
|
69,475 |
|
|
107,726 |
|
|||||
Net income |
$ |
220,150 |
|
|
$ |
53,823 |
|
|
$ |
246,090 |
|
|
$ |
458,016 |
|
|
|
|
|
|
|
|
|
|
|||||||||
Earnings per common share |
$ |
2.41 |
|
|
$ |
0.59 |
|
|
$ |
2.70 |
|
|
$ |
5.07 |
|
|
Earnings per common share - assuming dilution |
$ |
2.40 |
|
|
$ |
0.59 |
|
|
$ |
2.68 |
|
|
$ |
5.01 |
|
|
|
|
|
|
|
|
|
|
|||||||||
Weighted average common shares outstanding (in thousands): |
|
|
|
|
|
|
|
|||||||||
Earnings per common share |
91,314 |
|
|
90,555 |
|
|
91,139 |
|
|
90,348 |
|
|||||
Earnings per common share - assuming dilution |
91,883 |
|
|
91,622 |
|
|
91,782 |
|
|
91,423 |
|
NON-GAAP FINANCIAL MEASURES
In addition to net income, we have 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 our financial performance. Non-GAAP operating income equals net income adjusted to eliminate the impact of items that fluctuate from quarter to quarter in a manner unrelated to core operations, and we believe 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 our fixed index annuity business. These adjustments are not economic in nature but rather impact the timing of reported results. We believe the combined presentation and evaluation of non-GAAP operating income together with net income provides information that may enhance an investor’s understanding of our underlying results and profitability.
Reconciliation from Net Income to Non-GAAP Operating Income |
||||||||||||||||
|
Three Months Ended
|
|
Year Ended
|
|||||||||||||
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|||||||||
Net income |
$ |
220,150 |
|
|
$ |
53,823 |
|
|
$ |
246,090 |
|
|
$ |
458,016 |
|
|
Adjustments to arrive at non-GAAP operating income: (a) |
|
|
|
|
|
|
|
|||||||||
Net realized investment gains/losses, including OTTI |
7,606 |
|
|
9,525 |
|
|
7,361 |
|
|
45,450 |
|
|||||
Change in fair value of derivatives and embedded derivatives - fixed index annuities |
(127,777 |
) |
|
36,186 |
|
|
373,221 |
|
|
(72,181 |
) |
|||||
Change in fair value of derivatives - interest rate caps and swap |
(167 |
) |
|
1,276 |
|
|
1,247 |
|
|
(1,892 |
) |
|||||
Income taxes |
26,023 |
|
|
(10,475 |
) |
|
(79,736 |
) |
|
(3,653 |
) |
|||||
Non-GAAP operating income |
$ |
125,835 |
|
|
$ |
90,335 |
|
|
$ |
548,183 |
|
|
$ |
425,740 |
|
|
|
|
|
|
|
|
|
|
|||||||||
Per common share - assuming dilution: |
|
|
|
|
|
|
|
|||||||||
Net income |
$ |
2.40 |
|
|
$ |
0.59 |
|
|
$ |
2.68 |
|
|
$ |
5.01 |
|
|
Adjustments to arrive at non-GAAP operating income: |
|
|
|
|
|
|
|
|||||||||
Net realized investment gains/losses, including OTTI |
0.08 |
|
|
0.10 |
|
|
0.08 |
|
|
0.50 |
|
|||||
Change in fair value of derivatives and embedded derivatives - fixed index annuities |
(1.39 |
) |
|
0.40 |
|
|
4.07 |
|
|
(0.79 |
) |
|||||
Change in fair value of derivatives - interest rate caps and swap |
— |
|
|
0.01 |
|
|
0.01 |
|
|
(0.02 |
) |
|||||
Income taxes |
0.28 |
|
|
(0.11 |
) |
|
(0.87 |
) |
|
(0.04 |
) |
|||||
Non-GAAP operating income |
$ |
1.37 |
|
|
$ |
0.99 |
|
|
$ |
5.97 |
|
|
$ |
4.66 |
|
- Adjustments to net income to arrive at non-GAAP operating income are presented net of related adjustments to amortization of deferred sales inducements and deferred policy acquisition costs where applicable.
NON-GAAP FINANCIAL MEASURES
Average Common Stockholders' Equity and Return on Average Common Stockholders' Equity
Return on average common stockholders' equity measures how efficiently we generate profits from the resources provided by our net assets. Return on average common stockholders' equity and non-GAAP operating return on average common stockholders' equity are calculated by dividing net income and non-GAAP operating income, respectively, for the trailing twelve months by average total stockholders' equity excluding average equity available to preferred stockholders and average accumulated other comprehensive income (AOCI). We exclude AOCI because AOCI fluctuates from quarter to quarter due to unrealized changes in the fair value of available for sale investments.
|
Twelve Months Ended |
|||
|
December 31, 2019 |
|||
Average Common Stockholders' Equity Excluding Average AOCI |
|
|||
Average total stockholders' equity |
$ |
3,484,610 |
|
|
Average equity available to preferred stockholders |
(200,000 |
) |
||
Average AOCI |
(722,745 |
) |
||
Average common stockholders' equity excluding average AOCI |
$ |
2,561,865 |
|
|
|
|
|||
Net income |
$ |
246,090 |
|
|
Non-GAAP operating income |
$ |
548,183 |
|
|
|
|
|||
Return on Average Common Stockholders' Equity Excluding Average AOCI |
|
|||
Net income |
9.61 |
% |
||
Non-GAAP operating income |
21.40 |
% |
View source version on businesswire.com: https://www.businesswire.com/news/home/20200212005792/en/
Source:
Steven D. Schwartz, Vice President-Investor Relations
(515) 273-3763, sschwartz@american-equity.com