American Equity Reports Second Quarter 2020 Results
Company Highlights
-
Second quarter 2020 net loss available to common stockholders of
$253.4 million or$(2.76) per diluted common share driven primarily by the tightening of American Equity's own credit spread with improving market conditions; thereby reducing the discount rate used for policyholder liabilities -
Second quarter 2020 non-GAAP operating income1 available to common stockholders of
$93.1 million or$1.01 per diluted common share -
Second quarter 2020 annuity sales of
$559 million -
Policyholder funds under management of
$53.1 billion - Second quarter 2020 investment spread of 2.39%
-
Estimated risk-based capital ratio of 389% excluding
$290 million of cash proceeds at the holding company from the issuance of$300 million of perpetual preferred stock in June
Non-GAAP operating income1 available to common stockholders for the second quarter 2020 was
INVESTMENT SPREAD DECREASES SEQUENTIALLY ON LOWER YIELD ON INVESTED ASSETS
American Equity’s investment spread was 2.39% for the second quarter of 2020 compared to 2.64% for the first quarter of 2020 and 2.63% for the second quarter of 2019. On a sequential basis, the average yield on invested assets decreased by 24 basis points while the cost of money increased by 1 basis point.
Average yield on invested assets was 4.12% in the second quarter of 2020 compared to 4.36% in the first quarter of 2020. The decrease in investment yield was primarily driven by the decline in short term yields on floating rate instruments in the investment portfolio, retention of a higher level of liquidity in the investment portfolios of the life insurance companies, mark to market losses on investment partnerships, and lower prepayment and bond fee income. The average yield on invested assets excluding non-trendable items was 4.17% in the second quarter of 2020 compared to 4.30% in the first quarter of 2020. In our analysis of trendable yield this quarter, we have excluded the reduction in effective yield resulting from the mark to market investment partnership losses in addition to prepayment income.
The aggregate cost of money for annuity liabilities of 1.73% in the second quarter of 2020 was up 1 basis point from 1.72% in the first quarter of 2020. The cost of money in the second quarter was negatively affected by 1 basis point of hedging loss driven by minimal over-hedging gains and the 2 basis point cost of an index credit macro-hedge compared to 5 basis points of gains from the over-hedging of index-linked credits in the first quarter.
POLICYHOLDER FUNDS UNDER MANAGEMENT RELATIVELY FLAT ON
Policyholder funds under management at
Commenting on sales,
Commenting further, Bhalla said: "During the quarter, we implemented a decision to move entirely to an employee wholesaler model at Eagle Life for both the bank and broker-dealer channels. With some new talent hires made and more expected over the coming few months, we expect 2021 to be the first year of meaningful sales growth at Eagle Life and pave the way for it to be as impactful for us in the future as is the independent agent channel today."
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 2020 earnings on
The call may also be accessed by telephone at 855-865-0606, passcode 1372736 (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
1 Use of non-GAAP financial measures is discussed in this release in the tables that follow the text of the release.
Unaudited (Dollars in thousands, except per share data)
Consolidated Statements of Operations |
||||||||||||||||
|
Three Months Ended
|
|
Six Months Ended
|
|||||||||||||
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|||||||||
Revenues: |
|
|
|
|
|
|
|
|||||||||
Premiums and other considerations |
$ |
11,032 |
|
|
$ |
4,126 |
|
|
$ |
18,696 |
|
|
$ |
9,536 |
|
|
Annuity product charges |
63,438 |
|
|
60,700 |
|
|
122,987 |
|
|
113,666 |
|
|||||
Net investment income |
543,704 |
|
|
570,568 |
|
|
1,117,022 |
|
|
1,129,006 |
|
|||||
Change in fair value of derivatives |
327,662 |
|
|
76,045 |
|
|
(614,212 |
) |
|
460,514 |
|
|||||
Net realized gains (losses) on investments |
(25,888 |
) |
|
(3,832 |
) |
|
(46,224 |
) |
|
(4,395 |
) |
|||||
Other than temporary impairment (OTTI) losses on investments: |
|
|
|
|
|
|
|
|||||||||
Total OTTI losses |
— |
|
|
(998 |
) |
|
— |
|
|
(998 |
) |
|||||
Portion of OTTI losses recognized from other comprehensive income |
— |
|
|
(215 |
) |
|
— |
|
|
(215 |
) |
|||||
Net OTTI losses recognized in operations |
— |
|
|
(1,213 |
) |
|
— |
|
|
(1,213 |
) |
|||||
Loss on extinguishment of debt |
— |
|
|
— |
|
|
(2,024 |
) |
|
— |
|
|||||
Total revenues |
919,948 |
|
|
706,394 |
|
|
596,245 |
|
|
1,707,114 |
|
|||||
|
|
|
|
|
|
|
|
|||||||||
Benefits and expenses: |
|
|
|
|
|
|
|
|||||||||
Insurance policy benefits and change in future policy benefits |
13,331 |
|
|
6,939 |
|
|
23,403 |
|
|
16,238 |
|
|||||
Interest sensitive and index product benefits |
240,992 |
|
|
251,103 |
|
|
641,211 |
|
|
387,777 |
|
|||||
Amortization of deferred sales inducements |
(75,178 |
) |
|
19,785 |
|
|
(1,587 |
) |
|
53,094 |
|
|||||
Change in fair value of embedded derivatives |
1,126,935 |
|
|
327,562 |
|
|
(123,126 |
) |
|
1,093,885 |
|
|||||
Interest expense on notes payable |
6,388 |
|
|
6,380 |
|
|
12,773 |
|
|
12,759 |
|
|||||
Interest expense on subordinated debentures |
1,321 |
|
|
4,057 |
|
|
2,909 |
|
|
8,145 |
|
|||||
Amortization of deferred policy acquisition costs |
(119,889 |
) |
|
29,946 |
|
|
813 |
|
|
75,078 |
|
|||||
Other operating costs and expenses |
41,951 |
|
|
37,426 |
|
|
85,577 |
|
|
76,405 |
|
|||||
Total benefits and expenses |
1,235,851 |
|
|
683,198 |
|
|
641,973 |
|
|
1,723,381 |
|
|||||
Income (loss) before income taxes |
(315,903 |
) |
|
23,196 |
|
|
(45,728 |
) |
|
(16,267 |
) |
|||||
Income tax expense (benefit) |
(68,474 |
) |
|
4,606 |
|
|
(41,246 |
) |
|
(4,847 |
) |
|||||
Net income (loss) |
(247,429 |
) |
|
18,590 |
|
|
(4,482 |
) |
|
(11,420 |
) |
|||||
Less: Preferred stock dividends |
5,950 |
|
|
— |
|
|
12,561 |
|
|
— |
|
|||||
Net income (loss) available to common stockholders |
$ |
(253,379 |
) |
|
$ |
18,590 |
|
|
$ |
(17,043 |
) |
|
$ |
(11,420 |
) |
|
|
|
|
|
|
|
|
|
|||||||||
Earnings (loss) per common share |
$ |
(2.76 |
) |
|
$ |
0.20 |
|
|
$ |
(0.19 |
) |
|
$ |
(0.13 |
) |
|
Earnings (loss) per common share - assuming dilution |
$ |
(2.76 |
) |
|
$ |
0.20 |
|
|
$ |
(0.19 |
) |
|
$ |
(0.13 |
) |
|
|
|
|
|
|
|
|
|
|||||||||
Weighted average common shares outstanding (in thousands): |
|
|
|
|
|
|
|
|||||||||
Earnings (loss) per common share |
91,803 |
|
|
91,103 |
|
|
91,724 |
|
|
90,994 |
|
|||||
Earnings (loss) per common share - assuming dilution |
92,027 |
|
|
91,785 |
|
|
92,024 |
|
|
91,765 |
|
Unaudited (Dollars in thousands, except per share data)
NON-GAAP FINANCIAL MEASURES
In addition to net income (loss) available to common stockholders, we have consistently utilized non-GAAP operating income available to common stockholders and non-GAAP operating income available to common stockholders 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 available to common stockholders equals net income (loss) available to common stockholders 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 available to common stockholders 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 available to common stockholders together with net income (loss) available to common stockholders provides information that may enhance an investor’s understanding of our underlying results and profitability.
Reconciliation from Net Income (Loss) Available to Common Stockholders to Non-GAAP Operating Income Available to Common Stockholders |
||||||||||||||||
|
Three Months Ended
|
|
Six Months Ended
|
|||||||||||||
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|||||||||
Net income (loss) available to common stockholders |
$ |
(253,379 |
) |
|
$ |
18,590 |
|
|
$ |
(17,043 |
) |
|
$ |
(11,420 |
) |
|
Adjustments to arrive at non-GAAP operating income available to common stockholders: (a) |
|
|
|
|
|
|
|
|||||||||
Net realized gains/losses on financial assets, including credit losses |
18,492 |
|
|
2,625 |
|
|
34,841 |
|
|
2,930 |
|
|||||
Change in fair value of derivatives and embedded derivatives - fixed index annuities |
423,590 |
|
|
99,868 |
|
|
303,136 |
|
|
250,812 |
|
|||||
Change in fair value of derivatives - interest rate caps and swap |
— |
|
|
854 |
|
|
(848 |
) |
|
1,490 |
|
|||||
Income taxes |
(95,599 |
) |
|
(22,346 |
) |
|
(72,897 |
) |
|
(54,819 |
) |
|||||
Non-GAAP operating income available to common stockholders |
$ |
93,104 |
|
|
$ |
99,591 |
|
|
$ |
247,189 |
|
|
$ |
188,993 |
|
|
|
|
|
|
|
|
|
|
|||||||||
Per common share - assuming dilution: |
|
|
|
|
|
|
|
|||||||||
Net income (loss) available to common stockholders |
$ |
(2.76 |
) |
|
$ |
0.20 |
|
|
$ |
(0.19 |
) |
|
$ |
(0.13 |
) |
|
Adjustments to arrive at non-GAAP operating income available to common stockholders: |
|
|
|
|
|
|
|
|||||||||
Anti-dilutive effect of net loss |
0.01 |
|
|
— |
|
|
— |
|
|
0.01 |
|
|||||
Net realized gains/losses on financial assets, including credit losses |
0.20 |
|
|
0.03 |
|
|
0.38 |
|
|
0.03 |
|
|||||
Change in fair value of derivatives and embedded derivatives - fixed index annuities |
4.60 |
|
|
1.09 |
|
|
3.30 |
|
|
2.73 |
|
|||||
Change in fair value of derivatives - interest rate caps and swap |
— |
|
|
0.01 |
|
|
(0.01 |
) |
|
0.02 |
|
|||||
Income taxes |
(1.04 |
) |
|
(0.24 |
) |
|
(0.79 |
) |
|
(0.60 |
) |
|||||
Non-GAAP operating income available to common stockholders |
$ |
1.01 |
|
|
$ |
1.09 |
|
|
$ |
2.69 |
|
|
$ |
2.06 |
|
(a) |
Adjustments to net income (loss) available to common stockholders to arrive at non-GAAP operating income available to common stockholders 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 (loss) available to common stockholders and non-GAAP operating income available to common stockholders, 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 |
|||
|
|
|||
Average Common Stockholders' Equity Excluding Average AOCI |
|
|||
Average total stockholders' equity |
$ |
4,279,767 |
|
|
Average equity available to preferred stockholders |
(350,000 |
) |
||
Average AOCI |
(1,384,912 |
) |
||
Average common stockholders' equity excluding average AOCI |
$ |
2,544,855 |
|
|
|
|
|||
Net income available to common stockholders |
$ |
240,467 |
|
|
Non-GAAP operating income available to common stockholders |
$ |
606,379 |
|
|
|
|
|||
Return on Average Common Stockholders' Equity Excluding Average AOCI |
|
|||
Net income available to common stockholders |
9.45 |
% |
||
Non-GAAP operating income available to common stockholders |
23.83 |
% |
View source version on businesswire.com: https://www.businesswire.com/news/home/20200805005993/en/
American Equity Investment Life Holding Company®
515-273-3763 | sschwartz@american-equity.com
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