UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 2, 2017
AMERICAN EQUITY
INVESTMENT LIFE HOLDING COMPANY
(Exact Name of Registrant as Specified in its Charter)
Iowa | 001-31911 | 42-1447959 |
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
6000 Westown Parkway, West Des Moines, Iowa | 50266 |
(Address of Principal Executive Offices) | (Zip Code) |
(515) 221-0002
(Registrant's telephone number, including area code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933
(17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Item 2.02 Results of Operations and Financial Condition
On August 2, 2017, the registrant issued a press release announcing its financial results for the quarter ended June 30, 2017, a copy of which is attached as Exhibit 99.1 and is incorporated herein by reference. The registrant's financial supplement for the quarter ended June 30, 2017, is attached as Exhibit 99.2 and is incorporated herein by reference.
The information, including exhibits attached hereto, furnished under this Item 2.02 shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. The information in this Current Report shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended, except as otherwise expressly stated in such filing.
Item 9.01. Financial Statements and Exhibits
(d) | Exhibits | |
The following exhibits are being furnished with this Form 8-K.
Exhibit Number | Description | |
99.1 | Press release dated August 2, 2017, announcing American Equity Investment Life Holding Company's financial results for the quarter ended June 30, 2017. | |
99.2 | American Equity Investment Life Holding Company's Financial Supplement for the quarter ended June 30, 2017. | |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: August 2, 2017
AMERICAN EQUITY | |||
INVESTMENT LIFE HOLDING COMPANY | |||
By: | /s/ John M. Matovina | ||
John M. Matovina | |||
Chief Executive Officer and President | |||
EXHIBIT INDEX
Exhibit Number | Description | |
99.1 | Press release dated August 2, 2017, announcing American Equity Investment Life Holding Company's financial results for the quarter ended June 30, 2017. | |
99.2 | American Equity Investment Life Holding Company's Financial Supplement for the quarter ended June 30, 2017. | |
Exhibit 99.1
 | For more information, contact: | |
Steven D. Schwartz, Vice President-Investor Relations | ||
(515) 273-3763, sschwartz@american-equity.com | ||
FOR IMMEDIATE RELEASE | ||
August 2, 2017 | ||
American Equity Reports Second Quarter 2017 Results
Company Highlights
• | Second quarter 2017 net income of $26.9 million or $0.30 per diluted common share |
• | Second quarter 2017 non-GAAP operating income1 of $63.7 million or $0.71 per diluted common share |
• | Second quarter 2017 annuity sales of $1.2 billion, down 44% from second quarter 2016 |
• | Policyholder funds under management of $46.9 billion, up 2.0% from March 31, 2017 and 7.5% from June 30, 2016 |
• | Second quarter 2017 investment spread of 2.72% |
• | Estimated risk-based capital ratio of 366% compared to 342% at December 31, 2016 |
WEST DES MOINES, Iowa (August 2, 2017) - American Equity Investment Life Holding Company (NYSE: AEL), a leading issuer of fixed index annuities, today reported second quarter 2017 net income of $26.9 million, or $0.30 per diluted common share, compared to net income of $14.7 million, or $0.18 per diluted common share, for second quarter 2016.
Non-GAAP operating income1 for the second quarter of 2017 was $63.7 million, or $0.71 per diluted common share, compared to non-GAAP operating income1 of $50.1 million, or $0.60 per diluted common share, for second quarter 2016. On a trailing twelve month basis, non-GAAP operating1 return on average equity1 was 9.0% based upon reported results and 11.6% excluding the impact of assumption revisions in the third quarter of 2016.
POLICYHOLDER FUNDS UNDER MANAGEMENT UP 2.0% ON $1.2 BILLION OF SALES
Policyholder funds under management at June 30, 2017 were $46.9 billion, a $912 million or 2.0% increase from March 31, 2017. Second quarter sales were $1.2 billion before coinsurance ceded and $1.1 billion after coinsurance ceded. Gross sales and net sales for the quarter were down substantially from the record second quarter sales posted in 2016. On a sequential basis, gross sales were up 9% with net sales up 6%.
Total sales by independent agents for American Equity Investment Life Insurance Company (American Equity Life) increased 2% sequentially while total sales by broker-dealers and banks for Eagle Life Insurance Company (Eagle Life) climbed by $76 million or 69% sequentially. Sales of fixed index annuities (FIAs) were up 9% sequentially to $1.1 billion with increases at both Eagle Life and American Equity Life.
Commenting on sales, John Matovina, Chairman and Chief Executive Officer, said: "We were pleased with the sequential increase in sales and the rebound in FIA sales from Eagle Life's broker-dealers and banks but recognize that new business remained relatively soft compared to historical levels. While sales were down substantially on a year-over-year basis, we would note that second quarter 2016 sales benefited from a high level of multi-year guaranteed annuity (MYGA) sales. The relatively smaller decline in net sales compared to gross sales reflects both significantly lower volumes of MYGA products which are substantially coinsured as well as a reduction in the coinsured portion of Eagle Life's FIA product sales from 80% to 50%. Earlier this year, we enhanced our competitive positioning by adding an optional market value adjustment (MVA) feature to our Eagle Life Select and American Equity Life Choice series of products. This change, which allowed us to offer higher rates on MVA versions than the comparable non-MVA versions, had a substantial positive effect on Eagle Life's second quarter FIA sales."
Commenting on the competitive environment and the outlook for FIA sales, Matovina added: “The market in each of our distribution channels remained competitive in the second quarter. We continue to suspect that uncertainty regarding the Department of Labor (DOL) conflict of interest fiduciary rule may be distracting from marketing activities and playing a role in lower sales. Strong equity market returns are also proving to be a headwind to sales of guaranteed income products. We have seen a shift in emphasis on the part of independent agents from guaranteed income products to accumulation products focused on upside potential. In addition, we believe securities licensed agents are placing increased allocations of client funds into equity markets. This premise was reinforced by recent discussions with our National Marketing Organization partners. American Equity Life's Choice and Eagle Life's Select products are competitive for accumulation and our marketing department will be putting increased emphasis on promoting the accumulation story for these products."
Matovina continued: "In July, we discontinued our no-fee FIA lifetime income benefit rider and lowered the rider roll up rate on certain fee riders. These changes allowed us to reduce the target spread for American Equity Life's bonus FIAs and recognize lower valuation interest rates used to compute statutory reserves for policies issued in 2017 compared to policies issued in 2016. To date, we have seen three competitors make downward adjustments but none that compete in our guaranteed income space. As a result, our guaranteed income is currently less than some of our most important competitors. Despite the current challenges in the FIA market, we believe the long-term outlook for FIA sales remains favorable driven by well understood demographic factors."
COST OF MONEY REDUCTION BENEFITS INVESTMENT SPREAD
American Equity’s investment spread was 2.72% for the second quarter of 2017 compared to 2.71% for the first quarter of 2017 and 2.62% for the second quarter of 2016. On a sequential basis, the average yield on invested assets declined by three basis points while the cost of money declined four basis points..
Average yield on invested assets fell to 4.45% for the second quarter of 2017 compared to 4.48% for the first quarter of 2017 and 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 second quarter of 2017 was 3.96% compared to 4.13% and 3.95% in the first quarter of 2017 and second quarter 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 eight basis points to the second quarter average yield on invested assets compared to ten basis points from such items in the first quarter of 2017.
The aggregate cost of money for annuity liabilities decreased by four basis points to 1.73% in the second quarter of 2017 compared to 1.77% in the first quarter of 2017. This decrease primarily reflected continued reductions in crediting rates. The benefit from over hedging the obligations for index linked interest was six basis points in the second quarter of 2017 compared to five basis points in the first quarter of 2017.
Commenting on investment spread, Matovina said: “Second quarter spread results were enhanced by a reduction in the cost of money attributable to new money rates and reductions in renewal crediting rates, over hedging benefits, fee income from bond transactions and prepayment income, and other recurring, but variable, investment income items. While investment spread did increase on a sequential basis, yields available to us on investments that meet our high quality parameters remain below our portfolio rate and will continue to pressure our spread results. We will continue to achieve reductions in our cost of money through renewal rate adjustments that will be implemented on policy anniversary dates over the remainder of this year. We continue to have flexibility to reduce our crediting rates, if necessary, and could decrease our cost of money by approximately 0.46% through further reductions in renewal rates to guaranteed minimums should the investment yields currently available to us persist."
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 Securities and Exchange Commission. Forward-looking statements speak only as of the date the statement was made and the company undertakes no obligation to update such forward-looking statements. There can be no assurance that other factors not currently anticipated by the Company will not materially and adversely affect our results of operations. Investors are cautioned not to place undue reliance on any forward-looking statements made by us or on our behalf.
CONFERENCE CALL
American Equity will hold a conference call to discuss second quarter 2017 earnings on Thursday, August 3, 2017 at 8:00 a.m. CT. The conference call will be webcast live on the Internet. Investors and interested parties who wish to listen to the call on the Internet may do so at www.american-equity.com.
The call may also be accessed by telephone at 855-865-0606, passcode 48714902 (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 August 10, 2017 at 855-859-2056, passcode 48714902 (international callers will need to dial 404-537-3406).
ABOUT AMERICAN EQUITY
American Equity Investment Life Holding Company, through its wholly-owned operating subsidiaries, issues fixed annuity and life insurance products, with a primary emphasis on the sale of fixed index and fixed rate annuities. American Equity Investment Life Holding Company, a New York Stock Exchange Listed company (NYSE: AEL), is headquartered in West Des Moines, Iowa. For more information, please visit www.american-equity.com.
1 Use of non-GAAP financial measures is discussed in this release in the tables that follow the text of the release.
###
American Equity Investment Life Holding Company
Consolidated Statements of Operations (Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
(Dollars in thousands, except per share data) | |||||||||||||||
Revenues: | |||||||||||||||
Premiums and other considerations | $ | 7,720 | $ | 11,458 | $ | 17,122 | $ | 18,803 | |||||||
Annuity product charges | 48,603 | 41,124 | 92,175 | 77,629 | |||||||||||
Net investment income | 493,489 | 459,830 | 979,086 | 910,656 | |||||||||||
Change in fair value of derivatives | 266,820 | 39,099 | 653,353 | (34,966 | ) | ||||||||||
Net realized gains on investments, excluding other than temporary impairment ("OTTI") losses | 3,873 | 2,737 | 6,211 | 5,424 | |||||||||||
OTTI losses on investments: | |||||||||||||||
Total OTTI losses | — | (762 | ) | — | (6,780 | ) | |||||||||
Portion of OTTI losses recognized from other comprehensive income | (949 | ) | (3,684 | ) | (1,090 | ) | (3,360 | ) | |||||||
Net OTTI losses recognized in operations | (949 | ) | (4,446 | ) | (1,090 | ) | (10,140 | ) | |||||||
Loss on extinguishment of debt | (428 | ) | — | (428 | ) | — | |||||||||
Total revenues | 819,128 | 549,802 | 1,746,429 | 967,406 | |||||||||||
Benefits and expenses: | |||||||||||||||
Insurance policy benefits and change in future policy benefits | 9,986 | 13,393 | 21,861 | 22,502 | |||||||||||
Interest sensitive and index product benefits | 472,596 | 111,121 | 891,735 | 208,792 | |||||||||||
Amortization of deferred sales inducements | 33,695 | 30,672 | 96,020 | 58,151 | |||||||||||
Change in fair value of embedded derivatives | 174,973 | 284,303 | 399,143 | 550,160 | |||||||||||
Interest expense on notes and loan payable | 8,678 | 6,882 | 16,400 | 13,762 | |||||||||||
Interest expense on subordinated debentures | 3,422 | 3,206 | 6,758 | 6,374 | |||||||||||
Amortization of deferred policy acquisition costs | 49,547 | 50,665 | 139,225 | 100,378 | |||||||||||
Other operating costs and expenses | 25,964 | 26,823 | 53,543 | 53,653 | |||||||||||
Total benefits and expenses | 778,861 | 527,065 | 1,624,685 | 1,013,772 | |||||||||||
Income (loss) before income taxes | 40,267 | 22,737 | 121,744 | (46,366 | ) | ||||||||||
Income tax expense (benefit) | 13,321 | 8,029 | 40,859 | (16,233 | ) | ||||||||||
Net income (loss) | $ | 26,946 | $ | 14,708 | $ | 80,885 | $ | (30,133 | ) | ||||||
Earnings (loss) per common share | $ | 0.30 | $ | 0.18 | $ | 0.91 | $ | (0.37 | ) | ||||||
Earnings (loss) per common share - assuming dilution | $ | 0.30 | $ | 0.18 | $ | 0.90 | $ | (0.37 | ) | ||||||
Weighted average common shares outstanding (in thousands): | |||||||||||||||
Earnings (loss) per common share | 88,897 | 82,517 | 88,773 | 82,323 | |||||||||||
Earnings (loss) per common share - assuming dilution | 90,112 | 83,184 | 90,045 | 83,073 | |||||||||||
Page 1
American Equity Investment Life Holding Company
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)
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
(Dollars in thousands, except per share data) | |||||||||||||||
Net income (loss) | $ | 26,946 | $ | 14,708 | $ | 80,885 | $ | (30,133 | ) | ||||||
Adjustments to arrive at non-GAAP operating income: (a) | |||||||||||||||
Net realized investment (gains) losses, including OTTI | (1,559 | ) | 605 | (3,501 | ) | 1,760 | |||||||||
Change in fair value of derivatives and embedded derivatives - index annuities | 57,571 | 53,129 | 68,548 | 150,678 | |||||||||||
Change in fair value of derivatives and embedded derivatives - debt | 465 | 768 | 218 | 3,532 | |||||||||||
Income taxes | (19,741 | ) | (19,108 | ) | (22,846 | ) | (54,737 | ) | |||||||
Non-GAAP operating income | $ | 63,682 | $ | 50,102 | $ | 123,304 | $ | 71,100 | |||||||
Per common share - assuming dilution: | |||||||||||||||
Net income (loss) | $ | 0.30 | $ | 0.18 | $ | 0.90 | $ | (0.37 | ) | ||||||
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 | ) | — | (0.04 | ) | 0.02 | |||||||||
Change in fair value of derivatives and embedded derivatives - index annuities | 0.64 | 0.64 | 0.76 | 1.81 | |||||||||||
Change in fair value of derivatives and embedded derivatives - debt | 0.01 | 0.01 | — | 0.04 | |||||||||||
Income taxes | (0.22 | ) | (0.23 | ) | (0.25 | ) | (0.65 | ) | |||||||
Non-GAAP operating income | $ | 0.71 | $ | 0.60 | $ | 1.37 | $ | 0.86 | |||||||
(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. |
Page 2
American Equity Investment Life Holding Company
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.
Twelve Months Ended | |||
June 30, 2017 | |||
(Dollars in thousands) | |||
Average Stockholders' Equity 1 | |||
Average equity including average AOCI | $ | 2,688,293 | |
Average AOCI | (751,677 | ) | |
Average equity excluding average AOCI | $ | 1,936,616 | |
Net income | $ | 194,261 | |
Non-GAAP operating income | 174,548 | ||
Return on Average Equity Excluding Average AOCI | |||
Net income | 10.03 | % | |
Non-GAAP operating income | 9.01 | % | |
1 - The net proceeds received from the Company's settlement of the two equity forward sales agreements in August 2016 are included in the computations of average stockholders' equity on a weighted average basis based upon the number of days they were available to the Company in the twelve month period. The weighted average amount is added to the simple average of (a) stockholders' equity at the beginning of the twelve month period and (b) stockholders' equity at the end of the twelve month period excluding the net proceeds received from the settlement of the two equity forward sales agreements in August 2016.
Page 3
Exhibit 99.2
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement
June 30, 2017
A. | Financial Highlights | |
Non-GAAP Financial Measures | ||
B. | Product Summary | |
C. | Investment Summary | |
D. | ||
E. | ||
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - June 30, 2017
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
June 30, 2017 | December 31, 2016 | ||||||
Assets | |||||||
Investments: | |||||||
Fixed maturity securities: | |||||||
Available for sale, at fair value | $ | 43,893,785 | $ | 41,060,494 | |||
Held for investment, at amortized cost | 76,931 | 76,825 | |||||
Mortgage loans on real estate | 2,553,391 | 2,480,956 | |||||
Derivative instruments | 1,086,624 | 830,519 | |||||
Other investments | 314,421 | 308,774 | |||||
Total investments | 47,925,152 | 44,757,568 | |||||
Cash and cash equivalents | 1,574,913 | 791,266 | |||||
Coinsurance deposits | 4,710,650 | 4,639,492 | |||||
Accrued investment income | 416,482 | 397,773 | |||||
Deferred policy acquisition costs | 2,721,596 | 2,905,377 | |||||
Deferred sales inducements | 2,042,889 | 2,208,218 | |||||
Deferred income taxes | 64,074 | 168,578 | |||||
Income taxes recoverable | 952 | 11,474 | |||||
Other assets | 178,882 | 173,726 | |||||
Total assets | $ | 59,635,590 | $ | 56,053,472 | |||
Liabilities and Stockholders' Equity | |||||||
Liabilities: | |||||||
Policy benefit reserves | $ | 53,903,497 | $ | 51,637,026 | |||
Other policy funds and contract claims | 287,381 | 298,347 | |||||
Notes and loan payable | 888,660 | 493,755 | |||||
Subordinated debentures | 242,045 | 241,853 | |||||
Amounts due under repurchase agreements | 61,673 | — | |||||
Other liabilities | 1,600,926 | 1,090,896 | |||||
Total liabilities | 56,984,182 | 53,761,877 | |||||
Stockholders' equity: | |||||||
Common stock | 88,741 | 88,001 | |||||
Additional paid-in capital | 778,376 | 770,344 | |||||
Accumulated other comprehensive income | 610,122 | 339,966 | |||||
Retained earnings | 1,174,169 | 1,093,284 | |||||
Total stockholders' equity | 2,651,408 | 2,291,595 | |||||
Total liabilities and stockholders' equity | $ | 59,635,590 | $ | 56,053,472 | |||
Page 1
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - June 30, 2017
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenues: | |||||||||||||||
Premiums and other considerations | $ | 7,720 | $ | 11,458 | $ | 17,122 | $ | 18,803 | |||||||
Annuity product charges | 48,603 | 41,124 | 92,175 | 77,629 | |||||||||||
Net investment income | 493,489 | 459,830 | 979,086 | 910,656 | |||||||||||
Change in fair value of derivatives | 266,820 | 39,099 | 653,353 | (34,966 | ) | ||||||||||
Net realized gains on investments, excluding other than temporary impairment ("OTTI") losses | 3,873 | 2,737 | 6,211 | 5,424 | |||||||||||
OTTI losses on investments: | |||||||||||||||
Total OTTI losses | — | (762 | ) | — | (6,780 | ) | |||||||||
Portion of OTTI losses recognized from other comprehensive income | (949 | ) | (3,684 | ) | (1,090 | ) | (3,360 | ) | |||||||
Net OTTI losses recognized in operations | (949 | ) | (4,446 | ) | (1,090 | ) | (10,140 | ) | |||||||
Loss on extinguishment of debt | (428 | ) | — | (428 | ) | — | |||||||||
Total revenues | 819,128 | 549,802 | 1,746,429 | 967,406 | |||||||||||
Benefits and expenses: | |||||||||||||||
Insurance policy benefits and change in future policy benefits | 9,986 | 13,393 | 21,861 | 22,502 | |||||||||||
Interest sensitive and index product benefits | 472,596 | 111,121 | 891,735 | 208,792 | |||||||||||
Amortization of deferred sales inducements | 33,695 | 30,672 | 96,020 | 58,151 | |||||||||||
Change in fair value of embedded derivatives | 174,973 | 284,303 | 399,143 | 550,160 | |||||||||||
Interest expense on notes and loan payable | 8,678 | 6,882 | 16,400 | 13,762 | |||||||||||
Interest expense on subordinated debentures | 3,422 | 3,206 | 6,758 | 6,374 | |||||||||||
Amortization of deferred policy acquisition costs | 49,547 | 50,665 | 139,225 | 100,378 | |||||||||||
Other operating costs and expenses | 25,964 | 26,823 | 53,543 | 53,653 | |||||||||||
Total benefits and expenses | 778,861 | 527,065 | 1,624,685 | 1,013,772 | |||||||||||
Income (loss) before income taxes | 40,267 | 22,737 | 121,744 | (46,366 | ) | ||||||||||
Income tax expense (benefit) | 13,321 | 8,029 | 40,859 | (16,233 | ) | ||||||||||
Net income (loss) | $ | 26,946 | $ | 14,708 | $ | 80,885 | $ | (30,133 | ) | ||||||
Earnings (loss) per common share | $ | 0.30 | $ | 0.18 | $ | 0.91 | $ | (0.37 | ) | ||||||
Earnings (loss) per common share - assuming dilution | $ | 0.30 | $ | 0.18 | $ | 0.90 | $ | (0.37 | ) | ||||||
Weighted average common shares outstanding (in thousands): | |||||||||||||||
Earnings (loss) per common share | 88,897 | 82,517 | 88,773 | 82,323 | |||||||||||
Earnings (loss) per common share - assuming dilution | 90,112 | 83,184 | 90,045 | 83,073 | |||||||||||
Page 2
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - June 30, 2017
Quarterly Summary - Most Recent 5 Quarters (Unaudited)
Q2 2017 | Q1 2017 | Q4 2016 | Q3 2016 | Q2 2016 | |||||||||||||||
(Dollars in thousands, except per share data) | |||||||||||||||||||
Revenues: | |||||||||||||||||||
Traditional life insurance premiums | $ | 2,590 | $ | 2,790 | $ | 2,767 | $ | 2,147 | $ | 2,398 | |||||||||
Life contingent immediate annuity considerations | 5,130 | 6,612 | 9,466 | 10,584 | 9,060 | ||||||||||||||
Surrender charges | 13,896 | 13,634 | 11,196 | 13,819 | 11,997 | ||||||||||||||
Lifetime income benefit rider fees | 34,707 | 29,938 | 37,079 | 33,856 | 29,127 | ||||||||||||||
Net investment income | 493,489 | 485,597 | 475,633 | 463,583 | 459,830 | ||||||||||||||
Change in fair value of derivatives | 266,820 | 386,533 | 95,391 | 103,794 | 39,099 | ||||||||||||||
Net realized gains on investments, excluding OTTI | 3,873 | 2,338 | 844 | 5,256 | 2,737 | ||||||||||||||
Net OTTI losses recognized in operations | (949 | ) | (141 | ) | (9,560 | ) | (2,979 | ) | (4,446 | ) | |||||||||
Loss on extinguishment of debt | (428 | ) | — | — | — | — | |||||||||||||
Total revenues | 819,128 | 927,301 | 622,816 | 630,060 | 549,802 | ||||||||||||||
Benefits and expenses: | |||||||||||||||||||
Traditional life insurance policy benefits and change in future policy benefits | 2,020 | 2,185 | 2,026 | 1,348 | 2,177 | ||||||||||||||
Life contingent immediate annuity benefits and change in future policy benefits | 7,966 | 9,690 | 12,890 | 13,717 | 11,216 | ||||||||||||||
Interest sensitive and index product benefits (b) | 472,596 | 419,139 | 237,737 | 278,943 | 111,121 | ||||||||||||||
Amortization of deferred sales inducements (c) | 33,695 | 62,325 | 123,770 | 69,245 | 30,672 | ||||||||||||||
Change in fair value of embedded derivatives | 174,973 | 224,170 | (151,099 | ) | 144,404 | 284,303 | |||||||||||||
Interest expense on notes and loan payable | 8,678 | 7,722 | 7,599 | 6,887 | 6,882 | ||||||||||||||
Interest expense on subordinated debentures | 3,422 | 3,336 | 3,331 | 3,253 | 3,206 | ||||||||||||||
Amortization of deferred policy acquisition costs (c) | 49,547 | 89,678 | 175,526 | 98,108 | 50,665 | ||||||||||||||
Other operating costs and expenses (a) | 25,964 | 27,579 | 23,445 | 25,133 | 26,823 | ||||||||||||||
Total benefits and expenses | 778,861 | 845,824 | 435,225 | 641,038 | 527,065 | ||||||||||||||
Income (loss) before income taxes | 40,267 | 81,477 | 187,591 | (10,978 | ) | 22,737 | |||||||||||||
Income tax expense (benefit) | 13,321 | 27,538 | 66,795 | (3,558 | ) | 8,029 | |||||||||||||
Net income (loss) (a)(b)(c) | $ | 26,946 | $ | 53,939 | $ | 120,796 | $ | (7,420 | ) | $ | 14,708 | ||||||||
Earnings (loss) per common share | $ | 0.30 | $ | 0.61 | $ | 1.37 | $ | (0.09 | ) | $ | 0.18 | ||||||||
Earnings (loss) per common share - assuming dilution (a)(b)(c) | $ | 0.30 | $ | 0.60 | $ | 1.35 | $ | (0.09 | ) | $ | 0.18 | ||||||||
Weighted average common shares outstanding (in thousands): | |||||||||||||||||||
Earnings (loss) per common share | 88,897 | 88,647 | 88,211 | 86,262 | 82,517 | ||||||||||||||
Earnings (loss) per common share - assuming dilution | 90,112 | 89,976 | 89,178 | 87,044 | 83,184 | ||||||||||||||
(a) | Q3 2016 includes a benefit of $2.8 million based upon developments in the claims process associated with a lawsuit settlement, which after related adjustments to amortization of deferred sales inducements and deferred policy acquisition costs and income taxes, decreased the net loss and loss per common share - assuming dilution by $1.1 million and $0.01 per share, respectively. |
(b) | Q3 2016 includes expense from the revision of assumptions used in determining reserves held for living income benefit riders. The impact increased interest sensitive and index product benefits by $42.0 million and increased the net loss and loss per common share - assuming dilution by $27.1 million and $0.31 per share, respectively. |
(c) | Q3 2016 includes expense from unlocking which increased amortization of deferred sales inducements and deferred policy acquisition costs by $17.9 million and $22.1 million, respectively, and increased the net loss and loss per common share- assuming dilution by $25.8 million and $0.30 per share, respectively. |
Page 3
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - June 30, 2017
NON-GAAP FINANCIAL MEASURES
In addition to net income (loss), 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 (loss) 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 and 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 (loss) provides information that may enhance an investor’s understanding of our underlying results and profitability.
Reconciliation from Net Income (Loss) to Non-GAAP Operating Income (Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
(Dollars in thousands, except per share data) | |||||||||||||||
Net income (loss) | $ | 26,946 | $ | 14,708 | $ | 80,885 | $ | (30,133 | ) | ||||||
Adjustments to arrive at non-GAAP operating income: (a) | |||||||||||||||
Net realized investment (gains) losses, including OTTI | (1,559 | ) | 605 | (3,501 | ) | 1,760 | |||||||||
Change in fair value of derivatives and embedded derivatives - index annuities | 57,571 | 53,129 | 68,548 | 150,678 | |||||||||||
Change in fair value of derivatives and embedded derivatives - debt | 465 | 768 | 218 | 3,532 | |||||||||||
Income taxes | (19,741 | ) | (19,108 | ) | (22,846 | ) | (54,737 | ) | |||||||
Non-GAAP operating income | $ | 63,682 | $ | 50,102 | $ | 123,304 | $ | 71,100 | |||||||
Per common share - assuming dilution: | |||||||||||||||
Net income (loss) | $ | 0.30 | $ | 0.18 | $ | 0.90 | $ | (0.37 | ) | ||||||
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 | ) | — | (0.04 | ) | 0.02 | |||||||||
Change in fair value of derivatives and embedded derivatives - index annuities | 0.64 | 0.64 | 0.76 | 1.81 | |||||||||||
Change in fair value of derivatives and embedded derivatives - debt | 0.01 | 0.01 | — | 0.04 | |||||||||||
Income taxes | (0.22 | ) | (0.23 | ) | (0.25 | ) | (0.65 | ) | |||||||
Non-GAAP operating income | $ | 0.71 | $ | 0.60 | $ | 1.37 | $ | 0.86 | |||||||
(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. |
Page 4
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - June 30, 2017
NON-GAAP FINANCIAL MEASURES
Summary of Adjustments to Arrive at Non-GAAP Operating Income (Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
(Dollars in thousands) | |||||||||||||||
Net realized investment gains and losses, including OTTI: | |||||||||||||||
Net realized (gains) losses on investments, including OTTI | $ | (2,924 | ) | $ | 1,709 | $ | (5,121 | ) | $ | 4,716 | |||||
Amortization of DAC and DSI | 1,365 | (1,104 | ) | 1,620 | (2,956 | ) | |||||||||
Income taxes | 554 | (215 | ) | 1,246 | (625 | ) | |||||||||
$ | (1,005 | ) | $ | 390 | $ | (2,255 | ) | $ | 1,135 | ||||||
Change in fair value of derivatives and embedded derivatives: | |||||||||||||||
Index annuities | $ | 140,283 | $ | 112,740 | $ | 162,726 | $ | 316,324 | |||||||
Interest rate caps and swap | 465 | 768 | 218 | 3,532 | |||||||||||
Amortization of DAC and DSI | (82,712 | ) | (59,611 | ) | (94,178 | ) | (165,646 | ) | |||||||
Income taxes | (20,295 | ) | (18,893 | ) | (24,092 | ) | (54,112 | ) | |||||||
$ | 37,741 | $ | 35,004 | $ | 44,674 | $ | 100,098 | ||||||||
Page 5
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - June 30, 2017
NON-GAAP FINANCIAL MEASURES
Quarterly Summary - Most Recent 5 Quarters (Unaudited)
Reconciliation from Net Income (Loss) to Non-GAAP Operating Income (Loss)
Q2 2017 | Q1 2017 | Q4 2016 | Q3 2016 | Q2 2016 | |||||||||||||||
(Dollars in thousands, except per share data) | |||||||||||||||||||
Net income (loss) | $ | 26,946 | $ | 53,939 | $ | 120,796 | $ | (7,420 | ) | $ | 14,708 | ||||||||
Adjustments to arrive at non-GAAP operating income (loss): (a) | |||||||||||||||||||
Net realized investment (gains) losses, including OTTI | (1,559 | ) | (1,942 | ) | 6,436 | (1,008 | ) | 605 | |||||||||||
Change in fair value of derivatives and embedded derivatives - index annuities | 57,571 | 10,977 | (103,444 | ) | 9,400 | 53,129 | |||||||||||||
Change in fair value of derivatives and embedded derivatives - debt | 465 | (247 | ) | (3,748 | ) | (1,049 | ) | 768 | |||||||||||
Litigation reserve | — | — | — | (1,957 | ) | — | |||||||||||||
Income taxes | (19,741 | ) | (3,105 | ) | 35,927 | (2,689 | ) | (19,108 | ) | ||||||||||
Non-GAAP operating income (loss) (b)(c) | $ | 63,682 | $ | 59,622 | $ | 55,967 | $ | (4,723 | ) | $ | 50,102 | ||||||||
Per common share - assuming dilution: | |||||||||||||||||||
Net income (loss) | $ | 0.30 | $ | 0.60 | $ | 1.35 | $ | (0.09 | ) | $ | 0.18 | ||||||||
Adjustments to arrive at non-GAAP operating income (loss): | |||||||||||||||||||
Anti-dilutive effect of net loss | — | — | — | — | — | ||||||||||||||
Net realized investment (gains) losses, including OTTI | (0.02 | ) | (0.02 | ) | 0.07 | (0.01 | ) | — | |||||||||||
Change in fair value of derivatives and embedded derivatives - index annuities | 0.64 | 0.12 | (1.16 | ) | 0.11 | 0.64 | |||||||||||||
Change in fair value of derivatives and embedded derivatives - debt | 0.01 | — | (0.04 | ) | (0.01 | ) | 0.01 | ||||||||||||
Litigation reserve | — | — | — | (0.02 | ) | — | |||||||||||||
Income taxes | (0.22 | ) | (0.04 | ) | 0.41 | (0.03 | ) | (0.23 | ) | ||||||||||
Non-GAAP operating income (loss) (b)(c) | $ | 0.71 | $ | 0.66 | $ | 0.63 | $ | (0.05 | ) | $ | 0.60 | ||||||||
(a) | Adjustments to net income (loss) to arrive at non-GAAP operating income (loss) are presented net of related adjustments to amortization of deferred sales inducements and deferred policy acquisition costs where applicable. |
(b) | Q3 2016 includes expense from unlocking which increased amortization of deferred sales inducements and deferred policy acquisition costs by $18.1 million and $21.5 million, respectively, and increased the non-GAAP operating loss and non-GAAP operating loss per common share- assuming dilution by $25.5 million and $0.29 per share, respectively. |
(c) | Q3 2016 includes expense from the revision of assumptions used in determining reserves held for living income benefit riders. The impact increased interest sensitive and index product benefits by $42.0 million and increased the non-GAAP operating loss and non-GAAP operating loss per common share - assuming dilution by $27.1 million and $0.31 per share, respectively. |
Page 6
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - June 30, 2017
NON-GAAP FINANCIAL MEASURES
Summary of Adjustments to Arrive at Non-GAAP Operating Income (Loss) (Unaudited)
Q2 2017 | Q1 2017 | Q4 2016 | Q3 2016 | Q2 2016 | |||||||||||||||
(Dollars in thousands) | |||||||||||||||||||
Net realized gains on investments | $ | (3,873 | ) | $ | (2,338 | ) | $ | (844 | ) | $ | (5,256 | ) | $ | (2,737 | ) | ||||
Net OTTI losses recognized in operations | 949 | 141 | 9,560 | 2,979 | 4,446 | ||||||||||||||
Change in fair value of derivatives | (34,225 | ) | (201,974 | ) | (108,359 | ) | (116,308 | ) | (170,795 | ) | |||||||||
Decrease in total revenues | (37,149 | ) | (204,171 | ) | (99,643 | ) | (118,585 | ) | (169,086 | ) | |||||||||
Amortization of deferred sales inducements | 34,550 | 5,459 | (61,820 | ) | 8,934 | 28,027 | |||||||||||||
Change in fair value of embedded derivatives | (174,973 | ) | (224,170 | ) | 151,099 | (144,404 | ) | (284,303 | ) | ||||||||||
Amortization of deferred policy acquisition costs | 46,797 | 5,752 | (88,166 | ) | 8,670 | 32,688 | |||||||||||||
Other operating costs and expenses | — | — | — | 2,829 | — | ||||||||||||||
Increase (decrease) in total benefits and expenses | (93,626 | ) | (212,959 | ) | 1,113 | (123,971 | ) | (223,588 | ) | ||||||||||
Increase (decrease) in income (loss) before income taxes | 56,477 | 8,788 | (100,756 | ) | 5,386 | 54,502 | |||||||||||||
Increase (decrease) in income tax expense | 19,741 | 3,105 | (35,927 | ) | 2,689 | 19,108 | |||||||||||||
Increase (decrease) in net income (loss) | $ | 36,736 | $ | 5,683 | $ | (64,829 | ) | $ | 2,697 | $ | 35,394 | ||||||||
Page 7
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - June 30, 2017
Capitalization/Book Value per Share
(a) Pro-forma June 30, 2017 | June 30, 2017 | December 31, 2016 | |||||||||
(Dollars in thousands, except share and per share data) | |||||||||||
Capitalization: | |||||||||||
Notes and loan payable | $ | 500,000 | $ | 900,000 | $ | 500,000 | |||||
Subordinated debentures payable to subsidiary trusts | 246,787 | 246,787 | 246,671 | ||||||||
Total debt | 746,787 | 1,146,787 | 746,671 | ||||||||
Total stockholders’ equity | 2,640,652 | 2,651,408 | 2,291,595 | ||||||||
Total capitalization | 3,387,439 | 3,798,195 | 3,038,266 | ||||||||
Accumulated other comprehensive income (AOCI) | (610,122 | ) | (610,122 | ) | (339,966 | ) | |||||
Total capitalization excluding AOCI (b) | $ | 2,777,317 | $ | 3,188,073 | $ | 2,698,300 | |||||
Total stockholders’ equity | $ | 2,640,652 | $ | 2,651,408 | $ | 2,291,595 | |||||
Accumulated other comprehensive income | (610,122 | ) | (610,122 | ) | (339,966 | ) | |||||
Total stockholders’ equity excluding AOCI (b) | $ | 2,030,530 | $ | 2,041,286 | $ | 1,951,629 | |||||
Common shares outstanding (c) | 88,756,072 | 88,756,072 | 88,016,188 | ||||||||
Book Value per Share: (d) | |||||||||||
Book value per share including AOCI | $ | 29.75 | $ | 29.87 | $ | 26.04 | |||||
Book value per share excluding AOCI (b) | $ | 22.88 | $ | 23.00 | $ | 22.17 | |||||
Debt-to-Capital Ratios: (e) | |||||||||||
Senior debt / Total capitalization | 18.0 | % | 28.2 | % | 18.5 | % | |||||
Adjusted debt / Total capitalization | 18.0 | % | 28.2 | % | 18.5 | % | |||||
(a) | Pro-forma June 30, 2017 amounts include the impact of the redemption of $400 million of 6.625% senior unsecured notes in July 2017. The redemption resulted in a net decrease in notes and loan payable of $400 million and a net decrease in stockholders' equity of $10.8 million. |
(b) | Total capitalization, total stockholders’ equity and book value per share excluding AOCI, non-GAAP financial measures, are based on stockholders’ equity excluding the effect of AOCI. Since AOCI fluctuates from quarter to quarter due to unrealized changes in the fair value of available for sale investments, we believe these non-GAAP financial measures provide useful supplemental information. |
(c) | Common shares outstanding include shares held by the NMO Deferred Compensation Trust: 2017 - 15,058 shares; 2016 - 15,058 shares |
(d) | Book value per share including and excluding AOCI is calculated as total stockholders’ equity and total stockholders’ equity excluding AOCI divided by the total number of shares of common stock outstanding. |
(e) | Debt-to-capital ratios are computed using total capitalization excluding AOCI. Adjusted debt includes notes and loan payable and the portion of the total subordinated debentures payable to subsidiary trusts outstanding (qualifying trust preferred securities) that exceeds 15% of total capitalization excluding AOCI. |
Page 8
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - June 30, 2017
Spread Results
Three Months Ended June 30, | Six Months Ended June 30, | ||||||
2017 | 2016 | 2017 | 2016 | ||||
Average yield on invested assets | 4.45% | 4.54% | 4.46% | 4.56% | |||
Aggregate cost of money | 1.73% | 1.92% | 1.75% | 1.92% | |||
Aggregate investment spread | 2.72% | 2.62% | 2.71% | 2.64% | |||
Impact of: | |||||||
Investment yield - additional prepayment income | 0.07% | 0.04% | 0.07% | 0.06% | |||
Cost of money effect of over hedging | 0.06% | —% | 0.06% | —% | |||
Weighted average investments (in thousands) | $44,379,879 | $40,600,182 | $43,966,404 | $40,032,851 | |||
Weighted average investments include fixed maturity securities at amortized cost and equity securities at cost. The numerator for average yield on invested assets includes net investment income and the tax effect of investment income that is exempt from income taxes.
Summary of Cost of Money for Deferred Annuities
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
(Dollars in thousands) | |||||||||||||||
Included in interest sensitive and index product benefits: | |||||||||||||||
Index credits | $ | 371,623 | $ | 8,900 | $ | 693,503 | $ | 15,431 | |||||||
Interest credited | 62,930 | 66,265 | 128,108 | 128,967 | |||||||||||
Included in change in fair value of derivatives: | |||||||||||||||
Proceeds received at option expiration | (378,517 | ) | (9,308 | ) | (705,069 | ) | (16,050 | ) | |||||||
Pro rata amortization of option cost | 145,502 | 140,477 | 287,045 | 280,243 | |||||||||||
Cost of money for deferred annuities | $ | 201,538 | $ | 206,334 | $ | 403,587 | $ | 408,591 | |||||||
Weighted average liability balance outstanding (in thousands) | $ | 46,478,748 | $ | 43,080,446 | $ | 46,046,068 | $ | 42,482,613 | |||||||
Annuity Account Balance Rollforward
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
(Dollars in thousands) | |||||||||||||||
Account balances at beginning of period | $ | 46,022,759 | $ | 42,519,915 | $ | 45,204,015 | $ | 41,249,647 | |||||||
Net deposits | 1,060,638 | 1,497,701 | 2,063,147 | 3,126,454 | |||||||||||
Premium bonuses | 62,848 | 88,533 | 128,092 | 196,207 | |||||||||||
Fixed interest credited and index credits | 434,553 | 75,165 | 821,611 | 144,398 | |||||||||||
Surrender charges | (13,896 | ) | (11,997 | ) | (27,530 | ) | (26,562 | ) | |||||||
Lifetime income benefit rider fees | (34,707 | ) | (29,127 | ) | (64,645 | ) | (51,067 | ) | |||||||
Surrenders, withdrawals, deaths, etc. | (597,459 | ) | (499,212 | ) | (1,189,954 | ) | (998,099 | ) | |||||||
Account balances at end of period | $ | 46,934,736 | $ | 43,640,978 | $ | 46,934,736 | $ | 43,640,978 | |||||||
Page 9
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - June 30, 2017
Annuity Deposits by Product Type
Three Months Ended June 30, | Six Months Ended June 30, | Year Ended December 31, | ||||||||||||||||||
Product Type | 2017 | 2016 | 2017 | 2016 | 2016 | |||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
American Equity: | ||||||||||||||||||||
Fixed index annuities | $ | 953,560 | $ | 1,335,798 | $ | 1,894,727 | $ | 2,836,519 | $ | 5,114,178 | ||||||||||
Annual reset fixed rate annuities | 20,870 | 15,866 | 35,713 | 32,571 | 64,317 | |||||||||||||||
Multi-year fixed rate annuities | 7,541 | 250,644 | 13,934 | 407,154 | 450,474 | |||||||||||||||
Single premium immediate annuities | 4,981 | 8,313 | 10,532 | 13,627 | 35,851 | |||||||||||||||
986,952 | 1,610,621 | 1,954,906 | 3,289,871 | 5,664,820 | ||||||||||||||||
Eagle Life: | ||||||||||||||||||||
Fixed index annuities | 167,632 | 189,748 | 255,304 | 377,029 | 610,580 | |||||||||||||||
Multi-year fixed rate annuities | 19,994 | 299,914 | 43,502 | 528,436 | 852,799 | |||||||||||||||
187,626 | 489,662 | 298,806 | 905,465 | 1,463,379 | ||||||||||||||||
Consolidated: | ||||||||||||||||||||
Fixed index annuities | 1,121,192 | 1,525,546 | 2,150,031 | 3,213,548 | 5,724,758 | |||||||||||||||
Annual reset fixed rate annuities | 20,870 | 15,866 | 35,713 | 32,571 | 64,317 | |||||||||||||||
Multi-year fixed rate annuities | 27,535 | 550,558 | 57,436 | 935,590 | 1,303,273 | |||||||||||||||
Single premium immediate annuities | 4,981 | 8,313 | 10,532 | 13,627 | 35,851 | |||||||||||||||
Total before coinsurance ceded | 1,174,578 | 2,100,283 | 2,253,712 | 4,195,336 | 7,128,199 | |||||||||||||||
Coinsurance ceded | 108,959 | 594,269 | 180,033 | 1,055,255 | 1,736,054 | |||||||||||||||
Net after coinsurance ceded | $ | 1,065,619 | $ | 1,506,014 | $ | 2,073,679 | $ | 3,140,081 | $ | 5,392,145 | ||||||||||
Surrender Charge Protection and Account Values by Product Type
Annuity Surrender Charges and Net (of Coinsurance) Account Values at June 30, 2017:
Surrender Charge | Net Account Value | ||||||||||||
Product Type | Avg. Years At Issue | Avg. Years Remaining | Avg. % Remaining | Dollars in Thousands | % | ||||||||
Fixed Index Annuities | 13.7 | 8.6 | 13.7% | $ | 44,862,666 | 95.6 | % | ||||||
Annual Reset Fixed Rate Annuities | 10.8 | 4.5 | 7.6% | 1,413,840 | 3.0 | % | |||||||
Multi-Year Fixed Rate Annuities | 6.6 | 2.8 | 5.6% | 658,230 | 1.4 | % | |||||||
Total | 13.5 | 8.4 | 13.4% | $ | 46,934,736 | 100.0 | % | ||||||
Page 10
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - June 30, 2017
Annuity Liability Characteristics
Fixed Annuities Account Value | Fixed Index Annuities Account Value | ||||||
(Dollars in thousands) | |||||||
SURRENDER CHARGE PERCENTAGES: | |||||||
No surrender charge | $ | 776,306 | $ | 1,997,472 | |||
0.0% < 2.0% | 15,634 | 439,160 | |||||
2.0% < 3.0% | 22,479 | 148,351 | |||||
3.0% < 4.0% | 48,427 | 238,727 | |||||
4.0% < 5.0% | 25,665 | 307,734 | |||||
5.0% < 6.0% | 41,615 | 548,771 | |||||
6.0% < 7.0% | 77,665 | 509,963 | |||||
7.0% < 8.0% | 61,227 | 798,906 | |||||
8.0% < 9.0% | 294,237 | 2,022,918 | |||||
9.0% < 10.0% | 111,133 | 2,018,539 | |||||
10.0% or greater | 597,682 | 35,832,125 | |||||
$ | 2,072,070 | $ | 44,862,666 | ||||
Fixed and Fixed Index Annuities Account Value | Weighted Average Surrender Charge | |||||
(Dollars in thousands) | ||||||
SURRENDER CHARGE EXPIRATION BY YEAR: | ||||||
Out of Surrender Charge | $ | 2,773,778 | 0.00 | % | ||
2017 | 345,326 | 1.70 | % | |||
2018 | 685,196 | 3.12 | % | |||
2019 | 519,387 | 4.67 | % | |||
2020 | 869,827 | 6.73 | % | |||
2021 | 1,370,402 | 8.24 | % | |||
2022 | 1,995,361 | 9.71 | % | |||
2023 | 4,768,348 | 11.49 | % | |||
2024 | 5,272,350 | 12.83 | % | |||
2025 | 5,948,642 | 13.12 | % | |||
2026 | 4,971,546 | 14.27 | % | |||
2027 | 3,539,309 | 15.94 | % | |||
2028 | 2,383,133 | 17.77 | % | |||
2029 | 2,991,504 | 18.35 | % | |||
2030 | 2,746,139 | 18.74 | % | |||
2031 | 3,109,518 | 19.24 | % | |||
2032 | 1,936,793 | 19.72 | % | |||
2033 | 681,377 | 19.98 | % | |||
2034 | 26,800 | 20.00 | % | |||
$ | 46,934,736 | 13.43 | % | |||
Page 11
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - June 30, 2017
Annuity Liability Characteristics
Fixed Annuities Account Value | Fixed Index Annuities Account Value | ||||||
(Dollars in thousands) | |||||||
CREDITED RATE VS. ULTIMATE MINIMUM GUARANTEED RATE DIFFERENTIAL: | |||||||
No differential | $ | 943,929 | $ | 1,660,924 | |||
› 0.0% - 0.25% | 122,405 | 227,611 | |||||
› 0.25% - 0.5% | 240,327 | 37,818 | |||||
› 0.5% - 1.0% | 82,476 | 94,374 | |||||
› 1.0% - 1.5% | 12,364 | 1,166 | |||||
› 1.5% - 2.0% | 1,020 | — | |||||
1.00% ultimate guarantee - 2.68% wtd avg interest rate (a) | 414,297 | 145,018 | |||||
1.50% ultimate guarantee - 1.25% wtd avg interest rate (a) | 161,187 | 4,994,407 | |||||
2.00% ultimate guarantee - 2.01% wtd avg interest rate (a) | 94,065 | — | |||||
2.25% ultimate guarantee - 2.06% wtd avg interest rate (a) | — | 1,185,009 | |||||
3.00% ultimate guarantee - 2.23% wtd avg interest rate (a) | — | 2,261,240 | |||||
Allocated to index strategies (see tables that follow) | — | 34,255,099 | |||||
$ | 2,072,070 | $ | 44,862,666 | ||||
(a) | The minimum guaranteed interest rate for the fixed rate or the fixed rate strategy is 1.00%. The ultimate guaranteed rate is applied on less than 100% of the premium. |
If all crediting rates were reduced to minimum guaranteed rates (subject to limitations imposed by ultimate minimum guaranteed rates where applicable) the weighted average crediting rate as of June 30, 2017 for fixed annuities and funds allocated to the fixed rate strategy for fixed index annuities would decrease by 0.21%.
Page 12
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - June 30, 2017
Annuity Liability Characteristics
FIXED INDEX ANNUITIES ACCOUNT VALUE - INDEX STRATEGIES
Annual Monthly Average and Point-to-Point with Caps | |||||||||||||||||||
Minimum Guaranteed Cap | |||||||||||||||||||
1% | 3% | 4% | 7% | 8% + | |||||||||||||||
Current Cap | (Dollars in thousands) | ||||||||||||||||||
At minimum | $ | 1,984 | $ | 87,938 | $ | 2,506,123 | $ | 72,984 | $ | 212,806 | |||||||||
1.75% - 3% | 6,266,298 | — | — | — | — | ||||||||||||||
3% - 4% | 1,712,766 | 30,942 | — | — | — | ||||||||||||||
4% - 5% | 330,768 | 199,750 | 4,287,878 | — | — | ||||||||||||||
5% - 6% | 412,295 | 147,708 | 447,860 | — | — | ||||||||||||||
6% - 7% | — | — | 139 | — | — | ||||||||||||||
>= 7% | — | 12,197 | 1,563 | 28,612 | 4,874 | ||||||||||||||
Annual Monthly Average and Point-to-Point with Participation Rates | |||||||||||||||
Minimum Guaranteed Participation Rate | |||||||||||||||
10% | 20% - 25% | 35% | 50% + | ||||||||||||
Current Participation Rate | (Dollars in thousands) | ||||||||||||||
At minimum | $ | 499 | $ | 420,160 | $ | 127,856 | $ | 146,441 | |||||||
< 20% | 509,839 | — | — | — | |||||||||||
20% - 40% | 872,298 | 195,579 | — | — | |||||||||||
40% - 60% | 694,264 | 116,847 | 82,808 | — | |||||||||||
>= 60% | 9,957 | — | — | — | |||||||||||
S&P 500 Monthly Point-to-Point - Minimum Guaranteed Monthly Cap = 1.0% | |||
(Dollars in thousands) | |||
Current Cap | |||
At minimum | $ | 17,986 | |
1.20% - 1.40% | 6,225,844 | ||
1.45% - 1.70% | 2,186,227 | ||
1.80% - 2.00% | 2,674,906 | ||
>= 2.10% | 375,494 | ||
Volatility Control Index | |||
(Dollars in thousands) | |||
Current Asset Fee | |||
At Maximum | $ | — | |
0.75% - 1.75% | 182,314 | ||
2.25% - 2.75% | 954,485 | ||
3.00% - 4.00% | 1,342,300 | ||
If all caps and participation rates were reduced to minimum caps and participation rates and current asset fees were increased to their maximums, the cost of options would decrease by 0.55% based upon prices of options for the week ended July 18, 2017.
Page 13
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - June 30, 2017
Summary of Invested Assets
June 30, 2017 | December 31, 2016 | ||||||||||||
Carrying Amount | Percent | Carrying Amount | Percent | ||||||||||
(Dollars in thousands) | |||||||||||||
Fixed maturity securities: | |||||||||||||
United States Government full faith and credit | $ | 12,174 | — | % | $ | 11,805 | — | % | |||||
United States Government sponsored agencies | 1,340,839 | 2.8 | % | 1,344,787 | 3.0 | % | |||||||
United States municipalities, states and territories | 4,137,714 | 8.6 | % | 3,926,950 | 8.8 | % | |||||||
Foreign government obligations | 238,869 | 0.5 | % | 236,341 | 0.5 | % | |||||||
Corporate securities | 29,364,002 | 61.3 | % | 27,191,243 | 60.8 | % | |||||||
Residential mortgage backed securities | 1,181,850 | 2.5 | % | 1,254,835 | 2.8 | % | |||||||
Commercial mortgage backed securities | 5,540,383 | 11.6 | % | 5,365,235 | 12.0 | % | |||||||
Other asset backed securities | 2,154,885 | 4.5 | % | 1,806,123 | 4.0 | % | |||||||
Total fixed maturity securities | 43,970,716 | 91.8 | % | 41,137,319 | 91.9 | % | |||||||
Mortgage loans on real estate | 2,553,391 | 5.3 | % | 2,480,956 | 5.5 | % | |||||||
Derivative instruments | 1,086,624 | 2.3 | % | 830,519 | 1.9 | % | |||||||
Other investments | 314,421 | 0.6 | % | 308,774 | 0.7 | % | |||||||
$ | 47,925,152 | 100.0 | % | $ | 44,757,568 | 100.0 | % | ||||||
Credit Quality of Fixed Maturity Securities - June 30, 2017
NAIC Designation | Carrying Amount | Percent | Rating Agency Rating | Carrying Amount | Percent | |||||||||||
(Dollars in thousands) | (Dollars in thousands) | |||||||||||||||
1 | $ | 28,144,706 | 64.0 | % | Aaa/Aa/A | $ | 27,599,755 | 62.8 | % | |||||||
2 | 14,499,548 | 33.0 | % | Baa | 14,852,167 | 33.8 | % | |||||||||
3 | 1,207,810 | 2.7 | % | Ba | 1,056,659 | 2.4 | % | |||||||||
4 | 89,144 | 0.2 | % | B | 104,835 | 0.2 | % | |||||||||
5 | 20,698 | 0.1 | % | Caa | 264,733 | 0.6 | % | |||||||||
6 | 8,810 | — | % | Ca and lower | 92,567 | 0.2 | % | |||||||||
$ | 43,970,716 | 100.0 | % | $ | 43,970,716 | 100.0 | % | |||||||||
Watch List Securities - June 30, 2017
General Description | Amortized Cost | Unrealized Gains (Losses) | Fair Value | Months Below Amortized Cost | ||||||||||
(Dollars in thousands) | ||||||||||||||
Below investment grade | ||||||||||||||
Corporate securities: | ||||||||||||||
Energy | $ | 29,058 | $ | (6,217 | ) | $ | 22,841 | 1 - 50 | ||||||
Industrials | 4,984 | (2,640 | ) | 2,344 | 32 | |||||||||
Materials | 3,990 | (17 | ) | 3,973 | 1 | |||||||||
Telecommunications | 2,100 | (15 | ) | 2,085 | 36 | |||||||||
Other asset backed securities: | ||||||||||||||
Financials | 6,347 | (3,601 | ) | 2,746 | 49 - 75 | |||||||||
$ | 46,479 | $ | (12,490 | ) | $ | 33,989 | ||||||||
Page 14
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - June 30, 2017
Fixed Maturity Securities by Sector
June 30, 2017 | December 31, 2016 | ||||||||||||||
Amortized Cost | Fair Value | Amortized Cost | Fair Value | ||||||||||||
(Dollars in thousands) | |||||||||||||||
Available for sale: | |||||||||||||||
United States Government full faith and credit and sponsored agencies | $ | 1,360,505 | $ | 1,353,013 | $ | 1,380,204 | $ | 1,356,592 | |||||||
United States municipalities, states and territories | 3,777,760 | 4,137,714 | 3,626,395 | 3,926,950 | |||||||||||
Foreign government obligations | 228,896 | 238,869 | 229,589 | 236,341 | |||||||||||
Corporate securities: | |||||||||||||||
Capital goods | 2,415,687 | 2,563,870 | 2,248,219 | 2,332,625 | |||||||||||
Consumer discretionary | 5,654,572 | 5,949,363 | 5,485,150 | 5,643,308 | |||||||||||
Energy | 2,499,456 | 2,559,966 | 2,439,809 | 2,453,649 | |||||||||||
Financials | 5,895,865 | 6,215,210 | 5,377,810 | 5,552,349 | |||||||||||
Industrials | 259,284 | 266,161 | 186,684 | 187,191 | |||||||||||
Information technology | 1,821,775 | 1,914,089 | 1,718,190 | 1,759,229 | |||||||||||
Materials | 1,822,469 | 1,905,130 | 1,767,460 | 1,797,013 | |||||||||||
Other | 1,085,630 | 1,142,760 | 1,009,390 | 1,037,307 | |||||||||||
Telecommunications | 1,542,402 | 1,618,262 | 1,472,094 | 1,507,943 | |||||||||||
Transportation | 1,148,038 | 1,202,780 | 1,105,324 | 1,133,087 | |||||||||||
Utilities | 3,668,242 | 3,949,474 | 3,523,083 | 3,710,711 | |||||||||||
Residential mortgage backed securities: | |||||||||||||||
Government agency | 613,757 | 662,314 | 648,752 | 693,805 | |||||||||||
Prime | 283,687 | 295,209 | 323,878 | 338,761 | |||||||||||
Alt-A | 149,300 | 177,927 | 166,557 | 193,018 | |||||||||||
Re-Remic | 44,102 | 46,400 | 27,757 | 29,251 | |||||||||||
Commercial mortgage backed securities: | |||||||||||||||
Government agency | 558,475 | 568,539 | 559,850 | 560,726 | |||||||||||
Non-agency | 4,961,292 | 4,971,844 | 4,862,405 | 4,804,509 | |||||||||||
Other asset backed securities: | |||||||||||||||
Auto | 291,922 | 293,553 | 240,297 | 237,678 | |||||||||||
Financials | 981,966 | 988,740 | 865,235 | 866,203 | |||||||||||
Industrials | 270,996 | 277,209 | 216,712 | 219,917 | |||||||||||
Military housing | 442,840 | 468,240 | 339,186 | 351,903 | |||||||||||
Other | 128,826 | 127,143 | 132,095 | 128,592 | |||||||||||
Utilities | — | — | 1,830 | 1,830 | |||||||||||
Redeemable preferred stock - financials | — | 6 | — | 6 | |||||||||||
$ | 41,907,744 | $ | 43,893,785 | $ | 39,953,955 | $ | 41,060,494 | ||||||||
Held for investment: | |||||||||||||||
Corporate security - financials | $ | 76,931 | $ | 76,702 | $ | 76,825 | $ | 68,766 | |||||||
Page 15
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - June 30, 2017
Mortgage Loans on Commercial Real Estate
June 30, 2017 | December 31, 2016 | |||||||||||||
Principal | Percent | Principal | Percent | |||||||||||
(Dollars in thousands) | ||||||||||||||
Geographic distribution | ||||||||||||||
East | $ | 596,587 | 23.3 | % | $ | 635,434 | 25.5 | % | ||||||
Middle Atlantic | 155,234 | 6.1 | % | 151,640 | 6.1 | % | ||||||||
Mountain | 302,764 | 11.8 | % | 235,932 | 9.5 | % | ||||||||
New England | 12,496 | 0.5 | % | 12,724 | 0.5 | % | ||||||||
Pacific | 423,086 | 16.5 | % | 385,683 | 15.5 | % | ||||||||
South Atlantic | 542,146 | 21.2 | % | 519,065 | 20.8 | % | ||||||||
West North Central | 311,126 | 12.1 | % | 325,447 | 13.1 | % | ||||||||
West South Central | 219,010 | 8.5 | % | 224,694 | 9.0 | % | ||||||||
$ | 2,562,449 | 100.0 | % | $ | 2,490,619 | 100.0 | % | |||||||
Property type distribution | ||||||||||||||
Office | $ | 291,118 | 11.4 | % | $ | 308,578 | 12.4 | % | ||||||
Medical office | 35,248 | 1.4 | % | 50,780 | 2.1 | % | ||||||||
Retail | 989,810 | 38.6 | % | 886,942 | 35.6 | % | ||||||||
Industrial/Warehouse | 691,630 | 27.0 | % | 700,644 | 28.1 | % | ||||||||
Apartment | 377,170 | 14.7 | % | 375,837 | 15.1 | % | ||||||||
Mixed use/other | 177,473 | 6.9 | % | 167,838 | 6.7 | % | ||||||||
$ | 2,562,449 | 100.0 | % | $ | 2,490,619 | 100.0 | % | |||||||
June 30, 2017 | December 31, 2016 | |||||||||||||
Credit exposure - by payment activity | ||||||||||||||
Performing | $ | 2,558,711 | $ | 2,489,028 | ||||||||||
In workout | 1,516 | 1,591 | ||||||||||||
Delinquent | — | — | ||||||||||||
Collateral dependent | 2,222 | — | ||||||||||||
2,562,449 | 2,490,619 | |||||||||||||
Specific loan loss allowance | (2,049 | ) | (1,327 | ) | ||||||||||
General loan loss allowance | (5,800 | ) | (7,100 | ) | ||||||||||
Deferred prepayment fees | (1,209 | ) | (1,236 | ) | ||||||||||
$ | 2,553,391 | $ | 2,480,956 | |||||||||||
Page 16
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - June 30, 2017
Shareholder Information
Corporate Offices:
American Equity Investment Life Holding Company
6000 Westown Parkway
West Des Moines, IA 50266
Inquiries:
Steven Schwartz, Vice President-Investor Relations
(515) 273-3763, sschwartz@american-equity.com
Common Stock and Dividend Information:
New York Stock Exchange symbol: “AEL”
High | Low | Close | Dividend Declared | ||||
2017 | |||||||
First Quarter | $28.00 | $21.66 | $23.63 | $0.00 | |||
Second Quarter | $26.65 | $22.23 | $26.28 | $0.00 | |||
2016 | |||||||
First Quarter | $23.65 | $12.65 | $16.80 | $0.00 | |||
Second Quarter | $16.96 | $12.77 | $14.25 | $0.00 | |||
Third Quarter | $18.32 | $13.07 | $17.73 | $0.00 | |||
Fourth Quarter | $23.41 | $15.39 | $22.54 | $0.24 | |||
2015 | |||||||
First Quarter | $29.62 | $25.46 | $29.13 | $0.00 | |||
Second Quarter | $29.90 | $25.06 | $26.98 | $0.00 | |||
Third Quarter | $30.02 | $22.36 | $23.31 | $0.00 | |||
Fourth Quarter | $28.30 | $22.55 | $24.03 | $0.22 | |||
Transfer Agent:
Computershare Trust Company, N.A.
P.O. Box 43010
Providence, RI 02940-0310
Phone: (877) 282-1169
Fax: (781) 575-2723
www.computershare.com
Annual Report and Other Information:
Shareholders may receive when available, without charge, a copy of American Equity’s Annual Report, SEC filings and/or press releases by calling Steven Schwartz, Vice President-Investor Relations, at (515) 273-3763 or by visiting our web site at www.american-equity.com.
Page 17
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - June 30, 2017
Research Analyst Coverage
Erik Bass
Autonomous Research US LP
(646) 561-6248
ebass@autonomous.com
Suneet Kamath
Citi
(212) 816-3457
suneet.kamath@citi.com
John Nadel
Credit Suisse
(212) 325-4016
john.nadel@credit-suisse.com
Thomas Gallagher
Evercore ISI
(212) 446-9439
thomas.gallagher@evercoreisi.com
Randy Binner
Friedman, Billings, Ramsey & Co., Inc.
(703) 312-1890
rbinner@fbr.com
Pablo Singzon II
JP Morgan
(212) 622-2295
pablo.s.singzon@jpmorgan.com
Ryan Krueger
Keefe, Bruyette & Woods
(860) 722-5930
rkrueger@kbw.com
C. Gregory Peters
Raymond James & Associates, Inc.
(727) 567-1534
greg.peters@raymondjames.com
Kenneth S. Lee
RBC Capital Markets, LLC
(212) 905-5995
kenneth.s.lee@rbccm.com
John Barnidge
Sandler O'Neill & Partners, L.P.
(312) 281-3412
jbarnidge@sandleroneill.com
Mark Hughes
SunTrust Robinson Humphrey
(404) 926-5072
mark.hughes@suntrust.com
Page 18