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): February 7, 2018
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 February 7, 2018, the registrant issued a press release announcing its financial results for the fourth quarter and year ended December 31, 2017, a copy of which is attached as Exhibit 99.1 and is incorporated herein by reference. The registrant's financial supplement for the fourth quarter and year ended December 31, 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 | ||
99.2 | ||
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: February 7, 2018
AMERICAN EQUITY | |||
INVESTMENT LIFE HOLDING COMPANY | |||
By: | /s/ John M. Matovina | ||
John M. Matovina | |||
Chief Executive Officer and President | |||
Exhibit 99.1
 | For more information, contact: | |
Steven D. Schwartz, Vice President-Investor Relations | ||
(515) 273-3763, sschwartz@american-equity.com | ||
FOR IMMEDIATE RELEASE | ||
February 7, 2018 | ||
American Equity Reports Fourth Quarter and Full Year 2017 Results
Company Highlights
• | Fourth quarter 2017 net income of $36.8 million or $0.41 per diluted common share; Full year 2017 net income of $174.6 million or $1.93 per diluted common share |
• | Fourth quarter 2017 non-GAAP operating income1 of $74.5 million or $0.82 per diluted common share; Full year 2017 non-GAAP operating income1 of $285.1 million or $3.16 per diluted common share |
• | Fourth quarter 2017 annuity sales of $1.0 billion |
• | Policyholder funds under management of $48.4 billion |
• | Fourth quarter 2017 investment spread of 2.75% |
• | Risk-based capital ratio of 378% compared to 342% at December 31, 2016 |
• | Annual cash dividend of $0.26 per share |
WEST DES MOINES, Iowa (February 7, 2018) - American Equity Investment Life Holding Company (NYSE: AEL), a leading issuer of fixed index annuities, today reported fourth quarter 2017 net income of $36.8 million, or $0.41 per diluted common share, compared to net income of $120.8 million, or $1.35 per diluted common share, for fourth quarter 2016. For the year ended December 31, 2017, net income was $174.6 million, or $1.93 per diluted common share, compared to $83.2 million, or $0.97 per diluted common share, for the year ended December 31, 2016.
Non-GAAP operating income1 for the fourth quarter of 2017 was $74.5 million, or $0.82 per diluted common share, compared to non-GAAP operating income1 of $56.0 million, or $0.63 per diluted common share, for fourth quarter 2016. For the year ended December 31, 2017, non-GAAP operating income1 was $285.1 million, or $3.16 per diluted common share, compared to $122.3 million, or $1.43 per diluted common share, for the year ended December 31, 2016. Non-GAAP operating1 return on average equity excluding average AOCI1 for the year was 14.0% based upon reported results and 12.9% excluding both the impact of assumption revisions and losses on extinguishment of debt.
The Tax Cuts and Jobs Act of 2017 ("Tax Reform") was enacted on December 22, 2017, reducing the statutory federal income tax rate from 35 percent to 21 percent effective January 1, 2018. The impact of Tax Reform was a reduction of net income for the quarter of $35.9 million, or $0.40 per share, due to the rate change on net deferred tax assets at the time of enactment. The impact of Tax Reform has been excluded from non-GAAP operating income1.
POLICYHOLDER FUNDS UNDER MANAGEMENT UP 1.6% ON $1.0 BILLION OF SALES
Policyholder funds under management at December 31, 2017 were $48.4 billion, a $773 million or 1.6% increase from September 30, 2017. Fourth quarter sales were $1.0 billion before coinsurance ceded and $883 million after coinsurance ceded. Gross sales and net sales for the quarter were down 27.4% and 21.6%, respectively, from fourth quarter 2016 sales. However, on a sequential basis, gross and net sales increased 10.3% and 5.9%, respectively.
Total sales by independent agents for American Equity Investment Life Insurance Company increased 2.2% sequentially while total sales by broker-dealers and banks for Eagle Life Insurance Company rose by $77 million or 53.1% sequentially. Sales of fixed index annuities (FIAs) were up 8.4% sequentially to $945 million with the majority of the increase attributable to sales at Eagle Life.
Commenting on sales, John Matovina, Chairman and Chief Executive Officer, said: "The sequential increase in FIA sales is only the second sequential increase we've had in the last eight quarters. Our sequential sales pattern has largely tracked the industry on a directional basis with industry sales facing headwinds from the DOL fiduciary rule, the strong equity market and low interest rates. In addition, we have dealt with increased competition including a focus by certain distributors on products featuring complex "hybrid" market indices. We have avoided these hybrid indices as we believe they lack the transparency that has been the hallmark of our safe money insurance products."
Commenting on the market environment and the outlook for FIA sales, Matovina added: "The market in each of our distribution channels remains competitive. The downward rate adjustments several competitors made in September and October have largely reversed, and we have seen additional increases in 2018. However, changes we made to our products in September and October, gave us sales momentum, and we continue to be in a strong competitive position for guaranteed income, caps and participation rates. In March, we plan to augment that position by introducing a new fixed index annuity product that focuses on guaranteed lifetime income. We will have a bonus and non-bonus version of the new product. Each version will have two fee based options for lifetime income, allowing the policyholder to decide, at time of purchase, whether to activate lifetime income after a shorter or longer deferral period, and a no fee option which will have lower lifetime income than the fee based options. This product incorporates significant input from our distribution partners, and we expect it to be well received in the market as income levels are anticipated to be competitive. We also intend to continue to emphasize our Choice and Select series of products for accumulation. Despite the current challenges facing the FIA market, we believe the long-term outlook for FIA sales remains favorable driven by well understood demographic factors, and we are well positioned to fully participate in that growth."
INVESTMENT SPREAD WIDENS ON NON-TRENDABLE ITEMS
American Equity’s investment spread was 2.75% for the fourth quarter of 2017 compared to 2.70% for the third quarter of 2017 and 2.62% for the fourth quarter of 2016. On a sequential basis, the average yield on invested assets increased by four basis points while the cost of money fell by one basis point..
Average yield on invested assets rose to 4.47% for the fourth quarter of 2017 compared to 4.43% for the third quarter of 2017 reflecting an increase in the benefit from fee income from bond transactions, prepayment income and other non-trendable investment income items to twelve basis points in the fourth quarter of 2017 from five basis points in the third quarter of 2017. The average yield on fixed income securities purchased and commercial mortgage loans funded in the fourth quarter of 2017 was 4.27% compared to 4.39% in the third quarter of 2017, and 4.03% for the first six months of 2017.
The aggregate cost of money for annuity liabilities of 1.72% in the fourth quarter of 2017 was down one basis point from 1.73% in the third quarter of 2017. The benefit from over hedging the obligations for index linked interest was eight basis points in the fourth quarter of 2017 compared to six basis points in the third quarter of 2017.
Commenting on investment spread, Matovina said: “Fourth quarter spread results were enhanced by non-trendable items totaling twenty basis points compared to eleven basis points in the third quarter of 2017. Our investment spread remains under pressure due to the investment of portfolio cash flows in instruments with yields below our portfolio rate. We should benefit from the recent uptick in benchmark 10-year Treasury rates, and we continue to seek opportunities to increase the yield on our investment portfolio while meeting our high credit quality parameters. Alternatively, we have flexibility to reduce our crediting rates and could decrease our cost of money by approximately 0.49% through further reductions in renewal rates to guaranteed minimums should acceptable investment yields not materialize."
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 fourth quarter 2017 earnings on Thursday, February 8, 2018 at 9:00 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 9277939 (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 February 15, 2018 at 855-859-2056, passcode 9277939 (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 December 31, | Year Ended December 31, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
(Dollars in thousands, except per share data) | |||||||||||||||
Revenues: | |||||||||||||||
Premiums and other considerations | $ | 8,537 | $ | 12,233 | $ | 34,228 | $ | 43,767 | |||||||
Annuity product charges | 56,388 | 48,275 | 200,494 | 173,579 | |||||||||||
Net investment income | 512,709 | 475,633 | 1,991,997 | 1,849,872 | |||||||||||
Change in fair value of derivatives | 661,993 | 95,391 | 1,677,871 | 164,219 | |||||||||||
Net realized gains on investments, excluding other than temporary impairment ("OTTI") losses | 2,719 | 844 | 10,509 | 11,524 | |||||||||||
OTTI losses on investments: | |||||||||||||||
Total OTTI losses | (2,485 | ) | (10,015 | ) | (2,758 | ) | (21,349 | ) | |||||||
Portion of OTTI losses recognized in (from) other comprehensive income | (591 | ) | 455 | (1,872 | ) | (1,330 | ) | ||||||||
Net OTTI losses recognized in operations | (3,076 | ) | (9,560 | ) | (4,630 | ) | (22,679 | ) | |||||||
Loss on extinguishment of debt | — | — | (18,817 | ) | — | ||||||||||
Total revenues | 1,239,270 | 622,816 | 3,891,652 | 2,220,282 | |||||||||||
Benefits and expenses: | |||||||||||||||
Insurance policy benefits and change in future policy benefits | 10,535 | 14,916 | 43,219 | 52,483 | |||||||||||
Interest sensitive and index product benefits | 630,905 | 237,737 | 2,023,668 | 725,472 | |||||||||||
Amortization of deferred sales inducements | 65,885 | 123,770 | 176,612 | 251,166 | |||||||||||
Change in fair value of embedded derivatives | 290,890 | (151,099 | ) | 919,735 | 543,465 | ||||||||||
Interest expense on notes and loan payable | 6,371 | 7,599 | 30,368 | 28,248 | |||||||||||
Interest expense on subordinated debentures | 3,864 | 3,331 | 14,124 | 12,958 | |||||||||||
Amortization of deferred policy acquisition costs | 93,716 | 175,526 | 255,964 | 374,012 | |||||||||||
Other operating costs and expenses | 29,366 | 23,445 | 111,691 | 102,231 | |||||||||||
Total benefits and expenses | 1,131,532 | 435,225 | 3,575,381 | 2,090,035 | |||||||||||
Income before income taxes | 107,738 | 187,591 | 316,271 | 130,247 | |||||||||||
Income tax expense | 70,935 | 66,795 | 141,626 | 47,004 | |||||||||||
Net income | $ | 36,803 | $ | 120,796 | $ | 174,645 | $ | 83,243 | |||||||
Earnings per common share | $ | 0.41 | $ | 1.37 | $ | 1.96 | $ | 0.98 | |||||||
Earnings per common share - assuming dilution | $ | 0.41 | $ | 1.35 | $ | 1.93 | $ | 0.97 | |||||||
Weighted average common shares outstanding (in thousands): | |||||||||||||||
Earnings per common share | 89,308 | 88,211 | 88,982 | 84,793 | |||||||||||
Earnings per common share - assuming dilution | 90,727 | 89,178 | 90,311 | 85,605 | |||||||||||
Page 1
American Equity Investment Life Holding Company
NON-GAAP FINANCIAL MEASURES
In addition to net income, 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 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 the impact of the Tax Cuts and Jobs Act of 2017 ("Tax Reform"). The adjustment related to fair value accounting for the Company's fixed index annuity business is not economic in nature but rather impacts the timing of reported results. The Company believes the combined presentation and evaluation of non-GAAP operating income together with net income provides information that may enhance an investor’s understanding of its underlying results and profitability.
Reconciliation from Net Income to Non-GAAP Operating Income (Unaudited)
Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
(Dollars in thousands, except per share data) | |||||||||||||||
Net income (b) | $ | 36,803 | $ | 120,796 | $ | 174,645 | $ | 83,243 | |||||||
Adjustments to arrive at non-GAAP operating income: (a) | |||||||||||||||
Net realized investment (gains) losses, including OTTI | (676 | ) | 6,436 | (5,093 | ) | 7,188 | |||||||||
Change in fair value of derivatives and embedded derivatives - fixed index annuities | 5,463 | (103,444 | ) | 121,846 | 56,634 | ||||||||||
Change in fair value of derivatives - debt | (1,085 | ) | (3,748 | ) | (1,224 | ) | (1,265 | ) | |||||||
Litigation reserve | — | — | — | (1,957 | ) | ||||||||||
Income taxes (b) | 34,003 | 35,927 | (5,124 | ) | (21,499 | ) | |||||||||
Non-GAAP operating income | $ | 74,508 | $ | 55,967 | $ | 285,050 | $ | 122,344 | |||||||
Per common share - assuming dilution: | |||||||||||||||
Net income | $ | 0.41 | $ | 1.35 | $ | 1.93 | $ | 0.97 | |||||||
Adjustments to arrive at non-GAAP operating income: | |||||||||||||||
Net realized investment (gains) losses, including OTTI | (0.01 | ) | 0.07 | (0.05 | ) | 0.08 | |||||||||
Change in fair value of derivatives and embedded derivatives - fixed index annuities | 0.06 | (1.16 | ) | 1.35 | 0.66 | ||||||||||
Change in fair value of derivatives - debt | (0.01 | ) | (0.04 | ) | (0.01 | ) | (0.01 | ) | |||||||
Litigation reserve | — | — | — | (0.02 | ) | ||||||||||
Income taxes | 0.37 | 0.41 | (0.06 | ) | (0.25 | ) | |||||||||
Non-GAAP operating income | $ | 0.82 | $ | 0.63 | $ | 3.16 | $ | 1.43 | |||||||
(a) | Adjustments to net income 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. |
(b) | Net income for the three months and year ended December 31, 2017 includes income tax expense related to the revaluation of our deferred tax assets and liabilities using the new enacted federal tax rate resulting from Tax Reform. The change in the federal income tax rate decreased net income and earnings per common share-assuming dilution by $35.9 million and $0.40 per share, respectively. The impact of Tax Reform has been excluded from non-GAAP operating income. |
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 | |||
December 31, 2017 | |||
(Dollars in thousands) | |||
Average Stockholders' Equity | |||
Average equity including average AOCI | 2,570,876 | ||
Average AOCI | (532,283 | ) | |
Average equity excluding average AOCI | $ | 2,038,593 | |
Net income | $ | 174,645 | |
Non-GAAP operating income | 285,050 | ||
Return on Average Equity Excluding Average AOCI | |||
Net income | 8.57 | % | |
Non-GAAP operating income | 13.98 | % | |
Page 3
Exhibit 99.2
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement
December 31, 2017
A. | Financial Highlights | |
Non-GAAP Financial Measures | ||
B. | Product Summary | |
C. | Investment Summary | |
D. | ||
E. | ||
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - December 31, 2017
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
December 31, 2017 | December 31, 2016 | ||||||
Assets | |||||||
Investments: | |||||||
Fixed maturity securities: | |||||||
Available for sale, at fair value | $ | 45,372,989 | $ | 41,060,494 | |||
Held for investment, at amortized cost | 77,041 | 76,825 | |||||
Mortgage loans on real estate | 2,665,531 | 2,480,956 | |||||
Derivative instruments | 1,568,380 | 830,519 | |||||
Other investments | 616,764 | 308,774 | |||||
Total investments | 50,300,705 | 44,757,568 | |||||
Cash and cash equivalents | 1,434,045 | 791,266 | |||||
Coinsurance deposits | 4,858,289 | 4,639,492 | |||||
Accrued investment income | 429,008 | 397,773 | |||||
Deferred policy acquisition costs | 2,714,523 | 2,905,377 | |||||
Deferred sales inducements | 2,001,892 | 2,208,218 | |||||
Deferred income taxes | 38,147 | 168,578 | |||||
Income taxes recoverable | — | 11,474 | |||||
Other assets | 254,127 | 173,726 | |||||
Total assets | $ | 62,030,736 | $ | 56,053,472 | |||
Liabilities and Stockholders' Equity | |||||||
Liabilities: | |||||||
Policy benefit reserves | $ | 56,142,673 | $ | 51,637,026 | |||
Other policy funds and contract claims | 282,884 | 298,347 | |||||
Notes and loan payable | 494,093 | 493,755 | |||||
Subordinated debentures | 242,565 | 241,853 | |||||
Income taxes payable | 34,285 | — | |||||
Other liabilities | 1,984,079 | 1,090,896 | |||||
Total liabilities | 59,180,579 | 53,761,877 | |||||
Stockholders' equity: | |||||||
Common stock | 89,331 | 88,001 | |||||
Additional paid-in capital | 791,446 | 770,344 | |||||
Accumulated other comprehensive income | 724,599 | 339,966 | |||||
Retained earnings | 1,244,781 | 1,093,284 | |||||
Total stockholders' equity | 2,850,157 | 2,291,595 | |||||
Total liabilities and stockholders' equity | $ | 62,030,736 | $ | 56,053,472 | |||
Page 1
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - December 31, 2017
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenues: | |||||||||||||||
Premiums and other considerations | $ | 8,537 | $ | 12,233 | $ | 34,228 | $ | 43,767 | |||||||
Annuity product charges | 56,388 | 48,275 | 200,494 | 173,579 | |||||||||||
Net investment income | 512,709 | 475,633 | 1,991,997 | 1,849,872 | |||||||||||
Change in fair value of derivatives | 661,993 | 95,391 | 1,677,871 | 164,219 | |||||||||||
Net realized gains on investments, excluding other than temporary impairment ("OTTI") losses | 2,719 | 844 | 10,509 | 11,524 | |||||||||||
OTTI losses on investments: | |||||||||||||||
Total OTTI losses | (2,485 | ) | (10,015 | ) | (2,758 | ) | (21,349 | ) | |||||||
Portion of OTTI losses recognized in (from) other comprehensive income | (591 | ) | 455 | (1,872 | ) | (1,330 | ) | ||||||||
Net OTTI losses recognized in operations | (3,076 | ) | (9,560 | ) | (4,630 | ) | (22,679 | ) | |||||||
Loss on extinguishment of debt | — | — | (18,817 | ) | — | ||||||||||
Total revenues | 1,239,270 | 622,816 | 3,891,652 | 2,220,282 | |||||||||||
Benefits and expenses: | |||||||||||||||
Insurance policy benefits and change in future policy benefits | 10,535 | 14,916 | 43,219 | 52,483 | |||||||||||
Interest sensitive and index product benefits | 630,905 | 237,737 | 2,023,668 | 725,472 | |||||||||||
Amortization of deferred sales inducements | 65,885 | 123,770 | 176,612 | 251,166 | |||||||||||
Change in fair value of embedded derivatives | 290,890 | (151,099 | ) | 919,735 | 543,465 | ||||||||||
Interest expense on notes and loan payable | 6,371 | 7,599 | 30,368 | 28,248 | |||||||||||
Interest expense on subordinated debentures | 3,864 | 3,331 | 14,124 | 12,958 | |||||||||||
Amortization of deferred policy acquisition costs | 93,716 | 175,526 | 255,964 | 374,012 | |||||||||||
Other operating costs and expenses | 29,366 | 23,445 | 111,691 | 102,231 | |||||||||||
Total benefits and expenses | 1,131,532 | 435,225 | 3,575,381 | 2,090,035 | |||||||||||
Income before income taxes | 107,738 | 187,591 | 316,271 | 130,247 | |||||||||||
Income tax expense | 70,935 | 66,795 | 141,626 | 47,004 | |||||||||||
Net income | $ | 36,803 | $ | 120,796 | $ | 174,645 | $ | 83,243 | |||||||
Earnings per common share | $ | 0.41 | $ | 1.37 | $ | 1.96 | $ | 0.98 | |||||||
Earnings per common share - assuming dilution | $ | 0.41 | $ | 1.35 | $ | 1.93 | $ | 0.97 | |||||||
Weighted average common shares outstanding (in thousands): | |||||||||||||||
Earnings per common share | 89,308 | 88,211 | 88,982 | 84,793 | |||||||||||
Earnings per common share - assuming dilution | 90,727 | 89,178 | 90,311 | 85,605 | |||||||||||
Page 2
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - December 31, 2017
Quarterly Summary - Most Recent 5 Quarters (Unaudited)
Q4 2017 | Q3 2017 | Q2 2017 | Q1 2017 | Q4 2016 | |||||||||||||||
(Dollars in thousands, except per share data) | |||||||||||||||||||
Revenues: | |||||||||||||||||||
Traditional life insurance premiums | $ | 2,989 | $ | 2,832 | $ | 2,590 | $ | 2,790 | $ | 2,767 | |||||||||
Life contingent immediate annuity considerations | 5,548 | 5,737 | 5,130 | 6,612 | 9,466 | ||||||||||||||
Surrender charges | 13,573 | 13,521 | 13,896 | 13,634 | 11,196 | ||||||||||||||
Lifetime income benefit rider fees | 42,815 | 38,410 | 34,707 | 29,938 | 37,079 | ||||||||||||||
Net investment income | 512,709 | 500,202 | 493,489 | 485,597 | 475,633 | ||||||||||||||
Change in fair value of derivatives | 661,993 | 362,525 | 266,820 | 386,533 | 95,391 | ||||||||||||||
Net realized gains on investments, excluding OTTI | 2,719 | 1,579 | 3,873 | 2,338 | 844 | ||||||||||||||
Net OTTI losses recognized in operations | (3,076 | ) | (464 | ) | (949 | ) | (141 | ) | (9,560 | ) | |||||||||
Loss on extinguishment of debt (b) | — | (18,389 | ) | (428 | ) | — | — | ||||||||||||
Total revenues | 1,239,270 | 905,953 | 819,128 | 927,301 | 622,816 | ||||||||||||||
Benefits and expenses: | |||||||||||||||||||
Traditional life insurance policy benefits and change in future policy benefits | 1,528 | 1,898 | 2,020 | 2,185 | 2,026 | ||||||||||||||
Life contingent immediate annuity benefits and change in future policy benefits | 9,007 | 8,925 | 7,966 | 9,690 | 12,890 | ||||||||||||||
Interest sensitive and index product benefits (c) | 630,905 | 501,028 | 472,596 | 419,139 | 237,737 | ||||||||||||||
Amortization of deferred sales inducements (d) | 65,885 | 14,707 | 33,695 | 62,325 | 123,770 | ||||||||||||||
Change in fair value of embedded derivatives | 290,890 | 229,702 | 174,973 | 224,170 | (151,099 | ) | |||||||||||||
Interest expense on notes and loan payable | 6,371 | 7,597 | 8,678 | 7,722 | 7,599 | ||||||||||||||
Interest expense on subordinated debentures | 3,864 | 3,502 | 3,422 | 3,336 | 3,331 | ||||||||||||||
Amortization of deferred policy acquisition costs (d) | 93,716 | 23,023 | 49,547 | 89,678 | 175,526 | ||||||||||||||
Other operating costs and expenses | 29,366 | 28,782 | 25,964 | 27,579 | 23,445 | ||||||||||||||
Total benefits and expenses | 1,131,532 | 819,164 | 778,861 | 845,824 | 435,225 | ||||||||||||||
Income before income taxes | 107,738 | 86,789 | 40,267 | 81,477 | 187,591 | ||||||||||||||
Income tax expense (a) | 70,935 | 29,832 | 13,321 | 27,538 | 66,795 | ||||||||||||||
Net income (a)(b)(c)(d) | $ | 36,803 | $ | 56,957 | $ | 26,946 | $ | 53,939 | $ | 120,796 | |||||||||
Earnings per common share | $ | 0.41 | $ | 0.64 | $ | 0.30 | $ | 0.61 | $ | 1.37 | |||||||||
Earnings per common share - assuming dilution (a)(b)(c)(d) | $ | 0.41 | $ | 0.63 | $ | 0.30 | $ | 0.60 | $ | 1.35 | |||||||||
Weighted average common shares outstanding (in thousands): | |||||||||||||||||||
Earnings per common share | 89,308 | 89,069 | 88,897 | 88,647 | 88,211 | ||||||||||||||
Earnings per common share - assuming dilution | 90,727 | 90,421 | 90,112 | 89,976 | 89,178 | ||||||||||||||
(a) | Q4 2017 includes income tax expense related to the revaluation of our deferred tax assets and liabilities using the new enacted federal tax rate resulting from the Tax Cuts and Jobs Act of 2017. The change in the federal income tax rate decreased net income and earnings per common share - assuming dilution by $35.9 million and $0.40 per share, respectively. |
(b) | Q3 2017 includes a loss on the extinguishment of our 6.625% Notes due in 2021. The loss decreased net income and earnings per common share - assuming dilution by $10.8 million and $0.12 per share, respectively. |
(c) | Q3 2017 includes expense from the revision of assumptions used in determining reserves held for lifetime income benefit riders. The impact increased interest sensitive and index product benefits by $21.6 million and decreased net income and earnings per common share - assuming dilution by $13.9 million and $0.15 per share, respectively. |
(d) | Q3 2017 includes a benefit from unlocking which reduced amortization of deferred sales inducements and deferred policy acquisition costs by $34.3 million and $48.2 million, respectively, and increased net income and earnings per common share - assuming dilution by $53.1 million and $0.59 per share, respectively. |
Page 3
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - December 31, 2017
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 and the impact of the Tax Cuts and Jobs Act of 2017 ("Tax Reform"). The adjustment related to fair value accounting for our fixed index annuity business is not economic in nature but rather impacts 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 (Unaudited)
Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
(Dollars in thousands, except per share data) | |||||||||||||||
Net income (b) | $ | 36,803 | $ | 120,796 | $ | 174,645 | $ | 83,243 | |||||||
Adjustments to arrive at non-GAAP operating income: (a) | |||||||||||||||
Net realized investment (gains) losses, including OTTI | (676 | ) | 6,436 | (5,093 | ) | 7,188 | |||||||||
Change in fair value of derivatives and embedded derivatives - fixed index annuities | 5,463 | (103,444 | ) | 121,846 | 56,634 | ||||||||||
Change in fair value of derivatives - debt | (1,085 | ) | (3,748 | ) | (1,224 | ) | (1,265 | ) | |||||||
Litigation reserve | — | — | — | (1,957 | ) | ||||||||||
Income taxes (b) | 34,003 | 35,927 | (5,124 | ) | (21,499 | ) | |||||||||
Non-GAAP operating income | $ | 74,508 | $ | 55,967 | $ | 285,050 | $ | 122,344 | |||||||
Per common share - assuming dilution: | |||||||||||||||
Net income | $ | 0.41 | $ | 1.35 | $ | 1.93 | $ | 0.97 | |||||||
Adjustments to arrive at non-GAAP operating income: | |||||||||||||||
Net realized investment (gains) losses, including OTTI | (0.01 | ) | 0.07 | (0.05 | ) | 0.08 | |||||||||
Change in fair value of derivatives and embedded derivatives - fixed index annuities | 0.06 | (1.16 | ) | 1.35 | 0.66 | ||||||||||
Change in fair value of derivatives - debt | (0.01 | ) | (0.04 | ) | (0.01 | ) | (0.01 | ) | |||||||
Litigation reserve | — | — | — | (0.02 | ) | ||||||||||
Income taxes | 0.37 | 0.41 | (0.06 | ) | (0.25 | ) | |||||||||
Non-GAAP operating income | $ | 0.82 | $ | 0.63 | $ | 3.16 | $ | 1.43 | |||||||
(a) | Adjustments to net income 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. |
(b) | Net income for the three months and year ended December 31, 2017 includes income tax expense related to the revaluation of our deferred tax assets and liabilities using the new enacted federal tax rate resulting from Tax Reform. The change in the federal income tax rate decreased net income and earnings per common share - assuming dilution by $35.9 million and $0.40 per share, respectively. The impact of Tax Reform has been excluded from non-GAAP operating income. |
Page 4
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - December 31, 2017
NON-GAAP FINANCIAL MEASURES
Summary of Adjustments to Arrive at Non-GAAP Operating Income (Unaudited)
Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
(Dollars in thousands) | |||||||||||||||
Net realized investment gains and losses, including OTTI: | |||||||||||||||
Net realized (gains) losses on investments, including OTTI | $ | 357 | $ | 8,716 | $ | (5,879 | ) | $ | 11,155 | ||||||
Amortization of DAC and DSI | (1,033 | ) | (2,280 | ) | 786 | (3,967 | ) | ||||||||
Income taxes | 241 | (2,290 | ) | 1,813 | (2,557 | ) | |||||||||
$ | (435 | ) | $ | 4,146 | $ | (3,280 | ) | $ | 4,631 | ||||||
Change in fair value of derivatives and embedded derivatives: | |||||||||||||||
Index annuities | $ | 8,174 | $ | (255,710 | ) | $ | 270,809 | $ | 89,759 | ||||||
Interest rate caps and swap | (1,085 | ) | (3,748 | ) | (1,224 | ) | (1,265 | ) | |||||||
Amortization of DAC and DSI | (2,711 | ) | 152,266 | (148,963 | ) | (33,125 | ) | ||||||||
Income taxes | (2,170 | ) | 38,217 | (42,869 | ) | (19,637 | ) | ||||||||
$ | 2,208 | $ | (68,975 | ) | $ | 77,753 | $ | 35,732 | |||||||
Litigation reserve: | |||||||||||||||
Change in litigation reserve recorded in other operating costs | $ | — | $ | — | $ | — | $ | (2,829 | ) | ||||||
Amortization of DAC and DSI | — | — | — | 872 | |||||||||||
Income taxes | — | — | — | 695 | |||||||||||
$ | — | $ | — | $ | — | $ | (1,262 | ) | |||||||
Income taxes: | |||||||||||||||
Impact of Tax Reform | $ | 35,932 | $ | — | $ | 35,932 | $ | — | |||||||
Page 5
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - December 31, 2017
NON-GAAP FINANCIAL MEASURES
Quarterly Summary - Most Recent 5 Quarters (Unaudited)
Reconciliation from Net Income to Non-GAAP Operating Income
Q4 2017 | Q3 2017 | Q2 2017 | Q1 2017 | Q4 2016 | |||||||||||||||
(Dollars in thousands, except per share data) | |||||||||||||||||||
Net income (b) | $ | 36,803 | $ | 56,957 | $ | 26,946 | $ | 53,939 | $ | 120,796 | |||||||||
Adjustments to arrive at non-GAAP operating income: (a) | |||||||||||||||||||
Net realized investment (gains) losses, including OTTI | (676 | ) | (916 | ) | (1,559 | ) | (1,942 | ) | 6,436 | ||||||||||
Change in fair value of derivatives and embedded derivatives - fixed index annuities | 5,463 | 47,835 | 57,571 | 10,977 | (103,444 | ) | |||||||||||||
Change in fair value of derivatives - debt | (1,085 | ) | (357 | ) | 465 | (247 | ) | (3,748 | ) | ||||||||||
Income taxes (b) | 34,003 | (16,281 | ) | (19,741 | ) | (3,105 | ) | 35,927 | |||||||||||
Non-GAAP operating income (c)(d)(e) | $ | 74,508 | $ | 87,238 | $ | 63,682 | $ | 59,622 | $ | 55,967 | |||||||||
Per common share - assuming dilution: | |||||||||||||||||||
Net income | $ | 0.41 | $ | 0.63 | $ | 0.30 | $ | 0.60 | $ | 1.35 | |||||||||
Adjustments to arrive at non-GAAP operating income: | |||||||||||||||||||
Net realized investment (gains) losses, including OTTI | (0.01 | ) | (0.01 | ) | (0.02 | ) | (0.02 | ) | 0.07 | ||||||||||
Change in fair value of derivatives and embedded derivatives - fixed index annuities | 0.06 | 0.52 | 0.64 | 0.12 | (1.16 | ) | |||||||||||||
Change in fair value of derivatives - debt | (0.01 | ) | — | 0.01 | — | (0.04 | ) | ||||||||||||
Income taxes | 0.37 | (0.18 | ) | (0.22 | ) | (0.04 | ) | 0.41 | |||||||||||
Non-GAAP operating income (c)(d)(e) | $ | 0.82 | $ | 0.96 | $ | 0.71 | $ | 0.66 | $ | 0.63 | |||||||||
(a) | 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. |
(b) | Q4 2017 includes income tax expense related to the revaluation of our deferred tax assets and liabilities using the new enacted federal tax rate resulting from Tax Reform. The change in the federal income tax rate decreased net income and earnings per common share - assuming dilution by $35.9 million and $0.40 per share, respectively. The impact of Tax Reform has been excluded from non-GAAP operating income. |
(c) | Q3 2017 includes a loss on the extinguishment of our 6.625% Notes due in 2021. The loss decreased non-GAAP operating income and non-GAAP operating income per common share - assuming dilution by $10.8 million and $0.12 per share, respectively |
(d) | Q3 2017 includes a benefit from unlocking which reduced amortization of deferred sales inducements and deferred policy acquisition costs by $31.3 million and $43.7 million, respectively, and increased non-GAAP operating income and non-GAAP operating income per common share- assuming dilution by $48.3 million and $0.53 per share, respectively. |
(e) | Q3 2017 includes expense from the revision of assumptions used in determining reserves held for lifetime income benefit riders. The impact increased interest sensitive and index product benefits by $21.6 million and decreased non-GAAP operating income and non-GAAP operating income per common share - assuming dilution by $13.9 million and $0.15 per share, respectively. |
Page 6
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - December 31, 2017
NON-GAAP FINANCIAL MEASURES
Summary of Adjustments to Arrive at Non-GAAP Operating Income (Unaudited)
Q4 2017 | Q3 2017 | Q2 2017 | Q1 2017 | Q4 2016 | |||||||||||||||
(Dollars in thousands) | |||||||||||||||||||
Net realized gains on investments | $ | (2,719 | ) | $ | (1,579 | ) | $ | (3,873 | ) | $ | (2,338 | ) | $ | (844 | ) | ||||
Net OTTI losses recognized in operations | 3,076 | 464 | 949 | 141 | 9,560 | ||||||||||||||
Change in fair value of derivatives | (283,801 | ) | (130,150 | ) | (34,225 | ) | (201,974 | ) | (108,359 | ) | |||||||||
Decrease in total revenues | (283,444 | ) | (131,265 | ) | (37,149 | ) | (204,171 | ) | (99,643 | ) | |||||||||
Amortization of deferred sales inducements | 1,499 | 22,442 | 34,550 | 5,459 | (61,820 | ) | |||||||||||||
Change in fair value of embedded derivatives | (290,890 | ) | (229,702 | ) | (174,973 | ) | (224,170 | ) | 151,099 | ||||||||||
Amortization of deferred policy acquisition costs | 2,245 | 29,433 | 46,797 | 5,752 | (88,166 | ) | |||||||||||||
Increase (decrease) in total benefits and expenses | (287,146 | ) | (177,827 | ) | (93,626 | ) | (212,959 | ) | 1,113 | ||||||||||
Increase (decrease) in income before income taxes | 3,702 | 46,562 | 56,477 | 8,788 | (100,756 | ) | |||||||||||||
Increase (decrease) in income tax expense | (34,003 | ) | 16,281 | 19,741 | 3,105 | (35,927 | ) | ||||||||||||
Increase (decrease) in net income | $ | 37,705 | $ | 30,281 | $ | 36,736 | $ | 5,683 | $ | (64,829 | ) | ||||||||
Page 7
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - December 31, 2017
Capitalization/Book Value per Share
December 31, 2017 | December 31, 2016 | ||||||
(Dollars in thousands, except share and per share data) | |||||||
Capitalization: | |||||||
Notes and loan payable | $ | 500,000 | $ | 500,000 | |||
Subordinated debentures payable to subsidiary trusts | 246,908 | 246,671 | |||||
Total debt | 746,908 | 746,671 | |||||
Total stockholders’ equity | 2,850,157 | 2,291,595 | |||||
Total capitalization | 3,597,065 | 3,038,266 | |||||
Accumulated other comprehensive income (AOCI) | (724,599 | ) | (339,966 | ) | |||
Total capitalization excluding AOCI (a) | $ | 2,872,466 | $ | 2,698,300 | |||
Total stockholders’ equity | $ | 2,850,157 | $ | 2,291,595 | |||
Accumulated other comprehensive income | (724,599 | ) | (339,966 | ) | |||
Total stockholders’ equity excluding AOCI (a) | $ | 2,125,558 | $ | 1,951,629 | |||
Common shares outstanding (b) | 89,331,087 | 88,016,188 | |||||
Book Value per Share: (c) | |||||||
Book value per share including AOCI | $ | 31.91 | $ | 26.04 | |||
Book value per share excluding AOCI (a) | $ | 23.79 | $ | 22.17 | |||
Debt-to-Capital Ratios: (d) | |||||||
Senior debt / Total capitalization | 17.4 | % | 18.5 | % | |||
Adjusted debt / Total capitalization | 17.4 | % | 18.5 | % | |||
(a) | 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. |
(b) | Common shares outstanding at December 31, 2016 includes 15,058 shares held by the NMO Deferred Compensation Trust. |
(c) | 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. |
(d) | 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 - December 31, 2017
Spread Results
Three Months Ended December 31, | Year Ended December 31, | ||||||
2017 | 2016 | 2017 | 2016 | ||||
Average yield on invested assets | 4.47% | 4.47% | 4.46% | 4.51% | |||
Aggregate cost of money | 1.72% | 1.85% | 1.74% | 1.90% | |||
Aggregate investment spread | 2.75% | 2.62% | 2.72% | 2.61% | |||
Impact of: | |||||||
Investment yield - additional prepayment income | 0.11% | 0.07% | 0.08% | 0.06% | |||
Cost of money effect of over hedging | 0.08% | 0.02% | 0.06% | 0.01% | |||
Weighted average investments (in thousands) | $46,031,966 | $42,654,828 | $44,798,227 | $41,103,504 | |||
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 December 31, | Year Ended December 31, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
(Dollars in thousands) | |||||||||||||||
Included in interest sensitive and index product benefits: | |||||||||||||||
Index credits | $ | 526,200 | $ | 125,911 | $ | 1,594,722 | $ | 267,995 | |||||||
Interest credited | 59,065 | 68,790 | 249,898 | 267,472 | |||||||||||
Included in change in fair value of derivatives: | |||||||||||||||
Proceeds received at option expiration | (535,328 | ) | (127,934 | ) | (1,623,346 | ) | (272,277 | ) | |||||||
Pro rata amortization of option cost | 156,782 | 140,426 | 593,990 | 560,955 | |||||||||||
Cost of money for deferred annuities | $ | 206,719 | $ | 207,193 | $ | 815,264 | $ | 824,145 | |||||||
Weighted average liability balance outstanding (in thousands) | $ | 48,014,427 | $ | 44,832,293 | $ | 46,846,995 | $ | 43,462,073 | |||||||
Annuity Account Balance Rollforward
Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
(Dollars in thousands) | |||||||||||||||
Account balances at beginning of period | $ | 47,628,099 | $ | 44,460,569 | $ | 45,204,015 | $ | 41,249,647 | |||||||
Net deposits | 874,952 | 1,115,023 | 3,764,984 | 5,356,294 | |||||||||||
Premium bonuses | 41,098 | 82,974 | 216,172 | 353,965 | |||||||||||
Fixed interest credited and index credits | 585,265 | 194,701 | 1,844,620 | 535,467 | |||||||||||
Surrender charges | (13,573 | ) | (11,196 | ) | (54,624 | ) | (51,577 | ) | |||||||
Lifetime income benefit rider fees | (42,815 | ) | (37,079 | ) | (145,870 | ) | (122,002 | ) | |||||||
Surrenders, withdrawals, deaths, etc. | (672,271 | ) | (600,977 | ) | (2,428,542 | ) | (2,117,779 | ) | |||||||
Account balances at end of period | $ | 48,400,755 | $ | 45,204,015 | $ | 48,400,755 | $ | 45,204,015 | |||||||
Page 9
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - December 31, 2017
Annuity Deposits by Product Type
Three Months Ended December 31, | Year Ended December 31, | |||||||||||||||
Product Type | 2017 | 2016 | 2017 | 2016 | ||||||||||||
(Dollars in thousands) | ||||||||||||||||
American Equity: | ||||||||||||||||
Fixed index annuities | $ | 757,160 | $ | 1,139,287 | $ | 3,390,144 | $ | 5,114,178 | ||||||||
Annual reset fixed rate annuities | 18,974 | 17,869 | 74,829 | 64,317 | ||||||||||||
Multi-year fixed rate annuities | 3,773 | 12,671 | 23,424 | 450,474 | ||||||||||||
Single premium immediate annuities | 7,909 | 10,494 | 24,946 | 35,851 | ||||||||||||
787,816 | 1,180,321 | 3,513,343 | 5,664,820 | |||||||||||||
Eagle Life: | ||||||||||||||||
Fixed index annuities | 187,888 | 80,687 | 576,695 | 610,580 | ||||||||||||
Multi-year fixed rate annuities | 32,953 | 129,075 | 87,172 | 852,799 | ||||||||||||
220,841 | 209,762 | 663,867 | 1,463,379 | |||||||||||||
Consolidated: | ||||||||||||||||
Fixed index annuities | 945,048 | 1,219,974 | 3,966,839 | 5,724,758 | ||||||||||||
Annual reset fixed rate annuities | 18,974 | 17,869 | 74,829 | 64,317 | ||||||||||||
Multi-year fixed rate annuities | 36,726 | 141,746 | 110,596 | 1,303,273 | ||||||||||||
Single premium immediate annuities | 7,909 | 10,494 | 24,946 | 35,851 | ||||||||||||
Total before coinsurance ceded | 1,008,657 | 1,390,083 | 4,177,210 | 7,128,199 | ||||||||||||
Coinsurance ceded | 125,796 | 264,566 | 387,280 | 1,736,054 | ||||||||||||
Net after coinsurance ceded | $ | 882,861 | $ | 1,125,517 | $ | 3,789,930 | $ | 5,392,145 | ||||||||
Surrender Charge Protection and Account Values by Product Type
Annuity Surrender Charges and Net (of Coinsurance) Account Values at December 31, 2017:
Surrender Charge | Net Account Value | ||||||||||||
Product Type | Avg. Years At Issue | Avg. Years Remaining | Avg. % Remaining | Dollars in Thousands | % | ||||||||
Fixed Index Annuities | 13.6 | 8.3 | 13.3% | $ | 46,333,960 | 95.7 | % | ||||||
Annual Reset Fixed Rate Annuities | 10.7 | 4.4 | 7.5% | 1,420,090 | 2.9 | % | |||||||
Multi-Year Fixed Rate Annuities | 6.7 | 2.6 | 5.5% | 646,705 | 1.4 | % | |||||||
Total | 13.4 | 8.1 | 13.0% | $ | 48,400,755 | 100.0 | % | ||||||
Page 10
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - December 31, 2017
Annuity Liability Characteristics
Fixed Annuities Account Value | Fixed Index Annuities Account Value | ||||||
(Dollars in thousands) | |||||||
SURRENDER CHARGE PERCENTAGES: | |||||||
No surrender charge | $ | 764,653 | $ | 2,220,767 | |||
0.0% < 2.0% | 43,062 | 292,754 | |||||
2.0% < 3.0% | 16,954 | 210,079 | |||||
3.0% < 4.0% | 12,820 | 174,964 | |||||
4.0% < 5.0% | 23,941 | 469,479 | |||||
5.0% < 6.0% | 50,130 | 478,592 | |||||
6.0% < 7.0% | 65,577 | 674,898 | |||||
7.0% < 8.0% | 122,180 | 1,565,020 | |||||
8.0% < 9.0% | 297,953 | 1,937,314 | |||||
9.0% < 10.0% | 46,263 | 2,574,246 | |||||
10.0% or greater | 623,262 | 35,735,847 | |||||
$ | 2,066,795 | $ | 46,333,960 | ||||
Fixed and Fixed Index Annuities Account Value | Weighted Average Surrender Charge | |||||
(Dollars in thousands) | ||||||
SURRENDER CHARGE EXPIRATION BY YEAR: | ||||||
Out of Surrender Charge | $ | 2,985,420 | 0.00 | % | ||
2018 | 665,233 | 2.36 | % | |||
2019 | 505,493 | 3.95 | % | |||
2020 | 854,872 | 5.73 | % | |||
2021 | 1,357,844 | 7.47 | % | |||
2022 | 1,977,098 | 8.82 | % | |||
2023 | 4,813,325 | 10.56 | % | |||
2024 | 5,255,527 | 12.06 | % | |||
2025 | 6,080,254 | 12.34 | % | |||
2026 | 5,027,350 | 13.73 | % | |||
2027 | 4,324,191 | 14.97 | % | |||
2028 | 2,370,181 | 17.32 | % | |||
2029 | 2,994,818 | 18.20 | % | |||
2030 | 2,755,760 | 18.50 | % | |||
2031 | 3,313,669 | 18.99 | % | |||
2032 | 1,953,275 | 19.49 | % | |||
2033 | 1,132,282 | 19.98 | % | |||
2034 | 34,163 | 20.00 | % | |||
$ | 48,400,755 | 13.01 | % | |||
Page 11
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - December 31, 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 | $ | 972,268 | $ | 1,584,301 | |||
› 0.0% - 0.25% | 67,082 | 255,775 | |||||
› 0.25% - 0.5% | 248,654 | 4,446 | |||||
› 0.5% - 1.0% | 67,792 | 24,154 | |||||
› 1.0% - 1.5% | 11,923 | — | |||||
1.00% ultimate guarantee - 2.67% wtd avg interest rate (a) | 447,168 | 258,150 | |||||
1.50% ultimate guarantee - 1.23% wtd avg interest rate (a) | 160,166 | 4,455,133 | |||||
2.00% ultimate guarantee - 1.85% wtd avg interest rate (a) | 91,742 | — | |||||
2.25% ultimate guarantee - 1.96% wtd avg interest rate (a) | — | 1,065,450 | |||||
3.00% ultimate guarantee - 2.15% wtd avg interest rate (a) | — | 2,023,289 | |||||
Allocated to index strategies (see tables that follow) | — | 36,663,262 | |||||
$ | 2,066,795 | $ | 46,333,960 | ||||
(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 December 31, 2017 for fixed annuities and funds allocated to the fixed rate strategy for fixed index annuities would decrease by 0.17%.
Page 12
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - December 31, 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 | $ | 1,732 | $ | 99,805 | $ | 2,755,745 | $ | 86,833 | $ | 203,423 | |||||||||
1.75% - 3% | 6,838,653 | — | — | — | — | ||||||||||||||
3% - 4% | 1,005,369 | 15,464 | — | — | — | ||||||||||||||
4% - 5% | 408,384 | 202,556 | 4,292,070 | — | — | ||||||||||||||
5% - 6% | 436,650 | 154,499 | 37,846 | — | — | ||||||||||||||
6% - 7% | — | — | 139 | — | — | ||||||||||||||
>= 7% | — | 7,784 | 1,543 | 8,480 | 2,024 | ||||||||||||||
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 | $ | 601 | $ | 422,460 | $ | 126,318 | $ | 146,469 | |||||||
< 20% | 551,866 | — | — | — | |||||||||||
20% - 40% | 921,685 | 190,074 | — | — | |||||||||||
40% - 60% | 948,379 | 115,221 | 76,625 | — | |||||||||||
>= 60% | 13,674 | — | — | — | |||||||||||
S&P 500 Monthly Point-to-Point - Minimum Guaranteed Monthly Cap = 1.0% | |||
(Dollars in thousands) | |||
Current Cap | |||
At minimum | $ | 109,371 | |
1.10% - 1.30% | 4,946,669 | ||
1.40% - 1.60% | 5,205,202 | ||
1.70% - 2.00% | 3,017,689 | ||
>= 2.10% | 15,623 | ||
Volatility Control Index | |||
(Dollars in thousands) | |||
Current Asset Fee | |||
At Maximum | $ | — | |
0.75% - 1.75% | 213,810 | ||
2.25% - 2.75% | 828,426 | ||
3.00% - 4.00% | 1,738,697 | ||
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 0.59% based upon prices of options for the week ended January 16, 2018.
Page 13
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - December 31, 2017
Summary of Invested Assets
December 31, 2017 | December 31, 2016 | ||||||||||||
Carrying Amount | Percent | Carrying Amount | Percent | ||||||||||
(Dollars in thousands) | |||||||||||||
Fixed maturity securities: | |||||||||||||
United States Government full faith and credit | $ | 11,876 | — | % | $ | 11,805 | — | % | |||||
United States Government sponsored agencies | 1,305,017 | 2.6 | % | 1,344,787 | 3.0 | % | |||||||
United States municipalities, states and territories | 4,166,812 | 8.3 | % | 3,926,950 | 8.8 | % | |||||||
Foreign government obligations | 239,360 | 0.5 | % | 236,341 | 0.5 | % | |||||||
Corporate securities | 29,956,012 | 59.6 | % | 27,191,243 | 60.8 | % | |||||||
Residential mortgage backed securities | 1,105,567 | 2.2 | % | 1,254,835 | 2.8 | % | |||||||
Commercial mortgage backed securities | 5,544,850 | 11.0 | % | 5,365,235 | 12.0 | % | |||||||
Other asset backed securities | 3,120,536 | 6.2 | % | 1,806,123 | 4.0 | % | |||||||
Total fixed maturity securities | 45,450,030 | 90.4 | % | 41,137,319 | 91.9 | % | |||||||
Mortgage loans on real estate | 2,665,531 | 5.3 | % | 2,480,956 | 5.5 | % | |||||||
Derivative instruments | 1,568,380 | 3.1 | % | 830,519 | 1.9 | % | |||||||
Other investments | 616,764 | 1.2 | % | 308,774 | 0.7 | % | |||||||
$ | 50,300,705 | 100.0 | % | $ | 44,757,568 | 100.0 | % | ||||||
Credit Quality of Fixed Maturity Securities - December 31, 2017
NAIC Designation | Carrying Amount | Percent | Rating Agency Rating | Carrying Amount | Percent | |||||||||||
(Dollars in thousands) | (Dollars in thousands) | |||||||||||||||
1 | $ | 28,274,379 | 62.2 | % | Aaa/Aa/A | $ | 27,909,879 | 61.4 | % | |||||||
2 | 15,869,219 | 34.9 | % | Baa | 16,048,610 | 35.3 | % | |||||||||
3 | 1,158,001 | 2.5 | % | Ba | 1,035,676 | 2.3 | % | |||||||||
4 | 117,542 | 0.3 | % | B | 130,857 | 0.3 | % | |||||||||
5 | 20,927 | 0.1 | % | Caa | 134,586 | 0.3 | % | |||||||||
6 | 9,962 | — | % | Ca and lower | 190,422 | 0.4 | % | |||||||||
$ | 45,450,030 | 100.0 | % | $ | 45,450,030 | 100.0 | % | |||||||||
Watch List Securities - December 31, 2017
General Description | Amortized Cost | Unrealized Gains (Losses) | Fair Value | Months Below Amortized Cost | ||||||||||
(Dollars in thousands) | ||||||||||||||
Below investment grade | ||||||||||||||
Corporate securities: | ||||||||||||||
Energy | $ | 29,055 | $ | (4,966 | ) | $ | 24,089 | 7 - 56 | ||||||
Industrials | 2,500 | (150 | ) | 2,350 | 38 | |||||||||
Materials | 3,990 | 770 | 4,760 | — | ||||||||||
Telecommunications | 2,100 | 480 | 2,580 | — | ||||||||||
Other asset backed securities: | ||||||||||||||
Financials | 6,141 | (3,524 | ) | 2,617 | 55 - 81 | |||||||||
$ | 43,786 | $ | (7,390 | ) | $ | 36,396 | ||||||||
Page 14
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - December 31, 2017
Fixed Maturity Securities by Sector
December 31, 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 | $ | 1,320,151 | $ | 1,316,893 | $ | 1,380,204 | $ | 1,356,592 | |||||||
United States municipalities, states and territories | 3,804,360 | 4,166,812 | 3,626,395 | 3,926,950 | |||||||||||
Foreign government obligations | 228,214 | 239,360 | 229,589 | 236,341 | |||||||||||
Corporate securities: | |||||||||||||||
Capital goods | 2,405,102 | 2,570,734 | 2,248,219 | 2,332,625 | |||||||||||
Consumer discretionary | 5,889,227 | 6,232,728 | 5,485,150 | 5,643,308 | |||||||||||
Energy | 2,554,199 | 2,666,172 | 2,439,809 | 2,453,649 | |||||||||||
Financials | 6,004,618 | 6,369,570 | 5,377,810 | 5,552,349 | |||||||||||
Industrials | 283,915 | 291,174 | 186,684 | 187,191 | |||||||||||
Information technology | 1,829,396 | 1,932,131 | 1,718,190 | 1,759,229 | |||||||||||
Materials | 1,801,312 | 1,901,090 | 1,767,460 | 1,797,013 | |||||||||||
Other | 989,641 | 1,052,676 | 1,009,390 | 1,037,307 | |||||||||||
Telecommunications | 1,461,536 | 1,539,840 | 1,472,094 | 1,507,943 | |||||||||||
Transportation | 1,152,637 | 1,218,964 | 1,105,324 | 1,133,087 | |||||||||||
Utilities | 3,756,070 | 4,103,887 | 3,523,083 | 3,710,711 | |||||||||||
Residential mortgage backed securities: | |||||||||||||||
Government agency | 628,320 | 668,641 | 648,752 | 693,805 | |||||||||||
Prime | 254,627 | 266,875 | 323,878 | 338,761 | |||||||||||
Alt-A | 130,757 | 154,566 | 166,557 | 193,018 | |||||||||||
Re-Remic | 14,780 | 15,485 | 27,757 | 29,251 | |||||||||||
Commercial mortgage backed securities: | |||||||||||||||
Government agency | 554,514 | 564,400 | 559,850 | 560,726 | |||||||||||
Non-agency | 4,977,408 | 4,980,450 | 4,862,405 | 4,804,509 | |||||||||||
Other asset backed securities: | |||||||||||||||
Auto | 298,142 | 299,688 | 240,297 | 237,678 | |||||||||||
Financials | 1,976,720 | 1,986,259 | 865,235 | 866,203 | |||||||||||
Industrials | 243,859 | 251,321 | 216,712 | 219,917 | |||||||||||
Military housing | 433,840 | 461,452 | 339,186 | 351,903 | |||||||||||
Other | 123,414 | 121,816 | 132,095 | 128,592 | |||||||||||
Utilities | — | — | 1,830 | 1,830 | |||||||||||
Redeemable preferred stock - financials | — | 5 | — | 6 | |||||||||||
$ | 43,116,759 | $ | 45,372,989 | $ | 39,953,955 | $ | 41,060,494 | ||||||||
Held for investment: | |||||||||||||||
Corporate security - financials | $ | 77,041 | $ | 76,460 | $ | 76,825 | $ | 68,766 | |||||||
Page 15
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - December 31, 2017
Mortgage Loans on Commercial Real Estate
December 31, 2017 | December 31, 2016 | |||||||||||||
Principal | Percent | Principal | Percent | |||||||||||
(Dollars in thousands) | ||||||||||||||
Geographic distribution | ||||||||||||||
East | $ | 548,067 | 20.5 | % | $ | 635,434 | 25.5 | % | ||||||
Middle Atlantic | 163,485 | 6.1 | % | 151,640 | 6.1 | % | ||||||||
Mountain | 308,486 | 11.5 | % | 235,932 | 9.5 | % | ||||||||
New England | 12,265 | 0.5 | % | 12,724 | 0.5 | % | ||||||||
Pacific | 466,030 | 17.4 | % | 385,683 | 15.5 | % | ||||||||
South Atlantic | 609,736 | 22.8 | % | 519,065 | 20.8 | % | ||||||||
West North Central | 324,808 | 12.2 | % | 325,447 | 13.1 | % | ||||||||
West South Central | 241,438 | 9.0 | % | 224,694 | 9.0 | % | ||||||||
$ | 2,674,315 | 100.0 | % | $ | 2,490,619 | 100.0 | % | |||||||
Property type distribution | ||||||||||||||
Office | $ | 283,926 | 10.6 | % | $ | 308,578 | 12.4 | % | ||||||
Medical office | 34,338 | 1.3 | % | 50,780 | 2.1 | % | ||||||||
Retail | 1,040,028 | 38.9 | % | 886,942 | 35.6 | % | ||||||||
Industrial/Warehouse | 677,770 | 25.3 | % | 700,644 | 28.1 | % | ||||||||
Apartment | 462,897 | 17.3 | % | 375,837 | 15.1 | % | ||||||||
Mixed use/other | 175,356 | 6.6 | % | 167,838 | 6.7 | % | ||||||||
$ | 2,674,315 | 100.0 | % | $ | 2,490,619 | 100.0 | % | |||||||
December 31, 2017 | December 31, 2016 | |||||||||||||
Credit exposure - by payment activity | ||||||||||||||
Performing | $ | 2,670,657 | $ | 2,489,028 | ||||||||||
In workout | 1,436 | 1,591 | ||||||||||||
Delinquent | — | — | ||||||||||||
Collateral dependent | 2,222 | — | ||||||||||||
2,674,315 | 2,490,619 | |||||||||||||
Specific loan loss allowance | (1,418 | ) | (1,327 | ) | ||||||||||
General loan loss allowance | (6,100 | ) | (7,100 | ) | ||||||||||
Deferred prepayment fees | (1,266 | ) | (1,236 | ) | ||||||||||
$ | 2,665,531 | $ | 2,480,956 | |||||||||||
Page 16
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - December 31, 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 | |||
Third Quarter | $29.43 | $25.43 | $29.08 | $0.00 | |||
Fourth Quarter | $32.54 | $28.06 | $30.73 | $0.26 | |||
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 - December 31, 2017
Research Analyst Coverage
Erik Bass
Autonomous Research US LP
(646) 561-6248
ebass@autonomous.com
Daniel Bergman
Citi Research
(212) 816-2132
daniel.bergman@citi.com
Thomas Gallagher
Evercore ISI
(212) 446-9439
thomas.gallagher@evercoreisi.com
Randy Binner
B. Riley FBR, Inc.
(703) 312-1890
rbinner@fbr.com
Alex Scott
Goldman Sachs & Co. LLC
(917) 343-7160
alex.scott@gs.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
(615) 748-4422
mark.hughes@suntrust.com
Page 18