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): November 6, 2019
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
(Address of principal executive offices and 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:
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933
(§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
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. ☐
Item 2.02 Results of Operations and Financial Condition
On November 6, 2019, the registrant issued a press release announcing its financial results for the quarter ended September 30, 2019, 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 September 30, 2019, 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 | ||
104 | The cover page from this Current Report on Form 8-K, formatted in Inline XBRL. | |
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: November 6, 2019
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 | ||
November 6, 2019 | ||
American Equity Reports Third Quarter 2019 Results
Company Highlights
• | Third quarter 2019 net income of $37.4 million or $0.41 per diluted common share |
• | Third quarter 2019 non-GAAP operating income1 of $233.4 million or $2.54 per diluted common share |
• | Third quarter 2019 annuity sales of $1.3 billion |
• | Policyholder funds under management of $53.0 billion |
• | Third quarter 2019 investment spread of 2.75% |
• | Estimated risk-based capital ratio of 366% compared to 360% at December 31, 2018 |
WEST DES MOINES, Iowa (November 6, 2019) - American Equity Investment Life Holding Company (NYSE: AEL), a leading issuer of fixed index annuities (FIAs), today reported third quarter 2019 net income of $37.4 million, or $0.41 per diluted common share, compared to net income of $169.3 million, or $1.85 per diluted common share, for third quarter 2018.
Non-GAAP operating income1 for third quarter 2019 was $233.4 million, or $2.54 per diluted common share, compared to non-GAAP operating income1 of $171.1 million, or $1.87 per diluted common share, for third quarter 2018. On a trailing twelve-month basis, non-GAAP operating return1 on average equity excluding average AOCI1 was 20.9% and 16.3% excluding the impact of assumption revisions.
Third quarter 2019 net income was negatively affected by $36 million ($0.40 per diluted common share) for revisions to assumptions utilized in the determination of deferred policy acquisition costs, deferred sales inducements, the liability for future benefits to be paid for lifetime income benefit riders and the valuation of embedded derivatives while non-GAAP operating income1 benefited by $124 million ($1.35 per diluted common share) from assumption revisions. Net income and non-GAAP operating income1 for the third quarter of 2018 were positively affected by $76 million ($0.84 per diluted common share) and $81 million ($0.88 per diluted common share), respectively, for assumption revisions.
POLICYHOLDER FUNDS UNDER MANAGEMENT UP 1.0% ON $1.3 BILLION OF SALES
Policyholder funds under management at September 30, 2019 were $53.0 billion, a $536 million, or 1.0% increase from June 30, 2019. Third quarter gross and net sales were $1.3 billion and $1.2 billion, respectively,
representing increases of 25% and 31% from third quarter 2018 sales. On a sequential basis, gross and net sales decreased 13% and 15%, respectively.
Total sales by independent agents for American Equity Investment Life Insurance Company (American Equity Life) and total sales by broker-dealers and banks for Eagle Life Insurance Company (Eagle Life) each decreased 13% sequentially. Sales of FIAs were down 16% sequentially to $1.2 billion driven by a 13% decrease in sales for American Equity Life and a 29% decrease for Eagle Life.
Commenting on sales, John Matovina, Chairman and Chief Executive Officer, said: "While FIA sales in American Equity Life's independent agent channel remained well above year ago levels, the sequential decrease in sales in this channel was particularly concentrated in our accumulation products. In the third quarter, accumulation products accounted for 39% of sales compared to 46% of sales in the second quarter. We fared better in the guaranteed lifetime income space. Sales of the IncomeShield series, which was the best-selling guaranteed lifetime income product in the independent agent channel in the first half of 2019, increased 6% sequentially and accounted for 48% of our FIA sales in the third quarter."
Commenting on the market environment and the outlook for FIA sales, Matovina added: "The market in each of our distribution channels continues to be competitive. Reflecting the decline in interest rates since year-end, we continue to take actions to lower caps, participation rates, and declared rates for both American Equity Life and Eagle Life. Following reductions in participation rates and caps in April and June, we made further reductions in August and October. While competitors reduced caps and participation rates as well during the quarter, we have recently begun to see competitors raise participation rates, possibly betting on a continuation of the recent increase in interest rates. Although we have lowered participation rates on our S&P 500 Dividend Aristocrats volatility-controlled excess return strategies, these strategies remain competitive and we will put increasing focus on their marketing. We also reduced income levels on our guaranteed lifetime income product lines in August and October. While our current income levels are more conservative when compared to the highest levels of income available in the marketplace, we are still higher than several key competitors."
Matovina continued: "In the bank and broker-dealer channels, Eagle Life had distinguished itself with its emphasis on offering attractive participation rates on S&P 500 annual point-to-point strategies. Given the decline in interest rates, we made reductions to participation rates during August and October similar to those made on accumulation products at American Equity Life. While our S&P 500 participation rates are not attractive to distribution at this time, we are placing increasing emphasis on the S&P 500 Dividend Aristocrats strategies at Eagle Life too. Eagle Life will also be rolling out a new guaranteed lifetime income product, the Eagle Select Income Focus, to banks and broker-dealers later this month. This is a significant initiative for Eagle Life to capture some guaranteed income market share in these channels. While guaranteed lifetime income has been a focus at American Equity Life, this has not been true at Eagle Life. The standard no-fee guaranteed lifetime income rider, pioneered by American Equity Life in the independent agent channel, will be unique in the bank and broker-dealer channels. To maximize guaranteed lifetime income, policyholders may instead choose a fee-based rider which will be very competitive with those offered by the leader in these channels."
INVESTMENT SPREAD INCREASES ON LOWER COST OF MONEY AND NON-TRENDABLE ITEMS
American Equity’s investment spread was 2.75% for the third quarter of 2019 compared to 2.63% for the second quarter of 2019 and 2.67% for the third quarter of 2018. On a sequential basis, the average yield on invested assets increased by 8 basis points while the cost of money fell 4 basis points.
Average yield on invested assets was 4.59% in the third quarter of 2019 compared to 4.51% in the second quarter of 2019. This increase was attributable to an increase in the benefit from non-trendable investment income items from 5 basis points in the second quarter to 13 basis points in the third quarter of this year. The impact from the decline in short term yields on the $4.8 billion of floating rate instruments in the investment portfolio negatively affected average yield by 2 basis points.
The aggregate cost of money for annuity liabilities of 1.84% in the third quarter of 2019 was down 4 basis points from 1.88% in the second quarter of 2019. The cost of money benefited by 2 basis points from over hedging index-linked interest obligations, compared to 4 basis points in the second quarter of 2019.
Commenting on investment spread, Matovina said: “Excluding non-trendable investment spread items, investment spread increased 6 basis points sequentially driven by lower cost of money. Option costs decreased in the third quarter reflecting reductions in caps and participation rates on new business from the June and August new money rate changes, renewal rate changes initiated in both October of last year and August of this year, and higher volatility."
Matovina went on to say: "The trend of declining option costs, which began in December 2018, could extend further as we reduced new money rates last month and will begin reducing renewal rates on $29.7 billion of policyholder funds under management in January 2020. Should yields available to us remain at current levels or the cost of money rise, we have flexibility to reduce our crediting rates and could decrease our cost of money by approximately 0.59% through further reductions in renewal rates to guaranteed minimums."
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 third quarter 2019 earnings on Thursday, November 7, 2019 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 4871448 (international callers, please dial 704-859-4382). An audio replay will be available shortly after the call on American Equity's website. An audio replay will also be available via telephone through November 14, 2019 at 855-859-2056, passcode 4871448 (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
Unaudited (Dollars in thousands, except per share data)
Consolidated Statements of Operations
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Revenues: | |||||||||||||||
Premiums and other considerations | $ | 5,152 | $ | 7,240 | $ | 14,688 | $ | 22,050 | |||||||
Annuity product charges | 63,647 | 58,365 | 177,313 | 164,094 | |||||||||||
Net investment income | 590,412 | 549,391 | 1,719,418 | 1,593,457 | |||||||||||
Change in fair value of derivatives | (20,042 | ) | 595,311 | 440,472 | 276,433 | ||||||||||
Net realized gains (losses) on investments, excluding other than temporary impairment ("OTTI") losses | 4,328 | (2,196 | ) | (67 | ) | (40,275 | ) | ||||||||
OTTI losses on investments: | |||||||||||||||
Total OTTI losses | (101 | ) | (14,373 | ) | (1,099 | ) | (16,025 | ) | |||||||
Portion of OTTI losses recognized from other comprehensive income | — | — | (215 | ) | (1,651 | ) | |||||||||
Net OTTI losses recognized in operations | (101 | ) | (14,373 | ) | (1,314 | ) | (17,676 | ) | |||||||
Total revenues | 643,396 | 1,193,738 | 2,350,510 | 1,998,083 | |||||||||||
Benefits and expenses: | |||||||||||||||
Insurance policy benefits and change in future policy benefits | 7,627 | 10,721 | 23,865 | 32,091 | |||||||||||
Interest sensitive and index product benefits | 500,285 | 413,089 | 888,062 | 1,355,135 | |||||||||||
Amortization of deferred sales inducements | (55,769 | ) | 55,244 | (2,675 | ) | 233,779 | |||||||||
Change in fair value of embedded derivatives | 212,278 | 383,716 | 1,306,163 | (585,465 | ) | ||||||||||
Interest expense on notes payable | 6,382 | 6,376 | 19,141 | 19,122 | |||||||||||
Interest expense on subordinated debentures | 3,968 | 3,942 | 12,113 | 11,450 | |||||||||||
Amortization of deferred policy acquisition costs | (120,934 | ) | 81,053 | (45,856 | ) | 336,741 | |||||||||
Other operating costs and expenses | 38,554 | 31,924 | 114,959 | 95,704 | |||||||||||
Total benefits and expenses | 592,391 | 986,065 | 2,315,772 | 1,498,557 | |||||||||||
Income before income taxes | 51,005 | 207,673 | 34,738 | 499,526 | |||||||||||
Income tax expense | 13,645 | 38,345 | 8,798 | 95,333 | |||||||||||
Net income | $ | 37,360 | $ | 169,328 | $ | 25,940 | $ | 404,193 | |||||||
Earnings per common share | $ | 0.41 | $ | 1.87 | $ | 0.28 | $ | 4.48 | |||||||
Earnings per common share - assuming dilution | $ | 0.41 | $ | 1.85 | $ | 0.28 | $ | 4.42 | |||||||
Weighted average common shares outstanding (in thousands): | |||||||||||||||
Earnings per common share | 91,252 | 90,486 | 91,081 | 90,278 | |||||||||||
Earnings per common share - assuming dilution | 91,711 | 91,651 | 91,748 | 91,355 | |||||||||||
Page 1
American Equity Investment Life Holding Company
Unaudited (Dollars in thousands, except per share data)
NON-GAAP FINANCIAL MEASURES
In addition to net income, we have consistently utilized non-GAAP operating income and non-GAAP operating income per common share - assuming dilution, non-GAAP financial measures commonly used in the life insurance industry, as economic measures to evaluate our financial performance. Non-GAAP operating income equals net income adjusted to eliminate the impact of items that fluctuate from quarter to quarter in a manner unrelated to core operations, and we believe measures excluding their impact are useful in analyzing operating trends. The most significant adjustments to arrive at non-GAAP operating income eliminate the impact of fair value accounting for our fixed index annuity business. These adjustments are not economic in nature but rather impact the timing of reported results. We believe the combined presentation and evaluation of non-GAAP operating income together with net income provides information that may enhance an investor’s understanding of our underlying results and profitability.
Reconciliation from Net Income to Non-GAAP Operating Income
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Net income | $ | 37,360 | $ | 169,328 | $ | 25,940 | $ | 404,193 | |||||||
Adjustments to arrive at non-GAAP operating income: (a) | |||||||||||||||
Net realized investment gains/losses, including OTTI | (3,175 | ) | 10,278 | (245 | ) | 35,925 | |||||||||
Change in fair value of derivatives and embedded derivatives - fixed index annuities | 250,186 | 545 | 500,998 | (108,367 | ) | ||||||||||
Change in fair value of derivatives - debt | (76 | ) | (597 | ) | 1,414 | (3,168 | ) | ||||||||
Income taxes | (50,940 | ) | (8,491 | ) | (105,759 | ) | 6,822 | ||||||||
Non-GAAP operating income | $ | 233,355 | $ | 171,063 | $ | 422,348 | $ | 335,405 | |||||||
Per common share - assuming dilution: | |||||||||||||||
Net income | $ | 0.41 | $ | 1.85 | $ | 0.28 | $ | 4.42 | |||||||
Adjustments to arrive at non-GAAP operating income: | |||||||||||||||
Net realized investment gains/losses, including OTTI | (0.04 | ) | 0.11 | — | 0.39 | ||||||||||
Change in fair value of derivatives and embedded derivatives - fixed index annuities | 2.73 | 0.01 | 5.46 | (1.19 | ) | ||||||||||
Change in fair value of derivatives - debt | — | (0.01 | ) | 0.01 | (0.03 | ) | |||||||||
Income taxes | (0.56 | ) | (0.09 | ) | (1.15 | ) | 0.08 | ||||||||
Non-GAAP operating income | $ | 2.54 | $ | 1.87 | $ | 4.60 | $ | 3.67 | |||||||
(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. |
Page 2
American Equity Investment Life Holding Company
Unaudited (Dollars in thousands)
NON-GAAP FINANCIAL MEASURES
Average Stockholders' Equity and Return on Average Equity
Return on average equity measures how efficiently we generate profits from the resources provided by our net assets. Return on average equity and non-GAAP operating return on average equity are calculated by dividing net income and non-GAAP operating income, respectively, for the trailing twelve months by average equity excluding average accumulated other comprehensive income (AOCI). We exclude AOCI because AOCI fluctuates from quarter to quarter due to unrealized changes in the fair value of available for sale investments.
Twelve Months Ended | |||
September 30, 2019 | |||
Average Stockholders' Equity | |||
Average equity including average AOCI | $ | 3,308,006 | |
Average AOCI | (854,859 | ) | |
Average equity excluding average AOCI | $ | 2,453,147 | |
Net income | $ | 79,763 | |
Non-GAAP operating income | 512,683 | ||
Return on Average Equity Excluding Average AOCI | |||
Net income | 3.25 | % | |
Non-GAAP operating income | 20.90 | % | |
Page 3
Exhibit 99.2
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement
September 30, 2019
A. | Financial Highlights | |
Non-GAAP Financial Measures | ||
B. | Product Summary | |
C. | Investment Summary | |
D. | ||
E. | ||
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - September 30, 2019
Unaudited (Dollars in thousands)
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2019 | December 31, 2018 | ||||||
Assets | |||||||
Investments: | |||||||
Fixed maturity securities, available for sale, at fair value | $ | 51,854,384 | $ | 45,923,727 | |||
Mortgage loans on real estate | 3,212,075 | 2,943,091 | |||||
Derivative instruments | 963,081 | 205,149 | |||||
Other investments | 694,416 | 355,531 | |||||
Total investments | 56,723,956 | 49,427,498 | |||||
Cash and cash equivalents | 1,138,737 | 344,396 | |||||
Coinsurance deposits | 5,072,015 | 4,954,068 | |||||
Accrued investment income | 497,291 | 468,729 | |||||
Deferred policy acquisition costs | 2,883,599 | 3,535,838 | |||||
Deferred sales inducements | 1,952,353 | 2,516,721 | |||||
Deferred income taxes | — | 291,169 | |||||
Income taxes recoverable | 30,277 | 26,537 | |||||
Other assets | 31,765 | 60,608 | |||||
Total assets | $ | 68,329,993 | $ | 61,625,564 | |||
Liabilities and Stockholders' Equity | |||||||
Liabilities: | |||||||
Policy benefit reserves | $ | 61,348,138 | $ | 57,606,009 | |||
Other policy funds and contract claims | 259,939 | 270,858 | |||||
Notes payable | 494,982 | 494,591 | |||||
Subordinated debentures | 243,311 | 242,982 | |||||
Amounts due under repurchase agreements | 48,931 | 109,298 | |||||
Deferred income taxes | 143,195 | — | |||||
Other liabilities | 1,664,781 | 502,725 | |||||
Total liabilities | 64,203,277 | 59,226,463 | |||||
Stockholders' equity: | |||||||
Common stock | 91,007 | 90,369 | |||||
Additional paid-in capital | 820,362 | 811,186 | |||||
Accumulated other comprehensive income (loss) | 1,639,429 | (52,432 | ) | ||||
Retained earnings | 1,575,918 | 1,549,978 | |||||
Total stockholders' equity | 4,126,716 | 2,399,101 | |||||
Total liabilities and stockholders' equity | $ | 68,329,993 | $ | 61,625,564 | |||
Page 1
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - September 30, 2019
Unaudited (Dollars in thousands, except per share data)
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Revenues: | |||||||||||||||
Premiums and other considerations | $ | 5,152 | $ | 7,240 | $ | 14,688 | $ | 22,050 | |||||||
Annuity product charges | 63,647 | 58,365 | 177,313 | 164,094 | |||||||||||
Net investment income | 590,412 | 549,391 | 1,719,418 | 1,593,457 | |||||||||||
Change in fair value of derivatives | (20,042 | ) | 595,311 | 440,472 | 276,433 | ||||||||||
Net realized gains (losses) on investments, excluding other than temporary impairment ("OTTI") losses | 4,328 | (2,196 | ) | (67 | ) | (40,275 | ) | ||||||||
OTTI losses on investments: | |||||||||||||||
Total OTTI losses | (101 | ) | (14,373 | ) | (1,099 | ) | (16,025 | ) | |||||||
Portion of OTTI losses recognized from other comprehensive income | — | — | (215 | ) | (1,651 | ) | |||||||||
Net OTTI losses recognized in operations | (101 | ) | (14,373 | ) | (1,314 | ) | (17,676 | ) | |||||||
Total revenues | 643,396 | 1,193,738 | 2,350,510 | 1,998,083 | |||||||||||
Benefits and expenses: | |||||||||||||||
Insurance policy benefits and change in future policy benefits | 7,627 | 10,721 | 23,865 | 32,091 | |||||||||||
Interest sensitive and index product benefits | 500,285 | 413,089 | 888,062 | 1,355,135 | |||||||||||
Amortization of deferred sales inducements | (55,769 | ) | 55,244 | (2,675 | ) | 233,779 | |||||||||
Change in fair value of embedded derivatives | 212,278 | 383,716 | 1,306,163 | (585,465 | ) | ||||||||||
Interest expense on notes payable | 6,382 | 6,376 | 19,141 | 19,122 | |||||||||||
Interest expense on subordinated debentures | 3,968 | 3,942 | 12,113 | 11,450 | |||||||||||
Amortization of deferred policy acquisition costs | (120,934 | ) | 81,053 | (45,856 | ) | 336,741 | |||||||||
Other operating costs and expenses | 38,554 | 31,924 | 114,959 | 95,704 | |||||||||||
Total benefits and expenses | 592,391 | 986,065 | 2,315,772 | 1,498,557 | |||||||||||
Income before income taxes | 51,005 | 207,673 | 34,738 | 499,526 | |||||||||||
Income tax expense | 13,645 | 38,345 | 8,798 | 95,333 | |||||||||||
Net income | $ | 37,360 | $ | 169,328 | $ | 25,940 | $ | 404,193 | |||||||
Earnings per common share | $ | 0.41 | $ | 1.87 | $ | 0.28 | $ | 4.48 | |||||||
Earnings per common share - assuming dilution | $ | 0.41 | $ | 1.85 | $ | 0.28 | $ | 4.42 | |||||||
Weighted average common shares outstanding (in thousands): | |||||||||||||||
Earnings per common share | 91,252 | 90,486 | 91,081 | 90,278 | |||||||||||
Earnings per common share - assuming dilution | 91,711 | 91,651 | 91,748 | 91,355 | |||||||||||
Page 2
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - September 30, 2019
Unaudited (Dollars in thousands, except per share data)
Quarterly Summary - Most Recent 5 Quarters
Q3 2019 | Q2 2019 | Q1 2019 | Q4 2018 | Q3 2018 | |||||||||||||||
Revenues: | |||||||||||||||||||
Traditional life insurance premiums | $ | 778 | $ | 799 | $ | 829 | $ | 845 | $ | 807 | |||||||||
Life contingent immediate annuity considerations | 4,374 | 3,327 | 4,581 | 3,585 | 6,433 | ||||||||||||||
Surrender charges | 20,537 | 19,480 | 16,456 | 15,710 | 17,132 | ||||||||||||||
Lifetime income benefit rider fees | 43,110 | 41,220 | 36,510 | 44,684 | 41,233 | ||||||||||||||
Net investment income | 590,412 | 570,568 | 558,438 | 554,355 | 549,391 | ||||||||||||||
Change in fair value of derivatives | (20,042 | ) | 76,045 | 384,469 | (1,054,281 | ) | 595,311 | ||||||||||||
Net realized gains (losses) on investments, excluding OTTI | 4,328 | (3,832 | ) | (563 | ) | 3,097 | (2,196 | ) | |||||||||||
Net OTTI losses recognized in operations | (101 | ) | (1,213 | ) | — | (18,980 | ) | (14,373 | ) | ||||||||||
Total revenues | 643,396 | 706,394 | 1,000,720 | (450,985 | ) | 1,193,738 | |||||||||||||
Benefits and expenses: | |||||||||||||||||||
Traditional life insurance policy benefits and change in future policy benefits | 758 | 576 | 878 | 731 | 838 | ||||||||||||||
Life contingent immediate annuity benefits and change in future policy benefits | 6,869 | 6,363 | 8,421 | 6,708 | 9,883 | ||||||||||||||
Interest sensitive and index product benefits (a) | 500,285 | 251,103 | 136,674 | 255,700 | 413,089 | ||||||||||||||
Amortization of deferred sales inducements (b) | (55,769 | ) | 19,785 | 33,309 | (11,578 | ) | 55,244 | ||||||||||||
Change in fair value of embedded derivatives (c) | 212,278 | 327,562 | 766,323 | (804,026 | ) | 383,716 | |||||||||||||
Interest expense on notes payable | 6,382 | 6,380 | 6,379 | 6,376 | 6,376 | ||||||||||||||
Interest expense on subordinated debentures | 3,968 | 4,057 | 4,088 | 4,041 | 3,942 | ||||||||||||||
Amortization of deferred policy acquisition costs (b) | (120,934 | ) | 29,946 | 45,132 | (8,750 | ) | 81,053 | ||||||||||||
Other operating costs and expenses | 38,554 | 37,426 | 38,979 | 33,597 | 31,924 | ||||||||||||||
Total benefits and expenses | 592,391 | 683,198 | 1,040,183 | (517,201 | ) | 986,065 | |||||||||||||
Income (loss) before income taxes | 51,005 | 23,196 | (39,463 | ) | 66,216 | 207,673 | |||||||||||||
Income tax expense (benefit) (d) | 13,645 | 4,606 | (9,453 | ) | 12,393 | 38,345 | |||||||||||||
Net income (loss) (a)(b)(c)(d) | $ | 37,360 | $ | 18,590 | $ | (30,010 | ) | $ | 53,823 | $ | 169,328 | ||||||||
Earnings (loss) per common share | $ | 0.41 | $ | 0.20 | $ | (0.33 | ) | $ | 0.59 | $ | 1.87 | ||||||||
Earnings (loss) per common share - assuming dilution (a)(b)(c)(d) | $ | 0.41 | $ | 0.20 | $ | (0.33 | ) | $ | 0.59 | $ | 1.85 | ||||||||
Weighted average common shares outstanding (thousands): | |||||||||||||||||||
Earnings (loss) per common share | 91,252 | 91,103 | 90,883 | 90,555 | 90,486 | ||||||||||||||
Earnings (loss) per common share - assuming dilution | 91,711 | 91,785 | 91,744 | 91,622 | 91,651 | ||||||||||||||
(a) | Q3 2019 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 $315.4 million and decreased net income and earnings per common share - assuming dilution by $247.3 million and $2.70 per share, respectively. |
Q3 2018 includes a benefit from the revision of assumptions used in determining reserves held for lifetime income benefit riders. The impact decreased interest sensitive and index product benefits by $53.6 million and increased net income and earnings per common share - assuming dilution by $42.0 million and $0.46 per share, respectively.
(b) | Q3 2019 includes a benefit from unlocking which reduced amortization of deferred sales inducements and deferred policy acquisition costs by $104.7 million and $193.0 million, respectively, and increased net income and earnings per common share - assuming dilution by $233.4 million and $2.54 per share, respectively. |
Q3 2018 includes a benefit from unlocking which reduced amortization of deferred sales inducements and deferred policy acquisition costs by $21.5 million and $30.6 million, respectively, and increased net income and earnings per common share - assuming dilution by $40.8 million and $0.45 per share, respectively.
(c) | Q3 2019 includes expense from the revision of assumptions used in determining the embedded derivative component of our fixed index annuity policy benefit reserves. The impact increased change in fair value of embedded derivatives by $28.2 million and decreased net income and earnings per common share - assuming dilution by $22.1 million and $0.24 per share. respectively. |
Q3 2018 includes expense from the revision of assumptions used in determining the embedded derivative component of our fixed index annuity policy benefit reserves. The impact increased change in fair value of embedded derivatives by $8.5 million and decreased net income and earnings per common share - assuming dilution by $6.6 million and $0.07 per share, respectively.
(d) | Q3 2018 includes an income tax benefit from a worthless stock deduction related to a wholly-owned subsidiary which increased net income and earnings per common share - assuming dilution by $7.4 million and $0.08 per share, respectively. |
Page 3
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - September 30, 2019
Unaudited (Dollars in thousands, except per share data)
NON-GAAP FINANCIAL MEASURES
In addition to net income, we have consistently utilized non-GAAP operating income and non-GAAP operating income per common share - assuming dilution, non-GAAP financial measures commonly used in the life insurance industry, as economic measures to evaluate our financial performance. Non-GAAP operating income equals net income adjusted to eliminate the impact of items that fluctuate from quarter to quarter in a manner unrelated to core operations, and we believe measures excluding their impact are useful in analyzing operating trends. The most significant adjustments to arrive at non-GAAP operating income eliminate the impact of fair value accounting for our fixed index annuity business. These adjustments are not economic in nature but rather impact the timing of reported results. We believe the combined presentation and evaluation of non-GAAP operating income together with net income provides information that may enhance an investor’s understanding of our underlying results and profitability.
Reconciliation from Net Income to Non-GAAP Operating Income
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Net income | $ | 37,360 | $ | 169,328 | $ | 25,940 | $ | 404,193 | |||||||
Adjustments to arrive at non-GAAP operating income: (a) | |||||||||||||||
Net realized investment gains/losses, including OTTI | (3,175 | ) | 10,278 | (245 | ) | 35,925 | |||||||||
Change in fair value of derivatives and embedded derivatives - fixed index annuities | 250,186 | 545 | 500,998 | (108,367 | ) | ||||||||||
Change in fair value of derivatives - debt | (76 | ) | (597 | ) | 1,414 | (3,168 | ) | ||||||||
Income taxes | (50,940 | ) | (8,491 | ) | (105,759 | ) | 6,822 | ||||||||
Non-GAAP operating income | $ | 233,355 | $ | 171,063 | $ | 422,348 | $ | 335,405 | |||||||
Per common share - assuming dilution: | |||||||||||||||
Net income | $ | 0.41 | $ | 1.85 | $ | 0.28 | $ | 4.42 | |||||||
Adjustments to arrive at non-GAAP operating income: | |||||||||||||||
Net realized investment gains/losses, including OTTI | (0.04 | ) | 0.11 | — | 0.39 | ||||||||||
Change in fair value of derivatives and embedded derivatives - fixed index annuities | 2.73 | 0.01 | 5.46 | (1.19 | ) | ||||||||||
Change in fair value of derivatives - debt | — | (0.01 | ) | 0.01 | (0.03 | ) | |||||||||
Income taxes | (0.56 | ) | (0.09 | ) | (1.15 | ) | 0.08 | ||||||||
Non-GAAP operating income | $ | 2.54 | $ | 1.87 | $ | 4.60 | $ | 3.67 | |||||||
(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. |
Page 4
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - September 30, 2019
Unaudited (Dollars in thousands)
NON-GAAP FINANCIAL MEASURES
Summary of Adjustments to Arrive at Non-GAAP Operating Income
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Net realized investment gains and losses, including OTTI: | |||||||||||||||
Net realized gains/losses on investments, including OTTI | $ | (4,227 | ) | $ | 16,569 | $ | 1,381 | $ | 57,951 | ||||||
Amortization of DAC and DSI | 1,052 | (6,291 | ) | (1,626 | ) | (22,026 | ) | ||||||||
Income taxes | 3,151 | (1,187 | ) | 2,518 | (9,908 | ) | |||||||||
$ | (24 | ) | $ | 9,091 | $ | 2,273 | $ | 26,017 | |||||||
Change in fair value of derivatives and embedded derivatives: | |||||||||||||||
Index annuities | $ | 132,411 | $ | (24,367 | ) | $ | 591,577 | $ | (254,647 | ) | |||||
Interest rate caps and swap | (76 | ) | (597 | ) | 1,414 | (3,168 | ) | ||||||||
Amortization of DAC and DSI | 117,775 | 24,912 | (90,579 | ) | 146,280 | ||||||||||
Income taxes | (54,091 | ) | 144 | (108,277 | ) | 24,178 | |||||||||
$ | 196,019 | $ | 92 | $ | 394,135 | $ | (87,357 | ) | |||||||
Worthless stock deduction: | |||||||||||||||
Income taxes | $ | — | $ | (7,448 | ) | $ | — | $ | (7,448 | ) | |||||
Page 5
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - September 30, 2019
Unaudited (Dollars in thousands, except per share data)
NON-GAAP FINANCIAL MEASURES
Quarterly Summary - Most Recent 5 Quarters
Reconciliation from Net Income (Loss) to Non-GAAP Operating Income
Q3 2019 | Q2 2019 | Q1 2019 | Q4 2018 | Q3 2018 | |||||||||||||||
Net income (loss) | $ | 37,360 | $ | 18,590 | $ | (30,010 | ) | $ | 53,823 | $ | 169,328 | ||||||||
Adjustments to arrive at non-GAAP operating income: (a) | |||||||||||||||||||
Net realized investment gains/losses, including OTTI | (3,175 | ) | 2,625 | 305 | 9,525 | 10,278 | |||||||||||||
Change in fair value of derivatives and embedded derivatives - fixed index annuities | 250,186 | 99,868 | 150,944 | 36,186 | 545 | ||||||||||||||
Change in fair value of derivatives - debt | (76 | ) | 854 | 636 | 1,276 | (597 | ) | ||||||||||||
Income taxes | (50,940 | ) | (22,346 | ) | (32,473 | ) | (10,475 | ) | (8,491 | ) | |||||||||
Non-GAAP operating income (b)(c) | $ | 233,355 | $ | 99,591 | $ | 89,402 | $ | 90,335 | $ | 171,063 | |||||||||
Per common share - assuming dilution: | |||||||||||||||||||
Net income (loss) | $ | 0.41 | $ | 0.20 | $ | (0.33 | ) | $ | 0.59 | $ | 1.85 | ||||||||
Adjustments to arrive at non-GAAP operating income: | |||||||||||||||||||
Net realized investment gains/losses, including OTTI | (0.04 | ) | 0.03 | — | 0.10 | 0.11 | |||||||||||||
Change in fair value of derivatives and embedded derivatives - fixed index annuities | 2.73 | 1.09 | 1.64 | 0.40 | 0.01 | ||||||||||||||
Change in fair value of derivatives - debt | — | 0.01 | 0.01 | 0.01 | (0.01 | ) | |||||||||||||
Income taxes | (0.56 | ) | (0.24 | ) | (0.35 | ) | (0.11 | ) | (0.09 | ) | |||||||||
Non-GAAP operating income (b)(c) | $ | 2.54 | $ | 1.09 | $ | 0.97 | $ | 0.99 | $ | 1.87 | |||||||||
(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 and deferred policy acquisition costs where applicable. |
(b) | Q3 2019 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 $315.4 million and decreased non-GAAP operating income and non-GAAP operating income per common share - assuming dilution by $247.3 million and $2.70 per share, respectively. |
Q3 2018 includes a benefit from the revision of assumptions used in determining reserves held for lifetime income benefit riders. The impact decreased interest sensitive and index product benefits by $53.6 million and increased non-GAAP operating income and non-GAAP operating income per common share - assuming dilution by $42.0 million and $0.46 per share, respectively.
(c) | Q3 2019 includes a benefit from unlocking which reduced amortization of deferred sales inducements and deferred policy acquisition costs by $184.9 million and $288.3 million, respectively, and increased non-GAAP operating income and non-GAAP operating income per common share- assuming dilution by $371.0 million and $4.05 per share, respectively. |
Q3 2018 includes a benefit from unlocking which reduced amortization of deferred sales inducements and deferred policy acquisition costs by $20.5 million and $28.7 million, respectively, and increased non-GAAP operating income and non-GAAP operating income per common share- assuming dilution by $38.5 million and $0.42 per share, respectively.
Page 6
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - September 30, 2019
Unaudited (Dollars in thousands)
NON-GAAP FINANCIAL MEASURES
Summary of Adjustments to Arrive at Non-GAAP Operating Income
Q3 2019 | Q2 2019 | Q1 2019 | Q4 2018 | Q3 2018 | |||||||||||||||
Net realized (gains) losses on investments | $ | (4,328 | ) | $ | 3,832 | $ | 563 | $ | (3,097 | ) | $ | 2,196 | |||||||
Net OTTI losses recognized in operations | 101 | 1,213 | — | 18,980 | 14,373 | ||||||||||||||
Change in fair value of derivatives | (79,943 | ) | (108,662 | ) | (524,567 | ) | 1,017,555 | (408,680 | ) | ||||||||||
Increase (decrease) in total revenues | (84,170 | ) | (103,617 | ) | (524,004 | ) | 1,033,438 | (392,111 | ) | ||||||||||
Amortization of deferred sales inducements | (57,408 | ) | 49,101 | 35,494 | 77,745 | (7,219 | ) | ||||||||||||
Change in fair value of embedded derivatives | (212,278 | ) | (327,562 | ) | (766,323 | ) | 804,026 | (383,716 | ) | ||||||||||
Amortization of deferred policy acquisition costs | (61,419 | ) | 71,497 | 54,940 | 104,680 | (11,402 | ) | ||||||||||||
Increase (decrease) in total benefits and expenses | (331,105 | ) | (206,964 | ) | (675,889 | ) | 986,451 | (402,337 | ) | ||||||||||
Increase in income (loss) before income taxes | 246,935 | 103,347 | 151,885 | 46,987 | 10,226 | ||||||||||||||
Increase in income tax expense (benefit) | 50,940 | 22,346 | 32,473 | 10,475 | 8,491 | ||||||||||||||
Increase in net income (loss) | $ | 195,995 | $ | 81,001 | $ | 119,412 | $ | 36,512 | $ | 1,735 | |||||||||
Page 7
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - September 30, 2019
Unaudited (Dollars in thousands, except share and per share data)
Capitalization/Book Value per Share
Q3 2019 | Q2 2019 | Q1 2019 | Q4 2018 | Q3 2018 | |||||||||||||||
Capitalization: | |||||||||||||||||||
Notes payable | $ | 500,000 | $ | 500,000 | $ | 500,000 | $ | 500,000 | $ | 500,000 | |||||||||
Subordinated debentures payable to subsidiary trusts | 247,362 | 247,294 | 247,227 | 247,161 | 247,096 | ||||||||||||||
Total debt | 747,362 | 747,294 | 747,227 | 747,161 | 747,096 | ||||||||||||||
Total stockholders’ equity | 4,126,716 | 3,497,475 | 2,939,537 | 2,399,101 | 2,489,296 | ||||||||||||||
Total capitalization | 4,874,078 | 4,244,769 | 3,686,764 | 3,146,262 | 3,236,392 | ||||||||||||||
Accumulated other comprehensive (income) loss (AOCI) | (1,639,429 | ) | (1,049,984 | ) | (513,697 | ) | 52,432 | (70,288 | ) | ||||||||||
Total capitalization excluding AOCI (a) | $ | 3,234,649 | $ | 3,194,785 | $ | 3,173,067 | $ | 3,198,694 | $ | 3,166,104 | |||||||||
Total stockholders’ equity | $ | 4,126,716 | $ | 3,497,475 | $ | 2,939,537 | $ | 2,399,101 | $ | 2,489,296 | |||||||||
Accumulated other comprehensive (income) loss | (1,639,429 | ) | (1,049,984 | ) | (513,697 | ) | 52,432 | (70,288 | ) | ||||||||||
Total stockholders’ equity excluding AOCI (a) | $ | 2,487,287 | $ | 2,447,491 | $ | 2,425,840 | $ | 2,451,533 | $ | 2,419,008 | |||||||||
Common shares outstanding | 91,006,950 | 90,936,324 | 90,784,123 | 90,369,229 | 90,277,626 | ||||||||||||||
Book Value per Share: (b) | |||||||||||||||||||
Book value per share including AOCI | $ | 45.35 | $ | 38.46 | $ | 32.38 | $ | 26.55 | $ | 27.57 | |||||||||
Book value per share excluding AOCI (a) | $ | 27.33 | $ | 26.91 | $ | 26.72 | $ | 27.13 | $ | 26.80 | |||||||||
Debt-to-Capital Ratios: (c) | |||||||||||||||||||
Senior debt / Total capitalization | 15.5 | % | 15.7 | % | 15.8 | % | 15.6 | % | 15.8 | % | |||||||||
Total debt / Total capitalization | 23.1 | % | 23.4 | % | 23.5 | % | 23.4 | % | 23.6 | % | |||||||||
(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 securities, we believe these non-GAAP financial measures provide useful supplemental information. |
(b) | 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. |
(c) | Debt-to-capital ratios are computed using total capitalization excluding AOCI. |
Page 8
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - September 30, 2019
Unaudited (Dollars in thousands)
Spread Results
Nine Months Ended September 30, | ||||||||||||
2019 | 2018 | Q3 2019 | Q2 2019 | Q1 2019 | Q4 2018 | Q3 2018 | ||||||
4.53% | 4.46% | Average yield on invested assets | 4.59% | 4.51% | 4.48% | 4.51% | 4.54% | |||||
1.87% | 1.84% | Aggregate cost of money | 1.84% | 1.88% | 1.90% | 1.95% | 1.87% | |||||
2.66% | 2.62% | Aggregate investment spread | 2.75% | 2.63% | 2.58% | 2.56% | 2.67% | |||||
Impact of: | ||||||||||||
0.06% | 0.08% | Investment yield - additional prepayment income | 0.11% | 0.04% | 0.01% | 0.09% | 0.11% | |||||
0.04% | 0.05% | Cost of money effect of over hedging | 0.02% | 0.04% | 0.02% | 0.03% | 0.07% | |||||
$50,716,178 | $47,720,190 | Weighted average investments | $51,529,850 | $50,709,966 | $49,908,718 | $49,258,548 | $48,466,817 | |||||
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
Nine Months Ended September 30, | ||||||||||||||||||||||||||
2019 | 2018 | Q3 2019 | Q2 2019 | Q1 2019 | Q4 2018 | Q3 2018 | ||||||||||||||||||||
Included in interest sensitive and index product benefits: | ||||||||||||||||||||||||||
$ | 310,020 | $ | 1,127,556 | Index credits | $ | 92,343 | $ | 161,752 | $ | 55,925 | $ | 157,999 | $ | 369,011 | ||||||||||||
147,425 | 160,607 | Interest credited | 49,511 | 50,478 | 47,436 | 53,559 | 52,618 | |||||||||||||||||||
Included in change in fair value of derivatives: | ||||||||||||||||||||||||||
(320,381 | ) | (1,145,322 | ) | Proceeds received at option expiration | (95,491 | ) | (166,430 | ) | (58,460 | ) | (162,433 | ) | (378,149 | ) | ||||||||||||
592,857 | 540,559 | Pro rata amortization of option cost | 195,354 | 199,006 | 198,497 | 198,999 | 191,362 | |||||||||||||||||||
$ | 729,921 | $ | 683,400 | Cost of money for deferred annuities | $ | 241,717 | $ | 244,806 | $ | 243,398 | $ | 248,124 | $ | 234,842 | ||||||||||||
$ | 52,007,003 | $ | 49,530,043 | Weighted average liability balance outstanding | $ | 52,682,886 | $ | 52,009,407 | $ | 51,328,715 | $ | 50,832,984 | $ | 50,273,893 | ||||||||||||
Annuity Account Balance Rollforward
Nine Months Ended September 30, | ||||||||||||||||||||||||||
2019 | 2018 | Q3 2019 | Q2 2019 | Q1 2019 | Q4 2018 | Q3 2018 | ||||||||||||||||||||
$ | 51,053,450 | $ | 48,400,755 | Account balances at beginning of period | $ | 52,414,835 | $ | 51,603,979 | $ | 51,053,450 | $ | 50,612,519 | $ | 49,935,266 | ||||||||||||
3,822,410 | 2,927,071 | Net deposits | 1,216,720 | 1,425,325 | 1,180,365 | 1,040,857 | 929,480 | |||||||||||||||||||
140,959 | 135,015 | Premium bonuses | 46,968 | 48,370 | 45,621 | 44,450 | 41,878 | |||||||||||||||||||
457,445 | 1,288,163 | Fixed interest credited and index credits | 141,854 | 212,230 | 103,361 | 211,558 | 421,629 | |||||||||||||||||||
(56,473 | ) | (49,934 | ) | Surrender charges | (20,537 | ) | (19,480 | ) | (16,456 | ) | (15,710 | ) | (17,132 | ) | ||||||||||||
(120,840 | ) | (114,160 | ) | Lifetime income benefit rider fees | (43,110 | ) | (41,220 | ) | (36,510 | ) | (44,684 | ) | (41,233 | ) | ||||||||||||
(2,346,014 | ) | (1,974,391 | ) | Surrenders, withdrawals, deaths, etc. | (805,793 | ) | (814,369 | ) | (725,852 | ) | (795,540 | ) | (657,369 | ) | ||||||||||||
$ | 52,950,937 | $ | 50,612,519 | Account balances at end of period | $ | 52,950,937 | $ | 52,414,835 | $ | 51,603,979 | $ | 51,053,450 | $ | 50,612,519 | ||||||||||||
Page 9
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - September 30, 2019
Unaudited (Dollars in thousands)
Annuity Deposits by Product Type
Nine Months Ended September 30, | ||||||||||||||||||||||||||
2019 | 2018 | Q3 2019 | Q2 2019 | Q1 2019 | Q4 2018 | Q3 2018 | ||||||||||||||||||||
American Equity Life: | ||||||||||||||||||||||||||
$ | 3,293,458 | $ | 2,616,784 | Fixed index annuities | $ | 1,054,796 | $ | 1,211,004 | $ | 1,027,658 | $ | 944,097 | $ | 830,759 | ||||||||||||
9,402 | 40,062 | Annual reset fixed rate annuities | 2,340 | 3,614 | 3,448 | 5,574 | 8,390 | |||||||||||||||||||
1,307 | 3,249 | Multi-year fixed rate annuities | 593 | 566 | 148 | 332 | 360 | |||||||||||||||||||
7,129 | 20,920 | Single premium immediate annuities | 3,314 | 1,747 | 2,068 | 2,893 | 4,977 | |||||||||||||||||||
3,311,296 | 2,681,015 | 1,061,043 | 1,216,931 | 1,033,322 | 952,896 | 844,486 | ||||||||||||||||||||
Eagle Life: | ||||||||||||||||||||||||||
579,119 | 497,554 | Fixed index annuities | 166,081 | 235,558 | 177,480 | 162,847 | 163,871 | |||||||||||||||||||
193 | 1,071 | Annual reset fixed rate annuities | — | 66 | 127 | 484 | 450 | |||||||||||||||||||
151,572 | 96,294 | Multi-year fixed rate annuities | 79,000 | 47,004 | 25,568 | 12,802 | 34,851 | |||||||||||||||||||
730,884 | 594,919 | 245,081 | 282,628 | 203,175 | 176,133 | 199,172 | ||||||||||||||||||||
Consolidated: | ||||||||||||||||||||||||||
3,872,577 | 3,114,338 | Fixed index annuities | 1,220,877 | 1,446,562 | 1,205,138 | 1,106,944 | 994,630 | |||||||||||||||||||
9,595 | 41,133 | Annual reset fixed rate annuities | 2,340 | 3,680 | 3,575 | 6,058 | 8,840 | |||||||||||||||||||
152,879 | 99,543 | Multi-year fixed rate annuities | 79,593 | 47,570 | 25,716 | 13,134 | 35,211 | |||||||||||||||||||
7,129 | 20,920 | Single premium immediate annuities | 3,314 | 1,747 | 2,068 | 2,893 | 4,977 | |||||||||||||||||||
4,042,180 | 3,275,934 | Total before coinsurance ceded | 1,306,124 | 1,499,559 | 1,236,497 | 1,129,029 | 1,043,658 | |||||||||||||||||||
212,641 | 327,943 | Coinsurance ceded | 86,090 | 72,487 | 54,064 | 85,279 | 109,201 | |||||||||||||||||||
$ | 3,829,539 | $ | 2,947,991 | Net after coinsurance ceded | $ | 1,220,034 | $ | 1,427,072 | $ | 1,182,433 | $ | 1,043,750 | $ | 934,457 | ||||||||||||
Surrender Charge Protection and Account Values by Product Type
Annuity Surrender Charges and Net (of Coinsurance) Account Values at September 30, 2019:
Surrender Charge | Net Account Value | ||||||||||||
Product Type | Avg. Years At Issue | Avg. Years Remaining | Avg. % Remaining | Dollars in Thousands | % | ||||||||
Fixed Index Annuities | 13.0 | 7.2 | 11.5% | $ | 50,911,448 | 96.2 | % | ||||||
Annual Reset Fixed Rate Annuities | 9.7 | 3.5 | 6.4% | 1,433,066 | 2.7 | % | |||||||
Multi-Year Fixed Rate Annuities | 4.3 | 0.8 | 2.0% | 606,423 | 1.1 | % | |||||||
Total | 12.9 | 7.0 | 11.2% | $ | 52,950,937 | 100.0 | % | ||||||
Page 10
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - September 30, 2019
Unaudited (Dollars in thousands)
Annuity Liability Characteristics
Surrender Charge Percentages: | Fixed Annuities Account Value | Fixed Index Annuities Account Value | |||||
No surrender charge | $ | 816,680 | $ | 2,569,974 | |||
0.0% < 2.0% | 13,842 | 160,899 | |||||
2.0% < 3.0% | 9,747 | 443,704 | |||||
3.0% < 4.0% | 49,957 | 1,173,519 | |||||
4.0% < 5.0% | 32,387 | 896,308 | |||||
5.0% < 6.0% | 73,734 | 2,221,579 | |||||
6.0% < 7.0% | 306,995 | 1,335,479 | |||||
7.0% < 8.0% | 82,220 | 4,419,217 | |||||
8.0% < 9.0% | 40,890 | 3,575,909 | |||||
9.0% < 10.0% | 83,122 | 4,031,440 | |||||
10.0% or greater | 529,915 | 30,083,420 | |||||
$ | 2,039,489 | $ | 50,911,448 | ||||
Surrender Charge Expiration By Year: | Fixed and Fixed Index Annuities Account Value | Weighted Average Surrender Charge | ||||
Out of Surrender Charge | $ | 3,386,654 | 0.00 | % | ||
2019 | 98,380 | 2.44 | % | |||
2020 | 757,416 | 3.12 | % | |||
2021 | 1,241,156 | 4.86 | % | |||
2022 | 1,783,700 | 5.98 | % | |||
2023 | 4,366,059 | 6.63 | % | |||
2024 | 5,283,230 | 8.89 | % | |||
2025 | 5,980,535 | 9.75 | % | |||
2026 | 5,274,141 | 11.22 | % | |||
2027 | 4,473,036 | 12.68 | % | |||
2028 | 4,752,511 | 13.51 | % | |||
2029 | 5,423,066 | 14.67 | % | |||
2030 | 2,603,811 | 17.54 | % | |||
2031 | 3,171,271 | 18.20 | % | |||
2032 | 2,161,827 | 18.62 | % | |||
2033 | 1,225,799 | 19.06 | % | |||
2034 | 705,818 | 19.56 | % | |||
2035 | 262,527 | 20.00 | % | |||
$ | 52,950,937 | 11.25 | % | |||
Page 11
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - September 30, 2019
Unaudited (Dollars in thousands)
Annuity Liability Characteristics
Credited Rate vs. Ultimate Minimum Guaranteed Rate Differential: | Fixed Annuities Account Value | Fixed Index Annuities Account Value | |||||
No differential | $ | 968,928 | $ | 1,363,992 | |||
› 0.0% - 0.25% | 52,478 | 177,132 | |||||
› 0.25% - 0.5% | 243,066 | 5,966 | |||||
› 0.5% - 1.0% | 41,586 | 12,523 | |||||
› 1.0% - 1.5% | 11,128 | — | |||||
1.00% ultimate guarantee - 2.38% wtd avg interest rate (a) | 460,406 | 681,514 | |||||
1.50% ultimate guarantee - 1.20% wtd avg interest rate (a) | 147,075 | 3,486,537 | |||||
1.75% ultimate guarantee - 2.04% wtd avg interest rate (a) | 32,518 | 347,917 | |||||
2.00% ultimate guarantee - 1.85% wtd avg interest rate (a) | 82,304 | — | |||||
2.25% ultimate guarantee - 1.85% wtd avg interest rate (a) | — | 842,104 | |||||
3.00% ultimate guarantee - 2.05% wtd avg interest rate (a) | — | 1,610,670 | |||||
Allocated to index strategies (see tables that follow) | — | 42,383,093 | |||||
$ | 2,039,489 | $ | 50,911,448 | ||||
(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 September 30, 2019 for fixed annuities and funds allocated to the fixed rate strategy for fixed index annuities would decrease by 0.16%.
Page 12
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - September 30, 2019
Unaudited (Dollars in thousands)
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 | |||||||||||||||||||
At minimum | $ | 1,431 | $ | 91,506 | $ | 4,688,839 | $ | 68,772 | $ | 164,070 | |||||||||
1.75% - 3% | 8,028,431 | — | — | — | — | ||||||||||||||
3% - 4% | 279,597 | 12,471 | — | — | — | ||||||||||||||
4% - 5% | 742,666 | 232,303 | 1,777,382 | — | — | ||||||||||||||
5% - 6% | 591,323 | 201,145 | 33,210 | — | — | ||||||||||||||
6% - 7% | — | — | 422 | — | — | ||||||||||||||
>= 7% | 9,965 | 7,482 | 718 | 6,219 | — | ||||||||||||||
Annual Monthly Average and Point-to-Point with Participation Rates | |||||||||||||||
Minimum Guaranteed Participation Rate | |||||||||||||||
10% | 20% - 25% | 35% | 50% + | ||||||||||||
Current Participation Rate | |||||||||||||||
At minimum | $ | 945 | $ | 367,788 | $ | 103,666 | $ | 114,499 | |||||||
< 20% | 732,716 | — | — | — | |||||||||||
20% - 40% | 937,898 | 162,923 | — | — | |||||||||||
40% - 60% | 2,969,785 | 95,549 | 60,382 | — | |||||||||||
60% - 100% | 382,016 | — | — | — | |||||||||||
> 100% | 263,083 | — | — | — | |||||||||||
S&P 500 Monthly Point-to-Point - Minimum Guaranteed Monthly Cap = 1.0% | |||
Current Cap | |||
At minimum | $ | 1,465,331 | |
1.10% - 1.30% | 7,524,703 | ||
1.40% - 1.60% | 3,153,919 | ||
1.70% - 2.00% | 466,712 | ||
>= 2.10% | 981 | ||
Volatility Control Index | |||
Current Asset Fee | |||
At Maximum | $ | — | |
0.75% - 1.75% | 414,144 | ||
2.25% - 2.75% | 264,590 | ||
3.00% - 3.50% | 3,216,657 | ||
3.75% - 4.50% | 1,492,327 | ||
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 0.70% based upon prices of options for the week ended October 15, 2019.
Page 13
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - September 30, 2019
Unaudited (Dollars in thousands)
Summary of Invested Assets
September 30, 2019 | December 31, 2018 | ||||||||||||
Carrying Amount | Percent | Carrying Amount | Percent | ||||||||||
Fixed maturity securities: | |||||||||||||
United States Government full faith and credit | $ | 12,343 | — | % | $ | 11,652 | — | % | |||||
United States Government sponsored agencies | 695,030 | 1.2 | % | 1,138,529 | 2.3 | % | |||||||
United States municipalities, states and territories | 4,517,661 | 8.0 | % | 4,126,267 | 8.3 | % | |||||||
Foreign government obligations | 207,420 | 0.4 | % | 230,274 | 0.5 | % | |||||||
Corporate securities | 32,897,127 | 58.0 | % | 28,371,514 | 57.4 | % | |||||||
Residential mortgage backed securities | 1,557,156 | 2.7 | % | 1,202,159 | 2.4 | % | |||||||
Commercial mortgage backed securities | 5,839,510 | 10.3 | % | 5,379,003 | 10.9 | % | |||||||
Other asset backed securities | 6,128,137 | 10.8 | % | 5,464,329 | 11.1 | % | |||||||
Total fixed maturity securities | 51,854,384 | 91.4 | % | 45,923,727 | 92.9 | % | |||||||
Mortgage loans on real estate | 3,212,075 | 5.7 | % | 2,943,091 | 6.0 | % | |||||||
Derivative instruments | 963,081 | 1.7 | % | 205,149 | 0.4 | % | |||||||
Other investments | 694,416 | 1.2 | % | 355,531 | 0.7 | % | |||||||
$ | 56,723,956 | 100.0 | % | $ | 49,427,498 | 100.0 | % | ||||||
Credit Quality of Fixed Maturity Securities - September 30, 2019
NAIC Designation | Carrying Amount | Percent | Rating Agency Rating | Carrying Amount | Percent | |||||||||||
1 | $ | 30,351,227 | 58.5 | % | Aaa/Aa/A | $ | 30,619,526 | 59.0 | % | |||||||
2 | 20,232,420 | 39.0 | % | Baa | 19,931,665 | 38.4 | % | |||||||||
3 | 1,145,174 | 2.2 | % | Ba | 1,022,165 | 2.0 | % | |||||||||
4 | 101,830 | 0.2 | % | B | 84,566 | 0.2 | % | |||||||||
5 | 16,920 | 0.1 | % | Caa | 102,503 | 0.2 | % | |||||||||
6 | 6,813 | — | % | Ca and lower | 93,959 | 0.2 | % | |||||||||
$ | 51,854,384 | 100.0 | % | $ | 51,854,384 | 100.0 | % | |||||||||
Watch List Securities - September 30, 2019
General Description | Amortized Cost | Unrealized Gains (Losses) | Fair Value | Months Below Amortized Cost | ||||||||||
Below investment grade | ||||||||||||||
Corporate securities: | ||||||||||||||
Consumer discretionary | $ | 52,607 | $ | (6,089 | ) | $ | 46,518 | 0 - 56 | ||||||
Energy | 55,696 | (23,734 | ) | 31,962 | 31 - 61 | |||||||||
Industrials | 563 | (38 | ) | 525 | 4 | |||||||||
Materials | 3,990 | 980 | 4,970 | — | ||||||||||
Other asset backed securities: | ||||||||||||||
Financials | 977 | 326 | 1,303 | — | ||||||||||
Industrials | 8,559 | (2,628 | ) | 5,931 | 47 | |||||||||
$ | 122,392 | $ | (31,183 | ) | $ | 91,209 | ||||||||
Page 14
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - September 30, 2019
Unaudited (Dollars in thousands)
Fixed Maturity Securities by Sector
September 30, 2019 | December 31, 2018 | ||||||||||||||
Amortized Cost | Fair Value | Amortized Cost | Fair Value | ||||||||||||
Available for sale: | |||||||||||||||
United States Government full faith and credit and sponsored agencies | $ | 675,494 | $ | 707,373 | $ | 1,220,340 | $ | 1,150,181 | |||||||
United States municipalities, states and territories | 4,053,836 | 4,517,661 | 3,880,703 | 4,126,267 | |||||||||||
Foreign government obligations | 186,979 | 207,420 | 226,860 | 230,274 | |||||||||||
Corporate securities: | |||||||||||||||
Capital goods | 2,618,615 | 2,883,293 | 2,491,620 | 2,485,845 | |||||||||||
Consumer discretionary | 6,101,839 | 6,690,920 | 5,742,182 | 5,665,192 | |||||||||||
Energy | 2,549,042 | 2,700,232 | 2,543,114 | 2,468,545 | |||||||||||
Financials | 6,733,044 | 7,341,141 | 6,046,859 | 6,054,591 | |||||||||||
Government non-guaranteed | 564,480 | 636,547 | 564,912 | 578,657 | |||||||||||
Industrials | 311,290 | 341,756 | 302,078 | 298,620 | |||||||||||
Information technology | 1,930,629 | 2,118,411 | 1,794,676 | 1,781,800 | |||||||||||
Materials | 1,962,087 | 2,107,763 | 1,771,359 | 1,759,325 | |||||||||||
Other | 439,453 | 484,585 | 434,228 | 432,739 | |||||||||||
Telecommunications | 1,547,428 | 1,703,894 | 1,604,307 | 1,594,978 | |||||||||||
Transportation | 1,492,222 | 1,616,676 | 1,438,723 | 1,428,378 | |||||||||||
Utilities | 3,792,460 | 4,271,909 | 3,749,080 | 3,822,844 | |||||||||||
Residential mortgage backed securities: | |||||||||||||||
Government agency | 602,364 | 667,143 | 604,998 | 636,632 | |||||||||||
Prime | 733,166 | 770,877 | 420,350 | 434,991 | |||||||||||
Alt-A | 98,586 | 119,136 | 109,275 | 130,536 | |||||||||||
Commercial mortgage backed securities: | |||||||||||||||
Government agency | 416,731 | 453,683 | 442,287 | 438,063 | |||||||||||
Non-agency | 5,148,140 | 5,385,827 | 5,049,984 | 4,940,940 | |||||||||||
Other asset backed securities: | |||||||||||||||
Auto | 404,638 | 414,360 | 315,439 | 318,616 | |||||||||||
Energy | 7,506 | 8,781 | — | — | |||||||||||
Financials | 4,967 | 5,520 | 8,322 | 8,931 | |||||||||||
Industrials | 161,240 | 165,904 | 217,358 | 216,724 | |||||||||||
Collateralized loan obligations | 4,819,438 | 4,630,960 | 4,579,467 | 4,320,168 | |||||||||||
Military housing | 475,030 | 554,481 | 438,350 | 464,071 | |||||||||||
Other | 339,852 | 348,131 | 134,319 | 135,819 | |||||||||||
$ | 48,170,556 | $ | 51,854,384 | $ | 46,131,190 | $ | 45,923,727 | ||||||||
Page 15
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - September 30, 2019
Unaudited (Dollars in thousands)
Mortgage Loans on Commercial Real Estate
September 30, 2019 | December 31, 2018 | |||||||||||||
Principal | Percent | Principal | Percent | |||||||||||
Geographic distribution | ||||||||||||||
East | $ | 600,204 | 18.6 | % | $ | 586,773 | 19.9 | % | ||||||
Middle Atlantic | 240,241 | 7.5 | % | 168,969 | 5.7 | % | ||||||||
Mountain | 372,437 | 11.6 | % | 357,642 | 12.1 | % | ||||||||
New England | 9,220 | 0.3 | % | 9,418 | 0.3 | % | ||||||||
Pacific | 579,831 | 18.0 | % | 521,363 | 17.7 | % | ||||||||
South Atlantic | 739,498 | 22.9 | % | 694,599 | 23.5 | % | ||||||||
West North Central | 281,067 | 8.7 | % | 291,890 | 9.9 | % | ||||||||
West South Central | 398,654 | 12.4 | % | 321,810 | 10.9 | % | ||||||||
$ | 3,221,152 | 100.0 | % | $ | 2,952,464 | 100.0 | % | |||||||
Property type distribution | ||||||||||||||
Office | $ | 249,703 | 7.7 | % | $ | 268,932 | 9.1 | % | ||||||
Medical office | 30,930 | 1.0 | % | 33,467 | 1.1 | % | ||||||||
Retail | 1,185,510 | 36.8 | % | 1,091,627 | 37.0 | % | ||||||||
Industrial/Warehouse | 859,410 | 26.7 | % | 762,887 | 25.8 | % | ||||||||
Apartment | 695,726 | 21.6 | % | 600,638 | 20.3 | % | ||||||||
Agricultural | 39,205 | 1.2 | % | 25,000 | 0.9 | % | ||||||||
Mixed use/other | 160,668 | 5.0 | % | 169,913 | 5.8 | % | ||||||||
$ | 3,221,152 | 100.0 | % | $ | 2,952,464 | 100.0 | % | |||||||
September 30, 2019 | December 31, 2018 | |||||||||||||
Credit exposure - by payment activity | ||||||||||||||
Performing | $ | 3,221,152 | $ | 2,952,464 | ||||||||||
In workout | — | — | ||||||||||||
Delinquent | — | — | ||||||||||||
Collateral dependent | — | — | ||||||||||||
3,221,152 | 2,952,464 | |||||||||||||
Specific loan loss allowance | (229 | ) | (229 | ) | ||||||||||
General loan loss allowance | (7,850 | ) | (8,010 | ) | ||||||||||
Deferred prepayment fees | (998 | ) | (1,134 | ) | ||||||||||
$ | 3,212,075 | $ | 2,943,091 | |||||||||||
Page 16
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - September 30, 2019
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 | ||||
2019 | |||||||
First Quarter | $33.57 | $26.34 | $27.02 | $0.00 | |||
Second Quarter | $30.91 | $25.84 | $27.16 | $0.00 | |||
Third Quarter | $27.80 | $20.16 | $24.20 | $0.00 | |||
2018 | |||||||
First Quarter | $35.79 | $28.90 | $29.36 | $0.00 | |||
Second Quarter | $37.16 | $27.06 | $36.00 | $0.00 | |||
Third Quarter | $38.57 | $34.51 | $35.36 | $0.00 | |||
Fourth Quarter | $36.39 | $25.27 | $27.94 | $0.28 | |||
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 | |||
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 website at www.american-equity.com.
Page 17
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - September 30, 2019
Research Analyst Coverage
Erik Bass
Autonomous Research US LP
(646) 561-6248
ebass@autonomous.com
Randy Binner
B. Riley FBR, Inc.
(703) 312-1890
rbinner@fbr.com
Daniel Bergman
Citi Research
(212) 816-2132
daniel.bergman@citi.com
Thomas Gallagher
Evercore ISI
(212) 446-9439
thomas.gallagher@evercoreisi.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
Mark A. Dwelle
RBC Capital Markets, LLC
(804) 782-4008
mark.dwelle@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
John Nadel
UBS Investment Bank
(212) 713-4299
john.nadel@ubs.com
Page 18