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): May 6, 2020
(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 May 6, 2020, the registrant issued a press release announcing its financial results for the quarter ended March 31, 2020, 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 March 31, 2020, is attached as Exhibit 99.2 and is incorporated herein by reference.
In connection with the Company’s conference call to discuss first quarter earnings on May 7, 2020, the Company has prepared a presentation (the “Investments & Capital Update”), which is furnished as Exhibit 99.3 hereto.
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 | ||
99.3 | ||
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: May 6, 2020
AMERICAN EQUITY | |||
INVESTMENT LIFE HOLDING COMPANY | |||
By: | /s/ Anant Bhalla | ||
Anant Bhalla | |||
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 | ||
May 6, 2020 | ||
American Equity Reports First Quarter 2020 Results
Company Highlights
• | First quarter 2020 net income available to common stockholders of $236.3 million or $2.57 per diluted common share |
• | First quarter 2020 non-GAAP operating income1 available to common stockholders of $154.1 million or $1.67 per diluted common share |
• | First quarter 2020 annuity sales of $705 million |
• | Policyholder funds under management of $53.3 billion |
• | First quarter 2020 investment spread of 2.64% |
• | Estimated risk-based capital ratio of 396% pro forma including May 4th capital contribution |
WEST DES MOINES, Iowa (May 6, 2020) - During the first quarter of 2020, American Equity Investment Life Holding Company (NYSE: AEL), a leading issuer of fixed index annuities (FIAs), shifted quickly and effectively to respond to the COVID-19 global pandemic while keeping its employees safe and maintaining its industry leading service.
"I couldn't be prouder of our leadership team and employees in their response to these unprecedented times," said Anant Bhalla, Chief Executive Officer. "In March, we moved decisively to first protect our employees and business partners and to pivot our operating platform to continue to provide FIA industry leading levels of service for clients and producers in a prolonged work from home environment. In parallel, we fortressed the life insurance company balance sheets with $1.3 billion of liquidity as of March 31st and a pro forma 396% RBC ratio after reflecting a $200 million capital contribution from the holding company earlier this month."
American Equity today reported first quarter 2020 net income available to common stockholders of $236.3 million, or $2.57 per diluted common share, compared to net loss available to common stockholders of $30.0 million, or $0.33 per diluted common share, for first quarter 2019.
Non-GAAP operating income1 available to common stockholders for the first quarter 2020 was $154.1 million, or $1.67 per diluted common share, compared to non-GAAP operating income1 available to common stockholders of $89.4 million, or $0.97 per diluted common share, for first quarter 2019. On a trailing twelve-month basis, non-GAAP operating return1 on average common stockholders' equity excluding average AOCI1 was 23.0% based on reported results and 18.8% excluding the impact of annual actuarial revisions in the third quarter of 2019.
The year-over-year increases in quarterly non-GAAP operating income1 available to common stockholders and non-GAAP operating income1 per share available to common stockholders were attributable to lower amortization of deferred policy acquisition costs and deferred sales inducements and an increase in investment spread which benefited from active in-force crediting rate management and non-trendable investment spread items. The benefit from these items was partially offset by a greater increase in the liability for future benefits to be paid for lifetime income benefit riders. The decline in deferred acquisition cost and deferred sales inducement amortization and the increase in the liability for lifetime income benefit riders is consistent with the actuarial revisions made in the third quarter of 2019 and reflect actual experience during the first quarter of 2020. In addition, the company recognized a $31 million, or $0.33 per diluted share, tax benefit in the first quarter of 2020 from tax loss carry back to prior years under the newly enacted CARES Act.
INVESTMENT SPREAD DECREASES SEQUENTIALLY ON LOWER YIELD ON INVESTED ASSETS
American Equity’s investment spread was 2.64% for the first quarter of 2020 compared to 2.77% for the fourth quarter of 2019 and 2.58% for the first quarter of 2019. On a sequential basis, the average yield on invested assets decreased by 16 basis points while the cost of money fell by 3 basis points.
Average yield on invested assets was 4.36% in the first quarter of 2020 compared to 4.52% in the fourth quarter of 2019. The average yield on invested assets excluding non-trendable items was 4.30% in the first quarter of 2020 compared to 4.39% in the fourth quarter of 2019. The decrease in investment yield was primarily driven by the decline in short term yields on floating rate instruments in the investment portfolio, yields on new money investments, and retention of a higher level of liquidity in the investment portfolios of the life insurance companies.
The aggregate cost of money for annuity liabilities of 1.72% in the first quarter of 2020 was down 3 basis points from 1.75% in the fourth quarter of 2019. The cost of money benefited by 5 basis points from the over hedging of index-linked interest obligations in both quarters.
Commenting on investment spread, Bhalla said: “Excluding non-trendable investment spread items, on a sequential basis, investment yield and investment spread decreased by 9 and 6 basis points respectively. We are actively managing spread to offset lower investment income and increased cost of money. Option costs were flat in the first quarter as the rise in costs of certain options due to the increase in the market implied volatility that was witnessed in March offset the actions we took beginning in January to reduce caps and fixed crediting rates on $29.7 billion of policyholder funds under management in light of declining portfolio yields. Due to the continued elevated levels of market implied volatility since March, which impacts the cost of buying options for certain index strategies, we will begin reducing renewal participation rates on $4.3 billion of policyholder funds starting June 1. We intend to be financially prudent and disciplined in managing in-force and new money cost, while staying true to our core beliefs in always doing the right thing by our clients and producers. Therefore, if market implied volatility levels were to fall back to February levels, we could begin to unwind some of these rate actions in the future.”
POLICYHOLDER FUNDS UNDER MANAGEMENT RELATIVELY FLAT ON $705 MILLION OF SALES
Policyholder funds under management at March 31, 2020 were $53.3 billion, an $82 million, or 0.2% increase from December 31, 2019. First quarter gross and net sales were $705 million and $687 million, respectively, representing decreases of 43% and 42% from first quarter 2019 sales. On a sequential basis, gross and net sales decreased 23% and 19%, respectively. Compared to the fourth quarter of 2019, gross sales at American Equity Life and Eagle Life declined 23% and 26%, respectively.
Commenting on sales, Bhalla said: "Entering the quarter, we were not the most competitive in either the accumulation or income markets, primarily driven by some competitors who in our view were being aggressive in order to gain market share. With the recent market events, these competitors have lowered their rates to more sustainable levels for them, thereby having bridged the competitive gap in our favor. Our S&P 500 Dividend Aristocrats DRC 5% Excess Return strategies now illustrate particularly well.
Commenting on the market environment and the outlook for FIA sales, Bhalla added: "While we are currently in an improved competitive position, it seems likely that sales will remain subdued until social distancing needs abate or producers find new ways to engage with clients and the dining table discussion in households shifts from primarily health concerns to longer term issues around wealth and retirement income. In the meanwhile, we are in the process of refreshing our product line beginning with our accumulation product portfolio. These serve as a very compelling alternative to offerings inside traditional equity-bond allocation strategies. As a first step, we will be introducing our first multi-asset index strategy in June. This adds to our distribution partners tool-kit of client solutions, while reducing the vulnerability of cost of money to changes in implied volatility in the marketplace as is the case for plain vanilla S&P 500 annual point-to-point participation rate strategies."
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 first quarter 2020 earnings on Thursday, May 7, 2020 at 10:00 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 3589908 (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 May 14, 2020 at 855-859-2056, passcode 3589908 (international callers will need to dial 404-537-3406).
ABOUT AMERICAN EQUITY
American Equity Investment Life Holding Company, through its wholly-owned subsidiaries, is a leading issuer of fixed index annuities through independent agents, banks and broker-dealers. 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 March 31, | |||||||
2020 | 2019 | ||||||
Revenues: | |||||||
Premiums and other considerations | $ | 7,664 | $ | 5,410 | |||
Annuity product charges | 59,549 | 52,966 | |||||
Net investment income | 573,318 | 558,438 | |||||
Change in fair value of derivatives | (941,874 | ) | 384,469 | ||||
Net realized gains (losses) on investments, excluding credit losses on fixed maturity securities, available for sale | 11,035 | (563 | ) | ||||
Credit losses on fixed maturity securities, available for sale | (31,371 | ) | — | ||||
Loss on extinguishment of debt | (2,024 | ) | — | ||||
Total revenues | (323,703 | ) | 1,000,720 | ||||
Benefits and expenses: | |||||||
Insurance policy benefits and change in future policy benefits | 10,072 | 9,299 | |||||
Interest sensitive and index product benefits | 400,219 | 136,674 | |||||
Amortization of deferred sales inducements | 73,591 | 33,309 | |||||
Change in fair value of embedded derivatives | (1,250,061 | ) | 766,323 | ||||
Interest expense on notes payable | 6,385 | 6,379 | |||||
Interest expense on subordinated debentures | 1,588 | 4,088 | |||||
Amortization of deferred policy acquisition costs | 120,702 | 45,132 | |||||
Other operating costs and expenses | 43,626 | 38,979 | |||||
Total benefits and expenses | (593,878 | ) | 1,040,183 | ||||
Income (loss) before income taxes | 270,175 | (39,463 | ) | ||||
Income tax expense (benefit) | 27,228 | (9,453 | ) | ||||
Net income (loss) | 242,947 | (30,010 | ) | ||||
Less: Preferred stock dividends | 6,611 | — | |||||
Net income (loss) available to common stockholders | $ | 236,336 | $ | (30,010 | ) | ||
Earnings (loss) per common share | $ | 2.58 | $ | (0.33 | ) | ||
Earnings (loss) per common share - assuming dilution | $ | 2.57 | $ | (0.33 | ) | ||
Weighted average common shares outstanding (in thousands): | |||||||
Earnings (loss) per common share | 91,644 | 90,883 | |||||
Earnings (loss) per common share - assuming dilution | 92,021 | 91,744 | |||||
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 (loss) available to common stockholders, we have consistently utilized non-GAAP operating income available to common stockholders and non-GAAP operating income available to common stockholders per common share - assuming dilution, non-GAAP financial measures commonly used in the life insurance industry, as economic measures to evaluate our financial performance. Non-GAAP operating income available to common stockholders equals net income (loss) available to common stockholders adjusted to eliminate the impact of items that fluctuate from quarter to quarter in a manner unrelated to core operations, and we believe measures excluding their impact are useful in analyzing operating trends. The most significant adjustments to arrive at non-GAAP operating income available to common stockholders eliminate the impact of fair value accounting for our fixed index annuity business. These adjustments are not economic in nature but rather impact the timing of reported results. We believe the combined presentation and evaluation of non-GAAP operating income available to common stockholders together with net income (loss) available to common stockholders provides information that may enhance an investor’s understanding of our underlying results and profitability.
Reconciliation from Net Income (Loss) Available to Common Stockholders to Non-GAAP Operating Income Available to Common Stockholders
Three Months Ended March 31, | |||||||
2020 | 2019 | ||||||
Net income (loss) available to common stockholders | $ | 236,336 | $ | (30,010 | ) | ||
Adjustments to arrive at non-GAAP operating income available to common stockholders: (a) | |||||||
Net realized gains/losses on financial assets, including credit losses | 16,349 | 305 | |||||
Change in fair value of derivatives and embedded derivatives - fixed index annuities | (120,454 | ) | 150,944 | ||||
Change in fair value of derivatives - interest rate caps and swap | (848 | ) | 636 | ||||
Income taxes | 22,702 | (32,473 | ) | ||||
Non-GAAP operating income available to common stockholders | $ | 154,085 | $ | 89,402 | |||
Per common share - assuming dilution: | |||||||
Net income (loss) available to common stockholders | $ | 2.57 | $ | (0.33 | ) | ||
Adjustments to arrive at non-GAAP operating income available to common stockholders: | |||||||
Net realized gains/losses on financial assets, including credit losses | 0.17 | — | |||||
Change in fair value of derivatives and embedded derivatives - fixed index annuities | (1.31 | ) | 1.64 | ||||
Change in fair value of derivatives - interest rate caps and swap | (0.01 | ) | 0.01 | ||||
Income taxes | 0.25 | (0.35 | ) | ||||
Non-GAAP operating income available to common stockholders | $ | 1.67 | $ | 0.97 | |||
(a) | Adjustments to net income (loss) available to common stockholders to arrive at non-GAAP operating income available to common stockholders are presented net of related adjustments to amortization of deferred sales inducements and deferred policy acquisition costs where applicable. |
Page 2
American Equity Investment Life Holding Company
Unaudited (Dollars in thousands)
NON-GAAP FINANCIAL MEASURES
Average Common Stockholders' Equity and Return on Average Common Stockholders' Equity
Return on average common stockholders' equity measures how efficiently we generate profits from the resources provided by our net assets. Return on average common stockholders' equity and non-GAAP operating return on average common stockholders' equity are calculated by dividing net income (loss) available to common stockholders and non-GAAP operating income available to common stockholders, respectively, for the trailing twelve months by average total stockholders' equity excluding average equity available to preferred stockholders and average accumulated other comprehensive income (AOCI). We exclude AOCI because AOCI fluctuates from quarter to quarter due to unrealized changes in the fair value of available for sale investments.
Twelve Months Ended | |||
March 31, 2020 | |||
Average Common Stockholders' Equity Excluding Average AOCI | |||
Average total stockholders' equity | $ | 3,231,147 | |
Average equity available to preferred stockholders | (200,000 | ) | |
Average AOCI | (366,836 | ) | |
Average common stockholders' equity excluding average AOCI | $ | 2,664,311 | |
Net income available to common stockholders | $ | 512,436 | |
Non-GAAP operating income available to common stockholders | $ | 612,866 | |
Return on Average Common Stockholders' Equity Excluding Average AOCI | |||
Net income available to common stockholders | 19.23 | % | |
Non-GAAP operating income available to common stockholders | 23.00 | % | |
Page 3
Exhibit 99.2
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement
March 31, 2020
A. | Financial Highlights | |
Non-GAAP Financial Measures | ||
B. | Product Summary | |
C. | Investment Summary | |
D. | ||
E. | ||
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - March 31, 2020
Unaudited (Dollars in thousands)
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2020 | December 31, 2019 | ||||||
Assets | |||||||
Investments: | |||||||
Fixed maturity securities, available for sale, at fair value | $ | 47,704,867 | $ | 51,580,490 | |||
Mortgage loans on real estate | 3,668,625 | 3,448,793 | |||||
Derivative instruments | 207,265 | 1,355,989 | |||||
Other investments | 497,598 | 492,301 | |||||
Total investments | 52,078,355 | 56,877,573 | |||||
Cash and cash equivalents | 1,833,099 | 2,293,392 | |||||
Coinsurance deposits | 4,933,992 | 5,115,013 | |||||
Accrued investment income | 472,667 | 472,826 | |||||
Deferred policy acquisition costs | 3,615,101 | 2,923,454 | |||||
Deferred sales inducements | 2,414,533 | 1,966,723 | |||||
Deferred income taxes | 90,384 | — | |||||
Income taxes recoverable | 46,324 | — | |||||
Other assets | 65,101 | 47,571 | |||||
Total assets | $ | 65,549,556 | $ | 69,696,552 | |||
Liabilities and Stockholders' Equity | |||||||
Liabilities: | |||||||
Policy benefit reserves | $ | 60,619,047 | $ | 61,893,945 | |||
Other policy funds and contract claims | 248,178 | 256,105 | |||||
Notes payable | 495,251 | 495,116 | |||||
Subordinated debentures | 77,893 | 157,265 | |||||
Amounts due under repurchase agreements | 186,105 | — | |||||
Deferred income taxes | — | 177,897 | |||||
Income taxes payable | — | 429 | |||||
Other liabilities | 400,325 | 2,145,676 | |||||
Total liabilities | 62,026,799 | 65,126,433 | |||||
Stockholders' equity: | |||||||
Preferred stock | 16 | 16 | |||||
Common stock | 91,498 | 91,107 | |||||
Additional paid-in capital | 1,215,464 | 1,212,311 | |||||
Accumulated other comprehensive income | 219,974 | 1,497,921 | |||||
Retained earnings | 1,995,805 | 1,768,764 | |||||
Total stockholders' equity | 3,522,757 | 4,570,119 | |||||
Total liabilities and stockholders' equity | $ | 65,549,556 | $ | 69,696,552 | |||
Page 1
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - March 31, 2020
Unaudited (Dollars in thousands, except per share data)
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, | |||||||
2020 | 2019 | ||||||
Revenues: | |||||||
Premiums and other considerations | $ | 7,664 | $ | 5,410 | |||
Annuity product charges | 59,549 | 52,966 | |||||
Net investment income | 573,318 | 558,438 | |||||
Change in fair value of derivatives | (941,874 | ) | 384,469 | ||||
Net realized gains (losses) on investments, excluding credit losses on fixed maturity securities, available for sale | 11,035 | (563 | ) | ||||
Credit losses on fixed maturity securities, available for sale | (31,371 | ) | — | ||||
Loss on extinguishment of debt | (2,024 | ) | — | ||||
Total revenues | (323,703 | ) | 1,000,720 | ||||
Benefits and expenses: | |||||||
Insurance policy benefits and change in future policy benefits | 10,072 | 9,299 | |||||
Interest sensitive and index product benefits | 400,219 | 136,674 | |||||
Amortization of deferred sales inducements | 73,591 | 33,309 | |||||
Change in fair value of embedded derivatives | (1,250,061 | ) | 766,323 | ||||
Interest expense on notes payable | 6,385 | 6,379 | |||||
Interest expense on subordinated debentures | 1,588 | 4,088 | |||||
Amortization of deferred policy acquisition costs | 120,702 | 45,132 | |||||
Other operating costs and expenses | 43,626 | 38,979 | |||||
Total benefits and expenses | (593,878 | ) | 1,040,183 | ||||
Income (loss) before income taxes | 270,175 | (39,463 | ) | ||||
Income tax expense (benefit) | 27,228 | (9,453 | ) | ||||
Net income (loss) | 242,947 | (30,010 | ) | ||||
Less: Preferred stock dividends | 6,611 | — | |||||
Net income (loss) available to common stockholders | $ | 236,336 | $ | (30,010 | ) | ||
Earnings (loss) per common share | $ | 2.58 | $ | (0.33 | ) | ||
Earnings (loss) per common share - assuming dilution | $ | 2.57 | $ | (0.33 | ) | ||
Weighted average common shares outstanding (in thousands): | |||||||
Earnings (loss) per common share | 91,644 | 90,883 | |||||
Earnings (loss) per common share - assuming dilution | 92,021 | 91,744 | |||||
Page 2
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - March 31, 2020
Unaudited (Dollars in thousands, except per share data)
Quarterly Summary - Most Recent 5 Quarters
Q1 2020 | Q4 2019 | Q3 2019 | Q2 2019 | Q1 2019 | |||||||||||||||
Revenues: | |||||||||||||||||||
Traditional life insurance premiums | $ | 823 | $ | 762 | $ | 778 | $ | 799 | $ | 829 | |||||||||
Life contingent immediate annuity considerations | 6,841 | 8,084 | 4,374 | 3,327 | 4,581 | ||||||||||||||
Surrender charges | 19,705 | 15,092 | 20,537 | 19,480 | 16,456 | ||||||||||||||
Lifetime income benefit rider fees | 39,844 | 47,630 | 43,110 | 41,220 | 36,510 | ||||||||||||||
Net investment income | 573,318 | 588,217 | 590,412 | 570,568 | 558,438 | ||||||||||||||
Change in fair value of derivatives | (941,874 | ) | 466,434 | (20,042 | ) | 76,045 | 384,469 | ||||||||||||
Net realized gains (losses) on investments, excluding credit losses on fixed maturity securities, available for sale | 11,035 | 7,029 | 4,328 | (3,832 | ) | (563 | ) | ||||||||||||
Credit losses on fixed maturity securities, available for sale | (31,371 | ) | — | — | — | — | |||||||||||||
Net OTTI losses recognized in operations | — | (17,412 | ) | (101 | ) | (1,213 | ) | — | |||||||||||
Loss on extinguishment of debt | (2,024 | ) | (2,001 | ) | — | — | — | ||||||||||||
Total revenues | (323,703 | ) | 1,113,835 | 643,396 | 706,394 | 1,000,720 | |||||||||||||
Benefits and expenses: | |||||||||||||||||||
Traditional life insurance policy benefits and change in future policy benefits | 621 | 835 | 758 | 576 | 878 | ||||||||||||||
Life contingent immediate annuity benefits and change in future policy benefits | 9,451 | 10,718 | 6,869 | 6,363 | 8,421 | ||||||||||||||
Interest sensitive and index product benefits (a) | 400,219 | 399,514 | 500,285 | 251,103 | 136,674 | ||||||||||||||
Amortization of deferred sales inducements (b) | 73,591 | 91,260 | (55,769 | ) | 19,785 | 33,309 | |||||||||||||
Change in fair value of embedded derivatives (c) | (1,250,061 | ) | 147,879 | 212,278 | 327,562 | 766,323 | |||||||||||||
Interest expense on notes payable | 6,385 | 6,384 | 6,382 | 6,380 | 6,379 | ||||||||||||||
Interest expense on subordinated debentures | 1,588 | 3,651 | 3,968 | 4,057 | 4,088 | ||||||||||||||
Amortization of deferred policy acquisition costs (b) | 120,702 | 133,573 | (120,934 | ) | 29,946 | 45,132 | |||||||||||||
Other operating costs and expenses | 43,626 | 39,194 | 38,554 | 37,426 | 38,979 | ||||||||||||||
Total benefits and expenses | (593,878 | ) | 833,008 | 592,391 | 683,198 | 1,040,183 | |||||||||||||
Income (loss) before income taxes | 270,175 | 280,827 | 51,005 | 23,196 | (39,463 | ) | |||||||||||||
Income tax expense (benefit) (d) | 27,228 | 60,677 | 13,645 | 4,606 | (9,453 | ) | |||||||||||||
Net income (loss) (a)(b)(c)(d) | 242,947 | 220,150 | 37,360 | 18,590 | (30,010 | ) | |||||||||||||
Less: Preferred stock dividends | 6,611 | — | — | — | — | ||||||||||||||
Net income (loss) available to common stockholders (a)(b)(c)(d) | $ | 236,336 | $ | 220,150 | $ | 37,360 | $ | 18,590 | $ | (30,010 | ) | ||||||||
Earnings (loss) per common share | $ | 2.58 | $ | 2.41 | $ | 0.41 | $ | 0.20 | $ | (0.33 | ) | ||||||||
Earnings (loss) per common share - assuming dilution (a)(b)(c)(d) | $ | 2.57 | $ | 2.40 | $ | 0.41 | $ | 0.20 | $ | (0.33 | ) | ||||||||
Weighted average common shares outstanding (thousands): | |||||||||||||||||||
Earnings (loss) per common share | 91,644 | 91,314 | 91,252 | 91,103 | 90,883 | ||||||||||||||
Earnings (loss) per common share - assuming dilution | 92,021 | 91,883 | 91,711 | 91,785 | 91,744 | ||||||||||||||
(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 both net income and net income available to common stockholders by $247.3 million and decreased earnings per common share - assuming dilution by $2.70 per share. |
(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 both net income and net income available to common stockholders by $233.4 million and increased earnings per common share - assuming dilution by $2.54 per share. |
(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 both net income and net income available to common stockholders by $22.1 million and decreased earnings per common share - assuming dilution by $0.24 per share. |
(d) | Q1 2020 includes a tax benefit related to the provision of the Coronavirus Aid, Relief, and Economic Security Act, (“the CARES ACT”) which was signed into legislation on March 27, 2020 and allows net operating losses for 2018 through 2020 to be carried back to previous tax years in which a 35% statutory tax rate was in effect. The impact reduced income tax expense and increased both net income and net income available to common stockholders by $30.8 million and increased earnings per common share - assuming dilution by $0.33 per share. |
Page 3
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - March 31, 2020
Unaudited (Dollars in thousands, except per share data)
NON-GAAP FINANCIAL MEASURES
In addition to net income (loss) available to common stockholders, we have consistently utilized non-GAAP operating income available to common stockholders and non-GAAP operating income available to common stockholders per common share - assuming dilution, non-GAAP financial measures commonly used in the life insurance industry, as economic measures to evaluate our financial performance. Non-GAAP operating income available to common stockholders equals net income (loss) available to common stockholders adjusted to eliminate the impact of items that fluctuate from quarter to quarter in a manner unrelated to core operations, and we believe measures excluding their impact are useful in analyzing operating trends. The most significant adjustments to arrive at non-GAAP operating income available to common stockholders eliminate the impact of fair value accounting for our fixed index annuity business. These adjustments are not economic in nature but rather impact the timing of reported results. We believe the combined presentation and evaluation of non-GAAP operating income available to common stockholders together with net income (loss) available to common stockholders provides information that may enhance an investor’s understanding of our underlying results and profitability.
Reconciliation from Net Income (Loss) Available to Common Stockholders to Non-GAAP Operating Income Available to Common Stockholders
Three Months Ended March 31, | |||||||
2020 | 2019 | ||||||
Net income (loss) available to common stockholders | $ | 236,336 | $ | (30,010 | ) | ||
Adjustments to arrive at non-GAAP operating income available to common stockholders: (a) | |||||||
Net realized gains/losses on financial assets, including credit losses | 16,349 | 305 | |||||
Change in fair value of derivatives and embedded derivatives - fixed index annuities | (120,454 | ) | 150,944 | ||||
Change in fair value of derivatives - interest rate caps and swap | (848 | ) | 636 | ||||
Income taxes | 22,702 | (32,473 | ) | ||||
Non-GAAP operating income available to common stockholders | $ | 154,085 | $ | 89,402 | |||
Per common share - assuming dilution: | |||||||
Net income (loss) available to common stockholders | $ | 2.57 | $ | (0.33 | ) | ||
Adjustments to arrive at non-GAAP operating income available to common stockholders: | |||||||
Net realized gains/losses on financial assets, including credit losses | 0.17 | — | |||||
Change in fair value of derivatives and embedded derivatives - fixed index annuities | (1.31 | ) | 1.64 | ||||
Change in fair value of derivatives - interest rate caps and swap | (0.01 | ) | 0.01 | ||||
Income taxes | 0.25 | (0.35 | ) | ||||
Non-GAAP operating income available to common stockholders | $ | 1.67 | $ | 0.97 | |||
(a) | Adjustments to net income (loss) available to common stockholders to arrive at non-GAAP operating income available to common stockholders are presented net of related adjustments to amortization of deferred sales inducements (DSI) and deferred policy acquisition costs (DAC) where applicable. |
Page 4
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - March 31, 2020
Unaudited (Dollars in thousands)
NON-GAAP FINANCIAL MEASURES
Summary of Adjustments to Arrive at Non-GAAP Operating Income Available to Common Stockholders
Three Months Ended March 31, | |||||||
2020 | 2019 | ||||||
Net realized gains/losses on financial assets, including credit losses: | |||||||
Net realized gains/losses on financial assets, including credit losses | $ | 21,657 | $ | 563 | |||
Amortization of DAC and DSI | (5,308 | ) | (258 | ) | |||
Income taxes | (3,531 | ) | (66 | ) | |||
$ | 12,818 | $ | 239 | ||||
Change in fair value of derivatives and embedded derivatives: | |||||||
Fixed index annuities | $ | (209,891 | ) | $ | 241,120 | ||
Interest rate caps and swap | (848 | ) | 636 | ||||
Amortization of DAC and DSI | 89,437 | (90,176 | ) | ||||
Income taxes | 26,233 | (32,407 | ) | ||||
$ | (95,069 | ) | $ | 119,173 | |||
Page 5
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - March 31, 2020
Unaudited (Dollars in thousands, except per share data)
NON-GAAP FINANCIAL MEASURES
Quarterly Summary - Most Recent 5 Quarters
Reconciliation from Net Income (Loss) Available to Common Stockholders to Non-GAAP Operating Income Available to Common Stockholders
Q1 2020 | Q4 2019 | Q3 2019 | Q2 2019 | Q1 2019 | |||||||||||||||
Net income (loss) available to common stockholders | $ | 236,336 | $ | 220,150 | $ | 37,360 | $ | 18,590 | $ | (30,010 | ) | ||||||||
Adjustments to arrive at non-GAAP operating income available to common stockholders: (a) | |||||||||||||||||||
Net realized gains/losses on financial assets, including credit losses | 16,349 | 7,606 | (3,175 | ) | 2,625 | 305 | |||||||||||||
Change in fair value of derivatives and embedded derivatives - fixed index annuities | (120,454 | ) | (127,777 | ) | 250,186 | 99,868 | 150,944 | ||||||||||||
Change in fair value of derivatives - interest rate caps and swap | (848 | ) | (167 | ) | (76 | ) | 854 | 636 | |||||||||||
Income taxes | 22,702 | 26,023 | (50,940 | ) | (22,346 | ) | (32,473 | ) | |||||||||||
Non-GAAP operating income available to common stockholders (b)(c)(d) | $ | 154,085 | $ | 125,835 | $ | 233,355 | $ | 99,591 | $ | 89,402 | |||||||||
Per common share - assuming dilution: | |||||||||||||||||||
Net income (loss) available to common stockholders | $ | 2.57 | $ | 2.40 | $ | 0.41 | $ | 0.20 | $ | (0.33 | ) | ||||||||
Adjustments to arrive at non-GAAP operating income available to common stockholders: | |||||||||||||||||||
Net realized gains/losses on financial assets, including credit losses | 0.17 | 0.08 | (0.04 | ) | 0.03 | — | |||||||||||||
Change in fair value of derivatives and embedded derivatives - fixed index annuities | (1.31 | ) | (1.39 | ) | 2.73 | 1.09 | 1.64 | ||||||||||||
Change in fair value of derivatives - interest rate caps and swap | (0.01 | ) | — | — | 0.01 | 0.01 | |||||||||||||
Income taxes | 0.25 | 0.28 | (0.56 | ) | (0.24 | ) | (0.35 | ) | |||||||||||
Non-GAAP operating income available to common stockholders (b)(c)(d) | $ | 1.67 | $ | 1.37 | $ | 2.54 | $ | 1.09 | $ | 0.97 | |||||||||
(a) | Adjustments to net income (loss) available to common stockholders to arrive at non-GAAP operating income available to common stockholders are presented net of related adjustments to amortization of deferred sales inducements and deferred policy acquisition costs where applicable. |
(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 available to common stockholders and non-GAAP operating income available to common stockholders per common share - assuming dilution by $247.3 million and $2.70 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 available to common stockholders and non-GAAP operating income available to common stockholders per common share- assuming dilution by $371.0 million and $4.05 per share, respectively. |
(d) | Q1 2020 includes a tax benefit related to the provision of the CARES ACT which was signed into legislation on March 27, 2020 and allows net operating losses for 2018 through 2020 to be carried back to previous tax years in which a 35% statutory tax rate was in effect. The impact reduced income tax expense and increased non-GAAP operating income available to common stockholders and non-GAAP operating income available to common stockholders per common share - assuming dilution by $30.8 million and $0.33 per share, respectively. |
Page 6
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - March 31, 2020
Unaudited (Dollars in thousands)
NON-GAAP FINANCIAL MEASURES
Summary of Adjustments to Arrive at Non-GAAP Operating Income Available to Common Stockholders
Q1 2020 | Q4 2019 | Q3 2019 | Q2 2019 | Q1 2019 | |||||||||||||||
Net realized (gains) losses on investments | $ | (11,035 | ) | $ | (7,029 | ) | $ | (4,328 | ) | $ | 3,832 | $ | 563 | ||||||
Credit losses on fixed maturity securities, available for sale | 31,371 | — | — | — | — | ||||||||||||||
Net OTTI losses recognized in operations | — | 17,412 | 101 | 1,213 | — | ||||||||||||||
Change in fair value of derivatives | 1,039,322 | (370,973 | ) | (79,943 | ) | (108,662 | ) | (524,567 | ) | ||||||||||
Increase (decrease) in total revenues | 1,059,658 | (360,590 | ) | (84,170 | ) | (103,617 | ) | (524,004 | ) | ||||||||||
Amortization of deferred sales inducements | (29,683 | ) | (37,374 | ) | (57,408 | ) | 49,101 | 35,494 | |||||||||||
Change in fair value of embedded derivatives | 1,250,061 | (147,879 | ) | (212,278 | ) | (327,562 | ) | (766,323 | ) | ||||||||||
Interest sensitive and index product benefits (a) | (1,321 | ) | — | — | — | — | |||||||||||||
Amortization of deferred policy acquisition costs | (54,446 | ) | (54,999 | ) | (61,419 | ) | 71,497 | 54,940 | |||||||||||
Increase (decrease) in total benefits and expenses | 1,164,611 | (240,252 | ) | (331,105 | ) | (206,964 | ) | (675,889 | ) | ||||||||||
Increase in income (loss) before income taxes | (104,953 | ) | (120,338 | ) | 246,935 | 103,347 | 151,885 | ||||||||||||
Increase (decrease) in income tax expense (benefit) | (22,702 | ) | (26,023 | ) | 50,940 | 22,346 | 32,473 | ||||||||||||
Increase (decrease) in net income (loss) available to common stockholders | $ | (82,251 | ) | $ | (94,315 | ) | $ | 195,995 | $ | 81,001 | $ | 119,412 | |||||||
(a) | Interest sensitive and index product benefits adjustment reflects the change in the allowance for credit losses on our reinsurance recoverable/coinsurance deposits under a revised impairment model for financial assets measured at amortized cost which we were required to adopt on January 1, 2020. The change in this allowance is reflected in the net realized gains/losses of financial assets, including credit losses line in the other Non-GAAP financial measures tables in this financial supplement. |
Page 7
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - March 31, 2020
Unaudited (Dollars in thousands, except share and per share data)
Capitalization/Book Value per Common Share
Q1 2020 | Q4 2019 | Q3 2019 | Q2 2019 | Q1 2019 | |||||||||||||||
Capitalization: | |||||||||||||||||||
Notes payable | $ | 500,000 | $ | 500,000 | $ | 500,000 | $ | 500,000 | $ | 500,000 | |||||||||
Subordinated debentures payable to subsidiary trusts | 77,893 | 159,272 | 247,362 | 247,294 | 247,227 | ||||||||||||||
Total debt | 577,893 | 659,272 | 747,362 | 747,294 | 747,227 | ||||||||||||||
Total stockholders’ equity | 3,522,757 | 4,570,119 | 4,126,716 | 3,497,475 | 2,939,537 | ||||||||||||||
Total capitalization | 4,100,650 | 5,229,391 | 4,874,078 | 4,244,769 | 3,686,764 | ||||||||||||||
Accumulated other comprehensive income (AOCI) | (219,974 | ) | (1,497,921 | ) | (1,639,429 | ) | (1,049,984 | ) | (513,697 | ) | |||||||||
Total capitalization excluding AOCI (a) | $ | 3,880,676 | $ | 3,731,470 | $ | 3,234,649 | $ | 3,194,785 | $ | 3,173,067 | |||||||||
Total stockholders’ equity | $ | 3,522,757 | $ | 4,570,119 | $ | 4,126,716 | $ | 3,497,475 | $ | 2,939,537 | |||||||||
Equity available to preferred stockholders (b) | (400,000 | ) | (400,000 | ) | — | — | — | ||||||||||||
Total common stockholders' equity (c) | 3,122,757 | 4,170,119 | 4,126,716 | 3,497,475 | 2,939,537 | ||||||||||||||
Accumulated other comprehensive income | (219,974 | ) | (1,497,921 | ) | (1,639,429 | ) | (1,049,984 | ) | (513,697 | ) | |||||||||
Total common stockholders’ equity excluding AOCI (c) | 2,902,783 | 2,672,198 | 2,487,287 | 2,447,491 | 2,425,840 | ||||||||||||||
Net impact of fair value accounting for derivatives and embedded derivatives | 353,853 | 448,924 | 549,202 | 353,180 | 274,238 | ||||||||||||||
Total common stockholders’ equity excluding AOCI and the net impact of fair value accounting for derivatives and embedded derivatives (c) | $ | 3,256,636 | $ | 3,121,122 | $ | 3,036,489 | $ | 2,800,671 | $ | 2,700,078 | |||||||||
Common shares outstanding | 91,497,841 | 91,107,555 | 91,006,950 | 90,936,324 | 90,784,123 | ||||||||||||||
Book Value per Common Share: (d) | |||||||||||||||||||
Book value per common share (c) | $ | 34.13 | $ | 45.77 | $ | 45.35 | $ | 38.46 | $ | 32.38 | |||||||||
Book value per common share excluding AOCI (c) | $ | 31.73 | $ | 29.33 | $ | 27.33 | $ | 26.91 | $ | 26.72 | |||||||||
Book value per common share excluding AOCI and the net impact of fair value accounting for derivatives and embedded derivatives (c) | $ | 35.59 | $ | 34.26 | $ | 33.37 | $ | 30.80 | $ | 29.74 | |||||||||
Debt-to-Capital Ratios: (e) | |||||||||||||||||||
Senior debt / Total capitalization | 12.9 | % | 13.4 | % | 15.5 | % | 15.7 | % | 15.8 | % | |||||||||
Total debt / Total capitalization | 14.9 | % | 17.7 | % | 23.1 | % | 23.4 | % | 23.5 | % | |||||||||
(a) | Total capitalization excluding AOCI, a non-GAAP financial measure, is based on stockholders' equity excluding the effect of AOCI. |
(b) | Equity available to preferred stockholders is equal to the redemption value of outstanding preferred stock plus share dividends declared but not yet issued. |
(c) | Total common stockholders' equity, total common stockholder's equity excluding AOCI and total common stockholders' equity excluding AOCI and the net impact of fair value accounting for derivatives and embedded derivatives, non-GAAP financial measures, exclude equity available to preferred stockholders. Total common stockholders’ equity and book value per common share excluding AOCI, non-GAAP financial measures, are based on common 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. Total common stockholders' equity and book value per common share excluding AOCI and the net impact of fair value accounting for derivatives and embedded derivatives, non-GAAP financial measures, are based on common stockholders' equity excluding AOCI and the net impact of fair value accounting for derivatives and embedded derivatives. Since the net impact of fair value accounting for our derivatives and embedded derivatives fluctuates from quarter to quarter and the most significant impacts relate to fair value accounting for our fixed index annuity business and are not economic in nature but rather impact the timing of reported results, we believe these non-GAAP financial measures provide useful supplemental information. |
(d) | Book value per common share including and excluding AOCI and book value per common share excluding AOCI and the net impact of fair value accounting for derivatives and embedded derivatives are calculated as total common stockholders’ equity, total common stockholders’ equity excluding AOCI and total common stockholders' equity excluding AOCI and the net impact of fair value accounting for derivatives and embedded derivatives divided by the total number of shares of common stock outstanding. |
(e) | Debt-to-capital ratios are computed using total capitalization excluding AOCI. |
Page 8
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - March 31, 2020
Unaudited (Dollars in thousands)
Spread Results
Q1 2020 | Q4 2019 | Q3 2019 | Q2 2019 | Q1 2019 | |||||
Average yield on invested assets | 4.36% | 4.52% | 4.59% | 4.51% | 4.48% | ||||
Aggregate cost of money | 1.72% | 1.75% | 1.84% | 1.88% | 1.90% | ||||
Aggregate investment spread | 2.64% | 2.77% | 2.75% | 2.63% | 2.58% | ||||
Impact of: | |||||||||
Investment yield - additional prepayment income | 0.06% | 0.12% | 0.11% | 0.04% | 0.01% | ||||
Cost of money effect of over hedging | 0.05% | 0.05% | 0.02% | 0.04% | 0.02% | ||||
Weighted average investments | $52,623,239 | $52,141,459 | $51,529,850 | $50,709,966 | $49,908,718 | ||||
Weighted average investments include fixed maturity securities at amortized cost and mortgage loans on real estate and other investments at carrying values as reflected in the consolidated balance sheets. 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
Q1 2020 | Q4 2019 | Q3 2019 | Q2 2019 | Q1 2019 | |||||||||||||||
Included in interest sensitive and index product benefits: | |||||||||||||||||||
Index credits | $ | 278,940 | $ | 277,798 | $ | 92,343 | $ | 161,752 | $ | 55,925 | |||||||||
Interest credited | 48,947 | 49,482 | 49,511 | 50,478 | 47,436 | ||||||||||||||
Included in change in fair value of derivatives: | |||||||||||||||||||
Proceeds received at option expiration | (285,263 | ) | (284,624 | ) | (95,491 | ) | (166,430 | ) | (58,460 | ) | |||||||||
Pro rata amortization of option cost | 187,030 | 188,984 | 195,354 | 199,006 | 198,497 | ||||||||||||||
Cost of money for deferred annuities | $ | 229,654 | $ | 231,640 | $ | 241,717 | $ | 244,806 | $ | 243,398 | |||||||||
Weighted average liability balance outstanding | $ | 53,274,905 | $ | 53,092,419 | $ | 52,682,886 | $ | 52,009,407 | $ | 51,328,715 | |||||||||
Annuity Account Balance Rollforward
Q1 2020 | Q4 2019 | Q3 2019 | Q2 2019 | Q1 2019 | |||||||||||||||
Account balances at beginning of period | $ | 53,233,898 | $ | 52,950,937 | $ | 52,414,835 | $ | 51,603,979 | $ | 51,053,450 | |||||||||
Net deposits | 681,752 | 838,761 | 1,216,720 | 1,425,325 | 1,180,365 | ||||||||||||||
Premium bonuses | 24,552 | 36,983 | 46,968 | 48,370 | 45,621 | ||||||||||||||
Fixed interest credited and index credits | 327,887 | 327,280 | 141,854 | 212,230 | 103,361 | ||||||||||||||
Surrender charges | (19,705 | ) | (15,092 | ) | (20,537 | ) | (19,480 | ) | (16,456 | ) | |||||||||
Lifetime income benefit rider fees | (39,844 | ) | (47,630 | ) | (43,110 | ) | (41,220 | ) | (36,510 | ) | |||||||||
Surrenders, withdrawals, deaths, etc. | (892,631 | ) | (857,341 | ) | (805,793 | ) | (814,369 | ) | (725,852 | ) | |||||||||
Account balances at end of period | $ | 53,315,909 | $ | 53,233,898 | $ | 52,950,937 | $ | 52,414,835 | $ | 51,603,979 | |||||||||
Page 9
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - March 31, 2020
Unaudited (Dollars in thousands)
Annuity Deposits by Product Type
Q1 2020 | Q4 2019 | Q3 2019 | Q2 2019 | Q1 2019 | |||||||||||||||
American Equity Life: | |||||||||||||||||||
Fixed index annuities | $ | 586,063 | $ | 765,180 | $ | 1,054,796 | $ | 1,211,004 | $ | 1,027,658 | |||||||||
Annual reset fixed rate annuities | 2,331 | 1,843 | 2,340 | 3,614 | 3,448 | ||||||||||||||
Multi-year fixed rate annuities | 369 | 306 | 593 | 566 | 148 | ||||||||||||||
Single premium immediate annuities | 5,398 | 4,873 | 3,314 | 1,747 | 2,068 | ||||||||||||||
594,161 | 772,202 | 1,061,043 | 1,216,931 | 1,033,322 | |||||||||||||||
Eagle Life: | |||||||||||||||||||
Fixed index annuities | 106,502 | 67,784 | 166,081 | 235,558 | 177,480 | ||||||||||||||
Annual reset fixed rate annuities | 41 | 6 | — | 66 | 127 | ||||||||||||||
Multi-year fixed rate annuities | 4,149 | 81,041 | 79,000 | 47,004 | 25,568 | ||||||||||||||
110,692 | 148,831 | 245,081 | 282,628 | 203,175 | |||||||||||||||
Consolidated: | |||||||||||||||||||
Fixed index annuities | 692,565 | 832,964 | 1,220,877 | 1,446,562 | 1,205,138 | ||||||||||||||
Annual reset fixed rate annuities | 2,372 | 1,849 | 2,340 | 3,680 | 3,575 | ||||||||||||||
Multi-year fixed rate annuities | 4,518 | 81,347 | 79,593 | 47,570 | 25,716 | ||||||||||||||
Single premium immediate annuities | 5,398 | 4,873 | 3,314 | 1,747 | 2,068 | ||||||||||||||
Total before coinsurance ceded | 704,853 | 921,033 | 1,306,124 | 1,499,559 | 1,236,497 | ||||||||||||||
Coinsurance ceded | 17,703 | 77,399 | 86,090 | 72,487 | 54,064 | ||||||||||||||
Net after coinsurance ceded | $ | 687,150 | $ | 843,634 | $ | 1,220,034 | $ | 1,427,072 | $ | 1,182,433 | |||||||||
Surrender Charge Protection and Account Values by Product Type
Annuity Surrender Charges and Net (of Coinsurance) Account Values at March 31, 2020:
Surrender Charge | Net Account Value | ||||||||||||
Product Type | Avg. Years At Issue | Avg. Years Remaining | Avg. % Remaining | Dollars in Thousands | % | ||||||||
Fixed Index Annuities | 12.7 | 6.7 | 10.8% | $ | 51,308,622 | 96.2 | % | ||||||
Annual Reset Fixed Rate Annuities | 9.6 | 3.2 | 6.0% | 1,411,303 | 2.7 | % | |||||||
Multi-Year Fixed Rate Annuities | 4.2 | 0.7 | 1.8% | 595,984 | 1.1 | % | |||||||
Total | 12.5 | 6.5 | 10.5% | $ | 53,315,909 | 100.0 | % | ||||||
Page 10
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - March 31, 2020
Unaudited (Dollars in thousands)
Annuity Liability Characteristics
Surrender Charge Percentages: | Fixed Annuities Account Value | Fixed Index Annuities Account Value | |||||
No surrender charge | $ | 809,840 | $ | 2,661,886 | |||
0.0% < 2.0% | 13,309 | 258,393 | |||||
2.0% < 3.0% | 9,250 | 601,548 | |||||
3.0% < 4.0% | 67,465 | 1,702,164 | |||||
4.0% < 5.0% | 64,842 | 1,382,231 | |||||
5.0% < 6.0% | 151,260 | 2,872,164 | |||||
6.0% < 7.0% | 198,274 | 1,050,295 | |||||
7.0% < 8.0% | 72,007 | 5,366,366 | |||||
8.0% < 9.0% | 44,779 | 4,124,986 | |||||
9.0% < 10.0% | 97,941 | 4,138,269 | |||||
10.0% or greater | 478,320 | 27,150,320 | |||||
$ | 2,007,287 | $ | 51,308,622 | ||||
Surrender Charge Expiration By Year: | Fixed and Fixed Index Annuities Account Value | Weighted Average Surrender Charge | ||||
Out of Surrender Charge | $ | 3,471,726 | 0.00 | % | ||
2020 | 641,060 | 2.55 | % | |||
2021 | 1,227,970 | 4.00 | % | |||
2022 | 1,756,414 | 5.11 | % | |||
2023 | 4,212,150 | 5.79 | % | |||
2024 | 5,245,596 | 7.83 | % | |||
2025 | 6,009,680 | 8.90 | % | |||
2026 | 5,295,574 | 10.51 | % | |||
2027 | 4,486,908 | 12.00 | % | |||
2028 | 4,769,910 | 12.90 | % | |||
2029 | 5,983,049 | 14.11 | % | |||
2030 | 2,915,290 | 16.44 | % | |||
2031 | 3,019,076 | 17.92 | % | |||
2032 | 2,055,425 | 18.36 | % | |||
2033 | 1,179,708 | 18.83 | % | |||
2034 | 687,182 | 19.31 | % | |||
2035 | 319,932 | 19.84 | % | |||
2036 | 39,259 | 20.00 | % | |||
$ | 53,315,909 | 10.53 | % | |||
Page 11
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - March 31, 2020
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 | $ | 954,405 | $ | 1,294,288 | |||
› 0.0% - 0.25% | 49,679 | 159,787 | |||||
› 0.25% - 0.5% | 238,430 | 5,717 | |||||
› 0.5% - 1.0% | 34,406 | 11,992 | |||||
› 1.0% - 1.5% | 11,690 | — | |||||
› 2.5% - 3.0% | 23 | — | |||||
1.00% ultimate guarantee - 2.37% wtd avg interest rate (a) | 445,932 | 703,848 | |||||
1.50% ultimate guarantee - 1.17% wtd avg interest rate (a) | 143,905 | 3,336,922 | |||||
1.75% ultimate guarantee - 1.96% wtd avg interest rate (a) | 49,376 | 487,487 | |||||
2.00% ultimate guarantee - 1.85% wtd avg interest rate (a) | 79,441 | — | |||||
2.25% ultimate guarantee - 1.80% wtd avg interest rate (a) | — | 782,481 | |||||
3.00% ultimate guarantee - 2.03% wtd avg interest rate (a) | — | 1,508,495 | |||||
Allocated to index strategies (see tables that follow) | — | 43,017,605 | |||||
$ | 2,007,287 | $ | 51,308,622 | ||||
(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 March 31, 2020 for fixed annuities and funds allocated to the fixed rate strategy for fixed index annuities would decrease by 0.15%.
Page 12
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - March 31, 2020
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 | $ | 1,441 | $ | 101,682 | $ | 4,830,720 | $ | 65,006 | $ | 151,267 | |||||||||
1.75% - 3% | 8,391,960 | — | — | — | — | ||||||||||||||
3% - 4% | 272,798 | 3,780 | — | — | — | ||||||||||||||
4% - 5% | 832,438 | 217,207 | 1,539,010 | — | — | ||||||||||||||
5% - 6% | 572,344 | 185,341 | 30,971 | — | — | ||||||||||||||
6% - 7% | — | — | 419 | — | — | ||||||||||||||
>= 7% | 10,924 | 6,534 | 697 | 5,647 | — | ||||||||||||||
Annual Monthly Average and Point-to-Point with Participation Rates | |||||||||||||||
Minimum Guaranteed Participation Rate | |||||||||||||||
10% | 20% - 25% | 35% | 50% + | ||||||||||||
Current Participation Rate | |||||||||||||||
At minimum | $ | 12,728 | $ | 385,186 | $ | 99,552 | $ | 104,039 | |||||||
< 20% | 842,383 | — | — | — | |||||||||||
20% - 40% | 1,084,271 | 165,157 | — | — | |||||||||||
40% - 60% | 3,286,370 | 95,700 | 58,161 | — | |||||||||||
60% - 100% | 510,927 | — | — | — | |||||||||||
> 100% | 451,373 | — | — | — | |||||||||||
S&P 500 Monthly Point-to-Point - Minimum Guaranteed Monthly Cap = 1.0% | |||
Current Cap | |||
At minimum | $ | 1,962,439 | |
1.10% - 1.30% | 7,355,636 | ||
1.40% - 1.60% | 2,149,738 | ||
1.70% - 2.00% | 380,629 | ||
>= 2.10% | 1,577 | ||
Volatility Control Index | |||
Current Asset Fee | |||
At Maximum | $ | — | |
0.75% - 1.75% | 399,738 | ||
2.25% - 2.75% | 208,295 | ||
3.00% - 3.50% | 2,776,372 | ||
3.75% - 5.00% | 2,047,309 | ||
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 0.75% based upon prices of options for the week ended April 17, 2020.
Page 13
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - March 31, 2020
Unaudited (Dollars in thousands)
Summary of Invested Assets
March 31, 2020 | December 31, 2019 | ||||||||||||
Carrying Amount | Percent | Carrying Amount | Percent | ||||||||||
Fixed maturity securities: | |||||||||||||
United States Government full faith and credit | $ | 39,248 | 0.1 | % | $ | 161,765 | 0.3 | % | |||||
United States Government sponsored agencies | 338,561 | 0.6 | % | 625,020 | 1.1 | % | |||||||
United States municipalities, states and territories | 3,765,163 | 7.2 | % | 4,527,671 | 7.9 | % | |||||||
Foreign government obligations | 198,396 | 0.4 | % | 205,096 | 0.3 | % | |||||||
Corporate securities | 31,135,319 | 59.8 | % | 32,536,839 | 57.2 | % | |||||||
Residential mortgage backed securities | 1,765,033 | 3.4 | % | 1,575,664 | 2.8 | % | |||||||
Commercial mortgage backed securities | 5,296,112 | 10.2 | % | 5,786,279 | 10.2 | % | |||||||
Other asset backed securities | 5,167,035 | 9.9 | % | 6,162,156 | 10.8 | % | |||||||
Total fixed maturity securities | 47,704,867 | 91.6 | % | 51,580,490 | 90.6 | % | |||||||
Mortgage loans on real estate | 3,668,625 | 7.0 | % | 3,448,793 | 6.1 | % | |||||||
Derivative instruments | 207,265 | 0.4 | % | 1,355,989 | 2.4 | % | |||||||
Other investments | 497,598 | 1.0 | % | 492,301 | 0.9 | % | |||||||
$ | 52,078,355 | 100.0 | % | $ | 56,877,573 | 100.0 | % | ||||||
Credit Quality of Fixed Maturity Securities - March 31, 2020
NAIC Designation | Carrying Amount | Percent | Rating Agency Rating | Carrying Amount | Percent | |||||||||||
1 | $ | 27,739,779 | 58.2 | % | Aaa/Aa/A | $ | 28,334,402 | 59.4 | % | |||||||
2 | 18,999,760 | 39.8 | % | Baa | 18,386,135 | 38.5 | % | |||||||||
3 | 838,628 | 1.8 | % | Ba | 770,834 | 1.6 | % | |||||||||
4 | 104,090 | 0.2 | % | B | 73,263 | 0.2 | % | |||||||||
5 | 18,433 | — | % | Caa | 63,808 | 0.1 | % | |||||||||
6 | 4,177 | — | % | Ca and lower | 76,425 | 0.2 | % | |||||||||
$ | 47,704,867 | 100.0 | % | $ | 47,704,867 | 100.0 | % | |||||||||
Watch List Securities - March 31, 2020
General Description | Amortized Cost | Allowance for Credit Losses | Amortized Cost, Net of Allowance | Unrealized Gains (Losses), Net of Allowance | Fair Value | Months Below Amortized Cost | ||||||||||||||||
Below investment grade | ||||||||||||||||||||||
Corporate securities: | ||||||||||||||||||||||
Energy | $ | 59,078 | $ | (28,332 | ) | $ | 30,746 | $ | (20,009 | ) | $ | 10,737 | 1 - 67 | |||||||||
Other asset backed securities: | ||||||||||||||||||||||
Financials | 430 | — | 430 | 759 | 1,189 | — | ||||||||||||||||
$ | 59,508 | $ | (28,332 | ) | $ | 31,176 | $ | (19,250 | ) | $ | 11,926 | |||||||||||
Page 14
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - March 31, 2020
Unaudited (Dollars in thousands)
Fixed Maturity Securities by Sector
March 31, 2020 | December 31, 2019 | ||||||||||||||
Amortized Cost | Fair Value | Amortized Cost | Fair Value | ||||||||||||
Available for sale: | |||||||||||||||
United States Government full faith and credit and sponsored agencies | $ | 330,223 | $ | 377,809 | $ | 763,164 | $ | 786,785 | |||||||
United States municipalities, states and territories | 3,357,142 | 3,765,163 | 4,147,343 | 4,527,671 | |||||||||||
Foreign government obligations | 187,007 | 198,396 | 186,993 | 205,096 | |||||||||||
Corporate securities: | |||||||||||||||
Capital goods | 2,544,057 | 2,680,266 | 2,550,750 | 2,794,986 | |||||||||||
Consumer discretionary | 6,132,996 | 6,516,325 | 6,082,974 | 6,658,120 | |||||||||||
Energy | 2,684,838 | 2,337,328 | 2,499,030 | 2,677,646 | |||||||||||
Financials | 6,696,595 | 7,046,008 | 6,737,325 | 7,323,150 | |||||||||||
Government non-guaranteed | 539,422 | 585,723 | 539,639 | 606,308 | |||||||||||
Industrials | 279,913 | 297,855 | 311,269 | 336,537 | |||||||||||
Information technology | 1,836,085 | 1,980,470 | 1,868,131 | 2,051,175 | |||||||||||
Materials | 1,813,196 | 1,862,854 | 1,818,048 | 1,961,033 | |||||||||||
Other | 439,067 | 491,461 | 439,171 | 469,344 | |||||||||||
Telecommunications | 1,486,265 | 1,597,736 | 1,510,836 | 1,664,350 | |||||||||||
Transportation | 1,560,463 | 1,577,187 | 1,486,540 | 1,603,997 | |||||||||||
Utilities | 3,866,623 | 4,162,106 | 3,978,459 | 4,390,193 | |||||||||||
Residential mortgage backed securities: | |||||||||||||||
Government agency | 607,480 | 696,014 | 591,100 | 646,787 | |||||||||||
Prime | 971,183 | 961,342 | 793,357 | 815,916 | |||||||||||
Alt-A | 92,803 | 107,677 | 93,281 | 112,961 | |||||||||||
Commercial mortgage backed securities: | |||||||||||||||
Government agency | 412,480 | 461,837 | 414,626 | 437,420 | |||||||||||
Non-agency | 5,128,127 | 4,834,275 | 5,176,541 | 5,348,859 | |||||||||||
Other asset backed securities: | |||||||||||||||
Auto | 394,523 | 388,643 | 403,860 | 411,371 | |||||||||||
Energy | 7,411 | 8,980 | 7,495 | 8,603 | |||||||||||
Financials | 4,441 | 4,868 | 4,967 | 5,493 | |||||||||||
Industrials | 146,984 | 136,083 | 167,466 | 171,273 | |||||||||||
Collateralized loan obligations | 4,762,537 | 3,619,087 | 4,787,402 | 4,612,694 | |||||||||||
Military housing | 469,816 | 528,335 | 471,621 | 539,029 | |||||||||||
Other | 502,386 | 481,039 | 407,558 | 413,693 | |||||||||||
$ | 47,254,063 | $ | 47,704,867 | $ | 48,238,946 | $ | 51,580,490 | ||||||||
Page 15
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - March 31, 2020
Unaudited (Dollars in thousands)
Mortgage Loans on Commercial Real Estate
March 31, 2020 | December 31, 2019 | |||||||||||||
Principal | Percent | Principal | Percent | |||||||||||
Geographic distribution | ||||||||||||||
East | $ | 705,459 | 19.1 | % | $ | 645,991 | 18.7 | % | ||||||
Middle Atlantic | 290,232 | 7.9 | % | 284,597 | 8.2 | % | ||||||||
Mountain | 393,338 | 10.7 | % | 389,892 | 11.3 | % | ||||||||
New England | 11,284 | 0.3 | % | 9,152 | 0.3 | % | ||||||||
Pacific | 730,262 | 19.8 | % | 655,518 | 19.0 | % | ||||||||
South Atlantic | 809,663 | 21.9 | % | 751,199 | 21.7 | % | ||||||||
West North Central | 304,069 | 8.2 | % | 302,534 | 8.7 | % | ||||||||
West South Central | 444,995 | 12.1 | % | 420,031 | 12.1 | % | ||||||||
$ | 3,689,302 | 100.0 | % | $ | 3,458,914 | 100.0 | % | |||||||
Property type distribution | ||||||||||||||
Office | $ | 262,446 | 7.1 | % | $ | 250,287 | 7.3 | % | ||||||
Medical Office | 29,551 | 0.8 | % | 29,990 | 0.9 | % | ||||||||
Retail | 1,222,985 | 33.2 | % | 1,225,670 | 35.4 | % | ||||||||
Industrial/Warehouse | 938,104 | 25.4 | % | 896,558 | 25.9 | % | ||||||||
Apartment | 956,947 | 25.9 | % | 858,679 | 24.8 | % | ||||||||
Agricultural | 95,606 | 2.6 | % | 51,303 | 1.5 | % | ||||||||
Mixed use/Other | 183,663 | 5.0 | % | 146,427 | 4.2 | % | ||||||||
$ | 3,689,302 | 100.0 | % | $ | 3,458,914 | 100.0 | % | |||||||
March 31, 2020 | December 31, 2019 | |||||||||||||
Credit exposure - by payment activity | ||||||||||||||
Performing | $ | 3,685,050 | $ | 3,458,914 | ||||||||||
In workout | — | — | ||||||||||||
Delinquent | — | — | ||||||||||||
Collateral dependent | 4,252 | — | ||||||||||||
Principal outstanding | 3,689,302 | 3,458,914 | ||||||||||||
Deferred prepayment fees | (901 | ) | (942 | ) | ||||||||||
Amortized cost | 3,688,401 | 3,457,972 | ||||||||||||
Valuation allowance | (19,776 | ) | (9,179 | ) | ||||||||||
Carrying value | $ | 3,668,625 | $ | 3,448,793 | ||||||||||
Page 16
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - March 31, 2020
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 | ||||
2020 | |||||||
First Quarter | $34.16 | $9.07 | $18.80 | $0.00 | |||
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 | |||
Fourth Quarter | $30.96 | $21.75 | $29.93 | $0.30 | |||
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 | |||
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 - March 31, 2020
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
Piper Sandler & Co.
(312) 281-3412
John.Barnidge@psc.com
Mark Hughes
SunTrust Robinson Humphrey
(615) 748-4422
mark.hughes@suntrust.com
Page 18
Investment Update 1Q 2020 Investments & Capital Update As of March 31, 2020
Forward Looking Statements The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” to encourage companies to provide prospective information, so long as those informational statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those included in the forward-looking statements. Certain information contained herein and certain oral statements made in reference thereto may be “forward-looking” in nature. 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 include, but are not limited to, the effects of the COVID-19 virus on economic conditions and the financial markets and the resulting effect on American Equity Investment Life Holding Company’s (“AEL”) investment portfolio, expected future operating results, liquidity and capital resources. Resiliency analysis and stress testing include methodologies, estimates, models and assumptions, the actual results of which could vary from those contained herein impacting the performance of our investment portfolio. For a discussion of the other risks and uncertainties related to AEL’s forward-looking statements, see the company’s annual report on Form 10-K for the year-ended December 31, 2019 and its other filings, which can be found on the SEC’s website www.sec.gov. 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. Disclaimer This presentation does not constitute an offer to sell, or the solicitation of any offer to buy, any security of AEL. Information contained herein may include information respecting prior performance of AEL. Information respecting prior performance, while a useful tool, is not necessarily indicative of actual results to be achieved in the future, which is dependent upon many factors, many of which are beyond AEL’s control. The information contained herein is not a guarantee of future performance by AEL, and actual outcomes and results may differ materially from any historic or projected resiliency analysis, stress testing, or financial results indicated herein. Certain financial information is based on estimates of management. These estimates, which are based on the reasonable expectations of management, are subject to change and there can be no assurance that they will prove to be correct, particularly because of the heightened uncertainty in the global financial markets and on our business from the effects of the spread of the COVID-19 virus. The information contained herein does not purport to be all-inclusive or contain all information that an evaluator may require in order to properly evaluate the business, prospects or value of AEL. AEL does not have any obligation to update this presentation and the information may change without notice. Certain of the information used in this presentation was obtained from third parties or public sources. No representation or warranty, express or implied, is made or given by or on behalf of AEL or any other party as to the accuracy, completeness or fairness of such information, and no responsibility or liability is accepted for any such information. This document is not intended to be, nor should it be construed or used as, financial, legal, tax, insurance or investment advice. There can be no assurance that AEL will achieve its objectives. Past performance is not indicative of future results. All information is as of the dates indicated herein. 2
Conservative High Quality Investment Portfolio Sector Allocation Credit Quality $52 Billion Investment Portfolio Other 2% CMBS 10% Mortgage Residential MBS Loans 7% NAIC 1 3% Corporates 58% Cash & NAIC 2 58% Equivalents 40% 3% Government and related 8% CLO 9% NAIC 3 and below 2% • Well-diversified by sector and issuer • High-quality investment portfolio • Traditional corporate credit & structured • 98% NAIC 2 (BBB) or better securities • 58% NAIC 1 (A or better) • Highly liquid (11% cash & equivalents and • A- average credit quality Govt & related) 3
Corporate Credit Overview Sector Allocation Credit Quality $28.9B or 58% of Invested Assets Brokerage/Asset Natural Gas, 2% B & Below Managers/Exchanges, 0% 2% Other, BB AAA Owned, No Guarantee, 2% AA 4% BBB- 9% 2% 3% 8% Consumer, Non- Cyclical, 13% Transportation, 5% REITs, 5% Capital Goods, 9% BBB 22% Communications, 5% Energy, 9% A 37% Banking, 5% Insurance, 8% Technology 6% Basics, 6% BBB+ Consumer Electric, 10% 20% Cyclical, 7% • Substantial net unrealized gains of $1.2B as • Exceptional credit quality supported by 98% of March 31, 2020 investment grade securities • Disciplined credit review process • Average corporate portfolio credit rating of A- • Broadly diversified across credit sectors • BBB- represent only 9% of corporate holdings 4
Corporate Credit: Energy Overview Composition by Sub-Sector $2.5B or 4.8% of Invested Assets • Low risk sub-sectors include midstream, integrated majors and refiners (68% of position or $1.7B) Oil Field • Midstream: Supported by stable, long term Services, 15% contracts and cost competitive, difficult to replace assets • Integrated Majors & Refiners: business model has lower risks of margin sensitivity Midstream, and cash flow volatility Independent, 16% 45% • Elevated risk in sub-sector of Oil Field Service: Oil Drillers $56M diversified across 7 issuers Refining, • Impaired by $68m over past few quarters 6% • Average carrying value of 45 cents on the dollar (of par) Integrated, 18% 5
Corporate Credit: Retail/Lodging & Leisure Retail Lodging & Leisure $862M or 1.7% of Invested Assets Royal Carribean Dept Stores/ Retail - 10% Tier 3, 16% Marriott 21% Examples Nordstrom Kohls Brand/ Big Box - Macy Tier 1, 54% Carnival Corp 16% Consumer Discretionary - Tier 2, Hyatt Hotels 7% 30% Examples Nike Tampa Bay Arena Examples Walmart 4% Family Dollar Costco Walgreens Target Int'l Speedway 8% O'Reilly Auto Parts Lowes Advanced Auto Home Depot Ross Stores Amazon Clark County LV Stadium 35% • Retail represents $718M or 1.4% of invested • Lodging and Leisure represents $144M or 0.3% of assets invested assets • Predominantly focused on strong retail • Seven holdings in total brands and e-commerce enabled credits • Multiple credits have recently placed debt and/or equity offerings indicating access to capital markets 6
Corporate Credit: Aircraft/Lessors/Commercial Aerospace NAIC Ratings By Exposure Type $574M or 1.1% of Invested Assets NAIC 3 6% Commercial Aerospace 44% Airline NAIC 2 NAIC 1 38% 56% EETC’s* 56% *Enhanced Equipment Trust Certificates • Airline EETC’s collateralized by relatively young narrow and wide-body aircraft • No unsecured exposure to airlines • Commercial aerospace exposures reside with critical aircraft and engine manufacturers 7
CLO Overview Ratings Profile Structural Enhancements $4.8B or 9% of Invested Assets • All positions are CLO vintage 3.0 (post Great AA BB Financial Crisis – “GFC”); superior structure design 4% 8% • Limits non-loan collateral (No structured or HY bonds) A • Shorter cash reinvestment period 33% • Higher first lien loan requirements BBB • Higher par coverage support/ subordination across all 55% tranches pre versus post crisis: • AAA : 24% to 35+% • AA: 19% to 24% • A : 13% to 19% • BBB: 9% to 13% • All rated by either Moody’s or S&P • 98% First Lien • 97% Broadly syndicated loans 8
CLO: Well Diversified Underlying Collateral Well Diversified Underlying Collateral Top 10 industries represent approximately 73% of the portfolio with low exposure to COVID-19 sectors Below-average exposure to several industries most vulnerable to COVID-19 shock 9
CLO: Manager Selection & Diversification AEL approved managers experienced defaults 64% below the market from 1999-2017 Default Performance 12% 10% 8% 6% 4% 2% 0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 *Credit Suisse Leveraged Loan Default Rate AEL Approved Managers Market* • Approximately 130 active US CLO managers, AEL’s selected managers are in the top 1/3 in default performance 10
CLO: Collateral Composition Moody’s Facility Rating 40% 35% 30% 25% 20% 15% 10% 5% 0% Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3 Caa1 Caa2 Caa3 Ca C NR Source: JP Morgan as of 4/13/2020 American Equity JP Morgan Loan Index • AEL maintains an up-in-quality collateral bias 11
CLO: Resiliency Analysis No expected permanent credit losses in a more severe peak default scenario than the GFC • No modeled permanent credit loss CLO Portfolio Peak Annual Minimum Book Value even if peak defaults are 25% higher Scenario Impairment % Default Rate Recovery Rate Loss than GFC (9.6% default with ~40% Great Financial Crisis (GFC) 0.0% 9.6% 43.2% $0 recoveries) 110% of GFC with depressed recoveries 0.0% 10.6% 38.2% $0 • No modeled loss to the rated BBB or 125% of GFC 0.0% 12.0% 43.2% $0 higher even if peak defaults are 75% 175% of GFC BBB 0.0% 16.8% 43.2% $0 higher than GFC (16.8% peak annual BB 100.0% 16.8% 43.2% $389M defaults) Great Financial Crisis - Defaults* Great Financial Crisis - Recoveries* 12% 80% 10% 60% 8% 40% 6% 20% 4% 2% 0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Market Recovery Rate Market Default Rate 125% Market Default Rate *Source: Credit Suisse Leveraged Loans Index 12
Non-Agency CMBS Overview $5.1B or 9.8% of Invested Assets Property Type Ratings Distribution Securitization Type BB 0% BBB Other 8% Conduit A 75% Industrial 4% 15% 38% AAA Retail 35% 13% Multi-Family 10% Lodging 10% Single Asset AA Single Borrower 41% Office 25% (SASB) Agency - Non- 23% Guaranteed 2% • All fixed rate transactions issued after the GFC • Average credit quality – A+ • Diversified portfolio: 13,823 loans on 23,390 properties 13
Non-Agency CMBS: Single Asset Single Borrower (SASB) SASB Office: $493 Million . Gateway Markets . Strong Demographics . High Quality Tenants . Institutional Ownership LTV: 50.9% DSCR: 2.29x Viacom/CBS Headquarters Time Square Google Office Campus Madison Avenue – Jeffries Global HQ Manhattan - Colgate Palmolive Global HQ SASB Retail: $517 Million . Strong Demographics . High Inline Sales . Institutional Ownership LTV: 55.7% DSCR: 2.40x Mall of America Queens Center, Brooklyn NY Mall Willowbrook Mall, 20 miles West of Midtown Fashion Show Mall - Vegas Green Street rates malls on a scale from A++ (highest) to C- (lowest) 14
Non-Agency CMBS: Lodging & Retail Lodging: $529 Million Retail: $1.7 Billion Drug Store 3% Single Tenant Extended Stay 7% 17% Urban / Street Retail Full Service 10% Mall 41% 43% Community Shopping/Power Center * Limited Service 18% 42% Neighborhood / Convenience Centers 19% LTV: 62.8% DSCR: 2.01x LTV: 60.6% DSCR: 1.97x * includes Outlet and Lifestyle Centers • No exposure to single-asset lodging • Diversified exposure to retail assets or hotel deals • Nearly 60% of the mall exposure is within • Diversified consumer price point and Single Asset Single Borrower (SASB) lodging type transactions on traditionally high-quality, top-tier malls 15
Non-Agency CMBS: Disciplined Investment Process Lower refinancing risks in 2020-2021 and low exposure to interest-only vintages Lower Exposure to Issuance Years with Higher Interest Only Levels CMBS Principal Paydown Schedule 25.0% 100% 91% $1,200,000,000 83% 90% 78% 20.0% 75% 80% $1,000,000,000 67% 67% 64% 70% $800,000,000 15.0% 60% Market Conduit 50% - AEL Allocation 50% $600,000,000 34% 10.0% Total Interest Only 40% $400,000,000 25% 30% 5.0% 13% 20% $200,000,000 AEL allocation by Issuance Year Issuance by allocation AEL 10% 0.0% 0% $- 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030+ Avg Interest Only Exposure Only Interest Avg * Total Interest Only includes full term and partial term IO loans As underwriting quality weakened in conduit Less than $200 million in CMBS paydowns by lending standards, AEL reduced its purchases in year end 2021 will allow more time for a market new issue securitizations recovery before loan maturities begin 16
CMBS: Higher Credit Enhancements Credit Enhancement: American Equity Conduit CMBS vs Universe Average 30.00 AEL Universe 25.00 20.00 15.00 10.00 5.00 0.00 AAA AA A BBB BB • AEL has higher credit enhancement • A disciplined investment process is across all rating categories demonstrated through stronger collateral performance 17
Non-Agency CMBS: Resiliency Analysis Minimal expected losses • Modeled life time losses - 0.9 -1.2% of holdings Conduit American Equity Conduit • Under the GFC scenario with 50% loss severity- Universe Portfolio $46m of loss % of Trust Trust Impairment CMBS • Additional severe stress for retail & lodging Scenario Losses Losses Estimate Portfolio Great Financial Crisis sectors to represent COVID-19 situation, 8.91% 8.47% 46,454,707 0.89% produces an incremental $14m loss (total: $60m) Default w/ 50% Severity Covid Stress (Retail & • Severe stress to underlying Lodging and Retail Lodging) / Great Financial 9.44% 8.89% 60,280,455 1.16% property cash flows, declining by 60% and 30% Crisis with 50% Severity for respectively, with recovery over 18+ months others Great Financial Crisis* - Default Curve COVID-19 Stress Curves Steep declines in NCF followed by 18 Month Recovery 10.00% 120% 9.00% 100% 8.00% 95% 7.00% 80% 6.00% 37% Cumulative Defaults 50% Loss Severity 5.00% 60% 4.00% Hotel - 60% NCF Decline 40% 3.00% Retail - 30% NCF Decline 2.00% 20% 1.00% Annual RealizedAnnual Default Rate 0% 0.00% % Change of Net Cash Flow (NCF) 0 1 2 3 4 1 2 3 4 5 6 7 8 9 10 11+ Years post NCF decline Years * Performance based on actual realized defaults from the cohort of conduit CMBS issued during 2007. This cohort recorded the highest level of defaults. 18
Commercial Mortgage Loan Overview Property Type NAIC Ratings $3.6B or 6.9% of Invested Assets Multi-Family Properties 26% Office/Medical CM2 Office 8% 19% Self Industrial/Warehouse Storage, 26% MHP, AG 6% CM1 81% Strip Retail 29% Grocery Anchored Retail 5% • 793 first mortgage loans, average loan size • Geographically well-diversified $4.3 million • Undervalued portfolio strength, only 8% in office • Weighted average portfolio: 59% LTV and 1.87x portfolio DSC ratio • Retail concentration down from 39% to 34% over last 3 years • Per NAIC CM ratings: 81% rated CM1 and 19% rated CM2 • No exposure to hotels, malls or leisure-related • Per internal ratings: 95% of portfolio rated 1 or properties 2 on a scale of 1 to 5 with 1 being highest 19
Commercial Mortgage Loan: Portfolio Performance Historical Losses $18,000,000 $16,000,000 .59% .49% $14,000,000 $12,000,000 .37% $10,000,000 .37% $8,000,000 $6,000,000 .20% .16% $4,000,000 .08% .05% $2,000,000 .03% $- • Cumulative losses over 20-year - less than $70 million • Peak loss in any one year following the GFC : $15 million or 59 basis points • Proven process for strong underwriting and risk management 20
Commercial Mortgage Loan: Resiliency Analysis Strip Retail with Anchor Universe: • 269 loans totaling $1.07B • Average loan size of $4M, weighted average LTV 60% • Weighted average DSC ratio of 1.79x • 47% of strip retail rated 1 and 51% rated 2, per internal rating system Stress Scenario definition: • Decreasing all retail properties revenues (net operating income) immediately by 30% flat (no recovery in the year) Result: Highlights “most exposed” loans without indicating any imminent permanent credit loss • 58 loans with an aggregate balance of $238M - DSC ratio of less than 1.0x • Indicates areas of potentially heightened exposure which may require borrower assistance or reworking of loan terms (no immediate permanent credit loss expectation) • If we applied a 7% cap rate to this stressed NOI - 15 loans totaling $113 million would have both a DSC ratio of less than 1.0x and over 100% LTV, with a combined collateral shortfall of $12 million 21
Capital Sensitivity to Adverse Recessionary Scenario 12-18 month economic recession consistent with the Federal Reserve CCAR stress test March 31, 2020 Pro Forma Estimated Risk- Based Capital (RBC) Ratio 396% Modeled Credit Losses ~ 25% Modeled Ratings Migration ~ 50% Net Risk-Based Capital Ratio1 ~ 320% 1. Excludes retained earnings or other management actions over the modeled period 22