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American Equity Reports Third Quarter 2010 Operating Earnings of $27.6 Million or $0.45 Per Diluted Common Share

WEST DES MOINES, Iowa, Nov 08, 2010 (BUSINESS WIRE) --

American Equity Investment Life Holding Company (NYSE: AEL), a leading underwriter of index and fixed rate annuities, reported 2010 third quarter operating income1 of $27.6 million, or $0.45 per diluted common share, a 2% decrease compared to 2009 third quarter operating income of $28.2 million, or $0.47 per common diluted share. Highlights for the third quarter of 2010 and the first nine months of 2010 include:

  • American Equity's annuity sales (before coinsurance) increased 12% to $3.1 billion for the first nine months of 2010 compared to $2.8 billion for the same period in 2009.
  • Invested assets at September 30, 2010 increased 15% to $18.5 billion compared to $16.1 billion at September 30, 2009.
  • Investment spread on annuity liabilities was 3.09% for the third quarter of 2010 compared to 3.13% for the same period in 2009.
  • Book value per share including accumulated other comprehensive income of increased to $18.03 compared to $13.08 at December 31, 2009.

Net income for the third quarter of 2010 was $20.5 million, compared to a net loss of $3.0 million for the same period in 2009.

AMERICAN EQUITY ANNUITY SALES AT ALL TIME HIGHS
Sales of new annuities reached record levels during the third quarter of 2010 with average monthly sales volumes exceeding $400 million per month. The increase in the pace of sales reflects continued high demand for safe money products as a result of market volatility as well as the relatively lower rates available on competing products such as bank certificates of deposit. In addition, rate reductions by competitors helped drive a higher volume of sales to American Equity. Finally, the demise of Securities and Exchange Commission Rule 151A has lifted an impediment to sales caused by the uncertainty surrounding the impact of that Rule on the index annuity market. Commented David J. Noble, Founder and Executive Chairman of American Equity: "Our commitment to quality products, excellent service and long term relationships with producers and policyholders is the key to our success in sales. Our commitment to quality assets and disciplined spread management is the key to our success in earnings. American Equity has never been in a better position to capitalize on these strengths."

In light of the continued growth in sales, management of American Equity is focused on maintaining its regulatory capital at a level which would exceed that required to maintain its "A-" (Excellent) rating from A.M. Best Company. At September 30, 2010, American Equity's risked based capital ratio (RBC) is approximately 363%, and thus remains well above the company's target.

INVESTMENT SPREAD REMAINS STABLE DESPITE LOW INTEREST RATES
American Equity achieved an aggregate investment spread (defined as the yield on invested assets over the cost of money on annuity liabilities) of 3.09% for the third quarter of 2010 compared to 3.13% for the same period last year. This decline was primarily due to a heightened level of short-term and temporary cash investments which averaged $884 million during the third quarter of 2010. Due to the low interest rate environment, calls for redemption of bonds held by the company remained high in the third quarter of 2010, with $1.8 billion in securities called, sold or prepaid with an average yield of 6.06%. Purchases of new securities during the third quarter of 2010 included fixed maturity securities aggregating $2.3 billion at an average yield of 5.39%. During this period the company also funded $66 million of new commercial mortgage loans at an average yield of 6.42%. The average yield on invested assets for the third quarter of 2010 was 5.98% compared to 6.38% for the same period last year, reflecting the low levels of market rates currently available as well as a general tightening of credit spreads. The impact of short-term and temporary cash investments on the average yield was a reduction of approximately 0.27% based on the average rates for new investments made during the quarter.

The cost of money on annuity liabilities declined to 2.89% for the third quarter of 2010 compared to 3.25% for the same period in 2009. This decline is primarily due to lower costs on options purchased to fund index credits on index annuities as well as gains received on options in excess of crediting liabilities. The impact of gains on such over hedging was approximately 0.11%. Adjusted for the impact on yield from short-term and temporary cash investments and the impact on the cost of money from over hedging, the aggregate investment spread for the third quarter of 2010 would have been approximately 3.25%. Investment yield and aggregate investment spread for the third quarter of 2010 also included 0.06% from incremented prepayment income.

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 todiffer 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 2010 earnings on Tuesday, November 9, 2010, at 10 a.m. CST. 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 866-202-4683, passcode 87096638 (international callers, please dial 617-213-8846). An audio replay will be available shortly after the call on AEL's web site. An audio replay will also be available via telephone through November 30, 2010 by calling 888-286-8010, passcode 36295664 (international callers will need to dial 617-801-6888).

ABOUT AMERICAN EQUITY
American Equity Investment Life Holding Company, through its wholly-owned operating subsidiaries, is a full service underwriter of annuity and life insurance products, with a primary emphasis on the sale of index and fixed rate annuities. The company's headquarters are located at 6000 Westown Parkway, West Des Moines, Iowa, 50266. The mailing address of the company is: P.O. Box 71216, Des Moines, Iowa 50325.

1 In addition to net income, American Equity has consistently utilized operating income, a non-GAAP financial measure commonly used in the life insurance industry, as an economic measure to evaluate its financial performance. See accompanying tables for the reconciliation of net income (loss) to operating income and a description of reconciling items. See the Company's Quarterly Report on Form 10-Q for a more complete discussion of the reconciling items and their impact on net income (loss) for the periods presented.

American Equity Investment Life Holding Company
Net Income (Loss)/Operating Income (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2010 2009 2010 2009
(Dollars in thousands, except per share data)
Revenues:
Traditional life and accident and health insurance premiums $ 3,181 $ 3,166 $ 9,111 $ 9,519
Annuity product charges 18,538 15,835 52,673 47,501
Net investment income 260,475 241,471 758,230 688,928
Change in fair value of derivatives 93,980 121,507 (32,742 ) 108,178
Net realized gains on investments, excluding other than
temporary impairment ("OTTI") losses 11,298 5,510 22,264 10,587
OTTI losses on investments:
Total OTTI losses (2,160 ) (94,216 ) (16,347 ) (171,668 )

Portion of OTTI losses recognized in other comprehensive income

(1,830 ) 49,641 8,316 108,012
Net OTTI losses recognized in operations (3,990 ) (44,575 ) (8,031 ) (63,656 )
Gain (loss) on extinguishment of debt - - (292 ) 3,098
Total revenues 383,482 342,914 801,213 804,155
Benefits and expenses:
Insurance policy benefits and change in future policy benefits 2,128 2,737 6,629 6,910
Interest sensitive and index product benefits 159,155 75,288 584,842 207,028
Amortization of deferred sales inducements 5,184 (8,081 ) 21,516 17,814
Change in fair value of embedded derivatives 114,823 259,737 (11,513 ) 414,636
Interest expense on notes payable 4,940 3,370 14,264 11,288
Interest expense on subordinated debentures 3,805 3,841 11,206 12,078
Interest expense on amounts due under repurchase agreements - 100 - 344
Amortization of deferred policy acquisition costs 45,795 (2,972 ) 73,980 44,938
Other operating costs and expenses 16,213 13,961 48,900 45,305
Total benefits and expenses 352,043 347,981 749,824 760,341
Income (loss) before income taxes 31,439 (5,067 ) 51,389 43,814
Income tax expense (benefit) 10,925 (2,089 ) 17,494 11,305
Net income (loss) 20,514 (2,978 ) 33,895 32,509
Net realized gains and net OTTI losses on investments, net of offsets (1,950 ) 11,491 (4,308 ) 10,954
Convertible debt retirement, net of income taxes - - 171 (1,520 )
Net effect of derivative and other index annuity, net of offsets 8,998 19,640 52,795 31,121
Operating income (a) $ 27,562 $ 28,153 $ 82,553 $ 73,064
Earnings (loss) per common share $ 0.35 $ (0.05 ) $ 0.58 $ 0.59
Earnings (loss) per common share - assuming dilution $ 0.33 $ (0.05 ) $ 0.56 $ 0.57
Operating income per common share (a) $ 0.47 $ 0.49 $ 1.41 $ 1.32
Operating income per common share - assuming dilution (a) $ 0.45 $ 0.47 $ 1.34 $ 1.27
Weighted average common shares outstanding (in thousands):
Earnings per common share 58,564 58,030 58,422 55,462
Earnings per common share - assuming dilution 62,498 60,833 62,246 58,231
American Equity Investment Life Holding Company
Operating Income
Three months ended September 30, 2010 (Unaudited)
Adjustments
Realized Gains Derivative
and Convertible and Other Operating

As Reported

Debt

Index Annuity

Income (a)

(Dollars in thousands, except per share data)
Reserves:
Traditional life and accident and health insurance premiums $ 3,181 $ - $ - $ 3,181
Annuity product charges 18,538 - - 18,538
Net investment income 260,475 - - 260,475
Change in fair value of derivatives 93,980 - (76,885 ) 17,095
Net realized gains on investments, excluding other than - -
temporary impairment ("OTTI") losses 11,298 (11,298 ) - -
Net OTTI losses recognized in operations (3,990 ) 3,990 - -
Total revenues 383,482 (7,308 ) (76,885 ) 299,289
Benefits and expenses:
Insurance policy benefits and change in future policy benefits 2,128 - - 2,128
Interest sensitive and index product benefits 159,155 - (3,488 ) 155,667
Amortization of deferred sales inducements 5,184 (1,991 ) 21,749 24,942
Change in fair value of embedded derivatives 114,823 - (113,340 ) 1,483
Interest expense on notes payable 4,940 - - 4,940
Interest expense on subordinated debentures 3,805 - - 3,805
Amortization of deferred policy acquisition costs 45,795 (2,295 ) 4,254 47,754
Other operating costs and expenses 16,213 - - 16,213
Total benefits and expenses 352,043 (4,286 ) (90,825 ) 256,932
Income before income taxes 31,439 (3,022 ) 13,940 42,357
Income tax expense 10,925 (1,072 ) 4,942 14,795
Net income $ 20,514 $ (1,950 ) $ 8,998 $ 27,562
Earnings per common share $ 0.35 $ 0.47
Earnings per common share - assuming dilution $ 0.33 $ 0.45

(a) In addition to net income (loss), we have consistently utilized operating income, operating income per common share and 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. Operating income equals net income (loss) adjusted to eliminate the impact of net realized gains and losses on investments including net OTTI losses recognized in operations and related deferred tax valuation allowance, gain (loss) on extinguishment of convertible debt, fair value changes in derivatives and embedded derivatives and the Lehman counterparty default on expired call options. Because these items fluctuate from quarter to quarter in a manner unrelated to core operations, we believe measures excluding their impact are useful in analyzing operating trends. We believe the combined presentation and evaluation of operating income together with net income (loss), provides information that may enhance an investor's understanding of our underlying results and profitability.

SOURCE: American Equity Investment Life Holding Company

American Equity Investment Life Holding Company
Wendy C. Waugaman, 515-457-1824
Chief Executive Officer
wcwaugaman@american-equity.com
or
John M. Matovina, 515-457-1813
Chief Financial Officer
jmatovina@american-equity.com
or
Julie L. LaFollette, 515-273-3602
Director of Investor Relations
jlafollette@american-equity.com
or
Debra J. Richardson, 515-273-3551
Chief Administrative Officer
drichardson@american-equity.com

Mailing Address
P.O. Box 71216
Des Moines, IA 50325

Office Address
6000 Westown Parkway
West Des Moines, IA 50266

Main Office Number: (515) 221-0002
Toll Free Number: (888) 221-1234
Email: info@american-equity.com

  • AM Best
  • The American Council of Life Insurers
  • Indexed Annuity Insights
  • Insured Retirement Institute
  • National Association for Fixed Annuities
  • National Association of Insurance Commissioners
  • Standard & Poor’s