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American Equity Reports Fourth Quarter and Fiscal Year 2010 Results

WEST DES MOINES, Iowa, Feb 23, 2011 (BUSINESS WIRE) --

American Equity Investment Life Holding Company (NYSE: AEL), a leading underwriter of index and fixed rate annuities, today reported operating income1 for the year 2010 of $108.9 million, or $1.70 per diluted common share, an increase of 7% over 2009 operating income of $101.8 million or $1.75 per diluted common share. 2010 fourth quarter operating income was $26.4 million, or $0.41 per diluted common share, a decrease of 8% compared to 2009 fourth quarter operating income of $28.7 million or $0.48 per diluted common share.

Performance highlights for the fourth quarter and year of 2010 include:

  • 2010 annuity sales of $4.7 billion ($4.2 billion net of coinsurance), and fourth quarter sales of $1.6 billion ($1.5 billion net of coinsurance) representing year over year growth of 27% and 73% for the year and quarter, respectively
  • 2010 investment earnings of $1 billion and fourth quarter investment earnings of $278 million, representing year over year growth of 11% and 14% for the year and quarter, respectively
  • 2010 investment spread margin over the cost of money on annuity deposits of 3.15% and fourth quarter spread of 3.14% compared to 2009 full year and fourth quarter spread of 3.04%
  • A risk-based capital ("RBC") ratio of 350% at December 31, 2010, compared to 337% at December 31, 2009
  • Book value per outstanding common share of $16.07 at December 31, 2010, including Accumulated Other Comprehensive Income

Commented David J. Noble, founder and Executive Chairman of American Equity: "Sincetheonset of the global financial crisis in 2008, equity market uncertainty and low interest rates have driven the demand for safe money, principal-protected products such as index annuities. American Equity is more than meeting that demand, as demonstrated by our sales growth (net of coinsurance) of 43% in 2010, which built on top of 28% growth in 2009. Our total invested assets are now $19.8 billion as of December 31, 2010, an increase of 56% over that two-year period."

RECORD INVESTMENT SPREAD DESPITE FALLING 2010 ASSET YIELDS
American Equity earned an investment spread margin of 3.14% over the cost of money on annuity liabilities for the fourth quarter of 2010. Although aggregate yield earned on invested assets for this quarter declined year over year to 6.02%, the cost of money also declined to 2.88%. In the fourth quarter, a total of $3.6 billion of new fixed income securities were purchased at an average yield of 5.35%.

The adjusted aggregate yield for the fourth quarter was 6.07%, after adjustments for nonrecurring items including the cost of holding excess cash balances, and the benefit of prepayment income on certain assets. The adjusted cost of money for the quarter was 2.94%, after adjusting for nonrecurring items including the benefit of holding excess call options on the applicable indexes.

In response to falling yields, American Equity announced rate cuts applicable to new annuity policies sold after January 10, 2011. Renewal rates on existing annuities remain unchanged. Yields on new investments are beginning to rise again, and in January 2011 new fixed income securities were purchased at an average yield of 5.41%. The company constantly monitors yield data, and will consider future rate increases should the trend of rising yields continue.

A.M. BEST AFFIRMS "A- EXCELLENT" RATING, UPGRADES OUTLOOK
In January 2011 A.M. Best Co. ("A.M. Best") affirmed the "A- Excellent" financial strength ratings assigned to American Equity's life subsidiaries, and upgraded the outlook for such ratings from negative to stable. As the basis for its decision A.M Best cited the company's prominence in the indexed annuity marketplace, strong risk-adjusted capitalization, positive earnings trends, and defeat of the Securities and Exchange Commission Rule 151A.

As part of the rating process, the company's newest life subsidiary, Eagle Life Insurance Company ("Eagle"), was assigned an "A- Excellent" rating. American Equity formed Eagle for the purpose of marketing index annuities through the broker-dealer distribution channel.

American Equity's Chief Executive Officer and President Wendy C. Waugaman commented: "While we view the outlook upgrade as positive for the company, we continue to believe that our consistent, strong financial performance deserves recognition in the form of higher ratings."

TRANSACTIONS TO SUSTAIN CAPITAL STRENGTH
American Equity remains very well-capitalized, with a risked-based capital ratio of 350% of company action level at December 31, 2010. The company remains opportunistic in exploring and implementing capital management strategies designed to maintain capital strength over a minimum three year period, and entered into two such transactions subsequent to the close of the quarter.

In February, 2011 American Equity entered into a binding letter of intent to complete a reinsurance transaction with Hannover Life Reassurance Company of America ("Hannover") on or before March 31, 2011. This transaction is similar to prior surplus relief reinsurance agreements between American Equity and Hannover, and will provide a pre-tax surplus benefit to the company of approximately $50 million.

In addition, in January 2011, the company completed a new three-year revolving credit facility providing up to $160 million of borrowing capacity from a group of seven banks. While this facility may be used from time to time to support the regulatory capital of American Equity's operating subsidiaries, the company would view such usage as short term in nature and would expect to refinance any such borrowings with a longer term source of capital. The principal purpose of the new facility is to provide a source of liquidity should holders of the company's convertible senior notes elect to convert, which would require a payment in cash of a portion of the value of such notes.

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 2010 earnings on Thursday, February 24, 2011, 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 1-800-573-4754, passcode 61820585 (international callers, please dial 1-617-224-4325). An audio replay will be available via telephone through March 17, 2011 1-888-286-8010, passcode 50661171 (international callers will need to dial 1-617-801-6888).

ABOUT AMERICAN EQUITY
American Equity Investment Life Holding Company, through its wholly-owned operating subsidiaries, is a full service under writer of a broad line of annuity and insurance products, with a primary emphasis on the sale of index and fixed rate annuities. American Equity Investment Life, a New York Stock Exchange Listed company (NYSE: AEL), is headquartered in West Des Moines, Iowa. For more information, visit www.american-equity.com.

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 reconciliations of net income to operating income and descriptions of reconciling items. See Company's Annual Report on Form 10-K for a more complete discussion of the reconciling items and their impact on net income for the periods presented. Net income was $9.0 million and $42.9 million for the fourth quarter and full year of 2010, respectively, compared to $36.0 million and $68.5 million for the same periods in 2009.

American Equity Investment Life Holding Company
Net Income (Loss)/Operating Income (Unaudited)
Three Months Ended Year Ended
December 31, December 31,
2010 2009 2010 2009
(Dollars in thousands, except per share data)
Revenues:
Traditional life and accident and health insurance premiums $ 2,871 $ 3,135 $ 11,982 $ 12,654
Annuity product charges 16,402 15,857 69,075 63,358
Net investment income 277,876 243,244 1,036,106 932,172
Change in fair value of derivatives 201,604 108,718 168,862 216,896

Net realized gains on investments, excluding other than
temporary impairment ("OTTI") losses

1,462 40,692 23,726 51,279
OTTI losses on investments:
Total OTTI losses (3,197 ) (48,747 ) (19,544 ) (220,415 )
Portion of OTTI losses recognized in (from) other comprehensive income (12,639 ) 25,632 (4,323 ) 133,644
Net OTTI losses recognized in operations (15,836 ) (23,115 ) (23,867 ) (86,771 )
Loss on extinguishment of debt - (3,773 ) (292 ) (675 )
Total revenues 484,379 384,758 1,285,592 1,188,913
Benefits and expenses:
Insurance policy benefits and change in future policy benefits 1,622 1,979 8,251 8,889
Interest sensitive and index product benefits 148,376 140,855 733,218 347,883
Amortization of deferred sales inducements 38,357 22,185 59,873 39,999
Change in fair value of embedded derivatives 142,463 114,872 130,950 529,508
Interest expense on notes payable 7,861 3,565 22,125 14,853
Interest expense on subordinated debentures 3,700 3,741 14,906 15,819
Interest expense on amounts due under repurchase agreements - 190 - 534
Amortization of deferred policy acquisition costs 62,408 43,071 136,388 88,009
Other operating costs and expenses 65,715 11,950 114,615 57,255
Total benefits and expenses 470,502 342,408 1,220,326 1,102,749
Income before income taxes 13,877 42,350 65,266 86,164
Income tax expense 4,839 6,329 22,333 17,634
Net income 9,038 36,021 42,933 68,530
Net realized gains and net OTTI losses on investments, net of offsets 4,687 (12,293 ) 379 (1,339 )
Lawsuit settlement 27,297 - 27,297 -
Convertible debt retirement, net of income taxes - 2,207 171 687
Net effect of derivative and other index annuity, net of offsets (14,628 ) 2,779 38,167 33,900
Operating income (a) $ 26,394 $ 28,714 $ 108,947 $ 101,778
Earnings (loss) per common share $ 0.15 $ 0.62 $ 0.73 $ 1.22
Earnings (loss) per common share - assuming dilution $ 0.14 $ 0.60 $ 0.68 $ 1.18
Operating income per common share (a) $ 0.45 $ 0.49 $ 1.86 $ 1.81
Operating income per common share - assuming dilution (a) $ 0.41 $ 0.48 $ 1.70 $ 1.75
Weighted average common shares outstanding (in thousands):
Earnings per common share 58,757 58,143 58,507 56,138
Earnings per common share - assuming dilution 65,054 60,946 64,580 58,915
American Equity Investment Life Holding Company
Operating Income
Three months ended December 31, 2010 (Unaudited)
Adjustments
Realized Gains Derivative
and Other and Other Operating
As Reported Adjustments Index Annuity Income (a)
(Dollars in thousands, except per share data)
Reserves:
Traditional life and accident and health insurance premiums $ 2,871 $ - $ - $ 2,871
Annuity product charges 16,402 - - 16,402
Net investment income 277,876 - - 277,876
Change in fair value of derivatives 201,604 - (172,203 ) 29,401

Net realized gains on investments, excluding other than
temporary impairment ("OTTI") losses

1,462 (1,462 ) - -
Net OTTI losses recognized in operations (15,836 ) 15,836 - -
Total revenues 484,379 14,374 (172,203 ) 326,550
Benefits and expenses:
Insurance policy benefits and change in future policy benefits 1,622 - - 1,622
Interest sensitive and index product benefits 148,376 - (56 ) 148,320
Amortization of deferred sales inducements 38,357 4,311 (14,949 ) 27,719
Change in fair value of embedded derivatives 142,463 - (114,351 ) 28,112
Interest expense on notes payable 7,861 - - 7,861
Interest expense on subordinated debentures 3,700 - - 3,700
Amortization of deferred policy acquisition costs 62,408 8,514 (20,134 ) 50,788
Other operating costs and expenses 65,715 (48,000 ) - 17,715
Total benefits and expenses 470,502 (35,175 ) (149,490 ) 285,837
Income before income taxes 13,877 49,549 (22,713 ) 40,713
Income tax expense 4,839 17,565 (8,085 ) 14,319
Net income $ 9,038 $ 31,984 $ (14,628 ) $ 26,394
Earnings per common share $ 0.15 $ 0.45
Earnings per common share - assuming dilution $ 0.14 $ 0.41

(a) In addition to net income, 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 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, loss on extinguishment of convertible debt, the settlement of a class action lawsuit, 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, Chief Executive Officer, 515-457-1824
wcwaugaman@american-equity.com
or
John M. Matovina, Chief Financial Officer, 515-457-1813
jmatovina@american-equity.com
or
Julie L. LaFollette, Director of Investor Relations, 515-273-3602
jlafollette@american-equity.com
or
Debra J. Richardson, Chief Administrative Officer, 515-273-3551
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