WEST DES MOINES, Iowa--(BUSINESS WIRE)--Aug. 2, 2012--
American Equity Investment Life Holding Company (NYSE: AEL), a leading
underwriter of index and fixed rate annuities, today reported second
quarter 2012 operating income1 of $27.4 million, or $0.43 per
diluted common share, compared to second quarter 2011 operating income
of $29.0 million, or $0.45 per diluted common share.
Highlights for the second quarter of 2012 include:
-
Annuity sales for the second quarter of 2012 were $917 million (before
coinsurance) compared to first quarter 2012 annuity sales of $979
million (before coinsurance).
-
Total invested assets grew 20% to $25.4 billion at June 30, 2012
compared to $21.2 billion at June 30, 2011. On an amortized cost
basis, total invested assets grew 13% to $23.3 billion at June 30,
2012 compared to $20.5 at June 30, 2011.
-
Investment spread for the second quarter of 2012 was 2.70% compared to
2.93% for the first quarter of 2012. Adjusted investment spread for
the second quarter of 2012 was 2.95%, slightly below the 3.00% target.
-
Estimated risk-based capital (“RBC”) ratio at June 30, 2012 based upon
trailing twelve months annuity sales remained above target at 337%.
Estimated RBC at June 30, 2012 based upon annualization of first half
2012 annuity sales was 347%.
-
Book value per outstanding common share (excluding Accumulated Other
Comprehensive Income) grew to $16.34 at June 30, 2012 compared to
$16.24 at March 31, 2012 and $16.09 at December 31, 2011.
SPREAD RESULT IMPACTED BY CASH
American Equity’s investment spread for the second quarter of 2012
continued to be affected by the impact of holding excess cash during the
quarter. The average excess cash balance for the second quarter of 2012
was $1.4 billion compared to $759 million for the first quarter of 2012
with the foregone investment income from holding such excess cash
balance estimated at 0.27% for the second quarter of 2012 compared to
0.14% for the first quarter of 2012. The excess cash balance is
primarily attributable to calls of U.S. Government agency and other
securities which totaled $2.8 billion in the first six months of 2012
with an average yield of 5.33%. The high level of excess cash may
persist for several more quarters as the Company holds $1.8 billion of
U.S. Government agency securities at interest rates of 4.00% or higher
that are likely to be called in the second half of 2012 and another $728
million of such securities that are callable in the first six months of
2013.
The adjusted investment spread of 2.95% for the second quarter of 2012
was slightly less than the adjusted investment spread of 2.99% for the
first quarter of 2012. Other items accounting for the difference in
reported investment spread and adjusted investment spread included a
0.03% benefit from additional prepayment and fee income on commercial
real estate mortgages, residential mortgage backed securities and
corporate bonds and a 0.01% cost from under hedging index credits to
index annuity policyholders.
The average yield on invested assets including the excess cash balance
was 5.34% for the second quarter of 2012 compared to 5.61% in the first
quarter of 2012. Investment yield continues to decline due to the
increasing level of excess cash and as proceeds from securities called
for redemption and new premiums are invested at rates below the
portfolio rate. The average yield on fixed income securities purchased
and commercial mortgage loans funded in the second quarter of 2012 was
4.54% compared to an average yield of 4.38% for fixed income securities
purchased and commercial mortgage loans funded in the first quarter of
2012.
The decrease in investment yield was partially offset by a reduction in
the aggregate cost of money on annuity liabilities to 2.64% in the
second quarter of 2012 compared to 2.68% in the first quarter of 2012.
The reduction in the cost of money reflects management’s actions to
maintain target spreads in the declining investment yield environment by
adjusting new money and renewal crediting rates to policyholders.
John M. Matovina, Chief Executive Officer and President commented: “The
low interest rate environment continues to present spread management
challenges. We remain committed to earning our target investment spread
through purchases of high quality investments and appropriate management
of crediting rates to policyholders. We anticipate achieving an
additional 0.15% - 0.20% decline in the aggregate cost of money over the
remainder of 2012 based upon rate adjustments already implemented and
are prepared to make further adjustments if necessary to earn our target
investment spread of 3.00%.”
2012 SALES OUTLOOK
The pace of sales of new annuities was slower in the second quarter of
2012, with total sales for the quarter at $917 million compared to $979
million in the first quarter of 2012. David J. Noble, founder and
Executive Chairman commented: “We made several pricing adjustments late
in 2011 consistent with our disciplined approach to spread and product
pricing management. We anticipated that our competitors would take
similar actions at that time, but until recently, few did. Within the
past two months, we have seen numerous adjustments from our competitors
and based upon the current status, we sense that the competitive
environment will be more favorable to us for the second half of 2012.
With invested assets exceeding $25 billion, we have significant earnings
capacity and we should continue to grow assets whether sales come in
faster or slower than the current pace.”
Noble continued, “American Equity is well positioned to capitalize on
growing demand for guaranteed retirement income products. We offer
principal protection and guaranteed minimum returns which are attractive
in a volatile market environment. Yet we offer upside potential when
equity markets are strong which is important in a low interest rate
environment. With attractive products that are right for our times, and
the established strength of an industry leader with over $25 billion of
invested assets, we are optimistic about our growth opportunities for
the years ahead.”
TRUST PREFERRED REDEMPTION
On May 30, 2012, notices of mandatory redemption were issued for the
Company’s 8% Convertible Junior Subordinated Debentures Due 2029 and the
related convertible trust preferred securities issued by a subsidiary
trust. Approximately $20.6 million principal amount or 94% of the
convertible trust preferred securities were converted into 2.5 million
shares of American Equity common stock prior to the July 10, 2012
mandatory redemption date (1.5 million shares issued in June 2012). The
balance of the convertible trust preferred securities ($1.3 million
principal amount) has been redeemed or will be redeemed for cash of $1.3
million.
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 second quarter
2012 earnings on Friday, August 3, 2012, at 9 a.m. CDT. 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 866-713-8307, passcode
33869525 (international callers, please dial 1-617-597-5307). An audio
replay will be available via telephone through August 24, 2012 at
1-888-286-8010, passcode 57864260 (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 underwriter of a
broad line of fixed annuity and life insurance products, with a primary
emphasis on the sale of index and fixed rate annuities. American Equity
Investment Life Holding Company, a New York Stock Exchange Listed
company (NYSE: AEL), is headquartered in West Des Moines, Iowa. For more
information, please visit www.american-equity.com.
1 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 the Company’s Quarterly Report on Form 10-Q for a more complete
discussion of the reconciling items and their impact on net income for
the periods presented. Net income was $18.8 million for the second
quarter of 2012, compared to $18.3 million for the same period in 2011.
|
American Equity Investment Life Holding
Company
|
|
|
|
|
|
|
|
|
|
|
|
Net Income/Operating Income (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
|
|
|
(Dollars in thousands, except per share data)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Traditional life and accident and health insurance premiums
|
|
$
|
3,248
|
|
|
$
|
3,289
|
|
|
$
|
6,470
|
|
|
$
|
6,205
|
|
|
Annuity product charges
|
|
21,908
|
|
|
19,892
|
|
|
41,301
|
|
|
36,854
|
|
|
Net investment income
|
|
320,259
|
|
|
296,878
|
|
|
647,169
|
|
|
589,006
|
|
|
Change in fair value of derivatives
|
|
(150,847
|
)
|
|
(22,029
|
)
|
|
108,314
|
|
|
126,624
|
|
|
Net realized losses on investments, excluding other than temporary
impairment ("OTTI") losses
|
|
(611
|
)
|
|
(854
|
)
|
|
(6,687
|
)
|
|
(2,047
|
)
|
|
OTTI losses on investments:
|
|
|
|
|
|
|
|
|
|
Total OTTI losses
|
|
(375
|
)
|
|
(113
|
)
|
|
(2,156
|
)
|
|
(5,213
|
)
|
|
Portion of OTTI losses recognized from other comprehensive income
|
|
(603
|
)
|
|
(2,116
|
)
|
|
(1,703
|
)
|
|
(3,587
|
)
|
|
Net OTTI losses recognized in operations
|
|
(978
|
)
|
|
(2,229
|
)
|
|
(3,859
|
)
|
|
(8,800
|
)
|
|
Total revenues
|
|
192,979
|
|
|
294,947
|
|
|
792,708
|
|
|
747,842
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and expenses:
|
|
|
|
|
|
|
|
|
|
Insurance policy benefits and change in future policy benefits
|
|
2,250
|
|
|
2,499
|
|
|
4,367
|
|
|
4,394
|
|
|
Interest sensitive and index product benefits (b)
|
|
142,733
|
|
|
238,420
|
|
|
281,856
|
|
|
398,085
|
|
|
Amortization of deferred sales inducements
|
|
25,940
|
|
|
20,265
|
|
|
42,650
|
|
|
50,957
|
|
|
Change in fair value of embedded derivatives
|
|
(80,989
|
)
|
|
(60,963
|
)
|
|
278,077
|
|
|
67,340
|
|
|
Interest expense on notes payable
|
|
7,072
|
|
|
7,832
|
|
|
14,067
|
|
|
15,739
|
|
|
Interest expense on subordinated debentures
|
|
3,563
|
|
|
3,481
|
|
|
7,149
|
|
|
6,947
|
|
|
Interest expense on amounts due under repurchase agreements
|
|
—
|
|
|
1
|
|
|
—
|
|
|
5
|
|
|
Amortization of deferred policy acquisition costs
|
|
44,848
|
|
|
38,862
|
|
|
79,132
|
|
|
94,085
|
|
|
Other operating costs and expenses (c)
|
|
18,902
|
|
|
16,634
|
|
|
40,615
|
|
|
34,108
|
|
|
Total benefits and expenses
|
|
164,319
|
|
|
267,031
|
|
|
747,913
|
|
|
671,660
|
|
|
Income before income taxes
|
|
28,660
|
|
|
27,916
|
|
|
44,795
|
|
|
76,182
|
|
|
Income tax expense
|
|
9,901
|
|
|
9,642
|
|
|
15,565
|
|
|
26,565
|
|
|
Net income (b)
|
|
18,759
|
|
|
18,274
|
|
|
29,230
|
|
|
49,617
|
|
|
Net realized losses and net OTTI losses on investments, net of
offsets
|
|
861
|
|
|
1,278
|
|
|
4,408
|
|
|
3,750
|
|
|
Net effect of derivatives and other index annuity, net of offsets
|
|
7,736
|
|
|
9,461
|
|
|
23,478
|
|
|
6,220
|
|
|
Operating income (a) (b)
|
|
$
|
27,356
|
|
|
$
|
29,013
|
|
|
$
|
57,116
|
|
|
$
|
59,587
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share (b)
|
|
$
|
0.31
|
|
|
$
|
0.31
|
|
|
$
|
0.49
|
|
|
$
|
0.84
|
|
|
Earnings per common share - assuming dilution (a) (b) (c)
|
|
$
|
0.30
|
|
|
$
|
0.28
|
|
|
$
|
0.46
|
|
|
$
|
0.77
|
|
|
Operating income per common share (a) (b)
|
|
$
|
0.46
|
|
|
$
|
0.48
|
|
|
$
|
0.95
|
|
|
$
|
1.00
|
|
|
Operating income per common share - assuming dilution (a) (b)
|
|
$
|
0.43
|
|
|
$
|
0.45
|
|
|
$
|
0.90
|
|
|
$
|
0.92
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding (in thousands):
|
|
|
|
|
|
|
|
|
|
Earnings per common share
|
|
59,943.337
|
|
|
59,504.119
|
|
|
59,821.937
|
|
|
59,343.959
|
|
|
Earnings per common share - assuming dilution
|
|
64,253.628
|
|
|
65,530.192
|
|
|
64,229.656
|
|
|
65,436.952
|
|
|
(a)
|
|
See note (a) under table below.
|
|
|
|
(b)
|
|
Six months ended June 30, 2011 includes an adjustment recorded in
the first quarter of 2011 to single premium immediate annuity
reserves which reduced interest sensitive and index product benefits
by $4.2 million, increased net income and operating income by $2.7
million, increased earnings per common share and operating income
per common share by $0.05 per share and increased earnings per
common share - assuming dilution and operating income per common
share - assuming dilution by $0.04 per share.
|
|
|
|
(c)
|
|
Other operating costs and expenses for the three and six months
ended June 30, 2012 includes $2.0 million and $5.0 million,
respectively, of expense related to the impact of the prospective
adoption (effective January 1, 2012) of revised accounting guidance
for deferred policy acquisition costs. This revised accounting
guidance requires the recognition of a current expense for certain
costs which previously were capitalized and amortized over the
expected life of the underlying policies. This change, including the
impact on related amortization expense, reduced diluted earnings per
share for the three and six months ended June 30, 2012 by $0.02 and
$0.05, respectively.
|
|
|
|
|
|
American Equity Investment Life Holding
Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
|
|
|
|
|
Three months ended June 30, 2012
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
Derivatives and
|
|
|
|
|
|
|
|
|
|
Other Index
|
|
Operating
|
|
|
|
As Reported
|
|
Realized Losses
|
|
Annuity
|
|
Income (a)
|
|
|
|
(Dollars in thousands, except per share data)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Traditional life and accident and health insurance premiums
|
|
$
|
3,248
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,248
|
|
|
Annuity product charges
|
|
21,908
|
|
|
—
|
|
|
—
|
|
|
21,908
|
|
|
Net investment income
|
|
320,259
|
|
|
—
|
|
|
—
|
|
|
320,259
|
|
|
Change in fair value of derivatives
|
|
(150,847
|
)
|
|
—
|
|
|
85,683
|
|
|
(65,164
|
)
|
|
Net realized losses on investments, excluding other than temporary
impairment ("OTTI") losses
|
|
(611
|
)
|
|
611
|
|
|
—
|
|
|
—
|
|
|
Net OTTI losses recognized in operations
|
|
(978
|
)
|
|
978
|
|
|
—
|
|
|
—
|
|
|
Total revenues
|
|
192,979
|
|
|
1,589
|
|
|
85,683
|
|
|
280,251
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and expenses:
|
|
|
|
|
|
|
|
|
|
Insurance policy benefits and change in future policy benefits
|
|
2,250
|
|
|
—
|
|
|
—
|
|
|
2,250
|
|
|
Interest sensitive and index product benefits
|
|
142,733
|
|
|
—
|
|
|
—
|
|
|
142,733
|
|
|
Amortization of deferred sales inducements
|
|
25,940
|
|
|
(16
|
)
|
|
7,217
|
|
|
33,141
|
|
|
Change in fair value of embedded derivatives
|
|
(80,989
|
)
|
|
—
|
|
|
56,826
|
|
|
(24,163
|
)
|
|
Interest expense on notes payable
|
|
7,072
|
|
|
—
|
|
|
—
|
|
|
7,072
|
|
|
Interest expense on subordinated debentures
|
|
3,563
|
|
|
—
|
|
|
—
|
|
|
3,563
|
|
|
Interest expense on amounts due under repurchase agreements
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Amortization of deferred policy acquisition costs
|
|
44,848
|
|
|
267
|
|
|
9,342
|
|
|
54,457
|
|
|
Other operating costs and expenses
|
|
18,902
|
|
|
—
|
|
|
—
|
|
|
18,902
|
|
|
Total benefits and expenses
|
|
164,319
|
|
|
251
|
|
|
73,385
|
|
|
237,955
|
|
|
Income before income taxes
|
|
28,660
|
|
|
1,338
|
|
|
12,298
|
|
|
42,296
|
|
|
Income tax expense
|
|
9,901
|
|
|
477
|
|
|
4,562
|
|
|
14,940
|
|
|
Net income
|
|
$
|
18,759
|
|
|
$
|
861
|
|
|
$
|
7,736
|
|
|
$
|
27,356
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share
|
|
$
|
0.31
|
|
|
|
|
|
|
$
|
0.46
|
|
|
Earnings per common share - assuming dilution
|
|
$
|
0.30
|
|
|
|
|
|
|
$
|
0.43
|
|
|
(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 fair value changes in derivatives and embedded
derivatives. 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, 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
John M.
Matovina, Chief Executive Officer
515-457-1813, jmatovina@american-equity.com
or
Ted
M. Johnson, Chief Financial Officer
515-457-1980, tjohnson@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
|
