WEST DES MOINES, Iowa, Aug 01, 2007 (BUSINESS WIRE) -- American Equity Investment Life Holding Company (NYSE:AEL), a
leading underwriter of fixed rate and index annuities, today reported
2007 second quarter operating income(1) of $16.3 million, or $0.28 per
diluted common share, compared to second quarter 2006 operating income
of $18.0 million, or $0.30 per diluted common share. Performance
results for the second quarter of 2007 include:
Annuity sales of $622.5 million
Year-to-date aggregate gross spread on annuity reserves of
2.71%
Record investment earnings of $175.7 million
Guaranteed income benefit rider added to a majority of new
index annuity products
Repurchase of 350,000 shares of AEL common stock to fund NMO
deferred compensation obligations
Second quarter 2007 net income was $24.6 million or $0.41 per
diluted common share compared to $42.9 million or $0.71 per diluted
common share for the same period in 2006. Net income in the second
quarter of 2006 was positively impacted by a $24.3 million change in
fair value of embedded derivative within the Company's convertible
debt under SFAS 133.
GROSS SPREAD RETURNS TO EXPECTED LEVEL
The aggregate gross spread of investment yield over cost of money
on all AEL annuity products for the first six months of 2007 was
2.71%, compared to 2.67% for the same period in 2006. By product
category, spreads in the first six months of 2007 were 2.75% on index
annuities, 2.82% on annually adjustable fixed rate annuities and 1.87%
on multi-year rate guaranteed annuities. As previously reported, AEL's
spread on its index annuity reserves was compressed during the first
quarter of 2007 primarily as a result of an increase in the cost of
the money associated with index credit hedging. This increase was
largely eliminated in the second quarter of 2007, reflecting positive
hedging results. During the second quarter of 2007, both index
annuities and annually adjustable fixed rate annuities earned a gross
spread of 2.82%.
The improvement in spread in the second quarter of 2007 was also
driven in part by the increase to 6.11% in the yield earned on
invested assets compared to the 6.06% in the first quarter of 2007.
This increase resulted from higher commercial mortgage prepayment
income in the second quarter as well as an improvement in the yields
at which new money was invested during the first six months of 2007.
Investment income totaled $175.7 million for the second quarter of
2007 compared to $169.2 million for the same period in 2006, with
total invested assets reaching $12.1 billion at June 30, 2007. The
credit quality of the assets remains very high, with 99% of fixed
income securities rated investment grade, no securities on the
Company's watch list of bonds with potential credit issues, and
negligible exposure to sub-prime mortgages.
YEAR-TO-DATE SALES MOMENTUM
Sales of new annuity products in the second quarter of 2007
totaled $622.5 million, a 20% increase over second quarter 2006 sales
of $517.7 million and a 40% increase over first quarter 2007 sales of
$444.5 million. The Company attributes the sales momentum to the
reinstatement of its "A-" (Excellent) rating from A.M. Best Company as
well as previously announced 2007 product initiatives and agent
incentives. The Company believes it continues to offer agents and
policyholders the best service in the industry, which has been a
source of its competitive strength in the fixed rate and index annuity
market for many years. Commented Dave J. Noble, Chairman, CEO and
President of AEL, "Our commitment to providing a very high level of
service to policyholders and agents is a reflection of our commitment
to high quality in sales practices and market conduct. In the long
run, our success will be defined by the satisfaction of our
policyholders, agents and shareholders. As a management team we work
continuously to strike the right balance among the needs and
expectations of each of these three groups."
INCREASE IN OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses increased to $14.1 million in
the second quarter of 2007 compared to $9.9 million for the same
period in 2006. This increase arose primarily from legal fees and the
related costs of defense of two lawsuits each of which were filed as
potential class actions, although neither has been certified as a
class action. While, in the opinion of management, no litigation
pending against AEL represents a material risk of loss, the Company is
committed to asserting a vigorous defense on its own behalf and on
behalf of the annuity industry. "The cost of defense in litigation is
outrageous but necessary", commented Mr. Noble. "We will confront head
on the allegations of lawyers attacking our products or our sales
practices. We believe we are in the right and we fully intend to prove
it. Then we'll move on to more productive and profitable endeavors."
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 2007 earnings on Thursday, August 2, 2007, at 10 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 866-831-6234, passcode 15555774 (international callers,
please dial 617-213-8854). 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 August 16, 2007 by calling
888-286-8010, passcode 32016681 (international callers will need to
dial 617-801-6888).
ABOUT AMERICAN EQUITY
Founded in 1995, American Equity Investment Life Holding Company
is a full-service underwriter of a broad line of annuity and insurance
products, with a primary emphasis on the sale of fixed-rate and index
annuities. The company has approximately 290 employees and
approximately 52,000 agents selling its products in 50 states and
District of Columbia. The Company's headquarters are located at 5000
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. Operating income equals net income adjusted to
eliminate the impact of (i) net realized gains and losses on
investments; and (ii) the impact of SFAS 133, dealing with fair value
changes in derivatives and embedded derivatives. Because these items
fluctuate from quarter to quarter in a manner unrelated to core
operations, American Equity believes a measure excluding their impact
is useful in analyzing operating trends. American Equity believes the
combined presentation and evaluation of operating income together with
net income, provides information that may enhance an investor's
understanding of American Equity's underlying results and
profitability. A reconciliation of net income to operating income is
provided in the accompanying tables.
American Equity Investment Life Holding Company
------------------------------------------------
Net Income/Operating Income (Unaudited)
------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2007 2006 2007 2006
---------- ---------- ---------- ----------
(Dollars in thousands, expect per share
data)
Revenues:
Traditional life and
accident and health
insurance premiums $ 3,190 $ 3,211 $ 6,247 $ 6,735
Annuity and single
premium universal life
product charges 11,453 10,740 20,447 18,340
Net investment income 175,719 169,182 345,077 331,567
Realized gains on
investments 17 331 596 289
Change in fair value of
derivatives 98,986 (61,582) 90,464 (12,254)
---------- ---------- ---------- ----------
Total revenues 289,365 121,882 462,831 344,677
Benefits and expenses:
Insurance policy
benefits and change in
future policy benefits 2,097 2,269 4,030 4,667
Interest credited to
account balances 168,141 101,845 284,094 185,453
Amortization of deferred
sales inducements 14,184 6,737 18,545 15,675
Change in fair value of
embedded derivatives 405 (111,321) (6,226) (48,557)
Interest expense on
notes payable 4,057 6,528 8,139 13,814
Interest expense on
subordinated debentures 5,614 5,402 11,203 10,320
Interest expense on
amounts due under
repurchase agreements 3,060 8,532 7,078 14,331
Amortization of deferred
policy acquisition
costs 40,289 25,363 57,858 56,118
Other operating costs
and expenses 14,083 9,931 25,494 20,111
---------- ---------- ---------- ----------
Total benefits and
expenses 251,930 55,286 410,215 271,932
---------- ---------- ---------- ----------
Income before income taxes 37,435 66,596 52,616 72,745
Income tax expense 12,846 23,685 18,100 25,861
---------- ---------- ---------- ----------
Net income 24,589 42,911 34,516 46,884
Net realized (gains)
losses on investments (11) (214) (385) (187)
Net effect of SFAS 133 (8,251) (24,746) (2,671) (11,008)
---------- ---------- ---------- ----------
Operating income (a) $ 16,327 $ 17,951 $ 31,460 $ 35,689
========== ========== ========== ==========
Earnings per common share $ 0.43 $ 0.77 $ 0.61 $ 0.84
Earnings per common share
- assuming dilution $ 0.41 $ 0.71 $ 0.58 $ 0.78
Operating income per
common share (a) $ 0.29 $ 0.32 $ 0.55 $ 0.64
Operating income per
common share - assuming
dilution (a) $ 0.28 $ 0.30 $ 0.53 $ 0.60
Weighted average common
shares outstanding (in
thousands):
Earnings per common
share 57,122 55,644 56,909 55,599
Earnings per common
share - assuming
dilution 60,309 60,655 60,342 60,727
American Equity Investment Life Holding Company
------------------------------------------------
Operating Income
Three months ended June 30, 2007 (Unaudited)
------------------------------------------------
Adjustments
----------------------
Realized Operating
As Reported Gains SFAS 133 Income (a)
----------- ----------- ---------- ----------
(Dollars in thousands, except per share data)
Reserves:
Traditional life and
accident and health
insurance premiums $ 3,190 $ - $ - $ 3,190
Annuity and single
premium universal
life product charges 11,453 - - 11,453
Net investment income 175,719 - - 175,719
Realized gains on
investments 17 (17) - -
Change in fair value
of derivatives 98,986 - (30,165) 68,821
----------- ----------- ---------- ----------
Total revenues 289,365 (17) (30,165) 259,183
Benefits and expenses:
Insurance policy
benefits and change
in future policy
benefits 2,097 - - 2,097
Interest credited to
account balances 168,141 - - 168,141
Amortization of
deferred sales
inducements 14,184 - (5,060) 9,124
Change in fair value
of embedded
derivatives 405 - (405) -
Interest expense on
notes payable 4,057 - (264) 3,793
Interest expense on
subordinated
debentures 5,614 - - 5,614
Interest expense on
amounts due under
repurchase agreements 3,060 - - 3,060
Amortization of
deferred policy
acquisition costs 40,289 - (11,884) 28,405
Other operating costs
and expenses 14,083 - - 14,083
----------- ----------- ---------- ----------
Total benefits and
expenses 251,930 - (17,613) 234,317
----------- ----------- ---------- ----------
Income before income
taxes 37,435 (17) (12,552) 24,866
Income tax expense 12,846 (6) (4,301) 8,539
----------- ----------- ---------- ----------
Net income $ 24,589 $ (11) $ (8,251) $ 16,327
=========== =========== ========== ==========
Earnings per common
share $ 0.43 $ 0.29
Earnings per common
share - assuming
dilution $ 0.41 $ 0.28
(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, and the impact of SFAS 133, dealing with 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
Debra J. Richardson, Sr. Vice President, 515-273-3551
drichardson@american-equity.com
or
John M. Matovina, Vice Chairman, 515-457-1813
jmatovina@american-equity.com
or
D. J. Noble, Chairman, 515-457-1705
dnoble@american-equity.com
or
Julie L. LaFollette, Investor Relations, 515-273-3602
jlafollette@american-equity.com
