WEST DES MOINES, Iowa--(BUSINESS WIRE)--July 30, 2008--American
Equity Investment Life Holding Company (NYSE: AEL), a leading
underwriter of fixed-rate and index annuities, today reported 2008
second quarter operating income(1) of $18.7 million, or $0.33 per
diluted common share, an increase of 14% over 2007 second quarter
operating income of $16.3 million, or $0.28 per diluted common share.
Financial highlights include:
- Annuity sales of $648.0 million during the second quarter of
2008, an increase of 4% over second quarter 2007 annuity sales
of $622.5 million
- Investment spread on annuity business of 2.76% for the second
quarter of 2008 compared to 2.59% for the first quarter 2008
- Book value per outstanding common share(2) of $12.77
(excluding Accumulated Other Comprehensive Loss)
Net income for the second quarter of 2008 was $4.8 million, or
$0.09 per diluted common share, compared to net income of $20.6
million, or $0.35 per diluted common share for the same period in
2007. Net income for the second quarter of 2008 was reduced by $8.9
million for recognition of "other than temporary impairments" on
invested assets resulting in realized losses, net of taxes and
adjustments to the amortization of deferred policy acquisition costs
and deferred sales inducements, and by $5.6 million for net valuation
adjustments in the derivatives and embedded derivatives associated
with American Equity's index annuity business.
CONTINUED SALES MOMENTUM
New sales of American Equity's annuity products remained strong in
the second quarter of 2008, with sales exceeding $200 million per
month for each month during the quarter. This momentum has continued
into July, 2008, with sales again expected to exceed $200 million. New
annuity sales in 2008 have been predominantly sales of American
Equity's multi-strategy index annuities. Allocations of new premium to
the fixed-rate strategy within the index products increased to 37% of
deposits received in the first six months of 2008 compared to 27% in
the first six months of 2007. Commented David J. Noble, Chairman,
Chief Executive Officer and President of American Equity, "We are very
proud of the fact that no American Equity annuity holder has ever lost
a dime of contract value due to market volatility. Nearly every day
brings news of the capital crises affecting our nation, but our
annuity holders need not worry about the safety of their index and
fixed-rate annuity savings. This is one of the great values that
insurance products like index annuities bring to the market for
principal-protected savings alternatives."
On June 25, 2008, the Securities and Exchange Commission adopted
proposed rule 151A which would change the legal status of index
annuities from insurance to securities. If adopted in its present
form, the earliest the rule would become effective is late 2009, and
it applies prospectively only to sales of index annuities after the
effective date. The proposed rule appears to be having little effect
on new sales currently. American Equity believes the rule reflects
fundamental inaccuracies and misperceptions about index annuities, how
they are marketed and how they are regulated by state insurance
departments. Regardless of whether the rule is adopted, American
Equity intends to be prepared to market a registered index annuity
through the broker dealer distribution channel, and the company is
working with its independent insurance agents and national marketing
organizations to adapt to this potential change. In addition, American
Equity will enhance its product offerings in fixed-rate annuities, for
which the company anticipates continued market demand.
STEADY IMPROVEMENT IN GROSS INVESTMENT SPREADS
American Equity's gross investment spread on aggregate annuity
reserves was 2.76% for the second quarter of 2008, compared to 2.59%
for the first quarter of 2008. This improvement reflects both enhanced
yields on invested assets as well as a steady decrease in the cost of
money for the company's annuity liabilities. Second quarter 2008
aggregate yield on invested assets was 6.20% compared to 6.14% for the
first quarter of 2008. During the second quarter American Equity
purchased new fixed income securities totaling $1.26 billion with an
average yield of 6.66% and made new commercial mortgage loans totaling
$185.6 million with an average yield of 6.13%. Fixed income securities
called or sold during the second quarter totaled $1.01 billion with an
average yield of 6.53%.
The aggregate cost of money declined to 3.44% in the second
quarter of 2008 compared to 3.55% in the first quarter of 2008. This
reduction, which began in the first quarter of 2008, was driven
primarily by lower costs of one-year call options purchased to fund
the index credits on American Equity's index annuities, and reflects
rate cuts implemented during 2007 in response to increasing volatility
and corresponding increases in option costs for that year.
CONTINUED STRONG ASSET QUALITY
While valuations have declined in certain asset sectors over the
last 12 months, the quality of American Equity's invested assets
remains strong with over 99% of fixed income securities rated
investment grade or higher, and 89% rated A or higher. The quality of
American Equity's commercial mortgage loans, totaling $2.2 billion at
June 30, 2008 or 16.8% of total invested assets, has also remained
consistently high, with no defaults, delinquencies or restructurings.
American Equity has no exposure to subprime residential mortgages, and
its investments in "Alt-A" residential mortgage loan pools are all in
the highest available tranches of such pools with no exposure to
adjustable rate mortgage loans and no leverage related to those
investments.
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 2008 earnings on Thursday, July 31, 2008, 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 1-866-356-4441, passcode 85146842 (international callers,
please dial 1-617-597-5396). 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 21, 2008 by calling
1-888-286-8010, passcode 86101638 (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 annuity and insurance products with a primary emphasis
on the sale of fixed-rate and index annuities. 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. For more information, visit our website
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. 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 the 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.
(2) Book value per outstanding share excluding Accumulated Other
Comprehensive Loss ("AOCL"), a non-GAAP financial measure, is
calculated as total stockholders' equity excluding AOCL divided by the
total number of shares of common stock outstanding.
Net Income/Operating Income (Unaudited)
------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2008 2007 2008 2007
---------- ---------- ---------- ----------
(Dollars in thousands, except per share
data)
Revenues:
Traditional life and
accident and health
insurance premiums $ 2,880 $ 3,190 $ 6,196 $ 6,247
Annuity product charges 11,845 11,453 23,943 20,447
Net investment income 202,080 175,719 397,568 345,077
Realized gains (losses)
on investments (30,019) 17 (32,438) 596
Change in fair value of
derivatives (73,313) 98,986 (230,678) 90,464
---------- ---------- ---------- ----------
Total revenues 113,473 289,365 164,591 462,831
Benefits and expenses:
Insurance policy benefits
and change in future
policy benefits 2,321 2,097 4,930 4,030
Interest credited to
account balances 49,469 168,141 103,645 284,094
Amortization of deferred
sales inducements (4,479) 11,602 27,433 15,963
Change in fair value of
embedded derivatives 17,745 14,984 (200,869) 8,353
Interest expense on notes
payable 3,722 4,057 7,851 8,139
Interest expense on
subordinated debentures 4,649 5,614 9,880 11,203
Interest expense on
amounts due under
repurchase agreements 2,024 3,060 4,996 7,078
Amortization of deferred
policy acquisition costs 18,620 34,366 99,310 51,935
Other operating costs and
expenses 12,100 14,083 24,818 25,494
---------- ---------- ---------- ----------
Total benefits and
expenses 106,171 258,004 81,994 416,289
---------- ---------- ---------- ----------
Income before income taxes 7,302 31,361 82,597 46,542
Income tax expense 2,535 10,757 28,678 16,011
---------- ---------- ---------- ----------
Net income 4,767 20,604 53,919 30,531
Realized (gains) losses on
investments, net of
offsets 8,910 (11) 9,918 (385)
Net effect of SFAS 133,
net of offsets 5,000 (4,266) (27,426) 1,314
---------- ---------- ---------- ----------
Operating income (a) $ 18,677 $ 16,327 $ 36,411 $ 31,460
========== ========== ========== ==========
Earnings per common share $ 0.09 $ 0.36 $ 0.99 $ 0.54
Earnings per common share
- assuming dilution $ 0.09 $ 0.35 $ 0.95 $ 0.52
Operating income per
common share (a) $ 0.35 $ 0.29 $ 0.67 $ 0.55
Operating income per
common share - assuming
dilution (a) $ 0.33 $ 0.28 $ 0.64 $ 0.53
Weighted average common shares outstanding (in
thousands):
Earnings per common share 53,934 57,122 54,661 56,909
Earnings per common share
- assuming dilution 56,856 60,309 57,518 60,342
Operating Income
Three months ended June 30, 2008 (Unaudited)
------------------------------------------------
Adjustments
------------------------- Operating
As Reported Realized Losses SFAS 133 Income (a)
----------- --------------- --------- ----------
(Dollars in thousands, except per share data)
Reserves:
Traditional life and
accident and health
insurance premiums $ 2,880 $ - $ - $ 2,880
Annuity product
charges 11,845 - - 11,845
Net investment
income 202,080 - - 202,080
Realized losses on
investments (30,019) 30,019 - -
Change in fair value
of derivatives (73,313) - 6,052 (67,261)
----------- --------------- --------- ----------
Total revenues 113,473 30,019 6,052 149,544
Benefits and expenses:
Insurance policy
benefits and change
in future policy
benefits 2,321 - - 2,321
Interest credited to
account balances 49,469 - - 49,469
Amortization of
deferred sales
inducements (4,479) 6,083 8,286 9,890
Change in fair value
of embedded
derivatives 17,745 - (17,745) -
Interest expense on
notes payable 3,722 - (73) 3,649
Interest expense on
subordinated
debentures 4,649 - - 4,649
Interest expense on
amounts due under
repurchase
agreements 2,024 - - 2,024
Amortization of
deferred policy
acquisition costs 18,620 10,133 7,603 36,356
Other operating
costs and expenses 12,100 - 449 12,549
----------- --------------- --------- ----------
Total benefits and
expenses 106,171 16,216 (1,480) 120,907
----------- --------------- --------- ----------
Income before income
taxes 7,302 13,803 7,532 28,637
Income tax expense 2,535 4,893 2,532 9,960
----------- --------------- --------- ----------
Net income $ 4,767 $ 8,910 $ 5,000 $ 18,677
=========== =============== ========= ==========
Earnings per common
share $ 0.09 $ 0.35
Earnings per common
share - assuming
dilution $ 0.09 $ 0.33
(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.
CONTACT: American Equity Investment Life Holding Company
Debra J. Richardson, 515-273-3551
Sr. Vice President
drichardson@american-equity.com
or
John M. Matovina, 515-457-1813
Vice Chairman
jmatovina@american-equity.com
or
D. J. Noble, 515-457-1705
Chairman
dnoble@american-equity.com
or
Julie L. LaFollette, 515-273-3602
Investor Relations
jlafollette@american-equity.com
SOURCE: American Equity Investment Life Holding Company
