WEST DES MOINES, Iowa, Feb. 21 /PRNewswire-FirstCall/ -- American Equity
Investment Life Holding Company (NYSE: AEL), a leading underwriter of index
and fixed-rate annuities, today announced record 2006 operating income(1) of
$73.3 million, or $1.23 per diluted common share, an increase of 28% over 2005
operating income of $57.1 million, or $1.31 per diluted common share.(2)
Operating income for the fourth quarter of 2006 was $18.8 million, or $0.32
per diluted common share, an increase of 29% over 2005 fourth quarter
operating income of $14.6 million, or $0.32 per diluted common share. Net
income for 2006 was $75.5 million compared with $43.0 million for 2005. Net
income of $19.2 million for the fourth quarter of 2006 was increased by
$1.7 million for an immaterial correction to reserve calculations under SFAS
133 and effective interest amortization on certain items, both related to
prior quarters of 2006. Net income for the fourth quarter of 2005 was
$11.1 million.
Performance highlights for the year include:
-- Upgrade to "A-" (Excellent) financial strength rating by A.M. Best
Company
-- Gross spread on annuity reserves reached an all time high of 2.73%
-- Annuity sales reached $1.9 billion
-- Agency force exceeded 52,000 independent licensed sales agents
-- Total assets climbed to $15.0 billion at December 31, 2006
-- Book value per share was $10.55 at December 31, 2006
-- Adjusted leverage ratio improved to 31.4%
INCREASED ASSETS DESPITE ADVERSE SALES TREND
During 2006 American Equity posted total sales of annuity products of
$1.9 billion, a decline of 34% from record sales in 2005 of $2.9 billion.
Despite this decline, American Equity's invested assets increased 9% to
$11.4 billion and investment earnings increased 22% to $677.6 million, leading
to record earnings for the year of 2006. "During 2006 we made the decision as
a management team to stick to our pricing discipline and resist the temptation
to sell loss leaders in a cold sales climate," commented David J. Noble,
Chairman, CEO and President of American Equity. "We are simply not willing to
trade our future profitability for short term gains in market share."
The weighted average gross spread (annual aggregate yield on invested
assets over the aggregate annual cost of money on annuities) reached an all-
time high of 2.73% on its aggregate annuity fund values, compared with 2.48%
for 2005. This improvement was primarily attributable to a reduction in the
Company's cost of money on its annuity liabilities including, in particular,
the expirations of guaranteed interest rates on its 5-year rate guaranteed
products sold in 2001. The weighted average yield on invested assets, of
which 99% are investment grade, was 6.14% for 2006 compared with 6.18% for
2005. The aggregate effective duration of the Company's available-for-sale
fixed-income securities and commercial mortgage loans was 5.6 years at
December 31, 2006, compared with the effective duration of its liabilities of
6.4 years.
ASSET RETENTION AS A COMPETITIVE ADVANTAGE
Future growth in American Equity's invested assets is a function of both
new sales and retention of existing annuity liabilities. The surrender charge
profiles of the Company's annuity products are designed to promote retention
of such liabilities and of the related assets. American Equity's annuity
reserves remain well protected by surrender charges with over 97% of annuity
values within the contractual surrender charge period at December 31, 2006.
The average remaining surrender charge period was 10.1 years at December 31,
2006, with an average remaining surrender charge percentage of 13.4%.
Approximately $121.2 million of annuity reserves in 2007 and $129.8 million in
2008 will reach the expirations of the applicable surrender charges.
This substantial protection is a reflection of the relatively young age of
the Company's annuity liabilities, as well as the strong consumer demand for
bonus products, which carry higher surrender charges in exchange for the
addition of premium bonuses to account values. American Equity emphasizes
clear and conspicuous disclosure of all product terms including surrender
charges to permit the consumer to make a well-informed purchase decision. In
addition, American Equity conducts suitability reviews of all purchases in all
states regardless of the age of the consumer and regardless of whether the
review is required under applicable insurance laws.
2007 SALES AGENT INCENTIVES
In December 2006, American Equity announced its 2007 incentive program for
its agents and national marketing organizations, including a stock option
program unique to the industry. Under this program agents may receive grants
of options to acquire shares of American Equity's common stock based upon
their individual sales in 2007. In addition American Equity will provide
marketing support payments to sales agents meeting specified production
levels. These payments are designed to reimburse significant agents for
marketing expenses they incur in connection with sales of the Company's
products. Both the stock option program and marketing reimbursement
incentives were included in the regular pricing parameters for special
incentives, and thus do not represent added acquisition costs above historical
levels. The programs have been well-received by American Equity's agency
force, which includes over 52,000 independent sales agents and over 70
national marketing organizations.
Commented Mr. Noble, "American Equity enters 2007 rated 'A-' Excellent by
A.M. Best Company. We begin the year with a one-of-a-kind agent incentive
program that allows the agents to become owners in the Company. In the coming
months, we hope and anticipate that regulatory confusion created by the NASD's
efforts to oversee sales of fixed index annuities will be clarified. While we
certainly can't predict whether interest rates will be kind to us, we believe
American Equity is well postured for growth in 2007."
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 2006 earnings on
Thursday, February 22, 2007, 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
http://www.american-equity.com . The call may also be accessed by telephone
at 1-800-638-4817, passcode 63515659 (international callers, please dial
1-617-614-3943). An audio replay will be available shortly after the call on
AEL's website or via telephone through March 8, 2007 by calling
1-888-286-8010, passcode 71708116 (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 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.
(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; (ii) the impact of SFAS 133, dealing with the market
value changes in derivatives; (iii) the impact of consolidation under
FIN 46 of American Equity Investment Service Company; and (iv) the
impact of an income tax contingency liability. 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) Per share amounts between periods are not comparable as a result of
the issuance of approximately 15 million shares of common stock in
December, 2005 in connection with a public offering of such stock.
American Equity Investment Life Holding Company
Net Income/Operating Income
Three Months Ended Year Ended
December 31, December 31,
2006 2005 2006 2005
Revenues:
Traditional life and accident and
health insurance premiums $3,574 $3,019 $13,622 $13,578
Annuity and single premium
universal life product charges 10,376 6,296 39,472 25,686
Net investment income 172,799 153,707 677,638 554,118
Realized gains on investments 1,329 (1,030) 1,345 (7,635)
Change in fair value of derivatives 123,757 3,895 183,783 (18,029)
Total revenues 311,835 165,887 915,860 567,718
Benefits and expenses:
Insurance policy benefits and
change in future policy benefits 2,194 1,587 8,808 8,504
Interest credited to account
balances 140,442 83,288 429,062 311,479
Change in fair value of embedded
derivatives 85,689 19,706 151,057 31,087
Interest expense on notes payable 2,393 4,053 20,382 16,324
Interest expense on subordinated
debentures 5,238 4,131 21,354 14,145
Interest expense on amounts due
under repurchase agreements 7,603 4,455 32,931 11,280
Amortization of deferred policy
acquisition costs 27,326 21,004 94,923 68,109
Other operating costs and expenses 10,780 9,370 40,418 35,896
Total benefits and expenses 281,665 147,594 798,935 496,824
Income before income taxes and
minority interest 30,170 18,293 116,925 70,894
Income tax expense 10,986 7,224 41,440 25,402
Income before minority interest 19,184 11,069 75,485 45,492
Minority interest - - - 2,500
Net income 19,184 11,069 75,485 42,992
Realized (gains) losses on
investments, net of offsets (417) 348 (427) 2,653
Net effect of FIN 46 and income tax
contingency 384 905 - 3,698
Net effect of FAS 133 (385) 2,317 (1,724) 7,760
Operating income (a) $18,766 $14,639 $73,334 $57,103
Earnings per common share $0.34 $0.26 $1.34 $1.09
Earnings per common share - assuming
dilution $0.32 $0.24 $1.27 $0.99
Operating income per common share (a) $0.34 $0.35 $1.30 $1.45
Operating income per common share -
assuming dilution (a) $0.32 $0.32 $1.23 $1.31
Weighted average common shares
outstanding (in thousands):
Earnings per common share 55,889 42,053 56,243 39,333
Earnings per common share -
assuming dilution 59,926 46,823 60,421 44,513
American Equity Investment Life Holding Company
Operating Income
Three months ended December 31, 2006
Adjustments
Realized
Gains Operating
As and Income
Reported Other FAS 133 (a)
(Dollars in thousands,
except per share data)
Reserves:
Traditional life and accident and
health insurance premiums $3,574 $- $- $3,574
Annuity and single premium universal
life product charges 10,376 - - 10,376
Net investment income 172,799 - - 172,799
Realized gains on investments 1,329 (1,329) - -
Change in fair value of derivatives 123,757 - (84,877) 38,880
Total revenues 311,835 (1,329) (84,877) 225,629
Benefits and expenses:
Insurance policy benefits and change
in future policy benefits 2,194 - - 2,194
Interest credited to account
balances 140,442 (215) 249 140,476
Change in fair value of embedded
derivatives 85,689 - (85,689) -
Interest expense on notes payable 2,393 - 1,344 3,737
Interest expense on subordinated
debentures 5,238 - - 5,238
Interest expense on amounts due
under repurchase agreements 7,603 - - 7,603
Amortization of deferred policy
acquisition costs 27,326 (470) 329 27,185
Other operating costs and expenses 10,780 - - 10,780
Total benefits and expenses 281,665 (685) (83,767) 197,213
Income before income taxes 30,170 (644) (1,110) 28,416
Income tax expense 10,986 (611) (725) 9,650
Net income $19,184 $(33) $(385) $18,766
Earnings per common share $0.34 $0.34
Earnings per common share - assuming
dilution $0.32 $0.32
(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, the impact of FAS 133, dealing with market
value changes in derivatives, the impact of an income tax contingency
liability and the impact of FIN 46, dealing with the consolidation of
variable interest entities. 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
/CONTACT: Debra J. Richardson, Sr. Vice President, +1-515-273-3551,
drichardson@american-equity.com , John M. Matovina, Vice Chairman,
+1-515-457-1813, jmatovina@american-equity.com , D. J. Noble, Chairman,
+1-515-457-1705, dnoble@american-equity.com , or Julie L. LaFollette, Investor
Relations, +1-515-273-3602, jlafollette@american-equity.com , all of American
Equity
/Web site: http://www.american-equity.com /
