American Equity Reports First Quarter 2012 Results
Performance highlights for the first quarter of 2012 include:
-
Annuity sales for the first quarter of 2012 were
$979 million (before coinsurance) compared to first quarter 2011 annuity sales of$1.3 billion (before coinsurance). First quarter 2011 benefited from sales in advance of a rate decrease implemented during that period. -
Total invested assets grew 15% to
$24.0 billion atMarch 31, 2012 compared to total invested assets of$20.8 billion atMarch 31, 2011 . - Investment spread margin over the cost of money on annuity deposits remained steady at 2.93% for the first quarter of 2012 compared to 2.97% for the fourth quarter of 2011.
-
Estimated risk-based capital (“RBC”) ratio at
March 31, 2012 remained above target at 343%. -
Book value per outstanding common share (excluding Accumulated Other
Comprehensive Income) grew to
$16.24 atMarch 31, 2012 compared to$16.09 atDecember 31, 2011 .
CONSISTENT SPREAD MANAGEMENT
American Equity earned an investment spread margin over the cost of money on annuity deposits of 2.93% for the first quarter of 2012 compared to a spread of 2.97% for the fourth quarter of 2011. The spread remained relatively consistent despite a reduction in the average yield on invested assets to 5.61% for the first quarter of 2012 compared to 5.76% in the fourth quarter of 2011. This decrease was offset by a reduction in the aggregate cost of money on annuity liabilities to 2.68% in the first quarter of 2012 compared to 2.79% in the fourth quarter of 2011. The reduction in the cost of money reflects management actions to maintain spreads despite falling bond yields by adjusting new money and renewal crediting rates to policyholders.
On an adjusted basis the investment spread was 2.99% for the first quarter of 2012 compared to 2.98% in the fourth quarter of 2011. These adjustments reflect temporary or non-routine items which impact the spread during the quarter, including for the first quarter of 2012: the cost of liquidity from holding excess cash balances during the quarter (0.14%); the benefit from additional prepayment and fee income on commercial real estate mortgages, residential mortgage backed securities and corporate bonds (0.07%); and the benefit of holding call options in excess of the amount needed to fully fund index credits to policyholders (0.01%).
The average excess cash balance of
Commented
2012 SALES OUTLOOK
As expected, the pace of sales of new annuities was slower in the first
quarter of 2012, with total sales for the quarter at
OTHER OPERATING EXPENSES IMPACTED BY ACCOUNTING RULE CHANGE
The Company’s other operating costs and expenses for the first quarter
of 2012 increased by
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
CONFERENCE CALL
American Equity will hold a conference call to discuss first quarter
2012 earnings on
The call may also be accessed by telephone at 866-770-7129, passcode
65635565 (international callers, please dial 1-617-213-8067). An audio
replay will be available via telephone through
ABOUT AMERICAN EQUITY
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
Net Income/Operating Income (Unaudited)
Three Months Ended March 31, | ||||||||||
2012 | 2011 | |||||||||
(Dollars in thousands, except per share data) | ||||||||||
Revenues: | ||||||||||
Traditional life and accident and health insurance premiums | $ | 3,222 | $ | 2,916 | ||||||
Annuity product charges | 19,393 | 16,962 | ||||||||
Net investment income | 326,910 | 292,128 | ||||||||
Change in fair value of derivatives | 259,161 | 148,653 | ||||||||
Net realized losses on investments, excluding other than temporary impairment ("OTTI") losses | (6,076 | ) | (1,193 | ) | ||||||
OTTI losses on investments: | ||||||||||
Total OTTI losses | (1,781 | ) | (5,100 | ) | ||||||
Portion of OTTI losses recognized from other comprehensive income | (1,100 | ) | (1,471 | ) | ||||||
Net OTTI losses recognized in operations | (2,881 | ) | (6,571 | ) | ||||||
Total revenues | 599,729 | 452,895 | ||||||||
Benefits and expenses: | ||||||||||
Insurance policy benefits and change in future policy benefits | 2,117 | 1,895 | ||||||||
Interest sensitive and index product benefits (b) | 139,123 | 159,665 | ||||||||
Amortization of deferred sales inducements | 16,710 | 30,692 | ||||||||
Change in fair value of embedded derivatives | 359,066 | 128,303 | ||||||||
Interest expense on notes payable | 6,995 | 7,907 | ||||||||
Interest expense on subordinated debentures | 3,586 | 3,466 | ||||||||
Interest expense on amounts due under repurchase agreements | — | 4 | ||||||||
Amortization of deferred policy acquisition costs | 34,284 | 55,223 | ||||||||
Other operating costs and expenses | 21,713 | 17,474 | ||||||||
Total benefits and expenses | 583,594 | 404,629 | ||||||||
Income before income taxes | 16,135 | 48,266 | ||||||||
Income tax expense | 5,664 | 16,923 | ||||||||
Net income (b) | 10,471 | 31,343 | ||||||||
Net realized losses and net OTTI losses on investments, net of offsets | 3,547 | 2,472 | ||||||||
Net effect of derivatives and other index annuity, net of offsets | 15,742 | (3,241 | ) | |||||||
Operating income (a) (b) | $ | 29,760 | $ | 30,574 | ||||||
Earnings per common share (b) | $ | 0.18 | $ | 0.53 | ||||||
Earnings per common share - assuming dilution (a) (b) | $ | 0.16 | $ | 0.48 | ||||||
Operating income per common share (a) (b) | $ | 0.50 | $ | 0.52 | ||||||
Operating income per common share - assuming dilution (a) (b) | $ | 0.46 | $ | 0.47 | ||||||
Weighted average common shares outstanding (in thousands): | ||||||||||
Earnings per common share | 59,701 | 59,182 | ||||||||
Earnings per common share - assuming dilution | 65,930 | 65,711 | ||||||||
Operating Income
Three months ended
March 31, 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 | $ | 3,222 | $ | — | $ | — | $ | 3,222 | ||||||||
Annuity product charges | 19,393 | — | — | 19,393 | ||||||||||||
Net investment income | 326,910 | — | — | 326,910 | ||||||||||||
Change in fair value of derivatives | 259,161 | — | (283,265 | ) | (24,104 | ) | ||||||||||
Net realized losses on investments, excluding other than temporary impairment ("OTTI") losses |
(6,076 | ) | 6,076 | — | — | |||||||||||
Net OTTI losses recognized in operations | (2,881 | ) | 2,881 | — | — | |||||||||||
Total revenues | 599,729 | 8,957 | (283,265 | ) | 325,421 | |||||||||||
Benefits and expenses: | ||||||||||||||||
Insurance policy benefits and change in future policy benefits | 2,117 | — | — | 2,117 | ||||||||||||
Interest sensitive and index product benefits | 139,123 | — | — | 139,123 | ||||||||||||
Amortization of deferred sales inducements | 16,710 | 1,338 | 15,420 | 33,468 | ||||||||||||
Change in fair value of embedded derivatives | 359,066 | — | (342,315 | ) | 16,751 | |||||||||||
Interest expense on notes payable | 6,995 | — | — | 6,995 | ||||||||||||
Interest expense on subordinated debentures | 3,586 | — | — | 3,586 | ||||||||||||
Interest expense on amounts due under repurchase agreements | — | — | — | — | ||||||||||||
Amortization of deferred policy acquisition costs | 34,284 | 2,112 | 19,243 | 55,639 | ||||||||||||
Other operating costs and expenses | 21,713 | — | — | 21,713 | ||||||||||||
Total benefits and expenses | 583,594 | 3,450 | (307,652 | ) | 279,392 | |||||||||||
Income before income taxes | 16,135 | 5,507 | 24,387 | 46,029 | ||||||||||||
Income tax expense | 5,664 | 1,960 | 8,645 | 16,269 | ||||||||||||
Net income | $ | 10,471 | $ | 3,547 | $ | 15,742 | $ | 29,760 | ||||||||
Earnings per common share | $ | 0.18 | $ | 0.50 | ||||||||||||
Earnings per common share - assuming dilution | $ | 0.16 | $ | 0.46 |
(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.
(b) Three months ended
Source:
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