American Equity Reports Fourth Quarter 2013 Results
Non-GAAP operating income1 for the fourth quarter of 2013 was
The diluted share count for fourth quarter 2013 was 79.0 million shares compared to 65.9 million shares for the fourth quarter of 2012. This increase was attributable to the shares issued during the year for retirement of convertible notes and the exercise of stock options and greater dilution from convertible notes, warrants and stock options because the Company’s common stock price was substantially higher in the fourth quarter of 2013 compared to the fourth quarter of 2012.
1 In addition to net income, we have consistently utilized operating income 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. See accompanying tables for reconciliations of net income to operating income and descriptions of reconciling items. See Company’s Annual Report on Form 10-K for a more complete discussion of the reconciling items and their impact on net income for the periods presented. Because these items fluctuate from period to period 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.
Highlights for the fourth quarter of 2013 include:
-
Annuity sales (before coinsurance) were
$1.094 billion compared to third quarter 2013 annuity sales of$1.054 billion . -
Total invested assets were
$30.3 billion (amortized cost basis =$29.6 billion ). - Investment spread was 2.73% compared to 2.80% for the third quarter of 2013.
-
Risk-based capital (
RBC ) ratio atDecember 31, 2013 remained above target at 344% compared to 332% atDecember 31, 2012 . -
Book value per share (excluding accumulated other comprehensive
income) was
$18.75 atDecember 31, 2013 compared to$18.81 atSeptember 30, 2013 and$16.49 atDecember 31, 2012 . -
Paid annual cash dividend of
$0.18 per share, a 20% increase from the previous year. This marks the 15th consecutive year a cash dividend has been paid and the 10th consecutive year the Company has increased the annual cash dividend amount.
SOLID QUARTER CAPS YEAR OF EXCELLENT PERFORMANCE
Commenting
on results and the outlook for American Equity,
Noble continued, “American Equity is well positioned to capitalize on the growing demand for guaranteed retirement savings and income products, and we expect our invested assets and earnings to continue to grow in the periods ahead. Our value proposition to our policyholders and distribution partners is strong and we are always striving to improve in every element of our operations. Even with a more competitive sales environment, we are optimistic that 2014 will be another successful and rewarding year for us.”
SPREAD ESSENTIALLY FLAT DESPITE PRESSURE FROM NEW INVESTMENT YIELDS
American
Equity’s investment spread of 2.73% for the fourth quarter of 2013
decreased slightly compared to 2.80% for the third quarter of 2013.
Spread performance was impacted by the average yield on invested assets,
which declined 0.05% when compared to the third quarter of 2013, due to
the investment of new premiums and portfolio cash flows at rates below
the portfolio rate. The average yield on invested assets was 4.97% for
the fourth quarter of 2013, compared to 5.02% for the third quarter of
2013, while the average yield on fixed income securities purchased and
commercial mortgage loans funded in the fourth quarter of 2013 was
4.48%, compared to an average yield of 4.37% in the third quarter of
2013 and 3.49% and 3.48% in the first two quarters of 2013.
The aggregate cost of money for annuity liabilities was 2.24% in the fourth quarter of 2013 compared to 2.22% in the third quarter of 2013. Although the Company continued to reduce its cost of money through lower crediting rates, progress in the fourth quarter was offset by hedging results. The 0.02% increase in the aggregate cost of money for annuity liabilities was directly attributable to hedging results which swung from 0.03% of over hedging benefit in the third quarter of 2013 to 0.03% of under hedging cost in the fourth quarter of 2013.
Commenting on investment spread,
LONG-TERM BENEFIT FROM REDUCED EXPOSURE TO CONVERTIBLE DEBT
During
the quarter, the Company retired
At
CLASS ACTION LITIGATION
Fourth quarter 2013 net income and
non-GAAP operating income1 include
Fourth quarter 2013 net income includes
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 fourth quarter 2013 earnings on
The call may also be accessed by telephone at 800-591-6942, passcode
55486110 (international callers, please dial 617-614-4909). An audio
replay will be available shortly after the call on AEL’s website. An
audio replay will also be available via telephone through
ABOUT AMERICAN EQUITY
American Equity Investment Life Holding Company |
||||||||||||||||
Consolidated Statements of Operations (Unaudited) |
||||||||||||||||
Three Months Ended | Year Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
(Dollars in thousands, except per share data) | ||||||||||||||||
Revenues: | ||||||||||||||||
Premiums and other considerations (a) | $ | 10,838 | $ | 15,890 | $ | 45,347 | $ | 76,675 | ||||||||
Annuity product charges | 32,148 | 23,830 | 103,591 | 89,006 | ||||||||||||
Net investment income | 363,947 | 321,160 | 1,383,927 | 1,286,923 | ||||||||||||
Change in fair value of derivatives | 444,985 | (48,266 | ) | 1,076,015 | 221,138 | |||||||||||
Net realized gains (losses) on investments, excluding other than temporary impairment ("OTTI") losses | 16,364 | 1,471 | 40,561 | (6,454 | ) | |||||||||||
OTTI losses on investments: | ||||||||||||||||
Total OTTI losses | — | (3,255 | ) | (4,964 | ) | (5,411 | ) | |||||||||
Portion of OTTI losses recognized from other comprehensive income | — | (6,132 | ) | (1,270 | ) | (9,521 | ) | |||||||||
Net OTTI losses recognized in operations | — | (9,387 | ) | (6,234 | ) | (14,932 | ) | |||||||||
Loss on extinguishment of debt | (30,988 | ) | — | (32,515 | ) | — | ||||||||||
Total revenues | 837,294 | 304,698 | 2,610,692 | 1,652,356 | ||||||||||||
Benefits and expenses: | ||||||||||||||||
Insurance policy benefits and change in future policy benefits (a) | 13,279 | 17,658 | 53,071 | 81,481 | ||||||||||||
Interest sensitive and index product benefits | 390,956 | 287,094 | 1,272,867 | 808,479 | ||||||||||||
Amortization of deferred sales inducements | 69,121 | 36,798 | 253,113 | 87,157 | ||||||||||||
Change in fair value of embedded derivatives | 142,881 | (179,379 | ) | 133,968 | 286,899 | |||||||||||
Interest expense on notes payable | 11,885 | 7,271 | 38,870 | 28,479 | ||||||||||||
Interest expense on subordinated debentures | 3,027 | 3,074 | 12,088 | 13,458 | ||||||||||||
Amortization of deferred policy acquisition costs | 99,934 | 59,833 | 365,468 | 164,919 | ||||||||||||
Other operating costs and expenses | 26,886 | 18,710 | 91,915 | 95,495 | ||||||||||||
Total benefits and expenses | 757,969 | 251,059 | 2,221,360 | 1,566,367 | ||||||||||||
Income before income taxes | 79,325 | 53,639 | 389,332 | 85,989 | ||||||||||||
Income tax expense | 28,367 | 17,242 | 136,049 | 28,191 | ||||||||||||
Net income | $ | 50,958 | $ | 36,397 | $ | 253,283 | $ | 57,798 | ||||||||
Earnings per common share | $ | 0.73 | $ | 0.58 | $ | 3.86 | $ | 0.94 | ||||||||
Earnings per common share - assuming dilution | $ | 0.64 | $ | 0.55 | $ | 3.38 | $ | 0.89 | ||||||||
Weighted average common shares outstanding (in thousands): | ||||||||||||||||
Earnings per common share | 69,416 | 62,856 | 65,544 | 61,259 | ||||||||||||
Earnings per common share - assuming dilution | 79,041 | 65,897 | 75,041 | 65,676 |
(a) | During the fourth quarter of 2013, the Company made an immaterial correction in the presentation of premiums, insurance policy benefits and change in future policy benefits and interest sensitive and index product benefits related to life contingent immediate annuities. We have revised the 2012 consolidated statements of operations above to be consistent with the 2013 presentation. These changes had no impact on the Company's consolidated balance sheets, net income or stockholders' equity. | |
NON-GAAP FINANCIAL MEASURES
In addition to net income, we have consistently utilized operating income 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, fair value changes in derivatives and embedded derivatives, loss on extinguishment of debt and changes in litigation reserves. 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.
Reconciliation from Net Income to Operating Income (Unaudited) |
|||||||||||||||
Three Months Ended | Year Ended | ||||||||||||||
December 31, | December 31, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
(Dollars in thousands, except per share data) | |||||||||||||||
Net income | $ | 50,958 | $ | 36,397 | $ | 253,283 | $ | 57,798 | |||||||
Adjustments to arrive at operating income: | |||||||||||||||
Net realized investment (gains) losses, including OTTI (a) | (6,214 | ) | 2,825 | (11,702 | ) | 8,648 | |||||||||
Change in fair value of derivatives and embedded derivatives - index annuities (a) | (23,419 | ) | (8,286 | ) | (98,704 | ) | 31,246 | ||||||||
Change in fair value of derivatives and embedded derivatives - debt (a) | (4,290 | ) | (31 | ) | (1,192 | ) | 2,915 | ||||||||
Litigation reserve (a) | 1,988 | — | 19 | 9,580 | |||||||||||
Extinguishment of debt (a) | 20,823 | — | 21,716 | — | |||||||||||
Operating income (a non-GAAP financial measure) | $ | 39,846 | $ | 30,905 | $ | 163,420 | $ | 110,187 | |||||||
Per common share - assuming dilution: | |||||||||||||||
Net income | $ | 0.64 | $ | 0.55 | $ | 3.38 | $ | 0.89 | |||||||
Adjustments to arrive at operating income: | |||||||||||||||
Net realized investment (gains) losses, including OTTI | (0.08 | ) | 0.04 | (0.16 | ) | 0.13 | |||||||||
Change in fair value of derivatives and embedded derivatives - index annuities | (0.30 | ) | (0.12 | ) | (1.31 | ) | 0.48 | ||||||||
Change in fair value of derivatives and embedded derivatives - debt | (0.05 | ) | — | (0.02 | ) | 0.04 | |||||||||
Litigation reserve | 0.03 | — | — | 0.15 | |||||||||||
Extinguishment of debt | 0.26 | — | 0.29 | — | |||||||||||
Operating income (a non-GAAP financial measure) | $ | 0.50 | $ | 0.47 | $ | 2.18 | $ | 1.69 | |||||||
(a) | Adjustments to net income to arrive at operating income are presented net of income taxes and where applicable, are net of related adjustments to amortization of deferred sales inducements (DSI) and deferred policy acquisition costs (DAC). | |
NON-GAAP FINANCIAL MEASURES
Average Stockholders' Equity and Return on Average Equity
Return on equity measures how efficiently we generate profits from the resources provided by our net assets. Return on equity is calculated by dividing net income and operating income for the trailing twelve months by average equity excluding average accumulated other comprehensive income ("AOCI").
Twelve Months Ended | ||||
December 31, 2013 | ||||
(Dollars in thousands) | ||||
Average Stockholders' Equity 1 | ||||
Average equity including average AOCI | $ | 1,552,462 | ||
Average AOCI | (366,502 | ) | ||
Average equity excluding average AOCI | $ | 1,185,960 | ||
Net income | $ | 253,283 | ||
Operating income | 163,420 | |||
Return on Average Equity Excluding Average AOCI | ||||
Net income | 21.36 | % | ||
Operating income | 13.78 | % | ||
1 - simple average based on stockholders' equity at beginning and end of the twelve month period.
Source:
American Equity Investment Life Holding Company
John M. Matovina,
515-457-1813
Chief Executive Officer
jmatovina@american-equity.com
or
Ted
M. Johnson, 515-457-1980
Chief Financial Officer
tjohnson@american-equity.com
or
Debra
J. Richardson, 515-273-3551
Chief Administrative Officer
drichardson@american-equity.com
or
Julie
L. LaFollette, 515-273-3602
Director of Investor Relations
jlafollette@american-equity.com