American Equity Reports Second Quarter 2012 Results
Highlights for the second quarter of 2012 include:
-
Annuity sales for the second quarter of 2012 were
$917 million (before coinsurance) compared to first quarter 2012 annuity sales of$979 million (before coinsurance). -
Total invested assets grew 20% to
$25.4 billion atJune 30, 2012 compared to$21.2 billion atJune 30, 2011 . On an amortized cost basis, total invested assets grew 13% to$23.3 billion atJune 30, 2012 compared to$20.5 atJune 30, 2011 . - Investment spread for the second quarter of 2012 was 2.70% compared to 2.93% for the first quarter of 2012. Adjusted investment spread for the second quarter of 2012 was 2.95%, slightly below the 3.00% target.
-
Estimated risk-based capital (“RBC”) ratio at
June 30, 2012 based upon trailing twelve months annuity sales remained above target at 337%. EstimatedRBC atJune 30, 2012 based upon annualization of first half 2012 annuity sales was 347%. -
Book value per outstanding common share (excluding Accumulated Other
Comprehensive Income) grew to
$16.34 atJune 30, 2012 compared to$16.24 atMarch 31, 2012 and$16.09 atDecember 31, 2011 .
SPREAD RESULT IMPACTED BY CASH
American Equity’s investment spread for the second quarter of 2012
continued to be affected by the impact of holding excess cash during the
quarter. The average excess cash balance for the second quarter of 2012
was
The adjusted investment spread of 2.95% for the second quarter of 2012 was slightly less than the adjusted investment spread of 2.99% for the first quarter of 2012. Other items accounting for the difference in reported investment spread and adjusted investment spread included a 0.03% benefit from additional prepayment and fee income on commercial real estate mortgages, residential mortgage backed securities and corporate bonds and a 0.01% cost from under hedging index credits to index annuity policyholders.
The average yield on invested assets including the excess cash balance was 5.34% for the second quarter of 2012 compared to 5.61% in the first quarter of 2012. Investment yield continues to decline due to the increasing level of excess cash and as proceeds from securities called for redemption and new premiums are invested at rates below the portfolio rate. The average yield on fixed income securities purchased and commercial mortgage loans funded in the second quarter of 2012 was 4.54% compared to an average yield of 4.38% for fixed income securities purchased and commercial mortgage loans funded in the first quarter of 2012.
The decrease in investment yield was partially offset by a reduction in the aggregate cost of money on annuity liabilities to 2.64% in the second quarter of 2012 compared to 2.68% in the first quarter of 2012. The reduction in the cost of money reflects management’s actions to maintain target spreads in the declining investment yield environment by adjusting new money and renewal crediting rates to policyholders.
2012 SALES OUTLOOK
The pace of sales of new annuities was slower in the second quarter of
2012, with total sales for the quarter at
Noble continued, “American Equity is well positioned to capitalize on
growing demand for guaranteed retirement income products. We offer
principal protection and guaranteed minimum returns which are attractive
in a volatile market environment. Yet we offer upside potential when
equity markets are strong which is important in a low interest rate
environment. With attractive products that are right for our times, and
the established strength of an industry leader with over
TRUST PREFERRED REDEMPTION
On
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 second quarter
2012 earnings on
The call may also be accessed by telephone at 866-713-8307, passcode
33869525 (international callers, please dial 1-617-597-5307). 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
American Equity Investment Life Holding Company |
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Net Income/Operating Income (Unaudited) |
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Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
(Dollars in thousands, except per share data) | ||||||||||||||||
Revenues: | ||||||||||||||||
Traditional life and accident and health insurance premiums | $ | 3,248 | $ | 3,289 | $ | 6,470 | $ | 6,205 | ||||||||
Annuity product charges | 21,908 | 19,892 | 41,301 | 36,854 | ||||||||||||
Net investment income | 320,259 | 296,878 | 647,169 | 589,006 | ||||||||||||
Change in fair value of derivatives | (150,847 | ) | (22,029 | ) | 108,314 | 126,624 | ||||||||||
Net realized losses on investments, excluding other than temporary impairment ("OTTI") losses | (611 | ) | (854 | ) | (6,687 | ) | (2,047 | ) | ||||||||
OTTI losses on investments: | ||||||||||||||||
Total OTTI losses | (375 | ) | (113 | ) | (2,156 | ) | (5,213 | ) | ||||||||
Portion of OTTI losses recognized from other comprehensive income | (603 | ) | (2,116 | ) | (1,703 | ) | (3,587 | ) | ||||||||
Net OTTI losses recognized in operations | (978 | ) | (2,229 | ) | (3,859 | ) | (8,800 | ) | ||||||||
Total revenues | 192,979 | 294,947 | 792,708 | 747,842 | ||||||||||||
Benefits and expenses: | ||||||||||||||||
Insurance policy benefits and change in future policy benefits | 2,250 | 2,499 | 4,367 | 4,394 | ||||||||||||
Interest sensitive and index product benefits (b) | 142,733 | 238,420 | 281,856 | 398,085 | ||||||||||||
Amortization of deferred sales inducements | 25,940 | 20,265 | 42,650 | 50,957 | ||||||||||||
Change in fair value of embedded derivatives | (80,989 | ) | (60,963 | ) | 278,077 | 67,340 | ||||||||||
Interest expense on notes payable | 7,072 | 7,832 | 14,067 | 15,739 | ||||||||||||
Interest expense on subordinated debentures | 3,563 | 3,481 | 7,149 | 6,947 | ||||||||||||
Interest expense on amounts due under repurchase agreements | — | 1 | — | 5 | ||||||||||||
Amortization of deferred policy acquisition costs | 44,848 | 38,862 | 79,132 | 94,085 | ||||||||||||
Other operating costs and expenses (c) | 18,902 | 16,634 | 40,615 | 34,108 | ||||||||||||
Total benefits and expenses | 164,319 | 267,031 | 747,913 | 671,660 | ||||||||||||
Income before income taxes | 28,660 | 27,916 | 44,795 | 76,182 | ||||||||||||
Income tax expense | 9,901 | 9,642 | 15,565 | 26,565 | ||||||||||||
Net income (b) | 18,759 | 18,274 | 29,230 | 49,617 | ||||||||||||
Net realized losses and net OTTI losses on investments, net of offsets | 861 | 1,278 | 4,408 | 3,750 | ||||||||||||
Net effect of derivatives and other index annuity, net of offsets | 7,736 | 9,461 | 23,478 | 6,220 | ||||||||||||
Operating income (a) (b) | $ | 27,356 | $ | 29,013 | $ | 57,116 | $ | 59,587 | ||||||||
Earnings per common share (b) | $ | 0.31 | $ | 0.31 | $ | 0.49 | $ | 0.84 | ||||||||
Earnings per common share - assuming dilution (a) (b) (c) | $ | 0.30 | $ | 0.28 | $ | 0.46 | $ | 0.77 | ||||||||
Operating income per common share (a) (b) | $ | 0.46 | $ | 0.48 | $ | 0.95 | $ | 1.00 | ||||||||
Operating income per common share - assuming dilution (a) (b) | $ | 0.43 | $ | 0.45 | $ | 0.90 | $ | 0.92 | ||||||||
Weighted average common shares outstanding (in thousands): | ||||||||||||||||
Earnings per common share | 59,943.337 | 59,504.119 | 59,821.937 | 59,343.959 | ||||||||||||
Earnings per common share - assuming dilution | 64,253.628 | 65,530.192 | 64,229.656 | 65,436.952 |
(a) |
See note (a) under table below. |
|
(b) | Six months ended June 30, 2011 includes an adjustment recorded in the first quarter of 2011 to single premium immediate annuity reserves which reduced interest sensitive and index product benefits by $4.2 million, increased net income and operating income by $2.7 million, increased earnings per common share and operating income per common share by $0.05 per share and increased earnings per common share - assuming dilution and operating income per common share - assuming dilution by $0.04 per share. | |
(c) | Other operating costs and expenses for the three and six months ended June 30, 2012 includes $2.0 million and $5.0 million, respectively, of expense related to the impact of the prospective adoption (effective January 1, 2012) of revised accounting guidance for deferred policy acquisition costs. This revised accounting guidance requires the recognition of a current expense for certain costs which previously were capitalized and amortized over the expected life of the underlying policies. This change, including the impact on related amortization expense, reduced diluted earnings per share for the three and six months ended June 30, 2012 by $0.02 and $0.05, respectively. | |
American Equity Investment Life Holding Company |
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Operating Income |
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Three months ended June 30, 2012 (Unaudited) |
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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 | $ | 3,248 | $ | — | $ | — |
$ |
3,248 | ||||||||
Annuity product charges | 21,908 | — | — | 21,908 | ||||||||||||
Net investment income | 320,259 | — | — | 320,259 | ||||||||||||
Change in fair value of derivatives | (150,847 | ) | — | 85,683 | (65,164 | ) | ||||||||||
Net realized losses on investments, excluding other than temporary impairment ("OTTI") losses |
(611 | ) | 611 | — | — | |||||||||||
Net OTTI losses recognized in operations | (978 | ) | 978 | — | — | |||||||||||
Total revenues | 192,979 | 1,589 | 85,683 | 280,251 | ||||||||||||
Benefits and expenses: | ||||||||||||||||
Insurance policy benefits and change in future policy benefits | 2,250 | — | — | 2,250 | ||||||||||||
Interest sensitive and index product benefits | 142,733 | — | — | 142,733 | ||||||||||||
Amortization of deferred sales inducements | 25,940 | (16 | ) | 7,217 | 33,141 | |||||||||||
Change in fair value of embedded derivatives | (80,989 | ) | — | 56,826 | (24,163 | ) | ||||||||||
Interest expense on notes payable | 7,072 | — | — | 7,072 | ||||||||||||
Interest expense on subordinated debentures | 3,563 | — | — | 3,563 | ||||||||||||
Interest expense on amounts due under repurchase agreements | — | — | — | — | ||||||||||||
Amortization of deferred policy acquisition costs | 44,848 | 267 | 9,342 | 54,457 | ||||||||||||
Other operating costs and expenses | 18,902 | — | — | 18,902 | ||||||||||||
Total benefits and expenses | 164,319 | 251 | 73,385 | 237,955 | ||||||||||||
Income before income taxes | 28,660 | 1,338 | 12,298 | 42,296 | ||||||||||||
Income tax expense | 9,901 | 477 | 4,562 | 14,940 | ||||||||||||
Net income | $ | 18,759 | $ | 861 | $ | 7,736 | $ | 27,356 | ||||||||
Earnings per common share | $ | 0.31 | $ | 0.46 | ||||||||||||
Earnings per common share - assuming dilution | $ | 0.30 | $ | 0.43 |
(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. |
Source:
American Equity Investment Life Holding Company
John M.
Matovina, Chief Executive Officer
515-457-1813, jmatovina@american-equity.com
or
Ted
M. Johnson, Chief Financial Officer
515-457-1980, tjohnson@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