American Equity Reports Second Quarter 2019 Results
Company Highlights
- Second quarter 2019 net income of
$18.6 million or$0.20 per diluted common share - Second quarter 2019 non-GAAP operating income1 of
$99.6 million or$1.09 per diluted common share - Second quarter 2019 annuity sales of
$1.5 billion - Policyholder funds under management of
$52.4 billion - Second quarter 2019 investment spread of 2.63%
- Estimated risk-based capital ratio of 369% compared to 360% at
December 31, 2018
Non-GAAP operating income1 for the second quarter of 2019 was
POLICYHOLDER FUNDS UNDER MANAGEMENT UP 1.6% ON
Policyholder funds under management at
Total sales by independent agents for
Commenting on sales,
Commenting on the market environment and the outlook for FIA sales, Matovina added: "The market in each of our distribution channels continues to be competitive. Reflecting the decline in interest rates since year-end, we have taken actions to lower caps, participation rates, and declared rates for both American Equity Life and Eagle Life. In mid-April we lowered participation rates and caps on
Matovina continued: "In the bank and broker-dealer channels, we have benefited from new sales relationships and the expansion of our employee wholesaling force. Eagle Life now has 12 employee wholesalers, up from four at the beginning of the year. We are using our employee wholesalers to target accounts that do not use third party wholesalers and to complement our third party wholesalers when possible. We continue to put significant emphasis on account acquisition and hope to bring on at least two new meaningful accounts by year-end. At current run rates, we have seven accounts capable of producing sales of
INVESTMENT SPREAD INCREASES ON LOWER COST OF MONEY
American Equity’s investment spread was 2.63% for the second quarter of 2019 compared to 2.58% for the first quarter of 2019 and 2.64% for the second quarter of 2018. On a sequential basis, the average yield on invested assets increased by 3 basis points while the cost of money fell 2 basis points.
Average yield on invested assets was 4.51% in the second quarter of 2019 compared to 4.48% in the first quarter of 2019. This increase was attributable to an increase in the benefit from non-trendable investment income items from 2 basis points in the first quarter to 5 basis points in the second quarter of this year. The impact from the decline in short term yields on the
The aggregate cost of money for annuity liabilities of 1.88% in the second quarter of 2019 was down 2 basis points from 1.90% in the first quarter of 2019. The cost of money benefited by 4 basis points from over hedging index-linked interest obligations and other non-trendable items, compared to 4 basis points in the first quarter of 2019.
Commenting on investment spread, Matovina said: “Excluding non-trendable investment spread items, investment spread increased 2 basis points sequentially driven by lower cost of money. The cost of money continues to benefit from the renewal rate reductions we initiated in the fourth quarter of last year. Option costs increased slightly in the second quarter, but were still well below levels paid during most of 2018."
Matovina went on to say: "Given the decline in yields available from fixed income securities and other fixed income instruments since we last initiated renewal rate reductions in the fourth quarter of last year, we will initiate further renewal rate adjustments on certain in-force policies later this month. Should yields available to us remain at current levels or the cost of money rise, we have flexibility to reduce our crediting rates and could decrease our cost of money by approximately 0.58% through further reductions in renewal rates to guaranteed minimums."
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 2019 earnings on
The call may also be accessed by telephone at 855-865-0606, passcode 4169648 (international callers, please dial 704-859-4382). 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
1 Use of non-GAAP financial measures is discussed in this release in the tables that follow the text of the release.
Unaudited (Dollars in thousands)
Consolidated Statements of Operations |
||||||||||||||||
|
Three Months Ended
|
|
Six Months Ended
|
|||||||||||||
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|||||||||
Revenues: |
|
|
|
|
|
|
|
|||||||||
Premiums and other considerations |
$ |
4,126 |
|
|
$ |
5,757 |
|
|
$ |
9,536 |
|
|
$ |
14,810 |
|
|
Annuity product charges |
|
60,700 |
|
|
|
55,006 |
|
|
|
113,666 |
|
|
|
105,729 |
|
|
Net investment income |
|
570,568 |
|
|
|
533,282 |
|
|
|
1,129,006 |
|
|
|
1,044,066 |
|
|
Change in fair value of derivatives |
|
76,045 |
|
|
|
132,205 |
|
|
|
460,514 |
|
|
|
(318,878 |
) |
|
Net realized losses on investments, excluding other than temporary impairment ("OTTI") losses |
|
(3,832 |
) |
|
|
(38,381 |
) |
|
|
(4,395 |
) |
|
|
(38,079 |
) |
|
OTTI losses on investments: |
|
|
|
|
|
|
|
|||||||||
Total OTTI losses |
|
(998 |
) |
|
|
(745 |
) |
|
|
(998 |
) |
|
|
(1,652 |
) |
|
Portion of OTTI losses recognized from other comprehensive income |
|
(215 |
) |
|
|
(1,651 |
) |
|
|
(215 |
) |
|
|
(1,651 |
) |
|
Net OTTI losses recognized in operations |
|
(1,213 |
) |
|
|
(2,396 |
) |
|
|
(1,213 |
) |
|
|
(3,303 |
) |
|
Total revenues |
|
706,394 |
|
|
|
685,473 |
|
|
|
1,707,114 |
|
|
|
804,345 |
|
|
|
|
|
|
|
|
|
|
|||||||||
Benefits and expenses: |
|
|
|
|
|
|
|
|||||||||
Insurance policy benefits and change in future policy benefits |
|
6,939 |
|
|
|
9,276 |
|
|
|
16,238 |
|
|
|
21,370 |
|
|
Interest sensitive and index product benefits |
|
251,103 |
|
|
|
427,951 |
|
|
|
387,777 |
|
|
|
942,046 |
|
|
Amortization of deferred sales inducements |
|
19,785 |
|
|
|
78,112 |
|
|
|
53,094 |
|
|
|
178,535 |
|
|
Change in fair value of embedded derivatives |
|
327,562 |
|
|
|
(101,949 |
) |
|
|
1,093,885 |
|
|
|
(969,181 |
) |
|
Interest expense on notes payable |
|
6,380 |
|
|
|
6,374 |
|
|
|
12,759 |
|
|
|
12,746 |
|
|
Interest expense on subordinated debentures |
|
4,057 |
|
|
|
3,878 |
|
|
|
8,145 |
|
|
|
7,508 |
|
|
Amortization of deferred policy acquisition costs |
|
29,946 |
|
|
|
115,049 |
|
|
|
75,078 |
|
|
|
255,688 |
|
|
Other operating costs and expenses |
|
37,426 |
|
|
|
32,540 |
|
|
|
76,405 |
|
|
|
63,780 |
|
|
Total benefits and expenses |
|
683,198 |
|
|
|
571,231 |
|
|
|
1,723,381 |
|
|
|
512,492 |
|
|
Income (loss) before income taxes |
|
23,196 |
|
|
|
114,242 |
|
|
|
(16,267 |
) |
|
|
291,853 |
|
|
Income tax expense (benefit) |
|
4,606 |
|
|
|
20,339 |
|
|
|
(4,847 |
) |
|
|
56,988 |
|
|
Net income (loss) |
$ |
18,590 |
|
|
$ |
93,903 |
|
|
$ |
(11,420 |
) |
|
$ |
234,865 |
|
|
|
|
|
|
|
|
|
|
|||||||||
Earnings (loss) per common share |
$ |
0.20 |
|
|
$ |
1.04 |
|
|
$ |
(0.13 |
) |
|
$ |
2.60 |
|
|
Earnings (loss) per common share - assuming dilution |
$ |
0.20 |
|
|
$ |
1.03 |
|
|
$ |
(0.13 |
) |
|
$ |
2.58 |
|
|
|
|
|
|
|
|
|
|
|||||||||
Weighted average common shares outstanding (in thousands): |
|
|
|
|
|
|
|
|||||||||
Earnings (loss) per common share |
|
91,103 |
|
|
|
90,327 |
|
|
|
90,994 |
|
|
|
90,173 |
|
|
Earnings (loss) per common share - assuming dilution |
|
91,785 |
|
|
|
91,271 |
|
|
|
91,765 |
|
|
|
91,206 |
|
NON-GAAP FINANCIAL MEASURES
In addition to net income (loss), the Company has consistently utilized non-GAAP operating income and non-GAAP operating income per common share - assuming dilution, non-GAAP financial measures commonly used in the life insurance industry, as economic measures to evaluate its financial performance. Non-GAAP operating income equals net income (loss) adjusted to eliminate the impact of items that fluctuate from quarter to quarter in a manner unrelated to core operations, and the Company believes measures excluding their impact are useful in analyzing operating trends. The most significant adjustments to arrive at non-GAAP operating income eliminate the impact of fair value accounting for the Company's fixed index annuity business. These adjustments are not economic in nature but rather impact the timing of reported results. The Company believes the combined presentation and evaluation of non-GAAP operating income together with net income (loss) provides information that may enhance an investor’s understanding of its underlying results and profitability.
Reconciliation from Net Income (Loss) to Non-GAAP Operating Income |
||||||||||||||||
|
Three Months Ended
|
|
Six Months Ended
|
|||||||||||||
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|||||||||
Net income (loss) |
$ |
18,590 |
|
|
$ |
93,903 |
|
|
$ |
(11,420 |
) |
|
$ |
234,865 |
|
|
Adjustments to arrive at non-GAAP operating income: (a) |
|
|
|
|
|
|
|
|||||||||
Net realized investment losses, including OTTI |
|
2,625 |
|
|
|
25,624 |
|
|
|
2,930 |
|
|
|
25,647 |
|
|
Change in fair value of derivatives and embedded derivatives - fixed index annuities |
|
99,868 |
|
|
|
(30,094 |
) |
|
|
250,812 |
|
|
|
(108,912 |
) |
|
Change in fair value of derivatives - debt |
|
854 |
|
|
|
(739 |
) |
|
|
1,490 |
|
|
|
(2,571 |
) |
|
Income taxes |
|
(22,346 |
) |
|
|
(2,046 |
) |
|
|
(54,819 |
) |
|
|
15,313 |
|
|
Non-GAAP operating income |
$ |
99,591 |
|
|
$ |
86,648 |
|
|
$ |
188,993 |
|
|
$ |
164,342 |
|
|
|
|
|
|
|
|
|
|
|||||||||
Per common share - assuming dilution: |
|
|
|
|
|
|
|
|||||||||
Net income (loss) |
$ |
0.20 |
|
|
$ |
1.03 |
|
|
$ |
(0.13 |
) |
|
$ |
2.58 |
|
|
Adjustments to arrive at non-GAAP operating income: |
|
|
|
|
|
|
|
|||||||||
Anti-dilutive effect of net loss |
— |
|
|
— |
|
|
|
0.01 |
|
|
— |
|
||||
Net realized investment losses, including OTTI |
|
0.03 |
|
|
|
0.28 |
|
|
|
0.03 |
|
|
|
0.28 |
|
|
Change in fair value of derivatives and embedded derivatives - fixed index annuities |
|
1.09 |
|
|
|
(0.33 |
) |
|
|
2.73 |
|
|
|
(1.19 |
) |
|
Change in fair value of derivatives - debt |
|
0.01 |
|
|
|
(0.01 |
) |
|
|
0.02 |
|
|
|
(0.03 |
) |
|
Income taxes |
|
(0.24 |
) |
|
|
(0.02 |
) |
|
|
(0.60 |
) |
|
|
0.16 |
|
|
Non-GAAP operating income |
$ |
1.09 |
|
|
$ |
0.95 |
|
|
$ |
2.06 |
|
|
$ |
1.80 |
|
(a) Adjustments to net income (loss) to arrive at non-GAAP operating income are presented net of related adjustments to amortization of deferred sales inducements (DSI) and deferred policy acquisition costs (DAC) where applicable.
NON-GAAP FINANCIAL MEASURES
Average Stockholders' Equity and Return on Average Equity
Return on average equity measures how efficiently the Company generates profits from the resources provided by its net assets. Return on average equity and non-GAAP operating return on average equity are calculated by dividing net income and non-GAAP operating income, respectively, for the trailing twelve months by average equity excluding average accumulated other comprehensive income ("AOCI"). The Company excludes AOCI because AOCI fluctuates from quarter to quarter due to unrealized changes in the fair value of available for sale investments.
|
Twelve Months Ended |
|||
|
June 30, 2019 |
|||
Average Stockholders' Equity |
|
|||
Average equity including average AOCI |
$ |
2,962,150 |
|
|
Average AOCI |
|
(615,195 |
) |
|
Average equity excluding average AOCI |
$ |
2,346,955 |
|
|
|
|
|||
Net income |
$ |
211,731 |
|
|
Non-GAAP operating income |
|
450,391 |
|
|
|
|
|||
Return on Average Equity Excluding Average AOCI |
|
|||
Net income |
|
9.02 |
% |
|
Non-GAAP operating income |
|
19.19 |
% |
View source version on businesswire.com: https://www.businesswire.com/news/home/20190805005580/en/
Source:
Steven D. Schwartz, Vice President-Investor Relations
(515) 273-3763, sschwartz@american-equity.com