American Equity Reports First Quarter 2015 Results
Non-GAAP operating income1 for the first quarter of 2015 was
Highlights for the first quarter of 2015 include:
-
Annuity sales (before coinsurance) were up 43% to
$1.32 billion compared to first quarter 2014 annuity sales of$921 million . - Investment spread was 2.77% compared to 2.92% for the fourth quarter of 2014 and 2.77% for the first quarter of 2014.
-
Estimated risk-based capital (
RBC ) ratio of 361% at March 31, 2015 compared to 372% at December 31, 2014 remained above A. M. Best’s rating threshold. -
Book value per share (excluding accumulated other comprehensive
income) was
$18.63 at March 31, 2015 compared to$18.52 at December 31, 2014.
1 In addition to net income (loss), 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 (loss) to operating income and descriptions of reconciling items. See 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. 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 (loss), provides information that may enhance an investor’s understanding of our underlying results and profitability.
Commenting on first quarter results, founder and Executive Chairman
PRODUCTION UP 43% ON MORE FAVORABLE COMPETITIVE ENVIRONMENT
First quarter sales of
Commenting on the competitive environment and the outlook for sales,
SPREAD NARROWS ON REDUCTION IN BOND FEE INCOME
American Equity’s investment spread narrowed to 2.77% for the first quarter of 2015 compared to 2.92% for the fourth quarter of 2014 as a result of a decrease in average yield on invested assets which was 0.15% larger than the decrease in the cost of money. The investment spread for the first quarter of 2015 was unchanged from the investment spread for the first quarter of 2014.
Average yield on invested assets declined by 21 basis points to 4.74% for the first quarter of 2015 from 4.95% for the fourth quarter of 2014. More than half of this decrease was attributable to fee income from bond transactions which together with certain prepayment income added 0.13% to the fourth quarter 2014 average yield on invested assets compared to 0.01% from such items in the first quarter of 2015.
Adjusting for the effect of these non-trendable items, the average yield on invested assets for the quarter fell by 9 basis points from the prior quarter as new premiums and portfolio cash flows were invested at rates below the portfolio rate. The average yield on fixed income securities purchased and commercial mortgage loans funded in the first quarter of 2015 was 3.84%, compared to average yields ranging from 4.14% - 4.27% in the prior year quarters.
The aggregate cost of money for annuity liabilities declined by 6 basis points to 1.97% in the first quarter of 2015 compared to 2.03% in the fourth quarter of 2014. This decrease reflected continued reductions in crediting rates. The benefit from over hedging the obligations for index linked interest was 0.07% in the first quarter of 2015 and 0.05% in the fourth quarter of 2014.
Commenting on investment spread,
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
2015 earnings on
The call may also be accessed by telephone at 844-224-4250, passcode
22864981 (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
Consolidated Statements of Operations (Unaudited) |
||||||||||
Three Months Ended | ||||||||||
March 31, | ||||||||||
2015 | 2014 | |||||||||
(Dollars in thousands, except per share data) | ||||||||||
Revenues: | ||||||||||
Premiums and other considerations | $ | 6,997 | $ | 7,331 | ||||||
Annuity product charges | 28,682 | 25,272 | ||||||||
Net investment income | 399,669 | 370,005 | ||||||||
Change in fair value of derivatives | (31,100 | ) | 48,493 | |||||||
Net realized gains (losses) on investments, excluding other than temporary impairment ("OTTI") losses | 4,879 | (714 | ) | |||||||
OTTI losses on investments: | ||||||||||
Total OTTI losses | (132 | ) | — | |||||||
Portion of OTTI losses recognized from other comprehensive income | — | (905 | ) | |||||||
Net OTTI losses recognized in operations | (132 | ) | (905 | ) | ||||||
Loss on extinguishment of debt | — | (3,977 | ) | |||||||
Total revenues | 408,995 | 445,505 | ||||||||
Benefits and expenses: | ||||||||||
Insurance policy benefits and change in future policy benefits | 9,220 | 10,095 | ||||||||
Interest sensitive and index product benefits | 282,825 | 317,192 | ||||||||
Amortization of deferred sales inducements | 10,953 | 666 | ||||||||
Change in fair value of embedded derivatives | 51,213 | 92,619 | ||||||||
Interest expense on notes payable | 7,339 | 10,264 | ||||||||
Interest expense on subordinated debentures | 3,016 | 3,008 | ||||||||
Amortization of deferred policy acquisition costs | 14,286 | 7,194 | ||||||||
Other operating costs and expenses | 21,122 | 19,085 | ||||||||
Total benefits and expenses | 399,974 | 460,123 | ||||||||
Income (loss) before income taxes | 9,021 | (14,618 | ) | |||||||
Income tax expense (benefit) | 3,118 | (4,865 | ) | |||||||
Net income (loss) | $ | 5,903 | $ | (9,753 | ) | |||||
Earnings (loss) per common share | $ | 0.08 | $ | (0.13 | ) | |||||
Earnings (loss) per common share - assuming dilution | $ | 0.07 | $ | (0.13 | ) | |||||
Weighted average common shares outstanding (in thousands): | ||||||||||
Earnings (loss) per common share | 77,042 | 72,519 | ||||||||
Earnings (loss) per common share - assuming dilution | 79,118 | 79,616 | ||||||||
NON-GAAP FINANCIAL MEASURES
In addition to net income (loss), 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 (loss) 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 (loss) provides information that may enhance an investor’s understanding of our underlying results and profitability.
Reconciliation from Net Income (Loss) to Operating Income (Unaudited) |
||||||||||
Three Months Ended | ||||||||||
March 31, | ||||||||||
2015 | 2014 | |||||||||
(Dollars in thousands, except per share data) | ||||||||||
Net income (loss) | $ | 5,903 | $ | (9,753 | ) | |||||
Adjustments to arrive at operating income: (a) | ||||||||||
Net realized investment (gains) losses, including OTTI | (1,819 | ) | 564 | |||||||
Change in fair value of derivatives and embedded derivatives - index annuities | 43,657 | 43,708 | ||||||||
Change in fair value of derivatives and embedded derivatives - debt | 1,077 | 1,509 | ||||||||
Litigation reserve | — | (916 | ) | |||||||
Extinguishment of debt | — | 2,394 | ||||||||
Operating income (a non-GAAP financial measure) | $ | 48,818 | $ | 37,506 | ||||||
Per common share - assuming dilution: | ||||||||||
Net income (loss) | $ | 0.07 | $ | (0.13 | ) | |||||
Adjustments to arrive at operating income: | ||||||||||
Anti-dilutive effect of net loss | — | 0.01 | ||||||||
Net realized investment (gains) losses, including OTTI | (0.02 | ) | — | |||||||
Change in fair value of derivatives and embedded derivatives - index annuities | 0.55 | 0.55 | ||||||||
Change in fair value of derivatives and embedded derivatives - debt | 0.02 | 0.02 | ||||||||
Litigation reserve | — | (0.01 | ) | |||||||
Extinguishment of debt | — | 0.03 | ||||||||
Operating income (a non-GAAP financial measure) | $ | 0.62 | $ | 0.47 | ||||||
(a) Adjustments to net income (loss) 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). |
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NON-GAAP FINANCIAL MEASURES
Average Stockholders' Equity and Return on Average Equity (Unaudited)
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 | |||||
March 31, 2015 | |||||
(Dollars in thousands) | |||||
Average Stockholders' Equity 1 | |||||
Average equity including average AOCI | $ | 1,990,835 | |||
Average AOCI | (613,087 | ) | |||
Average equity excluding average AOCI | $ | 1,377,748 | |||
Net income | $ | 141,679 | |||
Operating income | 201,958 | ||||
Return on Average Equity Excluding Average AOCI | |||||
Net income | 10.28 | % | |||
Operating income | 14.66 | % | |||
1 - simple average based on stockholders' equity at beginning and end of the twelve month period. |
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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