American Equity Reports Fourth Quarter and Full Year 2016 Results
Company Highlights
-
Fourth quarter 2016 net income of
$120.8 million or$1.35 per diluted common share; Full year 2016 net income of$83.2 million or$0.97 per diluted common share -
Fourth quarter 2016 non-GAAP operating income1
of
$56.0 million or$0.63 per diluted common share; Full year 2016 non-GAAP operating income1 of$122.3 million or$1.43 per diluted common share -
Policyholder funds under management of
$45.2 billion , up 1.7% fromSeptember 30, 2016 and 9.6% for the year - Fourth quarter 2016 investment spread of 2.62%
- Non-GAAP operating income1 return on average equity1 of 6.7%; excluding unlocking and assumption revisions, non-GAAP operating income1 return on average equity1 of 10.8%
- Risk-based capital ratio of 342%
-
Annual cash dividend of
$0.24 per share
Non-GAAP operating income1 for the fourth quarter of 2016 was
Fourth quarter 2016 operating expenses benefited from a
POLICYHOLDER FUNDS UNDER MANAGEMENT UP 1.7% ON
Policyholder funds under management at
Commenting on sales,
Commenting on the competitive environment, Matovina added: “Competition
in both of our distribution channels has been escalating and we've seen
rates from several of our competitors that are appreciably above where
they were a year ago, even though investment yields are only modestly
higher than a year ago. We also suspect that actions to conform to the
pending
Matovina continued: "The outlook for FIA sales for 2017 remains
favorable driven by well understood demographic factors and the
potential for further increases in interest rates. However, sales of
FIAs by independent agents may come under pressure later this year if
the DOL fiduciary rule is not delayed or overturned through litigation.
While the DOL's recently proposed Best Interest Contract Exemption for
Insurance Intermediaries (the IMO Exemption) could facilitate continued
sales of FIAs subject to the fiduciary rule by independent insurance
agents, we believe the proposed requirements may arbitrarily and
unnecessarily prevent some highly qualified insurance intermediaries
from obtaining
INVESTMENT SPREAD STABILIZES AS CASH BALANCE NORMALIZES
American Equity’s investment spread was 2.62% for the fourth quarter of 2016 compared to 2.57% for the third quarter of 2016 and 2.67% for the fourth quarter of 2015. On a sequential basis, the average yield on invested assets increased approximately one basis point while the cost of money declined four basis points.
Average yield on invested assets continued to be unfavorably impacted by
the investment of new premiums and portfolio cash flows at rates below
the portfolio rate. The average yield on fixed income securities
purchased and commercial mortgage loans funded in the fourth quarter of
2016 was 3.71% compared to 3.31%, 3.95% and 4.14%, respectively, in the
third, second and first quarters of 2016. However, the unfavorable
impact from new money investment yields was offset by fee income from
bond transactions and prepayment income which added seven basis points
to the fourth quarter average yield on invested assets compared to four
basis points in the third quarter 2016 and a reduction in the average
balance for cash and short-term investments. The average balance for
cash and short-term investments was
The aggregate cost of money for annuity liabilities decreased by four basis points to 1.85% in the fourth quarter of 2016 compared to 1.89% in the third quarter of 2016. This decrease reflected continued reductions in crediting rates. The benefit from over hedging the obligations for index linked interest was two basis points for both the fourth and third quarters of 2016.
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 fourth quarter
2016 earnings on Thursday, February 9, 2017 at
The call may also be accessed by telephone at 855-865-0606, passcode
53231690 (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.
Consolidated Statements of Operations (Unaudited) |
||||||||||||||||
Three Months Ended December 31, |
Year Ended December 31, |
|||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
(Dollars in thousands, except per share data) | ||||||||||||||||
Revenues: | ||||||||||||||||
Premiums and other considerations | $ | 12,233 | $ | 10,679 | $ | 43,767 | $ | 36,048 | ||||||||
Annuity product charges | 48,275 | 37,102 | 173,579 | 136,168 | ||||||||||||
Net investment income | 475,633 | 438,262 | 1,849,872 | 1,692,192 | ||||||||||||
Change in fair value of derivatives | 95,391 | 69,338 | 164,219 | (336,146 | ) | |||||||||||
Net realized gains (losses) on investments, excluding other than temporary impairment ("OTTI") losses | 844 | (151 | ) | 11,524 | 10,211 | |||||||||||
OTTI losses on investments: | ||||||||||||||||
Total OTTI losses | (10,015 | ) | (15,415 | ) | (21,349 | ) | (25,547 | ) | ||||||||
Portion of OTTI losses recognized in (from) other comprehensive income | 455 | 2,068 | (1,330 | ) | 6,011 | |||||||||||
Net OTTI losses recognized in operations | (9,560 | ) | (13,347 | ) | (22,679 | ) | (19,536 | ) | ||||||||
Total revenues | 622,816 | 541,883 | 2,220,282 | 1,518,937 | ||||||||||||
Benefits and expenses: | ||||||||||||||||
Insurance policy benefits and change in future policy benefits | 14,916 | 12,829 | 52,483 | 45,458 | ||||||||||||
Interest sensitive and index product benefits | 237,737 | 165,622 | 725,472 | 968,053 | ||||||||||||
Amortization of deferred sales inducements | 123,770 | 57,112 | 251,166 | 209,390 | ||||||||||||
Change in fair value of embedded derivatives | (151,099 | ) | 118,414 | 543,465 | (464,698 | ) | ||||||||||
Interest expense on notes and loan payable | 7,599 | 6,873 | 28,248 | 28,849 | ||||||||||||
Interest expense on subordinated debentures | 3,331 | 3,101 | 12,958 | 12,239 | ||||||||||||
Amortization of deferred policy acquisition costs | 175,526 | 99,243 | 374,012 | 286,114 | ||||||||||||
Other operating costs and expenses | 23,445 | 25,731 | 102,231 | 96,218 | ||||||||||||
Total benefits and expenses | 435,225 | 488,925 | 2,090,035 | 1,181,623 | ||||||||||||
Income before income taxes | 187,591 | 52,958 | 130,247 | 337,314 | ||||||||||||
Income tax expense | 66,795 | 19,182 | 47,004 | 117,484 | ||||||||||||
Net income | $ | 120,796 | $ | 33,776 | $ | 83,243 | $ | 219,830 | ||||||||
Earnings per common share | $ | 1.37 | $ | 0.41 | $ | 0.98 | $ | 2.78 | ||||||||
Earnings per common share - assuming dilution | $ | 1.35 | $ | 0.40 | $ | 0.97 | $ | 2.72 | ||||||||
Weighted average common shares outstanding (in thousands): | ||||||||||||||||
Earnings per common share | 88,211 | 81,733 | 84,793 | 78,937 | ||||||||||||
Earnings per common share - assuming dilution | 89,178 | 83,851 | 85,605 | 80,961 | ||||||||||||
NON-GAAP FINANCIAL MEASURES
In addition to net income, the Company has 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 its financial performance. Operating income equals net income adjusted to eliminate the impact of items that fluctuate from quarter to quarter in a manner unrelated to core operations. The most significant adjustments to arrive at operating income eliminate the impact of fair value accounting for our fixed index annuity business and are not economic in nature but rather impact the timing of reported results. The Company believes measures excluding their impact are useful in analyzing operating trends and the combined presentation and evaluation of operating income together with net income provides information that may enhance an investor’s understanding of its underlying results and profitability.
Reconciliation from Net Income to Operating Income (Unaudited) |
||||||||||||||||
Three Months Ended December 31, |
Year Ended December 31, |
|||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
(Dollars in thousands, except per share data) | ||||||||||||||||
Net income | $ | 120,796 | $ | 33,776 | $ | 83,243 | $ | 219,830 | ||||||||
Adjustments to arrive at operating income: (a) | ||||||||||||||||
Net realized investment (gains) losses, including OTTI | 6,436 | 8,572 | 7,188 | 5,737 | ||||||||||||
Change in fair value of derivatives and embedded derivatives - index annuities | (103,444 | ) | 17,222 | 56,634 | (44,055 | ) | ||||||||||
Change in fair value of derivatives and embedded derivatives - debt | (3,748 | ) | (1,450 | ) | (1,265 | ) | 1,296 | |||||||||
Litigation reserve | — | — | (1,957 | ) | — | |||||||||||
Income taxes | 35,927 | (7,979 | ) | (21,499 | ) | 13,012 | ||||||||||
Operating income (a non-GAAP financial measure) | $ | 55,967 | $ | 50,141 | $ | 122,344 | $ | 195,820 | ||||||||
Per common share - assuming dilution: | ||||||||||||||||
Net income | $ | 1.35 | $ | 0.40 | $ | 0.97 | $ | 2.72 | ||||||||
Adjustments to arrive at operating income: | ||||||||||||||||
Net realized investment (gains) losses, including OTTI | 0.07 | 0.10 | 0.08 | 0.07 | ||||||||||||
Change in fair value of derivatives and embedded derivatives - index annuities | (1.16 | ) | 0.21 | 0.66 | (0.54 | ) | ||||||||||
Change in fair value of derivatives and embedded derivatives - debt | (0.04 | ) | (0.02 | ) | (0.01 | ) | 0.01 | |||||||||
Litigation reserve | — | — | (0.02 | ) | — | |||||||||||
Income taxes | 0.41 | (0.09 | ) | (0.25 | ) | 0.16 | ||||||||||
Operating income (a non-GAAP financial measure) | $ | 0.63 | $ | 0.60 | $ | 1.43 | $ | 2.42 | ||||||||
(a) Adjustments to net income to arrive at 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 (Unaudited) |
||||||
Return on average equity measures how efficiently the Company generates profits from the resources provided by its net assets. Return on average 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"). 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 | ||||||
December 31, 2016 | ||||||
(Dollars in thousands) | ||||||
Average Stockholders' Equity 1 | ||||||
Average equity including average AOCI | $ | 2,107,181 | ||||
Average AOCI | (270,815 | ) | ||||
Average equity excluding average AOCI | $ | 1,836,366 | ||||
Net income | $ | 83,243 | ||||
Operating income | 122,344 | |||||
Return on Average Equity Excluding Average AOCI | ||||||
Net income | 4.53 | % | ||||
Operating income | 6.66 | % | ||||
1 - The net proceeds received from the Company's settlement of the two equity forward sales agreements in August 2016 are included in the computations of average stockholders' equity on a weighted average basis based upon the number of days they were available to the Company in the twelve month period. The weighted average amount is added to the simple average of (a) stockholders' equity at the beginning of the twelve month period and (b) stockholders' equity at the end of the twelve month period excluding the net proceeds received from the settlement of the two equity forward sales agreements in August 2016. |
||||||
View source version on businesswire.com: http://www.businesswire.com/news/home/20170208006100/en/
Source:
American Equity Investment Life Holding Company
Steven D.
Schwartz, Vice President-Investor Relations
515-273-3763, sschwartz@american-equity.com