Company Highlights
- Third quarter 2016 net loss of $7.4
million or $0.09 per diluted common share
- Third quarter 2016 operating
loss1 of $4.7 million or $0.05 per diluted common
share
- Third quarter 2016 annuity sales of
$1.5 billion, down 16% from third quarter 2015
- Policyholder funds under management
of $44.5 billion, up 1.9% from June 30, 2016
- Third quarter 2016 investment spread
of 2.57%
- Operating income1
return on average equity1 of 6.7% (trailing twelve
months); excluding unlocking and assumption revisions, operating
income1 return on average equity1 of
11.4% (trailing twelve months)
- Estimated risk-based capital (RBC)
ratio of 338% (pro forma including $100 million capital
contribution on October 3, 2016) compared to 336% at
December 31, 2015
American Equity Investment Life Holding Company (NYSE: AEL), a
leading issuer of fixed index annuities, today reported third
quarter 2016 net loss of $7.4 million, or $0.09 per diluted common
share, compared to net income of $97.3 million, or $1.19 per
diluted common share, for third quarter 2015.
Operating loss1 for the third quarter of 2016 was $4.7 million,
or $0.05 per diluted common share, compared to operating income of
$45.9 million, or $0.56 per diluted common share, for third quarter
2015.
The third quarter 2016 net loss and operating
loss1 were negatively affected by $52.9
million ($0.61 per diluted common share) and $52.6
million ($0.60 per diluted common share), respectively,
for revisions to assumptions utilized in the determination of
deferred policy acquisition costs, deferred sales inducements and
the liability for future benefits to be paid under lifetime income
benefit riders. Net income and operating income1 for the third
quarter of 2015 were impacted by similar assumption revisions
which decreased net income by $1.1
million ($0.01 per diluted common share) and operating
income1 by $8.7 million ($0.10 per diluted
common share).
In addition, the third quarter 2016 net loss and operating loss1
were increased by $1.3 million after tax or $0.02 per diluted
common share for items that were discrete to the quarter. The
discrete items included $1.1 million for income tax adjustments
related to income earned in 2015 and the first half of 2016 and
$0.2 million after tax for the write off of capitalized debt
issuance costs associated with the Company's November 2013
revolving line of credit facility which was refinanced and
terminated at the end of the third quarter.
POLICYHOLDER FUNDS UNDER MANAGEMENT UP 1.9% ON $1.5 BILLION
OF SALES
Policyholder funds under management at September 30, 2016 were
$44.5 billion, an $820 million or 1.9% increase from the end of the
second quarter. Third quarter sales were $1.5 billion before
coinsurance ceded and $1.1 billion after coinsurance ceded. Gross
and net sales for the quarter were down sequentially and compared
to the prior year third quarter with decreases ranging between 16%
and 35%.
Commenting on sales, John Matovina, Chief Executive Officer and
President, said: "Our pace of sales slowed in the quarter but we
are still growing invested assets and policyholder funds under
management. As we indicated in our second quarter commentary, we
expected sales to moderate in the second half of this year
following a very strong first six months. Sales by independent
agents for American Equity Investment Life Insurance Company
(American Equity Life) declined 26% sequentially with FIA sales
down 15% and MYGA sales down 88%. Although formal FIA sales data
for third quarter 2016 will not likely be released until later this
month, our expectation is that the sequential decline in FIA sales
by our independent agents was consistent with the overall market
experience. MYGA sales by independent agents were 2.6% of total
independent agent sales in the third quarter. That mix of FIA and
MYGA sales by our independent agents is more in line with our
historical experience than the first two quarters of this
year."
Commenting on Eagle Life, Matovina added: “Expanding our Eagle
Life business has been a key initiative for us which has been
reinforced by the Department of Labor (DOL) conflict of interest
fiduciary rule that becomes operational next April if not otherwise
delayed or overturned through litigation. The rule favors sales of
FIAs by broker-dealers and banks and poses significant challenges
to sales of FIAs by independent agents. Eagle Life continued to
gain traction during the third quarter. It added a new distribution
relationship, bringing the total to 52 selling agreements, and
began selling through a potentially significant bank relationship.
That being said, the market environment in Eagle Life's
distribution channels was more competitive in the third quarter and
Eagle Life grew its invested assets and policyholder funds under
management more slowly than in the second quarter. Sales were down
29% sequentially to $348 million, with FIA sales declining to $153
million from $190 million and MYGA sales declining to $195 million
from $300 million."
Matovina continued: "The outlook for FIA sales for the next two
quarters remains favorable. However, sales of FIAs by independent
agents may come under pressure next year if the DOL rule becomes
effective in the second quarter. We are encouraged by several of
our NMO partners applying to the DOL to qualify as financial
institutions under the Best Interest Contract exemption. However,
the timing of approval of financial institution status, if granted,
is uncertain as the DOL has not provided guidance on its process
for qualification. We intend to continue to support our NMO
partners and independent agents. We have filed traditional fixed
rate annuity product forms and companion lifetime income benefit
riders which we plan to introduce to the market by the beginning of
2017. We believe these products offer safety of principal and
guaranteed lifetime income desired by retirement account holders,
while qualifying for distribution under the less onerous PTE 84-24
exemption."
SPREAD DECLINES ON LOWER INVESTMENT YIELD; CASH BALANCE
DECLINES
American Equity’s investment spread was 2.57% for the third
quarter of 2016 compared to 2.62% for the second quarter of 2016
and 2.83% for the third quarter of 2015. On a sequential basis, the
average yield on invested assets declined eight basis points while
the cost of money declined three 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 and high cash balances. The
average yield on fixed income securities purchased and commercial
mortgage loans funded in the third quarter of 2016 was 3.31%
compared to 3.95% and 4.14%, respectively, in the second and first
quarters of 2016. The average balance for cash and short-term
investments was $1.2 billion during the third quarter, compared to
$1.1 billion in the second quarter of 2016 and $807 million in the
first quarter of 2016. The unfavorable impact from the
aforementioned items was partially offset by fee income from bond
transactions and prepayment income which added four basis points to
both third quarter 2016 and second quarter 2016 average yield on
invested assets.
The aggregate cost of money for annuity liabilities decreased by
three basis points to 1.89% in the third quarter of 2016 compared
to 1.92% in the second 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 in the third quarter of 2016 compared to a nominal benefit
in the second quarter of 2016.
Commenting on investment spread, John Matovina said: “We saw
continued spread compression in the third quarter. Similar to the
first two quarters of the year, the decrease in the cost of money
from reductions in rates on our policy liabilities was less than
the decrease in the average yield on investments that resulted from
the investment of new premiums and portfolio cash flows in high
quality investments with yields below our portfolio rate and the
increase in average cash and short-term investment balances during
the quarter."
Turning to the outlook for investment spread, Matovina added:
"We expect investment spread in the fourth quarter to benefit from
the substantial reinvestment of cash and short-term investments
into higher yielding securities. As of September 30, 2016, cash and
short-term investment balances had fallen to $652 million from $1.6
billion at the beginning of the quarter and decreased to $308
million by the end of October. On September 1, 2016, we began
implementing renewal adjustments covering $16 - $17 billion of
policyholder account values that should lower the overall cost of
money by eight basis points when fully implemented. On December 6,
2016, we will begin applying renewal adjustments on $7.4 billion of
additional policyholder account values. These adjustments will be
implemented over the next 12 - 15 months on policy anniversary
dates and are expected to reduce the 0.54% cost of money
differential between existing rates and the guaranteed minimums we
had at September 30, 2016."
EQUITY AND DEBT RAISES SUPPORT CAPITAL ADEQUACY
As previously reported, the Company raised $235 million of
capital during the quarter. On August 1st, it physically settled
its two equity forward sales agreements and received $134.7 million
in net cash proceeds which were contributed to the capital and
surplus of American Equity Life. On September 30, the Company
entered into a credit agreement providing for a three-year $100
million term loan and a $150 million unsecured revolving credit
facility maturing in September 2021. The interest rate on the term
loan is currently 2.625% (3-month LIBOR plus 1.75%) and the term
loan can be prepaid prior to maturity without penalty. Mandatory
prepayments of the term loan are required with the net cash
proceeds from any capital markets transaction as defined in the
credit agreement. The revolving credit facility replaces the four
year $140 million facility that was entered into in November 2013
and is available for general corporate purposes, including capital
contributions to the Company's operating subsidiaries. No amounts
are currently drawn on the revolving credit facility.
Including proceeds from the term loan, which were contributed to
capital and surplus of American Equity Life on October 3, 2016, the
estimated RBC ratio at September 30, 2016 was 338%.
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 Securities and Exchange Commission. Forward-looking
statements speak only as of the date the statement was made and the
company undertakes no obligation to update such forward-looking
statements. There can be no assurance that other factors not
currently anticipated by the Company will not materially and
adversely affect our results of operations. Investors are cautioned
not to place undue reliance on any forward-looking statements made
by us or on our behalf.
CONFERENCE CALL
American Equity will hold a conference call to discuss third
quarter 2016 earnings on Thursday, November 3, 2016 at 10:00
a.m. CDT. The conference call will be webcast live on the Internet.
Investors and interested parties who wish to listen to the call on
the Internet may do so at www.american-equity.com.
The call may also be accessed by telephone at 855-865-0606,
passcode 95132764 (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 November 10, 2016 at 855-859-2056, passcode
95132764 (international callers will need to dial
404-537-3406).
ABOUT AMERICAN EQUITY
American Equity Investment Life Holding Company, through its
wholly-owned operating subsidiaries, issues fixed annuity and life
insurance products, with a primary emphasis on the sale of fixed
index and fixed rate annuities. American Equity Investment Life
Holding Company, a New York Stock Exchange Listed company (NYSE:
AEL), is headquartered in West Des Moines, Iowa. For more
information, please visit www.american-equity.com.
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 Nine Months Ended
September 30, September 30, 2016
2015 2016 2015 (Dollars in
thousands, except per share data) Revenues: Premiums and
other considerations $ 12,731 $ 8,335 $ 31,534 $ 25,369 Annuity
product charges 47,675 37,975 125,304 99,066 Net investment income
463,583 436,085 1,374,239 1,253,930 Change in fair value of
derivatives 103,794 (351,360 ) 68,828 (405,484 ) Net realized gains
(losses) on investments, excluding other than temporary impairment
("OTTI") losses 5,256 1,159 10,680 10,362 OTTI losses on
investments: Total OTTI losses (4,554 ) (10,000 ) (11,334 ) (10,132
) Portion of OTTI losses recognized in (from) other comprehensive
income 1,575 4,771 (1,785 ) 3,943 Net OTTI
losses recognized in operations (2,979 ) (5,229 ) (13,119 ) (6,189
) Total revenues 630,060 126,965 1,597,466
977,054
Benefits and expenses: Insurance
policy benefits and change in future policy benefits 15,065 10,959
37,567 32,629 Interest sensitive and index product benefits 278,943
213,465 487,735 802,431 Amortization of deferred sales inducements
69,245 65,807 127,396 152,278 Change in fair value of embedded
derivatives 144,404 (414,724 ) 694,564 (583,112 ) Interest expense
on notes and loan payable 6,887 7,283 20,649 21,976 Interest
expense on subordinated debentures 3,253 3,075 9,627 9,138
Amortization of deferred policy acquisition costs 98,108 67,885
198,486 186,871 Other operating costs and expenses 25,133
24,497 78,786 70,487 Total benefits and
expenses 641,038 (21,753 ) 1,654,810 692,698
Income (loss) before income taxes (10,978 ) 148,718 (57,344 )
284,356 Income tax expense (benefit) (3,558 ) 51,412 (19,791
) 98,302 Net income (loss) $ (7,420 ) $ 97,306 $
(37,553 ) $ 186,054 Earnings (loss) per common share
$ (0.09 ) $ 1.22 $ (0.45 ) $ 2.39 Earnings (loss) per common share
- assuming dilution $ (0.09 ) $ 1.19 $ (0.45 ) $ 2.33
Weighted average common shares outstanding (in thousands): Earnings
(loss) per common share 86,262 79,676 83,645 77,995 Earnings (loss)
per common share - assuming dilution 87,044 81,559 84,413 79,977
NON-GAAP FINANCIAL MEASURES
In addition to net income (loss), the Company has consistently
utilized operating income (loss) and operating income (loss) 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 (loss)
equals net income (loss) 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 (loss) 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 (loss) 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 Operating Income (Loss) (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30, 2016
2015 2016 2015 (Dollars in
thousands, except per share data) Net income (loss) $ (7,420 )
$ 97,306 $ (37,553 ) $ 186,054 Adjustments to arrive at operating
income (loss): (a) Net realized investment (gains) losses,
including OTTI (1,008 ) 2,542 752 (2,835 ) Change in fair value of
derivatives and embedded derivatives - index annuities 9,400
(83,410 ) 160,078 (61,277 ) Change in fair value of derivatives and
embedded derivatives - debt (1,049 ) 2,575 2,483 2,746 Litigation
reserve (1,957 ) — (1,957 ) — Income taxes (2,689 ) 26,903
(57,426 ) 20,991 Operating income (loss) (a non-GAAP
financial measure) $ (4,723 ) $ 45,916 $ 66,377 $
145,679 Per common share - assuming dilution: Net
income (loss) $ (0.09 ) $ 1.19 $ (0.45 ) $ 2.33 Adjustments to
arrive at operating income (loss): Anti-dilutive effect of net loss
— — 0.01 — Net realized investment (gains) losses, including OTTI
(0.01 ) 0.03 0.01 (0.03 ) Change in fair value of derivatives and
embedded derivatives - index annuities 0.11 (1.02 ) 1.89 (0.77 )
Change in fair value of derivatives and embedded derivatives - debt
(0.01 ) 0.03 0.03 0.03 Litigation reserve (0.02 ) — (0.02 ) —
Income taxes (0.03 ) 0.33 (0.68 ) 0.26 Operating
income (loss) (a non-GAAP financial measure) $ (0.05 ) $ 0.56
$ 0.79 $ 1.82 (a) Adjustments to
net income (loss) to arrive at operating income (loss) 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
(loss) and operating income (loss) 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 September 30, 2016
(Dollars in thousands) Average Stockholders' Equity
1 Average equity including average AOCI $ 2,436,560 Average
AOCI (695,176 ) Average equity excluding average AOCI $ 1,741,384
Net income (loss) $ (3,777 ) Operating income 116,518
Return on Average Equity Excluding Average AOCI Net
income (loss) (0.22 )% Operating income 6.69
%
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/20161102006593/en/
American Equity Investment Life Holding CompanySteven D.
Schwartz, 515-273-3763Vice President-Investor
Relationssschwartz@american-equity.com
American Equity Investme... (NYSE:AEL)
Historical Stock Chart
From Feb 2024 to Mar 2024
American Equity Investme... (NYSE:AEL)
Historical Stock Chart
From Mar 2023 to Mar 2024