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% from September 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
American Equity Investment Life Holding Company (NYSE: AEL), a
leading issuer of fixed index annuities, today reported fourth
quarter 2016 net income of $120.8 million, or $1.35 per diluted
common share, compared to net income of $33.8 million, or $0.40 per
diluted common share, for fourth quarter 2015. For the year ended
December 31, 2016, net income was $83.2 million, or $0.97 per
diluted common share, compared to $219.8 million, or $2.72 per
diluted common share, for the year ended December 31,
2015.
Non-GAAP operating income1 for the fourth quarter of 2016 was
$56.0 million, or $0.63 per diluted common share, compared to
non-GAAP operating income1 of $50.1 million, or $0.60 per diluted
common share, for fourth quarter 2015. For the year ended
December 31, 2016, non-GAAP operating income1 was $122.3
million, or $1.43 per diluted common share, compared to $195.8
million, or $2.42 per diluted common share, for the year ended
December 31, 2015.
Fourth quarter 2016 operating expenses benefited from a $2.3
million reduction in an accrual for potential guarantee fund
assessments. On an after tax basis, both net income and non-GAAP
operating income1 benefited by approximately $1.5 million, or $0.02
per share, for this item.
POLICYHOLDER FUNDS UNDER MANAGEMENT UP 1.7% ON $1.4 BILLION
OF SALES
Policyholder funds under management at December 31, 2016 were
$45.2 billion, a $743 million or 1.7% increase from the end of the
third quarter. Fourth quarter sales were $1.4 billion before
coinsurance ceded and $1.1 billion after coinsurance ceded. Gross
sales and net sales for the quarter were down substantially from
the record quarterly sales posted in fourth quarter of 2015. On a
sequential basis, gross sales were down 10% with net sales
flat.
Commenting on sales, John Matovina, Chief Executive Officer and
President, said: "While we are proud to report record full year
sales of $7.1 billion for 2016, slightly surpassing our previous
record set in 2015, we acknowledge that the new record was achieved
on the strength of strong sales in the first half of the year and
an abnormally high volume of sales from multi-year rate guaranteed
annuity (MYGA) products. Although our gross sales continued to slow
in the fourth quarter of 2016, our net sales were essentially flat
on a sequential basis and we grew invested assets and policyholder
funds under management. Total sales by independent agents for
American Equity Investment Life Insurance Company (American Equity
Life) declined 1% sequentially while total sales by broker-dealers
and banks for Eagle Life declined by $138 million or 40%
sequentially. Sales of fixed index annuities (FIAs) were down 5.5%
sequentially to $1.2 billion with all of the decrease attributable
to reduced sales for Eagle Life."
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 Department of Labor
(DOL) conflict of interest fiduciary rule may be distracting from
marketing activities and playing a role in lower sales. In some
cases, registered representatives may be positioning money away
from annuities and into managed money in anticipation of the
fiduciary rule. While the ability to counteract the DOL fiduciary
rule behavior is outside of our control, we regularly evaluate our
product terms and positioning and have several initiatives in
development that will make us more competitive and may be
introduced to the market during the next 90 -120 days."
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 Financial
Institution status and even if the proposed exemption is finalized
prior to April 2017, the eligible insurance intermediaries may not
have sufficient time to meet the proposed requirements. Regardless
of how this situation resolves itself, we will be introducing
several traditional fixed rate annuities with a competitive
lifetime income benefit rider to the market early next month. 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."
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 $307 million in the fourth
quarter compared to $1.2 billion in the third quarter 2016.
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, John Matovina said: “Fourth
quarter spread results benefited from reducing our excess cash and
short-term investment balances to just $29 million at the end of
the quarter and the increase in fee income from bond transactions
and prepayment income. However, similar to the first three 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. Even with interest rates
appreciably higher today than where they were at the time of our
last earnings release, the yields available to us on investments
that meet our high quality parameters remain below our portfolio
rate and will continue to pressure our spread results. We will
continue to achieve reductions in our cost of money through renewal
rate adjustments that will be implemented on policy anniversary
dates over the remainder of this year. We continue to have
flexibility to reduce our crediting rates, if necessary, and could
decrease our cost of money by approximately 0.49% through further
reductions in renewal rates to guaranteed minimums should the
investment yields currently available to us persist."
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 fourth
quarter 2016 earnings on Thursday, February 9, 2017 at 8:00
a.m. CT. 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 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 February 16, 2017 at 855-859-2056, passcode
53231690 (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 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.
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version on businesswire.com: http://www.businesswire.com/news/home/20170208006100/en/
American Equity Investment Life Holding CompanySteven
D. Schwartz, Vice President-Investor Relations515-273-3763,
sschwartz@american-equity.com
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