Company Highlights
- First quarter 2017 net income of
$53.9 million or $0.60 per diluted common share
- First quarter 2017 non-GAAP
operating income1 of $59.6 million or $0.66 per
diluted common share
- First quarter 2017 annuity sales of
$1.1 billion, down 48% from first quarter 2016
- Policyholder funds under management
of $46.0 billion, up 1.8% from December 31, 2016 and 8.2% from
March 31, 2016
- First quarter 2017 investment spread
of 2.71%
- Estimated risk-based capital ratio
of 353% compared to 342% at December 31, 2016
American Equity Investment Life Holding Company (NYSE: AEL), a
leading issuer of fixed index annuities, today reported first
quarter 2017 net income of $53.9 million, or $0.60 per diluted
common share, compared to net loss of $44.8 million, or $0.55 per
diluted common share, for first quarter 2016.
Non-GAAP operating income1 for the first quarter of 2017 was
$59.6 million, or $0.66 per diluted common share, compared to
non-GAAP operating income1 of $21.0 million, or $0.25 per diluted
common share, for first quarter 2016. On a trailing twelve month
basis, non-GAAP operating1 return on average equity1 was 8.6% based
upon reported results and 11.2% excluding the impact of assumption
revisions in the third quarter of 2016.
POLICYHOLDER FUNDS UNDER MANAGEMENT UP 1.8% ON $1.1 BILLION
OF SALES
Policyholder funds under management at March 31, 2017 were $46.0
billion, an $819 million or 1.8% increase from year-end 2016. First
quarter sales were $1.1 billion before coinsurance ceded and $1.0
billion after coinsurance ceded. Gross sales and net sales for the
quarter were down substantially from the record first quarter sales
posted in 2016. On a sequential basis, gross sales were down 22%
with net sales down 10%.
Commenting on sales, John Matovina, Chief Executive Officer and
President, said: "While sales were down substantially on a
year-over-year basis, we would note that first quarter 2016 sales
benefited from momentum we had coming off of a record second half
of 2015 as well as elevated sales of multi-year guaranteed
annuities (MYGAs). The relatively smaller declines in net sales
compared to gross sales reflects both significantly lower volumes
of MYGA products which are substantially coinsured as well as a
reduction in the portion of Eagle Life's fixed indexed annuity
(FIA) product sales that are coinsured.
Total sales by independent agents for American Equity Investment
Life Insurance Company (American Equity Life) declined 18%
sequentially while total sales by broker-dealers and banks for
Eagle Life declined by $99 million or 47% sequentially. Sales of
FIAs were down 16% sequentially to $1.0 billion with all of the
decrease attributable to reduced sales for American Equity
Life."
Commenting on the competitive environment and the outlook for
FIA sales, Matovina added: “The market in each of our distribution
channels was quite competitive in the first quarter and we've not
seen any indication that the near term will be any less
competitive. We continue to suspect that uncertainty regarding the
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."
Matovina continued: "We have enhanced our competitive
positioning by adding an optional market value adjustment (MVA)
feature to our Eagle Select and American Equity Choice series of
products. These products accounted for approximately 20% of first
quarter 2017 FIA sales but it is too early to assess the impact
from the MVA versions which have higher rates than the comparable
non-MVA versions. While 2017 FIA sales are off to a slow start, we
believe the long-term outlook for FIA sales remains favorable
driven by well understood demographic factors and the potential for
further increases in interest rates."
COST OF MONEY REDUCTION BENEFITS INVESTMENT SPREAD
American Equity’s investment spread was 2.71% for the first
quarter of 2017 compared to 2.62% for the fourth quarter of 2016
and 2.65% for the first quarter of 2016. On a sequential basis, the
average yield on invested assets increased approximately one basis
point while the cost of money declined eight 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 first quarter of 2017 was 4.13% compared to 3.71% and 4.14% in
the fourth and first quarters of 2016, respectively. However, the
unfavorable impact from new money investment yields was offset by
fee income from bond transactions, prepayment income and other
non-trendable investment income items which added ten basis points
to the first quarter average yield on invested assets compared to
seven basis from such items in the fourth quarter of 2016.
The aggregate cost of money for annuity liabilities decreased by
eight basis points to 1.77% in the first quarter of 2017 compared
to 1.85% in the fourth quarter of 2016. This decrease primarily
reflected continued reductions in crediting rates. The benefit from
over hedging the obligations for index linked interest was five
basis points in the first quarter of 2017 compared to two basis
points in the fourth quarter of 2016.
Commenting on investment spread, John Matovina said: “First
quarter spread results benefited from our fully invested profile, a
five basis point reduction in the cost of money attributable to new
money rates and reductions in renewal crediting rates, an increase
in the over hedging benefit, fee income from bond transactions and
prepayment income, and other recurring, but variable, investment
income items. While investment spread did increase on a sequential
basis, 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 first
quarter 2017 earnings on Thursday, May 4, 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 99630301 (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 May 11, 2017 at 855-859-2056, passcode 99630301
(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 March 31, 2017
2016 (Dollars in thousands, except per share
data) Revenues: Premiums and other considerations $
9,402 $ 7,345 Annuity product charges 43,572 36,505 Net investment
income 485,597 450,826 Change in fair value of derivatives 386,533
(74,065 ) Net realized gains on investments, excluding other than
temporary impairment ("OTTI") losses 2,338 2,687 OTTI losses on
investments: Total OTTI losses — (6,018 ) Portion of OTTI losses
recognized in (from) other comprehensive income (141 )
324 Net OTTI losses recognized in operations
(141 ) (5,694 ) Total revenues 927,301
417,604
Benefits and expenses: Insurance
policy benefits and change in future policy benefits 11,875 9,109
Interest sensitive and index product benefits 419,139 97,671
Amortization of deferred sales inducements 62,325 27,479 Change in
fair value of embedded derivatives 224,170 265,857 Interest expense
on notes and loan payable 7,722 6,880 Interest expense on
subordinated debentures 3,336 3,168 Amortization of deferred policy
acquisition costs 89,678 49,713 Other operating costs and expenses
27,579 26,830 Total benefits and
expenses 845,824 486,707 Income (loss)
before income taxes 81,477 (69,103 ) Income tax expense (benefit)
27,538 (24,262 ) Net income (loss) $ 53,939
$ (44,841 ) Earnings (loss) per common share $ 0.61 $
(0.55 ) Earnings (loss) per common share - assuming dilution $ 0.60
$ (0.55 ) Weighted average common shares outstanding (in
thousands): Earnings (loss) per common share 88,647 82,129 Earnings
(loss) per common share - assuming dilution 89,976 82,961
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 and 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
(Unaudited)
Three Months Ended March
31,
2017 2016 (Dollars in thousands, except per
share data) Net income (loss) $ 53,939 $ (44,841 ) Adjustments
to arrive at non-GAAP operating income: (a) Net realized investment
(gains) losses, including OTTI (1,942 ) 1,155 Change in fair value
of derivatives and embedded derivatives - index annuities 10,977
97,549 Change in fair value of derivatives and embedded derivatives
- debt (247 ) 2,764 Income taxes (3,105 ) (35,629 )
Non-GAAP operating income $ 59,622 $ 20,998
Per common share - assuming dilution: Net income (loss) $ 0.60 $
(0.55 ) Adjustments to arrive at non-GAAP operating income:
Anti-dilutive effect of net loss — 0.01 Net realized investment
(gains) losses, including OTTI (0.02 ) 0.01 Change in fair value of
derivatives and embedded derivatives - index annuities 0.12 1.18
Change in fair value of derivatives and embedded derivatives - debt
— 0.03 Income taxes (0.04 ) (0.43 ) Non-GAAP
operating income $ 0.66 $ 0.25 (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
(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 non-GAAP 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 March 31, 2017 (Dollars
in thousands) Average Stockholders' Equity 1
Average equity including average AOCI $ 2,357,595 Average AOCI
(477,331 ) Average equity excluding average AOCI $ 1,880,264
Net income $ 182,023 Non-GAAP operating income
160,968
Return on Average Equity Excluding Average
AOCI Net income 9.68 % Non-GAAP operating income 8.56 %
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/20170503006531/en/
American Equity Investment Life Holding CompanySteven D.
Schwartz, 515-273-3763Vice President - Investor
Relationssschwartz@american-equity.com
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