Company Highlights
- Fourth quarter 2020 net loss available to common
stockholders of $6.3 million or $(0.07) per diluted common share;
Full year 2020 net income available to common stockholders of
$637.9 million or $6.90 per diluted common share
- Fourth quarter 2020 non-GAAP operating income1 available to
common stockholders of $71.7 million or $0.77 per diluted common
share; Full year 2020 non-GAAP operating income1 available to
common stockholders of $69.1 million or $0.75 per diluted common
share
- Excluding notable items, full year 2020 net loss available
to common stockholders of $160.2 million or $(1.74) per share; Full
year 2020 non-GAAP operating income1 available to common
stockholders of $381.4 million or $4.13 per diluted common share,
excluding notable items
- Notable items affecting full year 2020 net income and
non-GAAP operating income1 available to common stockholders include
the effect of actuarial assumption revisions, a tax benefit from
enactment of the CARES Act, and loss on extinguishment of
debt
- Book value per share excluding accumulated other
comprehensive income with and without net impact of accounting for
fair value of derivatives and embedded derivatives of $35.99 and
$34.26, respectively
- Fourth quarter 2020 annuity sales of $1.8 billion
- Policyholder funds under management of $54.1
billion
- Fourth quarter 2020 investment spread of 2.25%
- Risk-based capital ratio at December 31, 2020 of 372%
excluding over $300 million of excess cash at the holding
company
American Equity Investment Life Holding Company (NYSE: AEL), a
leading issuer of fixed index annuities (FIAs) today reported
fourth quarter 2020 net loss available to common stockholders of
$6.3 million, or $(0.07) per diluted common share, compared to net
income available to common stockholders of $220.2 million, or $2.40
per diluted common share, for fourth quarter 2019. For the year
ended December 31, 2020, net income available to common
stockholders was $637.9 million, or $6.90 per diluted common share,
compared to $246.1 million, or $2.68 per diluted common share, for
the year ended December 31, 2019.
Non-GAAP operating income1 available to common stockholders for
the fourth quarter 2020 was $71.7 million, or $0.77 per diluted
common share, compared to non-GAAP operating income1 available to
common stockholders of $125.8 million, or $1.37 per diluted common
share, for fourth quarter 2019. For the year ended December 31,
2020, non-GAAP operating income1 was $69.1 million, or $0.75 per
diluted common share, compared to $548.2 million, or $5.97 per
diluted common share, for the year ended December 31, 2019. For
full year 2020, non-GAAP operating return1 on average common
stockholders' equity excluding average AOCI1 was 2.3% based on
reported results and 11.9% excluding the impact of notable
items.
The year-over-year decreases in quarterly non-GAAP operating
income1 available to common stockholders and non-GAAP operating
income1 per share available to common stockholders were primarily
attributable to lower investment spread income, an increase in
other operating costs and expenses, and a greater increase in the
liability for future policy benefits to be paid for lifetime income
benefit riders, partially offset by a decline in deferred
acquisition cost and deferred sales inducement amortization. Actual
versus modeled actuarial and policyholder experience in the quarter
had two offsetting impacts on results, positively affecting
amortization of deferred acquisition and sales inducement costs by
$16 million but adding to the increase in the liability for future
policy benefits to be paid for lifetime income benefit riders by
$16 million.
Other operating costs and expenses increased to $55 million from
$43 million in the third quarter of 2020 and $39 million in the
fourth quarter of 2019 in part reflecting advisory fees related to
the unsolicited offer for the company in September.
INVESTMENT SPREAD DECREASES SEQUENTIALLY ON LOWER INVESTMENT
YIELD. American Equity’s investment spread was 2.25% for the
fourth quarter of 2020 compared to 2.44% for the third quarter of
2020 and 2.77% for the fourth quarter of 2019. On a sequential
basis, the average yield on invested assets decreased by 22 basis
points while the cost of money fell by 3 basis points.
Average yield on invested assets was 3.88% in the fourth quarter
of 2020 compared to 4.10% in the third quarter of 2020. The
decrease in investment yield was primarily driven by retention of a
higher level of liquidity in the investment portfolios of the life
insurance companies. The average adjusted yield on invested assets
excluding non-trendable items was 3.77% in the fourth quarter of
2020 compared to 4.00% in the third quarter of 2020.
The aggregate cost of money for annuity liabilities of 1.63% in
the fourth quarter of 2020 was down 3 basis points from 1.66% in
the third quarter of 2020. The cost of money in the fourth quarter
was positively affected by 1 basis points from over-hedging of
index-linked credits compared to 3 basis point of hedge gain in the
third quarter.
Commenting on investment spread, Anant Bhalla, Chief Executive
Officer, said: "The decrease in average yield on investment assets
was attributable to a 22-basis point reduction from interest
foregone due to an increase in the amount of cash held in the life
insurance company portfolios in the quarter. Cash and short term
investments in the quarter averaged $4.4 billion over the fourth
quarter compared to $1.7 million in the third quarter."
Bhalla continued: "We accumulated substantial liquidity in the
investment portfolio this quarter as we repositioned our invested
assets by de-risking out of nearly $2 billion of structured
securities and $2.4 billion of corporate securities and built up
additional cash in anticipation of the approximately $7 billion
needed for redeployment to the Värde-Agam and Brookfield
reinsurance transactions. Excluding excess cash, which may be
pre-invested prior to transfer, and invested assets to be
transferred as part of the reinsurance transactions, the current
point-in-time yield on our investment portfolio is approximately
4%."
POLICYHOLDER FUNDS UNDER MANAGEMENT INCREASE 2.0% ON $1.8
BILLION OF SALES Policyholder funds under management at
December 31, 2020 were $54.1 billion, a $1.1 billion, or 2.0%
increase from September 30, 2020. Fourth quarter gross and net
sales were $1,845 million and $1,839 million, respectively,
representing increases of 100% and 118% from fourth quarter 2019
sales. On a sequential basis, gross and net sales increased 221%
and 224%, respectively. Compared to the third quarter of 2020,
gross sales at American Equity Life increased 103% while Eagle Life
sales rose 630%.
Commenting on sales, Bhalla stated: "In the fourth quarter, we
reintroduced ourselves to our markets. Driven by the introduction
of competitive three- and five-year single premium deferred annuity
products at both American Equity Life and Eagle Life, we saw a
substantial increase in sales with total deposits of $1.8 billion,
doubling from the prior year quarter and up 221% from the third
quarter of 2020. Although fixed rate annuities were the major
driver of the fourth quarter sales increase, fixed index annuity
sales were up 23% sequentially."
PROGRESS ON IMPLEMENTATION OF AEL 2.0 Speaking about the
AEL 2.0 strategy, Bhalla stated: "During the quarter, AEL continued
to make strong progress on the implementation of the AEL 2.0
strategy. The fourth quarter of 2020 was the start of our
turnaround in the Go-to-Market pillar. We used the fourth quarter
to tell distribution we were back and committed to offering
competitive products. Along with the successful introduction of our
multi-year fixed-rate annuity lineup, we are refreshing our
AssetShield accumulation product and will soon launch a compelling,
single accumulation annuity product that covers both traditional
equity indices and multi-asset custom indices focused on U.S. risk
parity, global risk-controlled asset allocation and sector specific
allocations. Our lifetime guaranteed income products are very
competitive in both the independent agent and financial
institutions markets. Sales momentum has continued into the first
quarter of this year."
Bhalla went on to add: "While we are not done in Go-to-Market,
our focus for much of the remainder of 2021 will be on the
Investment Management and Capital Structure pillars of AEL 2.0. In
the Investment Management pillar, we intend to focus on our
allocation to alpha-generating assets. In the fourth quarter, we
closed on our investment in Pretium, a leading asset manager in the
residential mortgage loan space. Earlier today, we announced a
strategic partnership with Adams Street Credit Advisors to form a
new management company to sponsor and manage investment vehicles
that will invest in secured loans to U.S. middle market private
companies backed by private equity sponsors. In the Capital
Structure pillar, we are working diligently to complete the
previously announced reinsurance transactions with Värde-Agam and
Brookfield Asset Management and the build out of our own offshore
reinsurer."
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 2020 earnings on Thursday, February
18, 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 9577007 (international callers, please dial 704-859-4382).
An audio replay will be available shortly after the call on
American Equity's website. An audio replay will also be available
via telephone through February 25, 2021 at 855-859-2056, passcode
9577007 (international callers will need to dial 404-537-3406).
ABOUT AMERICAN EQUITY American Equity Investment Life
Holding Company, through its wholly-owned subsidiaries, is a
leading issuer of fixed index annuities through independent agents,
banks and broker-dealers. 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.
American Equity Investment Life Holding
Company
Unaudited (Dollars in thousands, except
per share data)
Consolidated
Statements of Operations
Three Months Ended
December 31,
Year Ended December
31,
2020
2019
2020
2019
Revenues:
Premiums and other considerations
$
10,279
$
8,846
$
39,382
$
23,534
Annuity product charges
65,963
62,722
251,227
240,035
Net investment income
521,725
588,217
2,182,078
2,307,635
Change in fair value of derivatives
443,867
466,434
34,666
906,906
Net realized gains (losses) on
investments
(12,135
)
7,029
(80,680
)
6,962
Other than temporary impairment (OTTI)
losses on investments:
Total OTTI losses
—
(17,412
)
—
(18,511
)
Portion of OTTI losses recognized from
other comprehensive income
—
—
—
(215
)
Net OTTI losses recognized in
operations
—
(17,412
)
—
(18,726
)
Loss on extinguishment of debt
—
(2,001
)
(2,024
)
(2,001
)
Total revenues
1,029,699
1,113,835
2,424,649
3,464,345
Benefits and expenses:
Insurance policy benefits and change in
future policy benefits
13,066
11,553
49,742
35,418
Interest sensitive and index product
benefits
325,912
399,514
1,543,270
1,287,576
Amortization of deferred sales
inducements
22,768
91,260
438,164
88,585
Change in fair value of embedded
derivatives
568,836
147,879
(1,286,787
)
1,454,042
Interest expense on notes payable
6,391
6,384
25,552
25,525
Interest expense on subordinated
debentures
1,325
3,651
5,557
15,764
Amortization of deferred policy
acquisition costs
26,145
133,573
649,554
87,717
Other operating costs and expenses
55,321
39,194
183,636
154,153
Total benefits and expenses
1,019,764
833,008
1,608,688
3,148,780
Income before income taxes
9,935
280,827
815,961
315,565
Income tax expense
1,193
60,677
144,501
69,475
Net income
8,742
220,150
671,460
246,090
Less: Preferred stock dividends
15,004
—
33,515
—
Net income (loss) available to common
stockholders
$
(6,262
)
$
220,150
$
637,945
$
246,090
Earnings (loss) per common share
$
(0.07
)
$
2.41
$
6.93
$
2.70
Earnings (loss) per common share -
assuming dilution
$
(0.07
)
$
2.40
$
6.90
$
2.68
Weighted average common shares outstanding
(in thousands):
Earnings (loss) per common share
92,904
91,314
92,055
91,139
Earnings (loss) per common share -
assuming dilution
93,352
91,883
92,392
91,782
American Equity Investment Life Holding Company
Unaudited (Dollars in thousands, except per share
data)
NON-GAAP FINANCIAL MEASURES
In addition to net income (loss) available to common
stockholders, we have consistently utilized non-GAAP operating
income available to common stockholders and non-GAAP operating
income available to common stockholders per common share - assuming
dilution, non-GAAP financial measures commonly used in the life
insurance industry, as economic measures to evaluate our financial
performance. Non-GAAP operating income available to common
stockholders equals net income (loss) available to common
stockholders adjusted to eliminate the impact of items that
fluctuate from quarter to quarter in a manner unrelated to core
operations, and we believe measures excluding their impact are
useful in analyzing operating trends. The most significant
adjustments to arrive at non-GAAP operating income available to
common stockholders eliminate the impact of fair value accounting
for our fixed index annuity business. These adjustments are not
economic in nature but rather impact the timing of reported
results. We believe the combined presentation and evaluation of
non-GAAP operating income available to common stockholders together
with net income (loss) available to common stockholders provides
information that may enhance an investor’s understanding of our
underlying results and profitability.
Reconciliation
from Net Income (Loss) Available to Common Stockholders to Non-GAAP
Operating Income Available to Common Stockholders
Three Months Ended
December 31,
Year Ended December
31,
2020
2019
2020
2019
Net income (loss) available to common
stockholders
$
(6,262
)
$
220,150
$
637,945
$
246,090
Adjustments to arrive at non-GAAP
operating income available to common stockholders: (a)
Net realized gains/losses on financial
assets, including credit losses
9,369
7,606
59,355
7,361
Change in fair value of derivatives and
embedded derivatives - fixed index annuities
90,616
(127,777
)
(783,157
)
373,221
Change in fair value of derivatives -
interest rate caps and swap
—
(167
)
(848
)
1,247
Income taxes
(21,996
)
26,023
155,808
(79,736
)
Non-GAAP operating income available to
common stockholders
$
71,727
$
125,835
$
69,103
$
548,183
Per common share - assuming dilution:
Net income (loss) available to common
stockholders
$
(0.07
)
$
2.40
$
6.90
$
2.68
Adjustments to arrive at non-GAAP
operating income available to common stockholders:
Net realized gains/losses on financial
assets, including credit losses
0.10
0.08
0.64
0.08
Change in fair value of derivatives and
embedded derivatives - fixed index annuities
0.97
(1.39
)
(8.47
)
4.07
Change in fair value of derivatives -
interest rate caps and swap
—
—
(0.01
)
0.01
Income taxes
(0.23
)
0.28
1.69
(0.87
)
Non-GAAP operating income available to
common stockholders
$
0.77
$
1.37
$
0.75
$
5.97
- Adjustments to net income (loss) available to common
stockholders to arrive at non-GAAP operating income available to
common stockholders are presented net of related adjustments to
amortization of deferred sales inducements and deferred policy
acquisition costs where applicable.
NON-GAAP FINANCIAL MEASURES
Average Common Stockholders' Equity and
Return on Average Common Stockholders' Equity
Return on average common stockholders' equity measures how
efficiently we generate profits from the resources provided by our
net assets. Return on average common stockholders' equity and
non-GAAP operating return on average common stockholders' equity
are calculated by dividing net income available to common
stockholders and non-GAAP operating income available to common
stockholders, respectively, for the trailing twelve months by
average total stockholders' equity excluding average equity
available to preferred stockholders and average accumulated other
comprehensive income (AOCI). We exclude 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, 2020
Average Common Stockholders' Equity
Excluding Average AOCI
Average total stockholders' equity
$
5,572,418
Average equity available to preferred
stockholders
(550,000
)
Average AOCI
(1,963,603
)
Average common stockholders' equity
excluding average AOCI
$
3,058,815
Net income available to common
stockholders
$
637,945
Non-GAAP operating income available to
common stockholders
$
69,103
Return on Average Common Stockholders'
Equity Excluding Average AOCI
Net income available to common
stockholders
20.86
%
Non-GAAP operating income available to
common stockholders
2.26
%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210217005958/en/
Steven Schwartz | Head of Investor Relations American Equity
Investment Life Holding Company® 515-273-3763 |
sschwartz@american-equity.com
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