Company Highlights
- Third quarter 2018 net income of
$169.3 million or $1.85 per diluted common share
- Third quarter 2018 non-GAAP
operating income1 of $171.1 million or $1.87 per
diluted common share
- Third quarter 2018 annuity sales of
$1.0 billion
- Policyholder funds under management
of $50.6 billion
- Third quarter 2018 investment spread
of 2.67%
- Estimated risk-based capital ratio
of 386% compared to 378% at December 31, 2017
American Equity Investment Life Holding Company (NYSE: AEL), a
leading issuer of fixed index annuities (FIAs), today reported
third quarter 2018 net income of $169.3 million, or $1.85 per
diluted common share, compared to net income of $57.0 million, or
$0.63 per diluted common share, for third quarter 2017.
Non-GAAP operating income1 for the third quarter of 2018 was
$171.1 million, or $1.87 per diluted common share, compared to
non-GAAP operating income1 of $87.2 million, or $0.96 per diluted
common share, for third quarter 2017. On a trailing twelve-month
basis, non-GAAP operating return on average equity excluding
average AOCI1 was 18.1% based upon reported results and 14.8%
excluding the impact of assumption revisions. Third quarter 2018
net income and non-GAAP operating income1 were positively
affected by $82.8 million ($0.91 per diluted common share) and
$80.6 million ($0.88 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 for lifetime income
benefit riders. Net income and non-GAAP operating income1 for
the third quarter of 2017 were positively affected by $39.2 million
($0.44 per diluted common share) and $34.4 million ($0.38 per
diluted common share), respectively, for assumption revisions.
POLICYHOLDER FUNDS UNDER MANAGEMENT UP 1.4% ON $1.0 BILLION
OF SALES
Policyholder funds under management at September 30, 2018
were $50.6 billion, a $677 million or 1.4% increase from
June 30, 2018. Third quarter sales were $1.0 billion before
coinsurance ceded and $0.9 billion after coinsurance ceded. Gross
sales and net sales for the quarter increased 14% and 12%,
respectively, from third quarter 2017 sales. On a sequential basis,
both gross and net sales decreased 13%.
Total sales by independent agents for American Equity Investment
Life Insurance Company (American Equity Life) decreased 13%
sequentially while total sales by broker-dealers and banks for
Eagle Life Insurance Company (Eagle Life) decreased by $28 million
or 12% sequentially. Sales of FIAs were down 12% sequentially to
$1.0 billion driven by the decline in sales for American Equity
Life. FIA sales for Eagle Life of $164 million were down $9 million
or 5% sequentially.
Commenting on sales, John Matovina, Chairman and Chief Executive
Officer, said: "We experienced a sequential decrease in FIA sales
in American Equity Life's independent agent channel as competition
remains intense. Reflecting the attractiveness of accumulation
products in the current market environment, the Choice Series
continues to be our best-selling product line at American Equity
Life with 35% of sales in the third quarter. In the guaranteed
lifetime income space, the IncomeShield Series has gained wide
acceptance with our independent agents. IncomeShield was the
second-best selling product line accounting for 26% of American
Equity Life's sales in the third quarter."
Commenting on the market environment and the outlook for FIA
sales, Matovina added: "The market in each of our distribution
channels continues to be competitive with a number of competitors
raising caps, participation rates and guaranteed lifetime income.
Our higher new money investment yields allowed us to take several
actions late in the third quarter and early in the fourth quarter
to enhance our competitiveness. In September, we raised S&P 500
participation rates on our American Equity Choice and Eagle Select
FIAs. In early October, we improved the competitive position of the
IncomeShield and our other guaranteed income products by increasing
payout factors. IncomeShield now ranks #1, 2, or 3 in what we
believe to be the most important age/deferral combinations."
Matovina continued: "We further enhanced our competitive
position in accumulation products with the introduction of the
AssetShield Series on October 9th. While it is similar to the
Choice Series, AssetShield is for pure accumulation and a lifetime
income benefit rider is not available. AssetShield 10 has the same
54% annual participation rate on the S&P 500 as the Choice 10.
Plus, it has an annual participation rate of 120% on an S&P 500
Dividend Aristocrats volatility controlled index strategy and a
175% participation on that same index strategy if the policyholder
chooses a two year strategy term. Our participation rates compete
favorably with the most popular accumulation products in the
independent agent channel. AssetShield also features better
liquidity options than offered with Choice."
Matovina went on to say: "In the bank and broker-dealer
channels, we added one of the 15 largest banks based on assets as a
distributor. We have begun to see new applications from its
representatives, and expect this to be a key account for Eagle Life
in 2019. We are also in the process of hiring three additional
employee wholesalers which will bring our total to six."
INVESTMENT SPREAD HOLDS FIRM AS INVESTMENT YIELD INCREASES;
OUTLOOK FOR INVESTMENT SPREAD CONTINUES TO IMPROVE
American Equity’s investment spread was 2.67% for the third
quarter of 2018 compared to 2.64% for the second quarter of 2018
and 2.70% for the third quarter of 2017. On a sequential basis, the
average yield on invested assets increased by seven basis points
while the cost of money rose four basis points.
Average yield on invested assets was 4.54% in the third quarter
of 2018 compared to 4.47% in the second quarter of 2018. This
increase was primarily attributable to portfolio realignment
actions taken throughout the year. Non-trendable investment items
of 11 basis points compared to 10 basis points from such items in
the second quarter of 2018. The average yield on fixed income
securities purchased and commercial mortgage loans funded in the
third quarter of 2018 was 4.97% compared to 4.77% and 4.43% in the
second and first quarters of 2018.
The aggregate cost of money for annuity liabilities of 1.87% in
the third quarter of 2018 was up four basis points from 1.83% in
the second quarter of 2018. The benefit from over hedging index
linked interest obligations was seven basis points in the third
quarter of 2018 compared to six basis points in the second quarter
of 2018.
Commenting on investment spread, Matovina said: “The sequential
increase in investment spread in the third quarter primarily
reflected a two basis point increase in the benefit from
non-trendable investment income items and over-hedging. Our
investment spread remained under pressure in the third quarter of
2018 due to the escalation of option costs for certain index
strategies in the last several quarters that is recognized in the
cost of money ratably over the twelve month option period. To
counteract this impact, we initiated renewal rate adjustments on
certain in-force policies in October in addition to the renewal
rate actions we undertook in March. We have flexibility to reduce
our crediting rates and could decrease our cost of money by
approximately 0.65% through further reductions in renewal rates to
guaranteed minimums should the cost of money not return to
acceptable levels."
Matovina went on to say: "Our investment spread should benefit
from the higher yields we have been obtaining on investment
securities purchases and commercial mortgage loan fundings,
increases in yields on our floating rate investments and changes in
renewal rates. We are also looking to improve our investment yield
through the opportunistic replacement of lower yielding securities
with higher yielding securities. In early October, we sold $384
million in book value of securities with an average yield of 3.00%.
Since we had declared our intent to sell these securities, we
recognized other than temporary impairments of $12 million in the
third quarter. Including the October transactions, we have sold $2
billion of book value of lower yielding securities this year and
reinvested the proceeds into higher yielding securities. The
prospect for higher investment yields is quite good, and we expect
our portfolio yield, excluding non-trendable items, to increase in
future quarters."
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 2018 earnings on Tuesday, November 6, 2018 at 9:00
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 2779888 (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 13, 2018 at 855-859-2056, passcode 2779888
(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.
American Equity Investment Life Holding
Company
Unaudited (Dollars in thousands, except
per share data)
Consolidated
Statements of Operations
Three Months Ended Nine Months Ended September
30, September 30, 2018 2017
2018 2017 Revenues: Premiums and other
considerations $ 7,240 $ 8,569 $ 22,050 $ 25,691 Annuity product
charges 58,365 51,931 164,094 144,106 Net investment income 549,391
500,202 1,593,457 1,479,288 Change in fair value of derivatives
595,311 362,525 276,433 1,015,878 Net realized gains (losses) on
investments, excluding other than temporary impairment ("OTTI")
losses (2,196 ) 1,579 (40,275 ) 7,790 OTTI losses on investments:
Total OTTI losses (14,373 ) (273 ) (16,025 ) (273 ) Portion of OTTI
losses recognized in (from) other comprehensive income —
(191 ) (1,651 ) (1,281 ) Net OTTI
losses recognized in operations (14,373 ) (464 ) (17,676 ) (1,554 )
Loss on extinguishment of debt — (18,389 )
— (18,817 ) Total revenues 1,193,738
905,953 1,998,083
2,652,382
Benefits and expenses: Insurance
policy benefits and change in future policy benefits 10,721 10,823
32,091 32,684 Interest sensitive and index product benefits 413,089
501,028 1,355,135 1,392,763 Amortization of deferred sales
inducements 55,244 14,707 233,779 110,727 Change in fair value of
embedded derivatives 383,716 229,702 (585,465 ) 628,845 Interest
expense on notes and loan payable 6,376 7,597 19,122 23,997
Interest expense on subordinated debentures 3,942 3,502 11,450
10,260 Amortization of deferred policy acquisition costs 81,053
23,023 336,741 162,248 Other operating costs and expenses
31,924 28,782 95,704
82,325 Total benefits and expenses 986,065
819,164 1,498,557 2,443,849
Income before income taxes 207,673 86,789 499,526 208,533
Income tax expense 38,345 29,832
95,333 70,691 Net income $ 169,328 $
56,957 $ 404,193 $ 137,842 Earnings per
common share $ 1.87 $ 0.64 $ 4.48 $ 1.55 Earnings per common share
- assuming dilution $ 1.85 $ 0.63 $ 4.42 $ 1.53 Weighted
average common shares outstanding (in thousands): Earnings per
common share 90,486 89,069 90,278 88,873 Earnings per common share
- assuming dilution 91,651 90,421 91,355 90,171
American Equity Investment Life Holding
CompanyUnaudited (Dollars in thousands, except per share
data)
NON-GAAP FINANCIAL MEASURES
In addition to net income, 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 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. These adjustments 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
provides information that may enhance an investor’s understanding
of its underlying results and profitability.
Reconciliation
from Net Income to Non-GAAP Operating Income
Three Months Ended Nine Months Ended
September 30, September 30, 2018
2017 2018 2017 Net income $ 169,328 $
56,957 $ 404,193 $ 137,842 Adjustments to arrive at non-GAAP
operating income: (a) Net realized investment (gains) losses,
including OTTI 10,278 (916 ) 35,925 (4,417 ) Change in fair value
of derivatives and embedded derivatives - fixed index annuities 545
47,835 (108,367 ) 116,383 Change in fair value of derivatives -
debt (597 ) (357 ) (3,168 ) (139 ) Income taxes (8,491 ) (16,281 )
6,822 (39,127 ) Non-GAAP operating income $ 171,063 $
87,238 $ 335,405 $ 210,542 Per common
share - assuming dilution: Net income $ 1.85 $ 0.63 $ 4.42 $ 1.53
Adjustments to arrive at non-GAAP operating income: Net realized
investment (gains) losses, including OTTI 0.11 (0.01 ) 0.39 (0.05 )
Change in fair value of derivatives and embedded derivatives -
fixed index annuities 0.01 0.52 (1.19 ) 1.29 Change in fair value
of derivatives - debt (0.01 ) — (0.03 ) — Income taxes (0.09 )
(0.18 ) 0.08 (0.44 ) Non-GAAP operating income $ 1.87
$ 0.96 $ 3.67 $ 2.33 (a)
Adjustments to net income 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.
American Equity Investment Life Holding
CompanyUnaudited (Dollars in thousands)
NON-GAAP FINANCIAL MEASURES
Average Stockholders' Equity and Return
on Average Equity
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 September 30, 2018
Average Stockholders' Equity Average equity including
average AOCI $ 2,625,982 Average AOCI (364,890 ) Average
equity excluding average AOCI $ 2,261,092 Net income
$ 440,996 Non-GAAP operating income 409,913
Return on
Average Equity Excluding Average AOCI Net income 19.50 %
Non-GAAP operating income 18.13 %
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version on businesswire.com: https://www.businesswire.com/news/home/20181105005814/en/
American Equity Investment Life Holding CompanySteven D.
Schwartz, 515-273-3763Vice President-Investor
Relationssschwartz@american-equity.com
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