Company Highlights
- First quarter 2020 net income available to common
stockholders of $236.3 million or $2.57 per diluted common
share
- First quarter 2020 non-GAAP operating income1 available to
common stockholders of $154.1 million or $1.67 per diluted common
share
- First quarter 2020 annuity sales of $705 million
- Policyholder funds under management of $53.3
billion
- First quarter 2020 investment spread of 2.64%
- Estimated risk-based capital ratio of 396% pro forma
including May 4th capital contribution
During the first quarter of 2020, American Equity Investment
Life Holding Company (NYSE: AEL), a leading issuer of fixed index
annuities (FIAs), shifted quickly and effectively to respond to the
COVID-19 global pandemic while keeping its employees safe and
maintaining its industry leading service.
"I couldn't be prouder of our leadership team and employees in
their response to these unprecedented times," said Anant Bhalla,
Chief Executive Officer. "In March, we moved decisively to first
protect our employees and business partners and to pivot our
operating platform to continue to provide FIA industry leading
levels of service for clients and producers in a prolonged work
from home environment. In parallel, we fortressed the life
insurance company balance sheets with $1.3 billion of liquidity as
of March 31st and a pro forma 396% RBC ratio after reflecting a
$200 million capital contribution from the holding company earlier
this month."
American Equity today reported first quarter 2020 net income
available to common stockholders of $236.3 million, or $2.57 per
diluted common share, compared to net loss available to common
stockholders of $30.0 million, or $0.33 per diluted common share,
for first quarter 2019.
Non-GAAP operating income1 available to common stockholders for
the first quarter 2020 was $154.1 million, or $1.67 per diluted
common share, compared to non-GAAP operating income1 available to
common stockholders of $89.4 million, or $0.97 per diluted common
share, for first quarter 2019. On a trailing twelve-month basis,
non-GAAP operating return1 on average common stockholders' equity
excluding average AOCI1 was 23.0% based on reported results and
18.8% excluding the impact of annual actuarial revisions in the
third quarter of 2019.
The year-over-year increases in quarterly non-GAAP operating
income1 available to common stockholders and non-GAAP operating
income1 per share available to common stockholders were
attributable to lower amortization of deferred policy acquisition
costs and deferred sales inducements and an increase in investment
spread which benefited from active in-force crediting rate
management and non-trendable investment spread items. The benefit
from these items was partially offset by a greater increase in the
liability for future benefits to be paid for lifetime income
benefit riders. The decline in deferred acquisition cost and
deferred sales inducement amortization and the increase in the
liability for lifetime income benefit riders is consistent with the
actuarial revisions made in the third quarter of 2019 and reflect
actual experience during the first quarter of 2020. In addition,
the company recognized a $31 million, or $0.33 per diluted share,
tax benefit in the first quarter of 2020 from tax loss carry back
to prior years under the newly enacted CARES Act.
INVESTMENT SPREAD DECREASES SEQUENTIALLY ON LOWER YIELD ON
INVESTED ASSETS
American Equity’s investment spread was 2.64% for the first
quarter of 2020 compared to 2.77% for the fourth quarter of 2019
and 2.58% for the first quarter of 2019. On a sequential basis, the
average yield on invested assets decreased by 16 basis points while
the cost of money fell by 3 basis points.
Average yield on invested assets was 4.36% in the first quarter
of 2020 compared to 4.52% in the fourth quarter of 2019. The
average yield on invested assets excluding non-trendable items was
4.30% in the first quarter of 2020 compared to 4.39% in the fourth
quarter of 2019. The decrease in investment yield was primarily
driven by the decline in short term yields on floating rate
instruments in the investment portfolio, yields on new money
investments, and retention of a higher level of liquidity in the
investment portfolios of the life insurance companies.
The aggregate cost of money for annuity liabilities of 1.72% in
the first quarter of 2020 was down 3 basis points from 1.75% in the
fourth quarter of 2019. The cost of money benefited by 5 basis
points from the over hedging of index-linked interest obligations
in both quarters.
Commenting on investment spread, Bhalla said: “Excluding
non-trendable investment spread items, on a sequential basis,
investment yield and investment spread decreased by 9 and 6 basis
points respectively. We are actively managing spread to offset
lower investment income and increased cost of money. Option costs
were flat in the first quarter as the rise in costs of certain
options due to the increase in the market implied volatility that
was witnessed in March offset the actions we took beginning in
January to reduce caps and fixed crediting rates on $29.7 billion
of policyholder funds under management in light of declining
portfolio yields. Due to the continued elevated levels of market
implied volatility since March, which impacts the cost of buying
options for certain index strategies, we will begin reducing
renewal participation rates on $4.3 billion of policyholder funds
starting June 1. We intend to be financially prudent and
disciplined in managing in-force and new money cost, while staying
true to our core beliefs in always doing the right thing by our
clients and producers. Therefore, if market implied volatility
levels were to fall back to February levels, we could begin to
unwind some of these rate actions in the future.”
POLICYHOLDER FUNDS UNDER MANAGEMENT RELATIVELY FLAT ON $705
MILLION OF SALES
Policyholder funds under management at March 31, 2020 were $53.3
billion, an $82 million, or 0.2% increase from December 31, 2019.
First quarter gross and net sales were $705 million and $687
million, respectively, representing decreases of 43% and 42% from
first quarter 2019 sales. On a sequential basis, gross and net
sales decreased 23% and 19%, respectively. Compared to the fourth
quarter of 2019, gross sales at American Equity Life and Eagle Life
declined 23% and 26%, respectively.
Commenting on sales, Bhalla said: "Entering the quarter, we were
not the most competitive in either the accumulation or income
markets, primarily driven by some competitors who in our view were
being aggressive in order to gain market share. With the recent
market events, these competitors have lowered their rates to more
sustainable levels for them, thereby having bridged the competitive
gap in our favor. Our S&P 500 Dividend Aristocrats DRC 5%
Excess Return strategies now illustrate particularly well.
Commenting on the market environment and the outlook for FIA
sales, Bhalla added: "While we are currently in an improved
competitive position, it seems likely that sales will remain
subdued until social distancing needs abate or producers find new
ways to engage with clients and the dining table discussion in
households shifts from primarily health concerns to longer term
issues around wealth and retirement income. In the meanwhile, we
are in the process of refreshing our product line beginning with
our accumulation product portfolio. These serve as a very
compelling alternative to offerings inside traditional equity-bond
allocation strategies. As a first step, we will be introducing our
first multi-asset index strategy in June. This adds to our
distribution partners tool-kit of client solutions, while reducing
the vulnerability of cost of money to changes in implied volatility
in the marketplace as is the case for plain vanilla S&P 500
annual point-to-point participation rate strategies."
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 2020 earnings on Thursday, May 7, 2020 at 10:00 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 3589908 (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 May 14, 2020 at 855-859-2056, passcode
3589908 (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
March 31,
2020
2019
Revenues:
Premiums and other considerations
$
7,664
$
5,410
Annuity product charges
59,549
52,966
Net investment income
573,318
558,438
Change in fair value of derivatives
(941,874
)
384,469
Net realized gains (losses) on
investments, excluding credit losses on fixed maturity securities,
available for sale
11,035
(563
)
Credit losses on fixed maturity
securities, available for sale
(31,371
)
—
Loss on extinguishment of debt
(2,024
)
—
Total revenues
(323,703
)
1,000,720
Benefits and expenses:
Insurance policy benefits and change in
future policy benefits
10,072
9,299
Interest sensitive and index product
benefits
400,219
136,674
Amortization of deferred sales
inducements
73,591
33,309
Change in fair value of embedded
derivatives
(1,250,061
)
766,323
Interest expense on notes payable
6,385
6,379
Interest expense on subordinated
debentures
1,588
4,088
Amortization of deferred policy
acquisition costs
120,702
45,132
Other operating costs and expenses
43,626
38,979
Total benefits and expenses
(593,878
)
1,040,183
Income (loss) before income taxes
270,175
(39,463
)
Income tax expense (benefit)
27,228
(9,453
)
Net income (loss)
242,947
(30,010
)
Less: Preferred stock dividends
6,611
—
Net income (loss) available to common
stockholders
$
236,336
$
(30,010
)
Earnings (loss) per common share
$
2.58
$
(0.33
)
Earnings (loss) per common share -
assuming dilution
$
2.57
$
(0.33
)
Weighted average common shares outstanding
(in thousands):
Earnings (loss) per common share
91,644
90,883
Earnings (loss) per common share -
assuming dilution
92,021
91,744
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
March 31,
2020
2019
Net income (loss) available to common
stockholders
$
236,336
$
(30,010
)
Adjustments to arrive at non-GAAP
operating income available to common stockholders: (a)
Net realized gains/losses on financial
assets, including credit losses
16,349
305
Change in fair value of derivatives and
embedded derivatives - fixed index annuities
(120,454
)
150,944
Change in fair value of derivatives -
interest rate caps and swap
(848
)
636
Income taxes
22,702
(32,473
)
Non-GAAP operating income available to
common stockholders
$
154,085
$
89,402
Per common share - assuming dilution:
Net income (loss) available to common
stockholders
$
2.57
$
(0.33
)
Adjustments to arrive at non-GAAP
operating income available to common stockholders:
Net realized gains/losses on financial
assets, including credit losses
0.17
—
Change in fair value of derivatives and
embedded derivatives - fixed index annuities
(1.31
)
1.64
Change in fair value of derivatives -
interest rate caps and swap
(0.01
)
0.01
Income taxes
0.25
(0.35
)
Non-GAAP operating income available to
common stockholders
$
1.67
$
0.97
(a) 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.
American Equity Investment Life Holding Company Unaudited
(Dollars in thousands, except per share data)
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 (loss) 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
March 31, 2020
Average Common Stockholders' Equity
Excluding Average AOCI
Average total stockholders' equity
$
3,231,147
Average equity available to preferred
stockholders
(200,000
)
Average AOCI
(366,836
)
Average common stockholders' equity
excluding average AOCI
$
2,664,311
Net income available to common
stockholders
$
512,436
Non-GAAP operating income available to
common stockholders
$
612,866
Return on Average Common Stockholders'
Equity Excluding Average AOCI
Net income available to common
stockholders
19.23
%
Non-GAAP operating income available to
common stockholders
23.00
%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200506005831/en/
Steven D. Schwartz, Vice President - Investor Relations
(515) 273-3763, sschwartz@american-equity.com
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