Company Highlights
- Fourth quarter 2021 net income available to common
stockholders of $82.2 million, or $0.88 per diluted common share;
full year 2021 net income available to common stockholders of
$430.3 million, or $4.55 per diluted common share
- Non-GAAP operating income1 available to common stockholders
for the fourth quarter and full year 2021 was $75.8 million, or
$0.81 per diluted common share, and $290.5 million, or $3.07 per
diluted common share, respectively; fourth quarter 2021 and full
year 2021 non-GAAP operating income available to common
stockholders, excluding notable items1, of $97.1 million, or $1.04
per diluted common share, and $368.5 million, or $3.90 per diluted
common share, respectively
- Accelerated private asset deployment with $2.3 billion
sourced in the quarter bringing full year total to $3.4 billion;
private assets at approximately 15% of total invested assets at
December 31, 2021, as part of plans to ramp to 30-40% asset
allocation over time
- Formation and licensing of AEL Bermuda Reinsurance Company
and transfer of $4 billion of in-force policies supported by
approximately $300 million of capital on a Bermuda regulatory basis
lays the foundation for future growth in reinsurance side car
vehicles to drive "fee-like" return on assets (ROA)
earnings
- Executed issuance of Tranche 2 shares thereby cementing
cornerstone partnership with Brookfield Reinsurance with all
necessary approvals; year-end notional value under reinsurance
agreements of $4.1 billion generating six to seven years of
"fee-like" ROA earnings
- Book value per common share of $60.78 at December 31, 2021;
non-GAAP book value per common share excluding accumulated other
comprehensive income (AOCI)1 of $40.80 at December 31, 2021;
excluding both AOCI and net impact of accounting for fair value of
derivatives and embedded derivatives, non-GAAP book value per
common share1 of $37.83 at December 31, 2021
American Equity Investment Life Holding Company (NYSE: AEL), a
leading issuer of fixed index annuities (FIAs) today reported on
its fourth quarter 2021 results. These results include additional
substantial progress on completing the building blocks of the AEL
2.0 strategy as outlined in a presentation published simultaneously
with this release.
American Equity's President and CEO, Anant Bhalla, noted the
tremendous successes the company has had in implementing the AEL
2.0 strategy: "I am proud of the successful execution in all three
elements of the virtuous fly-wheel of our business strategy we have
made over the last twelve months. We created two new reinsurance
companies and successfully executed two new external reinsurance
transactions including our industry re-defining in-force and flow
agreements with Brookfield Reinsurance that will generate
"fee-like" capital light earnings for six to seven years. In 2021,
we allocated over $3.4 billion to privately sourced assets with
expected returns of 5.1%-5.2%. Through refreshes of both American
Equity Life's AssetShield and Eagle Life's Select Income Focus
fixed index annuities (FIA) and the introduction of EstateShield,
sales of long tenor FIAs increased by 48% for the full year. Over
the next few years, we intend to further scale up the following
three areas: allocation to private assets, total assets earning
fees or investment spread, and bringing in third party capital
through reinsurance to fuel growth. This should result in the
realization of the full potential of our business strategy and
continue to grow shareholder returns by migration to the
capital-light model we envision."
Non-GAAP operating income1 available to common stockholders
excluding notables for the fourth quarter was $97.1 million, or
$1.04 per diluted common share, compared to $71.7 million, or $0.77
per common share for the fourth quarter of 2020. For the year ended
December 31, 2021, non-GAAP operating income1 excluding notables
available to common stockholders was $368.5 million, or $3.90 per
diluted common share.
Actuarial assumption revisions utilized in the determination of
deferred policy acquisition costs, deferred sales inducements, and
the liability for future policy benefits to be paid for lifetime
income benefit riders (LIBR) negatively affected non-GAAP operating
income1 by $21.2 million, or $0.23 per diluted common share, in the
fourth quarter of 2021. This included non-cash, GAAP-only impacts
from implementation of a long tenor redundant statutory reserve
financing for certain LIBR policies.
The year-over-year increase in quarterly non-GAAP operating
income1 available to common stockholders excluding the impact of
actuarial assumption revisions in the fourth quarter of 2021
primarily reflected decreases in interest credited to account
balances and the change in LIBR liability offset partly by an
increase in other operating costs and expenses.
Compared to the fourth quarter of 2020, the change in the
liability for future benefits to be paid for LIBR declined by $13
million. Excluding the impact of actuarial assumption revisions,
the change in liability for future policy benefits to be paid for
LIBR1 decreased by $23 million from the fourth quarter of 2020. In
the fourth quarter of 2021, the change in the liability for future
policy benefits to be paid for LIBR was reduced by $7 million for
actual versus modeled experience; actual versus modeled experience
increased the reserve by $16 million in the fourth quarter of 2020.
The positive difference between actual versus modeled expectations
in the fourth quarter of 2021 primarily reflected the level of
equity index credits, offset partly by greater than modeled
utilization of lifetime income benefit riders in certain cohorts
and lower than modeled lapsation.
Compared to the fourth quarter of 2020, amortization of deferred
policy acquisition and sales inducement costs increased by $17
million. Excluding the impact of actuarial assumption revisions in
the fourth quarter of 2021, amortization of deferred policy
acquisition and sales inducement costs1 was basically flat
year-over-year at $113 million. Actual versus modeled expectations
in the fourth quarter of 2021, primarily reflecting the level of
equity index credits, reduced amortization by $9 million.
Amortization of deferred sales inducements and policy acquisition
costs was reduced by $16 million in the fourth quarter of 2020 from
actual versus modeled expectations.
CONTINUED DEPLOYMENT INTO PRIVATE ASSETS AS PART OF RAMPING
TO 30%-40% OF ASSET ALLOCATION OVER TIME
American Equity’s investment spread was 2.29% for the fourth
quarter of 2021 compared to 2.40% for the third quarter of 2021 and
2.25% for the fourth quarter of 2020. On a sequential basis, the
average yield on invested assets decreased by 11 basis points - as
mark to market gains on partnerships and other fair value assets
were stronger in the third quarter - while the cost of money was
stable. Adjusted investment spread excluding non-trendable items3
decreased to 2.03% in the fourth quarter of 2021 from 2.20% in the
third quarter of 2021.
Average yield on invested assets was 3.80% in the fourth quarter
of 2021 compared to 3.91% in the third quarter of 2021. The average
adjusted yield on invested assets excluding non-trendable items3
was 3.68% in the fourth quarter of 2021 compared to 3.79% in the
third quarter of 2021. Relative to the prior quarter, the average
adjusted yield in the fourth quarter of 2021 reflected a decrease
of 21 basis points from returns on mark-to-market assets partly
offset by a 15 basis points benefit due to lower cash holdings
relative to invested assets. Average cash and equivalents in the
insurance company portfolios was $5 billion compared to $7 billion
in the third quarter of 2021.
The aggregate cost of money for annuity liabilities of 1.51% in
the fourth quarter of 2021 was flat with the third quarter of 2021.
The cost of money in the fourth quarter of 2021 was positively
affected by 14 basis points of over-hedging of index-linked credits
compared to 8 basis point of hedge gain in the third quarter of
2021.
FUNDS UNDER MANAGEMENT INCREASE 0.5% ON $1.0 BILLION OF
SALES4
Policyholder funds under management at December 31, 2021 were
$53.2 billion, a $253 million, or 0.5% increase from September 30,
2021. Fourth quarter sales were $1,045 million, reflecting a
significant shift in mix to 94% FIA compared to 33% FIA in the
fourth quarter of 2020, while representing a total sales decrease
of 43% from the prior year's quarter. On a sequential quarterly
basis, FIA sales increased 7% while the company continued to
de-prioritize sales of shorter duration fixed deferred annuities
and accounts where the mix of such shorter duration products
significantly dwarfs the ability to originate longer duration fixed
index annuity sales. Compared to the third quarter of 2021, FIA
sales at American Equity Life increased 11% while Eagle Life sales
of fixed index annuities fell 6%. Compared to the fourth quarter of
2020, total company FIA sales increased 62%.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
The forward-looking statements in this release, such as expect,
intend, should, strategy, or similar words, as well as specific
projections of future results, are based on assumptions and
expectations that involve risks and uncertainties, including the
"Risk Factors" the company describes in its U.S. Securities and
Exchange Commission filings. The Company's future results could
differ, and it has no obligation to correct or update any of these
statements.
CONFERENCE CALL
American Equity will hold a conference call to discuss fourth
quarter 2021 earnings on Friday, 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 9660967 (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, 2022 at 855-859-2056, passcode
9660967 (international callers will need to dial 404-537-3406).
ABOUT AMERICAN EQUITY
At American Equity Investment Life Holding Company, we think of
ourselves as The Financial Dignity Company that offers solutions
designed to create financial dignity in retirement. Our
policyholders work with independent agents, banks and
broker-dealers, through our wholly-owned operating subsidiaries, to
choose one of our leading annuity products best suited for their
personal needs. To deliver on our promises to policyholders,
American Equity has reframed its investment focus, building a
stronger emphasis on insurance liability driven asset allocation as
well as the origination and management of private assets. Our
company is headquartered in West Des Moines, Iowa with satellite
offices slated to open in 2022 in Charlotte, NC and New York, NY.
For more information, please visit www.american-equity.com.
- Use of non-GAAP financial measures, including those that
isolate notable items, is discussed in this release in the tables
that follow the text of the release.
- Pertinent notable items consist of $21,235 impact related to
actuarial assumption updates made in Q4 2021, $56,801 impact
related to actuarial assumption updates made in Q3 2021, $340,895
impact related to actuarial assumption updates made in Q3 2020, and
$30,778 tax benefit related to the CARES Act in Q1 2020. The
presentation of notable items is intended to help investors better
understand our results and to evaluate and forecast those results.
For more information, see page 6 of our December 31, 2021 financial
supplement.
- Non-trendable items are the impact of investment yield –
additional prepayment income and cost of money effect of over
(under) hedging as shown in our December 31, 2021 financial
supplement on page 10, “Spread Results”.
- For the purposes of this document, all references to sales are
on a gross basis. Gross sales is defined as sales before the use of
reinsurance.
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,
2021
2020
2021
2020
Revenues:
Premiums and other considerations
$
14,553
$
10,279
$
58,202
$
39,382
Annuity product charges
60,310
65,963
242,631
251,227
Net investment income
514,599
521,725
2,037,475
2,182,078
Change in fair value of derivatives
522,251
443,867
1,348,735
34,666
Net realized losses on investments
(10,478
)
(12,135
)
(13,242
)
(80,680
)
Other revenue
8,026
—
15,670
—
Loss on extinguishment of debt
—
—
—
(2,024
)
Total revenues
1,109,261
1,029,699
3,689,471
2,424,649
Benefits and expenses:
Insurance policy benefits and change in
future policy benefits
16,975
13,066
67,983
49,742
Interest sensitive and index product
benefits
574,816
325,912
2,681,406
1,543,270
Amortization of deferred sales
inducements
59,409
22,768
152,692
438,164
Change in fair value of embedded
derivatives
186,802
568,836
(358,302
)
(1,286,787
)
Interest expense on notes payable
6,259
6,391
25,581
25,552
Interest expense on subordinated
debentures
1,330
1,325
5,324
5,557
Amortization of deferred policy
acquisition costs
82,999
26,145
268,328
649,554
Other operating costs and expenses
66,279
55,321
243,712
183,636
Total benefits and expenses
994,869
1,019,764
3,086,724
1,608,688
Income before income taxes
114,392
9,935
602,747
815,961
Income tax expense
21,255
1,193
128,755
144,501
Net income
93,137
8,742
473,992
671,460
Less: Preferred stock dividends
10,919
15,004
43,675
33,515
Net income (loss) available to common
stockholders
$
82,218
$
(6,262
)
$
430,317
$
637,945
Earnings (loss) per common share
$
0.89
$
(0.07
)
$
4.58
$
6.93
Earnings (loss) per common share -
assuming dilution
$
0.88
$
(0.07
)
$
4.55
$
6.90
Weighted average common shares outstanding
(in thousands):
Earnings (loss) per common share
92,479
92,904
93,860
92,055
Earnings (loss) per common share -
assuming dilution
93,378
93,352
94,491
92,392
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 and Non-GAAP Operating Income
Available to Common Stockholders, Excluding Notable
Items
Three Months Ended December
31,
Year Ended December
31,
2021
2020
2021
2020
Net income (loss) available to common
stockholders
$
82,218
$
(6,262
)
$
430,317
$
637,945
Adjustments to arrive at non-GAAP
operating income available to common stockholders: (a)
Net realized losses on financial assets,
including credit losses
7,771
9,369
10,299
59,355
Change in fair value of derivatives and
embedded derivatives
(14,544
)
90,616
(187,290
)
(784,005
)
Income taxes
383
(21,996
)
37,184
155,808
Non-GAAP operating income available to
common stockholders
75,828
71,727
290,510
69,103
Impact of notable items (b)
21,235
—
78,036
310,117
Non-GAAP operating income available to
common stockholders, excluding notable items
$
97,063
$
71,727
$
368,546
$
379,220
Per common share - assuming dilution:
Net income (loss) available to common
stockholders
$
0.88
$
(0.07
)
$
4.55
$
6.90
Adjustments to arrive at non-GAAP
operating income available to common stockholders:
Net realized losses on financial assets,
including credit losses
0.08
0.10
0.11
0.64
Change in fair value of derivatives and
embedded derivatives
(0.15
)
0.97
(1.98
)
(8.48
)
Income taxes
—
(0.23
)
0.39
1.69
Non-GAAP operating income available to
common stockholders
0.81
0.77
3.07
0.75
Impact of notable items
0.23
—
0.83
3.36
Non-GAAP operating income available to
common stockholders, excluding notable items
$
1.04
$
0.77
$
3.90
$
4.11
Notable Items
Three Months Ended
December 31,
Year Ended December
31,
2021
2020
2021
2020
Notable items impacting non-GAAP operating
income available to common stockholders:
Impact of actuarial assumption updates
$
21,235
$
—
$
78,036
$
340,895
Tax benefit related to the CARES Act
—
—
—
(30,778
)
Total notable items (b)
$
21,235
$
—
$
78,036
$
310,117
(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 and accretion of lifetime
income benefit rider (LIBR) reserves where applicable.
(b)
Notable items reflect the
after-tax impact to non-GAAP operating income available to common
stockholders for certain items that do not reflect the company's
expected ongoing operations. Notable items primarily include the
impact from actuarial assumption updates. The presentation of
notable items is intended to help investors better understand our
results and to evaluate and forecast those results.
American Equity Investment Life Holding Company Unaudited
(Dollars in thousands, except share and per share
data)
Book Value per Common
Share
Q4 2021
Total stockholders’ equity
$
6,323,127
Equity available to preferred stockholders
(a)
(700,000
)
Total common stockholders' equity (b)
5,623,127
Accumulated other comprehensive income
(1,848,789
)
Total common stockholders’ equity
excluding AOCI (b)
3,774,338
Net impact of fair value accounting for
derivatives and embedded derivatives
(274,981
)
Total common stockholders’ equity
excluding AOCI and the net impact of fair value accounting for
derivatives and embedded derivatives (b)
$
3,499,357
Common shares outstanding
92,513,517
Book Value per Common Share: (c)
Book value per common share
$
60.78
Book value per common share excluding AOCI
(b)
$
40.80
Book value per common share excluding AOCI
and the net impact of fair value accounting for derivatives and
embedded derivatives (b)
$
37.83
(a)
Equity available to preferred
stockholders is equal to the redemption value of outstanding
preferred stock plus share dividends declared but not yet
issued.
(b)
Total common stockholders'
equity, total common stockholders' equity excluding AOCI and total
common stockholders' equity excluding AOCI and the net impact of
fair value accounting for derivatives and embedded derivatives,
non-GAAP financial measures, exclude equity available to preferred
stockholders. Total common stockholders’ equity and book value per
common share excluding AOCI, non-GAAP financial measures, are based
on common stockholders’ equity excluding the effect of AOCI. Since
AOCI fluctuates from quarter to quarter due to unrealized changes
in the fair value of available for sale securities, we believe
these non-GAAP financial measures provide useful supplemental
information. Total common stockholders' equity and book value per
common share excluding AOCI and the net impact of fair value
accounting for derivatives and embedded derivatives, non-GAAP
financial measures, are based on common stockholders' equity
excluding AOCI and the net impact of fair value accounting for
derivatives and embedded derivatives. Since the net impact of fair
value accounting for our derivatives and embedded derivatives
fluctuates from quarter to quarter and the most significant impacts
relate to fair value accounting for our fixed index annuity
business and are not economic in nature but rather impact the
timing of reported results, we believe these non-GAAP financial
measures provide useful supplemental information.
(c)
Book value per common share
including and excluding AOCI and book value per common share
excluding AOCI and the net impact of fair value accounting for
derivatives and embedded derivatives are calculated as total common
stockholders’ equity, total common stockholders’ equity excluding
AOCI and total common stockholders' equity excluding AOCI and the
net impact of fair value accounting for derivatives and embedded
derivatives divided by the total number of shares of common stock
outstanding.
American Equity Investment Life Holding Company Unaudited
(Dollars in thousands)
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 is
calculated by dividing net income available to common stockholders,
for the trailing twelve months, by average equity available to
common stockholders. Non-GAAP operating return on average common
stockholders' equity excluding average accumulated other
comprehensive income (AOCI) is calculated by dividing non-GAAP
operating income available to common stockholders, for the trailing
twelve months, by average common stockholders' equity excluding
average 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, 2021
Average Common Stockholders' Equity
Excluding Average AOCI
Average total stockholders' equity
$
6,336,058
Average equity available to preferred
stockholders
(700,000
)
Average equity available to common
stockholders
5,636,058
Average AOCI
(2,026,173
)
Average common stockholders' equity
excluding average AOCI
3,609,885
Impact of notable items on average common
stockholders' equity excluding average AOCI
39,018
Average common stockholders' equity
excluding average AOCI and notables
$
3,648,903
Net income available to common
stockholders
$
430,317
Adjustments to arrive at non-GAAP
operating income available to common stockholders: (a)
Net realized losses on financial assets,
including credit losses
10,299
Change in fair value of derivatives and
embedded derivatives
(187,290
)
Income taxes
37,184
Non-GAAP operating income available to
common stockholders
290,510
Impact of notable items (b)
78,036
Non-GAAP operating income available to
common stockholders, excluding notable items
$
368,546
Return on Average Common Stockholders'
Equity
Net income available to common
stockholders
7.6
%
Return on Average Common Stockholders'
Equity Excluding Average AOCI
Non-GAAP operating income available to
common stockholders
8.0
%
Non-GAAP operating income available to
common stockholders, excluding notable items
10.1
%
Notable Items
Twelve Months Ended
December 31, 2021
Notable items impacting Non-GAAP operating
income available to common stockholders:
Impact of actuarial assumption updates
$
78,036
Total notable items (b)
$
78,036
(a)
Adjustments to net income
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
(DSI) and deferred policy acquisition costs (DAC) and accretion of
lifetime income benefit rider (LIBR) reserves where applicable.
(b)
Notable items reflect the
after-tax impact to non-GAAP operating income available to common
stockholders for certain items that do not reflect the company's
expected ongoing operations. Notable items primarily include the
impact from actuarial assumption updates. The presentation of
notable items is intended to help investors better understand our
results and to evaluate and forecast those results.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220217005903/en/
Steven D. Schwartz, Vice President-Investor Relations
(515) 273-3763, sschwartz@american-equity.com
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