Company Highlights
- Second quarter 2017 net income of
$26.9 million or $0.30 per diluted common share
- Second quarter 2017 non-GAAP
operating income1 of $63.7 million or $0.71 per
diluted common share
- Second quarter 2017 annuity sales of
$1.2 billion, down 44% from second quarter 2016
- Policyholder funds under management
of $46.9 billion, up 2.0% from March 31, 2017 and 7.5% from
June 30, 2016
- Second quarter 2017 investment
spread of 2.72%
- Estimated risk-based capital ratio
of 366% compared to 342% at December 31, 2016
American Equity Investment Life Holding Company (NYSE: AEL), a
leading issuer of fixed index annuities, today reported second
quarter 2017 net income of $26.9 million, or $0.30 per diluted
common share, compared to net income of $14.7 million, or $0.18 per
diluted common share, for second quarter 2016.
Non-GAAP operating income1 for the second quarter of 2017 was
$63.7 million, or $0.71 per diluted common share, compared to
non-GAAP operating income1 of $50.1 million, or $0.60 per diluted
common share, for second quarter 2016. On a trailing twelve month
basis, non-GAAP operating1 return on average equity1 was 9.0% based
upon reported results and 11.6% excluding the impact of assumption
revisions in the third quarter of 2016.
POLICYHOLDER FUNDS UNDER MANAGEMENT UP 2.0% ON $1.2 BILLION
OF SALES
Policyholder funds under management at June 30, 2017 were
$46.9 billion, a $912 million or 2.0% increase from March 31, 2017.
Second quarter sales were $1.2 billion before coinsurance ceded and
$1.1 billion after coinsurance ceded. Gross sales and net sales for
the quarter were down substantially from the record second quarter
sales posted in 2016. On a sequential basis, gross sales were up 9%
with net sales up 6%.
Total sales by independent agents for American Equity Investment
Life Insurance Company (American Equity Life) increased 2%
sequentially while total sales by broker-dealers and banks for
Eagle Life Insurance Company (Eagle Life) climbed by $76 million or
69% sequentially. Sales of fixed index annuities (FIAs) were up 9%
sequentially to $1.1 billion with increases at both Eagle Life and
American Equity Life.
Commenting on sales, John Matovina, Chairman and Chief Executive
Officer, said: "We were pleased with the sequential increase in
sales and the rebound in FIA sales from Eagle Life's broker-dealers
and banks but recognize that new business remained relatively soft
compared to historical levels. While sales were down substantially
on a year-over-year basis, we would note that second quarter 2016
sales benefited from a high level of multi-year guaranteed annuity
(MYGA) sales. The relatively smaller decline 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 coinsured portion of Eagle Life's FIA product sales from 80%
to 50%. Earlier this year, we enhanced our competitive positioning
by adding an optional market value adjustment (MVA) feature to our
Eagle Life Select and American Equity Life Choice series of
products. This change, which allowed us to offer higher rates on
MVA versions than the comparable non-MVA versions, had a
substantial positive effect on Eagle Life's second quarter FIA
sales."
Commenting on the competitive environment and the outlook for
FIA sales, Matovina added: “The market in each of our distribution
channels remained competitive in the second quarter. 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. Strong
equity market returns are also proving to be a headwind to sales of
guaranteed income products. We have seen a shift in emphasis on the
part of independent agents from guaranteed income products to
accumulation products focused on upside potential. In addition, we
believe securities licensed agents are placing increased
allocations of client funds into equity markets. This premise was
reinforced by recent discussions with our National Marketing
Organization partners. American Equity Life's Choice and Eagle
Life's Select products are competitive for accumulation and our
marketing department will be putting increased emphasis on
promoting the accumulation story for these products."
Matovina continued: "In July, we discontinued our no-fee FIA
lifetime income benefit rider and lowered the rider roll up rate on
certain fee riders. These changes allowed us to reduce the target
spread for American Equity Life's bonus FIAs and recognize lower
valuation interest rates used to compute statutory reserves for
policies issued in 2017 compared to policies issued in 2016. To
date, we have seen three competitors make downward adjustments but
none that compete in our guaranteed income space. As a result, our
guaranteed income is currently less than some of our most important
competitors. Despite the current challenges in the FIA market, we
believe the long-term outlook for FIA sales remains favorable
driven by well understood demographic factors."
COST OF MONEY REDUCTION BENEFITS INVESTMENT SPREAD
American Equity’s investment spread was 2.72% for the second
quarter of 2017 compared to 2.71% for the first quarter of 2017 and
2.62% for the second quarter of 2016. On a sequential basis, the
average yield on invested assets declined by three basis points
while the cost of money declined four basis points.
Average yield on invested assets fell to 4.45% for the second
quarter of 2017 compared to 4.48% for the first quarter of 2017 and
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 second quarter of 2017 was
3.96% compared to 4.13% and 3.95% in the first quarter of 2017 and
second quarter 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 eight basis points to the
second quarter average yield on invested assets compared to ten
basis points from such items in the first quarter of 2017.
The aggregate cost of money for annuity liabilities decreased by
four basis points to 1.73% in the second quarter of 2017 compared
to 1.77% in the first quarter of 2017. This decrease primarily
reflected continued reductions in crediting rates. The benefit from
over hedging the obligations for index linked interest was six
basis points in the second quarter of 2017 compared to five basis
points in the first quarter of 2017.
Commenting on investment spread, Matovina said: “Second quarter
spread results were enhanced by a reduction in the cost of money
attributable to new money rates and reductions in renewal crediting
rates, over hedging benefits, 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 0.46% 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 second
quarter 2017 earnings on Thursday, August 3, 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 48714902 (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 August 10, 2017 at 855-859-2056, passcode
48714902 (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 June
30,
Six Months Ended June
30,
2017 2016 2017 2016
(Dollars in thousands, except per share data)
Revenues: Premiums and other considerations $ 7,720 $ 11,458
$ 17,122 $ 18,803 Annuity product charges 48,603 41,124 92,175
77,629 Net investment income 493,489 459,830 979,086 910,656 Change
in fair value of derivatives 266,820 39,099 653,353 (34,966 ) Net
realized gains on investments, excluding other than temporary
impairment ("OTTI") losses 3,873 2,737 6,211 5,424 OTTI losses on
investments: Total OTTI losses — (762 ) — (6,780 ) Portion of OTTI
losses recognized from other comprehensive income (949 )
(3,684 ) (1,090 ) (3,360 ) Net OTTI losses
recognized in operations (949 ) (4,446 ) (1,090 ) (10,140 ) Loss on
extinguishment of debt (428 ) — (428 )
— Total revenues 819,128 549,802
1,746,429 967,406
Benefits and expenses: Insurance policy benefits and change
in future policy benefits 9,986 13,393 21,861 22,502 Interest
sensitive and index product benefits 472,596 111,121 891,735
208,792 Amortization of deferred sales inducements 33,695 30,672
96,020 58,151 Change in fair value of embedded derivatives 174,973
284,303 399,143 550,160 Interest expense on notes and loan payable
8,678 6,882 16,400 13,762 Interest expense on subordinated
debentures 3,422 3,206 6,758 6,374 Amortization of deferred policy
acquisition costs 49,547 50,665 139,225 100,378 Other operating
costs and expenses 25,964 26,823
53,543 53,653 Total benefits and expenses
778,861 527,065 1,624,685
1,013,772 Income (loss) before income taxes 40,267
22,737 121,744 (46,366 ) Income tax expense (benefit) 13,321
8,029 40,859 (16,233 )
Net income (loss) $ 26,946 $ 14,708 $ 80,885 $
(30,133 ) Earnings (loss) per common share $ 0.30 $ 0.18 $
0.91 $ (0.37 ) Earnings (loss) per common share - assuming dilution
$ 0.30 $ 0.18 $ 0.90 $ (0.37 ) Weighted average common
shares outstanding (in thousands): Earnings (loss) per common share
88,897 82,517 88,773 82,323 Earnings (loss) per common share -
assuming dilution 90,112 83,184 90,045 83,073
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 June 30, Six
Months Ended June 30, 2017 2016
2017 2016 (Dollars in thousands, except per
share data) Net income (loss) $ 26,946 $ 14,708 $ 80,885 $
(30,133 ) Adjustments to arrive at non-GAAP operating income: (a)
Net realized investment (gains) losses, including OTTI (1,559 ) 605
(3,501 ) 1,760 Change in fair value of derivatives and embedded
derivatives - index annuities 57,571 53,129 68,548 150,678 Change
in fair value of derivatives and embedded derivatives - debt 465
768 218 3,532 Income taxes (19,741 ) (19,108 )
(22,846 ) (54,737 ) Non-GAAP operating income $ 63,682
$ 50,102 $ 123,304 $ 71,100 Per
common share - assuming dilution: Net income (loss) $ 0.30 $ 0.18 $
0.90 $ (0.37 ) 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 ) — (0.04 ) 0.02 Change in
fair value of derivatives and embedded derivatives - index
annuities 0.64 0.64 0.76 1.81 Change in fair value of derivatives
and embedded derivatives - debt 0.01 0.01 — 0.04 Income taxes
(0.22 ) (0.23 ) (0.25 ) (0.65 )
Non-GAAP operating income $ 0.71 $ 0.60 $ 1.37
$ 0.86
(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 June 30, 2017 (Dollars
in thousands) Average Stockholders' Equity 1
Average equity including average AOCI $ 2,688,293 Average AOCI
(751,677 ) Average equity excluding average AOCI $ 1,936,616
Net income $ 194,261 Non-GAAP operating income
174,548
Return on Average Equity Excluding Average
AOCI Net income 10.03 % Non-GAAP operating income 9.01 %
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/20170802006174/en/
American Equity Investment Life Holding CompanySteven D.
Schwartz, 515-273-3763Vice President-Investor
Relationssschwartz@american-equity.com
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