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  • American Equity Reports Third Quarter 2021 Results

    November 9, 2021 by American Equity Investment Life Holding Company

    WEST DES MOINES, Iowa–(BUSINESS WIRE)–American Equity Investment Life Holding Company (NYSE: AEL), a leading issuer of fixed index annuities (FIAs) today reported on its third quarter 2021 results. These results include substantial progress on the key goals of AEL 2.0 by closing a major reinsurance transaction with Brookfield that generates on-going fee revenues for American Equity and committing significant amounts of the cash the company had on hand to key private asset classes. The majority of investment commitments made in the third quarter represent the continued expansion of American Equity’s allocation to residential and commercial real estate assets while the capital deployed in private assets was across middle market corporate loans, agriculture loans and real estate debt.

    American Equity’s President and CEO, Anant Bhalla, noted the tremendous progress the company has made since the AEL 2.0 strategy was introduced last October, stating: “I am proud of the pace of execution in all three elements of the virtuous fly-wheel of our business strategy. Now we have in place the necessary building blocks of the American Equity strategy. 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 third party capital through reinsurance. This should result in the realization of the full potential of our business strategy; thereby improving shareholder returns by migration to the capital-light model we envisioned. Beyond that, AEL is re-imaging its target markets to be The Financial Dignity Company that delights customers as they realize financial dignity from our solutions well beyond their prime earnings years.”

    Non-GAAP operating income1 available to common stockholders for the third quarter of 2021 was $79.5 million, or $0.85 per diluted common share, compared to non-GAAP operating loss1 available to common stockholders of $(249.8) million, or $(2.72) per diluted common share, for third quarter 2020. Excluding the one notable item this quarter, the impact of actuarial assumption revisions, third quarter 2021 non-GAAP operating income1 available to common stockholders was $136.3 million, or $1.46 per diluted common share, compared to $91.1 million, or $0.98 per diluted common share, for the third quarter of 2020.

    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 $56.8 million, or $0.61 per diluted common share, in the third quarter of 2021 and by $340.9 million, or $3.70 per diluted common share, in the third quarter of 2020.

    The year-over-year increase in quarterly non-GAAP operating income1 available to common stockholders excluding the impact of actuarial assumption revisions primarily reflected decreases in the change in LIBR liability as well as the amortization of the deferred acquisition cost and deferred sales inducement assets offset partly by an increase in other operating costs and expenses.

    Compared to the third quarter of 2020, the change in the liability for future benefits to be paid for LIBR declined by $77 million. Excluding the impact of actuarial assumption revisions, the change in liability for future policy benefits to be paid for LIBR1 decreased by $25 million from the third quarter of 2020. In the third quarter of 2021, the change in the liability for future policy benefits to be paid for LIBR was reduced by $15 million for actual versus modeled experience; actual versus modeled experience increased the reserve by $5 million in the third quarter of 2020. The positive difference between actual versus modeled expectations in the third 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. The completed reinsurance agreement with Brookfield Asset Management Re reduced the expected increase in the liability for future policy benefits to be paid for LIBR by $7 million.

    Compared to the third quarter of 2020, the change in amortization of deferred policy acquisition and sales inducement costs declined by $355 million. Excluding the impact of actuarial assumption revisions, amortization of deferred policy acquisition and sales inducement costs1 decreased $46 million from the third quarter of 2020. The change to earnings patterns resulting from the impact of the actuarial assumption revisions reduced total expected amortization for the quarter by $21 million while the completed reinsurance transaction with Brookfield Asset Management Re reduced expected total amortization by $7 million. Actual versus modeled expectations in the third quarter of 2021, primarily reflecting the level of equity index credits, reduced amortization by $12 million. Amortization of deferred sales inducements and policy acquisition costs was negatively affected by $10 million in the third 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 2.40% for the third quarter of 2021 compared to 1.95% for the second quarter of 2021 and 2.44% for the third quarter of 2020. On a sequential basis, the average yield on invested assets increased by 40 basis points while the cost of money fell by 5 basis points. Adjusted investment spread excluding non-trendable itemsincreased to 2.20% in the third quarter of 2021 from 1.81% in the second quarter of 2021.

    Average yield on invested assets was 3.91% in the third quarter of 2021 compared to 3.51% in the second quarter of 2021. The average adjusted yield on invested assets excluding non-trendable items3 was 3.79% in the third quarter of 2021 compared to 3.41% in the second quarter of 2021. Relative to the prior quarter, the average adjusted yield in the third quarter of 2021 benefited by 22 basis points from returns on mark-to-market assets and by 18 basis points due to lower cash holdings relative to invested assets as a result of the completed reinsurance transactions with Brookfield Asset Management Re. Average cash and equivalents in the insurance company portfolio was $6.9 billion compared to $10 billion in the second quarter of 2021.

    The aggregate cost of money for annuity liabilities of 1.51% in the third quarter of 2021 was down 5 basis points from 1.56% in the second quarter of 2021. The cost of money in the third quarter of 2021 was positively affected by 8 basis points of over-hedging of index-linked credits compared to 4 basis point of hedge gain in the second quarter of 2021.

    Commenting on investment activities, Jim Hamalainen, Chief Investment Officer, said: “Year to date as of today, we have deployed approximately $2.5 billion in private assets. This exceeds our plans for 2021 and was supported by our acquisition of a residential loan portfolio from the Anchor Loan platform to help support its acquisition by our residential real estate partner, Pretium. We now have access to necessary investment capabilities, and scaling to target will allow American Equity shareholders to realize the full potential of differentiated asset management with a lower risk profile than other asset intensive insurance business models.”

    FUNDS UNDER MANAGEMENT INCREASE 1.1% ON $1.3 BILLION OF SALES4

    Policyholder funds under management at September 30, 2021 were $52.9 billion, a $588 million, or 1.1% increase from June 30, 2021, adjusted for the completion of the in-force reinsurance transaction with Brookfield Asset Management Re. Third quarter sales were $1,310 million, representing an increase of 128% from the third quarter 2020 sales level. On a sequential basis, sales increased 11% from the second quarter of 2021. Compared to the second quarter of 2021, sales of fixed index annuities at American Equity Life increased 4% while Eagle Life sales of fixed index annuities rose 2%.

    CAUTION REGARDING FORWARD-LOOKING STATEMENTS

    The forward-looking statements in this release, such as believe, enable, expect, intend, may, plan, ramping to, 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 third quarter 2021 earnings on Tuesday, November 9, 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 6635087 (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 November 16, 2021 at 855-859-2056, passcode 6635087 (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.

    1. 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.
    2. Pertinent notable items consist of $56,801 impact related to actuarial assumption updates made in Q3 2021 and $340,895 impact related to actuarial assumption updates made in Q3 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 September 30, 2021 financial supplement.
    3. 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 September 30, 2021 financial supplement on page 11, “Spread Results.”
    4. 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

    September 30,

     

    Nine Months Ended

    September 30,

     

    2021

     

    2020

     

    2021

     

    2020

    Revenues:

     

     

     

     

     

     

     

    Premiums and other considerations

    $

    15,841

     

     

    $

    10,407

     

     

    $

    43,649

     

     

    $

    29,103

     

    Annuity product charges

    58,480

     

     

    62,277

     

     

    182,321

     

     

    185,264

     

    Net investment income

    526,366

     

     

    543,331

     

     

    1,522,876

     

     

    1,660,353

     

    Change in fair value of derivatives

    (70,701

    )

     

    205,011

     

     

    826,484

     

     

    (409,201

    )

    Net realized gains (losses) on investments

    4,933

     

     

    (22,321

    )

     

    (2,764

    )

     

    (68,545

    )

    Other revenue

    7,644

     

     

     

     

    7,644

     

     

     

    Loss on extinguishment of debt

     

     

     

     

     

     

    (2,024

    )

    Total revenues

    542,563

     

     

    798,705

     

     

    2,580,210

     

     

    1,394,950

     

     

     

     

     

     

     

     

     

    Benefits and expenses:

     

     

     

     

     

     

     

    Insurance policy benefits and change in future policy benefits

    18,756

     

     

    13,273

     

     

    51,008

     

     

    36,676

     

    Interest sensitive and index product benefits

    817,014

     

     

    576,147

     

     

    2,106,590

     

     

    1,217,358

     

    Amortization of deferred sales inducements

    (17,172

    )

     

    416,983

     

     

    93,283

     

     

    415,396

     

    Change in fair value of embedded derivatives

    (536,404

    )

     

    (1,732,497

    )

     

    (545,104

    )

     

    (1,855,623

    )

    Interest expense on notes payable

    6,535

     

     

    6,388

     

     

    19,322

     

     

    19,161

     

    Interest expense on subordinated debentures

    1,342

     

     

    1,323

     

     

    3,994

     

     

    4,232

     

    Amortization of deferred policy acquisition costs

    (1,588

    )

     

    622,596

     

     

    185,329

     

     

    623,409

     

    Other operating costs and expenses

    56,518

     

     

    42,738

     

     

    177,433

     

     

    128,315

     

    Total benefits and expenses

    345,001

     

     

    (53,049

    )

     

    2,091,855

     

     

    588,924

     

    Income before income taxes

    197,562

     

     

    851,754

     

     

    488,355

     

     

    806,026

     

    Income tax expense

    44,697

     

     

    184,554

     

     

    107,500

     

     

    143,308

     

    Net income

    152,865

     

     

    667,200

     

     

    380,855

     

     

    662,718

     

    Less: Preferred stock dividends

    10,918

     

     

    5,950

     

     

    32,756

     

     

    18,511

     

    Net income available to common stockholders

    $

    141,947

     

     

    $

    661,250

     

     

    $

    348,099

     

     

    $

    644,207

     

     

     

     

     

     

     

     

     

    Earnings per common share

    $

    1.53

     

     

    $

    7.20

     

     

    $

    3.69

     

     

    $

    7.02

     

    Earnings per common share – assuming dilution

    $

    1.53

     

     

    $

    7.17

     

     

    $

    3.67

     

     

    $

    7.00

     

     

     

     

     

     

     

     

     

    Weighted average common shares outstanding (in thousands):

     

     

     

     

     

     

     

    Earnings per common share

    92,478

     

     

    91,861

     

     

    94,326

     

     

    91,770

     

    Earnings per common share – assuming dilution

    93,044

     

     

    92,163

     

     

    94,867

     

     

    92,071

     

     
     
     
     

    NON-GAAP FINANCIAL MEASURES

    In addition to net income 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 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 available to common stockholders provides information that may enhance an investor’s understanding of our underlying results and profitability.

    Reconciliation from Net Income Available to Common Stockholders to Non-GAAP Operating Income (Loss) Available to Common Stockholders and Non-GAAP Operating Income Available to Common Stockholders, Excluding Notable Items

     

     

    Three Months Ended

    September 30,

     

    Nine Months Ended

    September 30,

     

    2021

     

    2020

     

    2021

     

    2020

    Net income available to common stockholders

    $

    141,947

     

     

    $

    661,250

     

     

    $

    348,099

     

     

    $

    644,207

     

    Adjustments to arrive at non-GAAP operating income (loss) available to common stockholders: (a)

     

     

     

     

     

     

     

    Net realized (gains) losses on financial assets, including credit losses

    (3,900

    )

     

    15,145

     

     

    2,528

     

     

    49,986

     

    Change in fair value of derivatives and embedded derivatives – fixed index annuities

    (75,879

    )

     

    (1,176,909

    )

     

    (172,746

    )

     

    (873,773

    )

    Change in fair value of derivatives – interest rate caps and swap

     

     

     

     

     

     

    (848

    )

    Income taxes

    17,285

     

     

    250,701

     

     

    36,801

     

     

    177,804

     

    Non-GAAP operating income (loss) available to common stockholders

    79,453

     

     

    (249,813

    )

     

    214,682

     

     

    (2,624

    )

    Impact of notable items (b)

    56,801

     

     

    340,895

     

     

    56,801

     

     

    310,117

     

    Non-GAAP operating income available to common stockholders, excluding notable items

    $

    136,254

     

     

    $

    91,082

     

     

    $

    271,483

     

     

    $

    307,493

     

     

     

     

     

     

     

     

     

    Per common share – assuming dilution:

     

     

     

     

     

     

     

    Net income available to common stockholders

    $

    1.53

     

     

    $

    7.17

     

     

    $

    3.67

     

     

    $

    7.00

     

    Adjustments to arrive at non-GAAP operating income (loss) available to common stockholders:

     

     

     

     

     

     

     

    Anti-dilutive effect of operating loss

     

     

    0.01

     

     

     

     

     

    Net realized (gains) losses on financial assets, including credit losses

    (0.04

    )

     

    0.16

     

     

    0.02

     

     

    0.54

     

    Change in fair value of derivatives and embedded derivatives – fixed index annuities

    (0.82

    )

     

    (12.77

    )

     

    (1.82

    )

     

    (9.49

    )

    Change in fair value of derivatives – interest rate caps and swap

     

     

     

     

     

     

    (0.01

    )

    Income taxes

    0.18

     

     

    2.71

     

     

    0.39

     

     

    1.93

     

    Non-GAAP operating income (loss) available to common stockholders

    0.85

     

     

    (2.72

    )

     

    2.26

     

     

    (0.03

    )

    Impact of notable items

    0.61

     

     

    3.70

     

     

    0.60

     

     

    3.37

     

    Non-GAAP operating income available to common stockholders, excluding notable items

    $

    1.46

     

     

    $

    0.98

     

     

    $

    2.86

     

     

    $

    3.34

     

     

    Notable Items

     

     

    Three Months Ended

    September 30,

     

    Nine Months Ended

    September 30,

     

    2021

     

    2020

     

    2021

     

    2020

    Notable items impacting non-GAAP operating income (loss) available to common stockholders:

     

     

     

     

     

     

     

    Impact of actuarial assumption updates

    $

    56,801

     

     

    $

    340,895

     

     

    $

    56,801

     

     

    $

    340,895

     

    Tax benefit related to the CARES Act

     

     

     

     

     

     

    (30,778

    )

    Total notable items (b)

    $

    56,801

     

     

    $

    340,895

     

     

    $

    56,801

     

     

    $

    310,117

     

    (a)

     

    Adjustments to net income available to common stockholders to arrive at non-GAAP operating income (loss) 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 (loss) 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

     

     

    Q3 2021

    Total stockholders’ equity

    $

    6,375,208

     

    Equity available to preferred stockholders (a)

    (700,000

    )

    Total common stockholders’ equity (b)

    5,675,208

     

    Accumulated other comprehensive income

    (1,956,974

    )

    Total common stockholders’ equity excluding AOCI (b)

    3,718,234

     

    Net impact of fair value accounting for derivatives and embedded derivatives

    (265,018

    )

    Total common stockholders’ equity excluding AOCI and the net impact of fair value accounting for derivatives and embedded derivatives (b)

    $

    3,453,216

     

     

     

    Common shares outstanding

    92,513,517

     

     

     

    Book Value per Common Share: (c)

     

    Book value per common share

    $

    61.34

     

    Book value per common share excluding AOCI (b)

    $

    40.19

     

    Book value per common share excluding AOCI and the net impact of fair value accounting for derivatives and embedded derivatives (b)

    $

    37.33

     

    (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

     

    September 30, 2021

    Average Common Stockholders’ Equity Excluding Average AOCI

     

    Average total stockholders’ equity

    $

    6,146,712

     

    Average equity available to preferred stockholders

    (700,000

    )

    Average equity available to common stockholders

    5,446,712

     

    Average AOCI

    (1,934,284

    )

    Average common stockholders’ equity excluding average AOCI

    3,512,428

     

    Impact of notable items on average common stockholders’ equity excluding average AOCI

    28,401

     

    Average common stockholders’ equity excluding average AOCI and notables

    $

    3,540,829

     

     

     

    Net income available to common stockholders

    $

    341,837

     

    Adjustments to arrive at non-GAAP operating income available to common stockholders: (a)

     

    Net realized losses on financial assets, including credit losses

    11,897

     

    Change in fair value of derivatives and embedded derivatives – fixed index annuities

    (82,130

    )

    Income taxes

    14,805

     

    Non-GAAP operating income available to common stockholders

    286,409

     

    Impact of notable items (b)

    56,801

     

    Non-GAAP operating income available to common stockholders, excluding notable items

    $

    343,210

     

     

     

    Return on Average Common Stockholders’ Equity

     

    Net income available to common stockholders

    6.3

    %

     

     

    Return on Average Common Stockholders’ Equity Excluding Average AOCI

     

    Non-GAAP operating income available to common stockholders

    8.2

    %

    Non-GAAP operating income available to common stockholders, excluding notable items

    9.7

    %

     

    Notable Items

     

     

    Twelve Months Ended

     

    September 30, 2021

    Notable items impacting Non-GAAP operating income available to common stockholders:

     

    Impact of actuarial assumption updates

    $

    56,801

     

    Total notable items (b)

    $

    56,801

     

    (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.

     

    Contacts

    Steven D. Schwartz, Vice President-Investor Relations
    (515) 273-3763, sschwartz@american-equity.com

    Originally Posted at Business Wire on November 8, 2021 by American Equity Investment Life Holding Company.

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