American Equity Investment Life Holding Company (NYSE:AEL), a
leading issuer of fixed index annuities, today reported second
quarter 2015 net income of $82.8 million, or $1.05 per diluted
common share, compared to a second quarter 2014 net income of $36.7
million, or $0.46 per diluted common share.
Non-GAAP operating income1 for the second quarter of 2015
increased 32% to $50.9 million, or $0.64 per diluted common share,
compared to second quarter 2014 non-GAAP operating income1 of $38.5
million, or $0.48 per diluted common share.
Highlights for the second quarter of 2015 include:
- Annuity sales (before coinsurance) were
up 73% to $1.80 billion compared to second quarter 2014 annuity
sales of $1.04 billion.
- Investment spread was 2.84% compared to
2.77% for the first quarter of 2015 and 2.70% for the second
quarter of 2014.
- Estimated risk-based capital (RBC)
ratio of 349% at June 30, 2015 compared to 372% at
December 31, 2014 remained above A. M. Best’s rating
threshold.
- Book value per share (excluding
accumulated other comprehensive income) was $19.72 at June 30,
2015 compared to $18.52 at December 31, 2014.
1 In addition to net income, the Company has consistently
utilized operating income and 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. See accompanying tables for reconciliations
of net income to operating income and descriptions of reconciling
items. See Company’s Quarterly Report on Form 10-Q for a more
complete discussion of the reconciling items and their impact on
net income for the periods presented. Because these items fluctuate
from period to period in a manner unrelated to core operations, the
Company believes measures excluding their impact are useful in
analyzing operating trends. The Company believes the combined
presentation and evaluation of operating income together with net
income, provides information that may enhance an investor’s
understanding of its underlying results and profitability.
PRODUCTION UP 73% ON MARKET SHARE GAINS
Second quarter sales of $1.8 billion were up 73% from the prior
year second quarter and 37% from first quarter 2015. Commenting on
sales results, John Matovina, Chief Executive Officer and
President, said: "In early March, the competitive landscape in the
fixed index annuity marketplace improved significantly for us with
the withdrawal of a competitor's guaranteed income product. Because
that product offered one of the highest levels of guaranteed income
among fixed index annuities, it had substantial market share
ranking it in the top three best-sellers in each of the last three
years. The withdrawal of this product enabled us to capture market
share from many of the annuity producers looking for competitive
guaranteed income solutions that formerly sold the competitor's
product. In addition, another substantial competitor scaled back
their sales appetite giving us another opportunity to increase our
sales. We are encouraged that our attractive product offerings that
meet retiree needs for safety, liquidity and guaranteed income are
driving robust sales increases broadly across our network of
distribution partners."
The Company noted that while growth in sales was substantial,
the ramp was steady and manageable. Monthly sales increased in each
month of 2015 and June 2015 was the best month in the Company's
history. The pending business count also increased steadily month
by month with an average daily pending count of almost 5,500 cases
in June 2015 compared to 4,150 cases in March 2015.
Turning to the outlook for sales, Matovina added: "We are
optimistic we will have a record year for sales but the first half
surge may settle down somewhat. Several competitors recently
increased their rates to make their product offerings more
competitive and we are making adjustments to the payout factors in
our lifetime income benefit rider beginning tomorrow. Some factors
will be lowered while others will be raised. Our guaranteed
lifetime income rider will still be competitive and we expect
producers to continue to favor us in sales situations where
guaranteed lifetime income is important to the consumer's fixed
index annuity purchase. In addition, our rider remains attractive
because our lifetime income is fully guaranteed while some
competitors share the financial risk with the policyholder by
guaranteeing only a portion of the income."
SPREAD WIDENS ON HIGHER BOND FEE AND PREPAYMENT
INCOME
American Equity’s investment spread widened to 2.84% for the
second quarter of 2015 compared to 2.77% for the first quarter of
2015 as a result of an increase in average yield on invested assets
and a decrease in the cost of money.
Average yield on invested assets increased by 4 basis points to
4.78% for the second quarter of 2015 from 4.74% for the first
quarter of 2015. The increase was attributable to fee income from
bond transactions and prepayment income which together added 0.07%
to the second quarter 2015 average yield on invested assets
compared to 0.01% from such items in the first quarter of 2015.
Adjusting for the effect of non-trendable items, the average
yield on invested assets for the quarter fell by 2 basis points
from the prior quarter as new premiums and portfolio cash flows
were invested at rates below the portfolio rate. The average yield
on fixed income securities purchased and commercial mortgage loans
funded in the second quarter of 2015 was 3.73% compared to 3.84% in
the first quarter of 2015 and average yields ranging from 4.14% -
4.39% in the prior year quarters.
The aggregate cost of money for annuity liabilities declined by
3 basis points to 1.94% in the second quarter of 2015 compared to
1.97% in the first quarter of 2015. This decrease reflected
continued reductions in crediting rates. The benefit from over
hedging the obligations for index linked interest was 0.07% in both
the second and first quarters of 2015.
Commenting on investment spread, John Matovina, said: “We
continued to effectively manage a challenging interest rate
environment, holding our spread essentially flat after adjusting
for non-trendable items. Yields obtained on new investments were 12
basis points lower than the first quarter while our cost of money
benefited from reductions in both new money and renewal rates. We
expect market conditions to continue to pressure our spread, but
still have room to lower rates further and could decrease our cost
of money by approximately 0.57% with further reductions in renewal
rates to guaranteed minimums should the investment yields currently
available to us persist. Most importantly, we intend to maintain
our risk discipline in managing our investment portfolio and not
chase higher yields in assets and asset classes that do not fit our
risk profile.”
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 2015 earnings on Thursday, July 30, 2015, at 10:00 a.m.
CDT. 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 81266360 (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 6, 2015 at 855-859-2056, passcode 81266360
(international callers will need to dial 407-537-3406).
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.
Consolidated
Statements of Operations (Unaudited)
Three Months Ended Six Months
Ended June 30, June 30, 2015
2014 2015 2014 (Dollars in
thousands, except per share data) Revenues: Premiums and
other considerations $ 10,037 $ 9,123 $ 17,034 $ 16,454 Annuity
product charges 32,409 29,247 61,091 54,519 Net investment income
418,176 370,882 817,845 740,887 Change in fair value of derivatives
(23,024 ) 270,883 (54,124 ) 319,376 Net realized gains (losses) on
investments, excluding other than temporary impairment ("OTTI")
losses 4,324 (2,230 ) 9,203 (2,944 ) OTTI losses on investments:
Total OTTI losses — — (132 ) — Portion of OTTI losses recognized
from other comprehensive income (828 ) (594 )
(828 ) (1,499 ) Net OTTI losses recognized in operations
(828 ) (594 ) (960 ) (1,499 ) Loss on extinguishment of debt
— (6,574 ) — (10,551 ) Total
revenues 441,094 670,737 850,089
1,116,242
Benefits and expenses:
Insurance policy benefits and change in future policy benefits
12,450 10,987 21,670 21,082 Interest sensitive and index product
benefits 306,141 367,774 588,966 684,966 Amortization of deferred
sales inducements 75,518 55,349 86,471 56,015 Change in fair value
of embedded derivatives (219,601 ) 80,935 (168,388 ) 173,554
Interest expense on notes payable 7,354 9,121 14,693 19,385
Interest expense on subordinated debentures 3,047 3,024 6,063 6,032
Amortization of deferred policy acquisition costs 104,700 67,084
118,986 74,278 Other operating costs and expenses 24,868
20,887 45,990 39,972
Total benefits and expenses 314,477
615,161 714,451 1,075,284 Income
before income taxes 126,617 55,576 135,638 40,958 Income tax
expense 43,772 18,832 46,890
13,967 Net income $ 82,845 $ 36,744
$ 88,748 $ 26,991 Earnings per common
share $ 1.07 $ 0.49 $ 1.15 $ 0.37 Earnings per common share -
assuming dilution $ 1.05 $ 0.46 $ 1.12 $ 0.34 Weighted
average common shares outstanding (in thousands): Earnings per
common share 77,237 74,461 77,140 73,495 Earnings per common share
- assuming dilution 79,227 79,518 79,173 79,583
NON-GAAP FINANCIAL MEASURES
In addition to net income, the Company has consistently utilized
operating income and 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. Operating income equals net income adjusted to
eliminate the impact of net realized gains and losses on
investments including net OTTI losses recognized in operations,
fair value changes in derivatives and embedded derivatives, loss on
extinguishment of debt and changes in litigation reserves. Because
these items fluctuate from quarter to quarter in a manner unrelated
to core operations, the Company believes measures excluding their
impact are useful in analyzing operating trends. The Company
believes the combined presentation and evaluation of operating
income together with net income provides information that may
enhance an investor’s understanding of our underlying results and
profitability.
Reconciliation
from Net Income to Operating Income (Unaudited)
Three Months Ended Six Months
Ended June 30, June 30, 2015
2014 2015 2014 (Dollars in
thousands, except per share data) Net income $ 82,845 $ 36,744
$ 88,748 $ 26,991 Adjustments to arrive at operating income: (a)
Net realized investment (gains) losses, including OTTI (1,649 )
1,361 (3,468 ) 1,925 Change in fair value of derivatives and
embedded derivatives - index annuities (29,274 ) (4,115 ) 14,383
39,593 Change in fair value of derivatives and embedded derivatives
- debt (977 ) (1,053 ) 100 456 Litigation reserve — — — (916 )
Extinguishment of debt — 5,518 —
7,912 Operating income (a non-GAAP financial
measure) $ 50,945 $ 38,455 $ 99,763 $ 75,961
Per common share - assuming dilution: Net income $
1.05 $ 0.46 $ 1.12 $ 0.34 Adjustments to arrive at operating
income: Net realized investment (gains) losses, including OTTI
(0.02 ) 0.01 (0.04 ) 0.02 Change in fair value of derivatives and
embedded derivatives - index annuities (0.37 ) (0.05 ) 0.18 0.50
Change in fair value of derivatives and embedded derivatives - debt
(0.02 ) (0.01 ) — — Litigation reserve — — — (0.01 ) Extinguishment
of debt — 0.07 —
0.10 Operating income (a non-GAAP financial measure) $ 0.64
$ 0.48 $ 1.26 $ 0.95
(a) Adjustments to net income to arrive at operating income are
presented net of income taxes and where applicable, are net of
related adjustments to amortization of deferred sales inducements
(DSI) and deferred policy acquisition costs (DAC).
NON-GAAP FINANCIAL MEASURES
Average Stockholders' Equity and Return
on Average Equity (Unaudited)
Return on equity measures how efficiently we generate profits
from the resources provided by our net assets. Return on equity is
calculated by dividing net income and operating income for the
trailing twelve months by average equity excluding average
accumulated other comprehensive income ("AOCI").
Twelve Months Ended June 30, 2015
(Dollars in thousands) Average Stockholders' Equity
1 Average equity including average AOCI $ 1,910,786 Average
AOCI (472,425 ) Average equity excluding average AOCI $
1,438,361 Net income $ 187,780 Operating income
214,448
Return on Average Equity Excluding Average
AOCI Net income 13.06 % Operating income 14.91 %
1 - simple average based on stockholders' equity at beginning
and end of the twelve month period.
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American Equity Investment Life Holding CompanyJohn M.
Matovina, 515-457-1813Chief Executive
Officerjmatovina@american-equity.comorTed M. Johnson,
515-457-1980Chief Financial
Officertjohnson@american-equity.comorDebra J. Richardson,
515-273-3551Chief Administrative
Officerdrichardson@american-equity.comorJulie L. LaFollette,
515-273-3602Director of Investor
Relationsjlafollette@american-equity.com
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