Company Highlights
- Fourth quarter 2015 net income of
$33.8 million or $0.40 per diluted common share; Full year 2015 net
income of $219.8 million or $2.72 per diluted common share
- Fourth quarter 2015 operating
income1 of $50.1 million or $0.60 per diluted common
share; Full year 2015 operating income1 of $195.8
million or $2.42 per diluted common share
- Fourth quarter 2015 annuity sales of
$2.14 billion; Full year 2015 annuity sales of $7.1
billion
- Policyholder funds under management
of $41.2 billion, up 16.6% for the year
- Fourth quarter 2015 investment
spread of 2.67%
- Operating income1
return on average equity1 of 12.5%
- Risk-based capital (RBC) ratio of
336%
- Book value per share (excluding
accumulated other comprehensive income) of $21.36
- Annual cash dividend of $0.22 per
share
American Equity Investment Life Holding Company (NYSE: AEL), a
leading issuer of fixed index annuities, today reported fourth
quarter 2015 net income of $33.8 million, or $0.40 per diluted
common share, compared to $31.2 million, or $0.39 per diluted
common share, for fourth quarter 2014. For the year ended December
31, 2015, net income was $219.8 million, or $2.72 per diluted
common share, compared to $126.0 million, or $1.58 per diluted
common share, for the year ended December 31, 2014.
Operating income1 for the fourth quarter of 2015 was $50.1
million, or $0.60 per diluted common share, compared to $50.7
million, or $0.63 per diluted common share, for fourth quarter
2014. For the year ended December 31, 2015, operating income1 was
$195.8 million, or $2.42 per diluted common share, compared to
$190.6 million, or $2.39 per diluted common share, for the year
ended December 31, 2014.
Fourth quarter results capped off another year in which the
Company's operating income1 and related per share amount were
record highs. For the year the Company delivered 16.6% growth in
policyholder funds under management and a 12.5% operating return1
on average equity. Over the past ten years, the Company's operating
income1 has compounded at a 13% annual rate while policyholder
funds under management have grown 15% annually. American Equity
believes this track record classifies it as one of the best growth
companies of the past decade in the life insurance and financial
services industries. The Company believes this success is the
result of offering attractive products that meet the needs of
Americans preparing for--or enjoying--retirement combined with its
best in class service to distribution partners and
policyholders.
Other achievements in 2015 included Standard & Poor's
upgrading the Company's rating from below investment grade to
investment grade and the August 2015 common equity offering. The
equity offering raised $104.5 million in initial net proceeds and
gives the Company the right under two forward sales agreements to
receive $135 million in additional net proceeds through August
2016. These forward sales agreements enable the Company to better
manage its capital by matching the issuance of additional equity
with any need for such capital that might arise from continued
growth. The Company also paid an annual cash dividend of $0.22 per
share in December 2015. This represented a 10% increase from the
previous year, marked the 17th consecutive year a cash dividend has
been paid and the 12th consecutive year the annual cash dividend
amount has been increased.
RECORD FOURTH QUARTER SALES UP 86% Y/Y AND 17%
SEQUENTIALLY
Fourth quarter sales of $2.1 billion set a new single quarter
record, growing 86% from the prior year fourth quarter and 17%
sequentially. Commenting on sales, John Matovina, Chief Executive
Officer and President, said: "As we previously disclosed, fourth
quarter sales were outstanding, contributing to a record year. We
achieved this milestone by capturing market share in the
independent agent distribution channel. Our attractive product
offerings and unmatched service levels enabled us to capitalize on
the market opportunity created earlier in the year when one of our
competitors in this channel withdrew a highly competitive product
from the market. We also withstood some new competition in that
channel that emerged in the third quarter. Furthermore, we could
not have achieved the $7.1 billion full year sales record without
the $505 million contribution from our Eagle Life subsidiary which
is selling fixed index and fixed rate annuities through
broker-dealers and banks."
Turning to the outlook for sales, Matovina added: "While we are
proud of 2015's record sales and always strive to grow, we
acknowledge that topping 2015 this year will be a challenge. We
enjoyed having guaranteed lifetime income riders in the independent
agent distribution channel that had among the highest benefits in
the final three quarters of 2015. Several companies have emerged
this year with robust guaranteed lifetime income benefits,
including the previously mentioned competitor. Comparatively, our
guaranteed lifetime income riders are a bit less competitive, but
are still very strong in the independent agent distribution
channel. Nonetheless, we expect a satisfactory level of sales from
this channel in the current year. We continue to distinguish
ourselves with competitively priced products, a consistent presence
in the market, and best in class service to agents and
policyholders. As we discussed in our prior quarter commentary, we
anticipated a boost in fourth quarter sales and our new business
pipeline from impending changes to our lifetime income benefit
riders which became effective for applications received after 2015.
We ended 2015 with more than 7,000 pending applications which
provides a strong foundation for first quarter 2016 production. We
will also be introducing a lifetime income rider in the near future
that will expand our menu of riders into a segment of that market
for which we currently do not have a product."
Matovina concluded: "A key growth initiative for us is expanding
in the broker-dealer and bank distribution channels, two channels
that represent a significant growth opportunity for fixed index
annuity sales. We formed our Eagle Life subsidiary to pursue this
opportunity, and after a couple of years of laying the foundation
and creating the infrastructure to serve these channels, we saw
meaningful success in 2015. Eagle Life grew its production to over
$500 million, up more than 400% from $121 million of sales in 2014.
More than 80% of Eagle Life's 2015 sales were produced by two key
distribution relationships. Notably, the room to grow in these
channels is substantial and Eagle Life is positioned to capitalize
on that opportunity. We have several new distribution relationships
that we expect will begin producing for us in 2016."
SPREAD DECLINES ON LOWER INVESTMENT YIELD
American Equity’s investment spread was 2.67% for the fourth
quarter of 2015 compared to 2.83% for the third quarter of 2015 as
a result of a seventeen basis point decrease in average yield on
invested assets and a one basis point decrease in the cost of
money.
Average yield on invested assets continued to be favorably
impacted by non-trendable items and unfavorably impacted by the
investment of new premiums and portfolio cash flows at rates below
the portfolio rate. Fee income from bond transactions and
prepayment income added 0.07% to fourth quarter 2015 average yield
on invested assets compared to 0.14% from such items in the third
quarter of 2015. Adjusting for the effect of non-trendable items,
the average yield on invested assets for the quarter fell by ten
basis points from the prior quarter. The average yield on fixed
income securities purchased and commercial mortgage loans funded in
the fourth quarter of 2015 was 4.03% compared to average yields
ranging from 3.73% - 3.89% in the first three quarters of 2015.
The aggregate cost of money for annuity liabilities decreased by
one basis point to 1.95% in the fourth quarter of 2015 compared to
1.96% in the third quarter of 2015. This decrease reflected
continued reductions in crediting rates but the effect from the
rate reductions was partially offset by a one basis point decrease
in the benefit from over hedging the obligations for index linked
interest from 0.02% in the third quarter of 2015 to 0.01% in the
fourth quarter of 2015.
Commenting on investment spread, John Matovina, said: “The low
interest rate environment remains a strong headwind for our
business and industry. While we were able to capture slightly
higher yields in the fourth quarter, the markets are still offering
yields below our portfolio rate and we held more cash and
short-term investments than usual this quarter, both of which put
downward pressure on our investment income and average yield on
invested assets. We are counteracting the impact of lower
investment yields by reducing the rates on our policy liabilities
but the impact on the cost of money from these reductions is less
than the impact on the average yield on invested assets from
investment purchases by a few basis points. We continue to have
flexibility to reduce our crediting rates, if necessary, and could
decrease our cost of money by approximately 0.48% through 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.”
CREDIT QUALITY OF BOND PORTFOLIO REMAINS HIGH; MANAGEABLE
EXPOSURE TO TROUBLED SECTORS
The Company believes it has successfully minimized credit risk
in its investment portfolio. At December 31, 2015, 96.5% of its
fixed maturity securities were rated investment grade by nationally
recognized statistical rating organizations. This represents a
modest increase from 95.9% investment grade securities at December
31, 2014. At December 31, 2015, the Company held securities in the
energy, metals and mining sectors with a fair value of $2.9 billion
and an unrealized loss of $336 million. Of these holdings, 95% were
rated investment grade. During the fourth quarter of 2015, the
Company recorded a $12.4 million other than temporary impairment
charge on securities of one issuer in the metals and mining sector.
At December 31, 2015, the Company's Watch List of securities deemed
at risk for a future other than temporary impairment assessment
consisted of securities from ten issuers with a fair value of $73.0
million and an unrealized loss of $53.5 million. This unrealized
loss represents less than 3% of the Company's consolidated
stockholder's equity and its statutory capital and surplus at
December 31, 2015.
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 fourth
quarter 2015 earnings on Thursday, February 11, 2016, at 9:00 a.m.
CST. 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 21638338 (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 February 18, 2016 at 855-859-2056, passcode
21638338 (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.
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
Consolidated Statements of Operations
(Unaudited)
Three Months EndedDecember 31, Year
EndedDecember 31, 2015 2014
2015 2014 (Dollars in thousands, except per
share data) Revenues: Premiums and other considerations
$ 10,679 $ 10,126 $ 36,048 $ 32,623 Annuity product charges 37,102
32,513 136,168 118,990 Net investment income 438,262 403,849
1,692,192 1,531,667 Change in fair value of derivatives 69,338
146,231 (336,146 ) 504,825 Net realized gains (losses) on
investments, excluding other than temporary impairment ("OTTI")
losses (151 ) 2,131 10,211 (4,003 ) OTTI losses on investments:
Total OTTI losses (15,415 ) — (25,547 ) — Portion of OTTI losses
recognized in (from) other comprehensive income 2,068
(564 ) 6,011 (2,627 ) Net OTTI losses
recognized in operations (13,347 ) (564 ) (19,536 ) (2,627 ) Loss
on extinguishment of debt — (1,951 ) —
(12,502 ) Total revenues 541,883
592,335 1,518,937 2,168,973
Benefits and expenses: Insurance policy benefits and
change in future policy benefits 12,829 11,624 45,458 41,815
Interest sensitive and index product benefits 165,622 359,319
968,053 1,473,700 Amortization of deferred sales inducements 57,112
34,743 209,390 131,419 Change in fair value of embedded derivatives
118,414 53,973 (464,698 ) 32,321 Interest expense on notes payable
6,873 8,244 28,849 36,370 Interest expense on subordinated
debentures 3,101 3,046 12,239 12,122 Amortization of deferred
policy acquisition costs 99,243 49,629 286,114 163,578 Other
operating costs and expenses 25,731 20,996
96,218 81,584 Total benefits and
expenses 488,925 541,574
1,181,623 1,972,909 Income before income taxes
52,958 50,761 337,314 196,064 Income tax expense 19,182
19,544 117,484 70,041
Net income $ 33,776 $ 31,217 $ 219,830
$ 126,023 Earnings per common share $ 0.41 $ 0.41 $
2.78 $ 1.69 Earnings per common share - assuming dilution $ 0.40 $
0.39 $ 2.72 $ 1.58 Weighted average common shares
outstanding (in thousands): Earnings per common share 81,733 75,620
78,937 74,431 Earnings per common share - assuming dilution 83,851
80,154 80,961 79,894
American Equity Investment Life Holding
Company
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 items that 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 and 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.
Reconciliation from Net Income to
Operating Income (Unaudited)
Three Months EndedDecember 31, Year
EndedDecember 31, 2015 2014
2015 2014 (Dollars in thousands, except per
share data) Net income $ 33,776 $ 31,217 $ 219,830 $ 126,023
Adjustments to arrive at operating income: (a) Net realized
investment (gains) losses, including OTTI 5,538 (613 ) 3,709 2,863
Change in fair value of derivatives and embedded derivatives -
index annuities 11,675 16,463 (28,477 ) 51,099 Change in fair value
of derivatives and embedded derivatives - debt (848 ) 32 758 61
Litigation reserve — — — (916 ) Extinguishment of debt —
3,604 — 11,516
Operating income (a non-GAAP financial measure) $ 50,141 $
50,703 $ 195,820 $ 190,646 Per common
share - assuming dilution: Net income $ 0.40 $ 0.39 $ 2.72 $ 1.58
Adjustments to arrive at operating income: Net realized investment
(gains) losses, including OTTI 0.07 (0.01 ) 0.04 0.04 Change in
fair value of derivatives and embedded derivatives - index
annuities 0.14 0.21 (0.35 ) 0.64 Change in fair value of
derivatives and embedded derivatives - debt (0.01 ) — 0.01 —
Litigation reserve — — — (0.01 ) Extinguishment of debt —
0.04 — 0.14
Operating income (a non-GAAP financial measure) $ 0.60 $
0.63 $ 2.42 $ 2.39
(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 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
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 December 31, 2015
(Dollars in thousands) Average Stockholders' Equity
1 Average equity including average AOCI $ 2,030,613 Average
AOCI (461,532 ) Average equity excluding average AOCI $
1,569,081 Net income $ 219,830 Operating income
195,820
Return on Average Equity Excluding Average
AOCI Net income 14.01 % Operating income 12.48 %
1 - The net proceeds received from the Company's public offering
of common stock in August 2015 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 public
stock offering in August 2015.
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version on businesswire.com: http://www.businesswire.com/news/home/20160210006486/en/
American Equity Investment Life Holding CompanyJohn M.
Matovina, Chief Executive Officer515-457-1813,
jmatovina@american-equity.comorTed M. Johnson, Chief Financial
Officer515-457-1980, tjohnson@american-equity.comorDebra J.
Richardson, Chief Administrative Officer515-273-3551,
drichardson@american-equity.comorJulie L. LaFollette, Director
of Investor Relations515-273-3602,
jlafollette@american-equity.com
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