American Equity Investment Life Holding Company (NYSE:AEL), a
leading issuer of fixed index annuities, today reported first
quarter 2015 net income of $5.9 million, or $0.07 per diluted
common share, compared to a first quarter 2014 net loss of $9.8
million, or $0.13 per diluted common share.
Non-GAAP operating income1 for the first quarter of 2015 was
$48.8 million, or $0.62 per diluted common share, compared to first
quarter 2014 non-GAAP operating income1 of $37.5 million, or $0.47
per diluted common share.
Highlights for the first quarter of 2015 include:
- Annuity sales (before coinsurance) were
up 43% to $1.32 billion compared to first quarter 2014 annuity
sales of $921 million.
- Investment spread was 2.77% compared to
2.92% for the fourth quarter of 2014 and 2.77% for the first
quarter of 2014.
- Estimated risk-based capital (RBC)
ratio of 361% at March 31, 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 $18.63 at
March 31, 2015 compared to $18.52 at December 31,
2014.
1 In addition to net income (loss), we have 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 our
financial performance. See accompanying tables for reconciliations
of net income (loss) 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, we believe measures excluding their impact are useful
in analyzing operating trends. We believe the combined presentation
and evaluation of operating income together with net income (loss),
provides information that may enhance an investor’s understanding
of our underlying results and profitability.
Commenting on first quarter results, founder and Executive
Chairman David J. Noble said: “2015 is off to an excellent start
and we're positioned for another solid year of financial
performance with the potential for much higher sales than last
year. Our products continue to deliver attractive safe money
returns and value to Americans preparing for or enjoying their
retirement."
PRODUCTION UP 43% ON MORE FAVORABLE COMPETITIVE
ENVIRONMENT
First quarter sales of $1.3 billion were up 43% from the prior
year first quarter and contributed to a 3.1% increase in
policyholder liabilities under management. These sales included
$122 million from Eagle Life which surpassed Eagle Life's full year
sales in 2014. The competitive dynamic in the fixed index annuity
marketplace changed significantly in early March with the
withdrawal of a competitor's product that offered one of the
highest levels of guaranteed income in the marketplace for the past
several years. This product has been the source of significant
competition for sales and was the second best selling fixed index
annuity product in the fourth quarter of 2014. New business
activity began to escalate in February when a reduction in new
money rates that was effective in early March was announced. The
pending count entering March 2015 was at 3,800 cases and grew to
4,300 cases at the end of the first quarter and 5,000 cases as of
today. The peak count in April was 5,200 cases.
Commenting on the competitive environment and the outlook for
sales, John Matovina, Chief Executive Officer and President, said:
"Annual sales the past three years have ranged from $3.9 billion to
$4.2 billion as we remained disciplined in our product terms and
pricing and were unwilling to pursue market share at the expense of
profitability. Based upon current indications, our patience and
discipline the past three years are being rewarded with higher
sales in 2015 and the competitive environment is favorable to us.
While competition can surface at any time, we are not presently
aware of any new competitive threats."
SPREAD NARROWS ON REDUCTION IN BOND FEE INCOME
American Equity’s investment spread narrowed to 2.77% for the
first quarter of 2015 compared to 2.92% for the fourth quarter of
2014 as a result of a decrease in average yield on invested assets
which was 0.15% larger than the decrease in the cost of money. The
investment spread for the first quarter of 2015 was unchanged from
the investment spread for the first quarter of 2014.
Average yield on invested assets declined by 21 basis points to
4.74% for the first quarter of 2015 from 4.95% for the fourth
quarter of 2014. More than half of this decrease was attributable
to fee income from bond transactions which together with certain
prepayment income added 0.13% to the fourth quarter 2014 average
yield on invested assets compared to 0.01% from such items in the
first quarter of 2015.
Adjusting for the effect of these non-trendable items, the
average yield on invested assets for the quarter fell by 9 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 first quarter of 2015 was 3.84%, compared to
average yields ranging from 4.14% - 4.27% in the prior year
quarters.
The aggregate cost of money for annuity liabilities declined by
6 basis points to 1.97% in the first quarter of 2015 compared to
2.03% in the fourth quarter of 2014. This decrease reflected
continued reductions in crediting rates. The benefit from over
hedging the obligations for index linked interest was 0.07% in the
first quarter of 2015 and 0.05% in the fourth quarter of 2014.
Commenting on investment spread, John Matovina, said: “Low
interest rates remain a headwind to our spread management and the
benefit we received in the quarter from reductions in liability
rates was offset by lower rates on invested assets purchased or
funded. Investment yields in 2015 have been lower than those
available in 2014 and achieving a 4.00% average yield on new
investments is not possible without taking on risk that is beyond
our comfort level. However, we continue to be proactive in managing
our cost of money. We reduced our new money rates by approximately
0.20% in early March and continue to actively manage renewal rates.
Most of the renewal rate reductions that were initiated in 2014
have been implemented as of the end of the first quarter of 2015
and we are making additional reductions in 2015. We continue to
have flexibility in managing our cost of money and could achieve
approximately a 0.55% decrease in our cost of money from 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 first
quarter 2015 earnings on Thursday, April 30, 2015, at 10:00 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 844-224-4250,
passcode 22864981 (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 May 7, 2015 at 855-859-2056, passcode 22864981
(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 March 31,
2015 2014 (Dollars in thousands,
except per share data) Revenues: Premiums
and other considerations $ 6,997 $ 7,331 Annuity product charges
28,682 25,272 Net investment income 399,669 370,005 Change in fair
value of derivatives (31,100 ) 48,493 Net realized gains (losses)
on investments, excluding other than temporary impairment ("OTTI")
losses 4,879 (714 ) OTTI losses on investments: Total OTTI losses
(132 ) — Portion of OTTI losses recognized from other comprehensive
income — (905 ) Net OTTI losses recognized in
operations (132 ) (905 ) Loss on extinguishment of debt —
(3,977 ) Total revenues 408,995
445,505
Benefits and expenses: Insurance
policy benefits and change in future policy benefits 9,220 10,095
Interest sensitive and index product benefits 282,825 317,192
Amortization of deferred sales inducements 10,953 666 Change in
fair value of embedded derivatives 51,213 92,619 Interest expense
on notes payable 7,339 10,264 Interest expense on subordinated
debentures 3,016 3,008 Amortization of deferred policy acquisition
costs 14,286 7,194 Other operating costs and expenses 21,122
19,085 Total benefits and expenses
399,974 460,123 Income (loss) before income
taxes 9,021 (14,618 ) Income tax expense (benefit) 3,118
(4,865 ) Net income (loss) $ 5,903 $ (9,753 )
Earnings (loss) per common share $ 0.08 $ (0.13 ) Earnings
(loss) per common share - assuming dilution $ 0.07 $ (0.13 )
Weighted average common shares outstanding (in thousands): Earnings
(loss) per common share 77,042 72,519 Earnings (loss) per common
share - assuming dilution 79,118 79,616
NON-GAAP FINANCIAL MEASURES
In addition to net income (loss), we have 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 our financial
performance. Operating income equals net income (loss) 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, we believe measures excluding their impact are
useful in analyzing operating trends. We believe the combined
presentation and evaluation of operating income together with net
income (loss) provides information that may enhance an investor’s
understanding of our underlying results and profitability.
Reconciliation
from Net Income (Loss) to Operating Income
(Unaudited)
Three Months Ended March 31,
2015 2014 (Dollars in thousands,
except per share data) Net income (loss) $ 5,903 $ (9,753 )
Adjustments to arrive at operating income: (a) Net realized
investment (gains) losses, including OTTI (1,819 ) 564 Change in
fair value of derivatives and embedded derivatives - index
annuities 43,657 43,708 Change in fair value of derivatives and
embedded derivatives - debt 1,077 1,509 Litigation reserve — (916 )
Extinguishment of debt — 2,394
Operating income (a non-GAAP financial measure) $ 48,818 $
37,506 Per common share - assuming dilution: Net
income (loss) $ 0.07 $ (0.13 ) Adjustments to arrive at operating
income: Anti-dilutive effect of net loss — 0.01 Net realized
investment (gains) losses, including OTTI (0.02 ) — Change in fair
value of derivatives and embedded derivatives - index annuities
0.55 0.55 Change in fair value of derivatives and embedded
derivatives - debt 0.02 0.02 Litigation reserve — (0.01 )
Extinguishment of debt — 0.03 Operating
income (a non-GAAP financial measure) $ 0.62 $ 0.47
(a) Adjustments to net income (loss) 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 March 31, 2015
(Dollars in thousands) Average Stockholders' Equity
1 Average equity including average AOCI $ 1,990,835 Average
AOCI (613,087 ) Average equity excluding average AOCI $
1,377,748 Net income $ 141,679 Operating income
201,958
Return on Average Equity Excluding Average
AOCI Net income 10.28 % Operating income 14.66 %
1 - simple average based on stockholders'
equity at beginning and end of the twelve month period.
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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