American Equity Investment Life Holding Company (NYSE: AEL), a leading underwriter of index and fixed rate annuities, today reported third quarter 2011 operating income 1 of $41.5 million, or $0.67 per diluted common share, an increase of 50% over 2010 third quarter operating income of $27.6 million, or $0.45 per diluted common share. Operating earnings were positively impacted by unlocking of assumptions utilized in the determination of deferred acquisition costs and deferred sales inducements which increased operating income by $12.5 million or $0.20 per diluted common share.
Performance highlights for the third quarter of 2011 include:
- Total invested assets grew 27% to $23.4 billion at September 30, 2011 compared to total invested assets of $18.5 billion at September 30, 2010.
- Net investment income, the principal component of total revenues, increased 17% to $305.5 million compared to third quarter 2010 investment income of $260.5 million.
- Annuity sales for the third quarter of 2011 grew 4% to $1.27 billion (before coinsurance) compared to third quarter 2010 annuity sales of $1.22 billion (before coinsurance).
- Estimated risk-based capital (“RBC”) ratio at September 30, 2011 remained above target at 350%.
- Book value per outstanding common share (excluding Accumulated Other Comprehensive Income) was $15.33 at September 30, 2011 compared to $15.53 at June 30, 2011.
- Operating earnings return on average equity of 14.6% for the trailing four quarters ended September 30, 2011.
ANNUITY SALES GAINED MOMENTUM IN THE THIRD QUARTER OF 2011
American Equity’s sales during the third quarter of 2011 grew each month to a high of $462 million for September 2011, fueled in part by impending rate reductions announced earlier that month. High demand for fixed indexed annuities in the third quarter was generated by volatile equity markets, low rates on competing products such as bank certificates of deposit, and an ongoing public focus on longevity risk and retirement income planning. The average indexed interest credit to American Equity policy holders whose contract anniversary date fell within the third quarter of 2011 was 5.20% including interest credits linked to both equity and bond market indexes. Commented David J. Noble, Executive Chairman and Founder of American Equity: “Today’s equity markets offer little respite from their steep swings up and down. At American Equity we are proud to offer products that provide much needed safety of principal as well as guaranteed lifetime income.”BOND YIELDS MOVED LOWER The aggregate yield on the company’s invested assets was 5.70% for the third quarter of 2011 compared to 5.98% for the same period last year. A total of $1.5 billion in new fixed income securities were purchased during the third quarter of 2011 with an aggregate yield of 5.05%. The level of calls for redemption, sales and prepayments were significantly lower in the third quarter of 2011 at $182 million with an aggregate yield of 6.85%, compared to $1.5 billion with an aggregate yield of 5.66% in the second quarter of 2011, and $1.7 billion with an aggregate yield of 5.88% in the first quarter of 2011. New commercial mortgage loans made during the third quarter totaled $133 million with an aggregate yield of 5.67%.