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American Equity Investment Life Holding Company (NYSE: AEL), a leading underwriter of index and fixed rate annuities, today reported third quarter 2013 net income of $56.2 million, or $0.75 per diluted common share, compared to a third quarter 2012 net loss of $7.8 million, or $0.13 per diluted common share.
Non-GAAP operating income
1 for the third quarter of 2013 was $59.8 million, or $0.80 per diluted common share, compared to third quarter 2012 non-GAAP operating income
1 of $22.2 million, or $0.34 per diluted common share.
Third quarter 2013 net income and non-GAAP operating income
1 were increased by $20.2 million ($0.27 per diluted common share) and $22.4 million ($0.30 per diluted common share), respectively, for revisions to assumptions utilized in the determination of deferred policy acquisition costs, deferred sales inducements and the liability for future benefits to be paid under lifetime income benefit riders. Net loss and non-GAAP operating income
1 for the third quarter of 2012 were impacted by similar assumption revisions which increased the net loss by $0.8 million ($0.01 per diluted common share) and reduced non-GAAP operating income
1 by $4.9 million ($0.07 per diluted common share).
The diluted share count for third quarter 2013 was 74.6 million shares compared to 65.3 million shares for the third quarter of 2012. This increase was attributable to greater dilution from convertible notes, warrants and stock options because the Company’s common stock price was substantially higher in the third quarter of 2013 compared to the third quarter of 2012.
1 In addition to net income, 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 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, provides information that may enhance an investor’s understanding of our underlying results and profitability.
Highlights for the third quarter of 2013 include:
Annuity sales (before coinsurance) were $1.054 billion compared to second quarter 2013 annuity sales of $1.135 billion.
Total invested assets were $29.8 billion (amortized cost basis = $28.9 billion).
Investment spread was 2.80% compared to 2.70% and 2.68% for the second and first quarters of 2013, respectively.
Estimated risk-based capital (RBC) ratio at September 30, 2013 remained above target at 333% compared to 324% at June 30, 2013 and 332% at December 31, 2012.
Book value per share (excluding accumulated other comprehensive income) increased to $18.81 at September 30, 2013 compared to $18.66 at June 30, 2013 and $16.49 at December 31, 2012.
SPREAD IMPROVES AS EXCESS CASH AND SHORT-TERM INVESTMENTS DEPLOYEDAmerican Equity’s investment spread for the third quarter of 2013 increased to 2.80% compared to 2.70% for the second quarter of 2013 and 2.62% for the third quarter of 2012. The average yield on invested assets including the excess cash and short-term investments balances was 5.02% for the third quarter of 2013 compared 4.94% for the second quarter of 2013 and 5.17% in the third quarter of 2012. The increase in investment spread for the quarter also included a reduction in the aggregate cost of money for annuity liabilities to 2.22% in the third quarter of 2013 compared to 2.24% in the second quarter of 2013 and 2.55% in the third quarter of 2012. The reductions in the cost of money reflect adjustments to new money and renewal crediting rates to policyholders.
The increase in investment yield for the quarter was primarily due to the elimination of American Equity’s excess cash and short-term investments. At September 30, 2013, the Company did not hold any excess cash and short-term investments compared to $816 million at June 30, 2013 and $2.2 billion at December 31, 2012. The average balance for excess cash and short-term investments was reduced to $341 million in the third quarter of 2013 from $1.7 billion in the second quarter of 2013 and $2.0 billion in the third quarter of 2012.