American Equity Investment Life Holding Company Q1 2010 Earnings Call Transcript

American Equity Investment Life Holding Company Q1 2010 Earnings Call Transcript
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American Equity Investment Life Holding Company (AEL)

Q1 2010 Earnings Call

May 6, 2010 11:00 am ET


Julie L. LaFollette – Director of Investor Relations

Wendy C. Waugaman – President, Chief Executive Officer & Director

John M. Matovina – Vice Chairman of the Board, Chief Financial Officer & Treasurer

Ronald J. Grensteiner – President of American Equity Life


Randy Binner – FBR Capital Markets

Mark Hughes – SunTrust Robinson Humphrey

Paul Sarran – Macquarie Research Equities

[Bill Bisselman] – Titan Capital Management

Steven Schwartz – Raymond James

Greg Eisen – ICM Asset Management



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» American Equity Investment Life Holding Company Q1 2008 Earnings Conference Call

Welcome to the American Equity Investment Life Holding Company’s first quarter 2010 conference call. At this time for opening remarks and introductions, I would like to turn the call over to Julie LaFollette, Director of Investor Relations.

Julie L. LaFollette

Welcome to American Equity Investment Life Holding Company’s conference call to discuss first quarter 2010 earnings. Our earnings release and financial supplement can be found on our website at

. Presenting on today’s call are Wendy Waugaman, President and Chief Executive Officer; John Matovina, Chief Financial Officer & Vice Chairman; and Ron Grensteiner, President of the Life Company.

Some of the comments made during this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. There are a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied. Factors that could cause the actual results to differ materially are discussed in detail in our most recent filings with the SEC.

An audio replay will be available on our website shortly after today’s call. It is now my pleasure to introduce Wendy Waugaman.

Wendy C. Waugaman

Welcome to the call for the first quarter of 2010. As we announced last night we’ve had a very solid start to the year with first quarter operating earnings of $25.8 million or $0.43 per diluted share. That’s a 10% increase year-over-year so once again we’re heading on a path of growth in earnings for 2010. We also had improving sales at nearly $850 million, that’s up 30% year-over-year. That’s the best first quarter we’ve ever had since January and February tend to be lower production months so we’re very pleased to see the growth trends in sales of 2009 continuing now in to 2010.

Our operating earnings translate in to a return of operating earnings on average equity of 14%. That remains high relative to our peer group and relative to the life industry and so we’re pleased to see those results continuing. As we talk about some of the detail of the results, there are several big themes for the quarter I think to keep in mind. One is certainly the continuing strong sales. We had a record year in 2009, 60% increase a lot of factors driving that and now the momentum continues on in to 2010 and I think is a very good prospect for our future growth.

Ron will be discuss the drivers of that as well as what we’re seeing from our competitors. Another one of the big impacts of this quarter was the continuing low cost of money that has driven higher spread results. That’s a reflection of the fact that option costs remain very, very low and now in a somewhat lower volatility environment than we saw in 2008 and 2009. Certainly option costs are as low as we’ve ever seen them.

In addition to that, we had positive net hedging results which John will discuss, all of which resulted in I think an all time low in our cost of money. One of the over arching themes for the quarter is the effect of the low interest rate environment we’re operating in. Certainly that’s good for sales since rates on competing products such as certificates of deposits are very low and make our products more competitive and more attractive in comparison.

On the other side though, it makes it a much more challenging investment environment with yields coming down and calls particularly of agency securities accelerating. We have not and will not depart from our discipline of focusing on credit quality and so as we put money to work in this low rate environment, we’re very conscious of maintaining our standards of credit quality as we look for the most competitive rates available in this environment.

It’s also worth remember that the great majority of our liabilities are annually adjustable. We can reprice our cost of money to adjust for differing yield environments to be able to yield to our spread targets. We can and do adjust rates as necessary when yields in the economy come down or go up and rate adjustments are something that we are actively considering on an ongoing basis and John will discuss that as well.

Probably the best news of the quarter was our RBC ratio which is estimated at 359% for the quarter compared to 337% at yearend. That reflects a very good quarter of statutory earnings at $65 million. It also reflects a charge that we had at year end that made the ratio somewhat lower than it would have otherwise been for securities not settled at the end of the quarter. All-in-all though, a very good RBC result and that factors in to our thinking about capital adequacy in a very major way.

Our conclusions about our capital at present would be number one, that the growth in our invested assets which is 26% year-over-year now generates enough statutory earnings to sustain a significantly higher level of new sales than ever before in the past. We’re comfortable that we can write at $3 billion a year and above for at least the next couple of years without the need for additional outside capital. We do have opportunities to continue to grow sales to new highs particularly as a result with our relationships with the growing number of very significant producers.

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