A.M. Best Affirms Ratings Of American Equity Investment Life Holding Company And Its Subsidiaries

A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) and issuer credit ratings (ICR) of “a-” of American Equity Investment Life Insurance Company (American Equity Life) and its subsidiaries, American Equity Investment Life Insurance Company of New York (New York, NY) and Eagle Life Insurance Company (Eagle Life).

Concurrently, A.M. Best has affirmed the ICR of “bbb-” and all debt ratings of American Equity Life’s parent, American Equity Investment Life Holding Company (AEL) [NYSE: AEL], as well as the indicative ratings under the shelf registration of American Equity Capital Trust V and VI. The outlook for all ratings is stable. All companies are domiciled in Des Moines, IA, unless otherwise specified. (See below for a detailed list of all debt ratings.)

The ratings recognize American Equity’s leading role in the fixed indexed annuity marketplace, strong risk-adjusted capitalization, continued positive trends of statutory and GAAP operating earnings and strong surrender protection charges to mitigate potential disintermediation risk. In addition, A.M. Best views the financial leverage and interest coverage ratios of AEL within the guidelines for its current ratings.

American Equity Life continues to benefit from strong growth in its core fixed-indexed annuity business and diverse distribution relationships. On a risk-adjusted basis, the company’s capitalization trends have strengthened over the past five years despite its accelerated new business growth and high demand on its capital resources. Its enterprise risk management and asset liability matching strategies remain supportive of the ratings.

Partially offsetting these positive rating factors are American Equity Life’s mono-line business profile with significant product concentration risk from fixed indexed annuities, its relatively high level of acquisition costs, relatively high exposure to residential mortgage-backed securities (RMBS) and commercial mortgages, exposure to the risk of narrowing spreads in the current low interest rate environment and the entrance of new competitors into the fixed indexed annuity marketplace, which could pressure profit margins and growth opportunities.

American Equity Life and its subsidiaries are well positioned for their ratings. Key rating drivers that may lead to negative rating actions include a decrease in the organization’s risk-adjusted capitalization due to strain from new business growth, any significant assets impairments, particularly from its RMBS and commercial mortgage holdings, increasing competition that may put pressure on margins and any material increase in the financial leverage or material decrease in interest coverage ratios.

The following debt ratings have been affirmed:

American Equity Investment Life Holding Company—

-- “bbb-” on $200 million 3.50% senior unsecured convertible notes, due 2015

($200 million currently outstanding with a September 30, 2011, GAAP carrying value of $169 million)

-- “bbb-” on $260 million 5.25% senior unsecured convertible notes, due 2024

($28.3 million currently outstanding with a September 30, 2011, GAAP carrying value of $74 million)

-- “bbb-” on $116 million 5.25% senior unsecured convertible notes, due 2029

($116 million currently outstanding with a September 30, 2011, GAAP carrying value of $97 million)
 

The following indicative ratings under the shelf registration have been affirmed:
 

American Equity Investment Life Holding Company—

-- “bbb-” on senior unsecured debt

-- “bb+” on subordinated debt

-- “bb” on preferred stock
 

American Equity Capital Trust V and VI—

-- “bb” on trust preferred securities
 

The principal methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: “Understanding BCAR for Life/Health Insurers”; “Risk Management and the Rating Process for Insurance Companies”; “Rating Members of Insurance Groups”; and “A.M. Best’s Ratings & the Treatment of Debt.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

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