- Annuity sales (before coinsurance) were up 70% to $1.83 billion compared to third quarter 2014 annuity sales of $1.07 billion.
- Investment spread was 2.83% compared to 2.84% for the second quarter of 2015 and 2.82% for the third quarter of 2014.
- Estimated risk-based capital (RBC) ratio of 354% at September 30, 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 $21.17 at September 30, 2015 compared to $18.52 at December 31, 2014.
Turning to the outlook for sales, Matovina added: "Despite some new competition that surfaced in the third quarter, our attractive product offerings and unmatched service levels continued to produce robust sales broadly across our network of distribution partners. Looking to 2016, we intend to continue to offer competitively priced products that meet our return objectives and are confident that our consistent presence and best in class service to agents and policyholders will continue to favorably differentiate us in the fixed index annuity market."SPREAD FLAT ON HIGHER BOND FEE AND PREPAYMENT INCOME American Equity's investment spread was essentially flat at 2.83% for the third quarter of 2015 compared to 2.84% for the second quarter of 2015 as a result of a one basis point increase in average yield on invested assets and a 2 basis point increase in the cost of money. Average yield on invested assets continued to be favorably impacted by non-trendable items and unfavorably impacted by the investment of new premiums and portfolio cash flows at rates below the portfolio rate. Fee income from bond transactions and prepayment income added 0.14% to the third quarter 2015 average yield on invested assets compared to 0.07% from such items in the second quarter of 2015. Adjusting for the effect of non-trendable items, the average yield on invested assets for the quarter fell by 5 basis points from the prior quarter. The average yield on fixed income securities purchased and commercial mortgage loans funded in the third quarter of 2015 was 3.89% compared to 3.73% and 3.84% in the second and first quarters of 2015 and average yields ranging from 4.14% - 4.39% in the prior year quarters. The aggregate cost of money for annuity liabilities increased by 2 basis points to 1.96% in the third quarter of 2015 compared to 1.94% in the second quarter of 2015. This increase reflected continued reductions in crediting rates but the effect from the rate reductions was more than offset by a 5 basis point decrease in the benefit from over hedging the obligations for index linked interest from 0.07% in the second quarter of 2015 to 0.02% in the third quarter of 2015.
Commenting on investment spread, John Matovina, said: "The spread story in the third quarter was more of the same with our management team working diligently to mitigate the ongoing impact of a low interest rate environment. Yields on new investments were up 0.16% from the second quarter and were higher than the first quarter as well. We captured these higher yields while keeping the investment portfolio safely within our applicable risk standards. Nonetheless, the markets are still offering yields below our portfolio rate and we held more cash and short-term investments than usual this quarter, both of which put downward pressure on our investment income and average yield on invested assets. We have generated additional investment spread through bond fees, prepayment income and over hedging, but these sources are opportunistic and we do not consider them core to our investment spread strategy."Matovina continued, "We continue to achieve a reported spread of approximately 2.80% - 2.85% with our adjusted spread at approximately 2.70% - 2.75%. We are counteracting the impact of lower investment yields by reducing the rates on our policy liabilities but the impact on the cost of money from these reductions is less than the impact on the average yield on invested assets from investment purchases by a few basis points. We continue to have flexibility to reduce our crediting rates, if necessary, and could decrease our cost of money by approximately 0.56% through further reductions in renewal rates to guaranteed minimums should the investment yields currently available to us persist. Most importantly, we intend to maintain our risk discipline in managing our investment portfolio and not chase higher yields in assets and asset classes that do not fit our risk profile." EQUITY OFFERING PROVIDES CAPITAL TO SUSTAIN GROWTH The Company's August 2015 equity offering provides capital to support 2015's substantial increase in sales and the prospect that elevated sales might extend beyond this year. The Company received $104.5 million in initial net proceeds from the issuance of 4.3 million shares of its common stock. These proceeds were contributed to the Company's primary life insurance subsidiary. If needed, the Company could exercise its rights under two forward sales agreements and receive $136 million in net proceeds from the issuance of an additional 5.6 million shares of its common stock. These forward sales agreements, which have a term of 12 months ending in August 2016, allow the Company to manage its capital by matching the timing of the issuance of additional equity with any need for such capital that might be created by high levels of sales.
CAUTION REGARDING FORWARD-LOOKING STATEMENTSThis 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 third quarter 2015 earnings on Thursday, November 5, 2015, at 9:00 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 855-865-0606, passcode 56483898 (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 November 12, 2015 at 855-859-2056, passcode 56483898 (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.
|American Equity Investment Life Holding Company|
|Consolidated Statements of Operations (Unaudited)|
|Three Months Ended||Nine Months Ended|
|September 30,||September 30,|
|(Dollars in thousands, except per share data)|
|Premiums and other considerations||$||8,335||$||6,043||$||25,369||$||22,497|
|Annuity product charges||37,975||31,958||99,066||86,477|
|Net investment income||436,085||386,931||1,253,930||1,127,818|
|Change in fair value of derivatives||(351,360||)||39,218||(405,484||)||358,594|
|Net realized gains (losses) on investments, excluding other than temporary impairment ("OTTI") losses||1,159||(3,190||)||10,362||(6,134||)|
|OTTI losses on investments:|
|Total OTTI losses||(10,000||)||—||(10,132||)||—|
|Portion of OTTI losses recognized from other comprehensive income||4,771||(564||)||3,943||(2,063||)|
|Net OTTI losses recognized in operations||(5,229||)||(564||)||(6,189||)||(2,063||)|
|Loss on extinguishment of debt||—||—||—||(10,551||)|
|Benefits and expenses:|
|Insurance policy benefits and change in future policy benefits||10,959||9,109||32,629||30,191|
|Interest sensitive and index product benefits||213,465||429,415||802,431||1,114,381|
|Amortization of deferred sales inducements||65,807||40,661||152,278||96,676|
|Change in fair value of embedded derivatives||(414,724||)||(195,206||)||(583,112||)||(21,652||)|
|Interest expense on notes payable||7,283||8,741||21,976||28,126|
|Interest expense on subordinated debentures||3,075||3,044||9,138||9,076|
|Amortization of deferred policy acquisition costs||67,885||39,671||186,871||113,949|
|Other operating costs and expenses||24,497||20,616||70,487||60,588|
|Total benefits and expenses||(21,753||)||356,051||692,698||1,431,335|
|Income before income taxes||148,718||104,345||284,356||145,303|
|Income tax expense||51,412||36,530||98,302||50,497|
|Earnings per common share||$||1.22||$||0.90||$||2.39||$||1.28|
|Earnings per common share - assuming dilution||$||1.19||$||0.85||$||2.33||$||1.19|
|Weighted average common shares outstanding (in thousands):|
|Earnings per common share||79,676||75,083||77,995||74,030|
|Earnings per common share - assuming dilution||81,559||79,467||79,977||79,477|
|Reconciliation from Net Income to Operating Income (Unaudited)|
|Three Months Ended||Nine Months Ended|
|September 30,||September 30,|
|(Dollars in thousands, except per share data)|
|Adjustments to arrive at operating income: (a)|
|Net realized investment (gains) losses, including OTTI||1,639||1,551||(1,829||)||3,476|
|Change in fair value of derivatives and embedded derivatives - index annuities||(54,535||)||(4,957||)||(40,152||)||34,636|
|Change in fair value of derivatives and embedded derivatives - debt||1,506||(427||)||1,606||29|
|Extinguishment of debt||—||—||—||7,912|
|Operating income (a non-GAAP financial measure)||$||45,916||$||63,982||$||145,679||$||139,943|
|Per common share - assuming dilution:|
|Adjustments to arrive at operating income:|
|Net realized investment (gains) losses, including OTTI||0.02||0.02||(0.03||)||0.04|
|Change in fair value of derivatives and embedded derivatives - index annuities||(0.67||)||(0.06||)||(0.50||)||0.44|
|Change in fair value of derivatives and embedded derivatives - debt||0.02||—||0.02||—|
|Extinguishment of debt||—||—||—||0.10|
|Operating income (a non-GAAP financial measure)||$||0.56||$||0.81||$||1.82||$||1.76|
NON-GAAP FINANCIAL MEASURESAverage Stockholders' Equity and Return on Average Equity (Unaudited) Return on equity measures how efficiently we generate profits from the resources provided by our net assets. Return on equity is calculated by dividing net income and operating income for the trailing twelve months by average equity excluding average accumulated other comprehensive income ("AOCI").
|Twelve Months Ended|
|September 30, 2015|
|(Dollars in thousands)|
|Average Stockholders' Equity 1|
|Average equity including average AOCI||$||2,024,565|
|Average equity excluding average AOCI||$||1,538,322|
|Return on Average Equity Excluding Average AOCI|