American Equity Reports Third Quarter 2013 Results
Non-GAAP operating income1 for the third quarter of 2013 was
Third quarter 2013 net income and non-GAAP operating income1
were increased by
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 atSeptember 30, 2013 remained above target at 333% compared to 324% atJune 30, 2013 and 332% atDecember 31, 2012 . -
Book value per share (excluding accumulated other comprehensive
income) increased to
$18.81 atSeptember 30, 2013 compared to$18.66 atJune 30, 2013 and$16.49 atDecember 31, 2012 .
SPREAD IMPROVES AS EXCESS CASH AND SHORT-TERM INVESTMENTS DEPLOYED
American
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
Although investment yield for the quarter increased due to the deployment of excess cash and short-term investments, new premiums and cash flows from the investment portfolio continued to be invested at rates below the portfolio rate. However, with the general movement in interest rates being up, new investments in the third quarter were made at yields that were better than those available earlier in the year. The average yield on fixed income securities purchased and commercial mortgage loans funded in the third quarter of 2013 was 4.37% compared to an average yield of 3.49% and 3.48% in the first two quarters of 2013.
Commenting on investment spread,
Matovina continued, “Even as the income side of our spread measurement stabilizes, we maintain the flexibility to reduce our cost of money through adjustments to fixed crediting rates, caps and participation rates. We can reduce our cost of money by 60 bps before being limited by minimum guaranteed rates. We expect further declines in our cost of money from rate adjustments already implemented and will be making further renewal rate adjustments in 2013 and 2014. These actions should enable us to achieve our goal of restoring our investment spread to the 3.00% target by the end of 2014.”
LIABILITY MANAGEMENT
On
The Company intends to use the remaining net proceeds from the Notes
issuance to tender for, redeem or repurchase the
OUTLOOK REMAINS POSITIVE
Commenting on results and the
outlook for American Equity,
Noble continued: “Our assets under management are up 14% in the last
twelve months and we are optimistic our sales momentum from the last two
quarters will carry through the balance of the year and into 2014. We
continue to deliver growth in assets under management while
conservatively managing our risks and financial profile, sustaining a
double-digit operating return on average equity, and maintaining a
cushion to our targeted
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This 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
CONFERENCE CALL
American Equity will hold a conference call
to discuss third quarter 2013 earnings on
The call may also be accessed by telephone at 877-703-6108, passcode
49119781 (international callers, please dial 857-244-7307). An audio
replay will be available shortly after the call on AEL’s website. An
audio replay will also be available via telephone through
ABOUT AMERICAN EQUITY
American Equity Investment Life Holding Company |
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Consolidated Statements of Operations (Unaudited) |
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Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
(Dollars in thousands, except per share data) | ||||||||||||||||
Revenues: | ||||||||||||||||
Traditional life insurance premiums | $ | 2,493 | $ | 3,300 | $ | 8,104 | $ | 9,770 | ||||||||
Annuity product charges | 26,451 | 23,875 | 71,443 | 65,176 | ||||||||||||
Net investment income | 354,147 | 318,594 | 1,019,980 | 965,763 | ||||||||||||
Change in fair value of derivatives | 193,028 | 161,090 | 631,030 | 269,404 | ||||||||||||
Net realized gains (losses) on investments, excluding other than temporary impairment ("OTTI") losses | (2,077 | ) | (1,238 | ) | 24,197 | (7,925 | ) | |||||||||
OTTI losses on investments: | ||||||||||||||||
Total OTTI losses | — | — | (4,964 | ) | (2,156 | ) | ||||||||||
Portion of OTTI losses recognized from other comprehensive income | (222 | ) | (1,686 | ) | (1,270 | ) | (3,389 | ) | ||||||||
Net OTTI losses recognized in operations | (222 | ) | (1,686 | ) | (6,234 | ) | (5,545 | ) | ||||||||
Loss on extinguishment of debt | (938 | ) | — | (1,527 | ) | — | ||||||||||
Total revenues | 572,882 | 503,935 | 1,746,993 | 1,296,643 | ||||||||||||
Benefits and expenses: |
|
|||||||||||||||
Insurance policy benefits and change in future policy benefits | 1,647 | 1,865 | 5,488 | 6,232 | ||||||||||||
Interest sensitive and index product benefits | 327,976 | 246,105 | 889,810 | 527,961 | ||||||||||||
Amortization of deferred sales inducements | 34,625 | 7,709 | 183,992 | 50,359 | ||||||||||||
Change in fair value of embedded derivatives | 36,224 | 188,201 | (8,913 | ) | 466,278 | |||||||||||
Interest expense on notes payable | 12,957 | 7,141 | 26,985 | 21,208 | ||||||||||||
Interest expense on subordinated debentures | 3,034 | 3,235 | 9,061 | 10,384 | ||||||||||||
Amortization of deferred policy acquisition costs | 50,034 | 25,954 | 265,534 | 105,086 | ||||||||||||
Other operating costs and expenses | 20,658 | 36,170 | 65,029 | 76,785 | ||||||||||||
Total benefits and expenses | 487,155 | 516,380 | 1,436,986 | 1,264,293 | ||||||||||||
Income (loss) before income taxes | 85,727 | (12,445 | ) | 310,007 | 32,350 | |||||||||||
Income tax expense (benefit) | 29,546 | (4,616 | ) | 107,682 | 10,949 | |||||||||||
Net income (loss) | $ | 56,181 | $ | (7,829 | ) | $ | 202,325 | $ | 21,401 | |||||||
Earnings (loss) per common share | $ | 0.86 | $ | (0.13 | ) | $ | 3.15 | $ | 0.35 | |||||||
Earnings (loss) per common share - assuming dilution | $ | 0.75 | $ | (0.13 | ) | $ | 2.79 | $ | 0.34 | |||||||
Weighted average common shares outstanding (in thousands): | ||||||||||||||||
Earnings (loss) per common share | 65,129 | 62,504 | 64,239 | 60,723 | ||||||||||||
Earnings (loss) per common share - assuming dilution | 74,560 | 65,262 | 72,459 | 65,232 | ||||||||||||
NON-GAAP FINANCIAL MEASURES
In addition to net income (loss), 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. Operating income equals net income (loss) adjusted to eliminate the impact of net realized gains and losses on investments including net OTTI losses recognized in operations, fair value changes in derivatives and embedded derivatives, loss on extinguishment of debt and changes in litigation reserves. Because these items fluctuate from quarter to quarter 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 (loss) provides information that may enhance an investor’s understanding of our underlying results and profitability.
Reconciliation from Net Income (Loss) to Operating Income (Unaudited) |
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Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
(Dollars in thousands, except per share data) | |||||||||||||||
Net income (loss) | $ | 56,181 | $ | (7,829 | ) | $ | 202,325 | $ | 21,401 | ||||||
Adjustments to arrive at operating income: | |||||||||||||||
Net realized investment (gains) losses, including OTTI (a) | 890 | 1,415 | (5,488 | ) | 5,823 | ||||||||||
Change in fair value of derivatives and embedded derivatives (a) | 2,229 | 19,000 | (72,187 | ) | 42,478 | ||||||||||
Litigation reserve (a) | — | 9,580 | (1,969 | ) | 9,580 | ||||||||||
Extinguishment of debt (a) | 548 | — | 893 | — | |||||||||||
Operating income (a non-GAAP financial measure) | $ | 59,848 | $ | 22,166 | $ | 123,574 | $ | 79,282 | |||||||
Per common share - assuming dilution: | |||||||||||||||
Net income (loss) | $ | 0.75 | $ | (0.13 | ) | $ | 2.79 | $ | 0.34 | ||||||
Adjustments to arrive at operating income: | |||||||||||||||
Anti-dilutive effect of net loss | — | 0.01 | — | — | |||||||||||
Net realized investment (gains) losses, including OTTI | 0.01 | 0.02 | (0.07 | ) | 0.08 | ||||||||||
Changes in fair value of derivatives and embedded derivatives | 0.03 | 0.29 | (0.99 | ) | 0.65 | ||||||||||
Litigation reserve | — | 0.15 | (0.03 | ) | 0.15 | ||||||||||
Extinguishment of debt | 0.01 | — | 0.01 | — | |||||||||||
Operating income (a non-GAAP financial measure) | $ | 0.80 | $ | 0.34 | $ | 1.71 | $ | 1.22 | |||||||
(a) Adjustments to net income (loss) to arrive at operating income are presented net of related adjustments to amortization of deferred sales inducements (DSI) and deferred policy acquisition costs (DAC) and net of income taxes.
NON-GAAP FINANCIAL MEASURES
Average Stockholders' Equity and Return on Average Equity
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, 2013 | ||||
(Dollars in thousands) | ||||
Average Stockholders' Equity 1 | ||||
Average equity including average AOCI | $ | 1,554,811 | ||
Average AOCI | (437,956 | ) | ||
Average equity excluding average AOCI | $ | 1,116,855 | ||
Net income | $ | 238,723 | ||
Operating income | 154,479 | |||
Return on Average Equity Excluding Average AOCI | ||||
Net income | 21.37 | % | ||
Operating income | 13.83 | % | ||
1 - simple average based on stockholders' equity at beginning and end of the twelve month period.
Source:
American Equity Investment Life Holding Company
John M.
Matovina, 515-457-1813
Chief Executive Officer
jmatovina@american-equity.com
or
Ted
M. Johnson, 515-457-1980
Chief Financial Officer
tjohnson@american-equity.com
or
Debra
J. Richardson, 515-273-3551
Chief Administrative Officer
drichardson@american-equity.com
or
Julie
L. LaFollette, 515-273-3602
Director of Investor Relations
jlafollette@american-equity.com