AM Best Affirms Credit Ratings of American Equity Investment Life Insurance Company and Its Subsidiaries

Rhea-AI Summary

AM Best has affirmed the Financial Strength Rating of A- (Excellent) and Long-Term Issuer Credit Ratings of 'a-' (Excellent) for American Equity Investment Life Insurance Company (AEILIC) and its subsidiaries, collectively referred to as AEL. The outlook for these ratings is stable, reflecting AEL's strong operating performance, adequate balance sheet strength, and effective enterprise risk management. AEL's risk-based capital has improved significantly due to a revised investment strategy aimed at diversifying earnings. In 2021, AEL reported record sales of approximately $6 billion, although future sales growth remains uncertain.

Positive

• Financial Strength Rating affirmed at A- (Excellent).
• Long-Term Issuer Credit Ratings of 'a-' (Excellent) maintained.
• Strong operating performance with record sales of ~$6 billion in 2021.
• Improved risk-based capital to a very strong level.
• Shift to diversified earnings through AEL 2.0 strategy.

Negative

• Future sales growth under the new strategy remains uncertain.
• Investment portfolio expected to be less liquid due to revised strategy.
• Increased exposure to credit risk from collateralized loan obligations.

OLDWICK, N.J.--(BUSINESS WIRE)-- AM Best has affirmed the Financial Strength Rating (FSR) of A- (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a-” (Excellent) of American Equity Investment Life Insurance Company (AEILIC) and its subsidiaries, American Equity Investment Life Insurance Company of New York (Lake Success, NY) and Eagle Life Insurance Company, collectively referred to as AEL. Concurrently, AM Best has affirmed the Long Term ICR of “bbb-”(Good) of American Equity Investment Life Holding Company [NYSE: AEL] and its Long Term Issue Credit Ratings (Long-Terms IRs). The outlook of these Credit Ratings (ratings) is stable. All companies are domiciled in West Des Moines, IA, unless otherwise specified. (Please see below for detailed listing of the Long-Term IRs).

The ratings reflect AEL’s balance sheet strength, which AM Best assesses as adequate, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.

AEL has continued to improve their risk-based capital to a very strong level from strong the prior year, as measured by Best’s Capital Adequacy Ratio (BCAR), mainly on higher utilization of affiliated and unaffiliated reinsurance. The company’s risk-based capital has benefited from a significant planned change in investment strategy toward private debt, real estate and infrastructure assets, as part of a new business strategy known as AEL 2.0. The group is still transitioning from a pure return-on-equity model to a multi-year recurring return-on-assets model, whereby other parties provide the required equity. The new strategy, if successful, should result in more diversified sources of earnings beyond spread-based earnings to include asset management fee income and longer-term potential reinsurance income. Operating performance in 2021 continued with record sales of approximately $6 billion, led by new partnerships as well as some new product launches, but it remains to be seen if the new strategy can maintain the sales growth pace.

AM Best expects AEL’s investment portfolio to become less liquid as a result of the revised strategy, although overall yields in the longer term are expected to improve. AEL’s current investment portfolio contains some credit risk, with a high percentage of collateralized loan obligations invested in triple-B tranches, an increase in below investment grade bonds and exposure to strip-retail commercial mortgage loan investments. However, these asset classes are performing well currently, with low levels of credit impairments. AM Best will continue to monitor these investments, along with AEL’s ability to continue to execute its AEL 2.0 strategy. Going forward, AM Best expects AEL to maintain sufficient risk-adjusted capital at least at the strong level to support its overall balance sheet assessment. Overall holding company liquidity is viewed favorably, with financial leverage and interest coverage ratios still within AM Best’s expectations.

AEL continues to remain concentrated on fixed-index annuity products. Although AEL’s business profile is neutral, it maintains a strong market position in the increasingly competitive fixed-index annuity segment nationally, especially in the independent marketing organization channel. AEL will continue to face an increasingly highly competitive market, but it projects profitable growth, as it emerges from its revised business model.

The following Long-Term IRs have been affirmed with a stable outlook:

American Equity Investment Life Holding Company—
— “bbb-” (Good) on $500 million 5% senior unsecured notes due 2027
— “bb” (Fair) on $300 million 6.625% perpetual, non-cumulative preferred stock
— “bb” (Fair) on $400 million 5.95% perpetual, non-cumulative preferred stock

The following indicative Long-Term IRs under the shelf registration have been affirmed with a stable outlook:

American Equity Investment Life Holding Company—
— “bbb-” (Good) on senior unsecured debt
— “bb+”(Fair) on subordinated debt
— “bb” (Fair) on preferred stock

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2022 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

View source version on businesswire.com: https://www.businesswire.com/news/home/20220909005277/en/

Igor Bass

Senior Financial Analyst

+1 908 439 2200, ext. 5109

igor.bass@ambest.com

Christopher Sharkey

Manager, Public Relations

+1 908 439 2200, ext. 5159

christopher.sharkey@ambest.com

Jacqalene Lentz

Director

+1 908 439 2200, ext. 5762

jacqalene.lentz@ambest.com

Jeff Mango

Managing Director,

Strategy & Communications

+1 908 439 2200, ext. 5204

jeffrey.mango@ambest.com

Source: AM Best

FAQ

What ratings did AM Best assign to American Equity Investment Life Holding Company (AEL)?

AM Best affirmed the Financial Strength Rating of A- (Excellent) and Long-Term Issuer Credit Ratings of 'a-' (Excellent) for AEL.

What is the outlook for AEL's credit ratings?

The outlook for AEL's credit ratings is stable.

How much did AEL report in sales for 2021?

AEL reported record sales of approximately $6 billion in 2021.

What is AEL's strategy for diversifying earnings?

AEL is implementing a new strategy known as AEL 2.0, focusing on asset management fee income and reinsurance income.

What risks are associated with AEL's current investment portfolio?

AEL's investment portfolio contains credit risks, including high exposure to collateralized loan obligations and below investment grade bonds.