American Equity Reports Further Growth in Both Earnings and Sales Momentum as Private Asset Allocation Ramps to 25%
- Sequential quarterly FIA sales increase of 95%
- Private asset deployment ramp continues, with over $800 million sourced in the quarter
- Total portfolio allocation to 24.9%
- Ceded $821 million of flow reinsurance to reinsurance partners
- Net income available to common stockholders decreased significantly compared to the second quarter of 2022
- Decrease in net investment income to $547 million for the second quarter of 2023
Company Highlights
-
Second quarter 2023 net income available to common stockholders of
, or$344.4 million per diluted common share compared to net income of$4.36 , or$752.4 million per diluted common share for second quarter 2022 restated for the adoption of Accounting Standards Update 2018-12 — more commonly known as Long Duration Targeted Improvements or LDTI.$8.06 -
Non-GAAP operating income available to common stockholders1 for the second quarter 2023 was
, or$127.6 million per diluted common share; Notable items2 negatively impacted results in the quarter by$1.62 , or$8.9 million per share, after-tax.$0.11 -
On a trailing twelve-month basis GAAP return on equity of
26.4% and non-GAAP operating return on equity1 of12.1% -
Total sales4 of
including approximately$2.0 billion of FIA sales reflecting a sequential quarterly FIA sales increase of$1.9 billion 95% -
Private asset deployment ramp continues with over
sourced in the quarter, bringing total portfolio allocation to$800 million 24.9% -
Ceded
of flow reinsurance to reinsurance partners creating "fee-like" revenues and growing account value subject to recurring fees under reinsurance agreements to$821 million $10.9 billion
American Equity's President and CEO, Anant Bhalla stated: "AEL 2.0 is thriving with the business firing on all cylinders or components of our flywheel. New business sales of
Bhalla continued: "Looking ahead, we expect our primary focus for the remainder of 2023 to be on completing our planned merger transaction with Brookfield Reinsurance (NYSE, TSX: BNRE), which is currently expected to close by the first half of 2024, while continuing to excel as the premier provider of Financial Dignity Solutions to retail clients.”
Non-GAAP operating income available to common stockholders1 for the second quarter of 2023 was
The year-over-year change in quarterly non-GAAP operating income available to common stockholders1 excluding the impact of notable items2 reflects increased recurring fee revenue related to reinsurance and higher surrender charge fee income more than offset by lower investment spread income.
Compared to the first quarter of 2023, quarterly non-GAAP operating income available to common stockholders1 excluding the impact of notable items2 increased slightly reflecting higher surrender charge fee income, a smaller increase in the Market Risk Benefit liability and lower tax rate offset by lower investment spread income. Notable items2 in the first and second quarters of 2023 reflect the special incentive compensation plan put in place in November 2022.
For the second quarter of 2023, net investment income fell to
Compared to the first quarter of 2023, second quarter surrender charge income increased
Outflows in the second quarter of 2023, including surrenders, income utilization and partial withdrawals, were nearly flat compared to the first quarter of 2023, totaling
As of June 30, 2023, account value of business ceded subject to fee income was
The cost of money for deferred annuities in the second quarter increased
Compared to the first quarter of 2023, the change in the MRB liability decreased by
Amortization of deferred policy acquisition and sales inducement cost was basically flat at
Other operating costs and expenses for the second quarter of 2023 increased to
The effective tax rate on pre-tax operating income available for common stockholders1 for the second quarter of 2023 was
POINT-IN-TIME YIELD INCREASES ON STRONG ORIGINATION OF PRIVATE ASSETS
American Equity’s investment spread was
Average yield on invested assets was
During the second quarter of 2023, investment asset purchases totaled
The point-in-time yield on the portfolio at June 30, 2023, was
The aggregate cost of money for annuity liabilities of
Cost of options in the second quarter of 2023 averaged
Net account balance growth in the second quarter was a positive
FIA SALES INCREASE
Second quarter 2023 sales were
Bhalla noted, "Total enterprise sales in July were approximately
CREDIT AND CAPITAL METRICS LARGELY UNCHANGED
With regard to credit markets, Jim Hamalainen, Chief Investment Officer, added, "Credit metrics in the investment portfolio remain largely unchanged from the end of the first quarter, and our fixed securities portfolio remains A- rated. Total net realized losses for the quarter of approximately
Hamalainen continued, "So far through the third quarter, we have built up a substantial cash position in the investment portfolio of
Following the announcement of the definitive agreement to merge with Brookfield Reinsurance, the company terminated its accelerated share repurchase program having repurchased the 4.8 million shares delivered to it on March 20, 2023. Given the impending merger transaction, the previously announced capital return plan for the company is currently suspended.
As of June 30, total adjusted capital at American Equity Life Insurance Co. totaled
UPDATE ON DEFINITIVE AGREEMENT WITH BROOKFIELD REINSURANCE
On July 5, 2023, Brookfield Reinsurance and American Equity announced that they had entered into a definitive agreement whereby Brookfield Reinsurance will acquire all of the outstanding shares of common stock of American Equity it does not already own in a cash and stock transaction that values AEL at approximately
The merger is expected to close in the first half of 2024, subject to approval by American Equity shareholders and other closing conditions customary for a transaction of this type, including receipt of insurance regulatory approvals in relevant jurisdictions and the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
The forward-looking statements in this release such as believe, build, confident, continue, could, estimate, expect, exposure, future, grow, likely, maintain, may, might, model, opportunity, outlook, plan, potential, proposed, risk, scenario, should, trend, will, would, and their derivative forms and similar words, as well as any projections of future results, are based on assumptions and expectations that involve risks and uncertainties, including the "Risk Factors" the company describes in its
ABOUT AMERICAN EQUITY
At American Equity Investment Life Holding Company, our policyholders work with over 40,000 independent agents and advisors affiliated with independent market organizations (IMOs), banks and broker-dealers through our wholly-owned operating subsidiaries. Advisors and agents choose one of our leading annuity products best suited for their clients' personal needs to create financial dignity in retirement. To deliver on its promises to policyholders, American Equity has re-framed its investment focus — building a stronger emphasis on insurance liability driven asset allocation and specializing in alternate, private asset management while partnering with world renowned, public fixed income asset managers. American Equity is headquartered in
1 |
Use of non-GAAP financial measures is discussed in this release in the tables that follow the text of the release. |
2 |
Notable items reflect the increase (decrease) to non-GAAP operating income (loss) available to common stockholders for certain matters where more detail may help investors better understand, evaluate, and forecast results. Notable items are further discussed in the tables that follow the text of the release. |
3 |
Non-trendable items are the impact of investment yield – additional prepayment income and cost of money effect of over (under) hedging as shown in our June 30, 2023 financial supplement on page 10, “Spread Results”. |
4 |
For the purposes of this document, all references to sales are on a gross basis. Gross sales is defined as sales before the use of reinsurance. |
American Equity Investment Life Holding Company
Unaudited (Dollars in thousands)
Consolidated Statements of Operations
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
2023 |
|
2022 |
|
2023 |
|
2022 |
||||||||
Revenues: |
|
|
|
|
|
|
|
||||||||
Premiums and other considerations |
$ |
2,516 |
|
|
$ |
3,831 |
|
|
$ |
6,653 |
|
|
$ |
13,909 |
|
Annuity product charges |
|
71,642 |
|
|
|
55,514 |
|
|
|
134,233 |
|
|
|
107,869 |
|
Net investment income |
|
542,685 |
|
|
|
592,308 |
|
|
|
1,104,008 |
|
|
|
1,159,731 |
|
Change in fair value of derivatives |
|
242,739 |
|
|
|
(506,181 |
) |
|
|
288,629 |
|
|
|
(983,700 |
) |
Net realized losses on investments |
|
(24,679 |
) |
|
|
(33,272 |
) |
|
|
(52,466 |
) |
|
|
(46,399 |
) |
Other revenue |
|
16,736 |
|
|
|
9,408 |
|
|
|
33,130 |
|
|
|
18,225 |
|
Total revenues |
|
851,639 |
|
|
|
121,608 |
|
|
|
1,514,187 |
|
|
|
269,635 |
|
|
|
|
|
|
|
|
|
||||||||
Benefits and expenses: |
|
|
|
|
|
|
|
||||||||
Insurance policy benefits and change in future policy benefits |
|
5,125 |
|
|
|
6,998 |
|
|
|
12,333 |
|
|
|
20,613 |
|
Interest sensitive and index product benefits |
|
122,387 |
|
|
|
140,346 |
|
|
|
180,298 |
|
|
|
428,263 |
|
Market risk benefits (gains) losses |
|
(144,124 |
) |
|
|
(299,278 |
) |
|
|
39,570 |
|
|
|
(107,385 |
) |
Amortization of deferred sales inducements |
|
46,951 |
|
|
|
44,696 |
|
|
|
93,552 |
|
|
|
89,781 |
|
Change in fair value of embedded derivatives |
|
213,764 |
|
|
|
(885,984 |
) |
|
|
618,204 |
|
|
|
(2,279,633 |
) |
Interest expense on notes and loan payable |
|
11,227 |
|
|
|
6,461 |
|
|
|
22,245 |
|
|
|
12,886 |
|
Interest expense on subordinated debentures |
|
1,338 |
|
|
|
1,346 |
|
|
|
2,674 |
|
|
|
2,663 |
|
Amortization of deferred policy acquisition costs |
|
68,476 |
|
|
|
72,485 |
|
|
|
136,711 |
|
|
|
145,454 |
|
Other operating costs and expenses |
|
75,697 |
|
|
|
59,872 |
|
|
|
149,701 |
|
|
|
117,667 |
|
Total benefits and expenses |
|
400,841 |
|
|
|
(853,058 |
) |
|
|
1,255,288 |
|
|
|
(1,569,691 |
) |
Income before income taxes |
|
450,798 |
|
|
|
974,666 |
|
|
|
258,899 |
|
|
|
1,839,326 |
|
Income tax expense |
|
95,652 |
|
|
|
211,377 |
|
|
|
59,644 |
|
|
|
396,572 |
|
Net income |
|
355,146 |
|
|
|
763,289 |
|
|
|
199,255 |
|
|
|
1,442,754 |
|
Less: Net loss available to noncontrolling interests |
|
(217 |
) |
|
|
(4 |
) |
|
|
(114 |
) |
|
|
(4 |
) |
Net income available to American Equity Investment Life Holding Company stockholders |
|
355,363 |
|
|
|
763,293 |
|
|
|
199,369 |
|
|
|
1,442,758 |
|
Less: Preferred stock dividends |
|
10,919 |
|
|
|
10,919 |
|
|
|
21,838 |
|
|
|
21,838 |
|
Net income available to American Equity Investment Life Holding Company common stockholders |
$ |
344,444 |
|
|
$ |
752,374 |
|
|
$ |
177,531 |
|
|
$ |
1,420,920 |
|
|
|
|
|
|
|
|
|
||||||||
Earnings per common share |
$ |
4.43 |
|
|
$ |
8.13 |
|
|
$ |
2.20 |
|
|
$ |
15.01 |
|
Earnings per common share - assuming dilution |
$ |
4.36 |
|
|
$ |
8.06 |
|
|
$ |
2.17 |
|
|
$ |
14.86 |
|
|
|
|
|
|
|
|
|
||||||||
Weighted average common shares outstanding (in thousands): |
|
|
|
|
|
|
|
||||||||
Earnings per common share |
|
77,767 |
|
|
|
92,544 |
|
|
|
80,576 |
|
|
|
94,693 |
|
Earnings per common share - assuming dilution |
|
78,928 |
|
|
|
93,375 |
|
|
|
81,824 |
|
|
|
95,652 |
|
NON-GAAP FINANCIAL MEASURES
In addition to net income available to common stockholders, we have consistently utilized non-GAAP operating income available to common stockholders and non-GAAP operating income available to common stockholders per common share - assuming dilution, non-GAAP financial measures commonly used in the life insurance industry, as economic measures to evaluate our financial performance. Non-GAAP operating income available to common stockholders equals net income available to common stockholders adjusted to eliminate the impact of items that fluctuate from quarter to quarter in a manner unrelated to core operations, and we believe measures excluding their impact are useful in analyzing operating trends. The most significant adjustments to arrive at non-GAAP operating income available to common stockholders eliminate the impact of fair value accounting for our fixed index annuity business. These adjustments are not economic in nature but rather impact the timing of reported results. We believe the combined presentation and evaluation of non-GAAP operating income available to common stockholders together with net income available to common stockholders provides information that may enhance an investor’s understanding of our underlying results and profitability.
Reconciliation from Net Income Available to Common Stockholders to Non-GAAP Operating Income Available to Common Stockholders
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
2023 |
|
2022 |
|
2023 |
|
2022 |
||||||||
Net income available to American Equity Investment Life Holding Company common stockholders |
$ |
344,444 |
|
|
$ |
752,374 |
|
|
$ |
177,531 |
|
|
$ |
1,420,920 |
|
Adjustments to arrive at non-GAAP operating income available to common stockholders: |
|
|
|
|
|
|
|
||||||||
Net realized losses on financial assets, including credit losses |
|
22,737 |
|
|
|
37,054 |
|
|
|
47,121 |
|
|
|
50,779 |
|
Change in fair value of derivatives and embedded derivatives |
|
(124,816 |
) |
|
|
(470,813 |
) |
|
|
81,386 |
|
|
|
(1,318,020 |
) |
Capital markets impact on the change in fair value of market risk benefits |
|
(184,700 |
) |
|
|
(335,330 |
) |
|
|
(47,750 |
) |
|
|
(216,417 |
) |
Net investment income |
|
4,609 |
|
|
|
— |
|
|
|
2,118 |
|
|
|
— |
|
Other revenue |
|
5,969 |
|
|
|
— |
|
|
|
11,938 |
|
|
|
— |
|
Income taxes |
|
59,373 |
|
|
|
167,944 |
|
|
|
(20,392 |
) |
|
|
321,034 |
|
Non-GAAP operating income available to common stockholders |
$ |
127,616 |
|
|
$ |
151,229 |
|
|
$ |
251,952 |
|
|
$ |
258,296 |
|
Impact of excluding notable items (a) |
$ |
8,892 |
|
|
$ |
— |
|
|
$ |
18,458 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
||||||||
Per common share - assuming dilution: |
|
|
|
|
|
|
|
||||||||
Net income available to American Equity Investment Life Holding Company common stockholders |
$ |
4.36 |
|
|
$ |
8.06 |
|
|
$ |
2.17 |
|
|
$ |
14.86 |
|
Adjustments to arrive at non-GAAP operating income available to common stockholders: |
|
|
|
|
|
|
|
||||||||
Net realized losses on financial assets, including credit losses |
|
0.29 |
|
|
|
0.39 |
|
|
|
0.58 |
|
|
|
0.53 |
|
Change in fair value of derivatives and embedded derivatives |
|
(1.58 |
) |
|
|
(5.04 |
) |
|
|
0.99 |
|
|
|
(13.78 |
) |
Capital markets impact on the change in fair value of market risk benefits |
|
(2.34 |
) |
|
|
(3.59 |
) |
|
|
(0.58 |
) |
|
|
(2.26 |
) |
Net investment income |
|
0.06 |
|
|
|
— |
|
|
|
0.02 |
|
|
|
— |
|
Other revenue |
|
0.08 |
|
|
|
— |
|
|
|
0.15 |
|
|
|
— |
|
Income taxes |
|
0.75 |
|
|
|
1.80 |
|
|
|
(0.25 |
) |
|
|
3.35 |
|
Non-GAAP operating income available to common stockholders |
$ |
1.62 |
|
|
$ |
1.62 |
|
|
$ |
3.08 |
|
|
$ |
2.70 |
|
Impact of excluding notable items (a) |
$ |
0.11 |
|
|
$ |
— |
|
|
$ |
0.23 |
|
|
$ |
— |
|
Notable Items
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
2023 |
|
2022 |
|
2023 |
|
2022 |
||||||||
Notable items impacting non-GAAP operating income available to common stockholders: |
|
|
|
|
|
|
|
||||||||
Expense associated with strategic incentive award |
|
8,892 |
|
|
|
— |
|
|
$ |
18,458 |
|
|
$ |
— |
|
Total notable items (a) |
$ |
8,892 |
|
$ |
— |
|
$ |
18,458 |
|
$ |
— |
(a) |
Notable items reflect the after-tax increase (decrease) to non-GAAP operating income (loss) available to common stockholders for certain matters where more detail may help investors better understand, evaluate, and forecast results. |
|
For the three and six months ended June 30, 2023, non-GAAP operating income available to common stockholders would increase |
Book Value per Common Share
|
Q2 2023 |
||
Total stockholders’ equity attributable to American Equity Investment Life Holding Company |
$ |
2,571,915 |
|
Equity available to preferred stockholders (a) |
|
(700,000 |
) |
Total common stockholders' equity (b) |
|
1,871,915 |
|
Accumulated other comprehensive (income) loss (AOCI) |
|
3,425,248 |
|
Total common stockholders’ equity excluding AOCI (b) |
|
5,297,163 |
|
Net impact of fair value accounting for derivatives and embedded derivatives |
|
(1,587,599 |
) |
Net capital markets impact on the fair value of market risk benefits |
|
(638,442 |
) |
Total common stockholders’ equity excluding AOCI and the net impact of fair value accounting for fixed index annuities (b) |
$ |
3,071,122 |
|
|
|
||
Common shares outstanding |
|
78,047,941 |
|
|
|
||
Book Value per Common Share: (c) |
|
||
Book value per common share |
$ |
23.98 |
|
Book value per common share excluding AOCI (b) |
$ |
67.87 |
|
Book value per common share excluding AOCI and the net impact of fair value accounting for fixed index annuities (b) |
$ |
39.35 |
|
(a) |
Equity available to preferred stockholders is equal to the redemption value of outstanding preferred stock plus share dividends declared but not yet issued. |
(b) |
Total common stockholders' equity, total common stockholders' equity excluding AOCI and total common stockholders' equity excluding AOCI and the net impact of fair value accounting for fixed index annuities, non-GAAP financial measures, exclude equity available to preferred stockholders. Total common stockholders’ equity and book value per common share excluding AOCI, non-GAAP financial measures, are based on common stockholders’ equity excluding the effect of AOCI. Since AOCI fluctuates from quarter to quarter due to unrealized changes in the fair value of available for sale securities, we believe these non-GAAP financial measures provide useful supplemental information. Total common stockholders' equity and book value per common share excluding AOCI and the net impact of fair value accounting for fixed index annuities, non-GAAP financial measures, are based on common stockholders' equity excluding AOCI and the net impact of fair value accounting for fixed index annuities. Since the net impact of fair value accounting for our fixed index annuity business is not economic in nature but rather impact the timing of reported results, we believe these non-GAAP financial measures provide useful supplemental information. |
(c) |
Book value per common share including and excluding AOCI and book value per common share excluding AOCI and the net impact of fair value accounting for fixed index annuities are calculated as total common stockholders’ equity, total common stockholders’ equity excluding AOCI and total common stockholders' equity excluding AOCI and the net impact of fair value accounting for fixed index annuities divided by the total number of shares of common stock outstanding. |
NON-GAAP FINANCIAL MEASURES
Average Common Stockholders' Equity and Return on Average Common Stockholders' Equity
Return on average common stockholders' equity measures how efficiently we generate profits from the resources provided by our net assets. Return on average common stockholders' equity is calculated by dividing net income available to common stockholders, for the trailing twelve months, by average equity available to common stockholders. Non-GAAP operating return on average common stockholders' equity excluding average accumulated other comprehensive income (AOCI) and average net impact of fair value accounting for fixed index annuities is calculated by dividing non-GAAP operating income available to common stockholders, for the trailing twelve months, by average common stockholders' equity excluding average AOCI and average net impact of fair value accounting for fixed index annuities. We exclude AOCI because AOCI fluctuates from quarter to quarter due to unrealized changes in the fair value of available for sale investments. We exclude the net impact of fair value accounting for fixed index annuities as the amounts are not economic in nature but rather impact the timing of reported results.
|
Twelve Months
|
||
|
June 30, 2023 |
||
Average Common Stockholders' Equity Attributable to American Equity Investment Life Holding Company, Excluding Average AOCI and Average Net Impact of Fair Value Accounting for Fixed Index Annuities |
|
||
Average total stockholders’ equity |
$ |
3,098,646 |
|
Average equity available to preferred stockholders |
|
(700,000 |
) |
Average equity available to common stockholders |
|
2,398,646 |
|
Average AOCI |
|
2,828,421 |
|
Average common stockholders' equity excluding average AOCI |
|
5,227,067 |
|
Average net impact of fair value accounting for derivatives and embedded derivatives |
|
(1,502,922 |
) |
Average net capital markets impact on the fair value of market risk benefits |
|
(550,149 |
) |
Average common stockholders' equity excluding average AOCI and average net impact of fair value accounting for fixed index annuities |
$ |
3,173,996 |
|
|
|
||
Net income available to American Equity Investment Life Holding Company common stockholders |
$ |
633,155 |
|
Adjustments to arrive at non-GAAP operating income available to common stockholders: |
|
||
Net realized losses on financial assets, including credit losses |
|
44,606 |
|
Change in fair value of derivatives and embedded derivatives |
|
(149,799 |
) |
Capital markets impact on the change in fair value of market risk benefits |
|
(224,950 |
) |
Net investment income |
|
3,594 |
|
Other revenue |
|
17,907 |
|
Income taxes |
|
60,412 |
|
Non-GAAP operating income available to common stockholders |
$ |
384,925 |
|
Impact of excluding notable items (a) |
$ |
200,348 |
|
|
|
||
Return on Average Common Stockholders' Equity Attributable to American Equity Investment Life Holding Company |
|
||
Net income available to common stockholders |
|
26.4 |
% |
|
|
||
Return on Average Common Stockholders' Equity Attributable to American Equity Investment Life Holding Company, Excluding Average AOCI and Average Net Impact of Fair Value Accounting for Fixed Index Annuities |
|
||
Non-GAAP operating income available to common stockholders |
|
12.1 |
% |
Notable Items |
Twelve Months
|
||
|
June 30, 2023 |
||
Notable items impacting non-GAAP operating income available to common stockholders: |
|
||
Expense associated with strategic incentive award |
$ |
18,458 |
|
Impact of actuarial assumption updates |
|
181,890 |
|
Total notable items (a) |
$ |
200,348 |
|
(a) |
Notable items reflect the after-tax increase (decrease) to non-GAAP operating income (loss) available to common stockholders for certain matters where more detail may help investors better understand, evaluate, and forecast results. |
View source version on businesswire.com: https://www.businesswire.com/news/home/20230807814685/en/
Steven D. Schwartz, Head of Investor Relations
(515) 273-3763, sschwartz@american-equity.com
Source: American Equity Investment Life Holding Company
FAQ
What were American Equity's second quarter 2023 net income and earnings per share?
What were the total sales for American Equity in the second quarter of 2023?
What is the current portfolio allocation for American Equity?
What was the impact of notable items on American Equity's non-GAAP operating income in the second quarter of 2023?