Company Highlights
- Q2 2022 net income available to common stockholders of
$349.7 million, or $3.74 per diluted common share
- Non-GAAP operating income1 available to common stockholders
for the second quarter 2022 was $91.1 million, or $0.98 per diluted
common share
- Repurchased $189 million or 4.95 million common shares in Q2
2022 as we remain committed to our capital return plans even in the
current macro-economic environment
- Private asset deployment momentum continues with
approximately $1.4 billion sourced in the quarter
- Yield and investment spread expansion driven by strong
residential real estate returns and floating rate assets
American Equity Investment Life Holding Company (NYSE: AEL), a
leading issuer of fixed index annuities (FIAs) today reported on
its second quarter 2022 results. These results include improved
yields in the investment portfolio, continued progress with our
"best-in-class" asset origination partners, and continued share
repurchase activities in-line with our capital return goals for
this year.
Non-GAAP operating income1 available to common stockholders for
the second quarter of 2022 was $91.1 million, or $0.98 per diluted
common share. Second quarter 2021 net loss available to common
stockholders was $(65.6) million, or $(0.69) per diluted common
share, and non-GAAP operating income1 available to common
stockholders of $93.8 million, or $0.98 per diluted common
share.
Quarterly non-GAAP operating income1 available to common
stockholders declined slightly year-over-year. Results for the
quarter just ended reflected a substantial increase in average
yield on invested assets compared to the year ago period due to
strong returns on partnership and other market value investments,
the significant reduction in cash balances over the last twelve
months with the rebalancing of the investment portfolio, and lower
operating expenses. The benefit of higher yield was offset by
increases in the cost of money, commensurate increases in the
amortization of the deferred acquisition cost and deferred sales
inducement assets, and the increase in the liability for future
policy benefits to be paid for lifetime income benefit riders
(LIBR).
For the second quarter of 2022, net investment income increased
$93 million from the comparable quarter of 2021 reflecting an
increase in average yield on investments resulting from strong
returns from partnerships and other mark-to-market assets, lower
cash balances, and the increase in allocation to higher yielding
privately sourced assets to 16.6% of the investment portfolio.
Compared to the second quarter of 2021, the change in the
liability for future policy benefits to be paid for LIBR increased
by $62 million, driven by higher benefit utilization and lower
index credits realized in the second quarter of this year compared
to a benefit from strong index credits in the second quarter of
last year related to the upside from equity market performance.
Compared to the second quarter of 2021, amortization of deferred
policy acquisition and sales inducement costs increased by $32
million, primarily reflecting the substantial improvement in
investment income and the decline in index credits
year-over-year.
As of June 30, 2022, notional value2 under reinsurance
agreements - generating six to seven years of "fee-like" return on
asset (ROA) earnings - was $4.5 billion, up from $4.3 billion three
months earlier .
STRONG INVESTMENT MANAGEMENT RESULTS
American Equity’s investment spread was 2.64% for the second
quarter of 2022 compared to 2.51% for the first quarter of 2022 and
1.95% for the second quarter of 2021. On a sequential quarterly
basis, the average yield on invested assets increased by 18 basis
points - driven by the increase in short-term interest rates and
lower allocation to cash and equivalents - while the cost of money
increased 5 basis points. Adjusted investment spread excluding
non-trendable items3 increased to 2.57% in the second quarter of
2022 from 2.45% in the first quarter of 2022.
Average yield on invested assets was 4.33% in the second quarter
of 2022 compared to 4.15% in the first quarter of 2022. The average
adjusted yield on invested assets excluding non-trendable items3
was 4.28% in the second quarter of 2022 compared to 4.12% in the
first quarter of 2022. Relative to the prior quarter, the increase
in the average adjusted yield in the second quarter of 2022 was
primarily driven by an 8 basis point benefit due to higher short
term rates and 9 basis points from the decrease in average cash
balance. While the benefit from partnership income was lower than
in the first quarter, this was mostly offset by appreciation in
residential real estate assets. Partnerships and other
mark-to-market assets contributed 20 basis points to average yield
in the second quarter of 2022 in excess of rates of return assumed
in our investment process.
Average cash and equivalents in the insurance companies'
portfolios was $526 million compared to $1.7 billion for the first
quarter. Cash and equivalents in the insurance companies'
portfolios as of June 30, 2022 was $544 million or approximately 1%
of the investment portfolio.
During the quarter, investment asset purchases totaled $2.0
billion and were made at an average rate of 4.88%, including
approximately $1.4 billion of private assets at 5.10%.
American Equity CEO & President Anant Bhalla stated, "We
continued to execute in our Investments pillar originating $1.4
billion of privately sourced assets as we worked closely with our
'best-in-class' asset origination partners to bring these yield
enhancing assets to 16.6% of our investment portfolio compared to
15.4% three months earlier. While this number increased
meaningfully in the quarter, we are, and will continue to be,
primarily opportunistic investors compared to others who may be
more programmatic in deployment in various private asset sectors.
Therefore, we will benefit from partnerships that allow us to
allocate to the most attractive relative value sectors, driven by
our tactical asset allocation as different private asset sectors
reprice risk-return attractiveness in the going forward
macro-environment. This is a good indicator of the strategic
benefits and resilience we expect from our curated approach to
private asset investing.”
The aggregate cost of money for annuity liabilities of 1.69% in
the second quarter of 2022 was up 5 basis points compared to the
first quarter of 2022, in line with market costs. The cost of money
in the second quarter of 2022 was positively affected by 2 basis
points of over-hedging of index-linked credits compared to 3 basis
points of hedge gain in the first quarter of 2022.
SALES FOCUS ON FIA AND PRICING DISCIPLINE4
Second quarter sales were $781 million, of which 99%, or $776
million, were in fixed index annuities. This is in line with the
company's focus strategy for driving low single-digit growth in FIA
sales in 2022 as the macro-economic environment and interest rates
go through a potential regime change based on Federal Reserve
policy making action in light of sustained supply constraints in
the economy and its outlook for balancing its mandate between
stable prices and maximum employment. Compared to the second
quarter of 2021, total enterprise FIA sales decreased 13% driven
primarily by Eagle Life in the bank channel, while the Independent
Marketing Organization (IMO) American Equity channel decreased 4%.
On a sequential quarterly basis, FIA sales decreased 12% primarily
due to lower sales in the IMO space.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
The forward-looking statements in this release or that American
Equity uses on its conference call, such as ability, aim,
anticipate, become, believe, can, continue, could, estimate,
expect, exposure, forward, future, goal, grow, guidance, intend,
introduce, likely, look to, may, might, need, opportunistic,
opportunity, outlook, over time, plan, potential, predictable,
prepare, proactive, project, ramp, risk, scenario, should, signal,
strategy, stress test, target, then, to be, toward, trends, 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 U.S. Securities and
Exchange Commission filings. The Company's future results could
differ, and it has no obligation to correct or update any of these
statements.
CONFERENCE CALL
American Equity will hold a conference call to discuss second
quarter 2022 earnings on Tuesday, August 9, at 10:00 a.m. CDT.
The conference call will be webcast live on the Internet.
Investors and interested parties who wish to listen to the webcast
may register to access it on our IR website at
https://ir.american-equity.com. An audio replay will also be
available via the same link on our website shortly after the
completion of the call for 30 days.
The call may also be accessed by telephone. Investors and
interested parties may register for the call with the form
available at this link, and upon submission (and via
follow-up email) will receive the dial-in number and a unique PIN
to access the call. Registration is available now or any time up to
and during the time of the call. Registration is also available by
visiting our IR website at https://ir.american-equity.com.
ABOUT AMERICAN EQUITY
At American Equity Investment Life Holding Company, we think of
ourselves as The Financial Dignity CompanyTM that offers solutions
designed to create financial dignity in retirement. Our
policyholders work with independent agents, banks and
broker-dealers, through our wholly-owned operating subsidiaries, to
choose one of our leading annuity products best suited for their
personal needs. To deliver on our promises to policyholders,
American Equity has reframed its investment focus, building a
stronger emphasis on insurance liability driven asset allocation as
well as the origination and management of private assets. Our
company is headquartered in West Des Moines, Iowa with satellite
offices slated to open in 2022 in Charlotte, NC and New York, NY.
For more information, please visit www.american-equity.com.
1 Use of non-GAAP financial
measures, including those that isolate notable items, is discussed
in this release in the tables that follow the text of the
release.
2 Notional value represents the
initial cash surrender value of business ceded subject to recurring
fees under reinsurance agreements.
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,
2022 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, except per share data)
Consolidated
Statements of Operations
Three Months Ended June
30,
Six Months Ended June
30,
2022
2021
2022
2021
Revenues:
Premiums and other considerations
$
3,831
$
14,595
$
13,909
$
27,808
Annuity product charges
55,514
63,759
107,869
123,841
Net investment income
592,308
499,320
1,159,731
996,510
Change in fair value of derivatives
(506,181
)
500,880
(983,700
)
897,185
Net realized losses on investments
(33,272
)
(3,114
)
(46,399
)
(7,697
)
Other revenue
9,195
—
17,784
—
Total revenues
121,395
1,075,440
269,194
2,037,647
Benefits and expenses:
Insurance policy benefits and change in
future policy benefits
7,091
15,828
19,729
32,252
Interest sensitive and index product
benefits
234,855
812,981
607,517
1,289,576
Amortization of deferred sales
inducements
90,446
(12,520
)
233,991
110,455
Change in fair value of embedded
derivatives
(885,984
)
273,713
(2,279,633
)
(8,700
)
Interest expense on notes payable
6,461
6,394
12,886
12,787
Interest expense on subordinated
debentures
1,346
1,326
2,663
2,652
Amortization of deferred policy
acquisition costs
142,354
(16,906
)
367,780
186,917
Other operating costs and expenses
59,923
65,050
118,043
120,915
Total benefits and expenses
(343,508
)
1,145,866
(917,024
)
1,746,854
Income (loss) before income taxes
464,903
(70,426
)
1,186,218
290,793
Income tax expense (benefit)
104,327
(15,732
)
259,419
62,803
Net income (loss)
360,576
(54,694
)
926,799
227,990
Less: Net income (loss) available to
noncontrolling interests
(4
)
—
(4
)
—
Net income (loss) available to American
Equity Investment Life Holding Company stockholders
360,580
(54,694
)
926,803
227,990
Less: Preferred stock dividends
10,919
10,919
21,838
21,838
Net income (loss) available to American
Equity Investment Life Holding Company common stockholders
$
349,661
$
(65,613
)
$
904,965
$
206,152
Earnings (loss) per common share
$
3.78
$
(0.69
)
$
9.56
$
2.16
Earnings (loss) per common share -
assuming dilution
$
3.74
$
(0.69
)
$
9.46
$
2.15
Weighted average common shares outstanding
(in thousands):
Earnings (loss) per common share
92,544
94,801
94,693
95,265
Earnings (loss) per common share -
assuming dilution
93,375
95,379
95,652
95,795
American Equity Investment Life Holding Company
Unaudited (Dollars in thousands, except per share data)
NON-GAAP FINANCIAL MEASURES
In addition to net income (loss) 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 (loss) 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 (loss) available to common stockholders provides
information that may enhance an investor’s understanding of our
underlying results and profitability.
Reconciliation from Net Income (Loss)
Available to Common Stockholders to Non-GAAP Operating Income
Available to Common Stockholders and Non-GAAP Operating Income
Available to Common Stockholders, Excluding Notable
Items
Three Months Ended
June 30,
Six Months Ended
June 30,
2022
2021
2022
2021
Net income (loss) available to American
Equity Investment Life Holding Company common stockholders
$
349,661
$
(65,613
)
$
904,965
$
206,152
Adjustments to arrive at non-GAAP
operating income available to common stockholders: (a)
Net realized losses on financial assets,
including credit losses
31,572
2,912
41,857
6,428
Change in fair value of derivatives and
embedded derivatives
(367,145
)
200,767
(970,499
)
(96,867
)
Income taxes
77,056
(44,278
)
204,717
19,516
Non-GAAP operating income available to
common stockholders
91,144
93,788
181,040
135,229
Impact of notable items (b)
—
—
—
—
Non-GAAP operating income available to
common stockholders, excluding notable items
$
91,144
$
93,788
$
181,040
$
135,229
Per common share - assuming dilution:
Net income (loss) available to American
Equity Investment Life Holding Company common stockholders
$
3.74
$
(0.69
)
$
9.46
$
2.15
Adjustments to arrive at non-GAAP
operating income available to common stockholders:
Net realized losses on financial assets,
including credit losses
0.34
0.03
0.44
0.07
Change in fair value of derivatives and
embedded derivatives
(3.93
)
2.10
(10.15
)
(1.01
)
Income taxes
0.83
(0.46
)
2.14
0.20
Non-GAAP operating income available to
common stockholders
0.98
0.98
1.89
1.41
Impact of notable items
—
—
—
—
Non-GAAP operating income available to
common stockholders, excluding notable items
$
0.98
$
0.98
$
1.89
$
1.41
(a)
Adjustments to net income (loss) available
to common stockholders to arrive at non-GAAP operating income
available to common stockholders are presented net of related
adjustments to amortization of deferred sales inducements (DSI) and
deferred policy acquisition costs (DAC) and accretion of lifetime
income benefit rider (LIBR) reserves where applicable.
(b)
Notable items reflect the after-tax impact
to non-GAAP operating income available to common stockholders for
certain items that do not reflect the company's expected ongoing
operations. Notable items primarily include the impact from
actuarial assumption updates. The presentation of notable items is
intended to help investors better understand our results and to
evaluate and forecast those results.
American Equity Investment Life Holding Company
Unaudited (Dollars in thousands, except share and per share
data)
Book Value per Common
Share
Q2 2022
Total stockholders’ equity attributable
to American Equity Investment Life Holding Company
$
3,882,217
Equity available to preferred stockholders
(a)
(700,000
)
Total common stockholders' equity (b)
3,182,217
Accumulated other comprehensive income
(AOCI)
1,387,968
Total common stockholders’ equity
excluding AOCI (b)
4,570,185
Net impact of fair value accounting for
derivatives and embedded derivatives
(1,031,257
)
Total common stockholders’ equity
excluding AOCI and the net impact of fair value accounting for
derivatives and embedded derivatives (b)
$
3,538,928
Common shares outstanding
90,168,512
Book Value per Common Share:
(c)
Book value per common share
$
35.29
Book value per common share excluding AOCI
(b)
$
50.68
Book value per common share excluding AOCI
and the net impact of fair value accounting for derivatives and
embedded derivatives (b)
$
39.25
(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 derivatives and embedded derivatives, 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 derivatives and embedded derivatives, non-GAAP
financial measures, are based on common stockholders' equity
excluding AOCI and the net impact of fair value accounting for
derivatives and embedded derivatives. Since the net impact of fair
value accounting for our derivatives and embedded derivatives
fluctuates from quarter to quarter and the most significant impacts
relate to fair value accounting for our fixed index annuity
business and are 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 derivatives and
embedded derivatives 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 derivatives and embedded derivatives
divided by the total number of shares of common stock
outstanding.
American Equity Investment Life Holding Company
Unaudited (Dollars in thousands)
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 derivatives and embedded derivatives 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 derivatives and embedded derivatives.
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
derivatives and embedded derivatives as the amounts are not
economic in nature but rather impact the timing of reported
results.
Twelve Months Ended
June 30, 2022
Average Common Stockholders' Equity
Attributable to American Equity Investment Life Holding Company,
Excluding Average AOCI and Average Net Impact of Fair Value
Accounting for Derivatives and Embedded Derivatives
Average total stockholders’ equity
$
5,088,976
Average equity available to preferred
stockholders
(700,000
)
Average equity available to common
stockholders
4,388,976
Average AOCI
(317,972
)
Average common stockholders' equity
excluding average AOCI
4,071,004
Average net impact of fair value
accounting for derivatives and embedded derivatives
(636,840
)
Average common stockholders' equity
excluding average AOCI and average net impact of fair value
accounting for derivatives and embedded derivatives
3,434,164
Impact of notable items on average common
stockholders' equity excluding average AOCI and average net impact
of fair value accounting for derivatives and embedded
derivatives
39,018
Average common stockholders' equity
excluding average AOCI, average net impact of fair value accounting
for derivatives and embedded derivatives and notables
$
3,473,182
Net income available to American Equity
Investment Life Holding Company common stockholders
$
1,129,130
Adjustments to arrive at non-GAAP
operating income available to common stockholders: (a)
Net realized losses on financial assets,
including credit losses
45,728
Change in fair value of derivatives and
embedded derivatives
(1,060,922
)
Income taxes
222,385
Non-GAAP operating income available to
common stockholders
336,321
Impact of notable items (b)
78,036
Non-GAAP operating income available to
common stockholders, excluding notable items
$
414,357
Return on Average Common Stockholders'
Equity Attributable to American Equity Investment Life Holding
Company
Net income available to common
stockholders
25.7
%
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 Derivatives and Embedded Derivatives
Non-GAAP operating income available to
common stockholders
9.8
%
Non-GAAP operating income available to
common stockholders, excluding notable items
11.9
%
Notable
Items
Twelve Months Ended
June 30, 2022
Notable items impacting non-GAAP operating
income available to common stockholders:
Impact of actuarial assumption updates
$
78,036
Total notable items (b)
$
78,036
(a)
Adjustments to net income available to
common stockholders to arrive at non-GAAP operating income
available to common stockholders are presented net of related
adjustments to amortization of deferred sales inducements (DSI) and
deferred policy acquisition costs (DAC) and accretion of lifetime
income benefit rider (LIBR) reserves where applicable.
(b)
Notable items reflect the after-tax impact
to non-GAAP operating income available to common stockholders for
certain items that do not reflect the company's expected ongoing
operations. Notable items primarily include the impact from
actuarial assumption updates. The presentation of notable items is
intended to help investors better understand our results and to
evaluate and forecast those results.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220808005767/en/
Steven D. Schwartz, Vice President-Investor Relations
(515) 273-3763, sschwartz@american-equity.com
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