Business Wire | Feb 17, 2021 04:15PM EST

American Equity Reports Fourth Quarter and Full Year 2020 Results

Feb. 17, 2021

WEST DES MOINES, Iowa--(BUSINESS WIRE)--Feb. 17, 2021--American Equity Investment Life Holding Company (NYSE: AEL), a leading issuer of fixed index annuities (FIAs) today reported fourth quarter 2020 net loss available to common stockholders of $6.3 million, or $(0.07) per diluted common share, compared to net income available to common stockholders of $220.2 million, or $2.40 per diluted common share, for fourth quarter 2019. For the year ended December 31, 2020, net income available to common stockholders was $637.9 million, or $6.90 per diluted common share, compared to $246.1 million, or $2.68 per diluted common share, for the year ended December 31, 2019.

Non-GAAP operating income1 available to common stockholders for the fourth quarter 2020 was $71.7 million, or $0.77 per diluted common share, compared to non-GAAP operating income1 available to common stockholders of $125.8 million, or $1.37 per diluted common share, for fourth quarter 2019. For the year ended December 31, 2020, non-GAAP operating income1 was $69.1 million, or $0.75 per diluted common share, compared to $548.2 million, or $5.97 per diluted common share, for the year ended December 31, 2019. For full year 2020, non-GAAP operating return1 on average common stockholders' equity excluding average AOCI1 was 2.3% based on reported results and 11.9% excluding the impact of notable items.

The year-over-year decreases in quarterly non-GAAP operating income1 available to common stockholders and non-GAAP operating income1 per share available to common stockholders were primarily attributable to lower investment spread income, an increase in other operating costs and expenses, and a greater increase in the liability for future policy benefits to be paid for lifetime income benefit riders, partially offset by a decline in deferred acquisition cost and deferred sales inducement amortization. Actual versus modeled actuarial and policyholder experience in the quarter had two offsetting impacts on results, positively affecting amortization of deferred acquisition and sales inducement costs by $16 million but adding to the increase in the liability for future policy benefits to be paid for lifetime income benefit riders by $16 million.

Other operating costs and expenses increased to $55 million from $43 million in the third quarter of 2020 and $39 million in the fourth quarter of 2019 in part reflecting advisory fees related to the unsolicited offer for the company in September.

INVESTMENT SPREAD DECREASES SEQUENTIALLY ON LOWER INVESTMENT YIELD.American Equity's investment spread was 2.25% for the fourth quarter of 2020 compared to 2.44% for the third quarter of 2020 and 2.77% for the fourth quarter of 2019. On a sequential basis, the average yield on invested assets decreased by 22 basis points while the cost of money fell by 3 basis points.

Average yield on invested assets was 3.88% in the fourth quarter of 2020 compared to 4.10% in the third quarter of 2020. The decrease in investment yield was primarily driven by retention of a higher level of liquidity in the investment portfolios of the life insurance companies. The average adjusted yield on invested assets excluding non-trendable items was 3.77% in the fourth quarter of 2020 compared to 4.00% in the third quarter of 2020.

The aggregate cost of money for annuity liabilities of 1.63% in the fourth quarter of 2020 was down 3 basis points from 1.66% in the third quarter of 2020. The cost of money in the fourth quarter was positively affected by 1 basis points from over-hedging of index-linked credits compared to 3 basis point of hedge gain in the third quarter.

Commenting on investment spread, Anant Bhalla, Chief Executive Officer, said: "The decrease in average yield on investment assets was attributable to a 22-basis point reduction from interest foregone due to an increase in the amount of cash held in the life insurance company portfolios in the quarter. Cash and short term investments in the quarter averaged $4.4 billion over the fourth quarter compared to $1.7 million in the third quarter."

Bhalla continued: "We accumulated substantial liquidity in the investment portfolio this quarter as we repositioned our invested assets by de-risking out of nearly $2 billion of structured securities and $2.4 billion of corporate securities and built up additional cash in anticipation of the approximately $7 billion needed for redeployment to the Vrde-Agam and Brookfield reinsurance transactions. Excluding excess cash, which may be pre-invested prior to transfer, and invested assets to be transferred as part of the reinsurance transactions, the current point-in-time yield on our investment portfolio is approximately 4%."

POLICYHOLDER FUNDS UNDER MANAGEMENT INCREASE 2.0% ON $1.8 BILLION OF SALESPolicyholder funds under management at December 31, 2020 were $54.1 billion, a $1.1 billion, or 2.0% increase from September 30, 2020. Fourth quarter gross and net sales were $1,845 million and $1,839 million, respectively, representing increases of 100% and 118% from fourth quarter 2019 sales. On a sequential basis, gross and net sales increased 221% and 224%, respectively. Compared to the third quarter of 2020, gross sales at American Equity Life increased 103% while Eagle Life sales rose 630%.

Commenting on sales, Bhalla stated: "In the fourth quarter, we reintroduced ourselves to our markets. Driven by the introduction of competitive three- and five-year single premium deferred annuity products at both American Equity Life and Eagle Life, we saw a substantial increase in sales with total deposits of $1.8 billion, doubling from the prior year quarter and up 221% from the third quarter of 2020. Although fixed rate annuities were the major driver of the fourth quarter sales increase, fixed index annuity sales were up 23% sequentially."

PROGRESS ON IMPLEMENTATION OF AEL 2.0Speaking about the AEL 2.0 strategy, Bhalla stated: "During the quarter, AEL continued to make strong progress on the implementation of the AEL 2.0 strategy. The fourth quarter of 2020 was the start of our turnaround in the Go-to-Market pillar. We used the fourth quarter to tell distribution we were back and committed to offering competitive products. Along with the successful introduction of our multi-year fixed-rate annuity lineup, we are refreshing our AssetShield accumulation product and will soon launch a compelling, single accumulation annuity product that covers both traditional equity indices and multi-asset custom indices focused on U.S. risk parity, global risk-controlled asset allocation and sector specific allocations. Our lifetime guaranteed income products are very competitive in both the independent agent and financial institutions markets. Sales momentum has continued into the first quarter of this year."

Bhalla went on to add: "While we are not done in Go-to-Market, our focus for much of the remainder of 2021 will be on the Investment Management and Capital Structure pillars of AEL 2.0. In the Investment Management pillar, we intend to focus on our allocation to alpha-generating assets. In the fourth quarter, we closed on our investment in Pretium, a leading asset manager in the residential mortgage loan space. Earlier today, we announced a strategic partnership with Adams Street Credit Advisors to form a new management company to sponsor and manage investment vehicles that will invest in secured loans to U.S. middle market private companies backed by private equity sponsors. In the Capital Structure pillar, we are working diligently to complete the previously announced reinsurance transactions with Vrde-Agam and Brookfield Asset Management and the build out of our own offshore reinsurer."

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 CALLAmerican Equity will hold a conference call to discuss fourth quarter 2020 earnings on Thursday, February 18, at 8:00 a.m. CT. 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 9577007 (international callers, please dial 704-859-4382). An audio replay will be available shortly after the call on American Equity's website. An audio replay will also be available via telephone through February 25, 2021 at 855-859-2056, passcode 9577007 (international callers will need to dial 404-537-3406).

ABOUT AMERICAN EQUITYAmerican Equity Investment Life Holding Company, through its wholly-owned subsidiaries, is a leading issuer of fixed index annuities through independent agents, banks and broker-dealers. 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.

1 Use of non-GAAP financial measures is discussed in this release in the tables that follow the text of the release.

American Equity Investment Life Holding Company

Unaudited (Dollars in thousands, except per share data)

Consolidated Statements of Operations

Three Months Ended Year Ended December 31, December 31,

2020 2019 2020 2019

Revenues:

Premiums and other $ 10,279 $ 8,846 $ 39,382 $ 23,534 considerations

Annuity product 65,963 62,722 251,227 240,035 charges

Net investment income 521,725 588,217 2,182,078 2,307,635

Change in fair value 443,867 466,434 34,666 906,906 of derivatives

Net realized gains(losses) on (12,135 ) 7,029 (80,680 ) 6,962 investments

Other than temporaryimpairment (OTTI) losses on investments:

Total OTTI losses - (17,412 ) - (18,511 )

Portion of OTTI lossesrecognized from other - - - (215 )comprehensive income

Net OTTI lossesrecognized in - (17,412 ) - (18,726 )operations

Loss on extinguishment - (2,001 ) (2,024 ) (2,001 )of debt

Total revenues 1,029,699 1,113,835 2,424,649 3,464,345



Benefits and expenses:

Insurance policybenefits and change in 13,066 11,553 49,742 35,418 future policy benefits

Interest sensitive and 325,912 399,514 1,543,270 1,287,576 index product benefits

Amortization ofdeferred sales 22,768 91,260 438,164 88,585 inducements

Change in fair valueof embedded 568,836 147,879 (1,286,787 ) 1,454,042 derivatives

Interest expense on 6,391 6,384 25,552 25,525 notes payable

Interest expense onsubordinated 1,325 3,651 5,557 15,764 debentures

Amortization ofdeferred policy 26,145 133,573 649,554 87,717 acquisition costs

Other operating costs 55,321 39,194 183,636 154,153 and expenses

Total benefits and 1,019,764 833,008 1,608,688 3,148,780 expenses

Income before income 9,935 280,827 815,961 315,565 taxes

Income tax expense 1,193 60,677 144,501 69,475

Net income 8,742 220,150 671,460 246,090

Less: Preferred stock 15,004 - 33,515 - dividends

Net income (loss)available to common $ (6,262 ) $ 220,150 $ 637,945 $ 246,090 stockholders



Earnings (loss) per $ (0.07 ) $ 2.41 $ 6.93 $ 2.70 common share

Earnings (loss) percommon share - $ (0.07 ) $ 2.40 $ 6.90 $ 2.68 assuming dilution



Weighted averagecommon shares outstanding (in thousands):

Earnings (loss) per 92,904 91,314 92,055 91,139 common share

Earnings (loss) percommon share - 93,352 91,883 92,392 91,782 assuming dilution

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 toNon-GAAP Operating Income Available to Common Stockholders

Three Months Ended Year Ended December 31, December 31,

2020 2019 2020 2019

Net income (loss)available to common $ (6,262 ) $ 220,150 $ 637,945 $ 246,090 stockholders

Adjustments to arrive atnon-GAAP operating income available to common stockholders: (a)

Net realized gains/losses on financial 9,369 7,606 59,355 7,361 assets, including credit losses

Change in fair value ofderivatives and embedded 90,616 (127,777 ) (783,157 ) 373,221 derivatives - fixed index annuities

Change in fair value ofderivatives - interest - (167 ) (848 ) 1,247 rate caps and swap

Income taxes (21,996 ) 26,023 155,808 (79,736 )

Non-GAAP operatingincome available to $ 71,727 $ 125,835 $ 69,103 $ 548,183 common stockholders



Per common share - assuming dilution:

Net income (loss)available to common $ (0.07 ) $ 2.40 $ 6.90 $ 2.68 stockholders

Adjustments to arrive atnon-GAAP operating income available to common stockholders:

Net realized gains/losses on financial 0.10 0.08 0.64 0.08 assets, including credit losses

Change in fair value ofderivatives and embedded 0.97 (1.39 ) (8.47 ) 4.07 derivatives - fixed index annuities

Change in fair value ofderivatives - interest - - (0.01 ) 0.01 rate caps and swap

Income taxes (0.23 ) 0.28 1.69 (0.87 )

Non-GAAP operatingincome available to $ 0.77 $ 1.37 $ 0.75 $ 5.97 common stockholders

* 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 and deferred policy acquisition costs where applicable. 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 and non-GAAP operating return on average common stockholders' equity are calculated by dividing net income available to common stockholders and non-GAAP operating income available to common stockholders, respectively, for the trailing twelve months by average total stockholders' equity excluding average equity available to preferred stockholders and average accumulated other comprehensive income (AOCI). We exclude AOCI because AOCI fluctuates from quarter to quarter due to unrealized changes in the fair value of available for sale investments.

Twelve Months Ended

December 31, 2020

Average Common Stockholders' Equity Excluding Average AOCI

Average total stockholders' equity $ 5,572,418

Average equity available to preferred stockholders (550,000 )

Average AOCI (1,963,603 )

Average common stockholders' equity excluding average AOCI $ 3,058,815



Net income available to common stockholders $ 637,945

Non-GAAP operating income available to common stockholders $ 69,103



Return on Average Common Stockholders' Equity Excluding Average AOCI

Net income available to common stockholders 20.86 %

Non-GAAP operating income available to common stockholders 2.26 %

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CONTACT: Steven Schwartz | Head of Investor Relations American Equity Investment Life Holding Company(r) 515-273-3763 | sschwartz@american-equity.com