|WEST DES MOINES, Iowa, Feb 24, 2010 (BUSINESS WIRE) — American Equity Investment Life Holding Company (NYSE: AEL), a leading underwriter of index and fixed rate annuities, today reported 2009 fourth quarter operating income1 of $28.7 million, or $0.48 per diluted common share, an 86% increase over adjusted2 fourth quarter 2008 operating income of $15.4 million or $0.28 per diluted common share. Operating income for the year 2009 was a record $101.8 million, or $1.75 per diluted common share, an increase of 40% over adjusted2008 operating income of $72.5 million or $1.30 per diluted common share. Performance results for the fourth quarter and year of 2009 include:
Net income for the fourth quarter of 2009 was $36.0 million compared to an adjusted net loss of $24.0 million for the same period in 2008. Net income for the year ended December 31, 2009 was $68.5 million compared to adjusted net income of $15.9 million for 2008. The net loss for the fourth quarter of 2008 as well as net income for the year of 2008 was impacted by the recognition of $97.9 million of pretax losses ($36.9 million after offsets for income taxes and adjustments to the amortization of deferred acquisition costs and deferred sales inducements) arising from “other than temporary impairments” under applicable accounting rules.
FAVORABLE SALES CLIMATE
Sales conditions for index annuities were very favorable throughout 2009, due to equity market declines and low interest rates on competing products such as bank certificates of deposit. Index annuities provide guaranteed principal, minimum interest and account value, as well as guaranteed retirement income for life. In addition, several of American Equity’s key competitors in the index annuity market reduced the amount of new sales they were willing to receive. As a result, American Equity was able to capitalize on the opportunity to grow sales to unprecedented levels and increase market share. Commented David J. Noble, Executive Chairman: “For the fourth quarter and full year of 2009, American Equity sold 12% of all fixed index annuities, ranking third in size of market share. While several competitors are expected to resume accepting a higher level of sales, favorable sales conditions have continued into the first quarter of 2010. We are optimistic that 2010 will be another strong year for American Equity.”
EMPHASIS ON ASSET QUALITY
The company’s investing activities in 2009 reached an all time high with approximately $6.7 billion invested in new fixed income securities with an average yield of 6.35% and $249 million in commercial mortgage loans with an average yield of 6.91%. Sources of cash for new investments included primarily proceeds from bonds sold or called for redemption ($4.8 billion) as well as net proceeds from annuity sales (approximately $2.9 billion). During the fourth quarter of 2009, American Equity’s average yield on total invested assets was 6.23%, and new investments were made in $636.5 million of fixed income securities with an aggregate yield of 6.25%, and $99.8 million in commercial mortgage loans with an aggregate yield of 6.90%.
American Equity has consistently maintained a strategy of emphasizing credit quality and attempting to minimize default risk in its invested assets. Accordingly, all fixed income security investments purchased in 2009 were investment grade when purchased. During 2009, a portion of the company’s residential mortgaged-backed securities (“RMBS“) were downgraded by credit rating agencies causing the company’s exposure to below investment grade assets to increase above historical levels. However, during the fourth quarter of 2009 the NAIC authorized a re-rating process to better align NAIC designations with the severity of expected losses in RMBS. As a result, a significant portion of American Equity’s RMBS were restored to a higher NAIC designation, with 94.8% now rated investment grade (NAIC designation 1 or 2). The re-rating process also reduced the regulatory capital required to be held for those RMBS restored to higher NAIC designations which benefited the company’s RBC ratio.
American Equity’s commercial mortgage loans had an aggregate value of $2.4 billion at December 31, 2009, which represented 16% of total invested assets and included 1,011 individual loans with average loan size of $2.4 million. During 2009, impairment losses were recognized on five commercial mortgage loans and totaled $6.5 million or 0.3% of the year end loan values. No losses or impairments were recognized on commercial mortgage loans in the fourth quarter of 2009. The company’s aggregate loan to value ratio was 56% at December 31, 2009 based upon appraised value at origination and 58% of loans include full or partial recourse to the borrower.
BALANCE SHEET STRENGTH
American Equity implemented several strategies in 2009 to support its regulatory capital during this period of dynamic growth, including:
In addition, during the last two years American Equity has taken several steps to address indebtedness which will become payable in the fourth quarter of 2011, including its 5.25% Contingent Convertible Senior Notes due 2024 (“5.25% Notes due 2024″) and indebtedness under its bank line of credit. Such steps in 2009 included:
The company will continue to address opportunistically the remainder of the debt coming due or expected to be put in the fourth quarter of 2011. Leverage and coverage ratios remain well within acceptable ranges for the company’s present ratings from credit rating agencies.
EAGLE LIFE INSURANCE COMPANY
American Equity continues to battle the Securities and Exchange Commission in connection with its adoption of Rule 151A, which expands the SEC’s jurisdiction to regulate index annuities and requires securities licensing, in addition to insurance licensing, for sales producers. The future of Rule 151A is uncertain as efforts to overturn the rule through judicial and/or legislative means continue. Should those efforts prove unsuccessful, American Equity has taken numerous steps to prepare to sell registered index annuities as well as to expand its offering of traditional fixed rate annuities. Such steps include the formation in 2008 of Eagle Life Insurance Company (“Eagle Life”) as a wholly-owned subsidiary through which registered products will be sold. To date Eagle Life has received certificates of authority to conduct business in 31 states. In addition, Eagle Life was the first life insurer to file a registration statement for a registered index annuity following the adoption of Rule 151A. The company expects the registration statement will be declared effective by the SEC during the first quarter of 2010, and further expects to be selling registered index annuities through the broker dealer distribution channel long before Rule 151A becomes effective. In a brief filed in the court proceedings challenging Rule 151A, the SEC recently consented to an additional two-year extension on the effectiveness of Rule 151A following the date of any re-issuance of the Rule. Whether or when such re-issuance may occur is not yet known.
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 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.
American Equity will hold a conference call to discuss 2009 earnings on Thursday, February 25, 2010, at 10 a.m. CST. 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 by dialing 1-866-783-2140, passcode 62526907 (international callers, please dial 1-857-350-1599. An audio replay will be available shortly after the call on AEL’s web site and will be available via telephone through March 18, 2010 by calling 1-888-286-8010, passcode 81928221 (international callers will need to dial 1-617-801-6888).
ABOUT AMERICAN EQUITY
American Equity Investment Life Holding Company, through its wholly-owned operating subsidiaries, is a full service underwriter of annuity and life insurance products, with a primary emphasis on the sale of index and fixed rate annuities. The company’s headquarters are located at 6000 Westown Parkway, West Des Moines, Iowa, 50266. The mailing address of the company is: P.O. Box 71216, Des Moines, Iowa 50325.
1 In addition to net income, American Equity has consistently utilized operating income, a non-GAAP financial measure commonly used in the life insurance industry, as an economic measure to evaluate its financial performance. See accompanying tables for reconciliations of net income to operating income and descriptions of reconciling items.
2 All prior period financial statements have been adjusted due to a change in accounting for convertible debt which was effective for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. See more complete discussion in the company’s Form 10-Q for the quarterly period ended September 30, 2009.
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