American Equity annuity sales high, as are surrenders, in a dicey 4Q

In an environment where annuities are smashing sales records, American Equity focused on repricing discipline, executives said, which held sales down during the fourth quarter.

A leading seller of fixed indexed annuities, American Equity reported fourth-quarter sales of $900 million, of which 87%, or $783 million, were in fixed index annuities. FIA sales were down on a year-over-year basis, but up 7.3% compared to third quarter

A repricing focus, which CEO Anant Bhalla described as "nimble, targeted and responsive to market changes," helped the insurer gain traction with producers.

"We substantially revamped our pricing procedures, affording us optionality to reprice products quickly as markets change," Bhalla said on a call with analysts. "To put this in perspective, we have historically repriced new products once or twice per year. Thanks to the changes we made to improve these processes, we successfully delivered in excess of 50 product and rate changes in 2022."

Compared to the third quarter of 2022, FIA sales at American Equity Life in the independent marketing organization (IMO) channel increased 1.5%, while Eagle Life FIA sales through banks and broker-dealers rose 42.4%.

The disciplined strategy did not help the bottom line financials, as American Equity reported a fourth-quarter loss of $18.5 million, after reporting a profit in the same period a year earlier.

On a per-share basis, the West Des Moines, Iowa-based company said it had a loss of 34 cents. Earnings, adjusted for non-recurring costs, came to 79 cents per share. Investors responded harshly and American Equity shares dropped by 6% by midday Friday.

Executives made no mention of an ongoing dispute with leading investor Brookfield Asset Management Re. Based in Toronto, Brookfield is now American Equity's largest shareholder with an 18.5% stake.

During American Equity third-quarter earnings call with analysts, Bhalla was caught off-guard by the surprise resignation of Sachin Shah from American Equity's board. Shah represented Brookfield and said in his resignation letter that the reinsurer had lost faith in American Equity’s strategic direction and demanded the sale of BAM Re’s 9,106,042 shares.

Since then, the Department of Justice opened an investigation into Brookfield for potential antitrust law violations. Brookfield purchased American National in May. That insurer sells life, health and property and casualty insurance and annuities. According to a January filing with the Securities and Exchange Commission, the DOJ is investigating whether Brookfield violated a federal antitrust law that bans companies from holding board seats on specific competitors.

Surrenders up

Executives sought to downplay a disturbing trend of higher surrenders reflected in the fourth-quarter data. Surrenders totaled $1.2 billion in the fourth quarter, up from $1.1 billion in the prior quarter, noted Axel Andre, chief financial officer.

The typical surrender cases are with annuity owners just reaching the end of their surrender charge period, Andre explained.

"We expect that with the stabilization of the interest-rate environment that the increase in surrenders is probably going to stabilize," he said. "But of course, this is one of the behaviors that we observe closely and from a rate-setting perspective. We look at that on a regular basis and we take appropriate action as we see fit."

Bhalla also chimed in, saying that "having a big book really helps us" with fluctuating surrenders. American Equity is "focused on in-force management" to counter the surrenders, he added, but its strength lies in the liquidity offered by "very high-quality" assets. For example, the insurer has $7 billion in real estate loans.

"So, we feel very good about the liquidity profile of the portfolio," Bhalla said. "And we are going to grow our AUM, not have it shrink, which is why our efforts are not just on sales, primarily sales, but also in-force actions."

Takeover rumors

American Equity continues to be subject to takeover attempts and rumors. That issue was also not addressed during the call. The insurer rejected a recent offer from Prosperity Group to acquire the company for $45 per share in cash, according to several reports.

The first takeover bid, by MassMutual and Athene in 2020, was thwarted when Brookfield came to the rescue with a large investment infusion.

In a Jan. 15 assessment, Seeking Alpha rated AE as "a strong buy" due to its acquisition potential as well as the market for its products. American Equity "offers annuities which are likely to gain attention in the bear market of 2023," the column noted.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.