American Equity CEO: Sale Rumors Hurting Distribution Partners

American Equity reported healthy second-quarter earnings today and announced new product plans, but CEO John Matovina conceded that persistent rumors of a company sale are making life tough for some distributors.

Based in Des Moines, Iowa, American Equity is partly responsible for some of the rumors. The company put out a May 23 press release confirming that it “is in preliminary discussions regarding a potential transaction,” the statement read.

American Equity then announced it would have nothing further to say about the potential for a sale. That stance continued Tuesday morning during a quarterly earnings call with analysts.

But in a response to a question from C. Gregory Peters, analyst with Raymond James & Associates, Matovina said distributors are reporting sales issues.

“There is feedback coming from our distribution that says the market rumors are influencing their activities,” he said. “Most recently, there was a pretty substantial agent, a guy who has been in the top ten, who shared with us that his business for the time being was off with us because he was concerned about the outcome.”

American Equity’s share of the indexed annuity market steadily declined since peaking at 13.1 percent in 2015, Peters said in an interview after the conference call.

While American Equity “has a strong brand,” the speculation and rumors are having a detrimental impact on the new sales results, he added.

“While you can see there has been a steady progression of declining share of indexed annuity sales due to competition,” Peters said. “From where we sit as an observer, we’ve noted some other companies have recently reported much stronger results.”

A Good Quarter

By the numbers, American Equity reported second-quarter 2018 net income of $93.9 million, or $1.03 per diluted common share, compared to net income of $26.9 million, or 30 cents per diluted common share, for second-quarter 2017.

Total sales by independent agents increased 13 percent from the first quarter, while total sales by broker-dealers and banks for Eagle Life Insurance Company, a subsidiary of American Equity, increased by $58 million, or 34 percent.

Eagle Life sales increased in part due to a $45 million increase in sales of non-core multi-year fixed rate annuities, American Equity reported. Sales of fixed index annuities (FIAs) were up 13 percent from the first quarter to $1.1 billion.

American Equity is a strong performer in the indexed annuity market, ranking fourth this year in Wink’s Sales & Market Report.

When a federal appeals court vacated the Department of Labor fiduciary rule, it cleared the way for a rebound in indexed annuity sales. It also made American Equity an attractive property for a number of financial companies seeking to break into that market.

The fixed annuity space has attracted interest from private equity players in particular, wrote Keefe, Bruyette & Woods analyst Ryan Krueger, in a ate-May research note.

“We’d put private equity at the top of the list, as they’ve been attracted to the growth opportunity from sticky, spread-based insurance liabilities,” Krueger wrote, referring to assets with stable prices.

New Products

Later this quarter, American Equity plans to introduce a new series of non-bonus products focused on accumulation. A key feature will be a participation rate above 100 percent on the same volatility controlled excess return index available in the Eagle Life five-year product, Matovina explained.

“The market in each of our distribution channels continues to be competitive with a number of competitors raising caps, participation rates and guaranteed lifetime income,” he said.

American Equity stock closed Wednesday at $36.30.

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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