American Equity Rides Accumulation FIAs to Strong Quarter

American Equity Investment Life Holding redirected third-quarter marketing efforts away from guaranteed income products toward accumulation products, a company executive said Tuesday.

The shift mirrors a similar tilt expressed by independent agents in favor of accumulation products in the $60-billion fixed indexed annuity market. American Equity is a top seller of FIAs in the United States.

“We addressed this shift by placing more emphasis in our marketing efforts on our Choice Series at American Equity Life,” said Ronald J. Grensteiner, president of American Equity Investment Life Insurance in West Des Moines, Iowa.

Index annuities offer contract holders the opportunity to earn interest based on market gains.

With the Standard & Poor's 500 index up more than 15 percent this year, those index gains appear relatively generous compared with annuities offering a fixed interest rate in a low-rate environment.

Choice Series, a line of capital accumulation FIAs, accounted for 22 percent of American Equity sales in the third quarter, compared with 17 percent in the second quarter, Grensteiner said in a conference call with analysts.

In September, Choice Series FIAs accounted for 25 percent of sales, Grensteiner said. American Equity offers Choice 6, Choice 8 and Choice 10, accumulation-focused FIAs with different surrender charge periods.

American Equity sold $834 million worth of annuities in the third quarter, compared to $1.1 billion in the year-ago period. Low interest rates and strong equity markets continue to make it more difficult to sell annuities, Grensteiner said.

Higher Yields an Opportunity for Product Tweaks

Higher investment yields gave American Equity the opportunity to burnish its accumulation-focused product lines by raising participation and cap rates on the company’s Choice Series product line and Eagle Life’s Select product line.

American Equity subsidiary Eagle Life sells FIAs into the bank and broker-dealer channel.

Participation rates determine how much of the gain in the index will be credited to the annuity, and cap rates set the maximum rate of interest the annuity will earn.

“When coupled with the optional market value adjustment rider we introduced earlier this year, Choice 10 and Select 10 now offer some of the highest participation rates in the market among annual reset fixed indexed annuities,” Grensteiner said.

American Equity investment managers put their funds to work at an average of 4.39 percent in the third quarter and guaranteed income FIAs also benefited.

A new lifetime income benefit rider was introduced last month for American Equity’s guaranteed income-focused Foundation Gold FIA, he said.

Q3 Swings to Profit

American Equity reported third-quarter net income of $57 million Monday, after reporting a loss in the same period a year earlier.

On a per-share basis, the company reported profit of 63 cents. Non-GAAP operating earnings, adjusted for realized gains and losses on securities transactions and the non-economic effects of accounting for derivatives, was 96 cents per share, according to the company.

The results topped Wall Street expectations. The average estimate of four analysts surveyed by Zacks Investment Research was for earnings of 63 cents per share.

The annuity and insurance underwriter posted revenue of $906 million in the period. Its adjusted revenue was $500.2 million, also beating forecasts. Three analysts surveyed by Zacks expected $493.9 million.

American Equity shares increased 29 percent since the beginning of the year. In the final minutes of trading on Monday, shares hit $29.06, a climb of 82 percent in the last 12 months.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].