American Equity FIA sales drop; reinsurer investor drops out

By Steven A. Morelli

American Equity Investment’s CEO said the company chose “pricing discipline” rather than chase market share in explaining the carrier’s drop in fixed index annuity sales in what was a hot quarter for the products.

“We chose pricing discipline over chasing the market as interest rates fluctuated,” said Anant Bhalla during the company’s third quarter earnings call on Tuesday. “We continue to see competitors raise product rates with cost of money potentially well in excess of 4%, thereby already pricing in a sustained level of higher interest rates in the future.”

"We chose pricing discipline over chasing the market as interest rates fluctuated.” American Equity CEO Anant Bhalla

American Equity saw total enterprise accumulation sales declined 21% compared to the second quarter, driven by commoditized rate based competition in the S&P 500-based strategies, Bhalla said.

The carrier had a significant drop in its FIAs, its core products, decreasing in its combined operations 6% from $776 million in the second quarter, down to $730 million in the third, which was a 20% drop from the year-ago quarter’s sales of $915 million.

Bhalla said the company took its foot off the gas to position itself better in the future but added that the company will be offering better rates this month.

“In November, we are raising our accumulation product option budgets to reflect new money assets returns that can be sustained around 6% or higher and therefore will be more competitive in terms of pricing,” Bhalla said.

He also said that the company expects to break into the highly competitive registered index-linked annuity market soon.

“We will likely enter the registered index annuity or RILA product market within the next 18 months as we implement a new policy administration system for new business, and further upgrade our go-to market approaches,” Bhalla said.

Surprise BAM Re resignation

During the question-and-answer portion of the call, analysts asked about the surprise resignation of Sachin Shah from American Equity Investment’s board. Shah represented Brookfield Asset Management Re (BAM Re), whose investment in American Equity amounts to 16% of the carrier.

Shah, BAM Re’s CIO, said in his resignation letter, effective today, that the reinsurer has lost faith in American Equity’s strategic direction and demanded the sale of BAM Re’s 9,106,042 shares.

The letter reads:

“Letter to the board:

“I hereby tender my resignation as a member of the Board of Directors (the “Board”) of American Equity Investment Life Holding Company (the “Company”), effective immediately.

“It is clear based on recent events that there has been a fundamental change in the strategic direction of the Company, and that change in my view represents a material departure from the AEL 2.0 strategy. As previously communicated, neither I nor Brookfield Reinsurance can support this change in strategy as being in the best interests of the Company, its policyholders or its shareholders.

“For the time being, Brookfield Reinsurance will not exercise its rights under the Investment Agreement to designate a replacement director to the Board.”

The analysts’ questions caught the American Equity executives by surprise. Bhalla said he was not aware of the letter but he discussed other reinsurance relationships and assured the analysts that the company was still on track with its AE 2.0 strategy, a growth plan that the carrier unveiled in 2020.

“There's no fundamental change in our AEL 2.0 strategy,” Bhalla said. “Our strategy is about our flywheel.”

American Equity did not respond to a request for further comment.

Steven A. Morelli is a contributing editor for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers and magazines. He was also vice president of communications for an insurance agents’ association. Steve can be reached at [email protected].