American Equity Making Deals To Survive Low Interest Rates

By John Hilton

American Equity withstood another rough quarter for sales, but is all-in on a plan to put the company on firmer financial footing to cope with an extended low-interest-rate environment.

An industry leader in fixed index annuities, American Equity held a conference call Friday to discuss third-quarter earnings. Gross sales of $574 million were down 56% over the third quarter 2019.

CEO Anant Bhalla described the "AEL 2.0" strategy, which includes efforts to broaden the company's investment portfolio into real estate and equities, while pushing its annuity products into new channels, particularly the bank and broker-dealer channels. To that end, American Equity made three recent deals:

A $100 million growth equity investment in Pretium, an alternative asset manager, enabling American Equity "to secure unique access to sourcing and servicing of residential real estate assets over their life cycle," a news release said.
A reinsurance and asset management joint venture with Värde Partners and Agam Capital Management by ceding a $5 billion in-force block (approximately 10% of in-force) to "begin the transformation to a capital-light model while providing access to new markets, specifically the global life and annuity reinsurance and third-party insurance asset management businesses."
A partnership with Brookfield Asset Management in which Brookfield will acquire a 19.9% ownership interest in the common shares of AEL in two stages: an initial purchase of a 9.9% interest at $37 per share promptly following required regulatory approval, and a second purchase of an incremental 10% interest, at the greater value of $37 per share or adjusted book value per share.

'Accelerate Growth'

"The financial objective of our go-to-market strategy is to accelerate growth of new business and annuity funding origination in normal economic environments to levels that far surpass our past peak sales levels," Bhalla said on the earnings call.

American Equity rejected a $3 billion takeover bid put forth earlier this month by MassMutual and is instead going into business with Brookfield Asset Management.

More deals will be coming in the future, said Bhalla, who took over as American Equity CEO in March.

Brookfield will receive one seat on American Equity’s Board of Directors following the initial equity investment. The second equity investment is expected to close in the first half of 2021.

Third-quarter net income was boosted by $663 million due to updates to actuarial assumptions used to estimate a number of components of the annuity policies, company executives said. Operating income was negatively affected by $341 million from assumption updates.

Executives touted quarter-over-quarter sales increases. Gross annuity sales were up 3% compared to the equally dismal second quarter, fueled by increased multi-year fixed rate annuity sales at the company’s Eagle Life subsidiary. Gross sales at American Equity Life decreased 8% from the second quarter while Eagle Life sales were up 75%.

The company continues to innovate its annuity product lines, Bhalla pointed out.

"In September, we introduced a new single-premium deferred annuity series at Eagle Life, the Eagle Guarantee Focus," he said. "We have 3- and 5- year products that are top-3 for crediting rates in the marketplace. At American Equity Life, we introduced a similar product line, the GuaranteeShield series, a few weeks ago. Our 3-year product is #2 for crediting rates in the independent agent market, and we are already seeing strong application flow."

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.

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.