American Equity Ready To Reclaim FIA Dominance

A recent $10 billion reinsurance deal will help American Equity grow its fixed index annuity income product line, CEO Anant Bhalla said.

Under an agreement that closed in October, Brookfield Reinsurance has reinsured a block of approximately $4 billion of in-force policies, and will reinsure up to an additional approximately $6 billion of American Equity’s “IncomeShield” or other mutually agreed liabilities issued by the company.

Brookfield Reinsurance holds an approximate 9.5% equity interest in American Equity and has agreed to purchase additional shares of the company’s common stock for up to a total equity interest of 19.9%.

The deal will fortify American Equity, add capital, and help the company refocus on reclaiming its market share in the FIA market, Bhalla told analysts on today's third-quarter conference call.

"We are focused on growing income products," Bhalla said. "We will expect income products like income shields to be around a billion dollars of sales a year. ... I'm really focused with this management team to make this the financial dignity company that provides people income or other means of solutions for dignity for life."

In February, the company issued its “refreshed” AssetShield fixed index annuity, and followed up by introducing the EstateShield FIA in July. Sales have been growing throughout 2021.

"For the third quarter, fixed index annuity sales increased 3% sequentially to $915 million," Bhalla said. "We believe this result will be generally in line with the overall market. Year to date, total sales of $4.9 billion positioned us to end the year firmly towards the upper end of our 2021 sales goals."

In the first-quarter call, Bhalla mentioned a new agreement to sell annuities through PNC Bank. In the months since, multi-year guaranteed annuities and fixed-rate annuities have sold well in that channel, Bhalla said.

"Eventually the pivot has to happen to FIAs," he added. "That's how we measure success."

American Equity reported third-quarter earnings of $152.9 million. The West Des Moines, Iowa-based company said it had net income of $1.53 per share. Earnings, adjusted for non-recurring gains, were $1.46 per share.

The results surpassed Wall Street expectations. The average estimate of five analysts surveyed by Zacks Investment Research was for earnings of 77 cents per share. The annuity and insurance underwriter posted revenue of $542.6 million in the period. Its adjusted revenue was $526.4 million, which also topped Street forecasts.

AEL 2.0 Strategy

Bhalla updated analysts on the "AEL 2.0" strategy unveiled in the fall 2020, 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.

"We have spent the last year building up the organization, the sales and distribution organization within the company," said Jim Hamalainen, chief investment officer. "That's been a process that's taken the past year and so we expect to see some impact from that going forward."

The majority of investment commitments made in the third quarter represent the continued expansion of American Equity's investment in residential and commercial real estate assets, Bhalla said. The capital deployed in private assets was across middle market corporate loans, agriculture loans and real estate debt.

"I am proud of the pace of execution in all three elements of the virtuous fly-wheel of our business strategy," Bhalla said. "Now we have in place the necessary building blocks of the American Equity strategy. Over the next few years, we intend to further scale up the following three areas: allocation to private assets, total assets earning fees or investment spread, and third-party capital through reinsurance."

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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