American Equity rides the annuity boom with nearly $1B in Q1 FIA sales

With protection-focused annuity products selling incredibly well, it's not surprising that American Equity posted very strong first-quarter sales.

The Des Moines, Iowa-based insurer is a big player in the fixed indexed annuity market.

American Equity sold $964 million worth of fixed indexed annuities in Q1, an increase of 23.2% and 9.3% compared to fourth and first quarters of 2022, respectively. Overall annuity sales totaled $1.4 billion.

Compared to the fourth quarter of 2022, FIA sales by American Equity Life in the independent marketing organization channel increased 15.5%, while Eagle Life FIA sales through banks and broker-dealers rose 56.8%.

Big sales are continuing into the second quarter, President and CEO Anant Bhalla told analysts during a call this morning. Second-quarter FIA sales total $600 million through May 5, he said.

"I've always said that this is a business of inches, not yards or miles," Bhalla said, "and you have to win it by inches, in hand-to-hand combat."

American Equity launched a new AssetShield product with a bonus near the end of the quarter, Bhalla said, adding that it "filled a small hole" in the overall product portfolio.

American Equity reported a first-quarter loss of $156 million, after reporting a profit in the same period a year earlier. The isurer said it had a loss of $2 per share. Earnings, adjusted for non-recurring costs, came to $1.47 per share.

The results exceeded Wall Street expectations. The average estimate of seven analysts surveyed by Zacks Investment Research was for earnings of $1.15 per share.

Strong distribution

In 2020, American Equity rolled out a strategy dubbed “AEL 2.0” to boost shareholder returns by contracting investment management out to multiple managers with specialist expertise. The streamlined approach is helping American Equity focus on what it does best and producers are getting it, Bhalla told analysts.

"The minute advisors get it, we then move them through the sales funnel," he explained. "You get them hooked after three tickets and then you move them to six tickets and then you make them $2 million producers and larger. It's the ability to wrap that, but in a quiet, disciplined execution and people knowing that we're profitability focused and there's enough to go around for everybody."

Bhalla responded to a question on cap rate changes and what competitors are doing. The cap rate sets the gains the annuity owner earns while ensuring the insurer can make a profit. Cap rates are coming down as interest rates rise.

"I think the 12% cap rates have gone away, which is nice," Bhalla said. "We're in the 10 to 11 [percent] range now so you see some cap rates come away. There are one or two very irrational competitors with 15% cap rates, which I don't understand and will not try to understand."

American Equity ranked as the highest annuity provider for customer satisfaction in the J.D. Power 2022 U.S. Individual Annuity Study, which Bhalla cited as evidence the insurer is doing right by producers.

"Growing our advisors, our agents that write multi-million dollars with us and stay with us because the time it takes them to write an AEL ticket is a fraction of the time it takes them to write someone else's ticket is what got us the J.D. Power's number one ranking," he said.

Topped forecasts

American Equity posted revenue of $662.5 million in the period. Its adjusted revenue was $561.3 million, which also topped Street forecasts. Six analysts surveyed by Zacks expected $544.7 million.

American Equity shares dropped nearly 30% after disappointing Q4 and full-year 2022 results in February. American Equity continues to be subject to takeover attempts and rumors, and rejected those offers, which is also impacting the stock price.

The stock recovered about half of the losses and was up about 2% overnight upon release of Q1 earnings.

In a Jan. 15 assessment, Seeking Alpha rated AE as "a strong buy" due to its acquisition potential as well as the market for its products. American Equity "offers annuities which are likely to gain attention in the bear market of 2023," the column noted.

InsuranceNewsNet Senior Editor John Hilton 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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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.