American Equity Ramps Private Asset Allocation to 22% and Achieves Close to $10 billion in Fee-Generating Reinsurance Balances in Fourth Quarter 2022

Company Highlights

• Q4 2022 net loss available to common stockholders of $(29.4) million, or $(0.34) per diluted common share compared to net income of $82.2 million, or $0.88 per diluted common share for Q4 2021

• Non-GAAP operating income¹ available to common stockholders for the fourth quarter 2022 was $67.9 million, or $0.79 per diluted common share; No notable items impacted results in the quarter

• Private asset deployment momentum continues with approximately $1.4 billion sourced in the quarter bringing total portfolio allocation to 22%

• Sequential quarterly FIA sales increase of 7% to $783 million

• Ceded $352 million of flow reinsurance to Brookfield Re and $4.3 billion of GAAP reserves, including $3.8 billion of account value, in new strategic partnership with 26North Re increasing "fee-like" revenues and growing account value subject to recurring fees to $9.6 billion

WEST DES MOINES, Iowa--(BUSINESS WIRE)--
American Equity Investment Life Holding Company (NYSE: AEL), a leading issuer of fixed index annuities (FIAs) today reported its fourth quarter 2022 results. Results in the quarter reflected a lower-than-expected return on mark-to-market assets and higher fee revenues on reinsured account values.

American Equity's President and CEO, Anant Bhalla stated: "The fourth quarter caps a year of outstanding achievements as we continue to execute on our AEL 2.0 strategy. During the year, we originated $5 billion of privately sourced assets, driving total allocation to 22% of our investment portfolio – generating value for shareholders and policyholders without taking additional risk. Aggregate adjusted investment spread for the year increased 59 basis points as we reinvested excess cash, invested in privately sourced assets, and benefited from our allocation to floating rate assets, all while proactively reducing the portfolio's credit risk exposure in anticipation of potentially amplifying macro-economic uncertainty. We also revamped our pricing procedures creating the ability to quickly re-price product as markets change, entered into an important, long-term reinsurance relationship with 26North Re helping to drive reinsurance assets subject to fees to nearly $10 billion, and made a number of foundational operational changes to facilitate the efficient sales growth we foresee as the AEL 2.0 flywheel continues to gain speed."

Bhalla continued, “While fourth quarter results reflect lower-than-expected investment returns on mark-to-market assets, impacting overall portfolio yield by 9 basis points, our strong execution on our AEL 2.0 strategy over the last year, as well as the sales momentum we are seeing through the first six weeks of 2023, only increase our confidence in our continued delivery of superior shareholder value this year and over the long term.”

Non-GAAP operating income¹ available to common stockholders for the fourth quarter of 2022 was $67.9 million, or $0.79 per diluted common share, compared to non-GAAP operating income¹ available to common stockholders of $75.8 million, or $0.81 per diluted common share for the fourth quarter of 2021. For the fourth quarter of 2021, non-GAAP operating income¹, excluding notable items, was $97.1 million, or $1.04 per diluted common share. There were no notable items affecting results for the fourth quarter of 2022.

Actuarial assumption revisions utilized in the determination of deferred policy acquisition costs, deferred sales inducements, and the liability for future policy benefits to be paid for guaranteed lifetime income through life-time income benefit riders (LIBR) negatively affected non-GAAP operating income¹ by $21.2 million, or $0.23 per diluted common share, in the fourth quarter of 2021.

The year-over-year change in quarterly non-GAAP operating income¹ available to common stockholders excluding the impact of actuarial assumption revisions primarily reflected the effect of reduced equity index credits due to the decline in equity markets on the increase in the LIBR reserve and in the amortization of the deferred acquisition cost and deferred sales inducement assets. This was offset partly by substantial increases in both investment spread and recurring fee revenue associated with reinsurance.

For the fourth quarter of 2022, net investment income increased $25 million from the comparable quarter of 2021 reflecting an increase in average yield on investments resulting from the benefit from higher short-term interest rates on our floating rate portfolio, lower cash balances, and the increase in allocation to privately sourced assets to 22.0% of the investment portfolio offsetting a decline in investment assets primarily due to our recent in-force reinsurance transaction which became effective on October 3, 2022.

Compared to the fourth quarter of 2021, the change in the liability for future benefits to be paid for LIBR increased $35 million. Excluding the impact of actuarial assumption revisions in the fourth quarter of 2021, the year-over-year change in liability for future policy benefits to be paid for LIBR was $45 million higher as lower than modeled index credits increased the LIBR reserve by $18 million in the quarter; conversely, better than expected index credits in the fourth quarter of 2021 lowered the change in the LIBR reserve by $30 million. Actual versus modeled experience resulted in an increase in the reserve for the fourth quarter of 2022 of $37 million compared to expectations reflecting $18 million of additional expense associated with near zero index credits, $8 million for lower than modeled option budget, and $8 million for other experience true-ups; actual versus modeled experience reduced the reserve by $4 million in the fourth quarter of 2021.

Compared to the fourth quarter of 2021, amortization of deferred policy acquisition and sales inducement cost increased $10 million. Excluding the impact of actuarial assumption revisions in the fourth quarter of 2021, amortization of deferred policy acquisition and sales inducement costs increased by $26 million year-over year. Actual versus modeled expectations in the fourth quarter of 2022, primarily reflecting the level of equity index credits, interest margin and lapsation, offset in part by lower option budget, increased amortization by $8 million. Additional expense associated with near zero index credits in the fourth quarter of 2022 was $9 million. Amortization of deferred sales inducements and policy acquisition costs was positively affected by $9 million in the fourth quarter of 2021 from actual versus modeled expectations.

As of December 31, 2022, account value of business ceded subject to fee income was $9.6 billion, up $4 billion from three months earlier, primarily reflecting $3.8 billion of in-force account value reinsured in the quarter. Flow reinsurance ceded in the fourth quarter of 2022 totaled $352 million of account value. Operating income¹ for the fourth quarter of 2022 included $21 million of revenues from reinsurance account values subject to fees compared to $11 million in the third quarter, reflecting the increase in ceded account value.

The effective tax rate on pre-tax operating income¹ for the fourth quarter of 2022 was 13.8%, reflecting true-ups to bring the estimated income tax rate through the first nine months of the year in line with the full year effective rate. For the full year, the effective tax rate on pre-tax operating income¹ was 20.1% - at the low end of expectations.

STRONG INVESTED ASSET ORIGINATION AT ATTRACTIVE EXPECTED RATES OF RETURN

American Equity’s investment spread was 2.54% for the fourth quarter of 2022 compared to 2.73% for the third quarter of 2022 and 2.29% for the fourth quarter of 2021. On a sequential quarterly basis, the average yield on invested assets decreased by 18 basis points - driven by lower returns on partnerships and other mark-to-market assets - while the cost of money increased 1 basis point. Adjusted investment spread excluding non-trendable items² decreased to 2.53% in the fourth quarter of 2022 from 2.70% in the third quarter of 2022.

Average yield on invested assets was 4.30% in the fourth quarter of 2022 compared to 4.48% in the third quarter of 2022. The average adjusted yield on invested assets excluding non-trendable items² was 4.29% in the fourth quarter of 2022 compared to 4.45% in the third quarter of 2022. Returns on mark-to-market assets contributed a benefit of 22 basis points in the third quarter but reduced the portfolio yield by nine basis points in the fourth quarter. The benefit to the investment portfolio from higher short term rates on floating rate investments was 15 basis points in the fourth quarter.

During the quarter, investment asset purchases totaled $2.5 billion and were made at an average rate of 6.81%, including approximately $1.4 billion of private assets at 7.02%.

The aggregate cost of money for annuity liabilities of 1.76% in the fourth quarter of 2022 was up 1 basis point compared to the third quarter of 2022, in line with market costs. The cost of money in the both quarters reflect a small benefit from the over-hedging of index-linked credits.

FIA SALES³ INCREASE 7% FROM PRIOR SEQUENTIAL QUARTER

Fourth quarter sales were $900 million, of which 87.0%, or $783 million, were in fixed index annuities. Although total enterprise FIA sales were down on a year-over-year basis, reflecting the company's pricing discipline in the midst of historically competitive markets, total enterprise FIA sales increased 7.3% compared to third quarter as pricing changes made in the fourth quarter helped increase traction with producers. Compared to the third quarter of 2022, FIA sales at American Equity Life in the Independent Marketing Organization (IMO) channel increased 1.5%, while Eagle Life FIA sales through banks and broker-dealers rose 42.4%.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

The forward-looking statements in this release or that American Equity uses on its conference call, such as ability, aim, anticipate, assume, become, believe, building, can, commit, constructive, continue, could, estimate, expect, exposure, forward, future, goal, grow, guidance, intend, likely, look to, may, might, model, opportunity, outlook, over time, plan, potential, prepare, project, ramp, risk, scenario, see, should, signal, strategy, target, to be, toward, trends, will, would, and their derivative forms and similar words, as well as any projections of future results, are based on assumptions and expectations that involve risks and uncertainties, including the "Risk Factors" the company describes in its U.S. Securities and Exchange Commission filings. The Company's future results could differ, and it has no obligation to correct or update any of these statements.

CONFERENCE CALL

American Equity will hold a conference call to discuss fourth quarter 2022 earnings on Friday, February 17, at 10:00 a.m. CT.

The conference call will be webcast live on the Internet. Investors and interested parties who wish to listen to the webcast may register to access it on our IR website at https://ir.american-equity.com. An audio replay will also be available via the same link on our website shortly after the completion of the call for 30 days.

The call may also be accessed by telephone. Investors and interested parties may register for the call with the form available at this link, and upon submission (and via follow-up email) will receive the dial-in number and a unique PIN to access the call. Registration is available now or any time up to and during the time of the call. Registration is also available by visiting our IR website at https://ir.american-equity.com.

ABOUT AMERICAN EQUITY

At American Equity Investment Life Holding Company, we think of ourselves as The Financial Dignity Company^TM that offers solutions designed to create financial dignity in retirement. Our policyholders work with independent agents, banks and broker-dealers, through our wholly-owned operating subsidiaries, to choose one of our leading annuity products best suited for their personal needs. To deliver on our promises to policyholders, American Equity has reframed its investment focus, building a stronger emphasis on insurance liability driven asset allocation as well as the origination and management of private assets. Our company is headquartered in West Des Moines, Iowa with satellite offices in Charlotte, NC and New York, NY. For more information, please visit www.american-equity.com.

Consolidated Statements of Operations

NON-GAAP FINANCIAL MEASURES

In addition to net income (loss) available to common stockholders, we have consistently utilized non-GAAP operating income available to common stockholders and non-GAAP operating income available to common stockholders per common share - assuming dilution, non-GAAP financial measures commonly used in the life insurance industry, as economic measures to evaluate our financial performance. Non-GAAP operating income available to common stockholders equals net income (loss) available to common stockholders adjusted to eliminate the impact of items that fluctuate from quarter to quarter in a manner unrelated to core operations, and we believe measures excluding their impact are useful in analyzing operating trends. The most significant adjustments to arrive at non-GAAP operating income available to common stockholders eliminate the impact of fair value accounting for our fixed index annuity business. These adjustments are not economic in nature but rather impact the timing of reported results. We believe the combined presentation and evaluation of non-GAAP operating income available to common stockholders together with net income (loss) available to common stockholders provides information that may enhance an investor’s understanding of our underlying results and profitability.

Reconciliation from Net Income (Loss) Available to Common Stockholders to Non-GAAP Operating Income Available to Common Stockholders and Non-GAAP Operating Income Available to Common Stockholders, Excluding Notable Items

Notable Items

Book Value per Common Share

NON-GAAP FINANCIAL MEASURES

Average Common Stockholders' Equity and Return on Average Common Stockholders' Equity

Return on average common stockholders' equity measures how efficiently we generate profits from the resources provided by our net assets. Return on average common stockholders' equity is calculated by dividing net income available to common stockholders, for the trailing twelve months, by average equity available to common stockholders. Non-GAAP operating return on average common stockholders' equity excluding average accumulated other comprehensive income (AOCI) and average net impact of fair value accounting for derivatives and embedded derivatives is calculated by dividing non-GAAP operating income available to common stockholders, for the trailing twelve months, by average common stockholders' equity excluding average AOCI and average net impact of fair value accounting for derivatives and embedded derivatives. We exclude AOCI because AOCI fluctuates from quarter to quarter due to unrealized changes in the fair value of available for sale investments. We exclude the net impact of fair value accounting for derivatives and embedded derivatives as the amounts are not economic in nature but rather impact the timing of reported results.

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Steven D. Schwartz, Vice President-Investor Relations

(515) 273-3763, [email protected]

Source: American Equity Investment Life Holding Company