American Equity Reports First Quarter 2017 Results

By a News Reporter-Staff News Editor at Investment Weekly News -- American Equity Investment Life Holding Company (NYSE: AEL), a leading issuer of fixed index annuities, reported first quarter 2017 net income of $53.9 million, or $0.60 per diluted common share, compared to net loss of $44.8 million, or $0.55 per diluted common share, for first quarter 2016.

Non-GAAP operating income1 for the first quarter of 2017 was $59.6 million, or $0.66 per diluted common share, compared to non-GAAP operating income1 of $21.0 million, or $0.25 per diluted common share, for first quarter 2016. On a trailing twelve month basis, non-GAAP operating1 return on average equity1 was 8.6% based upon reported results and 11.2% excluding the impact of assumption revisions in the third quarter of 2016. POLICYHOLDER FUNDS UNDER MANAGEMENT UP 1.8% ON $1.1 BILLION OF SALES Policyholder funds under management at March 31, 2017 were $46.0 billion, an $819 million or 1.8% increase from year-end 2016. First quarter sales were $1.1 billion before coinsurance ceded and $1.0 billion after coinsurance ceded. Gross sales and net sales for the quarter were down substantially from the record first quarter sales posted in 2016. On a sequential basis, gross sales were down 22% with net sales down 10%.

Commenting on sales, John Matovina, Chief Executive Officer and President, said: "While sales were down substantially on a year-over-year basis, we would note that first quarter 2016 sales benefited from momentum we had coming off of a record second half of 2015 as well as elevated sales of multi-year guaranteed annuities (MYGAs). The relatively smaller declines in net sales compared to gross sales reflects both significantly lower volumes of MYGA products which are substantially coinsured as well as a reduction in the portion of Eagle Life's fixed indexed annuity (FIA) product sales that are coinsured.

Total sales by independent agents for American Equity Investment Life Insurance Company (American Equity Life) declined 18% sequentially while total sales by broker-dealers and banks for Eagle Life declined by $99 million or 47% sequentially. Sales of FIAs were down 16% sequentially to $1.0 billion with all of the decrease attributable to reduced sales for American Equity Life."

Commenting on the competitive environment and the outlook for FIA sales, Matovina added: "The market in each of our distribution channels was quite competitive in the first quarter and we've not seen any indication that the near term will be any less competitive. We continue to suspect that uncertainty regarding the Department of Labor (DOL) conflict of interest fiduciary rule may be distracting from marketing activities and playing a role in lower sales. In some cases, registered representatives may be positioning money away from annuities and into managed money in anticipation of the fiduciary rule."

Matovina continued: "We have enhanced our competitive positioning by adding an optional market value adjustment (MVA) feature to our Eagle Select and American Equity Choice series of products. These products accounted for approximately 20% of first quarter 2017 FIA sales but it is too early to assess the impact from the MVA versions which have higher rates than the comparable non-MVA versions. While 2017 FIA sales are off to a slow start, we believe the long-term outlook for FIA sales remains favorable driven by well understood demographic factors and the potential for further increases in interest rates." COST OF MONEY REDUCTION BENEFITS INVESTMENT SPREAD American Equity's investment spread was 2.71% for the first quarter of 2017 compared to 2.62% for the fourth quarter of 2016 and 2.65% for the first quarter of 2016. On a sequential basis, the average yield on invested assets increased approximately one basis point while the cost of money declined eight basis points.

Average yield on invested assets continued to be unfavorably impacted by the investment of new premiums and portfolio cash flows at rates below the portfolio rate. The average yield on fixed income securities purchased and commercial mortgage loans funded in the first quarter of 2017 was 4.13% compared to 3.71% and 4.14% in the fourth and first quarters of 2016, respectively. However, the unfavorable impact from new money investment yields was offset by fee income from bond transactions, prepayment income and other non-trendable investment income items which added ten basis points to the first quarter average yield on invested assets compared to seven basis from such items in the fourth quarter of 2016.

The aggregate cost of money for annuity liabilities decreased by eight basis points to 1.77% in the first quarter of 2017 compared to 1.85% in the fourth quarter of 2016. This decrease primarily reflected continued reductions in crediting rates. The benefit from over hedging the obligations for index linked interest was five basis points in the first quarter of 2017 compared to two basis points in the fourth quarter of 2016.

Keywords for this news article include: Finance and Investment, Investment and Finance, American Equity Investment Life Holding Company.

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