American Equity Reports Fourth Quarter and Full Year 2017 Results

By a News Reporter-Staff News Editor at Insurance Weekly News -- American Equity Investment Life Holding Company (NYSE: AEL), a leading issuer of fixed index annuities, reported fourth quarter 2017 net income of $36.8 million, or $0.41 per diluted common share, compared to net income of $120.8 million, or $1.35 per diluted common share, for fourth quarter 2016. For the year ended December 31, 2017, net income was $174.6 million, or $1.93 per diluted common share, compared to $83.2 million, or $0.97 per diluted common share, for the year ended December 31, 2016.

Non-GAAP operating income1 for the fourth quarter of 2017 was $74.5 million, or $0.82 per diluted common share, compared to non-GAAP operating income1 of $56.0 million, or $0.63 per diluted common share, for fourth quarter 2016. For the year ended December 31, 2017, non-GAAP operating income1 was $285.1 million, or $3.16 per diluted common share, compared to $122.3 million, or $1.43 per diluted common share, for the year ended December 31, 2016. Non-GAAP operating1 return on average equity excluding average AOCI1 for the year was 14.0% based upon reported results and 12.9% excluding both the impact of assumption revisions and losses on extinguishment of debt.

The Tax Cuts and Jobs Act of 2017 ("Tax Reform") was enacted on December 22, 2017, reducing the statutory federal income tax rate from 35 percent to 21 percent effective January 1, 2018. The impact of Tax Reform was a reduction of net income for the quarter of $35.9 million, or $0.40 per share, due to the rate change on net deferred tax assets at the time of enactment. The impact of Tax Reform has been excluded from non-GAAP operating income1. POLICYHOLDER FUNDS UNDER MANAGEMENT UP 1.6% ON $1.0 BILLION OF SALES Policyholder funds under management at December 31, 2017 were $48.4 billion, a $773 million or 1.6% increase from September 30, 2017. Fourth quarter sales were $1.0 billion before coinsurance ceded and $883 million after coinsurance ceded. Gross sales and net sales for the quarter were down 27.4% and 21.6%, respectively, from fourth quarter 2016 sales. However, on a sequential basis, gross and net sales increased 10.3% and 5.9%, respectively.

Total sales by independent agents for American Equity Investment Life Insurance Company increased 2.2% sequentially while total sales by broker-dealers and banks for Eagle Life Insurance Company rose by $77 million or 53.1% sequentially. Sales of fixed index annuities (FIAs) were up 8.4% sequentially to $945 million with the majority of the increase attributable to sales at Eagle Life.

Commenting on sales, John Matovina, Chairman and Chief Executive Officer, said: "The sequential increase in FIA sales is only the second sequential increase we've had in the last eight quarters. Our sequential sales pattern has largely tracked the industry on a directional basis with industry sales facing headwinds from the DOL fiduciary rule, the strong equity market and low interest rates. In addition, we have dealt with increased competition including a focus by certain distributors on products featuring complex "hybrid" market indices. We have avoided these hybrid indices as we believe they lack the transparency that has been the hallmark of our safe money insurance products."

Commenting on the market environment and the outlook for FIA sales, Matovina added: "The market in each of our distribution channels remains competitive. The downward rate adjustments several competitors made in September and October have largely reversed, and we have seen additional increases in 2018. However, changes we made to our products in September and October, gave us sales momentum, and we continue to be in a strong competitive position for guaranteed income, caps and participation rates. In March, we plan to augment that position by introducing a new fixed index annuity product that focuses on guaranteed lifetime income. We will have a bonus and non-bonus version of the new product. Each version will have two fee based options for lifetime income, allowing the policyholder to decide, at time of purchase, whether to activate lifetime income after a shorter or longer deferral period, and a no fee option which will have lower lifetime income than the fee based options. This product incorporates significant input from our distribution partners, and we expect it to be well received in the market as income levels are anticipated to be competitive. We also intend to continue to emphasize our Choice and Select series of products for accumulation. Despite the current challenges facing the FIA market, we believe the long-term outlook for FIA sales remains favorable driven by well understood demographic factors, and we are well positioned to fully participate in that growth." INVESTMENT SPREAD WIDENS ON NON-TRENDABLE ITEMS American Equity's investment spread was 2.75% for the fourth quarter of 2017 compared to 2.70% for the third quarter of 2017 and 2.62% for the fourth quarter of 2016. On a sequential basis, the average yield on invested assets increased by four basis points while the cost of money fell by one basis point.

Average yield on invested assets rose to 4.47% for the fourth quarter of 2017 compared to 4.43% for the third quarter of 2017 reflecting an increase in the benefit from fee income from bond transactions, prepayment income and other non-trendable investment income items to twelve basis points in the fourth quarter of 2017 from five basis points in the third quarter of 2017. The average yield on fixed income securities purchased and commercial mortgage loans funded in the fourth quarter of 2017 was 4.27% compared to 4.39% in the third quarter of 2017, and 4.03% for the first six months of 2017.

The aggregate cost of money for annuity liabilities of 1.72% in the fourth quarter of 2017 was down one basis point from 1.73% in the third quarter of 2017. The benefit from over hedging the obligations for index linked interest was eight basis points in the fourth quarter of 2017 compared to six basis points in the third quarter of 2017.

Keywords for this news article include: Business, Legal Issues, Insurance Companies, Finance and Investment, Investment and Finance, American Equity Investment Life Holding Company.

Our reports deliver fact-based news of research and discoveries from around the world. Copyright 2018, NewsRx LLC