American Equity Investment Life Holding Company (NYSE:AEL), a leading
underwriter of index and fixed rate annuities, announced that it
recorded additional “other than temporary impairments” on certain
residential mortgage backed securities (“RMBS”) for the fourth quarter
of 2008. AEL previously reported the full mark-to-market decline in fair
value (net of applicable offsets) of all available-for-sale securities,
including these RMBS, in its preliminary balance sheet for December 31,
2008 as published February 25, 2009. The recognition of additional
“other than temporary impairments” requires a reassignment of such
declines in fair value (net of applicable offsets) from “accumulated
other comprehensive loss” as reported in the preliminary balance sheet
to “realized losses on investments” reported in the statement of
operations for the fourth quarter of 2008.
The additional other than temporary impairments recognized involve only
RMBS and no impairments were recorded on any of the company’s commercial
mortgages. All such RMBS are performing in accordance with their terms
with no defaults in any payments of principal and interest. Further, no
defaults are expected in 2009 based on all facts and circumstances known
to the company at this time. As discussed below, the requirement to
record other than temporary impairment losses on these securities is
based on an interpretation of the weight to be given to certain credit
rating agency data in making other than temporary impairment assessments
under U.S. generally accepted accounting principles (“GAAP”).
As a result of the recognition of additional other than temporary
impairment losses on investments, net income for the year ended December
31, 2008 was $20.8 million, compared to 2007 net income of $29.0
million. Changes in the final results for the fourth quarter of 2008
from the preliminary results previously reported are1:
-
Realized losses on investments increased to $95.7 million from $22.8
million with a corresponding decrease in net income (net of applicable
offsets) from $4.2 million to a net loss of $22.1 million.
-
Operating income increased to $16.1 million from $15.6 million.
Operating income per diluted common share was unchanged at $0.29.
-
Book value per common share outstanding decreased to $9.37 from $9.53.
-
NAIC risked-based capital ratio determined under statutory accounting
principles remains unchanged at 347% as of December 31, 2008.
With respect to RMBS, the determination under GAAP that an “other than
temporary impairment” exists requires a comprehensive analysis of future
projections of the performance of the collateral pools comprising the
securities, including projected levels and severity of residential
mortgage defaults within the pool. Each of the RMBS for which AEL
recognized an other than temporary impairment in the fourth quarter of
2008 is in the highest tranche of the applicable mortgage collateral
pool. Accordingly, subordinate tranches will absorb collateral losses
within these pools to the full extent of such subordination. Under some
scenarios, future losses may erode all subordination and result in a
loss to the highest tranche. If such a projected loss is deemed to be
“probable”, the company is required to record an other than temporary
impairment based on the fair value of the security regardless of whether
the degree of such projected loss is small in relation to the decline in
fair value of the security. The fair values of many RMBS and other
securities have been severely impacted by the disorderly, illiquid and
irrational market conditions arising from the global financial crisis.
A future, contingent loss for AEL’s RMBS was considered to be “probable”
under interpretations of GAAP for assessing other than temporary
impairments if there was published credit rating agency data which would
support this conclusion. The determination of “probability” based on
negative credit rating agency indications was required by GAAP even
where such information was (i) inconsistent with the actual ratings
assigned by the credit rating agencies to the securities; (ii)
inconsistent with other data published by the credit rating agency with
respect to the securities; (iii) inconsistent with management’s own
comprehensive analysis of future projections of the RMBS collateral
performance; (iv) not based on the most recent evidence regarding the
actual levels of defaults and severity of defaults experienced by the
specific RMBS collateral pool; and/or (v) based on information that had
no transparency because the credit rating agency did not publish its
underlying assumptions and data.
AEL’s management believes that the foregoing GAAP interpretation for
“other than temporary impairment” assessments and the weight required by
GAAP to be given certain credit rating agency data is unwarranted and
unreasonable. As a result, AEL will continue to seek additional formal
guidance regarding the interpretation of GAAP for other than temporary
impairment assessments and/or seek to bring about change in such
interpretation.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This press release contains forward-looking statements within the
meaning of The Private Securities Litigation Reform Act of 1995.
Forward-looking statements relate to future operations, strategies,
financial results or other developments, and are subject to assumptions,
risks and uncertainties. Statements such as “guidance”, “expect”,
“anticipate”, “believe”, “goal”, “objective”, “target”, “may”, “should”,
“estimate”, “projects” or similar words as well as specific projections
of future results qualify as forward-looking statements. Factors that
may cause our actual results to differ materially from those
contemplated by these forward looking statements can be found in the
company’s Form 10-K filed with the Securities and Exchange Commission.
Forward-looking statements speak only as of the date the statement was
made and the company undertakes no obligation to update such
forward-looking statements. There can be no assurance that other factors
not currently anticipated by the company will not materially and
adversely affect our results of operations. Investors are cautioned not
to place undue reliance on any forward-looking statements made by us or
on our behalf.
ABOUT AMERICAN EQUITY
American Equity Investment Life Holding Company, through its
wholly-owned operating subsidiaries, is a full-service underwriter of
fixed annuity and life insurance products, with a primary emphasis on
the sale of index and fixed rate annuities. The company’s headquarters
are located at 5000 Westown Parkway, West Des Moines, Iowa, 50266. The
mailing address of the company is: P.O. Box 71216, Des Moines, Iowa
50325.
1 For additional information see the company’s revised
Financial Supplement filed with Form 8-K and its Form 10-K both filed
today.
|
American Equity Investment Life
Holding Company
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|
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|
|
|
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|
|
|
|
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|
|
|
|
|
|
|
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Net Income (Loss)/Operating
Income (Unaudited)
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
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Three Months Ended
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Year Ended
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December 31,
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December 31,
|
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|
|
|
|
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2008
|
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|
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2007
|
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|
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2008
|
|
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2007
|
|
|
|
|
|
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(Dollars in thousands, except per share data)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Traditional life and accident and health insurance premiums
|
|
$
|
3,093
|
|
|
$
|
3,032
|
|
|
$
|
12,512
|
|
|
$
|
12,623
|
|
|
|
|
Annuity product charges
|
|
|
15,400
|
|
|
|
12,805
|
|
|
|
52,671
|
|
|
|
45,828
|
|
|
|
|
Net investment income
|
|
|
214,531
|
|
|
|
191,107
|
|
|
|
822,077
|
|
|
|
719,916
|
|
|
|
|
Realized losses on investments
|
|
|
(95,681
|
)
|
|
|
(4,803
|
)
|
|
|
(187,093
|
)
|
|
|
(3,882
|
)
|
|
|
|
Change in fair value of derivatives
|
|
|
(57,578
|
)
|
|
|
(139,740
|
)
|
|
|
(372,009
|
)
|
|
|
(59,985
|
)
|
|
|
|
Gain on retirement of debt
|
|
|
13,409
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|
|
|
-
|
|
|
|
13,651
|
|
|
|
-
|
|
|
Total revenues
|
|
|
93,174
|
|
|
|
62,401
|
|
|
|
341,809
|
|
|
|
714,500
|
|
|
|
|
|
|
|
|
|
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|
|
|
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Benefits and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Insurance policy benefits and change in future policy benefits
|
|
|
1,916
|
|
|
|
2,029
|
|
|
|
8,972
|
|
|
|
8,419
|
|
|
|
|
Interest credited to account balances
|
|
|
51,099
|
|
|
|
110,294
|
|
|
|
205,131
|
|
|
|
560,209
|
|
|
|
|
Amortization of deferred sales inducements
|
|
|
(3,488
|
)
|
|
|
(4,820
|
)
|
|
|
30,705
|
|
|
|
11,708
|
|
|
|
|
Change in fair value of embedded derivatives
|
|
|
27,216
|
|
|
|
(56,426
|
)
|
|
|
(210,753
|
)
|
|
|
(67,902
|
)
|
|
|
|
Interest expense on notes payable
|
|
|
3,693
|
|
|
|
4,043
|
|
|
|
15,425
|
|
|
|
16,221
|
|
|
|
|
Interest expense on subordinated debentures
|
|
|
4,896
|
|
|
|
5,644
|
|
|
|
19,445
|
|
|
|
22,520
|
|
|
|
|
Interest expense on amounts due under repurchase agreements
|
|
|
513
|
|
|
|
4,084
|
|
|
|
8,207
|
|
|
|
15,926
|
|
|
|
|
Amortization of deferred policy acquisition costs
|
|
|
8,143
|
|
|
|
(4,618
|
)
|
|
|
126,738
|
|
|
|
56,330
|
|
|
|
|
Other operating costs and expenses
|
|
|
14,083
|
|
|
|
11,154
|
|
|
|
52,633
|
|
|
|
48,230
|
|
|
Total benefits and expenses
|
|
|
108,071
|
|
|
|
71,384
|
|
|
|
256,503
|
|
|
|
671,661
|
|
|
|
|
|
|
|
|
|
|
|
|
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Income (loss) before income taxes
|
|
|
(14,897
|
)
|
|
|
(8,983
|
)
|
|
|
85,306
|
|
|
|
42,839
|
|
|
Income tax expense (benefit)
|
|
|
7,245
|
|
|
|
(3,985
|
)
|
|
|
64,531
|
|
|
|
13,863
|
|
|
Net income (loss)
|
|
|
(22,142
|
)
|
|
|
(4,998
|
)
|
|
|
20,775
|
|
|
|
28,976
|
|
|
Realized losses on investments, net of offsets
|
|
|
43,384
|
|
|
|
2,283
|
|
|
|
92,524
|
|
|
|
1,688
|
|
|
Convertible debt retirement, net of income taxes
|
|
|
(7,844
|
)
|
|
|
-
|
|
|
|
(7,986
|
)
|
|
|
-
|
|
|
Net effect of SFAS 133, net of offsets
|
|
|
2,700
|
|
|
|
19,735
|
|
|
|
(29,689
|
)
|
|
|
34,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (a)
|
|
$
|
16,098
|
|
|
$
|
17,020
|
|
|
$
|
75,624
|
|
|
$
|
64,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share
|
|
$
|
(0.42
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
0.39
|
|
|
$
|
0.51
|
|
|
Earnings (loss) per common share - assuming dilution
|
|
$
|
(0.39
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
0.39
|
|
|
$
|
0.50
|
|
|
Operating income per common share (a)
|
|
$
|
0.30
|
|
|
$
|
0.30
|
|
|
$
|
1.41
|
|
|
$
|
1.14
|
|
|
Operating income per common share - assuming dilution (a)
|
|
$
|
0.29
|
|
|
$
|
0.29
|
|
|
$
|
1.35
|
|
|
$
|
1.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share
|
|
|
52,779
|
|
|
|
56,348
|
|
|
|
53,750
|
|
|
|
56,760
|
|
|
|
|
Earnings per common share - assuming dilution
|
|
|
55,650
|
|
|
|
59,154
|
|
|
|
56,622
|
|
|
|
59,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American Equity Investment Life
Holding Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
Three months ended December 31,
2008 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
Realized Losses
|
|
SFAS 133
|
|
|
|
|
|
|
|
|
|
and Convertible
|
|
and Other
|
|
Operating
|
|
|
|
|
|
As Reported
|
|
Debt
|
|
Index Annuity
|
|
Income (a)
|
|
|
|
|
|
(Dollars in thousands, except per share data)
|
|
Reserves:
|
|
|
|
|
|
|
|
|
|
|
|
Traditional life and accident and health insurance premiums
|
|
$
|
3,093
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,093
|
|
|
|
|
Annuity product charges
|
|
|
15,400
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,400
|
|
|
|
|
Net investment income
|
|
|
214,531
|
|
|
|
-
|
|
|
|
-
|
|
|
|
214,531
|
|
|
|
|
Realized losses on investments
|
|
|
(95,681
|
)
|
|
|
95,681
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
Change in fair value of derivatives
|
|
|
(57,578
|
)
|
|
|
-
|
|
|
|
(8,276
|
)
|
|
|
(65,854
|
)
|
|
|
|
Gain on retirement of debt
|
|
|
13,409
|
|
|
|
(13,409
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Total revenues
|
|
|
93,174
|
|
|
|
82,272
|
|
|
|
(8,276
|
)
|
|
|
167,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Insurance policy benefits and change in future policy benefits
|
|
|
1,916
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,916
|
|
|
|
|
Interest credited to account balances
|
|
|
51,099
|
|
|
|
-
|
|
|
|
2,041
|
|
|
|
53,140
|
|
|
|
|
Amortization of deferred sales inducements
|
|
|
(3,488
|
)
|
|
|
15,775
|
|
|
|
6,483
|
|
|
|
18,770
|
|
|
|
|
Change in fair value of embedded derivatives
|
|
|
27,216
|
|
|
|
-
|
|
|
|
(27,216
|
)
|
|
|
-
|
|
|
|
|
Interest expense on notes payable
|
|
|
3,693
|
|
|
|
-
|
|
|
|
(233
|
)
|
|
|
3,460
|
|
|
|
|
Interest expense on subordinated debentures
|
|
|
4,896
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,896
|
|
|
|
|
Interest expense on amounts due under repurchase agreements
|
|
|
513
|
|
|
|
-
|
|
|
|
-
|
|
|
|
513
|
|
|
|
|
Amortization of deferred policy acquisition costs
|
|
|
8,143
|
|
|
|
31,313
|
|
|
|
6,391
|
|
|
|
45,847
|
|
|
|
|
Other operating costs and expenses
|
|
|
14,083
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,083
|
|
|
Total benefits and expenses
|
|
|
108,071
|
|
|
|
47,088
|
|
|
|
(12,534
|
)
|
|
|
142,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
(14,897
|
)
|
|
|
35,184
|
|
|
|
4,258
|
|
|
|
24,545
|
|
|
Income tax expense
|
|
|
7,245
|
|
|
|
(356
|
)
|
|
|
1,558
|
|
|
|
8,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
(22,142
|
)
|
|
$
|
35,540
|
|
|
$
|
2,700
|
|
|
$
|
16,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share
|
|
$
|
(0.42
|
)
|
|
|
|
|
|
$
|
0.30
|
|
|
Earnings per common share - assuming dilution
|
|
$
|
(0.39
|
)
|
|
|
|
|
|
$
|
0.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
In addition to net income (loss), we have consistently utilized
operating income, operating income per common share and operating
income per common share - assuming dilution, non-GAAP financial
measures commonly used in the life insurance industry, as economic
measures to evaluate our financial performance. Operating income
equals net income (loss) adjusted to eliminate the impact of net
realized gains and losses on investments including related deferred
tax asset valuation allowance, gain on retirement of convertible
debt, SFAS 133, dealing with fair value changes in derivatives and
embedded derivatives and the Lehman counterparty default on expired
call options. Because these items fluctuate from quarter to quarter
in a manner unrelated to core operations, we believe measures
excluding their impact are useful in analyzing operating trends. We
believe the combined presentation and evaluation of operating income
together with net income (loss), provides information that may
enhance an investor's understanding of our underlying results and
profitability.
|
American Equity Investment Life Holding Company
John M. Matovina,
515-457-1813
Chief Financial Officer
jmatovina@american-equity.com
or
D.
J. Noble, 515-457-1705
Chairman
dnoble@american-equity.com
or
Julie
L. LaFollette, 515-273-3602
Director of Investor Relations
jlafollette@american-equity.com
or
Debra
J. Richardson, 515-273-3551
Executive Vice President
drichardson@american-equity.com
