x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Iowa | 42-1447959 | |
(State of Incorporation) | (I.R.S. Employer Identification No.) | |
6000 Westown Parkway West Des Moines, Iowa | 50266 | |
(Address of principal executive offices) | (Zip Code) | |
Registrant's telephone number, including area code | (515) 221-0002 | |
(Telephone) |
Title of each class | Name of each exchange on which registered | |
Common Stock, par value $1 | New York Stock Exchange |
Large accelerated filer o | Accelerated filer x | |
Non-accelerated filer o | Smaller reporting company o | |
(Do not check if a smaller reporting company) |
Page | |
June 30, 2012 | December 31, 2011 | ||||||
(Unaudited) | |||||||
Assets | |||||||
Investments: | |||||||
Fixed maturity securities: | |||||||
Available for sale, at fair value (amortized cost: 2012 - $19,083,027; 2011 - $16,980,279) | $ | 20,955,231 | $ | 18,464,109 | |||
Held for investment, at amortized cost (fair value: 2012 - $988,361; 2011 - $2,644,422) | 1,000,024 | 2,644,206 | |||||
Equity securities, available for sale, at fair value (cost: 2012 - $53,397; 2011 - $58,438) | 61,441 | 62,845 | |||||
Mortgage loans on real estate | 2,732,093 | 2,823,047 | |||||
Derivative instruments | 476,699 | 273,314 | |||||
Other investments | 201,757 | 115,930 | |||||
Total investments | 25,427,245 | 24,383,451 | |||||
Cash and cash equivalents | 1,407,830 | 404,952 | |||||
Coinsurance deposits | 2,895,212 | 2,818,642 | |||||
Accrued investment income | 244,644 | 228,937 | |||||
Deferred policy acquisition costs | 1,677,770 | 1,683,857 | |||||
Deferred sales inducements | 1,253,583 | 1,242,787 | |||||
Deferred income taxes | — | 21,981 | |||||
Income taxes recoverable | 11,934 | 8,441 | |||||
Other assets | 215,384 | 81,671 | |||||
Total assets | $ | 33,133,602 | $ | 30,874,719 | |||
Liabilities and Stockholders' Equity | |||||||
Liabilities: | |||||||
Policy benefit reserves | $ | 29,896,751 | $ | 28,118,716 | |||
Other policy funds and contract claims | 434,142 | 400,594 | |||||
Notes payable | 303,595 | 297,608 | |||||
Subordinated debentures | 256,122 | 268,593 | |||||
Deferred income taxes | 29,808 | — | |||||
Other liabilities | 635,533 | 380,529 | |||||
Total liabilities | 31,555,951 | 29,466,040 | |||||
Stockholders' equity: | |||||||
Preferred stock, no par value, 2,000,000 shares authorized, 2012 and 2011 no shares issued and outstanding | — | — | |||||
Common stock, par value $1 per share, 125,000,000 shares authorized; issued and outstanding: 2012 - 60,208,754 shares (excluding 5,124,749 treasury shares); 2011 - 57,836,540 shares (excluding 5,616,595 treasury shares) | 60,209 | 57,837 | |||||
Additional paid-in capital | 482,563 | 468,281 | |||||
Unallocated common stock held by ESOP; 2012 - 294,770 shares; 2011 - 336,093 shares | (3,175 | ) | (3,620 | ) | |||
Accumulated other comprehensive income | 579,872 | 457,229 | |||||
Retained earnings | 458,182 | 428,952 | |||||
Total stockholders' equity | 1,577,651 | 1,408,679 | |||||
Total liabilities and stockholders' equity | $ | 33,133,602 | $ | 30,874,719 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Revenues: | |||||||||||||||
Traditional life insurance premiums | $ | 3,248 | $ | 3,289 | $ | 6,470 | $ | 6,205 | |||||||
Annuity product charges | 21,908 | 19,892 | 41,301 | 36,854 | |||||||||||
Net investment income | 320,259 | 296,878 | 647,169 | 589,006 | |||||||||||
Change in fair value of derivatives | (150,847 | ) | (22,029 | ) | 108,314 | 126,624 | |||||||||
Net realized losses on investments, excluding other than temporary impairment ("OTTI") losses | (611 | ) | (854 | ) | (6,687 | ) | (2,047 | ) | |||||||
OTTI losses on investments: | |||||||||||||||
Total OTTI losses | (375 | ) | (113 | ) | (2,156 | ) | (5,213 | ) | |||||||
Portion of OTTI losses recognized from other comprehensive income | (603 | ) | (2,116 | ) | (1,703 | ) | (3,587 | ) | |||||||
Net OTTI losses recognized in operations | (978 | ) | (2,229 | ) | (3,859 | ) | (8,800 | ) | |||||||
Total revenues | 192,979 | 294,947 | 792,708 | 747,842 | |||||||||||
Benefits and expenses: | |||||||||||||||
Insurance policy benefits and change in future policy benefits | 2,250 | 2,499 | 4,367 | 4,394 | |||||||||||
Interest sensitive and index product benefits | 142,733 | 238,420 | 281,856 | 398,085 | |||||||||||
Amortization of deferred sales inducements | 25,940 | 20,265 | 42,650 | 50,957 | |||||||||||
Change in fair value of embedded derivatives | (80,989 | ) | (60,963 | ) | 278,077 | 67,340 | |||||||||
Interest expense on notes payable | 7,072 | 7,832 | 14,067 | 15,739 | |||||||||||
Interest expense on subordinated debentures | 3,563 | 3,481 | 7,149 | 6,947 | |||||||||||
Interest expense on amounts due under repurchase agreements | — | 1 | — | 5 | |||||||||||
Amortization of deferred policy acquisition costs | 44,848 | 38,862 | 79,132 | 94,085 | |||||||||||
Other operating costs and expenses | 18,902 | 16,634 | 40,615 | 34,108 | |||||||||||
Total benefits and expenses | 164,319 | 267,031 | 747,913 | 671,660 | |||||||||||
Income before income taxes | 28,660 | 27,916 | 44,795 | 76,182 | |||||||||||
Income tax expense | 9,901 | 9,642 | 15,565 | 26,565 | |||||||||||
Net income | $ | 18,759 | $ | 18,274 | $ | 29,230 | $ | 49,617 | |||||||
Earnings per common share | $ | 0.31 | $ | 0.31 | $ | 0.49 | $ | 0.84 | |||||||
Earnings per common share - assuming dilution | $ | 0.30 | $ | 0.28 | $ | 0.46 | $ | 0.77 | |||||||
Weighted average common shares outstanding (in thousands): | |||||||||||||||
Earnings per common share | 59,943 | 59,504 | 59,822 | 59,344 | |||||||||||
Earnings per common share - assuming dilution | 64,254 | 65,530 | 64,230 | 65,437 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Net income | $ | 18,759 | $ | 18,274 | 29,230 | 49,617 | |||||||||
Other comprehensive income: | |||||||||||||||
Change in net unrealized investment gains/losses (1) | 263,366 | 85,149 | 188,391 | 62,596 | |||||||||||
Noncredit component of OTTI losses (1) | (99 | ) | 855 | 290 | 1,499 | ||||||||||
Other comprehensive income before income tax | 263,267 | 86,004 | 188,681 | 64,095 | |||||||||||
Income tax effect related to other comprehensive income | (92,142 | ) | (30,101 | ) | (66,038 | ) | (22,433 | ) | |||||||
Other comprehensive income | 171,125 | 55,903 | 122,643 | 41,662 | |||||||||||
Comprehensive income | $ | 189,884 | $ | 74,177 | $ | 151,873 | $ | 91,279 |
Common Stock | Additional Paid-in Capital | Unallocated Common Stock Held by ESOP | Accumulated Other Comprehensive Income | Retained Earnings | Total Stockholders' Equity | ||||||||||||||||||
Balance at December 31, 2011 | $ | 57,837 | $ | 468,281 | $ | (3,620 | ) | $ | 457,229 | $ | 428,952 | $ | 1,408,679 | ||||||||||
Net income for period | — | — | — | — | 29,230 | 29,230 | |||||||||||||||||
Other comprehensive income | — | — | — | 122,643 | — | 122,643 | |||||||||||||||||
Conversion of $12,554 of subordinated debentures | 1,550 | 10,291 | — | — | — | 11,841 | |||||||||||||||||
Allocation of 41,323 shares of common stock by ESOP, including excess income tax benefits | — | 22 | 445 | — | — | 467 | |||||||||||||||||
Share-based compensation, including excess income tax benefits | — | 3,719 | — | — | — | 3,719 | |||||||||||||||||
Issuance of 822,390 shares of common stock under compensation plans, including excess income tax benefits | 822 | 250 | — | — | — | 1,072 | |||||||||||||||||
Balance at June 30, 2012 | $ | 60,209 | $ | 482,563 | $ | (3,175 | ) | $ | 579,872 | $ | 458,182 | $ | 1,577,651 | ||||||||||
Balance at December 31, 2010 | $ | 56,968 | $ | 454,454 | $ | (4,815 | ) | $ | 81,820 | $ | 349,620 | $ | 938,047 | ||||||||||
Net income for period | — | — | — | — | 49,617 | 49,617 | |||||||||||||||||
Other comprehensive income | — | — | — | 41,662 | — | 41,662 | |||||||||||||||||
Acquisition of 500 shares of common stock | — | (6 | ) | — | — | — | (6 | ) | |||||||||||||||
Allocation of 51,189 shares of common stock by ESOP, including excess income tax benefits | — | 69 | 551 | — | — | 620 | |||||||||||||||||
Share-based compensation, including excess income tax benefits | — | 5,229 | — | — | — | 5,229 | |||||||||||||||||
Issuance of 864,129 shares of common stock under compensation plans, including excess income tax benefits | 864 | 3,499 | — | — | — | 4,363 | |||||||||||||||||
Balance at June 30, 2011 | $ | 57,832 | $ | 463,245 | $ | (4,264 | ) | $ | 123,482 | $ | 399,237 | $ | 1,039,532 |
Six Months Ended June 30, | |||||||
2012 | 2011 | ||||||
Operating activities | |||||||
Net income | $ | 29,230 | $ | 49,617 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Interest sensitive and index product benefits | 281,856 | 398,085 | |||||
Amortization of deferred sales inducements | 42,650 | 50,957 | |||||
Annuity product charges | (41,301 | ) | (36,854 | ) | |||
Change in fair value of embedded derivatives | 278,077 | 67,340 | |||||
Increase in traditional life and accident and health insurance reserves | 12,652 | 45,720 | |||||
Policy acquisition costs deferred | (186,573 | ) | (222,358 | ) | |||
Amortization of deferred policy acquisition costs | 79,132 | 94,085 | |||||
Provision for depreciation and other amortization | 9,150 | 9,292 | |||||
Amortization of discounts and premiums on investments | (64,020 | ) | (78,582 | ) | |||
Realized gains/losses on investments and net OTTI losses recognized in operations | 10,546 | 10,847 | |||||
Change in fair value of derivatives | (108,314 | ) | (127,799 | ) | |||
Deferred income taxes | (14,249 | ) | (64,332 | ) | |||
Share-based compensation | 3,024 | 4,181 | |||||
Change in accrued investment income | (15,707 | ) | (47,812 | ) | |||
Change in income taxes recoverable/payable | (3,493 | ) | (3,308 | ) | |||
Change in other assets | (10,077 | ) | 2,182 | ||||
Change in other policy funds and contract claims | 33,548 | 95,560 | |||||
Change in collateral held for derivatives | 175,549 | 12,910 | |||||
Change in other liabilities | (11,421 | ) | (74,889 | ) | |||
Other | 164 | 703 | |||||
Net cash provided by operating activities | 500,423 | 185,545 | |||||
Investing activities | |||||||
Sales, maturities, or repayments of investments: | |||||||
Fixed maturity securities - available for sale | 1,423,179 | 3,244,966 | |||||
Fixed maturity securities - held for investment | 1,688,329 | — | |||||
Equity securities - available for sale | 5,605 | 2,958 | |||||
Mortgage loans on real estate | 219,423 | 86,079 | |||||
Derivative instruments | 110,201 | 275,473 | |||||
Other investments | 10,362 | 57 | |||||
Acquisition of investments: | |||||||
Fixed maturity securities - available for sale | (3,542,142 | ) | (3,189,624 | ) | |||
Fixed maturity securities - held for investment | — | (1,279,831 | ) | ||||
Mortgage loans on real estate | (152,648 | ) | (296,884 | ) | |||
Derivative instruments | (184,709 | ) | (189,759 | ) | |||
Other investments | (83,811 | ) | (1,660 | ) | |||
Purchases of property, furniture and equipment | (273 | ) | (3,552 | ) | |||
Net cash used in investing activities | (506,484 | ) | (1,351,777 | ) |
Six Months Ended June 30, | |||||||
2012 | 2011 | ||||||
Financing activities | |||||||
Receipts credited to annuity and single premium universal life policyholder account balances | $ | 1,896,794 | $ | 2,450,646 | |||
Coinsurance deposits | (28,630 | ) | (37,196 | ) | |||
Return of annuity policyholder account balances | (848,372 | ) | (898,472 | ) | |||
Financing fees incurred and deferred | — | (1,566 | ) | ||||
Acquisition of common stock | — | (6 | ) | ||||
Excess tax benefits realized from share-based compensation plans | 693 | 1,117 | |||||
Proceeds from issuance of common stock | 1,062 | 4,255 | |||||
Change in checks in excess of cash balance | (12,608 | ) | (828 | ) | |||
Net cash provided by financing activities | 1,008,939 | 1,517,950 | |||||
Increase in cash and cash equivalents | 1,002,878 | 351,718 | |||||
Cash and cash equivalents at beginning of period | 404,952 | 597,766 | |||||
Cash and cash equivalents at end of period | $ | 1,407,830 | $ | 949,484 | |||
Supplemental disclosures of cash flow information | |||||||
Cash paid during period for: | |||||||
Interest expense | $ | 14,308 | $ | 15,210 | |||
Income taxes | 32,650 | 93,200 | |||||
Non-cash operating activity: | |||||||
Deferral of sales inducements | 143,248 | 189,200 | |||||
Non-cash investing activity: | |||||||
Real estate acquired in satisfaction of mortgage loans | 11,985 | 6,308 | |||||
Mortgage loan on real estate sold | — | 1,215 | |||||
Non-cash financing activities: | |||||||
Conversion of subordinated debentures | 12,554 | — |
June 30, 2012 | December 31, 2011 | ||||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||
(Dollars in thousands) | |||||||||||||||
Assets | |||||||||||||||
Fixed maturity securities: | |||||||||||||||
Available for sale | $ | 20,955,231 | $ | 20,955,231 | $ | 18,464,109 | $ | 18,464,109 | |||||||
Held for investment | 1,000,024 | 988,361 | 2,644,206 | 2,644,422 | |||||||||||
Equity securities, available for sale | 61,441 | 61,441 | 62,845 | 62,845 | |||||||||||
Mortgage loans on real estate | 2,732,093 | 2,989,626 | 2,823,047 | 3,030,308 | |||||||||||
Derivative instruments | 476,699 | 476,699 | 273,314 | 273,314 | |||||||||||
Other investments | 163,367 | 163,243 | 79,109 | 76,648 | |||||||||||
Cash and cash equivalents | 1,407,830 | 1,407,830 | 404,952 | 404,952 | |||||||||||
Coinsurance deposits | 2,895,212 | 2,632,861 | 2,818,642 | 2,549,025 | |||||||||||
Interest rate caps | 3,565 | 3,565 | — | — | |||||||||||
2015 notes hedges | 38,181 | 38,181 | 45,593 | 45,593 | |||||||||||
Liabilities | |||||||||||||||
Policy benefit reserves | 29,598,728 | 24,695,555 | 27,842,770 | 23,407,540 | |||||||||||
Single premium immediate annuity (SPIA) benefit reserves | 433,335 | 448,702 | 397,248 | 412,998 | |||||||||||
Notes payable | 303,595 | 398,479 | 297,608 | 376,370 | |||||||||||
Subordinated debentures | 256,122 | 225,710 | 268,593 | 233,809 | |||||||||||
2015 notes embedded derivatives | 38,181 | 38,181 | 45,593 | 45,593 | |||||||||||
Interest rate swaps | 3,148 | 3,148 | — | — |
Level 1— | Quoted prices are available in active markets for identical financial instruments as of the reporting date. We do not adjust the quoted price for these financial instruments, even in situations where we hold a large position and a sale could reasonably impact the quoted price. |
Level 2— | Quoted prices in active markets for similar financial instruments, quoted prices for identical or similar financial instruments in markets that are not active; and models and other valuation methodologies using inputs other than quoted prices that are observable. |
Level 3— | Models and other valuation methodologies using significant inputs that are unobservable for financial instruments and include situations where there is little, if any, market activity for the financial instrument. The inputs into the determination of fair value require significant management judgment or estimation. Financial instruments that are included in Level 3 are securities for which no market activity or data exists and for which we used discounted expected future cash flows with our own assumptions about what a market participant would use in determining fair value. |
Total Fair Value | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
(Dollars in thousands) | |||||||||||||||
June 30, 2012 | |||||||||||||||
Assets | |||||||||||||||
Fixed maturity securities: | |||||||||||||||
Available for sale: | |||||||||||||||
United States Government full faith and credit | $ | 5,214 | $ | 5,214 | $ | — | $ | — | |||||||
United States Government sponsored agencies | 1,704,516 | — | 1,704,516 | — | |||||||||||
United States municipalities, states and territories | 3,495,557 | — | 3,495,557 | — | |||||||||||
Foreign government obligations | 46,186 | — | 46,186 | — | |||||||||||
Corporate securities | 12,418,135 | 40,979 | 12,377,156 | — | |||||||||||
Residential mortgage backed securities | 2,524,030 | — | 2,522,025 | 2,005 | |||||||||||
Other asset backed securities | 761,593 | 384 | 761,209 | — | |||||||||||
Equity securities, available for sale: finance, insurance and real estate | 61,441 | 42,066 | 19,375 | — | |||||||||||
Derivative instruments | 476,699 | — | 476,699 | — | |||||||||||
Cash and cash equivalents | 1,407,830 | 1,407,830 | — | — | |||||||||||
Interest rate caps | 3,565 | — | 3,565 | — | |||||||||||
2015 notes hedges | 38,181 | — | 38,181 | — | |||||||||||
$ | 22,942,947 | $ | 1,496,473 | $ | 21,444,469 | $ | 2,005 | ||||||||
Liabilities | |||||||||||||||
Interest rate swaps | $ | 3,148 | $ | — | $ | 3,148 | $ | — | |||||||
2015 notes embedded derivatives | 38,181 | — | 38,181 | — | |||||||||||
Fixed index annuities - embedded derivatives | 2,914,948 | — | — | 2,914,948 | |||||||||||
$ | 2,956,277 | $ | — | $ | 41,329 | $ | 2,914,948 | ||||||||
December 31, 2011 | |||||||||||||||
Assets | |||||||||||||||
Fixed maturity securities: | |||||||||||||||
Available for sale: | |||||||||||||||
United States Government full faith and credit | $ | 4,678 | $ | 4,678 | $ | — | $ | — | |||||||
United States Government sponsored agencies | 1,799,779 | — | 1,799,779 | — | |||||||||||
United States municipalities, states and territories | 3,333,383 | — | 3,333,383 | — | |||||||||||
Foreign government obligations | 43,228 | — | 43,228 | — | |||||||||||
Corporate securities | 10,116,361 | 58,827 | 10,057,534 | — | |||||||||||
Residential mortgage backed securities | 2,703,290 | — | 2,701,192 | 2,098 | |||||||||||
Other asset backed securities | 463,390 | 370 | 463,020 | — | |||||||||||
Equity securities, available for sale: finance, insurance and real estate | 62,845 | 44,229 | 18,616 | — | |||||||||||
Derivative instruments | 273,314 | — | 273,314 | — | |||||||||||
Cash and cash equivalents | 404,952 | 404,952 | — | — | |||||||||||
2015 notes hedges | 45,593 | — | 45,593 | — | |||||||||||
$ | 19,250,813 | $ | 513,056 | $ | 18,735,659 | $ | 2,098 | ||||||||
Liabilities | |||||||||||||||
2015 notes embedded derivatives | $ | 45,593 | $ | — | $ | 45,593 | $ | — | |||||||
Fixed index annuities - embedded derivatives | 2,530,496 | — | — | 2,530,496 | |||||||||||
$ | 2,576,089 | $ | — | $ | 45,593 | $ | 2,530,496 |
• | reported trading prices, |
• | benchmark yields, |
• | broker-dealer quotes, |
• | benchmark securities, |
• | bids and offers, |
• | credit ratings, |
• | relative credit information, and |
• | other reference data. |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
(Dollars in thousands) | |||||||||||||||
Available for sale securities | |||||||||||||||
Beginning balance | $ | 2,027 | $ | 4,301 | $ | 2,098 | $ | 2,702 | |||||||
Principal returned | (52 | ) | (78 | ) | (93 | ) | (266 | ) | |||||||
(Amortization)/accretion of premium/discount | 21 | (4 | ) | 47 | 8 | ||||||||||
Reclassification | — | (1,600 | ) | — | — | ||||||||||
Total gains (losses) (realized/unrealized): | |||||||||||||||
Included in other comprehensive income (loss) | 81 | 104 | 183 | 279 | |||||||||||
Included in operations | (72 | ) | (530 | ) | (230 | ) | (530 | ) | |||||||
Ending balance | $ | 2,005 | $ | 2,193 | $ | 2,005 | $ | 2,193 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
(Dollars in thousands) | |||||||||||||||
Fixed index annuities - embedded derivatives | |||||||||||||||
Beginning balance | $ | 2,921,037 | $ | 2,242,000 | $ | 2,530,496 | $ | 1,971,383 | |||||||
Premiums less benefits | 105,279 | 251,733 | 189,505 | 467,676 | |||||||||||
Change in unrealized gains, net | (111,368 | ) | (125,200 | ) | 194,947 | (70,526 | ) | ||||||||
Ending balance | $ | 2,914,948 | $ | 2,368,533 | $ | 2,914,948 | $ | 2,368,533 |
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
(Dollars in thousands) | |||||||||||||||
June 30, 2012 | |||||||||||||||
Fixed maturity securities: | |||||||||||||||
Available for sale: | |||||||||||||||
United States Government full faith and credit | $ | 4,589 | $ | 625 | $ | — | $ | 5,214 | |||||||
United States Government sponsored agencies | 1,678,765 | 26,424 | (673 | ) | 1,704,516 | ||||||||||
United States municipalities, states and territories | 3,052,875 | 442,716 | (34 | ) | 3,495,557 | ||||||||||
Foreign government obligations | 36,402 | 9,784 | — | 46,186 | |||||||||||
Corporate securities | 11,166,677 | 1,301,788 | (50,330 | ) | 12,418,135 | ||||||||||
Residential mortgage backed securities | 2,407,618 | 170,617 | (54,205 | ) | 2,524,030 | ||||||||||
Other asset backed securities | 736,101 | 29,674 | (4,182 | ) | 761,593 | ||||||||||
$ | 19,083,027 | $ | 1,981,628 | $ | (109,424 | ) | $ | 20,955,231 | |||||||
Held for investment: | |||||||||||||||
United States Government sponsored agencies | $ | 924,015 | $ | 2,507 | $ | — | $ | 926,522 | |||||||
Corporate security | 76,009 | — | (14,170 | ) | 61,839 | ||||||||||
$ | 1,000,024 | $ | 2,507 | $ | (14,170 | ) | $ | 988,361 | |||||||
Equity securities, available for sale: | |||||||||||||||
Finance, insurance, and real estate | $ | 53,397 | $ | 9,347 | $ | (1,303 | ) | $ | 61,441 | ||||||
December 31, 2011 | |||||||||||||||
Fixed maturity securities: | |||||||||||||||
Available for sale: | |||||||||||||||
United States Government full faith and credit | $ | 4,084 | $ | 594 | $ | — | $ | 4,678 | |||||||
United States Government sponsored agencies | 1,780,401 | 19,378 | — | 1,799,779 | |||||||||||
United States municipalities, states and territories | 2,981,699 | 351,694 | (10 | ) | 3,333,383 | ||||||||||
Foreign government obligations | 36,373 | 6,855 | — | 43,228 | |||||||||||
Corporate securities | 9,117,173 | 1,079,422 | (80,234 | ) | 10,116,361 | ||||||||||
Residential mortgage backed securities | 2,618,040 | 157,331 | (72,081 | ) | 2,703,290 | ||||||||||
Other asset backed securities | 442,509 | 26,492 | (5,611 | ) | 463,390 | ||||||||||
$ | 16,980,279 | $ | 1,641,766 | $ | (157,936 | ) | $ | 18,464,109 | |||||||
Held for investment: | |||||||||||||||
United States Government sponsored agencies | $ | 2,568,274 | $ | 16,806 | $ | — | $ | 2,585,080 | |||||||
Corporate security | 75,932 | — | (16,590 | ) | 59,342 | ||||||||||
$ | 2,644,206 | $ | 16,806 | $ | (16,590 | ) | $ | 2,644,422 | |||||||
Equity securities, available for sale: | |||||||||||||||
Finance, insurance, and real estate | $ | 58,438 | $ | 8,752 | $ | (4,345 | ) | $ | 62,845 |
Available for sale | Held for investment | ||||||||||||||
Amortized Cost | Fair Value | Amortized Cost | Fair Value | ||||||||||||
(Dollars in thousands) | |||||||||||||||
Due in one year or less | $ | 47,272 | $ | 48,858 | $ | — | $ | — | |||||||
Due after one year through five years | 590,055 | 656,408 | — | — | |||||||||||
Due after five years through ten years | 3,449,900 | 3,741,359 | — | — | |||||||||||
Due after ten years through twenty years | 4,963,113 | 5,413,578 | — | — | |||||||||||
Due after twenty years | 6,888,968 | 7,809,405 | 1,000,024 | 988,361 | |||||||||||
15,939,308 | 17,669,608 | 1,000,024 | 988,361 | ||||||||||||
Residential mortgage backed securities | 2,407,618 | 2,524,030 | — | — | |||||||||||
Other asset backed securities | 736,101 | 761,593 | — | — | |||||||||||
$ | 19,083,027 | $ | 20,955,231 | $ | 1,000,024 | $ | 988,361 |
June 30, 2012 | December 31, 2011 | ||||||
(Dollars in thousands) | |||||||
Net unrealized gains on available for sale fixed maturity securities and equity securities | $ | 1,880,248 | $ | 1,488,237 | |||
Adjustments for assumed changes in amortization of deferred policy acquisition costs and deferred sales inducements | (1,022,806 | ) | (819,476 | ) | |||
Deferred income tax valuation allowance reversal | 22,534 | 22,534 | |||||
Deferred income tax benefit | (300,104 | ) | (234,066 | ) | |||
Net unrealized gains reported as accumulated other comprehensive income | $ | 579,872 | $ | 457,229 |
June 30, 2012 | December 31, 2011 | |||||||||||||||
NAIC Designation | Amortized Cost | Fair Value | Amortized Cost | Fair Value | ||||||||||||
(Dollars in thousands) | ||||||||||||||||
1 | $ | 13,388,910 | $ | 14,799,840 | $ | 14,359,272 | $ | 15,486,571 | ||||||||
2 | 6,282,280 | 6,758,202 | 4,894,739 | 5,272,759 | ||||||||||||
3 | 371,555 | 345,380 | 335,642 | 315,406 | ||||||||||||
4 | 31,828 | 30,224 | 26,674 | 23,989 | ||||||||||||
5 | 5,528 | 5,783 | 4,932 | 5,756 | ||||||||||||
6 | 2,950 | 4,163 | 3,226 | 4,050 | ||||||||||||
$ | 20,083,051 | $ | 21,943,592 | $ | 19,624,485 | $ | 21,108,531 |
Less than 12 months | 12 months or more | Total | |||||||||||||||||||||
Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||||
June 30, 2012 | |||||||||||||||||||||||
Fixed maturity securities: | |||||||||||||||||||||||
Available for sale: | |||||||||||||||||||||||
United States Government sponsored agencies | $ | 227,829 | $ | (673 | ) | $ | — | $ | — | $ | 227,829 | $ | (673 | ) | |||||||||
United States municipalities, states and territories | 3,973 | (34 | ) | — | — | 3,973 | (34 | ) | |||||||||||||||
Corporate securities: | |||||||||||||||||||||||
Finance, insurance and real estate | 202,825 | (10,990 | ) | 118,952 | (12,532 | ) | 321,777 | (23,522 | ) | ||||||||||||||
Manufacturing, construction and mining | 169,512 | (4,242 | ) | 11,870 | (2,006 | ) | 181,382 | (6,248 | ) | ||||||||||||||
Utilities and related sectors | 119,762 | (4,005 | ) | 61,802 | (12,593 | ) | 181,564 | (16,598 | ) | ||||||||||||||
Wholesale/retail trade | 14,226 | (763 | ) | 9,700 | (763 | ) | 23,926 | (1,526 | ) | ||||||||||||||
Services, media and other | 67,231 | (456 | ) | 18,020 | (1,980 | ) | 85,251 | (2,436 | ) | ||||||||||||||
Residential mortgage backed securities | 411,338 | (24,615 | ) | 367,268 | (29,590 | ) | 778,606 | (54,205 | ) | ||||||||||||||
Other asset backed securities | 155,929 | (2,120 | ) | 25,486 | (2,062 | ) | 181,415 | (4,182 | ) | ||||||||||||||
$ | 1,372,625 | $ | (47,898 | ) | $ | 613,098 | $ | (61,526 | ) | $ | 1,985,723 | $ | (109,424 | ) | |||||||||
Held for investment: | |||||||||||||||||||||||
Corporate security: | |||||||||||||||||||||||
Insurance | $ | — | $ | — | $ | 61,839 | $ | (14,170 | ) | $ | 61,839 | $ | (14,170 | ) | |||||||||
Equity securities, available for sale: | |||||||||||||||||||||||
Finance, insurance and real estate | $ | 8,922 | $ | (1,203 | ) | $ | 7,900 | $ | (100 | ) | $ | 16,822 | $ | (1,303 | ) | ||||||||
December 31, 2011 | |||||||||||||||||||||||
Fixed maturity securities: | |||||||||||||||||||||||
Available for sale: | |||||||||||||||||||||||
United States municipalities, states and territories | $ | 3,535 | $ | (10 | ) | $ | — | $ | — | $ | 3,535 | $ | (10 | ) | |||||||||
Corporate securities: | |||||||||||||||||||||||
Finance, insurance and real estate | 363,909 | (36,575 | ) | 146,354 | (15,611 | ) | 510,263 | (52,186 | ) | ||||||||||||||
Manufacturing, construction and mining | 201,762 | (7,131 | ) | 29,875 | (1,869 | ) | 231,637 | (9,000 | ) | ||||||||||||||
Utilities and related sectors | 174,251 | (7,576 | ) | 37,778 | (6,946 | ) | 212,029 | (14,522 | ) | ||||||||||||||
Wholesale/retail trade | 15,523 | (188 | ) | 9,275 | (1,194 | ) | 24,798 | (1,382 | ) | ||||||||||||||
Services, media and other | 27,688 | (249 | ) | 17,105 | (2,895 | ) | 44,793 | (3,144 | ) | ||||||||||||||
Residential mortgage backed securities | 295,352 | (19,920 | ) | 709,612 | (52,161 | ) | 1,004,964 | (72,081 | ) | ||||||||||||||
Other asset backed securities | 115,542 | (2,863 | ) | 15,550 | (2,748 | ) | 131,092 | (5,611 | ) | ||||||||||||||
$ | 1,197,562 | $ | (74,512 | ) | $ | 965,549 | $ | (83,424 | ) | $ | 2,163,111 | $ | (157,936 | ) | |||||||||
Held for investment: | |||||||||||||||||||||||
Corporate security: | |||||||||||||||||||||||
Insurance | $ | — | $ | — | $ | 59,342 | $ | (16,590 | ) | $ | 59,342 | $ | (16,590 | ) | |||||||||
Equity securities, available for sale: | |||||||||||||||||||||||
Finance, insurance and real estate | $ | 20,028 | $ | (3,095 | ) | $ | 3,750 | $ | (1,250 | ) | $ | 23,778 | $ | (4,345 | ) |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
(Dollars in thousands) | |||||||||||||||
Fixed maturity securities held for investment carried at amortized cost | $ | 1,690 | $ | 55,060 | $ | 11,879 | $ | 29,402 | |||||||
Investments carried at fair value: | |||||||||||||||
Fixed maturity securities, available for sale | $ | 603,462 | $ | 202,827 | $ | 388,374 | $ | 150,683 | |||||||
Equity securities, available for sale | (787 | ) | 559 | 3,637 | 2,640 | ||||||||||
602,675 | 203,386 | 392,011 | 153,323 | ||||||||||||
Adjustment for effect on other balance sheet accounts: | |||||||||||||||
Deferred policy acquisition costs and deferred sales inducements | (339,408 | ) | (117,382 | ) | (203,330 | ) | (89,228 | ) | |||||||
Change in deferred tax valuation allowance | — | — | — | — | |||||||||||
Deferred income tax asset | (92,142 | ) | (30,101 | ) | (66,038 | ) | (22,433 | ) | |||||||
(431,550 | ) | (147,483 | ) | (269,368 | ) | (111,661 | ) | ||||||||
Increase in net unrealized gains on investments carried at fair value | $ | 171,125 | $ | 55,903 | $ | 122,643 | $ | 41,662 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
(Dollars in thousands) | |||||||||||||||
Available for sale fixed maturity securities: | |||||||||||||||
Gross realized gains | $ | 4,030 | $ | 2,901 | $ | 5,048 | $ | 4,542 | |||||||
Gross realized losses | (59 | ) | (1,423 | ) | (355 | ) | (1,423 | ) | |||||||
3,971 | 1,478 | 4,693 | 3,119 | ||||||||||||
Equity securities: | |||||||||||||||
Gross realized gains | — | 966 | 562 | 966 | |||||||||||
Other investments: | |||||||||||||||
Gain (loss) on sale of real estate | 1,450 | (12 | ) | 2,895 | (12 | ) | |||||||||
Impairment losses on real estate | (1,669 | ) | — | (2,643 | ) | — | |||||||||
(219 | ) | (12 | ) | 252 | (12 | ) | |||||||||
Mortgage loans on real estate: | |||||||||||||||
Increase in allowance for credit losses | (4,363 | ) | (3,286 | ) | (12,194 | ) | (6,120 | ) | |||||||
$ | (611 | ) | $ | (854 | ) | $ | (6,687 | ) | $ | (2,047 | ) |
• | the length of time and the extent to which the fair value has been less than amortized cost or cost; |
• | whether the issuer is current on all payments and all contractual payments have been made as agreed; |
• | the remaining payment terms and the financial condition and near-term prospects of the issuer; |
• | the lack of ability to refinance due to liquidity problems in the credit market; |
• | the fair value of any underlying collateral; |
• | the existence of any credit protection available; |
• | our intent to sell and whether it is more likely than not we would be required to sell prior to recovery for debt securities; |
• | our assessment in the case of equity securities including perpetual preferred stocks with credit deterioration that the security cannot recover to cost in a reasonable period of time; |
• | our intent and ability to retain equity securities for a period of time sufficient to allow for recovery; |
• | consideration of rating agency actions; and |
• | changes in estimated cash flows of residential mortgage and asset backed securities. |
Discount Rate | Default Rate | Loss Severity | ||||||||||||||||||
Sector | Vintage | Min | Max | Min | Max | Min | Max | |||||||||||||
Six months ended June 30, 2012 | ||||||||||||||||||||
Prime | 2005 | 6.5 | % | 7.7 | % | 9 | % | 13 | % | 50 | % | 50 | % | |||||||
2006 | 5.8 | % | 7.4 | % | 9 | % | 19 | % | 40 | % | 55 | % | ||||||||
2007 | 6.2 | % | 7.3 | % | 11 | % | 38 | % | 40 | % | 60 | % | ||||||||
Alt-A | 2005 | 5.6 | % | 7.7 | % | 12 | % | 27 | % | 5 | % | 50 | % | |||||||
2006 | 6.0 | % | 6.0 | % | 32 | % | 46 | % | 55 | % | 60 | % | ||||||||
2007 | 6.2 | % | 7.0 | % | 31 | % | 55 | % | 55 | % | 60 | % | ||||||||
Six months ended June 30, 2011 | ||||||||||||||||||||
Prime | 2005 | 7.7 | % | 7.7 | % | 8 | % | 8 | % | 50 | % | 50 | % | |||||||
2006 | 7.3 | % | 7.3 | % | 9 | % | 11 | % | 50 | % | 55 | % | ||||||||
2007 | 5.8 | % | 7.3 | % | 8 | % | 30 | % | 40 | % | 60 | % | ||||||||
Alt-A | 2005 | 6.0 | % | 7.7 | % | 13 | % | 24 | % | 5 | % | 55 | % | |||||||
2006 | 6.0 | % | 6.5 | % | 30 | % | 33 | % | 50 | % | 50 | % | ||||||||
2007 | 6.2 | % | 7.4 | % | 29 | % | 41 | % | 50 | % | 70 | % |
Number of Securities | Total OTTI Losses | Portion of OTTI Losses Recognized from Other Comprehensive Income | Net OTTI Losses Recognized in Operations | |||||||||||
(Dollars in thousands) | ||||||||||||||
Three months ended June 30, 2012 | ||||||||||||||
Fixed maturity securities, available for sale: | ||||||||||||||
Residential mortgage backed securities | 7 | $ | (375 | ) | $ | (603 | ) | $ | (978 | ) | ||||
Three months ended June 30, 2011 | ||||||||||||||
Fixed maturity securities, available for sale: | ||||||||||||||
Residential mortgage backed securities | 18 | $ | (113 | ) | $ | (2,116 | ) | $ | (2,229 | ) | ||||
Six months ended June 30, 2012 | ||||||||||||||
Fixed maturity securities, available for sale: | ||||||||||||||
Residential mortgage backed securities | 22 | $ | (2,156 | ) | $ | (1,703 | ) | $ | (3,859 | ) | ||||
Six months ended June 30, 2011 | ||||||||||||||
Fixed maturity securities, available for sale: | ||||||||||||||
Residential mortgage backed securities | 29 | $ | (5,213 | ) | $ | (3,587 | ) | $ | (8,800 | ) |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
(Dollars in thousands) | |||||||||||||||
Cumulative credit loss at beginning of period | $ | (121,976 | ) | $ | (102,251 | ) | $ | (119,095 | ) | $ | (96,893 | ) | |||
Credit losses on securities for which OTTI has not previously been recognized | (47 | ) | — | (47 | ) | (789 | ) | ||||||||
Additional credit losses on securities for which OTTI has previously been recognized | (931 | ) | (2,229 | ) | (3,812 | ) | (8,011 | ) | |||||||
Accumulated losses on securities that were disposed of during the period | — | — | — | 1,213 | |||||||||||
Cumulative credit loss at end of period | $ | (122,954 | ) | $ | (104,480 | ) | $ | (122,954 | ) | $ | (104,480 | ) |
Amortized Cost | OTTI Recognized in Other Comprehensive Income | Change in Fair Value Since OTTI was Recognized | Fair Value | ||||||||||||
(Dollars in thousands) | |||||||||||||||
June 30, 2012 | |||||||||||||||
Fixed maturity securities, available for sale: | |||||||||||||||
Corporate securities | $ | 3,401 | $ | (2,151 | ) | $ | 5,636 | $ | 6,886 | ||||||
Residential mortgage backed securities | 938,894 | (185,423 | ) | 146,771 | 900,242 | ||||||||||
Equity securities, available for sale: | |||||||||||||||
Finance, insurance and real estate | 9,976 | — | 7,890 | 17,866 | |||||||||||
$ | 952,271 | $ | (187,574 | ) | $ | 160,297 | $ | 924,994 | |||||||
December 31, 2011 | |||||||||||||||
Fixed maturity securities, available for sale: | |||||||||||||||
Corporate securities | $ | 3,347 | $ | (2,151 | ) | $ | 4,818 | $ | 6,014 | ||||||
Residential mortgage backed securities | 999,024 | (187,126 | ) | 125,502 | 937,400 | ||||||||||
Equity securities, available for sale: | |||||||||||||||
Finance, insurance and real estate | 12,019 | — | 8,110 | 20,129 | |||||||||||
$ | 1,014,390 | $ | (189,277 | ) | $ | 138,430 | $ | 963,543 |
June 30, 2012 | December 31, 2011 | ||||||
(Dollars in thousands) | |||||||
Principal outstanding | $ | 2,768,738 | $ | 2,856,011 | |||
Loan loss allowance | (36,645 | ) | (32,964 | ) | |||
Carrying value | $ | 2,732,093 | $ | 2,823,047 |
June 30, 2012 | December 31, 2011 | ||||||||||||
Principal Outstanding | Percent | Principal Outstanding | Percent | ||||||||||
(Dollars in thousands) | |||||||||||||
Geographic distribution | |||||||||||||
East | $ | 700,554 | 25.3 | % | $ | 719,231 | 25.2 | % | |||||
Middle Atlantic | 161,976 | 5.8 | % | 169,240 | 5.9 | % | |||||||
Mountain | 406,787 | 14.7 | % | 411,054 | 14.4 | % | |||||||
New England | 32,463 | 1.2 | % | 36,815 | 1.3 | % | |||||||
Pacific | 321,860 | 11.6 | % | 309,693 | 10.8 | % | |||||||
South Atlantic | 500,536 | 18.1 | % | 493,764 | 17.3 | % | |||||||
West North Central | 423,036 | 15.3 | % | 487,693 | 17.1 | % | |||||||
West South Central | 221,526 | 8.0 | % | 228,521 | 8.0 | % | |||||||
$ | 2,768,738 | 100.0 | % | $ | 2,856,011 | 100.0 | % | ||||||
Property type distribution | |||||||||||||
Office | $ | 703,802 | 25.4 | % | $ | 777,343 | 27.2 | % | |||||
Medical Office | 153,021 | 5.5 | % | 175,580 | 6.1 | % | |||||||
Retail | 657,615 | 23.7 | % | 635,916 | 22.3 | % | |||||||
Industrial/Warehouse | 718,964 | 26.0 | % | 710,426 | 24.9 | % | |||||||
Hotel | 112,906 | 4.1 | % | 139,193 | 4.9 | % | |||||||
Apartment | 190,348 | 6.9 | % | 187,548 | 6.6 | % | |||||||
Mixed use/other | 232,082 | 8.4 | % | 230,005 | 8.0 | % | |||||||
$ | 2,768,738 | 100.0 | % | $ | 2,856,011 | 100.0 | % |
Three Months Ended June 30, 2012 | Three Months Ended June 30, 2011 | ||||||||||||||
Specific Allowance | General Allowance | Specific Allowance | General Allowance | ||||||||||||
(Dollars in thousands) | |||||||||||||||
Beginning allowance balance | $ | (29,595 | ) | $ | (10,300 | ) | $ | (13,842 | ) | $ | (3,100 | ) | |||
Charge-offs | 7,613 | — | 1,001 | — | |||||||||||
Recoveries | — | — | — | — | |||||||||||
Provision for credit losses | (3,463 | ) | (900 | ) | (2,186 | ) | (1,100 | ) | |||||||
Ending allowance balance | $ | (25,445 | ) | $ | (11,200 | ) | $ | (15,027 | ) | $ | (4,200 | ) | |||
Six Months Ended June 30, 2012 | Six Months Ended June 30, 2011 | ||||||||||||||
Specific Allowance | General Allowance | Specific Allowance | General Allowance | ||||||||||||
(Dollars in thousands) | |||||||||||||||
Beginning allowance balance | $ | (23,664 | ) | $ | (9,300 | ) | $ | (13,224 | ) | $ | (3,000 | ) | |||
Charge-offs | 8,513 | — | 3,117 | — | |||||||||||
Recoveries | — | — | — | — | |||||||||||
Provision for credit losses | (10,294 | ) | (1,900 | ) | (4,920 | ) | (1,200 | ) | |||||||
Ending allowance balance | $ | (25,445 | ) | $ | (11,200 | ) | $ | (15,027 | ) | $ | (4,200 | ) |
June 30, 2012 | December 31, 2011 | ||||||
(Dollars in thousands) | |||||||
Individually evaluated for impairment | $ | 59,815 | $ | 67,698 | |||
Collectively evaluated for impairment | 179,122 | 176,681 | |||||
Total loans evaluated for impairment | $ | 238,937 | $ | 244,379 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
(Dollars in thousands) | |||||||||||||||
Real estate owned at beginning of period | $ | 35,824 | $ | 22,790 | $ | 36,821 | $ | 19,122 | |||||||
Real estate acquired in satisfaction of mortgage loans | 8,683 | 2,527 | 11,985 | 6,308 | |||||||||||
Additions | 117 | 16 | 117 | 40 | |||||||||||
Sales | (4,283 | ) | (1,283 | ) | (7,366 | ) | (1,283 | ) | |||||||
Impairments | (1,669 | ) | — | (2,643 | ) | — | |||||||||
Depreciation | (282 | ) | (140 | ) | (524 | ) | (277 | ) | |||||||
Real estate owned at end of period | $ | 38,390 | $ | 23,910 | $ | 38,390 | $ | 23,910 |
June 30, 2012 | December 31, 2011 | ||||||
(Dollars in thousands) | |||||||
Credit Exposure--By Payment Activity | |||||||
Performing | $ | 2,662,205 | $ | 2,743,068 | |||
In workout | 71,008 | 67,425 | |||||
Delinquent | 7,244 | 6,595 | |||||
Collateral dependent | 28,281 | 38,923 | |||||
$ | 2,768,738 | $ | 2,856,011 |
30 - 59 Days | 60 - 89 Days | 90 Days and Over | Total Past Due | Current | Collateral Dependent Receivables | Total Financing Receivables | |||||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||||||||
Commercial Mortgage Loans | |||||||||||||||||||||||||||
June 30, 2012 | $ | — | $ | 7,244 | $ | — | $ | 7,244 | $ | 2,733,213 | $ | 28,281 | $ | 2,768,738 | |||||||||||||
December 31, 2011 | $ | 3,378 | $ | — | $ | 6,595 | $ | 9,973 | $ | 2,807,115 | $ | 38,923 | $ | 2,856,011 |
Recorded Investment | Unpaid Principal Balance | Related Allowance | Average Recorded Investment | Interest Income Recognized | |||||||||||||||
(Dollars in thousands) | |||||||||||||||||||
June 30, 2012 | |||||||||||||||||||
Mortgage loans with an allowance | $ | 34,370 | $ | 59,815 | $ | (25,445 | ) | $ | 48,445 | $ | 1,332 | ||||||||
Mortgage loans with no related allowance | 59,541 | 59,541 | — | 59,434 | 1,886 | ||||||||||||||
$ | 93,911 | $ | 119,356 | $ | (25,445 | ) | $ | 107,879 | $ | 3,218 | |||||||||
December 31, 2011 | |||||||||||||||||||
Mortgage loans with an allowance | $ | 44,034 | $ | 67,698 | $ | (23,664 | ) | $ | 53,617 | $ | 3,284 | ||||||||
Mortgage loans with no related allowance | 63,023 | 63,023 | — | 60,974 | 3,509 | ||||||||||||||
$ | 107,057 | $ | 130,721 | $ | (23,664 | ) | $ | 114,591 | $ | 6,793 |
• | borrower is in default, |
• | borrower has declared bankruptcy, |
• | there is growing concern about the borrower's ability to continue as a going concern, |
• | borrower has insufficient cash flows to service debt, |
• | borrower's inability to obtain funds from other sources, and |
• | there is a breach of financial covenants by the borrower. |
• | assets used to satisfy debt are less than our recorded investment, |
• | interest rate is modified, |
• | maturity date extension at an interest rate less than market rate, |
• | capitalization of interest, |
• | delaying principal and/or interest for a period of three months or more, and |
• | partial forgiveness of the balance or charge-off. |
Geographic Region | Number of TDR's | Principal Balance Outstanding | Specific Loan Loss Allowance | Net Carrying Amount | ||||||||||
(Dollars in thousands) | ||||||||||||||
June 30, 2012 | ||||||||||||||
East | 2 | $ | 6,126 | $ | (1,963 | ) | $ | 4,163 | ||||||
Mountain | 10 | 32,222 | (2,193 | ) | 30,029 | |||||||||
South Atlantic | 7 | 18,101 | (4,346 | ) | 13,755 | |||||||||
East North Central | 1 | 2,319 | (512 | ) | 1,807 | |||||||||
West North Central | 2 | 6,974 | (1,300 | ) | 5,674 | |||||||||
22 | $ | 65,742 | $ | (10,314 | ) | $ | 55,428 | |||||||
December 31, 2011 | ||||||||||||||
East | 3 | $ | 8,489 | $ | (2,115 | ) | $ | 6,374 | ||||||
Mountain | 10 | 29,539 | (1,637 | ) | 27,902 | |||||||||
South Atlantic | 11 | 28,676 | (6,339 | ) | 22,337 | |||||||||
West North Central | 1 | 1,937 | (269 | ) | 1,668 | |||||||||
25 | $ | 68,641 | $ | (10,360 | ) | $ | 58,281 |
June 30, 2012 | December 31, 2011 | |||||||
(Dollars in thousands) | ||||||||
Assets | ||||||||
Derivative instruments | ||||||||
Call options | $ | 476,699 | $ | 273,314 | ||||
Other assets | ||||||||
2015 notes hedges | 38,181 | 45,593 | ||||||
Interest rate caps | 3,565 | — | ||||||
$ | 518,445 | $ | 318,907 | |||||
Liabilities | ||||||||
Policy benefit reserves - annuity products | ||||||||
Fixed index annuities - embedded derivatives | $ | 2,914,948 | $ | 2,530,496 | ||||
Other liabilities | ||||||||
2015 notes embedded derivatives | 38,181 | 45,593 | ||||||
Interest rate swaps | 3,148 | — | ||||||
$ | 2,956,277 | $ | 2,576,089 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Change in fair value of derivatives: | ||||||||||||||||
Call options | $ | (122,241 | ) | $ | (13,238 | ) | $ | 119,279 | $ | 130,214 | ||||||
2015 notes hedges | (24,163 | ) | (8,723 | ) | (7,412 | ) | (3,454 | ) | ||||||||
Interest rate swaps | (4,038 | ) | (68 | ) | (3,148 | ) | (136 | ) | ||||||||
Interest rate caps | (405 | ) | — | (405 | ) | — | ||||||||||
$ | (150,847 | ) | $ | (22,029 | ) | $ | 108,314 | $ | 126,624 | |||||||
Change in fair value of embedded derivatives: | ||||||||||||||||
2015 notes embedded derivatives | $ | (24,163 | ) | $ | (8,723 | ) | $ | (7,412 | ) | $ | (3,454 | ) | ||||
Fixed index annuities | (56,826 | ) | (52,240 | ) | 285,489 | 70,794 | ||||||||||
$ | (80,989 | ) | $ | (60,963 | ) | $ | 278,077 | $ | 67,340 |
June 30, 2012 | December 31, 2011 | |||||||||||||||||||
Counterparty | Credit Rating (S&P) | Credit Rating (Moody's) | Notional Amount | Fair Value | Notional Amount | Fair Value | ||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Bank of America | A | A3 | $ | 1,421,833 | $ | 58,679 | $ | 2,340,213 | $ | 43,481 | ||||||||||
Barclays | A+ | A2 | 2,847,540 | 103,550 | 2,419,339 | 60,903 | ||||||||||||||
BNP Paribas | AA- | A2 | 2,106,213 | 78,442 | 2,533,301 | 48,293 | ||||||||||||||
Citibank, N.A. | A | A3 | 1,951,838 | 39,502 | — | — | ||||||||||||||
Credit Suisse | A+ | A1 | 1,181,136 | 34,057 | 1,423,802 | 27,464 | ||||||||||||||
Deutsche Bank | A+ | A2 | 717,035 | 16,519 | 384,420 | 7,697 | ||||||||||||||
HSBC | AA- | Aa3 | 222,902 | 6,073 | 348,674 | 4,557 | ||||||||||||||
J.P. Morgan | A+ | Aa3 | 1,249,826 | 36,080 | 2,109,019 | 27,961 | ||||||||||||||
Morgan Stanley | A | Baa1 | 808,375 | 23,784 | 244,180 | 7,375 | ||||||||||||||
UBS | A | A2 | 622 | 66 | 39,147 | 240 | ||||||||||||||
Wells Fargo (Wachovia) | AA- | Aa3 | 1,996,526 | 79,947 | 2,227,235 | 45,343 | ||||||||||||||
$ | 14,503,846 | $ | 476,699 | $ | 14,069,330 | $ | 273,314 |
Notional | Pay | June 30, 2012 | December 31, 2011 | ||||||||||||||||
Maturity Date | Amount | Receive Rate | Rate | Counterparty | Fair Value | Fair Value | |||||||||||||
(Dollars in thousands) | |||||||||||||||||||
March 15, 2021 | $ | 85,500 | *LIBOR | 2.415 | % | SunTrust | $ | (3,148 | ) | $ | — |
Notional | Cap | June 30, 2012 | December 31, 2011 | ||||||||||||||||
Maturity Date | Amount | Floating Rate | Rate | Counterparty | Fair Value | Fair Value | |||||||||||||
(Dollars in thousands) | |||||||||||||||||||
July 7, 2021 | $ | 40,000 | *LIBOR | 2.50 | % | SunTrust | $ | 1,796 | $ | — | |||||||||
July 8, 2021 | 12,000 | *LIBOR | 2.50 | % | SunTrust | 539 | — | ||||||||||||
July 29, 2021 | 27,000 | *LIBOR | 2.50 | % | SunTrust | 1,230 | — | ||||||||||||
$ | 79,000 | $ | 3,565 | $ | — |
June 30, 2012 | December 31, 2011 | |||||||||||||||||||||||
September 2015 Notes | December 2029 Notes | December 2024 Notes | September 2015 Notes | December 2029 Notes | December 2024 Notes | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Notes payable: | ||||||||||||||||||||||||
Principal amount of liability component | $ | 200,000 | $ | 115,839 | $ | 28,243 | $ | 200,000 | $ | 115,839 | $ | 28,243 | ||||||||||||
Unamortized discount | (25,494 | ) | (14,993 | ) | — | (28,906 | ) | (17,568 | ) | — | ||||||||||||||
Net carrying amount of liability component | $ | 174,506 | $ | 100,846 | $ | 28,243 | $ | 171,094 | $ | 98,271 | $ | 28,243 | ||||||||||||
Additional paid-in capital: | ||||||||||||||||||||||||
Carrying amount of equity component | $ | 15,586 | $ | 22,637 | $ | 15,586 | $ | 22,637 | ||||||||||||||||
Amount by which the if-converted value exceeds principal | $ | — | $ | 15,781 | $ | — | $ | — | $ | 8,489 | $ | — |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
(Dollars in thousands, except per share data) | ||||||||||||||||
Numerator: | ||||||||||||||||
Net income - numerator for earnings per common share | $ | 18,759 | $ | 18,274 | $ | 29,230 | $ | 49,617 | ||||||||
Interest on convertible subordinated debentures (net of income tax benefit) | 257 | 258 | 515 | 517 | ||||||||||||
Numerator for earnings per common share - assuming dilution | $ | 19,016 | $ | 18,532 | $ | 29,745 | $ | 50,134 | ||||||||
Denominator: | ||||||||||||||||
Weighted average common shares outstanding (1) | 59,943,337 | 59,504,119 | 59,821,937 | 59,343,959 | ||||||||||||
Effect of dilutive securities: | ||||||||||||||||
Convertible subordinated debentures | 2,637,176 | 2,727,084 | 2,678,508 | 2,727,084 | ||||||||||||
Convertible senior notes | 1,158,686 | 2,612,637 | 1,158,686 | 2,612,637 | ||||||||||||
Stock options and deferred compensation agreements | 514,429 | 686,352 | 570,525 | 753,272 | ||||||||||||
Denominator for earnings per common share - assuming dilution | 64,253,628 | 65,530,192 | 64,229,656 | 65,436,952 | ||||||||||||
Earnings per common share | $ | 0.31 | $ | 0.31 | $ | 0.49 | $ | 0.84 | ||||||||
Earnings per common share - assuming dilution | $ | 0.30 | $ | 0.28 | $ | 0.46 | $ | 0.77 |
(1) | Weighted average common shares outstanding include shares vested under the NMO Deferred Compensation Plan and exclude unallocated shares held by the ESOP. |
Period | Number of Shares | Range of Exercise Prices | |||||
Minimum | Maximum | ||||||
Three months ended June 30, 2012 | 1,502,900 | $11.88 | $14.34 | ||||
Six months ended June 30, 2012 | 1,502,900 | $11.88 | $14.34 | ||||
Three months ended June 30, 2011 | 1,370,350 | $12.79 | $14.34 | ||||
Six months ended June 30, 2011 | 1,370,350 | $12.79 | $14.34 |
• | general economic conditions and other factors, including prevailing interest rate levels and stock and credit market performance which may affect (among other things) our ability to sell our products, our ability to access capital resources and the costs associated therewith, the fair value of our investments, which could result in impairments and other than temporary impairments, and certain liabilities, and the lapse rate and profitability of policies; |
• | customer response to new products and marketing initiatives; |
• | changes in Federal income tax laws and regulations which may affect the relative income tax advantages of our products; |
• | increasing competition in the sale of annuities; |
• | regulatory changes or actions, including those relating to regulation of financial services affecting (among other things) bank sales and underwriting of insurance products and regulation of the sale, underwriting and pricing of products; and |
• | the risk factors or uncertainties listed from time to time in our filings with the SEC. |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
Product Type | 2012 | 2011 | 2012 | 2011 | ||||||||||||
(Dollars in thousands) | ||||||||||||||||
Fixed index annuities: | ||||||||||||||||
Index strategies | $ | 533,633 | $ | 595,422 | $ | 1,021,760 | $ | 1,374,004 | ||||||||
Fixed strategy | 281,206 | 312,161 | 570,560 | 669,633 | ||||||||||||
814,839 | 907,583 | 1,592,320 | 2,043,637 | |||||||||||||
Fixed rate annuities: | ||||||||||||||||
Single-year rate guaranteed | 21,141 | 34,036 | 55,628 | 80,889 | ||||||||||||
Multi-year rate guaranteed | 39,232 | 85,592 | 160,897 | 162,639 | ||||||||||||
Single premium immediate annuities | 42,137 | 81,591 | 87,949 | 163,481 | ||||||||||||
102,510 | 201,219 | 304,474 | 407,009 | |||||||||||||
Total before coinsurance ceded | 917,349 | 1,108,802 | 1,896,794 | 2,450,646 | ||||||||||||
Coinsurance ceded | 32,668 | 70,331 | 131,447 | 136,208 | ||||||||||||
Net after coinsurance ceded | $ | 884,681 | $ | 1,038,471 | $ | 1,765,347 | $ | 2,314,438 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||
2012 | 2011 | 2012 | 2011 | |||||
Reported Amounts | ||||||||
Average yield on invested assets | 5.34% | 5.78% | 5.47% | 5.87% | ||||
Aggregate cost of money | 2.64% | 2.73% | 2.66% | 2.77% | ||||
Aggregate investment spread | 2.70% | 3.05% | 2.81% | 3.10% | ||||
Adjustments | ||||||||
Investment yield - temporary cash investments | 0.27% | 0.11% | 0.21% | 0.08% | ||||
Investment yield - additional prepayment income | (0.03)% | —% | (0.05)% | —% | ||||
Cost of money effect of (under) over hedging | (0.01)% | 0.10% | —% | 0.08% | ||||
Adjusted Amounts | ||||||||
Average yield on invested assets | 5.58% | 5.89% | 5.63% | 5.95% | ||||
Aggregate cost of money | 2.63% | 2.83% | 2.66% | 2.85% | ||||
Aggregate investment spread | 2.95% | 3.06% | 2.97% | 3.10% |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
(Dollars in thousands) | |||||||||||||||
Reconciliation of net income to operating income: | |||||||||||||||
Net income | $ | 18,759 | $ | 18,274 | $ | 29,230 | $ | 49,617 | |||||||
Net realized losses and net OTTI losses on investments, net of offsets | 861 | 1,278 | 4,408 | 3,750 | |||||||||||
Net effect of derivatives and embedded derivatives, net of offsets | 7,736 | 9,461 | 23,478 | 6,220 | |||||||||||
Operating income | $ | 27,356 | $ | 29,013 | $ | 57,116 | $ | 59,587 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
(Dollars in thousands) | |||||||||||||||
Call options: | |||||||||||||||
Gain (loss) on option expiration | $ | (49,147 | ) | $ | 74,343 | $ | (75,300 | ) | $ | 106,461 | |||||
Change in unrealized gain/loss | (73,094 | ) | (87,581 | ) | 194,579 | 23,753 | |||||||||
2015 notes hedges | (24,163 | ) | (8,723 | ) | (7,412 | ) | (3,454 | ) | |||||||
Interest rate swaps | (4,038 | ) | (68 | ) | (3,148 | ) | (136 | ) | |||||||
Interest rate caps | (405 | ) | — | (405 | ) | — | |||||||||
$ | (150,847 | ) | $ | (22,029 | ) | $ | 108,314 | $ | 126,624 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||
2012 | 2011 | 2012 | 2011 | ||||
S&P 500 Index | |||||||
Point-to-point strategy | 0.0% - 6.8% | 2.1% - 12.8% | 0.0% - 7.0% | 2.1% - 12.8% | |||
Monthly average strategy | 0.0% - 18.1% | 0.0% - 25.0% | 0.0% - 18.1% | 0.0% - 25.0% | |||
Monthly point-to-point strategy | 0.0% - 0.2% | 0.0% - 13.5% | 0.0% - 3.3% | 0.0% - 13.5% | |||
Fixed income (bond index) strategies | 4.0% - 10.0% | 1.5% - 9.3% | 4.0% - 10.0% | 1.5% - 9.7% |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
(Dollars in thousands) | |||||||||||||||
Available for sale fixed maturity securities: | |||||||||||||||
Gross realized gains | $ | 4,030 | $ | 2,901 | $ | 5,048 | $ | 4,542 | |||||||
Gross realized losses | (59 | ) | (1,423 | ) | (355 | ) | (1,423 | ) | |||||||
3,971 | 1,478 | 4,693 | 3,119 | ||||||||||||
Equity securities: | |||||||||||||||
Gross realized gains | — | 966 | 562 | 966 | |||||||||||
Other investments: | |||||||||||||||
Gain (loss) on sale of real estate | 1,450 | (12 | ) | 2,895 | (12 | ) | |||||||||
Impairment losses on real estate | (1,669 | ) | — | (2,643 | ) | — | |||||||||
(219 | ) | (12 | ) | 252 | (12 | ) | |||||||||
Mortgage loans on real estate: | |||||||||||||||
Increase in allowance for credit losses | (4,363 | ) | (3,286 | ) | (12,194 | ) | (6,120 | ) | |||||||
$ | (611 | ) | $ | (854 | ) | $ | (6,687 | ) | $ | (2,047 | ) |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
(Dollars in thousands) | |||||||||||||||
Index credits on index policies | $ | 50,682 | $ | 157,194 | $ | 101,340 | $ | 244,588 | |||||||
Interest credited (including changes in minimum guaranteed interest for fixed index annuities) | 81,949 | 74,547 | 162,461 | 143,329 | |||||||||||
Living income benefit rider | 10,102 | 6,679 | 18,055 | 10,168 | |||||||||||
$ | 142,733 | $ | 238,420 | $ | 281,856 | $ | 398,085 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
(Dollars in thousands) | |||||||||||||||
Amortization of deferred sales inducements before gross profit adjustments | $ | 33,141 | $ | 30,866 | $ | 66,609 | $ | 61,138 | |||||||
Gross profit adjustments: | |||||||||||||||
Fair value accounting for derivatives and embedded derivatives | (7,217 | ) | (10,211 | ) | (22,637 | ) | (8,155 | ) | |||||||
Net realized losses on investments and net OTTI losses recognized in operations | 16 | (390 | ) | (1,322 | ) | (2,026 | ) | ||||||||
Amortization of deferred sales inducements after gross profit adjustments | $ | 25,940 | $ | 20,265 | $ | 42,650 | $ | 50,957 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
(Dollars in thousands) | |||||||||||||||
Amortization of deferred policy acquisition costs before gross profit adjustments | $ | 54,457 | $ | 53,815 | $ | 110,096 | $ | 107,574 | |||||||
Gross profit adjustments: | |||||||||||||||
Fair value accounting for derivatives and embedded derivatives | (9,342 | ) | (14,245 | ) | (28,585 | ) | (10,492 | ) | |||||||
Net realized losses on investments and net OTTI losses recognized in operations | (267 | ) | (708 | ) | (2,379 | ) | (2,997 | ) | |||||||
Amortization of deferred policy acquisition costs after gross profit adjustments | $ | 44,848 | $ | 38,862 | $ | 79,132 | $ | 94,085 |
June 30, 2012 | December 31, 2011 | ||||||||||||
Carrying Amount | Percent | Carrying Amount | Percent | ||||||||||
(Dollars in thousands) | |||||||||||||
Fixed maturity securities: | |||||||||||||
United States Government full faith and credit | $ | 5,214 | — | % | $ | 4,678 | — | % | |||||
United States Government sponsored agencies | 2,628,531 | 10.3 | % | 4,368,053 | 17.9 | % | |||||||
United States municipalities, states and territories | 3,495,557 | 13.8 | % | 3,333,383 | 13.7 | % | |||||||
Foreign government obligations | 46,186 | 0.2 | % | 43,228 | 0.2 | % | |||||||
Corporate securities | 12,494,144 | 49.1 | % | 10,192,293 | 41.8 | % | |||||||
Residential mortgage backed securities | 2,524,030 | 9.9 | % | 2,703,290 | 11.1 | % | |||||||
Other asset backed securities | 761,593 | 3.0 | % | 463,390 | 1.9 | % | |||||||
Total fixed maturity securities | 21,955,255 | 86.3 | % | 21,108,315 | 86.6 | % | |||||||
Equity securities | 61,441 | 0.2 | % | 62,845 | 0.2 | % | |||||||
Mortgage loans on real estate | 2,732,093 | 10.8 | % | 2,823,047 | 11.6 | % | |||||||
Derivative instruments | 476,699 | 1.9 | % | 273,314 | 1.1 | % | |||||||
Other investments | 201,757 | 0.8 | % | 115,930 | 0.5 | % | |||||||
$ | 25,427,245 | 100.0 | % | $ | 24,383,451 | 100.0 | % |
June 30, 2012 | December 31, 2011 | |||||||||||||
Rating Agency Rating | Carrying Amount | Percent of Fixed Maturity Securities | Carrying Amount | Percent of Fixed Maturity Securities | ||||||||||
(Dollars in thousands) | ||||||||||||||
Aaa/Aa/A | $ | 14,049,730 | 64.0 | % | $ | 14,777,524 | 70.0 | % | ||||||
Baa | 6,479,458 | 29.5 | % | 4,945,809 | 23.4 | % | ||||||||
Total investment grade | 20,529,188 | 93.5 | % | 19,723,333 | 93.4 | % | ||||||||
Ba | 263,616 | 1.2 | % | 257,585 | 1.2 | % | ||||||||
B | 226,137 | 1.0 | % | 169,112 | 0.8 | % | ||||||||
Caa and lower | 829,464 | 3.8 | % | 858,694 | 4.1 | % | ||||||||
In or near default | 106,850 | 0.5 | % | 99,591 | 0.5 | % | ||||||||
Total below investment grade | 1,426,067 | 6.5 | % | 1,384,982 | 6.6 | % | ||||||||
$ | 21,955,255 | 100.0 | % | $ | 21,108,315 | 100.0 | % |
NAIC Designation | NRSRO Equivalent Rating | |
1 | Aaa/Aa/A | |
2 | Baa | |
3 | Ba | |
4 | B | |
5 | Caa and lower | |
6 | In or near default |
June 30, 2012 | December 31, 2011 | |||||||||||||||||||||||||||||
NAIC Designation | Amortized Cost | Fair Value | Carrying Amount | Percent of Total Carrying Amount | Amortized Cost | Fair Value | Carrying Amount | Percent of Total Carrying Amount | ||||||||||||||||||||||
(Dollars in thousands) | (Dollars in thousands) | |||||||||||||||||||||||||||||
1 | $ | 13,388,910 | $ | 14,799,840 | $ | 14,797,333 | 67.4 | % | $ | 14,359,272 | $ | 15,486,571 | $ | 15,469,765 | 73.3 | % | ||||||||||||||
2 | 6,282,280 | 6,758,202 | 6,758,202 | 30.9 | % | 4,894,739 | 5,272,759 | 5,272,759 | 25.0 | % | ||||||||||||||||||||
3 | 371,555 | 345,380 | 359,550 | 1.6 | % | 335,642 | 315,406 | 331,996 | 1.6 | % | ||||||||||||||||||||
4 | 31,828 | 30,224 | 30,224 | 0.1 | % | 26,674 | 23,989 | 23,989 | 0.1 | % | ||||||||||||||||||||
5 | 5,528 | 5,783 | 5,783 | — | % | 4,932 | 5,756 | 5,756 | — | % | ||||||||||||||||||||
6 | 2,950 | 4,163 | 4,163 | — | % | 3,226 | 4,050 | 4,050 | — | % | ||||||||||||||||||||
$ | 20,083,051 | $ | 21,943,592 | $ | 21,955,255 | 100.0 | % | $ | 19,624,485 | $ | 21,108,531 | $ | 21,108,315 | 100.0 | % |
Collateral Type | Principal Amount | Amortized Cost | Fair Value | |||||||||
(Dollars in thousands) | ||||||||||||
OTTI has not been recognized | ||||||||||||
Government agency | $ | 491,262 | $ | 439,046 | $ | 544,008 | ||||||
Prime | 1,033,851 | 985,064 | 1,034,048 | |||||||||
Alt-A | 43,998 | 44,614 | 45,732 | |||||||||
$ | 1,569,111 | $ | 1,468,724 | $ | 1,623,788 | |||||||
OTTI has been recognized | ||||||||||||
Prime | $ | 654,317 | $ | 578,529 | $ | 559,482 | ||||||
Alt-A | 448,967 | 360,365 | 340,760 | |||||||||
$ | 1,103,284 | $ | 938,894 | $ | 900,242 | |||||||
Total by collateral type | ||||||||||||
Government agency | $ | 491,262 | $ | 439,046 | $ | 544,008 | ||||||
Prime | 1,688,168 | 1,563,593 | 1,593,530 | |||||||||
Alt-A | 492,965 | 404,979 | 386,492 | |||||||||
$ | 2,672,395 | $ | 2,407,618 | $ | 2,524,030 | |||||||
Total by NAIC designation | ||||||||||||
1 | $ | 2,272,920 | $ | 2,055,472 | $ | 2,193,086 | ||||||
2 | 329,707 | 290,504 | 273,991 | |||||||||
3 | 65,544 | 58,905 | 54,948 | |||||||||
6 | 4,224 | 2,737 | 2,005 | |||||||||
$ | 2,672,395 | $ | 2,407,618 | $ | 2,524,030 |
Number of Securities | Amortized Cost | Unrealized Losses | Fair Value | |||||||||||
(Dollars in thousands) | ||||||||||||||
June 30, 2012 | ||||||||||||||
Fixed maturity securities, available for sale: | ||||||||||||||
United States Government sponsored agencies | 3 | $ | 228,502 | $ | (673 | ) | $ | 227,829 | ||||||
United States municipalities, states and territories | 2 | 4,007 | (34 | ) | 3,973 | |||||||||
Corporate securities: | ||||||||||||||
Finance, insurance and real estate | 32 | 345,299 | (23,522 | ) | 321,777 | |||||||||
Manufacturing, construction and mining | 30 | 187,630 | (6,248 | ) | 181,382 | |||||||||
Utilities and related sectors | 32 | 198,162 | (16,598 | ) | 181,564 | |||||||||
Wholesale/retail trade | 4 | 25,452 | (1,526 | ) | 23,926 | |||||||||
Services, media and other | 9 | 87,687 | (2,436 | ) | 85,251 | |||||||||
Residential mortgage backed securities | 82 | 832,811 | (54,205 | ) | 778,606 | |||||||||
Other asset backed securities | 22 | 185,597 | (4,182 | ) | 181,415 | |||||||||
216 | $ | 2,095,147 | $ | (109,424 | ) | $ | 1,985,723 | |||||||
Fixed maturity securities, held for investment: | ||||||||||||||
Corporate security: | ||||||||||||||
Insurance | 1 | $ | 76,009 | $ | (14,170 | ) | $ | 61,839 | ||||||
Equity securities, available for sale: | ||||||||||||||
Finance, insurance and real estate | 3 | $ | 18,125 | $ | (1,303 | ) | $ | 16,822 | ||||||
December 31, 2011 | ||||||||||||||
Fixed maturity securities, available for sale: | ||||||||||||||
United States municipalities, states and territories | 1 | $ | 3,545 | $ | (10 | ) | $ | 3,535 | ||||||
Corporate securities: | ||||||||||||||
Finance, insurance and real estate | 52 | 562,449 | (52,186 | ) | 510,263 | |||||||||
Manufacturing, construction and mining | 32 | 240,637 | (9,000 | ) | 231,637 | |||||||||
Utilities and related sectors | 28 | 226,551 | (14,522 | ) | 212,029 | |||||||||
Wholesale/retail trade | 4 | 26,180 | (1,382 | ) | 24,798 | |||||||||
Services, media and other | 9 | 47,937 | (3,144 | ) | 44,793 | |||||||||
Residential mortgage backed securities | 95 | 1,077,045 | (72,081 | ) | 1,004,964 | |||||||||
Other asset backed securities | 17 | 136,703 | (5,611 | ) | 131,092 | |||||||||
238 | $ | 2,321,047 | $ | (157,936 | ) | $ | 2,163,111 | |||||||
Fixed maturity securities, held for investment: | ||||||||||||||
Corporate security: | ||||||||||||||
Insurance | 1 | $ | 75,932 | $ | (16,590 | ) | $ | 59,342 | ||||||
Equity securities, available for sale | ||||||||||||||
Finance, insurance and real estate | 7 | $ | 28,123 | $ | (4,345 | ) | $ | 23,778 |
NAIC Designation | Carrying Value of Securities with Gross Unrealized Losses | Percent of Total | Gross Unrealized Losses | Percent of Total | ||||||||||
(Dollars in thousands) | ||||||||||||||
June 30, 2012 | ||||||||||||||
1 | $ | 1,052,055 | 51.0 | % | $ | (46,681 | ) | 37.8 | % | |||||
2 | 745,957 | 36.2 | % | (44,487 | ) | 36.0 | % | |||||||
3 | 237,645 | 11.5 | % | (29,644 | ) | 24.0 | % | |||||||
4 | 20,064 | 1.0 | % | (1,604 | ) | 1.3 | % | |||||||
5 | 4,006 | 0.2 | % | (445 | ) | 0.3 | % | |||||||
6 | 2,005 | 0.1 | % | (733 | ) | 0.6 | % | |||||||
$ | 2,061,732 | 100.0 | % | $ | (123,594 | ) | 100.0 | % | ||||||
December 31, 2011 | ||||||||||||||
1 | $ | 1,229,962 | 54.9 | % | $ | (88,632 | ) | 50.8 | % | |||||
2 | 825,771 | 36.9 | % | (56,551 | ) | 32.4 | % | |||||||
3 | 165,902 | 7.4 | % | (25,402 | ) | 14.6 | % | |||||||
4 | 15,310 | 0.7 | % | (3,026 | ) | 1.7 | % | |||||||
5 | — | — | % | — | — | % | ||||||||
6 | 2,098 | 0.1 | % | (915 | ) | 0.5 | % | |||||||
$ | 2,239,043 | 100.0 | % | $ | (174,526 | ) | 100.0 | % |
Number of Securities | Amortized Cost | Fair Value | Gross Unrealized Losses | ||||||||||||
(Dollars in thousands) | |||||||||||||||
June 30, 2012 | |||||||||||||||
Fixed maturity securities: | |||||||||||||||
Investment grade: | |||||||||||||||
Less than six months | 89 | $ | 849,623 | $ | 840,124 | $ | (9,499 | ) | |||||||
Six months or more and less than twelve months | 20 | 145,550 | 132,176 | (13,374 | ) | ||||||||||
Twelve months or greater | 24 | 228,715 | 206,334 | (22,381 | ) | ||||||||||
Total investment grade | 133 | 1,223,888 | 1,178,634 | (45,254 | ) | ||||||||||
Below investment grade: | |||||||||||||||
Less than six months | 13 | 225,391 | 214,279 | (11,112 | ) | ||||||||||
Six months or more and less than twelve months | 14 | 199,959 | 186,046 | (13,913 | ) | ||||||||||
Twelve months or greater | 57 | 521,918 | 468,603 | (53,315 | ) | ||||||||||
Total below investment grade | 84 | 947,268 | 868,928 | (78,340 | ) | ||||||||||
Equity securities: | |||||||||||||||
Less then six months | — | — | — | — | |||||||||||
Six months or more and less than twelve months | 1 | 10,125 | 8,922 | (1,203 | ) | ||||||||||
Twelve months or greater | 2 | 8,000 | 7,900 | (100 | ) | ||||||||||
Total equity securities | 3 | 18,125 | 16,822 | (1,303 | ) | ||||||||||
220 | $ | 2,189,281 | $ | 2,064,384 | $ | (124,897 | ) | ||||||||
December 31, 2011 | |||||||||||||||
Fixed maturity securities: | |||||||||||||||
Investment grade: | |||||||||||||||
Less than six months | 105 | $ | 888,771 | $ | 845,654 | $ | (43,117 | ) | |||||||
Six months or more and less than twelve months | 16 | 133,766 | 121,320 | (12,446 | ) | ||||||||||
Twelve months or greater | 32 | 333,116 | 304,408 | (28,708 | ) | ||||||||||
Total investment grade | 153 | 1,355,653 | 1,271,382 | (84,271 | ) | ||||||||||
Below investment grade: | |||||||||||||||
Less than six months | 15 | 193,472 | 180,373 | (13,099 | ) | ||||||||||
Six months or more and less than twelve months | 8 | 56,065 | 50,215 | (5,850 | ) | ||||||||||
Twelve months or greater | 63 | 791,789 | 720,483 | (71,306 | ) | ||||||||||
Total below investment grade | 86 | 1,041,326 | 951,071 | (90,255 | ) | ||||||||||
Equity securities: | |||||||||||||||
Less then six months | 4 | 17,123 | 15,004 | (2,119 | ) | ||||||||||
Six months or more and less than twelve months | 2 | 6,000 | 5,024 | (976 | ) | ||||||||||
Twelve months or greater | 1 | 5,000 | 3,750 | (1,250 | ) | ||||||||||
Total equity securities | 7 | 28,123 | 23,778 | (4,345 | ) | ||||||||||
246 | $ | 2,425,102 | $ | 2,246,231 | $ | (178,871 | ) |
Number of Securities | Amortized Cost | Fair Value | Gross Unrealized Losses | ||||||||||||
(Dollars in thousands) | |||||||||||||||
June 30, 2012 | |||||||||||||||
Investment grade: | |||||||||||||||
Less than six months | 5 | $ | 41,842 | $ | 33,186 | $ | (8,656 | ) | |||||||
Six months or more and less than twelve months | 2 | 40,000 | 28,825 | (11,175 | ) | ||||||||||
Twelve months or greater | — | — | — | — | |||||||||||
Total investment grade | 7 | 81,842 | 62,011 | (19,831 | ) | ||||||||||
Below investment grade: | |||||||||||||||
Less than six months | 4 | 60,106 | 45,350 | (14,756 | ) | ||||||||||
Six months or more and less than twelve months | 2 | 13,103 | 10,039 | (3,064 | ) | ||||||||||
Twelve months or greater | 3 | 9,912 | 7,061 | (2,851 | ) | ||||||||||
Total below investment grade | 9 | 83,121 | 62,450 | (20,671 | ) | ||||||||||
16 | $ | 164,963 | $ | 124,461 | $ | (40,502 | ) | ||||||||
December 31, 2011 | |||||||||||||||
Investment grade: | |||||||||||||||
Less than six months | 9 | $ | 83,332 | $ | 56,501 | $ | (26,831 | ) | |||||||
Six months or more and less than twelve months | — | — | — | — | |||||||||||
Twelve months or greater | — | — | — | — | |||||||||||
Total investment grade | 9 | 83,332 | 56,501 | (26,831 | ) | ||||||||||
Below investment grade: | |||||||||||||||
Less than six months | 4 | 38,506 | 29,076 | (9,430 | ) | ||||||||||
Six months or more and less than twelve months | 1 | 7,464 | 5,250 | (2,214 | ) | ||||||||||
Twelve months or greater | 3 | 78,945 | 61,440 | (17,505 | ) | ||||||||||
Total below investment grade | 8 | 124,915 | 95,766 | (29,149 | ) | ||||||||||
17 | $ | 208,247 | $ | 152,267 | $ | (55,980 | ) |
Available for sale | Held for investment | |||||||||||||||
Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
June 30, 2012 | ||||||||||||||||
Due in one year or less | $ | — | $ | — | $ | — | $ | — | ||||||||
Due after one year through five years | 22,035 | 19,147 | — | — | ||||||||||||
Due after five years through ten years | 263,243 | 253,792 | — | — | ||||||||||||
Due after ten years through twenty years | 466,857 | 446,057 | — | — | ||||||||||||
Due after twenty years | 324,603 | 306,706 | 76,009 | 61,839 | ||||||||||||
1,076,738 | 1,025,702 | 76,009 | 61,839 | |||||||||||||
Residential mortgage backed securities | 832,811 | 778,606 | — | — | ||||||||||||
Other asset backed securities | 185,598 | 181,415 | — | — | ||||||||||||
$ | 2,095,147 | $ | 1,985,723 | $ | 76,009 | $ | 61,839 | |||||||||
December 31, 2011 | ||||||||||||||||
Due in one year or less | $ | — | $ | — | $ | — | $ | — | ||||||||
Due after one year through five years | 18,066 | 16,725 | — | — | ||||||||||||
Due after five years through ten years | 374,616 | 356,620 | — | — | ||||||||||||
Due after ten years through twenty years | 359,672 | 319,977 | — | — | ||||||||||||
Due after twenty years | 354,945 | 333,733 | 75,932 | 59,342 | ||||||||||||
1,107,299 | 1,027,055 | 75,932 | 59,342 | |||||||||||||
Residential mortgage backed securities | 1,077,045 | 1,004,964 | — | — | ||||||||||||
Other asset backed securities | 136,703 | 131,092 | — | — | ||||||||||||
$ | 2,321,047 | $ | 2,163,111 | $ | 75,932 | $ | 59,342 |
June 30, 2012 | |||||||||
Amortized Cost | Carrying Amount/Fair Value | Percent of Total Carrying Amount | |||||||
(Dollars in thousands) | |||||||||
GIIPS (1) | $ | 224,403 | $ | 212,944 | 1.0% | ||||
Asia/Pacific | 102,911 | 113,651 | 0.5% | ||||||
Non-GIIPS Europe | 1,146,266 | 1,221,904 | 5.6% | ||||||
Latin America | 152,080 | 163,030 | 0.7% | ||||||
Non-U.S. North America | 589,974 | 649,858 | 3.0% | ||||||
Australia & New Zealand | 306,008 | 326,962 | 1.5% | ||||||
Other | 215,392 | 243,925 | 1.1% | ||||||
$ | 2,737,034 | $ | 2,932,274 | 13.4% |
General Description | Number of Securities | Amortized Cost | Unrealized Losses | Fair Value | Months in Continuous Unrealized Loss Position | Months Unrealized Losses Greater Than 20% | |||||||||||||
(Dollars in thousands) | |||||||||||||||||||
Investment grade | |||||||||||||||||||
Corporate fixed maturity securities: | |||||||||||||||||||
Finance | 4 | $ | 64,500 | $ | (16,708 | ) | $ | 47,792 | 7 - 19 | 1 - 10 | |||||||||
Industrial | 3 | 18,271 | (2,962 | ) | 15,309 | 11 - 22 | 0 | ||||||||||||
7 | $ | 82,771 | $ | (19,670 | ) | $ | 63,101 | ||||||||||||
Below investment grade | |||||||||||||||||||
Corporate fixed maturity securities: | |||||||||||||||||||
Finance | 1 | $ | 4,451 | $ | (445 | ) | $ | 4,006 | 3 | — | |||||||||
Industrial | 1 | 20,616 | (4,985 | ) | 15,631 | 13 | 3 | ||||||||||||
2 | 25,067 | (5,430 | ) | 19,637 | |||||||||||||||
9 | $ | 107,838 | (25,100 | ) | $ | 82,738 |
June 30, 2012 | December 31, 2011 | |||||||
(Dollars in thousands) | ||||||||
Mortgage loans with allowances | $ | 59,815 | $ | 67,698 | ||||
Mortgage loans with no allowance for losses | 59,541 | 63,023 | ||||||
Allowance for probable loan losses | (25,445 | ) | (23,664 | ) | ||||
Net carrying value | $ | 93,911 | $ | 107,057 |
Number | Name | Method of Filing | ||
10.38 | Change of Control Agreement between American Equity Investment Life Holding Company and Ted Johnson | Filed herewith | ||
10.39 | Change of Control Agreement between American Equity Investment Life Holding Company and Ronald J. Grensteiner | Filed herewith | ||
12.1 | Ratio of Earnings to Fixed Charges | Filed herewith | ||
31.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | Filed herewith | ||
31.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | Filed herewith | ||
32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Filed herewith | ||
32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Filed herewith | ||
101.INS | XBRL Instance Document | * | ||
101.SCH | XBRL Taxonomy Extension Schema Document | * | ||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | * | ||
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | * | ||
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | * | ||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | * | ||
* | Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities and Exchange Act of 1934, as amended and otherwise are not subject to liability under those sections. |
Date: August 6, 2012 | AMERICAN EQUITY INVESTMENT LIFE | ||
HOLDING COMPANY | |||
By: | /s/ John M. Matovina | ||
John M. Matovina, Chief Executive Officer and President | |||
(Principal Executive Officer) | |||
By: | /s/ Ted M. Johnson | ||
Ted M. Johnson, Chief Financial Officer and Treasurer | |||
(Principal Financial Officer) | |||
By: | /s/ Scott A. Samuelson | ||
Scott A. Samuelson, Vice President - Controller | |||
(Principal Accounting Officer) |
A. | "Beneficiary" means any individual, trust or other entity named by the Executive to receive the severance payments and benefits payable hereunder in the event of the death of the Executive during the Salary Continuation Period. Executive may designate a Beneficiary to receive such payments and benefits by completing a form provided by the Company and delivering it to the Chairman of the Board of the Company. Executive may change his or her designated Beneficiary at any time (without the consent of any prior Beneficiary) by completing and delivering to the Company a new beneficiary designation form. If a Beneficiary has not been designated by the Executive, or if no designated Beneficiary survives the Executive, then the payment and benefits provided under this Agreement, if any, will be paid to the Executive's estate, which shall be deemed to be Executive's Beneficiary. |
B. | "Board" means the Board of Directors of the Company. |
C. | "Cause" means: |
i. | the Executive's willful and continued failure to substantially perform the Executive's duties with the Company or its affiliates (other than any such failure resulting from the Executive's incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Company which specifically identifies the manner in which the Company believes that the Executive has not substantially performed his or her duties; |
ii. | the final conviction of the Executive of, or an entering of a guilty plea or a plea of no contest by the Executive to, a felony; or |
iii. | the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. |
D. | "Change in Control" means the occurrence of anyone of the following events: |
i. | any "person" (as defined in Sections 13(d) and 14(d) of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act"», other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, an underwriter temporarily holding securities pursuant to an offering of such securities, or any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, directly or indirectly acquires "beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act) of securities representing 35% of the combined voting power of the Company's then outstanding securities; or |
ii. | during any period of not more than two consecutive years, individuals who, at the beginning of such period, constitute the Board and any new directors (other than any director designated by a person who has entered into an agreement with the Company to effect a transaction described in subsections l(d)(i), I (d)(iii), or I (d)(iv) of this Agreement) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board; or |
iii. | the stockholders of the Company approve and the Company consummates a merger other than (A) a merger that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company and any Subsidiary, at least 50% of the combined voting power of all classes of stock of the Company or such surviving entity outstanding immediately after such merger or (B) a merger effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires more than 50% of the combined voting power of the Company's then outstanding securities; or |
iv. | the Company consummates a sale of all or substantially all of the assets of the Company or the stockholders of the Company approve a plan of complete liquidation of the Company. |
E. | "Date of Termination" means the date specified in a Notice of Termination pursuant to paragraph 3 hereof, or the Executive's last date as an active employee of the Company and its affiliates before a termination of employment due to death, disability or other reason, as the case may be. |
F. | "Disability" means the Executive's total and permanent disability as defined under the terms of the Company's long-term disability plan in effect on the Date of Termination. |
G. | "Effective Period" means the 24-month period following any Change in Control. |
H. | "Good Reason" means, unless the Executive has consented in writing thereto, the occurrence of any of the following: |
i. | The assignment to the Executive of any duties inconsistent with the Executive's position, including any change in status, title, authority, duties or responsibilities or any other action which results in a material diminution in such status, title, authority, duties or responsibilities, excluding for this purpose (A) an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company or the Executive's employer promptly after receipt of notice thereof given by the Executive; and (B) changes reasonably related to the termination of the Company's registration under Section 12 of the Exchange Act. |
ii. | A reduction by the Company or the Executive's employer in the Executive's base salary; |
iii. | The relocation of the Executive's office to a location more than fifty (50) miles outside West Des Moines, Iowa; |
iv. | Following a Change in Control, unless a plan providing a substantially similar compensation or benefit is substituted, (A) the failure by the Company or any of its affiliates to continue in effect any material fringe benefit or compensation plan, retirement plan, life insurance plan, health and accident plan or disability plan in which the Executive is participating prior to the Change in Control, or (B) the taking of any action by the Company or any of its affiliates which would adversely affect the Executive's participation in or materially reduce his benefits under any of such plans or deprive him of any material fringe benefit; or |
v. | Following a Change in Control, the failure of the Company or the affiliate of the Company by which the Executive is employed, or any affiliate which directly or indirectly owns or controls any affiliate by which the Executive is employed, to obtain the assumption in writing of the Company's obligation to perform this Agreement by any successor to all or substantially all of the assets of the Company or such affiliate within 15 days after a reorganization, merger, consolidation, sale or other disposition of assets of the Company or such affiliate. |
A. | Any termination of the Executive's employment by the Company, or by any affiliate of the Company by which the Executive is employed, for Cause, or by the Executive for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with paragraph 10 of this Agreement. For purposes of this Agreement, a "Notice of Termination" for termination of employment for Cause or for Good Reason means a written notice which (i) is given at least thirty (30) days prior to the Date of Termination; (ii) indicates the specific termination provision in this Agreement relied upon, (iii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, (iv) specifies the employment termination date; and (v) allows the recipient of the Notice of Termination at least thirty (30) days to cure the act or omission relied upon in the Notice of Termination. The failure to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause will not waive any right of the party giving the Notice of Termination hereunder or preclude such party from asserting such fact or circumstance in enforcing its rights hereunder. |
B. | A Termination of Employment of the Executive will not be deemed to be for Cause unless and until there has been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive has engaged in the conduct described in paragraph l(c) hereof, and specifying the particulars of such conduct. |
C. | A Termination of Employment of the Executive will not be deemed to be for Good Reason unless the Executive gives the Notice of Termination provided for herein within twelve (12) months after the Executive has actual knowledge of the act or omission of the Company constituting such Good Reason. |
D. | The provisions of this paragraph 3 shall only apply following a Change in Control. |
A. | If, during the Effective Period, the Company terminates the Executive's employment other than for Cause or the Executive terminates employment with the Company for Good Reason, the Company will pay the following to the Executive: |
i. | A cash lump sum in the amount of the Executive's annual base salary through the Date of Termination to the extent not theretofore paid; |
ii. | A cash lump sum in the amount of the target annual bonus that the Executive would receive for the year in which the Date of Termination occurs, pro-rationed by multiplying such bonus amount by the fraction obtained by dividing the number of days in the year through the Date of Termination by 365; |
iii. | Cash in an amount equal to the product of one times the Executive's annual base salary at the greater of (A) the rate in effect at the time Notice of Termination is given or (B) the rate in effect immediately preceding the Change in Control, payable in equal monthly installments over a period of one year following the Date of Termination (the "Salary Continuation Period"); |
iv. | A lump sum cash amount equal to the product of one times the target annual cash bonus in effect for the Executive at the time Notice of Termination is given; |
v. | The continuation of the provision of health insurance, dental insurance and life insurance benefits for the Salary Continuation Period to the Executive and the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies of the Company as in effect and applicable generally to other peer executives and their families during the 90-day period immediately preceding the Effective Period or on the Date of Termination, at the election of the Executive; provided, however, that if the Executive becomes re-employed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein will be secondary to those provided under such other plan during such applicable period of eligibility; |
B. | Any and all amounts paid under this Agreement in the amount of or otherwise in respect of the Executive's annual base salary and bonuses, whether or not deferred under a deferred compensation plan or program, are intended to be and will be "Compensation" for purposes of determining Compensation under any and all retirement plans sponsored or maintained by the Company or by any affiliate controlled by the Company; provided however, to the extent the treatment of such amounts as Compensation under a retirement plan could adversely affect such plan's qualification status, the amount of the benefits under such plan attributable to such potentially disqualifying Compensation shall be paid by the Company and not pursuant to such plan. |
C. | If the Executive's employment is terminated by reason of the Executive's death or Disability during the Term of this Agreement, this Agreement shall terminate automatically on the date of death or, in the event of Disability, on the Date of Termination. In the event of the Executive's death during the Salary Continuation Period, the severance payments and benefits listed in paragraph 4 of this Agreement will be paid to the Executive's Beneficiary for the remainder of the Salary Continuation Period. If the Executive's employment is terminated by the Company other than for Cause, death or Disability during the term of this Agreement, or if the Executive terminates his employment by the Company other than for death, Disability or Good Reason, this Agreement shall terminate on the Date of Termination. |
A. | For purposes of this Section 7, (i) “Independent Tax Counsel” shall mean a lawyer, a certified public accountant with a nationally recognized accounting firm, or a compensation consultant with a nationally recognized actuarial and benefits consulting firm with expertise in the area of executive compensation tax law, who will be selected by the Company and will be reasonably acceptable to the Executive, and whose fees and disbursements will be paid by the Company, (ii) “Payment shall mean any payment or distribution in the nature of compensation to or for the benefit of the Executive (whether paid or payable pursuant to this Agreement or otherwise, but determined without regard to any reductions required by this Section 7); (iii) "Net After Tax Receipt" shall mean the Present Value of a Payment net of all federal, state and local income taxes, Medicare tax and other taxes imposed on the Executive or the Payment with respect thereto, determined by applying the highest marginal federal and state income tax rate that applied to the Executive's taxable income for the immediately preceding taxable year; (iv) "Present Value" shall mean such value determined in accordance with Section 280G(d)(4) of the Internal Revenue Code of 1986, as amended (the "Code"); and (v) "Reduced Amount" shall mean the largest aggregate amount of Payments which (a) is less than the sum of all Payments and (b) results in aggregate Net After Tax Receipts which is greater than the Net After Tax Receipts which would result if the aggregate Payments were any other amount less than the sum of all Payments. |
B. | Anything in this Agreement to the contrary notwithstanding, in the event the Independent Tax Counsel shall determine that receipt of all Payments would subject the Executive to tax under Section 4999 of the Code, it shall determine whether a Reduced Amount exists. If the Independent Tax Counsel determines that a Reduced Amount exists, the aggregate Payments shall be reduced to such Reduced Amount. |
C. | If the Independent Tax Counsel determines that aggregate Payments should be reduced to the Reduced Amount, the Company shall promptly give the Executive notice to that effect and a copy of the detailed calculation thereof, and the Executive may then elect which and how much of the Payments shall be eliminated or reduced (as long as after such election the present value of the aggregate Payments equals the Reduced Amount), and shall advise the Company in writing of such election within ten days of his receipt of notice. If no such election is made by the Executive within such ten-day period, the Company may elect which of such Payments shall be eliminated or reduced (as long as after such election the present value of the aggregate Payments equals the Reduced Amount) and shall notify the Executive promptly of such election. All determinations made by the Independent Tax Counsel under this Section 7 shall be binding upon the Company |
D. | If the Independent Tax Counsel determines that aggregate Payments should be reduced to the Reduced Amount, the Company shall promptly give the Executive notice to that effect and a copy of the detailed calculation thereof, and the Executive may then elect which and how much of the Payments shall be eliminated or reduced (as long as after such election the present value of the aggregate Payments equals the Reduced Amount), and shall advise the Company in writing of such election within ten days of his receipt of notice. If no such election is made by the executive within such ten-day period, the Company may elect which of such Payments shall be eliminated or reduced (as long as after such election the present value of the aggregate Payments equals the Reduced Amount) and shall notify the Executive promptly of such election. All determinations made by the Independent Tax Counsel under this Section 7 shall be binding upon the Company and the Executive and shall be made within 15 business days of the date of termination of the Executive's employment. As promptly as practicable following such determination, the Company shall pay to or distribute to or for the benefit of the Executive such Payments as are then due to the Executive and shall promptly pay to or distribute to or for the benefit of the Executive in the future such Payments as become due to the Executive. |
A. | The Executive hereby acknowledges and agrees that the provisions contained in paragraph 8 of this Agreement (the "Restrictive Covenants") are reasonable and valid in duration and in all other respects. If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants will not thereby be affected and will be given full effect without regard to the invalid portions. |
B. | If the Executive breaches, or threatens to commit a breach of, any of the Restrictive Covenants, the Company will have the following rights and remedies, each of which rights and remedies will |
i. | Specific Performance. The right and remedy to have the Restrictive Covenants specifically enforced by any court of competent jurisdiction, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the Company and that money damages would not provide an adequate remedy to the Company. |
ii. | Accounting. The right and remedy to require the Executive to account for and pay over to the Company all compensation, profits, monies, accruals, increments or other benefits derived or received by the Executive as the result of any action constituting a breach of the Restrictive Covenants. |
iii. | Cessation of Severance Benefits. The right and remedy to cease any further severance, benefit or other compensation payments under this Agreement to the Executive or the Executive's Beneficiary from and after the commencement of such breach by the Executive. |
C. | The provisions of this subparagraph 9(c) shall apply to any dispute relating to this Agreement and not governed by subparagraph 9(b). |
i. | Neither the Company nor the Executive may commence any action in any court until the parties have either participated in non-binding mediation under the auspices of an independent mediator, or (if the dispute involves a Notice of Termination or Contest Notice) more than sixty (60) days have elapsed after the date of any applicable Notice of Termination or Contest Notice. Either party may initiate mediation procedures by sending the other party a list of three (3) mediators selected from Blair's ADR List (www.adrlist.com), from which list the receiving party shall designate one person to serve as mediator. The mediation process shall be subject to the customary agreements and confidentiality utilized by members of Blair's ADR List. The cost of mediation shall be borne by the Company. |
ii. | Upon expiration of the time periods prescribed in (i) above, either party may commence action in either the state or Federal courts of the State of Iowa, but not elsewhere. In any such action, (A) each party hereby waives a jury trial; and (B) each party waives any rights to punitive or exemplary damages. |
iii. | The Company agrees to reimburse the Executive for one-half of the reasonable attorneys fees incurred and paid by the Executive in connection with any dispute relating to this Agreement, but only to the extent such fees do not exceed the lesser of (A) a reasonable hourly rate or (B) $225 per hour; provided, however, that if the Executive prevails in any action and is awarded an amount exceeding 125% of the amount offered to the Employee by the Company prior to the commencement of the action, the Company shall reimburse the Executive for 100% of such fees. |
AMERICAN EQUITY INVESTMENT | EXECUTIVE | |
LIFE HOLDING COMPANY | ||
By: /s/ D.J. Noble | /s/ Ted Johnson | |
D.J. Noble, Chairman, CEO | ||
and President |
A. | "Beneficiary" means any individual, trust or other entity named by the Executive to receive the severance payments and benefits payable hereunder in the event of the death of the Executive during the Salary Continuation Period. Executive may designate a Beneficiary to receive such payments and benefits by completing a form provided by the Company and delivering it to the Chairman of the Board of the Company. Executive may change his or her designated Beneficiary at any time (without the consent of any prior Beneficiary) by completing and delivering to the Company a new beneficiary designation form. If a Beneficiary has not been designated by the Executive, or if no designated Beneficiary survives the Executive, then the payment and benefits provided under this Agreement, if any, will be paid to the Executive's estate, which shall be deemed to be Executive's Beneficiary. |
B. | "Board" means the Board of Directors of the Company. |
C. | "Cause" means: |
i. | the Executive's willful and continued failure to substantially perform the Executive's duties with the Company or its affiliates (other than any such failure resulting from the Executive's incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Company which specifically identifies the manner in which the Company believes that the Executive has not substantially performed his or her duties; |
ii. | the final conviction of the Executive of, or an entering of a guilty plea or a plea of no contest by the Executive to, a felony; or |
iii. | the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. |
D. | "Change in Control" means the occurrence of anyone of the following events: |
i. | any "person" (as defined in Sections 13(d) and 14(d) of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act"», other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, an underwriter temporarily holding securities pursuant to an offering of such securities, or any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, directly or indirectly acquires "beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act) of securities representing 35% of the combined voting power of the Company's then outstanding securities; or |
ii. | during any period of not more than two consecutive years, individuals who, at the beginning of such period, constitute the Board and any new directors (other than any director designated by a person who has entered into an agreement with the Company to effect a transaction described in subsections l(d)(i), I (d)(iii), or I (d)(iv) of this Agreement) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board; or |
iii. | the stockholders of the Company approve and the Company consummates a merger other than (A) a merger that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company and any Subsidiary, at least 50% of the combined voting power of all classes of stock of the Company or such surviving entity outstanding immediately after such merger or (B) a merger effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires more than 50% of the combined voting power of the Company's then outstanding securities; or |
iv. | the Company consummates a sale of all or substantially all of the assets of the Company or the stockholders of the Company approve a plan of complete liquidation of the Company. |
E. | "Date of Termination" means the date specified in a Notice of Termination pursuant to paragraph 3 hereof, or the Executive's last date as an active employee of the Company and its affiliates before a termination of employment due to death, disability or other reason, as the case may be. |
F. | "Disability" means the Executive's total and permanent disability as defined under the terms of the Company's long-term disability plan in effect on the Date of Termination. |
G. | "Effective Period" means the 24-month period following any Change in Control. |
H. | "Good Reason" means, unless the Executive has consented in writing thereto, the occurrence of any of the following: |
i. | The assignment to the Executive of any duties inconsistent with the Executive's position, including any change in status, title, authority, duties or responsibilities or any other action which results in a material diminution in such status, title, authority, duties or responsibilities, excluding for this purpose (A) an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company or the Executive's employer promptly after receipt of notice thereof given by the Executive; and (B) changes reasonably related to the termination of the Company's registration under Section 12 of the Exchange Act. |
ii. | A reduction by the Company or the Executive's employer in the Executive's base salary; |
iii. | The relocation of the Executive's office to a location more than fifty (50) miles outside West Des Moines, Iowa; |
iv. | Following a Change in Control, unless a plan providing a substantially similar compensation or benefit is substituted, (A) the failure by the Company or any of its affiliates to continue in effect any material fringe benefit or compensation plan, retirement plan, life insurance plan, health and accident plan or disability plan in which the Executive is participating prior to the Change in Control, or (B) the taking of any action by the Company or any of its affiliates which would adversely affect the Executive's participation in or materially reduce his benefits under any of such plans or deprive him of any material fringe benefit; or |
v. | Following a Change in Control, the failure of the Company or the affiliate of the Company by which the Executive is employed, or any affiliate which directly or indirectly owns or controls any affiliate by which the Executive is employed, to obtain the assumption in writing of the Company's obligation to perform this Agreement by any successor to all or substantially all of the assets of the Company or such affiliate within 15 days after a reorganization, merger, consolidation, sale or other disposition of assets of the Company or such affiliate. |
A. | Any termination of the Executive's employment by the Company, or by any affiliate of the Company by which the Executive is employed, for Cause, or by the Executive for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with paragraph 10 of this Agreement. For purposes of this Agreement, a "Notice of Termination" for termination of employment for Cause or for Good Reason means a written notice which (i) is given at least thirty (30) days prior to the Date of Termination; (ii) indicates the specific termination provision in this Agreement relied upon, (iii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, (iv) specifies the employment termination date; and (v) allows the recipient of the Notice of Termination at least thirty (30) days to cure the act or omission relied upon in the Notice of Termination. The failure to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause will not waive any right of the party giving the Notice of Termination hereunder or preclude such party from asserting such fact or circumstance in enforcing its rights hereunder. |
B. | A Termination of Employment of the Executive will not be deemed to be for Cause unless and until there has been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive has engaged in the conduct described in paragraph l(c) hereof, and specifying the particulars of such conduct. |
C. | A Termination of Employment of the Executive will not be deemed to be for Good Reason unless the Executive gives the Notice of Termination provided for herein within twelve (12) months after the Executive has actual knowledge of the act or omission of the Company constituting such Good Reason. |
D. | The provisions of this paragraph 3 shall only apply following a Change in Control. |
A. | If, during the Effective Period, the Company terminates the Executive's employment other than for Cause or the Executive terminates employment with the Company for Good Reason, the Company will pay the following to the Executive: |
i. | A cash lump sum in the amount of the Executive's annual base salary through the Date of Termination to the extent not theretofore paid; |
ii. | A cash lump sum in the amount of the target annual bonus that the Executive would receive for the year in which the Date of Termination occurs, pro-rationed by multiplying such bonus amount by the fraction obtained by dividing the number of days in the year through the Date of Termination by 365; |
iii. | Cash in an amount equal to the product of one times the Executive's annual base salary at the greater of (A) the rate in effect at the time Notice of Termination is given or (B) the rate in effect immediately preceding the Change in Control, payable in equal monthly installments over a period of one year following the Date of Termination (the "Salary Continuation Period"); |
iv. | A lump sum cash amount equal to the product of one times the target annual cash bonus in effect for the Executive at the time Notice of Termination is given; |
v. | The continuation of the provision of health insurance, dental insurance and life insurance benefits for the Salary Continuation Period to the Executive and the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies of the Company as in effect and applicable generally to other peer executives and their families during the 90-day period immediately preceding the Effective Period or on the Date of Termination, at the election of the Executive; provided, however, that if the Executive becomes re-employed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein will be secondary to those provided under such other plan during such applicable period of eligibility; |
B. | Any and all amounts paid under this Agreement in the amount of or otherwise in respect of the Executive's annual base salary and bonuses, whether or not deferred under a deferred compensation plan or program, are intended to be and will be "Compensation" for purposes of determining Compensation under any and all retirement plans sponsored or maintained by the Company or by any affiliate controlled by the Company; provided however, to the extent the treatment of such amounts as Compensation under a retirement plan could adversely affect such plan's qualification status, the amount of the benefits under such plan attributable to such potentially disqualifying Compensation shall be paid by the Company and not pursuant to such plan. |
C. | If the Executive's employment is terminated by reason of the Executive's death or Disability during the Term of this Agreement, this Agreement shall terminate automatically on the date of death or, in the event of Disability, on the Date of Termination. In the event of the Executive's death during the Salary Continuation Period, the severance payments and benefits listed in paragraph 4 of this Agreement will be paid to the Executive's Beneficiary for the remainder of the Salary Continuation Period. If the Executive's employment is terminated by the Company other than for Cause, death or Disability during the term of this Agreement, or if the Executive terminates his employment by the Company other than for death, Disability or Good Reason, this Agreement shall terminate on the Date of Termination. |
A. | For purposes of this Section 7, (i) “Independent Tax Counsel” shall mean a lawyer, a certified public accountant with a nationally recognized accounting firm, or a compensation consultant with a nationally recognized actuarial and benefits consulting firm with expertise in the area of executive compensation tax law, who will be selected by the Company and will be reasonably acceptable to the Executive, and whose fees and disbursements will be paid by the Company, (ii) “Payment shall mean any payment or distribution in the nature of compensation to or for the benefit of the Executive (whether paid or payable pursuant to this Agreement or otherwise, but determined without regard to any reductions required by this Section 7); (iii) "Net After Tax Receipt" shall mean the Present Value of a Payment net of all federal, state and local income taxes, Medicare tax and other taxes imposed on the Executive or the Payment with respect thereto, determined by applying the highest marginal federal and state income tax rate that applied to the Executive's taxable income for the immediately preceding taxable year; (iv) "Present Value" shall mean such value determined in accordance with Section 280G(d)(4) of the Internal Revenue Code of 1986, as amended (the "Code"); and (v) "Reduced Amount" shall mean the largest aggregate amount of Payments which (a) is less than the sum of all Payments and (b) results in aggregate Net After Tax Receipts which is greater than the Net After Tax Receipts which would result if the aggregate Payments were any other amount less than the sum of all Payments. |
B. | Anything in this Agreement to the contrary notwithstanding, in the event the Independent Tax Counsel shall determine that receipt of all Payments would subject the Executive to tax under Section 4999 of the Code, it shall determine whether a Reduced Amount exists. If the Independent Tax Counsel determines that a Reduced Amount exists, the aggregate Payments shall be reduced to such Reduced Amount. |
C. | If the Independent Tax Counsel determines that aggregate Payments should be reduced to the Reduced Amount, the Company shall promptly give the Executive notice to that effect and a copy of the detailed calculation thereof, and the Executive may then elect which and how much of the Payments shall be eliminated or reduced (as long as after such election the present value of the aggregate Payments equals the Reduced Amount), and shall advise the Company in writing of such election within ten days of his receipt of notice. If no such election is made by the Executive within such ten-day period, the Company may elect which of such Payments shall be eliminated or reduced (as long as after such election the present value of the aggregate Payments equals the Reduced Amount) and shall notify the Executive promptly of such election. All determinations made by the Independent Tax Counsel under this Section 7 shall be binding upon the Company |
D. | If the Independent Tax Counsel determines that aggregate Payments should be reduced to the Reduced Amount, the Company shall promptly give the Executive notice to that effect and a copy of the detailed calculation thereof, and the Executive may then elect which and how much of the Payments shall be eliminated or reduced (as long as after such election the present value of the aggregate Payments equals the Reduced Amount), and shall advise the Company in writing of such election within ten days of his receipt of notice. If no such election is made by the executive within such ten-day period, the Company may elect which of such Payments shall be eliminated or reduced (as long as after such election the present value of the aggregate Payments equals the Reduced Amount) and shall notify the Executive promptly of such election. All determinations made by the Independent Tax Counsel under this Section 7 shall be binding upon the Company and the Executive and shall be made within 15 business days of the date of termination of the Executive's employment. As promptly as practicable following such determination, the Company shall pay to or distribute to or for the benefit of the Executive such Payments as are then due to the Executive and shall promptly pay to or distribute to or for the benefit of the Executive in the future such Payments as become due to the Executive. |
A. | The Executive hereby acknowledges and agrees that the provisions contained in paragraph 8 of this Agreement (the "Restrictive Covenants") are reasonable and valid in duration and in all other respects. If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants will not thereby be affected and will be given full effect without regard to the invalid portions. |
B. | If the Executive breaches, or threatens to commit a breach of, any of the Restrictive Covenants, the Company will have the following rights and remedies, each of which rights and remedies will |
i. | Specific Performance. The right and remedy to have the Restrictive Covenants specifically enforced by any court of competent jurisdiction, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the Company and that money damages would not provide an adequate remedy to the Company. |
ii. | Accounting. The right and remedy to require the Executive to account for and pay over to the Company all compensation, profits, monies, accruals, increments or other benefits derived or received by the Executive as the result of any action constituting a breach of the Restrictive Covenants. |
iii. | Cessation of Severance Benefits. The right and remedy to cease any further severance, benefit or other compensation payments under this Agreement to the Executive or the Executive's Beneficiary from and after the commencement of such breach by the Executive. |
C. | The provisions of this subparagraph 9(c) shall apply to any dispute relating to this Agreement and not governed by subparagraph 9(b). |
i. | Neither the Company nor the Executive may commence any action in any court until the parties have either participated in non-binding mediation under the auspices of an independent mediator, or (if the dispute involves a Notice of Termination or Contest Notice) more than sixty (60) days have elapsed after the date of any applicable Notice of Termination or Contest Notice. Either party may initiate mediation procedures by sending the other party a list of three (3) mediators selected from Blair's ADR List (www.adrlist.com), from which list the receiving party shall designate one person to serve as mediator. The mediation process shall be subject to the customary agreements and confidentiality utilized by members of Blair's ADR List. The cost of mediation shall be borne by the Company. |
ii. | Upon expiration of the time periods prescribed in (i) above, either party may commence action in either the state or Federal courts of the State of Iowa, but not elsewhere. In any such action, (A) each party hereby waives a jury trial; and (B) each party waives any rights to punitive or exemplary damages. |
iii. | The Company agrees to reimburse the Executive for one-half of the reasonable attorneys fees incurred and paid by the Executive in connection with any dispute relating to this Agreement, but only to the extent such fees do not exceed the lesser of (A) a reasonable hourly rate or (B) $225 per hour; provided, however, that if the Executive prevails in any action and is awarded an amount exceeding 125% of the amount offered to the Employee by the Company prior to the commencement of the action, the Company shall reimburse the Executive for 100% of such fees. |
AMERICAN EQUITY INVESTMENT | EXECUTIVE | |
LIFE HOLDING COMPANY | ||
By: /s/ D.J. Noble | /s/ Ronald J. Grensteiner | |
D.J. Noble, Chairman, CEO | ||
and President |
Six Months Ended | Year Ended December 31, | ||||||||||||||||||||||
June 30, 2012 | 2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||||
Consolidated income before income taxes and minority interests | $ | 44,795 | $ | 132,914 | $ | 65,266 | $ | 86,164 | $ | 77,053 | $ | 38,144 | |||||||||||
Interest credited to account balances and amortization of deferred sales inducements | 324,506 | 847,538 | 793,091 | 387,882 | 235,836 | 571,917 | |||||||||||||||||
Interest expense on notes payable | 14,067 | 31,633 | 22,125 | 14,853 | 19,773 | 20,916 | |||||||||||||||||
Interest expense on subordinated debentures | 7,149 | 13,977 | 14,906 | 15,819 | 19,445 | 22,520 | |||||||||||||||||
Interest expense on amounts due under repurchase agreements and other interest expense | — | 30 | — | 534 | 8,207 | 15,926 | |||||||||||||||||
Interest portion of rental expense | 340 | 665 | 648 | 570 | 459 | 468 | |||||||||||||||||
Consolidated earnings | $ | 390,857 | $ | 1,026,757 | $ | 896,036 | $ | 505,822 | $ | 360,773 | $ | 669,891 | |||||||||||
Interest credited to account balances and amortization of deferred sales inducements | 324,506 | 847,538 | 793,091 | 387,882 | 235,836 | 571,917 | |||||||||||||||||
Interest expense on notes payable | 14,067 | 31,633 | 22,125 | 14,853 | 19,773 | 20,916 | |||||||||||||||||
Interest expense on subordinated debentures | 7,149 | 13,977 | 14,906 | 15,819 | 19,445 | 22,520 | |||||||||||||||||
Interest expense on amounts due under repurchase agreements and other interest expense | — | 30 | — | 534 | 8,207 | 15,926 | |||||||||||||||||
Interest portion of rental expense | 340 | 665 | 648 | 570 | 459 | 468 | |||||||||||||||||
Combined fixed charges | $ | 346,062 | $ | 893,843 | $ | 830,770 | $ | 419,658 | $ | 283,720 | $ | 631,747 | |||||||||||
Ratio of consolidated earnings to fixed charges | 1.1 | 1.1 | 1.1 | 1.2 | 1.3 | 1.1 | |||||||||||||||||
Ratio of consolidated earnings to fixed charges, excluding interest credited to account balances and amortization of deferred sales inducements | 3.1 | 3.9 | 2.7 | 3.7 | 2.6 | 1.6 |
1. | I have reviewed this quarterly report on Form 10-Q of American Equity Investment Life Holding Company; | ||
2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; | ||
3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; | ||
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have: | ||
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; | ||
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | ||
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): | ||
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | ||
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 6, 2012 | By: | /s/ John M. Matovina | |
John M. Matovina, Chief Executive Officer and President | |||
(Principal Executive Officer) |
1. | I have reviewed this quarterly report on Form 10-Q of American Equity Investment Life Holding Company; | ||
2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; | ||
3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; | ||
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have: | ||
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; | ||
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | ||
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): | ||
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | ||
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 6, 2012 | By: | /s/ Ted M. Johnson | |
Ted M. Johnson, Chief Financial Officer and Treasurer | |||
(Principal Financial Officer) |
1. | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; | ||
and | |||
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company |
Date: August 6, 2012 | |||
By: | /s/ John M. Matovina | ||
John M. Matovina, Chief Executive Officer and President | |||
(Principal Executive Officer) |
1. | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; | ||
and | |||
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company |
Date: August 6, 2012 | |||
By: | /s/ Ted M. Johnson | ||
Ted M. Johnson, Chief Financial Officer and Treasurer | |||
(Principal Financial Officer) |
Investments Other Than Temporary Impairments by Asset Type (Details) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2012
|
Jun. 30, 2011
|
Jun. 30, 2012
|
Jun. 30, 2011
|
|
Investment Holdings [Line Items] | ||||
Other than Temporary Impairment Losses, Investments, Portion Recognized in Earnings, Net | $ (978) | $ (2,229) | $ (3,859) | $ (8,800) |
Residential Mortgage Backed Securities [Member]
|
||||
Investment Holdings [Line Items] | ||||
Other Than Temporary Impairment, Number of Securities | 7 | 18 | 22 | 29 |
Other than Temporary Impairment Losses, Investments | (375) | (113) | (2,156) | (5,213) |
Other than Temporary Impairment Losses, Investments, Portion in Other Comprehensive Income (Loss), before Tax, Portion Attributable to Parent | (603) | (2,116) | (1,703) | (3,587) |
Other than Temporary Impairment Losses, Investments, Portion Recognized in Earnings, Net | $ (978) | $ (2,229) | $ (3,859) | $ (8,800) |
Derivative Instruments Derivative Instruments Interest Rate Caps (Details) (Derivative Counterparty, SunTrust [Member], Not Designated as Hedging Instrument [Member], USD $)
In Thousands, unless otherwise specified |
6 Months Ended | |
---|---|---|
Jun. 30, 2012
|
Dec. 31, 2011
|
|
Derivative [Line Items] | ||
Notional Amount | $ 79,000 | |
Derivative Asset, Fair Value, Gross Asset | 3,565 | 0 |
Interest Rate Caps, Maturity Date, July 7, 2021, 2.50% [Member]
|
||
Derivative [Line Items] | ||
Notional Amount | 40,000 | |
Derivative, Description of Variable Rate Basis | *LIBOR | |
Derivative, Fixed Interest Rate | 2.50% | |
Derivative Asset, Fair Value, Gross Asset | 1,796 | 0 |
Interest Rate Caps, Maturity Date, July 8, 2021, 2.50% [Member]
|
||
Derivative [Line Items] | ||
Notional Amount | 12,000 | |
Derivative, Description of Variable Rate Basis | *LIBOR | |
Derivative, Fixed Interest Rate | 2.50% | |
Derivative Asset, Fair Value, Gross Asset | 539 | 0 |
Interest Rate Caps, Maturity Date, July 29, 2021, 2.50% [Member]
|
||
Derivative [Line Items] | ||
Notional Amount | 27,000 | |
Derivative, Description of Variable Rate Basis | *LIBOR | |
Derivative, Fixed Interest Rate | 2.50% | |
Derivative Asset, Fair Value, Gross Asset | $ 1,230 | $ 0 |
Notes Payable Level 4 (Details) (USD $)
|
3 Months Ended | 6 Months Ended | 12 Months Ended | 6 Months Ended | 12 Months Ended | 6 Months Ended | 12 Months Ended | ||||
---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2012
|
Jun. 30, 2011
|
Jun. 30, 2012
|
Jun. 30, 2011
|
Jun. 30, 2012
Convertible Debt Issued in 2010 [Member]
|
Dec. 31, 2011
Convertible Debt Issued in 2010 [Member]
|
Jun. 30, 2012
Convertible Debt Issued in 2009 [Member]
|
Dec. 31, 2011
Convertible Debt Issued in 2009 [Member]
|
Jun. 30, 2012
Convertible Debt Issued in 2004 [Member]
|
Dec. 31, 2011
Convertible Debt Issued in 2004 [Member]
|
Jun. 30, 2012
Convertible Debt Issued 2009 [Member]
|
|
Debt Instrument [Line Items] | |||||||||||
Debt Instrument, Interest Rate, Effective Percentage | 8.90% | 8.50% | 11.90% | ||||||||
Debt Instrument, Convertible, Interest Expense | $ 7,100,000 | $ 7,800,000 | $ 14,100,000 | $ 15,700,000 | |||||||
Principal Amount of Convertible Senior Notes Payable at Issuance | 200,000,000 | ||||||||||
Long-term Debt, Gross | 200,000,000 | 115,839,000 | 115,839,000 | 28,243,000 | 28,243,000 | ||||||
Debt Instrument, Unamortized Discount | (25,494,000) | (28,906,000) | (14,993,000) | (17,568,000) | 0 | 0 | |||||
Convertible Debt | 174,506,000 | 171,094,000 | 100,846,000 | 98,271,000 | 28,243,000 | 28,243,000 | |||||
Debt Instrument, Convertible, Carrying Amount of Equity Component | 15,586,000 | 15,586,000 | 22,637,000 | 22,637,000 | |||||||
Debt Instrument, Convertible, If-converted Value in Excess of Principal | $ 0 | $ 0 | $ 15,781,000 | $ 8,489,000 | $ 0 | $ 0 | |||||
Debt Instrument, Convertible, Conversion Price | $ 9.69 | $ 14.03 |
Investments Net Unrealized Gains/(Losses) on Available-for-sale Fixed Income and Equity Securities Reported as a Seperate Component of Stockholders' Equity (Details) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2012
|
Dec. 31, 2011
|
---|---|---|
Components of Net Unrealized Gains/(Losses) Reported as Other Comprehensive Income [Line Items] | ||
Net Unrealized gains (losses) on available for sale fixed maturity securities and equity securities | $ 1,880,248 | $ 1,488,237 |
Adjustments for Assumed Changes in Amortization of Deferred Policy Acquisition Costs and Deferred Sales Inducements | (1,022,806) | (819,476) |
Deferred tax valuation allowance reversal | 22,534 | 22,534 |
Deferred income tax benefit | (300,104) | (234,066) |
Net unrealized gains (losses) reported as accumulated other comprehensive income (loss) | $ 579,872 | $ 457,229 |
Subordinated Debentures (Details) (USD $)
|
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2012
|
Jun. 30, 2012
|
Jun. 30, 2011
|
Jul. 31, 2012
|
|
Debt Instrument [Line Items] | ||||
Conversion of subordinated debentures | $ 12,554,000 | $ 0 | ||
Stock Issued During Period, Shares, Conversion of Convertible Securities | 1,014,308 | 1,535,025 | ||
Cash | 1,300,000 | |||
Convertible Subordinated Debt [Member]
|
||||
Debt Instrument [Line Items] | ||||
Conversion of subordinated debentures | 8,200,000 | $ 12,400,000 | ||
Shares of Subordinated Debentures Converted During Period | 273,870 | 414,457 | ||
Shares of Convertible Subordinated Debentures | 44,001 |
Significant Accounting Policies Significant Accounting Policies (Details) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2012
|
Jun. 30, 2011
|
Jun. 30, 2012
|
Jun. 30, 2011
|
|
Change in other policy funds and contract claims | $ 33,548 | $ 95,560 | ||
Net income | 18,759 | 18,274 | 29,230 | 49,617 |
Policy Benefit Reserves, Single Premium Immediate Annuities [Member]
|
||||
Change in other policy funds and contract claims | 4,200 | |||
Net income | $ 2,700 |
Derivative Instruments Fair Value of Derivative Instruments as Presented in the Consolidated Balance Sheets (Details) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2012
|
Dec. 31, 2011
|
---|---|---|
Derivatives, Fair Value [Line Items] | ||
Derivative instruments | $ 476,699 | $ 273,314 |
Not Designated as Hedging Instrument [Member]
|
||
Derivatives, Fair Value [Line Items] | ||
Derivative instruments | 518,445 | 318,907 |
Derivative Liabilities | 2,956,277 | 2,576,089 |
Call Option [Member]
|
||
Derivatives, Fair Value [Line Items] | ||
Derivative instruments | 476,699 | 273,314 |
Call Option [Member] | Not Designated as Hedging Instrument [Member]
|
||
Derivatives, Fair Value [Line Items] | ||
Derivative instruments | 476,699 | 273,314 |
Option on Securities [Member]
|
||
Derivatives, Fair Value [Line Items] | ||
Derivative instruments | 38,181 | 45,593 |
Option on Securities [Member] | Not Designated as Hedging Instrument [Member]
|
||
Derivatives, Fair Value [Line Items] | ||
Derivative instruments | 38,181 | 45,593 |
Interest Rate Cap [Member] | Not Designated as Hedging Instrument [Member]
|
||
Derivatives, Fair Value [Line Items] | ||
Derivative instruments | 3,565 | 0 |
Fixed Index Annuity Embedded Derivative Financial Instruments [Member] | Not Designated as Hedging Instrument [Member]
|
||
Derivatives, Fair Value [Line Items] | ||
Embedded Derivative, Fair Value of Embedded Derivative Liability | 2,914,948 | 2,530,496 |
2015 Notes Embedded Conversion Derivative [Member]
|
||
Derivatives, Fair Value [Line Items] | ||
Embedded Derivative, Fair Value of Embedded Derivative Liability | 38,181 | 45,593 |
2015 Notes Embedded Conversion Derivative [Member] | Not Designated as Hedging Instrument [Member]
|
||
Derivatives, Fair Value [Line Items] | ||
Derivative Liability, Fair Value, Gross Liability | 38,181 | 45,593 |
Interest Rate Swap [Member] | Not Designated as Hedging Instrument [Member]
|
||
Derivatives, Fair Value [Line Items] | ||
Interest Rate Derivative Liabilities, at Fair Value | $ 3,148 | $ 0 |
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