EX-99.2 3 a2014-09x30_ael8kexhibit992.htm FINANCIAL SUPPLEMENT 2014-09-30_AEL 8K Exhibit 99.2

Exhibit 99.2



AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement

September 30, 2014


A.
Financial Highlights
 
 
 
 
 
Non-GAAP Financial Measures
 
 
 
 
 
 
 
 
 
 
B.
Product Summary
 
 
 
 
 
 
 
 
 
C.
Investment Summary
 
 
 
 
 
 
 
 
 
D.
 
 
 
E.




AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - September 30, 2014

AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
 
September 30, 2014
 
December 31, 2013
Assets
 
 
 
Investments:
 
 
 
Fixed maturity securities:
 
 
 
Available for sale, at fair value
$
31,023,646

 
$
26,610,447

Held for investment, at amortized cost
76,387

 
76,255

Equity securities, available for sale, at fair value
7,756

 
7,778

Mortgage loans on real estate
2,474,306

 
2,581,082

Derivative instruments
744,033

 
856,050

Other investments
283,924

 
215,042

Total investments
34,610,052

 
30,346,654

 
 
 
 
Cash and cash equivalents
788,800

 
897,529

Coinsurance deposits
3,080,282

 
2,999,618

Accrued investment income
340,215

 
301,641

Deferred policy acquisition costs
2,132,926

 
2,426,652

Deferred sales inducements
1,641,558

 
1,875,880

Deferred income taxes
76,269

 
301,856

Other assets
283,427

 
471,669

Total assets
$
42,953,529

 
$
39,621,499

 
 
 
 
Liabilities and Stockholders' Equity
 
 
 
Liabilities:
 
 
 
Policy benefit reserves
$
38,790,456

 
$
35,789,655

Other policy funds and contract claims
377,341

 
418,033

Notes payable
475,295

 
549,958

Subordinated debentures
246,193

 
246,050

Amounts due under repurchase agreements
81,189

 
—

Income taxes payable
3,769

 
10,153

Other liabilities
1,004,210

 
1,222,963

Total liabilities
40,978,453

 
38,236,812

 
 
 
 
Stockholders' equity:
 
 
 
Common stock
74,270

 
70,535

Additional paid-in capital
541,882

 
550,400

Unallocated common stock held by ESOP
—

 
(631
)
Accumulated other comprehensive income
545,931

 
46,196

Retained earnings
812,993

 
718,187

Total stockholders' equity
1,975,076

 
1,384,687

Total liabilities and stockholders' equity
$
42,953,529

 
$
39,621,499




Page 1

AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - September 30, 2014

AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
Revenues:
 
 
 
 
 
 
 
Premiums and other considerations (a)
$
6,043

 
$
9,874

 
$
22,497

 
$
34,508

Annuity product charges
31,958

 
26,451

 
86,477

 
71,443

Net investment income
386,931

 
354,147

 
1,127,818

 
1,019,980

Change in fair value of derivatives
39,218

 
193,028

 
358,594

 
631,030

Net realized gains (losses) on investments, excluding other than temporary impairment ("OTTI") losses
(3,190
)
 
(2,077
)
 
(6,134
)
 
24,197

OTTI losses on investments:
 
 
 
 
 
 
 
Total OTTI losses
—

 
—

 
—

 
(4,964
)
Portion of OTTI losses recognized from other comprehensive income
(564
)
 
(222
)
 
(2,063
)
 
(1,270
)
Net OTTI losses recognized in operations
(564
)
 
(222
)
 
(2,063
)
 
(6,234
)
Loss on extinguishment of debt
—

 
(938
)
 
(10,551
)
 
(1,527
)
Total revenues
460,396

 
580,263

 
1,576,638

 
1,773,397

 
 
 
 
 
 
 
 
Benefits and expenses:
 
 
 
 
 
 
 
Insurance policy benefits and change in future policy benefits (a)
9,109

 
11,264

 
30,191

 
39,792

Interest sensitive and index product benefits (a)
429,415

 
325,740

 
1,114,381

 
881,910

Amortization of deferred sales inducements
40,661

 
34,625

 
96,676

 
183,992

Change in fair value of embedded derivatives
(195,206
)
 
36,224

 
(21,652
)
 
(8,913
)
Interest expense on notes payable
8,741

 
12,957

 
28,126

 
26,985

Interest expense on subordinated debentures
3,044

 
3,034

 
9,076

 
9,061

Amortization of deferred policy acquisition costs
39,671

 
50,034

 
113,949

 
265,534

Other operating costs and expenses
20,616

 
20,658

 
60,588

 
65,029

Total benefits and expenses
356,051

 
494,536

 
1,431,335

 
1,463,390

Income before income taxes
104,345

 
85,727

 
145,303

 
310,007

Income tax expense
36,530

 
29,546

 
50,497

 
107,682

Net income
$
67,815

 
$
56,181

 
$
94,806

 
$
202,325

 
 
 
 
 
 
 
 
Earnings per common share
$
0.90

 
$
0.86

 
$
1.28

 
$
3.15

Earnings per common share - assuming dilution
$
0.85

 
$
0.75

 
$
1.19

 
$
2.79

Weighted average common shares outstanding (in thousands):
 
 
 
 
 
 
 
Earnings per common share
75,083

 
65,129

 
74,030

 
64,239

Earnings per common share - assuming dilution
79,467

 
74,560

 
79,477

 
72,459

(a)
We made an immaterial correction in the presentation of premiums and other considerations, insurance policy benefits and change in future policy benefits and interest sensitive and index product benefits related to life contingent immediate annuities. We have revised the 2013 consolidated statement of operations above to be consistent with the 2014 presentation. These changes had no impact on our consolidated balance sheets, net income or stockholders' equity.

Page 2

AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - September 30, 2014

Quarterly Summary - Most Recent 5 Quarters (Unaudited)
 
Q3 2014
 
Q2 2014
 
Q1 2014
 
Q4 2013
 
Q3 2013
 
(Dollars in thousands, except per share data)
Revenues:
 
 
 
 
 
 
 
 
 
Traditional life insurance premiums
$
2,615

 
$
2,854

 
$
2,804

 
$
2,452

 
$
2,493

Life contingent immediate annuity considerations
3,428

 
6,269

 
4,527

 
8,386

 
7,381

Surrender charges (a)
11,717

 
12,942

 
12,423

 
15,239

 
11,160

Lifetime income benefit rider fees
20,241

 
16,305

 
12,849

 
16,909

 
15,291

Net investment income
386,931

 
370,882

 
370,005

 
363,947

 
354,147

Change in fair value of derivatives
39,218

 
270,883

 
48,493

 
444,985

 
193,028

Net realized gains (losses) on investments, excluding OTTI
(3,190
)
 
(2,230
)
 
(714
)
 
16,364

 
(2,077
)
Net OTTI losses recognized in operations
(564
)
 
(594
)
 
(905
)
 
—

 
(222
)
Loss on extinguishment of debt
—

 
(6,574
)
 
(3,977
)
 
(30,988
)
 
(938
)
Total revenues
460,396

 
670,737

 
445,505

 
837,294

 
580,263

 
 
 
 
 
 
 
 
 
 
Benefits and expenses:
 
 
 
 
 
 
 
 
 
Traditional life insurance policy benefits and change in future policy benefits
2,420

 
1,758

 
2,261

 
1,452

 
1,647

Life contingent immediate annuity benefits and change in future policy benefits
6,689

 
9,229

 
7,834

 
11,827

 
9,617

Interest sensitive and index product benefits (b)
429,415

 
367,774

 
317,192

 
390,956

 
325,740

Amortization of deferred sales inducements (c)
40,661

 
55,349

 
666

 
69,121

 
34,625

Change in fair value of embedded derivatives (d)
(195,206
)
 
80,935

 
92,619

 
142,881

 
36,224

Interest expense on notes payable
8,741

 
9,121

 
10,264

 
11,885

 
12,957

Interest expense on subordinated debentures
3,044

 
3,024

 
3,008

 
3,027

 
3,034

Amortization of deferred policy acquisition costs (c)
39,671

 
67,084

 
7,194

 
99,934

 
50,034

Other operating costs and expenses (e)(f)
20,616

 
20,887

 
19,085

 
26,886

 
20,658

Total benefits and expenses
356,051

 
615,161

 
460,123

 
757,969

 
494,536

Income (loss) before income taxes
104,345

 
55,576

 
(14,618
)
 
79,325

 
85,727

Income tax expense (benefit)
36,530

 
18,832

 
(4,865
)
 
28,367

 
29,546

Net income (loss) (a)(b)(c)(d)(e)(f)
$
67,815

 
$
36,744

 
$
(9,753
)
 
$
50,958

 
$
56,181

 
 
 
 
 
 
 
 
 
 
Earnings (loss) per common share
$
0.90

 
$
0.49

 
$
(0.13
)
 
$
0.73

 
$
0.86

Earnings (loss) per common share - assuming dilution (a)(b)(c)(d)(e)(f)
$
0.85

 
$
0.46

 
$
(0.13
)
 
$
0.64

 
$
0.75

Weighted average common shares outstanding (in thousands):
 
 
 
 
 
 
 
 
 
Earnings (loss) per common share
75,083

 
74,461

 
72,519

 
69,416

 
65,129

Earnings (loss) per common share - assuming dilution
79,467

 
79,518

 
79,616

 
79,041

 
74,560

(a)
Q4 2013 includes a benefit of $4.7 million from surrender charges deducted from California policyholders surrendering their policies as a condition of receiving certain benefits in a national class action lawsuit settlement, which after related adjustments to amortization of deferred sales inducements and deferred policy acquisition costs and income taxes, increased net income and earnings per common share - assuming dilution by $1.9 million and $0.02 per share, respectively.
(b)
Q3 2014 includes expense from the revision of assumptions used in determining reserves held for living income benefit riders consistent with unlocking for deferred policy acquisition costs and deferred sales inducements. The impact increased interest sensitive and index product benefits by $12.4 million and decreased net income and earnings per common share - assuming dilution by $8.0 million and $0.10 per share, respectively.
Q3 2013 includes a benefit from the revision of assumptions used in determining reserves held for living income benefit riders consistent with unlocking for deferred policy acquisition costs and deferred sales inducements. The impact decreased interest sensitive and index product benefits by $1.8 million and increased net income and earnings per common share - assuming dilution by $1.1 million and $0.01 per share, respectively.
(c)
Q3 2014 includes benefit from unlocking which reduced amortization of deferred sales inducements and deferred policy acquisition costs by $12.6 million and $35.5 million, respectively, and increased net income and earnings per common share- assuming dilution by $31.0 million and $0.39 per share, respectively.
Q3 2013 includes benefit from unlocking which reduced amortization of deferred sales inducements and deferred policy acquisition costs by $11.1 million and $18.5 million, respectively, and increased net income and earnings per common share- assuming dilution by $19.1 million and $0.26 per share, respectively.

Page 3

AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - September 30, 2014

(d)
Q2 2014 includes a benefit of $62.6 million from the revision of assumptions used in determining fixed index annuity embedded derivatives, which after related adjustments to deferred sales inducements and deferred policy acquisition costs and income taxes, increased net income and earnings per common share - assuming dilution by $14.8 million and $0.19 per share, respectively.
(e)
Q1 2014 includes a net benefit of $2.2 million from recognizing a decrease in an estimated class action litigation reserve based upon developments in the claim process for settlement of the class action and third party costs incurred during the quarter associated with administration of the settlement, which after related adjustments to amortization of deferred sales inducements and deferred policy acquisition costs and income taxes, decreased net loss and loss per common share - assuming dilution by $0.9 million and $0.01 per share, respectively.
(f)
Q4 2013 includes expense of $4.2 million from recognizing an increase in an estimated class action litigation reserve based upon developments in the claim process for settlement of the class action litigation and third party costs incurred during the quarter associated with administration of the settlement, which after related adjustments to amortization of deferred sales inducements and deferred policy acquisition costs and income taxes, decreased net income and earnings per common share - assuming dilution by $1.9 million and $0.02 per share, respectively.
NON-GAAP FINANCIAL MEASURES
In addition to net income, we have consistently utilized operating income and operating income per common share - assuming dilution, non-GAAP financial measures commonly used in the life insurance industry, as economic measures to evaluate our financial performance. Operating income equals net income adjusted to eliminate the impact of net realized gains and losses on investments including net OTTI losses recognized in operations, fair value changes in derivatives and embedded derivatives, loss on extinguishment of debt and changes in litigation reserves. Because these items fluctuate from quarter to quarter in a manner unrelated to core operations, we believe measures excluding their impact are useful in analyzing operating trends. We believe the combined presentation and evaluation of operating income together with net income provides information that may enhance an investor’s understanding of our underlying results and profitability.
Reconciliation from Net Income to Operating Income (Unaudited)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
 
(Dollars in thousands, except per share data)
Net income
$
67,815

 
$
56,181

 
$
94,806

 
$
202,325

Adjustments to arrive at operating income: (a)
 
 
 
 
 
 
 
Net realized investment (gains) losses, including OTTI
1,551

 
890

 
3,476

 
(5,488
)
Change in fair value of derivatives and embedded derivatives - index annuities
(4,957
)
 
(4,907
)
 
34,636

 
(75,285
)
Change in fair value of derivatives and embedded derivatives - debt
(427
)
 
7,136

 
29

 
3,098

Litigation reserve
—

 
—

 
(916
)
 
(1,969
)
Extinguishment of debt
—

 
548

 
7,912

 
893

Operating income (a non-GAAP financial measure)
$
63,982

 
$
59,848

 
$
139,943

 
$
123,574

 
 
 
 
 
 
 
 
Per common share - assuming dilution:
 
 
 
 
 
 
 
Net income
$
0.85

 
$
0.75

 
$
1.19

 
$
2.79

Adjustments to arrive at operating income:
 
 
 
 
 
 
 
Net realized investment (gains) losses, including OTTI
0.02

 
0.01

 
0.04

 
(0.07
)
Change in fair value of derivatives and embedded derivatives - index annuities
(0.06
)
 
(0.07
)
 
0.44

 
(1.03
)
Change in fair value of derivatives and embedded derivatives - debt
—

 
0.10

 
—

 
0.04

Litigation reserve
—

 
—

 
(0.01
)
 
(0.03
)
Extinguishment of debt
—

 
0.01

 
0.10

 
0.01

Operating income (a non-GAAP financial measure)
$
0.81

 
$
0.80

 
$
1.76

 
$
1.71

(a)
Adjustments to net income to arrive at operating income are presented net of income taxes and where applicable, are net of related adjustments to amortization of deferred sales inducements (DSI) and deferred policy acquisition costs (DAC).

Page 4

AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - September 30, 2014

NON-GAAP FINANCIAL MEASURES
Summary of Adjustments to Arrive at Operating Income (Unaudited)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
 
(Dollars in thousands)
Net realized investment gains and losses, including OTTI:
 
 
 
 
 
 
 
Net realized (gains) losses on investments, including OTTI
$
3,754

 
$
2,299

 
$
8,197

 
$
(17,963
)
Amortization of DAC and DSI
(1,355
)
 
(917
)
 
(2,820
)
 
9,441

Income taxes
(848
)
 
(492
)
 
(1,901
)
 
3,034

 
$
1,551

 
$
890

 
$
3,476

 
$
(5,488
)
Change in fair value of derivatives and embedded derivatives:
 
 
 
 
 
 
 
Index annuities
$
(16,380
)
 
$
(26,228
)
 
$
134,925

 
$
(300,927
)
2015 notes, note hedge and warrants
—

 
11,445

 
(4,231
)
 
11,445

Interest rate caps and swap
(729
)
 
705

 
4,281

 
(6,148
)
Amortization of DAC and DSI
8,590

 
17,531

 
(80,503
)
 
184,023

Income taxes
3,135

 
(1,224
)
 
(19,807
)
 
39,420

 
$
(5,384
)
 
$
2,229

 
$
34,665

 
$
(72,187
)
Litigation reserve:
 
 
 
 
 
 
 
Change in litigation reserve recorded in other operating costs
$
—

 
$
—

 
$
(2,212
)
 
$
(3,212
)
Amortization of DAC and DSI
—

 
—

 
795

 
156

Income taxes
—

 
—

 
501

 
1,087

 
$
—

 
$
—

 
$
(916
)
 
$
(1,969
)
Extinguishment of debt:
 
 
 
 
 
 
 
Loss on extinguishment of debt
$
—

 
$
938

 
$
10,551

 
$
1,527

Income taxes
—

 
(390
)
 
(2,639
)
 
(634
)
 
$
—

 
$
548

 
$
7,912

 
$
893



Page 5

AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - September 30, 2014

NON-GAAP FINANCIAL MEASURES
Quarterly Summary - Most Recent 5 Quarters (Unaudited)
Reconciliation from Net Income (Loss) to Operating Income
 
Q3 2014
 
Q2 2014
 
Q1 2014
 
Q4 2013
 
Q3 2013
 
(Dollars in thousands, except per share data)
Net income (loss)
$
67,815

 
$
36,744

 
$
(9,753
)
 
$
50,958

 
$
56,181

Adjustments to arrive at operating income:
 
 
 
 
 
 
 
 
 
Net realized investment (gains) losses, including OTTI (a)
1,551

 
1,361

 
564

 
(6,214
)
 
890

Change in fair value of derivatives and embedded derivatives -
index annuities (a)
(4,957
)
 
(4,115
)
 
43,708

 
(23,419
)
 
(4,907
)
Change in fair value of derivatives and embedded derivatives -
debt (a)
(427
)
 
(1,053
)
 
1,509

 
(4,290
)
 
7,136

Litigation reserve (a)
—

 
—

 
(916
)
 
1,988

 
—

Extinguishment of debt (a)
—

 
5,518

 
2,394

 
20,823

 
548

Operating income (a non-GAAP financial measure) (b)(c)(d)
$
63,982

 
$
38,455

 
$
37,506

 
$
39,846

 
$
59,848

 
 
 
 
 
 
 
 
 
 
Operating income per common share - assuming dilution (b)(c)(d)
$
0.81

 
$
0.48

 
$
0.47

 
$
0.50

 
$
0.80

(a)
Adjustments to net income (loss) to arrive at operating income are presented net of income taxes and where applicable, are net of related adjustments to amortization of deferred sales inducements and deferred policy acquisition costs.
(b)
Q3 2014 includes a benefit from unlocking which reduced amortization of deferred sales inducements and deferred policy acquisition costs by $10.7 million and $33.0 million, respectively, and increased operating income and operating income per common share- assuming dilution by $28.2 million and $0.36 per share, respectively.
Q3 2013 includes a benefit from unlocking which reduced amortization of deferred sales inducements and deferred policy acquisition costs by $12.6 million and $20.4 million, respectively, and increased operating income and operating income per common share- assuming dilution by $21.3 million and $0.29 per share, respectively.
(c)
Q3 2014 includes expense from the revision of assumptions used in determining reserves held for living income benefit riders consistent with unlocking for deferred policy acquisition costs and deferred sales inducements. The impact increased interest sensitive and index product benefits by $12.4 million and decreased operating income and operating income per common share - assuming dilution by $8.0 million and $0.10 per share, respectively.
Q3 2013 includes a benefit from the revision of assumptions used in determining reserves held for living income benefit riders consistent with unlocking for deferred policy acquisition costs and deferred sales inducements. The impact decreased interest sensitive and index product benefits by $1.8 million and increased operating income and operating income per common share - assuming dilution by $1.1 million and $0.01 per share, respectively.
(d)
Q4 2013 includes a benefit of $4.7 million from surrender charges deducted from California policyholders surrendering their policies as a condition of receiving certain benefits in a national class action lawsuit settlement, which after related adjustments to amortization of deferred sales inducements and deferred policy acquisition costs and income taxes, increased operating income and operating income per common share - assuming dilution by $2.0 million and $0.02 per share, respectively.




Page 6

AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - September 30, 2014

NON-GAAP FINANCIAL MEASURES
Summary of Adjustments to Arrive at Operating Income (Unaudited)
 
Q3 2014
 
Q2 2014
 
Q1 2014
 
Q4 2013
 
Q3 2013
 
(Dollars in thousands)
Net realized (gains) losses on investments
$
3,190

 
$
2,230

 
$
714

 
$
(16,364
)
 
$
2,077

Net OTTI losses recognized in operations
564

 
594

 
905

 
—

 
222

Change in fair value of derivatives
171,274

 
(95,852
)
 
57,039

 
(209,083
)
 
25,448

Loss on extinguishment of debt
—

 
6,574

 
3,977

 
30,988

 
938

Increase (decrease) in total revenues
175,028

 
(86,454
)
 
62,635

 
(194,459
)
 
28,685

 
 
 
 
 
 
 
 
 
 
Amortization of deferred sales inducements
(3,886
)
 
(10,749
)
 
43,435

 
(27,797
)
 
(6,765
)
Change in fair value of embedded derivatives
188,383

 
(77,876
)
 
(113,021
)
 
(104,953
)
 
39,526

Amortization of deferred policy acquisition costs
(3,349
)
 
(1,242
)
 
58,319

 
(38,189
)
 
(9,849
)
Other operating costs and expenses
—

 
—

 
2,212

 
(4,248
)
 
—

Increase (decrease) in total benefits and expenses
181,148

 
(89,867
)
 
(9,055
)
 
(175,187
)
 
22,912

Increase (decrease) in income (loss) before income taxes
(6,120
)
 
3,413

 
71,690

 
(19,272
)
 
5,773

Increase (decrease) in income tax expense
(2,287
)
 
1,702

 
24,431

 
(8,160
)
 
2,106

Increase (decrease) in net income (loss)
$
(3,833
)
 
$
1,711

 
$
47,259

 
$
(11,112
)
 
$
3,667


Page 7

AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - September 30, 2014

Capitalization/Book Value per Share
 
September 30, 2014
 
December 31, 2013
 
(Dollars in thousands, except per share data)
Capitalization:
 
 
 
Notes payable:
 
 
 
September 2015 Notes (a)
$
43,552

 
$
85,328

December 2029 Notes
31,743

 
64,630

July 2021 Notes
400,000

 
400,000

Subordinated debentures payable to subsidiary trusts
246,193

 
246,050

   Total debt
721,488

 
796,008

Total stockholders’ equity
1,975,076

 
1,384,687

Total capitalization
2,696,564

 
2,180,695

Accumulated other comprehensive income (AOCI)
(545,931
)
 
(46,196
)
Total capitalization excluding AOCI (b)
$
2,150,633

 
$
2,134,499

 
 
 
 
Total stockholders’ equity
$
1,975,076

 
$
1,384,687

Accumulated other comprehensive income
(545,931
)
 
(46,196
)
Total stockholders’ equity excluding AOCI (b)
$
1,429,145

 
$
1,338,491

 
 
 
 
Common shares outstanding (c)
74,812,713

 
71,369,474

 
 
 
 
Book Value per Share: (d)
 
 
 
Book value per share including AOCI
$
26.40

 
$
19.40

Book value per share excluding AOCI (b)
$
19.10

 
$
18.75

 
 
 
 
Debt-to-Capital Ratios: (e)
 
 
 
Senior debt / Total capitalization
22.1
%
 
25.8
%
Adjusted debt / Total capitalization
22.1
%
 
25.8
%
(a)
Subsequent to September 30, 2014, we extinguished $23.1 million principal amount of convertible senior notes due September 2015 in a private exchange. This transaction resulted in a net decrease in notes payable of $22.2 million and a net increase in stockholders' equity of $13.1 million.
(b)
Total capitalization, total stockholders’ equity and book value per share excluding AOCI, non-GAAP financial measures, are based on stockholders’ equity excluding the effect of AOCI. Since AOCI fluctuates from quarter to quarter due to unrealized changes in the fair value of available for sale investments, we believe these non-GAAP financial measures provide useful supplemental information.
(c)
Common shares outstanding include shares held by the NMO Deferred Compensation Trust: 2014 - 543,120 shares; 2013 - 892,688 shares and excludes unallocated shares held by the ESOP: 2014 - 0 shares; 2013 - 58,618 shares.
(d)
Book value per share including and excluding AOCI is calculated as total stockholders’ equity and total stockholders’ equity excluding AOCI divided by the total number of shares of common stock outstanding.
(e)
Debt-to-capital ratios are computed using total capitalization excluding AOCI. Adjusted debt includes notes payable and the portion of the total subordinated debentures payable to subsidiary trusts outstanding (qualifying trust preferred securities) that exceeds 15% of total capitalization excluding AOCI.

Page 8

AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - September 30, 2014

Spread Results
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
Average yield on invested assets
4.89%
 
5.02%
 
4.89%
 
4.99%
Aggregate cost of money
2.07%
 
2.22%
 
2.12%
 
2.26%
Aggregate investment spread
2.82%
 
2.80%
 
2.77%
 
2.73%
 
 
 
 
 
 
 
 
Impact of:
 
 
 
 
 
 
 
Investment yield - additional prepayment income
0.07%
 
0.05%
 
0.05%
 
0.06%
Cost of money effect of over hedging
0.05%
 
0.03%
 
0.03%
 
0.04%
 
 
 
 
 
 
 
 
Weighted average investments (in thousands)
$31,715,221
 
$28,370,947
 
$30,832,526
 
$27,335,838
Weighted average investments include fixed maturity securities at amortized cost and equity securities at cost. The numerator for average yield on invested assets includes net investment income and the tax effect of investment income that is exempt from income taxes.
Summary of Cost of Money for Deferred Annuities
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
 
(Dollars in thousands)
Included in interest sensitive and index product benefits:
 
 
 
 
 
 
 
Index credits
$
323,682

 
$
233,316

 
$
831,524

 
$
610,458

Interest credited
69,266

 
76,158

 
208,525

 
226,426

Included in change in fair value of derivatives:
 
 
 
 
 
 
 
Proceeds received at option expiration
(327,773
)
 
(235,445
)
 
(834,502
)
 
(615,428
)
Pro rata amortization of option cost
109,838

 
92,718

 
318,107

 
271,115

Cost of money for deferred annuities
$
175,013

 
$
166,747

 
$
523,654

 
$
492,571

 
 
 
 
 
 
 
 
Weighted average liability balance outstanding (in thousands)
$
33,841,644

 
$
30,045,346

 
$
32,861,022

 
$
29,033,190

Annuity Account Balance Rollforward
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
 
(Dollars in thousands)
Account balances at beginning of period
$
33,304,540

 
$
29,537,818

 
$
31,535,846

 
$
27,669,672

Net deposits
1,029,841

 
998,002

 
2,898,157

 
2,944,307

Premium and interest bonuses
85,320

 
85,389

 
241,277

 
250,320

Fixed interest credited and index credits
392,948

 
309,474

 
1,040,049

 
836,884

Surrender charges
(11,717
)
 
(11,160
)
 
(37,082
)
 
(33,954
)
Lifetime income benefit rider fees
(20,241
)
 
(15,291
)
 
(49,395
)
 
(37,489
)
Surrenders, withdrawals, deaths, etc.
(401,943
)
 
(351,358
)
 
(1,250,104
)
 
(1,076,866
)
Account balances at end of period
$
34,378,748

 
$
30,552,874

 
$
34,378,748

 
$
30,552,874


Page 9

AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - September 30, 2014

Annuity Deposits by Product Type
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
Year Ended December 31,
Product Type
 
2014
 
2013
 
2014
 
2013
 
2013
 
 
(Dollars in thousands)
Fixed Index Annuities:
 
 
 
 
 
 
 
 
 
 
Index Strategies
 
$
838,773

 
$
722,088

 
$
2,262,277

 
$
2,091,166

 
$
2,861,977

Fixed Strategy
 
202,676

 
254,399

 
620,829

 
782,944

 
1,020,447

 
 
1,041,449

 
976,487

 
2,883,106

 
2,874,110

 
3,882,424

Fixed Rate Annuities:
 
 
 
 
 
 
 
 
 
 
Single-Year Rate Guaranteed
 
10,959

 
16,238

 
43,359

 
56,552

 
71,944

Multi-Year Rate Guaranteed
 
13,741

 
47,281

 
90,391

 
142,828

 
205,978

Single premium immediate annuities
 
5,633

 
13,618

 
18,059

 
45,422

 
52,142

 
 
30,333

 
77,137

 
151,809

 
244,802

 
330,064

Total before coinsurance ceded
 
1,071,782

 
1,053,624

 
3,034,915

 
3,118,912

 
4,212,488

Coinsurance ceded
 
36,308

 
42,004

 
118,699

 
129,183

 
182,616

Net after coinsurance ceded
 
$
1,035,474

 
$
1,011,620

 
$
2,916,216

 
$
2,989,729

 
$
4,029,872

Surrender Charge Protection and Account Values by Product Type
Annuity Surrender Charges and Net (of coinsurance) Account Values at September 30, 2014:
 
 
Surrender Charge
 
Net Account Value
Product Type
 
Avg.
Years
At Issue
 
Avg.
Years
Remaining
 
Avg.
%
Remaining
 
Dollars in Thousands
 
%
 
 
 
 
 
 
 
 
 
 
 
Fixed Index Annuities
 
14.1
 
9.7
 
15.3%
 
$
32,413,188

 
94.2
%
Single-Year Fixed Rate Guaranteed Annuities
 
11.1
 
3.4
 
8.0%
 
1,429,203

 
4.2
%
Multi-Year Fixed Rate Guaranteed Annuities (a)
 
6.2
 
1.5
 
4.2%
 
536,357

 
1.6
%
Total
 
13.8
 
9.3
 
14.8%
 
$
34,378,748

 
100.0
%
(a)
36% of Net Account Value is no longer in multi-year guarantee period and can be adjusted annually.


Page 10

AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - September 30, 2014

Annuity Liability Characteristics
 
Fixed
Annuities
Account Value
 
Fixed Index
Annuities
Account Value
 
(Dollars in thousands)
SURRENDER CHARGE PERCENTAGES:
 
 
 
No surrender charge
$
669,556

 
$
1,060,317

0.0% < 2.0%
31,878

 
297,636

2.0% < 3.0%
64,893

 
84,600

3.0% < 4.0%
25,351

 
449,841

4.0% < 5.0%
98,288

 
239,476

5.0% < 6.0%
96,699

 
591,716

6.0% < 7.0%
161,775

 
190,732

7.0% < 8.0%
112,084

 
628,051

8.0% < 9.0%
61,568

 
474,269

9.0% < 10.0%
70,860

 
537,532

10.0% or greater
572,608

 
27,859,018

 
$
1,965,560

 
$
32,413,188

 
Fixed and
Fixed Index
Annuities
Account Value
 
Weighted
Average
Surrender
Charge
 
(Dollars in thousands)
 
 
SURRENDER CHARGE EXPIRATION BY YEAR:
 
 
 
Out of Surrender Charge
$
1,729,873

 
0.00
%
2014
106,446

 
2.13
%
2015
514,650

 
2.39
%
2016
759,281

 
3.92
%
2017
920,974

 
5.34
%
2018
826,479

 
7.53
%
2019
600,746

 
8.53
%
2020
919,650

 
10.19
%
2021
1,197,359

 
11.95
%
2022
2,039,625

 
13.93
%
2023
5,070,475

 
15.64
%
2024
5,122,388

 
16.67
%
2025
3,186,141

 
17.75
%
2026
2,754,311

 
18.28
%
2027
2,883,747

 
18.64
%
2028
2,313,131

 
19.09
%
2029
1,980,984

 
19.62
%
2030
1,429,242

 
19.98
%
2031
23,246

 
20.00
%
 
$
34,378,748

 
14.84
%

Page 11

AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - September 30, 2014

Annuity Liability Characteristics
 
Fixed
Annuities
Account Value
 
Fixed Index
Annuities
Account Value
 
(Dollars in thousands)
CREDITED RATE (INCLUDING BONUS INTEREST) VS.
ULTIMATE MINIMUM GUARANTEED RATE DIFFERENTIAL:
 
 
 
No differential
$
812,572

 
$
948,170

› 0.0% - 0.25% (a)
277,942

 
285,725

› 0.25% - 0.5% (a)
180,966

 
190,779

› 0.5% - 1.0% (a)
230,406

 
750,213

› 1.0% - 1.5%
80,511

 
21,458

› 1.5% - 2.0%
82,578

 
1,175

› 2.0% - 2.5%
74

 
—

1.00% ultimate guarantee - 2.48% wtd avg interest rate (b)
84,801

 
—

1.50% ultimate guarantee - 1.58% wtd avg interest rate (b)
111,350

 
3,067,427

2.00% ultimate guarantee - 2.5% wtd avg interest rate (b)
104,360

 
—

2.25% ultimate guarantee - 2.51% wtd avg interest rate (b)
—

 
1,307,834

3.00% ultimate guarantee - 2.76% wtd avg interest rate (b)
—

 
2,618,687

Allocated to index strategies (see tables that follow)
—

 
23,221,720

 
$
1,965,560

 
$
32,413,188

(a)
$16,383 of Fixed Annuities Account Value have a guarantee of 2.25% for the first 10 years and 3.00% thereafter. They began increasing in 2014. $369,530 of Index Annuities Account Value is in fixed rate strategies that have a guarantee of 2.25% for the first 10 years and 3.00% thereafter. They began increasing in 2014. These policies will continue to convert to the higher rate through June 2016.    
(b)
The minimum guaranteed interest rate for the fixed rate or the fixed rate strategy is 1.00%. The ultimate guaranteed rate is applied on less than 100% of the premium.
If all crediting rates were reduced to minimum guaranteed rates (subject to limitations imposed by ultimate minimum guaranteed rates where applicable) the weighted average crediting rate as of September 30, 2014 for fixed annuities and funds allocated to the fixed rate strategy for fixed index annuities would decrease by 0.49%.

Page 12

AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - September 30, 2014

Annuity Liability Characteristics
FIXED INDEX ANNUITIES ACCOUNT VALUE - INDEX STRATEGIES
    
Annual Monthly Average and Point-to-Point with Caps
 
Minimum Guaranteed Cap
 
1%
 
3%
 
4%
 
7%
 
8% +
Current Cap
(Dollars in thousands)
At minimum
$
1,127

 
$
11,388

 
$
982,575

 
$
38,531

 
$
270,832

2.25% - 3%
1,094,714

 
—

 
—

 
—

 
—

3% - 4%
2,906,383

 
68,527

 
—

 
—

 
—

4% - 5%
19,425

 
61,317

 
1,359,412

 
—

 
—

5% - 6%
63,965

 
10,962

 
4,192,826

 
—

 
—

6% - 7%
—

 
—

 
1,304,626

 
—

 
—

>= 7%
—

 
12,437

 
1,459

 
108,037

 
44,165

Annual Monthly Average and Point-to-Point with Participation Rates
 
Minimum Guaranteed Participation Rate
 
10%
 
25%
 
35%
 
50% +
Current Participation Rate
(Dollars in thousands)
At minimum
$
410

 
$
331,728

 
$
173,040

 
$
201,492

< 20%
274,922

 
—

 
—

 
—

20% - 40%
402,528

 
448,111

 
—

 
—

40% - 60%
233

 
159,374

 
117,669

 
1,323

>= 60%
3,149

 
—

 
—

 
—

S&P 500 Monthly Point-to-Point - Minimum Guaranteed Monthly Cap = 1%
(Dollars in thousands)
 
Current Cap
 
At minimum
$
16,528

1.45% - 1.9%
5,055,909

2.0% - 2.3%
3,124,326

>= 2.4%
305,484

Volatility Control Index
 
(Dollars in thousands)
 
Current Asset Fee
 
At Maximum
$
—

2.25%
13,649

2.50%
20,129

If all caps and participation rates were reduced to minimum caps and participation rates, the cost of options would decrease by 0.66% based upon prices of options for the week ended October 21, 2014.


Page 13

AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - September 30, 2014

Summary of Invested Assets
 
September 30, 2014
 
December 31, 2013
 
Carrying
Amount
 
Percent
 
Carrying
Amount
 
Percent
 
(Dollars in thousands)
Fixed maturity securities:
 
 
 
 
 
 
 
United States Government full faith and credit
$
37,711

 
0.1
%
 
$
42,925

 
0.2
%
United States Government sponsored agencies
1,331,076

 
3.8
%
 
1,194,289

 
3.9
%
United States municipalities, states and territories
3,608,592

 
10.4
%
 
3,306,743

 
10.9
%
Foreign government obligations
192,519

 
0.6
%
 
91,557

 
0.3
%
Corporate securities
20,592,797

 
59.5
%
 
17,309,292

 
57.1
%
Residential mortgage backed securities
1,802,186

 
5.2
%
 
1,971,960

 
6.5
%
Commercial mortgage backed securities
2,618,928

 
7.6
%
 
1,735,460

 
5.7
%
Other asset backed securities
916,224

 
2.6
%
 
1,034,476

 
3.4
%
Total fixed maturity securities
31,100,033

 
89.8
%
 
26,686,702

 
88.0
%
Equity securities
7,756

 
—
%
 
7,778

 
—
%
Mortgage loans on real estate
2,474,306

 
7.2
%
 
2,581,082

 
8.5
%
Derivative instruments
744,033

 
2.2
%
 
856,050

 
2.8
%
Other investments
283,924

 
0.8
%
 
215,042

 
0.7
%
 
$
34,610,052

 
100.0
%
 
$
30,346,654

 
100.0
%
Credit Quality of Fixed Maturity Securities - September 30, 2014
NAIC Designation
 
Carrying
Amount
 
Percent
 
Rating Agency Rating
 
Carrying
Amount
 
Percent
 
 
(Dollars in thousands)
 
 
 
 
 
(Dollars in thousands)
 
 
1
 
$
19,873,945

 
63.9
%
 
Aaa/Aa/A
 
$
19,533,994

 
62.8
%
2
 
10,657,187

 
34.3
%
 
Baa
 
10,244,499

 
32.9
%
3
 
501,787

 
1.6
%
 
Ba
 
511,481

 
1.7
%
4
 
66,563

 
0.2
%
 
B
 
96,373

 
0.3
%
5
 
—

 
—
%
 
Caa and lower
 
522,136

 
1.7
%
6
 
551

 
—
%
 
In or near default
 
191,550

 
0.6
%
 
 
$
31,100,033

 
100.0
%
 
 
 
$
31,100,033

 
100.0
%
Watch List Securities - September 30, 2014
General Description
 
Amortized
Cost
 
Unrealized
Gains (Losses)
 
Fair Value
 
Months Below Amortized Cost
 
 
(Dollars in thousands)
 
 
Corporate bonds:
 
 
 
 
 
 
 
 
Finance
 
$
20,000

 
$
(4,455
)
 
$
15,545

 
36
Industrial
 
41,184

 
(8,300
)
 
32,884

 
18 - 48
Industrial
 
15,833

 
857

 
16,690

 
 
 
 
77,017

 
(11,898
)
 
65,119

 
 
Other asset backed securities
 
8,140

 
(1,628
)
 
6,512

 
41
 
 
$
85,157

 
$
(13,526
)
 
$
71,631

 
 

Page 14

AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - September 30, 2014

Fixed Maturity Securities by Sector
 
September 30, 2014
 
December 31, 2013
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
 
(Dollars in thousands)
Available for sale:
 
 
 
 
 
 
 
United States Government full faith and credit and sponsored agencies
$
1,376,386

 
$
1,368,787

 
$
1,358,628

 
$
1,237,214

United States municipalities, states and territories
3,266,015

 
3,608,592

 
3,181,032

 
3,306,743

Foreign government obligations
181,123

 
192,519

 
86,112

 
91,557

Corporate securities:
 
 
 
 
 
 
 
Consumer discretionary
1,634,435

 
1,724,202

 
1,533,993

 
1,532,694

Consumer staples
1,350,966

 
1,427,696

 
1,246,744

 
1,250,351

Energy
2,277,780

 
2,401,730

 
1,992,411

 
2,011,334

Financials
3,849,172

 
4,084,473

 
3,179,964

 
3,233,930

Health care
1,681,272

 
1,773,065

 
1,458,757

 
1,458,946

Industrials
2,460,294

 
2,615,214

 
2,045,490

 
2,039,544

Information technology
1,237,565

 
1,290,755

 
1,163,159

 
1,145,674

Materials
1,545,122

 
1,614,425

 
1,405,603

 
1,381,880

Telecommunications
530,010

 
556,543

 
472,250

 
473,517

Utilities
2,749,780

 
3,028,282

 
2,643,747

 
2,705,147

Residential mortgage backed securities:
 
 
 
 
 
 
 
Government agency
686,465

 
737,294

 
677,394

 
679,518

Prime
743,393

 
783,338

 
907,881

 
964,443

Alt-A
254,338

 
281,554

 
310,638

 
327,999

Commercial mortgage backed securities:
 
 
 
 
 
 
 
Government agency
300,025

 
308,106

 
302,063

 
288,495

Other
2,294,731

 
2,310,822

 
1,519,925

 
1,446,965

Other asset backed securities:
 
 
 
 
 
 
 
Consumer discretionary
71,738

 
73,872

 
86,788

 
86,633

Energy
8,239

 
9,402

 
8,268

 
8,922

Financials
601,707

 
614,760

 
709,900

 
688,737

Industrials
180,077

 
193,473

 
215,873

 
225,212

Telecommunications
14,836

 
16,688

 
14,835

 
16,714

Utilities
5,841

 
8,029

 
6,275

 
8,258

Redeemable preferred stock - financials
—

 
25

 
1

 
20

 
$
29,301,310

 
$
31,023,646

 
$
26,527,731

 
$
26,610,447

Held for investment:
 
 
 
 
 
 
 
Corporate security - financials
$
76,387

 
$
71,499

 
$
76,255

 
$
60,840



Page 15

AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - September 30, 2014

Mortgage Loans on Commercial Real Estate
 
September 30, 2014
 
December 31, 2013
 
Principal
 
Percent
 
Principal
 
Percent
 
(Dollars in thousands)
Geographic distribution
 
 
 
 
 
 
 
East
$
751,859

 
30.0
%
 
$
765,717

 
29.4
%
Middle Atlantic
143,949

 
5.8
%
 
156,489

 
6.0
%
Mountain
307,393

 
12.3
%
 
356,246

 
13.7
%
New England
14,415

 
0.6
%
 
21,324

 
0.8
%
Pacific
290,794

 
11.6
%
 
317,431

 
12.2
%
South Atlantic
490,945

 
19.6
%
 
483,852

 
18.5
%
West North Central
335,124

 
13.4
%
 
351,794

 
13.5
%
West South Central
168,224

 
6.7
%
 
154,845

 
5.9
%
 
$
2,502,703

 
100.0
%
 
$
2,607,698

 
100.0
%
 
 
 
 
 
 
 
 
Property type distribution
 
 
 
 
 
 
 
Office
$
517,387

 
20.7
%
 
$
590,414

 
22.6
%
Medical office
93,834

 
3.7
%
 
125,703

 
4.8
%
Retail
719,554

 
28.7
%
 
711,364

 
27.3
%
Industrial/Warehouse
675,131

 
27.0
%
 
673,449

 
25.8
%
Hotel
34,615

 
1.4
%
 
61,574

 
2.4
%
Apartment
332,694

 
13.3
%
 
291,823

 
11.2
%
Mixed use/other
129,488

 
5.2
%
 
153,371

 
5.9
%
 
$
2,502,703

 
100.0
%
 
$
2,607,698

 
100.0
%
 
 
 
 
 
 
 
 
 
September 30, 2014
 
December 31, 2013
 
 
 
 
Credit Exposure - By Payment Activity
 
 
 
 
 
 
 
Performing
$
2,490,059

 
$
2,593,276

 
 
 
 
In workout
—

 
6,248

 
 
 
 
Delinquent
6,032

 
—

 
 
 
 
Collateral dependent
6,612

 
8,174

 
 
 
 
 
2,502,703

 
2,607,698

 
 
 
 
Specific loan loss allowance
(17,364
)
 
(16,847
)
 
 
 
 
General loan loss allowance
(10,500
)
 
(9,200
)
 
 
 
 
Deferred prepayment fees
(533
)
 
(569
)
 
 
 
 
 
$
2,474,306

 
$
2,581,082

 
 
 
 


Page 16

AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - September 30, 2014

Shareholder Information
Corporate Offices:
American Equity Investment Life Holding Company
6000 Westown Parkway
West Des Moines, IA 50266
Inquiries:
John M. Matovina, Chief Executive Officer and President
(515) 457-1813, jmatovina@american-equity.com
Ted M. Johnson, Chief Financial Officer and Treasurer
(515) 457-1980, tjohnson@american-equity.com
Debra J. Richardson, Executive Vice President and Secretary
(515) 273-3551, drichardson@american-equity.com        
Common Stock and Dividend Information:
New York Stock Exchange symbol: “AEL”
 
High
 
Low
 
Close
 
Dividend Declared
2014
 
 
 
 
 
 
 
First Quarter
$26.42
 
$18.84
 
$23.62
 
$0.00
Second Quarter
$25.15
 
$20.97
 
$24.60
 
$0.00
Third Quarter
$25.25
 
$21.69
 
$22.88
 
$0.00
 
 
 
 
 
 
 
 
2013
 
 
 
 
 
 
 
First Quarter
$15.03
 
$12.33
 
$14.89
 
$0.00
Second Quarter
$16.60
 
$14.03
 
$15.70
 
$0.00
Third Quarter
$21.42
 
$15.64
 
$21.22
 
$0.00
Fourth Quarter
$26.46
 
$20.01
 
$26.38
 
$0.18
 
 
 
 
 
 
 
 
2012
 
 
 
 
 
 
 
First Quarter
$13.09
 
$10.13
 
$12.77
 
$0.00
Second Quarter
$12.95
 
$10.00
 
$11.01
 
$0.00
Third Quarter
$12.41
 
$10.62
 
$11.63
 
$0.00
Fourth Quarter
$12.40
 
$10.56
 
$12.21
 
$0.15
Transfer Agent:
Computershare Trust Company, N.A.
P.O. Box 43010
Providence, RI 02940-0310
Phone: (877) 282-1169
Fax: (781) 575-2723
www.computershare.com
Annual Report and Other Information:
Shareholders may receive when available, without charge, a copy of American Equity’s Annual Report, SEC filings and/or press releases by calling Julie L. LaFollette, Investor Relations, at (515) 273-3602 or by visiting our web site at www.american-equity.com.



Page 17

AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement - September 30, 2014

Research Analyst Coverage
Steven Schwartz
Raymond James & Associates, Inc.
(312) 612-7686
steven.schwartz@raymondjames.com
Randy Binner
Friedman, Billings, Ramsey & Co., Inc.
(703) 312-1890
rbinner@fbr.com
Mark Hughes
SunTrust Robinson Humphrey
(615) 748-5680
mark_hughes@rhco.com

Page 18