EX-99.1 2 a5530773ex991.htm EXHIBIT 99.1 a5530773ex991.htm
Exhibit 99.1
 
NEWS RELEASE 
 
logo For more information, contact:
Debra J. Richardson, Sr. Vice President
(515) 273-3551, drichardson@american-equity.com
John M. Matovina, Vice Chairman
(515) 457-1813, jmatovina@american-equity.com
D. J. Noble, Chairman
(515) 457-1705, dnoble@american-equity.com
Julie L. LaFollette, Investor Relations
(515) 273-3602, jlafollette@american-equity.com
 
FOR IMMEDIATE RELEASE
October 31, 2007
 
American Equity Reports Third Quarter 2007 Earnings

WEST DES MOINES, Iowa (October 31, 2007) – American Equity Investment Life Holding Company (NYSE: AEL), a leading underwriter of fixed rate and index annuities, today reported 2007 third quarter operating income1 of $16.4 million, or $0.28 per diluted common share, compared to third quarter 2006 operating income of $18.9 million, or $0.32 per diluted common share.  Performance results for the third quarter and first nine months of 2007 include:
 
 
·
Third quarter 2007 annuity sales of $543.8 million, an increase of 49% over third quarter 2006 annuity sales of $365.9 million

 
·
Third quarter 2007 investment earnings of a record $183.7 million

 
·
Aggregate gross spread on annuity reserves of 2.65% for the first nine months of 2007

Third quarter 2007 net income was $7.4 million or $0.13 per diluted common share compared to $9.4 million or $0.16 per diluted common share for the same period in 2006.  Net income for the third quarters of both 2007 and 2006 was significantly impacted by the effects of SFAS 133, dealing with fair value changes in derivatives and embedded derivatives.  For the third quarter of 2007 the net effect of SFAS 133 was a reduction in net income of approximately $9.2 million compared to a reduction of $9.7 million in the third quarter of 2006.

1In addition to net income, American Equity has consistently utilized operating income, a non-GAAP financial measure commonly used in the life insurance industry, as an economic measure to evaluate its financial performance.  Operating income equals net income adjusted to eliminate the impact of (i) net realized gains and losses on investments; and (ii) the impact of SFAS 133, dealing with fair value changes in derivatives and embedded derivatives. Because these items fluctuate from quarter to quarter in a manner unrelated to core operations, American Equity believes a measure excluding their impact is useful in analyzing operating trends.  American Equity believes the combined presentation and evaluation of operating income together with net income, provides information that may enhance an investor’s understanding of American Equity’s underlying results and profitability.  A reconciliation of net income to operating income is provided in the accompanying tables. 
 
 
PACE OF ANNUITY SALES REMAINS STRONG
 
  New annuity sales of $543.8 million in the third quarter of 2007 were up significantly compared to third quarter 2006 annuity sales of $365.9 million, an increase of 49%.  Based upon industry data released in August 2007, AEL climbed to a third place market share after sales hit $622.5 million in the second quarter of 2007.  For the first nine months of this year, aggregate annuity sales reached $1.6 billion, an improvement of 11% compared to $1.4 billion for the same period in 2006.
 
The company believes current market conditions are favorable to continued steady growth in its sales.  Economic factors such as the recent reduction in short-term interest rates, steepening of the yield curve and equity market volatility have helped to make safe money alternatives including fixed rate and index annuities more attractive to consumers.   Commented David J. Noble, Chairman, Chief Executive Officer and President of AEL, “Our annuity products provide insurance against the risk of market loss to principal and credited interest.  We call that sleep insurance, and at my age of 75, I understand the value of that protection very well.   Consumers deserve choices for their long-term savings, and the insurance industry offers important ones.  There is no question that American Equity’s products can be an excellent part of a solution for protecting retirement income.”
 
GROSS SPREAD NARROWS WITH MARKET VOLATILITY
 
The aggregate gross spread of investment yield over cost of money on all AEL annuity products for the first nine months of 2007 was 2.65%, compared to 2.70% for the same period in 2006.  The narrowing of the spread is attributable predominantly to an increase in the cost of money for index annuities.  Sharp increases in equity market volatility during the third quarter of 2007 had a significant impact on pricing for the options AEL purchases to fund the index credits on its index annuities.   The increase in the cost of options contributed to a decline in spread on that product category to 2.67% for the first nine months of 2007 compared to 2.85% for the same period in 2006.
 
 
The increase in option costs occurred despite two rate reductions during the quarter.  Equity market volatility abated somewhat toward the end of the third quarter and option pricing declined from the higher levels seen earlier in the quarter.  Whether this decline will persist is unknown.  AEL is in the process of implementing its third round of index annuity renewal rate cuts for 2007, an unprecedented step in the company’s history.
 
Investment income totaled $183.7 million for the third quarter of 2007 compared to $173.3 million for the same period in 2006, with total invested assets reaching $12.4 billion at September 30, 2007.  The aggregate yield on invested assets remained at 6.09% for the first nine months of 2007, unchanged from the yield reported for the first six months of this year.   New investments during the third quarter included corporate bonds at an average yield of 6.45% and commercial mortgages at an average yield of 6.39%.  The allocation of AEL’s invested assets among asset classes reflects its policy of gradual diversification, but without added credit risk.  The company’s commercial mortgage loan portfolio is of very high credit quality, with no delinquencies, defaults or restructured loans.   Approximately 99% of the company’s bonds are rated Baa or higher.  AEL has net realized gains of approximately $921,000 on sales of assets during the first nine months of 2007.
 
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
 
This press release contains forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995.  Forward-looking statements relate to future operations, strategies, financial results or other developments, and are subject to assumptions, risks and uncertainties.  Statements such as “guidance,” “expect,” “anticipate,” “believe,” “goal,” “objective,” “target,” “may,” “should,” “estimate,” “projects,” or similar words as well as specific projections of future results qualify as forward-looking statements.  Factors that may cause our actual results to differ materially from those contemplated by these forward looking statements can be found in the Company’s Form 10-K filed with the Securities and Exchange Commission.   Forward-looking statements speak only as of the date the statement was made and the Company undertakes no obligation to update such forward-looking statements.  There can be no assurance that other factors not currently anticipated by the Company will not materially and adversely affect our results of operations.  Investors are cautioned not to place undue reliance on any forward-looking statements made by us or on our behalf.
 
 
CONFERENCE CALL
 
American Equity will hold a conference call to discuss third quarter 2007 earnings on Thursday, November 1, 2007, at 10 a.m. CDT.   The conference call will be webcast live on the Internet.  Investors and interested parties who wish to listen to the call on the Internet may do so at www.american-equity.com.  The call may also be accessed by telephone at 888-396-2386, passcode 39143327 (international callers, please dial 617-847-8712).   An audio replay will be available shortly after the call on AEL’s web site.  An audio replay will also be available via telephone through November 15, 2007 by calling 888-286-8010, passcode 90099989 (international callers will need to dial 617-801-6888).
 
ABOUT AMERICAN EQUITY
 
Founded in 1995, American Equity Investment Life Holding Company is a full-service underwriter of a broad line of annuity and insurance products, with a primary emphasis on the sale of fixed rate and index annuities. The Company has approximately 290 employees and approximately 52,000 agents selling its products in 50 states and District of Columbia.
 
###
 
 
American Equity Investment Life Holding Company
                        
                         
                         
                         
                         
Net Income/Operating Income (Unaudited)
                        
                         
   
Three Months Ended
    
Nine Months Ended
  
   
September 30,
    
September 30,
  
   
2007
    
2006
    
2007
    
2006
  
   
(Dollars in thousands, expect per share data)
  
Revenues:
                        
Traditional life and accident and health insurance premiums
   $
3,344
     $
3,313
     $
9,591
     $
10,048
  
Annuity and single premium universal life product charges
    
12,576
      
10,756
      
33,023
      
29,096
  
Net investment income
    
183,732
      
173,272
      
528,809
      
504,839
  
Realized gains (losses) on investments
    
325
       (273 )    
921
      
16
  
Change in fair value of derivatives
     (10,709 )    
72,280
      
79,755
      
60,026
  
Total revenues
    
189,268
      
259,348
      
652,099
      
604,025
  
                                 
Benefits and expenses:
                                
Insurance policy benefits and change in future policy benefits
    
2,360
      
1,947
      
6,390
      
6,614
  
Interest credited to account balances
    
165,821
      
86,572
      
449,915
      
272,025
  
Amortization of deferred sales inducements
    
3,412
      
920
      
21,957
      
16,595
  
Change in fair value of embedded derivatives
     (34,935 )    
113,925
       (41,161 )    
65,368
  
Interest expense on notes payable
    
4,039
      
4,175
      
12,178
      
17,989
  
Interest expense on subordinated debentures
    
5,673
      
5,796
      
16,876
      
16,116
  
Interest expense on amounts due under repurchase agreements
    
4,764
      
10,997
      
11,842
      
25,328
  
Amortization of deferred policy acquisition costs
    
15,237
      
11,479
      
73,095
      
67,597
  
Other operating costs and expenses
    
11,582
      
9,527
      
37,076
      
29,638
  
Total benefits and expenses
    
177,953
      
245,338
      
588,168
      
517,270
  
                                 
Income before income taxes
    
11,315
      
14,010
      
63,931
      
86,755
  
Income tax expense
    
3,918
      
4,593
      
22,018
      
30,454
  
Net income
    
7,397
      
9,417
      
41,913
      
56,301
  
Realized (gains) losses on investments, net of offsets
     (210 )    
177
       (595 )     (10 )
Income tax contingency
    
-
       (384 )    
-
       (384 )
Net effect of SFAS 133, net of offsets
    
9,235
      
9,669
      
6,564
       (1,339 )
                                 
Operating income (a)
   $
16,422
     $
18,879
     $
47,882
     $
54,568
  
                                 
                                 
Earnings per common share
   $
0.13
     $
0.17
     $
0.74
     $
1.01
  
Earnings per common share - assuming dilution
   $
0.13
     $
0.16
     $
0.71
     $
0.94
  
Operating income per common share (a)
   $
0.29
     $
0.34
     $
0.84
     $
0.98
  
Operating income per common share - assuming dilution (a)
   $
0.28
     $
0.32
     $
0.81
     $
0.91
  
                                 
Weighted average common shares outstanding (in thousands):
                          
Earnings per common share
    
56,878
      
55,684
      
56,899
      
55,628
  
Earnings per common share - assuming dilution
    
59,774
      
60,314
      
60,081
      
60,589
  
                                 
                                 
                                 
                           
Page 1
  
 
 
American Equity Investment Life Holding Company
                        
                         
                         
                         
                         
Operating Income 
                        
Three months ended September 30, 2007 (Unaudited)
                        
                         
                         
         
Adjustments
      
   
As Reported
    
Realized Gains
    
SFAS 133
    
Operating
Income (a)
  
   
(Dollars in thousands, except per share data)
  
Reserves:
                        
   Traditional life and accident and health insurance premiums
   $
3,344
     $
-
     $
-
     $
3,344
  
   Annuity and single premium universal life product charges
    
12,576
      
-
      
-
      
12,576
  
   Net investment income
    
183,732
      
-
      
-
      
183,732
  
   Realized gains on investments
    
325
       (325 )    
-
      
-
  
   Change in fair value of derivatives
     (10,709 )    
-
      
67,041
      
56,332
  
Total revenues
    
189,268
       (325 )    
67,041
      
255,984
  
                                 
Benefits and expenses:
                                
   Insurance policy benefits and change in future policy benefits
    
2,360
      
-
      
-
      
2,360
  
   Interest credited to account balances
    
165,821
      
-
      
-
      
165,821
  
   Amortization of deferred sales inducements
    
3,412
      
-
      
5,765
      
9,177
  
   Change in fair value of embedded derivatives
     (34,935 )    
-
      
34,935
      
-
  
   Interest expense on notes payable
    
4,039
      
-
       (269 )    
3,770
  
   Interest expense on subordinated debentures
    
5,673
      
-
      
-
      
5,673
  
   Interest expense on amounts due under repurchase agreements
    
4,764
      
-
      
-
      
4,764
  
   Amortization of deferred policy acquisition costs
    
15,237
      
-
      
12,539
      
27,776
  
   Other operating costs and expenses
    
11,582
      
-
      
-
      
11,582
  
Total benefits and expenses
    
177,953
      
-
      
52,970
      
230,923
  
                                 
Income before income taxes
    
11,315
       (325 )    
14,071
      
25,061
  
Income tax expense
    
3,918
       (115 )    
4,836
      
8,639
  
                                 
Net income
   $
7,397
     $ (210 )   $
9,235
     $
16,422
  
                                 
Earnings per common share
   $
0.13
                     $
0.29
  
Earnings per common share - assuming dilution
   $
0.13
                     $
0.28
  
 
(a)   In addition to net income, we have consistently utilized operating income, operating income per common share and operating income per
       common share - assuming dilution, non-GAAP financial measures commonly used in the life insurance industry, as economic measures
       to evaluate our financial performance.  Operating income equals net income adjusted to eliminate the impact of net realized gains and
       losses on investments, the impact of SFAS 133, dealing with fair value changes in derivatives and embedded derivatives, and the impact
       of the reversal of a portion of a state income tax contingency liability established in the prior year. 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. 
 
Page 2 
 
 
American Equity Investment Life Holding Company
Financial Supplement
September 30, 2007
 

 
A.
Financial Highlights
  
     
  Condensed Consolidated Balance Sheets 1
  Consolidated Statements of Income 3
  Operating Income  
  4
  5
  6
  Capitalization/ Book Value per Share 7
     
B.
Product Summary
  
     
  Annuity Deposits by Product Type 8 
  Surrender Charge Protection and Account Values by Product Type 8
  Annuity Liability Characteristics 9
  Spread Results 11
     
C.
Investment Summary
  
     
  Summary of Invested Assets 12
  Credit Quality of Fixed Maturity Securities 13
  Watch List Securities 13
  Mortgage Loans by Region and Property Type 14
     
D. Shareholder Information 15
     
E. Research Analyst Coverage 16
 
 
American Equity Investment Life Holding Company
Financial Supplement – September 30, 2007
 
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
(Dollars in thousands)

   
September 30,
2007
    
December 31,
2006
  
   
(Unaudited)
        
Assets
            
Investments:
            
Fixed maturity securities:
            
Available for sale, at fair value
   $
4,885,762
     $
4,177,029
  
Held for investment, at amortized cost
    
5,290,679
      
5,128,146
  
Equity securities, available for sale, at fair value
    
89,839
      
45,512
  
Mortgage loans on real estate
    
1,827,050
      
1,652,757
  
Derivative instruments
    
350,364
      
381,601
  
Policy loans
    
421
      
419
  
Total investments
    
12,444,115
      
11,385,464
  
                 
Cash and cash equivalents
    
19,909
      
29,949
  
Coinsurance deposits—related party
    
1,738,058
      
1,841,720
  
Accrued investment income
    
86,704
      
68,323
  
Deferred policy acquisition costs
    
1,207,562
      
1,088,890
  
Deferred sales inducements
    
539,856
      
427,554
  
Deferred income taxes
    
81,966
      
73,831
  
Other assets
    
56,622
      
74,392
  
Total assets
   $
16,174,792
     $
14,990,123
  
 
 
Page 1
American Equity Investment Life Holding Company
Financial Supplement – September 30, 2007
 
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
  
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
  
(Dollars in thousands)
  
             
   
September 30,
2007
    
December 31,
2006
  
   
(Unaudited)
        
Liabilities and Stockholders’ Equity
            
Liabilities:
            
Policy benefit reserves
   $
14,394,309
     $
13,207,931
  
Other policy funds and contract claims
    
123,817
      
128,579
  
Other amounts due to related parties
    
41,285
      
45,504
  
Notes payable
    
264,092
      
266,383
  
Subordinated debentures
    
268,299
      
268,489
  
Amounts due under repurchase agreements
    
306,657
      
385,973
  
Other liabilities
    
157,302
      
92,198
  
Total liabilities
    
15,555,761
      
14,395,057
  
                 
Stockholders’ equity:
                
Common stock
    
53,862
      
53,501
  
Additional paid-in capital
    
388,932
      
389,644
  
Unallocated common stock held by ESOP
     (7,001 )    
–
  
Accumulated other comprehensive loss
     (49,365 )     (38,769 )
Retained earnings
    
232,603
      
190,690
  
Total stockholders’ equity
    
619,031
      
595,066
  
Total liabilities and stockholders’ equity
   $
16,174,792
     $
14,990,123
  
 
Page 2
American Equity Investment Life Holding Company
Financial Supplement – September 30, 2007
 
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
(Dollars in thousands, except per share data)
(Unaudited)

   
Three Months Ended
September 30,
    
Nine Months Ended
September 30,
  
   
2007
    
2006
    
2007
    
2006
  
Revenues:
                        
Traditional life and accident and health insurance premiums
   $
3,344
     $
3,313
     $
9,591
     $
10,048
  
Annuity and single premium universal life product charges
    
12,576
      
10,756
      
33,023
      
29,096
  
Net investment income
    
183,732
      
173,272
      
528,809
      
504,839
  
Realized gains (losses) on investments
    
325
       (273 )    
921
      
16
  
Change in fair value of derivatives
     (10,709 )    
72,280
      
79,755
      
60,026
  
Total revenues
    
189,268
      
259,348
      
652,099
      
604,025
  
                                 
Benefits and expenses:
                                
Insurance policy benefits and change in future policy benefits
    
2,360
      
1,947
      
6,390
      
6,614
  
Interest credited to account balances
    
165,821
      
86,572
      
449,915
      
272,025
  
Amortization of deferred sales inducements
    
3,412
      
920
      
21,957
      
16,595
  
Change in fair value of embedded derivatives
     (34,935 )    
113,925
       (41,161 )    
65,368
  
Interest expense on notes payable
    
4,039
      
4,175
      
12,178
      
17,989
  
Interest expense on subordinated debentures
    
5,673
      
5,796
      
16,876
      
16,116
  
Interest expense on amounts due under repurchase agreements
    
4,764
      
10,997
      
11,842
      
25,328
  
Amortization of deferred policy acquisition costs
    
15,237
      
11,479
      
73,095
      
67,597
  
Other operating costs and expenses
    
11,582
      
9,527
      
37,076
      
29,638
  
Total benefits and expenses
    
177,953
      
245,338
      
588,168
      
517,270
  
                                 
Income before income taxes
    
11,315
      
14,010
      
63,931
      
86,755
  
Income tax expense
    
3,918
      
4,593
      
22,018
      
30,454
  
Net income
   $
7,397
     $
9,417
     $
41,913
     $
56,301
  
                                 
Earnings per common share
   $
0.13
     $
0.17
     $
0.74
     $
1.01
  
Earnings per common share - assuming dilution (a)
   $
0.13
     $
0.16
     $
0.71
     $
0.94
  
Weighted average common shares outstanding (in thousands):
                                
Earnings per common share
    
56,878
      
55,684
      
56,899
      
55,628
  
Earnings per common share - assuming dilution
    
59,774
      
60,314
      
60,081
      
60,589
  
 
(a)
The numerator for earnings per common share - assuming dilution is equal to net income plus the after tax cost of interest on convertible subordinated debentures issued to a subsidiary trust.  The after tax cost of such interest was $262 for the three months ended September 30, 2007, $266 for the three months ended September 30, 2006, $790 for the nine months ended September 30, 2007 and $802 for the nine months ended September 30, 2006.
 
 
Page 3
American Equity Investment Life Holding Company
Financial Supplement – September 30, 2007
 
Operating Income
 
   
As Reported
    
Realized Gain
Adjustments
    
SFAS 133
Adjustments
    
Operating
Income (a)
  
   
(Dollars in thousands, except per share data)
  
Revenues:
                        
Traditional life and accident and health insurance premiums
   $
9,591
     $
–
     $
–
     $
9,591
  
Annuity and single premium universal life product charges
    
33,023
      
–
      
–
      
33,023
  
Net investment income
    
528,809
      
–
      
–
      
528,809
  
Realized gains on investments
    
921
       (921 )    
–
      
–
  
Change in fair value of derivatives
    
79,755
      
–
      
63,260
      
143,015
  
Total revenues
    
652,099
       (921 )    
63,260
      
714,438
  
                                 
Benefits and expenses:
                                
Insurance policy benefits and change in future policy benefits
    
6,390
      
–
      
–
      
6,390
  
Interest credited to account balances
    
449,915
      
–
      
–
      
449,915
  
Amortization of deferred sales inducements
    
21,957
      
–
      
4,092
      
26,049
  
Change in fair value of embedded derivatives
     (41,161 )    
–
      
41,161
      
–
  
Interest expense on notes payable
    
12,178
      
–
       (795 )    
11,383
  
Interest expense on subordinated debentures
    
16,876
      
–
      
–
      
16,876
  
Interest expense on amounts due under repurchase agreements
    
11,842
      
–
      
–
      
11,842
  
Amortization of deferred policy acquisition costs
    
73,095
      
–
      
8,742
      
81,837
  
Other operating costs and expenses
    
37,076
      
–
      
–
      
37,076
  
Total benefits and expenses
    
588,168
      
–
      
53,200
      
641,368
  
                                 
Income before income taxes
    
63,931
       (921 )    
10,060
      
73,070
  
Income tax expense
    
22,018
       (326 )    
3,496
      
25,188
  
Net income
   $
41,913
     $ (595 )   $
6,564
     $
47,882
  
                                 
Earnings per common share
   $
0.74
                     $
0.84
  
Earnings per common share – assuming dilution
   $
0.71
                     $
0.81
  
 
(a)
In addition to net income, we have consistently utilized operating income, operating income per common share and operating income per common share - assuming dilution, non-GAAP financial measures commonly used in the life insurance industry, as economic measures to evaluate our financial performance.  Operating income equals net income adjusted to eliminate the impact of net realized gains and losses on investments and the impact of SFAS 133, dealing with fair value changes in derivatives and embedded derivatives.  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.
 
Change in fair value of derivatives:
                        
Proceeds received at expiration or gains recognized upon
early termination
   $
324,462
             $
–
     $
324,462
  
Cost of money for index annuities
     (181,620 )            
–
       (181,620 )
Change in the difference between fair value and remaining option
cost at beginning and end of period
     (63,087 )            
63,260
      
173
  
    $
79,755
             $
63,260
     $
143,015
  
Index credits included in interest credited to account balances
   $ 331,046                     $ 331,046  
 
Page 4
American Equity Investment Life Holding Company
Financial Supplement – September 30, 2007
 
Operating Income
 
   
As Reported
    
Realized Gain
Adjustments
    
SFAS 133
Adjustments
    
Operating
Income (a)
  
   
(Dollars in thousands, except per share data)         
  
Revenues:
                        
Traditional life and accident and health insurance premiums
   $
3,344
     $
–
     $
–
     $
3,344
  
Annuity and single premium universal life product charges
    
12,576
      
–
      
–
      
12,576
  
Net investment income
    
183,732
      
–
      
–
      
183,732
  
Realized gains on investments
    
325
       (325 )    
–
      
–
  
Change in fair value of derivatives
     (10,709 )    
–
      
67,041
      
56,332
  
Total revenues
    
189,268
       (325 )    
67,041
      
255,984
  
                                 
Benefits and expenses:
                                
Insurance policy benefits and change in future policy benefits
    
2,360
      
–
      
–
      
2,360
  
Interest credited to account balances
    
165,821
      
–
      
–
      
165,821
  
Amortization of deferred sales inducements
    
3,412
      
–
      
5,765
      
9,177
  
Change in fair value of embedded derivatives
     (34,935 )    
–
      
34,935
      
–
  
Interest expense on notes payable
    
4,039
      
–
       (269 )    
3,770
  
Interest expense on subordinated debentures
    
5,673
      
–
      
–
      
5,673
  
Interest expense on amounts due under repurchase agreements
    
4,764
      
–
      
–
      
4,764
  
Amortization of deferred policy acquisition costs
    
15,237
      
–
      
12,539
      
27,776
  
Other operating costs and expenses
    
11,582
      
–
      
–
      
11,582
  
Total benefits and expenses
    
177,953
      
–
      
52,970
      
230,923
  
                                 
Income before income taxes
    
11,315
       (325 )    
14,071
      
25,061
  
Income tax expense
    
3,918
       (115 )    
4,836
      
8,639
  
Net income
   $
7,397
     $ (210 )   $
9,235
     $
16,422
  
                                 
Earnings per common share
   $
0.13
                     $
0.29
  
Earnings per common share – assuming dilution
   $
0.13
                     $
0.28
  
 
(a)
In addition to net income, we have consistently utilized operating income, operating income per common share and operating income per common share - assuming dilution, non-GAAP financial measures commonly used in the life insurance industry, as economic measures to evaluate our financial performance.  Operating income equals net income adjusted to eliminate the impact of net realized gains and losses on investments and the impact of SFAS 133, dealing with fair value changes in derivatives and embedded derivatives.  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.
 
Change in fair value of derivatives:
                        
Proceeds received at expiration or gains recognized upon
early termination
   $
122,890
             $
–
     $
122,890
  
Cost of money for index annuities
     (66,617 )            
–
       (66,617 )
Change in the difference between fair value and remaining option
cost at beginning and end of period
     (66,982 )            
67,041
      
59
  
    $ (10,709 )           $
67,041
     $
56,332
  
                                 
Index credits included in interest credited to account balances
   $
125,500
                     $
125,500
  
 
 
Page 5
American Equity Investment Life Holding Company
Financial Supplement – September 30, 2007
 
 
Operating Income/Net Income
 
   
Q3 2007
    
Q2 2007
    
Q1 2007
    
Q4 2006
    
Q3 2006
  
   
(Dollars in thousands, except per share data)
  
Revenues:
                              
Traditional life and accident and health insurance premiums
   $
3,344
     $
3,190
     $
3,057
     $
3,574
     $
3,313
  
Annuity and single premium universal life product charges
    
12,576
      
11,453
      
8,994
      
10,376
      
10,756
  
Net investment income
    
183,732
      
175,719
      
169,358
      
172,799
      
173,272
  
Change in fair value of derivatives
    
56,332
      
68,821
      
17,862
      
38,880
       (5,992 )
Total revenues
    
255,984
      
259,183
      
199,271
      
225,629
      
181,349
  
                                         
Benefits and expenses:
                                        
Insurance policy benefits and change in future policy benefits
    
2,360
      
2,097
      
1,933
      
2,194
      
1,947
  
Interest credited to account balances
    
165,821
      
168,141
      
115,953
      
132,245
      
86,572
  
Amortization of deferred sales inducements
    
9,177
      
9,124
      
7,748
      
8,231
      
6,843
  
Interest expense on notes payable
    
3,770
      
3,793
      
3,820
      
3,737
      
3,960
  
Interest expense on subordinated debentures
    
5,673
      
5,614
      
5,589
      
5,238
      
5,796
  
Interest expense on amounts due under repurchase agreements
    
4,764
      
3,060
      
4,018
      
7,603
      
10,997
  
Amortization of deferred policy acquisition costs
    
27,776
      
28,405
      
25,656
      
27,185
      
26,635
  
Other operating costs and expenses
    
11,582
      
14,083
      
11,411
      
10,780
      
9,527
  
Total benefits and expenses
    
230,923
      
234,317
      
176,128
      
197,213
      
152,277
  
                                         
Operating income before income taxes
    
25,061
      
24,866
      
23,143
      
28,416
      
29,072
  
Income tax expense
    
8,639
      
8,539
      
8,010
      
9,650
      
10,193
  
                                         
Operating income (a)
    
16,422
      
16,327
      
15,133
      
18,766
      
18,879
  
Realized gains (losses) on investments, net of offsets
    
210
      
11
      
374
      
417
       (177 )
Income tax contingency
    
–
      
–
      
–
       (384 )    
384
  
Net effect of SFAS 133, net of offsets
     (9,235 )    
8,251
       (5,580 )    
385
       (9,669 )
                                         
Net income
   $
7,397
     $
24,589
     $
9,927
     $
19,184
     $
9,417
  
 
Operating income per common share (a)
   $
0.29
     $
0.29
     $
0.27
     $
0.34
     $
0.34
  
Operating income per common share – assuming dilution (a)
   $
0.28
     $
0.28
     $
0.26
     $
0.32
     $
0.32
  
Earnings per common share
   $
0.13
     $
0.43
     $
0.18
     $
0.34
     $
0.17
  
Earnings per common share – assuming dilution
   $
0.13
     $
0.41
     $
0.17
     $
0.32
     $
0.16
  
                                         
Weighted average common shares outstanding (in thousands):
                                        
Earnings per common share
    
56,878
      
57,122
      
56,693
      
55,889
      
55,684
  
Earnings per common share - assuming dilution
    
59,774
      
60,309
      
60,159
      
59,926
      
60,314
  

(a)
In addition to net income, we have consistently utilized operating income, operating income per common share and operating income per common share - assuming dilution, non-GAAP financial measures commonly used in the life insurance industry, as economic measures to evaluate our financial performance.  Operating income equals net income adjusted to eliminate the impact of net realized gains and losses on investments, the impact of SFAS 133, dealing with fair value changes in derivatives and embedded derivatives, and the impact of an income tax contingency liability.  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.
 
Page 6
American Equity Investment Life Holding Company
Financial Supplement – September 30, 2007
 
Capitalization/ Book Value per Share
 
   
September 30,
2007
    
December 31,
2006
  
   
(Dollars in thousands, except per share data)
  
           
Notes payable
   $
264,092
     $
266,383
  
Subordinated debentures payable to subsidiary trusts
    
268,299
      
268,489
  
Total debt
    
532,391
      
534,872
  
                 
Total stockholders’ equity
    
619,031
      
595,066
  
                 
Total capitalization
    
1,151,422
      
1,129,938
  
Accumulated other comprehensive loss (AOCL)
    
49,365
      
38,769
  
Total capitalization excluding AOCL (a)
   $
1,200,787
     $
1,168,707
  
                 
Total stockholders’ equity
   $
619,031
     $
595,066
  
Accumulated other comprehensive loss
    
49,365
      
38,769
  
Total stockholders’ equity excluding AOCL (a)
   $
668,396
     $
633,835
  
                 
Common shares outstanding (b)
    
56,205,202
      
56,144,074
  
                 
Book Value per Share: (c)
                
Book value per share including AOCL
   $
11.01
     $
10.60
  
Book value per share excluding AOCL (a)
   $
11.89
     $
11.29
  
                 
Debt-to-Capital Ratios: (d)
                
Senior debt / Total capitalization
     22.0 %     22.8 %
Adjusted debt / Total capitalization
     30.0 %     31.3 %
 
 
(a)
Total capitalization, total stockholders’ equity and book value per share excluding AOCL, non-GAAP financial measures, are based on stockholders’ equity excluding the effect of AOCL.  Since AOCL fluctuates from quarter to quarter due to unrealized changes in the fair value of available for sale investments caused principally by changes in market interest rates, we believe these non-GAAP financial measures provide useful supplemental information.
     
 
(b)
Common shares outstanding include shares held by the NMO Deferred Compensation Trust: 2007 - 2,993,148 shares; 2006 - 2,643,148 shares 
     
 
(c)
Book value per share including and excluding AOCL is calculated as total stockholders’ equity and total stockholders’ equity  excluding AOCL divided by the total number of shares of common stock outstanding.
     
 
(d)
Debt-to-capital ratios are computed using total capitalization excluding AOCL.  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 including AOCL.
 
 
Page 7
American Equity Investment Life Holding Company
Financial Supplement – September 30, 2007
 
 
 
   
Nine Months Ended
September 30,
    
Year Ended
December 31,
  
Product Type
  
2007
    
2006
    
2006
  
   
(Dollars in thousands)
  
Index Annuities:
                  
Index Strategies
   $
1,176,547
     $
914,552
     $
1,160,467
  
Fixed Strategy
    
392,182
      
466,946
      
626,791
  
     
1,568,729
      
1,381,498
      
1,787,258
  
Fixed Rate Annuities:
                        
Single-Year Rate Guaranteed
    
37,840
      
62,029
      
76,164
  
Multi-Year Rate Guaranteed
    
4,211
      
4,733
      
6,544
  
     
42,051
      
66,762
      
82,708
  
Total before coinsurance ceded
    
1,610,780
      
1,448,260
      
1,869,966
  
Coinsurance ceded
    
1,461
      
2,324
      
2,859
  
Net after coinsurance ceded
   $
1,609,319
     $
1,445,936
     $
1,867,107
  
 
 
 
Annuity Surrender Charges and Net (of coinsurance) Account Values at September 30, 2007  
 
     
Surrender Charge
      
Net Account Value    
  
Product Type
    
Avg. Years
 At Issue
      
Avg.
Years
Remaining
      
Avg.
%
Remaining
      
Dollars in Thousands
      
%
  
                                         
Index Annuities
    
14.0
      
11.3
       15.0 %   $
10,297,949
       83.3 %
Single-Year Fixed Rate Guaranteed Annuities
    
10.6
      
5.4
       8.3 %    
1,552,202
       12.6 %
Multi-Year Fixed Rate Guaranteed Annuities
    
7.0
      
3.1
       6.0 %    
509,448
       4.1 %
                                         
     
13.3
      
10.2
       13.7 %   $
12,359,599
       100.0 %
 
 
Page 8
American Equity Investment Life Holding Company
Financial Supplement – September 30, 2007
   
Fixed Annuities Account Value
    
Index Annuities Account Value
  
   
(Dollars in thousands)
  
SURRENDER CHARGE PERCENTAGES (1):
            
No surrender charge
   $
182,214
     $
86,214
  
0.0% <   2.0%
    
14,711
      
676
  
2.0% <   3.0%
    
82,398
      
13,144
  
3.0% <   4.0%
    
30,017
      
25,711
  
4.0% <   5.0%
    
142,989
      
108,651
  
5.0% <   6.0%
    
34,716
      
61,332
  
6.0% <   7.0%
    
167,892
      
276,683
  
7.0% <   8.0%
    
263,408
      
450,553
  
8.0% <   9.0%
    
326,827
      
422,504
  
9.0% < 10.0%
    
254,420
      
487,110
  
10.0% or greater
    
562,058
      
8,365,371
  
    $
2,061,650
     $
10,297,949
  
                 
             
   
Fixed and
    
Weighted
  
   
Index
    
Average
  
   
Annuities
    
Surrender
  
   
Account Value
    
Charge
  
   
(Dollars in thousands)
          
SURRENDER CHARGE EXPIRATION BY YEAR
                
Out of Surrender Charge
   $
268,428
       0.00 %
2007
    
36,141
       3.57 %
2008
    
118,262
       4.27 %
2009
    
381,542
       7.01 %
2010
    
433,833
       6.27 %
2011
    
401,586
       6.88 %
2012
    
595,314
       7.63 %
2013
    
729,709
       8.11 %
2014
    
659,253
       9.43 %
2015
    
631,661
       11.54 %
2016
    
824,126
       12.51 %
2017
    
973,218
       13.42 %
2018
    
736,847
       14.19 %
2019
    
481,374
       14.28 %
2020
    
602,131
       15.62 %
2021
    
672,439
       17.09 %
2022
    
1,323,971
       18.93 %
2023
    
2,199,444
       19.78 %
2024
    
290,320
       20.00 %
    $
12,359,599
       13.65 %
 
Page 9
American Equity Investment Life Holding Company
Financial Supplement – September 30, 2007
 
Annuity Liability Characteristics
 
   
Fixed
 Annuities
Account Value
    
Index
Annuities
Account Value
  
   
(Dollars in thousands)
  
APPLICABLE GUARANTEE PERIOD:
            
Annual reset (2)
   $
1,789,676
     $
10,167,329
  
Multi-year (3 - 5 years)
    
271,974
      
130,620
  
    $
2,061,650
     $
10,297,949
  
 
ULTIMATE MINIMUM GUARANTEE RATE (3):
              
 
2.00
     $
–
     $
1,520
  
 
2.20
      
4,801
      
93,702
  
 
2.25 (3)
      
243,925
      
2,723,576
  
 
3.00
      
1,718,519
      
5,873,685
  
 
3.50 (4)
      
–
      
1,605,466
  
 
4.00
      
94,405
      
–
  
        $
2,061,650
     $
10,297,949
  
 
CREDITED RATE (INCLUDING BONUS INTEREST) VS. ULTIMATE MINIMUM GUARANTEED RATE DIFFERENTIAL (5) (6):
              
No differential
     $
88,970
     $
–
  
 
›0.0%-0.5%
      
1,335,593
      
1,242,316
  
 
›0.5%-1.0%
      
350,973
      
1,031,059
  
 
›1.0%-1.5%
      
166,471
      
126,268
  
 
›1.5%-2.0%
      
28,472
      
260
  
 
›2.0%-2.5%
      
61,452
      
410
  
 
›2.5%-3.0%
      
14,842
      
–
  
Greater than 3.0%
      
14,877
      
–
  
Index strategies
      
–
      
7,897,636
  
        $
2,061,650
     $
10,297,949
  
 
 
(1)
In addition, $1,309,186 (64%) of the Fixed Annuities Account Value have market value adjustment protection.
(2)
The contract features for substantially all of the Index Annuities Account Value provide for the annual reset of contractual features that effect the cost of money.  The contract features for less than .5% of the Index Annuities Account Value are reset every two years.
(3)
Products have a guarantee of 2.25% for the first 10 years, and 3.00% thereafter.
(4)
Rates applicable to the minimum guaranteed surrender value are 3.50% for the first 5 years, and 3.00% thereafter (applied to less than 100% of the annuity deposits received).  Minimum guaranteed rates for amounts allocated to the fixed rate strategy are 2.25% for the first 10 years, and 3.00% thereafter.
(5)
Recent issues may contain bonus interest rates ranging from 1.0% to 3.0%.
(6)
Includes products with multi-year guarantees for which the credited rate cannot be decreased to the ultimate minimum guaranteed rate until the end of the multi-year period.  The weighted average differential between the current credited rate and the ultimate minimum guaranteed rate on the multi-year guarantee fixed annuity account values was approximately 143 basis points.
 
 
 
Page 10
American Equity Investment Life Holding Company
Financial Supplement – September 30, 2007
 
 
     
Nine Months Ended
September 30,    
      
Year Ended
December 31,
  
     
2007
      
2006
      
2006
  
Average yield on invested assets
    
6.09%
      
6.13%
      
6.14%
  
Cost of Money
    
 
              
 
  
Aggregate
    
3.44%
      
3.43%
      
3.41%
  
Average net cost of money for index annuities
    
3.42%
      
3.28%
      
3.28%
  
Average crediting rate for fixed rate annuities:
    
 
                  
Annually adjustable
    
3.28%
      
3.25%
      
3.25%
  
Multi-year rate guaranteed
    
4.18%
      
4.94%
      
4.81%
  
                         
Investment spread:
            
 
          
Aggregate
    
2.65%
      
2.70%
      
2.73%
  
Index annuities
    
2.67%
      
2.85%
      
2.86%
  
Fixed rate annuities:
                        
Annually adjustable
    
2.81%
      
2.88%
      
2.89%
  
Multi-year rate guaranteed
    
1.91%
      
1.19%
      
1.33%
  
 
 
Page 11
American Equity Investment Life Holding Company
Financial Supplement – September 30, 2007
 
 
   
September 30, 2007
    
December 31, 2006
  
   
Carrying
Amount
    
Percent
    
Carrying
Amount
    
Percent
  
   
(Dollars in thousands)
  
Fixed maturity securities:
                        
United States Government full faith and credit
   $
2,786
      
–
     $
2,746
      
–
  
United States Government sponsored agencies
    
8,140,901
       65.4 %    
7,966,485
       70.0 %
Public utilities
    
148,080
       1.2 %    
137,461
       1.2 %
Corporate securities
    
1,031,534
       8.3 %    
643,850
       5.6 %
Redeemable preferred stocks
    
191,847
       1.6 %    
135,933
       1.2 %
Mortgage and asset-backed securities:
                                
Government
    
75,085
       0.6 %    
67,883
       0.6 %
Non-Government
    
586,208
       4.7 %    
350,817
       3.1 %
Total fixed maturity securities
    
10,176,441
       81.8 %    
9,305,175
       81.7 %
Equity securities
    
89,839
       0.7 %    
45,512
       0.4 %
Mortgage loans on real estate
    
1,827,050
       14.7 %    
1,652,757
       14.5 %
Derivative instruments
    
350,364
       2.8 %    
381,601
       3.4 %
Policy loans
    
421
      
–
      
419
      
–
  
    $
12,444,115
       100.0 %   $
11,385,464
       100.0 %
 
 
Page 12
American Equity Investment Life Holding Company
Financial Supplement – September 30, 2007
 
 
           
September 30, 2007
      
December 31, 2006
  
 
NAIC
Designation
  
Rating Agency
Equivalent
    
Carrying
Amount
      
Percent
      
Carrying
Amount
      
Percent
  
           
(Dollars in thousands)
  
                                       
 
1
  
Aaa/Aa/A
   $
9,193,502
       90.3 %   $
8,643,440
       92.9 %
 
2
  
Baa
    
869,027
       8.6 %    
556,218
       6.0 %
 
3
  
Ba
    
89,629
       0.9 %    
88,896
       0.9 %
 
4
  
B
    
24,283
       0.2 %    
12,022
       0.1 %
 
5
  
Caa and lower
    
–
      
–
      
–
      
–
  
 
6
  
In or near default
    
–
      
–
      
4,599
       0.1 %
          $
10,176,441
       100.0 %   $
9,305,175
       100.0 %
 
 
 
Issuer
Type of
Security
  
Amortized
Cost
    
Unrealized
Loss
    
Estimated
Fair Value
  
Maturity
Date
     
(Dollars in thousands)
    
Tribune Co.
Corporate Bond
   $
9,690
     $ (2,372 )   $
7,318
  
08/15/2015
Stingray Pass-Thru Trust
Corporate Bond
    
14,027
       (3,457 )    
10,570
  
01/12/2015
Countrywide - FHA/VA
Mortgage-Backed Security
    
2,813
       (708 )    
2,105
  
06/25/2035
Northstar Realty Finance
Preferred Stock
    
7,250
       (1,580 )    
5,670
  
Perpetual
Arbor Realty Trust Inc.
Common Stock
    
1,935
       (613 )    
1,322
  
N/A
Quadra Realty Trust Inc.
Common Stock
    
1,500
       (547 )    
953
  
N/A
      $
37,215
     $ (9,277 )   $
27,938
    
 
 
Page 13
American Equity Investment Life Holding Company
Financial Supplement – September 30, 2007
 
 
   
September 30, 2007
    
December 31, 2006
  
   
Carrying
Amount
    
Percent
    
Carrying
Amount
    
Percent
  
   
(Dollars in thousands)
  
Geographic distribution
                        
East
   $
422,894
       23.1 %   $
364,977
       22.1 %
Middle Atlantic
    
127,714
       7.0 %    
115,930
       7.0 %
Mountain
    
301,532
       16.5 %    
267,808
       16.2 %
New England
    
44,706
       2.5 %    
43,228
       2.6 %
Pacific
    
128,843
       7.1 %    
132,085
       8.0 %
South Atlantic
    
304,007
       16.6 %    
299,373
       18.1 %
West North Central
    
340,018
       18.6 %    
290,592
       17.6 %
West South Central
    
157,336
       8.6 %    
138,764
       8.4 %
    $
1,827,050
       100.0 %   $
1,652,757
       100.0 %
 
 
Property type distribution
                        
Office
   $
554,237
       30.4 %   $
508,093
       30.7 %
Medical Office
    
97,178
       5.3 %    
78,147
       4.7 %
Retail
    
415,179
       22.7 %    
389,534
       23.6 %
Industrial/Warehouse
    
421,776
       23.1 %    
381,248
       23.1 %
Hotel
    
106,278
       5.8 %    
71,510
       4.3 %
Apartments
    
89,843
       4.9 %    
91,190
       5.5 %
Mixed use/other
    
142,559
       7.8 %    
133,035
       8.1 %
    $
1,827,050
       100.0 %   $
1,652,757
       100.0 %
 
 
Page 14
American Equity Investment Life Holding Company
Financial Supplement – September 30, 2007
 
 
 
 
Corporate Offices:
American Equity Investment Life Holding Company
5000 Westown Parkway Suite 440
West Des Moines, IA 50266

Inquiries:
D.J. Noble, Chairman
(515) 457-1703, dnoble@american-equity.com
 
Debra J. Richardson, Senior Vice President
(515) 273-3551, drichardson@american-equity.com

John M. Matovina, Vice Chairman
(515) 457-1813, jmatovina@american-equity.com

Common Stock and Dividend Information:
New York Stock Exchange symbol: “AEL”
 
                     
Dividend
  
2007
  
High
    
Low
    
Close
    
Declared
  
First Quarter
    
$14.07
      
$12.17
      
$13.13
      
$0.00
  
Second Quarter
    
$13.97
      
$11.37
      
$12.08
      
$0.00
  
Third Quarter
    
$12.55
      
$9.51
      
$10.65
      
$0.00
  
                                 
2006
                                
First Quarter
    
$14.34
      
$12.76
      
$14.34
      
$0.00
  
Second Quarter
    
$14.60
      
$10.66
      
$10.66
      
$0.00
  
Third Quarter
    
$12.55
      
$10.07
      
$12.27
      
$0.00
  
Fourth Quarter
    
$13.44
      
$11.90
      
$13.03
      
$0.05
  
                                 
2005
            
 
              
 
  
First Quarter
    
$12.92
      
$10.14
      
$12.79
      
$0.00
  
Second Quarter
    
$12.79
      
$10.08
      
$11.88
      
$0.00
  
Third Quarter
    
$11.96
      
$10.41
      
$11.35
      
$0.00
  
Fourth Quarter
    
$13.06
      
$10.83
      
$13.05
      
$0.04
  
 
 
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 15
American Equity Investment Life Holding Company
Financial Supplement – September 30, 2007
 
 
 
 
Steven Schwartz
Raymond James & Associates, Inc.
(312) 612-7686
steven.schwartz@raymondjames.com

Mark Finkelstein
Fox-Pitt Kelton
Cochran Caronia Waller
(312) 425-4079
mfinkelstein@ccwco.com

Richard Sbaschnig
Oppenheimer & Co., Inc.
(212) 668-4474
richard.sbaschnig@opco.com

Elizabeth C. Malone
KeyBanc Capital Markets
(917) 368-2230
bmalone@keybanccm.com

Keith F. Walsh
Citigroup Investment Research
(212) 816-5452
keith.f.walsh@citigroup.com

Randy Binner
Friedman, Billings, Ramsey & Co., Inc.
(703) 312-1890
rbinner@fbr.com

 
Page 16