EX-99.1 2 a5957347ex99_1.htm EXHIBIT 99.1 a5957347ex99_1.htm
EXHIBIT 99.1
 
 
 
For more information, contact:
John M. Matovina, Chief Financial Officer
(515) 457-1813, jmatovina@american-equity.com
D. J. Noble, Chairman
(515) 457-1705, dnoble@american-equity.com
Julie L. LaFollette, Director of Investor Relations
(515) 273-3602, jlafollette@american-equity.com
Debra J. Richardson, Executive Vice President
(515) 273-3551, drichardson@american-equity.com
FOR IMMEDIATE RELEASE
May 6, 2009
  
 
American Equity Reports Record First Quarter 2009 Operating Earnings of $23.3 Million or $0.42 Per Diluted Common Share

WEST DES MOINES, Iowa (May 6, 2009) – American Equity Investment Life Holding Company (NYSE: AEL), a leading underwriter of fixed rate and index annuities, today reported 2009 first quarter operating income1 of $23.3 million, or $0.42 per diluted common share, an increase of 38% over adjusted2 2008 first quarter operating income of $16.9 million, or $0.29 per diluted common share.   Financial highlights include:

 
§
Annuity sales increased 27% to $652.8 million for the first quarter of 2009 compared to first quarter 2008 annuity sales of $514.6 million.

 
§
Net investment income increased 13% to $220.7 million for the first quarter of 2009 compared to first quarter 2008 net investment income of $195.5 million.

 
§
Book value per outstanding common share was $9.67 including Accumulated Other Comprehensive Loss.

 
§
Early adoption of a new other than temporary impairment accounting standard increased retained earnings by $25.2 million as of January 1, 2009, reflecting a reduction in realized losses from “other than temporary impairments” recorded in prior periods.
     
 
§
 American Equity successfully introduced a new fixed index annuity product which now represents over 50% of the company’s new annuity sales.
 
Net income for the first quarter of 2009 was $26.5 million, compared to adjusted net income of $48.1 million for the same period in 2008.  Net income for the first quarter of 2008 was impacted by the company’s adoption of SFAS No. 157, Fair Value Measurements, which resulted in a material reduction in the fair value measurement of the embedded derivative component of the company’s policy benefit reserves, and a corresponding increase in net income of $40.7 million.
 
1 In 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.  See accompanying tables for the reconciliation of net income to operating income and a description of reconciling items.

2 All prior period financial statements have been adjusted pursuant to the provisions of FASB Staff Position No. APB 14-1 which was effective for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years.  See more complete discussion later in this news release.
STRONG DEMAND FOR FIXED ANNUITIES
 
The global financial crisis and low interest rates have resulted in a high level of demand for fixed index and fixed rate annuity products.  American Equity, the number three all time writer of fixed index annuities, saw ascending sales during the first quarter of 2009, with the number of pending applications for new products increasing nearly three fold.  This trend appears to be extending into the second quarter of 2009 with higher than average April sales, although the extent to which the trend will be sustained for the balance of 2009 is uncertain.  Fixed annuities are particularly attractive in this time of financial turmoil because they offer protection from market volatility for the full value of policyholder accounts including principal and all annually credited interest.
Commented David J. Noble, Chairman: “We expect 2009 to be a year of remarkable growth in our industry. Our history of careful attention to asset quality and capital adequacy provide us with an ideal foundation for this opportunity.  We will be relentless in our efforts to maintain financial strength and capital adequacy as needed to support our growth.”  American Equity is exploring a variety of initiatives to increase sales capacity including an industry-leading program to restructure sales agent commission payments.

EARNINGS GROWTH FROM STEADY SPREAD MANAGEMENT
The 38% growth in operating earnings for the first quarter of 2009 compared to the same period in 2008 is a direct reflection of American Equity’s growth in invested assets, improving yields on invested assets and reduction in the cost of money on its annuity liabilities.  On an amortized cost basis, invested assets grew 8% from $12.9 billion at March 31, 2008 to $14.0 billion at March 31, 2009.  The aggregate yield on invested assets improved from 6.14% for the first quarter of 2008 to 6.30% for the same period in 2009, while the cost of money on annuity liabilities declined from 3.55% to 3.33%.  The net result was a 15% improvement in the gross investment spread from 2.59% for the first quarter of 2008 to 2.97% for the first quarter of 2009.
Throughout 2008 and continuing into 2009 American Equity has experienced a high level of bonds called for redemption, particularly in its holdings of U.S. agency securities.  Because corporate credit spreads have widened significantly during this same period, the company has been able to redeploy redemption proceeds into other assets classes, including principally high grade corporate and prime residential mortgage backed securities (“RMBS”), with improvements in overall yields and without exposure to significant additional credit risk.
The financial crisis and related ratings actions have affected the fair value of a portion of the company’s invested assets, including in particular its Alt-A RMBS and perpetual preferred securities; however, the company is well-positioned to hold such securities until valuations recover and actual economic losses experienced have been relatively minor.  With respect to its commercial mortgage loans, which include over 900 individual loans with an average loan size of $2.5 million, the company has experienced no losses to date and substantially all of such loans continue to perform in accordance with their terms (foreclosure proceedings have been initiated in two cases and the company expects to recover the full amount of its principal, interest and costs in such proceedings).   Further, the company has analyzed stress scenarios, including increased levels of delinquencies and defaults, which indicate that future loss exposure in such stress scenarios may be less than 10 basis points of aggregate mortgage loan values.

ACCOUNTING CHANGES
The company’s financial statements for the first quarter of 2009 include the impact of several changes in accounting under U.S. generally accepted accounting principles.   These include (i) FASB Staff Position (“FSP”) No. FAS 157-4, “Determining the Fair Value When the Volume and Level of Activity for the Asset or Liability has Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP FAS 157-4”); (ii) FSP No. FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-than-Temporary Impairments” (FSP FAS 115-2 and FAS 124-2); and (iii) FSP No. APB 14-1, “Accounting for Convertible Debt Instruments that May be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP APB 14-1”).
While the adoption of FSP FAS 157-4 had no effect on the company’s balance sheet at March 31, 2009, the adoption of FSP FAS 115-2 and FAS 124-2 resulted in an increase in retained earnings of $25.2 million and an increase in the accumulated other comprehensive loss of $20.1 million as of January 1, 2009.  This adjustment reflects the cumulative net effect of removing from “other than temporary impairment” loss treatment the aggregate decline in value on previously impaired securities determined to be market related and not credit related.
Under FSP APB 14-1, the company was required to account for its indebtedness under its 5.25% senior convertible notes in a manner that reflects the company’s nonconvertible debt borrowing rate in the recognition of interest expense.  Pursuant to its provisions, FSP APB 14-1 has been applied retrospectively to all prior periods beginning with the fourth quarter of 2004 (when the notes were issued) and resulted in an increase in interest expense for all such periods.  The amount of such increase in the first quarter of 2009 was $0.9 million.
SEC NOTICE OF POSSIBLE CIVIL ACTION
On May 4, 2009, the company, its Chairman and its Chief Executive Officer and President received a Wells Notice from the Staff of the Enforcement Division of the Securities and Exchange Commission. The Notice, which is a statement of intention to recommend civil action, is a further step in a previously disclosed formal investigation initiated by the Staff in the fourth quarter of 2007.  The company was informed that the Wells Notice relates to the company’s disclosures in its 2004, 2005 and 2006 proxy statements concerning the effects of transactions involving American Equity Investment Service Company.  The company believes these proxy statements accurately disclosed all material information and strongly disagrees with the Staff’s recommendation on this matter.  The company will continue to pursue a potential resolution of this matter before the Staff makes its formal recommendation to the SEC, and will vigorously defend any action brought by the SEC, but the company cannot predict the outcome or timing of this matter.
     
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 first quarter 2009 earnings on Thursday, May 7, 2009, 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 866-713-8565, passcode 60562678 (international callers, please dial 617-597-5324).   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 May 28, 2009 by calling 888-286-8010, passcode 64823654 (international callers will need to dial 617-801-6888).
ABOUT AMERICAN EQUITY
 
American Equity Investment life Holding Company, through its wholly-owned operating subsidiaries, is a full-service under writer of a broad line of annuity and insurance products, with a primary emphasis on the sale of fixed rate and index annuities.  The company’s headquarters are located at 5000 Westown Parkway, West Des Moines, Iowa, 50266.  The mailing address of the company is:  P.O. Box 71216, Des Moines, Iowa 50325.  For more information, visit our website www.american-equity.com.
 
###
American Equity Investment Life Holding Company
            
             
             
             
             
Net Income (Loss)/Operating Income (Unaudited)
            
             
   
Three Months Ended
  
   
March 31,
  
   
2009
    
2008
  
   
(Dollars in thousands,
  
Revenues:
  
except per share data)
  
Traditional life and accident and health insurance premiums
   $ 3,486     $ 3,316  
Annuity product charges
     15,051       12,098  
Net investment income
     220,654       195,488  
Change in fair value of derivatives
     (43,823 )     (157,365 )
Realized gains on investments, excluding impairment losses
     760       830  
Impairment losses on investments:
                
Total other than temporary impairment losses
     (54,962 )     (3,249 )
Portion of impairment losses recognized in comprehensive loss
     41,524       -  
Net impairment losses recognized in earnings
     (13,438 )     (3,249 )
Total revenues
     182,690       51,118  
                 
Benefits and expenses:
                
Insurance policy benefits and change in future policy benefits
     2,199       2,609  
Interest credited to account balances
     59,763       54,176  
Amortization of deferred sales inducements
     13,711       31,912  
Change in fair value of embedded derivatives
     14,183       (218,614 )
Interest expense on notes payable
     4,276       5,132  
Interest expense on subordinated debentures
     4,208       5,231  
Interest expense on amounts due under repurchase agreements
     242       2,972  
Amortization of deferred policy acquisition costs
     34,644       80,690  
Other operating costs and expenses
     14,464       13,583  
Total benefits and expenses
     147,690       (22,309 )
                 
Income before income taxes
     35,000       73,427  
Income tax expense
     8,525       25,367  
Net income
     26,475       48,060  
Realized gains and net impairment losses on investments, net of offsets
     (678 )     1,008  
Convertible debt retirement, net of income taxes
     -       662  
Net effect of SFAS 133, net of offsets
     (2,465 )     (32,870 )
                 
Operating income (a)
   $ 23,332     $ 16,860  
                 
                 
Earnings (loss) per common share
   $ 0.50     $ 0.87  
Earnings (loss) per common share - assuming dilution
   $ 0.48     $ 0.83  
Operating income per common share (a)
   $ 0.44     $ 0.30  
Operating income per common share - assuming dilution (a)
   $ 0.42     $ 0.29  
                 
Weighted average common shares outstanding (in thousands):
                
Earnings per common share
     52,965       55,431  
Earnings per common share - assuming dilution
     55,700       58,221  
 
American Equity Investment Life Holding Company
                        
                         
                         
                         
Operating Income
                        
Three months ended March 31, 2009 (Unaudited)
                        
                         
                         
         
Adjustments
        
         
Realized Losses
    
SFAS 133
        
         
and Convertible
    
and Other
    
Operating
  
   
As Reported
    
Debt
    
Index Annuity
    
Income (a)
  
   
(Dollars in thousands, except per share data)
  
Reserves:
                        
   Traditional life and accident and health insurance premiums
   $ 3,486     $ -     $ -     $ 3,486  
   Annuity product charges
     15,051       -       -       15,051  
   Net investment income
     220,654       -       -       220,654  
   Change in fair value of derivatives
     (43,823 )     -       (15,895 )     (59,718 )
   Realized gains on investments, excluding impairment losses
     760       (760 )     -       -  
   Net impairment losses recognized in earnings
     (13,438 )     13,438       -       -  
Total revenues
     182,690       12,678       (15,895 )     179,473  
                                 
Benefits and expenses:
                                
   Insurance policy benefits and change in future policy benefits
     2,199       -       -       2,199  
   Interest credited to account balances
     59,763       -       3,059       62,822  
   Amortization of deferred sales inducements
     13,711       3,378       (7 )     17,082  
   Change in fair value of embedded derivatives
     14,183       -       (14,183 )     -  
   Interest expense on notes payable
     4,276       -       -       4,276  
   Interest expense on subordinated debentures
     4,208       -       -       4,208  
   Interest expense on amounts due under repurchase agreements
     242       -       -       242  
   Amortization of deferred policy acquisition costs
     34,644       4,762       (961 )     38,445  
   Other operating costs and expenses
     14,464       -       -       14,464  
Total benefits and expenses
     147,690       8,140       (12,092 )     143,738  
                                 
Income before income taxes
     35,000       4,538       (3,803 )     35,735  
Income tax expense
     8,525       5,216       (1,338 )     12,403  
                                 
Net income
   $ 26,475     $ (678 )   $ (2,465 )   $ 23,332  
                                 
Earnings per common share
   $ 0.50                     $ 0.44  
Earnings per common share - assuming dilution
   $ 0.48                     $ 0.42  
 
(a)
In addition to net income (loss), we have consistently utilized operating income, operating income per common share and operating income per common share - assuming dilution, non-GAAP financial measures commonly used in the life insurance industry, as economic measures to evaluate our financial performance. Operating income equals net income (loss) adjusted to eliminate the impact of net realized gains and losses on investments including related deferred tax asset valuation allowance, SFAS 133, dealing with fair value changes in derivatives and embedded derivatives and the Lehman counterparty default on expired call options. Because these items fluctuate from quarter to quarter in a manner unrelated to core operations, we believe measures excluding their impact are useful in analyzing operating trends. We believe the combined presentation and evaluation of operating income together with net income (loss), provides information that may enhance an investor's understanding of our underlying results and profitability.
   
 
Page 2
 
American Equity Investment Life Holding Company
Financial Supplement
 
March 31, 2009
 

 
 
American Equity Investment Life Holding Company
Financial Supplement – March 31, 2009
 
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)

 
   
March 31,
2009
    
December 31,
2008
  
   
 
    
(As Adjusted)
  
Assets
            
Investments:
            
Fixed maturity securities:
            
Available for sale, at fair value
   $ 7,573,330     $ 6,629,046  
Held for investment, at amortized cost
     3,050,505       3,604,149  
Equity securities, available for sale, at fair value
     73,378       99,552  
Mortgage loans on real estate
     2,351,405       2,329,824  
Derivative instruments
     57,492       56,588  
Policy loans
     459       446  
Total investments
     13,106,569       12,719,605  
                 
Cash and cash equivalents
     108,032       214,862  
Coinsurance deposits
     1,491,558       1,528,981  
Accrued investment income
     104,821       91,756  
Deferred policy acquisition costs
     1,661,764       1,579,871  
Deferred sales inducements
     917,902       843,377  
Deferred income taxes
     93,454       82,409  
Other assets
     24,522       20,879  
Total assets
   $ 17,508,622     $ 17,081,740  
 
1
American Equity Investment Life Holding Company
Financial Supplement – March 31, 2009
 
 
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
 (Dollars in thousands)
(Unaudited)
 

   
March 31,
2009
    
December 31,
2008
  
   
 
    
(As Adjusted)
  
Liabilities and Stockholders’ Equity
            
Liabilities:
            
Policy benefit reserves
   $ 16,246,385     $ 15,809,539  
Other policy funds and contract claims
     110,046       111,205  
Notes payable
     272,732       247,750  
Subordinated debentures
     268,243       268,209  
Other liabilities
     103,515       148,193  
Total liabilities
     17,000,921       16,584,896  
                 
Stockholders’ equity:
                
Common stock
     51,066       50,739  
Additional paid-in capital
     376,432       376,782  
Unallocated common stock held by ESOP
     (6,229 )     (6,336 )
Accumulated other comprehensive loss
     (188,318 )     (147,376 )
Retained earnings
     274,750       223,035  
Total stockholders’ equity
     507,701       496,844  
Total liabilities and stockholders’ equity
   $ 17,508,622     $ 17,081,740  
 
2
American Equity Investment Life Holding Company
Financial Supplement – March 31, 2009
 
 
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)

 
   
Three Months Ended
March 31,
  
   
2009
    
2008
  
Revenues:
        
(As Adjusted)
  
Traditional life and accident and health insurance premiums
   $ 3,486     $ 3,316  
Annuity product charges
     15,051       12,098  
Net investment income
     220,654       195,488  
Change in fair value of derivatives
     (43,823 )     (157,365 )
Realized gains on investments, excluding impairment losses
     760       830  
Impairment losses on investments:
                
Total other than temporary impairment losses
     (54,962 )     (3,249 )
Portion of impairment losses recognized in comprehensive loss
     41,524       –  
Net impairment losses recognized in earnings
     (13,438 )     (3,249 )
Total revenues
     182,690       51,118  
                 
Benefits and expenses:
                
Insurance policy benefits and change in future policy benefits
     2,199       2,609  
Interest credited to account balances
     59,763       54,176  
Amortization of deferred sales inducements
     13,711       31,912  
Change in fair value of embedded derivatives
     14,183       (218,614 )
Interest expense on notes payable
     4,276       5,132  
Interest expense on subordinated debentures
     4,208       5,231  
Interest expense on amounts due under repurchase agreements
     242       2,972  
Amortization of deferred policy acquisition costs
     34,644       80,690  
Other operating costs and expenses
     14,464       13,583  
Total benefits and expenses
     147,690       (22,309 )
                 
Income before income taxes
     35,000       73,427  
Income tax expense
      8,525       25,367  
Net income
   $ 26,475     $ 48,060  
                 
Earnings per common share
   $ 0.50     $ 0.87  
Earnings per common share - assuming dilution (a)
   $ 0.48     $ 0.83  
Weighted average common shares outstanding (in thousands):
                
Earnings per common share
     52,965       55,431  
Earnings per common share - assuming dilution
     55,700       58,221  
 
(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 $259 for the three months ended March 31, 2009 and $262 for the three months ended March 31, 2008.
 
3
American Equity Investment Life Holding Company
Financial Supplement – March 31, 2009
 
 
Three months ended March 31, 2009 (Unaudited)
 
         
Adjustments
        
   
As Reported
    
Realized Losses
and Convertible
Debt
    
SFAS 133
and Other
Index Annuity
    
Operating
Income (a)
  
   
(Dollars in thousands, except per share data)
  
Revenues:
                        
Traditional life and accident and health insurance premiums
   $ 3,486     $ –     $ –     $ 3,486  
Annuity product charges
     15,051       –       –       15,051  
Net investment income
     220,654       –       –       220,654  
Change in fair value of derivatives
     (43,823 )      –       (15,895 )     (59,718 ) 
Realized gains on investments, excluding impairment losses
     760       (760 )     –       –  
Net impairment losses recognized in earnings
     (13,438 )     13,438       –       –  
Total revenues
     182,690       12,678       (15,895 )     179,473  
                                 
Benefits and expenses:
                                
Insurance policy benefits and change in future policy benefits
     2,199       –       –       2,199  
Interest credited to account balances
     59,763       –       3,059       62,822  
Amortization of deferred sales inducements
     13,711       3,378       (7 )     17,082  
Change in fair value of embedded derivatives
     14,183       –       (14,183 )     –  
Interest expense on notes payable
     4,276       –       –       4,276  
Interest expense on subordinated debentures
     4,208       –       –       4,208  
Interest expense on amounts due under repurchase agreements
     242       –       –       242  
Amortization of deferred policy acquisition costs
     34,644       4,762       (961 )     38,445  
Other operating costs and expenses
     14,464       –       –       14,464  
Total benefits and expenses
     147,690       8,140       (12,092 )     143,738  
                                 
Income before income taxes
     35,000       4,538       (3,803 )     35,735  
Income tax expense
     8,525       5,216       (1,338 )     12,403  
Net income
   $ 26,475     $ (678 )    $ (2,465 )   $ 23,332  
                                 
Earnings per common share
   $ 0.50                     $ 0.44  
Earnings per common share – assuming dilution   $ 0.48                     $  0.42  
 
(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 including related deferred tax valuation allowance, SFAS 133, dealing with fair value changes in derivatives and embedded derivatives and the Lehman counterparty default on expired call options.  Because these items fluctuate from quarter to quarter in a manner unrelated to core operations, we believe measures excluding their impact are useful in analyzing operating trends.  We believe the combined presentation and evaluation of operating income together with net income, 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
   $ 5,482             $ –     $ 5,482  
Cost of money for index annuities
     (64,820 )             –       (64,820 )
Change in the difference between fair value and remaining option cost at beginning and end of period
     15,515               (15,895 )      (380 ) 
    $ (43,823 )           $ (15,895 )   $ (59,718 )
                                 
Index credits included in interest credited to account balances
   $ 7,364                     $ 7,364  
 
4
American Equity Investment Life Holding Company
Financial Supplement – March 31, 2009
 
 
Quarterly Summary – Most Recent 5 Quarters (Unaudited)
    
Q1 2009
      
Q4 2008
      
Q3 2008
      
Q2 2008
      
Q1 2008
  
           
(As Adjusted)
    
(As Adjusted)
    
(As Adjusted)
    
(As Adjusted)
  
   
(Dollars in thousands, except per share data)
  
Revenues:
                                        
Traditional life and accident and health insurance premiums
   $ 3,486     $ 3,093     $ 3,223     $ 2,880     $ 3,316  
Annuity product charges
     15,051       15,400       13,328       11,845       12,098  
Net investment income
     220,654       214,531       209,978       202,080       195,488  
Change in fair value of derivatives
     (59,718 )     (65,854 )     (66,940 )     (67,261 )     (62,452 )
Total revenues
     179,473       167,170       159,589       149,544       148,450  
                                         
Benefits and expenses:
                                        
Insurance policy benefits and change in future policy benefits
     2,199       1,916       2,126       2,321       2,609  
Interest credited to account balances
     62,822       53,140       51,107       49,469       54,176  
Amortization of deferred sales inducements
     17,082       18,770       13,397       9,890       10,595  
Interest expense on notes payable
     4,276       4,646       5,014       4,981       5,132  
Interest expense on subordinated debentures
     4,208       4,896       4,669       4,649       5,231  
Interest expense on amounts due under repurchase agreements
     242       513       2,698       2,024       2,972  
Amortization of deferred policy acquisition costs
     38,445       45,847       33,108       36,356       29,587  
Other operating costs and expenses
     14,464       14,083       13,549       12,550       12,451  
Total benefits and expenses
     143,738       143,811       125,668       122,240       122,753  
                                         
Operating income before income taxes
     35,735       23,359       33,921       27,304       25,697  
Income tax expense
     12,403       7,955       11,610       9,407       8,837  
                                         
Operating income (a)
     23,332       15,404       22,311       17,897       16,860  
Realized gains and net impairment losses on investments, net of offsets
     678       (43,384 )     (39,222 )     (8,910 )     (1,008 )
Convertible debt retirement, net of income taxes
     –       6,495       (16 )     (115 )     (662 )
Net effect of SFAS 133, net of offsets
     2,465       (2,564 )     5,211       (5,220 )     32,870  
                                         
Net income (loss)
   $ 26,475     $ (24,049 )   $ (11,716 )   $ 3,652     $ 48,060  
 
Operating income per common share (a)   $ 0.44     $  0.29     $  0.42     $  0.33     $ 0.30  
Operating income per common share – assuming dilution (a)   $  0.42     $  0.28     $   0.40     $   0.32     $   0.29  
Earnings (loss) per common share
   $ 0.50     $ (0.46 )   $ (0.22 )   $ 0.07     $ 0.87  
Earnings (loss) per common share – assuming dilution
   $ 0.48     $ (0.43 )   $ (0.21 )   $ 0.07     $ 0.83  
                                         
Weighted average common shares outstanding (in thousands):
                                        
Earnings (loss) per common share
     52,965       52,779       52,916       53,934       55,431  
Earnings (loss) per common share - assuming dilution
     55,700       55,650       55,835       56,856       58,221  
 
(a)
In addition to net income (loss), we have consistently utilized operating income, operating income per common share and operating income per common share - assuming dilution, non-GAAP financial measures commonly used in the life insurance industry, as economic measures to evaluate our financial performance.  Operating income equals net income (loss) adjusted to eliminate the impact of net realized gains and losses on investments including related deferred tax valuation allowance, gain on retirement of convertible debt, SFAS 133, dealing with fair value changes in derivatives and embedded derivatives and the Lehman counterparty default on expired call options.  Because these items fluctuate from quarter to quarter in a manner unrelated to core operations, we believe measures excluding their impact are useful in analyzing operating trends.  We believe the combined presentation and evaluation of operating income together with net income (loss), provides information that may enhance an investor’s understanding of our underlying results and profitability.
 
5
American Equity Investment Life Holding Company
Financial Supplement – March 31, 2009
 
 
   
March 31,
2009
    
December 31,
2008
  
         
(As Adjusted)
  
   
(Dollars in thousands, except per share data)
  
Capitalization:
            
Notes payable
   $ 272,732     $ 247,750  
Subordinated debentures payable to subsidiary trusts
      268,243        268,209  
Total debt
     540,975       515,959  
                 
Total stockholders’ equity
     507,701       496,844  
                 
Total capitalization
     1,048,676       1,012,803  
Accumulated other comprehensive loss (AOCL)
     188,318       147,376  
Total capitalization excluding AOCL (a)
   $ 1,236,994     $ 1,160,179  
                 
Total stockholders’ equity
   $ 507,701     $ 496,844  
Accumulated other comprehensive loss
     188,318       147,376  
Total stockholders’ equity excluding AOCL (a)
   $ 696,019     $ 644,220  
                 
Common shares outstanding (b)
     52,500,496       52,504,096  
                 
Book Value per Share: (c)
                
Book value per share including AOCL
   $ 9.67     $ 9.46  
Book value per share excluding AOCL (a)
   $ 13.26     $ 12.27  
                 
Debt-to-Capital Ratios: (d)
                
Senior debt / Total capitalization
     22.1 %     21.4 %
Adjusted debt / Total capitalization     28.7 %      29.5 % 
 
(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, we believe these non-GAAP financial measures provide useful supplemental information.
 
(b)
Common shares outstanding include shares held by the NMO Deferred Compensation Trust: 2009 - 2,022,800 shares; 2008 - 2,353,053 shares and exclude unallocated shares held by ESOP: 2009 - 588,312; 2008 - 588,312 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 excluding AOCL.
 
6
American Equity Investment Life Holding Company
Financial Supplement – March 31, 2009
 
 
 
   
 
Three Months Ended
March 31,
    
 
Year Ended
December 31,
  
Product Type
  
2009
    
2008
    
2008
  
   
(Dollars in thousands)
  
Index Annuities:
                  
Index Strategies
   $ 244,530     $ 332,836     $ 1,303,871  
Fixed Strategy
     354,746       173,533       937,227  
      599,276       506,369       2,241,098  
Fixed Rate Annuities:
                        
Single-Year Rate Guaranteed
     10,450       7,233       28,930  
Multi-Year Rate Guaranteed
     43,407       1,558       18,978  
      53,857       8,791       47,908  
Total before coinsurance ceded
     653,133       515,160       2,289,006  
Coinsurance ceded
     300       537       1,310  
Net after coinsurance ceded
   $ 652,833     $ 514,623     $ 2,287,696  
 
 
 
Annuity Surrender Charges and Net (of coinsurance) Account Values at March 31, 2009
 
   
Surrender Charge
    
Net Account Value
  
 
Product Type
  
Avg.
Years
 At Issue
    
Avg.
Years
Remaining
    
Avg.
%
Remaining
    
Dollars in
Thousands
    
%
  
                               
Index Annuities
     14.2       11.0       15.1 %   $ 12,877,777       87.8 %
Single-Year Fixed Rate Guaranteed Annuities
     10.8        4.4       7.1 %     1,297,916       8.9 %
Multi-Year Fixed Rate Guaranteed Annuities
      7.5        2.6       5.7 %     486,041       3.3 %
                                         
Total
     13.7       10.1       14.1 %   $ 14,661,734       100.0 %
 
7
American Equity Investment Life Holding Company
Financial Supplement – March 31, 2009
 
 
 
   
Fixed
Annuities
Account Value
    
Index
Annuities
Account Value
  
   
(Dollars in thousands)
  
SURRENDER CHARGE PERCENTAGES (1):
            
No surrender charge
   $ 207,663     $ 128,484  
0.0% <   2.0%
     24,498       35,596  
2.0% <   3.0%
     90,490       54,571  
3.0% <   4.0%
     54,489       90,584  
4.0% <   5.0%
     104,021       177,842  
5.0% <   6.0%
     130,917       253,100  
6.0% <   7.0%
     217,207       455,557  
7.0% <   8.0%
     279,004       258,383  
8.0% <   9.0%
     112,507       373,707  
9.0% < 10.0%
     113,126       314,678  
10.0% or greater
     450,035       10,735,275  
    $ 1,783,957     $ 12,877,777  
 
 
   
Fixed and
Index
Annuities
Account Value
    
Weighted
Average
Surrender
Charge
  
   
(Dollars in
thousands)
          
SURRENDER CHARGE EXPIRATION BY YEAR
                
Out of Surrender Charge
   $ 336,147       0.00 %
2009
     286,430       5.87 %
2010
     360,153       4.30 %
2011
     335,455       5.04 %
2012
     496,490       6.08 %
2013
     662,899       6.66 %
2014
     667,616       7.76 %
2015
     578,968       9.75 %
2016
     784,412       10.87 %
2017
     995,243       11.86 %
2018
     944,697       13.98 %
2019
     693,585       13.40 %
2020
     642,462       14.58 %
2021
     623,935       16.15 %
2022
     1,194,377       18.17 %
2023
     2,459,841       19.17 %
2024
     2,160,249       19.79 %
2025
     434,102       19.99 %
2026
     4,673       20.00 %
    $ 14,661,734       14.04 %
 
8
American Equity Investment Life Holding Company
Financial Supplement – March 31, 2009
 
 
Annuity Liability Characteristics
 
   
Fixed
 Annuities
Account Value
    
Index
Annuities
Account Value
  
   
(Dollars in thousands)
  
APPLICABLE GUARANTEE PERIOD:
            
Annual reset (2)
   $ 1,544,766     $ 12,753,395  
Multi-year (3 - 5 years)
     239,191       124,382  
    $ 1,783,957     $ 12,877,777  
 
 
ULTIMATE MINIMUM GUARANTEE RATE (3):
            
2.00%   $ 43,011     $ 1,201  
2.20%     4,768       84,661  
2.25%     –       1,511,311  
2.25% (3)     215,876       1,082,738  
3.00%     1,443,022       8,787,870  
3.50% (4)     –       1,409,996  
4.00%     77,280       –  
    $ 1,783,957     $ 12,877,777  
 
 
CREDITED RATE (INCLUDING BONUS INTEREST) VS.
ULTIMATE MINIMUM GUARANTEED RATE DIFFERENTIAL (5) (6)
            
No differential
   $ 71,761     $ –  
› 0.0% - 0.5%     1,170,090       3,274,434  
› 0.5% - 1.0%     306,581       1,177,863  
› 1.0% - 1.5%     124,019       85,303  
› 1.5% - 2.0%     52,026       90  
› 2.0% - 2.5%     11,492       –  
› 2.5% - 3.0%     46,605       –  
Greater than 3.0%
     1,383       –  
Index strategies
     –       8,340,087  
    $ 1,783,957     $ 12,877,777  
 
(1)
In addition, $1,081,480 (61%) 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 153 basis points.
 
9
American Equity Investment Life Holding Company
Financial Supplement – March 31, 2009
 
 
   
Three Months Ended
March 31,
    
Year Ended
December 31,
  
   
2009
    
2008
    
2008
  
Average yield on invested assets
    
6.30%
      
6.14%
      
6.20%
  
Cost of money:
                        
Aggregate
    
3.33%
      
3.55%
      
3.43%
  
Cost of money for index annuities
    
3.31%
      
3.58%
      
3.43%
  
Average crediting rate for fixed rate annuities:
                        
Annually adjustable
    
3.26%
      
3.26%
      
3.26%
  
Multi-year rate guaranteed
    
3.88%
      
3.94%
      
3.88%
  
Investment spread:
                        
Aggregate
    
2.97%
      
2.59%
      
2.77%
  
Index annuities
    
2.99%
      
2.56%
      
2.77%
  
Fixed rate annuities:
                        
Annually adjustable
    
3.04%
      
2.88%
      
2.94%
  
Multi-year rate guaranteed
    
2.42%
      
2.20%
      
2.32%
  
 
10
American Equity Investment Life Holding Company
Financial Supplement – March 31, 2009
 
 
 
   
March 31, 2009
    
December 31, 2008
  
   
Carrying
Amount
    
 
Percent
    
Carrying
Amount
    
 
Percent
  
   
(Dollars in thousands)
  
                         
Fixed maturity securities:
                        
United States Government full faith and credit
   $ 21,861       0.2 %   $ 22,050       0.2 %
United States Government sponsored agencies
     5,907,090       45.1 %     6,633,481       52.1 %
United States municipalities, states and territories
     15,916       0.1 %     –       –  
Corporate securities, including redeemable preferred stocks
     2,489,610       19.0 %     1,764,390       13.9 %
Mortgage and asset-backed securities
     2,189,358       16.7 %     1,813,274       14.3 %
Total fixed maturity securities
     10,623,835       81.1 %     10,233,195       80.5 %
Equity securities
     73,378       0.6 %     99,552       0.8 %
Mortgage loans on real estate
     2,351,405       17.9 %     2,329,824       18.3 %
Derivative instruments
     57,492       0.4 %     56,588       0.4 %
Policy loans
     459       –       446       –  
    $ 13,106,569       100.0 %   $ 12,719,605       100.0 %
 
11
American Equity Investment Life Holding Company
Financial Supplement – March 31, 2009
 
 
 
       
March 31, 2009
    
December 31, 2008
  
NAIC
Designation
  
Rating Agency
Equivalent
  
Carrying
Amount
    
Percent
    
Carrying
Amount
    
Percent
  
       
(Dollars in thousands)
  
                             
 
1
  
Aaa/Aa/A
   $ 8,177,180       77.0 %   $ 8,510,772       83.2 %
 
2
  
Baa
     1,757,072       16.5 %     1,292,303       12.6 %
 
3
  
Ba
     350,515       3.3 %     225,594       2.2 %
 
4
   B     179,894       1.7 %     135,989       1.3 %
 
5
  
Caa and lower
     126,727       1.2 %     31,375       0.3 %
 
6
  
In or near default
     32,447       0.3 %     37,162       0.4 %
          $ 10,623,835       100.0 %   $ 10,233,195       100.0 %

 
 
General Description
  
Amortized
Cost
    
Unrealized
Losses
    
Estimated
Fair Value
    
Months Below Amortized Cost
  
             
Corporate bonds:
                        
Finance, insurance and real estate companies
   $ 109,116     $ (40,030 )   $ 69,086      
0 - 45
  
U.S. retail company
     10,495       (5,014 )     5,481      
44 - 46
  
Consumer staple company
     9,418       (3,140 )     6,278      
34
  
Home builder
     20,440       (5,075 )     15,365      
2 - 43
  
Mining
     7,246       (3,424 )     3,822      
23
  
Residential mortgage-backed securities
     160,306       (27,889 )     132,417      
4 - 14
  
Preferred stock:
                                
Finance, insurance and real estate companies
     128,493       (57,287 )     71,206      
2 - 60
  
Telecommunication and media companies
     9,433       (3,296 )     6,137      
28 - 60
  
    $ 454,947     $ (145,155 )   $ 309,792          
 
12
American Equity Investment Life Holding Company
Financial Supplement – March 31, 2009
 
 
 
   
March 31, 2009
    
December 31, 2008
  
   
Carrying
Amount
    
Percent
    
Carrying
Amount
    
Percent
  
   
(Dollars in thousands)
  
Geographic distribution
                        
East
   $ 540,582       23.0 %   $ 537,303       23.1 %
Middle Atlantic
     165,352       7.0 %     161,222       6.9 %
Mountain
     382,365       16.3 %     386,988       16.6 %
New England
     44,114       1.9 %     44,517       1.9 %
Pacific
     192,879       8.2 %     194,301       8.3 %
South Atlantic
     435,627       18.5 %     421,507       18.1 %
West North Central
     400,187       17.0 %     397,375       17.1 %
West South Central
     190,299       8.1 %     186,611       8.0 %
    $ 2,351,405       100.0 %   $ 2,329,824       100.0 %
 
 
Property type distribution
                        
Office
   $ 656,202       27.9 %   $ 655,278       28.1 %
Medical Office
     141,465       6.0 %     142,409       6.1 %
Retail
     555,610       23.7 %     551,172       23.7 %
Industrial/Warehouse
     554,909       23.6 %     552,012       23.7 %
Hotel
     158,300       6.7 %     154,671       6.6 %
Apartments
     119,401       5.1 %     111,933       4.8 %
Mixed use/other
     165,518       7.0 %     162,349       7.0 %
    $ 2,351,405       100.0 %   $ 2,329,824       100.0 %
 
13
American Equity Investment Life Holding Company
Financial Supplement – March 31, 2009
 
 
 
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, Executive Vice President and Secretary
(515) 273-3551, drichardson@american-equity.com
 
John M. Matovina, Vice Chairman, Chief Financial Officer and Treasurer
(515) 457-1813, jmatovina@american-equity.com

Common Stock and Dividend Information:

New York Stock Exchange symbol: “AEL”
 
 
   
High
    
Low
    
Close
    
Dividend
Declared
  
2009
                        
First Quarter
   $
7.40
     $
2.96
     $
4.16
     $
0.00
  
                                 
2008
                                
First Quarter
   $
10.21
     $
6.82
     $
9.28
     $
0.00
  
Second Quarter
   $
11.63
     $
7.61
     $
8.15
     $
0.00
  
Third Quarter
   $
10.75
     $
7.27
     $
7.50
     $
0.00
  
Fourth Quarter
   $
7.75
     $
3.65
     $
7.00
     $
0.07
  
                                 
2007
                                
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
  
Fourth Quarter   $
11.25
     $
8.09
     $
8.29
     $
0.06
  
 
 
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.
 
American Equity Investment Life Holding Company
Financial Supplement – March 31, 2009
Steven Schwartz
Raymond James & Associates, Inc.
(312) 612-7686
steven.schwartz@raymondjames.com
 
Mark Finkelstein, Paul Sarran
Fox-Pitt Kelton Cochran Caronia Waller
(312) 425-4079  mark.finkelstein@fpk.com
(312) 425-4737 paul.sarran@fpk.com
 
Randy Binner
Friedman, Billings, Ramsey & Co., Inc.
(703) 312-1890
rbinner@fbr.com
 
 
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