WEST DES MOINES, Iowa, Feb. 22 - American Equity Investment Life Holding Company (NYSE: AEL), a leading underwriter of index and fixed rate annuities, today announced record 2005 operating income(1) of $57.1 million, or $1.31 per diluted common share, an increase of 33% over 2004 operating income of $43.0 million, or $1.03 per diluted common share(2). Operating income for the fourth quarter of 2005 was $14.6 million, or $0.32 per diluted common share, compared with 2004 fourth quarter operating income of $11.8 million, or $0.28 per diluted common share. Net income before minority interest for 2005 was $45.5 million compared with $28.9 million for 2004. The Company's results for 2005 conclude 10 years of unprecedented growth in distribution, assets, earnings and capital since American Equity was formed as a new stock life insurer in late 1995.
Performance highlights for the year include:
-- Annuity sales reached $2.9 billion, a 45% increase over 2004
-- Agency force exceeded 51,000 independent licensed agents
-- Total assets climbed to $14.1 billion at December 31, 2005
-- A follow-on common stock offering added $163.5 million of new equity
-- Total capitalization topped $1 billion
-- Book value per share was $9.35 at December 31, 2005
-- Adjusted leverage ratio improved to 33.7%
45% GROWTH IN PRODUCTION
During 2005 American Equity posted total sales of annuity products of $2.9 billion, an increase of 45% over total sales in 2004 of $2.0 billion ($1.8 billion net of coinsurance). 93% of total 2005 sales were in multi- strategy index annuities, a sector in which American Equity has been a leader in product design and sales volume for over six years. "We believe significant long term growth opportunities exist in our primary market," stated David J. Noble, Chairman, CEO and President of American Equity. "As the baby boomers age, the issue of retirement income security will be paramount for this growing sector. Our products are specifically designed to meet post-retirement savings needs." American Equity enjoys a very favorable market conduct record and will be one of the first companies to implement a suitability review of all its index annuity sales in all states.
29% GROWTH IN INVESTMENT EARNINGS
At December 31, 2005, American Equity had total assets of $14.1 billion, compared to $11.1 billion at year end 2004, an increase of 27%. Total invested assets grew to $10.5 billion at year end 2005, and net investment income grew to $554.1 million in 2005, an increase of 29% over 2004. At December 31, 2005, the aggregate duration of both American Equity's invested assets and its annuity liabilities was 6.7 years. Over 98% of American Equity's total annuity reserves are protected by surrender charges.
The weighted average yield on invested assets for 2005, of which over 99% are investment grade, was 6.18%. American Equity earned a weighted average gross spread (annual aggregate yield on invested assets over the aggregate annual cost of money on annuities) of 2.48% on its aggregate annuity fund values, comprised of 2.80% on index annuities, 2.86% on fixed rate annuities and 0.62% on multi-year rate guaranteed products.
OVER $1 BILLION OF TOTAL CAPITAL
During 2005 American Equity raised approximately $229.9 million of new capital including $163.5 million of common equity, $55 million from the issuance of trust preferred securities, and $11.4 million from the exercise of common stock subscription rights. This brings the Company's total capitalization to over $1 billion. The additional capital plus 2005 net earnings increased book value per share at year end 2005 to $9.35 ($9.84 excluding the accumulated other comprehensive loss (AOCL), compared to $7.97 at the end of 2004 ($8.47 excluding AOCL). The Company's adjusted ratio of debt to total capital (excluding AOCL) improved to 33.7% at December 31, 2005, from 43.8% at December 31, 2004.
Stated Mr. Noble, "When I formed American Equity 10 years ago I set out to build the finest asset accumulating life insurer in the country. Surpassing $1 billion in total capital is a major step in pursuit of that goal, and I'm very proud of our Company's management team and staff in this achievement."
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 2004 earnings on Thursday, February 23, 2006, at 10 a.m. CST. Investors and interested parties may listen to the call by dialing 866-510-0676 passcode 96613915 (international callers, please dial 617-597-5361). An audio replay will be available via telephone through March 3, 2006 by calling 888-286-8010, passcode 78117754 (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 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's headquarters is located at 5000 Westown Parkway, West Des Moines, Iowa, 50266. The mailing address of the company is: P.O. Box 71216, Des Moines, Iowa, 50325.
(1) 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. Operating income equals net income adjusted to
eliminate the impact of (i) net realized gains and losses on
investments; (ii) the impact of SFAS 133, dealing with market value
changes in derivatives; (iii) the impact of consolidation under FIN 46
of American Equity Investment Service Company; and (iv) the impact of
the establishment of a state income tax contingency liability.
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.
(2) The comparability of EPS data between periods is impacted by the
issuance of 15 million common shares in December 2005, in connection
with a public offering of the Company's common stock.
American Equity Investment Life Holding Company
Net Income/Operating Income
Three Months Ended Year Ended
December 31, December 31,
2005 2004 2005 2004
Revenues:
Traditional life and accident and
health insurance premiums $3,019 $3,435 $13,578 $15,115
Annuity and single premium
universal life product charges 6,296 6,791 25,686 22,462
Net investment income 153,707 114,165 554,118 428,385
Realized gains (losses) on
investments (1,030) 132 (7,635) 943
Change in fair value of derivatives 3,895 47,511 (18,029) 28,696
Total revenues 165,887 172,034 567,718 495,601
Benefits and expenses:
Insurance policy benefits and
change in future policy benefits 3,079 3,368 13,375 13,423
Interest credited to account
balances 81,796 68,797 306,608 305,762
Change in fair value of embedded
derivatives 19,706 44,677 31,087 (8,567)
Interest expense on notes payable 4,053 1,258 16,324 2,358
Interest expense on subordinated
debentures 4,131 2,788 14,145 9,609
Interest expense on amounts due
under repurchase agreements
and other interest expense 4,455 988 11,280 3,148
Amortization of deferred policy
acquisition costs 21,004 21,425 68,109 67,867
Other operating costs and expenses 9,370 7,883 35,896 32,520
Total benefits and expenses 147,594 151,184 496,824 426,120
Income before income taxes and
minority interest 18,293 20,850 70,894 69,481
Income tax expense 7,224 7,038 25,402 40,611
Income before minority interest 11,069 13,812 45,492 28,870
Minority Interest - (127) 2,500 (453)
Net income 11,069 13,939 42,992 29,323
Realized (gains) losses on
investments, net of offsets 348 (86) 2,653 (613)
Net effect of FIN 46 and state income
tax contingency 905 (159) 3,698 15,961
Net effect of FAS 133 2,317 (1,939) 7,760 (1,695)
Operating income (a) $14,639 $11,755 $57,103 $42,976
Earnings per common share $0.26 $0.36 $1.09 $0.77
Earnings per common share - assuming
dilution $0.24 $0.33 $0.99 $0.71
Operating income per common share (a) $0.35 $0.31 $1.45 $1.13
Operating income per common share -
assuming dilution (a) $0.32 $0.28 $1.31 $1.03
Weighted average common shares
outstanding (in thousands):
Earnings per common share 42,053 38,284 39,333 38,159
Earnings per common share -
assuming dilution 46,823 43,045 44,513 43,096
American Equity Investment Life Holding Company
Operating Income
Three months ended December 31, 2005
Adjustments
Realized
Gains Operating
As and Income
Reported Other FAS 133 (a)
(Dollars in thousands, except per share data)
Reserves:
Traditional life and accident and
health insurance premiums $3,019 $- $- $3,019
Annuity and single premium universal
life product charges 6,296 - - 6,296
Net investment income 153,707 - - 153,707
Realized gains (losses) on
investments (1,030) 1,030 - -
Change in fair value of derivatives 3,895 - (16,445) (12,550)
Total revenues 165,887 1,030 (16,445) 150,472
Benefits and expenses:
Insurance policy benefits and change
in future policy benefits 3,079 - - 3,079
Interest credited to account
balances 81,796 118 (193) 81,721
Change in fair value of embedded
derivatives 19,706 - (19,706) -
Interest expense on General Agency
Commission and Servicing Agreement - - - -
Interest expense on notes payable 4,053 - - 4,053
Interest expense on subordinated
debentures 4,131 - - 4,131
Interest expense on amounts due
under repurchase agreements 4,455 - - 4,455
Amortization of deferred policy
acquisition costs 21,004 351 (621) 20,734
Other operating costs and expenses 9,370 - 9,370
Total benefits and expenses 147,594 469 (20,520) 127,543
Income before income taxes and minority
interest 18,293 561 4,075 22,929
Income tax expense 7,224 (692) 1,758 8,290
Income before minority interest 11,069 1,253 2,317 14,639
Minority Interest - - - -
Net income $11,069 $1,253 $2,317 $14,639
Earnings per common share $0.26 $0.35
Earnings per common share - assuming
dilution $0.24 $0.32
(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 FIN 46, dealing with the consolidation of
variable interest entities, the impact of the establishment
of a state income tax contingency liability, and the impact of
FAS 133, dealing with market value changes in 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.
