American Equity Reports Third Quarter 2012 Results

  American Equity Reports Third Quarter 2012 Results

Business Wire

WEST DES MOINES, Iowa -- November 05, 2012

American Equity Investment Life Holding Company (NYSE: AEL), a leading
underwriter of index and fixed rate annuities, today reported third quarter
2012 operating income^1 of $22.2 million, or $0.34 per diluted common share,
compared to third quarter 2011 operating income of $41.5 million, or $0.67 per
diluted common share. Operating income for the third quarter of 2012 was
impacted by revisions to assumptions utilized in the determination of deferred
policy acquisition costs, deferred sales inducements and the liability for
future benefits to be paid under the living income benefit rider which reduced
operating income by $4.9 million or $0.07 per diluted common share. Operating
income for the third quarter of 2011 was impacted by similar assumption
revisions which increased operating income by $12.5 million or $0.20 per
diluted common share.

Highlights for the third quarter of 2012 include:

  *Annuity sales for the third quarter of 2012 were $982 million (before
    coinsurance) compared to second quarter 2012 annuity sales of $917 million
    (before coinsurance).
  *Total invested assets grew to $26.0 billion (amortized cost basis = $23.4
    billion).
  *Investment spread for the third quarter of 2012 was 2.62% compared to
    2.70% for the second quarter of 2012.
  *Estimated risk-based capital (RBC) ratio at September 30, 2012 based upon
    trailing twelve months annuity sales remained above target at 336%.

SPREAD RESULT IMPACTED BY CASH

American Equity’s investment spread for the third quarter of 2012 continued to
be affected by the impact of holding excess cash during the quarter. The
average excess cash balance for the third quarter of 2012 was $1.7 billion
compared to $1.4 billion and $759 million for the second and first quarters of
2012. The foregone investment income from holding such excess cash balance is
estimated at 0.29% for the third quarter of 2012 compared to 0.27% and 0.14%
for the second and first quarters of 2012. The excess cash balance is
primarily attributable to calls of U.S. Government agency and other securities
which totaled $3.8 billion in the first nine months of 2012 with an average
yield of 5.31%. The high level of excess cash may persist for several more
quarters as the Company holds $932 million of U.S. Government agency
securities with coupon rates of 4.00% or higher that are expected to be called
in the fourth quarter of 2012 and another $949 million of such securities that
are callable in the first six months of 2013.

The adjusted investment spread of 2.86% for the third quarter of 2012 was
0.09% less than the adjusted investment spread of 2.95% for the second quarter
of 2012. Other items accounting for the difference in reported investment
spread and adjusted investment spread included a 0.04% benefit from additional
prepayment and fee income on commercial real estate mortgages, residential
mortgage backed securities and corporate bonds and a 0.01% benefit from over
hedging index credits to index annuity policyholders.

The average yield on invested assets including the excess cash balance was
5.17% for the third quarter of 2012 compared to 5.34% and 5.61% in the second
and first quarters of 2012. Investment yield continues to decline due to the
increasing level of excess cash and as proceeds from securities called for
redemption and new premiums are invested at rates below the portfolio rate.
The average yield on fixed income securities purchased and commercial mortgage
loans funded in the third quarter of 2012 was 4.02% compared to an average
yield of 4.48% for fixed income securities purchased and commercial mortgage
loans funded in the first six months of 2012.

The decrease in investment yield was partially offset by a reduction in the
aggregate cost of money on annuity liabilities to 2.55% in the third quarter
of 2012 compared to 2.64% and 2.68% in the second and first quarters of 2012.
The reduction in the cost of money reflects management’s actions to maintain
target spreads in the declining investment yield environment by adjusting new
money and renewal crediting rates to policyholders.

John M. Matovina, Chief Executive Officer and President commented: “Meeting
spread targets represents an ongoing challenge for our industry as
governmental agencies encourage extremely low interest rates and demand for
fixed income securities remains very high. We are committed to restoring our
investment spread to the 3.00% target through the investment of redemption
proceeds from calls of government agency securities and new annuity deposits
into high quality investments and the appropriate management of crediting
rates to policyholders. As reported in our Financial Supplement for this
quarter, we have significant flexibility to adjust crediting rates. Rate
adjustments already implemented should lower our cost of money by 0.20% -
0.25% over the next twelve months and we intend to make further adjustments in
2013. In response to the low interest rate environment, we have expanded the
asset classes in our investment portfolio to include commercial
mortgage-backed securities and other asset-backed securities with investment
grade credit quality. We are considering further diversification into other
asset classes, but remain committed to maintaining a high quality investment
portfolio with low credit risk.”

DAC UNLOCKING

During the third quarter of 2012 American Equity revised several assumptions
utilized in the determination of deferred policy acquisition costs and
deferred sales inducements. Two of the more significant assumption changes
were for investment spreads and surrender charge income. This unlocking
increased amortization of deferred sales inducements and deferred policy
acquisition costs used in the determination of third quarter 2012 operating
income by $2.4 million and $7.3 million, respectively and reduced third
quarter 2012 operating income by $6.3 million or $0.09 per diluted common
share.

Similarly, during the third quarter of 2012, American Equity revised
assumptions utilized in the determination of the liability for future benefits
to be paid under the living income benefit rider to be consistent with the
assumption changes for the determination of deferred policy acquisition costs
and deferred sales inducements. The living income benefit rider assumption
changes decreased the liability and decreased interest sensitive and index
products benefits by $2.2 million and increased third quarter 2012 operating
income by $1.4 million or $0.02 per diluted common share.

SALES OUTLOOK

The pace of sales of new annuities picked up in the third quarter of 2012,
with total sales for the quarter at $982 million compared to $917 million in
the second quarter of 2012. David J. Noble, founder and Executive Chairman
commented: “As we reported in our last release, we anticipated that the
competitive environment would be more favorable to us in the second half of
2012 and that turned out to be true in the third quarter. While the fourth
quarter is off to a good start, we remain committed to our disciplined
approach to spread and product pricing management, and anticipate making
adjustments to our rates and perhaps other product terms before the end of the
quarter that might weaken our competitive posture unless our competitors make
similar adjustments. Growth in our earnings power is not completely dependent
on sales. Whether the pace of sales accelerates or slows from current levels,
we have significant earnings capacity from our $26 billion of invested assets,
and should continue to grow assets in the quarters ahead.”

Noble continued, “In a financial environment characterized by low levels of
current income and volatile equity markets, our products offer an attractive
alternative for the retirement savings market. Our index annuities guarantee
principal and a minimum rate of return, offering ‘sleep’ insurance during
times of market volatility. In strong equity markets, our policyholders can
capture some of the upside and earn a higher return than competing safe money
fixed income products. And with our lifetime income benefit rider,
policyholders can receive a guaranteed income for life even if their
underlying contract value is fully paid out. We believe American Equity is
well positioned to capitalize on growing demand for guaranteed retirement
income products. With attractive products that are right for our times, and
the established strength of an industry leader with over $26 billion of
invested assets, we are optimistic about our growth opportunities for the
years ahead.”

LITIGATION RESERVE

Based upon developments in mediation discussions concerning potential
settlement terms of a purported class action lawsuit, American Equity
established an estimated litigation liability of $17.5 million during the
third quarter of 2012 ($9.6 million after offsets for income taxes and
adjustments to deferred policy acquisition costs and deferred sales
inducements). While American Equity denies liability for the claims asserted
by the purported class, it believes settlement of this matter is in the best
interests of the company, its policyholders, agents, and shareholders.

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 2012
earnings on Tuesday, November 6, 2012, at 10 a.m. CST. 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 800-299-6183, passcode 44622167
(international callers, please dial 1-617-801-9713). An audio replay will be
available via telephone through November 27, 2012 at 1-888-286-8010, passcode
89388932 (international callers will need to dial 1-617-801-6888).

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 fixed
annuity and life insurance products, with a primary emphasis on the sale of
index and fixed rate annuities. American Equity Investment Life Holding
Company, a New York Stock Exchange Listed company (NYSE: AEL), is
headquartered in West Des Moines, Iowa. For more information, please visit
www.american-equity.com.

^1 In addition to net income (loss), 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 reconciliations of net income to
operating income and descriptions of reconciling items. See the Company’s
Quarterly Report on Form 10-Q for a more complete discussion of the
reconciling items and their impact on net income (loss) for the periods
presented. Net loss was $7.8 million for the third quarter of 2012, compared
to $13.1 million for the same period in 2011.

American Equity Investment Life Holding Company
                                                   
Exhibit 99.1
Net Income/Operating Income (Unaudited)
                                                      
                                                      
                            Three Months Ended        Nine Months Ended
                            September 30,             September 30,
                            2012        2011         2012         2011
                            (Dollars in thousands, except per share data)
Revenues:
Traditional life and
accident and health         $ 3,300      $ 3,126      $  9,770      $ 9,331
insurance premiums
Annuity product charges     23,875       20,405       65,176        57,259
Net investment income       318,594      305,502      965,763       894,508
Change in fair value of     161,090      (333,621 )   269,404       (206,997 )
derivatives
Net realized losses on
investments, excluding
other than temporary        (1,238   )   (17,292  )   (7,925    )   (19,339  )
impairment ("OTTI")
losses
OTTI losses on
investments:
Total OTTI losses           —            (5,133   )   (2,156    )   (10,346  )
Portion of OTTI losses
recognized from other       (1,686   )   (3,758   )   (3,389    )   (7,345   )
comprehensive income
Net OTTI losses             (1,686   )   (8,891   )   (5,545    )   (17,691  )
recognized in operations
Total revenues              503,935     (30,771  )   1,296,643    717,071  
                                                                    
Benefits and expenses:
Insurance policy benefits
and change in future        1,865        1,888        6,232         6,282
policy benefits
Interest sensitive and
index product benefits      246,105      223,232      527,961       621,317
(a) (d)
Amortization of deferred    7,709        (28,065  )   50,359        22,892
sales inducements (c)
Change in fair value of     188,201      (205,565 )   466,278       (138,225 )
embedded derivatives
Interest expense on notes   7,141        7,984        21,208        23,723
payable
Interest expense on         3,235        3,488        10,384        10,435
subordinated debentures
Interest expense on
amounts due under           —            —            —             5
repurchase agreements
Amortization of deferred
policy acquisition costs    25,954       (28,930  )   105,086       65,155
(c)
Other operating costs and   36,170      15,903      76,785       50,011   
expenses (b)
Total benefits and          516,380     (10,065  )   1,264,293    661,595  
expenses
Income (loss) before        (12,445  )   (20,706  )   32,350        55,476
income taxes
Income tax expense          (4,616   )   (7,638   )   10,949       18,927   
(benefit)
Net income (loss) (a) (b)   (7,829   )   (13,068  )   21,401        36,549
(c) (d)
Net realized losses and
net OTTI losses on          1,415        8,988        5,823         9,849
investments, net of
offsets
Net effect of derivatives
and other index annuity,    19,000       45,544       42,478        53,280
net of offsets
Litigation reserve, net     9,580       —           9,580        —        
of offsets
Operating income (a) (b)    $ 22,166    $ 41,464    $  79,282    $ 99,678 
(d) (e)
                                                                    
Earnings (loss) per         $ (0.13  )   $ (0.22  )   $  0.35       $ 0.62
common share
Earnings (loss) per
common share - assuming     $ (0.13  )   $ (0.22  )   $  0.34       $ 0.59
dilution (a) (b) (c) (d)
Operating income per        $ 0.35       $ 0.70       $  1.31       $ 1.70
common share
Operating income per
common share - assuming     $ 0.34       $ 0.67       $  1.22       $ 1.62
dilution (a) (b) (d) (e)
                                                                    
Weighted average common
shares outstanding (in
thousands):
Earnings (loss) per         62,504       59,596       60,723        59,429
common share
Earnings (loss) per
common share - assuming     65,262       62,698       65,232        62,783
dilution
                                                                             

              Nine months ended September 30, 2011 includes an adjustment
              recorded in the first quarter 2011 to single premium immediate
              annuity reserves which reduced interest sensitive and index
    (a)  product benefits by $4.2 million, increased net income and
              operating income by $2.7 million and increased earnings per
              common share - assuming dilution and operating income per common
              share - assuming dilution by $0.04 per share.
              
        (b)   See note (b) under table below.
              
        (c)   See note (c) under table below.
              
        (d)   See note (d) under table below.
              
        (e)   See note (e) under table below.
              

American Equity
Investment Life                                                 
Holding Company
                                                                    
Operating Income
Three months ended
September 30, 2012
(Unaudited)
                                                                    
                                    Adjustments
                                    Realized       Derivatives
                                    Losses          and
                                    and Other       Other Index     Operating
                      As Reported   Adjustments     Annuity         Income (a)
                                                                    (e)
                      (Dollars in thousands, except per share data)
Revenues:
Traditional life
and accident and      $  3,300      $  —            $  —            $  3,300
health insurance
premiums
Annuity product       23,875        —               —               23,875
charges
Net investment        318,594       —               —               318,594
income
Change in fair
value of              161,090       —               (96,232    )    64,858
derivatives
Net realized losses
on investments,
excluding other       (1,238    )   1,238           —               —
than temporary
impairment ("OTTI")
losses
Net OTTI losses
recognized in         (1,686    )   1,686          —              —
operations
Total revenues        503,935      2,924          (96,232    )    410,627
                                                                    
Benefits and
expenses:
Insurance policy
benefits and change   1,865         —               —               1,865
in future policy
benefits
Interest sensitive
and index product     246,105       —               —               246,105
benefits (d)
Amortization of
deferred sales        7,709         1,306           26,972          35,987
inducements (c)
Change in fair
value of embedded     188,201       —               (186,362   )    1,839
derivatives
Interest expense on   7,141         —               —               7,141
notes payable
Interest expense on
subordinated          3,235         —               —               3,235
debentures
Interest expense on
amounts due under     —             —               —               —
repurchase
agreements
Amortization of
deferred policy       25,954        2,077           33,559          61,590
acquisition costs
(c)
Other operating
costs and expenses    36,170       (17,532    )    —              18,638
(b)
Total benefits and    516,380      (14,149    )    (125,831   )    376,400
expenses
Income (loss)         (12,445   )   17,073          29,599          34,227
before income taxes
Income tax expense    (4,616    )   6,078          10,599         12,061
(benefit)
Net income (loss)     $  (7,829 )   $  10,995      $  19,000      $  22,166
(b) (c) (d)
                                                                    
Earnings (loss) per   $  (0.13  )                                   $  0.35
common share
Earnings (loss) per
common share -        $  (0.13  )                                   $  0.34
assuming dilution
(b) (c) (d)
                                                                       

              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
    (a)  net OTTI losses recognized in operations, litigation reserve and
              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.
              
              Other operating costs and expenses for the three and nine months
              ended September 30, 2012 include $2.2 million and $7.2 million,
              respectively, of expense related to the impact of the
              prospective adoption (effective January 1, 2012) of revised
              accounting guidance for deferred policy acquisition costs. This
              change, including the impact on related amortization expense,
              increased the net loss and decreased operating income for the
        (b)   three months ended September 30, 2012 by $1.5 million, decreased
              net income and operating income for the nine months ended
              September 30, 2012 by $4.6 million, increased loss per common
              share - assuming dilution and decreased operating income per
              common share - assuming dilution for the three months ended
              September 30, 2012 by $0.02 per share, and decreased earnings
              per common share - assuming dilution and operating income per
              common share - assuming dilution for the nine months ended
              September 30, 2012 by $0.07 per share.
              
              Three and nine months ended September 30, 2012 include expense
              from unlocking which decreased amortization of deferred sales
              inducements by $0.2 million and increased amortization of
              deferred policy acquisition costs by $3.7 million, increased the
        (c)   net loss for the three months ended September 30, 2012 and
              decreased net income for the nine months ended September 30,
              2012 by $2.2 million and increased loss per common share -
              assuming dilution for the three months ended September 30, 2012
              and decreased earnings per common share - assuming dilution for
              the nine months ended September 30, 2012 by $0.03 per share.
              
              Three and nine months ended September 30, 2011 include benefit
              from unlocking which reduced amortization of deferred sales
              inducements by $5.0 million and amortization of deferred policy
              acquisition costs by $9.1 million, reduced the net loss for the
              three months ended September 30, 2011 and increased net income
              for the nine months ended September 30, 2011 by $9.1 million,
              reduced loss per common share - assuming dilution for the three
              months ended September 30, 2011 by $0.15 per share, and
              increased earnings per common share - assuming dilution for the
              nine months ended September 30, 2011 by $0.14 per share.
              
              Three and nine months ended September 30, 2012 include a benefit
              from the revision of assumptions used in determining reserves
              held for living income benefit riders consistent with unlocking
              for deferred policy acquisition costs and deferred sales
              inducements. The impact decreased interest sensitive and index
              product benefits for the three and nine months ended September
              30, 2012 by $2.2 million; reduced the net loss for the three
        (d)   months ended September 30, 2012, increased net income for the
              nine months ended September 30, 2012 and increased operating
              income for the three and nine months ended September 30, 2012 by
              $1.4 million; reduced loss per common share - assuming dilution
              for the three months ended September 30, 2012 and increased
              earnings per common share - assuming dilution for the nine
              months ended September 30, 2012 and operating income per common
              share - assuming dilution for the three months and nine months
              ended September 30, 2012 by $0.02 per share.
              
              Three and nine months ended September 30, 2012 includes expense
              from unlocking which increased amortization of deferred sales
        (e)   inducements by $2.4 million and amortization of deferred policy
              acquisition costs by $7.3 million which reduced operating income
              by $6.3 million and operating income per common share - assuming
              dilution by $0.09 per share.
              
              Three and nine months ended September 30, 2011 includes benefit
              from unlocking which reduced amortization of deferred sales
              inducements by $7.3 million and amortization of deferred policy
              acquisition costs by $12.1 million which increased operating
              income by $12.5 million and operating income per common share -
              assuming dilution by $0.20 per share.

Contact:

American Equity Investment Life Holding Company
John M. Matovina, Chief Executive Officer
515-457-1813, jmatovina@american-equity.com
or
Ted M. Johnson, Chief Financial Officer
515-457-1980, tjohnson@american-equity.com
or
Julie L. LaFollette, Director of Investor Relations
515-273-3602, jlafollette@american-equity.com
or
Debra J. Richardson, Chief Administrative Officer
515-273-3551, drichardson@american-equity.com
 
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