American National Group Inc. quarterly report, Q2 FY2022

Business Context and Reporting Period

The filing is American Equity Investment Life Holding Company’s unaudited Form 10-Q for the quarter and six months ended June 30, 2022. The requested metadata identifies American National Group Inc., but the filing’s registrant is American Equity Investment Life Holding Company. The company primarily sells fixed and fixed-index deferred annuities through independent marketing organizations, agents, banks and broker-dealers.

Management continued implementing its “AEL 2.0” strategy, emphasizing private-asset investment management, reinsurance, capital efficiency and increased fee-like earnings.

Key Financial Metrics

Metric	Three Months Ended June 30, 2022	Six Months Ended June 30, 2022
Total revenue	$121.4 million	$269.2 million
Net income	$360.6 million	$926.8 million
Net income available to common stockholders	$349.7 million	$905.0 million
Diluted earnings per common share	$3.74	$9.46
Non-GAAP operating income available to common stockholders	$91.1 million	$181.0 million
Net cash provided by operating activities	Not separately provided	$312.4 million

Net investment income was $592.3 million for the quarter and $1.16 billion for the six months, up 19% and 16%, respectively, from the comparable 2021 periods.
The aggregate investment spread increased to 2.64% for the quarter and 2.58% for the six months, compared with 1.95% and 1.97% in 2021.
Operating cash flow declined from $624.2 million in the first six months of 2021 to $312.4 million in 2022. Investing activities used $2.64 billion and financing activities used $898.9 million.
Cash and cash equivalents were $1.29 billion at June 30, 2022, compared with $4.51 billion at December 31, 2021.
Total assets were $71.66 billion and stockholders’ equity was $3.88 billion at June 30, 2022.
Notes payable were $496.6 million, consisting principally of $500 million of 5.0% senior notes due 2027. Subordinated debentures were $78.6 million.
The company had $300 million of FHLB funding agreements outstanding, collateralized by approximately $1.3 billion of fixed maturity securities.
The fixed maturity portfolio was $45.32 billion, or 83.1% of investments; 98.1% was investment grade based on the disclosed ratings presentation.

Material Changes Versus Prior Comparable Period

Net income available to common stockholders increased from a loss of $65.6 million to $349.7 million in the second quarter and from $206.2 million to $905.0 million for the six-month period.
Reported results were materially affected by fair-value changes. The six-month change in fair value of derivatives was a loss of $983.7 million versus a gain of $897.2 million in 2021, while the change in fair value of embedded derivatives was a loss of $2.28 billion versus a loss of $8.7 million.
Interest-sensitive and index product benefits declined 71% for the quarter and 53% for the six months, primarily because of lower index credits. Lifetime income benefit rider expenses increased.
Non-GAAP operating income declined 3% for the quarter to $91.1 million but increased 34% for the six months to $181.0 million.
Net annuity deposits after coinsurance fell to $565.4 million for the quarter and $1.25 billion for the six months, compared with $1.18 billion and $3.61 billion, respectively, in 2021. Management attributed the decline primarily to reduced multi-year fixed-rate annuity sales and disciplined fixed-index annuity pricing.
Investment assets declined from $60.38 billion at December 31, 2021 to $54.54 billion at June 30, 2022, while mortgage loans increased to $6.23 billion from $5.69 billion.
Accumulated other comprehensive income changed from income of $1.85 billion at year-end 2021 to a loss of $1.39 billion, primarily reflecting a $3.24 billion six-month comprehensive loss from unrealized investment losses.
The company repurchased 9.4 million common shares during the first six months at an average price of $39.20; approximately $367 million remained under the repurchase program at June 30.
Brookfield purchased 6.775 million shares in January 2022 at $37.33 per share, increasing its combined ownership to approximately 16%.

Guidance, Outlook, Risks and Unusual Items

Management expects other operating costs and expenses to settle around $60 million per quarter while AEL 2.0 is implemented.
The company expects to increase private-asset allocations, expand reinsured liabilities and develop a more capital-light, fee-like earnings model. Approximately $9.1 billion, or 16.6% of the investment portfolio, consisted of private assets as of June 20, 2022.
Management stated that insurance subsidiaries generally have adequate cash flows and that the parent expects sufficient resources for current and reasonably foreseeable obligations. American Equity Life could distribute up to $407.9 million in 2022 without prior Iowa Insurance Commissioner approval, subject to statutory requirements.
Interest-rate risk is significant. A modeled 10% increase in market interest rates, described as 32 basis points from June 30 levels, would reduce fixed maturity securities’ fair value by approximately $1.07 billion and stockholders’ equity by approximately $384.6 million after specified adjustments.
Fixed maturity securities had $3.67 billion of net unrealized losses at June 30, 2022, compared with $112.4 million at December 31, 2021. Management attributed the increase primarily to higher Treasury yields and wider credit spreads.
The company recognized $12.9 million of credit losses on investments during the first six months, and mortgage-loan non-accrual loans increased to 46 from 13 at year-end 2021. No mortgage loans were classified as troubled debt restructurings.
The company entered into a five-year, $300 million unsecured delayed-draw term loan in February 2022 and borrowed the full amount on July 6, 2022, after the reporting date. The loan matures in February 2027 and bears floating-rate interest.
Adoption of the long-duration insurance and investment contract accounting standard is required January 1, 2023. Management expects a material impact and currently estimates a $1.5 billion to $2.0 billion increase in stockholders’ equity at the January 1, 2021 transition date, largely in AOCI.
Key risks include interest-rate and spread volatility, investment and credit losses, liquidity needs, option costs, counterparty and reinsurance risk, regulatory capital restrictions, litigation and examinations, cybersecurity, climate-related regulation and the ability to maintain insurer financial-strength ratings.

Important Facts for Investors to Verify

Confirm the correct registrant and ticker because the provided metadata names American National Group, while the filing is for American Equity Investment Life Holding Company and reports ticker AEL.
Reconcile GAAP net income with non-GAAP operating income and assess the recurring earnings impact of derivative and embedded-derivative fair-value changes.
Review the quality, duration, liquidity and unrealized-loss exposure of the $45.3 billion fixed maturity portfolio, including securities on the watch list.
Evaluate the effect of the North End Re reinsurance arrangements on annuity deposits, policyholder balances, capital requirements and future fee-like earnings.
Assess liquidity after the substantial decline in cash, the $300 million FHLB funding agreements, the July 2022 term-loan borrowing and ongoing share repurchases.
Monitor mortgage-loan delinquencies, non-accrual loans, allowance increases and the growth of residential and agricultural mortgage exposure.
Verify the eventual transition adjustment and operating effects of the long-duration insurance accounting standard effective January 1, 2023.