American National Group Inc. annual report, FY2023

Filing Overview

Registrant and period: The supplied filing is American Equity Investment Life Holding Company’s Form 10-K for the fiscal year ended December 31, 2023, not American National Group Inc. The filing reports annual results rather than standalone fourth-quarter results.

The company operates one segment focused on fixed index and fixed rate annuities, distributed primarily through independent marketing organizations, agents, banks, broker-dealers and registered investment advisers.

Financial Performance and Position

Metric	2023	2022	Change
Annuity deposits before coinsurance	$7.61 billion	$3.34 billion	Up 128%
Net annuity deposits after coinsurance	$5.22 billion	$2.37 billion	Up 121%
Total revenues	$2.84 billion	$1.41 billion	Up 101%
Net investment income	$2.27 billion	$2.31 billion	Down 2%
Income before income taxes	$297.1 million	$2.43 billion	Down 88%
Net income	$211.9 million	$1.92 billion	Down 89%
Net income available to common stockholders	$166.9 million	$1.88 billion	Down 91%
Diluted earnings per share	$2.06	$20.50	Down 90%
Non-GAAP operating income available to common stockholders	$607.1 million	$391.3 million	Up 55%
Investment spread	2.65%	2.63%	Up 2 basis points

Reported earnings were heavily affected by changes in fair value of derivatives and embedded derivatives, investment losses and other market-sensitive items. Management’s non-GAAP operating income increased substantially, primarily because 2023 assumption updates were favorable compared with unfavorable updates in 2022. The filing states that non-GAAP operating income is not a substitute for GAAP net income.

Average yield on invested assets was 4.55%, compared with 4.34% in 2022.
Aggregate cost of money increased to 1.90% from 1.71%.
Net investment income declined despite higher yields because average invested assets decreased 7% to $49.5 billion.
Annuity account values, net of coinsurance, were $47.6 billion at year-end 2023, broadly stable versus $47.5 billion at year-end 2022.
Policy benefit reserves increased to $60.9 billion from $58.8 billion.
Total assets increased to $79.9 billion from $73.2 billion; total stockholders’ equity increased to $3.05 billion from $2.37 billion.
Market risk benefit liabilities increased to $3.15 billion from $2.46 billion, while fixed index annuity embedded derivative liabilities were $5.18 billion, net of coinsurance.

Cash Flow, Liquidity and Capital

Net cash provided by operating activities was $3.94 billion, compared with $2.04 billion in 2022.
Net cash provided by investing activities was $4.49 billion, compared with cash used of $2.45 billion in 2022, principally reflecting investment sales, maturities and repayments exceeding acquisitions.
Cash and cash equivalents increased to $9.77 billion from $1.92 billion, including $7.4 billion referenced by management as cash and cash equivalents held for liquidity and investment opportunities.
Parent-company cash and cash equivalents were $557.7 million. Management expects parent-company liquidity to be adequate for current and reasonably foreseeable 2024 obligations.
Insurance operations generated net cash outflows from annuity deposits and policyholder payments of approximately $0.6 billion, an improvement from $1.9 billion in 2022.
Approximately 86% of annuity liabilities, or $41.1 billion, were subject to surrender penalties at year-end, with a weighted-average remaining surrender charge period of 4.6 years and average remaining surrender charge of 7.9%.
Debt consisted primarily of $500 million of 5.0% senior notes due 2027 and a $300 million term loan due 2027. Notes and loan payable totaled $785.4 million at year-end.
American Equity Life’s statutory capital and surplus was $3.73 billion, and its risk-based capital ratio was 380%, compared with 415% in 2022. Up to $373.1 million could be distributed by American Equity Life in 2024 without prior regulatory approval; a $320 million dividend was paid to the parent in January 2024.
The company repurchased 7.3 million common shares during 2023 and had approximately $276 million remaining under its repurchase authorization at year-end. No common dividend was paid in 2023.

Material Changes Versus 2022

Record annuity sales increased 128%, led by fixed index annuity deposits of $7.03 billion versus $3.17 billion.
Sales benefited from increased demand for guaranteed lifetime income products and higher multi-year guaranteed annuity sales.
Privately sourced assets grew to 25.8% of the investment portfolio from 22.0%, supporting the company’s AEL 2.0 investment strategy.
Fee-generating reinsured balances reached $11.5 billion, producing approximately $100 million of related non-GAAP operating revenues during 2023.
Net realized losses on investments increased to $99.2 million from $47.8 million, including $47.5 million of credit losses, primarily related to the regional banking sector.
Change in fair value of derivatives improved to a $259.0 million gain from a $1.14 billion loss, while change in fair value of embedded derivatives was a $1.14 billion expense versus a $2.35 billion benefit in 2022.
Other operating costs and expenses increased 26% to $301.6 million, partly because of strategic incentive compensation and merger-related expenses.
The company adopted long-duration insurance contract accounting guidance, or LDTI, effective January 1, 2023, with prior periods recast.

Outlook, Transactions and Key Risks

Management continues to execute its “AEL 2.0” strategy, emphasizing annuity origination, private-asset investment management, reinsurance and capital efficiency. The filing does not provide formal numerical earnings or sales guidance.

Brookfield Reinsurance agreed to acquire the outstanding common shares it does not already own in a transaction valued at approximately $4.3 billion. Consideration is structured as $38.85 per share in cash plus Brookfield Asset Management shares, with aggregate value targeted between $54.00 and $56.50 per AEL share.
Shareholders approved the transaction in November 2023. Closing was expected in the first half of 2024 but remained subject to insurance regulatory approvals and other customary conditions.
The merger agreement imposes restrictions on certain investments, acquisitions, indebtedness, capital expenditures and other business activities before closing. Failure to close could result in costs, disruption, reputational effects and a potential decline in the company’s share price.
American Equity remains liable to policyholders for reinsured obligations if reinsurers fail to perform. Reinsurance counterparty, collateral and regulatory-credit risks are material considerations.
Principal financial risks include interest-rate and equity-market volatility, surrender activity, option costs, investment credit losses, commercial and residential mortgage performance, liquidity needs, rating downgrades and changes in statutory capital or reserve requirements.
Fair-value estimates for fixed index annuity embedded derivatives and market risk benefits are highly sensitive to discount rates, option costs, lapse rates, mortality, policyholder utilization and other behavioral assumptions.
The filing states that no cybersecurity risks, including prior incidents, had materially affected or were reasonably likely to materially affect the company as of the reporting date.
Management and Ernst & Young concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023. Ernst & Young issued unqualified audit opinions.

Investor Verification Checklist

Confirm the intended issuer: the supplied filing is for American Equity Investment Life Holding Company, not American National Group Inc.
Verify the status, regulatory approvals, consideration mechanics and closing date of the Brookfield Reinsurance merger.
Reconcile GAAP net income of $166.9 million available to common stockholders with non-GAAP operating income of $607.1 million, including all adjustments.
Assess the sustainability of the 2.65% investment spread as crediting costs, option costs, interest rates and surrender activity change.
Review the quality, liquidity and concentration of the $48.2 billion investment portfolio, including the 25.8% private-asset allocation and mortgage loan delinquencies.
Evaluate reinsurance counterparty exposure, collateral arrangements, remaining liabilities and the effect of reducing North End Re’s quota share on new flow policies to zero.
Review statutory capital, the 380% RBC ratio, dividend capacity and the effect of future dividends or merger-related actions on insurer financial strength ratings.
Examine valuation sensitivities for embedded derivatives and market risk benefits, particularly the effects of discount rates, option budgets, lapse rates and rider utilization.