American National Group Inc. — Form 10-Q Summary
Business context and reporting period
The filing covers the three months ended March 31, 2024. The reported financial statements are principally those of American Equity Investment Life Holding Company, the predecessor entity that changed its name to American National Group Inc. following post-quarter mergers and reincorporation. The company operates primarily as a seller of fixed-rate and fixed-index deferred annuities through independent marketing organizations, banks, broker-dealers and agents.
The results reflect the company’s standalone operations before the May 2024 combination with American National Group, LLC. The company has one reportable business segment focused on fixed-rate and fixed-index annuities.
Key financial metrics
| Metric | Q1 2024 | Q1 2023 / prior period |
|---|---|---|
| Total revenues | $990.0 million | $662.5 million |
| Income before income taxes | $435.9 million | Loss of $191.9 million |
| Net income | $342.6 million | Loss of $155.9 million |
| Net income available to common stockholders | $332.1 million | Loss of $166.9 million |
| Diluted earnings per common share | $4.13 | $(2.00) |
| Net cash provided by operating activities | $1.07 billion | $865.0 million |
| Net cash provided by investing activities | $3.34 billion | $804.5 million |
| Net cash used in financing activities | $685.0 million | $811.4 million |
| Cash and cash equivalents at March 31 | $13.50 billion | $2.78 billion at March 31, 2023 |
Total revenues increased 49.6% year over year. Based on reported total revenues, pretax margin was approximately 44.0% and net margin was approximately 34.6%; these margins were significantly affected by changes in derivative and market risk benefit valuations and should not be viewed as recurring operating margins.
- Annuity product charges increased 53% to $95.6 million.
- Net investment income decreased 1% to $554.7 million.
- Change in fair value of derivatives produced revenue of $409.8 million versus $45.9 million in the prior-year quarter.
- Net realized losses on investments increased to $94.1 million from $27.8 million.
- Interest-sensitive and index product benefits increased to $304.2 million from $57.9 million, primarily due to higher index credits.
- Market risk benefit results improved to a $138.8 million gain from a $183.7 million loss.
- The aggregate investment spread declined to 2.49% from 2.67%; dollar investment spread declined to $320.9 million from $340.5 million.
- Non-GAAP operating income available to common stockholders increased to $143.6 million from $124.3 million.
Financial position, debt and liquidity
- Total assets were $80.78 billion at March 31, 2024, compared with $79.92 billion at December 31, 2023.
- Total investments were $45.00 billion, including $32.04 billion of fixed maturity securities and $7.28 billion of mortgage loans.
- Total liabilities were $77.61 billion and stockholders’ equity was $3.17 billion, including $3.15 billion attributable to the company’s stockholders.
- Policy benefit reserves were $60.98 billion, and policyholder account balances were approximately $61.19 billion.
- Debt consisted primarily of $500 million of 5.0% senior notes due 2027 and a term loan with $286.9 million of principal outstanding, resulting in notes and loan payable of $783.8 million. Subordinated debentures were $79.2 million.
- Parent-company cash and cash equivalents were $964.5 million. Management stated that expected subsidiary dividends and other permitted payments should provide adequate liquidity for current and reasonably foreseeable obligations.
- Up to $373.1 million could be distributed by American Equity Life in 2024 without prior approval of the Iowa Insurance Commissioner, subject to statutory and rating considerations.
- Fixed maturity securities were 97% investment grade by NAIC designation. The portfolio had $4.13 billion of gross unrealized losses, substantially related to interest-rate movements; approximately 98% of unrealized losses were on investment-grade securities.
Material changes versus the prior comparable period
- The company moved from a substantial Q1 2023 net loss to significant GAAP profitability in Q1 2024, primarily because of favorable derivative and market risk benefit valuation changes.
- Net annuity deposits after coinsurance increased 145% to $1.80 billion. Deposits before coinsurance increased 71% to $2.35 billion, driven by fixed-index annuity and multi-year fixed-rate annuity sales.
- Average annuity account balances, net of ceded liabilities, increased modestly to $47.4 billion from $47.3 billion.
- Investment spread narrowed as average yield on invested assets declined to 4.42% from 4.48% while the cost of money increased to 1.93% from 1.81%, excluding the benefit of over-hedging.
- Cash increased by $3.72 billion during the quarter, principally from operating and investing cash flows, partially offset by policyholder withdrawals, coinsurance activity, debt repayment and preferred dividends.
- Mortgage loans decreased to $7.28 billion from $7.54 billion. Residential loans included $112.4 million more than 90 days past due, compared with $90.1 million at December 31, 2023; commercial loans had no loans past due.
- No common stock was repurchased during the quarter. Approximately $276 million remained under the share repurchase program at March 31, 2024.
Guidance, outlook, risks and unusual items
The filing does not provide formal earnings or revenue guidance. Management emphasized that interim results are not necessarily indicative of full-year performance and that GAAP earnings can fluctuate materially with interest rates, equity markets, volatility, policyholder behavior and derivative valuations.
- Management expects demographic demand for retirement income and principal protection to support fixed-index and fixed-rate annuity sales.
- The company can generally reduce crediting rates, caps, participation rates or asset fees to manage spreads, subject to contractual minimums. Approximately 95% of annuity liabilities were subject to annual adjustment at management’s discretion, and approximately 15% were at minimum guaranteed rates.
- A 100-basis-point increase in discount rates used for fixed-index annuity embedded derivatives would reduce their fair value by approximately $360.4 million; a 100-basis-point decrease would increase fair value by approximately $413.6 million.
- Key risks include interest-rate and market volatility, investment and credit losses, liquidity and surrender activity, option-cost increases, counterparty and reinsurance risk, regulatory capital requirements, rating changes, operational or cybersecurity failures, litigation and regulatory inquiries, and the ability of subsidiaries to remit dividends.
- The May 2, 2024 Brookfield Reinsurance merger converted each common share into $38.85 in cash plus 0.45464 Brookfield Asset Management Class A limited voting shares. Initial purchase-price accounting was not complete as of the filing date.
- On May 7, 2024, the company merged with American National Group, LLC, reincorporated in Delaware and changed its name to American National Group Inc. The filing identifies integration challenges, including systems, processes and corporate culture, as a new risk.
- Subsequent to quarter-end, the board declared a $0.38-per-share common dividend, payable April 29, 2024, and successor-company preferred dividends payable June 1, 2024.
Most important facts for an investor to verify
- Reconcile Q1 GAAP earnings with the $143.6 million non-GAAP operating income, focusing on derivative, embedded derivative and market risk benefit adjustments.
- Review the post-quarter Brookfield and American National Group transactions, including ownership, consideration, purchase accounting and the effect on future consolidated results.
- Assess the sustainability of annuity sales growth, investment spreads and policyholder surrender and withdrawal behavior.
- Evaluate exposure to interest-rate changes, including the $4.13 billion unrealized loss position and the sensitivity of embedded derivatives.
- Monitor investment credit quality, mortgage-loan delinquencies, watch-list assets, private-asset valuations and unfunded commitments.
- Confirm insurance-subsidiary statutory capital, dividend capacity, rating-agency actions and restrictions on upstreaming cash to the holding company.
- Review the integration and execution risks associated with combining the predecessor company with American National Group, LLC.