Business Context and Reporting Period
The supplied filing is American Equity Investment Life Holding Company’s Form 10-K for the fiscal year ended December 31, 2022, not American National Group Inc. The filing describes a single-segment insurance business focused on fixed index and fixed-rate annuities, distributed through independent marketing organizations, agents, banks, broker-dealers and registered investment advisers.
This is an annual filing rather than a standalone fourth-quarter filing. The company operates through American Equity Life, American Equity Life of New York and Eagle Life, and is licensed in all 50 states and the District of Columbia.
Key Financial Metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Net income available to common stockholders | $1.177 billion | $430.3 million | Up 174% |
| Diluted earnings per common share | $12.86 | $4.55 | Up materially |
| Non-GAAP operating income | $362.9 million | $290.5 million | Up 25% |
| Non-GAAP operating income excluding notable items | $336.4 million | $368.5 million | Down 9% |
| Annuity deposits before coinsurance ceded | $3.335 billion | $5.970 billion | Down 44% |
| Net annuity deposits after coinsurance ceded | $2.366 billion | $5.545 billion | Down 57% |
| Net investment income | $2.307 billion | $2.037 billion | Up 13% |
| Aggregate investment spread | 2.63% | 2.18% | Up 45 basis points |
| Net cash provided by operating activities | $2.044 billion | $4.233 billion | Down 52% |
| Total assets | $73.926 billion | $78.349 billion | Down 6% |
| Policy benefit reserves | $61.118 billion | $65.478 billion | Down 7% |
| Total debt and subordinated debentures | $870.8 million | $574.7 million | Increased primarily from new term loan |
Reported net income benefited substantially from fair-value movements in embedded derivatives and other market-sensitive items. Revenue included a $1.138 billion loss from the change in fair value of derivatives, while expenses included a $2.353 billion reduction from the change in fair value of embedded derivatives. These items are volatile and are not representative of recurring operating performance.
The company reported a 21.0% effective tax rate, compared with 21.4% in 2021. Stockholders’ equity fell to $3.190 billion from $6.323 billion, primarily because accumulated other comprehensive income declined by approximately $4.004 billion as rising interest rates reduced the fair value of available-for-sale fixed maturity securities.
Material Changes Versus the Prior Comparable Period
- Sales shifted toward fixed index annuities. Fixed index deposits decreased to $3.171 billion from $3.451 billion, while multi-year fixed-rate deposits fell sharply to $139.1 million from $2.453 billion.
- Net investment income increased because of higher short-term interest rates, stronger returns on partnerships and mark-to-market assets, lower average cash balances and increased private-asset allocations.
- The aggregate investment spread improved to 2.63% from 2.18%, with average investment yield increasing to 4.34% from 3.73% and aggregate cost of money increasing to 1.71% from 1.55%.
- Investment portfolio carrying value decreased to $51.325 billion from $60.377 billion. Fixed maturity securities declined to $39.805 billion from $51.306 billion, while mortgage loans, real estate investments and private assets increased.
- Private assets increased to approximately $10.977 billion, or 22.0% of the investment portfolio, from $8.015 billion, or 14.7%. The company originated approximately $5 billion of privately sourced assets during 2022, with expected returns greater than 6%.
- In October 2022, the company entered into the AeBe reinsurance transaction covering approximately $4.3 billion of in-force fixed indexed and fixed-rate annuity liabilities. The company transferred approximately $4.0 billion of cash and investments and received a $70 million closing ceding commission.
- Reinsurance-related fee-generating balances reached $9.6 billion, and the company reported more than $50 million of related revenue during 2022.
- The company issued $300 million under a new unsecured term loan maturing in 2027. It also issued 6.775 million common shares to Brookfield for net proceeds of approximately $252.9 million.
- Share repurchases accelerated: approximately 14.8 million shares were repurchased in 2022 for $566.6 million. Approximately $569 million remained under the repurchase authorization at year-end.
- Comprehensive income was negative $2.783 billion, compared with positive $119.2 million in 2021, primarily due to unrealized investment losses recorded in other comprehensive income.
Guidance, Outlook, Commentary, Risks and Unusual Items
- Management expects 2023 other operating costs and expenses to be approximately $250 million as it continues implementing the AEL 2.0 strategy.
- Management stated that the November 2022 pricing refresh positioned the company to enter 2023 with strong momentum, while emphasizing continued pricing discipline and flexibility to adjust crediting rates.
- The company estimates it could reduce its cost of money by approximately 82 basis points by lowering current crediting rates to contractual guaranteed minimums.
- Management targets an investment spread of approximately 2.60% through an eight-year reversion period and increased its long-term net investment earned-rate assumptions to 4.25% initially, increasing to 5.00% over that period.
- American Equity Life’s risk-based capital ratio was 415% at December 31, 2022, compared with 400% at December 31, 2021. Its statutory earned surplus was approximately $2.0 billion, and up to $369.3 million could be distributed without prior regulatory approval in 2023, subject to applicable conditions.
- Approximately 90% of annuity liabilities, or $43.0 billion, were subject to surrender penalties at year-end. The weighted-average remaining surrender-charge period was 4.6 years and the weighted-average remaining surrender charge was 7.9%.
- Key risks include interest-rate and equity-market volatility, widening credit spreads, unrealized investment losses, private-asset and mortgage-loan credit risk, liquidity demands from policyholder withdrawals, option-cost increases, reinsurer counterparty risk, ratings downgrades, regulatory restrictions and cybersecurity or operational failures.
- The company had approximately $5.284 billion of gross unrealized losses on fixed maturity securities at year-end, substantially higher than in 2021. Approximately 98% of those losses related to investment-grade securities, and management stated it did not intend or expect to be required to sell the securities before recovery.
- The filing states that long-duration targeted improvements accounting guidance became effective January 1, 2023. Management estimated that the transition could increase stockholders’ equity by $1.5 billion to $2.0 billion, primarily through accumulated other comprehensive income, with an expected retained-earnings impact of less than $100 million.
- The company remains liable to policyholders if reinsurers fail to perform. It also had $1.7 billion of unfunded limited-partnership commitments, $420.2 million of mortgage-loan commitments, $237.4 million of fixed-maturity-security commitments and $300 million of FHLB funding agreements secured by pledged assets.
Most Important Facts an Investor Should Verify
- Confirm the issuer identity: the submitted metadata names American National Group Inc., but the filing is for American Equity Investment Life Holding Company, ticker AEL.
- Reconcile reported GAAP net income of $1.177 billion with non-GAAP operating income of $362.9 million and determine the recurring earnings contribution after excluding derivative fair-value effects and other notable items.
- Review the effect of the October 2022 AeBe transaction and other reinsurance agreements on capital, liquidity, policyholder obligations, fee revenue and reinsurer counterparty exposure.
- Assess whether the 22% private-asset allocation and increased mortgage-loan exposure remain consistent with liquidity, regulatory-capital and credit-risk objectives.
- Evaluate the potential effect of higher interest rates, surrender activity, option costs and changes in credit spreads on investment spreads and policyholder behavior.
- Verify the January 1, 2023 long-duration accounting transition adjustment and its effect on equity, earnings volatility, reserves and accumulated other comprehensive income.
- Review debt maturities, floating-rate exposure, FHLB collateral requirements and the holding company’s dependence on regulated subsidiary distributions.