American Equity CEO: Strong 2015 Performance Makes Company Second-Biggest Seller of Fixed Annuities
March 11, 2016 by Dennis Gorski, managing editor-online, BestWeek: Dennis.Gorski@ambest.com
ORLANDO, Fla. – Coming off a strong year for sales of its fixed annuity products, executives of American Equity Investment Life Holding Co. told investors its performance was good enough to claim second place in industrywide sales of the product in 2015, behind only Allianz.
Annuities analyst Sheryl Moore, president of Moore Market Intelligence, confirmed the claim.
American Equity racked up a new mark of $7.1 billion in sales for 2015, said John Matovina, chief executive officer. He added fourth-quarter 2015 sales of $2.1 billion set a new single-quarter record, growing 86% from the prior year.
Net income for the fourth quarter rose to $33.8 million, versus $31.2 million in 2014. For the full year, 2015 net income of $219.8 million was more than double 2014’s $126 million, according to the company’s earnings report.
Matovina headed the company’s presentation before the Raymond James 37th Annual Institutional Investors Conference. The company primarily sells fixed annuities and fixed-rate annuities, and single premium and flexible premium deferred annuities, as well as whole and term life insurance, according to BestLink.
The insurer targets retirees and those approaching retirement, a group aged 60 to 70, and the average amount of each fixed-index annuity sold is about $81,000. That value keeps rising, he said, as more baby boomers tap their 401(k) plans to fund an annuity.
Matovina added FIA sales last year constituted 23% of all annuity sales. He said those sales appear to have been at the expense of variable annuity transactions.
He credited the company’s relationships with its producers — independent agents, broker dealers and banks — with the record year. “Relationships are the foundation of what makes American Equity go,” he said.
Matovina said the company’s compensation plan can include stock incentives to develop loyalty.
The company aims for a 14% annual growth rate on its assets under management, according to Ted Johnson, chief financial officer. American Equity currently holds about $41 billion in policyholder assets under management, Matovina said.
The low interest rate environment has been a persistent headwind as the company tries to meet its targeted point spread of return on its annuity products, Johnson said. However, low interest rates have also suppressed the surrender rate of policyholders who would otherwise give up their annuity for better returns in stocks, Johnson noted.
One emerging headwind may also be the fiduciary rule from the Department of Labor. The proposal would impose a wide range of new administrative requirements along with a ‘best interest’ standard, which some said favors a fee-for-service model. The DOL proposal would require that providers of retirement products operate under a fiduciary standard based on the Employee Retirement Income Security Act.
The rule has been under review by the Office of Management and Budget since January, Matovina said, and the agency has 90 days to issue its findings. “We don’t expect a lot of difference from the rule as it was first proposed,” he said.
Operating units of American Equity Investment Life Holding Co. have current Best’s Financial Strength Ratings ranging from of A- (Excellent) to A++ (Superior).
In late-day trading March 8, shares of parent company American Equity Investment Life Holding Co. (NYSE: AEL) were $14.01, down 1.54% from their previous close.
