American Equity Investment Life Holding (AEL, Financial) filed Quarterly Report for the period ended 2010-06-30.
American Equity Investment Life Holding has a market cap of $646.8 million; its shares were traded at around $11.06 with a P/E ratio of 6.4 and P/S ratio of 0.5. The dividend yield of American Equity Investment Life Holding stocks is 0.7%.AEL is in the portfolios of Richard Pzena of Pzena Investment Management LLC, Paul Tudor Jones of The Tudor Group, Chuck Royce of Royce& Associates, Steven Cohen of SAC Capital Advisors, Jim Simons of Renaissance Technologies LLC.
Net investment income increased 12% to $254.8 million in the second quarter of 2010 and increased 11% to $497.8 million for the six months ended June 30, 2010 compared to $226.8 million and $447.5 million for the same periods in 2009. The increase was principally attributable to the growth in our annuity business and a corresponding increase in our invested assets. Average invested assets excluding derivative instruments (on an amortized cost basis) increased 15% to $16.6 million in the second quarter 2010 and 14% to $16.2 million for the six months ended June 30, 2010 compared to $14.4 million and $14.3 million for the same periods in 2009. The average yield earned on average invested assets was 6.14% in the second quarter 2010 and 6.14% for the six months ended June 30, 2010 compared to 6.28% and 6.29% for the same periods
Gain (loss) on extinguishment of debt includes a $0.3 million loss on an extinguishment of $6.7 million principal amount of our 2024 contingent convertible senior notes in May 2010. The notes had a carrying value of $6.3 million with unamortized debt issue costs and unamortized debt discounts of $0.3 million and were extinguished for $6.6 million in cash. There was no value assigned to reacquire the equity component of the debt. We recognized a $3.1 million gain on an exchange of five million shares of our common stock for $37.2 million principal amount of our 2024 contingent convertible notes during the three months ended June 30, 2009. The fair value of the common stock exchanged totaled $31.3 million and the notes extinguished carried unamortized debit issue costs and debt discount totaling $2.8 million.
The changes in index credits were attributable to changes in the appreciation of the underlying indices (see discussion above under change in fair value of derivatives) and the amount of funds allocated by policyholders to the respective index options. Total proceeds received upon expiration of the call options purchased to fund the annual index credits were $154.5 million and $280.0 million for the three months and six months ended June 30, 2010, respectively, compared to $2.7 million and $5.0 million for the same periods in 2009. Proceeds for the 2009 periods were adversely affected by the Lehman defaults as discussed above. The increases in interest credited were due to an increase in the average amount of annuity liabilities outstanding receiving a fixed rate of interest. The average amount of annuity liabilities outstanding (net of annuity liabilities ceded under coinsurance agreements) increased 16% during the six months ended June 30, 2010 to $17.1 billion from $14.8 billion during the same period in 2009.
Fair value accounting for derivatives and embedded derivatives utilized in our fixed index annuity business creates differences in the recognition of revenues and expenses from derivative instruments including the embedded derivative liabilities in our fixed index annuity contracts. The change in fair value of the embedded derivatives will not correspond to the change in fair value of the derivatives (purchased call options) because the purchased call options are one-year options while the options valued in the fair value of embedded derivatives cover the expected life of the contracts which typically exceeds ten years. The gross profit adjustments resulting from fair value accounting for derivatives and embedded derivatives utilized in our fixed index annuity business decreased amortization by $21.5 million for the second quarter of 2010 and $32.4 million for the six months ended June 30, 2010 compared to decreases of $5.4 million for the three and six months ended June 30, 2009. The gross profit adjustments from net realized gains on investments and net OTTI losses recognized in operations increased amortization by $0.2 million for the second quarter of 2010 and $1.5 million for the six months ended June 30, 2010 and decreased amortization by $0.4 million and $3.8 million for the same periods in 2009. Excluding the amortization amounts attributable to fair value accounting for derivatives and embedded derivatives, net realized gains on investments and net OTTI losses recognized in operations, amortization for the three and six months ended June 30, 2010 would have been $24.5 million and $47.3 million, respectively, compared to $18.0 million and $35.1 million for the same periods in 2009. See Critical Accounting Policies - Deferred Policy Acquisition Costs and Deferred Sales Inducements included in Management's Discussion and Analysis in our Annual Report on Form 10-K for the year ended December 31, 2009.
Interest expense on notes payable increased 28% to $4.7 million in the second quarter of 2010 and 18% to $9.3 million for the six months ended June 30, 2010 compared to $3.6 million and $7.9 million for the same periods in 2009. These increases were primarily due to the December 2009 issuance of an additional $52.2 million of 5.25% contingent convertible notes and a higher effective rate of interest on $63.6 million principal amount of 5.25% contingent convertible senior notes that were issued in December 2009 in exchange for the same principal amount of another issue of 5.25% contingent convertible notes. The increase in interest expense on the 5.25% contingent convertible notes was partially offset by a decrease in interest expense on borrowings under our revolving lines of credit with banks. The weighted average interest on the bank credit facility was 1.07% and 2.12% for the six months ended June 30, 2010 and 2009, respectively, and average borrowings outstanding were $150.0 million and $88.5 million for the same periods, respectively.
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American Equity Investment Life Holding has a market cap of $646.8 million; its shares were traded at around $11.06 with a P/E ratio of 6.4 and P/S ratio of 0.5. The dividend yield of American Equity Investment Life Holding stocks is 0.7%.AEL is in the portfolios of Richard Pzena of Pzena Investment Management LLC, Paul Tudor Jones of The Tudor Group, Chuck Royce of Royce& Associates, Steven Cohen of SAC Capital Advisors, Jim Simons of Renaissance Technologies LLC.
Highlight of Business Operations:
Annuity product charges (surrender charges assessed against policy withdrawals and fees deducted from policyholder account balances for lifetime income benefit riders) increased 12% to $18.6 million in the second quarter of 2010 and increased 8% to $34.1 million for the six months ended June 30, 2009 compared to $16.6 million and $31.7 million for the same periods in 2009. The increases were primarily due to an increase in the amount of fees collected for lifetime income benefit riders offset by a decrease in the withdrawals subject to surrender charges. Fees for lifetime income benefit riders were $4.1 million in the second quarter 2010 and $5.8 million for the six months ended June 30, 2010 compared to $1.3 million for the three months and six months ended June 30, 2009. Withdrawals from annuity and single premium universal life policies subject to surrender charges were $111.8 million in the second quarter 2010 and $217.0 million for the six months ended June 30, 2010 compared to $118.7 million and $238.3 million for the same periods in 2009. The average surrender charge collected on withdrawals subject to a surrender charge was 12.8% in the second quarter 2010 and 13.0% for the six months ended June 30, 2010 compared to 12.8% and 12.6% for the same periods in 2009.Net investment income increased 12% to $254.8 million in the second quarter of 2010 and increased 11% to $497.8 million for the six months ended June 30, 2010 compared to $226.8 million and $447.5 million for the same periods in 2009. The increase was principally attributable to the growth in our annuity business and a corresponding increase in our invested assets. Average invested assets excluding derivative instruments (on an amortized cost basis) increased 15% to $16.6 million in the second quarter 2010 and 14% to $16.2 million for the six months ended June 30, 2010 compared to $14.4 million and $14.3 million for the same periods in 2009. The average yield earned on average invested assets was 6.14% in the second quarter 2010 and 6.14% for the six months ended June 30, 2010 compared to 6.28% and 6.29% for the same periods
Gain (loss) on extinguishment of debt includes a $0.3 million loss on an extinguishment of $6.7 million principal amount of our 2024 contingent convertible senior notes in May 2010. The notes had a carrying value of $6.3 million with unamortized debt issue costs and unamortized debt discounts of $0.3 million and were extinguished for $6.6 million in cash. There was no value assigned to reacquire the equity component of the debt. We recognized a $3.1 million gain on an exchange of five million shares of our common stock for $37.2 million principal amount of our 2024 contingent convertible notes during the three months ended June 30, 2009. The fair value of the common stock exchanged totaled $31.3 million and the notes extinguished carried unamortized debit issue costs and debt discount totaling $2.8 million.
The changes in index credits were attributable to changes in the appreciation of the underlying indices (see discussion above under change in fair value of derivatives) and the amount of funds allocated by policyholders to the respective index options. Total proceeds received upon expiration of the call options purchased to fund the annual index credits were $154.5 million and $280.0 million for the three months and six months ended June 30, 2010, respectively, compared to $2.7 million and $5.0 million for the same periods in 2009. Proceeds for the 2009 periods were adversely affected by the Lehman defaults as discussed above. The increases in interest credited were due to an increase in the average amount of annuity liabilities outstanding receiving a fixed rate of interest. The average amount of annuity liabilities outstanding (net of annuity liabilities ceded under coinsurance agreements) increased 16% during the six months ended June 30, 2010 to $17.1 billion from $14.8 billion during the same period in 2009.
Fair value accounting for derivatives and embedded derivatives utilized in our fixed index annuity business creates differences in the recognition of revenues and expenses from derivative instruments including the embedded derivative liabilities in our fixed index annuity contracts. The change in fair value of the embedded derivatives will not correspond to the change in fair value of the derivatives (purchased call options) because the purchased call options are one-year options while the options valued in the fair value of embedded derivatives cover the expected life of the contracts which typically exceeds ten years. The gross profit adjustments resulting from fair value accounting for derivatives and embedded derivatives utilized in our fixed index annuity business decreased amortization by $21.5 million for the second quarter of 2010 and $32.4 million for the six months ended June 30, 2010 compared to decreases of $5.4 million for the three and six months ended June 30, 2009. The gross profit adjustments from net realized gains on investments and net OTTI losses recognized in operations increased amortization by $0.2 million for the second quarter of 2010 and $1.5 million for the six months ended June 30, 2010 and decreased amortization by $0.4 million and $3.8 million for the same periods in 2009. Excluding the amortization amounts attributable to fair value accounting for derivatives and embedded derivatives, net realized gains on investments and net OTTI losses recognized in operations, amortization for the three and six months ended June 30, 2010 would have been $24.5 million and $47.3 million, respectively, compared to $18.0 million and $35.1 million for the same periods in 2009. See Critical Accounting Policies - Deferred Policy Acquisition Costs and Deferred Sales Inducements included in Management's Discussion and Analysis in our Annual Report on Form 10-K for the year ended December 31, 2009.
Interest expense on notes payable increased 28% to $4.7 million in the second quarter of 2010 and 18% to $9.3 million for the six months ended June 30, 2010 compared to $3.6 million and $7.9 million for the same periods in 2009. These increases were primarily due to the December 2009 issuance of an additional $52.2 million of 5.25% contingent convertible notes and a higher effective rate of interest on $63.6 million principal amount of 5.25% contingent convertible senior notes that were issued in December 2009 in exchange for the same principal amount of another issue of 5.25% contingent convertible notes. The increase in interest expense on the 5.25% contingent convertible notes was partially offset by a decrease in interest expense on borrowings under our revolving lines of credit with banks. The weighted average interest on the bank credit facility was 1.07% and 2.12% for the six months ended June 30, 2010 and 2009, respectively, and average borrowings outstanding were $150.0 million and $88.5 million for the same periods, respectively.
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