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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the Quarterly Period Ended June 30, 2002
or

For the transition period from                              to                             

Commission File Number:    0-25985

American Equity Investment Life Holding Company
(Exact name of registrant as specified in its charter)

5000 Westown Parkway, Suite 440
West Des Moines, Iowa 50266
(Address of principal executive offices)

(515) 221-0002
(Telephone)

(Former name, former address and former fiscal year, if changed since last report)

        Indicate by check mark whether the registrant (1) has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

APPLICABLE TO CORPORATE ISSUERS:

Shares of common stock outstanding at July 29, 2002: 14,442,202

PART I.—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
(Unaudited)

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See accompanying notes.

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AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)

See accompanying notes.

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AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share data)
(Unaudited)

        Total comprehensive income for the second quarter of 2002 was $77,550 and was comprised of net income of $4,251 and a decrease in net unrealized depreciation of available for sale fixed maturity securities and equity securities of $73,299.

        Total comprehensive income for the second quarter of 2001 was $5,775 and was comprised of net income of $3,251 and a decrease in net unrealized depreciation of available for sale fixed maturity securities and equity securities of $2,524.

See accompanying notes.

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AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)

See accompanying notes.

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AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002
(Unaudited)

1.    Basis of Presentation

        The accompanying unaudited consolidated financial statements of American Equity Investment Life Holding Company (the Company) have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and notes required by GAAP for complete financial statements. The unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring items, which are necessary to present fairly our financial position and results of operations on a basis consistent with the prior audited financial statements. Operating results for the three-month and six-month periods ended June 30, 2002, are not necessarily indicative of the results that may be expected for the year ended December 31, 2002. For further information, refer to our consolidated financial statements and notes for the year ended December 31, 2001 included in our annual report on Form 10-K.

2.    Accounting Changes

        In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and other Intangible Assets. Under the new Statements, goodwill and intangibles with indefinite lives will no longer be amortized but will be subject to impairment tests at least on an annual basis. Intangible assets with finite lives will continue to be amortized over their estimated useful lives. Value of insurance in force acquired will continue to be amortized over the expected future gross profits of the acquired block of business. The adoption of these Statements on January 1, 2002 did not have a material impact to the Company. The Company's intangible assets at June 30, 2002 consist of deferred debt and trust preferred security costs of $1,755,000 and other intangible assets not subject to amortization of $333,000 related to insurance licences acquired in connection with the purchase of an inactive life insurance company in 1996.

3.    Short-Term Bond Transaction

        During the second quarter of 2002, the Company entered into a transaction relating to the short-sale of $150,000,000 of U.S. Treasury Securities. The transaction was intended to address interest rate exposure and generate capital gains that could be used to offset previously incurred capital losses. As a result of this transaction, the Company recorded short-term capital gains of $2,406,000, interest income of $372,000 and interest expense of $3,191,000 during the second quarter. The net effect of $413,000 is included in the consolidated statement of income as other interest expense. The Company has an obligation to repurchase, on or before November 14, 2002, $150,000,000 of U.S. Treasury Securities that had a market value of $155,532,000 at June 30, 2002. The Company has placed the proceeds of $157,279,000 from the short sale into an interest-bearing collateral account to provide for the repurchase. At June 30, 2002, the net obligation on this transaction was $415,000, which included net accrued interest payable of $2,162,000. This net obligation is included in other liabilities.

4.    General Agency Commission and Servicing Agreement

        The Company has a General Agency Commission and Servicing Agreement with American Equity Investment Service Company (the Service Company), wholly-owned by the Company's chairman, whereby, the Service Company acts as a national supervisory agent with responsibility for paying

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commissions to agents of the Company. This Agreement is more fully described in Note 8 to the Audited Financial Statements included in the Company's Form 10-K for December 31, 2001.

        During the six months ended June 30, 2002 and 2001, the Company paid renewal commissions to the Service Company of $10,938,000 and $11,859,000, respectively, which were used to reduce the amount due under the General Agency Commission and Servicing Agreement, and amounts attributable to imputed interest.

        During 1999, the Company agreed to loan to the Service Company up to $50,000,000 pursuant to a promissory note bearing interest at the "reference rate" of the financial institution which is the Company's principal lender. The Company advanced $27,000,000 and $18,175,000 to the Service Company during the years ended December 31, 2000 and 1999, respectively. Principal and interest are payable quarterly over five years from the date of the advance. At June 30, 2002 and December 31, 2001, amounts receivable from the Service Company totaled $24,946,000 and $29,139,000, respectively.

5.    Reclassifications

        Certain amounts in the unaudited consolidated financial statements for the period ended June 30, 2001 have been reclassified to conform to the financial statement presentation for June 30, 2002 and December 31, 2001.

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6.    Earnings Per Share

        The following table sets forth the computation of earnings per common share and earnings per common share—assuming dilution:

        Earnings per common share for the six months ended June 30, 2001 have been restated above on a comparable basis for the adoption of the FASB's Emerging Issues Task Force ("EITF") Issue No. D-95, "Effect of Participating Convertible Securities on Computation of Basic Earnings Per Share." EITF D-95 requires the inclusion of the Company's 1998 Series A Participating Preferred Stock, which converts into shares of the Company's common stock on December 31, 2003, in the calculation of earnings per common share. Earnings per share for the three months ended June 30, 2001 were previously restated as part of the Company's 2001 Form 10-K filing.

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ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        Management's discussion and analysis reviews our consolidated financial position at June 30, 2002, and the consolidated results of operations for the periods ended June 30, 2002 and 2001, and where appropriate, factors that may affect future financial performance. This analysis should be read in conjunction with the unaudited consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q, and the audited consolidated financial statements, notes thereto and selected consolidated financial data appearing in the Company's Annual Report on Form 10-K for the year ended December 31, 2001.

        All statements, trend analyses and other information contained in this report and elsewhere (such as in filings by us with the Securities and Exchange Commission, press releases, presentations by us or our management or oral statements) relative to markets for our products and trends in our operations or financial results, as well as other statements including words such as "anticipate," "believe," "plan," "estimate," "expect," "intend," and other similar expressions, constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors which may cause actual results to be materially different from those contemplated by the forward-looking statements. Such factors include, among other things:

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general economic conditions and other factors, including prevailing interest rate levels and stock and credit market performance which may affect (among other things) our ability to sell our products, our ability to access capital resources and the costs associated therewith, the market value of our investments and the lapse rate and profitability of policies



•

customer response to new products and marketing initiatives



•

mortality and other factors which may affect the profitability of our products



•

changes in Federal income tax laws and regulations which may affect the relative income tax advantages of our products



•

increasing competition in the sale of annuities



•

regulatory changes or actions, including those relating to regulation of financial services affecting (among other things) bank sales and underwriting of insurance products and regulation of the sale, underwriting and pricing of products



•

the risk factors or uncertainties listed from time to time in our private placement memorandums or filings with the Securities and Exchange Commission

Results of Operations

Three and Six Months Ended June 30, 2002 and 2001

        Our business has continued to grow rapidly, with reserves for annuities and single premium universal life policies increasing from $3,968,455,000 at December 31, 2001 to $4,734,091,000 at June 30, 2002. Deposits from sales of annuities and single premium universal life policies during the six months ended June 30, 2002, before reinsurance ceded, increased 13% to $1,266,465,000 compared to $1,120,697,000 for the same period in 2001. Deposits for the six months ended June 30, 2002 were reduced by $424,469,000 for amounts ceded to an affiliate insurance company as part of a coinsurance agreement as described in Note 5 of the Notes to Consolidated Financial Statements found in the Annual Report on Form 10-K. The continued strong production is a direct result of the growth in our agency force which increased from 22,000 agents at December 31, 2000 to 34,000 agents at December 31, 2001 and 40,000 agents at June 30, 2002.

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        Our net income increased 31% to $4,251,000 for the second quarter of 2002, and 110% to $7,509,000 for the six months ended June 30, 2002, compared to income before cumulative effect of change in accounting principle of $3,251,000 and $3,568,000 for the same periods in 2001. These increases are primarily attributable to an increase in net investment income due to the growth in our invested assets from sales of annuities.

        Traditional life and accident and health insurance premiums increased 32% to $4,383,000 for the second quarter of 2002, and 11% to $7,320,000 for the six months ended June 30, 2002 compared to $3,333,000 and $6,615,000 for the same periods in 2001. These changes are principally attributable to corresponding changes in direct sales of life products.

        Annuity and single premium universal life product charges (surrender charges assessed against policy withdrawals and mortality and expense charges assessed against single premium universal life policyholder account balances) increased 9% to $3,459,000 for the second quarter of 2002, and 11% to $6,476,000 for the six months ended June 30, 2002 compared to $3,185,000 and $5,847,000 for the same periods in 2001. These increases are principally attributable to the growth in our annuity business and correspondingly, an increase in annuity policy withdrawals subject to surrender charges. Withdrawals from annuity and single premium universal life policies were $145,098,000 for the six months ended June 30, 2002 compared to $102,213,000 for the same period in 2001.

        Net investment income increased 51% to $76,592,000 in the second quarter of 2002, and 56% to $144,178,000 for the six months ended June 30, 2002 compared to $50,725,000 and $92,355,000 for the same periods in 2001. Invested assets (amortized cost basis) increased 42% to $4,574,348,000 at June 30, 2002 compared to $3,205,734,000 at June 30, 2001, while the effective yield earned on invested assets (excluding cash and cash equivalents) was 7.11% for the six months ended June 30, 2002 compared to 7.46% for the same period in 2001.

        Realized gains (losses) on the sale of investments consisted of net realized gains of $569,000 in the second quarter of 2002 compared to net realized gains of $583,000 for the same period in 2001. For the six months ended June 30, 2002, the Company had realized losses of $518,000 compared to realized gains of $739,000 for the same period in 2001. In the first six months of 2002, net realized losses of $518,000 included: (i) net realized gains of $1,482,000 on the sale of certain corporate fixed maturity and equity securities and (ii) the write down of $2,000,000 in the fair value of a security in recognition of an "other than temporary" impairment.

        Change in fair value of derivatives that we hold to fund the annual index credits on our equity index annuities was $(34,314,000) in the second quarter of 2002, and $(43,986,000) for the six months ended June 30, 2002 compared to $(4,934,000) and $(30,782,000) for the same periods in 2001. The difference between the change in fair value of derivatives between the periods is primarily due to the downward performance of the indexes during these periods upon which our call options are based. We mark to fair value the purchased call options we use to fund the annual index credits on our equity index annuities, and include changes in such fair value as a component of our revenues. See Critical Accounting Policies—Derivative Instruments—Equity Index Products found in the Annual Report on Form 10-K.

        Traditional life and accident and health insurance benefits increased 13% to $2,703,000 in the second quarter of 2002, and 9% to $5,024,000 for the six months ended June 30, 2002 compared to $2,395,000 and $4,592,000 for the same periods in 2001. These increases are principally attributable to an increase in death benefits and surrenders.

        Interest credited to annuity policyholder account balances increased 98% to $42,801,000 in the second quarter of 2002, and 123% to $79,023,000 for the six months ended June 30, 2002 compared to $21,667,000 and $35,515,000 for the same periods in 2001. These increases are principally attributable to the increase in annuity liabilities.

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        The amounts are also impacted by changes in the weighted average crediting rates for our annuity liabilities, which are summarized as follows:

        The above crediting rates on our fixed rate annuities includes both multi-year rate guaranteed and annually adjustable rate products. Such rates are disclosed with and without the impact of first-year bonuses paid to policyholders. Generally such bonuses are deducted from the commissions paid to sales agents on such products and deferred as policy acquisition costs. With respect to our equity index annuities, the weighted average option costs represent the expenses we incur to fund the annual index credits on the equity index business. Gains realized on such options are recorded as part of the change in fair value of derivatives and are also reflected as an expense in interest credited to annuity policyholder account balances.

        Change in fair value of embedded derivatives was $(22,756,000) in the second quarter of 2002 and $(17,411,000) for the six months ended June 30, 2002 compared to $10,677,000 and $6,487,000 for the same periods in 2001. The difference between the change in fair value of embedded derivatives between the periods is primarily due to the downward performance of the indexes during these periods upon which the liabilities are based. We mark to fair value our equity index annuity reserves, and include changes in such fair value as a component of our expenses. The annual crediting liabilities on our equity index annuities are treated as a "series of embedded derivatives" over the life of the applicable contracts. We estimate the fair value of these future liabilities by projecting the cost of the annual options we will purchase in the future to fund the index credits. See Note 1 of the Notes to Consolidated Financial Statements found in the Annual Report on Form 10-K.

        Interest expense on notes payable decreased 29% to $539,000 for the second quarter of 2002, and 34% to $1,096,000 for the six months ended June 30, 2002 compared to $756,000 and $1,651,000 for the same periods in 2001. These decreases are attributable to a decrease in the average cost of funds borrowed and a decrease in the amounts of notes payable due.

        Interest expense on General Agency Commission and Servicing Agreement decreased 36% to $949,000 for the second quarter of 2002, and 35% to $1,999,000 for the six months ended June 30, 2002 compared to $1,479,000 and $3,062,000 for the same periods in 2001. These decreases are principally attributable to a decrease in the amounts due under General Agency Commission and Servicing Agreement. See Note 8 of the Notes to Consolidated Financial Statements found in the Annual Report on Form 10-K.

        Other interest expense totaled $771,000 for the second quarter of 2002, and $888,000 for the six months ended June 30, 2002 compared to $0 and $951,000 for the same periods in 2001. These amounts primarily consist of interest on amounts due under repurchase agreements and net interest expense on a short-bond transaction. We entered into a short sale of $150,000,000 of U.S. Treasury Securities during the second quarter of 2002 and have recorded net interest expense of $413,000 related to this transaction. See Note 3 of the Notes to Consolidated Financial Statements found in this Form 10-Q. Interest expense on amounts due under repurchase agreements decreased from $951,000 to $251,000 during the six months ended June 30, 2002 compared to the same period in 2001. This decrease is principally attributable to a decrease in the average balances outstanding. There was no interest expense on amounts due under repurchase agreements in the second quarter of 2001 as there were no borrowings under repurchase agreements during the second quarter of 2001.

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        Amortization of deferred policy acquisition costs and value of insurance in force acquired increased 98% to $10,756,000 in the second quarter of 2002, and 205% to $17,942,000 for the six months ended June 30, 2002 compared to $5,437,000 and $5,876,000 for the same periods in 2001. These increases are primarily due to the (i) growth in our annuity business as discussed above; and (ii) the introduction of multi-year rate guaranteed products with shorter expected lives. See Note 1 of the Notes to Consolidated Financial Statements found in the Annual Report on Form 10-K.

        Other operating costs and expenses increased 80% to $6,661,000 in the second quarter of 2002, and 31% to $9,914,000 for the six months ended June 30, 2002 compared to $3,705,000 and $7,568,000 for the same periods in 2001. These increases are principally attributable to increases in salary expense, related benefits, professional fees and certain marketing expenses.

        Income tax expense increased 29% to $2,152,000 in the second quarter of 2002, and 111% to $3,762,000 for the six months ended June 30, 2002 compared to $1,663,000 and $1,780,000 for the same periods in 2001. These increases are principally due to an increase in pretax income. The effective income tax rate for the 2002 periods is less than the applicable statutory federal income tax rate of 35% because of (i) tax benefits for earnings attributable to redeemable preferred securities of subsidiary trusts and (ii) state income tax benefits on the parent company's non-life loss (life insurance subsidiary taxable income is taxed at the 35% federal income tax rate and not generally subject to state income taxes).

Financial Condition

Investments

        Cash and investments increased 24% to $4,683,018,000 at June 30, 2002 compared to $3,780,265,000 at December 31, 2001as a result of the growth in our annuity business discussed above offset by a decrease in the fair value of our available-for-sale fixed maturity and equity securities. At June 30, 2002, the fair value of our available-for-sale fixed maturity and equity securities was $67,191,000 less than the amortized cost of those investments, compared to $126,643,000 at December 31, 2001. At June 30, 2002, the amortized cost of our fixed maturity securities held for investment exceeded the market value by $9,444,000, compared to $42,227,000 at December 31, 2001. The decrease in the net unrealized investment losses at June 30, 2002 compared to December 31, 2001 is related to a decrease of approximately 27 basis points in market interest rates. Such unrealized losses are recognized in the accumulated other comprehensive loss component of stockholders' equity, net of related changes in the amortization patterns of deferred policy acquisition costs and deferred income taxes. The resulting deferred tax asset has been reviewed by management and no related valuation allowance was considered necessary at June 30, 2002. However, if management were to determine that an allowance was required in subsequent 2002 quarters, such amounts would increase the accumulated other comprehensive loss component of stockholders' equity.

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        Our investment portfolio is summarized in the tables below:

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        At June 30, 2002 and December 31, 2001, the amortized cost and estimated fair value of fixed maturity securities and equity securities that were in an unrealized loss position were as follows:

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        The amortized cost and estimated fair value of fixed maturity securities at June 30, 2002 and December 31, 2001, by contractual maturity, that were in an unrealized loss position are shown below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. All of our mortgage-backed and asset-backed securities provide for periodic payments throughout their lives, and are shown below as a separate line.