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FORM 10-Q

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

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

        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

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes o        No ý

APPLICABLE TO CORPORATE ISSUERS:

Shares of common stock outstanding at October 20, 2003: 14,594,035

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

See accompanying notes.

3

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

See accompanying notes.

4

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

        Total comprehensive loss for the third quarter of 2003 was $2.7 million and was comprised of net income of $6.4 million and an increase in net unrealized depreciation of available for sale fixed maturity securities and equity securities of $9.1 million.

        Total comprehensive income for the third quarter of 2002 was $13.9 million and was comprised of net income of $2.9 million and a decrease in net unrealized depreciation of available for sale fixed maturity securities and equity securities of $11.0 million.

See accompanying notes.

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

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

See accompanying notes.

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AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2003

(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 nine-month periods ended September 30, 2003 are not necessarily indicative of the results that may be expected for the year ended December 31, 2003. For further information, refer to the consolidated financial statements and notes for the year ended December 31, 2002 included in the Company's Annual Report on Form 10-K/A for the year ended December 31, 2002.

        In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51". This Interpretation provides guidance for determining when a variable interest entity, as defined in the Interpretation, should be consolidated in an issuer's financial statements. The Interpretation is effective for periods ending after December 15, 2003. The subsidiary trusts which have issued the company-obligated mandatorily redeemable preferred securities and are currently included in the Company's consolidated financial statements, will be deconsolidated upon adoption of the Interpretation. The effect of such deconsolidation will be to replace the obligations of the trusts to the preferred security holders with the Company's subordinated debt obligations to the trusts and the Company's equity investments in the trusts. Similarly, the earnings attributable to company-obligated mandatorily redeemable preferred securities of American Equity Capital Trust I will be replaced in the Company's consolidated statements of income with the interest expense on the Company's subordinated debt obligations to the trust and the dividends the Company receives from the trusts on its equity investments in them. The obligations of the subsidiary trusts with respect to their trust preferred securities are more fully described in Note 9 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K/A for the year ended December 31, 2002. The adoption of the Interpretation with respect to these subsidiary trusts will have no impact on net income or earnings per common share.

        The adoption of the Interpretation will also result in the consolidation of one or more variable interest entities in which the Company currently has investments recorded as fixed maturity securities. For instance, the Company owns all of the mandatorily redeemable trust preferred securities issued by a trust sponsored by FBL Financial Group, Inc. (FBL). Upon adoption of the Interpretation, the Company will be required to consolidate this trust and report FBL's ownership of the common equity of this trust as a minority interest. The adoption of the Interpretation with respect to this trust will have no impact on net income or earnings per common share. The Company is currently evaluating certain other fixed maturity securities to determine if its variable interests in them require it to consolidate them upon adoption of the Interpretation.

        In May 2003, the FASB issued Statement No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". This Statement establishes standards for classifying

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and measuring as liabilities certain financial instruments that embody obligations of the issuer that have characteristics of both liabilities and equity. Statement No. 150 must be applied immediately to instruments entered into or modified after May 31, 2003 and to all other instruments that existed as of the beginning of the third quarter of 2003. The company-obligated mandatorily redeemable preferred securities of American Equity Capital Trust II, with an aggregate carrying amount of $75.0 million at September 30, 2003, were reclassified to liabilities upon adoption of this statement. There was no adjustment to the carrying amount of these instruments upon adoption of this statement. Amounts previously classified as earnings attributable to company-obligated mandatorily redeemable preferred securities of subsidiary trusts (approximately $1.3 million per quarter) are now recorded as interest expense on a prospective basis as reclassification is not permitted. The adoption of Statement No. 150 had no impact on net income or earnings per common share. The company-obligated mandatorily redeemable preferred securities of American Equity Capital Trust I are classified as mezzanine equity as these securities are convertible into shares of common stock at the option of the holder. These securities are more fully described in Note 9 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K/A for the year ended December 31, 2002.

        In June 2003, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position (SOP) 03-1, "Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for the Separate Accounts". The SOP provides guidance on the presentation of sales inducements ("bonus interest"). The Company expects to adopt this SOP when it becomes effective in the first quarter of 2004 and will change its presentation of deferred expenses relating to bonus interest at that time. The SOP requires that sales inducements be recognized as an asset and amortized with the amortization being included as a component of interest credited to account balances. The Company currently includes bonus interest as a component of deferred policy acquisition costs and the related amortization expense. The amount of bonus interest included as a component of deferred policy acquisition costs at September 30, 2003 and December 31, 2002 was $84.1 million and $62.9 million, respectively. The adoption of this SOP will have no impact on net income or earnings per common share.

        Certain amounts in the unaudited consolidated financial statements for the period ended September 30, 2002 have been reclassified to conform to the financial statement presentation for September 30, 2003 and December 31, 2002.

2.    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 commissions to agents of the Company. This Agreement is more fully described in Note 8 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K/A for the year ended December 31, 2002.

        During the nine months ended September 30, 2003 and 2002, the Company paid renewal commissions to the Service Company of $16.6 million and $16.2 million, respectively, which were used

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to reduce the amount due under the General Agency Commission and Servicing Agreement, and amounts attributable to imputed interest.

        As one of its sources of funds, the Service Company borrowed money from the Company. At September 30, 2003 and December 31, 2002, the amounts receivable from the Service Company totaled $13.4 million and $20.5 million, respectively. Principal and interest are payable quarterly over the five years from the date of the advance.

3.    Reinsurance

        On September 30, 2003 the Company terminated and recaptured all reserves subject to a reinsurance agreement with a subsidiary of Swiss Reinsurance Company (Swiss Re). This agreement is more fully described in Note 5 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K/A for the year ended December 31, 2002. The termination of the Swiss Re agreement resulted in the full repayment of the expense allowance allowed under the agreement which was previously being repaid ratably over a five-year period and was reported in the consolidated balance sheets as "Amounts due to Reinsurer".

        The Company entered into a reinsurance transaction with Hannover Life Reassurance Company (Hannover) effective on September 30, 2003. This agreement includes a coinsurance segment and a yearly renewable term segment reinsuring a portion of death benefits payable on certain annuities issued from January 1, 2003 to September 30, 2003. The coinsurance segment provides reinsurance to the extent of 13.41% of all risks associated with our annuity policies covered by the reinsurance agreement.

        Each of these transactions is treated as reinsurance under statutory accounting practices and as financial reinsurance under GAAP. The statutory surplus benefit that was eliminated by the termination of the Swiss Re agreement was replaced by the statutory surplus benefit provided by the new Hannover agreement.

4.    Notes Payable

        The Company amended its credit agreement during August 2003. The amended agreement requires that the financial strength ratings for American Equity Investment Life Insurance Company issued by A.M. Best and Standard & Poor's may not be less than the current financial strength ratings of B++ and BBB+, respectively. The line of credit agreement is more fully described in Note 7 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K/A for the year ended December 31, 2002.

5.    Retirement and Stock Compensation Plans

        During the second quarter of 2003, the Company created a Rabbi Trust, the NMO Deferred Compensation Trust (the "Trust") and issued 1,262,136 shares of its common stock to the Trust to fund the vested share liability as of January 1, 2003 established under the American Equity Investment NMO Deferred Compensation Plan. The Company issued an additional 328,947 shares of its common

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stock to the Trust during the third quarter of 2003 to fund the estimated vested share liability as of September 30, 2003. This Plan is more fully described in Note 10 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K/A for the year ended December 31, 2002. In accordance with FASB's Emerging Issues Task Force Issue No. 97-14, "Accounting for Deferred Compensation Arrangements where Amounts Earned are Held in a Rabbi Trust and Invested", the stock held in the Trust is included as part of common stock issued and outstanding. In the September 30, 2003 consolidated balance sheet, the common shares held in the rabbi trust and the related Trust obligation funded by such shares are included in the common stock and additional paid-in capital components as a respective deduction and addition, with no impact on the reported amount of total stockholders' equity.

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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—assuming dilution for the 2002 periods was previously reported without inclusion of the convertible preferred stock of American Equity Capital Trust I. Such stock has a dilutive effect now reflected in earnings per common share—assuming dilution, as restated.

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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 September 30, 2003, and the consolidated results of operations for the three and nine month periods ended September 30, 2003 and 2002, 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/A for the year ended December 31, 2002.

        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" within the meaning of 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;



•

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 insurance products; and



•

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

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Results of Operations

Three and Nine Months Ended September 30, 2003 and 2002

        Annuity deposits (before and net of coinsurance) collected during the nine months ended September 30, 2003 and 2002, by product category, were as follows:

        For information related to our coinsurance agreement, see Note 5 of the Notes to Consolidated Financial Statements found in our Annual Report on Form 10-K/A for the year ended December 31, 2002.

        The reduction in annuity deposits in the first nine months of 2003 resulted from actions taken by us to manage our capital position, including reductions in our interest crediting rates on both new and existing annuities, reductions in sales commissions and suspension of sales of one of our higher commission annuity products and our most popular multi-year rate guaranteed annuity product. We will continue to monitor our levels of production and take such actions as we believe appropriate to help maintain our rate of production within the range that our statutory capital and surplus of our life subsidiaries will support.

        Net income increased 120% to $6.4 million for the third quarter of 2003, and 65% to $17.2 million for the nine months ended September 30, 2003, compared to $2.9 million and $10.4 million for the same periods in 2002. The growth in net income was directly tied to: (i) an increase in our invested assets of 24.6% (on an amortized cost basis) from September 30, 2002 to September 30, 2003 and (ii) decreases in weighted average interest crediting rates of 51 basis points from September 30, 2002 to September 30, 2003. The growth in net income for the nine months ended September 30, 2003 compared to the same period in 2002 is also due to realized gains on sales of investments of $6.9 million compared to $0.1 million.

        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 $4.3 million for the third quarter of 2003, and 49% to $15.5 million for the nine months ended September 30, 2003 compared to $3.9 million and $10.4 million for the same periods in 2002. 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 $354.0 million for the nine months ended September 30, 2003 compared to $232.7 million for the same period in 2002.

        Net investment income increased 15% to $89.2 million in the third quarter of 2003, and 19% to $264.1 million for the nine months ended September 30, 2003 compared to $77.9 million and

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$222.1 million for the same periods in 2002. These increases are principally attributable to the growth in our annuity business and corresponding increases in our invested assets. Invested assets (on an amortized cost basis) increased 24.6% to $5,805.7 million at September 30, 2003 compared to $4,658.3 million at September 30, 2002, while the weighted average yield earned on average invested assets was 6.58% for the nine months ended September 30, 2003 compared to 7.02% for the same period in 2002.

        Realized losses on the sale of investments were $0.9 million in the third quarter of 2003 compared to realized gains of $0.6 million for the same period in 2002. In the third quarter of 2003, realized losses of $0.9 million included: (i) net realized gains of $3.3 million on the sale of certain corporate fixed maturity and equity securities and (ii) the writedown of $4.2 million in the fair value of a security in recognition of an "other than temporary" impairment. For the nine months ended September 30, 2003, we had realized gains of $6.9 million compared to realized gains of $0.1 million for the same period in 2002. In the first nine months of 2003, realized gains of $6.9 million included: (i) net realized gains of $14.0 million on the sale of certain corporate fixed maturity and equity securities and (ii) the write down of $7.1 million in the fair value of two securities 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 index annuities was an increase to $6.1 million in the third quarter of 2003, and an increase to $25.1 million for the nine months ended September 30, 2003 compared to a decline to $12.5 million and a decline to $56.5 million for the same periods in 2002. The difference between the change in fair value of the derivatives for the three months ended September 30, 2003 and September 30, 2002 was primarily due to (i) an increase to $18.1 million from $4.2 million in the gains received at expiration or early termination of the options and (ii) a decrease to $(11.1) million from $(17.5) million in our cost of money associated with the options. The difference between the change in fair value of the derivatives for the nine months ended September 30, 2003 and September 30, 2002 was primarily due to (i) an increase to $38.6 million from $(14.4) million in the difference between the fair value of the derivatives and the remaining options cost at the beginning and end of these periods, (ii) an increase to $32.2 million from $8.9 million in the gains received at expiration or early termination of the options, and (iii) a decrease to $(45.6) million from $(50.9) million in our cost of money associated with the options. The increase in the difference between the fair value of the derivatives and the remaining option costs was caused by the general increase in the underling equity market indices on which our options are based. For the nine months ended September 30, 2003, the S&P 500 Index (upon which the majority of our options are based) increased by 13.2% compared to a decrease of 29.0% during the same period in 2002. See "Critical Accounting Policies—Derivative Instruments—Index Products" and Note 1 of the Notes to Consolidated Financial Statements found in our Annual Report on Form 10-K/A for the year ended December 31, 2002.

        Interest credited to account balances increased 39% to $66.5 million in the third quarter of 2003, and 39% to $176.3 million for the nine months ended September 30, 2003 compared to $47.7 million and $126.7 million for the same periods in 2002. These increases were principally attributable to the increase in annuity liabilities. Such increases were offset in part by several reductions in interest crediting rates that we implemented in 2003 and 2002 in connection with our spread management process.

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        Our investment spread is summarized as follows:

        The weighted average crediting rate and investment spread are computed without the impact of first year bonuses paid to policyholders. The weighted average crediting rate and investment spread for fixed rate annuity liabilities include the impact of higher crediting rates on multi-year rate guaranteed policies for which the targeted investment spread is lower than the targeted investment spread for annually adjustable fixed rate annuity liabilities. With respect to our index annuities, index costs represent the expenses we incur to fund the annual income credits and minimum guaranteed interest credited on the index business. Gains realized on such options are recorded as part of the change in fair value of derivatives, and are largely offset by an expense for interest credited to annuity policyholder account balances. See Critical Accounting Policies—Derivatives Instruments—Equity Index Products and Note 1 of the Notes to Consolidated Financial Statements found in our Annual Report on Form 10-K/A for the year ended December 31, 2002.

        Change in fair value of embedded derivatives decreased to $(0.3) million in the third quarter of 2003 and increased to $40.9 million for the nine months ended September 30, 2003 compared to $0.4 million and $(17.0) million for the same periods in 2002. Under SFAS No. 133, the annual crediting liabilities on our index annuities are treated as a "series of embedded derivatives" over the life of the applicable contracts. We are required to estimate the fair value of the future index reserve liabilities by valuing the "host" (or guaranteed) component of the liabilities and projecting (i) the expected index credits on the next policy anniversary dates and (ii) the net cost of the annual options we will purchase in the future to fund index credits. The decrease in this expense to $(0.3) million for the three months ended September 30, 2003 compared to the same period in 2002 primarily resulted from the difference in the rate of change in the underlying indices in the applicable three month periods. The increase in this expense to $40.9 million for the nine months ended September 30, 2003 primarily resulted from the increase in expected index credits on the next policy anniversary dates, which are related to the change in the fair value of the call options acquired to fund these index credits discussed above in the "Change in fair value of derivatives." In addition, the host value of the index reserve liabilities increased primarily as a result of increases in index annuity premium deposits. See "Critical Accounting Policies—Derivative Instruments—Equity Index Products" and Note 1 of the Notes to Consolidated Financial Statements found in our Annual Report on Form 10-K/A for the year ended December 31, 2002.

        Amortization of deferred policy acquisition costs increased 37% to $13.5 million in the third quarter of 2003, and 46% to $40.4 million for the nine months ended September 30, 2003 compared to $9.8 million and $27.7 million for the same periods in 2002. These increases are primarily due to additional annuity deposits as discussed above. The increase in amortization for the three months ended September 30, 2003 was offset by a reduction of amortization of $0.6 million associated with net realized losses on investments for that period. Additional amortization associated with net realized gains on investments for the nine months ended September 30, 2003 was $3.1 million.

        Other operating costs and expenses increased 25% to $7.0 million in the third quarter of 2003 compared to $5.6 million for the same period in 2002. Other operating costs and expenses increased 27% to $19.8 million for the nine months ended September 30, 2003 compared to $15.6 million for the

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same period in 2002. These increases were principally attributable to increases in marketing expenses, professional fees related to litigation, employees and related salaries and costs of employment due to growth in our annuity business.

        Income tax expense increased 130% to $3.4 million in the third quarter of 2003 and 74% to $9.2 million for the nine months ended September 30, 2003, compared to $1.5 million and $5.3 million for the same periods in 2002. These increases were principally due to increases in pre-tax income. Our effective tax rate for the third quarter of 2003 and the nine months ended September 30, 2003 was 35% after taking into consideration the impact of earnings attributable to company-obligated mandatorily redeemable preferred securities of subsidiary trusts, compared to 34% for the same periods in 2002. See Note 6 of the Notes to Consolidated Financial Statements found in our Annual Report on Form 10-K/A for the year ended December 31, 2002.

Financial Condition

Investments

        Cash and investments increased to $5,816.8 million at September 30, 2003 compared to $5,327.8 million at December 31, 2002 as a result of additional annuity deposits discussed above offset by an increase in the unrealized loss on our available for sale fixed maturity and equity securities. At September 30, 2003, the fair value of our available for sale fixed maturity and equity securities was $54.9 million less than the amortized cost of those investments, compared to $44.8 million at December 31, 2002. At September 30, 2003, the amortized cost of our fixed maturity securities held for investment exceeded the market value by $84.8 million, compared to $1.8 million at December 31, 2002. The increase in the net unrealized investment losses at September 30, 2003 compared to December 31, 2002 is related to an increase in market interest rates. Unrealized losses on available for sale fixed maturity and equity securities are recognized in the accumulated other comprehensive loss component of stockholders' equity, net of related changes in the amortization of deferred policy acquisition costs and deferred income taxes.

        Our investment portfolio is summarized in the tables below:

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        At September 30, 2003 and December 31, 2002, the amortized cost and estimated fair value of fixed maturity securities and equity securities that were in an unrealized loss position were as follows:

        The amortized cost and estimated fair value of fixed maturity securities at September 30, 2003 and December 31, 2002, 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

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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.