AMERICAN EQUITY INVESTMENT LIFE HOLDING CO - FORM 8-K - EX-99.2 - FINANCIAL SUPPLEMENT - February 20, 2013

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Exhibit 99.2



AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement

December 31, 2012


A.
Financial Highlights
 
 
 
 
 
Non-GAAP Financial Measures
 
 
 
 
 
 
 
 
 
 
B.
Product Summary
 
 
 
 
 
 
 
C.
Investment Summary
 
 
 
 
 
 
 
 
 
 
D.
 
 
 
E.





AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement-December 31, 2012

AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
 
December 31, 2012
 
December 31, 2011
Assets
 
 
 
Investments:
 
 
 
Fixed maturity securities:
 
 
 
Available for sale, at fair value
$
24,172,136

 
$
18,464,109

Held for investment, at amortized cost
76,088

 
2,644,206

Equity securities, available for sale, at fair value
53,422

 
62,845

Mortgage loans on real estate
2,623,940

 
2,823,047

Derivative instruments
415,258

 
273,314

Other investments
196,366

 
115,930

Total investments
27,537,210

 
24,383,451

 
 
 
 
Cash and cash equivalents
1,268,545

 
404,952

Coinsurance deposits
2,910,701

 
2,818,642

Accrued investment income
261,833

 
228,937

Deferred policy acquisition costs
1,709,799

 
1,683,857

Deferred sales inducements
1,292,341

 
1,242,787

Deferred income taxes
—

 
21,981

Income taxes recoverable
—

 
8,441

Other assets
153,049

 
81,671

Total assets
$
35,133,478

 
$
30,874,719

 
 
 
 
Liabilities and Stockholders' Equity
 
 
 
Liabilities:
 
 
 
Policy benefit reserves
$
31,773,988

 
$
28,118,716

Other policy funds and contract claims
455,752

 
400,594

Notes payable
309,869

 
297,608

Subordinated debentures
245,869

 
268,593

Deferred income taxes
49,303

 
—

Income taxes payable
4,756

 
—

Other liabilities
573,704

 
380,529

Total liabilities
33,413,241

 
29,466,040

 
 
 
 
Stockholders' equity:
 
 
 
Common stock
61,751

 
57,837

Additional paid-in capital
496,715

 
468,281

Unallocated common stock held by ESOP
(2,583
)
 
(3,620
)
Accumulated other comprehensive income
686,807

 
457,229

Retained earnings
477,547

 
428,952

Total stockholders' equity
1,720,237

 
1,408,679

Total liabilities and stockholders' equity
$
35,133,478

 
$
30,874,719




Page 1


AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement-December 31, 2012

AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
 
 
Three Months Ended
December 31,
 
Year Ended
December 31,
 
2012
 
2011
 
2012
 
2011
Revenues:
 
 
 
 
 
 
 
Traditional life insurance premiums
$
3,107

 
$
2,820

 
$
12,877

 
$
12,151

Annuity product charges
23,830

 
18,930

 
89,006

 
76,189

Net investment income
321,160

 
324,272

 
1,286,923

 
1,218,780

Change in fair value of derivatives
(48,266
)
 
92,269

 
221,138

 
(114,728
)
Net realized gains (losses) on investments, excluding other than temporary impairment ("OTTI") losses
1,471

 
698

 
(6,454
)
 
(18,641
)
OTTI losses on investments:
 
 
 
 
 
 
 
Total OTTI losses
(3,255
)
 
(9,834
)
 
(5,411
)
 
(20,180
)
Portion of OTTI losses recognized from other comprehensive income
(6,132
)
 
(6,451
)
 
(9,521
)
 
(13,796
)
Net OTTI losses recognized in operations
(9,387
)
 
(16,285
)
 
(14,932
)
 
(33,976
)
Total revenues
291,915

 
422,704

 
1,588,558

 
1,139,775

 
 
 
 
 
 
 
 
Benefits and expenses:
 
 
 
 
 
 
 
Insurance policy benefits and change in future policy benefits
1,843

 
1,588

 
8,075

 
7,870

Interest sensitive and index product benefits (a) (d)
290,126

 
154,440

 
818,087

 
775,757

Amortization of deferred sales inducements (c)
36,798

 
48,889

 
87,157

 
71,781

Change in fair value of embedded derivatives
(179,379
)
 
33,031

 
286,899

 
(105,194
)
Interest expense on notes payable
7,271

 
7,910

 
28,479

 
31,633

Interest expense on subordinated debentures
3,074

 
3,542

 
13,458

 
13,977

Interest expense on amounts due under repurchase agreements
—

 
25

 
—

 
30

Amortization of deferred policy acquisition costs (c)
59,833

 
78,323

 
164,919

 
143,478

Other operating costs and expenses (b) (e)
18,710

 
17,518

 
95,495

 
67,529

Total benefits and expenses
238,276

 
345,266

 
1,502,569

 
1,006,861

Income before income taxes
53,639

 
77,438

 
85,989

 
132,914

Income tax expense
17,242

 
27,739

 
28,191

 
46,666

Net income (a) (b) (c) (d) (e)
$
36,397

 
$
49,699

 
$
57,798

 
$
86,248

 
 
 
 
 
 
 
 
Earnings per common share
$
0.58

 
$
0.83

 
$
0.94

 
$
1.45

Earnings per common share - assuming dilution (a) (b) (c) (d) (e)
$
0.55

 
$
0.79

 
$
0.89

 
$
1.37

Weighted average common shares outstanding (in thousands):
 
 
 
 
 
 
 
Earnings per common share
62,856

 
59,641

 
61,259

 
59,482

Earnings per common share - assuming dilution
65,897

 
63,582

 
65,676

 
63,619

See notes (a), (b), (c), (d) and (e) on page 3.

Page 2


AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement-December 31, 2012

Notes for Consolidated Statements of Operations
(a)
The year ended December 31, 2011 includes an adjustment recorded in the first quarter 2011 to single premium immediate annuity reserves which reduced interest sensitive and index product benefits by $4.2 million and increased net income and earnings per common share - assuming dilution by $2.7 million and $0.04 per share, respectively.
(b)
Other operating costs and expenses for the three months and year ended December 31, 2012 include $2.0 million and $9.1 million, respectively, of expense related to the impact of the prospective adoption (effective January 1, 2012) of revised accounting guidance for deferred policy acquisition costs. This change, including the impact on related amortization expense, decreased net income for the three months and year ended December 31, 2012 by $1.2 million and $5.8 million, respectively, and decreased earnings per common share - assuming dilution for the three months and year ended December 31, 2012 by $0.02 and $0.09 per share, respectively.
(c)
The year ended December 31, 2012 includes expense from unlocking which reduced amortization of deferred sales inducements by $0.2 million, increased amortization of deferred policy acquisition costs by $3.7 million, and decreased net income and earnings per common share - assuming dilution for the year ended December 31, 2012 by $2.2 million and $0.03 per share, respectively.
The year ended December 31, 2011, includes benefit from unlocking which reduced amortization of deferred sales inducements and amortization of deferred policy acquisition costs by $5.0 million and $9.1 million, respectively, and increased net income and earnings per common share - assuming dilution for the year ended December 31, 2011 by $9.1 million and $0.14 per share, respectively.
(d)
The year ended December 31, 2012 includes a benefit from the revision of assumptions used in determining reserves held for living income benefit riders consistent with unlocking for deferred policy acquisition costs and deferred sales inducements. The impact decreased interest sensitive and index product benefits for the year ended December 31, 2012 by $2.2 million and increased net income and earnings per common share - assuming dilution for the year ended December 31, 2012 by $1.4 million and $0.02 per share.
(e)
The year ended December 31, 2012 includes expense from recognizing an estimated litigation liability of $17.5 million during the third quarter of 2012, which, after related adjustments to amortization of deferred sales inducements and deferred policy acquisition costs and income taxes, decreased net income and earnings per common share - assuming dilution for the year ended December 31, 2012 by $9.6 million and $0.15 per share.

Page 3


AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement-December 31, 2012

Quarterly Summary - Most Recent 5 Quarters (Unaudited)
 
Q4 2012
 
Q3 2012
 
Q2 2012
 
Q1 2012
 
Q4 2011
 
(Dollars in thousands, except per share data)
Revenues:
 
 
 
 
 
 
 
 
 
Traditional life insurance premiums
$
3,107

 
$
3,300

 
$
3,248

 
$
3,222

 
$
2,820

Annuity product charges
23,830

 
23,875

 
21,908

 
19,393

 
18,930

Net investment income
321,160

 
318,594

 
320,259

 
326,910

 
324,272

Change in fair value of derivatives
(48,266
)
 
161,090

 
(150,847
)
 
259,161

 
92,269

Net realized gains (losses) on investments, excluding OTTI
1,471

 
(1,238
)
 
(611
)
 
(6,076
)
 
698

Net OTTI losses recognized in operations
(9,387
)
 
(1,686
)
 
(978
)
 
(2,881
)
 
(16,285
)
Total revenues
291,915

 
503,935

 
192,979

 
599,729

 
422,704

 
 
 
 
 
 
 
 
 
 
Benefits and expenses:
 
 
 
 
 
 
 
 
 
Insurance policy benefits and change in future policy benefits
1,843

 
1,865

 
2,250

 
2,117

 
1,588

Interest sensitive and index product benefits (b)
290,126

 
246,105

 
142,733

 
139,123

 
154,440

Amortization of deferred sales inducements (a)
36,798

 
7,709

 
25,940

 
16,710

 
48,889

Change in fair value of embedded derivatives
(179,379
)
 
188,201

 
(80,989
)
 
359,066

 
33,031

Interest expense on notes payable
7,271

 
7,141

 
7,072

 
6,995

 
7,910

Interest expense on subordinated debentures
3,074

 
3,235

 
3,563

 
3,586

 
3,542

Interest expense on amounts due under repurchase agreements
—

 
—

 
—

 
—

 
25

Amortization of deferred policy acquisition costs (a)
59,833

 
25,954

 
44,848

 
34,284

 
78,323

Other operating costs and expenses (c)
18,710

 
36,170

 
18,902

 
21,713

 
17,518

Total benefits and expenses
238,276

 
516,380

 
164,319

 
583,594

 
345,266

Income before income taxes
53,639

 
(12,445
)
 
28,660

 
16,135

 
77,438

Income tax expense
17,242

 
(4,616
)
 
9,901

 
5,664

 
27,739

Net income (loss) (a) (b) (c)
$
36,397

 
$
(7,829
)
 
$
18,759

 
$
10,471

 
$
49,699

 
 
 
 
 
 
 
 
 
 
Earnings (loss) per common share
$
0.58

 
$
(0.13
)
 
$
0.31

 
$
0.18

 
$
0.83

Earnings (loss) per common share - assuming dilution (a) (b) (c)
$
0.55

 
$
(0.13
)
 
$
0.30

 
$
0.16

 
$
0.79

Weighted average common shares outstanding (in thousands):
 
 
 
 
 
 
 
 
 
Earnings (loss) per common share
62,856

 
62,504

 
59,943

 
59,701

 
59,641

Earnings (loss) per common share - assuming dilution
65,897

 
65,262

 
64,254

 
65,930

 
63,582

(a)
Q3 2012 includes expense from unlocking which reduced amortization of deferred sales inducements by $0.2 million, increased amortization of deferred policy acquisition costs by $3.7 million, and increased net loss and loss per common share - assuming dilution for Q3 2012 by $2.2 million and $0.03 per share, respectively.
(b)
Q3 2012 includes a benefit from the revision of assumptions used in determining reserves held for living income benefit riders consistent with unlocking for deferred policy acquisition costs and deferred sales inducements. The impact decreased interest sensitive and index product benefits by $2.2 million and decreased net loss and loss per common share - assuming dilution by $1.4 million $0.02 per share, respectively.
(c)
Q3 2012 includes expense from recognizing an estimated litigation liability of $17.5 million during the third quarter of 2012, which, after related adjustments to amortization of deferred sales inducements and deferred policy acquisition costs and income taxes, increased net loss and loss per common share - assuming dilution by $9.6 million and $0.15 per share.

Page 4


AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement-December 31, 2012

NON-GAAP FINANCIAL MEASURES
In addition to net income (loss), we have consistently utilized operating income and operating income per common share - assuming dilution, non-GAAP financial measures commonly used in the life insurance industry, as economic measures to evaluate our financial performance. Operating income equals net income (loss) adjusted to eliminate the impact of net realized gains and losses on investments including net OTTI losses recognized in operations, fair value changes in derivatives and embedded derivatives and litigation reserves. Because these items fluctuate from quarter to quarter in a manner unrelated to core operations, we believe measures excluding their impact are useful in analyzing operating trends. We believe the combined presentation and evaluation of operating income together with net income provides information that may enhance an investor’s understanding of our underlying results and profitability.
Reconciliation from Net Income to Operating Income (Unaudited)
 
Three Months Ended
December 31,
 
Year Ended
December 31,
 
2012
 
2011
 
2012
 
2011
 
(Dollars in thousands, except per share data)
Net income
$
36,397

 
$
49,699

 
$
57,798

 
$
86,248

Adjustments to arrive at operating income:
 
 
 
 
 
 
 
Net realized investment losses, including OTTI (a)
2,825

 
5,616

 
8,648

 
18,354

Change in fair value of derivatives and embedded derivatives (a)
(8,317
)
 
(22,713
)
 
34,161

 
29,051

Litigation reserve (a)
—

 
—

 
9,580

 
—

Operating income (a non-GAAP financial measure) (b) (c) (d) (e)
$
30,905

 
$
32,602

 
$
110,187

 
$
133,653

 
 
 
 
 
 
 
 
Per common share - assuming dilution:
 
 
 
 
 
 
 
Net income
$
0.55

 
$
0.79

 
$
0.89

 
$
1.37

Adjustments to arrive at operating income:
 
 
 
 
 
 
 
Net realized investment losses, including OTTI
0.04

 
0.09

 
0.13

 
0.29

Changes in fair value of derivatives and embedded derivatives
(0.12
)
 
(0.36
)
 
0.52

 
0.46

Litigation reserve
—

 
—

 
0.15

 
—

Operating income (a non-GAAP financial measure) (b) (c) (d) (e)
$
0.47

 
$
0.52

 
$
1.69

 
$
2.12

(a)
Adjustments to net income to arrive at operating income are presented net of related adjustments to amortization of deferred sales inducements (DSI) and deferred policy acquisition costs (DAC) and net of income taxes.
(b)
The three months and year ended December 31, 2012 includes $2.0 million and $9.1 million, respectively, of expense related to the impact of the prospective adoption (effective January 1, 2012) of revised accounting guidance for deferred policy acquisition costs. This change, including the impact on related amortization expense, decreased operating income for the three months and year ended December 31, 2012 by $1.2 million and $5.8 million, respectively, and decreased operating income per common share - assuming dilution for the three months and year ended December 31, 2012 by $0.02 and $0.09 per share, respectively.
(c)
The year ended December 31, 2012 includes expense from unlocking which decreased operating income by $6.3 million and operating income per common share - assuming dilution by $0.09 per share.
The year ended December 31, 2011 includes benefit from unlocking which increased operating income by $12.5 million and operating income per common share - assuming dilution by $0.20 per share.
(d)
The year ended December 31, 2011, includes an adjustment recorded in the first quarter of 2011 to single premium immediate annuity reserves which reduced interest sensitive and index product benefits by $4.2 million, increased net income and operating income by $2.7 million and increased earnings per common share - assuming dilution and operating income per common share - assuming dilution by $0.04 per share.
(e)
The estimated annual effective tax rate applied to operating income for the first nine months of 2012 was 35.3%. The actual final rate for the year was 34.3%. Because the lower rate was applied retroactively to all 2012 income, income tax expense in the fourth quarter of 2012 was reduced by $1.3 million ($0.02 per share) for the portion of the year prior to the fourth quarter.


Page 5


AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement-December 31, 2012

NON-GAAP FINANCIAL MEASURES
Summary of Adjustments to Arrive at Operating Income (Unaudited)
 
Three Months Ended
December 31,
 
Year Ended
December 31,
 
2012
 
2011
 
2012
 
2011
 
(Dollars in thousands)
Net realized investment losses, including OTTI:
 
 
 
 
 
 
 
Net realized losses on investments, including OTTI
$
7,916

 
$
15,587

 
$
21,386

 
$
52,617

Amortization of DAC and DSI
(3,561
)
 
(6,866
)
 
(7,989
)
 
(24,117
)
Income taxes
(1,530
)
 
(3,105
)
 
(4,749
)
 
(10,146
)
 
$
2,825

 
5,616

 
$
8,648

 
$
18,354

Change in fair value of derivatives and embedded derivatives:
 
 
 
 
 
 
 
Change in fair value of derivatives and embedded derivatives
$
(26,342
)
 
$
(84,412
)
 
$
151,695

 
$
125,721

Amortization of DAC and DSI
13,447

 
49,032

 
(98,306
)
 
(80,858
)
Income taxes
4,578

 
12,667

 
(19,228
)
 
(15,812
)
 
$
(8,317
)
 
$
(22,713
)
 
$
34,161

 
$
29,051

Litigation reserve:
 
 
 
 
 
 
 
Litigation reserve recorded in other operating costs
$
—

 
$
—

 
$
17,532

 
$
—

Amortization of DAC and DSI
—

 
—

 
(2,656
)
 
—

Income taxes
—

 
—

 
(5,296
)
 
—

 
$
—

 
$
—

 
$
9,580

 
$
—



Page 6


AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement-December 31, 2012

NON-GAAP FINANCIAL MEASURES
Quarterly Summary - Most Recent 5 Quarters (Unaudited)
Reconciliation from Net Income (Loss) to Operating Income
 
Q4 2012
 
Q3 2012
 
Q2 2012
 
Q1 2012
 
Q4 2011
 
(Dollars in thousands, except per share data)
Net income (loss)
$
36,397

 
$
(7,829
)
 
$
18,759

 
$
10,471

 
$
49,699

Adjustments to arrive at operating income:
 
 
 
 
 
 
 
 
 
Net realized investment losses (a)
2,825

 
1,415

 
861

 
3,547

 
5,616

Change in fair value of derivatives and embedded derivatives (a)
(8,317
)
 
19,000

 
7,736

 
15,742

 
(22,713
)
Litigation reserve (a)
—

 
9,580

 
—

 
—

 
—

Operating income (a non-GAAP financial measure) (b) (c)
$
30,905

 
$
22,166

 
$
27,356

 
$
29,760

 
$
32,602

 
 
 
 
 
 
 
 
 
 
Operating income per common share - assuming dilution (b) (c)
$
0.47

 
$
0.34

 
$
0.43

 
$
0.46

 
$
0.52

(a)
Adjustments to net income (loss) to arrive at operating income are presented net of related adjustments to amortization and deferred sales inducements and deferred policy acquisition costs and net of income taxes.
(b)
Q3 2012 includes expense from unlocking which increased amortization of deferred sales inducements and amortization of deferred policy acquisition costs by $2.4 million and $7.3 million, respectively, and decreased operating income and operating income per common share - assuming dilution for Q3 2012 by $6.3 million and $0.09 per share, respectively.
(c)
Q3 2012 includes a benefit from the revision of assumptions used in determining reserves held for living income benefit riders consistent with unlocking for deferred policy acquisition costs and deferred sales inducements. The impact reduced interest sensitive and index product benefits by $2.2 million and increased operating income and operating per common share - assuming dilution by $1.4 million $0.02 per share, respectively.
Summary of Adjustments to Arrive at Operating Income
 
Q4 2012
 
Q3 2012
 
Q2 2012
 
Q1 2012
 
Q4 2011
 
(Dollars in thousands)
Net realized (gains) losses on investments
$
(1,471
)
 
$
1,238

 
$
611

 
$
6,076

 
$
(698
)
Net OTTI losses recognized in operations
9,387

 
1,686

 
978

 
2,881

 
16,285

Change in fair value of derivatives
156,123

 
(96,232
)
 
85,683

 
(283,265
)
 
(93,544
)
Increase (decrease) in total revenues
164,039

 
(93,308
)
 
87,272

 
(274,308
)
 
(77,957
)
 
 
 
 
 
 
 
 
 
 
Amortization of deferred sales inducements
(3,140
)
 
28,278

 
7,201

 
16,758

 
(17,368
)
Change in fair value of embedded derivatives
182,465

 
(186,362
)
 
56,826

 
(342,315
)
 
(9,132
)
Amortization of deferred policy acquisition costs
(6,746
)
 
35,636

 
9,609

 
21,355

 
(24,798
)
Other operating costs and expenses
—

 
(17,532
)
 
—

 
—

 
—

Increase (decrease) in total benefits and expenses
172,579

 
(139,980
)
 
73,636

 
(304,202
)
 
(51,298
)
Increase (decrease) in income tax expense
(3,048
)
 
16,677

 
5,039

 
10,605

 
(9,562
)
Increase (decrease) in net income (loss)
(5,492
)
 
29,995

 
8,597

 
19,289

 
(17,097
)

Page 7


AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement-December 31, 2012


Capitalization/Book Value per Share

 
December 31, 2012
 
December 31, 2011
 
(Dollars in thousands, except per share data)
Capitalization:
 
 
 
Notes payable
$
309,869

 
$
297,608

Subordinated debentures payable to subsidiary trusts
245,869

 
268,593

   Total debt
555,738

 
566,201

Total stockholders’ equity
1,720,237

 
1,408,679

Total capitalization
2,275,975

 
1,974,880

Accumulated other comprehensive income (AOCI)
(686,807
)
 
(457,229
)
Total capitalization excluding AOCI (a)
$
1,589,168

 
$
1,517,651

 
 
 
 
Total stockholders’ equity
$
1,720,237

 
$
1,408,679

Accumulated other comprehensive income
(686,807
)
 
(457,229
)
Total stockholders’ equity excluding AOCI (a)
$
1,033,430

 
$
951,450

 
 
 
 
Common shares outstanding (b)
62,653,134

 
59,131,995

 
 
 
 
Book Value per Share: (c)
 
 
 
Book value per share including AOCI
$
27.46

 
$
23.82

Book value per share excluding AOCI (a)
$
16.49

 
$
16.09

 
 
 
 
Debt-to-Capital Ratios: (d)
 
 
 
Senior debt / Total capitalization
19.5
%
 
19.6
%
Adjusted debt / Total capitalization
20.0
%
 
22.3
%

(a)
Total capitalization, total stockholders’ equity and book value per share excluding AOCI, non-GAAP financial measures, are based on stockholders’ equity excluding the effect of AOCI. Since AOCI fluctuates from quarter to quarter due to unrealized changes in the fair value of available for sale investments, we believe these non-GAAP financial measures provide useful supplemental information.
(b)
Common shares outstanding include shares held by the NMO Deferred Compensation Trust: 2012 - 1,142,332 shares; 2011 - 1,631,548 shares and exclude unallocated shares held by ESOP: 2012 - 239,799 shares; 2011 - 336,093 shares.
(c)
Book value per share including and excluding AOCI is calculated as total stockholders’ equity and total stockholders’ equity excluding AOCI divided by the total number of shares of common stock outstanding.
(d)
Debt-to-capital ratios are computed using total capitalization excluding AOCI. Adjusted debt includes notes payable and the portion of the total subordinated debentures payable to subsidiary trusts outstanding (qualifying trust preferred securities) that exceeds 15% of total capitalization excluding AOCI.


Page 8


AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement-December 31, 2012

Spread Results
 
Three Months Ended
December 31,
 
Year Ended
December 31,
 
2012
 
2011
 
2012
 
2011
Average yield on invested assets
5.03%
 
5.76%
 
5.28%
 
5.80%
Aggregate cost of money
2.44%
 
2.79%
 
2.58%
 
2.77%
Aggregate investment spread
2.59%
 
2.97%
 
2.70%
 
3.03%
 
 
 
 
 
 
 
 
Impact of:
 
 
 
 
 
 
 
Investment yield - additional prepayment income
0.11%
 
—%
 
0.06%
 
—%
Cost of money benefit from over hedging
0.03%
 
0.02%
 
0.01%
 
0.06%

Summary of Cost of Money for Deferred Annuities
 
Three Months Ended
December 31,
 
Year Ended
December 31,
 
2012
 
2011
 
2012
 
2011
 
(Dollars in thousands)
Included in interest sensitive and index product benefits:
 
 
 
 
 
 
 
Index credits
$
193,903

 
$
65,036

 
$
447,393

 
$
448,248

Interest credited
76,809

 
76,867

 
306,981

 
289,846

Included in change in fair value of derivatives:
 
 
 
 
 
 
 
Proceeds received at option expiration
(193,544
)
 
(65,495
)
 
(447,163
)
 
(454,212
)
Pro rata amortization of option cost
88,773

 
90,493

 
361,260

 
336,162

Cost of money for deferred annuities
$
165,941

 
$
166,901

 
$
668,471

 
$
620,044

 
 
 
 
 
 
 
 
Weighted average liability balance outstanding
$
27,191,019

 
$
23,925,376

 
$
25,955,834

 
$
22,360,771


Page 9


AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement-December 31, 2012


Annuity Deposits by Product Type
 
 
Three Months Ended
December 31,
 
Year Ended
December 31,
Product Type
 
2012
 
2011
 
2012
 
2011
 
 
(Dollars in thousands)
Fixed Index Annuities:
 
 
 
 
 
 
 
 
Index Strategies
 
$
656,913

 
$
763,495

 
$
2,225,902

 
$
2,839,295

Fixed Strategy
 
322,735

 
391,263

 
1,208,324

 
1,377,987

 
 
979,648

 
1,154,758

 
3,434,226

 
4,217,282

Fixed Rate Annuities:
 
 
 
 
 
 
 
 
Single-Year Rate Guaranteed
 
20,780

 
51,220

 
98,821

 
169,304

Multi-Year Rate Guaranteed
 
43,294

 
118,518

 
249,228

 
397,925

Single premium immediate annuities
 
24,392

 
47,608

 
164,657

 
305,603

 
 
88,466

 
217,346

 
512,706

 
872,832

Total before coinsurance ceded
 
1,068,114

 
1,372,104

 
3,946,932

 
5,090,114

Coinsurance ceded
 
35,748

 
95,911

 
203,734

 
326,531

Net after coinsurance ceded
 
$
1,032,366

 
$
1,276,193

 
$
3,743,198

 
$
4,763,583

Surrender Charge Protection and Account Values by Product Type
Annuity Surrender Charges and Net (of coinsurance) Account Values at December 31, 2012:
 
 
Surrender Charge
 
Net Account Value
Product Type
 
Avg.
Years
At Issue
 
Avg.
Years
Remaining
 
Avg.
%
Remaining
 
Dollars in Thousands
 
%
 
 
 
 
 
 
 
 
 
 
 
Fixed Index Annuities
 
14.2
 
10.4
 
16.0%
 
$
25,654,890

 
92.7
%
Single-Year Fixed Rate Guaranteed Annuities
 
11.1
 
4.7
 
8.0%
 
1,444,849

 
5.2
%
Multi-Year Fixed Rate Guaranteed Annuities (a)
 
6.2
 
1.8
 
4.5%
 
569,930

 
2.1
%
Total
 
13.9
 
9.9
 
15.4%
 
$
27,669,669

 
100.0
%
(a) 56% of Net Account Value is no longer in multi-year guarantee period and can be adjusted annually.


Page 10


AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement-December 31, 2012


Annuity Liability Characteristics
 
 
Fixed
Annuities
Account Value
 
Fixed Index
Annuities
Account Value
 
 
(Dollars in thousands)
SURRENDER CHARGE PERCENTAGES:
 
 
 
 
No surrender charge
 
$
582,163

 
$
567,549

0.0% < 2.0%
 
41,762

 
242,093

2.0% < 3.0%
 
117,407

 
202,723

3.0% < 4.0%
 
26,065

 
326,137

4.0% < 5.0%
 
48,678

 
223,529

5.0% < 6.0%
 
39,120

 
248,123

6.0% < 7.0%
 
189,065

 
211,062

7.0% < 8.0%
 
195,760

 
603,118

8.0% < 9.0%
 
185,739

 
560,779

9.0% < 10.0%
 
73,553

 
439,303

10.0% or greater
 
515,467

 
22,030,474

 
 
$
2,014,779

 
$
25,654,890

 
 
Fixed and
Fixed Index
Annuities
Account Value
 
Weighted
Average
Surrender
Charge
 
 
(Dollars in thousands)
 
 
SURRENDER CHARGE EXPIRATION BY YEAR:
 
 
 
 
Out of Surrender Charge
 
$
1,149,712

 
0.00
%
2013
 
477,273

 
1.85
%
2014
 
530,863

 
3.33
%
2015
 
573,143

 
4.99
%
2016
 
827,026

 
6.60
%
2017
 
985,980

 
7.78
%
2018
 
834,102

 
10.03
%
2019
 
594,626

 
10.69
%
2020
 
930,474

 
12.00
%
2021
 
1,238,191

 
13.78
%
2022
 
2,045,416

 
15.78
%
2023
 
3,794,590

 
18.13
%
2024
 
4,137,527

 
19.01
%
2025
 
3,189,272

 
18.89
%
2026
 
2,694,167

 
18.99
%
2027
 
1,964,077

 
19.49
%
2028
 
1,671,267

 
19.98
%
2029
 
31,963

 
20.00
%
 
 
$
27,669,669

 
15.36
%

Page 11


AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement-December 31, 2012

Annuity Liability Characteristics
 
 
Fixed
Annuities
Account Value
 
Fixed Index
Annuities
Account Value
 
 
(Dollars in thousands)
CREDITED RATE (INCLUDING BONUS INTEREST) VS. ULTIMATE MINIMUM GUARANTEED RATE DIFFERENTIAL:
 
 
 
 
No differential
 
$
750,494

 
$
782,138

› 0.0% - 0.25%
 
310,451

 
563,054

› 0.25% - 0.5%
 
126,260

 
40,227

› 0.5% - 1.0% (a)
 
319,570

 
1,108,809

› 1.0% - 1.5% (a)
 
118,742

 
24,550

› 1.5% - 2.0%
 
133,229

 
2,349

› 2.0% - 2.5%
 
2,442

 
—

› 2.5% - 3.0%
 
41,616

 
—

1.00% ultimate guarantee - 2.34% wtd avg interest rate (b)
 
23,824

 
—

1.50% ultimate guarantee - 1.78% wtd avg interest rate (b)
 
80,614

 
2,126,436

2.00% ultimate guarantee - 2.68% wtd avg interest rate (b)
 
107,537

 
—

2.25% ultimate guarantee - 2.74% wtd avg interest rate (b)
 
—

 
1,577,147

3.00% ultimate guarantee - 2.93% wtd avg interest rate (b)
 
—

 
3,123,690

Allocated to index strategies (see tables that follow)
 
—

 
16,306,490

 
 
$
2,014,779

 
$
25,654,890

(a)
$164,437 of Fixed Annuities Account Value have a guarantee of 2.25% for the first 10 years and 3.00% thereafter. They begin increasing in 2014. $635,545 of Index Annuities Account Value is in fixed rate strategies that have a guarantee of 2.25% for the first 10 years and 3.00% thereafter. They begin increasing in 2014.    
(b)
The minimum guaranteed interest rate for the fixed rate or the fixed rate strategy is 1.00%. The ultimate guaranteed rate is applied on less than 100% of the premium.
If all crediting rates were reduced to minimum guaranteed rates (subject to limitations imposed by ultimate minimum guaranteed rates where applicable) the weighted average crediting rate as of December 31, 2012 for fixed annuities and funds allocated to the fixed rate strategy for fixed index annuities would decrease by 0.63%.

Page 12


AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement-December 31, 2012

Annuity Liability Characteristics

FIXED INDEX ANNUITIES ACCOUNT VALUE - INDEX STRATEGIES
    
Annual Monthly Average and Point-to-Point with Caps
 
Minimum Guaranteed Cap
 
1%
 
3%
 
4%
 
7%
 
8% +
Current Cap
(Dollars in thousands)
At minimum
$
315

 
$
11,397

 
$
839,973

 
$
51,210

 
$
290,905

2.5% - 3%
48,088

 
—

 
—

 
—

 
—

3% - 4%
1,528,736

 
—

 
—

 
—

 
—

4% - 5%
18,459

 
110,498

 
1,236,577

 
—

 
—

5% - 6%
—

 
6,598

 
2,446,497

 
—

 
—

6% - 7%
—

 
—

 
3,205,869

 
—

 
—

>= 7%
—

 
12,766

 
33,767

 
133,463

 
75,672


    
Annual Monthly Average and Point-to-Point with Participation Rates
 
Minimum Guaranteed Participation Rate
 
10%
 
25%
 
35%
 
50% +
Current Participation Rate
(Dollars in thousands)
At minimum
$
19

 
$
338,525

 
$
175,534

 
$
215,347

< 20%
135,842

 
—

 
—

 
—

20% - 40%
106,074

 
497,842

 
—

 
—

40% - 60%
—

 
182,519

 
155,519

 
1,488

>= 60%
—

 
46

 
232

 
42


    
S&P 500 Monthly Point-to-Point - Minimum Guaranteed Monthly Cap = 1% (Dollars in thousands)

Current Cap
 
At minimum
$
11,970

1.6% - 1.8%
1,512,554

2.0% - 2.4%
1,576,237

>= 2.4%
1,336,697


If all caps and participation rates were reduced to minimum caps and participation rates, the cost of options would decrease by 0.63% based upon prices of options for the week ended January 15, 2013.


Page 13


AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement-December 31, 2012

Summary of Invested Assets
 
December 31, 2012
 
December 31, 2011
 
Carrying
Amount
 
Percent
 
Carrying
Amount
 
Percent
 
(Dollars in thousands)
Fixed maturity securities:
 
 
 
 
 
 
 
United States Government full faith and credit
$
5,154

 
—
%
 
$
4,678

 
—
%
United States Government sponsored agencies
1,772,025

 
6.5
%
 
4,368,053

 
17.9
%
United States municipalities, states and territories
3,578,323

 
13.0
%
 
3,333,383

 
13.7
%
Foreign government obligations
105,259

 
0.4
%
 
68,333

 
0.3
%
Corporate securities
14,542,860

 
52.8
%
 
10,167,188

 
41.7
%
Residential mortgage backed securities
2,888,113

 
10.5
%
 
2,703,290

 
11.1
%
Commercial mortgage backed securities
357,982

 
1.3
%
 
—

 
—
%
Other asset backed securities
998,508

 
3.6
%
 
463,390

 
1.9
%
Total fixed maturity securities
24,248,224

 
88.1
%
 
21,108,315

 
86.6
%
Equity securities
53,422

 
0.2
%
 
62,845

 
0.2
%
Mortgage loans on real estate
2,623,940

 
9.5
%
 
2,823,047

 
11.6
%
Derivative instruments
415,258

 
1.5
%
 
273,314

 
1.1
%
Other investments
196,366

 
0.7
%
 
115,930

 
0.5
%
 
$
27,537,210

 
100.0
%
 
$
24,383,451

 
100.0
%
Credit Quality of Fixed Maturity Securities - December 31, 2012
NAIC Designation
 
Carrying
Amount
 
Percent
 
Rating Agency Rating
 
Carrying
Amount
 
Percent
 
 
(Dollars in thousands)
 
 
 
 
 
(Dollars in thousands)
 
 
1
 
$
15,250,560

 
62.9
%
 
Aaa/Aa/A
 
$
14,613,775

 
60.3
%
2
 
8,533,121

 
35.2
%
 
Baa
 
8,190,220

 
33.8
%
3
 
401,789

 
1.7
%
 
Ba
 
365,102

 
1.5
%
4
 
56,151

 
0.2
%
 
B
 
79,789

 
0.3
%
5
 
—

 
—
%
 
Caa and lower
 
862,650

 
3.5
%
6
 
6,603

 
—
%
 
In or near default
 
136,688

 
0.6
%
 
 
$
24,248,224

 
100.0
%
 
 
 
$
24,248,224

 
100.0
%

Page 14


AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement-December 31, 2012

Watch List Securities - December 31, 2012
General Description
 
Amortized
Cost
 
Unrealized
Losses
 
Fair Value
 
Months Below Amortized Cost
 
 
(Dollars in thousands)
 
 
Corporate bonds:
 
 
 
 
 
 
 
 
Finance
 
$
49,480

 
$
(7,911
)
 
$
41,569

 
16 - 25
Industrial
 
38,867

 
(3,994
)
 
34,873

 
17 - 28
 
 
88,347

 
(11,905
)
 
76,442

 
 
Summary of Residential Mortgage Backed Securities
Collateral Type
 
Principal
Amount

 
Amortized
Cost
 
Fair Value
 
 
(Dollars in thousands)
OTTI has not been recognized
 
 
 
 
 
 
Government agency
 
$
1,052,139

 
$
1,024,731

 
$
1,119,249

Prime
 
862,805

 
821,727

 
877,356

Alt-A
 
40,631

 
41,164

 
41,685

 
 
$
1,955,575

 
$
1,887,622

 
$
2,038,290

OTTI has been recognized
 
 
 
 
 
 
Prime
 
$
600,945

 
$
523,048

 
$
515,385

Alt-A
 
419,868

 
332,867

 
334,438

 
 
$
1,020,813

 
$
855,915

 
$
849,823

Total by collateral type
 
 
 
 
 
 
Government agency
 
$
1,052,139

 
$
1,024,731

 
$
1,119,249

Prime
 
1,463,750

 
1,344,775

 
1,392,741

Alt-A
 
460,499

 
374,031

 
376,123

 
 
$
2,976,388

 
$
2,743,537

 
$
2,888,113

Total by NAIC designation
 
 
 
 
 
 
1
 
$
2,477,404

 
$
2,303,619

 
$
2,447,562

2
 
415,472

 
365,763

 
364,421

3
 
48,054

 
43,778

 
44,734

4
 
31,612

 
27,900

 
29,584

6
 
3,846

 
2,477

 
1,812

 
 
$
2,976,388

 
$
2,743,537

 
$
2,888,113


Page 15


AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement-December 31, 2012

Fixed Maturity Securities by Sector
 
December 31, 2012
 
December 31, 2011
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
 
(Dollars in thousands)
Available for sale:
 
 
 
 
 
 
 
United States Government full faith and credit and sponsored agencies
$
1,768,379

 
$
1,777,179

 
$
1,784,485

 
$
1,804,457

United States municipalities, states and territories
3,116,678

 
3,578,323

 
2,981,699

 
3,333,383

Foreign government obligations
86,099

 
105,259

 
60,809

 
68,333

Corporate securities:
 
 
 
 
 
 
 
Consumer discretionary
1,237,208

 
1,366,504

 
885,834

 
992,042

Consumer staples
876,654

 
1,003,651

 
614,531

 
701,192

Energy
1,463,923

 
1,655,363

 
1,018,520

 
1,141,179

Financials
2,476,780

 
2,713,351

 
1,808,076

 
1,868,055

Health care
926,136

 
1,064,097

 
667,014

 
765,274

Industrials
1,497,435

 
1,672,681

 
1,029,933

 
1,151,961

Information technology
854,347

 
923,263

 
486,545

 
547,195

Materials
1,076,133

 
1,189,410

 
562,272

 
627,405

Telecommunications
356,486

 
400,995

 
251,202

 
268,924

Utilities
2,143,026

 
2,453,736

 
1,727,993

 
1,988,764

Residential mortgage backed securities:
 
 
 
 
 
 
 
Government agency
1,024,731

 
1,119,249

 
449,720

 
547,987

Prime
1,344,775

 
1,392,741

 
1,738,801

 
1,761,890

Alt-A
374,031

 
376,123

 
429,519

 
393,413

Commercial mortgage backed securities:
 
 
 
 
 
 
 
Government agency
35,697

 
37,976

 
—

 
—

Other
319,173

 
320,006

 
—

 
—

Other asset backed securities:
 
 
 
 
 
 
 
Consumer discretionary
77,464

 
81,772

 
18,061

 
18,512

Energy
8,304

 
9,152

 
8,338

 
8,680

Financials
659,058

 
677,948

 
331,467

 
344,219

Industrials
154,358

 
166,567

 
57,547

 
61,285

Materials
28,813

 
29,150

 
5,000

 
5,038

Telecommunications
14,835

 
17,421

 
7,334

 
8,435

Utilities
14,459

 
16,498

 
14,762

 
17,221

Redeemable preferred stock - financials
22,045

 
23,721

 
40,817

 
39,265

 
$
21,957,027

 
$
24,172,136

 
$
16,980,279

 
$
18,464,109

Held for investment:
 
 
 
 
 
 
 
United States Government sponsored agencies
$
—

 
$
—

 
$
2,568,274

 
$
2,585,080

Corporate security - financials
76,088

 
61,521

 
75,932

 
59,342

 
$
76,088

 
$
61,521

 
$
2,644,206

 
$
2,644,422



Page 16


AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement-December 31, 2012


Mortgage Loans on Commercial Real Estate
 
December 31, 2012
 
December 31, 2011
 
Principal
 
Percent
 
Principal
 
Percent
 
(Dollars in thousands)
Geographic distribution
 
 
 
 
 
 
 
East
$
732,762

 
27.5
%
 
$
719,231

 
25.2
%
Middle Atlantic
155,094

 
5.8
%
 
169,240

 
5.9
%
Mountain
387,599

 
14.6
%
 
411,054

 
14.4
%
New England
26,385

 
1.0
%
 
36,815

 
1.3
%
Pacific
320,982

 
12.1
%
 
309,693

 
10.8
%
South Atlantic
458,802

 
17.3
%
 
493,764

 
17.3
%
West North Central
370,168

 
13.9
%
 
487,693

 
17.1
%
West South Central
207,091

 
7.8
%
 
228,521

 
8.0
%
 
$
2,658,883

 
100.0
%
 
$
2,856,011

 
100.0
%
 
 
 
 
 
 
 
 
Property type distribution
 
 
 
 
 
 
 
Office
$
666,467

 
25.1
%
 
$
777,343

 
27.2
%
Medical Office
136,764

 
5.1
%
 
175,580

 
6.1
%
Retail
677,951

 
25.5
%
 
635,916

 
22.3
%
Industrial/Warehouse
692,637

 
26.1
%
 
710,426

 
24.9
%
Hotel
94,045

 
3.5
%
 
139,193

 
4.9
%
Apartment
219,335

 
8.2
%
 
187,548

 
6.6
%
Mixed use/other
171,684

 
6.5
%
 
230,005

 
8.0
%
 
$
2,658,883

 
100.0
%
 
$
2,856,011

 
100.0
%
 
 
 
 
 
 
 
 
 
December 31,
 
 
 
 
 
2012
 
2011
 
 
 
 
Credit Exposure - By Payment Activity
 
 
 
 
 
 
 
Performing
$
2,597,440

 
$
2,743,068

 
 
 
 
In workout
26,723

 
67,425

 
 
 
 
Delinquent
—

 
6,595

 
 
 
 
Collateral dependent
34,720

 
38,923

 
 
 
 
 
2,658,883

 
2,856,011

 
 
 
 
Specific Loan Loss Allowance
(23,134
)
 
(23,664
)
 
 
 
 
General Loan Loss Allowance
(11,100
)
 
(9,300
)
 
 
 
 
Deferred prepayment fees
(709
)
 
—

 
 
 
 
 
$
2,623,940

 
$
2,823,047

 
 
 
 


Page 17


AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement-December 31, 2012

Shareholder Information
Corporate Offices:
American Equity Investment Life Holding Company
6000 Westown Parkway
West Des Moines, IA 50266
Inquiries:
D. J. Noble, Executive Chairman    
(515) 457-1703, dnoble@american-equity.com
John M. Matovina, Chief Executive Officer and President
(515) 457-1813, jmatovina@american-equity.com
Debra J. Richardson, Executive Vice President and Secretary
(515) 273-3551, drichardson@american-equity.com        
Ted M. Johnson, Chief Financial Officer and Treasurer
(515) 457-1980, tjohnson@american-equity.com
Common Stock and Dividend Information:
New York Stock Exchange symbol: “AEL”
 
High
 
Low
 
Close
 
Dividend Declared
2012
 
 
 
 
 
 
 
First Quarter
$13.09
 
$10.13
 
$12.77
 
$0.00
Second Quarter
$12.95
 
$10.00
 
$11.01
 
$0.00
Third Quarter
$12.41
 
$10.62
 
$11.63
 
$0.00
Fourth Quarter
$12.40
 
$10.56
 
$12.21
 
$0.15
 
 
 
 
 
 
 
 
2011
 
 
 
 
 
 
 
First Quarter
$13.93
 
$11.27
 
$13.12
 
$0.00
Second Quarter
$13.53
 
$11.91
 
$12.71
 
$0.00
Third Quarter
$13.22
 
$8.01
 
$8.75
 
$0.00
Fourth Quarter
$11.82
 
$8.05
 
$10.40
 
$0.12
 
 
 
 
 
 
 
 
2010
 
 
 
 
 
 
 
First Quarter
$10.99
 
$6.65
 
$10.65
 
$0.00
Second Quarter
$11.64
 
$8.53
 
$10.32
 
$0.00
Third Quarter
$11.19
 
$9.19
 
$10.24
 
$0.00
Fourth Quarter
$13.01
 
$10.11
 
$12.55
 
$0.10
Transfer Agent:
Computershare Trust Company, N.A.
P.O. Box 43010
Providence, RI 02940-0310
Phone: (877) 282-1169    
Fax: (781) 575-2723
www.computershare.com
Annual Report and Other Information:
Shareholders may receive when available, without charge, a copy of American Equity’s Annual Report, SEC filings and/or press releases by calling Julie L. LaFollette, Investor Relations, at (515) 273-3602 or by visiting our web site at www.american-equity.com.



Page 18


AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Financial Supplement-December 31, 2012

Research Analyst Coverage

Steven Schwartz
Raymond James & Associates, Inc.
(312) 612-7686
steven.schwartz@raymondjames.com

Randy Binner
Friedman, Billings, Ramsey & Co., Inc.
(703) 312-1890
rbinner@fbr.com

Edward Shields
Sandler O’Neill & Partners
(312) 281-3487
eshields@sandleroneill.com

Mark Hughes
SunTrust Robinson Humphrey
(615) 748-5680
mark_hughes@rhco.com

Daniel Furtado
Jefferies & Company, Inc.
(415) 229-1569
dfurtado@jefferies.com

Paul Sarran, Mark Finkelstein
Evercore Partners
(312) 445-6440 mark.finkelstein@evercore.com
(312) 445-6441 paul.sarran@evercore.com


Page 19

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