Rating hassles may have held down growth at American Equity Investment Life Holding Company, West Des Moines, Iowa, during the second quarter.[@@]
The company, best known for its equity index annuities, is reporting $10.4 million in net income for the second quarter on $123 million in revenue, up from $6.4 million in net income on $86 million in revenue for the second quarter of 2003.
American Equity collected $888 million in fixed and index annuity deposits during the first half, up from $787 million during the first half of 2003. Sales of multiyear fixed annuities made up less than 10% of the total, and deposits into American Equity’s Index Strategies annuities soared to $503 million, from $307 million.
The average spread, or difference, between the rate American Equity earned on its own investments and the rate it must pay customers fell to 0.81%, from 0.91%, for fixed annuities that offer multiyear rate guarantees. But the spread increased to 2.92%, from 2.54%, for annually adjusted fixed annuities and to 2.89%, from 2.78%, for index annuities.
Although profits and deposits were up, company executives said during an earnings conference that rating hassles have caused sales of equity index annuities to lag.
A major rating agency created a “competitive disadvantage” for American Equity by refusing to upgrade the company’s rating to A minus, from B plus plus, according to John Matovina, American Equity’s vice chairman.
As a result, American Equity’s original 2004 sales target of $3 billion is “unattainable,” Matovina said.
In a related matter, the company suspended a coinsurance pact with EquiTrust Life Insurance Company, a subsidiary of FBL Financial Group Inc., West Des Moines. The suspension was by mutual agreement, according to statements from both firms.
During 2004, 20% of American Equity’s premiums from sales of certain index and annually adjustable fixed-rate annuities was ceded to EquiTrust. As a result of the suspension of the coinsurance pact, American Equity will gain additional growth capacity from retaining income from all of its new sales, said Kevin Wingert, president of American Equity’s American Equity Life unit.