American Equity Investment Life Holding Company through its wholly-owned operating subsidiaries is a full service underwriter of a broad line of annuity and insurance products with a primary emphasis on the sale of fixed rate and index annuities. American Equity Investment Life Holding has a market cap of $368.9 million; its shares were traded at around $6.94 with a P/E ratio of 4.7 and P/S ratio of 1.1. The dividend yield of American Equity Investment Life Holding stocks is 1%.
Highlight of Business Operations:Net income decreased 45% to $26.5 million in the first quarter of 2009 compared to $48.1 million for the same period in 2008. Net income for 2008 includes the impact of the adoption of Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements (SFAS 157) as discussed below. Net income for 2009 includes the impact of applying Financial Accounting Standards Board (FASB) Staff Position (FSP) No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other Than Temporary Impairments (FSP FAS 115-2) as discussed below.
Amounts attributable to the application of SFAS 133 to our index annuity business fluctuate based upon changes in the fair values of call options purchased to fund the annual index credits for index annuities and changes in the interest rates used to discount the embedded derivative liability. The significant increase in the impact from this item for the first quarter of 2008 is primarily attributable to the adoption of SFAS 157 which requires that the discount rates used in the calculation of the fair value of embedded derivatives for index annuities include non performance risk related to those liabilities. Prior to the adoption of SFAS 157, the discount rates used were risk-free interest rates. SFAS 157 was adopted prospectively on January 1, 2008 and the changes in the discount rates resulted in a decrease in policy benefit reserves on January 1, 2008 of $150.6 million. The net income impact of this decrease in reserves net of the related adjustments to amortization of deferred sales inducements and deferred policy acquisition costs and income taxes was $40.7 million.
Annuity product charges (surrender charges assessed against policy withdrawals) increased 24% to $15.1 million for the first quarter of 2009 compared to $12.1 million for the same period in 2008. The increase was principally due to an increase in withdrawals subject to surrender charges. Withdrawals from annuity and single premium universal life policies subject to surrender charges were $93.3 million and $76.0 million for the three months ended March 31, 2009 and 2008, respectively. The average surrender charge collected on withdrawals subject to a surrender charge was 16.0% and 15.7% for the three months ended March 31, 2009 and 2008, respectively.
Net investment income increased 13% to $220.7 million in the first quarter of 2009 compared to $195.5 million for the same period in 2008. The increase was principally attributable to the growth in our annuity business and a corresponding increase in our invested assets and the average yield earned on investments. Average invested assets excluding derivative instruments (on an amortized cost basis) increased 10% to $14.0 billion for the three months ended March 31, 2009 compared to $12.7 billion for the same period in 2008, while the average yield earned on average invested assets was 6.30% and 6.14% for the three months ended March 31, 2009 and 2008, respectively. The increase in the yield earned on average invested assets was attributable to higher yields on investments purchased throughout 2008 and in the first quarter of 2009.
Net impairment losses recognized in operations increased to $13.4 million in the first quarter of 2009 compared to $3.2 million for the same period in 2008. As discussed previously, we adopted FSP FAS 115-2 effective January 1, 2009. FSP FAS 115-2 requires that other than temporary impairments on debt securities be allocated between the credit related and noncredit related components with the credit loss portion included in operations and the noncredit portion included as a component of comprehensive income. See Financial Condition - Investments for additional discussion of write downs of the fair value of securities for other than temporary impairments.
Interest credited to account balances increased 10% to $59.8 million in the first quarter of 2009 compared to $54.2 million for the same period in 2008. The components of interest credited to account balances are summarized as follows:
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