American Equity Investment Life Holding (AEL, Financial) filed Quarterly Report for the period ended 2010-03-31.
American Equity Investment Life Holding has a market cap of $550.89 million; its shares were traded at around $9.45 with a P/E ratio of 5.4 and P/S ratio of 0.46. The dividend yield of American Equity Investment Life Holding stocks is 0.85%.AEL is in the portfolios of Richard Pzena of Pzena Investment Management LLC, Paul Tudor Jones of The Tudor Group, Chuck Royce of Royce& Associates, Jim Simons of Renaissance Technologies LLC.
Net investment income increased 10% to $242.9 million in the first quarter of 2010 compared to $220.7 million for the same period in 2009. The increase was principally attributable to the growth in our annuity business and a corresponding increase in our invested assets. Average invested assets excluding derivative instruments (on an amortized cost basis) increased 13% to $15.9 billion for the three months ended March 31, 2010 compared to $14.0 billion for the same period in 2009, while the average yield earned on average invested assets was 6.13% and 6.30% for the three months ended March 31, 2010 and 2009, respectively. The decrease in yield earned on average invested assets was attributable to a lag in reinvestment of proceeds from bonds called for redemption during the first quarter of 2010 into new assets causing excess liquidity. Based on yields received for purchases of fixed maturity securities during the first quarter of 2010, we estimate that approximately $4.9 million in net investment income was foregone as a result of the excess liquidity and the average yield on invested assets for the first quarter of 2010 would have been 6.25% if such income had been earned.
Fair value accounting for derivatives and embedded derivatives utilized in our fixed index annuity business creates differences in the recognition of revenues and expenses from derivative instruments including the embedded derivative liabilities in our fixed index annuity contracts. The change in fair value of the embedded derivatives will not correspond to the change in fair value of the derivatives (purchased call options) because the purchased call options are one-year options while the options valued in the fair value of embedded derivatives cover the expected life of the contracts which typically exceeds ten years. The gross profit adjustments resulting from fair value accounting for derivatives and embedded derivatives utilized in our fixed index annuity business decreased amortization by $10.9 million in the first quarter of 2010 and increased amortization by an immaterial amount in the first quarter of 2009. The gross profit adjustments from net realized gains on investments and net OTTI losses recognized in operations increased amortization by $1.3 million for the three months ended March 31, 2010 and decreased amortization by $3.4 million for the same period in 2009. Excluding the amortization amounts attributable to fair value accounting for derivatives and embedded derivatives, net realized gains on investments and net OTTI losses recognized in operations, amortization for the three months ended March 31, 2010 would have been $22.8 million compared to $17.1 million for the same period in 2009. See Critical Accounting Policies - Deferred Policy Acquisition Costs and Deferred Sales Inducements included in Management's Discussion and Analysis in our Annual Report on Form 10-K for the year ended December 31, 2009.
Interest expense on notes payable increased 9% to $4.7 million in the first quarter of 2010 compared to $4.3 million for the same period in 2009. This increase was primarily due to the December 2009 issuance of an additional $52.2 million of 5.25% contingent convertible notes and a higher effective rate of interest on $63.6 million principal amount of 5.25% contingent convertible senior notes that were issued in December 2009 in exchange for the same principal amount of another issue of 5.25% contingent convertible notes. The increase in interest expense on the 5.25% contingent convertible notes was partially offset by a decrease in interest expense on borrowings under our revolving lines of credit with banks. The weighted average interest on the bank credit facility was 1.03% and 3.04% for the three months ended March 31, 2010 and 2009, respectively, and average borrowings outstanding were $150.0 million and $76.7 million for the same periods, respectively.
As discussed above, fair value accounting for derivatives and embedded derivatives utilized in our fixed index annuity business creates differences in the recognition of revenues and expenses from derivative instruments including the embedded derivative liabilities in our fixed index annuity contracts. The gross profit adjustments resulting from fair value accounting for derivatives and embedded derivatives utilized in our fixed index annuity business decreased amortization by $18.7 million in the first quarter of 2010 and increased amortization by $1.0 million for the same period in 2009. The gross profit adjustment from net realized gains on investments and net OTTI losses recognized in operations increased amortization by $1.8 million for the three months ended March 31, 2010 and decreased amortization by $4.8 million for the same period in 2009. Excluding the amortization amounts attributable to fair value accounting for derivatives, net realized gains on investments and net OTTI losses recognized in operations, amortization for the three months ended March 31, 2010 would have been $44.2 million compared to $38.4 million for the same period in 2009.
Other operating costs and expenses increased 11% to $16.0 million in the first quarter of 2010 compared to $14.5 million for the same period in 2009. This increase was principally attributable to an increase salaries and benefits of $2.6 million, offset by a decrease in legal expense of $1.2 million. The increase in salaries and benefits for the first quarter of 2010 was primarily due to an increase in the number of employees due to the growth in our business. Also, we recorded compensation expense of $0.8 million related to the grant of stock options to several retirement eligible employees and post employment benefit expense of $0.5 million related to an amendment to a post employment benefit agreement with our Executive Chairman, David J. Noble. The decrease in legal expense is primarily related to a decrease in the cost of on going litigation.
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American Equity Investment Life Holding has a market cap of $550.89 million; its shares were traded at around $9.45 with a P/E ratio of 5.4 and P/S ratio of 0.46. The dividend yield of American Equity Investment Life Holding stocks is 0.85%.AEL is in the portfolios of Richard Pzena of Pzena Investment Management LLC, Paul Tudor Jones of The Tudor Group, Chuck Royce of Royce& Associates, Jim Simons of Renaissance Technologies LLC.
Highlight of Business Operations:
Annuity product charges (surrender charges assessed against policy withdrawals and fees deducted from policyholder account balances for living income benefit riders) increased 3% to $15.5 million for the first quarter of 2010 compared to $15.1 million for the same period in 2009. 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 $105.2 million and $93.3 million for the three months ended March 31, 2010 and 2009, respectively. The average surrender charge collected on withdrawals subject to a surrender charge was 13.1% and 16.0% for the three months ended March 31, 2010 and 2009, respectively.Net investment income increased 10% to $242.9 million in the first quarter of 2010 compared to $220.7 million for the same period in 2009. The increase was principally attributable to the growth in our annuity business and a corresponding increase in our invested assets. Average invested assets excluding derivative instruments (on an amortized cost basis) increased 13% to $15.9 billion for the three months ended March 31, 2010 compared to $14.0 billion for the same period in 2009, while the average yield earned on average invested assets was 6.13% and 6.30% for the three months ended March 31, 2010 and 2009, respectively. The decrease in yield earned on average invested assets was attributable to a lag in reinvestment of proceeds from bonds called for redemption during the first quarter of 2010 into new assets causing excess liquidity. Based on yields received for purchases of fixed maturity securities during the first quarter of 2010, we estimate that approximately $4.9 million in net investment income was foregone as a result of the excess liquidity and the average yield on invested assets for the first quarter of 2010 would have been 6.25% if such income had been earned.
Fair value accounting for derivatives and embedded derivatives utilized in our fixed index annuity business creates differences in the recognition of revenues and expenses from derivative instruments including the embedded derivative liabilities in our fixed index annuity contracts. The change in fair value of the embedded derivatives will not correspond to the change in fair value of the derivatives (purchased call options) because the purchased call options are one-year options while the options valued in the fair value of embedded derivatives cover the expected life of the contracts which typically exceeds ten years. The gross profit adjustments resulting from fair value accounting for derivatives and embedded derivatives utilized in our fixed index annuity business decreased amortization by $10.9 million in the first quarter of 2010 and increased amortization by an immaterial amount in the first quarter of 2009. The gross profit adjustments from net realized gains on investments and net OTTI losses recognized in operations increased amortization by $1.3 million for the three months ended March 31, 2010 and decreased amortization by $3.4 million for the same period in 2009. Excluding the amortization amounts attributable to fair value accounting for derivatives and embedded derivatives, net realized gains on investments and net OTTI losses recognized in operations, amortization for the three months ended March 31, 2010 would have been $22.8 million compared to $17.1 million for the same period in 2009. See Critical Accounting Policies - Deferred Policy Acquisition Costs and Deferred Sales Inducements included in Management's Discussion and Analysis in our Annual Report on Form 10-K for the year ended December 31, 2009.
Interest expense on notes payable increased 9% to $4.7 million in the first quarter of 2010 compared to $4.3 million for the same period in 2009. This increase was primarily due to the December 2009 issuance of an additional $52.2 million of 5.25% contingent convertible notes and a higher effective rate of interest on $63.6 million principal amount of 5.25% contingent convertible senior notes that were issued in December 2009 in exchange for the same principal amount of another issue of 5.25% contingent convertible notes. The increase in interest expense on the 5.25% contingent convertible notes was partially offset by a decrease in interest expense on borrowings under our revolving lines of credit with banks. The weighted average interest on the bank credit facility was 1.03% and 3.04% for the three months ended March 31, 2010 and 2009, respectively, and average borrowings outstanding were $150.0 million and $76.7 million for the same periods, respectively.
As discussed above, fair value accounting for derivatives and embedded derivatives utilized in our fixed index annuity business creates differences in the recognition of revenues and expenses from derivative instruments including the embedded derivative liabilities in our fixed index annuity contracts. The gross profit adjustments resulting from fair value accounting for derivatives and embedded derivatives utilized in our fixed index annuity business decreased amortization by $18.7 million in the first quarter of 2010 and increased amortization by $1.0 million for the same period in 2009. The gross profit adjustment from net realized gains on investments and net OTTI losses recognized in operations increased amortization by $1.8 million for the three months ended March 31, 2010 and decreased amortization by $4.8 million for the same period in 2009. Excluding the amortization amounts attributable to fair value accounting for derivatives, net realized gains on investments and net OTTI losses recognized in operations, amortization for the three months ended March 31, 2010 would have been $44.2 million compared to $38.4 million for the same period in 2009.
Other operating costs and expenses increased 11% to $16.0 million in the first quarter of 2010 compared to $14.5 million for the same period in 2009. This increase was principally attributable to an increase salaries and benefits of $2.6 million, offset by a decrease in legal expense of $1.2 million. The increase in salaries and benefits for the first quarter of 2010 was primarily due to an increase in the number of employees due to the growth in our business. Also, we recorded compensation expense of $0.8 million related to the grant of stock options to several retirement eligible employees and post employment benefit expense of $0.5 million related to an amendment to a post employment benefit agreement with our Executive Chairman, David J. Noble. The decrease in legal expense is primarily related to a decrease in the cost of on going litigation.
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