American Equity Investment Life Holding Company (AEL)

AEL 
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American Equity Investment Life Holding (AEL)

Q3 2008 Earnings Call

November 6, 2008; 11:00 am ET

Executives

John Matovina - Vice Chairman

Kevin Wingert - President

Wendy Carlson - Chief Financial Officer

Bryan Borchert - Investments

Bob Kunnen - Investments - Commercial Mortgage

Julie LaFollette - Investor Relations

Analysts

Randy Binner - FBR Capital Markets

Beth Malone - Keybanc Capital Markets

Steven Schwartz - Raymond James

Bill Dezellem - Tieton Capital Management

Paul Sherem - FPK

Presentation

Operator

Welcome to the American Equity Investment Life Holding Company’s third quarter conference call. At this time for opening remarks and introductions, I would like to turn the call over to Julie LaFollette, Investor Relations. You may proceed.

Julie LaFollette

Good morning and welcome to American Equity Investment Life Holding Company’s conference call to discuss third quarter 2008 earnings. Our earnings release and financial supplement can be found on our website at www.american-equity.com. Presenting on today’s call are John Matovina, Vice Chairman; Kevin Wingert, President of the Life Company; and Wendy Carlson, Chief Financial Officer.

Some of the comments made during this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. There are a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied. Factors that could cause the actual results to differ materially are discussed in detail in our most recent filings with the SEC. An audio replay will be available on our website shortly after today’s call.

It is now my pleasure to introduce John Matovina.

John Matovina

Thank you Julie and good morning everyone. Welcome to our call this morning. As we reported yesterday afternoon, third quarter net operating income was $23.1 million; that clearly is a quarterly record for the company. That compares to $16.4 million a year ago, which would be a 41% increase.

Diluted share EPS was $0.42 a share compared to $0.28 a share and again a record quarterly result. That translates into an operating return on equity of 11.6%, which is up appreciably from where we’ve been on a trailing 12-month basis for the last several quarters.

Now in the balance of the call you’re going to hear from Kevin and Wendy and I got to remind you of the themes we’ve been through in the past about what makes American Equity tick grow our assets under management, which Kevin will speak to the production and what has been happening there; earn the acceptable spread and of course that’s been the story for earnings this year.

Spreads have been widening due to the cost reductions we put in place over a year ago now and then of course maintain a high quality in the asset portfolio and while we’ve experienced some other than temporary impairments, we still maintain a very high quality portfolio that I think has survived very well in this current market environment.

So with that, I’ll let Kevin speak to you about sales and production.

Kevin Wingert

Thanks, John. Good morning everyone, it’s great to be with you today. It’s exciting times at American Equity. Our third quarter sales were at $571 million, almost $572 million, up 5% from the third quarter of ‘07 at just under $544 million.

Year-to-date sales were up over $1.7 billion, up 6% for the same period in ‘07 at $1.6 billion; so sales and production have been very, very solid. We’re excited about where we are and where we’re headed on a going-forward basis. We will pass $2 billion in sales here today, tomorrow. We had $206 million paid production in the month of October and we saw pending move up at the same time.

I’ve given you just a little bit of flavor for sales trends over the last few months. We saw a little bit of softening in particularly August, early September. It’s probably not unusual from year-to-year to see that. Usually August tends to be a time when a lot of the agents get their vacations in and really go back to work after Labor Day.

I think the thing that this year might have caused a little bit of confusion in the market with obviously the 151A was in the news a lot. So you get a lot of distractions like that and then we were starting to see the struggles of the general marketplace and all the negative noise that’s going on with that, really August, September, October.

The good news is, as we went into the second half of September and moved into October; app counts started ticking back up. October was actually our largest total app count of the year. If you look at October on a daily app count, it was also a 23 business day month. The app counts were right in there on a daily basis with where we would have been in March, April, May, which also were high production times for the annuity business. So we’re very excited to see the app counts moving back up.

Pending right now has been steadily between 2,400 and 2,500 pending cases and moving up. If you went back into late summer, right around Labor Day, we would have saw pending slide down probably between 2,000 and 2,100. So we’ve seen pending pick up nicely and pending is obviously a trend towards where paid production will go in the future.

We feel good that business is picking up and probably the other thing that makes me feel good about where we are in pending today; we had our agents out at our annual Agents Convention; our key producers about 200 of them a week ago. So we probably lost a few apps while we had them in Orlando, but still pending kept moving forward solidly and I think you’ll continue to see sales pick up.

We had a great annual convention. The agents were in a great mood. They were excited and it’s a good time to be in the safe-money business. Guaranteed, no loss of principal premium; interest, once it’s credited, it’s locked into these folks’ account. So we feel pretty darn good and the agents are feeling pretty good about the position their customer’s in and the story for both their current customers and new customers are protecting their retirement funds. So it was a real upbeat convention, exciting time.

We’ve got a lot of NMO meetings taking place, so we’ll be down in North Carolina with a group next week. We have 150 plus big producers down there. We’ve been putting together our producer forums here in Des Moines. We’re finishing those up over the next couple of weeks for the year. We’ll have had 600 plus agents come to Des Moines to hear the American Equity story and these are folks that are producers, are Gold Eagle type producers. So I really feel optimistic about how production is shaping up to finish the year, and positioning as we look to beginning of next year.

We’re already making our production plans to start the year; looking into new product ideas, our business plan, marketing plans, for next year. So things are pretty well moving forward and in pretty good shape and we’ll be pushing it hard as we finish the year and move into January. So if there’s trends from a sales standpoint, I think that the income rider that we’ve talked about over the last year and a half, two years is doing very well, getting good traction in the marketplace.

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