American Equity Investment Life Holding Company

Welcome to American Equity Investment Lifeholding Company's third quarter 2021 conference call. At this time, for opening remarks and introductions, I would like to turn the call over to Julie LaFollette, coordinator of investor relations.

Good morning and welcome to American Equity Investment Lifeholding Company's conference call to discuss third quarter 2021 earnings. Our earnings release and financial supplement can be found on our website at www.american-equity.com. Non-GAAP financial measures discussed on today's call and reconciliations of non-GAAP financial measures to the most comparable GAAP measures can be found in those documents or elsewhere on our investor relations portion of our website. Presenting on today's call are Anat Bala, Chief Executive Officer, Axel Andres, Chief Financial Officer, and Jim Hemelinen, Chief Investment Officer. Some of our comments will contain forward-looking statements indicated by terms such as anticipate, assuming, believe, continue, estimate, expect, forward, future, intend, likely, look to, may, need, over time, plan, potential, project, should, signal, strategy, target, then, to be, trends will and would, our actual results could significantly differ due to many risks, including the risk factors in our SEC filings. An audio replay will be made available on our website shortly after today's call. It is now my pleasure to introduce Anat Bala.

Thank you, Julie. Good morning and thank you all for your interest in American equity. Before we speak about third quarter results, I want to share with you about the progress made in each element of our AEL 2.0 strategy that was first unveiled around this time last year. We outlined the building blocks in order to execute the strategy, improve returns, and migrate to the capital-efficient business model we envisioned. We introduced the virtuous flywheel of the new AEL business model going forward. The virtuous flywheel starts with an industry-leading, at-scale annuity origination platform. We delivered a complete refresh of our general account product suite, regained relevance and growth in our IMO distribution channel, and built additional distribution with Eagle Life while adding talent to improve productivity and product economics. Our fundraising abilities through our liability origination platforms allow us to be an investment manager with expertise in both liability-driven asset allocation and to manage an open architecture investment platform that can source a wide variety of differentiated investments. Over the course of this year, we have established our investment management pillar capabilities necessary to be fully invested in core fixed income assets managed by BlackRock and Conning and private assets managed by American Equity or its strategically aligned investment managers. We now have six to seven sleeves of private assets sectors in which we have conviction, specifically commercial real estate, residential real estate, including mortgages, and single-family rental homes as a landlord, infrastructure debt and infrastructure equity, middle market loans to private companies, and lending to recurring revenue technology or software, or an acronym called STAR with two R's, sector companies, all of which will allow AEL to deploy an additional couple of billion dollars each year in private assets, demonstrably moving us towards a goal of 30 to 40% in private assets. We now have access to the necessary investment capabilities and services scaling to target allocation will allow AEL shareholders to realize the full potential of differentiated asset management with a potentially lower risk profile than other alternate business models. Finally, we've got the capital structuring and reinsurance capabilities to then attract third-party risk-bearing capital to this business. either for accessing ELs at scale liability origination or for access to both our differentiated asset allocations and our attractive cost of funding liabilities through reinsurance. The former is visible with our first such arrangement being the Brookfield reinsurance transaction completed this quarter with attractive fee-like revenues that will drive an evolution of AEL to a higher return on equity or ROE business through building a capital-efficient return on assets or ROE earnings model, thereby both diversifying and improving the quality of earnings. The latter will be our focus with our AEL Bermuda re-insurance entity, that we expect to go live around the end of this year with plans progressing well for it. On the Brookfield reinsurance transaction, we executed both in-force and new business flow reinsurance effective July 1. We believe this is a good deal for both parties. For us, the weighted average fee of the first $5 billion ceded to Brookfield, including $4 billion of in-force, that was seeded effective July 1 was 97 basis points, better than the 90 basis points originally described last October. The forward flow reinsurance fees at 170 basis points for six to seven years is a meaningfully positive signal on the quality of our liability origination and the strength of our franchise. In summary, late last year, we outlined the building blocks for AEL 2.0. And in 2021, we have executed all proof points for the fundamental building blocks. Going forward, we expect to reap the financial benefits from scaling retained spread earning assets in private assets investments, as well as through reinsuring liabilities into fee-like ROA earnings from future reinsurance transactions or asset management allocation in both public and private assets. The Board and I are proud of the pace of execution. In some cases like investment management, we have accelerated execution from 2022 into 2021 to be able to exit 2021 with all the fundamental capabilities in place to restart our capital return. We have $236 million in share repurchase authorization remaining, and we expect to target the return of $250 million of capital to common shareholders for 2021, starting immediately with our next regularly scheduled dividend after board approval later this quarter and then share repurchases after approval of Brookfield's Form A to increase its ownership in AEL from 9.9% to as high as 19.9%. The Brookfield Form A regulatory hearing in Iowa is now scheduled for November 30th. Once approval is granted to Brookfield, we intend to start repurchasing shares in the open market. In terms of other capital initiatives, we expect the refinancing of redundant statutory reserves on our lifetime income benefit riders with an explicit fee to be completed this quarter with a transaction closing retroactive to October 1st. With the closing of the refinancing, we will realize the capital savings including, but not only limited to, the capital savings we intended to achieve with the potential reinsurance of $5 billion of inflows only block of business to Varde Agam. We are no longer pursuing a reinsurance business partnership with them, but expect to continue an ongoing dialogue around asset management. Additionally, the new redundant reserve financing will save approximately $9 million pre-tax per quarter in financing costs once the transaction is closed relative to the prior facility. Third quarter operating costs already reflected $2 million of savings from the recapture of finance reserves that were then ceded to Brookfield. Therefore, we expect the refinancing of the remaining redundant reserves currently being financed to result in an additional $7 million of quarterly savings going forward. We have a strong excess capital position generated by our reinsurance strategies and our business model evolution. thereby fueling the growth in both our new business sales or liability origination and further scaling our allocation into higher returning private assets while returning capital to shareholders. We made major strides in the investment strategy pillar. I'll let Jim speak to this before touching on business results for the quarter.