American Equity Investment Life Holding Company

Welcome to the American Equity Investment Lifeholding Company's second quarter 2022 conference call. At this time, for opening remarks and introductions, I would like to turn the call over to Julie Heidemann, coordinator of investor relations. Ms. Heidemann, please go ahead.

Good morning, and welcome to American Equity Investment Lifeholding Company's conference call to discuss second quarter 2022 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, Jim Hamelinen, Chief Investment Officer, Axel Andre, Chief Financial Officer. Some of our comments will contain forward-looking statements which refer to or relate to future results, many of which we have identified in our earnings release. 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. American equity continues to execute on all aspects of the flywheel of our business strategy. The American equity ship can best be summed up as steady as she goes. Reflecting on the broader external environment, as supply constraints impact the outlook for inflation, and the Fed remains steadfast in its resolve of balancing its dual mandate of maximum employment and price stability, we expect continued capital market volatility for the remainder of the year. In this environment, we see opportunity in investment returns driven by potential large changes in relative value across various private and public asset sectors, the timing of which will vary depending on the sector. Starting with both a substantial and a strong resilient balance sheet will give AEL an advantage. I will let Jim and Axel walk you through specifics in a few moments. But we continued to see meaningful opportunities to play offense and will continue to return capital to shareholders, including having repurchased 4.95 million shares in the second quarter at an average price of $38.20. Total first half common stock repurchases were 9.4 million shares at an average price of $39.20. With this, we have fully repurchased the 6.8 million shares issued to Brookfield in early January and additionally repurchased $109 million of shares through the second quarter. Even in these uncertain macro conditions, we will remain active in our capital return plan. We see great opportunity on the investing side. both in public and private assets, as markets reprice risk-return attractiveness of various subsectors. Relative value across assets is changing rapidly as different sector returns reprice at different speeds. In the quarter, we put an additional $1.4 billion to work in private assets, bringing our total allocation to private assets to 16.6% of the investment portfolio. We remain bullish on residential real estate loans where yields are now north of 6%. That said, the recent increase in rates on public assets will allow us to wait for certain private asset sectors like infrastructure equity to reprice further before we deploy. Hence, we stay true to our more opportunistic bent in private assets investing versus traditional programmatic approaches that are more typical at insurance companies. American equities' private asset mindset is similar to an alternate asset manager seeking opportunistic investment returns to support a permanent fund base. Therefore, from time to time, we may be more measured in deploying in private assets while still enhancing our investment spread. In the go-to market area, we saw a decline in sales of fixed index annuities of 12% compared to the first quarter as we chose pricing discipline over chasing the market as interest rates fluctuated. With our focus on growing income product sales, American Equity Life's income shield sales rose 2% from the first quarter and were basically flat with a comparable period a year earlier. And Eagle Live Select Income Focus increased 14% sequentially. In accumulation products, we saw sales decline, driven by commoditized rate-based competition. The sales climate remains deeply competitive. In the income space, a number of competitors raised payouts and deferral bonus rates during the quarter. In the accumulation space, we are seeing levels of commoditized price competition that strike us as extreme. And as a disciplined player who is already at scale, we are more measured in price changes, particularly for shorter duration products. As we see a true reset into higher rate investment yield regimes, we have chosen to raise new money rates for longer duration, less commoditized products, while focusing on other areas of differentiation like our product design in the income space and continued loyalty from a core set of producers that provide ballast to the steady state of a couple of billion dollars of origination year in and year out across market cycles. In June, we began making the following changes to longer-duration products, specifically increase in guaranteed income on IncomeShield to regain a top position in the guaranteed retirement income space, increase in guaranteed income on Eagle Select Income Focus, which will become effective shortly, Last Friday, we announced several actions to make estate shield more competitive, including increasing the benefit account value bonus, payout factors, and crediting rates on all strategies, and increased cap and participation rates on both S&P and proprietary strategies to be reflective of a higher core fixed income return environment while sidestepping the more commoditized pure rate-based competition areas. As equity markets experience turbulence, we believe that a more durable lifetime income product suite with index participation rates will see a revival, a trend that reversed in the recent decade-plus bull market in equities when the singular focus on fixed income annuity growth was about accumulation-only products. This current macroeconomic environment-based resetting of return expectations will be a longer-term tailwind for our product solutions, especially for retail clients. We believe that most, if not all, financial planning roadmaps eventually need to lead towards income replacement for clients, for which FIAs are a core product solution, while equity market recovery stories tilt the dialogue in FIA accumulation towards participation rate strategies, which provide the consumer with the best chance to capture a rebound in the market beyond just standard S&P cap rates alone. We are driving the education of these income and participation rate stories with key IMO partners and independent broker-dealer distributors. Moving on to earnings results, we were generally pleased with the quarter reporting non-GAAP operating earnings per share of 98 cents, driven by strong yields on the investment portfolio, in-line expenses, and continued decline in share count, driven by our robust capital return execution. Axel will get into all the details in a bit, but now I'll turn the call over to Jim to provide a little deep dive into our investment portfolio.