American Equity Investment Life Holding Company

Welcome to American Equity Investment Life Holding Company's third quarter 2022 conference call. At this time, for opening remarks and introductions, I'd like to turn the call over to Julie Heidemann, Coordinator of Investor Relations.

Good morning and welcome to American Equity Investment Life Holding Company's conference call to discuss third 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, and Axel Andre, Chief Financial Officer. Some of our comments will contain forward-looking statements which refer 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. We are now at the two-year anniversary of announcing the AEL 2.0 strategy. Even in tumultuous markets, we are witnessing the resilience in our business results due to the successful execution of the strategy. Additionally, we are proud to share that American Equity Life has been ranked as number one for customer satisfaction among annuity providers in the JD Powers 2022 U.S. Individual Annuity Study. This is a demonstration of our focus on winning through a combination of product competitiveness, policyholder focus, producer loyalty driven by our leading client service, and value-added marketing support provided to our distribution partners. In the investment area, as markets reprice risk-return attractiveness across asset classes, we continue to see unique opportunities in private assets. In the quarter, we put an additional $1.3 billion to work in private assets, bringing our total allocation to private assets to 18.4% of the investment portfolio. We put over $1 billion to work in the real estate sector, primarily in non-qualified mortgages, residential transition loans, and single-family real estate at an average expected return of close to 6%. We remain constructive on rental housing as housing affordability continues to remain difficult. Residential real estate loans are also attractive with improved underwriting and yields that are now in the upper 6% to 7% range. But as you suspect, the supply of residential mortgages has slowed considerably with higher rates as well as a decision to tighten underwriting standards. We are seeing attractive risk-adjusted yields in directly originated middle market credit through our Adam Street partnership and increased origination of directly sourced opportunistic specialty credit and real assets. In essence, our sourcing of unique cash-flowing and yield-oriented private assets is gaining momentum. Beyond our real estate investments, our focus in the next 6 to 12 months is going to be on executing internal securitizations or ratings-efficient structuring of directly sourced assets in middle market credit, speciality credit, and cash-flowing infrastructure equity. Moving on, capital return to shareholders remained robust given our strong capitalization position and having proactively reduced risk on a significant portion of the public fixed income structured assets portfolio prior to 2022. We repurchased 4.2 million shares in the third quarter for a total spend of $154 million and remain committed to our current capital return plans. Total common stock repurchases through the first nine months of the year worth 13.6 million shares at an average price of $38.37. With this, we have fully repurchased the 6.8 million shares issued to Brookfield on January 4th and additionally repurchased 263 million shares through the third quarter. At the end of September, we had $202 million of remaining shares repurchased authorizations. In the go-to-market area, we saw a decline in sales of fixed index annuities of 6% compared to the second quarter as we chose pricing discipline over chasing the market as interest rates fluctuated. Our focus on growing income product sales continues. We are very pleased to see American Equity Life's income shield sales rise 20% from the second quarter and increased 28% versus the comparable period a year earlier. Eagle Life's select income focus sales were flat sequentially. In accumulation products in the third quarter, we continued to see competitors raise product rates with cost of money potentially well in excess of 4%. thereby already pricing in a sustained level of higher interest rates in the future. This compares with us choosing to take a more measured approach to the trajectory of future 10-year U.S. Treasury rates, thereby using a lower option budget or cost of money to have resilient product profitability in case the rise in interest rates is more fleeting and not sustained over the product lifecycle. We saw total enterprise accumulation sales decline 21% compared to the second quarter, driven by commoditized rate-based competition in the S&P 500-based strategies. The focus on sustained product profitability is a core tenant of our AEL 2.0 approach for a host of reasons. First, The basis of our go-to-market differentiation is a combination of product competitiveness, customer service, and the ease of doing business for the financial advisor with American Equity. Second, being an ad-scale player with $52 billion of enforced FIAs, we are able to stay focused on product pricing discipline, targeting double-digit IRRs, to be able to convert those sales to ROA-able liabilities in future reinsurance sidecars. Given the recent trajectory of Fed rate actions, likely guidance on terminal rates, and overall outlook for a sustained interest rate level of 4% or higher, in November, we are raising our accumulation product option budgets to reflect new money asset returns that can be sustained around 6% or higher, and therefore will be more competitive in terms of pricing. We expect that these rate actions will be reflected in December sales and to set the momentum for FIA sales going into 2023, while also meeting our product pricing hurdles of double-digit IRRs that can then be converted to ROA-able liabilities in reinsurance sidecars over time. Additionally, we will likely enter the registered index annuity or RILA product market within the next 18 months as we implement a new policy administration system for new business and further upgrade our go-to-market approaches. Moving on to earnings results, we were generally pleased with the quarter reporting non-GAAP operating earnings per share of 99 cents excluding notable items, driven by strong yields on our investment portfolio, in-line expenses, and a continued decline in share count driven by our capital return execution. These are solid results in a quarter where there was near zero benefit from equity market index credits, which implicitly reflects a 29 cent per share headwind versus a normal equity index credit quarter. Now, I'll turn the call over to Axel to get into the earning details.