American Equity Investment Life Holding Company

Welcome to American Equity Investment Life Holding Company's fourth quarter 2022 conference call. At this time, for opening remarks and introductions, I would now 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 fourth 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 Anant 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 can 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.

Anat Bala Thank you, Julie. Good morning, and thank you all for your interest in American equity. The fourth quarter of 2022 caps a successful year for the ongoing advancement of our AEL 2.0 strategy as we continually execute against the four key pillars. In investment management, we originated $5 billion of privately sourced assets at an expected return greater than 6% and expanded our primary focus from residential real estate in 2021 to a more diversified portfolio in 2022, covering a variety of sectors, including infrastructure, middle market credit, and commercial real estate equity. Across sectors, we are being disciplined and deliberate, focusing on underlying assets with a resilient cash flow profile where the majority of the return is largely delivered by the underlying operating performance and where there is an advantage for an insurance balance sheet to own the assets. With fixed income spreads widening throughout most of the year, we seized this additional optionality to increase exposure in our core fixed income bucket while being more selective in our private asset strategies. In go-to markets, we substantially revamped our pricing procedures, affording us optionality to reprice products quickly as markets change. To put this in perspective, we have historically repriced new products once or twice per year. Thanks to the changes we made to improve these processes, we successfully delivered in excess of 50 product and rate changes in 2022. Our pricing has become more nimble, targeted, and responsive to market changes, which is important to generate growing sales while maintaining attractive double-digit IRRs on total sales volume. We also refreshed our distribution incentive and loyalty programs and continue to assess ways to further differentiate our service offerings to producers, building on our number one ranking for customer satisfaction for annuity providers by JD Power and Associates. In this area, we will be revamping our new business processes and technology to improve efficiency as we grow. In our capital and reinsurance pillar, we achieved $9.6 billion of fee-generating reinsured balances and generated over $50 million in revenues in 2022. This included new business seeded during the year of $1.3 billion to Brookfield and $3.8 billion of in-force to 26 North effective October 3rd. Additionally, the new reinsurance agreement with 26 North 3 resulted in a capital release of $260 million to fund the growth in excess capital that supports the continued migration to privately sourced assets and capital return to shareholders. As a result of this transaction, we also reduced the sensitivity of our GAAP financial results to equity index credit. We're also pleased to announce that we started flow reinsurance on traditional fixed rate annuities with 2603 effective February 8th. During the year, we repurchased 14.8 million shares more than offsetting the dilution for the follow-on offering to Brookfield, and returned an additional $307 million to shareholders. Combined with dividends paid in the fourth quarters of 2021 and 2022, we have returned $369 million of capital to shareholders in the last five quarters. In 2023, we intend to return at least $380 million to shareholders comprising of the $130 million remaining from our planned return in 2022 and at least $250 million for 2023. This is well within our remaining authorization of $569 million and a testament to the board and management's belief in our long-term potential to generate sustainable and growing value for shareholders. While it's not front and center, We continue to invest in enhancing our fourth pillar, the foundational capabilities, to support a higher trajectory of growth and widening of our liability aperture while maintaining expense discipline. We have implemented new investment accounting and investment management systems and are implementing a new general ledger system. Turning to the fourth quarter, In the investment area, we saw many unique opportunities in private assets during the fourth quarter as markets continued to reprice across most sectors. In the quarter, we put $1.4 billion to work in private assets. Total private assets at the end of the year were almost $11 billion, bringing our allocation to 22% of the investment portfolio at year end. Of this amount, approximately $7 billion, or close to two-thirds, is in real estate loans, comprising of $2.9 billion of residential loans, $3.4 billion of commercial mortgage loans, and $0.6 billion of agricultural loans. Beyond mortgage loans, the private asset portfolio consists of middle market private credit of $1.2 billion, or 2% of the portfolio. Middle market credit consists primarily of senior secured loans to small and medium-sized companies with strong lender protections. This portfolio is well diversified across borrower and markets, is mostly floating in nature, and offers better structure than high-yield public credit markets. Majority of this portfolio is managed by Adam Street Partners, and some more details on this were presented at our investor symposium in December. Additionally, Outside of credit, the single largest sector in our private asset portfolio is our approximate $1 billion portfolio of single-family residential rental homes. We've been a big believer in this asset class, and over the past two years have built a portfolio of homes that is geographically diversified in locations, seeing both strong growth in population and associated wage income growth. We look to benefit from both long-term appreciation of housing stock and rental growth. The macro dynamics for rental housing are strong, and partnering with the nation's leading platforms operated by our asset management partner, Pretium, is a compelling differentiator for AEF. Finally, our private assets portfolio comprises of a 1% allocation each to infrastructure debt and specialty credit, and a smaller allocation to commercial real estate equity, which along with infrastructure equity should grow over time. We have negligible exposure to traditional private equity and no exposure to hedge funds. During the quarter, we put over $800 million to work in the real estate sector, primarily residential non-qualified mortgages, residential transitional loans, and single-family real estate at an average expected return of over 6.4%. We remain bullish on rental housing as demand continues to significantly outpace supply. Residential real estate loans remain attractive and with underwriting standards tightening still produce expected returns north of 6%. In addition, we see attractive risk-adjusted yields in directly originated and middle-market credit, as well as in directly sourced opportunistic specialty credit and real assets. One of the real estate investments made in the quarter was our first equity investment in the ultra-luxury hospitality sector, partnering with a world-class hotel owner and operator. This is part of the hospitality sector that is proving to be more resilient through economic cycles, though it is still a newer and growing segment within the United States. Earlier this week, American Equity Life Insurance Company co-invested alongside an I-square capital fund in the Whistler Pipeline. The Whistler Pipeline is a leading U.S. core energy infrastructure system connecting the Parmesian Basin's growing natural gas supply to LNG, Mexico, and Gulf Coast demand. Whistler will have direct connections into LNG facilities in the Corpus Christi area. Nearly all current capacity is contracted under long-term fixed fee minimum volume commitments, primarily with investment-grade counterparties. We see increasing long-term demand for natural grass across the U.S. Gulf Coast due to the growth in LNG liquefaction capacity being constructed in the region, as well as growing demand from Mexico. I share this detail because it is an example of an asset that offers a rare combination of strong, free cash flow, high-quality contracts, and operating rights on highly strategic natural gas infrastructure. The management team of the asset, who retain a significant portion of equity in the business, has established a reputation for growing contracted cash flows through developing and operating greenfield projects, and have identified several initiatives to further grow this platform. We are also strategic and purposeful in seizing the opportunities arising from broader public market dislocation. For example, during the fourth quarter, we added over $1 billion of high-quality, almost entirely AAA and AA-rated structured securities with expected returns above 6%. All of this points to the value we have delivered through our investment management area where we are balanced from a risk-return point of view between public markets and private assets. In the go-to-market area, we saw a fourth quarter increase in sales of fixed index annuities of 7% compared to the third quarter. We saw very strong sales gains at Eagle Life in both accumulation and income products, which would be expected given the rapid response nature of the bank and broker dealer channels to pricing changes. At American Equity Life, we continue to see growing momentum for sales of income shields, which were up 8% from the third quarter and increased 29% from the comparable period a year ago. Accumulation product sales in the independent agents channel saw decline due to relative attractiveness of more commoditized S&P cap rates. With our latest pricing refresh effective November 30th, we are well positioned competitively and enter 2023 with strong momentum. Through February 15th, We have sold approximately $460 million of fixed index annuities and over $160 million of traditional fixed rate annuities for total annuity sales of approximately $620 million. We are very well positioned to continue to seize opportunities and be competitive in the marketplace and are confident in and energized about our plan to deliver superior value in the long term. Now I'll turn the call over to Axel to go over earnings results. Axel.