American Equity Investment Life Company
Annual Report 2002

Plain-text annual report

2 0 0 2 A N N U A L R E P O R T P E O P L E S E R V I C E F U T U R E Synergy may be defined as individuals working together to achieve a common goal. The synergy among our employees creates a unified organization that can achieve efficiencies greater than those of our competitors, ultimately benefiting our shareholders, policyholders, and producers. By emphasizing productivity at every level of our operation, we will remain an efficient, flexible leader in our industry, operating at competitive levels with distinctive products and services. Recognizing that the whole is only as great as the sum of its parts, we encourage—and expect—all associates to challenge themselves to grow and reach their maximum professional potential. In the face of technological challenges, The keys to our continued growth and changing family structures and an profitability are the shared values that evolving social and economic form the common link for our people. environment, we must remain We must run as a cohesive whole in thoroughly responsive to the needs of order to achieve the service levels set our customers. Each employee is an forth. We will continue to create key integral component in the delivery of marketing alliances and establish superior personal service, and precision marketing initiatives. We contributes to our overall success in intend to build the highest value for achieving this important goal. Our our shareholders via sound long term excellent service record can only be investment strategies and consistent attributed to the knowledge, delivery of innovative experience, and professionalism of our products—ultimately fulfilling our people. responsibility to you and positioning us well for the future. W E ’ R E T H E O N E Individual commitment to excellence and achievement is a non-negotiable standard. By testing new ways to meet challenges and achieve excellence, we will better serve our shareholders, policyholders, and producers. A M E R I C A N E Q U I T Y 1999 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! 2 A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y FINANCIAL HIGHLIGHTS As of or for the year ended December 31, (dollars in thousands, except per share data) 2002 2001 2000 For the Year Total revenues Total benefits and expenses Income before income taxes, minority interests and cumulative effect of change in accounting principle Net income $ 279,713 250,762 $ 180,376 170,923 $ 114,615 99,997 28,951 14,207 9,453 872 14,618 4,784 At Year-End Total assets Policy benefit reserves Notes payable Amounts due to related party under General Agency Commission and Servicing Agreement Trust preferred securities issued by subsidiary trusts Stockholders’ equity Stockholders’ equity excluding net unrealized investment gains and losses on available for sale securities $ 6,042,266 5,452,365 43,333 $ 4,392,445 3,993,945 46,667 $ 2,528,126 2,099,915 44,000 40,345 100,486 77,478 46,607 100,155 42,567 76,028 99,503 58,652 89,422 76,098 75,528 Per common share data Earnings per common share Earnings per common share - assuming dilution Dividends declared per common share $ $ 0.87 0.80 0.01 $ 0.05 0.05 0.01 0.29 0.26 0.01 Other Financial Data Life subsidiaries’ total assets Life subsidiaries’ statutory capital and surplus Life subsidiaries’ net gains (losses) from operations before income taxes and realized capital gains (losses) Life subsidiaries’ statutory net income (loss) $ 5,430,919 227,199 $ 3,949,357 177,868 $ 2,146,938 145,048 53,535 26,010 (5,675) (17,187) 9,190 10,420 1 A M E R I C A N E Q U I T Y 2002 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y 2002 H I G H L I G H T S (cid:1) Exceeded $$14 mmillion iin nnet iincome (cid:1) Surpassed $$6.0 bbillion iin aassets (cid:1) Exceeded $$2.4 bbillion iin nnew aannuity ddeposits (cid:1) Expanded oour aagency fforce tto oover 441,000 llicensed aagents (cid:1) Continued tto pprovide ssuperior sservice tto aall oof oour ccustomers (cid:1) Developed aan iinternal pprogram tto aalign oour pproduction tto pprojected 2003 ccapital rrequirements A M E R I C A N E Q U I T Y 2002 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! 2 A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y 20022 0 0 2 2 0 0 2 “Our insurance operations for the year 2002 continued to produce solid and satisfactory results.” - D.J. Noble TO OUR SHAREHOLDERS In our business, the difference between winners and losers is the level of service and integrity delivered to customers. American Equity’s quality service and high integrity continue to strengthen and maintain our current relationships with policyholders and agents. These solid relationships helped develop new opportunities for us and have led us to improved retention of business, faster growth and a more competitive position in our industry. (cid:2) - D.J. NOBLE Chairman and Chief Executive Officer In 2002, public discussions surrounding misdeeds of certain major corporations in the United States have drawn a great deal of attention and, as a result, new regulations were proposed or adopted as part of the Sarbanes-Oxley Act. Some of the major components included in the Sarbanes-Oxley Act are: • Management certification of reports • Independence of the majority of the Board of Directors • Independence and financial experience of audit committees • Independence of outside auditors • Focus on insider transactions • Full disclosure of off-balance sheet transactions • Accelerated filings of required reports • Maintaining effective internal and disclosure controls We at American Equity have thoroughly examined these newly implemented regulations. I am proud to report that the implementations of these regulations DID NOT require any major changes in American Equity’s business culture or practices. We will remain, as we always have been, an efficient and honorable leader in our industry. 3 A M E R I C A N E Q U I T Y 2002 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! CORPORATE PLAN statutory basis resulting in satisfactory ratios American Equity(cid:146)s strategic Business Plan was compared to gross revenues and total assets. Statutory developed on a simple principle - we will aggressively capital and surplus for the Life Company exceeded increase our market share, sustain operating $227.0 million at December 31, 2002. efficiencies and execute sound financial investing. While the last 12 months were a challenging period in MARKETING CULTURE the financial markets with a dampened view in the marketplace towards the insurance industry, we were successful in completing several transactions to provide adequate capital to support the business issued by us. We fully intend to aggressively pursue potential capital-raising ventures during 2003. The successful completion of a capital transaction would result in our review and enhancement of our Business Plan and production goals. MARKETING DEPARTMENT David V. Rinehart, James Jones, Carl Davis, Dave Roepsch, Kevin R. Wingert, Ronald J. Grensteiner, James M. Gerlach. As we reviewed and enhanced our Business Plan, we Our 2003 marketing plan continues to focus on our contemplated and planned a reduction in the core (cid:147)Principles of Excellence(cid:148). production of new annuity deposits, particularly for (cid:149) Long term growth potential for our the year 2003, which is consistent with our long-term shareholders forecast. We have entered into a reinsurance (cid:149) Wise investment strategies agreement that will result in American Equity(cid:146)s net (cid:149) Sound business philosophies asset growth either remaining level or experiencing a (cid:149) Innovative production with outstanding controlled annual increase of up to 10%. value to our consumers, agents and FINANCIALS shareholders (cid:149) Superior levels of service Consolidated GAAP assets are approximately $6.0 American Equity continues its aggressive marketing billion. GAAP income, before tax and minority campaign, targeting existing and new National interests, was approximately $29.0 million compared Marketing Organizations and agents while focusing to $9.5 million for the year 2001. The Life Company(cid:146)s on a diversified product line. We are convinced that assets grew to over $5.4 billion, based on statutory our (cid:147)relationship driven(cid:148) versus (cid:147)transaction oriented(cid:148) accounting principles. Statutory income, before culture produces superior results. The implementation federal income tax and excluding capital gains and of our marketing plan will continue to require losses, was $53.5 million. General insurance significant efforts by us. expenses were favorable on both a GAAP and A M E R I C A N E Q U I T Y 2002 P E O P L E S E R V I C E F U T U R E W E (cid:146) R E T H E O N E ! 4 PRODUCT PORTFOLIO LICENSED AGENTS The fixed annuity marketplace is currently undergoing Our success in recruiting and retaining a highly dynamic changes as a result of record low interest motivated, professional sales force represents a vital rates and unprecedented and extended equity and bond key to our company’s achievements. At the end of market volatility. American Equity has prided itself 2002, American Equity had licensed approximately on product innovation and being responsive to 41,000 agents. American Equity enjoys one of the changes in the marketplace. We differentiate our highest agent productivity levels in the industry. We products by focusing on guarantees, choices and believe this is a result of our commitment to provide flexibility. In the immediate future, the focus will be superior levels of services, competitive compensation on modifications to our current portfolio of traditional and strong product integrity. and equity-indexed products. In regards to the next 3-5 years, our average policyholder age is expected to be approximately 67 years. Many of these consumers will be very wary of equity markets regardless of their performance, or lack thereof, given the losses over the past three years. When public interest in the equity 50,000 40,000 30,000 20,000 markets does return, we expect to use the inherent 10,000 4,487 AGENTS 41,399 33,894 21,908 17,855 10,525 flexibility in our product design to keep our products 0 competitive. 1997 1998 11999 22000 22001 22002 Year PRODUCT APPROVALS In 2002, our Compliance Department gained approval STATE LICENSING of 368 separate forms in 47 jurisdictions. The We are licensed to conduct business in 46 states and Compliance Department’s objective has always been the District of Columbia. to support the corporate Business Plan by obtaining product approvals quickly and providing information and methods to keep our company in line with the regulatory environment. But not only must our products meet regulatory standards, they must also deliver the profitability we expect for our shareholders. 5 A M E R I C A N E Q U I T Y 2002 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! PRODUCTION between agents and the company is our “public” Annuity deposits for 2002, before reinsurance, website and “interactive agent” website. exceeded $2.4 billion, matching our production in 2001. FBL Financial Group, Inc., through one of its The public website contains financial and investor life insurance subsidiaries, has reinsured $838 million information, as well as general product descriptions to of our 2002 production. I am of the firm opinion that help educate web- visitors about our company. The American Equity’s unique position in the marketplace website also provides information promoting the is causing agents to continue to seek our company as their carrier. n o i l l i M $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 PRODUCTION $2,425 $2,435 $815 $843 $378 $142 1997 1998 11999 22000 22001 22002 Year advantages of owning an annuity. The website also allows individuals to contact us directly via e-mail. We feel this helps decrease expenses and enhances service to our policyholders by providing 24-hour access to the company. During 2002, we made several crediting rate adjustments along with adjustments to our sales costs Our interactive agent website contains much more to reflect current market conditions. specific information available only by secured login to our licensed agents. It provides commission schedules, NATIONAL GUARD INSURANCE PROGRAM product forms, service forms, illustration software, One of our long-term successes is our relationships company videos and sales brochures. Agents can also with state National Guard Associations. American order supplies online. By making this information Equity remains the largest life insurance carrier for available over the Internet, we reduce shipping, members of the National Guard offering a program of handling, storage and printing costs, all while providing group term life insurance. We currently service 25 24-hour a day, 7-day a week access to this information. state National Guard Associations. We anticipate the addition of two major state associations in 2003. We are currently in the process of enhancing our TECHNOLOGY www.american-equity.com We consider technology to be a strategic asset shaping the way we do business. Our most visible use of technology to facilitate the working relationship interactive agent website to allow access to other very important information that will continue to improve the agent’s ability to conduct business. A M E R I C A N E Q U I T Y 2002 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! 6 INVESTMENT PORTFOLIO profile that is in conformity with the Business Plan’s profit projections. The following table represents our fixed maturity securities by NAIC designations and the equivalent rating of the nationally recognized securities rating organizations. TOTAL CASH AND INVESTMENTS NAIC-2 NAIC-3 NAIC-4 Mtg Loan Cash & Other FIXED MATURITY SECURITIES NAIC Designation 1 2 3 4 5 6 Rating Agency Equivalent Aaa/Aa/A Baa Ba B Caa and lower In or near default Percent 94.3% 4.7% 0.8% 0.2% - - guaranteed mortgage-backed securities at December NAIC-1 INVESTMENT DEPARTMENT Front Row - L to R: Angel Thomason; Joyana Pilquist; Pam Reinert; Joshua Lohmeier. Back Row - L to R: James M. Gerlach; Alex S. Travis; Bob Kunnen; Bryan Borchert. Approximately 80% and 69% of our total invested assets were in United States Government and agency fixed maturity securities including government 31, 2002 and 2001, respectively. Corporate securities represented 7.8% at December 31, 2002, compared to 14.5% at December 31, 2001 of our total invested assets, respectively. There are no other significant concentrations in the portfolio by type of security or by industry. Press and rating agencies have been very vocal regarding the asset quality of companies designated In 2001, American Equity developed a commercial as “insurance industry”. I ask you to seriously mortgage loan program. This program has been very remember that 99% of our fixed maturity securities successful since its inception. At December 31, 2002, are investment grade with over 80% of that we held $334 million of mortgage loans. The percentage in government related issues. mortgage loans are diversified as to property type, Approximately 95% of our investment purchases geographical location and loan size. during 2002, other than our commercial mortgage loan program, were government agency paper, which carried a yield allowing us to meet our Business Plan targeted spreads. We intend to follow this part of our Business Plan that contemplates our assets to intentionally have very little credit risk with a yield 7 A M E R I C A N E Q U I T Y 2002 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! OUR PEOPLE Professional, responsible, motivated...these are words that I use to describe the American Equity family. These individuals work together to make our vision a reality. “We encourage our people to constantly improve our products, our delivery, our technology and, of course, our customer service. Each year, we build on our past successes.” We stay focused, we take care of business and we take care of our policyholders, agents and shareholders. That has been our goal from the beginning and it will continue to be our goal in the future. On behalf of our Board of Directors and our employees, thank you for your confidence and support. Sincerely, D.J. Noble Chairman and Chief Executive Officer “Our business philosophy is simple...Through sound financial management, prudent investment and development of innovative products and services, we will position ourselves as one of the leaders within the insurance and financial services industry.” A M E R I C A N E Q U I T Y 2002 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! 8 A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y THE BESTInsurance Management Team L E A D I N G T H E W A Y LIFE COMPANY MANAGEMENT TEAM Front Row - L to R: Judith K. Karcher; Brent Mardis; Terry A. Reimer; Debra J. Richardson; Kevin R. Wingert; James M. Gerlach; Ronald J. Grensteiner; Chad A Padgett. Second Row - L to R: Tami Schafroth; David Psotka; Maria Connett; Lesa Glendenning; Gay Colyn; Jamie Moher; Camille Rasmussen; Jean Burt; Joyana Pilquist; Jill Oxberger; Nelda Lamp; Paulette Philpott; Christy Olson; Linda Bennett; Cheri White; Bev Wignall; Nia Vassilonikolidakis; Joshua Lohmeier. Back Row - L to R: Marlys Van Manen; Lisa McQuerrey; Joe Wanzek; Pam Knight; David V. Rinehart; David Lowe; Dave Roepsch; Lloyd Hill; Alex S. Travis; Bryan Borchert; Carl Davis; Bruce Norton; Aaron Cottrell; James P. Jones; Kevin L. Pevestorf. *Not pictured: D.J. Noble, Harley Whitfield, Jerry Holtz, Libby Clark, Ted Johnson, Wendy L. Carlson. “We will speak as one voice, act as one being, put one and only one face forward for all to see. That face will be developed to bring maximum impact and favorable response in the marketplace.” 9 A M E R I C A N E Q U I T Y 2002 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y OUR PEOPLE Deliver THE BOARD of Directors H O L D I N G C O M P A N Y “We value the ongoing leadership of our D.J. Noble, 71, Chairman of the Board, President and Treasurer. Over 50 years’ experience in the insurance industry. distinguished Board of Directors, who provide American Equity with sound counsel, personal integrity and solid judgment drawing from extensive experience.” THE BOARD of Directors John C. Anderson, 39, Doctor of Chiropractic Medicine James M. Gerlach, 60, Executive Vice President. Over 35 years’ financial and management experience. Robert L. Hilton, 74, Insurance Consultant John M. Matovina, 48, Private Investor Ben T. Morris, 57, President, CEO and Director, Sanders Morris Harris, Inc. David S. Mulcahy, 50, Principal, MABSCO Capital, Inc. and Chairman, Monarch Manufacturing Company. Over 20 years’ experience in the accounting industry. A.J. Strickland, III, 61, Professor of Strategic Management at the University of Alabama. L I F E C O M P A N Y Harley A. Whitfield, 72, Of Counsel, Whitfield & Eddy, P.L.C. Kevin R. Wingert, 45, President of Life Company. Over 20 years’ marketing experience. (cid:3)(cid:3) (cid:3)(cid:3)(cid:3)(cid:3) [ L E F T T O R I G H T, F R O N T T O B A C K ] Jack W. Schroeder, 77, Vice Chairman. Over 50 years’ experience in the insurance industry. D. J. Noble, 71, Chairman of the Board, Chief Executive Officer. Over 50 years’ experience in the insurance industry. William J. Oddy, 59, Chief Executive Officer, Farm Bureau Life Insurance Company. Over 30 years’ experience in the insurance industry. James M. Gerlach, 60, Executive Vice President and Chief Marketing Officer. Over 35 years’ financial and management experience. Debra J. Richardson, 46, Senior Vice President and Secretary. Over 20 years’ experience in the insurance industry. Terry A. Reimer, 57, Executive Vice President, Treasurer and Chief Operating Officer. Over 30 years’ accounting and management experience. David S. Mulcahy, 50, Principal, MABSCO Capital, Inc. and Chairman, Monarch Manufacturing Company. Over 20 years’ experience in the accounting industry. Kevin R. Wingert, 45, President. Over 20 years’ marketing experience. [inset] A M E R I C A N E Q U I T Y 2002 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! 10 A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y (cid:3)(cid:3) (cid:3)(cid:3)(cid:3)(cid:3) S h a r e h o l d e r a n d G r o u p I n f o r m a t i o n TRANSFER AGENT American Equity welcomes your comments and interest. For change of name or address, to replace lost stock certificates or any other questions contact: Debra J. Richardson, Senior Vice President & Secretary American Equity Investment Life Holding Company 5000 Westown Parkway, Suite 440 West Des Moines, Iowa 50266 (515) 457-1704 or 1-888-221-1234 ext. 1704 Cusip Numbers: 025676 10 7 Common Stock (cid:3)(cid:3) (cid:3)(cid:3)(cid:3)(cid:3) AMERICAN EQUITY GROUP OF COMPANIES AA MM EE RR II CC AA NN EE QQ UU II TT YY II NN VV EE SS TT MM EE NN TT LL II FF EE HH OO LL DD II NN GG CC OO MM PP AA NN YY AA MM EE RR II CC AA NN EE QQ UU II TT YY II NN VV EE SS TT MM EE NN TT LL II FF EE II NN SS UU RR AA NN CC EE CC OO MM PP AA NN YY AA MM EE RR II CC AA NN EE QQ UU II TT YY II NN VV EE SS TT MM EE NN TT LL II FF EE II NN SS UU RR AA NN CC EE CC OO MM PP AA NN YY OO FF NN EE WW YY OO RR KK ,, II NN CC .. (cid:3)(cid:3) (cid:3)(cid:3)(cid:3)(cid:3) ADDRESS STREET ADDRESS 5000 Westown Parkway Suite 440 West Des Moines, Iowa 50266 INDEPENDENT AUDITORS Ernst & Young LLP 801 Grand Avenue, Suite 3400 Des Moines, IA 50309 (515) 243-2727 PREFERRED MAILING ADDRESS P.O. Box 71216 Des Moines, Iowa 50325 CONTACT AMERICAN EQUITY 1-888-221-1234 Fax (515) 221-9989 TELEPHONE NUMBERS (515) 221-0002 WATS: 1-888-221-1234 FAX: (515) 221-9989 WEB SITE www.american-equity.com 11 A M E R I C A N E Q U I T Y 2002 P E O P L E S E R V I C E F U T U R E W E ’ R E T H E O N E ! A M E R I C A N E Q U I T Y I N V E S T M E N T L I F E H O L D I N G C O M P A N Y S h a r e h o l d e r a n d G r o u p I n f o r m a t i o n TRANSFER AGENT For Financial Information, please see December 31, 2002 Form 10-K 5000 WESTOWN PARKWAY, SUITE 440 WEST DES MOINES, IOWA 50266 (515) 221-0002 (888) 221-1234 w w w. a m e r i c a n - e q u i t y. c o m 

Continue reading text version or see original annual report in PDF format above