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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number : 001-31911
American Equity Investment Life Holding Company
(Exact name of registrant as specified in its charter)
Iowa42-1447959
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
6000 Westown Parkway
West Des Moines, Iowa 50266
(Address of principal executive offices, including zip code)
(515) 221-0002
(Registrant's telephone number, including area code)
Securities registered Pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value $1AELNew York Stock Exchange
Depositary Shares, each representing a 1/1,000th interest in a share of 5.95% Fixed-Rate Reset Non-Cumulative Preferred Stock, Series AAELPRANew York Stock Exchange
Depositary Shares, each representing a 1/1,000th interest in a share of 6.625% Fixed-Rate Reset Non-Cumulative Preferred Stock, Series BAELPRBNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No



APPLICABLE TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
As of October 30, 2020, there were 92,017,033 shares of the registrant's common stock, $1 par value, outstanding.



TABLE OF CONTENTS
Page




Table of Contents
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share data)
September 30, 2020December 31, 2019
(Unaudited)
Assets
Investments:
Fixed maturity securities, available for sale, at fair value (amortized cost of $47,132,615 as of 2020 and $48,238,946 as of 2019; allowance for credit losses of $61,619 as of 2020)
$51,700,743 $51,580,490 
Mortgage loans on real estate (net of allowance for credit losses of $19,279 as of 2020 and $9,179 as of 2019)
3,926,699 3,448,793 
Derivative instruments874,741 1,355,989 
Other investments495,740 492,301 
Total investments56,997,923 56,877,573 
Cash and cash equivalents2,656,632 2,293,392 
Coinsurance deposits (net of allowance for credit losses of $2,648 as of 2020 and $0 as of 2019)
4,886,705 5,115,013 
Accrued investment income452,647 472,826 
Deferred policy acquisition costs2,163,003 2,923,454 
Deferred sales inducements1,426,945 1,966,723 
Income taxes recoverable34,773  
Other assets46,448 47,571 
Total assets$68,665,076 $69,696,552 
Liabilities and Stockholders' Equity
Liabilities:
Policy benefit reserves$60,109,669 $61,893,945 
Other policy funds and contract claims242,159 256,105 
Notes payable495,528 495,116 
Subordinated debentures78,037 157,265 
Deferred income taxes512,428 177,897 
Income taxes payable 429 
Other liabilities1,108,521 2,145,676 
Total liabilities62,546,342 65,126,433 
Stockholders' equity:
Preferred stock, Series A; par value $1 per share; $400,000 aggregate liquidation preference; 20,000 shares authorized; issued and outstanding:
     2020 - 16,000 shares;
     2019 - 16,000 shares
16 16 
Preferred stock, Series B; par value $1 per share; $300,000 aggregate liquidation preference; 12,000 shares authorized; issued and outstanding:
     2020 - 12,000 shares;
     2019 - no shares
12  
Common stock; par value $1 per share; 200,000,000 shares authorized; issued and outstanding:
     2020 - 91,931,837 shares (excluding 1,169,901 treasury shares);
     2019 - 91,107,555 shares (excluding 1,344,193 treasury shares)
91,932 91,107 
Additional paid-in capital1,510,987 1,212,311 
Accumulated other comprehensive income2,112,111 1,497,921 
Retained earnings2,403,676 1,768,764 
Total stockholders' equity6,118,734 4,570,119 
Total liabilities and stockholders' equity$68,665,076 $69,696,552 
See accompanying notes to unaudited consolidated financial statements.
2

Table of Contents

AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended 
 September 30,
Nine Months Ended 
 September 30,
2020201920202019
Revenues:
Premiums and other considerations$10,407 $5,152 $29,103 $14,688 
Annuity product charges62,277 63,647 185,264 177,313 
Net investment income543,331 590,412 1,660,353 1,719,418 
Change in fair value of derivatives205,011 (20,042)(409,201)440,472 
Net realized gains (losses) on investments
(22,321)4,328 (68,545)(67)
Other than temporary impairment (OTTI) losses on investments:
Total OTTI losses (101) (1,099)
Portion of OTTI losses recognized from other comprehensive income   (215)
Net OTTI losses recognized in operations (101) (1,314)
Loss on extinguishment of debt  (2,024) 
Total revenues798,705 643,396 1,394,950 2,350,510 
Benefits and expenses:
Insurance policy benefits and change in future policy benefits13,273 7,627 36,676 23,865 
Interest sensitive and index product benefits576,147 500,285 1,217,358 888,062 
Amortization of deferred sales inducements416,983 (55,769)415,396 (2,675)
Change in fair value of embedded derivatives(1,732,497)212,278 (1,855,623)1,306,163 
Interest expense on notes payable6,388 6,382 19,161 19,141 
Interest expense on subordinated debentures1,323 3,968 4,232 12,113 
Amortization of deferred policy acquisition costs622,596 (120,934)623,409 (45,856)
Other operating costs and expenses42,738 38,554 128,315 114,959 
Total benefits and expenses(53,049)592,391 588,924 2,315,772 
Income before income taxes851,754 51,005 806,026 34,738 
Income tax expense184,554 13,645 143,308 8,798 
Net income667,200 37,360 662,718 25,940 
Less: Preferred stock dividends5,950  18,511  
Net income available to common stockholders$661,250 $37,360 $644,207 $25,940 
Earnings per common share$7.20 $0.41 $7.02 $0.28 
Earnings per common share - assuming dilution$7.17 $0.41 $7.00 $0.28 
Weighted average common shares outstanding (in thousands):
Earnings per common share91,861 91,252 91,770 91,081 
Earnings per common share - assuming dilution92,163 91,711 92,071 91,748 
See accompanying notes to unaudited consolidated financial statements.
3

Table of Contents

AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
Three Months Ended 
 September 30,
Nine Months Ended 
 September 30,
2020201920202019
Net income$667,200 $37,360 $662,718 $25,940 
Other comprehensive income:
Change in net unrealized investment gains/losses (1)494,154 742,756 767,646 2,136,989 
Noncredit component of OTTI losses (1)   103 
Reclassification of unrealized investment gains/losses to net income (1)2,392 2,681 9,810 3,809 
Other comprehensive income before income tax496,546 745,437 777,456 2,140,901 
Income tax effect related to other comprehensive income(104,274)(155,992)(163,266)(449,040)
Other comprehensive income392,272 589,445 614,190 1,691,861 
Comprehensive income$1,059,472 $626,805 $1,276,908 $1,717,801 
(1)Net of related adjustments to amortization of deferred sales inducements and deferred policy acquisition costs.
See accompanying notes to unaudited consolidated financial statements.
4

Table of Contents

AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands, except share data)
(Unaudited)
Preferred
Stock
Common
Stock
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income
Retained
Earnings
Total
Stockholders'
Equity
For the nine months ended September 30, 2020
Balance at December 31, 2019$16 $91,107 $1,212,311 $1,497,921 $1,768,764 $4,570,119 
Net income for period— — — — 662,718 662,718 
Other comprehensive income— — — 614,190 — 614,190 
Issuance of preferred stock
12 — 290,248 — — 290,260 
Share-based compensation
— — 7,515 — — 7,515 
Issuance of 824,282 shares of common stock under compensation plans
— 825 913 — — 1,738 
Cumulative effect of change in accounting principle
— — — — (9,295)(9,295)
Dividends on preferred stock— — — — (18,511)(18,511)
Balance at September 30, 2020$28 $91,932 $1,510,987 $2,112,111 $2,403,676 $6,118,734 
Preferred
Stock
Common
Stock
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income
Retained
Earnings
Total
Stockholders'
Equity
For the three months ended September 30, 2020
Balance at June 30, 2020$28 $91,595 $1,508,171 $1,719,839 $1,742,426 $5,062,059 
Net income for period— — — — 667,200 667,200 
Other comprehensive income— — — 392,272 — 392,272 
Share-based compensation— — 3,121 — — 3,121 
Issuance of 336,771 shares of common stock under compensation plans
— 337 (305)— — 32 
Dividends on preferred stock— — — — (5,950)(5,950)
Balance at September 30, 2020$28 $91,932 $1,510,987 $2,112,111 $2,403,676 $6,118,734 
Preferred
Stock
Common
Stock
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
Total
Stockholders'
Equity
For the nine months ended September 30, 2019
Balance at December 31, 2018$ $90,369 $811,186 $(52,432)$1,549,978 $2,399,101 
Net income for period— — — — 25,940 25,940 
Other comprehensive income— — — 1,691,861 — 1,691,861 
Share-based compensation
— — 9,402 — — 9,402 
Issuance of 637,721 shares of common stock under compensation plans
— 638 (226)— — 412 
Balance at September 30, 2019$ $91,007 $820,362 $1,639,429 $1,575,918 $4,126,716 
Preferred
Stock
Common
Stock
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income
Retained
Earnings
Total
Stockholders'
Equity
For the three months ended September 30, 2019
Balance at June 30, 2019$ $90,936 $817,997 $1,049,984 $1,538,558 $3,497,475 
Net income for period— — — — 37,360 37,360 
Other comprehensive income— — — 589,445 — 589,445 
Share-based compensation— — 2,042 — — 2,042 
Issuance of 70,626 shares of common stock under compensation plans
— 71 323 — — 394 
Balance at September 30, 2019$ $91,007 $820,362 $1,639,429 $1,575,918 $4,126,716 
See accompanying notes to unaudited consolidated financial statements.
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AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Nine Months Ended 
 September 30,
20202019
Operating activities
Net income$662,718 $25,940 
Adjustments to reconcile net income to net cash provided by operating activities:
Interest sensitive and index product benefits1,217,358 888,062 
Amortization of deferred sales inducements415,396 (2,675)
Annuity product charges(185,264)(177,313)
Change in fair value of embedded derivatives(1,855,623)1,306,163 
Change in traditional life and accident and health insurance reserves6,507 (5,113)
Policy acquisition costs deferred(178,251)(344,293)
Amortization of deferred policy acquisition costs623,409 (45,856)
Provision for depreciation and other amortization3,857 2,863 
Amortization of discounts and premiums on investments37,110 21,762 
Realized gains/losses on investments68,545 1,381 
Distributions from equity method investments190 1,160 
Change in fair value of derivatives409,201 (440,272)
Deferred income taxes171,265 (14,676)
Loss on extinguishment of debt2,024  
Share-based compensation7,515 9,402 
Change in accrued investment income20,179 (28,562)
Change in income taxes recoverable/payable(35,202)(3,740)
Change in other assets2,307 (2,009)
Change in other policy funds and contract claims(18,951)(16,465)
Change in collateral held for derivatives(506,735)737,103 
Change in collateral held for securities lending(494,368)365,592 
Change in other liabilities(22,281)20,670 
Other4,325 (10,844)
Net cash provided by operating activities355,231 2,288,280 
Investing activities
Sales, maturities, or repayments of investments:
Fixed maturity securities, available for sale3,344,860 2,184,662 
Mortgage loans on real estate230,042 207,054 
Derivative instruments633,948 352,634 
Other investments3,238 7,887 
Acquisitions of investments:
Fixed maturity securities, available for sale(2,279,427)(4,214,476)
Mortgage loans on real estate(723,154)(474,734)
Derivative instruments(557,709)(620,638)
Other investments(10,616)(344,652)
Purchases of property, furniture and equipment(12,440)(3,148)
Net cash provided by (used in) investing activities628,742 (2,905,411)
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AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands)
(Unaudited)
Nine Months Ended 
 September 30,
20202019
Financing activities
Receipts credited to annuity policyholder account balances$1,811,843 $4,035,051 
Coinsurance deposits304,169 67,858 
Return of annuity policyholder account balances(2,922,187)(2,626,214)
Repayment of subordinated debentures(81,450) 
Net proceeds from amounts due under repurchase agreements (60,367)
Proceeds from issuance of preferred stock, net290,260  
Proceeds from issuance of common stock, net1,738 412 
Change in checks in excess of cash balance(6,595)(5,268)
Preferred stock dividends(18,511) 
Net cash provided by (used in) financing activities(620,733)1,411,472 
Increase in cash and cash equivalents363,240 794,341 
Cash and cash equivalents at beginning of period2,293,392 344,396 
Cash and cash equivalents at end of period$2,656,632 $1,138,737 
Supplemental disclosures of cash flow information
Cash paid during period for:
Interest expense$17,677 $26,490 
Income taxes4,810 28,193 
Non-cash operating activity:
Deferral of sales inducements68,468 140,960 
See accompanying notes to unaudited consolidated financial statements.




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AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2020
(Unaudited)

1. Significant Accounting Policies
Consolidation and Basis of Presentation
The accompanying consolidated financial statements of American Equity Investment Life Holding Company ("we", "us", "our" or the "Company") have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and notes required by GAAP for complete financial statements. The consolidated financial statements reflect all adjustments, consisting only of normal recurring items, which are necessary to present fairly our financial position and results of operations on a basis consistent with the prior audited consolidated financial statements. Operating results for the three and nine month periods ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ended December 31, 2020. All significant intercompany accounts and transactions have been eliminated. The preparation of financial statements requires the use of management estimates. For further information related to a description of areas of judgment and estimates and other information necessary to understand our financial position and results of operations, refer to the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2019.
Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update (“ASU”) that significantly changed the impairment model for most financial assets that are measured at amortized cost and certain other instruments from an incurred loss model to an expected loss model that requires these assets be presented at the net amount expected to be collected. In addition, credit losses on available for sale debt securities will be recorded through an allowance account subsequent to the adoption of this ASU.  We adopted this ASU on January 1, 2020. The adoption of this ASU resulted in an increase in our mortgage loan allowance for credit losses of $8.6 million and the recognition of an allowance for credit losses on our reinsurance recoverable/coinsurance deposits balances of $3.2 million on the date of adoption. Retained earnings was decreased by $9.3 million, which reflects the net of tax impact of the increase in the mortgage loan allowance for credit losses and the recognition of an allowance for credit losses on our reinsurance recoverable/coinsurance deposits balances on the date of adoption.
New Accounting Pronouncements
In August 2018, the FASB issued an ASU that revises certain aspects of the measurement models and disclosure requirements for long duration insurance and investment contracts. The FASB’s objective in issuing this ASU is to improve, simplify, and enhance the accounting for long-duration contracts. The revisions include updating cash flow assumptions in the calculation of the liability for traditional life products, introducing the term ‘market risk benefit’ ("MRB") and requiring all contract features meeting the definition of an MRB to be measured at fair value, simplifying the method used to amortize deferred policy acquisition costs and deferred sales inducements to a constant basis over the expected term of the related contracts rather than based on actual and estimated gross profits and enhancing disclosure requirements. While this ASU is effective for us on January 1, 2023, the transition date (the remeasurement date) is January 1, 2021. Early adoption of this ASU is permitted. We are in the process of evaluating the impact this guidance will have on our consolidated financial statements.
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2. Fair Values of Financial Instruments
The following sets forth a comparison of the carrying amounts and fair values of our financial instruments:
September 30, 2020December 31, 2019
Carrying
Amount
Fair ValueCarrying
Amount
Fair Value
(Dollars in thousands)
Assets
Fixed maturity securities, available for sale$51,700,743 $51,700,743 $51,580,490 $51,580,490 
Mortgage loans on real estate3,926,699 4,070,821 3,448,793 3,536,446 
Derivative instruments874,741 874,741 1,355,989 1,355,989 
Other investments495,740 495,740 492,301 492,301 
Cash and cash equivalents2,656,632 2,656,632 2,293,392 2,293,392 
Coinsurance deposits4,886,705 4,480,027 5,115,013 4,635,926 
Interest rate caps  6 6 
Liabilities
Policy benefit reserves59,750,209 51,872,229 61,540,992 51,800,247 
Single premium immediate annuity (SPIA) benefit reserves241,782 249,341 255,698 263,773 
Notes payable495,528 544,640 495,116 541,520 
Subordinated debentures78,037 81,451 157,265 168,357 
Fair value is the price that would be received to sell an asset or paid to transfer a liability (exit price) in an orderly transaction between market participants at the measurement date. The objective of a fair value measurement is to determine that price for each financial instrument at each measurement date. We meet this objective using various methods of valuation that include market, income and cost approaches.
We categorize our financial instruments into three levels of fair value hierarchy based on the priority of inputs used in determining fair value. The hierarchy defines the highest priority inputs (Level 1) as quoted prices in active markets for identical assets or liabilities. The lowest priority inputs (Level 3) are our own assumptions about what a market participant would use in determining fair value such as estimated future cash flows. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, a financial instrument's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument. We categorize financial assets and liabilities recorded at fair value in the consolidated balance sheets as follows:
Level 1 - Quoted prices are available in active markets for identical financial instruments as of the reporting date. We do not adjust the quoted price for these financial instruments, even in situations where we hold a large position and a sale could reasonably impact the quoted price.
Level 2 - Quoted prices in active markets for similar financial instruments, quoted prices for identical or similar financial instruments in markets that are not active; and models and other valuation methodologies using inputs other than quoted prices that are observable.
Level 3 - Models and other valuation methodologies using significant inputs that are unobservable for financial instruments and include situations where there is little, if any, market activity for the financial instrument. The inputs into the determination of fair value require significant management judgment or estimation. Financial instruments that are included in Level 3 are securities for which no market activity or data exists and for which we used discounted expected future cash flows with our own assumptions about what a market participant would use in determining fair value.
Transfers of securities among the levels occur at times and depend on the type of inputs used to determine fair value of each security. There were no transfers between levels during any period presented.
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Our assets and liabilities which are measured at fair value on a recurring basis as of September 30, 2020 and December 31, 2019 are presented below based on the fair value hierarchy levels:
Total
Fair Value
Quoted
Prices in
Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(Dollars in thousands)
September 30, 2020
Assets
Fixed maturity securities, available for sale:
United States Government full faith and credit$38,739 $32,906 $5,833 $ 
United States Government sponsored agencies1,074,978  1,074,978  
United States municipalities, states and territories3,805,086  3,805,086  
Foreign government obligations209,233  209,233  
Corporate securities33,457,290 10 33,457,280  
Residential mortgage backed securities1,623,073  1,623,073  
Commercial mortgage backed securities5,478,783  5,478,783  
Other asset backed securities6,013,561  6,013,561  
Derivative instruments874,741  874,741  
Cash and cash equivalents2,656,632 2,656,632   
$55,232,116 $2,689,548 $52,542,568 $ 
Liabilities
Fixed index annuities - embedded derivatives$7,475,216 $ $ $7,475,216 
December 31, 2019
Assets
Fixed maturity securities, available for sale:
United States Government full faith and credit$161,765 $155,945 $5,820 $ 
United States Government sponsored agencies625,020  625,020  
United States municipalities, states and territories4,527,671  4,527,671  
Foreign government obligations205,096  205,096  
Corporate securities32,536,839 4 32,536,835  
Residential mortgage backed securities1,575,664  1,575,664  
Commercial mortgage backed securities5,786,279  5,786,279  
Other asset backed securities6,162,156  6,162,156  
Derivative instruments1,355,989  1,355,989  
Cash and cash equivalents2,293,392 2,293,392   
Interest rate caps6  6