A.M. Best Affirms Ratings of American Equity Investment Life Holding Company and Its Subsidiaries

A.M. Best has affirmed the financial strength rating of A- (Excellent) and the issuer credit ratings (ICR) of “a-” of American Equity Investment Life Insurance Company (AEILIC) and its subsidiaries, American Equity Investment Life Insurance Company of New York (Lake Success, NY) and Eagle Life Insurance Company, collectively referred to as AEL. Concurrently, A.M. Best has affirmed the ICR of “bbb-” and the issue and shelf ratings of AEILIC’s parent, American Equity Investment Life Holding Company [NYSE:AEL]. The outlook for each rating is stable. All companies are domiciled in West Des Moines, IA, unless otherwise specified. (Please see below for detailed listing of the issue and shelf ratings.)

The affirmation of the ratings reflects AEL’s position as a leading provider of fixed-indexed annuities (FIA), consistently ranking in the top three by market share. Additionally, the expanded utilization of Eagle Life Insurance Company to offer FIAs through broker-dealers provides diversification to AEL’s distribution channels. GAAP and statutory earnings have benefited from strong sales growth, stable investment margins and overall growth in assets under management. Risk-adjusted capitalization remains adequate for its investment, insurance and business risks. Financial leverage and interest coverage ratios are within guidelines for the current ratings.

Partially offsetting these positive factors is AEL’s concentration in FIAs, with only modest product diversification and high interest rate sensitivity. While rising interest rates could create dis-intermediation risks, A.M. Best notes that AEL’s liability profile is well protected by strong surrender charges of long duration. Despite a record sales year in 2015, AEL faces increased competition within the FIA market which could pressure growth and strain future operating performance. Additionally, the recent adoption of the U.S. Department of Labor rule requiring higher fiduciary standards for tax qualified fixed annuity writers may also impact top line revenue growth and increase operating costs. A.M. Best notes an increase in overall investment risk as measured by higher risk assets to capital. Finally, while the fixed income portfolio in the aggregate remains in a net unrealized gain position, there has also been an increase in the gross unrealized loss position of the bond portfolio.

Key rating factors that could result in a positive rating action include a modification of the business profile to include a substantial volume of creditworthy business that diversifies the risks related to the mono-line annuity product line, such as ordinary life insurance.

Key rating factors that could result in a negative rating action include an unfavorable operating performance through declining premium trends or reduced investment yields, a material increase in investment write-downs or higher unrealized losses within the investment portfolio due to rising credit risk. Additionally, a significant decline in absolute or risk-adjusted capitalization could result in a negative rating action.

The following issue rating has been affirmed:

American Equity Investment Life Holding Company
— “bbb-” on $400 million 6.625% senior unsecured notes, due 2021

The following indicative ratings under the shelf registration have been affirmed:

American Equity Investment Life Holding Company
— “bbb-” on senior unsecured debt
— “bb+” on subordinated debt
— “bb” on preferred stock

American Equity Capital Trust V and VI
— “bb” on trust preferred securities

This press release relates to rating(s) that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page.

A.M. Best is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

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