Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

American Equity Investment Life Holding (NYSE:AEL)

Q3 2008 Earnings Call

November 6, 2008; 11:00 am ET

Executives

John Matovina - Vice Chairman

Kevin Wingert - President

Wendy Carlson - Chief Financial Officer

Bryan Borchert - Investments

Bob Kunnen - Investments - Commercial Mortgage

Julie LaFollette - Investor Relations

Analysts

Randy Binner - FBR Capital Markets

Beth Malone - Keybanc Capital Markets

Steven Schwartz - Raymond James

Bill Dezellem - Tieton Capital Management

Paul Sherem - FPK

Operator

Welcome to the American Equity Investment Life Holding Company’s third quarter conference call. At this time for opening remarks and introductions, I would like to turn the call over to Julie LaFollette, Investor Relations. You may proceed.

Julie LaFollette

Good morning and welcome to American Equity Investment Life Holding Company’s conference call to discuss third quarter 2008 earnings. Our earnings release and financial supplement can be found on our website at www.american-equity.com. Presenting on today’s call are John Matovina, Vice Chairman; Kevin Wingert, President of the Life Company; and Wendy Carlson, Chief Financial Officer.

Some of the comments made during this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. There are a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied. Factors that could cause the actual results to differ materially are discussed in detail in our most recent filings with the SEC. An audio replay will be available on our website shortly after today’s call.

It is now my pleasure to introduce John Matovina.

John Matovina

Thank you Julie and good morning everyone. Welcome to our call this morning. As we reported yesterday afternoon, third quarter net operating income was $23.1 million; that clearly is a quarterly record for the company. That compares to $16.4 million a year ago, which would be a 41% increase.

Diluted share EPS was $0.42 a share compared to $0.28 a share and again a record quarterly result. That translates into an operating return on equity of 11.6%, which is up appreciably from where we’ve been on a trailing 12-month basis for the last several quarters.

Now in the balance of the call you’re going to hear from Kevin and Wendy and I got to remind you of the themes we’ve been through in the past about what makes American Equity tick grow our assets under management, which Kevin will speak to the production and what has been happening there; earn the acceptable spread and of course that’s been the story for earnings this year.

Spreads have been widening due to the cost reductions we put in place over a year ago now and then of course maintain a high quality in the asset portfolio and while we’ve experienced some other than temporary impairments, we still maintain a very high quality portfolio that I think has survived very well in this current market environment.

So with that, I’ll let Kevin speak to you about sales and production.

Kevin Wingert

Thanks, John. Good morning everyone, it’s great to be with you today. It’s exciting times at American Equity. Our third quarter sales were at $571 million, almost $572 million, up 5% from the third quarter of ‘07 at just under $544 million.

Year-to-date sales were up over $1.7 billion, up 6% for the same period in ‘07 at $1.6 billion; so sales and production have been very, very solid. We’re excited about where we are and where we’re headed on a going-forward basis. We will pass $2 billion in sales here today, tomorrow. We had $206 million paid production in the month of October and we saw pending move up at the same time.

I’ve given you just a little bit of flavor for sales trends over the last few months. We saw a little bit of softening in particularly August, early September. It’s probably not unusual from year-to-year to see that. Usually August tends to be a time when a lot of the agents get their vacations in and really go back to work after Labor Day.

I think the thing that this year might have caused a little bit of confusion in the market with obviously the 151A was in the news a lot. So you get a lot of distractions like that and then we were starting to see the struggles of the general marketplace and all the negative noise that’s going on with that, really August, September, October.

The good news is, as we went into the second half of September and moved into October; app counts started ticking back up. October was actually our largest total app count of the year. If you look at October on a daily app count, it was also a 23 business day month. The app counts were right in there on a daily basis with where we would have been in March, April, May, which also were high production times for the annuity business. So we’re very excited to see the app counts moving back up.

Pending right now has been steadily between 2,400 and 2,500 pending cases and moving up. If you went back into late summer, right around Labor Day, we would have saw pending slide down probably between 2,000 and 2,100. So we’ve seen pending pick up nicely and pending is obviously a trend towards where paid production will go in the future.

We feel good that business is picking up and probably the other thing that makes me feel good about where we are in pending today; we had our agents out at our annual Agents Convention; our key producers about 200 of them a week ago. So we probably lost a few apps while we had them in Orlando, but still pending kept moving forward solidly and I think you’ll continue to see sales pick up.

We had a great annual convention. The agents were in a great mood. They were excited and it’s a good time to be in the safe-money business. Guaranteed, no loss of principal premium; interest, once it’s credited, it’s locked into these folks’ account. So we feel pretty darn good and the agents are feeling pretty good about the position their customer’s in and the story for both their current customers and new customers are protecting their retirement funds. So it was a real upbeat convention, exciting time.

We’ve got a lot of NMO meetings taking place, so we’ll be down in North Carolina with a group next week. We have 150 plus big producers down there. We’ve been putting together our producer forums here in Des Moines. We’re finishing those up over the next couple of weeks for the year. We’ll have had 600 plus agents come to Des Moines to hear the American Equity story and these are folks that are producers, are Gold Eagle type producers. So I really feel optimistic about how production is shaping up to finish the year, and positioning as we look to beginning of next year.

We’re already making our production plans to start the year; looking into new product ideas, our business plan, marketing plans, for next year. So things are pretty well moving forward and in pretty good shape and we’ll be pushing it hard as we finish the year and move into January. So if there’s trends from a sales standpoint, I think that the income rider that we’ve talked about over the last year and a half, two years is doing very well, getting good traction in the marketplace.

Right now, the fee-based rider that we provide represents about 50% of the sales. So the fact that we’ve got that fee based rider, where for income purposes only the customer can be guaranteed to accumulate their account at 8%; once the income starts, the 8% shuts off, but their income stream is guaranteed for the rest of their life. It’s a great benefit in getting good traction. Particularly in a market where there’s so much uncertainty out there, folks for a part of their retirement money want to get that income rider in place. So we’re very, very happy with where that benefit is moving forward.

If you look at the competition right now, obviously Aviva has made strides out there and they’re a competitor with at the moment a lot of cash that they’re willing to pump in. They’ve got high acquisition costs, high bonuses, high commissions on a relatively short surrender charge. We suspect that those products will struggle, some with renewal rates from a consumer standpoint, but that doesn’t necessarily dampen sales on the up-front basis.

If you get into the competition, some of the struggles that they’re having at the moment, a lot of these companies in their index products had what they called spread-fee products, where they provided indexed annuities with 100% participation rates, no caps on the returns; but they charged a fee off the return to the customer.

Those fees a year and a half ago were relatively inexpensive, maybe 1%, 1.5%. Because of all the volatility in the market, those options have skyrocketed in price. We’ve seen fees on those products with the spread fees in the market jump up to 8% to 10%, so the customer doesn’t get anything on the first 8% to 10% return in that particular crediting strategy, which is a pretty tough sell from to a consumer.

American Equity doesn’t do any of the spread fees. A number of years ago, we had some of the spread-fee products. We decided at that time that it just wasn’t from our point of view, an approach that was easily explainable to the consumer. So we haven’t offered those types of products for several years now. So we don’t have some of those issues. We’ve seen companies pulling these strategies out of their products, not issuing any more, products pulled; we’ve seen companies out here raising minimum premiums to up to $60,000. So a lot of things going on as companies have started to pull back.

American Equity continues to be the steady provider in the marketplace and I think a lot of our agents recognize that; solid renewal rates; solid new-money rates; good, solid benefits; we aren’t herky-jerky out here in the market. So I think that from a competitive standpoint, the American Equity story continues to shine out here. It is a great story going into 2009.

One of the things, when you look at indexed annuities, we produce something called the real-benefits chart on index products and it tracks a product for the last 10 or 11 years, versus the S&P 500 and if you look at where the $100,000 in the S&P 500 would be 10 or 11 years later, it’s about $110,000.

Our minimum guarantee on the contract that we track, and this is an in-force contract, is higher and that’s the 3% on, I don’t know if it’s 87.5% or 90% of the money, is higher than where the S&P would be and our contract value, because the indexing locking in the returns each year and resetting each year has a value up in the $150,000 plus range, our products look extremely good in the environment that we’re in here.

There’s a lot can be said for guarantees, locking in returns for these customers and resetting on these indexes each year. So the caps, the resets, the annual crediting strategies on our index products worked and they worked great.

Finally, just brief thoughts. As you look at pending, I know a lot of concern on the 151A and the [FX]. I think when you look at the market you got to look at it from a couple of directions. I think first of all, personally I’m not convinced 151A is going to affect American Equity’s indexed annuities and go forward, but even if it did, as you look at our business today, I think nearly 45% of our premiums coming into our fixed bucket in our indexed annuities; there’s going to be a lot of traditional fixed business sold out here.

Insurance agents will sell what products they have available to them and when you have a fixed product with a solid minimum guarantee, a competitive new-money rate, a good bonus and an income rider, I think you’ll see a lot of our producers, even if 151A come in, sell traditional fixed products to their customers, because customers are looking for a safe-money alternative for part of their retirement dollars.

Others may look for a registered product and American Equity continues to work towards the potential of a product in that area, evaluating the situation; we’re bringing our BD up, so we can provide broker dealer services to agents that need it. So certainly, this is not an insurmountable task that’s out here and I think there’s going to be a ton of opportunities.

In fact, as I look out into the marketplace today, I’m guessing there’s a lot of registered reps that are looking for a place to offer their services and potential products to sell and the insurance industry might be a great alternative for some of these folks that have been in that market, that have either lost their job or are looking at their books of business and saying, “wow, look where my customers are today. Again, six years later, after it happened the last time; maybe I should look for some safe-money alternatives.”

So I’m very optimistic about where the market can head on a going-forward basis and we continue to be steady, get our story out there, sales will be great. We’re just optimistic and feel good about where the market’s heading.

So with that, I’ll turn it over to Wendy. Thanks.

Wendy Carlson

Thank you, Kevin, and obviously we feel very good about the operating results for the quarter too at $23.1 million, our highest quarter ever. We’re also pleased that that result is driven by the real fundamentals of our business, including growth in assets and improving spread management on those assets.

Investment income which as you know is a key driver of our earnings, was at an all-time high of $210 million. If you look back at our financial supplement, you’ll see very steady increases in investment earnings over the prior six quarters and even prior to that. The $210 million represents a 14% increase year-over-year, so we’re pleased with that.

Our yield has been improving throughout the year as a result of the rate at which we’re putting new money and call proceeds to use. Our yield for the quarter was at 6.20%; year-to-date, it’s at 6.18%. New money in the third quarter of ‘08 was invested at 6.88% on fixed-income and equities; year-to-date, that’s 6.7%.

We did have $314 million invested in bonds and equities during the quarter. We also continued to build our commercial mortgage loan portfolio. We were making new loans at 6.32% and we made $103 million of new loans during the quarter. We had some activity in calls of bonds and some sales, but in a much smaller dollar amount than in the prior quarters. There was a total of $239 million that was called or sold that had a yield of 6.56%.

As you look at year-to-date calls and sales which are approximately $2 billion, the yield on those assets was at 6.17%. So with new money being reinvested at 6.70%, that represents a significant increase for us during the year.

The other real important part of the story for this quarter is the continued reduction in our cost of money relative to ‘07. As you recall in ‘07, we saw our cost of money move up as a result of volatility and took action to contain that. Throughout ‘08, we’ve been benefiting from reduced option cost as a result of those actions taken in ‘07.

I think you’ll also recall that in any given quarter, our cost-of-money result is the product of the trailing 12 months. So now, as we move into the fourth quarter of ‘08, we will start to have 12 full months of reduced option costs in ‘08 and the higher money costs that we saw in ‘07 rolling off.

As you look at the third quarter of ‘08, the aggregate cost of money was 3.37 compared to 3.54 a year ago. On the indexed annuities, which comprise the bulk of our business, it was 3.36 in the third quarter of this year compared to 3.55 a year ago; so almost a 20 basis point improvement for a spread of 2.84 on the index business. With the cost-of-money improvement at close to 20 basis points and the yield improvement of approximately 10, that’s a 30 basis point swing in the overall spread and that is the principal driver of the improvement in earnings for the quarter.

Now, we’ve seen the VIX move up to unbelievable levels in September and in October. Obviously, we’re watching that very closely for the impact it has on our option purchases.

Some of the impact is a little bit counterintuitive, because the impact that the VIX has on certain strategies is either a non-effect or an inverse effect, particularly where it comes to our monthly point-to-point options on our index strategies, where the policyholder is earning a rate of return based upon the 12 monthly results in any contract year with a cap in months that have a gain. That particular option type does not seem to increase with increases in the VIX. We’ve seen very steady and consistent pricing on those options which is helping to keep the overall cost of money low.

While we’ve seen some options increase in price; notably, participation rate, strategies, we’ve seen significant increases on those options; it seems to be offset significantly by both the monthly point-to-point as well as the fact that Kevin mentioned which is that a very high percentage of our new policyholders are allocating their money to the fixed-rate strategy within the products.

Forty-five percent of the premium in September went into a fixed-rate. That fixed-rate’s at 3.25% and that’s been true for some time now and I believe as you look at the year-to-date results, 38% of new premium has gone into the fixed-rate strategy.

We have not implemented any rate cuts in ‘08 and so as we continue to watch what’s happening with the VIX and what’s happening with option costs, we always consider whether or not we need to take action to reduce rates or increase rates where option costs have remained low. Really, at present, no rate changes are contemplated, although we do monitor that on an ongoing basis.

I did want to report an update on our cost of money now in October. We had included in our press release the fact that cost of money estimated on the index business for the first three weeks of October was at 3.29%.

Now, with an additional week in the figures, it’s at 3.31%, so it moved up slightly, but just to help you put it in perspective, in the first quarter of ‘07 and second quarter of ‘07, our average estimated cost of money was at 3.63% for those quarters and it had come down to 3.55% in the third quarter and 3.48% in the fourth quarter of ‘04. So even with option costs where they are now, they’re still significantly below the cost of money that we had in ‘07 in that particular environment.

Turning now to DAC in deferred sales inducements, we saw the amortization return to their normal pattern in the third quarter of ‘08, with no unlocking this quarter or unanticipated increases. As you will recall, we did have an unlocking in the second quarter of ‘08 where we went in and adjusted assumptions in model estimated account values to true them up to actual. That caused a net increase in our DAC and DSI amortization of around $2 million, over the usual levels.

Now that we’ve gone through that unlocking, our DAC models have had a reset in effect that had a slight benefit for us in the third quarter of ‘08 and we’ll see the pattern of amortization resume now to its normalized level as we move into the fourth quarter and beyond.

One other comment that I’ll make is that the DAC amortization for fixed-annuity riders differs very significantly from DAC amortization from VA riders. We’ve seen some press out there about the impact of DAC on VA riders that relates to estimates of their fee income based upon what happens when their account values go up and down.

Our product structure is much different. We don’t have fee income that’s based on account values, nor do we have account values moving up and down with the market, because they’re insurance products where you’ve got a contract value that increases with interest that’s locked in and supported by a general account of assets. So it’s a very different model and the DAC impact is completely different and we don’t expect any of the type of issues that some of the VA riders are having as a result of that.

Surrender charges; I would note that while the surrender charge revenues were up somewhat as a percentage of account balances, they were below average. As you look at the individual months in the third quarter you would see that the month of July actually had the highest level of surrenders and then they trailed off, so really an expected pattern there and an increase that relates to the aging of the business and the pricing of the business.

Our GAAP result was a net loss of approximately $10 million that was driven primarily by write-downs in assets due to other than temporary impairments. The biggest portion of that was our write-down in our Fannie and Freddie preferred stock. That write down was in the amount of $39 million. That was followed by our WAMU bonds and the write down there was $5.9 million in our investment in AIG which was written down by $4 million.

The net result of write-downs was $59 million which was growth of 61.2%, less $2.2 million of gains. Those numbers, as they flow through our GAAP results, are offset by a DAC and DSI benefit of $33.1 million. We would normally expect those gross write-downs to be offset as well by the expected tax benefit.

This quarter, we had an unusual result there, in which we had a tax increase, as opposed to a decrease as a result of tax impacts. That increase was $13.3 million as a result of a valuation allowance in the amount of $22.5 million that we established against our deferred tax assets. That has to do with the interaction of the tax law and FAS 109, which is not perfectly clear in many of these areas.

Under tax law, capital losses when they’re realized and these losses have not been realized; they are valuation adjustments that are shown as realized losses under OTTI rules, but when realized, they can be utilized only as a tax deduction against capital gains. So as we look at the requirements of FAS 109, we can recognize the future tax benefit that we expect to get, only to the extent that we have a strategy for utilizing that tax benefit through capital gains or other means.

So we’ve gone through an analysis of each and every asset that was written down and looked at the presence of gains in the other areas of our portfolio, which at the present time, it’s hard to find unrealized capital gains in the portfolio. So that resulted in a tax valuation allowance of $22.5 million. Now, that will change and we think it will come down over time as unrealized capital gains emerge and some of these other issues are resolved in the marketplace.

I would note also that we had no losses realized on our commercial mortgage portfolio. We had no losses realized on any of our MBS securities during the quarter. So those asset classes continue to perform as expected.

We did see operating expense increase a little bit. It’s up $1 million for the third quarter compared to the second quarter of ‘07. That is associated with legal expenses, both on the litigation front as well as our efforts to oppose Rule 151A. On the litigation front, as you will recall from prior calls, we have two cases in California that we are defending vigorously.

One is in the Southern part; it’s a federal case where the plaintiffs are seeking class-action status, there’s been no development there. The other case is a state court case in the Northern part of California. There was a hearing in that case on Monday, where the judge issued an order where he certified a class consisting of people who are residents of the state of California who purchased products from a set of about six different product types that are older product types of ours or who purchased their products from a particular agent in the state of California, who ceased doing business with us a couple of years ago.

The judge in issuing that order also granted us permission to appeal that decision immediately which we will do. I believe the judge felt it was a case of first impression, so rather than waiting until the conclusion of the litigation to have an appeal right, we have an appeal right immediately which we are pursuing and so we’ll continue working on the procedural aspects of this case. The order is a procedural step, it’s not one dealing with the underlying theories of liability or damages and we continue to believe that the probability of an adverse result in that case is very low and the litigation goes on.

Capitalization; we saw our total GAAP capitalization increase slightly at the end of September compared to year-end. We are just over $1.2 billion excluding the other comprehensive loss. As you look at our notes payable, you’ll see that that’s increased by $4 million or a relatively small amount, as a result of the use of our line of credit to fund repurchases of common stock earlier this year. We made the last purchases of stock in July of ‘08. Even though our stock is extremely attractively priced, we feel that this is not the right time in the market to be reducing our equity and increasing leverage in order to buy back shares.

Even though we’ve been drawing on our line of credit, our adjusted debt-to-cap ratio has actually decreased for the year. We were at 29.9% at September 30 compared to 30.2% at year-end, reflecting the fact that some of our repurchases have been of our convertible senior debt and so it’s been a trading of one form of leverage for another.

Our accumulated other comprehensive loss reflects the mark-to-market in the portfolio. That increased to $143 million from $88 million at the end of June, which reflects the decline in asset valuations that the industry is experiencing across the board. Our book value remained strong, despite the mark-to-market and despite the OTTI impairments that we realized. Book value including all of that is at $9.92 and if you exclude the mark-to-market impact, which we traditionally do, we’re at $12.64.

Capital adequacy is a key issue in today’s markets. As measured by the rating agencies, they look principally to statutory accounting rules as they apply to our operating subsidiaries; in our case, primarily our Iowa-operating subsidiary. Our total adjusted capital for RBC purposes was at $934 million at the end of September, which is down from $981 million at the end of June, still well above the minimum needed for our rating and that fact was recognized by AM Best recently, when they affirmed our A-Excellent rating last week.

We’ve conducted a sensitivity analysis of our capital, looking in particular at the securities on our watch list, which I’m going to address in a minute, to determine what would happen if all of the unrealized losses that are currently reflected on our watch list were to become realized and the results of that study are that even if those losses were to become realized losses, our RBC level would still be at or above 300% of company action level and so still sufficient for our rating.

One other comment on statutory results is that our statutory capital is also impacted by the rate at which statutory earnings emerge. Statutory earnings have been delayed this year as a result of how options are treated for statutory accounting purposes. Basically, there’s an accelerated recognition of option costs where you’ve got the market value of those costs declining more rapidly than we would normally amortize the cost and so there’s been an acceleration of the recognition of that cost and we would expect over the next year to see those timing differences turn around and statutory earnings continue to help support the overall level of capital of surplus in the live company.

Watch list presently contains 67 different securities that have a total amortized cost of $283 million and a gross decline in value from that cost of $106 million. That’s about twice the size of the watch list in the unrealized loss at June 30.

As you look at the components of the watch list, as we set them out in the financial supplement, you’ll see that we set it out by sector. Approximately $94 million of the unrealized decline in value is related to the financial sector, either bonds or perpetual preferred in financials, real estate or insurance companies; so obviously a reflection of what’s happening in the economy. One other comment about that is that we have no mortgage backed securities, no commercial mortgage loans on our watch list at present.

Asset-liability management; the asset duration of our available-for-sale securities and mortgages was 6.6 years at the end of September, which exactly matches the liability duration of 6.6 years, which has been the same at the end of June and now at the end of September. If you were to include the held-to-maturity securities, the asset duration would be at 7.9 years, but still an acceptable match of asset duration to liability duration.

Last, I’d like to comment on the 151A front and what’s happening there, which in light of all of the other financial imperatives being addressed in Washington today, some of the news about 151A has really become fairly quieted down since it was first announced.

Work to oppose the rule continues and something that we have announced previously is that we had a fly-in at the end of September, where a group of nine companies that have formed a coalition of indexed annuity riders that’s led by American Equity and one other company organized a group of close to 30 NMOs, as well as the company representatives to spend a day in Washington and we collectively called upon over 90 different members of Congress, both Senators and members of the House of Representatives, to explain to them our opposition to the rule and to solicit their support.

As a result of that, we did have a number of those members reach out to the SEC and ask questions about the appropriateness of Rule 151A and I don’t know if it was a direct result, but in the aftermath of that, we did see the comment period reopen for 30 days. That 30 days started to run in October. It will conclude on November 17.

During the comment period, which has now gone on since July, there have been many, many comments filed, close to 3,000. The great majority of them are in opposition to the rule. The fact that the comment period now extends beyond the election that was held this week and so we will now move into a new administration may have a significant impact on what ultimately happens with the rule.

At the least, we would expect that with the reopening of the comment period and additional comments that the SEC must consider, that the timeframe for any final rule, should one emerge from this process will be pushed back. Initially, it was thought that the earliest time that a final rule could take effect would be at the beginning of 2010; now with additional pushback in the timeframe, it may well be later.

It’s very unclear at this point whether the rule that was published will be adopted in the final form. Most people think that’s unlikely, but whether the SEC would withdraw it and propose a modified rule or just leave it in limbo are all things that no one knows at the moment.

What we do know is that the present declines in the markets have really underscored the need for the product and they’ve underscored the reasons that the products are insurance products, because as we’ve said many times before, our policyholders haven’t seen any decline in their account values as a result of the tremendous decline in the indexes.

That’s exactly what a fixed-annuity product is designed to do. It’s designed as a principal-protected savings product, with interest added annually and the interest calculation, if the policyholder chooses, linked to a formula based upon an index. It’s not a participation in the market and as a result of that, the policyholders are insured against loss from market downturns and so if there’s any good to come from what’s happening in the equity markets, it’s that it clearly illustrates the benefits of our products.

I’ll turn it over to the operator for questions, but in doing so, I would note that in addition to Kevin and John and I, in the room we also have Bryan Borchert, who heads up our bond area; and Bob Kunnen, who heads up our Commercial Mortgage area; available should there be questions that either one of them can respond to.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Randy Binner - FBR Capital Markets.

Randy Binner – FBR Capital Markets

A few questions on competition. Maybe starting with Kevin, variable annuities have obviously been on the minds of a lot of investors recently and particularly the guarantees that were supposed to protect policyholders from downside of the market and quite likely will may be curtailed because of the hedging risk. Is that something specifically you’ve seen yet or are you hearing about that yet, in the context of how indexed annuities compete with variable annuities?

Kevin Wingert

Well, I do think Randy, we are seeing movement of business from those types of products and I do think that there was some real probably lack of understanding as to what those guarantees were actually going to do; most of those guarantees being driven either around income or death benefit. So I think there is probably a lot of consumers that are disappointed.

I know there are hedging issues that were related to those variable products, have been on the minds of rating agencies for the last two or three years and insurance regulators at the state level, as to whether they had any guaranteed fund issues that they were backing up on those particular benefits.

I know there’s a lot of people in the industry quite concerned about the issues there on the variable side and the hedging issue is something we actually ran into on Wall Street, with people that we had talked to about hedging that we do, talking about how the variable companies are hedging those, how they’re using dynamic hedging and a lot of uncertainty in that area.

So I think there is a lot of confusion out there, which is the beauty of our products. I think our products benefit. Our products provide guaranteed living benefits through either the income rider, the annuitization benefit, the death benefit, the cash-out value, so I think that’s our story and I see some real opportunities going forward over the next couple of years as our products continue to shine and show the benefits.

So yes, I think those folks have got some struggles and we will see some benefits from that side of it.

Randy Binner – FBR Capital Markets

I mean, I guess just to put a little more of a point on it, have you seen variable-annuity providers cut back on guarantees yet and would you expect that to happen?

Kevin Wingert

We haven’t seen them cut back on guarantee or I haven’t seen them directly cut back on guarantees yet. I certainly would not be surprised that you will see those guarantees get dropped back as they have to try to explain how their hedging programs work. So you’re right; that will be a benefit as they start to pull back. Our products will look even stronger, but I haven’t seen any direct evidence of that at this point and given the volatility and confusion in the market, I assume it’ll take a little bit of time to sort itself out.

Randy Binner – FBR Capital Markets

Just one other question related to competition. As far as rate cuts go, I guess there really haven’t been any yet in ‘08 per Wendy’s comments, but obviously the higher level of VIX brings that into question and of course, actions by your two largest competitors would probably be a contributor as well. So are you seeing or hearing anything about Allianz or Aviva moving to cut rates in anticipation of higher hedging costs?

Kevin Wingert

Well actually, what we’ve seen happening in the market, the two strategies that have the most exposure with the high volatility are participation rate-only strategies, where just the participation rate is the moving part. Those participation rates started coming down; I don’t remember if it was early this year or late last year, and are down for most carriers and even ourselves, down at the 30%, 35% level and I think unless you see volatility back down some more, you’ll see them down at whatever the minimum guaranteed levels are within the contract.

At 35% or 30% participation rates, you don’t get a lot of money into those particular strategies. So they don’t have a big effect on your overall cost of money, because you don’t have much flow there.

The other strategy that has apparently gotten extremely expensive is these full-participation-rate strategies with a spread fee versus a cap on the return. We’ve seen a lot of the companies that had those.

I would say ING, not necessarily Allianz, I don’t think; but certainly ING and Aviva push those spreads, the fees on those products up to the maximums that they could go to, which is generally 8% or 10%, so the customer doesn’t get anything for the first 8% or 10% of the return.

Now that’s a pretty tough sale or they’ve just discontinued taking premium into those strategies or reduce the amount of premiums that an agent can put for a particular product into those strategies. So those strategies are being pulled back. American Equity doesn’t have any of those on the new business side of our portfolio. We haven’t had for several years. We haven’t used spread fees, so it hasn’t affected us.

As Wendy mentioned, the monthly point-to-point, actually, that option’s gotten relatively inexpensive. You’ve seen some caps go up in those areas. We haven’t moved them up at this point. We’ve kind of wanted the market to sort itself out a little bit. I think we will watch that and whether we will move up before the end of the year or do something after the first of the year as we move into new production for next year, we’re going to watch that closely and if there’s an opportunity, take advantage of it.

The cap strategies I think have been relatively steady in terms of option cost. The 6%, 6.5% caps, we’ve actually seen some companies moving some of those caps up and I think those are companies with spread fees where they’re trying to influence the money into those strategies which are less expensive options.

So I think we’re in pretty good shape. We’re pretty steady, steady-as-you-go, so that’s kind of the flavor of what’s going on with the people out there.

Operator

Your next question comes from Beth Malone - Keybanc.

Beth Malone - Keybanc Capital Markets

I was just wondering, given that we’ve now got a Democratic Congress and President, how are you positioning the products as a tax haven and do you see any boost to sales as people become more concerned about the tax rates going forward?

Kevin Wingert

Absolutely. I think there are a number of things out here Beth, that I think are going to create opportunities in the market over the next couple of years. I think one and we’ve been talking about this since at least the middle of the year, that the fact that in the political environment that we’re in, the politicians before we get elected or talking about raising taxes, that’s probably assigned that they are going to raise taxes and that just makes our products in tax deferral that much stronger.

There are additionally some things happening with tax benefits for annuities as they relate to the products being used for individual’s long-term care, not being in the long-term care business, but where the actual funds from the annuity can pay for an individual’s long-term care and they get some additional tax benefits there. That’s going to wash itself out in 2009. In 2010, that will help, and probably before the end of 2009 help the market.

I think there are some conversion abilities for Roth IRAs. Probably because taxes go up, the quicker somebody can get the conversion done, the better into that Roth IRA opportunity. So I think there’s going to be some real opportunities out there in the market, as all this sorts itself out.

Beth Malone - Keybanc Capital Markets

Are you all planning a different marketing strategy or is that already a big part of what you provide to the agents to market the product?

Kevin Wingert

It’s already a big part of what we provide, but we’re always trying to add selling tools. As you know Beth, we work with the NMOs pretty closely. That’s a lot of the benefits that the NMOs provide to their agents. So I think you will continue to see not only us try to provide additional benefits and training and build that into like our producer forums, but you’ll see our NMOs continue to enhance what they offer for selling tools in those areas and marketing tools in those areas to their agents.

Brokers International, who you know Beth; for example, they’ve been doing big IRA training programs. They’ve done two or three of them already this year and have had 500 or 600 agents into those types of programs; agents wanting to learn how they should be positioning those products. So yes, we will continue as well as working with the NMOs.

Beth Malone - Keybanc Capital Markets

Okay, on the broker dealer, are you all continuing to pursue that strategy, even as the outlook for a change to the regulation of the products may be now being pushed out?

Wendy Carlson

Yes, we are, for a couple reasons. One, we had started to bring the broker dealer up even before the rule was announced as part of our overall long-term strategy to continue to look at diversification of distribution channels and diversification of products.

So we had a desire to market a registered product even prior to the announcement of Rule 151A and then with that our efforts in that area accelerated. We don’t know what’s going to happen with Rule 151A and until there’s some outcome we still need to be prepared. So yes, absolutely, we are continuing to develop the broker dealers, so that we could have some of our agents be associated with our broker dealers, registered reps if they desired.

We’re in the process of looking to put into place selling agreements, so that if they’re registered reps with other broker dealers, that they will be able to continue to sell products through those broker dealers, as well as looking at strategic alliances with others in the securities industry that may be out there.

So there’s a lot of work going on, on that front and it won’t be wasted regardless of what happens with Rule 151A, because we do have a long-term interest in diversification of distribution and ultimately products.

Beth Malone - Keybanc Capital Markets

And then one final question on the outlook for fixed annuities as a part of your product mix. It sounds like because of market conditions and also the looming possibility of this regulation, that fixed annuities, they’re going to become more important to your product mix. There’s quite few blocks of small annuity businesses out there as a part of other companies. Is there any thought to potentially acquiring a book of annuities to kind of accelerate that process?

Wendy Carlson

Well, first of all, everything we sell is a fixed annuity. I assume you’re asking about fixed-rate annuities.

Beth Malone - Keybanc Capital Markets

Sorry, yes. I’m sorry yes; I meant to clarify fixed-rate annuities.

Wendy Carlson

We don’t have any specific plans along those lines, nor have we looked at specific books of fixed-rate annuities. Right now, our growth is good as Kevin discussed with the new premium and so we’re happy with that. We’re optimistic about where those trends are going. I think all things being equal, we’d rather to continue to grow our own business from our own products than acquiring somebody else’s book and potentially somebody else’s problems.

Operator

Your next question comes from the line of Steven Schwartz - Raymond James.

Steven Schwartz - Raymond James

Wendy, I had to step out for a sec. Did you mention what your RBC was at the end of the quarter or at least what you would estimate it would be?

Wendy Carlson

It was at about 345%.

Steven Schwartz - Raymond James

Okay. Following up on the BD question, if I remember the process correctly, you got a few slots and then you got to apply for more and then you fill those and you got to apply for more; how many slots you got now, do you know?

Wendy Carlson

We have not yet filed the; I think it’s a Form 1017, which requests the additional slots. There’s groundwork to get us to that point. We’ve talked about applying for several hundred and then ramping up from there.

Several hundred would encompass potentially our Gold Eagle agents, but because we would have to ramp up slowly, that’s part of the reason that we’re looking at forming alliances with other broker dealers where we could refer agents to become associated as registered reps with them and we would put into place selling agreements with them for our products.

Steven Schwartz - Raymond James

I mean, the issue with that has always been how the NMOs get treated; has that been worked out somehow?

Wendy Carlson

Absolutely and that is a challenging question, but one that we’ve got several approaches to and I think some very good ideas have been developed.

Steven Schwartz - Raymond James

Okay and then the assets that you wrote off, the AIG, the Fannie Mae, the GSEs in the WAMU; do you have any left on your books? Any other exposures to those names or has that been written off 100%?

Wendy Carlson

Well, I mean they were written off to the extent of their market value. I suppose they could continue to decline in value.

John Matovina

Right yes, but well in terms of the government agencies, we clearly have a large holding of their senior debt, that is unaffected. The write-off, the write-down of those was in the preferred stock category and we had one issue of each and they’ve both been written down and they continue to trade someplace in the $1 to $2 per share range; so that was a written-down value and a similar story on the AIG preferred stock, it was written down to the value as of September 30 and we only had one security.

I think we commented in that release that we have bonds in two AIG subsidiaries that have not been written down yet. One’s the airline international lease and the other one’s American General and both of those securities would have been part of the securities that are in the watch list for bonds. So they’re part of the group of bonds that are identified as financial companies.

Operator

Your next question comes from Bill Dezellem - Tieton Capital Management.

Bill Dezellem - Tieton Capital Management

First of all, we were originally going to be asking about the sustainability of this spread after seeing how strong it was in the release, but given that your cost of funds has come down in the month of October as significantly as it has, is it to some degree at least a slam-dunk that the fourth quarter; you’re going to see earnings grow as a result of spread widening further?

Wendy Carlson

Bill, it’s important to keep in mind the 12 months rolling impact on the cost of money, because even though our new purchases are at 3.31%, the overall cost of money is a function of purchases made during the prior 12 months. So actually, we’ve seen new purchases in the third quarter being made at below 3.20% and so that 3.20% is working into that 12 month average and bringing down the higher cost that we saw last year and so new purchases at 3.31% are basically higher than we’ve been paying up till now in ‘08, but less than we were paying in ‘07.

So I don’t know that you can’t expect to see an increase to the same extent, the percentage that we saw in the third quarter. I would predict more steady growth which really is our strategy.

Bill Dezellem - Tieton Capital Management

Which does give the point that there does appear to be some sustainability to this spread and as you said maybe some upward bias.

Wendy Carlson

I’d say it’s accurate.

Bill Dezellem - Tieton Capital Management

And then I guess an accounting question for you. The deferred policy acquisition cost expense, it actually declined in the third quarter versus the second quarter and I apologize for my ignorance here, but it would seem as though as your business grows, that policy acquisition cost that’s amortized should be growing over time.

Wendy Carlson

Well and typically it does. In every quarter we look at whether we need to have an unlocking, which is a process of going back and looking at all of the assumptions we use in our DAC model, which was a forward projection of profitability so that we can match that expense against our profits.

We look at the assumptions and we compare the model results with our actual results and it’s a very complex model that includes assumptions for all key aspects of managing our business and periodically when the modeled results and the actual results get outside of too wide of a variance, we have to go through this unlocking process to true those up and the unlocking can result in either a benefit or additional expense.

So what we saw in the second quarter was additional expense on the DAC side. We saw some benefit on the amortization of deferred sales inducements, so you saw that go down in the second quarter. The net effect was an overall increase in the amortization of those two items of $2 million.

So now that we’ve been through that unlocking process, we start with a new base level in our DAC model and so the DAC really picked up where we left off with a new starting place now in the third quarter.

Bill Dezellem - Tieton Capital Management

Wendy, to make sure that I’m clear, so the issue that I’m actually seeing here was the one that we addressed three months ago last quarter and so it was the second quarter that was the aberration and everything basically as you said is clean slate in the Q3.

John Matovina

Right and Bill, you also have to make sure you look at two lines, not just the DAC deferred policy acquisition cost; you have to look at amortization of deferred sales inducements and sum the two numbers together, in terms of what the total amortization is and particularly with the unlocking.

The unlocking in the second quarter was causing DAC to go up and sales inducements to go down, but actually if you sum the two numbers up for the second quarter and the third quarter, there is a slight increase from the second to the third quarter in the aggregate of the two.

Operator

Your next question comes from Randy Binner - FBR Capital Markets.

Randy Binner - FBR Capital Markets

I wanted to just touch on commercial mortgages. I took from Wendy’s comments that there were no delinquencies or other adverse trends there. Can you just give us an update on kind of the key statistics like LTV delinquency rates, if the average loan size has stayed the same and then, you had commented the watch list does not include the commercial mortgages. Since they’re not accounted for like most securities, what kind of level of distress would they have to be under to be put on the watch list?

Wendy Carlson

Well, on that question, we’d evaluate it in terms of our normal watch list processes and it would relate to the existence of a default in a bond in our assessment of the collect ability of the underlying balance.

As Bob is going to discuss in a minute, Bob Kunnen; when we initially make these loans, we make them with very conservative underwriting standards in anticipation of cycles like we’re in now and potential problems and so the standards are set and the loan-to-value ratios are set, so that if we do have to foreclose on a property that the odds are very good, that will be made whole.

So it would have to be a situation where we didn’t think we were going to be made whole as a result of some very severe decline in value and some very severe problem in a loan, but remember our average loan size is less than $3 million a loan. So it’s quite a diversified portfolio, but with those general comments, we do have Bob Kunnen here and to respond to this kind of question is the reason that he’s here.

Bob Kunnen

One of the things that we’ve noticed recently is that on the loan-to-value base, the portfolio has improved rather significantly over the last year. A lot of that relates to the fact that many of the loans that have been put into place this year had been at a much lower loan-to-value. In fact, on an appraise basis, the loan-to-value ratio in our portfolio has actually dropped below 60%, I think we’re at about 59.6% or 59.7% this year on a weighted basis and in terms of our own internal valuation that we always do on our properties, we tend to evaluate these a little more conservatively. I think we’re at about 64%.

We have noticed that because there are so many lenders who have been out of the markets, particularly conduits in the last 12 months, that many of the loans that we’ve been placing in our portfolio have been at a much lower loan-to-value. I think this year, on an appraised basis we’re at about 55%, which is quite a bit lower than we’ve seen in recent years and in looking through our portfolio this year and looking at operating statements and so forth, we’ve actually seen our debt service coverage ratios improve over the last year. I think on a weighted basis, we’re probably closer to about 1.6% this year, compared to about 1.5% in 2006.

So overall, I feel pretty good about the portfolio. That doesn’t mean from time-to-time we don’t see some vacancy issues and things like that, but in talking with our correspondents, our portfolio continues to perform quite well.

Randy Binner - FBR Capital Markets

Do you have an occupancy figure?

Bob Kunnen

I don’t. I can probably get that for you. Obviously, when you’ve got close to 1,000 loans in your portfolio, that’s a fairly difficult thing to track, but I can get that information for you.

Randy Binner - FBR Capital Markets

Yes, to the extent you think it’s just meaningful on that many loans please pass it on. Thank you.

John Matovina

One final comment on that; we do have a quarterly investor presentation that many of you have seen and that is posted on our website. It is in the process of being updated and there are a couple of pages in there with some very specific information about the commercial mortgages and the underwriting practices that Bob and his team have followed to produce those mortgages for our portfolio. So what’s out there now is the June 30 statistics. The underwriting practices haven’t changed in quite a long time. So those would hold through and September will be out there in a few days.

Operator

Your next question comes from Steven Schwartz - Raymond James.

Steven Schwartz - Raymond James

Bryan, can you talk about the Alt-A investments; how they’re doing? How big is it today? Did some of it maybe get paid off? What’s subordination doing and things like that.

Bryan Borchert

Sure. Well, just in general on the mortgage-backed sector we’ve got about $1.8 billion in residential mortgage-backed on the books. $1.1 billion of that has been purchased in 2008. So we have the benefit that most of ours been purchased after a substantial part of the price declines.

As far as the Alt-A, we’ve got about $575 million at the end of the quarter in Alt-A; however, $496 million of that number is in super-senior Alt-A which performs obviously much better than Alt-A in general. Of the remaining $79 million, only $1.4 million of that is an Alt-A that’s not super-senior, that was in 2006 vintage year.

Going back to 2005 which is performing much better than 2006, we’ve got $26 million in 2005 non-super-senior Alt-A and the remainder $51 million was purchased is in vintage pre-2005. Those Alt-A’s are performing quite well. There’s very little delinquencies in those numbers and those have no problem at all.

So in general, our super-seniors are performing fine, and we don’t have that much exposure to the Alt-A’s that are non-super-senior.

Steven Schwartz - Raymond James

If I remember correctly, in the super-senior, the subordination was something like 13%, 14%. Was that correct?

Bryan Borchert

I don’t have that number in front of me. That might be a little bit high, but just in general if you look back at the rating agency standards, I would say it took 5% or 6% to get a AAA rating in Alt-A’s prior to the last couple years.

Super-senior on average kind of double that and it’s not across the board, but in general you get twice as much subordination with the super-senior. So I’m guessing closer to 10%, but I don’t have that number in front of me.

Steven Schwartz - Raymond James

And then Wendy, can we revisit for those of us who aren’t lawyers, what’s going on in Northern California and what that all meant?

Wendy Carlson

Sure, sure. There’s been all this procedural skirmishing at the early stages of the case on the issue of whether a class would be certified. There’s a named plaintiff as an individual and that plaintiff and counsel are seeking to broaden out the group to include California residents who purchased products in this particular class. The hearing on the issue of whether the class would be certified has extended over many months and had many iterations.

On Monday, the judge reached a decision that he would issue an order certifying the class, so that the case would proceed as a class action. We have an opportunity to appeal that decision immediately, which we will do and there will be some other procedural skirmishing on motions to decertify a part of the class based on technical, legal issues and some other things to attack it and whittle away at it.

It’s not the result we hoped for on the issue of certification, but that’s what happened on Monday.

Steven Schwartz - Raymond James

Okay and what was the key characteristic that the judge thought created the class?

Wendy Carlson

Well, there is two things and actually two subclasses and one has to do with a California law that says that you must report or refer to surrender charges on the cover page of the policy.

Now, when we had our policy approved in the state of California and worked with their actuaries, their actuaries agreed that if we like everyone else, put the surrender charges on the specification page of the policy, which is two pages in, that that was in compliance with their law. So that when you pick up the contract, you look two pages in and you see all the specs including the surrender charges.

The judge has at least initially concluded that he cannot determine as a matter of law that putting it on the specification page complied with the requirement to put it on the cover page and that potentially that was part of a scheme to hide the issue of surrender charges from people.

Now, we pointed out that the issue of surrender charges appears, I think its 30 some times in the contract and that the policyholder is required to sign off on a disclosure certificate, which specifically references surrender charges, that at least at this stage of the case is not something that the judge has considered. There was also some interesting testimony in this particular case that the named plaintiff didn’t read the contract. So query whether any reference to surrender charges on any page made a difference if they didn’t read the contract, but that’s the issue in that case.

There is another subclass that relates to purchases from a particular agent. That agent allegedly was involved in trust related sales and as we know from prior cases against other companies, trust related sales have been a problem for the industry. That particular agent ceased to be a significant producer for us many years ago and ceased writing business for us at all over two years ago.

Steven Schwartz - Raymond James

Okay, let’s go back here. So what you’re telling me vis-à-vis the first class and this sounds completely inane, that there’s a law on the California books that surrender charges have to be on the front page, but the DOI told you that it’s okay to put it on the specification page, which is like two pages in and now the judge is saying, “I don’t even want to deal with this?”

Wendy Carlson

The judge is saying that he can’t decide as a matter of law that we complied with the rule and so if you accepted the plaintiff’s claim on its face as they’re required to do at this stage, then he felt that was enough for certification, but he was uncertain enough about that conclusion that he approved the case to go to an immediate appeal. So that was the reason for that.

Steven Schwartz - Raymond James

Is it a defense to say we were told this is okay by the people who regulate us?

Wendy Carlson

Sure it is, and that’ll come out in testimony, but one of the messy parts of litigation is that it’s got to come out in the evidence and in the testimony and in witness statements.

Steven Schwartz - Raymond James

And then the second subclass, any sense about how big it could be?

Wendy Carlson

At this point really not since there are motions pending that would decertify a portion of it. So if I were to give you a number, I just don’t think it would be accurate, given that it’s in a state of flux procedurally, at this point.

There’s one other claim Steven that is an interesting one. The claim is that we shouldn’t earn a spread and that we should pass all the yield on our general account through to the policyholders and that by not doing that we’re “shaving the yield” and that by shaving the yield we’ve misrepresented the policyholders.

Operator

Your next question comes from the line of [Paul Sherem] - FPK.

Paul Sherem - FPK

We’re over an hour now, so I’ll keep this pretty short with just a couple questions. One is, do you have the cost of hedging split out by strategy in particular for participation rate strategies?

Wendy Carlson

We look at that data weekly; we don’t have it right in front of us.

John Matovina

And we actually don’t even accumulate it in any type of fashion.

Paul Sherem - FPK

Okay, so you wouldn’t have that like over a quarter?

John Matovina

We can look at each week, what the purchase cost was for a particular option, but we don’t sum them up.

Paul Sherem - FPK

I was just curious, how much that particular cost has increased with volatility.

John Matovina

I could get some frames of reference Paul and tell you.

Kevin Wingert

One example, and this is where the participation rates got so cheap and this goes back early in the year when we reduced; I can’t remember if it was early this year or late last year we reduced our participation rate on these strategies. The cost of 100% annual point-to-point S&P option got, if you bought that option it was over 10%. So we had to knock our participation rates all the way back to 35% or 30% to bring the cost down on that option to the 3%, 3.5%.

So that’s the challenge that you get with those participation rate-only strategies, particularly where you can’t cap the return or the industry is always on a participation rate-only strategy and had the ability to reduce that participation rate significantly, down to that 35%, 30%, 25% range and once you get down to that participation rate, sales tend not to go into the strategy.

Paul Sherem - FPK

Okay. Is that why you think that’s contributing to why you’re seeing more people elect the other strategies?

Kevin Wingert

Absolutely; once you drop down below about 45% participation rate, you don’t get nearly as much activity as you do if you can get up to a 45% or 50% participation rate on an annual point-to-point basis.

John Matovina

And the value proposition just isn’t there. The alternative on annual point-to-point in our case now is a 6% cap and at a 40% participation rate, the market would have to go up 15% for you to get a 6% index credit. It just doesn’t make sense for people to be taking on that kind of risk. I guess the market volatility is such that perhaps 15% is more viable, but it’s probably more viable on the downside than it is on the upside today.

Kevin Wingert

You’re hitting on one key point to these products though. These strategies, once they’re in and they’re issued with these strategies and if the options get cheaper in a year or two, we can bring participation rates up, the customer’s got an opportunity, but the beauty of these products are it allows us to control our costs on the strategies, so that our aggregate cost is within our pricing parameters and even in a period of time like we’re in now, where we’ve seen huge volatility and some of the options go nuts in price, we’ve been able to keep our cost of money pretty stable and if you compare it to a year ago, coming down.

Paul Sherem - FPK

Another question is, do you have an impact of that cost of the accelerated recognition that you talked about earlier; the accelerated recognition of the option cost?

Wendy Carlson

Yes, I think I do. We have an operating income number for statutory purpose that breaks that out and it impacted each of the quarters. In the first quarter it was $42 million; in the second quarter, it was $2 million; in the third quarter, which also includes Lehman and the fact that Lehman went bankrupt and the market value of those options went to zero, it was a net of about $15 million.

Paul Sherem - FPK

Okay and so would that go to straight impact on set capital?

John Matovina

Yes, it did.

Wendy Carlson

Right.

Paul Sherem - FPK

Okay, do you have an estimate for RBC at year-end?

Wendy Carlson

Well, we’re thinking it will be around 350%, but that’s a guess based on a lot of factors.

Paul Sherem - FPK

Okay and is 300% the rating agency minimum?

Wendy Carlson

Yes, for A-Excellent rating.

Operator

You have no further questions at this time. I’d like to turn the call back to management for closing remarks.

Julie LaFollette

Thank you for your interest in American Equity and for participating in today’s call. Should you have any follow-up questions, please feel free to contact us.

Operator

Thank you for attending today’s conference. This concludes your presentation. You may now disconnect. Good day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: American Equity Investment Life Holding Q3 2008 Earnings Call Transcript
This Transcript
All Transcripts