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American National Group Inc. (AEL)·Q2 2023 Earnings Summary

Executive Summary

  • Q2 2023 delivered $851.6M total revenue, GAAP diluted EPS of $4.36, and non-GAAP operating EPS of $1.62, with investment spread compressing to 2.57% from 2.67% in Q1 as portfolio yield eased and option costs rose .
  • FIA sales surged to $2.00B (+95% sequential), with private assets at 24.9% of invested assets and reinsurance “fee-like” balances rising to $10.9B; recurring fee revenues reached ~$23M .
  • Management outlined FY 2023 sales of $5–$6B (≈25% from bank/broker-dealer), building cash toward $7–$10B to de-risk and preserve dry powder; capital return plans suspended amid the pending Brookfield Reinsurance acquisition (expected close H1 2024) .
  • No earnings call was held due to the merger process; near-term stock narrative is driven by accelerated origination, capital-light fee revenue scaling, and the BNRE transaction timeline .

What Went Well and What Went Wrong

What Went Well

  • “AEL 2.0 is thriving… New business sales of $2B… Private asset investments over $12B – or 25%… nearly $11B of account values ceded to reinsurance partners to earn ‘fee-like’ revenues...” — CEO Anant Bhalla, highlighting strong origination, capital-light shift, and ROE goals .
  • FIA sales up 95% sequential to $1.9B; independent agent channel doubled and bank/broker-dealer +77.7%, evidencing broad-based distribution momentum .
  • Reinsurance fee revenues and balances expanded: account value subject to recurring fees reached $10.9B (+$0.7B q/q), with non-GAAP recurring fees ~$23M (vs $22M in Q1) .

What Went Wrong

  • Investment spread contracted to 2.57% (from 2.67% in Q1) as average portfolio yield fell to 4.42% and cost of options rose to 1.93%, reflecting market dynamics and richer product crediting terms .
  • Net investment income decreased $12M q/q to $547M (non-GAAP basis) on lower effective yield and invested assets; portfolio yield was pressured by weaker mark-to-market partnership returns .
  • Recognized ~$44M loss on First Republic Bank; regional-bank exposure totals $127M (BBB+ weighted), plus higher option budget and increased underwriting discipline may temper near-term sales growth if competitors chase rates .

Financial Results

MetricQ4 2022Q1 2023Q2 2023
Total Revenues ($USD Millions)$654.5 $662.5 $851.6
GAAP Diluted EPS ($USD)-$0.34 -$2.00 $4.36
Non-GAAP Operating EPS ($USD)$0.79 $1.47 $1.62
Investment Spread (%)2.54% 2.67% 2.57%
Avg Yield on Invested Assets (%)4.30% 4.48% 4.42%
Aggregate Cost of Money (%)1.76% 1.81% 1.85%

Note: Wall Street consensus (S&P Global) was unavailable for AEL; estimate comparisons are not provided.

Segment/Product Breakdown (Q2 2023 sales/deposits)

SegmentFIA ($M)Annual Reset FR Annuities ($M)Multi-Year FR Annuities ($M)SPIA ($M)Total Before Co-ins ($M)
American Equity Life$1,471.6 $0.8 $37.0 $0.3 $1,509.8
Eagle Life$406.3 $1.8 $82.9 $0.0 $491.0
Consolidated$1,877.9 $2.6 $120.0 $0.3 $2,000.8
Coinsurance Ceded$825.5
Net After Coinsurance$1,175.2

Key KPIs and Operating Drivers

KPIQ4 2022Q1 2023Q2 2023
Gross Sales ($USD Billions)$0.900 $1.371 $2.001
FIA Gross Sales ($USD Billions)$0.783 $0.964 $1.878
Coinsurance Ceded ($USD Billions)$0.286 $0.638 $0.826
Account Value Subject to Fees ($USD Billions)$9.642 $10.156 $10.864
Recurring Fee Revenue ($USD Millions)$21.1 $22.4 $22.7
Net Investment Income ($USD Millions)$538.0 $561.3 $542.7
Annuity Product Charges ($USD Millions)$61.7 $62.6 $71.6
Surrender Charge Income ($USD Millions)$22.0 $26.5 $33.8
MRB (Gains)/Losses ($USD Millions)$33.5 $183.7 ($144.1)
Outflows: surrenders/withdrawals/etc. ($USD Billions)$1.243 $1.248 $1.251
Effective Tax Rate on Pre-tax Operating Income (%)13.8% 24.4% 20.8%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total FIA SalesFY 2023N/A$5–$6BInitiated/Outlined
Bank/Broker-Dealer share of new salesFY 2023N/A≈25%Initiated/Outlined
Point-in-time portfolio yieldEnd Q3 20234.77% at 6/30 baseline“Relatively flat” vs Q2 endMaintained (flat outlook)
Expected change in MRB liabilityQ3 2023N/A~$41.5M modeled; includes ~$20M expected benefit from amortization of capital market impactsNew model expectation
DAC/DSI amortization (modeled)Q3 2023N/A~$117M (pre effect of new sales/assumption changes)New model expectation
Holding-company cash buildNext few quarters; YE 2023N/A$7–$10B (low end by YE)New target
Capital return planFY 2023Previously plannedSuspended due to BNRE mergerSuspended
BNRE acquisition closingH1 2024N/AExpected close H1 2024Transaction timeline

Earnings Call Themes & Trends

TopicQ4 2022 (Prior-2)Q1 2023 (Prior-1)Q2 2023 (Current)Trend
Private asset allocation22% of portfolio 24% (+$1.3B sourced) 24.9% (>$800M in quarter) Increasing
Reinsurance fee revenue & balancesFee revenue ~$21M; balances $9.6B ~$22M; balances $10.2B ~$23M; balances $10.9B Growing
Sales momentum & distributionFIA $0.783B FIA $0.964B (+23%) FIA $1.878B (+95% seq); total $2.00B Accelerating
Investment spread & yieldsSpread 2.54%; yield 4.30% Spread 2.67%; yield 4.48% Spread 2.57%; yield 4.42% Slight compression vs Q1
Credit/risk postureLower-than-expected mark-to-market returns Vigilant balance-sheet management; excess capital $650M $44M FRB loss; regional bank exposure $127M, BBB+ Risk-managed stance
Capital & liquidityNo notable items; origination $2.5B in Q4 $253M share repurchase; fortress balance sheet Suspended capital return; building cash to $7–$10B Liquidity build
Strategic/M&A——BNRE definitive agreement; close H1 2024 New driver
Investor communicationsConference call held Conference call held No call going forward Discontinued calls

Management Commentary

  • “AEL 2.0 is thriving… significant milestones in our transformation into a capital-light and more resilient, +12% ROE earning institution… We have delivered on it, ahead of schedule.” — Anant Bhalla, President & CEO .
  • “Credit metrics… remain largely unchanged… total net realized losses ~$25M includes a loss of $44M on First Republic Bank… exposure to regionals $127M… BBB+ range. We have built up a substantial cash position of $5.4B… expect cash to increase to $7–$10B… to protect the company… and take advantage of… private assets.” — CIO Jim Hamalainen .
  • “We expect… manage sales levels through the remainder of the year to finish 2023 with total FIA sales in the $5B to $6B range… bank and broker dealer channels to contribute ~25%.” — Anant Bhalla .
  • “Brookfield Reinsurance will acquire all outstanding shares… transaction values AEL at ~$4.3B; expected to close H1 2024.” — Company update .

Q&A Highlights

  • No Q2 2023 earnings conference call was held due to the BNRE transaction process; management communicated updates via press releases and the financial supplement .
  • Clarifications provided in filings include modeled expectations for Q3 MRB change ($41.5M) and DAC/DSI amortization ($117M), and liquidity build targets ($7–$10B) .

Estimates Context

  • S&P Global Wall Street consensus for AEL (EPS and revenue) was unavailable; therefore no beat/miss analysis versus estimates is included.
  • Given strong sequential sales and the outlined sales mix guidance, future estimates (when available) may need to reflect higher recurring fee revenue from reinsurance and slightly lower spread assumptions due to higher option costs and competitive pricing .

Key Takeaways for Investors

  • Sequential acceleration: FIA sales doubled vs Q1 with broad channel strength; sustaining momentum while emphasizing underwriting discipline in volatile rate markets .
  • Capital-light scaling: Recurring reinsurance fees and ceded account values continue to grow, supporting non-GAAP operating earnings durability independent of market marks .
  • Spread dynamics: Expect modest spread compression near term (higher option costs, richer crediting), partially offset by floating-rate exposure and private asset origination at attractive yields .
  • Liquidity and risk posture: Building cash toward $7–$10B de-risks the portfolio and positions AEL to deploy into private assets as opportunities arise; regional bank exposure is monitored and sized .
  • 2023 sales framework: Management targets $5–$6B total FIA sales with ~25% bank/broker-dealer contribution, implying sustained origination but with disciplined pricing .
  • Corporate catalyst: BNRE acquisition (H1 2024) is the dominant stock narrative; capital return plans are suspended pending close, and communications shifted away from earnings calls .
  • Near-term trading: Expect headlines around sales cadence, private asset mix, fee-revenue scaling, and merger milestones to drive sentiment; hard estimate comparisons not possible given consensus unavailability .