Executive Summary

Q4 2023 delivered strong operating performance but a GAAP loss: non‑GAAP operating income was $159.6M ($1.99/sh), down sequentially from $195.5M ($2.45/sh), while GAAP EPS was $(6.04) driven by fair‑value accounting (embedded derivatives and MRB) under LDTI .
FIA sales remained robust at $2.0B (third‑highest in company history) with mix shifting further to guaranteed income products; full‑year FIA sales exceeded $7.0B, an all‑time record .
Investment spread compressed to 2.64% (from 2.73% in Q3) as average portfolio yield slipped 4 bps and mark‑to‑market private asset returns undershot assumptions by ~20 bps of yield; option costs fell materially to 1.70% with the income‑product mix shift .
Liquidity and capital are significant into the pending BNRE merger (expected 1H24): ~$7.4B cash at year‑end (>$9B end‑Jan), RBC ratio ~370–390%, and ~$800M excess capital; management expects ~$10B deployable liquidity post‑close .

What Went Well and What Went Wrong

What Went Well
- Record full‑year FIA sales >$7B and strong Q4 sales of $2.0B, with income‑product sales up 4% QoQ to nearly $1.5B; management highlights reduced churn risk and superior ROE profile of income products .
- Capital strength and liquidity: TAC $4.3B, RBC ~370–390%, holding‑company cash $560M at year‑end and ~$875M by Jan 31; significant “dry powder” to redeploy, especially in private assets .
- Recurring reinsurance fees held resilient despite pausing flow reinsurance in Oct 2023; Q4 recurring fee revenue was $28M vs $27M in Q3 .
What Went Wrong
- Sequential spread compression (2.64% vs 2.73%) as portfolio yield dipped and private asset returns underperformed modeled assumptions by ~$24M (20 bps) .
- GAAP loss of $(475.9)M ($(6.04)/sh) driven by LDTI fair‑value changes: embedded derivatives (+$977M expense) and MRB losses (+$242M) overwhelmed underlying fundamentals .
- Elevated outflows: total Q4 outflows rose to $2.1B (up $712M QoQ) as 3‑year MYGA cohorts from late‑2020 hit surrender windows; $1.5–$2.0B more MYGA lapses expected in 1H24 .

Financial Results

Metric	Q4 2022	Q2 2023	Q3 2023	Q4 2023
Total Revenues ($USD Millions)	$652.3	$851.6	$266.7	$1,055.1
GAAP Diluted EPS ($)	$0.25	$4.36	$5.82	$(6.04)
Non‑GAAP Operating EPS ($)	$1.64	$1.62	$2.45	$1.99
Non‑GAAP Operating Income ($USD Millions)	$141.7	$127.6	$195.5	$159.6
Investment Spread (%)	2.54%	2.57%	2.73%	2.64%
Average Yield on Invested Assets (%)	4.30%	4.42%	4.69%	4.65%
Aggregate Cost of Money (%)	1.76%	1.85%	1.96%	2.01%
FIA Sales ($USD Billions)	n/a	~$1.9	$2.2	$2.0

Segment/product sales detail (Q4 2023):

American Equity Life FIA deposits: $1,547.6M; Eagle Life FIA deposits: $430.7M; consolidated FIA $1,978.3M; MYGA $17.8M; total sales before coinsurance $1,996.7M .

Additional KPIs (Q4 2023 vs Q3 2023):

Recurring reinsurance fees: $28M vs $27M .
Net investment income (adjusted to non‑GAAP basis): $581M vs $585M .
Surrender charge income: $58M vs $46M .
Index credits: $137M vs $121M; cost of options 1.70% vs 2.02% .
Outflows: $2.1B vs ~$1.36B .

Why GAAP swung to loss:

Large unfavorable fair‑value items under LDTI: change in fair value of embedded derivatives ($977.2M expense) and MRB (losses of $242.0M) in Q4 drove the $(6.04) GAAP EPS despite solid operating earnings .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Modeled change in MRB liability (expected)	Q4 2023	+$32M (as of Q3 guide)	Actual +$26M (adjusted to operating)	Below prior expectation due to lower discount rates/market
Modeled change in MRB liability (expected)	Q1 2024	n/a	+$42M expected; includes +$22M expected capital market amortization benefit	New
DAC/DSI amortization (modeled)	Q4 2023	~$123M (modeled)	Actual $123M	In‑line
DAC/DSI amortization (modeled)	Q1 2024	n/a	~$127M (pre new sales/experience)	New
Liquidity available post‑merger	Post close	n/a	~$10B expected	New
MYGA lapses	1H 2024	n/a	$1.5–$2.0B expected lapses	New
Merger close timing (BNRE)	2024	1H24 expected	1H24 expected (maintained)	Maintained
Flow reinsurance strategy	4Q23 onward	Active through Q3 2023	Paused Oct 1, 2023; retaining new FIA on balance sheet until close	Strategic shift

Earnings Call Themes & Trends

Note: An earnings call transcript for Q4 2023 was not available in the document set; themes reflect press release and financial supplement.

Topic	Previous Mentions (Q2 and Q3)	Current Period (Q4 2023)	Trend
Private assets allocation/returns	Allocation ~25%; improved mark‑to‑market returns QoQ but still modest shortfall; asset purchases at 7.82% (Q3)	Allocation 25.8%; private returns underperformed assumptions by ~$24M (20 bps) in Q4; new purchases at 8.61%	Neutral to slightly negative (underperformance vs model)
Investment spread	2.57% (Q2) → 2.73% (Q3) on yield improvements	2.64% (Q4) on lower portfolio yield; adjusted spread 2.56%	Down sequentially
Sales mix toward income products	Strong shift to income products driving ROE, bank/B-D channel momentum (Q2/Q3)	Income product sales nearly $1.5B (+4% QoQ) despite lowering accumulation caps late Q3	Positive, sustained
Reinsurance “fee‑like” revenues	Ceded $821M (Q2) and $870M (Q3) flow; recurring fees $23M→$27M	Flow paused 10/1; recurring fees stable $28M; ceded balances $11.5B	Flat near‑term; strategic pause
Liquidity and capital	Built cash to $5.4–6.8B (Q2/Q3); TAC ~$4.0B	Year‑end cash $7.4B (> $9B end‑Jan), TAC $4.3B; RBC ~370–390%	Higher liquidity
Credit/CRE exposure	Office underweight (~8%), DSCR ~1.86x; minimal maturities through 2025 (Q3)	Office ~7% of CML, DSCR ~1.86x; minimal 2024–25 maturities	Stable

Management Commentary

CEO, Anant Bhalla: “American Equity had an outstanding 2023 capped off by our strong results in the fourth quarter… FIA sales for the year were a record $7.0 billion… Our in‑house expertise in tactical asset allocation and asset manager selection positioned us to achieve a 26% allocation to private assets… Our agreement to merge with Brookfield Reinsurance was an important marker in our transformation…” .
CEO on product mix: “We were particularly pleased that sales of income products… were up 4% from the third quarter… Income product sales are not as subject to churn as are accumulation products in a higher interest rate environment…” .
CIO, Jim Hamalainen: “Credit metrics in the investment portfolio continued to be stable… core fixed income portfolio remains ‘A’ rated… very little deterioration in the commercial mortgage loan portfolio and all loans are current… cash position… totaled $7.4 billion and was over $9 billion at the end of January… substantial dry powder…” .

Q&A Highlights

An earnings call transcript for Q4 2023 was not available in the document set; therefore, Q&A highlights and any clarifications versus guidance could not be reviewed from the call. This recap reflects the 8‑K press release and financial supplement .

Estimates Context

Wall Street consensus (S&P Global) for Q4 2023 EPS and revenue was unavailable via our S&P Global interface for AEL at the time of analysis; as a result, we cannot provide a formal “vs. consensus” comparison for this quarter (unavailable through the tool).

Where estimates may need to adjust:

Sequential spread compression and underperformance vs. private‑asset return assumptions in Q4 suggest near‑term modeling sensitivity to marks; the expected $42M MRB change in Q1 2024 (including ~$22M amortization benefit) provides a partial offset pathway if markets stabilize .

Key Takeaways for Investors

Operating engine is intact despite GAAP volatility: non‑GAAP EPS of $1.99 underscores core earnings power; GAAP loss reflects LDTI fair‑value swings (embedded derivatives/MRB) rather than deterioration in fundamentals .
Mix shift to guaranteed income FIAs continues to support durability (lower churn) and ROE, with Q4 income‑product sales up 4% QoQ to nearly $1.5B .
Spreads compressed on lower portfolio yield and private‑asset underperformance; option costs fell with mix shift—monitor path of private‑asset marks and option costs into 2024 .
Balance sheet and liquidity are a strength: ~$7–9B cash, RBC ~370–390%, ~$800M excess capital—setting up for opportunistic deployment, especially if volatility persists .
Anticipate elevated MYGA lapses ($1.5–$2.0B in 1H24) and their impact on flows/surrender charges; Q4 outflows already stepped up as 2020 vintages rolled off charges .
Reinsurance flow paused ahead of BNRE close; recurring fee revenue stable for now while new FIA remains on balance sheet—watch earnings mix between spread vs. “fee‑like” revenue post‑close .
Merger with Brookfield Reinsurance remains the key near‑term catalyst; closure in 1H24 could unlock ~$10B redeployment capacity and potentially reshape asset allocation and earnings mix .

References: All statements, figures, and management quotes are sourced from AEL’s Q4 2023 8‑K press release and financial supplement, and prior quarter 8‑Ks: .

American National Group Inc. (AEL)·Q4 2023 Earnings Summary