American Equity Hits Target of $3 Billion in Year-to-Date Annuity Sales and Reports Third Quarter 2009 Operating Earnings of $28.2 Million or $0.47 Per Diluted Common Share

WEST DES MOINES, Iowa--(BUSINESS WIRE)--American Equity Investment Life Holding Company (NYSE: AEL), a leading underwriter of fixed rate and index annuities, reported today that it achieved a long-standing goal of writing in excess of $3 billion in new annuity premium in a single year. Annuity sales for 2009 topped $3 billion in October, setting an all time sales record since AEL was founded by Executive Chairman David J. Noble in 1995. Commented Noble: “With our relentless focus on quality products and excellent service we have stepped up sales to meet increased consumer demand for principal protected products such as fixed index annuities. The steep market declines and great volatility of the last twelve months have had a deep impact on consumer attitudes about market risk and retirement income security. We intend to remain at the forefront of the market for products which offer insurance protection from risk of loss and guaranteed retirement income.”

American Equity also reported record 2009 third quarter operating income¹ of $28.2 million, or $0.47 per diluted common share, a 26% increase over adjusted² 2008 third quarter operating income of $22.3 million, or $0.40 per diluted common share. Financial highlights for the third quarter of 2009 include:

• Annuity sales increased 71% to $980 million compared to third quarter 2008 annuity sales of $572 million.
• Effective July 1, 2009 American Equity increased its capacity for sales growth by entering into reinsurance arrangements with Athene Life Re, a newly formed Bermuda life reinsurer, covering 20% of 2009 premium from two top selling fixed index annuities and 80% of premium beginning in the third quarter of 2009 from a multi-year rate guaranteed annuity.
• American Equity announced an “at the market” offering (“ATM”) of up to $50 million of its common stock to increase its financial flexibility.
• Book value per outstanding common share increased to $13.03 including Accumulated Other Comprehensive Income, up from $9.46 at December 31, 2008.

The net loss for the third quarter of 2009 was $3.0 million, or $0.04 per diluted common share, compared to adjusted net loss of $11.7 million or $0.21 per diluted common share for the same period in 2008. The net loss for the third quarters of 2009 and 2008 included $11.5 million and $39.2 million, respectively of realized losses on investments due principally to “other than temporary impairments”, net of realized gains and offsets for taxes and adjustments to the amortization of deferred acquisition costs and deferred sales inducements. These 2009 and 2008 quarters were also impacted by the effects of fair value changes in derivatives and embedded derivatives which increased the third quarter 2009 net loss by $19.7 million and decreased the adjusted third quarter 2008 net loss by $5.2 million.

RECORD OPERATING EARNINGS FROM CONTINUED STRONG INVESTMENT SPREADS

Record operating income for the third quarter of 2009 was driven primarily by an increase in the yield on average invested assets to 6.38% and a reduction in the cost of money for the quarter to 3.25% for a gross spread of 3.13%. Total investment income of $241.5 million included nonrecurring fee income on bonds of $2.4 million. Excluding nonrecurring fee income the investment yield an average invested assets for the third quarter of 2009 was 6.31%. The average yield on $1.3 billion of fixed income securities purchased in the third quarter of 2009 was 6.28% and $46.7 million of commercial mortgage loans were made during the quarter at an average yield of 7.02%.

The cost of money on average annuity liabilities declined to 3.25% for the third quarter of 2009, primarily as a result of a reduction in the aggregate cost of one year call options purchased to fund index credits on index annuity reserves and increased allocations by index annuity policyholders to the fixed rate crediting strategy. Because new money yields declined in the third quarter with narrowing of corporate credit spreads, American Equity has announced rate reductions on new annuities sold after November 3, 2009.

Impairment losses on invested assets of $50.1 million were recognized in the third quarter of 2009 and represent 0.3% of the carrying value of total invested assets at September 30, 2009. These losses include: $26.1 million from residential mortgage backed securities (“RMBS”); $18.5 million from corporate securities; and $5.5 million from commercial mortgage loans. While substantially all of the company’s RMBS are continuing to perform in accordance with their terms, rating agency downgrades due to projected losses on a portion of these assets necessitated impairment loss recognition.

CAPITAL MANAGEMENT

In response to the strong sales environment of 2009, American Equity has implemented a variety of programs to support statutory capital and surplus at the levels required to maintain its “A−” (Excellent) rating as assigned by A.M. Best Company. During the first three quarters of 2009 these included: (i) drawing down the remaining $75 million from the company’s bank line of credit for contribution to the capital of the company’s primary operating subsidiary; (ii) restructuring commission payments to sales agents to defer 25% over 2 years after the date of sale; (iii) expanding a reinsurance treaty providing surplus relief of $29.5 million pre-tax in connection with reserves held for annuity withdrawal benefits. Also, in the third quarter of 2009, American Equity ceded $513.8 million of annuity premium to Athene Life Re under funds withheld reinsurance arrangements, including $23.4 million or 20% of multi-year rate guaranteed premium received in the third quarter of 2009 and $490.4 million or 80% of certain index annuity premium received in the first nine months of 2009. In addition, in connection with its ATM, the company issued 132,300 shares of its common stock during the third quarter of 2009 in exchange for gross proceeds of $1.1 million or an average price per share of $8.26.

To address additional capital requirements for RMBS resulting from downgrades in that sector the company is also pursuing a “Re-Remic” transaction involving a block of its Alt-A and Prime RMBS. Such a transaction would result in a re-alignment of ratings to better reflect anticipated cash flows from such securities and would enhance their liquidity. While the statutory accounting treatment for such transactions has yet to be clarified, the company believes the transaction will be beneficial under any of the possible accounting outcomes. American Equity remains committed to taking such steps as are prudent and cost effective to achieve an acceptable level of capital adequacy for its financial strength ratings.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to future operations, strategies, financial results or other developments, and are subject to assumptions, risks and uncertainties. Statements such as “guidance,” “expect,” “anticipate,” “believe,” “goal,” “objective,” “target,” “may,” “should,” “estimate,” “projects,” or similar words as well as specific projections of future results qualify as forward-looking statements. Factors that may cause our actual results to differ materially from those contemplated by these forward looking statements can be found in the Company’s Form 10-K filed with the Securities and Exchange Commission. Forward-looking statements speak only as of the date the statement was made and the company undertakes no obligation to update such forward-looking statements. There can be no assurance that other factors not currently anticipated by the company will not materially and adversely affect our results of operations. Investors are cautioned not to place undue reliance on any forward-looking statements made by us or on our behalf.

CONFERENCE CALL

American Equity will hold a conference call to discuss third quarter 2009 earnings on Thursday November 5, 2009, at 10:00 a.m. CST. The conference call will be webcast live on the Internet. Investors and interested parties who wish to listen to the call on the Internet may do so at www.american-equity.com. The call may also be accessed by telephone at 866-831-6162, passcode 80891304 (international callers, please dial 617-213-8852). An audio replay will be available shortly after the call on AEL’s web site. An audio replay will also be available via telephone through November 26, 2009 by calling 888-286-8010, passcode 17772836 (international callers will need to dial 617-801-6888).

ABOUT AMERICAN EQUITY

American Equity Investment Life Holding Company, through its wholly-owned operating subsidiaries, is a full service underwriter of fixed annuity and life insurance products, with a primary emphasis on the sale of index and fixed rate annuities. The company’s headquarters are located at 5000 Westown Parkway, West Des Moines, Iowa, 50266. The mailing address of the company is: P.O. Box 71216, Des Moines, Iowa 50325.

¹ In addition to net income (loss), American Equity has consistently utilized operating income, a non-GAAP financial measure commonly used in the life insurance industry, as an economic measure to evaluate its financial performance. See accompanying tables for the reconciliation of net income (loss) to operating income and a description of reconciling items.

² All prior period financial statements have been adjusted due to a change in accounting for convertible debt which was effective for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. See more complete discussion in the company’s Form 10-Q for the quarterly period ended March 31, 2009.

American Equity Investment Life Holding Company
Net Income (Loss)/Operating Income (Unaudited)
				Three Months Ended										Nine Months Ended
				September 30,										September 30,
				2009					2008					2009					2008
									(As Adjusted)										(As Adjusted)
				(Dollars in thousands, except per share data)
Revenues:
Traditional life and accident and health insurance premiums				$	3,166				$	3,223				$	9,519				$	9,419
Annuity product charges					15,835					13,328					47,501					37,271
Net investment income					241,471					209,978					688,928					607,546
Change in fair value of derivatives					121,507					(83,753	)				108,178					(314,431	)
Net realized gains on investments, excluding other than
temporary impairment ("OTTI") losses					5,510					2,258					10,587					3,343
OTTI losses on investments:
Total OTTI losses					(94,216	)				(61,232	)				(171,668	)				(94,755	)
Portion of OTTI losses recognized in other comprehensive income					49,641					-					108,012					-
Net OTTI losses recognized in operations					(44,575	)				(61,232	)				(63,656	)				(94,755	)
Gain (loss) on extinguishment of debt					-					(28	)				3,098					(1,356	)
Total revenues					342,914					83,774					804,155					247,037
Benefits and expenses:
Insurance policy benefits and change in future policy benefits					2,737					2,126					6,910					7,056
Interest sensitive and index product benefits					75,288					50,387					207,028					154,032
Amortization of deferred sales inducements					(8,081	)				6,760					17,814					34,193
Change in fair value of embedded derivatives					259,737					(37,100	)				414,636					(237,969	)
Interest expense on notes payable					3,370					5,014					11,288					15,127
Interest expense on subordinated debentures					3,841					4,669					12,078					14,549
Interest expense on amounts due under repurchase agreements					100					2,698					344					7,694
Amortization of deferred policy acquisition costs					(2,972	)				19,285					44,938					118,595
Other operating costs and expenses					13,961					13,549					45,305					38,550
Total benefits and expenses					347,981					67,388					760,341					151,827
Income (loss) before income taxes					(5,067	)				16,386					43,814					95,210
Income tax expense (benefit)					(2,089	)				28,102					11,305					55,214
Net income (loss)					(2,978	)				(11,716	)				32,509					39,996
Net realized gains and net OTTI losses on investments, net of offsets					11,491					39,222					10,954					49,140
Convertible debt retirement, net of income taxes					-					16					(1,520	)				793
Net effect of SFAS 133, net of offsets					19,640					(5,211	)				31,121					(32,861	)
Operating income (a)				$	28,153				$	22,311				$	73,064				$	57,068
Earnings (loss) per common share				$	(0.05	)			$	(0.22	)			$	0.59				$	0.74
Earnings (loss) per common share - assuming dilution				$	(0.04	)			$	(0.21	)			$	0.57				$	0.72
Operating income per common share (a)				$	0.49				$	0.42				$	1.32				$	1.06
Operating income per common share - assuming dilution (a)				$	0.47				$	0.40				$	1.27				$	1.02
Weighted average common shares outstanding (in thousands):
Earnings (loss) per common share					58,030					52,916					55,462					54,075
Earnings (loss) per common share - assuming dilution					60,833					55,835					58,231					56,953

American Equity Investment Life Holding Company
Operating Income
Three months ended September 30, 2009 (Unaudited)
											Adjustments
																	SFAS 133
											Realized						and Other						Operating
					As Reported						Losses						Index Annuity						Income (a)
					(Dollars in thousands, except per share data)
Reserves:
Traditional life and accident and health insurance premiums					$	3,166					$	-					$	-					$	3,166
Annuity product charges						15,835						-						-						15,835
Net investment income						241,471						-						-						241,471
Change in fair value of derivatives						121,507						-						(178,312	)					(56,805	)
Net realized gains on investments, excluding other than																		-						-
temporary impairment ("OTTI") losses						5,510						(5,510	)					-						-
Net OTTI losses recognized in operations						(44,575	)					44,575						-						-
Total revenues						342,914						39,065						(178,312	)					203,667
Benefits and expenses:
Insurance policy benefits and change in future policy benefits						2,737						-						-						2,737
Interest sensitive and index product benefits						75,288						-						(591	)					74,697
Amortization of deferred sales inducements						(8,081	)					8,590						19,700						20,209
Change in fair value of embedded derivatives						259,737						-						(259,737	)					-
Interest expense on notes payable						3,370						-						-						3,370
Interest expense on subordinated debentures						3,841						-						-						3,841
Interest expense on amounts due under repurchase agreements						100						-						-						100
Amortization of deferred policy acquisition costs						(2,972	)					12,673						31,771						41,472
Other operating costs and expenses						13,961						-						-						13,961
Total benefits and expenses						347,981						21,263						(208,857	)					160,387
Income (loss) before income taxes						(5,067	)					17,802						30,545						43,280
Income tax expense (benefit)						(2,089	)					6,311						10,905						15,127
Net income (loss)					$	(2,978	)				$	11,491					$	19,640					$	28,153
Earnings (loss) per common share					$	(0.05	)																$	0.49
Earnings (loss) per common share - assuming dilution					$	(0.04	)																$	0.47

(a)

In addition to net income (loss), we have consistently utilized operating income, operating income per common share and operating income per common share - assuming dilution, non-GAAP financial measures commonly used in the life insurance industry, as economic measures to evaluate our financial performance. Operating income equals net income (loss) adjusted to eliminate the impact of net realized gains and losses on investments including net OTTI losses recognized in operations and related deferred tax asset valuation allowance, SFAS 133, dealing with fair value changes in derivatives and embedded derivatives and the Lehman counterparty default on expired call options. Because these items fluctuate from quarter to quarter in a manner unrelated to core operations, we believe measures excluding their impact are useful in analyzing operating trends. We believe the combined presentation and evaluation of operating income together with net income (loss), provides information that may enhance an investor's understanding of our underlying results and profitability.