Q1 2021 American Equity Investment Life Holding Co Earnings Call
Welcome to American equity investment life, holding company's first quarter 2021 conference call.
At this time for opening remarks, and introductions I would like to turn the call over to Julie Lafollette coordinator of Investor Relations.
Yeah.
Good morning, and welcome to American equity investment life, holding company's conference call to discuss first quarter 2021.
Our earnings release of financial supplement can be found on our website Www Dot American that's the dot com.
Non-GAAP financial measures discussed on today's call and reconciliations of non-GAAP financial measures for the most comparable GAAP measures can be found on those documents or elsewhere on our investor relations portion of our web site for us.
On today's call are not Butler, Chief Executive Officer, and touch on Chief Financial Officer some of it.
The comments made during this call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act.
Indicated by terms such as estimate expect intend overtime planned potential should the strategy targeting well wood and working towards the 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 under risk factors in our filings with the SEC.
An audio replay will be made available on our website. Shortly after todays call. It is now my pleasure to introduce an off balance.
Thank you Julie good morning, and thank you all for your interest in American equity.
The stock with the strategy execution.
Today, we have 292 reported record progress in the execution in one of our force strategy pillars.
Specifically this book gains.
Go to market area, which focuses on how we read funding.
True General account of annuity products sold to close to 700000 retail clients.
The E. Two point of <unk> business model, what truth flywheel of success.
With what has historically been an industry, leading and scaling of new defunding of origination platform.
For the past few years. This funding of origination platform started to slow down in terms of growth in on core independent marketing organization channel.
We had limited success in penetrating the bank channel two on Eagle life subsidiary.
One of the focus areas in my first year as CEO was to revive origination capability and refresh how we go to market.
This is critical for <unk> to have a strategy of flywheel that can spin foster with superior execution for shareholder value realization.
It enables the ABL.
Continued to be of growing franchise.
The <unk> long term.
The active funding for asset investment.
Investing.
Okay.
We feel good about some of the retooling the have done in the go to market part of our business since last summer and continue to move forward to become a leading franchise in the general account annuity business in book I, Emil and bank of broker dealer distribution.
The strength in go to market.
Adding in access.
Scale do differentiated investment management capabilities over time, and the second strategy pillar of the fly the.
Should enable the American equity to be much more capital light going forward.
Yeah.
This capital light outcome is enabled by the hub strategy pillar, which is the effective utilization of reinsurance.
And using both on one shareholder capital today.
The third party capital true sidecar reinsurance vehicles to fund future growth of origination.
We are working in 2021 to execute on.
Previously announced the insurance partnerships with Brookfield and Barney of gum.
And they start to demonstrate the flow.
I will in motion.
And we're in the process of building on all reinsurance platform in 2021 to further speed up the flywheel in future years.
With E exactly accessing third party capital.
Including potentially true sidecar lightweight codes.
I expect to share more on the execution of our reinsurance and asset management efforts in the second and third quarter earnings calls one of my focus today will be on the go to market pillar.
As I communicated on our last earnings conference call.
<unk> 21.
We'll be of transitioning for.
For <unk> financial results as.
As we migrate towards this new E 2.0 business model.
We are migrating a fairly large 50 plus billion dollar balance sheet.
From a legacy co fixed income strategy with relatively high of asset leverage.
Two on new asset allocation approach encompassing loans asset leverage.
Capital structure optimization through reinsurance and third party capital.
And utilization of asthma and pass it to both improve sustainability of investment results.
In a low interest rate environment.
And deliver superior loss adjusted net yield over time.
The scaling of balance of assets is expected to be of multiyear journey with a couple of billion dollars of alpha of assets added to our books each year.
Like any strategy migration in our short term impacts for greater long term gain.
For.
This will manifest itself in running higher cash balance is.
Somewhat accentuated by new perfect timing of Derisking of existing assets in the fourth quarter of 2020 as.
As we pursue the closing of the Brookfield and Bharti of gum reinsurance transactions.
We expect 2021 financial results two bed is a significant amount of the transition of the effects.
Our fundamental strategy shift for the.
Long term unlock for book.
Our shareholders and policyholders.
This value unlock is walk me of Vigilantly focused on.
Therefore, we expect 2022 to be the first full year for investors to start to see the incremental financial benefits from <unk> new business model.
In a few minutes.
It will provide more details on our financial results and how this migration of affected operating results.
Getting to execution in our go to market pillar in.
In the first quarter, we recorded all time record sales of $2 $4 billion.
32% from the fourth quarter of 2020, and 245% year over year.
The first Qantas sales dropped the previous quarterly record of $2 $1 billion set in the fourth quarter of 2015, which.
Which we believe is an early indication of the potential from <unk> go to market franchise.
We are targeting between $5 billion to $6 billion of sales for the total company this year.
And we are well on our way.
Although the majority of first quarter sales, whether or not we're in a multiyear fixed annuity products.
We expect to focus on inputs for the rest of the year on the fixed index annuity product line, especially given our recent product refreshes in that area.
At American equity life quarterly sales of $1 $3 billion were the highest level since the fourth quarter of 2015.
Sales increased 46% sequentially.
And of 122 per cent compared to the first quarter of 2020.
In February we introduced our refreshed assets shield product that has quickly gained momentum leading to a sequential 13% increase in accumulation deposits. After just the first month of sales.
The refresh acid shield features two new proprietary indices the can.
<unk> Suisse Tech edge index, and the society agenda on sentiment index.
We also added the existing bank of America destinations index to the refreshed product.
We are now offering these strategies for both one and two of your tone.
We also added enhanced reach writers to ask the achieved allowing policyholders due under the greatest GAAP on participation rate for an optional fee.
We have seen of strong initial reaction to the product refresh as sales of assets yield more than doubled in March compared to February in particularly the new indices have been well received at 50% of March deposits went into the new strategies added to ask the chill in February.
While one month is not a trend the outlook for fixed index annuity sales at American equity life is much stronger than even the pre pandemic levels in early 2021.
Momentum is on our side.
Total sales of Eagle life of one $1 billion represented a 19% increase versus the fourth quarter of 2020, and the 10 fold increase compared to the year ago quarter.
Fixed index annuity sales were up 40%, both sequentially and compared to a year ago.
On overall product strategy resulted in positive benefits for both.
Sales and recruiting.
All of the last six months 1400 Representatives wrote the first piece of business with Eagle life, increasing the number of current active bank and broker dealer adviser and have sold Eagle life products by 36%.
And by Acu and Eagle life trended higher throughout the first quarter with solid growth in both February and March.
On April seven we introduced our new Eagle select income focus product, which will better address the growing demand for guaranteed lifetime income product in the bank and broker dealer space.
Eagle Life has recently been approved by PNC Bank on the combined entity basis, we have been of DVD prior to its merger with BMC.
As we indicated on our fourth quarter 2020 earnings call.
One has been to re engage with distribution with a simpler multi of fixed rate annuity products. During COVID-19, and now pivot to driving growth through our revamped fixed index annuity product portfolio.
We plan to continue to introduce innovative new products as we move through the year two point of transformation, which will help us compete effectively and grew our share of the annuity market.
As the financial planning needs of Americans of all American equity is focused on providing our clients the.
Dignity of of Paycheck for life.
I believe.
It went to the core mission statement will become recognized and appreciated in the market over time.
This will help grow E M in both channels and open up other market access opportunities for us in the future.
Now turning to financial results.
For the first quarter of 2021, we reported non-GAAP operating income of $41 million of 43 cents per diluted common share.
As expected the first quarter results reflected many of the transition to the effects I mentioned earlier in particular, the effect of cash in the portfolio in excess of the target range and the level of operating expenses.
Now I'll turn the call over to Ted to give more detailed analysis on our first quarter financial results.
Thank you on that and good morning, everyone.
Prior to going over the results for the first quarter I want to provide more contacts for a reclassification between certain balance sheet items as of December 31, 2020, due to an immaterial error identified in our quarterly close process.
Net effect of witches of change in accumulated other comprehensive income.
There is no impact on GAAP equity ex <unk> net income or operating income.
Specifically, we should have been including the impact of unrealized gains and losses and the calculation for the lifetime income benefit reserve similar to the calculation of deferred acquisition costs and deferred sales inducements. We corrected this as of December 31, 2020 in the first quarter.
The correction of the immaterial error was done through on reclassification between associated balance sheet line items for the period ended December 31, 2020, which can be found in our first quarter financial supplement and as I stated before that had no impact.
<unk> to reported net income our non-GAAP operating income.
As we reported yesterday afternoon operating income for the first quarter of 2021 was 41 million or <unk> 43 per share compared to 154 million or of $1 67 per share for the first quarter of 2020.
Notable items in the first quarter of last year included a $31 million or <unk> 33 per share tax benefit from the enactment of the cares Act.
Notable items reflect the positive or negative after tax impact to non-GAAP operating income available to common shareholders for certain items, such as those that do not always reflect the company's expected ongoing operations.
We present notable items to help investors better understand our resolve and to evaluate and forecast of those resolved.
Average yield on invested assets was $3 five 8% in the first quarter of 2021.
<unk> to 388% in the fourth quarter of last year.
The decrease was primarily attributable to a 34 basis point reduction from interest forgone due to an increase in the amount of cash held in the quarter as we prepare to execute the Brookfield and BARDA gaum reinsurance deals and which we will primarily transfer of cash.
Yeah.
Cash and short term investment in the investment portfolio averaged eight 6 billion over the first quarter up from $4 4 billion in the fourth quarter of last year.
Compared to the prior quarter partnership income contributed an additional six basis points to yield.
At March 31, we held 10 billion of cash yeah.
Yielding roughly two basis points.
The current point in time yield on the portfolio, including excess cash is approximately three 3%.
So the pressure on investment spread will continue into the second quarter.
Excluding cash and invested assets to be transferred as part of the reinsurance transactions and the redeployment of the remaining cash in excess of targets.
We estimate that the current point in time yield on the investment portfolio to be roughly 4%.
The aggregate cost of money for annuity liabilities was 158 basis points down five basis points from the fourth quarter of 2020.
The cost of money in the first quarter benefited from two basis points of hedging gains compared to a one basis point gain in the fourth quarter.
Excluding hedging gains the decline in the adjusted cost of money reflects the year over year decrease on option costs due to past renewal rate action.
Yeah.
Reflecting the decline in the portfolio yield investment spread fell to 200 basis points from 225 basis points from the fourth quarter of last year excluding.
Excluding non tradable items adjusted spread in the first quarter was 187 basis points compared to 213 basis points from the fourth quarter of 2020.
In line with yield we would anticipate our investment spread to rise back to expected levels. Once the reinsurance transactions are completed.
The average yield on long term investments acquired in the quarter was 4.0 for per Sac grew.
Gross of fees compared to $4 four 6% gross of fees in the fourth quarter of last year.
We purchased $625 million of fixed income securities at a rate of 392% and originated $77 million of commercial mortgage loans at a rate of 354, 9% and purchased $151 million of residential mortgage loans at five seven and six person.
Gross of fees.
The cost of options increased to 145 basis points from 139 basis points from the fourth quarter of 2020.
Primarily reflecting mix shift within our S&P five hundred's strategies towards higher cost participation rate strategies from cap strategies and a slight increase in the cost of options hedging our monthly point to point strategies due to the decrease in volatility.
For the quarter.
All else equal we expect to see the cost of money continue to decline over the next two quarters before stabilizing in the fourth quarter.
Should the yields available to us decrease for the cost of money rise, we have flexibility to reduce our rates if necessary and could decrease our cost of money by roughly 57 basis points. If we reduce current rates to guaranteed minimums. This is down from 62 basis points, we cited on our fourth.
The quarter call.
Yeah.
The liability for lifetime income benefit riders increased $73 million this quarter, which included negative experience of $11 million relative to our model expectations.
There were pluses and minus and the minuses in the first quarter with the biggest differences due to higher than modeled lifetime income benefit rider utilization and lower than expected decrements on policies with lifetime income benefit riders.
Deferred acquisition costs and deferred sales inducements amortization total $132 million 5 million more than modeled expectations.
The biggest items driving the negative experience were higher than expected decremental on the total book of business and the higher than expected lifetime income benefit writer utilization of which I just spoke partially offset by lower than expected adjusted gross profit.
Other operating costs and expenses increased to $56 million from $55 million on the fourth quarter, we expect the operating cost to trend higher over the coming quarters as we will build out the necessary infrastructure to continue execution of the <unk> two point on strategy.
But still expect the level of other operating costs and expenses to fall into the high of $40 million range post refinancing our existing AG thirty-three redundant reserve financing facilities in 2021.
As expected we completed the execution of our initial accelerated share repurchase program in March and received another 542000 shares. In addition to the initial three 5 million shares delivered at the initiation.
We also repurchased approximately 155000 shares in the open market since the closing of the accelerated share repurchase to date.
Combined with the one 9 million shares we repurchased in the open market prior to the initiation of the ASR program.
We effectively reduced the share dilution, resulting from the November 30th initial equity investment of $9 1 million shares from Brookfield asset management by approximately two thirds.
Total debt to total capitalization, excluding accumulated other comprehensive income at quarter end was 11, 6% compared to 12, 2% at year end and 14, 9% in last year's comparable quarter.
Invested assets at amortized cost was $12 six times shareholders' equity excluding accumulated other comprehensive income.
At March 31, cash and short term investment at the holding company totaled approximately $490 million.
We expect to have roughly $350 million of cash in excess of target at the holding company, even after buying back the additional shares necessary to fully offset Brookfield tranche one issuance.
Related dilution.
Now I'll turn the call over to the operator to begin the Q&A.
Ladies and gentlemen, if you have a question at this time. Please press Star then the number one on your Touchtone telephone.
If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
Also limit yourselves to one question and one follow up question.
Then jump back in the queue. If you have additional question.
Our first response is from will <unk> with credit Suisse. Please go ahead.
Hi, good morning.
Thank you.
The one question.
It's John.
On track to repurchase the $2 15 of 300 million stock.
It looks like there was you know kind of $20 million of buyback from Cowen.
And fell almost 3 million of Brook.
The Lucent off that day.
Wondering what the outlook is for that.
Hi, walnuts Tad and.
In regards to that I know, we are going to continue to look at aggressively repurchased repurchasing the remaining shares to offset the dilution from Brookfield.
And look towards doing that and whether or not we get the 250 returned in addition to that and household of somewhat predicated on the timing of the approval.
By the Iowa regulator in the New York regulator on the format.
Because of then Brookfield, all band execute our right to buy additional shares under what we refer to as equity tranche two.
And at that point in time, we would then be able to buy those shares back and also returned the 250, we could get time constrained as we go through the year, depending on the timing of the approval by the Iowa Insurance Department.
On that and one thing that covered it for different question gets the intent, yes, we intend to return $250 million of capitalized previously stated the share to shareholders at the function of getting the timing right given crunched to as Ted mentioned.
Okay got it thanks, and then second question.
I guess, the new money yield of about 4% in the quarter. It seems like that's come down to about $3 four per side I know you guys talked about the residential loans right.
How did how did you guys hit that with given the.
Yields of kind of sub 3% right now.
So I'll have Jim Hamilton on Chief investment Officer of insurance entities day, one sure. Thanks. This is Jim.
It's a function of early on the mix of assets of so mix of core assets, which are lower yielding assets.
As you indicated.
Plus some of the private asset strategies that we're employing that do have higher yields and so it's really an asset mix and asset mix.
Great question.
Okay got it.
John.
And then.
Maybe a little bit of color on the Liberty utilization.
I guess could you maybe talk specifically about.
The underlying trend there in the quarter and where that's.
Going.
Sure I can do that for now.
We did see higher than modeled.
The labor utilization this quarter as we look at that it did start to trail off in the quarter and come down.
But we'll be watching that closely to see what kind of pattern emerges as we go through the remaining quarters as we look back and look at last year. We also saw elevated utilization of labor in the first quarter and then it trails down and the remaining quarters.
You know paid more matched what we had either modeled or went below so we'll continue to monitor that Walmart and look at that and see if there's any adjustments we need to make for that kind of pattern in our models. When we look at our annual assumption revision updates.
Okay got it thank you guys very much.
Okay.
Please be mindful that you are to the ask one question and one follow up and then jump back in the queue for additional questions. The next response is from Greg Peters with Raymond James. Please go ahead.
Good morning, I'm going to stick on the.
The spread results table in your supplement.
And I noted Ted your comments about the average yield being depressed by about 34 basis points because of the cash.
On held for the transactions and then you also said you expect the investment spread to turn back to expected levels. So if I were to fast forward. This table.
Say Q4 'twenty one.
How do you think the average yield on invested assets Boardwalk, how do you think aggregate cost of the money. We will work on how do you think aggregate vessels by the Milwaukee.
Uh huh.
Okay I'll answer it this way Greg.
One if you look at our portfolio currently any skew exclude the securities in cash we expect to transfer as part of the execution of the reinsurance agreements.
And the redeployment of the other cash above that and at a conservative rate.
Approximately $3 of apps.
I mean, we would hope to beat that that gets you to residual yield on the portfolio of 4%.
Where we sit at today.
Cost of money wise.
We could potentially of all else equal see some additional benefits of cost of money over the next few quarters on that as I see it stabilize in the fourth quarter.
Right and you said the investment spread you expect that to turn to expected levels, what our expected levels because.
Obviously come down a lot from a year ago.
So I wouldn't say there is that we would go back to what our assumptions on R&R model, which is at 240 <unk>.
Spread which we have disclosed before.
Yes, alright perfect.
Two questions sort of it was that of follow up to my first question of do I get a cycle. The question I'll. Let you have one more Greg go ahead for you got it.
One more alright, I, just I don't want of violate any rules of the Stephens you know I'll get yelled at by Steve of later on.
Kevin.
I wanted to pivot to the just the sales outlook.
Thank you said or not.
$5 billion to $6 billion.
Of the.
The sales expected for this year given the strong results of the first quarter or that the suggests that the remaining couple of quarters will be lower sequentially than the first quarter and also might suggest that the fourth quarter could be down on a year over year basis and so.
I understand there's a lot of moving pieces to what's going on between product mix et cetera, but maybe you could give us some additional color there.
Happy to.
Good morning.
The.
Do think the play over the one is business mix as you alluded to we have been able to invigorate Eagle life to a point that we have now of twin engine of <unk>.
Roche to go to market and in both Eagle life.
And American equity the focuses on FIA sales.
And that's what's going to be driving the rest of the year fixed.
Fixed rate annuity of pretty much come to fairly slow down piece, we're doing around $3 5 million of DSO under 100 million of months now.
On that side of it the way we're going to think about it we were focusing on EFI and the internal salespeople on basically compensated on more on FIA mix than minor. So the strategy is the the product refresh of that.
On the compensation alignment is there to get that resolved.
The spot on right, we would expect sequential and year on the organic year on year outcomes like you mentioned.
Got it thank you for the answers.
Thank you for the nice responses from Erik bass with Autonomous Research. Please go ahead.
Hi, Thank you so hoping for a little bit more color in terms of your expectations around the timing of getting some of the excess cash balance is invested and also just if you could clarify of the 10 billion that you had at the end of.
Of March how much of that will be transferring to the reinsurers on how much of that is excess cash that is staying with you that needs to be reinvested.
Okay.
Hi, its Jim Hamel line and thanks for the question.
On a number of parts there that the.
The timing is dependent on which includes closing of the reinsurance deal deals also includes some of the part of investment partnerships that we have previously announced on that we're working on so timing is hard to predict exactly but our expectations are of that about $5 billion of that cash will be used to fund.
Of the reinsurance transactions.
Beyond that our expectations are that we will use.
Maybe one of $2 billion and private asked the strategies this year.
<unk> focused on some areas of the market that we really like including.
Residential real estate, primarily in the form of single family housing rentals, we also like select sectors on the commercial mortgage loan market, we like agricultural loans.
Lastly, we are starting to.
Moving to the ramp up of our exposure to middle market credit through our partnership that we previously announced with.
With Adam the Street. So those are some of the primary those of the primary areas that.
We'll be utilizing the cash that we have on the balance sheet today.
Got it so if youre doing sort of one day to Bill me end of kind of the five that yours and private assets strategy. So does that mean that the remainder is going into.
Sort of more plain vanilla corporates, and then I guess related to that of non had mentioned wanting to allocate a couple of billion.
Billions of dollars of year to higher Alpha strategy, so will that be raised from.
Shifting existing assets or is that more putting to work new cash in the door from sales.
Sure I mean, we this year, we of cash we of the cash to deploy for those strategies as we start to ramp those up.
And as you mentioned there is some there is more cash there some core core plus strategies that we have employed in the past, we'll certainly look to select parts of the market for some of those investments also.
Got it and then I guess the.
The intent is to invest for the full 5 billion by year end.
Eric I would add that we do have a target of holding cash somewhere between 1% to 2%. So you need to take that into consideration.
The 1% to 2% of our investment portfolio holding cash.
Exactly on it.
But Dan and Jim just said right to your question is the $10 billion five goes to reinsurance transactions, we hold around the $1 billion in cash because the only 2% and cash as Jim outlined and then specifically just add a little color to Jim's point because of 1 billion to 2 billion done in.
Private all facets of this year that would be success.
North of a $1 billion is what we're targeting in future years, yes, new business flow is going to largely go into private assets and the ramp that a couple of billion. That's fair that's fair.
Got it thank you.
Thank you. Your next response is from John Barnidge of Piper Sandler. Please go ahead.
Thank you.
Sticking with the sales question Might've clearly drove the record sales on the quarter over 70% of the composition, it's definitely going to shift to <unk>, but as we go forward in the year, how should we expect.
Not go for necessarily just this year, but.
<unk> I've never been a huge composition of sales for <unk> L, but where do you think it seasons out in this a L. Two point out thought process.
Hi, John Good day with Great question.
<unk>.
Michael will be relevant to us in the past we originated migraine reinsured it off to other parties on the capital play in some regards to not have to consume capital for it.
The strong middle market credit and on non QM mortgage.
So you're really talking about three to five year assets that fit very nicely with the mic on.
So we'll be opportunistic on meager.
It's opportunistic to both build your go to market franchise, which is what we did because the refresh the FIA.
Platform, but we are in FIA shop, we actually really do believe in the mid day of a paycheck for life and the <unk> platform allows a lot of that.
And we will Opportunistically time on the mic up and down, but it's really around having the assets now on to support miner.
Okay. That's helpful on them.
The other question you talk about 2021 being that trend.
The burden of the value on lock I think was the place.
Does this mean life side cars is going to be more of a 22 of them I will the regulatory approval keeps getting pushed out.
Okay.
And the first of all of the Iowa, Yes the.
<unk> was always planned to be true permanent re the concept that we introduced the rebuild really on one platform demonstrated an action and then permanent re ends up being frankly of 2023 financial results and back executed in 2022, you see with our Brookfield transaction of real demonstration.
On for.
What that looks like and and that happens this year.
In terms of the Iowa regulatory approval as you know as well as others. These things take the natural course of time, we don't think it's pushed out we just can only move of the piece of everyone else could move it.
So I'll focus on just summarized.
Get Brookfield done by the way that is actually progressing very well and we expect to talk to you about it on the next earnings call about it and I would just for you to the point to what we said back in late fall, we are expecting actually that to come on better than that in terms of financial impact going forward. So I'm feeling very good about.
And where that ends up happening.
The other reinsurance efforts will continue effort and work through and build on one platform. We also are bringing in the balance necessary to do this so this is the build year the.
The reset for you for financials and then the fourth quarter of this year you should really start to see what is the run rate going into 2022.
Thank you very much for the answers.
Thank you. Your next response is from Ryan Krueger of K B W. Please go ahead.
Hi, good morning.
First question is on cash flow generation.
I know you've guided for $2 50.
Plus of annual capital return can you help us think about the what.
The extent is that consistent with the amount of of annual cash flow you expect the company to generate going forward versus I guess, some utilization of freed up capital related to the in force reinsurance deals you did.
Ryan I'll start here I think first of all in these early years, when we're doing the $250 million for return of capital to shareholders. Certainly some of that is going to be coming from the reinsurance deals that we're executing and we're and over time as we.
Can you to execute a L. Two final and to what exactly are not attain as we move into permanent re sidecar sidecar reinsurance vehicles and the mix of our revenues is generated a bigger mix of that is generated from fee revenues that we generate off of managing our liabilities.
<unk> on managing the investment that's where.
That 250, ultimately will be coming from as we continue to execute <unk> pointed out.
It's all about the capital efficient in the capital light model to be able to the return that annual target of that $2 15.
Thanks.
I guess related to that.
Sure.
In terms of like the potential of timing constraint on buyback. This year should we just think about that.
If youre unable to complete all of the buyback in this calendar year that you had previously guidance you would ultimately make up for it next year. It just might be a timing issue.
Issue.
Exactly and just the timing issue and again, we will look at all in all of the available alternatives and think of what we can do to be able to fully offset.
The shares that will ultimately be issued to Brookfield of the ones that are outstanding and then on policy on the timing of returning the $2 50, but yes. It doesn't that we skipped the year. It's just the timing of exactly when that gets done.
Thank you.
Thank you as a reminder, if you have a question at this time. Please press Star then the number one on your Touchtone telephone.
Please limit yourself to one question and one follow up and then jump back into the queue for additional questions. Your next response is from Bob <unk> with Morgan Stanley. Please go ahead.
My question has been answered thank you very much though.
Thank you. The next response from the Pablo <unk> Zhang with Jpmorgan. Please go ahead.
Hi can you hear me.
Yes, we can follow up.
Perfect. So I just wanted to follow up on Ryan's question about free cash flow generation that for you sort of normalize for the.
The benefits of all of these the reinsurance deals you have in the pipeline.
I guess my approach for the question. This way so most of the insurers have anywhere call. It from a 60% to 80% for your cash flow conversion ratio.
I guess, if you look maybe three or four years out where do you think all sorts of.
The all falls on that range.
Now I'd like to do the difficult to look three to five years down by the high nicely Gary of voids good morning.
I think the way to think about it we look to from from being just an insurer to being a broad of firm that's going on and really spread business and then auto.
The business the fee business. So you could see US two years from now since you asked me and look forward REIT segment of our balance of re segment of our financials, along that fee business and the spread business and the fee businesses of 100% for free cash flow.
Yes on understood or not and.
And I guess, the reason I sort of offer that the range is because I think with all the deals you have you probably covered for the next three years anyway.
But I appreciate the response and then the.
Next question I had was.
The other <unk>.
These are starting to talk about releasing capital that I guess was previously budgeted as a buffer for credit downgrades for the losses.
There's something similar or maybe youre thinking of along the same lines or would you rather retaining capital for potential C. When changes are perhaps the ramp up on alpha assets the figure.
Executing on line.
Yes, so we will consume capital for ramping up into out of assets.
We feel very good about the Derisking efforts, we did in the fourth quarter Jamie.
Jim drafting team did a great job there.
And.
Our seaborne consumption will increase but with the creation of our reinsurance platform.
We're going to be managing to our rating agency capital requirements, and we have strong excess capital position going forward.
So some of the reinsurance capital be free up will be used to fund the greatest C. One for ramping and we feel confident about the $2 50, this year and $2 50 to 300 in future years.
Okay. Thank you for your answers.
Thank you we have of response from the line of Ryan Krueger of K B W. Please go ahead.
Hey, I just had one more.
If we go back to the 11th of 14% Roe guidance.
Would you expect to get into that range at least the low end in 2022.
Ryan I think we are going to be focusing on auto is an outcome, we're going to be focused on capital return cash.
Cash from ton on a sustained basis, and you'll probably going to see the earnings pickup on an EPS basis first too. So we're focused on EPS growth into next year, you're seeing the run rate at the end of the fourth quarter of this year, which is the strong double digit EPS growth for next year and GAAP the return on ROE into funnel.
Got it thank you.
I'm.
Okay. We did have a response from Pablo things Dong of J P. Morgan.
Hi, So I just wanted to ask the follow up question about the alpha generating assets.
I think I know the answer I just wanted to confirm with you.
When you look at the these assets so we shouldnt assume a J.
J curve a ramp of <unk>.
So for good to get the the run rate yield right because it's got the.
The investment or similar vehicle, especially fixed income so as soon as he didn't bets on it.
Higher yield against the Patrick is that correct.
First of all of our highest.
As Jim Hammer line on the.
Depending on the asset class on there can be a ramp up period in some asset classes, that's true in some of our asset classes.
Clearly the Thursday of the rapidly.
This is very quick on and you'll get the yield and a good example.
Sample to add to that the gym zones, which is spot on and think look still market credit probably will average between 1 billion billion line.
We're ready to go tomorrow.
Surround the year to get there.
So to ramp of $1 billion five in the market and it takes a year.
Alright right.
My question is on was more about the yield attaching to your actual investment as I understand you won't be able to allocate 100% from day, one right, but whatever you're able to allocate that will start, earning the higher yield right away for us.
Correct.
Okay that was it.
Hi, guys get to your question is not type of committed but not drawn down facility that happens in order. So it's not like that youre right.
Exactly okay. Thank you.
I am showing no further questions at this time I would now like to turn the conference back to Julie for final remarks.
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.
Thank you. This concludes today's conference call you may now disconnect.
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