Fitch upgrades American Equity to 'A', affirms American National

Fitch Ratings upgraded American Equity Investment Life (AEL) to 'A' from 'A-', concurrently affirming American National Insurance Company's 'A' rating with a stable outlook. The upgrade for AEL reflects its heightened strategic importance to American National Group following Brookfield Wealth Solutions' acquisition in Q2 2024. Fitch noted American National's strategic pivot towards predictable liabilities, including fixed annuities and pension risk transfer, alongside ongoing de-risking efforts and robust capitalization, which collectively underpin the positive credit assessment.

Analysis

Fitch Ratings' upgrade of American Equity Investment Life (AEL) to 'A' from 'A-' and the affirmation of American National Insurance Company's 'A' rating underscore the enhanced credit profile of the consolidated group following AEL's acquisition. The upgrade is directly attributed to AEL's increased strategic importance, with Fitch now classifying the subsidiary as "very important" to the group's strategy. This strategy involves a significant pivot by American National towards predictable liabilities, such as fixed annuities and pension risk transfer, while simultaneously de-risking through the discontinuation of its own life insurance sales, evidenced by a $3.5 billion coinsurance transaction, and the non-renewal of homeowners' policies. Capitalization for both entities remains a key strength, with American National scoring "Extremely Strong" and AEL "Very Strong" in Fitch's capital models at year-end 2024. However, financial leverage is a critical metric to monitor, as American National's ratio increased to 24% in Q1 2025, approaching the 25% threshold that could trigger a negative rating action. The recent issuance of $700 million in senior notes to reduce term loan debt may be a proactive measure to manage this leverage.

Key Decisions for Investors

• The credit rating upgrade for AEL and stable outlook for the group are positive signals for bondholders, reflecting improved credit quality and lower perceived risk for the entities' debt instruments.
• Investors should closely monitor American National's financial leverage, as its 24% ratio is close to Fitch's negative trigger of 25%; any sustained breach of this level could pressure valuations.
• The success of the strategic shift to predictable liabilities is paramount; future performance will be dictated by the profitable growth of the annuity and pension transfer businesses and maintaining a GAAP return on equity above 6%.
• Consider the de-risking activities, including the exit from certain life and P&C lines, as a long-term positive for earnings stability, though it may temper top-line growth in the short term.