American Equity Investment Life pany(AEL) - 2022 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1: Financial Statements This section presents the unaudited consolidated financial statements, covering balance sheets, operations, comprehensive loss, equity changes, cash flows, and detailed notes Consolidated Balance Sheets Total assets decreased by $3.45 billion to $74.90 billion, while total liabilities decreased by $2.30 billion to $69.73 billion, leading to a $1.15 billion reduction in stockholders' equity | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (in thousands) | | :----- | :---------------------------- | :------------------------------- | :-------------------- | | Total Assets | $74,899,344 | $78,349,109 | $(3,449,765) | | Total Liabilities | $69,727,174 | $72,025,982 | $(2,298,808) | | Total Stockholders' Equity | $5,172,170 | $6,323,127 | $(1,150,957) | | Fixed maturity securities, available for sale | $49,662,120 | $51,305,943 | $(1,643,823) | | Cash and cash equivalents | $1,933,899 | $4,508,982 | $(2,575,083) | | Policy benefit reserves | $63,730,995 | $65,477,778 | $(1,746,783) | Consolidated Statements of Operations Net income significantly increased by $283.5 million to $566.2 million, despite a substantial $814.4 million decrease in total revenues, primarily due to changes in derivative fair values | Metric | 2022 (in thousands) | 2021 (in thousands) | Change (in thousands) | | :----- | :------------------ | :------------------ | :-------------------- | | Total Revenues | $147,799 | $962,207 | $(814,408) | | Total Benefits and Expenses | $(573,516) | $600,988 | $(1,174,504) | | Net Income | $566,223 | $282,684 | $283,539 | | Net Income available to common stockholders | $555,304 | $271,765 | $283,539 | | Earnings per common share | $5.73 | $2.84 | $2.89 | | Change in fair value of derivatives | $(477,519) | $396,305 | $(873,824) | | Change in fair value of embedded derivatives | $(1,393,649) | $(282,413) | $(1,111,236) | Consolidated Statements of Comprehensive Loss The company reported a comprehensive loss of $1.22 billion, an $803.2 million increase from the prior year, driven by a significant $1.79 billion other comprehensive loss | Metric | 2022 (in thousands) | 2021 (in thousands) | Change (in thousands) | | :----- | :------------------ | :------------------ | :-------------------- | | Net Income | $566,223 | $282,684 | $283,539 | | Other comprehensive loss | $(1,785,083) | $(698,297) | $(1,086,786) | | Comprehensive Loss | $(1,218,860) | $(415,613) | $(803,247) | Consolidated Statements of Changes in Stockholders' Equity Total stockholders' equity decreased by $1.15 billion to $5.17 billion, primarily due to a $1.79 billion other comprehensive loss, partially offset by net income and common stock issuance | Metric | Balance at Dec 31, 2021 (in thousands) | Balance at Mar 31, 2022 (in thousands) | Change (in thousands) | | :----- | :------------------------------------- | :------------------------------------- | :-------------------- | | Total Stockholders' Equity | $6,323,127 | $5,172,170 | $(1,150,957) | | Net income for period | — | $566,223 | $566,223 | | Other comprehensive loss | — | $(1,785,083) | $(1,785,083) | | Issuance of common stock | — | $251,538 | $251,538 | | Treasury stock acquired, common | — | $(179,396) | $(179,396) | Consolidated Statements of Cash Flows Net cash from operating activities decreased by $371.9 million, while investing activities shifted from providing $120.7 million to using $2.45 billion, resulting in a $2.58 billion decrease in cash and cash equivalents | Metric | 2022 (in thousands) | 2021 (in thousands) | Change (in thousands) | | :----- | :------------------ | :------------------ | :-------------------- | | Net cash provided by operating activities | $99,932 | $471,881 | $(371,949) | | Net cash provided by (used in) investing activities | $(2,446,238) | $120,729 | $(2,566,967) | | Net cash provided by (used in) financing activities | $(228,777) | $1,398,993 | $(1,627,770) | | Increase (decrease) in cash and cash equivalents | $(2,575,083) | $1,991,603 | $(4,566,686) | | Cash and cash equivalents at end of period | $1,933,899 | $11,087,125 | $(9,153,226) | Notes to Consolidated Financial Statements This section provides detailed explanations of significant accounting policies, fair value measurements, investments, mortgage loans, variable interest entities, derivatives, notes payable, commitments, and earnings per share Note 1. Significant Accounting Policies This note outlines the basis of financial statement presentation, including GAAP compliance, VIE consolidation, management estimates, FHLB membership, and the impact of a new accounting pronouncement on long-duration contracts - The company's consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information and include variable interest entities (VIEs) where the company is the primary beneficiary[29] - American Equity Investment Life Insurance Company became a member of the Federal Home Loan Bank (FHLB) in Q1 2022, gaining access to collateralized borrowings and funding agreements, which require pledging qualified assets as collateral[30] - A new FASB ASU, effective January 1, 2023 (transition date January 1, 2021), will revise measurement models and disclosure requirements for long-duration insurance and investment contracts, including fair value measurement for 'market risk benefits' and simplified amortization for deferred policy acquisition costs and sales inducements. The company is evaluating its impact[31] Note 2. Fair Values of Financial Instruments This note details fair value measurements using a three-level hierarchy, compares carrying amounts to fair values, and reconciles Level 3 assets and liabilities, highlighting significant changes in fixed index annuities embedded derivatives | Metric | March 31, 2022 Carrying Amount (in thousands) | March 31, 2022 Fair Value (in thousands) | December 31, 2021 Carrying Amount (in thousands) | December 31, 2021 Fair Value (in thousands) | | :----- | :-------------------------------------------- | :--------------------------------------- | :----------------------------------------------- | :------------------------------------------ | | Fixed maturity securities, available for sale | $49,662,120 | $49,662,120 | $51,305,943 | $51,305,943 | | Mortgage loans on real estate | $5,734,872 | $5,792,356 | $5,687,998 | $5,867,227 | | Derivative instruments | $642,413 | $642,413 | $1,277,480 | $1,277,480 | | Policy benefit reserves | $63,342,037 | $56,478,030 | $65,076,041 | $56,375,076 | | Fixed index annuities - embedded derivatives | $6,770,915 | $6,770,915 | $7,964,961 | $7,964,961 | - The fair value hierarchy categorizes financial instruments into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (significant unobservable inputs requiring management judgment)[35][36][37] | Metric | 2022 (in thousands) | 2021 (in thousands) | | :----- | :------------------ | :------------------ | | Fixed index annuities - embedded derivatives (Beginning balance) | $7,964,961 | $7,938,281 | | Fixed index annuities - embedded derivatives (Ending balance) | $6,770,915 | $7,680,951 | | Change in fair value, net (Fixed index annuities - embedded derivatives) | $(1,308,123) | $(377,121) | - A 100 basis point increase in discount rates for embedded derivatives would decrease their fair value by $499.4 million, while a 100 basis point decrease would increase it by $578.3 million, impacting operations through changes in fair value and amortization of deferred costs[66] Note 3. Investments This note provides a detailed breakdown of fixed maturity securities by amortized cost, fair value, unrealized gains/losses, and credit quality, noting a significant increase in gross unrealized losses due to rising treasury yields | Metric | March 31, 2022 Amortized Cost (in thousands) | March 31, 2022 Fair Value (in thousands) | December 31, 2021 Amortized Cost (in thousands) | December 31, 2021 Fair Value (in thousands) | | :----- | :------------------------------------------- | :--------------------------------------- | :---------------------------------------------- | :------------------------------------------ | | Total fixed maturity securities | $49,364,915 | $49,662,120 | $46,999,183 | $51,305,943 | | Gross Unrealized Gains | $1,671,507 | N/A | $4,421,976 | N/A | | Gross Unrealized Losses | $(1,367,725) | N/A | $(112,370) | N/A | | Allowance for Credit Losses | $(6,577) | N/A | $(2,846) | N/A | - 98% of the fixed maturity portfolio was rated investment grade (NAIC Class 1 and 2) at both March 31, 2022, and December 31, 2021[74] | NAIC Designation | March 31, 2022 Fair Value (in thousands) | December 31, 2021 Fair Value (in thousands) | | :--------------- | :--------------------------------------- | :------------------------------------------ | | 1 | $28,064,072 | $28,785,839 | | 2 | $20,701,013 | $21,396,020 | | 3 | $748,881 | $941,210 | | 4 | $122,867 | $147,160 | | 5 | $3,259 | $15,357 | | 6 | $22,028 | $20,357 | - Gross unrealized losses on fixed maturity securities increased significantly from $(112.4) million at December 31, 2021, to $(1.37 billion) at March 31, 2022, primarily due to rising U.S. Treasury yields[69][227] | Metric | 2022 (in thousands) | 2021 (in thousands) | | :----- | :------------------ | :------------------ | | Beginning balance | $2,846 | $64,771 | | Additions for credit losses not previously recorded | $4,161 | $816 | | Change in allowance on securities with previous allowance | $(430) | $621 | | Ending balance | $6,577 | $59,698 | Note 4. Mortgage Loans on Real Estate The mortgage loan portfolio, totaling $5.73 billion, is detailed by type and geographic region, with an increased valuation allowance and rising past-due amounts in residential mortgage loans | Loan Type | March 31, 2022 Carrying Value (in thousands) | December 31, 2021 Carrying Value (in thousands) | | :-------- | :------------------------------------------- | :----------------------------------------------- | | Commercial mortgage loans | $3,581,412 | $3,610,576 | | Agricultural mortgage loans | $462,529 | $406,480 | | Residential mortgage loans | $1,690,931 | $1,670,942 | | Total Mortgage loans | $5,734,872 | $5,687,998 | | Metric | 2022 (in thousands) | 2021 (in thousands) | | :----- | :------------------ | :------------------ | | Beginning allowance balance | $(24,024) | $(31,029) | | Change in provision for credit losses | $(5,245) | $2,515 | | Ending allowance balance | $(29,269) | $(28,514) | | Loan Type | Current (in thousands) | 30-59 days past due (in thousands) | 60-89 days past due (in thousands) | Over 90 days past due (in thousands) | Total (in thousands) | | :-------- | :--------------------- | :--------------------------------- | :--------------------------------- | :----------------------------------- | :------------------- | | Commercial mortgage loans | $3,605,999 | $0 | $0 | $0 | $3,605,999 | | Agricultural mortgage loans | $463,087 | $0 | $0 | $0 | $463,087 | | Residential mortgage loans | $1,565,375 | $88,914 | $28,303 | $12,463 | $1,695,055 | - There were no mortgage loans classified as Troubled Debt Restructuring (TDR) at March 31, 2022, or December 31, 2021[123] Note 5. Variable Interest Entities The company consolidates certain VIEs in real estate and limited partnership funds where it is the primary beneficiary, while also holding investments in unconsolidated VIEs where it is not - The company consolidates two real estate investment entities and two limited partnership feeder funds (infrastructure credit and tech-centric middle-market loans) as VIEs where it is the primary beneficiary due to significant ownership and control[124][125] | Metric | March 31, 2022 Total Assets (in thousands) | March 31, 2022 Total Liabilities (in thousands) | December 31, 2021 Total Assets (in thousands) | December 31, 2021 Total Liabilities (in thousands) | | :----- | :----------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :----------------------------------------------- | | Real estate investments | $543,435 | $64,598 | $363,229 | $20,168 | | Limited partnership funds | $350,621 | $0 | $168,711 | $0 | | Total | $894,056 | $64,598 | $531,940 | $20,168 | - The company has investments in unconsolidated VIEs, including special purpose vehicles for middle market loans and a residential business purpose loan originator, where it provides debt funding but is not the primary beneficiary[127][128] | Investment Type | March 31, 2022 Carrying Value (in thousands) | March 31, 2022 Maximum Exposure to Loss (in thousands) | December 31, 2021 Carrying Value (in thousands) | December 31, 2021 Maximum Exposure to Loss (in thousands) | | :-------------- | :------------------------------------------- | :----------------------------------------------------- | :---------------------------------------------- | :-------------------------------------------------------- | | Fixed maturity securities, available for sale | $481,348 | $481,348 | $459,681 | $459,681 | | Other investments | $345,000 | $345,000 | $345,000 | $345,000 | Note 6. Derivative Instruments Derivative instruments, primarily call options for fixed index annuities, are not designated for hedge accounting, with fair value changes recognized immediately in operations, showing significant decreases in both derivative assets and embedded derivative liabilities - All derivatives are recognized at fair value in the consolidated statements of operations as they do not qualify for hedge accounting[130] | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :----- | :---------------------------- | :------------------------------- | | Derivative instruments (Assets) | $642,413 | $1,277,480 | | Fixed index annuities - embedded derivatives, net (Liabilities) | $6,770,915 | $7,964,961 | | Reinsurance related embedded derivative (Liabilities) | $(204,806) | $(2,362) | | Metric | 2022 (in thousands) | 2021 (in thousands) | | :----- | :------------------ | :------------------ | | Change in fair value of derivatives | $(477,519) | $396,305 | | Change in fair value of embedded derivatives | $(1,393,649) | $(282,413) | - The company manages counterparty credit risk for call options by purchasing from multiple highly-rated financial institutions and utilizing credit support agreements for collateral[135][137] Note 7. Notes Payable The company has $500 million in senior unsecured notes due in 2027, bearing 5.0% interest, with an amortized carrying value of $496.4 million | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :----- | :---------------------------- | :------------------------------- | | Principal (Senior notes due 2027) | $500,000 | $500,000 | | Unamortized debt issue costs | $(3,371) | $(3,537) | | Unamortized discount | $(204) | $(213) | | Total | $496,425 | $496,250 | Note 8. Commitments and Contingencies The company accrues liabilities for probable and estimable litigation, holds unfunded commitments of $1.2 billion to limited partnerships, and has $200 million in FHLB funding agreements collateralized by $940.7 million in securities - The company establishes accrued liabilities for litigation and regulatory matters when loss contingencies are both probable and estimable, continuously monitoring developments[143] | Commitment Type | Amount (in millions) | | :-------------- | :------------------- | | Limited partnerships | $1,200 | | Fixed maturity securities | $13.4 | - As of March 31, 2022, the company had $200 million in FHLB funding agreements outstanding, collateralized by $940.7 million in fixed maturity securities[144] Note 9. Earnings Per Common Share and Stockholders' Equity Diluted EPS increased to $5.67 for Q1 2022 from $2.82 for Q1 2021, Brookfield Asset Management increased its common stock ownership to 16%, and the company continued its share repurchase program with $556 million remaining | Metric | 2022 | 2021 | | :----- | :--- | :--- | | Earnings per common share | $5.73 | $2.84 | | Earnings per common share - assuming dilution | $5.67 | $2.82 | - Brookfield Asset Management increased its common stock ownership to approximately 16% in January 2022 through a second purchase of 6,775,000 shares at $37.33 per share[150][168] - The company repurchased 4.5 million shares of common stock in Q1 2022 at an average price of $39.29, with $556 million remaining under its $1 billion share repurchase program as of March 31, 2022[153][169] Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the company's financial condition and results for Q1 2022 versus Q1 2021, covering business overview, profitability drivers, detailed operations, financial condition, and regulatory developments Our Business and Profitability The company specializes in fixed and fixed index deferred annuities, with profitability driven by investment spreads, portfolio management, lifetime income benefit rider pricing, option cost control, and expense management, guided by the AEL 2.0 strategy - The company specializes in selling individual fixed and fixed index deferred annuities, primarily through independent marketing organizations (IMOs), catering to retirement needs for wealth accumulation and income for life[158][162] - Profitability is largely dependent on investment spreads, managing investment portfolio risks (interest rate changes, credit losses), pricing lifetime income benefit riders, controlling option costs for fixed index annuities, and managing operating and acquisition expenses[161] - The AEL 2.0 strategy aims to capitalize on annuity origination by implementing an "open architecture" investment management platform, partnering with specialized asset managers, and scaling investments into higher-returning private assets (goal: 30-40% allocation over time)[164][165][167] | Metric | 2022 | 2021 | | :----- | :--- | :--- | | Average yield on invested assets | 4.15% | 3.58% | | Aggregate cost of money | 1.64% | 1.58% | | Aggregate investment spread | 2.51% | 2.00% | - Average yield on invested assets increased due to strong returns on partnerships and other mark-to-market assets, lower cash balances, and increased private asset allocation, while the aggregate cost of money rose due to higher option costs[172] Results of Operations for the Three Months Ended March 31, 2022 and 2021 Net income available to common stockholders increased significantly to $555.3 million, primarily due to higher net investment income and decreased fair value changes in embedded derivatives, despite a 63% decrease in total annuity deposits before coinsurance ceded | Product Type | 2022 (in thousands) | 2021 (in thousands) | Change (%) | | :----------- | :------------------ | :------------------ | :--------- | | Fixed index annuities | $882,734 | $665,831 | 33% | | Multi-year fixed rate annuities | $4,685 | $1,752,617 | -99.7% | | Total before coinsurance ceded | $901,941 | $2,434,736 | -63% | | Net after coinsurance ceded | $688,378 | $2,431,688 | -72% | - Net income available to common stockholders increased to $555.3 million in Q1 2022 (vs. $271.8 million in Q1 2021), driven by higher net investment income and a decrease in the change in fair value of embedded derivatives[177] - Non-GAAP operating income available to common stockholders increased to $89.9 million in Q1 2022 (vs. $41.4 million in Q1 2021), primarily due to an increase in aggregate investment spread[181][186] | Metric | 2022 (in thousands) | 2021 (in thousands) | Change (in thousands) | | :----- | :------------------ | :------------------ | :-------------------- | | Net investment income | $567,423 | $497,190 | $70,233 | - The average yield on invested assets increased to 4.15% in Q1 2022 (vs. 3.58% in Q1 2021), attributed to strong returns on partnerships, lower cash balances, and private asset allocation[190] | Metric | 2022 (in thousands) | 2021 (in thousands) | Change (in thousands) | | :----- | :------------------ | :------------------ | :-------------------- | | Salary and benefits | $36,187 | $27,953 | $8,234 | | Risk charges | $2,880 | $12,042 | $(9,162) | | Total other operating costs and expenses | $58,120 | $55,865 | $2,255 | Financial Condition The company's investment strategy prioritizes high credit quality and growing private asset allocation, with the fixed maturity portfolio seeing increased unrealized losses due to rising interest rates, while liquidity is managed through cash flows, investments, and FHLB access Investments The investment portfolio, primarily fixed maturity securities (84.8%), is shifting towards private assets, maintaining high investment grade quality (98.2%), but experienced a substantial increase in gross unrealized losses in Q1 2022 due to rising treasury yields - The investment strategy aims to maximize current income and total return through active management, primarily in high credit quality fixed maturity securities, while aligning with insurance statutes and supporting liabilities[212] - As part of AEL 2.0, the company plans to increase its allocation to private assets by partnering with asset managers in sectors like commercial/residential real estate, infrastructure debt, and middle market lending[213] | Investment Type | March 31, 2022 Carrying Amount (in thousands) | March 31, 2022 Percent | December 31, 2021 Carrying Amount (in thousands) | December 31, 2021 Percent | | :-------------- | :-------------------------------------------- | :--------------------- | :----------------------------------------------- | :------------------------ | | Total fixed maturity securities | $49,662,120 | 84.8% | $51,305,943 | 85.0% | | Mortgage loans on real estate | $5,734,872 | 9.8% | $5,687,998 | 9.4% | | Real estate investments | $510,188 | 0.9% | $337,939 | 0.6% | | Derivative instruments | $642,413 | 1.1% | $1,277,480 | 2.1% | | Other investments | $1,999,113 | 3.4% | $1,767,144 | 2.9% | | Total investments | $58,548,706 | 100.0% | $60,376,504 | 100.0% | | Rating Agency Rating | March 31, 2022 Percent of Fixed Maturity Securities | December 31, 2021 Percent of Fixed Maturity Securities | | :------------------- | :-------------------------------------------------- | :----------------------------------------------------- | | Aaa/Aa/A | 55.9% | 55.2% | | Baa | 42.3% | 42.6% | | Total investment grade | 98.2% | 97.8% | | Total below investment grade | 1.8% | 2.2% | | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :----- | :---------------------------- | :------------------------------- | | Amortized Cost | $23,860,589 | $7,923,204 | | Unrealized Losses, Net of Allowance | $(1,367,725) | $(112,370) | | Fair Value | $22,486,287 | $7,807,988 | - The increase in unrealized losses from December 31, 2021, to March 31, 2022, was primarily due to an increase in treasury yields (10-year U.S. Treasury yields rose from 1.52% to 2.32%)[227] - The company recognized $7.4 million in credit losses during Q1 2022, primarily from a corporate security ($3.8 million) and structured securities ($3.7 million) that it intended to sell[249] Mortgage Loans on Real Estate The mortgage loan portfolio, totaling $5.76 billion at March 31, 2022, is diversified across commercial, agricultural, and residential segments. Commercial and agricultural loans have a combined average loan-to-value ratio of 51.9%, reflecting conservative underwriting. While commercial and agricultural loans are current, residential mortgage loans show significant amounts past due (over $129 million combined for 30+ days past due) - The company's mortgage loan portfolio totaled $5.76 billion at March 31, 2022, comprising commercial ($3.61 billion), agricultural ($463.1 million), and residential ($1.70 billion) segments[255] - The combined average loan-to-value ratio for commercial and agricultural mortgage loans was 51.9% at March 31, 2022, indicating conservative underwriting policies[252] | Loan Type | Current (in thousands) | 30-59 days past due (in thousands) | 60-89 days past due (in thousands) | Over 90 days past due (in thousands) | Total (in thousands) | | :-------- | :--------------------- | :--------------------------------- | :--------------------------------- | :----------------------------------- | :------------------- | | Commercial mortgage loans | $3,605,999 | $0 | $0 | $0 | $3,605,999 | | Agricultural mortgage loans | $463,087 | $0 | $0 | $0 | $463,087 | | Residential mortgage loans | $1,565,375 | $88,914 | $28,303 | $12,463 | $1,695,055 | Derivative Instruments Derivative instruments, mainly call options for fixed index annuities, are not designated for hedge accounting, meaning fair value changes are immediately recognized in operations. The fair value of these options is determined by counterparty settlement amounts adjusted for nonperformance risk - Derivative instruments, mainly call options for fixed index annuities, do not qualify for hedge accounting, so changes in fair value are recognized immediately in the consolidated statements of operations[257][258] - The fair value of call options is based on settlement amounts from counterparties, adjusted for their nonperformance risk, which is determined by credit default swap rates[257] Liquidity and Capital Resources The company's insurance subsidiaries maintain adequate cash flows from annuity deposits and investment income to meet obligations. The parent company relies on dividends and payments from subsidiaries for its liquidity needs. Regulatory restrictions limit subsidiary dividend payments, but American Equity Life has significant statutory earned surplus. The company also has access to FHLB borrowings and a new credit agreement - Insurance subsidiaries have adequate cash flows from annuity deposits and investment income, supported by a highly liquid investment portfolio and a target of 1-2% of the portfolio in cash and cash equivalents[259] - The parent company's liquidity depends on dividends and payments from subsidiaries, which are subject to state regulatory restrictions, including minimum solvency requirements and limits on dividend amounts[260][261] - American Equity Life had $2.5 billion in statutory earned surplus at March 31, 2022, and can distribute up to $407.9 million in dividends without prior approval from the Iowa Insurance Commissioner for 2022[262] - The company established a new five-year $300 million unsecured delayed draw term loan in February 2022 for general corporate liquidity, in addition to FHLB membership providing access to collateralized borrowings[264][265] Regulatory Developments Proposed regulatory changes by S&P, the Iowa Insurance Division, and the SEC (cybersecurity, climate, trading plans) could significantly impact the company's asset valuation, capital requirements, disclosures, costs, and operations - S&P has proposed changes to insurance company capital analysis, potentially requiring re-evaluation of assets, capital restructuring, or increased capital holdings due to new discounting rules for unrated assets[267] - The Iowa Insurance Division proposed changes to admitted asset laws to align with NAIC models, which could allow new admitted assets and alter investment limitations, with legislative consideration expected in 2023[267] - The SEC proposed new cybersecurity disclosure rules, requiring disclosure of material incidents within four days and annual reporting on risk management, governance, and board expertise[268] - The SEC proposed new climate-related disclosure rules, mandating reporting on governance, strategy impacts, risk management, GHG emissions, and climate-related financial statement metrics, with attestation requirements for large accelerated filers[269] - The SEC also proposed new rules for Rule 10b5-1 trading plans, including a 30-day "cooling off" period and limits on concurrent plans, along with daily disclosure of securities repurchases[270] Item 3: Quantitative and Qualitative Disclosures about Market Risk Interest rate risk is the primary market risk, managed by aligning investment cash flows with liabilities and using models, where a 10% interest rate increase could decrease fixed maturity securities' fair value by $1.01 billion, though crediting rates on most annuities are adjustable - Interest rate risk is the primary market risk, impacting product profitability and investment fair values, with profitability depending on the spread between investment yields and credited rates on insurance liabilities[273] - The company manages interest rate risk by aligning investment portfolio cash flow characteristics with insurance liabilities and using models to simulate cash flows under various interest rate scenarios[274] - A hypothetical 10% increase in interest rates (24 basis points) is estimated to decrease the fair value of fixed maturity securities by approximately $1.01 billion, resulting in a $416.6 million decrease in accumulated other comprehensive income and stockholders' equity[275] - Approximately 92% of annuity liabilities are subject to annual adjustment of crediting rates at the company's discretion (subject to minimum guarantees), with 18% currently at minimum guaranteed rates[276] - The company uses call options to fund annual index credits on fixed index annuities, managing the risk of future option costs by adjusting caps, participation rates, and asset fees within contractual limits[278] Item 4: Controls and Procedures As of March 31, 2022, disclosure controls and procedures were effective, ensuring timely and accurate reporting, with no material changes to internal control over financial reporting during the quarter - As of March 31, 2022, the company's disclosure controls and procedures were deemed effective in recording, processing, summarizing, and reporting information required under the Exchange Act[280] - No material changes to internal control over financial reporting occurred during the quarter ended March 31, 2022[281] PART II — OTHER INFORMATION Item 1: Legal Proceedings Information on legal proceedings is incorporated by reference from Note 8 - Commitments and Contingencies in the unaudited consolidated financial statements - Information on legal proceedings is incorporated by reference from Note 8 - Commitments and Contingencies in the unaudited consolidated financial statements[283] Item 1A: Risk Factors A detailed discussion of risk factors affecting the business is available in Part I, Item 1A of the company's 2021 Annual Report on Form 10-K - A detailed discussion of risk factors affecting the business is available in Part I, Item 1A of the company's 2021 Annual Report on Form 10-K[284] Item 2: Unregistered Sales of Equity Securities and Use of Proceeds In January 2022, 6.78 million common shares were issued to Brookfield Reinsurance in an unregistered sale, and the company repurchased 4.45 million shares for approximately $179.4 million during Q1 2022 - In January 2022, 6,775,000 common shares were issued to Brookfield Reinsurance at $37.33 per share in an unregistered sale, exempt under Section 4(a)(2) of the Securities Act[285] | Period | Total Number of Shares Purchased (shares) | Average Price Per Share (dollars) | Dollar Value That May Yet Be Under Program (in thousands) | | :----- | :---------------------------------------- | :-------------------------------- | :-------------------------------------------------------- | | January 1, 2022 - January 31, 2022 | 1,066,600 | $41.75 | $691,054 | | February 1, 2022 - February 28, 2022 | 1,545,923 | $41.32 | $627,176 | | March 1, 2022 - March 31, 2022 | 1,839,628 | $38.56 | $556,236 | | Total | 4,452,151 | N/A | N/A | - From January 1 through April 30, 2022, the company repurchased approximately 6.3 million common shares for about $250 million[288] Item 4: Mine Safety Disclosures The company states that there are no mine safety disclosures - No mine safety disclosures are applicable[288] Item 5: Other Information The company states that there is no other information to disclose - No other information is reported in this section[288] Item 6: Exhibits This section lists the exhibits filed with the report, including various performance-based and time-based restricted stock unit award agreements, amendments to incentive plans, certifications, and iXBRL financial statements. It also includes a note regarding reliance on statements in contracts and other exhibits - The exhibits include various employee incentive plan agreements (restricted stock units, short-term incentive plan, deferred long-term incentive cash plan), certifications from the CEO and CFO, and iXBRL formatted financial statements[291] - A cautionary note advises that representations and warranties in exhibits are for party benefit, may be qualified by disclosures, apply different materiality standards, and are only as of the agreement date[290] Signatures The report was signed by Dewayne Lummus, Senior Vice President and Chief Accounting Officer, on May 9, 2022