Market Overview

How The Dept. Of Labor's New Fiduciary Rule Could Affect American Equity Investment Life Holding

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While the DOL’s new fiduciary rule could impact the sales outlook for American Equity Investment Life Holding’s (NYSE: AEL) key product, the company has a “relatively thin capital cushion,” Credit Suisse’s John Nadel said in a report. He initiated coverage of American Equity Life with a Neutral rating and a price target of $20.

American Equity Life, a leader in the growing indexed annuity market, has generated an average of 14 percent annual growth in annuity account balances over the past decade. This has driven an average of 13 percent annual growth in operating income, analyst Nadel noted.

Pressure On Shares

Nadel mentioned three key factors that have resulted in American Equity Life’s shares being down 24 percent year-to-date:

  1. “Department of Labor’s new fiduciary standard requires use of the Best Interest Contract Exemption, or “BICE,” for the sale of indexed annuities, which could significantly pressure sales particularly through retail agent distribution,” the analyst wrote.
  2. Common equity issuance to raise new capital to support ongoing organic growth.
  3. Continued downward pressure on long-term interest rates has exerted pressure on investment spreads, and this is the main driver of profit margins for fixed/indexed annuities.

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Latest Ratings for AEL

DateFirmActionFromTo
Oct 2020Piper SandlerMaintainsNeutral
Oct 2020RBC CapitalUpgradesSector PerformOutperform
Aug 2020Morgan StanleyMaintainsEqual-Weight

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Posted-In: Credit Suisse John NadelAnalyst Color Initiation Analyst Ratings

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