American Equity Investment Life Holding Co (AEL) 2011 Q3 法說會逐字稿

Welcome to the American Equity Investment Life Holding Company's third quarter 2011 conference call. At this time for opening remarks and introductions I would like to turn the call over to Julie LaFollette, Director of Investor Relations.

Good morning and welcome to American Equity Investment Life Holding Company's conference call to discuss third quarter 2011 earnings. Our earnings release and financial supplements can be found on our website at www.american-equity.com.

Presenting on today's call are Wendy Waugaman, President and Chief Executive Officer; John Matovina, Chief Financial Officer and Vice Chairman; and Ron Grensteiner, President of the Life Company.

Some of the comments made during this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. There are a 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 in our most recent filings with the SEC. An audio replay will be available on our website shortly after today's call.

And it is now my pleasure to introduce Wendy Waugaman.

Thank you, Julie, and welcome to the call. Good morning. Let me start with operating earnings which were at the unexpected level of $41.5 million. Of that, $12.5 million is attributable to DAC unlocking which John will describe in some detail. Without this non-recurring item, our operating earnings would have been at $29 million for the quarter; so, still a very strong quarter in this environment. Our EPS, excluding the impact of the unlocking, would be $0.47 per diluted share.

Highlight for the quarter continues to be sales. They remain very strong at $1.3 billion for the quarter compared to $1.2 billion a year ago. We are on pace to have a record year of sales with year-to-date sales through September at $3.7 billion.

We have discussed in the past the drivers of this high level of sales. They have continued into the third quarter, including a high level of equity market volatility causing people to seek the safety of guarantees. Low continuing rates on competing products such bank CDs and some positive press it the financial media regarding the use of annuities, in particular with respect to longevity risk and retirement income planning.

None of the sales this quarter are attributable, yet, to Eagle Life. We continue to put building blocks in place. We are still anticipating our first sales prior to this year end and work to develop relationships with broker dealers in that channel. There has recently been press about the entrance of some new security industry participants into this channel including wire houses such as Merrill Lynch and UBS. We think that is indicative of the opportunity that exists in the broker dealer channel. We do think it will help validate the product, but we do not expect significant overlap or conflict with our traditional channel.

Another aspect of the quarter which is a continuation of a theme for the year is continued low bond yields, putting downward pressure on the yield on our investment earnings and downward pressure on spreads. As we discussed last quarter, we did move forward to implement rate cuts to be able to manage our spreads to our aggregate 300 basis point target. We did not feel any of the impact, any of the benefit of those rate reductions in the third quarter. Rather, they will emerge beginning in the fourth quarter and over the next 12 months.

Our RBC rose to 350% estimated at September 30. This increase is primarily attributable to an improvement in the charge that is associated with our commercial real estate mortgages. Even without that benefit, RBC remained level at around 339%, and under no downward pressure due to sales. We think this affirms our judgment that no new capital is needed to support current sales, even at this high level.

Our ROE for the quarter, excluding the unlocking impact, was at 13.1%, so consistent with our target. And as we look out over the next 12 months to 24 months, our goals are to continue to monitor the impact of the rate cuts on our spreads as well as the possibility of implementing future cuts if yields should continue to move downward. We expect the impact of those rate adjustments to be positive to operating earnings over the course of the next 12 months. We do want to work to keep our return on equity in the 13% range, as well as RBC in the 340% to 350% range.

We are going to continue to build our identity in sales in the broker dealer channel through Eagle. And in our traditional channel, our focus over the years has shifted to those agents who are our core producers, our top producing agents and Ron will speak to that in his section.

With that, I will turn it over to John.

Thank you, Wendy, and good morning everyone. First of all let me give you some details on DAC unlocking, which under GAAP accounting we evaluating every quarter, whether unlocking is necessary. It has been four quarters since our last unlocking in the third quarter of 2010. And that analysis is typically whether variances in DAC assumptions, actual experience is deviating from the model.

And in American Equity's case, the principal variances that are causing us to do an unlocking in this quarter are greater account value growth from our index annuities and lower surrender charge gain than we have been projecting as a result of surrenders coming in at levels less than what was in our pricing in our DAC models. So that greater account value growth also comes from higher index credits. Our models assume that index annuity policies will receive index credits equal to the option budget or fixed rates with some modification for equity growth. But over the last several quarters those index credits have been at levels in excess of 5%, which is above the expectation.

Of course, lower surrender gain, too, also means that we retain more business and earn that spread over the longer period of time. Most of this unlocking effect that Wendy described of the $12.5 million would be attributable to the account value growth versus changes in any assumptions that we would have made for future periods and the result of the DAC unlocking will show up in the income statement as a reduction of the amortization of deferred sales inducements and the amortization of deferred policy acquisition costs. As said, the biggest component of DAC unlocking for us this period is the account balance growth, well in excess of what was anticipated in the models.

Our investment spread for the quarter was reported at 2.95%. And our total invested assets grew to $23.4 billion, of which about $1.4 billion to $1.5 billion is the unrealized gain from marking the available for sale assets to market. I will have a little more comment on the effect of interest rate which is a primary driver of that a little bit later when I talk about the net loss for the quarter and the FAS 133.

Spread results for the quarter -- we continue to be affected by a high level of cash balances. They average $496 million for the quarter. And based upon our calculations would have cost us about 11 basis points in forgone earnings. That cash has now been invested or will be fully invested within the next two weeks. There are some purchases that will settle through the first several days of November. And so we should be in a fully invested position mid-November until at least the end of the quarter when our next calls could occur.

The calls in the quarter were relatively small at about $181 million versus $1.5 billion to $1.7 billion in the first several quarters. And so we don't have any bonds callable in a substantive way until the tail end of the fourth quarter, the last four days, when there is about $340 million to $350 million that could be called. And based upon the level of rates currently, there is a high expectation that those bonds would be called and so we will be looking to have investments available to deal with those calls when they occur.

Looking out into 2012, though, that call risk goes up fairly significantly. There is $1.9 billion of securities that could be called in the first quarter, another $600 million or so in the second quarter. And based upon the current level of rates, we do have expectations that those bonds would be called. The other side of the spread management is the cost of money, and as in prior quarters, we did receive some benefit this quarter from over-hedging. It was at 5 basis points. And just as a reminder, our over-hedging comes about from our risk management of looking to be fully hedged on the index annuities, if we are going to err on that process it is going to err on the side of having more options available than we necessarily need. We never wanted to have to give somebody an index credit and not have an option to fund that credit.

The lower amount this quarter, 5 basis points, compared to 10 or 11 basis points in prior quarter would be attributable to the fact that equity markets were certainly weaker the second half of the quarter. And so the performance of the policies was not quite as strong as what it had been in previous quarters. And so we had a number of options that were excess options that were expiring worthless.

Taking into account both the liquidity and excess hedging, the adjusted spread for the quarter was 3.01%, which is right at our pricing target of 3% in the aggregate.

As Wendy commented, we have taken action to reduce rates. We made that comment last quarter that we would be looking to take that action, both on new money and renewal rates. We adjusted fix rates as well as caps and participation rates. The renewal rates were adjusted for policies issued for pretty much all of 2009 and earlier years. The rate adjustments for the new policies took effect on October 8 for applications received on or after that date.

The renewal rate adjustments are going to start taking effect on November 15. And of course on the renewal rates, those adjustments are implemented on the policy anniversaries so it is not the whole portfolio all at one time. The rate adjustments will be phased in over the course of the next year as policies reach their anniversary.

On the renewal rates side, this is the first adjustment we have made since implementing rate reductions in the latter part of 2007 which would have then been implemented over the course of the end of 2007 and 2008. We do have ample room to make further adjustments should the portfolio yield continue to fall. We filed all of our products to be able to issue those products with lower minimum guaranteed rates to provide flexibility going forward, if rates will remain at these levels, or perhaps, unfortunately, if they went even lower than current levels.

Investment yield for the quarter was 5.70%, down 8 basis points from the second quarter yield of 5.78%. We invested new money in the quarter at a little more than 5% on $1.5 billion of fixed income security purchases. The biggest categories of those would have been agency bonds at $769 million at a 4.94% rate. And just for comparison purposes, the agency rates these days are in the low 4% range, 4% to 4.25% versus the 4.94% that was the blend for fourth quarter purchases. And corporate bonds, $476 million at 5.21%.

We also issued or made $133 million of new commercial mortgages at a yield of 5.67% and we are offering those mortgages these days at a 5.35% rate.

Impairments of RMBS and write-downs of commercial mortgages -- we had $17.3 million of incremental loan loss allowance on the commercial mortgages in this quarter. Most of that being on specific loans and a portion of it in our general loan loss allowance. And then additional impairments on the RMBS were $8.9 million.

As I said earlier, and you can see in the supplement, we did have a GAAP net loss for the quarter. It is entirely attributable to the FAS 133 adjustment to the index annuities and this kind of comes back to the comment I made earlier about the impact of falling rates in the bond portfolio where market value has gone up. The falling rates have the opposite effect on income in that they cause the liability for the embedded derivative to increase. That increase flows through the income statement and is the main factor for creating the net loss for the quarter.

Of course none of that affects our operating income and is one of the reasons why it is eliminated from operating income. We get large gyrations in the income statement based upon that embedded derivative liability that don't correlate to the way we manage the product through the annual reset structure which allows us to buy options once a year to cover the index credit and gives us the flexibility to re-price or adjust caps and participation rates to maintain the desired spread.

And, finally, looking to an impending accounting change, I think everybody is pretty much aware that the accounting for deferred policy acquisition costs is scheduled to change in January of 2012, and that the amount of cost deferred are going to be lower under new accounting standards. And for American Equity, that is going to be a rather limited impact. The effect of the new standard is limited to what we call "per policy issue costs" which are the internal costs that we incur for issuing policies as well as certain marketing-related expenses.

Most of our deferred acquisition costs are going to be our commissions to agents which are unaffected by the change in the accounting standard. And likewise, the standard does not affect the deferral of sales inducements which are the premium bonuses to our policy holders.

So the universe of costs that is subject to change is fairly limited. You can see that in our 10-K. They have ranged from $8 million to $12 million over the last several years. That is in footnote six, so the 2010 10-K. For 2011 we are looking at about $15 million of per policy costs. And based upon the work we have done so far, we think 60% to 75% of those costs would no longer be capitalizable under the new standard. That would equate, if we did prospective adoption, that would mean earnings per share would decrease by $0.09 to $0.11, perhaps a little bit lower than that; our costs for this year, our convention expenses, is part of that cost. And once every three years the convention is in Disney World and we get a higher level of qualification and expense for that convention. So, perhaps a little bit lower next year.

On a prospective basis it would take, as I say, $0.09 to $0.11 out of earnings. And that would translate into, and ROE would drop from just above 13% to perhaps 12.5% range. We are also looking at retrospective adoption but the results aren't that much different. And retrospective would allow you to go back and restate prior earnings. We think it would be feasible to go back over a three year or six year timeframe. That would end up reducing book value by some effect, but the ROEs would probably range from a 12.6% to a 12.9%. Either way, prospective or retrospective, it is not necessarily going to be that much of a change. And we will continue our evaluation and make a final determination on that before the end of the year.

And with that, I will turn the call over to Ron to talk about sales.

Thank you, John. Good morning everyone. As Wendy commented, sales were strong in the third quarter with $1.3 billion, a 4% increase over the third quarter of last year. And for the year, through the third quarter, we are at $3.7 billion.

Wendy mentioned some of the drivers for sales were volatile equity markets and low rates on competing products. I also think that American Equity's consistency in the market is a factor for our increased sales. American Equity has been in the top five for 46 out of 50 quarters for indexed annuity sales, according to [AnnuityExperts.com]. This information is through the second quarter of this year. We haven't seen the stats for the third quarter yet.

Our market share also continues to grow in a growing market. Through the second quarter we held a 13.7% market share which was the second highest. This compares to 2010 where we had a 12.7% market share. In 2009 we had 11.7%. And in 2008 we were at 8.3%.

American Equity, Allianz, and Aviva consistently have been in the top three over the last several years. It is interesting to note that the number four ranked company has been a different company for each of the last four years.

Another factor that doesn't show up on the balance sheet that I think is attributable to good sales is our great people and the excellent service reputation that they have and that we enjoy. And this has certainly been one of our cornerstones since the very beginning and continues to be a very key strength of American Equity. All else equal, I really believe that our agents want to go with the company where they are going to be treated fairly and a place where they can actually talk to a live human being. How about that for innovation?

We built momentum during the quarter as bond yields continue to fall and competition began announcing rate and commission cuts. We made our own announcement in early September that we would be dropping rates in October. We just didn't know to what extent yet. We think American Equity does a better job than many companies of being true to our key partners. Obviously we have to be fair to our producers because without our producers we don't have policy holders. And we have to be fair to the policy holders because it is their money. And we have to be fair to our company and to our shareholders. And I think our philosophy and the sensitivity that we have to our key partners is evidenced by the fact that we are having our first renewal rate adjustment since '07. And that we don't make frequent changes to rates for new sales.

We eventually did make our announcement in mid-September on what rates were going to be for new sales. That did drive production for September to $462 million and it drove pending to 6,000 in October. We averaged 4,900 pending applications in October, but it has now settled in the 3,800 range. We averaged around 3,600 applications in pending for the third quarter.

We are on pace to exceed our goal of 1,100 Gold Eagle members for 2011. Those are the agents who produce at least $1 million in annual annuity business. We also concluded our annual convention for producers. They had to write at least $2.5 million to qualify. Total attendance with agents, guests and home office personnel was 1,100. It was our largest convention ever and certainly an indication of strong sales success.

We are also going to be hosting our Chairman's Club soon here. This is exclusive to our top ten producing agents and our top marketing companies. The top producing agents represent $169 million in sales and the top six marketing companies represent $2.6 billion of annuities sales during the convention period. So this is certainly going to be a very important group to us as we host them at our Chairman's Club.

Going forward, Wendy mentioned this as well, we are going to continue to focus on building our core group of producers to achieve our sales targets. We are generating more sales today with fewer agents than ever before. At September 30 we had 32,000 contracted agents compared to 39,000 at September 30 of last year. That number will continue to go down as we cancel agents who have had no activity with us for a period of time.

As of today, that number is already down to 25,000 agents. And we really think that this is a significant move for us, especially when you consider that there are about 8,700 agents this year that have sent us at least one piece of business through the third quarter. We can save the time and expense of marketing to a large group of agents and spend more time focusing on our producing agents and trying to convert them into Gold Eagle agents.

Finally, we continue to have great success with our policy holder appreciation events. This has certainly become a very important part of American Equity's culture. We really believe our policy holders are entitled to hear directly from us that we are a secure company and that their money is safe. And no other insurance company or financial services company, for that matter, is making an attempt to provide assurances in the manner that we do at American Equity.

So far we have hosted 5,659 policy holders, 420 Gold Eagle agents at 31 different events. We had an event in Schaumburg, Illinois this summer where we capped out at 250 attendees and we had 150 on our waiting list, so we thought we need to go back and visit with those 150. We invited the 150 on the waiting list and then also invited those that didn't respond the first time and we capped out again at 250 and another waiting list. So this is certainly confirmation that our policy holders want to hear from us and we will continue to do these events until they stop coming because they are very popular for policy holders and the Gold Eagle agents as well.

So, with that, that concludes my report and I will turn it back to Julie.

Ask the operator for questions.

(Operator Instructions). And your first question comes from the line of Randy Binner with FBR Capital Markets. Please proceed.

Great, thanks. Just had some sales questions and they are probably for Ron. On the pending count, Ron, I didn't catch it. How did you quantify pending and for what month?

Pending today is in the high 3,800's. It was in the 3,600's for the third quarter. With our rate announcements it did spike up as high as 6,000, but it has since settled down since then.

Okay, and so the new, the rate change has closed at this point. And all of that inventory is processed. Is that right?

I don't know if it is all processed. But a good chunk of it is, certainly, when you look at our current pending count compared to where it was during the third quarter.

Okay, because the reason I ask it that way is last year there was a huge sales spike in the fourth quarter because of another rate change. But generally speaking, I think the fourth quarter would be a quieter time for sales because of the holidays and certainly your agents have been busy. Should we think about the fourth quarter this year being a little bit quieter as it normally would be?

I would say, and certainly in comparison to 2010's fourth quarter it would be quieter. And you are right, this is typically the time of year where when we get into Thanksgiving time and the holidays in September, things do tend to slow down a bit.

How would you characterize the distribution and how the consumers are reacting to these rate changes? I mean they are pretty dramatic in kind of the context of what you have offered before. So I would be interested to hear how people are reacting and I guess the bottom line is that they still feel like this is a good option relative to what else they could do in a low rate environment.

You hit it right on the head I think, Randy, in that people that are looking for safety and guarantees today have only so many options to choose from. And when they look at fixed annuities and they have the safety and the guarantees and the income options, they are still very attractive compared to other places that offer safe money alternatives.

And Randy, I would take issue a little bit with the characterization of it as a dramatic cut. We took into account levels of competitor rates as well as bond yields and looking at that we felt that we remained very competitive with other indexed annuities at those rates on new money. And in addition to that, the renewal rate cuts were really pretty modest. And so I have to think our existing policy holders will still be very comfortable with that.

That's fair. And then one more and I will drop back. So, the new entrants coming in, would any of them really be in the wholesale and independent agent distribution channel? Or are they really all coming in in the wire house/captive/bank distribution scenario?

The newer entrants that would be in our traditional, that would be an independent agent, are not necessarily in our specific channel. We have some them more in the bank channel. And that is not an area where we compete.

Understood. Thanks.

Your next question comes from the line of Erik Bass with JPMorgan. Please proceed.

Hi, good morning. Just a couple of questions. I guess first if you could provide an update on the coverts that become putable in December? I guess if they are put to you, what would the implications be for your earnings and capital position? And then, I guess, secondly, you are getting a reprieve a little bit from the bond calls in the fourth quarter but as John mentioned you have significant potential calls in 2012. I realize low rates make putting cash to work difficult, but have you looked at any options to either hedge or pre-buy securities to help mitigate the impact of the cash drag that you have seen this year?

This is John. I will deal with the converts first and Jeff Lorenzen is in with us; I think Jeff can kind of give you his thinking about the forward purchasing investments.

On the converts, if they are put to us, the effect on earnings would actually be a positive. We have the cash to handle $55 million of the $75 million. And that cash has been earning us a fairly low rate of interest. So, if the converts are put to us, we remove from the expense the cost of that interest which is a 5.25% coupon, plus another 3%, 3.5% or so of discount accretion. So those things have been going through the income statement at between 8.5% and 9%. And on that $50 million of cash we have been earning 1%. So, that would be a net positive to the income statement if they were put to us.

Capital-wise, the regulatory capital of the insurance company would be unaffected by the put. If the entire issue was put we would have to come up with about $20 million. In our forecasting earlier in the year we were planning that that might come as a dividend from the insurance company. I think our current thinking is that we would very likely just draw on our bank line of credit as opposed to taking the dividend from the insurance company to fund the amount above what the holding company has available.

And that bank line of credit then would be at an interest rate, I forget the exact rate, but I know it would be less than the 5.25% coupon that we are currently paying on the converts.

And first comment on the anticipated calls, you have to be a little careful with forward buying because you don't know for certain that the calls are going to occur. We certainly have the indication based upon current rates, but some of those calls are at the tail end of the first quarter. We will have to be watching rates to identify as we get closer to the call dates what is the likelihood of the calls. Jeff, do you have any brief comments on that?

I think you hit the nail on the head, John. Right now our callable securities are really almost at the money, so just a small backup in interest rates would take them out of the money and not have those calls. So being forward committed on things into the first quarter would be a little presumptuous at this point in time. We would clearly evaluate that at the middle of December to see what the probability of those calls are.

We have been fairly active at trying to stay ahead of the cash balances with the volatility in the interest rate market; recently it has become difficult because as rates come down you want to manage that interest rate risk and not be too aggressive at investing. And then as they back it allows you to have the opportune time to allocate those cash balances into assets that you want to make sure that you hold for a long time. I think to come back in summary, we will evaluate that first quarter as we get closer to the end of the fourth quarter in terms of reinvesting those dollars.

Okay, thank you.

Your next question comes from the line of Mark Hughes with SunTrust. Please proceed.

Thank you very much. The operating expenses in the quarter look a little bit lean. Should we assume about that level going forward or anything will make those numbers go back up?

I don't think there is anything particular in operating expenses. I commented to somebody yesterday that in the past we have seen some down tick in the second half of the year. When I think of expenses in the first part of the year, I know that we have a stockholder's meeting. We have some travel that is non-deferrable expenses in the first part of the year. And looking back through our history we have had some other experiences where the second half of the year is a little bit less in terms of expense than the first half.

And that might even be due to some conservative looking at or estimating expenses or making accruals and full year expenses in the first part of the year. And we certainly don't want to be under-accrued and as the year progresses the details that are going to run into that calculation become more definitive and expense accruals get modified. And if we have an effect then, conservative on the front end, there is some taking in of those accruals as I say as the year develops and the information to make a final determination is more definitive.

Right. Looking this year, though, like expenses relatively stable year-over-year. As you think about 2012, how should we look at expenses?

I'm not sure I can give you an informed answer of that just yet, Mark. I would think expenses are going to be certainly at levels that we are currently incurring. We have had some backup in litigation expenses that were there in the early part of the year. But our business is growing. We have been adding staff and that, so we are likely to see some modest increase in expenses next year that just are going to associate with the growth in the business.

Okay. And then how about the amortization going forward with this unlocking; as we think about say Q4 amortization, how is it going to look relative to the levels or the percentages we might have been looking at earlier in the year? With this unlocking do you generate most of the benefit here and then we go back to sort of where we were? Or do we assume kind of a lower pace of amortization?

The fourth quarter amortization and then for the next several quarters will come in at slightly lower paces of what we have been experiencing for the last four quarters. That is another additional benefit of the unlocking and at least the outcome of this particular year is that there are more profits in the future periods based upon the unlocking effect. So that had an accumulative effect that was quantified as the 12.5%, and will create some lower amortization, particularly in the periods immediately following the unlocking.

Thank you.

Your next question comes from the line of Dan Furtado with Jefferies. Please proceed.

Thank you for the time. I apologize, I was on just a little bit late, so if you have answered this just point me to the transcript. But this is the first renewal rate reduction since '07 and I was just wondering what kind of change you saw in volume and/or redemptions in '07 when you made the change, and if you think that that would be analog to today. Thank you.

We really didn't see any meaningful increase in redemptions or withdrawals in '07. That rate cut was a response to the increased volatility in the equity markets and increased option costs associated with that at that time. And in 2011 the renewal rates in place are still very strong relative to where new money rates are.

The decrease in renewal rates were approximately 15 basis points to 20 basis points, so quite modest. We have had better than expected persistency throughout the year with actual surrenders at far less than half of what we would have expected based upon our pricing. And so I doubt very much that the renewal rate reduction will have any kind of a meaningful impact on withdrawals and surrenders.

Perfect. Thanks for the time. And great quarter.

The next question comes from the line of Miranda Davidson with Raymond James. Please proceed.

Good morning. Just to follow upon the expenses question, do you all have anything coming up on the legal front? I know you had a case ongoing in LA and I was just wondering if we should expect any expenses associated with that.

That's a case that has been pending since 2005. It was filed as a possible class action but there has not been any ruling yet on class action status. It has not been certified as a class. It was one of several lawsuits filed against a series of indexed annuity carriers. And those cases have been either, actually they have all been settled, that were coming up for litigation, but we are behind in the queue in terms of when our case will be litigated. I believe Allianz is in the queue right now and is litigating that case in the southern district of California.

We continue to have some discussions with the plaintiff's lawyers about the litigation and the possibilities of settlement, but that is all very preliminary at this point. It is hard to say what legal expenses associated with that will look like next year. I doubt that if we go down the litigation path that that will start heating up and cause additional expense during 2012.

If we do move forward with settlement discussions, there will be some expense associated with that, but at a much lower level than we would think of if we were to litigate the case.

Okay, well thank you. My other questions were answered.

Your next question is a follow-up from the line of Randy Binner with FBR Capital Markets. Please proceed.

Thanks for the follow-up. John, I was hoping we could go for the DAC unlocking explanation again. 100% understood on the EPS part, but the two questions I had was, one, it seemed like you were still debating retro versus prospective adoption. I think everyone has done retro. So I just wanted to clarify; is that up for debate or are you going to do retro?

You know, our inclination is really to do prospective. But we have not made that file decision yet. Obviously retro gets you the benefit of the better ROE, and the further back you can go, the better off you are. But, it also involves restatements and then auditing all of that, too. And we are just not sure that the benefit from retro is cost-justified so to speak.

Right, and I guess your line of thinking there would be that your impact to book value would be small relative to other life insurers we have seen.

The impact to book value, I didn't give those, but if we had 60% of the historical costs that could not be deferred and we could effectively go back say three years, that is a $0.19 reduction in book value. The maximum, if we had a 75% and we could go back six years; and six years is what we talked about internally as probably the realm of what could be reasonably possible for us to have data available and make that assessment. That is a $0.43 adjustment to book value.

Okay, so the range of outcomes there would be $0.19 to $0.43?

$0.19 to $0.43, yes.

And so the decision on that, I guess the next conference call, the fourth quarter conference call, is that when we would look forward to final decision on that?

Yes.

Okay, that's perfect. Thanks for the clarification.

I show no further questions in the queue. I would like to turn the call over to Julie for closing 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.

This concludes the presentation. Thank you for your participation and you may all now disconnect. Good day.