American Equity Investment Life Holding Co (AEL) 2014 Q4 法說會逐字稿

Welcome to American Equity Investment Life Holding Company's fourth-quarter 2014 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. Please proceed.

Good morning and welcome to American Equity Investment Life Holding Company's conference call to discuss fourth-quarter 2014 earnings. Our earnings release and financial supplement can be found on our website at www.american-equity.com.

Presenting on today's call are John Matovina, Chief Executive Officer; Ted Johnson, Chief Financial Officer; 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.

It is now my pleasure to introduce John Matovina.

Thank you, Julie. Good morning, everyone, and welcome to our call this morning. As Dave Noble, our Executive Chairman and Founder said in our earnings release, fourth-quarter financial performance capped another year of record highs for our operating income and the related per-share amount.

For 2014 we delivered 12% growth in policy holder funds under management, a 14% operating return on average equity, and we increased the cushion to our targeted capital management ratio. We achieved those results while conservatively managing risk and our financial profile.

When speaking with our distribution partners, we regularly highlight our consistent presence in the fixed index annuity marketplace. American Equity has been in the top three of fixed index annuity sales in 14 out of the last 15 years.

And that market consistency also shows up year after year in our financial performance. Over the past 10 years our operating income has compounded at a 16% annual rate, while funds under management have grown 17% annually. This track record makes us one of the best growth stories in the past decade in the life insurance industry.

Looking at some of the specifics of fourth-quarter results, our operating earnings of $0.63 per diluted share grew 26% year over year; and our investment spread widened to 2.92%, up 10 basis points from the prior quarter. However, similar to the third quarter, our operating earnings and investment spread benefited from bond fees and prepayment income.

Ignoring the impact of those nontrendable items, lower rates on new invested assets offset the benefit we received from reductions in our liability rates. Low interest rates remain a headwind to our spread management, and achieving our spread targets may be more challenging in 2015. Yields available on new investments have moved lower in the first few weeks of the year, and achieving a 4% average yield on new investments is not possible without taking on an uncomfortable level of risk.

Fortunately, we continue to have flexibility in managing the liability side of the spread equation. Renewal rate adjustments have been ongoing for some time now, and new money rates will be reduced by the end of this month. In terms of our spread management flexibility, we have got the capacity to reduce the cost of money by approximately 63 basis points if we were to reduce all of our fixed rates, caps, and participation rates to their guaranteed minimums -- obviously, an action we don't want to take, but it does demonstrate the flexibility that we have to manage the liability side of that spread equation.

Fourth-quarter sales of $1.15 billion pushed our full-your sales to just under $4.2 billion, which was essentially flat with last year's results. However, fourth-quarter sales were the highest quarterly amount in the last three years and give us excellent momentum heading into 2015.

Ron's remarks will include his usual commentary about sales, marketing, and the competitive environment. So now let me turn the call over to Ted for more detailed comments on fourth-quarter financial results.

Thank you, John. Our operating income of $50.7 million for the fourth quarter was 27% higher than fourth-quarter 2013 operating income, and our fourth-quarter diluted per-share amount of $0.63 was 26% higher than the $0.50 per share for fourth-quarter 2013. Normalized operating earnings for the fourth quarter was $0.58 per share, removing the effects of certain nonrecurring items.

Investment spread for the fourth quarter was 2.92%. The spread result was 10 basis points more than the third quarter spread of 2.82%. Spread performance was impacted by average yield on investments, which increased 6 basis points to 4.95% from 4.89% in the third quarter. Much of this increase was due to make-whole consent fees from several bond calls, which together with certain prepayment income added 13 basis points to the fourth-quarter average yield on invested assets compared to 7 basis points for such items in the third quarter.

Cash and short-term investments were at normal operating levels for much of the fourth quarter and above normal operating levels for much of the third quarter. The average balance for excess cash and short-term investments for the fourth quarter was $116 million compared to $656 million for the third quarter.

Adjusting for the effect of these nontrendable items, the average yield on investment assets for the quarter fell by 7 basis points from the prior quarter, as new premiums and portfolio cash flows were invested at rates below the portfolio rate. The average yield on fixed income securities purchased and commercial mortgage loans funded in the fourth quarter was 4.27% compared to 4.14%, 4.15% and 4.39% in the third, second, and first quarters of 2014.

The aggregate cost of money for annuity liabilities was 2.03% in the fourth quarter compared to 2.07% in the third quarter. This decrease reflected continued reductions in new money and renewal crediting rates. The benefit from over-hedging was 5 basis points in both the fourth and third quarter. Hedging results for the past two quarters are consistent with our historical experience of managing the hedging process toward an over-hedged outcome.

Certain new money rates were modestly reduced in early October 2014. Competitive conditions have eased somewhat in the first quarter of 2015, as several of our key competitors have recently reduced the terms of their new product offerings. We plan to reduce our new money rates by the end of this month. We will continue to monitor the competitive environment and make further adjustments to new money rates based upon changes in investing and market conditions.

We have been implementing renewal rate adjustments to small groups of policies for some time now. Policies issued in the fourth quarter of 2011 were adjusted in the fourth quarter of 2014 for the first time since their issue date, and certain policies issued in the fourth quarter of 2010 were adjusted in the fourth quarter for the second time since their issue date.

In addition, as reported in our first-quarter call, during the second quarter we initiated additional renewal rate reductions for policies issued prior to July 20 of 2010. These rate reductions will occur on policy anniversary dates over a 15-month period that began on April 14, 2014, with the majority of the rate reductions completed by May 15 of 2015. Our active management of renewal rates will continue should the low investment yield currently available to us persist.

We retired $23.1 million of our 3.5% convertible notes last October and the $32.1 million of our 5 1/4% convertible notes in December. The total consideration paid for these retirements included $99.4 million of cash and 1.5 million shares of our common stock.

We estimate that these convertible debt retirements reduced our book value per share, including AOCI, by $0.86 per share. A significant portion of this impact was attributable to the retirement of the 5 1/4% convertible notes. Several holders of those notes opted to receive the conversion value of their notes entirely in cash, and we issued approximately 1.3 million fewer shares to retire those notes than we would have issued under the original conversion terms of the 5 1/4% notes.

While this negatively impacted book value per share, earnings per share in future periods will benefit from reduced shares outstanding. With the fourth quarter convertible note retirements, we ended the year with just $22.4 million of the 3.5% convertible notes outstanding. These notes mature in September 2015 and will be retired at maturity, if not redeemed or repurchased prior to that date.

The Holding Company has sufficient cash on hand and cash resources to retire the remaining 3.5% convertible notes without accessing the external sources of capital, such as its bank line of credit or dividends from its primary insurance subsidiary. The fourth-quarter convertible debt retirements have contributed to the reduction in our S&P adjusted debt-to-capital ratio to 20.2%.

We have substantially met our goal of reducing this ratio, which was 31.9% at September 30, 2013, following the $400 million July 13 senior notes offering, to our 20% target ratio. S&P's capital model requires additional capital for companies whose adjusted debt-to-capital ratio exceeds 20%. One element of S&P's positive outlook on our ratings has been reducing our adjusted debt-to-capital ratio below 20%.

Our RBC is 372%, up from 359% at second quarter and 344% at fourth-quarter 2013. We remain comfortably above 300% ratings threshold from A.M. Best, and we have adequate regulatory capital to support much larger sales volumes that what we are currently experiencing. With that I'll turn the call over to Ron.

Thank you, Ted. Good morning, everyone. Before I talk about sales and marketing, I did want to speak to the value proposition of our products, which was evident again in the fourth quarter last year. Once again, our policyholders participated in the advancement of the stock market without any risk to their premium or already credited interest.

The average index credit for policy anniversaries in the fourth quarter was 4.74%, and the highest was nearly 12%. So for the year, the average index credit was 5.63% and the largest was almost 20%. Approximately 41% of 2014 index credits were 6% or more, and 89% were at least 3%. So when you think about our primary responsibility being to provide principal protection and income, it certainly is a pleasant side benefit to get some really nice index credits, too, like 5.63% for the year. That's pretty amazing when you compare it to other safe money alternatives available.

Now onto sales and marketing: you have heard John talk about the numbers. The fourth-quarter was $1.14 billion, which was up 7.2% from the third quarter and also is up from the fourth quarter of last year, which came in at $1.09 billion, so some nice increases quarter over quarter.

The fourth quarter was our best quarter of the year, and December was our best month of the year in 2014. December came in at $429.7 million. So for the year, total-total, $4.18 billion for 2014, which was basically flat compared to 2013. That came in at $4.2 billion.

We did get some very good momentum in the fourth quarter of last year, and that is continuing into the first quarter of this year. Probably the primary reason for our momentum is our competition pulling back. We have seen a lot of companies lowering caps, reducing their payout options under lifetime income benefit riders, reducing commissions, reducing premium bonuses.

And American Equity has been pretty steady. We are fundamentally priced correctly on our basic chassis. Our bonuses, our compensation, our lifetime income benefit riders -- we haven't -- we think that they are where they need to be. And you already heard both Ted and John talk about the one lever that we are planning on pulling: our new business rates that we will be changing relatively soon.

Our marketing department is very busy, out visiting producers and going to different conferences. And when they visit with producers who have moved to other companies, they are saying to them, hey, you guys are back in the game. The fact of the matter is we never left, and a lot of it is other companies are just making their adjustments to where perhaps they should have been in the first place.

And also, in my personal travels, I've heard over and over from different marketing companies. They tell us that we are the most consistent and that we are their best relationship Company. And that really goes to the cornerstone of our Company -- that if the products are similar, agents do prefer to do business with American Equity. And we are not going to compromise our pricing integrity to deal with unrealistic competition.

Probably some of the other reasons for some good momentum is we did have some new initiatives that we introduced in the third quarter. If you will recall, we introduced a gender-based lifetime income benefit rider. We did get some nice traction with that. Our rates for the men improved pretty much across the board. The women rates also had some nice benefits. So we did become more competitive with some of the companies that really had cornered that market, if you will.

Also, we introduced our volatility-controlled Aristocrat strategy. That has been very well received as well. In August, when we introduced that strategy, it was 1% of the premium allocated to FIAs. In September it went to 7.9%, and it increased steadily throughout each month. In December it was 13.7% of the money allocated to FIAs.

The last initiative that we did last August was commission U. The goal of commission U was to recruit some of those producers that we were losing to the competitors, where they get more upfront commission but pay less total commission.

The bad news is our recruitment really didn't pick up as we'd hoped. Our fourth-quarter recruiting numbers were about the same as all the other quarters in the year. The good news, however, is we did win back some producers. We won back 116 producers who had quit writing business with us when we introduced our current option A. And that was just since August, 116 producers, and added to the total in our production of about $13 million. So we think we will continue to see some improvements there.

When we look at the statistics in December, 87% of applications are sticking with our traditional option A schedule. 10% of the applications chose option U, and then the remaining 3% went with the more traditional trail option.

Take a look at pending. Pending has been very strong in the fourth quarter and today, as you can imagine. Today it's very good for this time of year. It topped out in December at about 3,600 and then dropped down to around 3,242 by the end of the year. But as always, we always have a January dip each year as the pipeline empties out. And then, when the holidays are over, the producers get back to work.

So in 2015 our January dipped down to 2,775 pending applications. And that was in the middle of January. That compares to our 2014 dip of 2,277; so there's about a 500-policy or 500-application difference in count. Today our pending is at 3,147, and that compares to one year ago today, when it was at 2,635. So we've got another 500 application differential there.

Turning to gold -- or, excuse me, I want to help send a message to our users. We want to keep all this great momentum going. So we did introduce a new sales incentive on January 1, which will run through May. We are basically doubling the marketing money portion of our Gold Eagle Program. This is our message to the producers that we want their business year-round and not just in the beginning of the year or the end of the year -- year-round.

Speaking of Gold Eagle, we have a successful program in 2014, considering that we did have a overhaul of the program for 2014. Just to refresh your memory, a Gold Eagle producer is a producer that writes at least $1 million on a calendar year for us. Historically, we have found that our retention of our Gold Eagle producers is about 50% from year to year when they write between $1 million and $2 million in sales.

But if we can get them to write over $2 million, our retention jumps to over 80%. So in 2014 we raised the threshold to receive the cash and equity awards from the program. We raised that from $1 million to $2 million to reward our more consistent and loyal producers and hopefully get some of those producers that were in the low $1 millions -- to push them to get to that $2 million mark.

The results: in 2014 we had 991 Gold Eagle members that wrote $2.64 billion or 65% of our business. That's the highest statistic ever. And that compares to 2013 -- in 2013 we actually had 43 more Gold Eagle producers. But this year our 991 producers wrote $92 million more. So we had $92 million more in production with 43 fewer Gold Eagle producers.

So we think the program was effective. To drill down a little bit further, of our 991 Gold Eagle members, 466 of them were what we call the Elites -- that is, those producers that wrote $2 million or more. Those 466 producers averaged $4.1 million in production, and those same agents were responsible for 47% of our total production. So we felt it was a very successful program.

Okay, turning to Eagle Life: Eagle Life -- hey, we are finally starting to enjoy some good success in Eagle Life. Our fourth-quarter sales were $54.6 million. That drove our total sales for the year at $120.5 million. December of 2014 was $22.9 million, and December eclipsed what we did for the whole year in 2013; 2013 was $21.5 million.

So we are very excited about Eagle Life's success. Most of the business is coming from a very significant broker-dealer that we've been working on for years. We are really getting some nice traction there. We also have two significant banks that we are gaining traction with, but that's more on the multiyear guaranteed annuity side. We are confident, though, that we are going to get those banks to convert to fixed indexed annuities over time. And so we feel like we're off to a really good start.

The product mix, I think, is also important. When you look at Eagle's production, 88% of the premium is going into the FIA business, and the remaining 12 is going into the MYGA business.

I think another factor for our success is really attitude at our Company. We've been told for years and years that the broker-dealer and the bank channel is different. And they are a bit different in certain nuances; but while they may be different, there are a lot more similarities than there are differences to the independent agent channel.

The broker-dealer and bank representatives want the exact same thing that an independent agent wants. They want to be able to offer principal protection, guaranteed income. They enjoy relationships with their carriers. They want excellent service. So just applying the same strategy that has been successful at American Equity Life for the 19 years and applying that to Eagle Life, we feel like we got a bounce in our step and are going to enjoy some good success at Eagle Life in 2015.

Rounding out my comments -- to talk a little bit about our client appreciation events, we're going to continue those events into 2015. So far we've had a total of 91 events. We've entertained nearly 19,000 policyholders and nearly 1,200 producers. We're going to have our 100th event in August.

These events continue to be very beneficial for everybody involved. Of course, for the policyholders, they have a little bit of better sense of who we are and feel comfortable with where their money is. They're great for the producers in cementing that relationship with us. It's, of course, great for the Company.

But it's also great for our employees. We've had over 100 different employees attend these events, regardless of their department. It really does their attitude good to see our policyholders person-to-person and see our agents person-to-person. It really drives home how important our business really is. And so it's good for everybody.

So in conclusion, we are excited about our future in the FIA market. Consumers are searching, very much so, for vehicles that can help them grow their retirement savings safely and then convert those savings into income for life. And we've seen growth in the market, and we believe there's plenty of room for more growth. American Equity has been a pioneer, and we are still a leader in the FIA market. And we expect the value proposition of FIAs to drive our growth for years to come. And with that, that concludes my report. And I'll turn it back to John.

Thank you, Ron and Ted. One addition to Ron's comments there -- he mentioned this incentive program that's underway this year. And just to point out, we have had incentive programs in each of the last two years.

We didn't kick those things off until March, though, in 2013 and 2014. So we kicked it off a little bit earlier this year in a little bit different format. And we are really expecting to spend the same amount of money on the program this year that we spent in the last two years. So it's not an incremental piece of cost; it's just a change in the format to actually get the incentive moving a little bit earlier in the year.

So to wrap up the call, we owe our success to delivering attractive products that meet the retirement savings and retirement income needs of Americans. We safely manage and retirement savings entrusted to us by our policyholders, enabling them to sleep soundly, knowing that their savings are protected from loss and can provide them with guaranteed income to live when their working years have ended.

Our target market continues to grow as the large baby boomer group enters its retirement years and seeks the safety and security that our principal-protected fixed index annuity products provide. The nature of our product and the quality of our Company give us confidence that we are well positioned to continue to capitalize on the growing demand for retirement savings and retirement income products.

American Equity has always recognized that our success so depends on taking great care of our distribution partners. Our commitment to consistency in our business practices and providing best-in-class service has created a strong foundation in the independent agent distribution channel. That foundation is the result of the extraordinary commitment that each of our 425-plus employees brings to our office each day.

We are building on that foundation by expanding our distribution into broker-dealers and banks. And while we believe independent agents will continue to be a significant source of our future fixed index annuity sales, we anticipate meaningful sales in 2015 from new distribution sources.

So that ends our prepared remarks, and we will open the call up to questions.

(Operator Instructions) Randy Binner with FBR Capital Markets.

I wanted to ask a couple -- or two or three product-related questions. The first one is -- just to try and parse out a little better for myself and maybe some other observers of where you can grow in the banks and the BDs, and how that happens from both registered product and a nonregistered product perspective.

I think Eagle Life, unless I'm wrong, is more of a registered product initiative, I think. And that was $120 million, you said, in the year. Kind of interested in the outlook for that and what that could do in 2014.

And then in relation to the new products you just offered, the new product set, I think that's nonregistered but also focused on banks and broker-dealers. So maybe you can help us understand how you are hitting that new area -- banks and broker-dealers -- with both nonregistered and registered products.

It's Ron. Just a point of clarification, though. The Eagle Life products are not registered products. They are insurance products, FIA products, just like the same product line that we have an American Equity Life.

So as we look at Eagle Life, really one of the primary differences between Eagle Life and American Equity's -- Eagle Life is doing business with banks and broker-dealers that do their own suitability. So those banks and broker-dealers will do the suitability; the applications come through Eagle Life. The process, theoretically, is supposed to flow a lot smoother. And we will do checks on the suitability procedures of those broker-dealers over time, but they do the suitability.

We think our growth in Eagle Life is just making a name for ourselves. We are an insurance company that focuses exclusively on banks and broker-dealers. We don't do anything else at Eagle Life. That's it: broker-dealers and banks. And we're going to provide excellent service, and we want to build relationships with them. The same principles that we've used at American Equity for years.

So turning to American Equity for a minute, we think we can grow in the bank and the broker-dealer channel there as well. Before now, we really haven't had the products to penetrate the broker-dealer market at American Equity. That is because our products have been longer terms; they've had higher surrender charges; they've had premium bonuses and those types of things. So they haven't really gravitated towards American Equity.

So we introduced our Choice Series here just in the last couple of weeks. That will be more appealing to the banks and broker-dealers. There's fewer choices.

For example, on the Bonus Gold, our top-selling product, it has, I think, 9 or 10 different strategies that they can choose from. On the Choice Series we've narrowed that down to four or five. So they don't like a lot of choices; they like their products to be simpler. There's no premium bonuses. The surrender charges are shorter in duration. And because of all those things, we're able to have a little bit higher caps and participation rates.

So we think it's just sticking to our principles of relationships and excellent service, and having a product line at American Equity that will fit, and then really using our brand at Eagle Life to focus exclusively on banks and broker-dealers. Does that make sense, Randy?

That's really helpful. So you did $120 million-ish in full-year 2014. Any rough indication of what you can do in 2015 in that new area, considering it seems like you had a ton of momentum -- you made up almost all that number in the last month and a half of the year, it seems like.

This is John, Randy. So we are always hesitant about making predictions. Last year I said, well, if we did $200 million in Eagle, we would probably consider that a good year; and $500 million would be an outstanding year. And I guess the best thing we can say is, well, we didn't do the $200 million, but the last quarter of the year was on that $200 million run rate, at least.

So I'm not going to throw out a number. But certainly we don't see us going back. And if a couple of these other relationships kick in, easily several hundred million. And I think that $500 million perhaps gets in sight; although that might be a stretch, too, depending upon how fast the two other relationships we have been working on can come online.

I was hoping to corner you into a number, but that's --.

What I tried to do is my best dance. (laughter) One addition to Ron's comments, too -- I think one of the things we've kind of heard is that some of our existing NMOs might have the opportunity to have a relationship with a broker-dealer, and they want to bring them up through their existing channels.

So that's where you are going to find some potential broker-dealer sales coming to American Equity, is some of our larger NMOs bringing those opportunities to us. But they couldn't do that up until this point, because American Equity didn't have a product that that distribution would find suitable.

One other add-on to John's is -- you know, some broker-dealers don't want to do suitability for their fixed index premium, in which case Eagle Life was not a good match. But American Equity does suitability for every application that comes through the door. So those broker-dealers that didn't want to do suitability -- now they have a Company and a product at American Equity that fits the bill.

Okay, that's great. And then I wanted to try one more and products, and this goes to something that Ted said in the opening remarks, was that you are finding the market should be accommodative for you to reprice your liabilities somewhat.

And so I'd like to get a little more color on that. When you talk about -- to me that means people are kind of pulling back or maybe really pulling back. Are these major competitors? Are these the household names? Or are these some of the newcomers to the market? Any color you can give on that would be helpful -- what's going on out there competition-wise.

Ron made some comments there a little more detailed than Ted's. This is John. But it's the Allianzs and the Security Benefits that have cut back on product terms. I would understand Security Benefit's lifetime income rider is no longer anywhere near as -- or is not as attractive as it was at the end of last year.

I'm not aware so much of other rates and commission adjustments that they may have made. Allianz, though, has reduced rates; they have reduced commissions; and they have reduced premium bonuses. Ron's comment there -- we don't see the need to change our bonus structure or terms of our lifetime income rider. But it is time for us to reduce our rates, and that will be happening within the next couple weeks.

All right, great. Thanks so much.

Steven Schwartz with Raymond James & Associates.

I find it humorous, Ron, that the Choice Series has less choice. (Laughter).

Good point, Steven. We may need to change that.

That's marketing for you, right there. Ted, were you saying -- I was trying to keep track. Were you saying that at the end of the year, there was another block of existing business that was going to be ratcheted down on renewal?

I think what we said is that there were some blocks of business that we had adjusted for the first time or for the second time in the fourth quarter -- some smaller blocks.

Right.

As we have been going through, typically it's every three years or after the -- usually after a product has been issued, it's been our historical practice of leaving that original crediting rate in place for approximately three years before we adjusted it. So that's where you saw one of those blocks being adjusted for the first time. And then there was another block that was being adjusted for the second time. But those are just smaller blocks. And as I said, depending on what marketing condition is happening for investment and yields, we will have to be looking back and considering whether or not we need to make further rate adjustments to the existing in-force block to be able to manage our cost of money.

Sure, yes. That goes without saying. But for the current block as it exists with what you've already announced for your price and going through their anniversary dates -- and I think you said everything is gone by May 2015 -- I think the existing cost of money is around 2.08%, 2.09%. Where can that go to by the end of the second quarter? How much further could we get down as that reprices?

This is John, Steven. The business -- as we tabulate cost of money each week when we buy the options, the total block has been coming through -- let's just say right at 2% --

Okay.

-- with new money coming through in the 1.50% to 1.55% range. That's looking like -- we got a report yesterday that showed all the business with anniversaries or new business that was for the preceding Tuesday through the Wednesday of the week before. So that week's worth of business came in at right at 2% and 1.52%, or something like that.

So there is some other rate -- you know, new money will continue to drive that 2% a little bit lower, but not a lot. And there are some renewal rate adjustments still kicking through that are going to edge it down a little bit. But that's -- the next consideration on renewal rate is that large block of business that kicked in on April 15 of last year as to whether we have to reduce those further.

There's also -- there were some policies -- if we go back maybe now -- that will be getting their third year or are in their third year this year that we have previously said we were unlikely to -- or at least said to ourselves we were unlikely to adjust rates on those policies, because they were quite low relative to new money rates.

But with new money rates coming down again, it probably opens those policies up to a reconsideration of whether those rates should be adjusted as well. But there again, you are talking about one year's worth of business, $4 billion worth of premium or account value, on $35 billion of total. So moving those rates somewhat is going to have a modest effect on the overall rate.

And John, you announced that new money rates are going to come down. You just said they were coming in at 1.50%, 1.55%. What are you going to be looking at?

Well, that conversation is going to happen with my partners a little bit later this morning. But it's probably in the 20 to 25 basis point range.

Ron, could you remind us, on the marketing front on American Eagle -- those are different people, right, than the people that reach out to the brokers? Can you remind us what that looks like, how many people are there, things like that?

Well, today we have Jeff Varisco, who is helping me lead the marketing efforts at Eagle Life. He has in with us for -- gosh, two or three, maybe four years by now already. He knows the system well.

Then we had one of our field training specialists that was at American Equity, Tom Hamilton -- he has moved over to Eagle Life as well. Plus, we do want to hire at least two more marketing people at Eagle Life. We feel like we got a lot of fertile ground, that we want to go out and a lot of marketing companies and broker-dealers that are opening up to us. And we need to get the word out at Eagle Life.

So for the time being, that's the people on the ground. But what we've also done is we've assimilated the administrative aspects of Eagle Life into American Equity. So, for example, prior to now we had a new business department for Eagle, and we had a new business department for American Equity. And just recently we combined those departments to try and be more efficient with our personnel and their workflow. And we can still have dedicated people in that department to Eagle and dedicated people to American Equity, but then have the flexibility for them to go from one Company to the other and there's a surge in applications, for example.

So we are going to absorb most of the administrative functions of Eagle into American Equity, because it's the same type of product and the same procedures. On the marketing front, we are starting to beef that up a little bit to get more boots on the ground. But we are going to rely more on independent wholesalers out in the field that could help us get into those broker-dealers and banks.

Tell him about the wholesalers. He wants to know about how many wholesalers we have in that.

Well, we have -- thanks, John. (laughter)

I think that's what he wanted to know.

Yes, that's exactly what I wanted to know.

Well, sorry for the long-winded non-response.

That's all right.

We have about three wholesalers that really focus on the bank channel. And we have one wholesaler that really focuses on the broker-dealer channel. And we are probably going to expand that even further. Some of our independent marketing companies on the American Equity side are really trying to develop the broker-dealer and bank community as well. And we will extend that opportunity to those organizations that are committed to it.

The independent wholesalers -- are they -- I mean, they're independent, so to say that they are exclusive to you doesn't make sense. But are they exclusive to you?

No.

No. Okay, so you have got to offer a product through their networks.

Okay, and then one last one. The two new distribution -- you referenced the two new distribution possibilities. This was a reference to the banks that are doing MYGA?

Correct.

Okay. Got it.

We know both of those banks do a substantial amount of FIA premium. So the first thing that we need to do is show them that we know how to service their MYGA business and build that relationship. Then once we can get that accomplished, then they will open up the doors for FIAs as well.

Okay. Great. Thank you, guys.

Mark Hughes with SunTrust Robinson Humphrey.

I wonder -- you've given some very good guidance on what's going on with spreads and yields. In times past you have spoken about the time period it might take to get back to your 300-basis-point target. I wonder, as we think about what's happening here with 2015, how much progress do you think you can make, and off of what base? You know, there's 2.92% in the quarter; you obviously got some one-time help. How should we think about how this full year is going to shape up?

Mark, this is John. We started tempering our comments about getting back to the 3% a couple quarters ago, as the investment environment in 2014 started to go south in terms of yields. So -- and made comments -- with that type of investment yields available to us, getting back to 3% really wasn't realistic; and that holding our own in the 2.80% to 2.85% range was a more realistic goal.

And that really hasn't changed. And perhaps it's even a little tougher, given the fact that yields are even lower these days, although in the last few days have come back up. But the low-yield environment certainly presents a challenge to getting back to the 3%. And while we still feel good about the 2.80%-ish range, that's not going to happen without further rate adjustments, as long as yields stay where they are at these days.

Okay, that's helpful. On the Eagle Life, the banks and broker-dealers, is the margin dynamic the same for those products?

The margin dynamic in terms of the spread number is lower, because those products do not have premium bonuses or the commission or compensation to distribution isn't as high. So the spread target to produce a comparable rate of return at American Equity gets in its products is less.

And over time, yes, we would be talking about the 300 basis points ratcheting down a little bit because of the mix of American Equity business with the mix of Eagle business. But the profit objective in terms of returns is comparable at American Equity.

And, Ron, how sensitive do you think the distribution will be to lower crediting rates, as you are considering these adjustments to these blocks? I know the marketers pay attention to those things. You have got a lot of momentum here early in the year. If you do make those adjustments, how much could that impact sales momentum?

Well, the banks in particularly are very sensitive to rate adjustments on that MYGA. They will experience our service; and they may sell Eagle at a lower rate than they can with another company, but that margin isn't very big.

Our excellent reputation and service only gets us so far, and then they will switch. So we are going to have to be -- you know, we have to be prudent; and when we set these rates, knowing that if we go too far, we will lose some of that MYGA momentum.

How about with your independent distributors?

Not so much. I think our independent agents are not so sensitive to rates. Again, the independent guys are selling the FIAs, which is not as rate sensitive as a MYGA is. So I'd say the room for having some rate disparity is larger there than it is on the MYGA channel in the banks.

Great, thank you.

There are no questions in cue at this time. (Operator Instructions) I show no additional questions at this time. I would now like to turn the call over to Ms. LaFollette 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.