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TMCNet:  A.M. Best Affirms Ratings of American Equity Investment Life Insurance Company and Its Subsidiaries

[January 25, 2013]

A.M. Best Affirms Ratings of American Equity Investment Life Insurance Company and Its Subsidiaries

OLDWICK, N.J. --(Business Wire)--

A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) and issuer credit ratings of "a-" of American Equity Investment Life Insurance Company (American Equity Life) and its subsidiaries, American Equity Investment Life Insurance Company of New York and Eagle Life Insurance Company .

Concurrently, A.M. Best has affirmed the ICR of "bbb-" and all debt ratings of American Equity Life's parent, American Equity Investment Life Holding Company (AEL) [NYSE: AEL], as well as the indicative ratings under the shelf registration of American Equity Capital Trust V and VI. The outlook for all ratings is stable. All companies are domiciled in West Des Moines, IA, unless otherwise specified. (See below for a detailed list of all debt ratings.)

The rating affirmations acknowledge AEL's leading market position in the fixed indexed annuity marketplace, its more than adequate risk-adjusted capitalization relative to its insurance and investment risks, its positive premium and earnings trends in recent years and strong surrender charge protection to mitigate any potential disintermediation risk. A.M. Best also notes that AEL's financial leverage and interest coverage ratios are within the guidelines for its current ratings.

Partially mitigating factors include the impact of spread compression on AEL's earnings resulting from the low interest rate environment, its exposure to product concentration risk from its mono-line product profile, and relatively high levels of residential mortgage-backed securities and commercial holdings, which represent an amount in excess of statutory capital and surplus.

The ratings for AEL and its subsidiaries are well positioned at the current level. Key rating drivers that may lead to negative rating actions include a decrease in the organization's risk-adjusted capitalization due to operating losses and write-downs from investments, sustained pressure on spread margins from increased competition and low interest rates and a significant deterioration in financial leverage or interest coverage ratios.

The following debt ratings have been affirmed:

American Equity Investment Life Holding Company-
-- "bbb-" on $200 million 3.50% senior unsecured convertible notes, due 2015
($200 million currently outstanding with a September 30, 2012, GAAP carrying value of $176 million)
-- "bbb-" on $260 million 5.25% senior unsecured convertible notes, due 2024
($28.3 million currently outstanding with a September 30, 2012, GAAP carrying value of $28 million)
-- "bbb-" on $116 million 5.25% senior unsecured convertible notes, due 2029
($116 million currently outstanding with a September 30, 2012, GAAP carrying value of $102 million)

The following indicative ratings under the shelf registration have been affirmed:

American Equity Investment Life Holding Company-
-- "bbb-" on senior unsecured debt
-- "bb+" on subordinated debt
-- "bb" on preferred stock

American Equity Capital Trust V and VI-
-- "bb" on trust preferred securities

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: "Understanding BCAR for Life/Health Insurers"; "Insurance Holding Company and Debt Ratings"; and "Risk Management and the Rating Process for Insurance Companies."

Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com

Copyright © 2013 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.


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