Nov 5, 2015
Operator
Welcome to American Equity Investment Life Holding Company’s Third Quarter 2015 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.
Julie LaFollette
Good morning and welcome to American Equity Investment Life Holding Company’s conference call to discuss third quarter 2015 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 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.
John Matovina
Thank you, Julie. Good morning, everyone, and thank you for joining us on the call this morning.
Three forced the way through 2015, we are positioned for a record year consistent with our performance over the past several quarters and years. We are performing very well in the two key areas that drive our earnings and financial performance, number one being growing invested assets or policyholder funds under management and then generating a high level of operating earnings on that growing earnings base.
Our third quarter sales of $1.8 billion, a record for any single quarter were up 70% from the prior year third quarter and were 2% higher than the second quarter of 2015. Year-to-date sales of $4.9 billion were just $200 million shy of the $5.1 billion full-year sales record we set in 2011.
And now with October behind us, we know for sure that, we’ll exceed that record year and that 2015 will set a new record for our annual production. The sales outcome fueled a 12% increase in policyholder funds under management for the first nine months of 2015.
And as usual, Ron’s remarks will have comments on the sales and competitive environment, including the factors that contributed to sales results and market share gains. In addition to our sales growth and then excluding the impact of unlocking, we also generated a 20% increase in our operating earnings per share, which were $0.66 in the third quarter of 2015 compared to $0.55 a year ago, and on a trailing 12 months basis, that – those earnings per share would equate to an ROE of 13.3%.
So now let me turn the call over to Ted for some more information on the second – third quarter financial results.
Ted Johnson
Thank you, John. Our operating income of $45.9 million for the third quarter was 28% lower than the third quarter 2014 operating income of $64 million.
This decrease was entirely due to revisions to assumptions for deferred acquisition costs and deferred sales inducements, and revisions to assumptions used to determine the liability for future benefits to be paid under lifetime income riders. Excluding the impact of these assumption revisions, our operating income for the third quarter was up 25% to $54.7 million compared to $43.8 million for the third quarter of 2014.
We also modified assumptions used to determine index annuity embedded derivative liabilities to be consistent with changes to DAC and lifetime benefit reserves. But that outcome is not relevant to the analysis of operating income.
Similar to last year, the impact of unlocking for DAC and deferred sales inducements was favorable. That is an increase in the assets and a reduction in amortization expense.
The most significant items were, one, a true-up of account balances, which had been favorable to us in each of the last three years, due to strong equity market performance, which has produced index, credits, and policy growth in excess of our model assumptions. Two, a favorable adjustment to lapse assumptions to reflect better persistency experienced and assumed.
And three, reductions in future gross profits included in our models attributable to revisions to the assumptions for the lifetime income benefit rider liability, which largely offsets the impact from the true-up and lapse assumption changes. There were other assumptions revisions in the third quarter, but their impact was relatively modest compared to the impact of the true-up of account balances and the lifetime income benefit rider assumption revisions.
The favorable impact from DAC and deferred sales inducement unlocking was offset by an unfavorable impact from revisions to the assumptions for the lifetime income rider benefit liability. The most significant assumption change generating the unfavorable impact was to increase the primary election age from 67 to 70.
The payout factors in the rider are based on the age at the time the lifetime income is elected. In early versions of the rider, the age gap between payout rates was 10 years.
So policyholders might have an incentives to further lifetime income election until age 70, when the payout factor stepped up. Subsequent versions of the rider reduced the age gap between payout rates to five years and the rider we currently sell has a different payout factor for every age.
With these structures, we are not expecting a repeat of this type of assumption adjustment and any further developments and experience for their primary election age should have a smaller impact from what was experienced in the third quarter. Investment spread for the third quarter was 2.83% compared to 2.84% last quarter, as a result of a 1 basis point increase in average yield on invested asset and a 2 basis point increase in the cost of money.
Average yield on invested assets continued to be favorably impacted by non-trendable items and unfavorably impacted by the investment of new premiums and portfolio cash flows at rates below the portfolio rate. Make-whole consent fees from several bond calls, which together with certain prepayment income added 14 basis points to third quarter average yield on invested assets compared to 7 basis points for such items in the second quarter.
Adjusting for the effect of non-trendable items, which also included holding more cash and short-term investments this quarter than the prior two quarters, the average yield on invested assets fell by 5 basis points from the prior quarter. The average yield on fixed income securities purchased and commercial mortgage loans funded in the third quarter was 3.89% compared to 3.73% and 3.84% in the second and first quarters of 2015 and average yields ranging from 4.14% to 4.39% in the prior year quarters.
The aggregate cost of money for annuity liabilities was 1.96% in the third quarter compared to 1.94% in the second quarter. This increase reflected continuing reductions in crediting rates, but the effect from rate reductions was more than offset by a 5 basis point decrease in the benefit from over hedging the obligations for index linked interest from 7 basis points in the second quarter to 2 basis points in the third quarter.
We have been counteracting the impact of lower investment yields by reducing the rates on our policyholder liabilities. But the impact on the cost of money from these reductions is less than the impact on average yield on invested assets from investment purchases by a few basis points.
We continue to have flexibility to reduce our crediting rates, if necessary, and could decrease our cost of money by approximately 56 basis points through further reductions in renewal rates to guaranteed minimums should the investment yields currently available to us persist. Other operating costs and expenses were $24.5 million in the third quarter, compared to $24.9 million in the second quarter and $20.6 million in the third quarter of 2014.
Operating expenses for the third quarter were slightly less than the second quarter with no significant increases or decreases in any one expense category. The increase in operating expenses this quarter compared to third quarter 2014 was due to an increase in salary and benefit expense related to an increased number of employees, cost of overtime, and increased incentive compensation.
In addition, we had more reinsurance risk charge expense, due to growth in our policyholder liabilities, subject to our reinsurance agreement pursuant to which we see that excess regulatory reserves to an unaffiliated reinsurer. Our RBC is at 3.54%, up slightly from 3.49% at the end of the second quarter and down from 3.72% at year-end 2014.
We remain comfortably above the capital thresholds for our ratings from A.M. Best and S&P.
We contributed $120 million to the capital and surplus of American Equity Life in the third quarter, which included the $104 million of initial net proceeds from the issuance of 4.3 million shares of common stock in our August 2015 public stock offering. That offering provides capital to support 2015 substantial increase in sales and the prospect that elevated sales might extend beyond this year.
If needed, we could exercise our rights under two forward sales agreement and receive $136 million in net proceeds from the issuance of an additional 5.6 million shares of our common stock. These forward sales agreements, which have a term of 12 months ending in August 2016, allow us to manage our capital by matching the timing of the issuance of additional equity with any need for such capital that might be created by high levels of sales.
If we do not need all or a portion of the net proceeds available to us from physical settlement of the forward sales agreement, we can cash or net share settle the amount not needed and reduce or eliminate any additional issuance of shares of our common stock. Prior to expiration or settlement of the forward sales agreement, the shares underlying the forward sales agreement will be reflected in our diluted earnings per share computations using the treasury stock method.
As such, there will be no dilutive effect on our earnings per share except during periods when the average market price of our common stock is greater than the applicable adjusted forward sales price, which initially is $24.30 per share. Shares included in diluted earnings per share for the third quarter for the dilutive effect of the forward sales agreement were not material.
Now, I will turn the call over to Ron, to talk about sales and production.
Ronald Grensteiner
Thank you, Ted. Good morning, everyone.
For the past several quarters, we have been quoting above average index credits for our fixed index annuity policyholders. For the third quarter, the average index credit during the quarter was 1.66% and the highest credit was 8%.
These credits don’t sound as impressive as previous quarters, but are actually quite remarkable considering the S&P 500 experienced a significant correction in August and September. So once again our policyholders slept well knowing that they didn’t lose a penny of value, and our products continue to prove their value as a safe money product in a balanced retirement plan portfolio.
So looking at sales and production as we reported, the third quarter was a record quarter in the company’s history with $1.83 billion in sales on a consolidated basis, a 70% increase over the third quarter of 2014. And for the first nine months, sales are up 63% compared to the first nine months of last year.
Sales were up 2% when compared to the second quarter of this year. Obviously, we are very pleased especially when we said during last quarters call that we didn’t expect sales to be quite as strong in the third quarter of this year.
Pending during the third quarter fluctuated between 5,400 and 6,000 cases with an average of 5,690 cases. By comparison, pending fluctuated between 2,700 and 3,050 cases during the third quarter of 2014.
One year ago, today, pending was 3,219 cases. This morning, it’s at 6,002 cases.
We anticipate a strong fourth quarter as our current product offerings remain competitive, while also we do expect a boost in sales from impending changes to our lifetime income benefit rider, which will be effective January 1st of 2016. This is due to mandatory changes to mortality rates used to establish regulatory reserves, which become effective industry-wide in 2016.
Our producers will be active between now and the end of the year in order to secure the best available lifetime income terms for their clients. American Equity’s FIA market share continues to increase based on second quarter sales and market data reported by Wink, which is the most recent data available.
We were ranked number two in sales for the fourth consecutive quarter and our market share has been increasing steadily while total FIA sales have been increasing. So in the third quarter of 2014, our market share was 9.38% on industry sales of $11.4 billion.
And in the second quarter of 2015, our market share was 14.65% on industry sales of $12.2 billion. Also in the second quarter of this year, American Equity’s FIA sales ranked number one in the independent agent sales channel for the first time.
And Eagle Life was ranked number three for FIA sales in the full-service national broker-dealer distribution channel. So looking at Eagle Life for a moment, Eagle also enjoyed a very strong third quarter with $102 million of sales.
This brings our total sales for the first nine months to $300 million compared to $66 million during the same time period in 2014. Our product mix during the third quarter was 76% FIA and 24% multi-year guaranteed annuity.
Our FIA premium is increasing steadily each quarter, but the MIGA premium number is always rate-sensitive and was as much as 50% of our total in the first quarter, due to an interest rate special. We’re very gratified to see our FIA premium increasing with total production.
Eagle Life had a good October and similar to American Equity has a healthy trend in its pending business count. We had a 154 pending cases at the end of September, and it’s at 219 this morning.
Eagle Life’s FIA production has largely been generated from two distribution relationships that we expect that to change. We added a significant broker-dealer in the third quarter, who has nine broker-dealer divisions and access to 9,500 representatives.
So far we have selling agreements with five of the nine divisions with three more in progress. We also added two smaller broker-dealers who are anxious to do business with Eagle Life.
To-date, Eagle has 39 broker-dealer selling agreements. While Eagle is seeing success in the broker-dealer distribution channel, American Equity is also starting to see some success.
We implemented a broker-dealer initiative in the first quarter of this year by introducing several FIA products and a commission structure that appeals to that channel. Broker-dealer production reporting isn’t quite as precise at American Equity as it is at Eagle.
We know we have many registered representatives that are affiliated with broker-dealers. But we – but they do business as an outside business activity, and we don’t know, which broker-dealers they’re affiliated with and we may not even have a selling agreement with their broker-dealer.
What we do know is that American Equity has a 109 broker-dealer selling agreements, and we can tie $148 million in American Equity production to those broker-dealers for the first nine months in 2015. By comparison, the American Equity had $71 million in sales from broker-dealers for the full-year of 2014, so we’re making progress at American Equity as well in that distribution channel.
Turning to Gold Eagle, through September, we had 1,018 agents who have qualified that includes agents who have written, at least, $1 million in production for the calendar year, that compares to 721 agents over the same time period last year. Those 1,018 agents are responsible for 59% of American Equity’s year-to-date sales.
The more intriguing statistic pertains to our elite Gold Eagle members and those are and that’s those who have produced, at least, 2 million for the calendar year. And of those 1,018 qualifiers, 475 are at the elite level and that is a 62% increase over last year at the elite level producer.
And for those producers – those elite levels, they have written 43% of American Equity’s year-to-date business. So looking at the competition, it seems that they are getting a bit more aggressive in the second-half of this year.
We’ve seen some companies introducing commission specials and others raising rates plus we have some new entrants in the market, which have been capturing some attention. Also to our dismay, we’ve seen more exotic indexing strategies being introduced into FIAs.
For example, there’s the Barclays U.S. low volatility to equity ER index, the CROCI U.S.
5% volatility control index, and the Morgan Stanley Europe, Australian Far East index. We believe these types of strategies detract from the real purpose of fixed index annuities and create an atmosphere of unrealistic expectations on behalf of the producers and the consumers.
FIAs sales are increasing though according to LIMRA’s estimated annuity sales report for September, FIA sales were $5.3 billion for the month, the highest monthly level for the past 12 months. So looking at our service levels and outlook, we have heard that one of the new entrants into the FIA market is having a lot of success, but is also having some difficult – difficulty getting policies issued, and we’ve heard reports of 30 plus days for policy issue.
This just gives American Equity even more credibility when considering our sales have increased 63% for the year and our service levels have stayed intact. We are very proud of our team and the culture here at American Equity.
Now, it doesn’t mean they haven’t been a bit frazzled. They are keeping it together by coming in early and staying late to get the work done.
But our people are very proud of our excellent service reputation and don’t want to see it flip. To provide some relief, we have added as many as 65 new positions since the first of the year.
Most of those positions have been for the main service operations like new business policy service and marketing and the other positions are to help bolster our technology capabilities. It is our vision to deliver the best online customer service just as we do with our regular customer service.
Plus, as we continue to grow, we want to be more efficient with technology doing some other work rather than continuing to add position. So, in conclusion, we are expecting to break our previous sales record by a substantial margin this year and we remain very optimistic for our future.
FIAs are the only products that can offer principle protection with upside potential and guaranteed income for life filling a critical need as part of the balance retirement plan. We will continue to deliver simple, transparent products with an emphasis on guaranteed income and provide best-in-class service to producers and policyholders.
And with that, I’ll turn the call back over to John.
John Matovina
Thank you, Ron, and Ted, for your reports. To wrap this up, American Equity takes great pride being a growth company and the third quarter of 2015 marked one of the better growth performances and are assumed to be 20 years history.
That’s right. A little bit later this year, we’re going to have our 20th birthday, kind of hard to imagine that from the humble beginnings in 1995 when Mr.
Noble started our company. But during this quarter, our sales grew 70%, which was an all-time record high for us and our policyholder fund under management, as I said earlier were up 12% this year.
Our robust growth rate when you consider that our liability base is approaching $40 billion, and our operating earnings per share were up 20%, which represented that 13% ROE. With just two more months to go in the year, we know 2015 is a record year for sales and our operating earnings are on pace for a record year as well.
We also know that the net proceeds available to us from that forward sale component of our August 2015 equity offering provides the growth capital we would need should accelerated or elevated levels of sales extend beyond this year. We owe our success to delivering attractive products that meet the retirement savings and retirement needs of our country citizens.
We safely managed the 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 done. Our target market continues to grow as the large baby boomer group rendered 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 is also always recognized that our success depends on taking great care of our distribution partners.
Our commitment to consistency in our business practices and providing that best-in-class service that Ron mentioned has created a strong foundation in the independent agent distribution channel. And that foundation is the result of the extraordinary commitment that each of our 490 employees brings to our office each day.
We are building on that foundation by enhancing our technology in online customer service capabilities and expanding our distribution in the broker-dealers and banks. And while we believe independent agents will continue to be a significant source of our future FIA sales, we continue to anticipate meaningful sales from the new distribution sources in the years ahead.
So, thank you for your attention this morning. And we’ll open the call up to questions.
Operator
Thank you, sir. [Operator Instructions] Now, our first question comes from the line of Carl-Harry Doirin of Raymond James.
Your line is open.
Carl-Harry Doirin
Hey, good morning, everyone. Thank you for taking my question.
Just a couple here on competition. Earlier in the year, the relative competitiveness of your FIA product really improved, given the pullback by two major competitors.
Second quarter call, I believe, you mentioned that you’ve seen many new entrants, some being competitive on pricing, others on commission rates. And could you talk about how competitive your product is now relative to the first quarter given all these new entrants?
Ronald Grensteiner
Good morning. This is Ron.
I’d say that our product is still very competitive even with the new entrants. When new entrants come in, they try to come in maybe with something in a little bit different, maybe it’s a new indexing strategy that looks like it’s going to perform better than others, may be it’s and some kind of incentive-based commission to try and get producer’s attention.
So, it’s certainly not new that every year we have competitors come in and a lot of them get out too during the year. So, we just kind of stick to our knitting and put forth the best products and the best service that fit our model and bring the competition on, I guess.
So my long-winded answer is, we feel our products are still very competitive and we always keep an eye on the competition now.
Carl-Harry Doirin
Thank you. And maybe perhaps another one.
One of your, of course, the one product that was removed earlier in the year from SDL, I believe you did mention that you expect them to come back at some point, I don’t know, if it was later this year or next. [Could you tell us] [ph] there as well – has anything changed or are you seeing anything different?
Ted Johnson
Well, we have heard that security benefit is coming back to the market. They said that themselves when they exited that they had planned to come back.
We haven’t seen anything official for them, but we have heard rumors on the street that they’re getting ready to relaunch some products as far as the timing and what that looks like, while we don’t know. So, I guess, we’ll have to wait and see when they do relaunch.
The main thing as far as that goes, they were a little bit on a different playing field using a different mortality or a different actuarial guidelines. So as long as we’re all on the same playing field as far as that goes, we’re confident that we can keep our market share.
Carl-Harry Doirin
All right. Good, good.
And then last one, of course, most companies have reported, they really had nothing new to say on deal well. Any updates on maybe discussions, which you’re in a most or anything different from last quarter, or?
John Matovina
No. I mean, the deal – the comment period ended – the hearings ended – the second comment period ended in the DOL, some of the thing I read, they’re referring it as to the dark period, where they think, I think they even said on kind of that last day that this was it.
They were closing things down and weren’t going to be talking to anybody until they process through all the comments and determine what’s next, which everybody expects is going to be a final proposal. I think, so I think…
Carl-Harry Doirin
All right.
John Matovina
…in the press we’ve seen the various speculations about the issuance of that. But actually, I think, one of the senior people in the DOL was talking – using their terms first-half of 2016, which might have stretched it a little bit longer than what others were thinking in terms of other things we’ve seen were late this year, early next year.
So that sounded like the given the volume of comments that the DOL is – doesn’t have a timeframe and that it might take a little bit longer than what others may be speculating.
Carl-Harry Doirin
All right. That will be all from me.
Thank you.
Operator
Thank you. Our next question comes from Erik Bass with Citigroup.
Your question please.
Erik Bass
Good morning. Thank you.
I guess, given the strong sales this quarter and your positive outlook for the fourth quarter, how do you think about the timing of potentially needing to issue some of the remaining shares in your forward contract? And is that something you may need to do in the fourth quarter to support capital prior to the year end RBC ratio calculation?
Ted Johnson
We don’t foresee that there would be any reason we would need to execute that before the end of the fourth quarter. And actuality, it would probably most likely be our intent that we’ll probably wait towards August of next year before we would implement that.
Now, sales also was always a driving factor of it. But we would expect that the rating agencies would grant us credit for that whether or not, we do even pulled it calm down during an interim period next year as there is nothing preventing us from doing that.
And the reasons we would not be pulling it down immediately, we’d just be purely to preserve the effect of dilution from doing that before that time.
Erik Bass
Got it. So the rating agencies you think kind of view it as just in time capital?
Ted Johnson
Yes. I mean, we don’t foresee that we need that capital this year, and next year they would – I would expect that they would look at that as just in time capital.
Erik Bass
Got it. Thank you.
And then can you comment on how the changes on or the proposed changes in PTE 84.24 could impact independent agents. And if you think there would be any potential impact on sales?
I guess, most companies would agree that 84.24 is still considerably less onerous in the best interest contract. So it’s favor index annuities over VA’s, for instance, but it still looks to be more onerous than the current requirements, so it is interested in how you’re thinking about this?
John Matovina
Well, we’re waiting for what the final rule might say There was certainly and particularly from our side a fair – some comment directed at 84.24 and changes that we felt were necessary to make it operational in that, including comments about definitions of commissions in that. But it’s way too early to speculate on what the final 84.24 exemptions is going to look like, Erik.
Erik Bass
Got it. And do you think there is potential then the definition could change from kind of the re-proposed 84.24?
Ted Johnson
In our communications with the DOL I don’t think they signaled anyway what they’ve thought might – they might accept and what they wouldn’t.
Erik Bass
Okay. Got, it.
Thank you.
Operator
Thank you. Our next question comes from the line of John Barnidge of Sandler O’Neill.
Your line is open.
John Barnidge
Thank you. And congrats on the quarter most of my questions have been answered, but going back to the department of labor 84.24 exemption it’s I believe I believe I have read it that you must be a fiduciary.
Are you seeing your entire independent agent force would then have operate as a fiduciary?
Ted Johnson
As 84.24 or as the rule was proposed with the 84.24 exemption you have the independent agents become fiduciaries.
John Barnidge
All right, that’s all my questions that I have. Thank you.
Operator
Thank you. [Operator Instructions] Our next question comes from the line of Randy Binner of FBR.
Your line is open.
Randy Binner
Hey, thanks. Good morning.
Yes, a lot of questions here on DOL, but just at a higher level the thought would be that non-securities like index news would not be in the back, I mean that’s still kind of the overriding thought, is that correct?
Ted Johnson
That is our feeling, yes, Randy.
Randy Binner
Okay. And so the index annuity industry is growing.
Do you have any perspective on how much index annuities might be growing at the expense of the variable annuity industry I know it’s a – just kind of a high level question, but we’re seeing it from other life insurers, who have put out earnings and from our channel checks. Do you have any sense I know that you mostly deal with independent insurance agent.
So there are really not going to be traffic in VAs, but you’re also slowly expanding your distribution in other places any perspective that you will have on – if index annuity industry is kind of growing, while the VA industry is shrinking I’d be interested in hearing it?
Ronald Grensteiner
Well, looking at – good morning, Randy. This is Ron.
Looking at LIMRA’s estimates, it shows September that VA sales were down from [$10.8 billion to $10.2 billion] [ph] and FIA sales were up from $4.8 billion to $5.3 billion, so these are their estimates. Then you look at the fact that the broker dealers and the banks are starting to write increasingly in smaller amounts a bigger share of the FIA premium.
You throw all that together I think it’s safe to say that we are getting more FIA business from those registered representatives. This is – is it at the expense of the VAs I don’t know, but we’ve always said we welcome the big companies that have been historically into the VA business to enter our space just more competition the better, it creates that more our products to be little more legitimate when everybody’s on the same page, because we’ve been fighting them for years right.
And now they’ve come to our side that would be okay.
Randy Binner
Yes, no I hear it that’s helpful. And then as lines were on sales the – so December is an interesting month, because usually like sales slow down around the holidays.
But you all mentioned at least in the press release that you’re anticipating some changes coming as it relates to mandatory changes to mortality rates from a regulatory perspective. And so, can you kind of talk to us about what kind of urgency that might create going into last part of the year on holidays on the part of agents.
And if that – if we – we might be looking at a busier December than normal, because if your pending count stable at 6,000, which is I think that’s the highest they’ve ever been. And I don’t know they’ve been – they were looking at a big sales numbers.
So any – can you give us some hope on how December is going to shape up, as it relates to that change on the mortality stuff?
John Matovina
Well, this is John, Randy. Offhand we don’t know, I guess.
But we did have an experience several years ago where we had some changes coming in the first part of January, or immediately after the 1, of the year. And December was an exceptionally strong month that year particularly relative to where it’s been in the past.
So if this has a similar outcome, yes, it’s going to be fairly significant to where sales were at.
Randy Binner
Was that the late – was that late 2010 or early 2011, is that [Multiple Speakers]
John Matovina
I think that’s the timeframe, yes, like the December of 2010, because I think we even had and this will be – this transition will be the same way too as that one was. The –we may get applications in December and the – any application received prior to the end of the year will get the current terms.
So that actually is going to likely be a boost to January sales as well, because of the – that the pending count goes up even more than 6,000 December 31, those things will fund in January at the current terms. But we’ll also likely see some activity this quarter too with fundings.
Randy Binner
And so that’s an area, at least, these are old numbers maybe, but I think your pending count that January in 2011 was almost – it was up in the high 6,000. And so if you saw a similar jump this time, you’re going to be dealing with pending counts towards 8,000.
I mean can you – I know you said everyone is working hard there. But can you – you can reasonably process that right like another 20% higher from where you’re now, or 30% higher from where you’re now?
John Matovina
We’re up to the challenge Randy, instead of 24 hour issue we might slip to 48 hour issue.
Randy Binner
Right. But it’s still better than what’s happening out there with the competitors.
Okay, great. We’ll see what happens.
So that – so there could be a lot of sales. So then on the DAC, I’ll start on this, but – did you quantify how big the kind of a good guy and the bad guys was in the DAC review, meaning, how big was the positive of the account value true-up versus the change you made to the riders?
Ted Johnson
Yes, we have some quantification of those numbers. Again, when you quantify those numbers, again, it’s always depended on the order that you run them through the model.
But the fund value true-up, that’s approximately a positive $19 million to DAC, that’s pre-tax. And then we made changes to lapse assumptions that was approximately a positive $17 million.
And then the offset to that was bringing in the new gross profit stream or the affect on gross profits of the changes in the lifetime income benefit reserve. And that was a negative $36 million.
And then there were some other minor adjustments et cetera that got us to a slightly positive favorable unlocking effect on DAC.
Randy Binner
Got it. I think that that is it from me.
Thanks a lot for the answers.
Operator
Thank you. At this time, we would like to turn the call back over to Julie for final remarks.
Julie LaFollette
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.
Operator
And ladies and gentlemen, that does concludes your program. Thank you for your participation and have a wonderful day.
You may disconnect your lines at this time.