May 6, 2017
Operator
Welcome to American Equity Investment Life Holding Company’s First Quarter 2017 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 first quarter 2017 earnings. Our earnings release and financial supplement can be found on our website at www.american-equity.com.
Non-GAAP financial measures discussed on today’s call and reconciliations of non-GAAP financial measures to the most comparable GAAP measures can be found in those documents. Presenting on today’s call are John Matovina, Chief Executive Officer; Ted Johnson, Chief Financial Officer; and Ron Grensteiner, President of the American Equity Investment Life Insurance 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 risk 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 made 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.
I know several of you in the analyst community have a busy day, so we’ll try and move right along. But before we discuss first quarter earnings, I’d like to take a moment to remember our founder and long time Chairman, Dave Noble who passed away last month.
Dave was an icon in the insurance business and made it his career for more than 60 years. In 1995, after negotiating and closing the sale of the stateman’s group, he retired from the insurance business for all of three days and then formed American Equity Life.
Dave believed in two things, first, Americans needed attractive safe way to safer retirement and assure guarantee life time income. He saw fixed index annuities which he referred to a sleep insurance as the best product of 50s needs.
Second, Dave believed in service, service to agents and service to policy holders and we strive everyday to offer the best service in the insurance industry, and believe this differentiates us from our competitors. Dave’s strength, knowledge and determination drove American equity’s success first 21 years.
From a start up more than 21 years ago, we are a public company with a $2 billion market cap, $46 billion of policy holder funds and new management, $3 billion of adjusted statutory capital and surplus and 530 employees. Dave was truly an American success story.
We owe him much and we’ll miss his leadership and counsel greatly. From all of us at American Equity, thank you to everyone for your kind words, support and expressions of sympathy since Dave’s passing.
There will be a celebration of Dave’s life in Des Moines on the evening of May 31. Now moving onto first quarter results.
We started 2017 on a solid earnings note reporting non-GAAP operating earnings of $59.6 million or $0.66 per share. Our performance in the first quarter in the three key areas that drive our financial performance was mixed.
And as a reminder those key measurements are growing our invested assets and policy holder funds under management, generating a high level of operating earnings on the growing asset base through investment spread and then minimizing impairment losses in our investment portfolio. For the first quarter we delivered 1.8% growth in policy holder funds under management our trailing 12-month basis we generated 11.2% non-GAAP operating return on average equity and that number excludes the impact of assumption revisions in the third quarter of last year and our investment impairment losses after the effects of deferred acquisition cost and income taxes were just 0.02% of our average equity.
The growth in our policy holder funds under management was driven by 1.1 billion in gross sales that was down substantially from the record first quarter sales of $2.1 billion last year. While we don’t have industry sales data yet, we anticipate that the fixed index annuity sales for the industry were soft again this quarter.
We just don’t know our relative outcome in terms of market share and how our other competitors might have done. While the fixed index annuity market remains highly competitive the interest rate environment remains our biggest challenge.
The post election increase in interest rates allowed us to invest funds this quarter at rates that were closer to but still less than our portfolio rate. We were able to offset the negative impact on our investment spread from this with reductions in our crediting rates, our investment spread for the quarter also benefitted from a large over hedging benefit and an increase in recurring but nontrendable investment income items.
And our low level of impairment losses reflects our continuing commitment to a high quality investment portfolio. I’ll be back at the end of the call for some closing remarks, but now I’d like to turn the call over to Ted Johnson for some additional comments on first quarter financial results.
Ted Johnson
Thank you, John. As we reported yesterday afternoon, we had non-GAAP operating income of $59.6 million or $0.60 per share for the first quarter of 2017, compared to non-GAAP operating income of $21 million or $0.25 per share for the first quarter of 2016.
Excluding revisions to the assumptions for deferred policy acquisition cost and deferred sales inducements, first quarter 2016 non-GAAP operating income and non-GAAP operating income per share would have been $49.6 million or $0.60 per share respectively. Our diluted share count was 8.5% higher in the first quarter of 2017 compared to the first quarter a year ago, primarily due to the settlement of two equity forward sales agreements through the issuance of 5.6 million shares of our common stock in the third quarter of 2016.
Investment spread for the first quarter was 271 basis points compared to 262 basis points in the fourth quarter of 2016 as a result of a1 basis point increase in average yield on invested assets, and an 8 basis point decrease in the cost of money. Average yield on invested assets was 4.48% in the first quarter.
The average yield continues to be unfavourably impacted by the investment of new premiums and portfolio cash flows at rates below the portfolio rate. However, the unfavourable impact from lower, new money yields was offset by nontrendable investment income items which added 10 basis points to the first quarter average yield on invested assets compared to seven basis points from such items in the fourth quarter of 2016.
Nontrendable investment income in the first quarter of 2017 included seven basis points from fees from bond transactions and prepayment income and three basis points from an acceleration of the rate of paydowns on RMBS securities. The average yield on fixed income securities purchased and commercial mortgage loans funded in the first quarter was 4.13%, compared to 3.71% in the fourth quarter of 2016 and 4.14% in the first quarter of 2016.
With rates coming down in April we invested money at 3.9% last month. The aggregate cost of money for annuity liabilities was 177 basis points compared to 185 basis points in the fourth quarter.
This decrease reflects continuing reductions in crediting rates on in force policies and a lower cost of money on new deposits. The benefit from over hedging the obligations for index linked interest was five basis points in the first quarter of 2017 compared to two basis points in the fourth quarter of 2016.
As you are aware, we have been working to counteract the impact of lower investment yields by reducing the rates on our policy holder liability. We expect that we will continue to achieve reductions in our cost of money through renewal rate reductions that will be implemented on policy anniversary dates over the remainder of this year.
We continue to have the flexibility to reduce our crediting rates if necessary and could decrease our cost of money by approximately 49 basis points if we reduce current rates to guaranteed minimum, this is flat with the yearend level. Other operating costs and expenses in the first quarter were $27.6million.
On a sequential basis other operating costs and expenses increased $4.2 million primarily due to a $2.3 million benefit in the fourth quarter of 2016 from the reduction of an accrual for potential guarantee fund assessments. The remainder of the increase reflects higher reinsurance risk charges due to an increase in the excess regulatory reserve seeded to an unaffiliated insurer and an increase in general operating expenses.
Our effective income tax rate in the quarter was 34%. Income tax expense benefitted by roughly 1.3 million in the quarter due a change in accounting for income taxes related to stock compensation.
The effective income tax rate excluding this item was 35.3%. Our estimated risk based capital ratio at March 31, was 353 up from 342 at the end of last quarter.
The increase in the RBC ratio included eight points from a decline in required capital for production which we estimate using trailing 12-month sales. The increase in our adjusted statutory capital and surplus exceeded the increase in required capital from growth and assets in reserves and accounted for the remainder of the first quarter increase in our RBC ratio.
Now, I’ll turn the call over to Ron to discuss sales, marketing and competition.
Ron Grensteiner
Thank you, Ted. Good morning everybody.
As we reported yesterday, gross sales for the first quarter of 2017 were $1.1 billion, this is down from record first quarter sales of $2.1 billion in 2016. As a reminder, sales results in the first quarter of 2016 benefitted from continued momentum from record sales in the second half of 2015 as well as elevated sales of multiyear guaranteed annuities.
On a sequential basis, gross sales declined from $1.4 billion. Net sales for the quarter were $1 billion compared to $1.6 billion a year earlier and $1.1 billion in the fourth quarter of 2016, nearly all of the sales for the first quarter of 2017 were fixed indexed annuities.
We expect first quarter industry sales of fixed indexed annuities will likely be down both a sequential and a year-over-year basis. As we stated on our fourth quarter 2016 earnings call, we believe low interest rates and a more robust stock market maybe factors.
We also believe actions by distributors to conform to the DOL fiduciary rule, were a distraction from marketing efforts and played a lower role in lower sales. We have also seen evidence that registered representatives are repositioning money away from annuities and into managed money and anticipation of the deal by fiduciary rule.
As we noted on our last conference call, the sales environment in the first quarter was aggressive. We’ve seen companies improve lifetime income benefit rider terms by increasing role ups, income benefit bonuses and payout factors.
Some companies were also quick to raise rates and participation rates following the jump in the ten year treasury rate, conversely we have not seen companies reduced rates as the ten-year treasury rate retreats. As mentioned on prior earnings calls, we are not a company that will sacrifice spread and returns for the sake of higher sales.
It’s not nearly as exciting to operate in a slower sales environment, but it’s important for us to say disciplined. One action we did take to improve our competitive position was to make available on optional market value adjustment writer on our American equity choice and Eagle Life select fixed indexed annuities.
This writer allows us to offer a more competitive participation rate strategy and has helped us gain some traction particularly at Eagle Life. We did not benefit to the same extent at American Equity Life since the choice products only represent about 13% of American Equity Life sales.
In early March, we introduced RateShield a suite of traditional fixed rate annuity products and IncomeShield a new income benefit writer. These were introduced as a part of our DOL fiduciary role strategy and will give independent insurance agents products they can sell on the prohibited transaction exemption 84-24 if necessary.
However, as long as independent agents are allowed to sell qualified fixed indexed annuities under an exemption other than the best interest contract exemption, we do not expect RateShield to garner significant sales. Guaranteed lifetime income is an area of the market for which American Equity is well known, but we are losing some market share because we are perceived as not being competitive.
In reality, our guaranteed income may not be the highest but it is certainly competitive. Using 200 data points with issue ages between 50 and 75 and income beginning between age of 60 and 80 our top selling product produces guaranteed income on average with a 97% of the top income product.
Turning to current sales trends, pending business at American Equity Life averaged 2569 applications during the first quarter compared to 2515 applications when we reported fourth quarter 2016 earnings. Pending at American Equity Life today is 2526 applications.
Pending at Eagle Life stands at 167 applications today up from 118 when we reported fourth quarter earnings. We are continuing to build distribution at Eagle Life in the first quarter, we added one new wholesaler three selling agreements and 261 representatives.
In total, we have seven wholesalers, 55 selling agreements and 5267 representatives. In conclusion, it’s difficult for people like me who grew up in the marketing side of the business to see sales decline, however I do remain optimistic and believe our best days are ahead of us with a demographic of people who desire features and benefits that only our product can provide.
We will continue to reinforce our value or proposition of providing excellent customer service through strong distribution relationships. And with that, I’ll turn the call back over to John.
John Matovina
Thank you Ted and Ron. We view the first quarter of 2017 as a mixed start to the New Year although sales remained soft, earnings results were solid particularly in light of continued interest rate and spread pressure and investment impairment losses were quite low.
While low interest rates remain a headwind to our spread management we continue to have lower our liability rates and will remain proactive in managing our substantial imports book of business. And that value of that book could increase if tax reform comes too fast and we end up with lower corporate tax rates that are not offset by changes to our taxable income base.
While the order delaying the applicability date of the Department Of Labor’s fiduciary role was appropriate the details of that order have introduced additional elements of confusion. We are optimistic that the DOL will further delay the June 9, 2017 applicability date consistent with President Trump’s memorandum to fully examine various aspects of the rule.
However the real rule remains as is and is implemented on June 9, 2017 and January 1, 2018 we would expect disruption of fixed index annuity sales. While the eventual outcome the DOL does remain uncertain we remain prepared to respond and grow our business and regardless an ever growing number of Americans as Ron just said need attractive fixed index annuity products that offer principal protection with guarantee life time income and a DOL rule isn’t going to change that product need for Americans.
We have great relationships with our distribution partners. We will remain consistent in our business practises and have a very dedicated group of home office employees providing excellent service to our distribution partners and our policy holders each and every day.
On behalf of those 530 employees thank you for your time and attention this morning. I will now turn the call back over to the operator for questions.
Operator
Thank you. [Operator Instructions] And our first question is from Ryan Krueger from KBW.
Your line is open.
Ryan Krueger
Hi, thanks, good morning. I had a question on RBC ratio up 9 points in the quarter, I guess with this level of sales production that we saw in the first quarter, is that a reasonable you know expectation for the amount that it could increase on a quarterly basis going forward or was it somewhat outsizing the quarter?
John Matovina
No, what you’ve got to look at Ryan is that, that estimate is done on a trailing 12-months, so first quarter last year was a pretty significant quarter of sales and so now the difference between putting first quarter sales on the first quarter of 2017 and dropping off last year first quarter was a pretty big difference. But as you look at last year and look at the sales trend you see that sales decreased as the year went on, so there will be less of a benefit in the RBC schedule as we go on dependent on what our future sales are for the remainder of the year.
Ryan Krueger
Okay, got it.
John Matovina
A larger lump of that came through this quarter than potentially what that would come through in future quarters.
Ryan Krueger
Understood. And then forgive me if I missed this, but I think last quarter you talked about your cap rates were about 90 to 100 basis points lower than a lot of your competitors, can you give an update on that?
Ron Grensteiner
Yes, good morning this is Ron. That hasn’t changed a lot.
The competitive landscape has been pretty consistent all through the first quarter.
John Matovina
One comment on that, that differential was in the bank and broker dealer channel, the differential was not that wide in independent agents. And that would have been our non-bonus products versus bonus products.
Ryan Krueger
Got it, okay great thanks.
Operator
Thank you. Our next question comes from Randy Binner from FBR & Company.
Your line is open.
Randy Binner
Hey good morning. Just picking up there, so the reduction basically in your liability cost this quarter was material and you know I guess I’m taking from your comments thus far that you did not – so this would be more in the traditional channel.
Should I take it that competitors did not make a similar move in the quarter and also just kind of curious to hear how distribution reacted to that change in the cost of money?
John Matovina
Well Randy that I mean some of the decline in cost of money is just coming from new money rates are less than the cost of money in the old and then the balance is coming from reductions or renewal rates. I think as we’ve said in the past the reduction of renewal rates is not necessarily an element that shows up in the competitive landscape or mindset.
You know everybody benchmarks that -- we see rates for new sales, we know what everybody is doing, but what other companies might be doing on renewal rate adjustments is not very obvious unless you get anecdotal evidence from an agent or you have a company that operates in the space and they make comments like we do which are not very many.
Randy Binner
So basically you are not seeing a lot of impact in the competitive environment from that, from the renewal activity?
John Matovina
No.
Randy Binner
And then just jumping back to the question Ryan had and your clarification the 100 basis points on cap rates lower was bank and BD. What is that differential roughly in the independent agent channel?
John Matovina
Well the differential and independent agent channel for bonus annuities is probably 50 or probably they are probably 50 to 75 basis points on cap rates ahead of us. I want to go back to the bank and broker dealer channels.
You know the cap rates are probably a 100 basis higher than us, but we didn’t have participation rates that we were able to improve with the addition of the market value adjustments.
Randy Binner
I guess this is the last one, this is also on sales. Is – so we share our view that or your view that there will be further delays in the DOL fiduciary rule past June 9 and in fact our view is that it will never come to pass with the best interest contract on it.
And so the question is, does distribution react at all to kind of those changes in Washington and people’s opinions of it or is that market still kind of girding for the potential of the rule? And kind of what would it take do you think changed the mindset out there that this fiduciary rule can with the best interest contract is not going to happen?
John Matovina
We’re all looking at each other in this room, kind of wow. Well, we’re always pretty in tune to it because it’s you know we have to follow the rules and prepare for it.
I think there’s always a delayed response from the field and you know they are busy and doing their thing and I’d say there is always a delayed response and how they react to the news from Washington DC as it applies to the DOL rule. So that’s a good question, I’m not sure we have a very good answer for it this time Randy.
Randy Binner
All right. In fact, I figure that I tried, but there is kind of you know we’re in donut hole I guess between when we get the news and when there's reaction.
So anyway, thanks for the answers.
Operator
Thank you. Our next question comes from Pablo Singzon from JPMorgan.
Your line is open.
Pablo Singzon
Thank you. So my first question was, before the introduction of the MVAs, what percentage of indexed annuity sales did select in choice comprise?
I just wanted to get a method by which to track the progress of the MVA introduction over time?
Ronald Grensteiner
Well, if I understand your question right, Pablo, the MVA option, our riders, is relatively new on our FIAs. We just added it in early March.
So to see how it's tracking is probably a little bit earlier or a little bit early to tell. We could probably in our second quarter call give you a little bit better indication of that optional rider is catching on.
Pablo Singzon
Okay.
John Matovina
In terms of quantification the Eagle life FIA products, but it's 100% of those products have the choice of MVA or no MVA and Ron said in his remarks with the choice product at American Equity was 13% of its sales in the first quarter. So that’s probably the benchmark going forward as to the level of products that have that option and actually those combined were about 20% of our total FIAs sales in the first quarter.
Pablo Singzon
Right.
John Matovina
In round numbers $200 million out of $1 billion of sales were in those two products that have -- now have MVA or no MVA options.
Pablo Singzon
Right. And before the first quarter, the apples-to-apples ratio, I presume was not that radically different from 20%, right?
Because I mean, I guess, if MVA sales grow over time, then you should expect that portion to grow, right? I just want to get a sense of what the base line is?
John Matovina
I wouldn’t think the presence of an MVA, no MVA is going to impact the overall complexion of sales benefits, I mean, as I said, it’s the only products that are available for bank broker-dealer to Eagle life and at American Equity through independent agents you still have a lot of agents that prefer to sell the bonus products to their policyholders. So I don't think the addition of an MVA to the American Equity choice product is going to necessarily elevate that product to 25% of sales.
Pablo Singzon
Okay. Got it.
And then just shifting gears here, if we assume seeing for a moment that there will be no change in the DOL rule before June. Can you please clarify, if anything in current yields practices will change after the applicability bit, because at that point, the fiduciary does come into effect, so I'm just wondering what do you think could happen during the window between June and January?
John Matovina
Well, come June, the onerous is if the agents are going to sell under the BTE 84-24 the onerous is on the agents to comply with the with the DOL, up until this time it's been on the IMO and us to make sure that there's compliance. So, as we kind during the call this onerous being placed on the agent may create a little bit of distribution confusion after June 9th, because if they do that 84-24 there's going to have to be certain disclosures that agents has to do, indicating that they’ve disclose their compensation and that they may follow the impartial market -- impartial conduct, sorry.
So, it will be interesting to see how the distribution reacts when June gets here to see if that confusion arrives or not.
Pablo Singzon
Yes. And just where some agents will be fiduciaries at the beginning of June, right, if nothing changes under the current setup?
John Matovina
Yes. They would operate fiduciaries because they say the obligation to follow impartial conduct a standard kicks in on June 9th absent anything else.
Pablo Singzon
Okay. Thank you.
John Matovina
That's why I use the word confusion in my remarks that was one of the things I was referring to. The other part of that is that is we can follow 84-24 between now and the end of the year.
We would have one regime to follow for the balance of the year and then absent any other changes something else kicks in January 1st.
Pablo Singzon
Got it. Thank you.
John Matovina
So you have to comply with an interim set of standards and then the final set of standards.
Pablo Singzon
Got it.
Operator
Thank you. And our next question comes from Erik Bass from Autonomous Research.
Your line is open.
Erik Bass
Hi. Thank you.
Ted, talk about how much more you expect the cost of money to decline based on the renewal rate actions that you’ve taken them as you continue to reach anniversary dates?
Ted Johnson
I don’t know if I can quantify how much more is left. I can go back to what our adjustments and what our quantification was when we first made those.
We had a block of 16 billion to 17 billion that we started to adjust in September of last year, and I think we estimated that that would approximately give it 8 basis points of cost savings over time as that was implemented as people hit at their anniversary date. And then there was another $7 billion approximately a policyholder liability that we started to adjust in December and at approximately would give us another four.
So there was 12 basis points to flow through. We’re partway or halfway through that.
And – but I think it'll have to go through the end of the year forward before we’re going to see the full benefit. And again that 12 basis points we always kind of say what people can assume that it comes in rateably over that period of time, but the distribution of policies doesn't really allow that to happen, it's going to come potentially in lump as it comes through.
Erik Bass
Got it. And then in addition as you’re putting on new business the cost of money is lower, so that would be sort of a downward trend as well.
Is that correct?
Ted Johnson
Right. Okay.
And then I don't know if Jeff is on, but the question there's been a lot of recent press about the financial challenges facing many retailers. So, you could talk about your investment portfolio exposure to retail particularly within the commercial mortgage loan and CMBS portfolios?
Ted Johnson
Sure. I would be happy, because this a Jeff Lorenzen plan.
Hi, Jeff.
Jeffrey Lorenzen
Before we get into the discussion of the actual numbers, I kind of want to talk a bit about our process. We have a thorough process we go through and we look at CMBR or our direct commercial loan.
We do a full fundamental analysis of the property locations, demographics, competitive landscape, kind of strength and diversity, sponsor, experience, financial strength. We get a lot of that data from market recognized analytical tools to assess the current environment for properties across hundreds of submarkets such as vacancy, supply and demand, rents, valuation.
It’s a process that we put together that we feel is very thorough and allows us to evaluate the collateral in the loans at an aggregate level as well as a individual loan level. For any CMBS deal we do a complete deep dive analysis on a large percent of the underlying collateral on an annual basis.
We don't have a lot of BBB rated as CMBS, but those that we do are those where we see some less then up but those that we do are those where we see some less than desirable performance on securities we do review on those every six months to make sure were current on those. Our CMBS holdings total of $4.9 billion of which 35% or $1.69 billion is retail related.
Our retail mall exposure in that group is 733 million. Our retail mall exposure under our definition is a large box anchor.
Large box anchor with the small in-line stores, other forms of retail exposure would include like shopping, community shopping centers, lifestyle centers, neighbourhood centers, power centers, things like that. Our mall exposure is 26% or 177 million in what we consider conduit regional area of most concern for your hearing more talk about the potential problems.
LTVs on the conduit regional exposure is 60%, the basically alignment what we would view as Class B type properties. We classify all of our malls into three different -- into different risk buckets, low medium and high in terms of likelihood of default.
There are several metrics to go into this including like high risk, tenant overlap, population density and growth, local household income, revenue trends and occupancy. From high risk which we would believe would align more with like a Class C.
Framework is just 1% of our mall exposure. Medium risk is 10% and low risk is 89%.
Medium risk, when I talked about the Class B that was 26%, medium risk is less than the Class B because we don't believe that all of our Class B malls would be susceptible to the default in the closure. When you look directly at our commercial mortgage loans we have a similar process.
We do have a deep dive analysis. We look at all the relevant information around the market particular submarkets current projected vacancy rates, market rental rates, levels of new construction, space absorption so forth.
We look for stabilized good-quality and well located properties in core markets. We do a full review of the properties and we’re looking at the financial strength of the sponsor vacancy rates, current absorption, characteristics leverage, stress testing for us now, a big stress test is what it looks like in a re-fire sale or if there is an economic downturn do they have the ability to maintain interest coverage ratio that are acceptable to us.
I think you’ll see it through the analysis of roughly 36% of our commercial mortgage loan portfolio was retail. However, we have no exposure to department stores or any of the regional conduit malls that we would have them as CMBS.
We primarily lend on community strip malls, our grocery store anchored shopping centers and we believe exposure to the Internet disintermediation is extremely low. Does that help Eric with some of the color of our CMBS and GML [ph].
Erik Bass
Yes.
Jeffrey Lorenzen
Okay.
Erik Bass
Yes. Thanks Jeff.
Appreciate it.
Operator
Thank you. Our next question comes from John Barnidge from Sandler O’Neill.
Your line is open.
John Barnidge
Thank you. So the DOL rule delayed.
We’ll probably get another delay. At what point you think uncertainty around the rule goes into effect or doesn’t go into effect, becomes more disruptive to sales than implementation of the rule itself?
Because that mean, everyone doesn’t like to live in uncertain environment?
John Matovina
Well, exactly. I guess my first – this is John.
My personal view is it’s hard to see uncertainty about the role being any more disruptive than it is right now.
John Barnidge
Okay.
John Matovina
But I think I think, you know, I don't think abuse of change that if BICE became operational for fixed index annuities there would probably be a bigger reduction in our sales from independent agents.
John Barnidge
All right. Well, that’s helpful at least.
John Matovina
But I guess everybody's -- Randy said it more affirmatively than we. We will make our predictions, Randy's guys have though, but we certainly have our fingers crossed and are optimistic that BICE is never going to be life is never going to be operational for our independent insurance agents.
John Barnidge
Okay. That’s very helpful.
Then just one question I may have completely missed it in the prepared remarks. What is your yield on securities purchase so far this quarter?
John Matovina
An April money that we put to work with at 3.9% rates that we track it since quarter end.
John Barnidge
Great. Thank you very much.
Operator
Thank you. Our next question comes from Dan Bergman from Citi.
Your line is open.
Dan Bergman
Thanks. Good morning.
I was hoping you could provide a little more color on the recent product launches like the MVA option on FIA. Any thoughts on the distributor reception, how they progress so far all of that expectations and where sales might trend going forward we will much appreciated?
Ron Grensteiner
Well, this is Ron. We added those MVAs as optional riders to Eagles FIA products and to some of our products at American Equity.
The whole idea behind those were to allow us to provide a little bit higher cap rates and participation rates. We haven't had MVAs on our FIA portfolio before, so we were kind of lagging behind the competition as far as the rates we could offer.
That would help us get a little bit closer to the competition, so they would pick us and accept our value proposition with excellent customer service and relationships along with it. As we kind of said at American Equity most of our lion share of our products or the portfolio that we’ve had for several years now that are bonus annuities, longer-term surrender charges.
Those products did not have the flexibility for us to add that market value adjustment rider to them, but we did have that option available on our Choice Series. The Choice Series was introduced a year or two ago mainly to help American Equity get some traction in the broker-dealer community and those products were little bit more flexible as far as we could add that MVA.
On the Eagle side, it is a much more rate sensitive distribution channel than the independent agent channel. So we needed to get those market value judgments riders added to the FIA so we could be more competitive with the with a highly competitive and sensitive channel.
We think we are – I think we are making a little bit of headway with that. The biggest benefit has been, we've been able to get our participation rate strategy close to 50% and even at 50% depending on how long, what the surrender charge duration was on the product.
That has helped us, recover some market share from some banks that went elsewhere for a higher participation rate. So we remain optimistic that as time goes on we’ll be able to recover additional market share with the addition of the MVA.
Dan Bergman
Great. Thank you.
And then, going forward are there any further new product launches or pricing changes in the work that we should be thinking about. Any color there would also be great?
John Matovina
We are looking to introduce a new lifetime income benefit rider for our American equity portfolio probably by the end of the second quarter. It'll be a rider that will help us be more competitive in the first 10 years.
When I say the first 10 years, first 10 years deferral, our current rider is competitive but its super competitive if somebody waits longer than 10 years to turn on income. So we are looking at another rider that'll help us be more competitive in that first 10 years of deferral, so that that should be helpful.
The other thing that that the rider will do for us is our current version has the rollup rate or the interest rate that's guaranteed for the duration but gives us an opportunity at reset to change the fee. This new version that we’re introducing in June will have a benefit where we can change the rollup rate after a set period versus the fee which will make it a little bit more manageable for us to price that product in the future.
Dan Bergman
Got it. Thank so much.
It’s very helpful.
Operator
Thank you. Our next question comes from Mark Hughes from SunTrust.
Your line is open.
Mark Hughes
Hi. Thank you, Ron.
If you’ve mentioned this, I’ve missed it. Did you give the pending count in the year ago pending count as well?
Ron Grensteiner
The pending count at American equity today is 25, 26 it's kind of been bouncing between 25 and 2600 that should say, not 25 and 26, 2500 and 2600 during the first quarter and that's kind of where it is today. Eagle Life is 167 today.
I'm sorry I didn't check what pending was a year ago, but it would be substantially higher because we were in the second half or the first half of 2016 sales were highly elevated. So, a lot higher than they are today, I just not prepared with the number.
Mark Hughes
Thank you.
Operator
Thank you. Our next question comes from Jamie Inglis from Philo Smith.
Your line is open.
Jamie Inglis
Hi. Good morning guys.
Ron, you mentioned in your remarks that American equity has been perceived the uncompetitive. I guess I'm asking a couple of questions.
One, do you think that is a perception relative to the general market or is relative to some specific competitor that's particularly aggressive today?
Ron Grensteiner
Well, that’s good question. I think it’s both.
There are a couple of companies out there that have one in particular that’s kind of an outlier as far as guaranteed income and I think producers look at them first to see what their income is because they are -- because they have that reputation of having the highest income. Forgot the second half your question.
Jamie Inglis
Let me then keep going. You also cited some statistics that would suggest that you are in fact competitive, and I guess what I'm trying a sense of is, is this is a marketing perception issue, is that a crediting rate or feature issue?
Do you what I mean, why do we have the dynamic today? And how, when do we turn it around?
Ron Grensteiner
You know, I think it's there is such a large group of companies that are kind of in a pack where a pack of being competitive as far as income goes, so there is not a big difference, say for example between the company that might be ranks number 10 in income and the company that might be ranks number two in income. So we’re all pretty close.
I think some of it has to do with agents looking at a spreadsheet and ranking the companies by the highest income to the lowest income and while we’re within 97% of number one, we might actually come out may be ranks number five in a certain cell, you know in a different cell we might be ranks number three, in an another cell we might be ranks number 10 as far as what our income -- how it is compared to everybody else. So you know it could be just taken easy way out and say all right was number one, well, we’re going to sell them.
And I think you know what we need to do as a company is to get back to do and what we do best in that sales and marketing and we need to get out there and tell the story and remind producers and marketing companies of our value proposition and try and get some of that traction back.
Jamie Inglis
Great. Thanks.
Operator
Thank you. [Operator Instructions] And our next question comes from Alex Scott from Evercore ISI.
Your line is open.
Alex Scott
Hi. Thanks for taking the question.
Just with new money yield still below the portfolio yield. I mean, sort of some of the crediting rate action you've done being a pretty meaningful contributor over the last couple of quarters to earnings.
Do you have any plans to do incremental action in the back half of this year or in 2018?
Ron Grensteiner
Well, in the current rate environment, if we have to continue to invest cash flows off the portfolio at yields that are below our portfolio rate, we're going to continue to see drag on our investment yield. And that could put us into the position that we would need to look at continued renewal rate adjustments to be able to offset partially or a majority of that drag on our investment income.
Alex Scott
Got it. And just going back to the competitive pressures, I guess, one last question on that.
Some of what you’re seeing a bit of structural disadvantage just given I think some of the players in the industry may have a lower tax than you? Do you see that something that’s allowing some of your competitors to price more aggressively than you’re able to?
Ron Grensteiner
It’s not necessarily just the offshore companies that are being competitive. So it’s a – there potentially is a variety of different conditions.
The question is are they taking additional risk within their yield and stretching for yield and what they are investing in? Are they accepting a lower ROE?
If it regards to the rider are they making different assumptions on utilization and how that writer would be utilized by the policyholder liability. So, it kind to run the gamut.
It isn’t necessarily just the riders that have offshore facilities that are being competitive in the marketplace.
Alex Scott
Got it. Thank you.
Operator
Thank you. And I’m showing no further questions from our phone lines.
I would not like to turn conference back over to Julie LaFollette for any closing 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
Ladies and gentlemen thank you for participating in today's conference. This does conclude the program.
You may all disconnect. Everyone have a wonderful day.