AMERICAN EQUITY INVESTMENT LIFE HOLDING CO Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

Management's discussion and analysis reviews our unaudited consolidated
financial position at March 31, 2022, and the unaudited consolidated results of
operations for the three month periods ended March 31, 2022 and 2021, and where
appropriate, factors that may affect future financial performance. This analysis
should be read in conjunction with our unaudited consolidated financial
statements and notes thereto appearing elsewhere in this Form 10-Q, and the
audited consolidated financial statements, notes thereto and selected
consolidated financial data appearing in our Annual Report on Form 10-K for the
year ended December 31, 2021. Interim operating results for the three months
ended March 31, 2022 are not necessarily indicative of the results expected for
the entire year. Preparation of financial statements requires use of management
estimates and assumptions.

Caution Regarding Forward-Looking Information

All statements, trend analysis and other information contained in this report
and elsewhere (such as in filings by us with the SEC, press releases,
presentations by us or management or oral statements) may contain
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended. Forward-looking statements give
expectations or forecasts of future events and do not relate strictly to
historical or current facts. They may relate to markets for our products, trends
in our operations or financial results, strategic alternatives, future
operations, strategies, plans, partnerships, investments, share buybacks and
other financial developments. They use words and terms such as anticipate,
assume, believe, can, continue, could, enable, estimate, expect, foreseeable,
goal, improve, intend, likely, may, model, objective, opportunity, outlook,
plan, potential, project, risk seek, should, strategy, sustainable, target,
will, would, and other words and terms of similar meaning or that are otherwise
tied to future periods or future performance, in each case in all forms of
speech and derivative forms, or similar words, as well as any projections of
future events or results. Forward-looking statements, by their nature, are
subject to a variety of assumptions, risks, and uncertainties that could cause
actual results to differ materially from the results projected. Many of these
risks and uncertainties cannot be controlled by the Company. Factors that may
cause our actual decisions or results to differ materially from those
contemplated by these forward-looking statements include, among other things:

•  results differing from assumptions, estimates, and models.
•  interest rate condition changes.
•  investment losses or failures to grow as quickly as expected due to market,
credit, liquidity, concentration, default, and other risks.
•  option costs increases.
•  counterparty credit risks.
•  third parties service-provider failures to perform or to comply with legal or
regulatory requirements.
•  poor attraction and retention of customers or distributors due to
competitors' greater resources, broader array of products, and higher ratings.
•  information technology and communication systems failures or security
breaches.
•  credit or financial strength downgrades.
•  inability to raise additional capital to support our business and sustain our
growth on favorable terms.
•  U.S. and global capital market and economic deterioration due to major public
health issues, including the COVID-19 pandemic, political or social
developments, or otherwise.
•  failure to authorize and pay dividends on our preferred stock.
•  subsidiaries' inability to pay dividends or make other payments to us.
•  failure at reinsurance, investment management, or third-party capital
arrangements.
•  failure to prevent excessive risk-taking.
•  failure of policies and procedures to protect from operational risks.
•  increased litigation, regulatory examinations, and tax audits.
•  changes to laws, regulations, accounting, and benchmarking standards.
•  takeover or combination delays or deterrence by laws, corporate governance
documents, or change-in-control agreements.
•  effects of climate changes, or responses to it.
•  failure of efforts to meet environmental, social, and governance standards
and to enhance sustainability.

For a detailed discussion of these and other factors that might affect our
performance, see Item 1A of our Annual Report on Form 10-K for the year ended
December 31, 2021. Forward-looking statements speak only as of the date the
statement was made and the Company undertakes no obligation to update such
forward-looking statements. There can be no assurance that other factors not
currently disclosed or anticipated by the Company will not materially adversely
affect our results of operations or plans. Investors are cautioned not to place
undue reliance on any forward-looking statements made by us or on our behalf.

Our activity and our profitability

We specialize in the sale of individual annuities (primarily fixed and fixed
index deferred annuities) through independent marketing organizations ("IMOs"),
agents, banks and broker-dealers. Fixed and fixed index annuities are an
important product for Americans looking to fund their retirement needs as
annuities have the ability to provide retirees a paycheck for life.

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Under U.S. GAAP, premium collections for deferred annuities are reported as
deposit liabilities instead of as revenues. Similarly, cash payments to
policyholders are reported as decreases in the liabilities for policyholder
account balances and not as expenses. Sources of revenues for products accounted
for as deposit liabilities are net investment income, surrender charges assessed
against policy withdrawals and fees deducted from policyholder account balances
for lifetime income benefit riders, net realized gains (losses) on investments
and changes in fair value of derivatives. Components of expenses for products
accounted for as deposit liabilities are interest sensitive and index product
benefits (primarily interest credited to account balances and changes in the
liability for lifetime income benefit riders), changes in fair value of embedded
derivatives, amortization of deferred sales inducements and deferred policy
acquisition costs, other operating costs and expenses and income taxes.

Our profitability largely depends on:

•the amount of assets under our management,
•investment spreads we earn on our policyholder account balances,
•our ability to manage our investment portfolio to maximize returns and minimize
risks such as interest rate changes and defaults or credit losses,
•our ability to appropriately price for lifetime income benefit riders offered
on certain of our fixed rate and fixed index annuity policies,
•our ability to manage interest rates credited to policyholders and costs of the
options purchased to fund the annual index credits on our fixed index annuities,
•our ability to manage the costs of acquiring new business (principally
commissions paid to agents and distribution partners and bonuses credited to
policyholders),
•our ability to manage our operating expenses, and
•income taxes.

While the business looks considerably different today than it did when it was
started back in 1995, the themes have been consistent. We offer our customers
simple fixed and fixed index annuity products, which we primarily sell through
independent insurance agents in the IMO distribution channel. We have
consistently been a leader in the IMO market. We benefit from two secular
trends: the demographic trends of people retiring or getting close to retirement
who want to accumulate wealth through index based investing while protecting
their principal and the need of retirees and pre-retirees to have a way to
deaccumulate their wealth into income for life. A traditional brokerage based
equity bond portfolio can't really meet these unique needs, but a fixed index
annuity can as part of holistic financial plan. Finally, there is a scarcity
value to what we do: that is originating billions of dollars of annuity funding
each year at scale from the IMO channel, which is generally longer term funding
than that achieved through sales in the bank and broker dealer channel.

In the past decade, the fixed and fixed index annuity market has seen many new
entrants and as a result has become more competitive. Adding to that, low
interest rates have made it more difficult for traditional, core investment
grade fixed income asset allocations to support return expectations on annuity
liabilities.

With these changes in the macro environment, we began to implement an updated
strategy, referred to as AEL 2.0, after having undertaken a thorough review of
our business in 2020. AEL 2.0 is designed to capitalize on the scarcity value of
our annuity origination and couple it with an "open architecture" investment
management platform for investing the annuity assets. Our approach to investment
management is to partner with best in class investment management firms across a
wide array of asset classes and capture part of the asset management value chain
economics for our shareholders. This will enable us to operate at the
intersection of both asset management and insurance. Our updated strategy
focuses on four key pillars: Go-to-Market, Investment Management, Capital
Structure and Foundational Capabilities.

During the first quarter of 2022, we continued to make significant progress in executing the AEL 2.0 strategy. The main areas of progress are:

•We transitioned the management of assets for our Bermuda reinsurer to Conning,
Inc. In addition, we continued to re-tool our investment management platform,
expanded our underwriting and risk capital allocation lens for additional
sectors, and expanded our capabilities in multi-family real estate investing
through a new joint venture. We also continued to create and expand
relationships with specialty asset managers to target certain sub-sectors and
began leveraging those partnerships to invest in private assets. As of March 31,
2022, we have approximately $8.4 billion invested in private assets with a clear
path to our goal of ramping to a 30% to 40% allocation to private assets over
time.

•We executed an agreement with North End Re (Cayman) SPC ("North End Re"), a
wholly owned subsidiary of Brookfield Reinsurance to expand our income products
that will fund the additional $6 billion in capacity that exists under the
reinsurance treaty signed with North End Re in 2021.

• We repurchased 4.5 million common shares of the Company at an average price of $39.29.

•We established a new five-year credit agreement for $300 million in unsecured
delayed draw term loan commitments. This agreement is part of our plans for
access to liquidity for general corporate purposes as we continue to implement
AEL 2.0. There have been no loans drawn on this agreement to date.

In the next few years, we expect to migrate to a capital efficient business
model with increased fee-like earnings. We will scale our investments into
higher returning private assets, grow reinsured liabilities to side-cars to grow
return on asset earnings, and write new business that converts us from the
traditional spread based return on equity model to a "fee like" return on assets
model through reinsurance.

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During the first quarter of 2022, an additional 6,775,000 shares were issued to Brookfield at $37.33 per share, the adjusted book value of the Company at
September 30, 2021. The additional issuance brought the total combined ownership of Brookfield to approximately 16% of the Company’s common stock.

On October 18, 2020, the Company's Board of Directors approved a $500 million
share repurchase program. On November 19, 2021, the Company's Board of Directors
authorized the repurchase of an additional $500 million of Company common stock.
The purpose of the share repurchase program is to both offset dilution from the
issuance of shares to Brookfield and to institute a regular capital return
program for shareholders. From the 2020 inception of the share repurchase
program through March 31, 2022, we have repurchased approximately 13.6 million
shares of our common stock at an average price of $32.73 per common share.
Through April 30, 2022, we have repurchased approximately 15.3 million shares of
our common shares at an average price of $33.43 per common share and have
approximately $489 million remaining under our share repurchase program.

Income from products recognized as deposit liabilities is primarily generated by the excess of net investment income earned over interest credited or the cost of providing index credits to the policyholder, or “the spread of investment”. Our investment breakdown is summarized as follows:

                                                               Three Months Ended
                                                                    March 31,
                                                                                  2022       2021
Average yield on invested assets                                                  4.15%      3.58%
Aggregate cost of money                                                           1.64%      1.58%
Aggregate investment spread                                                       2.51%      2.00%

Impact of:
Investment yield - additional prepayment income                                   0.03%      0.11%
Cost of money benefit from over hedging                                     

0.03% 0.02%


The cost of money for fixed index annuities and average crediting rates for
fixed rate annuities are computed based upon policyholder account balances and
do not include the impact of amortization of deferred sales inducements. See
Critical Accounting Policies - Deferred Policy Acquisition Costs and Deferred
Sales Inducements included in Management's Discussion and Analysis in our Annual
Report on Form 10-K for the year ended December 31, 2021. With respect to our
fixed index annuities, the cost of money includes the average crediting rate on
amounts allocated to the fixed rate strategy and expenses we incur to fund the
annual index credits. Proceeds received upon expiration of call options
purchased to fund annual index credits are recorded as part of the change in
fair value of derivatives, and are largely offset by an expense for interest
credited to annuity policyholder account balances. See Critical Accounting
Policies - Policy Liabilities for Fixed Index Annuities and Financial Condition
- Derivative Instruments included in Management's Discussion and Analysis in our
Annual Report on Form 10-K for the year ended December 31, 2021.

Average yield on invested assets increased primarily as a result of strong
returns on partnerships and other mark to market assets, lower cash balances and
the ramp in private assets partly offset by lower prepayment income. See Net
investment income. The aggregate cost of money increased primarily due to an
increase in options costs as compared to the prior period. We have the
flexibility to reduce our crediting rates if necessary and could decrease our
cost of money by approximately 68 basis points if we reduce current rates to
guaranteed minimums.

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Results of operations for the three months ended March 31, 2022 and 2021

Annuity deposits by type of product collected during the three months ended
March 31, 2022 and 2021, were as follows:

                                                                     Three Months Ended
                                                                          March 31,
                                                                               2022                  2021
                                                                           

(in thousands of dollars)
American Equity Investment Life Insurance Company: Fixed indexed annuities

                                                     $    755,980          $   516,995
Annual reset fixed rate annuities                                                1,062                2,167
Multi-year fixed rate annuities                                                  2,345              787,192
Single premium immediate annuities                                              13,453               13,959
                                                                               772,840            1,320,313
Eagle Life Insurance Company:
Fixed index annuities                                                          126,754              148,836
Annual reset fixed rate annuities                                                    7                  162
Multi-year fixed rate annuities                                                  2,340              965,425
                                                                               129,101            1,114,423

Consolidated:

Fixed index annuities                                                          882,734              665,831
Annual reset fixed rate annuities                                                1,069                2,329
Multi-year fixed rate annuities                                                  4,685            1,752,617
Single premium immediate annuities                                              13,453               13,959
Total before coinsurance ceded                                                 901,941            2,434,736
Coinsurance ceded                                                              213,563                3,048
Net after coinsurance ceded                                               $ 

688 378 $2,431,688


Annuity deposits before and after coinsurance ceded decreased 63% and 72%,
respectively, during the first quarter of 2022 compared to the same period in
2021. The decrease in sales for the three months ended March 31, 2022 compared
to the same period in 2021 was driven by a reduction in sales of multi-year
fixed rate annuity products at both American Equity Life and Eagle Life. Sales
of fixed index annuities increased by 33% as compared to the same period in
2021. The growth in fixed index annuity sales follows the product refreshes at
both American Equity Life and Eagle Life during the second half of 2021. Our
2022 sales strategy is to focus on sales of fixed index annuities.

Prior to January 1, 2021, we had been ceding 80% of the annuity deposits
received from certain multi-year rate guaranteed annuities and 20% of certain
fixed index annuities sold by Eagle Life through broker/dealers and banks to an
unaffiliated reinsurer. Beginning January 1, 2021, no new business is being
ceded to the unaffiliated reinsurer. Effective July 1, 2021, we ceded 100% of an
in-force block of fixed index annuities and began ceding 75% of certain fixed
index annuities issued after July 1, 2021 to North End Re which caused the
increase in coinsurance ceded premiums for the three months ended March 31, 2022
compared to the same period in 2021.

Net income available to common stockholders increased to $555.3 million in the
first quarter of 2022 compared to $271.8 million for the same period in 2021.
The increase in net income available to common stockholders for the three months
ended March 31, 2022 was driven primarily by an increase in net investment
income, a decrease in the change in fair value of embedded derivatives and a
decrease in interest sensitive and index product benefits. These changes were
offset by a decrease in the change in fair value of derivatives and increases in
amortization of deferred sales inducements and deferred policy acquisition
costs.

Net income available to common stockholders for the three months ended March 31,
2022 was positively impacted by an increase in the aggregate investment spread
as previously noted. Net income, in general, is impacted by the volume of
business in force and the investment spread earned on this business. The average
amount of annuity account balances outstanding (net of annuity liabilities ceded
under coinsurance agreements) decreased 3% to $53.2 billion for the first
quarter of 2022 compared to $54.9 billion for the same period in 2021. Our
investment spread measured in dollars was $346.4 million for the first quarter
of 2022 compared to $275.6 million for the same period in 2021. Investment
income for the first quarter of 2022 was positively impacted by strong returns
on partnerships and other mark to market assets, lower cash balances and the
ramp in private assets. Our investment spread has been negatively impacted by
the extended low interest rate environment and by holding higher levels of cash
and cash equivalents (see Net investment income). The higher levels of cash and
cash equivalent holdings decreased in the fourth quarter of 2021 and the first
quarter of 2022 with the execution of the reinsurance treaty with North End Re
and the investment of cash balances above our target levels.

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Net income is also impacted by the change in fair value of derivatives and
embedded derivatives, which fluctuates from period to period based upon changes
in fair values of call options purchased to fund the annual index credits for
fixed index annuities and changes in interest rates used to discount the
embedded derivative liability. Net income for the three months ended March 31,
2022 was positively impacted by a decrease in expected index credits on the next
policy anniversary dates resulting from decreases in the fair value of the call
options acquired to fund these index credits and a net increase in the discount
rates use to estimate the fair value of our embedded derivative liabilities, the
impact of which was partially offset by increases in amortization of deferred
policy acquisition costs and deferred sales inducements related to the change in
fair value of derivatives and embedded derivatives. Net income for the three
months ended March 31, 2021 was positively impacted by a net increase in the
discount rates used to estimate the fair value of our embedded derivative
liabilities, the impact of which was partially offset by increases in
amortization of deferred policy acquisition costs and deferred sales inducements
related to the change in fair value of derivatives and embedded derivatives. See
Change in fair value of derivatives, Change in fair value of embedded
derivatives, Amortization of deferred sales inducements and Amortization of
deferred policy acquisition costs.

Non-GAAP operating income available to common stockholders, a non-GAAP financial
measure, increased to $89.9 million in the first quarter of 2022 compared to
$41.4 million for the same period in 2021.

In addition to net income available to common stockholders, we have consistently
utilized non-GAAP operating income available to common stockholders, a non-GAAP
financial measure commonly used in the life insurance industry, as an economic
measure to evaluate our financial performance. Non-GAAP operating income
available to common stockholders equals net income available to common
stockholders adjusted to eliminate the impact of items that fluctuate from
quarter to quarter in a manner unrelated to core operations, and we believe
measures excluding their impact are useful in analyzing operating trends. The
most significant adjustments to arrive at non-GAAP operating income available to
common stockholders eliminate the impact of fair value accounting for our fixed
index annuity business and are not economic in nature but rather impact the
timing of reported results. We believe the combined presentation and evaluation
of non-GAAP operating income available to common stockholders together with net
income available to common stockholders provides information that may enhance an
investor's understanding of our underlying results and profitability.

Non-GAAP operating income available to common stockholders is not a substitute
for net income available to common stockholders determined in accordance with
GAAP. The adjustments made to derive non-GAAP operating income available to
common stockholders are important to understand our overall results from
operations and, if evaluated without proper context, non-GAAP operating income
available to common stockholders possesses material limitations. As an example,
we could produce a low level of net income available to common stockholders or a
net loss available to common stockholders in a given period, despite strong
operating performance, if in that period we experience significant net realized
losses from our investment portfolio. We could also produce a high level of net
income available to common stockholders in a given period, despite poor
operating performance, if in that period we generate significant net realized
gains from our investment portfolio. As an example of another limitation of
non-GAAP operating income available to common stockholders, it does not include
the decrease in cash flows expected to be collected as a result of credit losses
on financial assets. Therefore, our management reviews net realized investment
gains (losses) and analyses of our net investment income, including impacts
related to credit losses, in connection with their review of our investment
portfolio. In addition, our management examines net income available to common
stockholders as part of their review of our overall financial results.

The adjustments made to net income available to common stockholders to arrive at
non-GAAP operating income available to common stockholders for the three months
ended March 31, 2022 and 2021 are set forth in the table that follows:

                                                                       Three Months Ended
                                                                             March 31,
                                                                                  2022                   2021
                                                                                   (Dollars in thousands)
Reconciliation from net income available to common
stockholders to non-GAAP operating income available to common
stockholders:
Net income available to American Equity Investment Life
Holding Company common stockholders                                        $    555,304             $   271,765

Adjustments to arrive at non-GAAP operating income available to common shareholders: Net realized losses on financial assets, including credit losses

                                                                           10,285                   3,516
Change in fair value of derivatives and embedded derivatives                   (603,354)               (297,634)

Income taxes                                                                    127,661                  63,794
Non-GAAP operating income available to common stockholders                 $     89,896             $    41,441


The amounts disclosed in the reconciliation above are presented net of related
adjustments to amortization of deferred sales inducements and deferred policy
acquisition costs and accretion of lifetime income benefit rider reserves where
applicable.

The increase in non-GAAP operating income available to common stockholders for
the three months ended March 31, 2022 compared to the same period in 2021 was
primarily attributable to an increase in aggregate investment spread as
previously noted. The increase in investment spread was partially offset by a
greater increase in the liability for future benefits to be paid for lifetime
income benefit riders and an increase in other operating costs and expenses
during the three months ended March 31, 2022 compared to the same period in
2021. See Net investment income, Interest sensitive and index product benefits
and Other operating costs and expenses.

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Annuity product charges (surrender charges assessed against policy withdrawals
and fees deducted from policyholder account balances for lifetime income benefit
riders) decreased 13% to $52.4 million in the first quarter of 2022 compared to
$60.1 million for the same period in 2021. The components of annuity product
charges are set forth in the table that follows:

                                                                  Three Months Ended
                                                                        March 31,
                                                                             2022                 2021
                                                                              (Dollars in thousands)
Surrender charges                                                       $    15,541          $    19,481
Lifetime income benefit riders (LIBR) fees                                   36,814               40,601
                                                                        $   

52,355 $60,082

Withdrawals from annuity contracts subject to surrender charges

                                                                 $   

267,336 $260,658
Average surrender charge levied on withdrawals subject to surrender charge

                                                            5.8  %               7.5  %

Fund values on policies subject to LIBR fees                            $ 4,558,943          $ 5,304,479
Weighted average per policy LIBR fee                                           0.81  %              0.77  %


The decrease in annuity product charges is attributable to lower average
surrender charges collected on withdrawals subject to surrender charges and a
decrease in fees assessed for lifetime income benefit riders due to a smaller
volume of business in force subject to the fee slightly offset by an increase in
the average fees being charged as compared to the prior period. The smaller
volume of business subject to the fee is primarily due to the execution of the
North End Re reinsurance treaty which was effective on July 1, 2021. See
Interest sensitive and index product benefits below for corresponding expense
recognized on lifetime income benefit riders.

Net investment income increased 14% to $567.4 million in the first quarter of
2022 compared to $497.2 million for the same period in 2021. The increase was
principally attributable to an increase in the average yield earned on average
invested assets during the three months ended March 31, 2022 compared to the
same period in 2021.. Average invested assets excluding derivative instruments
(on an amortized cost basis) decreased 2% to $54.7 billion for the first quarter
of 2022 compared to $55.7 billion for the same period in 2021.

The average yield earned on average invested assets was 4.15% for the first
quarter of 2022 compared to 3.58% for the same period in 2021. The increase in
yield earned on average invested assets for the three months ended March 31,
2022 compared to the same period in 2021 was primarily due to strong returns on
partnerships and other mark to market assets, lower average cash balances and
the ramp in private assets partly offset by lower prepayment income. Cash and
cash equivalents holdings averaged $1.7 billion during the three months ended
March 31, 2022, compared to $8.6 billion during the three months ended March 31,
2021. As of March 31, 2022, we held approximately $576 million of cash and cash
equivalents in our investment portfolios which is towards the low end of our
stated target portfolio allocation of 1% to 2% of our investment portfolio in
cash and cash equivalents.

The expected return on investments purchased during the three months ended
March 31, 2022 was 3.58%, net of third-party investment management expenses,
including $887 million of privately sourced assets with an expected return of
5.41%.

Change in fair value of derivatives primarily consists of call options purchased
to fund annual index credits on fixed index annuities. The components of change
in fair value of derivatives are as follows:

                                                       Three Months Ended
                                                             March 31,
                                                                      2022             2021
                                                                     (Dollars in thousands)
        Call options:
        Gain on option expiration                                $     

51,787 $178,066

        Change in unrealized gains/losses                             (530,235)       218,210
        Warrants                                                           929             29

                                                                 $    (477,519)     $ 396,305


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The differences between the change in fair value of derivatives between periods
for call options are primarily due to the performance of the indices upon which
our call options are based which impacts the level of gains on call option
expirations, the fair values of those call options and changes in the fair
values of those call options between periods. The change in gain on option
expiration and unrealized gains/losses on call options for the three months
ended March 31, 2022 compared to the same period in 2021 is due to equity market
performance in the first quarter of 2022 compared to the same period in 2021. A
substantial portion of our call options are based upon the S&P 500 Index with
the remainder based upon other equity and bond market indices. The range of
index appreciation (after applicable caps, participation rates and asset fees)
for options expiring during the three months ended March 31, 2022 and 2021 is as
follows:

                                                                            Three Months Ended
                                                                                  March 31,
                                                                                                2022                    2021
S&P 500 Index
Point-to-point strategy                                                                     0.6% - 12.5%            0.0% - 42.6%
Monthly average strategy                                                                    1.0% - 8.6%             0.0% - 29.4%
Monthly point-to-point strategy                                                             0.0% - 12.9%            0.0% - 21.7%
Volatility control index point-to-point strategy                                            0.0% - 7.3%              0.0% - 8.1%
Fixed income (bond index) strategies                                                        0.0% - 5.1%             0.0% - 10.0%


The change in fair value of derivatives is also influenced by the aggregate cost
of options purchased. The aggregate cost of options for the three months ended
March 31, 2022 was higher than for the same period in 2021 as option costs
increased during the first quarter of 2022. The aggregate cost of options is
also influenced by the amount of policyholder funds allocated to the various
indices and market volatility which affects option pricing. See Critical
Accounting Policies - Policy Liabilities for Fixed Index Annuities included in
Management's Discussion and Analysis in our Annual Report on Form 10-K for the
year ended December 31, 2021.

Net realized gains (losses) on investments includes gains and losses on the sale
of securities and other investments and changes in allowances for credit losses
on our securities and mortgage loans on real estate. Net realized gains (losses)
on investments fluctuate from year to year primarily due to changes in the
interest rate and economic environment and the timing of the sale of
investments. See Note 3 - Investments and Note 4 - Mortgage Loans on Real Estate
to our unaudited consolidated financial statements and Financial Condition -
Credit Losses for a detailed presentation of the types of investments that
generated the gains (losses) as well as discussion of credit losses on our
securities recognized during the periods presented and   Financial Condition -
Investments   and Note 4 - Mortgage Loans on Real Estate to our unaudited
consolidated financial statements for discussion of credit losses recognized on
mortgage loans on real estate.

Securities sold at losses are generally due to our long-term fundamental concern
with the issuers' ability to meet their future financial obligations or to
improve our risk or duration profiles as they pertain to our asset liability
management.

Other revenue was $8.6 million for the three months ended March 31, 2022 and
primarily consists of $2.9 million related to asset liability management fees
and $5.7 million of amortization related to the deferred gain associated with
the cost of reinsurance. Both of these items are associated with the North End
Re reinsurance treaty which was effective July 1, 2021.

Interest sensitive and index product benefits decreased 22% to $372.7 million in
the first quarter of 2022 compared to $476.6 million for the same period in
2021. The components of interest sensitive and index product benefits are
summarized as follows:

                                                                    Three Months Ended
                                                                          March 31,
                                                                               2022                   2021
                                                                                (Dollars in thousands)
Index credits on index policies                                         $    224,385             $   345,737

Interest credited (including changes to guaranteed minimum interest for fixed index annuities)

                                           62,791                  58,123
Lifetime income benefit riders                                                85,486                  72,735
                                                                        $    372,662             $   476,595


The decrease in index credits for the three months ended March 31, 2022 compared
to the same period in 2021 was due to changes in the level of appreciation of
the underlying indices (see discussion above under Change in fair value of
derivatives) and the amount of funds allocated by policyholders to the
respective index options. Total proceeds received upon expiration of the call
options purchased to fund the annual index credits were $228.1 million for the
three months ended March 31, 2022, compared to $349.1 million for the same
period in 2021. The increase in interest credited for the three months ended
March 31, 2022 compared to the same period in 2021 was due to increases in
single premium deferred annuity products that receive a fixed rate of interest
partially offset by a reduction in interest credited to funds allocated to the
fixed option within our fixed index annuities due to a decrease in the net
average balance allocated to the fixed option. The increase in benefits
recognized for lifetime income benefit riders for the three months ended
March 31, 2022 compared to the same period in 2021 was primarily due to the
impact on the calculation of the lifetime income benefit rider reserve of actual
results compared to expected results for items such as gross profits, lifetime
income benefit rider election rates and the level of index credits. The net
impact of updating expected results with actual results led to a larger increase
in the lifetime income benefit rider reserve for the three months ended March
31, 2022 compared to the same period in 2021. This was partially offset by a
decrease in fund value of policies with lifetime income benefit riders as a
result of the North End Re reinsurance treaty, which correlates to the decrease
in fees discussed in Annuity product charges.

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The liability (net of coinsurance ceded) for lifetime income benefit riders was
$2.5 billion and $2.8 billion at March 31, 2022 and December 31, 2021,
respectively which includes the impact of unrealized gains and losses on
available for sale securities on the liability for lifetime income benefit
riders of $64.6 million and $482.8 million at March 31, 2022 and December 31,
2021, respectively.

Amortization of deferred sales inducements is based on historical, current and
future expected gross profits. The changes in amortization from period to period
are the result of differences in actual gross profits compared to expected or
modeled gross profits and changes to the underlying business. The increase in
amortization after gross profit adjustments for the three months ended March 31,
2022 compared to the same period in 2021 was primarily due to an increase in
actual gross profits for the three months ended March 31, 2022 compared to the
same period in 2021. Bonus products represented 64% and 75% of our net annuity
account values at March 31, 2022 and March 31, 2021, respectively. The amount of
amortization is affected by amortization associated with fair value accounting
for derivatives and embedded derivatives utilized in our fixed index annuity
business and amortization associated with net realized gains (losses) on
investments. Fair value accounting for derivatives and embedded derivatives
utilized in our fixed index annuity business creates differences in the
recognition of revenues and expenses from derivative instruments including the
embedded derivative liabilities in our fixed index annuity contracts. The change
in fair value of the embedded derivatives will not correspond to the change in
fair value of the derivatives (purchased call options), because the purchased
call options are one-year options while the options valued in the fair value of
embedded derivatives cover the expected lives of the contracts which typically
exceed ten years.

The amortization of deferred sales incentives is summarized as follows:

                                                                     Three Months Ended
                                                                           March 31,
                                                                                2022                   2021
                                                                           

(in thousands of dollars) Amortization of deferred sales incentives before gross margin adjustments

                                                       $     53,184             $    53,187

Gross margin adjustments: fair value recognition of derivatives and embedded derivatives

                                                                    91,337                  70,245
Net realized losses on investments                                               (976)                   (457)

Amortization of deferred sales incentives after gross margin adjustments

                                                       $    143,545             $   122,975


Change in fair value of embedded derivatives includes changes in the fair value
of our fixed index annuity embedded derivatives (see   Note   6 - Derivative
Instruments to our unaudited consolidated financial statements). The components
of change in fair value of embedded derivatives are as follows:

                                                                     Three Months Ended
                                                                          March 31,
                                                                               2022                  2021
                                                                                 (Dollars in thousands)
Fixed index annuities - embedded derivatives                              $ 

(1,308,123) ($377,121)
Other changes in the difference between provisions for claims calculated using derivatives accounting and long-duration contract accounting

                                                           116,918               94,708
Reinsurance related embedded derivative                                       (202,444)                   -
                                                                          $ (1,393,649)         $  (282,413)


The change in fair value of the fixed index annuity embedded derivatives
resulted from (i) changes in the expected index credits on the next policy
anniversary dates, which are related to the change in fair value of the call
options acquired to fund those index credits discussed above in Change in fair
value of derivatives; (ii) changes in the expected annual cost of options we
will purchase in the future to fund index credits beyond the next policy
anniversary; (iii) changes in the discount rates used in estimating our embedded
derivative liabilities; and (iv) the growth in the host component of the policy
liability. The amounts presented as "Other changes in difference between policy
benefit reserves computed using derivative accounting vs. long-duration
contracts accounting" represent the total change in the difference between
policy benefit reserves for fixed index annuities computed under the derivative
accounting standard and the long-duration contracts accounting standard at each
balance sheet date, less the change in fair value of our fixed index annuities
embedded derivative. See Critical Accounting Policies - Policy Liabilities for
Fixed Index Annuities included in Management's Discussion and Analysis in our
Annual Report on Form 10-K for the year ended December 31, 2021.

The primary reason for the decrease in the change in fair value of the fixed
index annuity embedded derivatives during the three months ended March 31, 2022
compared to the same period of 2021 was due to a decrease in expected index
credits on the next policy anniversary dates resulting from a decrease in the
fair value of the call options acquired to fund the index credits during the
three months ended March 31, 2022 compared to an increase in the expected index
credits resulting from an increase in the fair value of the call options
acquired to fund these index credits during the three months ended March 31,
2021 and a larger increase in the net discount rate during the three months
ended March 31, 2022 compared to the same period in 2021. The discount rates
used in estimating our embedded derivative liabilities fluctuate based on the
changes in the general level of risk free interest rates and our own credit
spread.

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The reinsurance agreement executed in 2021 with North End Re to cede certain
fixed index annuity product liabilities on a modified coinsurance basis contains
an embedded derivative. The fair value of this embedded derivative is based on
the unrealized gains and losses of the underlying assets held in the modified
coinsurance portfolio which decreased during the three months ended March 31,
2022. See Note 6 - Derivative Instruments for discussion on this embedded
derivative.

Amortization of deferred policy acquisition costs is based on historical,
current and future expected gross profits. The changes in amortization from
period to period are the result of differences in actual gross profits compared
to expected or modeled gross profits and changes to the underlying business. The
increase in amortization after gross profit adjustments for the three months
ended March 31, 2022 compared to the same period in 2021 was primarily due to an
increase in actual gross profits for the three months ended March 31, 2022
compared to the same period in 2021. The amount of amortization is affected by
amortization associated with fair value accounting for derivatives and embedded
derivatives utilized in our fixed index annuity business and amortization
associated with net realized gains (losses) on investments. As discussed above,
fair value accounting for derivatives and embedded derivatives utilized in our
fixed index annuity business creates differences in the recognition of revenues
and expenses from derivative instruments including the embedded derivative
liabilities in our fixed index annuity contracts.

The amortization of deferred policy acquisition costs is summarized as follows:

                                                                     Three Months Ended
                                                                           March 31,
                                                                                2022                   2021
                                                                           

(in thousands of dollars) Amortization of deferred policy acquisition costs before gross margin adjustments

                                                 $     74,633             $    78,657

Gross margin adjustments: fair value recognition of derivatives and embedded derivatives

                                                                   152,516                 125,920
Net realized losses on investments                                             (1,723)                   (754)

Amortization of deferred policy acquisition costs after gross margin adjustments

                                                 $    225,426             $   203,823


Other operating costs and expenses increased 4% to $58.1 million in the first
quarter of 2022 compared to $55.9 million for the same period in 2021 and are
summarized as follows:

                                                            Three Months Ended
                                                                 March 31,
                                                                            2022               2021
                                                                          (Dollars in thousands)
Salary and benefits                                                 $     36,187            $ 27,953
Risk charges                                                               2,880              12,042
Other                                                                     19,053              15,870
Total other operating costs and expenses                            $     58,120            $ 55,865


Salary and benefits for the three months ended March 31, 2022 increased $8.2
million compared to the same period in 2021. This increase was primarily a
result of an increase in salary and benefits of $6.3 million and an increase of
$1.7 million related to expense recognized under our equity and cash incentive
compensation programs ("incentive compensation programs") for the three months
ended March 31, 2022 compared to the same period in 2021. The increase in salary
and benefits was primarily due to an increased number of employees related to
our continued growth and implementation of AEL 2.0. The increase in expenses
related to our incentive compensation programs was primarily due to an increase
in the expected payouts due to a larger number of employees participating in the
programs.

Risk charges decreased for the three months ended March 31, 2022 compared to the
same period in 2021. The decrease in risk charge expense for the three months
ended March 31, 2022 is due to the recapture of an existing reinsurance
agreement which was replaced with a new agreement with a lower risk charge.

Other expenses increased for the three months ended March 31, 2022 compared to
the same period in 2021 primarily as a result of increases in travel and agent
conference related expenses as we continue to emerge from the COVID-19 pandemic,
non-deferrable marketing and sales expenses, depreciation and maintenance
expenses primarily related to software and hardware assets and premium taxes.

We expect the level of other operating costs and expenses to settle into the $60
million per quarter range for the foreseeable future as we continue to execute
on the AEL 2.0 strategy.

Income tax expense was $155.1 million in the first quarter of 2022 compared to
$78.5 million for the same period in 2021. The changes in income tax expense
were primarily due to changes in income before income taxes as well as changes
in the effective income tax rates. The effective income tax rates were 21.5% and
21.7% for the three months ended March 31, 2022 and 2021, respectively.

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Income tax expense and the resulting effective tax rate are based upon two
components of income (loss) before income taxes ("pretax income") that are taxed
at different tax rates. Life insurance income is generally taxed at a statutory
rate of approximately 21.5% reflecting the absence of state income taxes for
substantially all of the states that the life insurance subsidiaries do business
in. The income (loss) for the parent company and other non-life insurance
subsidiaries (the "non-life insurance group") is generally taxed at a statutory
tax rate of 28.7% reflecting the combined federal and state income tax rates.
The effective income tax rates resulting from the combination of the income tax
provisions for the life and non-life sources of income (loss) vary from period
to period based primarily on the relative size of pretax income from the two
sources.


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  Table of Contents

Financial Condition

Investments

Our investment strategy is to maximize current income and total investment
return through active management while maintaining a responsible asset
allocation strategy containing high credit quality investments and providing
adequate liquidity to meet our cash obligations to policyholders and others. Our
investment strategy is also reflective of insurance statutes, which regulate the
type of investments that our life subsidiaries are permitted to make and which
limit the amount of funds that may be used for any one type of investment.

As previously noted, as part of our AEL 2.0 investment pillar, we intend to ramp
up our allocation to private assets in part by partnering with proven asset
managers in our focus expansion sectors of commercial real estate, residential
real estate including mortgages and single family rental homes, infrastructure
debt and equity, middle market lending and lending to revenue, technology and
software sector companies.

The composition of our investment portfolio is summarized as follows:

                                                       March 31, 2022                                   December 31, 2021
                                              Carrying                                          Carrying
                                               Amount                 Percent                    Amount                   Percent
                                                                             (Dollars in thousands)
Fixed maturity securities:
United States Government full faith and
credit                                    $      38,666                      0.1  %       $          37,793                      0.1  %
United States Government sponsored
agencies                                        174,845                      0.3  %               1,040,953                      1.7  %
United States municipalities, states and
territories                                   3,812,510                      6.5  %               3,927,201                      6.5  %
Foreign government obligations                  405,166                      0.7  %                 402,545                      0.7  %
Corporate securities                         33,873,527                     57.8  %              34,660,234                     57.4  %
Residential mortgage backed securities        1,210,559                      2.1  %               1,125,049                      1.9  %
Commercial mortgage backed securities         4,769,867                      8.1  %               4,840,311                      8.0  %
Other asset backed securities                 5,376,980                      9.2  %               5,271,857                      8.7  %
Total fixed maturity securities              49,662,120                     84.8  %              51,305,943                     85.0  %

Mortgage loans on real estate                 5,734,872                      9.8  %               5,687,998                      9.4  %
Real estate investments                         510,188                      0.9  %                 337,939                      0.6  %
Derivative instruments                          642,413                      1.1  %               1,277,480                      2.1  %
Other investments                             1,999,113                      3.4  %               1,767,144                      2.9  %
                                          $  58,548,706                    100.0  %       $      60,376,504                    100.0  %

Fixed maturity securities

Our fixed maturity security portfolio is managed to minimize risks such as
interest rate changes and defaults or credit losses while earning a sufficient
and stable return on our investments. The largest portion of our fixed maturity
securities are in investment grade (typically NAIC designation 1 or 2) publicly
traded or privately placed corporate securities.

Here is a summary of our fixed maturity securities by NRSRO rating:

                                                      March 31, 2022                                     December 31, 2021
                                           Carrying             Percent of Fixed                Carrying               Percent of Fixed
Rating Agency Rating                        Amount             Maturity Securities               Amount               Maturity Securities
                                                                             (Dollars in thousands)
Aaa/Aa/A                               $  27,771,213                        55.9  %       $      28,275,431                        55.2  %
Baa                                       20,986,780                        42.3  %              21,875,939                        42.6  %
Total investment grade                    48,757,993                        98.2  %              50,151,370                        97.8  %
Ba                                           711,175                         1.4  %                 930,384                         1.8  %
B                                            104,496                         0.2  %                 118,065                         0.2  %
Caa                                           32,177                         0.1  %                  39,354                         0.1  %
Ca and lower                                  56,279                         0.1  %                  66,770                         0.1  %
Total below investment grade                 904,127                         1.8  %               1,154,573                         2.2  %
                                       $  49,662,120                       100.0  %       $      51,305,943                       100.0  %


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The NAIC's Securities Valuation Office ("SVO") is responsible for the day-to-day
credit quality assessment of securities owned by state regulated insurance
companies. The purpose of such assessment and valuation is for determining
regulatory capital requirements and regulatory reporting. Insurance companies
report ownership to the SVO when such securities are eligible for regulatory
filings. The SVO conducts credit analysis on these securities for the purpose of
assigning a NAIC designation and/or unit price. Typically, if a security has
been rated by an NRSRO, the SVO utilizes that rating and assigns a NAIC
designation based upon the following system:

                     NAIC Designation       NRSRO Equivalent Rating
                            1                       Aaa/Aa/A
                            2                         Baa
                            3                          Ba
                            4                          B
                            5                         Caa
                            6                     Ca and lower


The NAIC introduced 20 NAIC designation modifiers that are applied to each NAIC
designation to determine a security's NAIC designation category. New risk-based
capital charges for each of the 20 designated categories for reporting were
effective beginning December 31, 2021.

For most of the bonds held in our portfolio the NAIC designation matches the
NRSRO equivalent rating. However, for certain loan-backed and structured
securities, as defined by the NAIC, the NAIC rating is not always equivalent to
the NRSRO rating presented in the previous table. The NAIC has adopted revised
rating methodologies for certain loan-backed and structured securities comprised
of non-agency residential mortgage backed securities ("RMBS") and commercial
mortgage backed securities ("CMBS"). The NAIC's objective with the revised
rating methodologies for these structured securities is to increase the accuracy
in assessing expected losses and use the improved assessment to determine a more
appropriate capital requirement for such structured securities. The revised
methodologies reduce regulatory reliance on rating agencies and allow for
greater regulatory input into the assumptions used to estimate expected losses
from structured securities.

The use of this process by the SVO may result in certain non-agency RMBS and
CMBS being assigned an NAIC designation that is different than the equivalent
NRSRO rating. The NAIC designations for non-agency RMBS and CMBS are based on
security level expected losses as modeled by an independent third party (engaged
by the NAIC) and the statutory carrying value of the security, including any
purchase discounts or impairment charges previously recognized. Evaluation of
non-agency RMBS and CMBS held by insurers using the NAIC rating methodologies is
performed on an annual basis.

Our fixed maturity security portfolio is managed to minimize risks such as
defaults or impairments while earning a sufficient and stable return on our
investments. Our strategy with respect to our fixed maturity securities
portfolio has been to invest primarily in investment grade securities.
Investment grade is NAIC 1 and 2 securities and Baa3/BBB- and better securities
on the NRSRO scale. We expect this strategy to meet the objective of minimizing
risk while also managing asset capital charges on a regulatory capital basis.

A summary of our fixed maturity securities by NAIC designation is as follows:

                                                                   March 31, 2022                                                                           December 31, 2021
                                                                                                        Percent                                                                                   Percent
                                                                                                       of Total                                                                                  of Total
                                    Amortized                                   Carrying               Carrying               Amortized                                   Carrying               Carrying
     NAIC Designation                 Cost               Fair Value              Amount                 Amount                  Cost               Fair Value              Amount                 Amount
                                                   (Dollars in thousands)                                                                    (Dollars in thousands)
            1                    $ 27,701,587          $ 28,064,072          $ 28,064,072                    56.5  %       $ 26,157,531          $ 28,785,839          $ 28,785,839                    56.1  %
            2                      20,740,585            20,701,013            20,701,013                    41.7  %         19,758,594            21,396,020            21,396,020                    41.7  %
            3                         772,726               748,881               748,881                     1.6  %            909,311               941,210               941,210                     1.9  %
            4                         117,725               122,867               122,867                     0.2  %            133,070               147,160               147,160                     0.3  %
            5                           3,259                 3,259                 3,259                       -  %             16,496                15,357                15,357                       -  %
            6                          29,033                22,028                22,028                       -  %             24,181                20,357                20,357                       -  %
                                 $ 49,364,915          $ 49,662,120          $ 49,662,120                   100.0  %       $ 46,999,183          $ 51,305,943          $ 51,305,943                   100.0  %

The amortized cost and fair value of fixed-maturity securities at March 31, 2022by contractual maturity, are disclosed in Note 3 – Investments to our unaudited consolidated financial statements in this Form 10-Q, which is incorporated by reference into this Section 2.

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Unrealized losses

The amortized cost and fair value of fixed maturity securities that were in an unrealized loss position were as follows:

                                                                                       Unrealized
                                          Number of              Amortized           Losses, Net of        Allowance for
                                         Securities                Cost                Allowance           Credit Losses          Fair Value
                                                                                           (Dollars in thousands)
March 31, 2022
Fixed maturity securities, available
for sale:
United States Government full faith
and credit                                     13             $     28,723  

($724) $- $27,999
United States Government Sponsored Agencies

                                        1                   13,692                 (2,224)                   -                11,468
United States municipalities, states
and territories                               242                1,276,496                (94,613)              (2,009)            1,179,874
Foreign government obligations                 24                  273,503                (21,236)                   -               252,267
Corporate securities                        2,003               13,927,731               (984,070)              (3,825)           12,939,836
Residential mortgage backed
securities                                    136                  557,515                (22,822)                (743)              533,950
Commercial mortgage backed securities         519                3,432,873               (127,451)                   -             3,305,422
Other asset backed securities                 843                4,350,056               (114,585)                   -             4,235,471
                                            3,781             $ 23,860,589          $  (1,367,725)         $    (6,577)         $ 22,486,287

December 31, 2021
Fixed maturity securities, available
for sale:
United States Government full faith
and credit                                      2             $      1,041  

$ (34) $ – $1,007
United States Government Sponsored Agencies

                                        6                  760,060                    (90)                   -               759,970
United States municipalities, states
and territories                                42                  190,471                 (3,042)              (2,776)              184,653
Foreign government obligations                  3                   43,704                   (843)                   -                42,861
Corporate securities                          600                2,530,864                (38,442)                   -             2,492,422
Residential mortgage backed
securities                                     74                  280,044                 (2,093)                 (70)              277,881
Commercial mortgage backed securities         108                  944,407                (17,719)                   -               926,688
Other asset backed securities                 592                3,172,613                (50,107)                   -             3,122,506
                                            1,427             $  7,923,204          $    (112,370)         $    (2,846)         $  7,807,988


The unrealized losses at March 31, 2022 are principally related to the timing of
the purchases of certain securities, which carry less yield than those available
at December 31, 2021, and the continued impact the COVID-19 pandemic had on
credit markets. Approximately 97% and 85% of the unrealized losses on fixed
maturity securities shown in the above table for March 31, 2022 and December 31,
2021, respectively, are on securities that are rated investment grade, defined
as being the highest two NAIC designations.

The increase in unrealized losses from December 31, 2021 to March 31, 2022 was
primarily due to an increase in treasury yields during the three months ended
March 31, 2022. The 10-year U.S. Treasury yields at March 31, 2022 and
December 31, 2021 were 2.32% and 1.52%, respectively. The 30-year U.S. Treasury
yields at March 31, 2022 and December 31, 2021 were 2.44% and 1.90%,
respectively.

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The following table shows the composition by credit quality (NAIC designation) of fixed-maturity securities with gross unrealized losses:

                         Carrying Value of
                          Securities with                           Gross
                          Gross Unrealized       Percent of       Unrealized       Percent of
NAIC Designation               Losses              Total          Losses (1)         Total
                                                (Dollars in thousands)
March 31, 2022
1                       $       12,448,541           55.4  %    $   (712,830)          52.1  %
2                                9,452,120           42.0  %        (616,967)          45.1  %
3                                  512,724            2.3  %         (32,628)           2.4  %
4                                   55,444            0.2  %          (3,564)           0.3  %
5                                        -              -  %               -              -  %
6                                   17,458            0.1  %          (1,736)           0.1  %
                        $       22,486,287          100.0  %    $ (1,367,725)         100.0  %
December 31, 2021
1                       $        4,174,438           53.5  %    $    (37,884)          33.7  %
2                                3,197,575           41.0  %         (57,354)          51.0  %
3                                  376,996            4.8  %         (13,723)          12.2  %
4                                   33,229            0.4  %          (1,083)           1.0  %
5                                    9,506            0.1  %          (1,140)           1.0  %
6                                   16,244            0.2  %          (1,186)           1.1  %
                        $        7,807,988          100.0  %    $   (112,370)         100.0  %

(1) Gross unrealized losses have been adjusted to reflect the provision for credit loss of $6.6 million and $2.8 million from March 31, 2022 and
December 31, 2021respectively.

Our investments' gross unrealized losses and fair value, aggregated by
investment category and length of time that individual securities (consisting of
3,781 and 1,427 securities, respectively) have been in a continuous unrealized
loss position at March 31, 2022 and December 31, 2021, along with a description
of the factors causing the unrealized losses is presented in Note 3 -
Investments to our unaudited consolidated financial statements in this Form
10-Q, which is incorporated by reference in this Item 2.

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The amortized cost and fair value of fixed maturity securities in an unrealized
loss position and the number of months in a continuous unrealized loss position
(fixed maturity securities that carry an NRSRO rating of BBB/Baa or higher are
considered investment grade) were as follows:

                                                                                                                        Gross
                                                                        Amortized                                    Unrealized
                                               Number of              Cost, Net of                                 Losses, Net of
                                               Securities             Allowance (1)           Fair Value            Allowance (1)
                                                                                        (Dollars in thousands)
March 31, 2022
Fixed maturity securities, available for
sale:
Investment grade:
Less than six months                              3,331             $   

21,283,120 $20,050,463 $(1,232,657)
Six months or more and less than twelve months

                                               47                    229,623               211,037                 (18,586)
Twelve months or greater                            297                  1,717,713             1,639,158                 (78,555)
Total investment grade                            3,675                 23,230,456            21,900,658              (1,329,798)
Below investment grade:
Less than six months                                 37                    229,114               218,192                 (10,922)
Six months or more and less than twelve
months                                                3                      4,968                 3,959                  (1,009)
Twelve months or greater                             66                    389,474               363,478                 (25,996)
Total below investment grade                        106                    623,556               585,629                 (37,927)

                                                  3,781             $   23,854,012          $ 22,486,287          $   (1,367,725)

December 31, 2021
Fixed maturity securities, available for
sale:
Investment grade:
Less than six months                              1,024             $    

5,582,431 $5,536,216 ($46,215)
Six months or more and less than twelve months

                                               39                    132,110               130,156                  (1,954)
Twelve months or greater                            281                  1,752,779             1,705,640                 (47,139)
Total investment grade                            1,344                  7,467,320             7,372,012                 (95,308)
Below investment grade:
Less than six months                                 12                     43,808                43,057                    (751)
Six months or more and less than twelve
months                                                7                     28,544                25,706                  (2,838)
Twelve months or greater                             64                    380,686               367,213                 (13,473)
Total below investment grade                         83                    453,038               435,976                 (17,062)

                                                  1,427             $    7,920,358          $  7,807,988          $     (112,370)


(1)Amortized cost and gross unrealized losses have been adjusted to reflect the
allowance for credit loss of $6.6 million and $2.8 million as of March 31, 2022
and December 31, 2021, respectively.

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The amortized cost and fair value of fixed maturity securities (excluding United
States Government and United States Government sponsored agency securities)
segregated by investment grade (NRSRO rating of BBB/Baa or higher) and below
investment grade that had unrealized losses greater than 20% and the number of
months in a continuous unrealized loss position were as follows:

                                                                                                               Gross
                                                                    Amortized                               Unrealized
                                             Number of             Cost, Net of            Fair           Losses, Net of
                                             Securities           Allowance (1)           Value            Allowance (1)
                                                                                  (Dollars in thousands)
March 31, 2022
Investment grade:
Less than six months                                1             $    10,646          $   5,855          $     (4,791)
Six months or more and less than twelve
months                                              -                       -                  -                     -
Twelve months or greater                            -                       -                  -                     -
Total investment grade                              1                  10,646              5,855                (4,791)
Below investment grade:
Less than six months                               70                 514,567            422,904               (91,663)
Six months or more and less than twelve
months                                              -                       -                  -                     -
Twelve months or greater                            -                       -                  -                     -
Total below investment grade                       70                 514,567            422,904               (91,663)
                                                   71             $   525,213          $ 428,759          $    (96,454)

December 31, 2021
Investment grade:
Less than six months                                -             $         -          $       -          $          -
Six months or more and less than twelve
months                                              -                       -                  -                     -
Twelve months or greater                            -                       -                  -                     -
Total investment grade                              -                       -                  -                     -
Below investment grade:
Less than six months                                -                       -                  -                     -
Six months or more and less than twelve
months                                              -                       -                  -                     -
Twelve months or greater                            -                       -                  -                     -
Total below investment grade                        -                       -                  -                     -
                                                    -             $         -          $       -          $          -


(1) Amortized cost and gross unrealized losses have been adjusted to reflect the
allowance for credit loss of $6.6 million and $2.8 million as of March 31, 2022
and December 31, 2021, respectively.

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The amortized cost and fair value of fixed maturity securities, by contractual
maturity, that were in an unrealized loss position are shown below. Actual
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties. All of our mortgage and other asset backed securities provide for
periodic payments throughout their lives, and are shown below as a separate
line.

                                                  Available for sale
                                             Amortized
                                                Cost           Fair Value
                                                (Dollars in thousands)
March 31, 2022
Due in one year or less                    $     23,087      $     22,766

More than one year to five years 2,296,021 2,217,092 More than five years to ten years 3,441,123 3,276,775 More than ten years to twenty years 3,268,371 3,025,381 More than twenty years

                        6,491,543         5,869,430
                                             15,520,145        14,411,444
Residential mortgage backed securities          557,515           533,950
Commercial mortgage backed securities         3,432,873         3,305,422
Other asset backed securities                 4,350,056         4,235,471
                                           $ 23,860,589      $ 22,486,287

December 31, 2021
Due in one year or less                    $    762,035      $    761,590
Due after one year through five years           509,458           505,312
Due after five years through ten years          546,453           535,258
Due after ten years through twenty years        638,205           627,275
Due after twenty years                        1,069,989         1,051,478
                                              3,526,140         3,480,913
Residential mortgage backed securities          280,044           277,881
Commercial mortgage backed securities           944,407           926,688
Other asset backed securities                 3,172,613         3,122,506
                                           $  7,923,204      $  7,807,988


International Exposure

We hold fixed maturity securities with international exposure. As of March 31,
2022, 11.5% of the carrying value of our fixed maturity securities was comprised
of corporate debt securities of issuers based outside of the United States and
debt securities of foreign governments. Our fixed maturity securities with
international exposure are primarily denominated in U.S. dollars. Our investment
professionals analyze each holding for credit risk by economic and other factors
of each country and industry. The following table presents our international
exposure in our fixed maturity portfolio by country or region:

                                            March 31, 2022
                                                                   Percent
                                                                   of Total
                            Amortized       Carrying Amount/       Carrying
                              Cost             Fair Value           Amount
                                 (Dollars in thousands)
Europe                    $ 2,417,640      $       2,447,197          4.9  %
Asia/Pacific                  461,785                469,183          0.9  %
Latin America                 271,796                273,595          0.6  %
Non-U.S. North America      1,456,147              1,471,361          3.0  %
Australia & New Zealand       365,755                361,059          0.7  %
Other                         718,852                714,793          1.4  %
                          $ 5,691,975      $       5,737,188         11.5  %


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All securities shown in the table above are investment grade (NAIC designation of 1 or 2), except for the following:

                                       March 31, 2022
                                                Carrying Amount/
                           Amortized Cost          Fair Value
                                   (Dollars in thousands)
Europe                    $        27,540      $          26,690
Asia/Pacific                           90                     85
Latin America                      31,657                 33,002
Non-U.S. North America             39,820                 39,469
Australia & New Zealand                59                     55
Other                              42,129                 42,728
                          $       141,295      $         142,029


Watch List

At each balance sheet date, we identify invested assets which have
characteristics (i.e., significant unrealized losses compared to amortized cost
and industry trends) creating uncertainty as to our future assessment of credit
losses. As part of this assessment, we review not only a change in current price
relative to its amortized cost but the issuer's current credit rating and the
probability of full recovery of principal based upon the issuer's financial
strength. For corporate issuers, we evaluate the financial stability and quality
of asset coverage for the securities relative to the term to maturity for the
issues we own. For asset-backed securities, we evaluate changes in factors such
as collateral performance, default rates, loss severities and expected cash
flows. At March 31, 2022, the amortized cost and fair value of securities on the
watch list (all fixed maturity securities) are as follows:

                                                                                                        Amortized Cost,         Net Unrealized
                                          Number of           Amortized           Allowance for             Net of                  Losses,                 Fair
General Description                      Securities              Cost             Credit Losses            Allowance           Net of Allowance            Value
                                                                                                     (Dollars in thousands)
Corporate securities - Public
securities                                    2              $     726          $            -          $        726          $           (600)         $     126
Corporate securities - Private
placement securities                          1                 10,646                  (3,825)                6,821                      (966)             5,855
Residential mortgage backed
securities                                   16                 29,030                    (743)               28,287                    (1,424)            26,863
Commercial mortgage backed
securities                                   12                143,502                       -               143,502                      (875)           142,627
Other asset backed securities                 1                  3,259                       -                 3,259                         -          

3,259

United States municipalities,
states and territories                        5                 19,062                  (2,009)               17,053                         -             17,053
                                             37              $ 206,225          $       (6,577)         $    199,648          $         (3,865)         $ 195,783


We expect to recover the unrealized losses, net of allowances, as we did not
have the intent to sell and it was not more likely than not that we would be
required to sell these securities prior to recovery of the amortized cost basis,
net of allowances. Our analysis of these securities and their credit performance
at March 31, 2022 is as follows:

Corporate Securities: Corporate securities on the watch list primarily include a utility sector security that is struggling financially due to the impact of power outages.

Structured securities: Structured securities on the watch list have generally experienced higher levels of stress due to the impact of COVID-19 on the economy.

United States municipalities, states and territories: the decline in value of these securities, which are related to retirement homes in the southeast region of United Statesis mainly due to the financial strain that COVID-19 is putting on this industry.

Credit losses

We have a policy and process to identify securities in our investment portfolio
for which we recognize credit loss. See Note 3 - Investments to our unaudited
consolidated financial statements.

During the three months ended March 31, 2022, we recognized $7.4 million of
credit losses which includes $3.8 million of credit loss on a corporate security
and $3.7 million on structured securities on which we had the intent to sell
such securities as of March 31, 2022 partially offset by a $0.1 million net
reduction in credit losses on certain other securities.

During the three months ended March 31, 2021, we recognized $1.4 million of
credit losses which includes $2 million of credit losses on corporate securities
partially offset by a $0.6 million net reduction in credit losses on residential
mortgage back securities.

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Several factors led us to believe that full recovery of amortized cost is not
expected on the securities for which we recognized credit losses. A discussion
of these factors, our policy and process to identify securities that could
potentially have credit loss is presented in Note 3 - Investments to our
unaudited consolidated financial statements in this Form 10-Q, which is
incorporated by reference in this Item 2.

Mortgage loans on real estate

Our financing receivables consist of three mortgage loan portfolio segments:
commercial mortgage loans, agricultural mortgage loans and residential mortgage
loans. Our commercial mortgage loan portfolio consists of loans with an
outstanding principal balance of $3.6 billion and $3.6 billion as of March 31,
2022 and December 31, 2021, respectively. This portfolio consists of mortgage
loans collateralized by the related properties and diversified as to property
type, location and loan size. Our mortgage lending policies establish limits on
the amount that can be loaned to one borrower and other criteria to attempt to
reduce the risk of default. Our agricultural mortgage loan portfolio consists of
loans with an outstanding principal balance of $464.4 million and $408.1 million
as of March 31, 2022 and December 31, 2021, respectively. These loans are
collateralized by agricultural land and are diversified as to location within
the United States. Our residential mortgage loan portfolio consists of loans
with an outstanding principal balance of $1.7 billion and $1.7 billion as of
March 31, 2022 and December 31, 2021, respectively. These loans are
collateralized by the related properties and diversified as to location within
the United States. Mortgage loans on real estate are generally reported at cost
adjusted for amortization of premiums and accrual of discounts, computed using
the interest method and net of valuation allowances.

At March 31, 2022 and December 31, 2021, the largest principal amount
outstanding for any single commercial mortgage loan was $83.0 million and $81.5
million, respectively, and the average loan size was $5.3 million and $5.3
million, respectively. In addition, the average loan-to-value ratio for
commercial and agricultural mortgage loans combined was 51.9% and 52.3% at
March 31, 2022 and December 31, 2021, respectively, based upon the underwriting
and appraisal at the time the loan was made. This loan-to-value ratio is
indicative of our conservative underwriting policies and practices for
originating mortgage loans and may not be indicative of collateral values at the
current reporting date. Our current practice is to only obtain market value
appraisals of the underlying collateral at the inception of the loan unless we
identify indicators of impairment in our ongoing analysis of the portfolio, in
which case, we either calculate a value of the collateral using a capitalization
method or obtain a third party appraisal of the underlying collateral. The
commercial mortgage loan portfolio is summarized by geographic region and
property type in Note 4 - Mortgage Loans on Real Estate to our unaudited
consolidated financial statements in this Form 10-Q, incorporated by reference
in this Item 2.

In the normal course of business, we commit to fund mortgage loans up to 90 days
in advance. At March 31, 2022, we had commitments to fund commercial mortgage
loans totaling $132.9 million, with interest rates ranging from 3.43% to 4.30%.
During 2022 and 2021, due to historically low interest rates, the commercial
mortgage loan industry has been very competitive. This competition has resulted
in a number of borrowers refinancing with other lenders. For the three months
ended March 31, 2022, we received $34.9 million in cash for loans being paid in
full compared to $56.2 million for the three months ended March 31, 2021. Some
of the loans being paid off have either reached their maturity or are nearing
maturity; however, some borrowers are paying the prepayment fee and refinancing
at a lower rate. As March 31, 2022, we had commitments to fund agricultural
mortgage loans totaling $89.5 million with interest rates ranging from 3.65% to
4.73%, and had commitments to fund residential mortgage loans totaling $221.8
million with interest rates ranging from 7.00% to 12.00%.

See Note 4 - Mortgage Loans on Real Estate to our unaudited consolidated
financial statements, incorporated by reference, for a presentation of our
valuation allowance, foreclosure activity and troubled debt restructure
analysis. We have a process by which we evaluate the credit quality of each of
our mortgage loans. This process utilizes each loan's loan-to-value and debt
service coverage ratios as primary metrics. See Note 4 - Mortgage Loans on Real
Estate to our unaudited consolidated financial statements, incorporated by
reference, for a summary of our portfolio by loan-to-value and debt service
coverage ratios.

We closely monitor loan performance for our commercial, agricultural and
residential mortgage loan portfolios. Commercial, agricultural and residential
loans are considered nonperforming when they are 90 days or more past due. Aging
of financing receivables is summarized in the following table:

                                                                       30-59 days           60-89 days           Over 90 days
                                                   Current              past due             past due              past due               Total
As of March 31, 2022:                                                                  (Dollars in thousands)
Commercial mortgage loans                       $ 3,605,999          $         -          $         -          $           -          $ 3,605,999
Agricultural mortgage loans                         463,087                    -                    -                      -              463,087
Residential mortgage loans                        1,565,375               88,914               28,303                 12,463            1,695,055
Total mortgage loans                            $ 5,634,461          $    88,914          $    28,303          $      12,463          $ 5,764,141

As of December 31, 2021:
Commercial mortgage loans                       $ 3,628,502          $         -          $         -          $           -          $ 3,628,502
Agricultural mortgage loans                         406,999                    -                    -                      -              406,999
Residential mortgage loans                        1,631,999               34,447                3,030                  7,045            1,676,521
Total mortgage loans                            $ 5,667,500          $    34,447          $     3,030          $       7,045          $ 5,712,022


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Derivatives

Our derivative instruments primarily consist of call options purchased to
provide the income needed to fund the annual index credits on our fixed index
annuity products. The fair value of the call options is based upon the amount of
cash that would be required to settle the call options obtained from the
counterparties adjusted for the nonperformance risk of the counterparty. The
nonperformance risk for each counterparty is based upon its credit default swap
rate. We have no performance obligations related to the call options.

None of our derivatives qualify for hedge accounting, thus, any change in the
fair value of the derivatives is recognized immediately in the consolidated
statements of operations. A presentation of our derivative instruments along
with a discussion of the business strategy involved with our derivatives is
included in Note 6 - Derivative Instruments to our unaudited consolidated
financial statements in this Form 10-Q, which is incorporated by reference in
this Item 2.

Cash and capital resources

Our insurance subsidiaries generally have adequate cash flows from annuity
deposits and investment income to meet their policyholder and other obligations.
Net cash flows from annuity deposits and funds returned to policyholders as
surrenders, withdrawals and death claims were $(316.8) million for the three
months ended March 31, 2022 compared to $1,389.5 million for the three months
ended March 31, 2021, with the decrease attributable to a $1,742.8 million
decrease in net annuity deposits after coinsurance and a $36.5 million (after
coinsurance) decrease in funds returned to policyholders. We continue to invest
the net proceeds from policyholder transactions and investment activities in
high quality fixed maturity securities and mortgage loans. We have a highly
liquid investment portfolio that can be used to meet policyholder and other
obligations as needed. In addition, we intend to hold approximately 1% to 2% of
our investment portfolio in cash and cash equivalents.

We, as the parent company, are a legal entity separate and distinct from our
subsidiaries, and have no business operations. We need liquidity primarily to
service our debt (senior notes and subordinated debentures issued to a
subsidiary trust), pay operating expenses and pay dividends to common and
preferred stockholders. Our assets consist primarily of the capital stock and
surplus notes of our subsidiaries. Accordingly, our future cash flows depend
upon the availability of dividends, surplus note interest payments and other
statutorily permissible payments from our subsidiaries, such as payments under
our investment advisory agreements and tax allocation agreement with our
subsidiaries. We expect these sources provide adequate cash flow for us to meet
our current and reasonably foreseeable future obligations.

The ability of our life insurance subsidiaries to pay dividends or
distributions, including surplus note payments, will be limited by applicable
laws and regulations of the states in which our life insurance subsidiaries are
domiciled, which subject our life insurance subsidiaries to significant
regulatory restrictions. These laws and regulations require, among other things,
our insurance subsidiaries to maintain minimum solvency requirements and limit
the amount of dividends these subsidiaries can pay.

Currently, American Equity Life may pay dividends or make other distributions
without the prior approval of the Iowa Insurance Commissioner, unless such
payments, together with all other such payments within the preceding twelve
months, exceed the greater of (1) American Equity Life's net gain from
operations for the preceding calendar year, or (2) 10% of American Equity Life's
statutory capital and surplus at the preceding December 31. For 2022, up to
$407.9 million can yet be distributed as dividends by American Equity Life
without prior approval of the Iowa Insurance Commissioner. In addition,
dividends and surplus note payments may be made only out of statutory earned
surplus, and all surplus note payments are subject to prior approval by
regulatory authorities in the life subsidiary's state of domicile. American
Equity Life had $2.5 billion of statutory earned surplus at March 31, 2022.

The maximum distribution permitted by law or contract is not necessarily
indicative of an insurer's actual ability to pay such distributions, which may
be constrained by business and regulatory considerations, such as the impact of
such distributions on surplus, which could affect the insurer's ratings or
competitive position, the amount of premiums that can be written and the ability
to pay future dividends or make other distributions. Further, state insurance
laws and regulations require that the statutory surplus of our life subsidiaries
following any dividend or distribution must be reasonable in relation to their
outstanding liabilities and adequate for their financial needs. Along with
solvency regulations, the primary driver in determining the amount of capital
used for dividends is the level of capital needed to maintain desired financial
strength ratings from rating agencies. Both regulators and rating agencies could
become more conservative in their methodology and criteria, including increasing
capital requirements for our insurance subsidiaries which, in turn, could
negatively affect the cash available to us from insurance subsidiaries. As of
March 31, 2022, we estimate American Equity Life has sufficient statutory
capital and surplus, combined with capital available to the holding company, to
maintain its insurer financial strength rating. However, this capital may not be
sufficient if significant future losses are incurred or a rating agency modifies
its rating criteria and access to additional capital could be limited.

Cash and cash equivalents of the parent holding company at March 31, 2022, were
$474.4 million. We also have the ability to issue equity, debt or other types of
securities through one or more methods of distribution. The terms of any
offering would be established at the time of the offering, subject to market
conditions. On February 15, 2022, we established a new five-year credit
agreement for $300 million in unsecured delayed draw term loan commitments. This
agreement is part of our plans for access to liquidity for general corporate
purposes as we continue to implement our strategic transformation to an at-scale
origination, spread and capital light fee-based business, and to manage capital
to grow as well as produce returns for shareholders. There have been no loans
drawn on this agreement to date.

In January 2022, American Equity Life became a member of the Federal Home Loan
Bank of Des Moines ("FHLB") which provides access to collateralized borrowings
and other FHLB products. We may also issue funding agreements to the FHLB. Both
the collateralized borrowings and funding agreements require us to pledge
qualified assets as collateral. Obligations arising from funding agreements,
which totaled $200 million as of March 31, 2022 are used in investment spread
activities.

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New accounting statements

See Note 1 – Significant accounting policies to our unaudited consolidated financial statements in this Form 10-Q, which is incorporated by reference into this Section 2.

Regulatory Developments

Financial Strength Ratings

Standard & Poor's ("S&P") has proposed insurance company capital analysis
changes. S&P proposes to discount the value of certain assets that have no S&P
rating, and more heavily discount the value of assets without a rating from
either of two of its competitors, Moody's or Fitch, as well. If S&P adopts these
changes, we may need to re-evaluate and restructure our assets, raise capital,
hold more capital, change our investment strategies, or suffer a ratings change.

Investment Regulations

The Iowa Insurance Division has proposed streamlining and clarifying changes to
Iowa law on admitted assets. The changes would, if approved by the legislature,
conform Iowa law more closely to NAIC models. For example, it would allow
certain currently-excluded assets to be admitted, eliminate certain
Iowa-specific valuation formulae, and eliminate some limitations on securities
and real estate investments. If the legislature enacts these changes, we would
review and reconfigure our investments in light of the new requirements and
opportunities they pose. We do not expect legislative consideration, if any,
until at least 2023.

Privacy and Cybersecurity

The SEC has proposed new cybersecurity disclosure rules for public companies.
Under the proposed rule, registrants would have to disclose information about
material cybersecurity incidents on a Current Report on Form 8-K within four
days of concluding that the incident is material, and update that disclosure at
points of its analysis and response to the incident. Registrants would also have
to disclose aspects of cybersecurity risk management annually, including
governance processes and Board and management responsibilities, and director
cybersecurity expertise.

Other WE Federal initiatives

The SEC has proposed new climate-related disclosure rules for public companies.
Among other things, the proposed rules would require registrant disclosure on
(1) governance of climate-related risks; (2) climate-related impacts on
strategy, business model and outlook; (3) climate-related risk management; (4)
greenhouse gas ("GHG") emissions; and (5) any internal carbon price or
climate-related targets and goals. Large accelerated filers, such as us, would
also have to obtain attestation by an independent third party of certain of
their GHG emissions metrics. The proposed rules would also require registrants
to include climate-related financial statement metrics (which would consist of
disaggregated climate-related impacts on existing financial statement line
items) and related disclosures in a note to audited financial statements,
subject to adequate internal controls and to audit by an independent registered
public accounting firm. Depending on the ultimate rules the SEC adopts, the cost
and other impacts of such a rule on us may be significant.

The SEC has proposed new rules related to trading plans under Rule 10b5-1. The
rules would require a registrant 30-day "cooling off" period between plan
adoption and the first transaction under the plan; limit registrants to a single
plan for a class of securities, such as common stock, at any given time. The SEC
has also proposed new daily registrant disclosure of securities repurchases.
Depending on the ultimate rules the SEC adopts, the cost and other impacts of
such rules on us may be significant.

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