Fitch upgrades American Equity

Fitch Ratings said it upgraded the American Equity Investment Life Holding Co.'s issuer default rating to BB+ from BB, $260 million 5.25% senior convertible debentures due 2024 to BB from BB- and trust preferred securities to BB- from B+. The outlook is stable.

The agency said the upgrade is based on American Equity's improved balance sheet, including declining financial leverage at the holding company level and improved risk-adjusted capital at the operating company level. Additional strengths include subsidiary American Equity Investment Life Insurance Co.'s high credit quality and liquid bond portfolio, a strong position in the fixed index annuity market, strong servicing reputation with its chosen distribution network and demonstrated access to the capital markets.

Fitch said its concerns include the monoline nature of American Equity Investment Life Insurance Co.'s product portfolio and the lack of diversification in revenue and earnings streams and distribution channels. Interest rate risk is the subsidiary's chief balance sheet risk, as the market values of its assets and liabilities are very sensitive to changes in interest rates.

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