AEL - American Equity Life cut to Neutral at Credit Suisse on credit concerns

Credit Suisse analyst Andre Kligerman downgraded American Equity Life ( NYSE: AEL ) to Neutral from Outperform as a deteriorating macro environment drives credit concerns, with AEL among the most exposed in his coverage. AEL shares are dipping 2.1% i n Friday morning trading.

If there's a material decline in credit, the company's stock could come under pressure due to its elevated asset leverage, the analyst said. "AEL's 1Q22 invested asset leverage of ~16x is the highest in our U.S. life insurance coverage universe, and well above the peer median of 8.4x," Kligerman wrote in a note to clients.

He points out that rising rates will significantly benefit net investment yield as ~10% of invested assets have a floating rating, but most of AEL's assets are collateralized loan obligations (CLOs), which are attracting increased scrutiny. "CLOs have drawn investor scrutiny during potential credit downturns given the underlying collateral is below investment grade," Kligerman said.

Upside risks include improving macro conditions and/or AEL accelerates its capital light strategy, freeing up additional capital. Risks to the downside include continuing challenged macro conditions leading to increased credit losses.

Kligerman's Neutral rating aligns with the SA Quant rating of Hold and diverges from the average Wall Street rating of Buy.

See why SA contributor WG Investment Research is considering purchasing shares of American Equity ( AEL )

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