Looking back on American Equity Investment Life Holding Co.’s first year as a publicly traded company, David Noble says there’s little he would have done differently.

Little wonder. As the West Des Moines-based insurer enters its 10th year, Noble, who leads a seasoned management team in carrying out a business plan he originally scratched out on a legal pad, has already taken the company to No. 4 in sales in the fast-growing index annuities market.

“We think that this company has already demonstrated that it has the ability to be in the top ranking of the financial services industry,” said Noble. As the company’s chairman, CEO and president, the 73-year-old self-described “capitalist” has overseen the sales growth of its products, which include index, variable and fixed annuities as well as life insurance, into 48 states and the District of Columbia.

In contrast to the more traditional fixed and variable annuity products, index annuities — which represented 81 percent of American Equity’s new business in the nine months ended Sept. 30 — are a relatively new insurance product. Essentially an insurance contract to invest a lump sum of money that guarantees a minimum return for a predetermined term, an index annuity may earn an additional amount of interest based upon the performance of an equity- or bond-based index.

Total third-quarter 2004 sales for the index annuity industry were estimated at more than $7 billion, up 33 percent from the previous quarter and a 119 percent increase from third quarter 2003, according to Advantage Compendium, an independent St. Louis-based analysis firm that tracks 36 index annuity issuers.

Within the industry, American Equity is in the middle of a seven-company pack that each writes more than $1 billion in new business annually, said Jack Marrion, Advantage Compendium’s president.

“It’s a very exclusive club, and they’re basically right in the middle of that club,” he said.

Among American Equity’s competitors are German financial services giant Allianz AG Holding Inc., which leads the market with about $3 billion in quarterly sales, compared to American Equity’s $379 million in production for the quarter that ended Sept. 30. Other competitors include AmerUs Group Co., InG Groep NV and FBL Financial Group Inc., which is also American Equity’s largest institutional investor.

American Equity also rates highly in quality, becoming the only company to earn Advantage Compendium’s Excellence in Execution award last year for revenue and financial growth and excellent customer service. The analysis firm also rated American Equity first among the 10 largest carriers in terms of customer satisfaction, Marrion said.

With a relatively young management team backing up Noble, who said he has no plans to retire, American Equity is a company that’s “very committed to the future,” Nobel said.

That future includes plans to expand its sales force to 50,000 agents within the next year from the more than 46,000 it already has, and to capitalize on a financial structure which could allow American Equity to bring in an additional $2 billion in business in each of the next two years. In the past year, the company has raised a total of $593 million in new capital, through a combination of its stock sales and successful offerings of convertible debt.

Though his company operates in a complex industry, Noble’s overall strategy for putting that capital to work is straightforward.

“(It will) permit us to increase written insurance as we have in ’04 and we expect to in ’05, ’06 and ’07, to significantly increase our production of insurance, which will grow our asset base … which will increase our earnings significantly, which we hope will reflect in our (stock) price,” he said. “We have to believe that this capital will ultimately be recognized by the rating agencies.”

A rising stock price will lead to more than bragging rights. The $260 million in notes that American Equity just issued will become convertible to common shares when the stock price hits $14.47 per share. Meanwhile, those investors are earning a 5.25 percent return, with American Equity earning 6.31 percent on the money.

“Frankly, I think (convertible debt) is the best of all worlds,” Noble said. “Why don’t a number of other people do it? Quite a number do. But it’s hard work to get these things done.”

Still harder work for American Equity will be earning a higher grade from the major insurer rating agencies. The company is currently rated BB; however, according to the company, it meets Standard & Poor’s guidelines for the higher AA rating.

“I was able to get the company public in December ‘03, I was able to raise $260 million in December ’04, and I think the investment community is relatively not unhappy with me,” Noble said. “When it’s all said and done and you’re a capitalist as I am, that probably is the test that I worry an awful lot about. I worry about the rating agencies, because I don’t know how to get over the threshold.”

Noble said part of the explanation may be that American Equity doesn’t fit the “black box” that rating agencies use to evaluate larger insurers’ strength.

“For many years, if you’ve been in business for five years, you were no longer a newcomer,” he said. “When there’s been no newcomers, we’re trying to figure out where the benchmark of no longer being a newcomer is. We happen to think being a newcomer is a plus, because we’re not carrying the baggage of 100 years. That does not necessarily fit the conclusions of the rating agencies.”

To American Equity’s detriment, the rating agencies have become increasingly conservative, said Steven Schwartz, a senior life insurance analyst who follows the company for Raymond James & Associates in Chicago. The firm has traded about 1 million American Equity shares for its clients in the past year.

“I think (American Equity’s) level of capital, while more than enough on a regulatory basis, apparently is not enough for the rating agencies to give them a (Moody’s) A- rating,” Schwartz said.

Additionally, the company is so credit-risk averse in its holdings that it has made some potential investors uncomfortable, he said. However, it’s a “very appropriate strategy” for American Equity, Schwartz said, given its newness and the fact that surrender charges on its annuities are still largely in place as a cushion against policyholders cashing in their contracts.

Raymond James, which forecast that American Equity’s operating earnings will reach $1.02 per share in 2004 and $1.35 per share for 2005, has given the company’s stock its highest recommendation, a “strong buy.” That’s defined as an expectation of appreciation that will provide a total return of at least 15 percent, and that it will outperform the S&P 500 index over the next six months.

“The really interesting thing about the company is the high level of sales relative to their reserves (assets under management),” Schwartz said. “ This is a company with roughly $7 billion of assets under management. We figure they can bring in $2 billion in new deposits annually. We expect assets under management to grow very rapidly in the near term, and earnings to go up commensurately.”