American Equity Life cut to Neutral at Credit Suisse on credit concerns (NYSE:AEL)

Credit score Suisse analyst Andre Kligerman downgraded American Fairness Life (NYSE:AEL) to Impartial from Outperform as a deteriorating macro atmosphere drives credit score considerations, with AEL among the many most uncovered in his protection. AEL shares are dipping 2.1% in Friday morning buying and selling.

If there is a materials decline in credit score, the corporate’s inventory might come underneath stress resulting from its elevated asset leverage, the analyst mentioned. “AEL’s 1Q22 invested asset leverage of ~16x is the best in our U.S. life insurance coverage protection universe, and effectively above the peer median of 8.4x,” Kligerman wrote in a be aware to shoppers.

He factors out that rising charges will considerably profit internet funding yield as ~10% of invested property have a floating ranking, however most of AEL’s property are collateralized mortgage obligations (CLOs), that are attracting elevated scrutiny. “CLOs have drawn investor scrutiny throughout potential credit score downturns given the underlying collateral is under funding grade,” Kligerman mentioned.

Upside dangers embody enhancing macro situations and/or AEL accelerates its capital gentle technique, releasing up further capital. Dangers to the draw back embody persevering with challenged macro situations resulting in elevated credit score losses.

Kligerman’s Impartial ranking aligns with the SA Quant ranking of Maintain and diverges from the common Wall Road ranking of Purchase.

See why SA contributor WG Funding Analysis is contemplating buying shares of American Fairness (AEL)