2021 will be a transition year from the AEL 1.0 strategy to the AEL 2.0 business model.
Driven by the introduction of competitive three and five-year single-premium, deferred-annuity products at both American Equity and Eagle Life, we saw a substantial increase in sales, with total deposits of $1.8 billion, doubling from the prior year quarter and up 221% from the third quarter of 2020.
Fixed-rate annuities was a major driver of fourth quarter sales increase, while fixed-indexed annuities also increased, up 23% sequentially.
Our FIA sales in the bank and broker-dealer channel increased 76% sequentially.
New representatives appointed with Eagle Life during the quarter increased by nearly 1,200 to over 9,300 at year-end.
Total sales increased 103% from the third quarter, while fixed-indexed annuity sales climbed 16%.
Pending applications when we reported third quarter results stood at 1,625.
Pending applications when we reported third quarter results were at 975.
Our company will initially commit up to $2 billion of invested assets to build the joint venture, and we expect to bring this capital-efficient asset product to other insurers as well.
For the fourth quarter of 2020, we reported non- GAAP operating income of $72 million, or $0.77 per diluted common share.
Financial results were significantly affected by excess cash in the portfolio as we repositioned our investment portfolio by derisking out of almost $2 billion of structured securities and $2.4 billion of corporates in the fourth quarter and build cash we expect to redeploy by transferring to Varde-Agam and Brookfield reinsurance transactions.
For full year 2020, we reported non-GAAP operating income of $69.1 million or $0.75 per share.
Excluding notable items, specifically the one-time effect of annual actuarial review in the third quarter, a tax benefit from the enactment of CARES Act, and loss on extinguishment of debt, 2020 non-GAAP operating income was $381.4 million or $4.13 per share.
As part of our AEL 2.0 strategy work, we executed a series of trades designed to raise liquidity to fund the Varde-Agam and Brookfield block reinsurance transactions and derisk the investment portfolio.
As part of this derisking, we sold nearly $2 billion of structured securities and an additional $2.4 billion of corporates where we generally focused on securities that we believed were at risk of future downgrades.
As of the fourth quarter, the fixed maturity securities portfolio had an average rating of A minus with almost 97% rated NAIC 1 or 2.
In addition, almost 80% of our commercial mortgage loan portfolio was rated CM1 at year-end, with 99.7% rated either CM1 or CM2.
The impact to ratings migrations totaled 23 RBC points compared to the projection of 50 RBC points in that 12-to-18-month economic stress scenario.
The impact of credit losses and impairments was 10 points, which compared to a projection of 25 RBC points in the stress scenario.
Fourth quarter 2019 results included a $2 million, or $0.02 per share, loss from the write-off of unamortized debt issue cost for subordinated debentures that were redeemed during the period.
Average yield on invested assets was 3.88% in the fourth quarter of 2020 compared to 4.10% in the third quarter of this year.
The decrease was attributable to a 22 basis point reduction from interest foregone due to an increase in the amount of cash held in the quarter.
Cash and short-term investments in the investment portfolio averaged $4.4 billion over the fourth quarter, up from $1.7 billion in the third quarter.
At year-end, we held $7.3 billion in cash and short-term investments in the life insurance company portfolios yielding roughly 7 basis points.
The current point-in-time yield on the portfolio, including excess cash, is approximately 3.4%.
Excluding excess cash and invested assets to be transferred as part of the reinsurance transactions, we estimate the current point-in-time yield on the investment portfolio to be roughly 4%.
The aggregate cost of money for annuity liabilities was 163 basis points, down three basis points from the third quarter of 2020.
Reflecting the decline in the portfolio yield, investment spread fell to 225 basis points from 244 basis points in the third quarter.
Excluding non-trendable items, adjusted spread in the fourth quarter was 213 basis points compared to 231 basis points in the third quarter of 2020.
The average yield on long-term investments acquired in the quarter was 4.46%, gross of fees, compared to 3.59% gross of fees in the third quarter of the year.
We purchased $152 million of fixed income securities at a rate of 3.32%, originated $142 million of commercial mortgage loans at a rate of 3.67%, and purchased $224 million of residential mortgage loans at 5.63% gross of fees.
The cost of options declined slightly to 139 basis points from 142 basis points in the third quarter.
All else equal, we would expect to continue to see the cost of money continue to decline throughout most of 2021, reflecting lower volatility and the actions taken in June of last year to reduce participation rates on $4.3 billion of policyholder funds and S&P annual point-to-point and monthly average strategies.
The cost of options for the hedge week ended February 9th was 143 basis points.
Should the yields available to us decrease or the cost of money rise, we continue to have flexibility to reduce our rates if necessary and could decrease our cost of money by roughly 62 basis points if we reduce current rates to guaranteed minimums.
This is down slightly from the 63 basis points we cited on our third quarter call.
The liability for lifetime income benefit riders increased $79 million this quarter, which included negative experience of $16 million relative to our modeled expectations.
Coming out of the third quarter actuarial assumption review, we said we had expected for that quarter a $63 million increase in the GAAP LIBOR reserve based on our actuarial models, while actuarial and policyholder experience true-ups had added an additional $5 million of reserve increase.
We said that we thought expected plus or minus $10 million would seem reasonable.
There were pluses and minuses in the fourth quarter, with the biggest differences due to a $6 million increase from lower-than-expected decrements on policies with lifetime income benefit riders and a $10 million increase as a result of lower caps and par rates due to renewal rate changes and policies having anniversary dates during the quarter.
Deferred acquisition cost and deferred sales inducement amortization totaled $113 million, $16 million less than modeled expectations.
The benefit on the combined deferred acquisition costs and deferred sales inducement amortization from the second quarter 2020 renewal rate changes was $10 million, effectively offsetting the negative effect on the lifetime income benefit rider reserve.
Other operating costs and expenses increased to $55 million from $43 million in the third quarter.
Notable items not likely to reoccur in the first quarter of 2021, primarily advisory fees related to the unsolicited offer for the company in September totaled, approximately, $3 million with much of the remaining increase associated with the implementation of AEL 2.0.
Post-closing of the announced reinsurance transactions with Varde-Agam and Brookfield and the creation of the affiliated reinsurance platform, we would expect the level of other operating costs and expenses to fall in the mid-to-high $40 million range.
Based on current estimates, we expect an additional 520,000 shares to be delivered to us in addition to the initial 3.5 million shares delivered at the initiation.
Combined with the 1.9 million shares we repurchased in the open market prior to the initiation of the ASR program, we will have effectively reduced the share dilution resulting from the November 30th initial equity investment of 9.1 million shares from Brookfield Asset Management by, approximately, two-thirds.
The risk-based capital ratio for American Equity Life was 372%, flat with year-end 2019.
Total debt to total capitalization, excluding accumulated other comprehensive income, was 12.2% compared to 17.7% at year-end 2019.
At year-end, cash and short-term investments at the holding company totaled $484 million.
We expect to have over $300 million of cash at the holding company even after buying back additional shares after completion of the existing ASR to fully offset Brookfield issuance related dilution.
We are strongly capitalized as we look to execute AEL 2.0 with ample liquidity at the holding company, low leverage ratio relative to our industry peers, and robust capitalization at the life company.

Summary:
For the fourth quarter of 2020, we reported non- GAAP operating income of $72 million, or $0.77 per diluted common share.