ATHS — Athene Holding Ltd. 7.250% Fixe

Summary of Athene Holding's Q3 2018 Earnings Call

1. Key Financial Results and Metrics

• GAAP Net Income: $640 million, or $3.23 per diluted share.
• Adjusted Operating Income: $381 million, a record high, representing a 65% increase year-over-year.
• Adjusted Operating ROE: 17.5% consolidated; 22.2% in the retirement services segment.
• Adjusted Book Value: Increased by 23% year-over-year to approximately $46 per share.
• Investment Portfolio: Net investment earned rate at 4.55%, down 9 basis points from the previous year.
• Operating Expenses: 31 basis points as a percentage of average invested assets, the best in the industry.

2. Strategic Updates and Business Highlights

• Athene reported strong momentum across its business, driven by scalable platforms and diversified funding channels.
• Total organic and inorganic deposits exceeded $27 billion year-to-date, leading to a 31% growth in retirement services reserve liabilities.
• The company is focusing on enhancing its investment management agreement with Apollo to align incentives better and access more alpha-generating assets.
• Athene's partnership with Apollo remains a competitive advantage, particularly in identifying investment opportunities during market volatility.
• New product launches, particularly the Agility annuity, have shown strong momentum and are expected to contribute significantly to future deposits.

3. Forward Guidance and Outlook

• Investment Income Guidance: Expected to increase by $150-$155 million in Q4 2018, with a net investment earned rate forecasted at 4.7% to 4.8% for 2019.
• Adjusted Operating Spread: Anticipated to expand by 10-20 basis points in 2019, driven by lower fees, organic expense leverage, and full-year contributions from the Voya transaction.
• Tax Rate: Expected to be around 9% to 10% for 2019, influenced by business mix and potential Bermuda operations.
• Capital Position: Approximately $2 billion of excess capital and $2 billion of debt capacity available for growth.

4. Bad News, Challenges, or Points of Concern

• The net investment earned rate decreased due to the addition of Voya assets, which impacted overall returns.
• Other liability costs were below the expected range, driven by market volatility and the unlocking process, which could affect future earnings.
• There are concerns regarding withdrawal rates, which have increased due to aging policies reaching surrender charges, potentially impacting future cash flows.
• The competitive landscape remains challenging, particularly in the funding agreement market, where Athene has been disciplined in its approach to returns.

5. Notable Q&A Insights

• Management acknowledged the impact of equity market volatility on their financials, particularly regarding rider reserves and DAC amortization.
• There was discussion about the potential for increased withdrawal rates driven by demographic trends, particularly as baby boomers access their annuity products.
• The company expressed confidence in its ability to deploy capital effectively, with a robust pipeline of M&A opportunities, while maintaining a focus on higher-return investments.
• Analysts inquired about the sustainability of the adjusted operating spread and the implications of tax rate changes on future earnings.

Overall, Athene Holding demonstrated strong financial performance in Q3 2018, with a focus on strategic growth and capital management, while also navigating challenges related to market volatility and competitive pressures.