ATHS — Athene Holding Ltd. 7.250% Fixe

Athene Holding's Q1 2019 Earnings Call Summary

1. Key Financial Results and Metrics:

• GAAP Net Income: $708 million, or $3.64 per diluted share.
• Adjusted Operating Income: $287 million, or $1.50 per share, a 22% increase year-over-year.
• Consolidated Net Investment Earned Rate: 4.28%, down 32 basis points from the previous year, primarily due to volatility in alternative investment income.
• Total Cost of Funds: $795 million, or 2.85% of average invested assets, slightly up from the prior year.
• Net Investment Spread in Retirement Services: $376 million, or 1.36% of average invested assets.

2. Strategic Updates and Business Highlights:

• Capital Allocation Strategy: Athene aims to maximize returns through organic growth, acquisitions, share buybacks, and improving credit ratings. They have compounded book value by 17% annually over the past decade.
• ACRA Formation: Athene announced the creation of ACRA (Athene Co-Invest Reinsurance Affiliate), a capital vehicle allowing for opportunistic funding of inorganic growth and share repurchases without diluting shareholder equity. ACRA is expected to raise $4 billion in commitments, with $1 billion already secured.
• Strong Organic Growth: Athene reported nearly $5 billion in organic deposits, with a 41% increase in retail channel deposits year-over-year.

3. Forward Guidance and Outlook:

• Earnings Growth: Athene expects to grow earnings by approximately $2.25 per share or 40% if they successfully deploy their current capital and the additional $4 billion from ACRA.
• Market Conditions: Athene anticipates a recovery in alternative investment returns, aiming for a return of about 10% for the remainder of the year.
• Acquisition Pipeline: The company sees a robust pipeline for both organic and inorganic growth, with expectations of continued strong performance in the PRT (Pension Risk Transfer) and flow reinsurance channels.

4. Bad News, Challenges, or Points of Concern:

• Volatility in Alternative Investments: The first quarter saw a significant impact on earned rates due to lagged returns from alternative investments, which could affect future performance.
• Cost of Funds Pressure: The total cost of funds increased slightly, and there are concerns about potential increases in crediting rates due to rising volatility.
• Market Sensitivity: Athene's earnings are sensitive to fluctuations in interest rates and market conditions, which could impact future profitability.

5. Notable Q&A Insights:

• Buyback Strategy: The buyback authorization of $350 million is opportunistic, with no set timetable. Management emphasized that they would increase buybacks if the stock price remains below book value.
• ACRA's Impact on EPS: While ACRA may lead to a slight dilution in EPS in the short term due to the transfer of business, it is expected to enhance ROE and provide greater capital flexibility.
• Competitive Landscape: Athene believes that the ACRA structure positions them favorably against competitors, allowing them to pursue larger, more complex deals that others may not be able to handle.
• Organic vs. Inorganic Growth: Management indicated that while they have significant capital available, they will prioritize high-return opportunities and maintain a balance between organic growth and acquisitions.

In summary, Athene's Q1 2019 results reflect strong performance and strategic initiatives, particularly with the introduction of ACRA, despite facing challenges from market volatility and alternative investment performance. The company remains optimistic about future growth and capital deployment opportunities.