ATHS — Athene Holding Ltd. 7.250% Fixe

Athene Holding's Q2 2019 Earnings Call Summary

1. Key Financial Results and Metrics

• GAAP Net Income: $720 million, or $3.75 per diluted share.
• Adjusted Operating Income: $370 million, or $1.95 per share, reflecting a 30% increase year-over-year.
• Adjusted Return on Equity (ROE): 16.2%.
• Consolidated Net Investment Earned Rate: 4.67%, up from the previous quarter, primarily due to strong alternative investment returns.
• Total Invested Assets: Grew by $4 billion organically.
• Share Repurchases: $375 million deployed to repurchase nearly 9 million shares at an average price below 90% of adjusted book value.

2. Strategic Updates and Business Highlights

• Athene celebrated its 10-year anniversary, highlighting growth from 7 employees to nearly 1,400 and over $115 billion in invested assets.
• Formation of ACRA (Athene Co-Invest Reinsurance Affiliate) to provide long-term capital for growth and flexibility in capital deployment.
• Completed a preferred share offering raising $863 million, enhancing capital structure and allowing for share repurchases.
• Continued strong performance in the alternatives portfolio, with a 14.5% return in Q2, driven by increased fee income and loan origination volume.
• Launched a new registered index-linked annuity product, Amplify, to expand product offerings.

3. Forward Guidance and Outlook

• Expect continued strong earnings momentum, with projections for the second half of 2019 to be stronger than the first half.
• Anticipate modest pressure on fixed income net investment earned rates due to declining interest rates, but offset by lower costs of funds.
• Confident in exceeding 2018’s organic volume growth and maintaining disciplined underwriting to achieve mid-teens returns on new business.

4. Bad News, Challenges, or Points of Concern

• Competitive Pressures: Sales in the retail channel were flat year-over-year, attributed to aggressive pricing by competitors and a declining interest rate environment impacting MYGA sales.
• Interest Rate Environment: Lower interest rates could pressure future earnings and investment yields, particularly affecting floating rate income.
• Market Volatility: Potential for increased competition in the pension risk transfer (PRT) market due to lower interest rates affecting transaction volumes.
• DAC Amortization: Higher DAC amortization of $20 million linked to increased alternative returns, which could impact future earnings.

5. Notable Q&A Insights

• Interest Rate Impact: Management indicated that while lower interest rates may pressure earned rates, they expect to manage costs effectively, maintaining profitability.
• M&A Strategy: Athene remains open to both block acquisitions and whole company deals, with ACRA enhancing their capacity to pursue larger transactions.
• Capital Allocation: There is flexibility to balance share repurchases with organic and inorganic growth opportunities, with a strong emphasis on capital deployment at attractive returns.
• Retail Sales Dynamics: Management acknowledged that while they maintain pricing discipline, they expect competitors to eventually adjust their pricing strategies in response to the current interest rate environment.

This summary encapsulates the key financial metrics, strategic initiatives, forward guidance, challenges, and insights from the Q&A session, providing a balanced view of Athene's performance and outlook for Q2 2019.