ATHS — Athene Holding Ltd. 7.250% Fixe

Athene Holding's Q3 2019 Earnings Call Summary

1. Key Financial Results and Metrics

• GAAP Net Income: $276 million, or $1.50 per diluted share.
• Adjusted Operating Income: $243 million, or $1.34 per share; excluding notable items, this was $305 million or $1.67 per share.
• Retirement Services Adjusted Operating Income: $318 million, with an adjusted operating ROE of 16.7%.
• Net Investment Earned Rate (NIER): 4.35%, down from 4.67% in Q2 2019, primarily due to lower floating rate investment income and reduced RMBS prepayments.
• Total Cost of Funds: $934 million, or 3.18% of average invested assets.
• Operating Expense Ratio: 27 basis points, a 13% decline year-over-year.
• Excess Capital: $1.8 billion with an estimated RBC ratio of 420%.

2. Strategic Updates and Business Highlights

• Achieved record organic deposits of $5.6 billion, a 72% increase year-over-year, driven by strong pension closeout business.
• Closed a $2.6 billion deal with Bristol-Myers Squibb in the pension risk transfer (PRT) segment.
• Continued expansion in product distribution, including a new relationship with PNC Bank.
• Successfully raised $345 million from a preferred stock offering.
• Closed the sale of 67% of ACRA to the ADIP fund, generating $575 million in capital.
• Ongoing efforts to eliminate the multi-class share structure to enhance index inclusion eligibility.

3. Forward Guidance and Outlook

• Expect to maintain a stable NIER in Q4 around the current rate, with potential for slight fluctuations based on interest rates and asset yields.
• Anticipate double-digit EPS growth for 2020, despite challenges in the current low-interest-rate environment.
• Project a return on assets of 110 to 120 basis points for 2020.
• Continued focus on sourcing higher-yielding non-CUSIP investments to offset potential declines in traditional fixed income yields.

4. Challenges and Points of Concern

• Q3 results were impacted by a low-interest-rate environment and notable items totaling $62 million, including unfavorable unlocking costs.
• Declining prepayments in the RMBS portfolio and lower-than-expected floating rate income contributed to reduced NIER.
• Competitive pressures in the annuity market, with concerns about maintaining margins as competitors may not be adjusting pricing rationally in response to interest rate changes.
• The company noted a potential slowdown in retail sales activity due to declining new policy applications.

5. Notable Q&A Insights

• Management acknowledged that achieving $7 EPS for 2019 is unlikely due to notable items and lower rates impacting performance.
• The company is cautious about adjusting crediting rates aggressively to avoid negative market perceptions, despite having the flexibility to do so.
• Discussions indicated that while the competitive landscape is challenging, Athene remains confident in its ability to generate attractive returns and maintain growth.
• The strategic partnership with Apollo was highlighted as beneficial for both parties, despite the capital inefficiency of the Apollo stock-heavy consideration mix in the recent transaction.

This summary encapsulates the key points discussed during the earnings call, providing a clear view of Athene's financial performance, strategic direction, and outlook amidst challenges.