Athene Holding's Q3 2019 Earnings Call Summary

1Key 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%.

2Strategic 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.

3Forward 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.

4Challenges 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.

5Notable 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.