ATHS — Athene Holding Ltd. 7.250% Fixe

Athene Holdings (ATHS) Q1 2020 Earnings Call Summary

1. Key Financial Results and Metrics:

• Core Earnings: Athene reported an attractive 18.5% return in the Retirement Services segment for Q1 2020.
• Deposits: Generated nearly $4 billion in new deposits, reflecting an 8% sequential growth, driven by strong activity across all channels.
• Fixed Income NIER: Expected to be approximately 4% for the full year, influenced by lower interest rates and cash drag from excess liquidity.
• Cost of Crediting: Declined by 4 basis points from the previous quarter, indicating stable funding costs.
• Tax Rate: Higher than expected at around 14% due to a mix of profits from onshore subsidiaries; expected to normalize to about 10% as conditions stabilize.

2. Strategic Updates and Business Highlights:

• Athene emphasized the resilience of its business model, which is insulated from market volatility due to its focus on principal protection features in savings products.
• The company successfully transitioned to remote operations during the COVID-19 pandemic, maintaining business continuity.
• Athene remains well-capitalized with over $12 billion in statutory capital and $7.5 billion in deployable capital, positioning itself for potential inorganic growth opportunities.
• The firm highlighted strong performance in its alternatives portfolio, which is expected to rebound post-quarter-end.

3. Forward Guidance and Outlook:

• Athene anticipates organic growth volumes for 2020 to be consistent with 2019 levels, targeting approximately $15 billion to $16 billion.
• The company is preparing for potential credit losses but believes they will be manageable due to its strong capital position.
• Expected fluctuations in the alternatives portfolio will impact Q2 results, but long-term outlook remains positive.
• The firm plans to maintain liquidity of around $10 billion to navigate the current economic environment.

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

• The COVID-19 pandemic has created significant market volatility, leading to a decline in equity markets and increased credit spreads.
• Athene's alternatives portfolio experienced temporary mark-to-market declines, with expectations of a 5% to 7% decrease in Q2 due to lagged valuations.
• The pension risk transfer (PRT) market is expected to slow, with transaction volumes potentially halving compared to 2019.
• Concerns remain regarding potential impairments in the hospitality and retail sectors within the commercial mortgage loan portfolio.

5. Notable Q&A Insights:

• Management expressed caution regarding the longevity risk in pension risk transfers, indicating it may provide a benefit but remains uncertain.
• There was a focus on the company's liquidity strategy, with management confirming a goal of increasing liquidity to $10 billion.
• Questions around credit quality highlighted that while downgrades are expected, permanent impairments are not anticipated in the CLO portfolio.
• The management reiterated their commitment to disciplined capital deployment, balancing share repurchases with the need for liquidity amid ongoing market uncertainty.

Overall, Athene Holdings demonstrated resilience in its business model during Q1 2020, despite facing challenges from the pandemic and market volatility. The company remains optimistic about its long-term growth prospects while maintaining a cautious approach to capital management and liquidity.