ATHS — Athene Holding Ltd. 7.250% Fixe

Athene Holdings (ATHS) Q2 2020 Earnings Call Summary

1. Key Financial Results and Metrics

• Organic Deposits: Record quarterly organic deposits of nearly $7 billion, a 44% increase year-over-year.
• Return on Equity (ROE): Strong mid- to high-teens ROE generation despite market volatility.
• Investment Portfolio: Minimal impairments with only 1 basis point of Other-Than-Temporary Impairment (OTTI) in Q2.
• Fixed Income Net Investment Earned Rate (NIER): Expected to be approximately 3.8% for full-year 2020, with potential uplift in 2021.
• Earnings Accretion: Anticipated earnings accretion from the Jackson transaction of 6% to 9% in 2021 and 2022, translating to $90 million to $140 million of additional adjusted operating income.

2. Strategic Updates and Business Highlights

• Reinsurance Transaction: Closed the largest known block reinsurance transaction with Jackson National, adding nearly $30 billion in assets without using excess capital.
• Market Position: Athene gained market share in the retail annuity space, contrasting with a 4% decline in industry fixed annuity volumes.
• New Partnerships: Established a fixed annuity flow reinsurance partnership in Japan, marking entry into a significant annuity market.
• Investment Strategy: Actively redeploying excess cash and the Jackson portfolio to align with Athene's alpha-generating asset allocation strategy.

3. Forward Guidance and Outlook

• Gross Deposits: Expect to achieve $50 billion in gross deposits for the full year, equating to 40% annual growth in invested assets.
• Investment Income: Anticipated increase in annualized investment income by approximately $120 million from deploying excess cash.
• Market Conditions: While competitive pressures may increase, the company remains optimistic about maintaining strong organic growth and capitalizing on market opportunities.

4. Bad News, Challenges, or Points of Concern

• Market Volatility: The ongoing pandemic and economic uncertainty pose risks, with potential for credit losses, although manageable within risk appetite.
• Interest Rate Environment: Low interest rates continue to pressure investment income, with expectations for further declines in fixed income NIER in the near term.
• Credit Quality Concerns: While credit quality remains solid, there are concerns about potential downgrades in certain sectors, particularly travel and leisure.
• Competitive Pressures: Some competitors are beginning to return to the market, which could lead to increased competition in retail and reinsurance segments.

5. Notable Q&A Insights

• Credit Quality Management: Management is actively monitoring credit quality, with a focus on potential downgrades rather than defaults. They are selling off potentially problematic credits.
• Organic Growth: There is confidence in sustaining organic growth momentum, with expectations to exceed prior guidance of $15 billion to $16 billion for the year.
• Capital Deployment: Athene plans to use excess capital for organic growth, potential acquisitions, and share repurchases, indicating a balanced approach to capital allocation.
• Japan Market Entry: The new partnership in Japan is expected to generate significant growth, with initial sales exceeding expectations.

In summary, Athene Holdings reported strong financial performance in Q2 2020, driven by record organic deposits and strategic transactions, while navigating challenges posed by the pandemic and low interest rates. The company remains optimistic about future growth and capital deployment opportunities.