Athene Holding Ltd. Reports First Quarter 2019 Results

PEMBROKE, Bermuda–(BUSINESS WIRE)–Athene Holding Ltd. (“Athene”) (NYSE: ATH), a leading provider of
retirement savings products, today announced financial results for the
first quarter 2019.

Net income for the first quarter 2019 was $708 million, or $3.64
per diluted Class A share (“diluted share”), compared to net income for
the first quarter 2018 of $277 million, or $1.40 per diluted share. The
increase from the prior year quarter was driven by favorable changes in
the fair value of reinsurance assets1 related to the decrease
in Treasury rates.

Adjusted operating income2 for the first
quarter 2019 was $287 million, or $1.50 per adjusted operating share,
compared to adjusted operating income for the first quarter 2018 of $241
million, or $1.23 per adjusted operating share. The increase from the
prior year quarter was primarily driven by higher investment income
related to invested asset growth.

Highlights

  • Athene announces formation of strategic capital solution, Athene
    Co-Invest Reinsurance Affiliate (“ACRA”), which is expected to provide
    Athene with up to $4 billion of on-demand, third-party equity capital,
    enabling Athene to support a variety of business objectives
  • With enhanced strategic flexibility resulting from ACRA, Athene’s
    Board of Directors has increased the share repurchase authorization to
    $350 million, effective immediately
  • On April 30, 2019, Fitch Ratings (“Fitch”) upgraded the financial
    strength ratings of Athene’s operating companies to ‘A’ from ‘A-‘
  • Book value per share of $52.12, an increase of 23% and 18% for the
    quarter-over-quarter and year-over-year periods ended March 31, 2019,
    respectively
  • Adjusted book value per share of $47.30, an increase of 4% and 17% for
    the quarter-over-quarter and year-over-year periods ended March 31,
    2019, respectively
  • ROE of 30.8%, Consolidated adjusted operating ROE of 12.8%, and
    Retirement Services adjusted operating ROE of 14.4% for the quarter
    ended March 31, 2019
  • ROA of 2.19% and adjusted operating ROA of 1.02% for the quarter ended
    March 31, 2019
  • Total deposits of $4.8 billion underwritten to target returns for the
    quarter ended March 31, 2019
  • Estimated ALRe RBC of 405%3 and U.S. RBC of 412% as of
    March 31, 2019

Our business continues to drive 17% compound annual growth in adjusted
book value per share,” said Jim Belardi, CEO of Athene. “We are
extraordinarily well positioned with a multi-channel distribution
platform that provides sustainable and opportunistic growth with very
attractive profitability. Given the growing number of opportunities we
see to drive long term value creation, we are excited to announce the
formation of a strategic, on-demand capital vehicle that will allow us
to achieve a variety of business objectives simultaneously, and in a
shareholder friendly manner.”

Mr. Belardi continued, “In recognition of our superior financial
performance, market leadership, and improved business diversification,
Fitch upgraded the financial strength ratings of Athene’s operating
companies to ‘A’ on April 30, 2019. We are now positioned with ‘A’
ratings from all agencies who cover us, and we look forward to
additional ratings upgrades over time. Our increasing presence in the
marketplace as an A-rated company will enable us to establish new
partnerships and further our position as a financial solutions provider
to a broader market.”

 
1 Formerly described as changes in reinsurance embedded derivatives.

2 This news release references certain Non-GAAP measures. See Non-GAAP
Measures
for additional discussion.

3 ALRe RBC ratio is used in evaluating our capital position and the
amount of capital needed to support our Retirement Services segment,
and is calculated by applying the NAIC RBC factors in effect as of
December 31, 2018 to the statutory financial statements of ALRe and
its non-U.S. reinsurance subsidiary, on an aggregate basis.
 

First Quarter 2019 Results

Net income for the first quarter 2019 was $708 million, an
increase of $431 million, or 156%, from the first quarter 2018. The
increase over the prior year quarter was driven by favorable changes in
the fair value of reinsurance assets, partially offset by an unfavorable
change in FIA derivatives. The change in the fair value of reinsurance
assets resulted from a decrease in Treasury rates and tighter credit
spreads, while the unfavorable change in FIA derivatives resulted from a
change in discount rates, partially offset by equity market appreciation.

Adjusted operating income for the first quarter 2019 was $287
million, an increase of $46 million, or 19%, from the first quarter
2018, driven by higher investment income, stable cost of funds, and
increased operating leverage. The increase in investment income over the
prior year quarter was driven by invested asset growth and increased
floating rate investment income, partially offset by lower alternative
investment income due to the lagged impact of wider credit spreads in
the fourth quarter 2018.

Deposit Highlights

For the first quarter 2019, Athene generated organic deposits of $4.8
billion, an increase of 131% compared to the first quarter 2018, driven
by broad-based strength across channels. Notably, the liabilities
supporting these deposits were underwritten to the same return standards
as previously generated business.

Retail: In the first quarter 2019, Athene generated $1.8
billion of new deposits, up 41% from the prior year quarter, driven by
the introduction of new products and growth in the Financial
Institutions channel, both of which have expanded our market share.

Flow Reinsurance: In the first quarter 2019, Athene generated
$1.1 billion of new deposits, up 400% from the prior year quarter,
driven by new business partnerships formed in the second half of 2018.

Institutional: In the first quarter 2019, Athene generated $1.9
billion of new deposits from two pension risk transfer transactions.

Selected Results

   

As of and for the three months

ended March 31,

(In millions, except percentages and per share data) 2018     2019
Return on assets (ROA) 1.14 % 2.19 %
Adjusted operating ROA 1.24 % 1.02 %
Net investment spread – Retirement Services 1.79 % 1.36 %
Return on equity (ROE) 12.4 % 30.8 %
Adjusted operating ROE 12.4 % 12.8 %
Adjusted operating ROE – Retirement Services 17.8 % 14.4 %
 
Book value per share $ 44.05 $ 52.12
Adjusted book value per share $ 40.37 $ 47.30
Common shares outstanding1 197.2 194.1
Adjusted operating common shares outstanding2 196.8 192.4
 
Investments, including related parties $ 80,273 $ 115,687
Invested assets $ 78,723 $ 113,771
Debt to capital ratio 10.2 % 8.9 %
Adjusted debt to capital ratio 11.1 % 9.8 %
Total shareholders’ equity $ 8,687 $ 10,117
Adjusted shareholders’ equity $ 7,946 $ 9,102
 
Organic deposits $ 2,056 $ 4,759
Inorganic deposits        
Total deposits $ 2,056   $ 4,759  
 
1 Represents common shares outstanding for all classes eligible to
participate in dividends for each period presented. Used for the
book value per share calculation.
2 Adjusted operating common shares outstanding assumes conversion or
settlement of all outstanding items that are able to be converted to
or settled in Class A common shares, including the impacts of Class
B common shares outstanding on a one-for-one basis, the impacts of
all Class M common shares outstanding net of the conversion price
and any other stock-based awards outstanding, but excluding any
awards for which the exercise or conversion price exceeds the market
value of Class A common shares on the applicable measurement date.
Our Class B common shares are economically equivalent to Class A
common shares and can be converted to Class A common shares on a
one-for-one basis at any time. Our Class M common shares are in the
legal form of shares but economically function as options as they
are convertible into Class A shares after vesting and settlement of
the conversion price. We believe this non-GAAP measure is an
appropriate economic representation of our share counts for use in
an economic view of book value metrics.
 
   
Three months ended March 31,
(In millions, except per share data) 2018     2019
Net income $ 277   $ 708  
Non-operating adjustments
Investment gains (losses), net of offsets (33 ) 458
Change in fair values of derivatives and embedded derivatives –
FIAs, net of offsets
86 (27 )
Integration, restructuring and other non-operating expenses (8 ) (1 )
Stock compensation expense (3 ) (3 )
Income tax (expense) benefit – non-operating   (6 )   (6 )
Less: Total non-operating adjustments   36     421  
Adjusted operating income $ 241   $ 287  
 
Adjusted operating income by segment
Retirement Services $ 239 $ 286
Corporate and Other   2     1  
Adjusted operating income $ 241   $ 287  
 
Earnings per share – basic1 $ 1.40 $ 3.65
Earnings per share – diluted Class A2 $ 1.40 $ 3.64
Adjusted operating earnings per share3 $ 1.23 $ 1.50
Weighted average shares outstanding – basic1 197.1 194.0
Weighted average shares outstanding – diluted Class A2 149.0 161.7
Weighted average shares outstanding – adjusted operating3 196.0 192.2
 
1 Basic earnings per share, including basic weighted average shares
outstanding includes all classes eligible to participate in
dividends for each period presented.
2 Diluted earnings per share on a GAAP basis for Class A common
shares, including diluted Class A weighted average shares
outstanding, includes the dilutive impacts, if any, of Class B
common shares, Class M common shares and any other stock-based
awards. Such dilutive securities totaled 441,061 weighted average
shares for the quarter. Diluted earnings per share on a GAAP basis
for Class A common shares are based on allocated net income of $589
million (83% of net income) and $209 million (75% of net income) for
the three months ended March 31, 2019 and 2018, respectively.
3 Weighted average shares outstanding – adjusted operating assumes
conversion or settlement of all outstanding items that are able to
be converted to or settled in Class A common shares, including the
impacts of Class B common shares on a one-for-one basis, the impacts
of all Class M common shares net of the conversion price and any
other stock-based awards, but excluding any awards for which the
exercise or conversion price exceeds the market value of Class A
common shares on the applicable measurement date. Our Class B common
shares are economically equivalent to Class A common shares and can
be converted to Class A common shares on a one-for-one basis at any
time. Our Class M common shares are in the legal form of shares but
economically function as options as they are convertible into Class
A shares after vesting and settlement of the conversion price. In
calculating Class A diluted earnings per share on a GAAP basis, we
are required to apply sequencing rules to determine the dilutive
impacts, if any, of our Class B common shares, Class M common shares
and any other stock-based awards. To the extent our Class B common
shares, Class M common shares and/or any other stock-based awards
are not dilutive they are excluded. We believe this non-GAAP measure
is an appropriate economic representation of our share counts for
use in an economic view of adjusted operating earnings per share.
 

Segment Results

Retirement Services

For the first quarter 2019, Retirement Services adjusted operating
income was $286 million, an increase of $47 million, or 20%, from the
first quarter 2018, resulting in an adjusted operating ROE of 14.4%. The
increase in adjusted operating income over the prior year quarter was
primarily driven by higher investment income, stable cost of funds, and
increasing operating leverage. Notably, investment income increased by
$305 million over the prior year quarter primarily due to invested asset
growth.

The net investment spread, which measures net investment earnings less
cost of funds, was 1.36% of average invested assets for the first
quarter 2019, a decrease of 43 basis points from the first quarter 2018.
The decrease from the prior year quarter was driven by lower net
investment earned rates attributed to lower alternative investment
performance as well as lower returns on the Voya and Lincoln assets.

The net investment earned rate (“NIER”) was 4.21% for the first quarter
2019, a decrease of 42 basis points from the prior year quarter,
reflecting lower alternative investment returns, which were negatively
impacted by the lag effect of weak equity markets and wider credit
spreads in the fourth quarter 2018 on nearly two-thirds of the
portfolio. The annualized return on alternative investments during the
first quarter 2019 was 2.13%, compared to 12.34% in the prior year
quarter. Invested asset purchases increased by $800 million, or 11%, to
$7.9 billion with meaningfully higher yields compared to the prior year
quarter.

Cost of funds, which is comprised of the total cost of crediting on
deferred annuities and institutional products as well as other liability
costs, was 2.85% for the first quarter 2019, an increase of 1 basis
point from the first quarter 2018. Total cost of crediting was 1.92% for
the first quarter 2019, an increase of 20 basis points from prior year
quarter, driven by higher option costs for deferred annuities, higher
crediting rates for the onboarded Voya and Lincoln blocks, and the
increase in institutional deposits within the overall business mix. Cost
of crediting on deferred annuities was 1.98% and the cost of crediting
on institutional business was 3.69%. Beginning in the first quarter
2019, institutional costs, previously recognized within other liability
costs, were moved to cost of crediting; all prior periods were recast to
reflect this change. As such, other liability costs were 0.93% for the
first quarter 2019, a decrease of 19 basis points from the prior year
quarter primarily due to equity market appreciation, partially offset by
growth in the block.

Corporate & Other

In the first quarter 2019, Corporate & Other adjusted operating income
was $1 million, in line with the first quarter 2018.

Share Repurchase Activity

From December 10, 2018 through May 6, 2019, Athene repurchased 3.7
million shares of its common stock for $147 million under a previously
announced share repurchase program. During this period, shares were
purchased at an average cost of $40.20 per share. This activity includes
1.2 million shares repurchased during the first quarter 2019 for $47
million.

Athene’s Board of Directors has increased the share repurchase
authorization to $350 million, effective immediately.

Athene Announces Strategic Capital Solution

In order to support a growing number of capital deployment
opportunities, including continuing profitable organic growth, acting as
a solutions provider within the restructuring insurance industry,
maintaining capital for opportunistic investment, repurchasing common
shares at attractive returns, further strengthening the balance sheet,
and pursuing ratings upgrades, Athene has established a long-duration,
on-demand capital vehicle. Athene Co-Invest Reinsurance Affiliate
(“ACRA”), currently is a wholly owned subsidiary of Athene that is
expected to participate in qualifying transactions by drawing two-thirds
of the required capital for such transactions from third-party
investors. ACRA will be managed to the same investment, risk, and
capital standards as all other Athene subsidiaries. ACRA will have
access to a pool of third-party capital, targeted at up to $4 billion in
total. Uncalled capital commitments currently approximate $1 billion.
This shareholder-friendly, strategic capital solution will allow Athene
the flexibility to simultaneously deploy capital across multiple
accretive avenues, while maintaining a strong balance sheet position.
With this solution, Athene will be able to achieve various business
objectives in a manner that is accretive to shareholders, minimizes the
potential need for additional primary issuance in the future, and
eliminates the impact undeployed on-balance sheet capital has on key
financial measures, such as ROE. Additional information on ACRA can be
found in a presentation posted on Athene’s website at ir.athene.com.

Conference Call Information

Athene will host a conference call today, Tuesday, May 7, 2019, at 10
a.m. ET. During the call, members of Athene’s senior management team
will review Athene’s financial results for the first quarter ended March
31, 2019, as well as discuss ACRA. This press release, the first quarter
2019 earnings presentation and financial supplement as well as the ACRA
presentation will be posted to Athene’s website at ir.athene.com.

  • Live conference call: Toll-free at 1-866-901-0811 (domestic) or
    1-346-354-0810 (international)
  • Conference call replay available through May 23, 2019 at
    1-800-585-8367 (domestic) or 1-404-537-3406 (international)
  • Conference ID number: 8645809
  • Live and archived webcast available at ir.athene.com

About Athene Holding Ltd.

Athene, through its subsidiaries, is a leading retirement services
company that issues, reinsures and acquires retirement savings products
designed for the increasing number of individuals and institutions
seeking to fund retirement needs. The products offered by Athene include:

  • Retail fixed and fixed indexed annuity products;
  • Reinsurance arrangements with third-party annuity providers; and
  • Institutional products, such as funding agreements and group annuity
    contracts related to pension risk transfers.

Athene had total assets of $132.9 billion as of March 31, 2019. Athene’s
principal subsidiaries include Athene Annuity & Life Assurance Company,
a Delaware-domiciled insurance company, Athene Annuity and Life Company,
an Iowa-domiciled insurance company, Athene Annuity & Life Assurance
Company of New York, a New York-domiciled insurance company and Athene
Life Re Ltd., a Bermuda-domiciled reinsurer.

Further information about our companies can be found at www.athene.com.

Non-GAAP Measures

In addition to our results presented in accordance with GAAP, we present
certain financial information that includes non-GAAP measures.
Management believes the use of these non-GAAP measures, together with
the relevant GAAP measures, provides information that may enhance an
investor’s understanding of our results of operations and the underlying
profitability drivers of our business. The majority of these non-GAAP
measures are intended to remove from the results of operations the
impact of market volatility (other than with respect to alternative
investments) as well as integration, restructuring and certain other
expenses which are not part of our underlying profitability drivers, as
such items fluctuate from period to period in a manner inconsistent with
these drivers. These measures should be considered supplementary to our
results in accordance with GAAP and should not be viewed as a substitute
for the corresponding GAAP measures. See Non-GAAP Measure
Reconciliations
for the appropriate reconciliations to the
corresponding GAAP measures.

Adjusted operating income is a non-GAAP measure used to evaluate our
financial performance excluding market volatility and expenses related
to integration, restructuring, stock compensation, and other expenses.
Our adjusted operating income equals net income adjusted to eliminate
the impact of the following (collectively, the “non-operating
adjustments”):

  • Investment Gains (Losses), Net of Offsets
  • Change in Fair Values of Derivatives and Embedded Derivatives – FIAs,
    Net of Offsets
  • Integration, Restructuring, and Other Non-operating Expenses
  • Stock Compensation Expense
  • Bargain Purchase Gain
  • Income Tax (Expense) Benefit – Non-operating

We consider these non-operating adjustments to be meaningful adjustments
to net income for the reasons discussed in greater detail above.
Accordingly, we believe using a measure which excludes the impact of
these items is useful in analyzing our business performance and the
trends in our results of operations. Together with net income, we
believe adjusted operating income, provides a meaningful financial
metric that helps investors understand our underlying results and
profitability. Adjusted operating income should not be used as a
substitute for net income.

Adjusted operating ROA is a non-GAAP measure used to evaluate our
financial performance and profitability. Adjusted operating ROA is
computed using our adjusted operating income divided by average invested
assets for the relevant period. To enhance the ability to analyze these
measures across periods, interim periods are annualized. While we
believe each of these metrics are meaningful financial metrics and
enhance our understanding of the underlying profitability drivers of our
business, they should not be used as a substitute for ROA presented
under GAAP.

Adjusted operating ROE is a non-GAAP measure used to evaluate our
financial performance excluding the impacts of AOCI and the cumulative
change in fair value of funds withheld and modco reinsurance assets, in
each case net of DAC, DSI, rider reserve and tax offsets. Adjusted
shareholders’ equity is calculated as the ending shareholders’ equity
excluding AOCI and the cumulative change in fair value of funds withheld
and modco reinsurance assets. Adjusted operating ROE is calculated as
the adjusted operating income, divided by average adjusted shareholders’
equity. These adjustments fluctuate period to period in a manner
inconsistent with our underlying profitability drivers as the majority
of such fluctuation is related to the market volatility of the
unrealized gains and losses associated with our AFS securities. Except
with respect to reinvestment activity relating to acquired blocks of
businesses, we typically buy and hold AFS investments to maturity
throughout the duration of market fluctuations, therefore, the
period-over-period impacts in unrealized gains and losses are not
necessarily indicative of current operating fundamentals or future
performance. Accordingly, we believe using measures which exclude AOCI
and the cumulative change in fair value of funds withheld and modco
reinsurance assets are useful in analyzing trends in our operating
results. To enhance the ability to analyze these measures across
periods, interim periods are annualized. Adjusted operating ROE should
not be used as a substitute for ROE. However, we believe the adjustments
to equity are significant to gaining an understanding of our overall
financial performance.

Adjusted operating earnings per share, weighted average shares
outstanding – adjusted operating and adjusted book value per share are
non-GAAP measures used to evaluate our financial performance and
financial condition. The non-GAAP measures adjust the number of shares
included in the corresponding GAAP measures to reflect the conversion or
settlement of all shares and other stock-based awards outstanding. We
believe using these measures represents an economic view of our share
counts and provides a simplified and consistent view of our outstanding
shares. Adjusted operating earnings per share is calculated as the
adjusted operating income, over the weighted average shares outstanding
– adjusted operating. Adjusted book value per share is calculated as the
adjusted shareholders’ equity divided by the adjusted operating common
shares outstanding. Our Class B common shares are economically
equivalent to Class A common shares and can be converted to Class A
common shares on a one-for-one basis at any time.

Contacts

Investor Relations Contact:
Noah Gunn
+1 441-279-8534
+1
646-768-7309
[email protected]

Media Contact:
Karen Lynn
+1 441-279-8460
+1
515-342-3910
[email protected]

Read full story here

error: Content is protected !!