Athene Holding Ltd. Reports Second Quarter 2019 Results

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

Net income for the second quarter 2019 was $720 million, or $3.75 per diluted Class A common share (“diluted share”), compared to net income for the second quarter 2018 of $257 million, or $1.30 per diluted common share. The increase from the prior year quarter was primarily driven by favorable changes in the fair value of reinsurance assets related to the decrease in Treasury rates, as well as an increase in adjusted operating income.

Adjusted operating income1 for the second quarter 2019 was $370 million, or $1.95 per adjusted operating common share, compared to adjusted operating income for the second quarter 2018 of $288 million, or $1.47 per adjusted operating common share. The increase from the prior year quarter was primarily driven by rising investment income related to continued invested asset growth.

Highlights

  • Book value per common share of $66.69, an increase of 28% and 55% for the quarter-over-quarter and year-over-year periods ended June 30, 2019, respectively
  • Adjusted book value per common share of $49.50, an increase of 5% and 17% for the quarter-over-quarter and year-over-year periods ended June 30, 2019, respectively
  • ROE of 25.6%, Consolidated adjusted operating ROE of 16.2%, and Retirement Services adjusted operating ROE of 18.9% for the quarter ended June 30, 2019
  • ROA of 2.12% and adjusted operating ROA of 1.28% for the quarter ended June 30, 2019
  • Repurchased $542 million of common stock from December 2018 through July 2019, including $376 million in the second quarter
  • Athene’s Board of Directors has increased the share repurchase authorization by $350 million, effective immediately, bringing the total outstanding authorization to $425 million
  • Raised $863 million of gross proceeds through successful perpetual preferred stock offering in June 2019, at an attractive cost of capital of 6.35%
  • Through July, Apollo/Athene Dedicated Investment Program (“ADIP”), the investment fund managed by Apollo that will help fund Athene Co-Invest Reinsurance Affiliate (“ACRA”), has raised nearly $1.5 billion of capital commitments.
  • Total deposits of $4.0 billion underwritten to target returns for the quarter ended June 30, 2019
  • Estimated ALRe RBC of 415%2 and U.S. RBC of 411% as of June 30, 2019

In the second quarter, strong investment returns drove near-record earnings as our business generated an adjusted operating ROE of 19% in Retirement Services,” said Jim Belardi, CEO of Athene. “Our adjusted book value of nearly $50 per share continues to accrete in line with our superior long-term track record of 17% compound annual growth.”

Mr. Belardi continued, “As we have consistently stated, we will deploy capital opportunistically across organic and inorganic growth initiatives, share repurchases, and bolstering for ratings upgrades, as we seek the highest risk-adjusted returns for our shareholders. In the current environment, it’s clear the market is improperly discounting our growing earnings power, which led us to repurchase $376 million of our shares in the second quarter at an average price of less than 90% of adjusted book value per share and high-teens returns. Following another increase in our repurchase capacity, our Board has now authorized nearly $1 billion in the past eight months. Given the attractive levels at which we’re executing, we believe this method of capital deployment is very accretive to shareholders.”

 

1

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

2

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 to the statutory financial statements of ALRe and its non-U.S. reinsurance subsidiary, on an aggregate basis.

Second Quarter 2019 Results

Net income for the second quarter 2019 was $720 million, an increase of $463 million, or 180%, from the second 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 net FIA derivatives. The change in the fair value of reinsurance assets resulted from a decline in Treasury rates, while the unfavorable change in FIA derivatives resulted from a change in discount rates.

Adjusted operating income for the second quarter 2019 was $370 million, an increase of $82 million, or 28%, from the second quarter 2018, primarily driven by higher investment income. The increase in investment income over the prior year quarter was driven by strong alternative investment income and invested asset growth.

Deposit Highlights

In the second quarter 2019, Athene generated organic deposits of $4.0 billion, an increase of 50% compared to the second quarter 2018, driven by solid results across all channels. Notably, the liabilities supporting these deposits were underwritten to the same return standards as previously generated business.

Retail: In the second quarter 2019, Athene generated $1.9 billion of new deposits, a decrease of 6% from the prior year quarter, reflecting Athene’s disciplined approach to pricing in a declining interest rate environment. Athene continues to expand distribution particularly through financial institutions, and sales momentum in newer products continues to be strong. In early July, Athene also launched its first-ever registered index-linked (RILA) annuity product, Athene® Amplify, complementing Athene’s suite of retirement solutions.

Flow Reinsurance: In the second quarter 2019, Athene generated $1.1 billion of new deposits, up 138% from the prior year quarter, driven by new reinsurance relationships formed in the second half of 2018.

Institutional: In the second quarter 2019, Athene generated $1.0 billion of new deposits from institutional products, including $706 million of new deposits from one pension risk transfer transaction, and $299 million of new deposits from one funding agreement.

 

Selected Results

 

 

As of and for the three months ended June 30,

(In millions, except percentages and per share data)

2018

 

2019

Book value per common share

$

42.89

 

 

$

66.69

 

Adjusted book value per common share

$

42.27

 

 

$

49.50

 

Common shares outstanding1

197.3

 

 

185.4

 

Adjusted operating common shares outstanding2

196.4

 

 

184.4

 

 

 

 

 

Return on equity (ROE)

12.0

%

 

25.6

%

Adjusted operating ROE

14.2

%

 

16.2

%

Adjusted operating ROE – Retirement Services

19.8

%

 

18.9

%

 

 

 

 

Return on assets (ROA)

0.98

%

 

2.12

%

Adjusted operating ROA

1.34

%

 

1.28

%

Net investment spread – Retirement Services

1.90

%

 

1.68

%

 

 

 

 

Investments, including related parties

$

98,682

 

 

$

120,106

 

Invested assets

$

98,609

 

 

$

116,671

 

Debt to capital ratio

12.2

%

 

7.4

%

Adjusted debt to capital ratio

12.4

%

 

9.0

%

Total shareholders’ equity

$

8,462

 

 

$

12,365

 

Adjusted common shareholders’ equity

$

8,303

 

 

$

9,127

 

 

 

 

 

Organic deposits

$

2,690

 

 

$

4,039

 

Inorganic deposits

19,104

 

 

 

Total deposits

$

21,794

 

 

$

4,039

 

1

Represents common shares outstanding for all classes eligible to participate in dividends for each period presented. Used for the book value per common 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 June 30,

(In millions, except per share data)

2018

 

2019

Net income

$

257

 

 

$

720

 

Non-operating adjustments

 

 

 

Investment gains (losses), net of offsets

(74

)

 

417

 

Change in fair values of derivatives and embedded derivatives – FIAs, net of offsets

68

 

 

(57

)

Integration, restructuring and other non-operating expenses

(8

)

 

(11

)

Stock compensation expense

(2

)

 

(3

)

Income tax (expense) benefit – non-operating

(15

)

 

4

 

Less: Total non-operating adjustments

(31

)

 

350

 

Adjusted operating income

$

288

 

 

$

370

 

 

 

 

 

Adjusted operating income by segment

 

 

 

Retirement Services

$

287

 

 

$

376

 

Corporate and Other

1

 

 

(6

)

Adjusted operating income

$

288

 

 

$

370

 

 

 

 

 

Earnings per common share – basic1

$

1.30

 

 

$

3.76

 

Earnings per common share – diluted Class A2

$

1.30

 

 

$

3.75

 

Adjusted operating earnings per common share3

$

1.47

 

 

$

1.95

 

Weighted average common shares outstanding – basic1

197.3

 

 

191.2

 

Weighted average common shares outstanding – diluted Class A2

164.8

 

 

158.8

 

Weighted average common shares outstanding – adjusted operating3

195.1

 

 

189.4

 

1

Basic earnings per common share, including basic weighted average common shares outstanding includes all classes eligible to participate in dividends for each period presented.

2

Diluted earnings per common share on a GAAP basis for Class A common shares, including diluted Class A weighted average common 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 349,391 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 $596 million (83% of net income) and $214 million (83% of net income) for the three months ended June 30, 2019 and 2018, respectively.

3

Weighted average common 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 second quarter 2019, adjusted operating income in Retirement Services was $376 million, an increase of $89 million, or 31%, from the second quarter 2018, resulting in an adjusted operating ROE of 18.9%. The increase in adjusted operating income over the prior year quarter was primarily driven by an increase of $338 million in investment income primarily due to invested asset growth, as well as strong alternative asset returns.

The net investment spread, which measures net investment earnings less cost of funds, was 1.68% of average invested assets for the second quarter 2019, a decrease of 22 basis points from the second quarter 2018. The decrease from the prior year quarter was driven by a lower net investment earned rate (“NIER”) and a higher cost of funds. The net investment spread of 1.68% in the second quarter 2019 increased 32 basis points quarter-over-quarter from 1.36% in the first quarter 2019, primarily driven by the strong alternative investment performance in the period.

The NIER was 4.63% for the second quarter 2019, a decrease of 11 basis points from the prior year quarter, primarily due to lower onboarded rates on the Voya and Lincoln assets. The annualized return on alternative investments during the second quarter 2019 was 14.46%, compared to 11.28% in the prior year quarter, reflecting broad-based strength across the alternatives portfolio, including the lagged effect of positive equity market performance in the first quarter 2019 and tightening credit spreads.

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 2.95% for the second quarter 2019, an increase of 11 basis points from the second quarter 2018. Total cost of crediting was 1.92% for the second quarter 2019, an increase of 14 basis points from the prior year quarter, driven by higher option costs for deferred annuities 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 3.76%. Other liability costs were 1.03% for the second quarter 2019, a decrease of 3 basis points from the prior year quarter primarily due to the declining mix of deferred annuity expenses within cost of funds.

Corporate & Other

In the second quarter 2019, the adjusted operating loss was $6 million in Corporate & Other, a decrease of $7 million from adjusted operating income of $1 million in the second quarter 2018. The decrease was driven by a lower balance of excess capital generating earnings and higher operating expenses, partially offset by higher alternative investment income.

Share Repurchase Activity

From December 2018 through July 2019, Athene repurchased 12.9 million shares of its common stock for $542 million under previously announced share repurchase programs. During this period, shares were purchased at an average cost of $42.08 per share and an average price-to-book value multiple of 0.9x. This activity includes 8.8 million shares repurchased during the second quarter 2019 for $376 million.

Athene’s Board of Directors has increased the share repurchase authorization by $350 million, effective immediately. As of August 5, 2019, Athene has total outstanding share repurchase capacity of $425 million.

Update on Strategic Capital Solution (ACRA)

In May 2019, Athene announced the formation of a strategic capital solution called Athene Co-Invest Reinsurance Affiliate (“ACRA”). 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 issuances in the future, and eliminates the impact undeployed on-balance sheet capital has on key financial measures, such as ROE. To date, unfunded capital commitments for Apollo/Athene Dedicated Investment Program (“ADIP”), the investment fund managed by Apollo Global Management that will help capitalize ACRA, are nearly $1.5 billion, and significant additional commitments are expected to close over the coming months. Additional information on ACRA and ADIP can be found in a presentation previously posted on Athene’s website at ir.athene.com.

Conference Call Information

Athene will host a conference call today, Monday, August 5, 2019, at 10 a.m. ET. During the call, members of Athene’s senior management team will review Athene’s financial results for the second quarter ended June 30, 2019. This press release, the second quarter 2019 earnings presentation and financial supplement are posted to Athene’s website at ir.athene.com.

  • Live conference call: Toll-free at (866) 901-0811 (domestic) or +1 (346) 354-0810 (international)
  • Conference call replay available through August 21, 2019 at (800) 585-8367 (domestic) or +1 (404) 537-3406 (international)
  • Conference ID number: 5889279
  • 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, fixed indexed and index-linked 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 $139.0 billion as of June 30, 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 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 common shareholders’ equity is calculated as the ending shareholders’ equity available to common shareholders excluding AOCI, the cumulative change in fair value of funds withheld and modco reinsurance assets and preferred stock. Adjusted operating ROE is calculated as the adjusted operating income, divided by average adjusted common 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 common share, weighted average common shares outstanding – adjusted operating and adjusted book value per common 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 common share is calculated as the adjusted operating income, over the weighted average common shares outstanding – adjusted operating. Adjusted book value per common share is calculated as the adjusted common 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

ngunn@athene.com

Media Contact:

Karen Lynn

+1 441-279-8460

+1 515-342-3910

klynn@athene.com

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