Overview

Athene Holding Ltd. (AHL) is a leading financial services company that specializes in issuing, reinsuring and acquiring retirement savings products. The company focuses on generating spread income by combining its expertise in sourcing long-term liabilities and actively managing its investment portfolio.

As of June 30, 2024, AHL had total assets of $332.6 billion and generated an annualized net investment spread of 1.74%. The company’s organic channels, including retail, flow reinsurance and institutional products, provided $36.8 billion in gross inflows for the six months ended June 30, 2024, up 20% from the prior year.

AHL’s retail channel saw fixed annuity sales of $18.6 billion, driven by strong demand for its fixed indexed annuity (FIA) and multi-year guaranteed annuity (MYGA) products. The company’s flow reinsurance channel generated $3.6 billion in inflows, while the institutional channel saw $14.6 billion in inflows, primarily from funding agreements.

To support its growth, AHL has established two long-duration, on-demand capital vehicles - ACRA 1 and ACRA 2 - which allow the company to deploy capital across multiple accretive avenues while maintaining a strong financial position. As of June 30, 2024, AHL estimates it had approximately $10.1 billion in capital available to deploy.

Industry Trends and Competition

AHL operates in a highly competitive market, facing a variety of large and small industry participants. The company is affected by economic and market conditions, including global inflation, equity market performance, interest rates and foreign exchange rates.

The US annuity market saw continued growth in 2024, with total annuity sales increasing 13.4% year-over-year in the first quarter. AHL remained the largest provider of annuities and fixed annuities in the US, with market shares of 9.1% and 12.0%, respectively, in the first quarter of 2024.

The company also sees significant growth opportunities in the registered indexed linked annuity (RILA) market, where it was the tenth largest provider with a 2.0% market share in the first quarter of 2024.

Key Operating and Non-GAAP Measures

AHL uses several non-GAAP measures to evaluate its financial performance, including:

• Spread Related Earnings (SRE): A pre-tax measure that excludes the impact of market volatility, integration/restructuring expenses and stock compensation.
• Net Investment Spread: Measures the company’s investment performance and strategic capital management fees, less the total cost of its liabilities.
• Adjusted Senior Debt-to-Capital Ratio and Adjusted Leverage Ratio: Measures of the company’s capital structure that exclude the impacts of accumulated other comprehensive income (AOCI) and fair value changes.
• Net Invested Assets and Net Reserve Liabilities: Measures that provide insight into the assets backing the company’s liabilities and the costs of those liabilities.

These non-GAAP measures provide useful information about the underlying profitability and capital position of the business.

Results of Operations

For the three months ended June 30, 2024, AHL reported net income available to common stockholders of $583 million, up 47% from the prior year period. This was driven by an $8.4 billion decrease in benefits and expenses, partially offset by an $8.0 billion decrease in revenues.

The decrease in revenues was primarily due to a $8.4 billion decline in premiums, partially offset by a $792 million increase in net investment income and a $13 million increase in VIE investment related gains.

The decrease in benefits and expenses was mainly attributable to a $8.4 billion decline in future policy and other policy benefits, partially offset by a $55 million increase in market risk benefits remeasurement.

For the six months ended June 30, 2024, net income available to common stockholders increased 55% to $1.7 billion. This was driven by a $7.2 billion decrease in benefits and expenses, partially offset by a $6.4 billion decrease in revenues, a $172 million increase in income tax expense and an $11 million increase in net income attributable to noncontrolling interests.

Investment Portfolio

As of June 30, 2024, AHL had total investments, including related parties and consolidated VIEs, of $287.2 billion. The company’s investment strategy focuses on disciplined management of its portfolio against long-duration liabilities, with a diversified mix of primarily high-grade fixed income assets.

The investment portfolio consists largely of AFS securities ($166.4 billion), mortgage loans ($56.1 billion) and investment funds ($17.8 billion). A significant majority (96.8%) of the AFS portfolio was invested in assets considered investment grade by NAIC designation.

AHL’s related party investments totaled $46.0 billion, or 13.8% of total assets, and included securitizations of unaffiliated assets where Apollo is the manager ($18.7 billion), investments in Apollo funds ($11.8 billion) and strategic investments in Apollo direct origination platforms ($7.2 billion).

The company uses derivatives primarily to hedge the cash flow variability of its FIA products and foreign currency exposure. As of June 30, 2024, AHL held $7.5 billion in derivative assets.

Net Investment Spread

AHL’s net investment spread decreased to 1.64% in the second quarter of 2024, down from 1.99% in the prior year period. This was driven by a 54 basis point increase in cost of funds, partially offset by an 18 basis point increase in net investment earned rate.

The higher cost of funds was primarily due to higher rates on new deferred annuity and institutional business issuances, as well as an increase in business mix toward higher-crediting rate institutional products. The increase in net investment earned rate was mainly attributable to higher returns in the fixed income portfolio, partially offset by lower alternative investment income and higher costs associated with the ACRA noncontrolling interests.

For the six months ended June 30, 2024, net investment spread decreased 17 basis points to 1.74%, again driven by higher cost of funds, partially offset by a higher net investment earned rate.

Adjustments to Net Income

The adjustments to net income available to common stockholders primarily consist of investment gains/losses, non-operating changes in insurance liabilities and related derivatives, and integration/restructuring expenses.

In the second quarter of 2024, these adjustments increased by $439 million, primarily due to favorable changes in the fair value of mortgage loans and reinsurance assets. This was partially offset by a $101 million decrease in non-operating changes in insurance liabilities and related derivatives.

For the six months ended June 30, 2024, the adjustments increased by $727 million, driven by a $707 million increase in non-operating changes in insurance liabilities and related derivatives, as well as a $20 million increase in investment gains/losses.

Outlook

AHL is well-positioned to continue growing its business, both organically and inorganically, with a focus on international expansion, particularly in Asia. The company believes its corporate development team, supported by Apollo, has an industry-leading ability to source, underwrite and close transactions.

The company expects its organic channels to continue benefiting from its strong financial position, diverse product offerings and expanding distribution network. AHL also anticipates its inorganic channel will remain an important source of profitable growth in the future.

Overall, AHL’s diversified business model, disciplined investment approach and strategic capital solutions position the company for continued success in the highly competitive retirement services market.