Athene’s Steady Growth and Diversified Approach

Athene is a leading financial services company that specializes in retirement savings products. The company focuses on generating steady earnings by combining its expertise in sourcing long-term liabilities and actively managing its investment portfolio.

Athene has established a significant base of earnings, with an expected annual net investment spread of 1-2% over the estimated 8.4 year weighted-average life of its net reserve liabilities. As of September 30, 2024, the company had total assets of $355.0 billion and generated an annualized net investment spread of 1.76% for the first nine months of the year.

Athene’s growth strategy involves both organic and inorganic channels. On the organic side, the company generated $56.8 billion in gross inflows during the first nine months of 2024, a 30% increase from the prior year. This reflects the strength of Athene’s multi-channel distribution platform, which includes retail fixed annuities, flow reinsurance, and institutional products like funding agreements and pension group annuities.

Within the retail channel, Athene had fixed annuity sales of $27.8 billion, driven by strong demand for its fixed indexed annuity (FIA) and multi-year guaranteed annuity (MYGA) products. The company aims to continue growing this channel by deepening relationships with its network of independent marketing organizations, banks, and broker-dealers.

In the flow reinsurance channel, Athene generated $4.5 billion in inflows, though this was down from the prior year due to increased competition. The company expects its strong credit profile and reputation as a solutions provider will help it continue sourcing new reinsurance partners.

Athene’s institutional channel saw inflows of $24.5 billion, a significant increase from the prior year. This was driven by record funding agreement issuances, including $9.2 billion through the company’s Funding Agreement-Backed Note (FABN) program. Athene also issued $871 million in pension group annuity contracts, though this was down from a large $7.6 billion transaction in 2023.

To support its growth strategies, Athene has established two long-duration, on-demand capital vehicles called ACRA 1 and ACRA 2. These allow the company to simultaneously deploy capital across multiple accretive opportunities while maintaining a strong financial position. As of September 30, 2024, Athene estimates it had $8.4 billion in capital available to deploy.

The company’s inorganic channel has also contributed significantly to its growth through acquisitions and block reinsurance transactions. Athene believes its corporate development team, with support from parent company Apollo, has an industry-leading ability to source, underwrite, and expeditiously close transactions.

Looking at the broader environment, Athene is affected by global economic and market conditions. While the US economy has continued to grow, with GDP increasing 2.8% in the third quarter of 2024, there are concerns about plateauing growth, inflation, and geopolitical tensions. The Federal Reserve lowered interest rates in September 2024 to 4.75-5.00%, the first cut since the pandemic.

Athene’s investment portfolio, which totaled $308.0 billion as of September 30, 2024, is managed by Apollo and focuses on high-quality fixed income assets. The portfolio includes corporate bonds, structured securities, and commercial and residential real estate loans, as well as some alternative investments. Athene also maintains holdings in floating rate and less rate-sensitive instruments to manage interest rate risk.

The company’s net invested assets, which directly back its net reserve liabilities, were $242.7 billion as of September 30, 2024. Athene’s net investment earned rate was 5.12% for the third quarter, up from 4.76% in the prior year period, driven by higher returns in both the fixed income and alternative investment portfolios.

Athene’s cost of funds increased to 3.34% in the third quarter, up from 2.67% a year earlier, primarily due to higher rates on new deferred annuity and institutional business issuances, as well as the impact of the VIAC recapture transaction in 2023. This resulted in a net investment spread of 1.83%, down from 2.13% in the prior year period.

In terms of the company’s investment portfolio quality, a significant majority (96.9%) of Athene’s AFS securities, including related parties, were invested in assets considered investment grade as of September 30, 2024. The portfolio is well-diversified, with exposures across corporate bonds, structured securities, and government-related holdings.

Overall, Athene’s financial performance demonstrates its ability to generate steady earnings through disciplined liability sourcing and active investment management. The company’s diversified growth strategy, both organically and inorganically, positions it well to capitalize on the increasing demand for retirement solutions. However, Athene remains vigilant to potential economic and market headwinds that could impact its business.