Athene Holding Ltd. (ATH-PC): A Powerhouse in the Retirement Services Industry

Published on September 24, 2024 | Ticker: ATH-PC

Athene Holding Ltd. (NYSE: ATH-PC) is a leading financial services company that specializes in issuing, reinsuring, and acquiring retirement savings products in the United States and internationally. The company has established a significant base of earnings, with an expected annual net investment spread of 1-2% over the estimated 8.3-year weighted-average life of its net reserve liabilities. As of March 31, 2024, Athene had total assets of $320.6 billion, reflecting the company's impressive growth and scale.

Financials

Athene's Impressive Financial Performance

For the full year 2023, Athene reported annual net income of $3.8 billion and annual revenue of $26.32 billion. The company's annual operating cash flow and free cash flow were both $4.154 billion, showcasing its strong cash generation capabilities.

In the first quarter of 2024, Athene continued to deliver robust financial results. The company generated net income of $1.475 billion, up from $1.223 billion in the same period of 2023. Revenues increased to $5.721 billion, compared to $4.060 billion in the prior-year quarter. Athene's operating cash flow and free cash flow for the first quarter of 2024 were both $185 million.

Business Overview

Diversified and Profitable Business Model

Athene's business model is centered around two core competencies: sourcing long-term, persistent liabilities and actively managing assets to generate attractive risk-adjusted returns. The company's steady and significant base of earnings generates capital that it opportunistically invests across its business to source attractively priced liabilities and capitalize on opportunities.

Athene operates through three main channels: retail, flow reinsurance, and institutional. In the retail channel, the company had fixed annuity sales of $9.7 billion and $8.6 billion for the three months ended March 31, 2024 and 2023, respectively. The increase in retail sales was driven by record sales of Athene's fixed indexed annuity (FIA) products, partially offset by a decrease in multi-year guaranteed annuity (MYGA) sales.

The flow reinsurance channel generated inflows of $2.4 billion and $1.8 billion for the three months ended March 31, 2024 and 2023, respectively. The increase was primarily driven by strong volumes related to new partners added in both the US and Japan in the second quarter of 2023.

Within the institutional channel, Athene generated inflows of $8.0 billion and $1.6 billion for the three months ended March 31, 2024 and 2023, respectively. The increase was driven by higher funding agreement inflows, partially offset by lower pension group annuity inflows.

Athene's Inorganic Growth Strategies

In addition to its organic growth channels, Athene has also been successful in executing inorganic growth strategies through acquisitions and block reinsurance transactions. The company completed its first block reinsurance transaction in the Japanese market in the fourth quarter of 2023, further diversifying its business.

Athene's corporate development team, with support from Apollo, has an industry-leading ability to source, underwrite, and expeditiously close transactions. The company believes its inorganic channel will continue to be an important source of profitable growth in the future.

Liquidity

Robust Capital Position and Liquidity

Athene has a strong capital position and ample liquidity to support its growth aspirations. As of March 31, 2024, the company estimates it had approximately $9.3 billion in capital available to deploy, consisting of $3.6 billion in excess equity capital, $3.2 billion in untapped leverage capacity, and $2.5 billion in available undrawn capital at ACRA, including additional commitments to ADIP II completed subsequent to quarter-end.

Athene's US insurance companies' total adjusted capital (TAC) was $5.8 billion as of December 31, 2023, and the company's US RBC ratio was 392%. Bermuda statutory capital and surplus for Athene's Bermuda insurance companies in aggregate was $14.6 billion as of December 31, 2023, with a Bermuda Solvency Capital Requirement (BSCR) ratio of 291%.

Diversified Investment Portfolio

Athene's investment portfolio is largely comprised of high-quality fixed maturity securities, loans, and short-term investments, as well as additional opportunistic holdings in investment funds and other instruments, including equity holdings. As of March 31, 2024, the company's net invested assets were $227.4 billion.

Athene's investment strategy seeks to achieve sustainable risk-adjusted returns through the disciplined management of its investment portfolio against its long-duration liabilities, coupled with the diversification of risk. The company's relationship with Apollo allows it to take advantage of investment opportunities that would likely not otherwise have been available.

Athene's net investment earned rate was 4.89% for the three months ended March 31, 2024, up from 4.25% in the same period of 2023. This increase was primarily due to higher returns in the company's fixed income portfolio and favorable performance in its alternative investment portfolio.

Risks and Challenges

Robust Risk Management and Regulatory Compliance

Athene has a strong risk management framework in place, which includes setting limits on investments by asset class and credit risk, as well as scenario-based capital ratio limits and liquidity limits. The company's investment portfolio is managed within the limits and protocols set forth in its Investment and Credit Risk Policy.

Athene's insurance subsidiaries are well-capitalized and adhere to regulatory capital requirements. As of December 31, 2023, the company's US insurance companies' TAC was $5.8 billion, and the US RBC ratio was 392%. Bermuda statutory capital and surplus for Athene's Bermuda insurance companies in aggregate was $14.6 billion, with a BSCR ratio of 291%.

Experienced Management Team and Strategic Partnerships

Athene's success is underpinned by its experienced management team and strategic partnerships. The company's Chief Executive Officer, James Belardi, serves as a member of the board of directors and an executive officer of Apollo Global Management, Inc., which owns all of Athene's common stock.

Athene has also established strategic partnerships, such as with Athora Holding Ltd., a specialized insurance and reinsurance group focused on the European market. These partnerships have allowed Athene to expand its reach and capitalize on growth opportunities.

Outlook

Outlook and Future Growth Prospects

Athene remains well-positioned for continued growth, both organically and inorganically. The company's diverse distribution channels, strong financial position, and industry-leading capabilities position it to capitalize on the increasing demand for retirement solutions, particularly in the fixed annuity market.

Looking ahead, Athene expects to continue growing its retail, flow reinsurance, and institutional channels, as well as pursuing strategic acquisitions and block reinsurance transactions. The company's robust capital position and liquidity provide ample resources to fund its growth aspirations and capitalize on market opportunities.

Conclusion

Athene Holding Ltd. is a leading player in the retirement services industry, with a diversified and profitable business model, a strong capital position, and a proven track record of growth. The company's impressive financial performance, disciplined risk management, and strategic partnerships position it well for continued success in the years to come.

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