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 a global investment portfolio.

As of June 30, 2024, AHL had $332.6 billion in total assets 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. Withdrawals and outflows were $18.2 billion over the same period.

AHL’s retail channel saw fixed annuity sales of $18.6 billion, driven by strong demand for fixed indexed annuities (FIAs) and multi-year guaranteed annuities (MYGAs). The flow reinsurance channel generated $3.6 billion in inflows, while the institutional channel saw $14.6 billion, primarily from funding agreement issuances.

The company has also grown inorganically through acquisitions and block reinsurance transactions, and plans to continue expanding internationally, particularly in Asia. To support its growth, AHL has established ACRA 1 and ACRA 2 as long-duration, on-demand capital vehicles.

Industry Trends and Competition

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

US inflation eased in 2024 but remained above the Federal Reserve’s 2% target. Interest rates increased during the second quarter, with the 10-year Treasury yield reaching 4.36%. Equity markets performed well, with the S&P 500 increasing 3.9% in the second quarter.

The total US annuity market grew 13.4% year-over-year in the first quarter of 2024. AHL maintained its position as the largest provider of annuities and fixed annuities, with 9.1% and 12.0% market share, respectively. The company also saw growth in the registered indexed linked annuity (RILA) market, where it held a 2.0% market share.

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 other non-operating items.
• Net Investment Spread: Measures investment performance and the cost of funds.
• Other Operating Expenses: Excludes certain non-operating expenses.
• Adjusted Senior Debt-to-Capital Ratio and Adjusted Leverage Ratio: Evaluate the company’s capital structure.
• Net Invested Assets and Net Reserve Liabilities: Provide insight into the company’s investment portfolio and liability profile.

Results of Operations

For the three months ended June 30, 2024, net income available to AHL common stockholders increased 47% to $583 million, driven by an $8.4 billion decrease in benefits and expenses, partially offset by an $8.0 billion decrease in revenues.

Revenues decreased primarily due to a $8.4 billion drop in premiums, partially offset by a $792 million increase in net investment income and a $13 million increase in VIE investment related gains.

Benefits and expenses decreased $8.4 billion, mainly from a $8.4 billion drop 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 AHL common stockholders increased 55% to $1.7 billion, again driven by a $7.2 billion decrease in benefits and expenses, partially offset by a $6.4 billion decrease in revenues.

The decrease in revenues was primarily due to an $8.4 billion drop in premiums, partially offset by a $1.7 billion increase in net investment income and a $146 million increase in VIE investment related gains.

The $7.2 billion decrease in benefits and expenses was mainly from an $8.3 billion drop in future policy and other policy benefits, partially offset by a $1.4 billion increase in interest sensitive contract benefits.

Spread Related Earnings

SRE decreased 11% to $712 million in the second quarter of 2024, primarily due to a $443 million increase in cost of funds, partially offset by a $336 million increase in net investment earnings and lower interest/financing costs.

The net investment earned rate increased 18 basis points to 4.87%, while the cost of funds increased 54 basis points to 3.27%, resulting in a 35 basis point decrease in net investment spread to 1.64%.

For the six months ended June 30, 2024, SRE increased 3% to $1.5 billion, driven by higher net investment earnings and lower interest/financing costs, partially offset by higher cost of funds.

The net investment earned rate increased 41 basis points to 4.89%, while the cost of funds increased 59 basis points to 3.19%, resulting in a 17 basis point decrease in net investment spread to 1.74%.

Investment Portfolio

As of June 30, 2024, AHL had $287.2 billion in total investments, including related parties and consolidated VIEs. The portfolio is primarily composed of high-quality fixed income securities, with additional allocations to alternative investments.

Key portfolio highlights:

• 96.8% of AFS securities were investment grade by NAIC designation as of June 30, 2024.
• 95.9% of AFS securities were investment grade by NRSRO ratings.
• 13.2% of net invested assets were related party investments, including $18.1 billion in structured securities managed by Apollo.
• The allowance for credit losses on AFS securities was $671 million as of June 30, 2024.
• 36% of the AFS portfolio had international exposure, primarily in Europe and North America.

Outlook

AHL is well-positioned to continue growing its business, both organically and inorganically. The company’s diverse product offerings, strong distribution network, and disciplined investment approach should allow it to capitalize on the increasing demand for retirement solutions.

The company’s financial strength, with $10.1 billion in available capital as of June 30, 2024, provides ample flexibility to deploy capital across multiple avenues. AHL’s international expansion plans, particularly in Asia, represent a significant growth opportunity.

However, the company remains exposed to economic and market risks, including interest rate volatility and global inflation. Continued competition in the retirement services industry may also pressure margins. Prudent risk management and a focus on sustainable profitability will be crucial as AHL navigates these challenges.

Overall, AHL’s robust operating performance, diversified business model, and strategic initiatives position the company for continued success in the evolving retirement services landscape.