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, Athene had total assets of $355.0 billion and generated an annualized net investment spread of 1.76% for the nine months ended that date.

Athene’s growth strategy involves both organic and inorganic channels. On the organic side, the company generated $56.8 billion in gross inflows for the nine months ended September 30, 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.

In 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.

Athene’s flow reinsurance channel generated $4.5 billion in inflows, though this was down from the prior year due to increased competition. The company’s institutional channel, which includes funding agreements and pension group annuities, saw inflows of $24.5 billion, more than double the prior year period. This was primarily driven by a resurgence in funding agreement issuances.

On the inorganic side, Athene plans to continue growing through acquisitions and block reinsurance transactions, leveraging its corporate development team and support from parent company Apollo. The company believes its ability to source, underwrite, and close transactions makes it an attractive partner for insurers looking to restructure their business.

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 avenues while maintaining a strong financial position. As of September 30, 2024, Athene estimates it had approximately $8.4 billion in capital available to deploy.

The report also discusses key industry trends and competition facing Athene. The company operates in a highly competitive retirement services market, with scale and the ability to provide value-added services being important factors. Athene believes its leading market position, diverse capabilities, and broad distribution network position it well to serve growing consumer demand for retirement solutions.

Economic and market conditions can significantly impact Athene’s business, including the valuation of its investment portfolio. The report notes that US inflation has eased in 2024, leading the Federal Reserve to lower interest rates. Equity markets have also performed well, with the S&P 500 increasing 5.5% in the third quarter. However, foreign exchange rate volatility and fluctuations in interest rates present ongoing risks that Athene seeks to manage.

Athene uses several non-GAAP measures to evaluate its financial performance, including spread related earnings (SRE), net investment spread, and adjusted leverage ratio. SRE, a pre-tax measure that excludes the impact of market volatility and certain expenses, decreased 2% to $855 million in the third quarter of 2024 compared to the prior year period.

Net investment spread, a key profitability metric, decreased 30 basis points to 1.83% in the third quarter, primarily due to higher cost of funds, which offset an increase in net investment earned rate. Athene’s adjusted leverage ratio, which excludes the impact of accumulated other comprehensive income, was not provided in the report.

Athene’s investment portfolio consists predominantly of high-quality fixed income securities, with 96.9% considered investment grade as of September 30, 2024. The company also maintains a diversified allocation to alternative investments, focusing on fixed income-like, cash flow-based strategies.

Related party investments, which include assets managed by parent company Apollo, represented 12.9% of Athene’s total assets as of September 30, 2024. These investments are primarily in structured securities, Apollo-managed funds, and strategic investments in Apollo’s direct origination platforms.

In summary, Athene has demonstrated steady growth and profitability through its diversified business model and disciplined approach to liability management and investment strategy. The company’s organic growth, inorganic expansion, and strategic capital solutions position it well to continue serving the increasing demand for retirement savings products. However, Athene remains vigilant to economic and market risks that could impact its performance.