Athene Holding Ltd. 2022 Form 10-K Summary
Business context and reporting period
Athene is a Bermuda-based retirement services company specializing in issuing, reinsuring and acquiring annuities and funding agreements. Its strategy is to source long-duration liabilities and invest the supporting assets through Apollo’s investment platform. Apollo Global Management, Inc. became the beneficial owner of 100% of Athene’s Class A common shares on January 1, 2022, following the merger.
The filing covers the fiscal year ended December 31, 2022. Because Athene applied pushdown accounting after the merger, 2022 is presented as the “Successor” period and prior periods as “Predecessor”; reported results are therefore not fully comparable.
Key financial metrics
| Metric | 2022 | 2021 |
|---|---|---|
| Total assets | $246.0 billion | $235.1 billion |
| Revenue | $7.6 billion | $26.3 billion |
| Net investment income | $7.6 billion | $7.1 billion |
| Investment-related gains (losses) | $(12.7) billion | $4.2 billion |
| Income (loss) before income taxes | $(7.2) billion | $4.2 billion |
| Net income (loss) | $(6.3) billion | $3.8 billion |
| Net income (loss) available to common shareholder | $(4.3) billion | $3.7 billion |
| Operating cash flow | $6.3 billion | $10.3 billion |
| Net investment spread | 1.63% | 1.94% |
| Spread-related earnings | $2.3 billion | $2.5 billion |
The 2022 GAAP loss was primarily driven by market-related investment losses, including unfavorable changes in the fair value of reinsurance assets, mortgage loans and FIA hedging derivatives. Net investment income increased $471 million, but this was more than offset by $12.7 billion of investment-related losses. The income tax benefit was $976 million, resulting in a 13% effective tax benefit rate.
Net investment earnings were $6.9 billion, producing a 3.66% net investment earned rate, compared with 4.42% in 2021. Cost of funds declined to 2.06% from 2.50%, but the net investment spread narrowed by 31 basis points. Management reported expected annual net investment spread of 1% to 2% over the 8.6-year weighted-average life of net reserve liabilities.
Sales, liabilities and capital
- Gross organic inflows increased 29% to $47.9 billion, led by retail inflows of $20.4 billion, flow reinsurance of $6.2 billion, funding agreements of $10.0 billion and pension group annuities of $11.2 billion.
- Net flows were $20.0 billion, compared with $19.5 billion in 2021. Gross outflows increased to $27.9 billion, including a $4.9 billion strategic reinsurance transaction with Catalina.
- Net reserve liabilities increased to $184.3 billion from $162.0 billion. Deferred and indexed annuities represented the majority of liabilities.
- Net invested assets increased to $196.5 billion from $175.3 billion. Alternative investments were $12.1 billion, or 6.1% of net invested assets.
- Common shareholders’ equity declined to $916 million from $20.1 billion, primarily due to the net loss and a $12.3 billion accumulated other comprehensive loss. Adjusted common shareholders’ equity, excluding market-related items, was $15.2 billion.
- The reported debt-to-capital ratio was 80.0%, heavily affected by the reduction in GAAP equity; adjusted debt-to-capital was 15.6%, compared with 14.9% in 2021. Total debt was $3.7 billion, including $3.4 billion of notional debt.
- US statutory capital was $4.1 billion and the US RBC ratio was 387%. Bermuda group EBS capital and surplus was $21.9 billion and the BSCR ratio was 278%. Consolidated RBC was 416%.
Liquidity and cash flow
Operating activities provided $6.3 billion of cash, while investing activities used $34.4 billion and financing activities provided $26.5 billion. Cash and cash equivalents, including restricted cash and consolidated VIE cash, declined by $1.7 billion to $8.8 billion.
At December 31, 2022, Athene had $94.5 billion of liquid assets outside modified coinsurance and funds-withheld portfolios, plus $21.5 billion of liquid assets within those portfolios. The $1.25 billion Credit Facility and $2.5 billion Liquidity Facility were undrawn at year-end. Athene borrowed $1.0 billion under the Liquidity Facility on February 7, 2023. The company also reported $2.0 billion of committed repurchase facilities and estimated $5.8 billion of available FHLB borrowing capacity, subject to collateral and other limitations.
Material changes versus the prior comparable period
- The Apollo merger and pushdown accounting materially changed the carrying values of assets, liabilities, goodwill and policyholder reserves, limiting year-over-year comparability.
- Rising US Treasury rates and wider credit spreads produced $18.2 billion of unrealized losses on AFS securities and $18.6 billion of gross unrealized losses at year-end.
- Management elected the fair value option for mortgage loans, contributing to a $3.0 billion unfavorable mortgage-loan valuation change and increasing earnings volatility.
- Net investment spread and spread-related earnings declined despite strong organic inflows and higher floating-rate income.
- Athene issued $400 million of 6.65% senior notes and $500 million of Series E preferred stock during 2022.
- Athene contributed approximately $8.0 billion of alternative investments to Apollo Aligned Alternatives, L.P. and consolidated the vehicle as a variable interest entity.
- Related-party investments totaled $34.4 billion, or 13.9% of total assets; Apollo and affiliates managed substantially all of the investment portfolio.
Guidance, outlook, risks and unusual items
Management expects continued growth through retail annuities, flow reinsurance, funding agreements, pension group annuities, acquisitions and block reinsurance. It targets generally mid-teen returns on organic and inorganic capital deployment, but does not intend to pursue volume at the expense of profitability. Management also expects to continue using Apollo’s origination platforms and ACRA’s on-demand capital to support growth.
- Interest-rate, credit-spread, equity-market, foreign-exchange and inflation volatility may affect investment values, policyholder behavior, hedging results, liquidity and statutory capital.
- The investment portfolio includes meaningful exposure to corporate credit, CLOs, structured securities, mortgage loans, real estate and relatively illiquid alternative investments.
- LIBOR-linked contracts totaled $62.3 billion of notional exposure, including $52.7 billion extending beyond June 30, 2023. Transition risk includes basis mismatches, valuation uncertainty and potential contract disputes.
- Athene relies heavily on Apollo for investment management and is exposed to related-party conflicts, fee arrangements, asset-allocation conflicts and limits on terminating certain ACRA investment management agreements.
- Insurance subsidiaries are subject to extensive US and Bermuda regulation, dividend restrictions, changing capital requirements and potential designation as part of an internationally active insurance group.
- Pending or continuing matters include regulatory examinations, market-conduct examinations, tax audits, litigation and commitments. Management stated that current legal proceedings are not expected to have a material effect, but litigation outcomes remain uncertain.
- After year-end, an Apollo-affiliated Atlas vehicle acquired assets of Credit Suisse’s Securitized Products Group for $3.3 billion. AHL and AARe provided assurance letters supporting the deferred purchase obligation; the filing states the fair value of Athene’s guarantees was not material.
Most important facts for investors to verify
- Reconcile the $4.3 billion common-shareholder loss with $2.3 billion of spread-related earnings and assess the sustainability of underlying spread performance.
- Review the effect of pushdown accounting and the January 1, 2023 long-duration insurance accounting adoption on equity, reserves, earnings and comparability.
- Assess the durability of capital and liquidity after the February 2023 $1.0 billion liquidity draw, required collateral, restricted assets and upcoming contractual obligations.
- Evaluate unrealized AFS losses, mortgage-loan valuations, credit-loss allowances and the concentration of Level 3 and illiquid investments.
- Review Apollo-related fees, conflicts, investment concentrations, termination rights and the economic exposure of ACRA and AAA.
- Monitor statutory RBC and BSCR ratios, rating-agency actions, dividend capacity and regulatory changes affecting Bermuda and US insurance capital.
- Quantify the remaining LIBOR transition exposure and confirm the effectiveness of fallback provisions and hedges.