Athene Holding Ltd. quarterly report, Q1 FY2024

Athene Holding Ltd. — Q1 2024 Form 10-Q Summary

Business context and reporting period

Athene specializes in issuing, reinsuring and acquiring retirement savings products, including fixed, fixed indexed and other annuities, funding agreements and pension group annuities. It is a direct subsidiary of Apollo Global Management, Inc. The filing presents unaudited consolidated US GAAP results for the three months ended March 31, 2024, compared with the three months ended March 31, 2023.

Key financial metrics

Metric	Q1 2024	Q1 2023	Change
Total revenues	$5.721 billion	$4.060 billion	+$1.661 billion, +41%
Income before income taxes	$1.782 billion	$1.386 billion	+$396 million, +29%
Income tax expense	$307 million	$163 million	+$144 million
Net income	$1.475 billion	$1.223 billion	+$252 million, +21%
Net income available to common stockholder	$1.147 billion	$721 million	+$426 million, +59%
Net investment income	$3.292 billion	$2.407 billion	+$885 million, +37%
Investment-related gains	$1.677 billion	$1.065 billion	+$612 million
Benefits and expenses	$3.939 billion	$2.674 billion	+$1.265 billion, +47%
Spread related earnings	$816 million	$687 million	+$129 million, +19%
Operating cash flow	$185 million	$75 million	+$110 million

Net income margin was approximately 25.8%, compared with 30.1% in Q1 2023; the decline reflects the faster growth in benefits and expenses than in net income. The effective tax rate increased to 17% from 12%.

Net investment earned rate increased to 4.89% from 4.25%, while cost of funds increased to 3.10% from 2.45%. Net investment spread remained 1.83%.
Management reported an expected annual net investment spread of 1%–2% over the estimated 8.3-year weighted-average life of net reserve liabilities.
Total assets were $320.6 billion at March 31, 2024, up from $300.6 billion at December 31, 2023. Net invested assets were $227.4 billion, up from $217.4 billion.
Stockholders’ equity was $14.8 billion and total equity was $23.2 billion at March 31, 2024, compared with $13.8 billion and $21.2 billion, respectively, at year-end 2023.
Cash, cash equivalents and restricted cash totaled approximately $16.9 billion at quarter-end, compared with $14.9 billion at year-end 2023.

Material changes versus the prior comparable period

Gross organic inflows increased 68% to $20.1 billion, driven by retail sales, flow reinsurance and funding agreement issuance. Gross outflows increased to $8.0 billion from $6.9 billion, producing net flows of $12.1 billion versus $5.0 billion.
Retail sales increased to $9.7 billion from $8.6 billion, primarily due to record fixed indexed annuity sales. Flow reinsurance inflows increased to $2.4 billion from $1.8 billion.
Funding agreement inflows increased to $8.0 billion from $1.5 billion, including $5.0 billion of FABN issuance, $1.9 billion of secured and other funding agreements and $1.1 billion of FHLB funding agreements.
Net investment income benefited from portfolio growth, higher yields on new investments and higher floating-rate income, partially offset by higher Apollo investment-management fees.
Investment-related gains benefited from FIA hedging derivatives and foreign-exchange impacts. These gains were partly offset by unfavorable changes in mortgage-loan and reinsurance-asset fair values as Treasury yields increased.
Interest-sensitive contract benefits increased to $2.9 billion from $1.3 billion, reflecting growth in the deferred annuity and funding agreement blocks, higher crediting rates and changes in FIA embedded derivatives.
Market-risk-benefit remeasurement changed to a $154 million gain from a $346 million loss, primarily because higher discount rates reduced the fair value of market-risk-benefit liabilities.
Comprehensive income declined to $1.425 billion from $2.439 billion because Q1 2024 included $737 million of unrealized investment losses on available-for-sale securities, compared with unrealized gains in Q1 2023.
The company issued $1.0 billion of 6.25% senior notes due 2054 and $575 million of 7.25% fixed-rate reset junior subordinated debentures due 2064. Reported debt increased to $5.740 billion from $4.209 billion.
Adjusted leverage increased to 22.7% from 20.3%; adjusted senior debt-to-capital increased to 16.5% from 14.5%.

Liquidity, capital and investment portfolio

Operating activities generated $185 million of cash, investing activities used $16.4 billion and financing activities provided $18.2 billion. Cash increased by $2.0 billion during the quarter.
Management reported approximately $9.3 billion of capital available to deploy, consisting of $3.6 billion of excess equity capital, $3.2 billion of untapped leverage capacity and $2.5 billion of available undrawn ACRA capital.
Liquid assets, excluding assets in modified coinsurance and funds-withheld portfolios, were $116.2 billion. The company also had $14.6 billion of liquid assets in those restricted portfolios.
The $1.25 billion credit facility and $2.6 billion liquidity facility were undrawn. Athene also had access to $2.0 billion of committed repurchase facilities.
FABN funding agreements outstanding were $23.2 billion, with $11.4 billion of board-authorized FABN capacity remaining. FHLB funding agreements were $7.6 billion, and secured and other funding agreements were $8.5 billion.
Total investment assets, including related parties and consolidated VIEs, were $275.4 billion. The portfolio included $159.3 billion of available-for-sale securities and $51.6 billion of mortgage loans.
Approximately 96.9% of AFS securities were investment grade under NAIC designations 1 or 2. Gross unrealized losses on AFS securities, including related parties, were $14.8 billion, largely attributed to higher interest rates; management stated it intended and was able to hold the securities for recovery.

Outlook, commentary, risks and unusual items

Management expects continued organic growth across retail, flow reinsurance and institutional channels, supported by its distribution network, product launches, higher-rate market conditions and Apollo’s investment platform. The company also expects inorganic transactions and international expansion, particularly in Asia, to remain sources of growth. No formal earnings guidance was provided.

Results remain sensitive to interest rates, equity markets, foreign exchange, credit spreads, investment valuations, policyholder behavior and the performance of alternatives.
A 100-basis-point immediate parallel increase in interest rates was estimated to reduce point-in-time pretax income by approximately $2.5 billion, net of offsets. A sustained 25-basis-point rate increase was estimated to increase spread-related earnings by approximately $30 million–$40 million through floating-rate assets and liabilities.
The company had $24.3 billion of investment commitments as of March 31, 2024, most of which management expects to fund over five years, although commitments may become due earlier upon counterparty request.
Undrawn letters of credit totaled $1.314 billion. Restricted assets totaled $59.7 billion.
Athene, Apollo and affiliates provided support related to Atlas’s deferred purchase obligation. The remaining deferred obligation was reduced to $2.5 billion in March 2024; management stated the guarantees were not probable of payment and recorded no liability.
Four putative class actions were filed beginning in March 2024 against certain pension-plan sponsors concerning pension group annuity transactions. Athene was not named as a defendant, but the company warned of possible reputational, regulatory and business impacts.
Management identified litigation, regulatory scrutiny, counterparty credit risk, changes in tax law, the Bermuda corporate income tax beginning in 2025, regulatory capital requirements, cybersecurity and operational risks as material areas to monitor.
Management concluded that disclosure controls were effective and reported no material changes in internal control over financial reporting during the quarter.

Important facts for investors to verify

Reconcile the 59% increase in common-stockholder earnings with the significant contribution from market-sensitive investment gains and derivative valuations.
Monitor whether the 1.83% net investment spread is sustained as cost of funds rises and funding agreements and annuity liabilities grow.
Review the impact of higher leverage, the new long-dated debt issuance and future preferred-stock redemption decisions on holding-company liquidity.
Assess credit and valuation risk in the AFS portfolio, mortgage loans, CMBS, RMBS, structured securities, alternatives and related-party investments.
Evaluate the company’s ability to fund $24.3 billion of investment commitments while meeting policyholder withdrawals, funding agreement maturities and collateral requirements.
Track the pension group annuity litigation and any resulting regulatory, reputational or sales impact.
Verify statutory capital, RBC and BSCR measures for periods after December 31, 2023, because the filing’s detailed regulatory capital figures are principally year-end 2023 data.