Athene Holding Ltd. quarterly report, Q2 FY2023

Athene Holding Ltd. 10-Q Summary

Business Context and Reporting Period

Athene specializes in issuing, reinsuring and acquiring retirement savings products, including fixed and indexed annuities, pension group annuities and funding agreements. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2023, with comparisons to the corresponding 2022 periods. Apollo Global Management owns 100% of Athene’s Class A common shares.

Key Financial Metrics

Metric	Q2 2023	Q2 2022	Six Months 2023	Six Months 2022
Total revenues	$12.686 billion	$1.807 billion	$16.746 billion	$1.526 billion
Income before taxes	$628 million	$(3.172) billion	$2.014 billion	$(5.352) billion
Net income	$495 million	$(2.794) billion	$1.718 billion	$(4.690) billion
Net income available to common shareholder	$396 million	$(1.740) billion	$1.117 billion	$(2.790) billion
Spread related earnings	$799 million	$455 million	$1.486 billion	$1.129 billion
Net cash from operating activities	Not separately provided	Not separately provided	$4.406 billion	$4.726 billion

Q2 net income available to common shareholders was $396 million, compared with a $1.740 billion loss in the prior-year quarter. Six-month earnings were $1.117 billion, compared with a $2.790 billion loss in the prior-year period. The improvement was primarily driven by favorable investment-related results, higher premiums and increased net investment income.

Net investment income increased to $2.717 billion in Q2 and $5.124 billion for the six months, versus $1.726 billion and $3.409 billion, respectively, in 2022.
Investment-related gains were $366 million in Q2 and $1.431 billion for the six months, compared with losses of $5.751 billion and $9.963 billion in the prior-year periods.
Premiums increased to $9.041 billion in Q2 and $9.137 billion for the six months, driven primarily by pension group annuity activity.
Q2 net investment spread was 1.99%, compared with 1.34% in 2022. The six-month spread was 1.91%, compared with 1.61%.
Q2 spread related earnings increased 76% to $799 million; six-month spread related earnings increased 32% to $1.486 billion.
As of June 30, total assets were $269.437 billion, compared with $243.931 billion at December 31, 2022. Total equity was $13.234 billion, compared with $10.549 billion.
Debt was $3.642 billion, compared with $3.658 billion at year-end. The adjusted debt-to-capital ratio was 14.4%, compared with 14.7%.

Material Changes Versus the Prior Comparable Period

Gross organic inflows increased 30% to $30.641 billion for the six months, including retail inflows of $15.360 billion, flow reinsurance inflows of $4.575 billion and pension group annuity inflows of $9.058 billion.
Net flows increased to $14.627 billion from $13.797 billion. Gross outflows increased to $16.014 billion from $9.808 billion, primarily because of shock lapse activity in certain reinsurance blocks and larger funding agreement maturities.
Fixed annuity sales increased to $15.4 billion from $6.6 billion for the six months, benefiting from higher interest rates and strong MYGA and indexed annuity demand.
Athene issued $9.1 billion of pension group annuity contracts, including a record $7.6 billion transaction in Q2.
Net invested assets increased to $213.670 billion from $196.451 billion. Consolidated investments, including related parties and VIEs, increased to $233.364 billion from $212.147 billion.
The company adopted long-duration targeted improvements to insurance accounting, or LDTI, effective January 1, 2023, with retrospective presentation of 2022 periods. The adoption materially changed the presentation and measurement of future policy benefits, market risk benefits, VOBA and OCI.

Liquidity, Capital and Debt

Operating cash flow was $4.406 billion; investing activities used $18.232 billion; financing activities provided $17.978 billion. Cash, restricted cash and consolidated VIE cash totaled $12.926 billion at June 30.
A new unsecured five-year credit facility provides $1.25 billion of borrowing capacity, expandable to $1.75 billion, and was undrawn at quarter-end.
A new unsecured liquidity facility provides $2.6 billion of capacity, expandable to $3.1 billion, and was also undrawn at quarter-end.
Liquid assets outside modified coinsurance and funds-withheld portfolios were $105.6 billion; liquid assets within those portfolios were $19.5 billion.
Investment-type policy and contract deposits were $21.942 billion for the six months, while withdrawals were $6.804 billion.
The company estimated approximately $7.2 billion of capital available for deployment, comprising projected excess equity capital, untapped debt capacity and available ACRA capital.

Outlook, Commentary, Risks and Unusual Items

Management expects continued organic growth through retail, flow reinsurance and institutional channels, supported by higher interest rates, product launches, distribution expansion and pension group annuity opportunities. Management reported an expected annual net investment spread of 1% to 2% over the estimated 8.4-year weighted-average life of net reserve liabilities.

Management highlighted continued interest-rate, equity-market, credit, foreign-exchange, counterparty and commercial real estate risks. Office-sector valuations and liquidity were identified as areas of market concern.
Athene’s AFS portfolio was $128.559 billion at fair value against $146.211 billion of amortized cost, with $17.697 billion of gross unrealized losses. Management stated that it generally intends and expects to be able to hold the securities until recovery or maturity.
The investment portfolio included $38.077 billion of mortgage loans. Commercial mortgage loans 90 days or more past due or in non-accrual status had a $146 million fair value, up from $19 million at year-end.
Effective July 1, 2023, Venerable recaptured $2.7 billion of reserves. Athene expects to recognize a third-quarter 2023 US GAAP gain of approximately $550 million to $590 million. Athene recorded $104 million of intent-to-sell impairments in Q2 on related assets.
Effective July 1, 2023, ALRe sold 50% of its non-voting economic interest in ACRA 2 to ADIP 2 for $640 million.
Athene had $20.6 billion of investment commitments, $1.335 billion of undrawn letters of credit and guarantees related to an Atlas transaction with a total deferred purchase-price obligation of $3.3 billion. Management stated that the fair value of its guarantees was not material.
The company identified no material changes to previously disclosed risk factors and stated that current litigation is not expected to materially affect financial condition, results or cash flows, although litigation outcomes remain uncertain.
No formal earnings or financial guidance target was provided beyond management’s spread, capital deployment and growth commentary.

Important Facts for Investors to Verify

Assess how much of the earnings improvement reflects recurring spread earnings versus volatile fair-value changes in derivatives, reinsurance assets, mortgage loans and other investments.
Review the sustainability of the 1.91% six-month net investment spread as liability costs and crediting rates rise.
Evaluate exposure to unrealized AFS losses, commercial real estate, mortgage loan delinquencies and credit-loss allowances.
Confirm the timing and final amount of the expected $550 million to $590 million Venerable recapture gain.
Review related-party investments, Apollo management fees, governance arrangements and ACRA noncontrolling interests.
Verify statutory capital, RBC ratios and dividend capacity at the insurance subsidiaries; the filing provides the latest detailed regulatory ratios as of December 31, 2022 rather than June 30, 2023.