Athene Holding Ltd. Q2 FY2020 earnings call

Key Points

• Despite industry challenges, Athene's retail sales increased 44% vs industry down 4%, with record organic volumes of nearly $7 billion at a 27% return.
• Closed the largest known block reinsurance transaction with Jackson National, adding $30 billion of high-quality assets without using excess capital.
• Expect to add $50 billion of gross deposits for the full year, equating to 40% annual growth in invested assets.
• Purchased over $11 billion of investments in the second quarter at a blended 40 basis point premium to the BBB corporate bond index, across corporate bonds, structured securities, and differentiated solutions.
• Retail volumes strong, flow reinsurance at record levels, institutional funding agreements up, and new fixed annuity partnership in Japan established.

In the second quarter, Athene's retail segment generated $1.8 billion of deposits, up more than 40% sequentially. Flow reinsurance had record quarterly deposits of $2.3 billion. Institutional business generated $2.6 billion of deposits primarily driven by record activity in the funding agreement channel. Retail accounted for approximately 25.7% of the ~$7 billion organic volumes, flow reinsurance ~32.9%, and institutional ~37.1%. The investment spread business remains strong with over $14 billion of regulatory capital, A-rated financial strength, and almost no impairments in the investment portfolio year-to-date.

Forward-Looking Statements

• Expect to deploy more than half of the $5 billion cash balance at the end of the quarter by year-end, increasing annualized investment income by approximately $120 million.
• Jackson portfolio redeployment to be 75% or more complete by mid-next year, expecting earnings accretion of 6% to 9% in 2021 and 2022.
• Aggregate organic growth activity in 2020 is expected to exceed prior guidance of $15 billion to $16 billion, likely hitting $20 billion.
• Full year 2020 fixed income NIER expected to be approximately 3.8%, with uplift in 2021.

Risks

• Credit risks in sectors like airlines, fleet lease rental cars, and certain asset-backed securities.
• Market volatility impacting alternative investments marked on a lagged basis.
• Potential credit losses from the current environment, though manageable with over $14 billion of regulatory capital.

Q: Tom Gallagher of Evercore asked about balancing favorable asset prices with the real economy and credit concerns.

A: Jim Belardi stated they are watching sectors like airlines and asset backs, but credit quality is solid with minimal impairments and manageable losses.

Q: Erik Bass of Autonomous Research inquired about capital deployment and organic growth competition.

A: James Belardi and William Wheeler mentioned using capital for organic growth, inorganic opportunities, and resuming share repurchases, with organic growth continuing and inorganic pipeline active.

Q: Andrew Kligerman of Credit Suisse asked about the Japan annuity product.

A: William Wheeler said the product is an indexed annuity sold in yen and dollars, with hedging of currency risk, and early positive volumes.

Q: Jimmy Bhullar of JPMorgan asked about floating rate investments.

A: James Belardi and Martin Klein explained that floating rate exposure serves as a risk mitigant despite current low income, with asymmetric impact on earnings.

Q: Elyse Greenspan of Wells Fargo asked about pipeline size and PRT mortality.

A: William Wheeler said pipeline deals are case-specific, and Marty Klein noted favorable mortality in PRT reduced institutional credit rate by ~44 basis points.

Q: Humphrey Lee of Dowling & Partners asked about Japan flow reinsurance size.

A: William Wheeler said target was $500 million run rate with upside potential, and risk tolerance managed.

Q: Mark Hughes of Truist Securities asked about independent agent channel recovery.

A: William Wheeler stated independent agent sales are recovering as advisers adapt to digital communication.