10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on August 3, 2018
UNITED STATES SECURITIES AND EXCHANGE COMMISSION | ||||||||||
Washington, D.C. 20549 | ||||||||||
FORM 10-Q | ||||||||||
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended June 30, 2018 | ||||||||||
OR | ||||||||||
¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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001-37963 |
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(Commission file number) | ||||||||||
ATHENE HOLDING LTD. | ||||||||||
(Exact name of registrant as specified in its charter) | ||||||||||
Bermuda |
98-0630022 |
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(State or other jurisdiction of |
(I.R.S. Employer |
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incorporation or organization) |
Identification Number) |
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96 Pitts Bay Road | ||||||||||
Pembroke, HM08, Bermuda | ||||||||||
(441) 279-8400 | ||||||||||
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices) | ||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. | ||||||||||
Large accelerated filer x
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Accelerated filer ¨
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Non-accelerated filer ¨ (Do not check if a smaller reporting company)
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Smaller reporting company ¨
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Emerging growth company ¨
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
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The number of shares of each class of our common stock outstanding is set forth in the table below, as of June 30, 2018: |
||||||||||
Class A common shares |
164,734,282 |
Class M-2 common shares |
851,103 |
|||||||
Class B common shares |
25,483,107 |
Class M-3 common shares |
1,001,110 |
|||||||
Class M-1 common shares |
3,388,890 |
Class M-4 common shares |
4,354,425 |
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TABLE OF CONTENTS
PART I—FINANCIAL INFORMATION
PART II—OTHER INFORMATION
As used in this Form 10-Q, unless the context otherwise indicates, any reference to “Athene,” “our Company,” “the Company,” “us,” “we” and “our” refer to Athene Holding Ltd. together with its consolidated subsidiaries and any reference to “AHL” refers to Athene Holding Ltd. only.
Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q (report), other than purely historical information, including estimates, projections, statements relating to our business plans, anticipated future tax rates, objectives and expected operating results and the assumptions upon which those statements are based, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act).
You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “seek,” “assume,” “believe,” “may,” “will,” “should,” “could,” “would,” “likely” and other words and terms of similar meaning, including the negative of these or similar words and terms, in connection with any discussion of the timing or nature of future operating or financial performance or other events. However, not all forward-looking statements contain these identifying words. Forward-looking statements appear in a number of places throughout and give our current expectations and projections relating to our financial condition, results of operations, plans, strategies, objectives, future performance, business and other matters.
We caution you that forward-looking statements are not guarantees of future performance and that our actual financial condition, liquidity, results of operations and cash flows may differ materially from those made in or suggested by the forward-looking statements contained in this report. There can be no assurance that actual developments will be those anticipated by us. In addition, even if our financial condition, liquidity, results of operations and cash flows are consistent with the forward-looking statements contained in this report, those results or developments may not be indicative of results or developments in subsequent periods. A number of important factors could cause actual results or conditions to differ materially from those contained or implied by the forward-looking statements, including the risks discussed in Part II–Item 1A. Risk Factors included in this report and Part I–Item 1A. Risk Factors included in our Annual Report on Form 10-K for the year ended December 31, 2017 (2017 Annual Report). Factors that could cause actual results or conditions to differ from those reflected in the forward-looking statements contained in this report include:
• |
the accuracy of management’s assumptions and estimates; |
• |
variability in the amount of statutory capital that our insurance and reinsurance subsidiaries have or are required to hold; |
• |
interest rate fluctuations; |
• |
our potential need for additional capital in the future and the potential unavailability of such capital to us on favorable terms or at all; |
• |
changes in relationships with important parties in our product distribution network; |
• |
the activities of our competitors and our ability to grow our retail business in a highly competitive environment; |
• |
the impact of general economic conditions on our ability to sell our products and the fair value of our investments; |
• |
our ability to successfully acquire new companies or businesses and/or integrate such acquisitions into our existing framework; |
• |
downgrades, potential downgrades or other negative actions by rating agencies; |
• |
our dependence on key executives and inability to attract qualified personnel, or the potential loss of Bermudian personnel as a result of Bermuda employment restrictions; |
• |
market and credit risks that could diminish the value of our investments; |
• |
foreign currency fluctuations; |
• |
the impact of changes to the creditworthiness of our reinsurance and derivative counterparties; |
• |
changes in consumer perception regarding the desirability of annuities as retirement savings products; |
• |
potential litigation (including class action litigation), enforcement investigations or regulatory scrutiny against us and our subsidiaries, which we may be required to defend against or respond to; |
• |
the impact of new accounting rules or changes to existing accounting rules on our business; |
• |
interruption or other operational failures in telecommunication and information technology and other operating systems, as well as our ability to maintain the security of those systems; |
• |
the termination by Athene Asset Management LLC (AAM) of its investment management agreements with us and limitations on our ability to terminate such arrangements; |
• |
AAM’s dependence on key executives and inability to attract qualified personnel; |
• |
increased regulation or scrutiny of alternative investment advisers and certain trading methods; |
• |
potential changes to regulations affecting, among other things, transactions with our affiliates, the ability of our subsidiaries to make dividend payments or distributions to us, acquisitions by or of us, minimum capitalization and statutory reserve requirements for insurance companies and fiduciary obligations on parties who distribute our products; |
• |
suspension or revocation of our subsidiaries’ insurance and reinsurance licenses; |
• |
increases in our tax liability resulting from the Base Erosion and Anti-Abuse Tax (BEAT) or unnecessary, inefficient, ineffective or counterproductive efforts undertaken to mitigate the cost of the BEAT; |
• |
improper interpretation or application of Public Law no. 115-97, the Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018 (Tax Act) or subsequent changes to, clarifications of or guidance under the Tax Act that is counter to our interpretation and has retroactive effect; |
• |
Athene Holding Ltd. (AHL) or its non-U.S. subsidiaries becoming subject to U.S. federal income taxation; |
• |
adverse changes in U.S. tax law; |
3
• |
our being subject to U.S. withholding tax under the Foreign Account Tax Compliance Act (FATCA); |
• |
our potential inability to pay dividends or distributions; and |
• |
other risks and factors listed under Part II—Item 1A. Risk Factors included in this report, Part I—Item 1A. Risk Factors included
|
in our 2017 Annual Report and elsewhere in this report and in our 2017 Annual Report.
We caution you that the important factors referenced above may not be exhaustive. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect or anticipate. In light of these risks, you should not place undue reliance upon any forward-looking statements contained in this report. The forward-looking statements included in this report are made only as of the date hereof. We undertake no obligation, except as may be required by law, to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise. Comparisons of results for current and any prior periods are not intended to express any future trends, or indications of future performance, unless expressed as such, and should only be viewed as historical data.
GLOSSARY OF SELECTED TERMS
Unless otherwise indicated in this report, the following terms have the meanings set forth below:
Entities
Term or Acronym |
Definition |
|
A-A Mortgage |
A-A Mortgage Opportunities, L.P. |
|
AAA |
AP Alternative Assets, L.P. |
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AAA Investor |
AAA Guarantor – Athene, L.P. |
|
AADE |
Athene Annuity & Life Assurance Company |
|
AAIA |
Athene Annuity and Life Company |
|
AAM |
Athene Asset Management LLC |
|
AGER |
AGER Bermuda Holding Ltd., now known as Athora Holding Ltd. and formerly a consolidated subsidiary |
|
AHL |
Athene Holding Ltd. |
|
ALIC |
Athene Life Insurance Company |
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ALR |
ALR Aircraft Investment Ireland Limited |
|
ALRe |
Athene Life Re Ltd. |
|
AmeriHome |
AmeriHome Mortgage Company, LLC |
|
Apollo |
Apollo Global Management, LLC |
|
Apollo Group |
(1) Apollo, (2) the AAA Investor, (3) any investment fund or other collective investment vehicle whose general partner or managing member is owned, directly or indirectly, by Apollo or one or more of Apollo’s subsidiaries, (4) BRH Holdings GP, Ltd. and its shareholders and (5) any affiliate of any of the foregoing (except that AHL and its subsidiaries and employees of AHL, its subsidiaries or AAM are not members of the Apollo Group) |
|
Athene USA |
Athene USA Corporation |
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Athora |
Athora Holding Ltd., formerly known as AGER Bermuda Holding Ltd. and formerly a consolidated subsidiary |
|
CoInvest Other |
AAA Investments (Other), L.P. |
|
CoInvest VI |
AAA Investments (Co-Invest VI), L.P. |
|
CoInvest VII |
AAA Investments (Co-Invest VII), L.P. |
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DOL |
United States Department of Labor |
|
MidCap |
MidCap FinCo Limited |
|
NAIC |
National Association of Insurance Commissioners |
|
NCL LLC |
NCL Athene, LLC |
|
NYSDFS |
New York State Department of Financial Services |
|
Sprint |
Apollo Asia Sprint Co-Investment Fund, L.P. |
|
Voya |
Voya Financial, Inc. |
|
VIAC |
Voya Insurance and Annuity Company |
|
Venerable |
Venerable Holdings, Inc. |
4
Certain Terms & Acronyms
Term or Acronym |
Definition |
|
ABS |
Asset-backed securities |
|
ACL |
Authorized control level risk-based capital as defined by the model created by the National Association of Insurance Commissioners |
|
ALM |
Asset liability management |
|
ALRe RBC |
The risk-based capital ratio of ALRe, when applying the National Association of Insurance Commissioners risk-based capital factors |
|
AUM |
Assets under management |
|
Alternative investments |
Alternative investments, including investment funds, collateralized loan obligation equity positions and certain other debt instruments considered to be equity-like |
|
Base of earnings |
Earnings generated from our results of operations and the underlying profitability drivers of our business |
|
BEAT |
Base Erosion and Anti-Abuse Tax |
|
Bermuda capital |
The capital of ALRe calculated under U.S. statutory accounting principles, including that for policyholder reserve liabilities which are subjected to U.S. cash flow testing requirements, but excluding certain items that do not exist under our applicable Bermuda requirements, such as interest maintenance reserves |
|
Block reinsurance |
A transaction in which the ceding company cedes all or a portion of a block of previously issued annuity contracts through a reinsurance agreement |
|
BMA |
Bermuda Monetary Authority |
|
BSCR |
Bermuda Solvency Capital Requirement |
|
CAL |
Company action level risk-based capital as defined by the model created by the National Association of Insurance Commissioners |
|
Capital ratio |
Ratios calculated (1) with respect to our U.S. insurance subsidiaries, by reference to risk-based capital, (2) with respect to ALRe, by reference to BSCR, and (3) with respect to our former German Group Companies, by reference to solvency capital requirements |
|
CLO |
Collateralized loan obligation |
|
CMBS |
Commercial mortgage-backed securities |
|
Cost of crediting |
The interest credited to the policyholders on our fixed annuities, including, with respect to our fixed indexed annuities, option costs, presented on an annualized basis for interim periods |
|
DAC |
Deferred acquisition costs |
|
Deferred annuities |
Fixed indexed annuities, annual reset annuities and multi-year guaranteed annuities |
|
DSI |
Deferred sales inducement |
|
Excess capital |
Capital in excess of the level management believes is needed to support our current operating strategy |
|
FIA |
Fixed indexed annuity, which is an insurance contract that earns interest at a crediting rate based on a specified index on a tax-deferred basis |
|
Fixed annuities |
FIAs together with fixed rate annuities |
|
Fixed rate annuity |
An insurance contract that offers tax-deferred growth and the opportunity to produce a guaranteed stream of retirement income for the lifetime of its policyholder |
|
Flow reinsurance |
A transaction in which the ceding company cedes a portion of newly issued policies to the reinsurer |
|
GAAP |
Accounting principles generally accepted in the United States of America |
|
GLWB |
Guaranteed lifetime withdrawal benefit |
|
GMDB |
Guaranteed minimum death benefit |
|
IMA |
Investment management agreement |
|
IMO |
Independent marketing organization |
|
Invested assets |
The sum of (a) total investments on the consolidated balance sheet with AFS securities at amortized cost, excluding derivatives, (b) cash and cash equivalents and restricted cash, (c) investments in related parties, (d) accrued investment income, (e) consolidated variable interest entities’ assets, liabilities and noncontrolling interest and (f) policy loans ceded (which offset the direct policy loans in total investments). Invested assets includes investments supporting assumed funds withheld and modco agreements and excludes assets associated with funds withheld liabilities related to business exited through reinsurance agreements and derivative collateral (offsetting the related cash positions) |
|
Investment margin |
Investment margin applies to deferred annuities and is the excess of our net investment earned rate over the cost of crediting to our policyholders, presented on an annualized basis for interim periods |
|
Liability outflows |
The aggregate of withdrawals on our deferred annuities, maturities of our funding agreements, payments on payout annuities and pension risk benefit payments |
5
Term or Acronym |
Definition |
|
LIMRA |
Life Insurance and Market Research Association |
|
MCR |
Minimum capital requirements |
|
MMS |
Minimum margin of solvency |
|
Modco |
Modified coinsurance |
|
MVA |
Market value adjustment |
|
MYGA |
Multi-year guaranteed annuity |
|
Net investment earned rate |
Income from our invested assets divided by the average invested assets for the relevant period, presented on an annualized basis for interim periods |
|
Other liability costs |
Other liability costs include DAC, DSI and VOBA amortization and change in GLWB and GMDB reserves for all products, the cost of liabilities on products other than deferred annuities including offsets for premiums, product charges and other revenues |
|
OTTI |
Other-than-temporary impairment |
|
Overall tax rate |
Tax rate including corporate income taxes, the BEAT and excise taxes, in each case, to the extent applicable, on a GAAP or non-GAAP basis, as specified |
|
Payout annuities |
Annuities with a current cash payment component, which consist primarily of SPIAs, supplemental contracts and structured settlements |
|
Policy loan |
A loan to a policyholder under the terms of, and which is secured by, a policyholder’s policy |
|
PRT |
Pension risk transfer |
|
RBC |
Risk-based capital |
|
Reserve liabilities |
The sum of (a) interest sensitive contract liabilities, (b) future policy benefits, (c) dividends payable to policyholders, and (d) other policy claims and benefits, offset by reinsurance recoverable, excluding policy loans ceded. Reserve liabilities also includes the reserves related to assumed modco agreements in order to appropriately match the costs incurred in the consolidated statements of income with the liabilities. Reserve liabilities is net of the ceded liabilities to third-party reinsurers as the costs of the liabilities are passed to such reinsurers and therefore we have no net economic exposure to such liabilities, assuming our reinsurance counterparties perform under our agreements |
|
Rider reserves |
Guaranteed lifetime withdrawal benefits and guaranteed minimum death benefits reserves |
|
RMBS |
Residential mortgage-backed securities |
|
RML |
Residential mortgage loan |
|
Sales |
All money paid into an individual annuity, including money paid into new contracts with initial purchase occurring in the specified period and existing contracts with initial purchase occurring prior to the specified period (excluding internal transfers) |
|
SPIA |
Single premium immediate annuity |
|
Surplus assets |
Assets in excess of policyholder obligations, determined in accordance with the applicable domiciliary jurisdiction’s statutory accounting principles |
|
TAC |
Total adjusted capital as defined by the model created by the NAIC |
|
U.S. RBC Ratio |
The CAL RBC ratio for AADE, our parent U.S. insurance company |
|
VIE |
Variable interest entity |
|
VOBA |
Value of business acquired |
|
Voya reinsurance transactions |
Collectively, the coinsurance and modified coinsurance agreements we entered into on June 1, 2018 with Voya Insurance and Annuity Company and ReliaStar Life Insurance Company |
6
Item 1. Financial Statements
Index to Condensed Consolidated Financial Statements (unaudited)
7
(In millions) |
June 30, 2018 |
December 31, 2017 |
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Assets |
|||||||
Investments |
|||||||
Fixed maturity securities, at fair value |
|||||||
Available-for-sale securities (amortized cost: 2018 – $59,445 and 2017 – $58,506) |
$ |
59,762 |
$ |
61,012 |
|||
Trading securities |
2,053 |
2,196 |
|||||
Equity securities, at fair value |
216 |
790 |
|||||
Mortgage loans, net of allowances (portion at fair value: 2018 – $38 and 2017 – $41) |
7,609 |
6,233 |
|||||
Investment funds (portion at fair value: 2018 – $126 and 2017 – $145) |
633 |
699 |
|||||
Policy loans |
504 |
530 |
|||||
Funds withheld at interest (portion at fair value: 2018 – $150 and 2017 – $312) |
7,700 |
7,085 |
|||||
Derivative assets |
1,929 |
2,551 |
|||||
Real estate (portion held for sale: 2017 – $32)
|
— |
624 |
|||||
Short-term investments, at fair value (cost: 2018 – $289 and 2017 – $201) |
289 |
201 |
|||||
Other investments (portion at fair value: 2018 – $50 and 2017 – $0)
|
123 |
133 |
|||||
Total investments |
80,818 |
82,054 |
|||||
Cash and cash equivalents |
3,608 |
4,888 |
|||||
Restricted cash |
178 |
105 |
|||||
Investments in related parties |
|||||||
Fixed maturity securities, at fair value |
|||||||
Available-for-sale securities (amortized cost: 2018 – $958 and 2017 – $399) |
956 |
406 |
|||||
Trading securities |
278 |
307 |
|||||
Investment funds (portion at fair value: 2018 – $198 and 2017 – $30) |
1,836 |
1,310 |
|||||
Funds withheld at interest (portion at fair value: 2018 – $162) |
14,221 |
— |
|||||
Short-term investments, at fair value (cost: 2018 – $172 and 2017 – $52) |
172 |
52 |
|||||
Other investments |
388 |
238 |
|||||
Accrued investment income (related party: 2018 – $24 and 2017 – $10) |
662 |
652 |
|||||
Reinsurance recoverable (related party: 2018 – $4; portion at fair value: 2018 – $1,717 and 2017 – $1,824) |
4,847 |
4,972 |
|||||
Deferred acquisition costs, deferred sales inducements and value of business acquired |
4,715 |
2,930 |
|||||
Other assets |
1,265 |
969 |
|||||
Assets of consolidated variable interest entities |
|||||||
Investments |
|||||||
Fixed maturity securities, trading, at fair value – related party |
48 |
48 |
|||||
Equity securities, at fair value – related party |
163 |
240 |
|||||
Investment funds (related party: 2018 – $542 and 2017 – $571; portion at fair value: 2018 – $542 and 2017 – $549) |
593 |
571 |
|||||
Cash and cash equivalents |
2 |
4 |
|||||
Other assets |
5 |
1 |
|||||
Total assets |
$ |
114,755 |
$ |
99,747 |
(Continued)
See accompanying notes to the unaudited condensed consolidated financial statements
8
(In millions, except share and per share data) |
June 30, 2018 |
December 31, 2017 |
|||||
Liabilities and Equity |
|||||||
Liabilities |
|||||||
Interest sensitive contract liabilities (related party: 2018 – $17,742; portion at fair value: 2018 – $9,008 and 2017 – $8,929) |
$ |
87,052 |
$ |
67,708 |
|||
Future policy benefits (related party: 2018 – $928; portion at fair value: 2018 – $2,249 and 2017 – $2,428) |
13,970 |
17,507 |
|||||
Other policy claims and benefits (related party: 2018 – $2)
|
136 |
211 |
|||||
Dividends payable to policyholders |
118 |
1,025 |
|||||
Short-term debt |
183 |
— |
|||||
Long-term debt |
991 |
— |
|||||
Derivative liabilities |
137 |
134 |
|||||
Payables for collateral on derivatives |
1,746 |
2,323 |
|||||
Funds withheld liability (portion at fair value: 2018 – $4 and 2017 – $22) |
389 |
407 |
|||||
Other liabilities (related party: 2018 – $69 and 2017 – $64)
|
1,524 |
1,222 |
|||||
Liabilities of consolidated variable interest entities |
4 |
2 |
|||||
Total liabilities |
106,250 |
90,539 |
|||||
Commitments and Contingencies (Note 13) |
|||||||
Equity |
|||||||
Common stock |
|||||||
Class A – par value $0.001 per share; authorized: 2018 and 2017 – 425,000,000 shares; issued and outstanding: 2018 – 164,734,282 and 2017 – 142,386,704 shares |
— |
— |
|||||
Class B – par value $0.001 per share; convertible to Class A; authorized: 2018 and 2017 – 325,000,000 shares; issued and outstanding: 2018 – 25,483,107 and 2017 – 47,422,399 shares |
— |
— |
|||||
Class M-1 – par value $0.001 per share; contingently convertible to Class A; authorized: 2018 and 2017 – 7,109,560 shares; issued and outstanding: 2018 – 3,388,890 and 2017 – 3,388,890 shares |
— |
— |
|||||
Class M-2 – par value $0.001 per share; contingently convertible to Class A; authorized: 2018 and 2017 – 5,000,000 shares; issued and outstanding: 2018 – 851,103 and 2017 – 851,103 shares |
— |
— |
|||||
Class M-3 – par value $0.001 per share; contingently convertible to Class A; authorized: 2018 and 2017 – 7,500,000 shares; issued and outstanding: 2018 – 1,001,110 and 2017 – 1,092,000 shares |
— |
— |
|||||
Class M-4 – par value $0.001 per share; contingently convertible to Class A; authorized: 2018 and 2017 – 7,500,000 shares; issued and outstanding: 2018 – 4,354,425 and 2017 – 4,711,743 shares |
— |
— |
|||||
Additional paid-in capital |
3,492 |
3,472 |
|||||
Retained earnings |
4,887 |
4,321 |
|||||
Accumulated other comprehensive income (related party: 2018 – $(2) and 2017 – $48)
|
126 |
1,415 |
|||||
Total shareholders' equity |
8,505 |
9,208 |
|||||
Total liabilities and equity |
$ |
114,755 |
$ |
99,747 |
(Concluded)
See accompanying notes to the unaudited condensed consolidated financial statements
9
Three months ended June 30, |
Six months ended June 30, |
||||||||||||||
(In millions, except per share data) |
2018 |
2017 |
2018 |
2017 |
|||||||||||
Revenues |
|||||||||||||||
Premiums (related party of $582 for the three and six months ended June 30, 2018)
|
$ |
726 |
$ |
379 |
$ |
1,004 |
$ |
431 |
|||||||
Product charges (related party of $5 for the three and six months ended June 30, 2018)
|
106 |
85 |
202 |
166 |
|||||||||||
Net investment income (related party investment income of $67 and $73 for the three months ended and $143 and $129 for the six months ended June 30, 2018 and 2017, respectively, and related party investment expense of $86 and $76 for the three months ended and $169 and $154 for the six months ended June 30, 2018 and 2017, respectively) |
958 |
821 |
1,813 |
1,607 |
|||||||||||
Investment related gains (losses) (related party of $2 and $3 for the three months ended and $19 and $(8) for the six months ended June 30, 2018 and 2017, respectively) |
(2 |
) |
460 |
(238 |
) |
1,142 |
|||||||||
Other-than-temporary impairment investment losses |
|||||||||||||||
Other-than-temporary impairment losses |
— |
(12 |
) |
(3 |
) |
(12 |
) |
||||||||
Other-than-temporary impairment losses reclassified to (from) other comprehensive income |
— |
1 |
— |
— |
|||||||||||
Net other-than-temporary impairment losses |
— |
(11 |
) |
(3 |
) |
(12 |
) |
||||||||
Other revenues |
6 |
8 |
12 |
16 |
|||||||||||
Revenues of consolidated variable interest entities |
|||||||||||||||
Net investment income (related party of $14 and $10 for the three months ended and $24 and $20 for the six months ended June 30, 2018 and 2017, respectively) |
14 |
10 |
24 |
20 |
|||||||||||
Investment related gains (losses) (related party of $(11) and $11 for the three months ended and $(6) and $12 for the six months ended June 30, 2018 and 2017, respectively) |
(11 |
) |
11 |
(6 |
) |
12 |
|||||||||
Total revenues |
1,797 |
1,763 |
2,808 |
3,382 |
|||||||||||
Benefits and expenses |
|||||||||||||||
Interest sensitive contract benefits (related party of $20 for the three and six months ended June 30, 2018)
|
332 |
553 |
351 |
1,245 |
|||||||||||
Amortization of deferred sales inducements |
23 |
11 |
43 |
29 |
|||||||||||
Future policy and other policy benefits (related party of $580 for the three and six months ended June 30, 2018) |
857 |
578 |
1,258 |
792 |
|||||||||||
Amortization of deferred acquisition costs and value of business acquired |
92 |
67 |
181 |
171 |
|||||||||||
Dividends to policyholders |
9 |
49 |
22 |
81 |
|||||||||||
Policy and other operating expenses (related party of $3 and $2 for the three months ended and $5 and $6 for the six months ended June 30, 2018 and 2017, respectively) |
153 |
168 |
295 |
321 |
|||||||||||
Operating expenses of consolidated variable interest entities |
1 |
— |
1 |
— |
|||||||||||
Total benefits and expenses |
1,467 |
1,426 |
2,151 |
2,639 |
|||||||||||
Income before income taxes |
330 |
337 |
657 |
743 |
|||||||||||
Income tax expense |
66 |
11 |
125 |
33 |
|||||||||||
Net income |
$ |
264 |
$ |
326 |
$ |
532 |
$ |
710 |
|||||||
Earnings per share |
|||||||||||||||
Basic – Classes A, B, M-1, M-2, M-3 and M-4 |
$ |
1.34 |
$ |
1.66 |
$ |
2.70 |
$ |
3.66 |
|||||||
Diluted – Class A |
1.33 |
1.65 |
2.69 |
3.59 |
|||||||||||
Diluted – Class B |
1.34 |
1.66 |
2.70 |
3.66 |
|||||||||||
Diluted – Class M-1 |
1.34 |
1.66 |
2.70 |
3.66 |
|||||||||||
Diluted – Class M-2 |
1.33 |
1.64 |
2.67 |
1.80 |
|||||||||||
Diluted – Class M-3 |
1.34 |
1.00 |
2.67 |
1.08 |
|||||||||||
Diluted – Class M-4 |
1.04 |
0.76 |
1.98 |
0.98 |
See accompanying notes to the unaudited condensed consolidated financial statements
10
ATHENE HOLDING LTD.
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
Three months ended June 30, |
Six months ended June 30, |
||||||||||||||
(In millions) |
2018 |
2017 |
2018 |
2017 |
|||||||||||
Net income |
$ |
264 |
$ |
326 |
$ |
532 |
$ |
710 |
|||||||
Other comprehensive income (loss), before tax |
|||||||||||||||
Unrealized investment gains (losses) on available-for-sale securities |
(667 |
) |
582 |
(1,577 |
) |
1,001 |
|||||||||
Noncredit component of other-than-temporary impairment losses on available-for-sale securities |
— |
(1 |
) |
— |
— |
||||||||||
Unrealized gains (losses) on hedging instruments |
101 |
(33 |
) |
45 |
(38 |
) |
|||||||||
Pension adjustments |
— |
(1 |
) |
3 |
(1 |
) |
|||||||||
Foreign currency translation adjustments |
(2 |
) |
8 |
(10 |
) |
10 |
|||||||||
Other comprehensive income (loss), before tax |
(568 |
) |
555 |
(1,539 |
) |
972 |
|||||||||
Income tax expense (benefit) related to other comprehensive income |
(109 |
) |
168 |
(292 |
) |
279 |
|||||||||
Other comprehensive income (loss) |
(459 |
) |
387 |
(1,247 |
) |
693 |
|||||||||
Comprehensive income (loss) |
$ |
(195 |
) |
$ |
713 |
$ |
(715 |
) |
$ |
1,403 |
See accompanying notes to the unaudited condensed consolidated financial statements
11
(In millions) |
Common stock |
Additional paid-in capital |
Retained earnings |
Accumulated other comprehensive income |
Total Athene Holding Ltd. shareholders' equity |
Noncontrolling interest |
Total equity |
||||||||||||||||||||
Balance at December 31, 2016 |
$ |
— |
$ |
3,421 |
$ |
3,070 |
$ |
367 |
$ |
6,858 |
$ |
1 |
$ |
6,859 |
|||||||||||||
Net income |
— |
— |
710 |
— |
710 |
— |
710 |
||||||||||||||||||||
Other comprehensive income |
— |
— |
— |
693 |
693 |
— |
693 |
||||||||||||||||||||
Stock-based compensation |
— |
31 |
— |
— |
31 |
— |
31 |
||||||||||||||||||||
Retirement or repurchase of shares |
— |
— |
(8 |
) |
— |
(8 |
) |
— |
(8 |
) |
|||||||||||||||||
Other changes in equity of noncontrolling interests |
— |
— |
— |
— |
— |
(1 |
) |
(1 |
) |
||||||||||||||||||
Balance at June 30, 2017 |
$ |
— |
$ |
3,452 |
$ |
3,772 |
$ |
1,060 |
$ |
8,284 |
$ |
— |
$ |
8,284 |
|||||||||||||
Balance at December 31, 2017 |
$ |
— |
$ |
3,472 |
$ |
4,321 |
$ |
1,415 |
$ |
9,208 |
$ |
— |
$ |
9,208 |
|||||||||||||
Adoption of accounting standards1
|
— |
— |
39 |
(42 |
) |
(3 |
) |
— |
(3 |
) |
|||||||||||||||||
Net income |
— |
— |
532 |
— |
532 |
— |
532 |
||||||||||||||||||||
Other comprehensive loss |
— |
— |
— |
(1,247 |
) |
(1,247 |
) |
— |
(1,247 |
) |
|||||||||||||||||
Issuance of shares, net of expenses |
— |
1 |
— |
— |
1 |
— |
1 |
||||||||||||||||||||
Stock-based compensation |
— |
19 |
— |
— |
19 |
— |
19 |
||||||||||||||||||||
Retirement or repurchase of shares |
— |
— |
(5 |
) |
— |
(5 |
) |
— |
(5 |
) |
|||||||||||||||||
Balance at June 30, 2018 |
$ |
— |
$ |
3,492 |
$ |
4,887 |
$ |
126 |
$ |
8,505 |
$ |
— |
$ |
8,505 |
|||||||||||||
1 See discussion of adoptions in Note 1 – Business, Basis of Presentation and Significant Accounting Policies.
|
See accompanying notes to the unaudited condensed consolidated financial statements
12
Six months ended June 30, |
|||||||
(In millions) |
2018 |
2017 |
|||||
Cash flows from operating activities |
|||||||
Net income |
$ |
532 |
$ |
710 |
|||
Adjustments to reconcile net income to net cash provided by operating activities: |
|||||||
Amortization of deferred acquisition costs and value of business acquired |
181 |
171 |
|||||
Amortization of deferred sales inducements |
43 |
29 |
|||||
Accretion of net investment premiums, discounts, and other |
(99 |
) |
(101 |
) |
|||
Payment at inception of reinsurance agreements, net (related party: 2018 – $(407)) |
(394 |
) |
— |
||||
Stock-based compensation |
13 |
29 |
|||||
Net investment income (related party: 2018 – $(50) and 2017 – $(43)) |
(32 |
) |
(43 |
) |
|||
Net recognized (gains) losses on investments and derivatives (related party: 2018 – $(18) and 2017 – $3) |
161 |
(882 |
) |
||||
Policy acquisition costs deferred |
(311 |
) |
(248 |
) |
|||
Changes in operating assets and liabilities: |
|||||||
Accrued investment income (related party: 2018 – $(14)) |
(47 |
) |
(9 |
) |
|||
Interest sensitive contract liabilities (related party: 2018 – $15) |
7 |
1,140 |
|||||
Future policy benefits, other policy claims and benefits, dividends payable to policyholders and reinsurance recoverable (related party: 2018 – $15) |
352 |
387 |
|||||
Funds withheld assets and liabilities (related party: 2018 – $23) |
(32 |
) |
(222 |
) |
|||
Other assets and liabilities |
139 |
124 |
|||||
Consolidated variable interest entities related: |
|||||||
Net recognized (gains) losses on investments and derivatives (related party: 2018 – $5 and 2017 – $(12)) |
5 |
(12 |
) |
||||
Other operating activities, net |
1 |
— |
|||||
Net cash provided by operating activities |
519 |
1,073 |
|||||
Cash flows from investing activities |
|||||||
Sales, maturities and repayments of: |
|||||||
Fixed maturity securities |
|||||||
Available-for-sale securities (related party: 2018 – $97 and 2017 – $73) |
6,309 |
5,987 |
|||||
Trading securities (related party: 2018 – $22 and 2017 – $26) |
288 |
83 |
|||||
Equity securities (related party: 2018 – $0 and 2017 – $22) |
2 |
455 |
|||||
Mortgage loans |
686 |
632 |
|||||
Investment funds (related party: 2018 – $143 and 2017 – $172) |
252 |
221 |
|||||
Derivative instruments and other invested assets |
1,062 |
713 |
|||||
Short-term investments |
220 |
226 |
|||||
Purchases of: |
|||||||
Fixed maturity securities |
|||||||
Available-for-sale securities (related party: 2018 – $(211) and 2017 – $(64)) |
(8,953 |
) |
(9,111 |
) |
|||
Trading securities |
(81 |
) |
(66 |
) |
|||
Equity securities |
(62 |
) |
(492 |
) |
|||
Mortgage loans |
(1,924 |
) |
(1,184 |
) |
|||
Investment funds (related party: 2018 – $(556) and 2017 – $(179)) |
(654 |
) |
(227 |
) |
|||
Derivative instruments and other invested assets (related party: 2018 – $(150) and 2017 – $0) |
(659 |
) |
(376 |
) |
|||
Real estate |
— |
(13 |
) |
||||
Short-term investments (related party: 2018 – $(121) and 2017 – $(28)) |
(429 |
) |
(177 |
) |
|||
Consolidated variable interest entities related: |
|||||||
Sales, maturities and repayments of investments (related party: 2018 – $103 and 2017 – $7) |
103 |
7 |
|||||
Purchases of investments (related party: 2018 – $0 and 2017 – $(22)) |
(52 |
) |
(22 |
) |
|||
Deconsolidation of AGER Bermuda Holding Ltd. and its subsidiaries |
(296 |
) |
— |
||||
Cash settlement of derivatives |
(2 |
) |
4 |
||||
Other investing activities, net |
286 |
748 |
|||||
Net cash used in investing activities |
(3,904 |
) |
(2,592 |
) |
|||
(Continued) |
|||||||
See accompanying notes to the unaudited condensed consolidated financial statements |
13
Six months ended June 30, |
|||||||
(In millions) |
2018 |
2017 |
|||||
Cash flows from financing activities |
|||||||
Capital contributions |
$ |
1 |
$ |
— |
|||
Proceeds from short-term debt |
183 |
— |
|||||
Proceeds from long-term debt |
998 |
— |
|||||
Deposits on investment-type policies and contracts (related party: 2018 – $128) |
4,375 |
4,727 |
|||||
Withdrawals on investment-type policies and contracts (related party: 2018 – $(37)) |
(2,839 |
) |
(2,607 |
) |
|||
Payments for coinsurance agreements on investment-type contracts, net |
(12 |
) |
(15 |
) |
|||
Net change in cash collateral posted for derivative transactions |
(577 |
) |
477 |
||||
Repurchase of common stock |
(5 |
) |
(8 |
) |
|||
Other financing activities, net |
52 |
(5 |
) |
||||
Net cash provided by financing activities |
2,176 |
2,569 |
|||||
Effect of exchange rate changes on cash and cash equivalents |
— |
19 |
|||||
Net (decrease) increase in cash and cash equivalents |
(1,209 |
) |
1,069 |
||||
Cash and cash equivalents at beginning of year1
|
4,997 |
2,516 |
|||||
Cash and cash equivalents at end of period1
|
$ |
3,788 |
$ |
3,585 |
|||
Supplementary information |
|||||||
Non-cash transactions |
|||||||
Deposits on investment-type policies and contracts through reinsurance agreements (related party: 2018 – $17,525) |
$ |
18,247 |
$ |
385 |
|||
Withdrawals on investment-type policies and contracts through reinsurance agreements (related party: 2018 – $155) |
341 |
285 |
|||||
Investments received from settlements on reinsurance agreements |
8 |
36 |
|||||
Investment in Athora Holding Ltd. received upon deconsolidation |
108 |
— |
|||||
1 Includes cash and cash equivalents, restricted cash, and cash and cash equivalents of consolidated variable interest entities.
|
(Concluded)
See accompanying notes to the unaudited condensed consolidated financial statements
14
ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Business, Basis of Presentation and Significant Accounting Policies
Athene Holding Ltd. (AHL), a Bermuda exempted company, together with its subsidiaries (collectively, Athene, we, our, us, or the Company), is a leading retirement services company that issues, reinsures and acquires retirement savings products in all U.S. states and the District of Columbia.
We conduct business primarily through the following consolidated subsidiaries:
• |
Our non-U.S. reinsurance subsidiaries, to which AHL’s other insurance subsidiaries and third party ceding companies directly and indirectly reinsure a portion of their liabilities, including Athene Life Re Ltd. (ALRe), a Bermuda exempted company; and |
• |
Athene USA Corporation, an Iowa corporation and its subsidiaries (Athene USA). |
In addition, we consolidate certain variable interest entities (VIEs), for which we determined we are the primary beneficiary, as discussed in Note 4 – Variable Interest Entities.
Basis of Presentation—We have prepared the accompanying condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and the United States Securities and Exchange Commission’s rules and regulations for Form 10-Q and Article 10 of Regulation S-X. The accompanying condensed consolidated financial statements are unaudited and reflect all adjustments, consisting only of normal recurring items, considered necessary for fair statement of the periods presented. All significant intercompany accounts and transactions have been eliminated. Interim operating results are not necessarily indicative of the results expected for the entire year.
The condensed consolidated balance sheet as of December 31, 2017 has been derived from the audited financial statements, but does not include all of the information and footnotes required by GAAP for complete financial statements. Therefore, these condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2017. The preparation of financial statements requires the use of management estimates. Actual results may differ from estimates used in preparing the condensed consolidated financial statements.
Deconsolidation – AGER Bermuda Holding Ltd. and its subsidiaries, now known as Athora Holding Ltd. (Athora), was our consolidated subsidiary for the year ended December 31, 2017. In April 2017, in connection with a private offering, Athora entered into subscription agreements with AHL, certain affiliates of Apollo Global Management, LLC (AGM and, together with its subsidiaries, Apollo) and a number of other third-party investors pursuant to which Athora secured commitments from such parties to purchase new common shares in Athora (Athora Offering). In November 2017, the Athora board of directors approved resolutions authorizing the closing of the Athora Offering (Closing) to occur on January 1, 2018 and approving a capital call from all of the Athora investors, excluding us. In connection with the Closing and the issuance of shares in respect of the capital call, each of which occurred on January 1, 2018, our equity interest in Athora was exchanged for common shares of Athora. As a result, on January 1, 2018, we held 10% of the aggregate voting power of and less than 50% of the economic interest in Athora and, as such, it is thereafter held as a related party investment rather than a consolidated subsidiary. We did not recognize a material amount in the condensed consolidated statements of income upon deconsolidation in 2018.
Adopted Accounting Pronouncements
Revenue Recognition (ASU 2017-13, ASU 2016-20, ASU 2016-12, ASU 2016-11, ASU 2016-10, ASU 2016-08, ASU 2015-14 and ASU 2014-09)
These updates are based on the core principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. These updates replace all general and most industry-specific revenue recognition guidance, excluding insurance contracts, leases, financial instruments and guarantees, which have been scoped out of these updates. Since the guidance does not apply to revenue on contracts accounted for under the financial instruments or insurance contracts standards, only a portion of our revenues are impacted by this guidance. We adopted these updates on a modified retrospective basis effective January 1, 2018. The adoptions did not have a material effect on our consolidated financial statements.
Derivatives and Hedging – Targeted Improvements (ASU 2017-12)
The amendments in this update contain improvements to the financial reporting of hedging relationships that more closely reflect the economic results of an entity’s risk management activities in its financial statements. Additionally, the amendments in this update make certain targeted improvements to simplify the application of hedge accounting. We early adopted this update effective January 1, 2018, and the adoption did not have a material effect on our consolidated financial statements.
Gains and Losses from the Derecognition of Nonfinancial Assets (ASU 2017-05)
The amendments in this update clarify the scope of asset derecognition guidance and accounting for partial sales of nonfinancial assets. We adopted this update on a modified retrospective basis effective January 1, 2018. The adoption did not have a material effect on our consolidated financial statements.
15
ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Statement of Cash Flows – Restricted Cash (ASU 2016-18)
This update requires amounts generally described as restricted cash or restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period amounts shown on the consolidated statements of cash flows. We adopted this update effective January 1, 2018, and have changed the presentation on the consolidated statements of cash flows as required by this update.
Income Taxes – Intra-Entity Transfers (ASU 2016-16)
This update requires the immediate recognition of current and deferred income tax effects of intra-entity transfers of assets, other than inventory. Prior to adoption, recognition of the income tax consequence was not recognized until the asset was sold to an outside party. We adopted this update effective January 1, 2018. Upon adoption, we recognized a cumulative-effect decrease to beginning retained earnings of $3 million.
Statement of Cash Flows (ASU 2016-15)
This update provides specific guidance to clarify how entities should classify certain cash receipts and cash payments on the statement of cash flows. The update also clarifies the application of the predominance principle when cash receipts and cash payments have aspects of more than one class of cash flows. We adopted this update effective January 1, 2018, and the adoption did not have a material effect on our consolidated financial statements.
Financial Instruments – Recognition and Measurement (ASU 2016-01)
This update changes the accounting for certain equity investments, the presentation of changes in the fair value of liabilities measured under the fair value option due to instrument-specific credit risk, and certain disclosures. For liabilities measured under the fair value option, changes in fair value attributable to instrument-specific credit risk will no longer affect net income, but will be recognized separately in other comprehensive income (OCI). Additionally, this update requires equity investments to be measured at fair value with subsequent changes recognized in net income, except for those accounted for under the equity method or requiring consolidation. Prior to the effective date of this update, changes in fair value related to available-for-sale (AFS) equity securities were recognized in OCI. We adopted this update effective January 1, 2018. Upon adoption, we recognized a cumulative-effect increase to beginning retained earnings of $42 million and a corresponding decrease to accumulated other comprehensive income (AOCI). Additionally, we combined the presentation of AFS and trading equity securities on the consolidated balance sheets for all periods presented.
Recently Issued Accounting Pronouncements
Stock Compensation – Nonemployee Share-Based Payments (ASU 2018-07)
The amendments in this update simplify the accounting for share-based payments to nonemployees by aligning with the accounting for share-based payments to employees, with certain exceptions. We will be required to adopt this update on a modified retrospective basis effective January 1, 2019. Early adoption is permitted. We do not expect the adoption of this update will have a material effect on our consolidated financial statements.
Leases (ASU 2018-11, ASU 2018-10, ASU 2018-01, ASU 2017-13 and ASU 2016-02)
These updates are intended to increase transparency and comparability for lease transactions. ASU 2016-02, among other things, requires a lessee to recognize an asset and a liability for all lease arrangements longer than 12 months. Lessor accounting is largely unchanged. ASU 2016-02 required the adoption of this standard on a modified retrospective basis. However, with the issuance of ASU 2018-11, we are allowed the option to recognize the cumulative effect of applying the new standard as an adjustment to the opening balance of retained earnings in the year of adoption, while continuing to present all prior periods under the previous lease guidance. The standard is effective January 1, 2019 and early adoption is permitted. We have reviewed our existing lease contracts and our implementation efforts are primarily focused on assessing the financial impact of these updates on our consolidated financial statements.
Intangibles – Simplifying the Test for Goodwill Impairment (ASU 2017-04)
The amendments in this update simplify the subsequent measurement of goodwill by eliminating the comparison of the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill to determine the goodwill impairment loss. With the adoption of this guidance, a goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of the goodwill allocated to that reporting unit. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. We will be required to adopt this update prospectively effective January 1, 2020. Early adoption is permitted. We do not expect the adoption of this update will have a material effect on our consolidated financial statements.
Financial Instruments – Credit Losses (ASU 2016-13)
This update is designed to reduce complexity by limiting the number of credit impairment models used for different assets. The model will result in accelerated credit loss recognition on assets held at amortized cost, which includes our commercial and residential mortgage investments. The identification of credit-deteriorated securities will include all assets that have experienced a more-than-insignificant deterioration in credit since origination. Additionally, any changes in the expected cash flows of credit-deteriorated securities will be recognized immediately in the income statement. AFS fixed maturity securities are not in scope of the new credit loss model, but will undergo targeted improvements to the current reporting model including the establishment of a valuation allowance for credit losses versus the current direct write down approach. We will be required to adopt this update effective January 1, 2020. Early adoption is permitted effective January 1, 2019. We are currently evaluating the impact of this guidance on our consolidated financial statements.
16
ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)
2. Investments
Available-for-sale Securities—The following table represents the amortized cost, gross unrealized gains and losses, fair value and other-than-temporary impairments (OTTI) in AOCI of our AFS investments by asset type. Our AFS investment portfolio includes direct investments in affiliates of Apollo Global Management, LLC (AGM and, together with its subsidiaries, Apollo) where Apollo can exercise significant influence over the affiliates. These investments are presented as investments in related parties on the condensed consolidated balance sheets, and are separately disclosed below.
June 30, 2018 |
|||||||||||||||||||
(In millions) |
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
OTTI
in AOCI
|
||||||||||||||
Available-for-sale securities |
|||||||||||||||||||
U.S. government and agencies |
$ |
143 |
$ |
— |
$ |
(1 |
) |
$ |
142 |
$ |
— |
||||||||
U.S. state, municipal and political subdivisions |
1,152 |
124 |
(5 |
) |
1,271 |
— |
|||||||||||||
Foreign governments |
203 |
1 |
(5 |
) |
199 |
— |
|||||||||||||
Corporate |
37,258 |
481 |
(885 |
) |
36,854 |
1 |
|||||||||||||
CLO |
5,355 |
21 |
(24 |
) |
5,352 |
— |
|||||||||||||
ABS |
4,727 |
32 |
(43 |
) |
4,716 |
1 |
|||||||||||||
CMBS |
2,343 |
28 |
(47 |
) |
2,324 |
1 |
|||||||||||||
RMBS |
8,264 |
648 |
(8 |
) |
8,904 |
10 |
|||||||||||||
Total AFS securities |
59,445 |
1,335 |
(1,018 |
) |
59,762 |
13 |
|||||||||||||
Available-for-sale securities – related party |
|||||||||||||||||||
CLO |
473 |
2 |
(3 |
) |
472 |
— |
|||||||||||||
ABS |
485 |
2 |
(3 |
) |
484 |
— |
|||||||||||||
Total AFS securities – related party |
958 |
4 |
(6 |
) |
956 |
— |
|||||||||||||
Total AFS securities, including related party |
$ |
60,403 |
$ |
1,339 |
$ |
(1,024 |
) |
$ |
60,718 |
$ |
13 |
December 31, 2017 |
|||||||||||||||||||
(In millions) |
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
OTTI
in AOCI
|
||||||||||||||
Fixed maturity securities |
|||||||||||||||||||
U.S. government and agencies |
$ |
63 |
$ |
1 |
$ |
(2 |
) |
$ |
62 |
$ |
— |
||||||||
U.S. state, municipal and political subdivisions |
996 |
171 |
(2 |
) |
1,165 |
— |
|||||||||||||
Foreign governments |
2,575 |
116 |
(8 |
) |
2,683 |
— |
|||||||||||||
Corporate |
35,173 |
1,658 |
(171 |
) |
36,660 |
— |
|||||||||||||
CLO |
5,039 |
53 |
(8 |
) |
5,084 |
— |
|||||||||||||
ABS |
3,945 |
53 |
(27 |
) |
3,971 |
1 |
|||||||||||||
CMBS |
1,994 |
48 |
(21 |
) |
2,021 |
1 |
|||||||||||||
RMBS |
8,721 |
652 |
(7 |
) |
9,366 |
11 |
|||||||||||||
Total fixed maturity securities |
58,506 |
2,752 |
(246 |
) |
61,012 |
13 |
|||||||||||||
Equity securities1
|
271 |
7 |
(1 |
) |
277 |
— |
|||||||||||||
Total AFS securities |
58,777 |
2,759 |
(247 |
) |
61,289 |
13 |
|||||||||||||
Available-for-sale securities – related party |
|||||||||||||||||||
CLO |
353 |
7 |
— |
360 |
— |
||||||||||||||
ABS |
46 |
— |
— |
46 |
— |
||||||||||||||
Total AFS securities – related party |
399 |
7 |
— |
406 |
— |
||||||||||||||
Total AFS securities, including related party |
$ |
59,176 |
$ |
2,766 |
$ |
(247 |
) |
$ |
61,695 |
$ |
13 |
||||||||
1 Included in equity securities on the condensed consolidated balance sheets.
|
17
ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)
The amortized cost and fair value of fixed maturity AFS securities, including related party, are shown by contractual maturity below:
June 30, 2018 |
|||||||
(In millions) |
Amortized Cost |
Fair Value |
|||||
Due in one year or less |
$ |
1,146 |
$ |
1,145 |
|||
Due after one year through five years |
8,521 |
8,517 |
|||||
Due after five years through ten years |
11,461 |
11,261 |
|||||
Due after ten years |
17,628 |
17,543 |
|||||
CLO, ABS, CMBS and RMBS |
20,689 |
21,296 |
|||||
Total AFS fixed maturity securities |
59,445 |
59,762 |
|||||
Fixed maturity securities – related party, CLO and ABS |
958 |
956 |
|||||
Total AFS fixed maturity securities, including related party |
$ |
60,403 |
$ |
60,718 |
Actual maturities can differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Unrealized Losses on AFS Securities—The following summarizes the fair value and gross unrealized losses for AFS securities, including related party, aggregated by class of security and length of time the fair value has remained below amortized cost:
June 30, 2018 |
|||||||||||||||||||||||
Less than 12 months |
12 months or more |
Total |
|||||||||||||||||||||
(In millions) |
Fair Value |
Gross
Unrealized
Losses
|
Fair Value |
Gross Unrealized Losses |
Fair Value |
Gross Unrealized Losses |
|||||||||||||||||
Available-for-sale securities |
|||||||||||||||||||||||
U.S. government and agencies |
$ |
139 |
$ |
(1 |
) |
$ |
1 |
$ |
— |
$ |
140 |
$ |
(1 |
) |
|||||||||
U.S. state, municipal and political subdivisions |
125 |
(1 |
) |
77 |
(4 |
) |
202 |
(5 |
) |
||||||||||||||
Foreign governments |
103 |
(2 |
) |
45 |
(3 |
) |
148 |
(5 |
) |
||||||||||||||
Corporate |
17,178 |
(526 |
) |
5,105 |
(359 |
) |
22,283 |
(885 |
) |
||||||||||||||
CLO |
2,270 |
(21 |
) |
267 |
(3 |
) |
2,537 |
(24 |
) |
||||||||||||||
ABS |
1,689 |
(22 |
) |
678 |
(21 |
) |
2,367 |
(43 |
) |
||||||||||||||
CMBS |
880 |
(20 |
) |
382 |
(27 |
) |
1,262 |
(47 |
) |
||||||||||||||
RMBS |
380 |
(4 |
) |
248 |
(4 |
) |
628 |
(8 |
) |
||||||||||||||
Total AFS securities |
22,764 |
(597 |
) |
6,803 |
(421 |
) |
29,567 |
(1,018 |
) |
||||||||||||||
Available-for-sale securities – related party |
|||||||||||||||||||||||
CLO |
214 |
(3 |
) |
— |
— |
214 |
(3 |
) |
|||||||||||||||
ABS |
127 |
— |
86 |
(3 |
) |
213 |
(3 |
) |
|||||||||||||||
Total AFS securities – related party |
341 |
(3 |
) |
86 |
(3 |
) |
427 |
(6 |
) |
||||||||||||||
Total AFS securities, including related party |
$ |
23,105 |
$ |
(600 |
) |
$ |
6,889 |
$ |
(424 |
) |
$ |
29,994 |
$ |
(1,024 |
) |
18
ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)
December 31, 2017 |
|||||||||||||||||||||||
Less than 12 months |
12 months or more |
Total |
|||||||||||||||||||||
(In millions) |
Fair Value |
Gross
Unrealized
Losses
|
Fair Value |
Gross Unrealized Losses |
Fair Value |
Gross Unrealized Losses |
|||||||||||||||||
Fixed maturity securities |
|||||||||||||||||||||||
U.S. government and agencies |
$ |
34 |
$ |
(1 |
) |
$ |
9 |
$ |
(1 |
) |
$ |
43 |
$ |
(2 |
) |
||||||||
U.S. state, municipal and political subdivisions |
50 |
(1 |
) |
39 |
(1 |
) |
89 |
(2 |
) |
||||||||||||||
Foreign governments |
435 |
(6 |
) |
76 |
(2 |
) |
511 |
(8 |
) |
||||||||||||||
Corporate |
3,992 |
(49 |
) |
2,457 |
(122 |
) |
6,449 |
(171 |
) |
||||||||||||||
CLO |
414 |
(2 |
) |
340 |
(6 |
) |
754 |
(8 |
) |
||||||||||||||
ABS |
515 |
(5 |
) |
549 |
(22 |
) |
1,064 |
(27 |
) |
||||||||||||||
CMBS |
460 |
(8 |
) |
179 |
(13 |
) |
639 |
(21 |
) |
||||||||||||||
RMBS |
506 |
(3 |
) |
210 |
(4 |
) |
716 |
(7 |
) |
||||||||||||||
Total fixed maturity securities |
6,406 |
(75 |
) |
3,859 |
(171 |
) |
10,265 |
(246 |
) |
||||||||||||||
Equity securities1
|
134 |
(1 |
) |
— |
— |
134 |
(1 |
) |
|||||||||||||||
Total AFS securities |
6,540 |
(76 |
) |
3,859 |
(171 |
) |
10,399 |
(247 |
) |
||||||||||||||
Available-for-sale securities – related party |
|||||||||||||||||||||||
CLO |
29 |
— |
— |
— |
29 |
— |
|||||||||||||||||
ABS |
42 |
— |
— |
— |
42 |
— |
|||||||||||||||||
Total AFS securities – related party |
71 |
— |
— |
— |
71 |
— |
|||||||||||||||||
Total AFS securities, including related party |
$ |
6,611 |
$ |
(76 |
) |
$ |
3,859 |
$ |
(171 |
) |
$ |
10,470 |
$ |
(247 |
) |
||||||||
1 Included in equity securities on the condensed consolidated balance sheets.
|
As of June 30, 2018, we held 3,517 AFS securities that were in an unrealized loss position. Of this total, 808 were in an unrealized loss position 12 months or more. As of June 30, 2018, we held 17 related party AFS securities that were in an unrealized loss position. Of this total, four were in an unrealized loss position 12 months or more. The unrealized losses on AFS securities can primarily be attributed to changes in market interest rates since acquisition. We did not recognize the unrealized losses in income as we intend to hold these securities and it is not more likely than not we will be required to sell a security before the recovery of its amortized cost.
Other-Than-Temporary Impairments—For the six months ended June 30, 2018, we incurred $3 million of net OTTI, of which $2 million related to intent-to-sell impairments. These securities were impaired to fair value as of the impairment date. The remaining net OTTI of $1 million related to credit impairments where a portion was bifurcated in AOCI. Any credit loss impairments not bifurcated in AOCI are excluded from the rollforward below.
The following table represents a rollforward of the cumulative amounts recognized on the condensed consolidated statements of income for OTTI related to pre-tax credit loss impairments on AFS fixed maturity securities, for which a portion of the securities’ total OTTI was recognized in AOCI:
Three months ended June 30, |
Six months ended June 30, |
||||||||||||||
(In millions) |
2018 |
2017 |
2018 |
2017 |
|||||||||||
Beginning balance |
$ |
7 |
$ |
16 |
$ |
7 |
$ |
16 |
|||||||
Initial impairments – credit loss OTTI recognized on securities not previously impaired |
— |
6 |
1 |
6 |
|||||||||||
Reduction in impairments from securities sold, matured or repaid |
— |
(6 |
) |
(1 |
) |
(6 |
) |
||||||||
Ending balance |
$ |
7 |
$ |
16 |
$ |
7 |
$ |
16 |
19
ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Net Investment Income—Net investment income by asset class consists of the following:
Three months ended June 30, |
Six months ended June 30, |
||||||||||||||
(In millions) |
2018 |
2017 |
2018 |
2017 |
|||||||||||
Fixed maturity securities |
|||||||||||||||
AFS securities |
$ |
719 |
$ |
635 |
$ |
1,387 |
$ |
1,255 |
|||||||
Trading securities |
54 |
53 |
98 |
103 |
|||||||||||
Equity securities |
2 |
2 |
4 |
5 |
|||||||||||
Mortgage loans |
104 |
90 |
195 |
175 |
|||||||||||
Investment funds |
58 |
65 |
123 |
120 |
|||||||||||
Funds withheld at interest |
86 |
34 |
132 |
70 |
|||||||||||
Other |
23 |
21 |
46 |
38 |
|||||||||||
Investment revenue |
1,046 |
900 |
1,985 |
1,766 |
|||||||||||
Investment expenses |
(88 |
) |
(79 |
) |
(172 |
) |
(159 |
) |
|||||||
Net investment income |
$ |
958 |
$ |
821 |
$ |
1,813 |
$ |
1,607 |
Investment Related Gains (Losses)—Investment related gains (losses) by asset class consists of the following:
Three months ended June 30, |
Six months ended June 30, |
||||||||||||||
(In millions) |
2018 |
2017 |
2018 |
2017 |
|||||||||||
AFS securities |
|||||||||||||||
Gross realized gains on investment activity |
$ |
51 |
$ |
35 |