10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on May 7, 2019
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 |
|||||||||
For the quarterly period ended March 31, 2019 | ||||||||||
OR | ||||||||||
¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|||||||||
001-37963 |
||||||||||
(Commission file number) | ||||||||||
ATHENE HOLDING LTD. | ||||||||||
(Exact name of registrant as specified in its charter) | ||||||||||
Bermuda |
98-0630022 |
|||||||||
(State or other jurisdiction of |
(I.R.S. Employer |
|||||||||
incorporation or organization) |
Identification Number) |
|||||||||
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 ¨
| ||||||||||
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes x No ¨
| ||||||||||
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
|
Accelerated filer ¨
|
|||||||||
Non-accelerated filer ¨
|
Smaller reporting company ¨
|
|||||||||
Emerging growth company ¨
|
||||||||||
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. ¨
| ||||||||||
Securities registered pursuant to Section 12(b) of the Act: | ||||||||||
Title of each class |
Trading Symbol |
Name of each exchange on which registered |
||||||||
Class A common shares |
ATH |
New York Stock Exchange |
||||||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
| ||||||||||
The number of shares of each class of our common stock outstanding is set forth in the table below, as of April 5, 2019: |
||||||||||
Class A common shares |
161,698,498 |
Class M-2 common shares |
841,011 |
|||||||
Class B common shares |
25,433,465 |
Class M-3 common shares |
1,001,110 |
|||||||
Class M-1 common shares |
3,339,890 |
Class M-4 common shares |
4,074,026 |
|||||||
TABLE OF CONTENTS
PART I—FINANCIAL INFORMATION
PART II—OTHER INFORMATION
As used in this Quarterly Report on Form 10-Q (report), 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 report are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 (Securities Act), 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 business, financial condition, results of operations, plans, strategies, objectives, future performance and other matters.
We caution you that forward-looking statements are not guarantees of future performance and that our actual consolidated financial condition, results of operations, liquidity and cash flows may differ materially from those made in or suggested by the forward-looking statements contained in this report. 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 I–Item 1A. Risk Factors included in our Annual Report on Form 10-K for the year ended December 31, 2018 (2018 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 and/or foreign currency 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 on 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; |
• |
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 AHL, 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 or our inability to procure licenses associated with new products or services; |
• |
increases in our tax liability resulting from the Base Erosion and Anti-Abuse Tax (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; |
• |
AHL or any of its non-United States (U.S.) subsidiaries becoming subject to U.S. federal income taxation; |
• |
adverse changes in U.S. tax law; |
• |
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 discussed elsewhere in this report, Part I—Item 1A. Risk Factors included in our 2018 Annual Report and those discussed elsewhere in our 2018 Annual Report.
|
3
We caution you that the important factors referenced above may not be exhaustive. 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 Investor |
AAA Guarantor – Athene, L.P. |
|
AAIA |
Athene Annuity and Life Company |
|
AAM |
Athene Asset Management LLC |
|
AARe |
Athene Annuity Re Ltd., a Bermuda reinsurance subsidiary |
|
ACRA |
Athene Co-Invest Reinsurance Affiliate 1A Ltd. |
|
ADIP |
Apollo/Athene Dedicated Investment Program |
|
AGM |
Apollo Global Management, LLC |
|
AHL |
Athene Holding Ltd. |
|
ALRe |
Athene Life Re Ltd., a Bermuda reinsurance subsidiary |
|
AmeriHome |
AmeriHome Mortgage Company, LLC |
|
Apollo |
Apollo Global Management, LLC, together with its subsidiaries |
|
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 |
|
Athora |
Athora Holding Ltd., formerly known as AGER Bermuda Holding Ltd. |
|
BMA |
Bermuda Monetary Authority |
|
CoInvest VI |
AAA Investments (Co-Invest VI), L.P. |
|
CoInvest VII |
AAA Investments (Co-Invest VII), L.P. |
|
LIMRA |
Life Insurance and Market Research Association |
|
MidCap |
MidCap FinCo Limited |
|
NAIC |
National Association of Insurance Commissioners |
|
NYSDFS |
New York State Department of Financial Services |
|
RLI |
ReliaStar Life Insurance Company |
|
Treasury |
United States Department of the Treasury |
|
Voya |
Voya Financial, Inc. |
|
VIAC |
Voya Insurance and Annuity Company |
|
Venerable |
Venerable Holdings, Inc., together with its subsidiaries |
4
Certain Terms & Acronyms
Term or Acronym |
Definition |
|
ABS |
Asset-backed securities |
|
ACL |
Authorized control level RBC 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 NAIC risk-based capital factors. |
|
Alternative investments |
Alternative investments, including investment funds, CLO 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 |
|
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 |
|
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 |
|
CLO |
Collateralized loan obligation |
|
CMBS |
Commercial mortgage-backed securities |
|
CML |
Commercial mortgage loans |
|
Cost of crediting |
The interest credited to the policyholders on our fixed annuities, including, with respect to our fixed indexed annuities, option costs, as well as institutional costs related to institutional products, presented on an annualized basis for interim periods |
|
Cost of funds |
Cost of funds includes liability costs related to cost of crediting on both deferred annuities and institutional products, as well as other liability costs. Cost of funds is computed as the total liability costs divided by the average invested assets for the relevant period. 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 available-for-sale 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 |
|
MMS |
Minimum margin of solvency |
|
Modco |
Modified coinsurance |
5
Term or Acronym |
Definition |
|
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 |
|
Net investment spread |
Net investment spread measures our investment performance less the total cost of our liabilities, presented on an annualized basis for interim periods |
|
Other liability costs |
Other liability costs include DAC, DSI and VOBA amortization, rider reserves, institutional costs, the cost of liabilities on products other than deferred annuities including offsets for premiums, product charges and other revenues |
|
OTTI |
Other-than-temporary impairment |
|
Payout annuities |
Annuities with a current cash payment component, which consist primarily of single premium immediate annuities, 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 |
6
Item 1. Financial Statements
Index to Condensed Consolidated Financial Statements (unaudited)
7
(In millions) |
March 31, 2019 |
December 31, 2018 |
|||||
Assets |
|||||||
Investments |
|||||||
Available-for-sale securities, at fair value (amortized cost: 2019 – $63,440 and 2018 – $60,025) |
$ |
64,655 |
$ |
59,265 |
|||
Trading securities, at fair value |
2,256 |
1,949 |
|||||
Equity securities, at fair value |
252 |
216 |
|||||
Mortgage loans, net of allowances (portion at fair value: 2019 – $32 and 2018 – $32) |
11,042 |
10,340 |
|||||
Investment funds (portion at fair value: 2019 – $159 and 2018 – $182) |
683 |
703 |
|||||
Policy loans |
487 |
488 |
|||||
Funds withheld at interest (portion at fair value: 2019 – $446 and 2018 – $57) |
15,241 |
15,023 |
|||||
Derivative assets |
1,920 |
1,043 |
|||||
Short-term investments, at fair value |
155 |
191 |
|||||
Other investments (portion at fair value: 2019 – $52 and 2018 – $52)
|
121 |
122 |
|||||
Total investments |
96,812 |
89,340 |
|||||
Cash and cash equivalents |
3,021 |
2,911 |
|||||
Restricted cash |
497 |
492 |
|||||
Investments in related parties |
|||||||
Available-for-sale securities, at fair value (amortized cost: 2019 – $1,696 and 2018 – $1,462) |
1,684 |
1,437 |
|||||
Trading securities, at fair value |
239 |
249 |
|||||
Equity securities, at fair value |
301 |
120 |
|||||
Mortgage loans |
291 |
291 |
|||||
Investment funds (portion at fair value: 2019 – $232 and 2018 – $201) |
2,290 |
2,232 |
|||||
Funds withheld at interest (portion at fair value: 2019 – $214 and 2018 – $(110)) |
13,683 |
13,577 |
|||||
Other investments |
387 |
386 |
|||||
Accrued investment income (related party: 2019 – $22 and 2018 – $25) |
751 |
682 |
|||||
Reinsurance recoverable (related party: 2019 – $334 and 2018 – $344; portion at fair value: 2019 – $1,737 and 2018 – $1,676) |
5,647 |
5,534 |
|||||
Deferred acquisition costs, deferred sales inducements and value of business acquired |
5,619 |
5,907 |
|||||
Other assets (related party: 2019 – $4 and 2018 – $357)
|
962 |
1,635 |
|||||
Assets of consolidated variable interest entities |
|||||||
Investments |
|||||||
Trading securities, at fair value – related party |
34 |
35 |
|||||
Equity securities, at fair value – related party |
6 |
50 |
|||||
Investment funds (related party: 2019 – $580 and 2018 – $583; portion at fair value: 2019 – $564 and 2018 – $567) |
619 |
624 |
|||||
Cash and cash equivalents |
2 |
2 |
|||||
Other assets |
12 |
1 |
|||||
Total assets |
$ |
132,857 |
$ |
125,505 |
(Continued)
See accompanying notes to the unaudited condensed consolidated financial statements
8
(In millions, except per share data) |
March 31, 2019 |
December 31, 2018 |
|||||
Liabilities and Equity |
|||||||
Liabilities |
|||||||
Interest sensitive contract liabilities (related party: 2019 – $16,533 and 2018 – $16,850; portion at fair value: 2019 – $10,085 and 2018 – $8,901) |
$ |
98,452 |
$ |
96,610 |
|||
Future policy benefits (related party: 2019 – $1,347 and 2018 – $1,259; portion at fair value: 2019 – $2,226 and 2018 – $2,173) |
19,016 |
16,704 |
|||||
Other policy claims and benefits (related party: 2019 – $15 and 2018 – $10)
|
162 |
142 |
|||||
Dividends payable to policyholders |
118 |
118 |
|||||
Long-term debt |
991 |
991 |
|||||
Derivative liabilities |
85 |
85 |
|||||
Payables for collateral on derivatives |
1,781 |
969 |
|||||
Funds withheld liability (related party: 2019 – $327 and 2018 – $337; portion at fair value: 2019 – $12 and 2018 – $(1)) |
724 |
721 |
|||||
Other liabilities (related party: 2019 – $51 and 2018 – $59)
|
1,410 |
888 |
|||||
Liabilities of consolidated variable interest entities |
1 |
1 |
|||||
Total liabilities |
122,740 |
117,229 |
|||||
Commitments and Contingencies (Note 9) |
|||||||
Equity |
|||||||
Common stock |
|||||||
Class A – par value $0.001 per share; authorized: 2019 and 2018 – 425.0 shares; issued and outstanding: 2019 – 161.5 and 2018 – 162.4 shares |
— |
— |
|||||
Class B – par value $0.001 per share; convertible to Class A; authorized: 2019 and 2018 – 325.0 shares; issued and outstanding: 2019 – 25.4 and 2018 – 25.4 shares |
— |
— |
|||||
Class M-1 – par value $0.001 per share; convertible to Class A; authorized: 2019 and 2018 – 7.1 shares; issued and outstanding: 2019 – 3.4 and 2018 – 3.4 shares |
— |
— |
|||||
Class M-2 – par value $0.001 per share; convertible to Class A; authorized: 2019 and 2018 – 5.0 shares; issued and outstanding: 2019 – 0.8 and 2018 – 0.8 shares |
— |
— |
|||||
Class M-3 – par value $0.001 per share; convertible to Class A; authorized: 2019 and 2018 – 7.5 shares; issued and outstanding: 2019 – 1.0 and 2018 – 1.0 shares |
— |
— |
|||||
Class M-4 – par value $0.001 per share; convertible to Class A; authorized: 2019 and 2018 – 7.5 shares; issued and outstanding: 2019 – 4.1 and 2018 – 4.1 shares |
— |
— |
|||||
Additional paid-in capital |
3,448 |
3,462 |
|||||
Retained earnings |
5,963 |
5,286 |
|||||
Accumulated other comprehensive income (loss) (related party: 2019 – $(12) and 2018 – $(25))
|
706 |
(472 |
) |
||||
Total shareholders’ equity |
10,117 |
8,276 |
|||||
Total liabilities and equity |
$ |
132,857 |
$ |
125,505 |
(Concluded)
See accompanying notes to the unaudited condensed consolidated financial statements
9
Three months ended March 31, |
|||||||
(In millions, except per share data) |
2019 |
2018 |
|||||
Revenues |
|||||||
Premiums (related party: 2019 – $66 and 2018 – $0)
|
$ |
1,966 |
$ |
278 |
|||
Product charges (related party: 2019 – $14 and 2018 – $0)
|
125 |
96 |
|||||
Net investment income (related party investment income: 2019 – $183 and 2018 – $76; and related party investment expense: 2019 – $92 and 2018 – $83) |
1,066 |
855 |
|||||
Investment related gains (losses) (related party: 2019 – $317 and 2018 – $17) |
1,772 |
(236 |
) |
||||
Other-than-temporary impairment investment losses |
|||||||
Other-than-temporary impairment losses |
(2 |
) |
(3 |
) |
|||
Other-than-temporary impairment losses reclassified to (from) other comprehensive income |
1 |
— |
|||||
Net other-than-temporary impairment losses |
(1 |
) |
(3 |
) |
|||
Other revenues |
12 |
6 |
|||||
Revenues of consolidated variable interest entities |
|||||||
Net investment income (related party: 2019 – $16 and 2018 – $10) |
16 |
10 |
|||||
Investment related gains (losses) (related party: 2019 – $4 and 2018 – $5) |
5 |
5 |
|||||
Total revenues |
4,961 |
1,011 |
|||||
Benefits and expenses |
|||||||
Interest sensitive contract benefits (related party: 2019 – $183 and 2018 – $0)
|
1,516 |
31 |
|||||
Amortization of deferred sales inducements |
5 |
20 |
|||||
Future policy and other policy benefits (related party: 2019 – $106 and 2018 – $0) |
2,295 |
401 |
|||||
Amortization of deferred acquisition costs and value of business acquired |
231 |
82 |
|||||
Dividends to policyholders |
9 |
13 |
|||||
Policy and other operating expenses (related party: 2019 – $8 and 2018 – $2) |
165 |
142 |
|||||
Total benefits and expenses |
4,221 |
689 |
|||||
Income before income taxes |
740 |
322 |
|||||
Income tax expense |
32 |
45 |
|||||
Net income |
$ |
708 |
$ |
277 |
|||
Earnings per share |
|||||||
Basic – Classes A, B, M-1, M-2, M-3 and M-4 |
$ |
3.65 |
$ |
1.40 |
|||
Diluted – Class A |
3.64 |
1.40 |
|||||
Diluted – Class B |
3.65 |
1.40 |
|||||
Diluted – Class M-1 |
3.65 |
1.40 |
|||||
Diluted – Class M-2 |
3.65 |
1.39 |
|||||
Diluted – Class M-3 |
3.65 |
1.38 |
|||||
Diluted – Class M-4 |
3.15 |
0.97 |
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 March 31, |
|||||||
(In millions) |
2019 |
2018 |
|||||
Net income |
$ |
708 |
$ |
277 |
|||
Other comprehensive income (loss), before tax |
|||||||
Unrealized investment gains (losses) on available-for-sale securities |
1,478 |
(891 |
) |
||||
Noncredit component of other-than-temporary impairment losses on available-for-sale securities |
(1 |
) |
— |
||||
Unrealized gains (losses) on hedging instruments |
(8 |
) |
(56 |
) |
|||
Pension adjustments |
(1 |
) |
3 |
||||
Foreign currency translation adjustments |
1 |
(8 |
) |
||||
Other comprehensive income (loss), before tax |
1,469 |
(952 |
) |
||||
Income tax expense (benefit) related to other comprehensive income (loss)
|
291 |
(179 |
) |
||||
Other comprehensive income (loss) |
1,178 |
(773 |
) |
||||
Comprehensive income (loss) |
$ |
1,886 |
$ |
(496 |
) |
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 (loss) |
Total shareholders’ equity |
||||||||||||||
Balance at December 31, 2017 |
$ |
— |
$ |
3,472 |
$ |
4,255 |
$ |
1,449 |
$ |
9,176 |
|||||||||
Adoption of accounting standards |
— |
— |
39 |
(42 |
) |
(3 |
) |
||||||||||||
Net income |
— |
— |
277 |
— |
277 |
||||||||||||||
Other comprehensive loss |
— |
— |
— |
(773 |
) |
(773 |
) |
||||||||||||
Issuance of shares, net of expenses |
— |
1 |
— |
— |
1 |
||||||||||||||
Stock-based compensation |
— |
12 |
— |
— |
12 |
||||||||||||||
Retirement or repurchase of shares |
— |
— |
(3 |
) |
— |
(3 |
) |
||||||||||||
Balance at March 31, 2018 |
$ |
— |
$ |
3,485 |
$ |
4,568 |
$ |
634 |
$ |
8,687 |
|||||||||
Balance at December 31, 2018 |
$ |
— |
$ |
3,462 |
$ |
5,286 |
$ |
(472 |
) |
$ |
8,276 |
||||||||
Net income |
— |
— |
708 |
— |
708 |
||||||||||||||
Other comprehensive income |
— |
— |
— |
1,178 |
1,178 |
||||||||||||||
Issuance of shares, net of expenses |
— |
1 |
— |
— |
1 |
||||||||||||||
Stock-based compensation |
— |
5 |
— |
— |
5 |
||||||||||||||
Retirement or repurchase of shares |
— |
(20 |
) |
(31 |
) |
— |
(51 |
) |
|||||||||||
Balance at March 31, 2019 |
$ |
— |
$ |
3,448 |
$ |
5,963 |
$ |
706 |
$ |
10,117 |
See accompanying notes to the unaudited condensed consolidated financial statements
12
Three months ended March 31, |
|||||||
(In millions) |
2019 |
2018 |
|||||
Cash flows from operating activities |
|||||||
Net income |
$ |
708 |
$ |
277 |
|||
Adjustments to reconcile net income to net cash provided by operating activities: |
|||||||
Amortization of deferred acquisition costs and value of business acquired |
231 |
82 |
|||||
Amortization of deferred sales inducements |
5 |
20 |
|||||
Accretion of net investment premiums, discounts and other |
(33 |
) |
(45 |
) |
|||
Net investment (income) loss (related party: 2019 – $18 and 2018 – $(43)) |
25 |
(29 |
) |
||||
Net recognized (gains) losses on investments and derivatives (related party: 2019 – $0 and 2018 – $(24)) |
(944 |
) |
209 |
||||
Policy acquisition costs deferred |
(173 |
) |
(122 |
) |
|||
Changes in operating assets and liabilities: |
|||||||
Accrued investment income (related party: 2019 – $3 and 2018 – $0) |
(69 |
) |
(27 |
) |
|||
Interest sensitive contract liabilities (related party: 2019 – $167 and 2018 – $0) |
1,403 |
(189 |
) |
||||
Future policy benefits, other policy claims and benefits, dividends payable to policyholders and reinsurance recoverable (related party: 2019 – $95 and 2018 – $0) |
653 |
333 |
|||||
Funds withheld assets and liabilities (related party: 2019 – $(500) and 2018 – $0) |
(1,011 |
) |
(7 |
) |
|||
Other assets and liabilities |
220 |
77 |
|||||
Consolidated variable interest entities related: |
|||||||
Net recognized (gains) losses on investments and derivatives (related party: 2019 – $(5) and 2018 – $(6)) |
(6 |
) |
(6 |
) |
|||
Net cash provided by operating activities |
1,009 |
573 |
|||||
Cash flows from investing activities |
|||||||
Sales, maturities and repayments of: |
|||||||
Available-for-sale securities (related party: 2019 – $50 and 2018 – $57) |
2,231 |
3,017 |
|||||
Trading securities (related party: 2019 – $0 and 2018 – $1) |
31 |
24 |
|||||
Equity securities |
10 |
2 |
|||||
Mortgage loans |
354 |
396 |
|||||
Investment funds (related party: 2019 – $87 and 2018 – $52) |
131 |
83 |
|||||
Derivative instruments and other invested assets |
256 |
551 |
|||||
Short-term investments |
104 |
103 |
|||||
Purchases of: |
|||||||
Available-for-sale securities (related party: 2019 – $(280) and 2018 – $(158)) |
(4,470 |
) |
(5,907 |
) |
|||
Trading securities (related party: 2019 – $(3) and 2018 – $0) |
(284 |
) |
(25 |
) |
|||
Equity securities (related party: 2019 – $(177) and 2018 – $0) |
(205 |
) |
(9 |
) |
|||
Mortgage loans |
(1,049 |
) |
(463 |
) |
|||
Investment funds (related party: 2019 – $(152) and 2018 – $(182)) |
(185 |
) |
(213 |
) |
|||
Derivative instruments and other invested assets |
(287 |
) |
(224 |
) |
|||
Short-term investments (related party: 2019 – $0 and 2018 – $(72)) |
(67 |
) |
(209 |
) |
|||
Consolidated variable interest entities related: |
|||||||
Sales, maturities and repayments of investments (related party: 2019 – $51 and 2018 – $59) |
53 |
59 |
|||||
Deconsolidation of Athora Holding Ltd. |
— |
(296 |
) |
||||
Other investing activities, net |
601 |
227 |
|||||
Net cash used in investing activities |
(2,776 |
) |
(2,884 |
) |
|||
(Continued) |
|||||||
See accompanying notes to the unaudited condensed consolidated financial statements |
13
Three months ended March 31, |
|||||||
(In millions) |
2019 |
2018 |
|||||
Cash flows from financing activities |
|||||||
Proceeds from long-term debt |
$ |
— |
$ |
998 |
|||
Deposits on investment-type policies and contracts (related party: 2019 – $101 and 2018 – $0) |
2,793 |
1,774 |
|||||
Withdrawals on investment-type policies and contracts (related party: 2019 – $(106) and 2018 – $0) |
(1,638 |
) |
(1,474 |
) |
|||
Payments for coinsurance agreements on investment-type contracts, net |
(25 |
) |
(10 |
) |
|||
Net change in cash collateral posted for derivative transactions |
812 |
(1,178 |
) |
||||
Repurchase of common stock |
(51 |
) |
(3 |
) |
|||
Other financing activities, net |
(9 |
) |
32 |
||||
Net cash provided by financing activities |
1,882 |
139 |
|||||
Net increase (decrease) in cash and cash equivalents |
115 |
(2,172 |
) |
||||
Cash and cash equivalents at beginning of year1
|
3,405 |
4,997 |
|||||
Cash and cash equivalents at end of period1
|
$ |
3,520 |
$ |
2,825 |
|||
Supplementary information |
|||||||
Non-cash transactions |
|||||||
Deposits on investment-type policies and contracts through reinsurance agreements (related party: 2019 – $45 and 2018 – $0) |
$ |
208 |
$ |
108 |
|||
Withdrawals on investment-type policies and contracts through reinsurance agreements (related party: 2019 – $429 and 2018 – $0) |
888 |
91 |
|||||
Investments received from settlements on reinsurance agreements |
12 |
— |
|||||
Investments received from pension risk transfer premiums |
1,363 |
— |
|||||
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 United States (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 (together with its subsidiaries, Athene USA). |
In addition, we consolidate certain variable interest entities (VIEs), for which we determined we are the primary beneficiary.
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 results for the interim 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, 2018 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, 2018. 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.
Adopted Accounting Pronouncements
Leases (ASU 2019-01, ASU 2018-20, ASU 2018-11, ASU 2018-10, ASU 2018-01, ASU 2017-13 and ASU 2016-02)
These updates increase transparency and comparability for lease transactions. ASU 2016-02 requires a lessee to recognize a right-of-use asset and lease liability on the balance sheet for all leases with an original term longer than twelve months and disclose key information about leasing arrangements. Lessor accounting is largely unchanged.
ASU 2016-02 requires the adoption on a modified retrospective basis. However, ASU 2018-11 provides the option to recognize the cumulative effect 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. These updates also provide optional practical expedients in transition.
We adopted these updates effective January 1, 2019 by recording a lease liability and right-of-use asset related to office space, copiers, reserved areas and equipment at data centers, and other agreements. We will continue to present all prior periods under the previous lease guidance. We elected the “package of practical expedients,” which permits us to maintain our prior conclusions about lease identification, classification and initial direct costs. We also elected the short-term lease exception, which allows us to exclude contracts with a lease term of 12 months or less, including any reasonably certain renewal options, from consideration under the new guidance. This update did not have a material effect on our consolidated financial statements.
Derivatives and Hedging (ASU 2018-16)
The amendments in this update allow entities to use the Overnight Index Swap rate based on the Secured Overnight Financing Rate as a U.S. benchmark interest rate for hedge accounting purposes, in addition to the previously acceptable rates. We adopted this update prospectively for qualifying new or redesignated hedging relationships entered into on or after January 1, 2019. This update did not have an effect on our consolidated financial statements.
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 adopted this update on a modified retrospective basis effective January 1, 2019. This update did not have a material effect on our consolidated financial statements.
15
ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Recently Issued Accounting Pronouncements
Financial Instruments – Credit Losses (ASU 2019-04, ASU 2018-19 and 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. Available-for-sale (AFS) 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. We are currently evaluating the impact of this guidance on our consolidated financial statements.
Collaborative Arrangements (ASU 2018-18)
The amendments in this update provide guidance on whether certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606, providing comparability in the presentation of revenue for certain transactions. The update is effective January 1, 2020. Early adoption is permitted. We are currently evaluating the impact of this guidance on our consolidated financial statements.
Consolidation (ASU 2018-17)
The amendments in this update expand certain discussions in the VIE guidance, including considerations necessary for determining when a decision-making fee is a variable interest. We will be required to adopt this update retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented. The update is effective January 1, 2020. Early adoption is permitted. We are currently evaluating the impact of this guidance on our consolidated financial statements.
Cloud Computing Arrangements (ASU 2018-15)
The amendments in this update align the requirements for capitalizing implementation costs incurred in a cloud computing service arrangement with the requirements for capitalizing implementation costs incurred for internal-use software. We will be required to adopt this update on January 1, 2020, and we can elect to adopt this update either prospectively or retrospectively. Early adoption is permitted. We are currently evaluating the impact of this guidance on our consolidated financial statements.
Fair Value Measurement – Disclosure Requirements (ASU 2018-13)
The amendments in this update modify the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. We will be required to adopt this update on January 1, 2020, and depending on the specific amendment will be required to adopt prospectively or retrospectively. We early adopted the removal and modification of certain disclosures as permitted. We are currently evaluating the impact of the remaining guidance on our consolidated financial statements.
Insurance – Targeted Improvements to the Accounting for Long-Duration Contracts (ASU 2018-12)
This update amends four key areas pertaining to the accounting and disclosures for long-duration insurance and investment contracts.
• |
The update requires cash flow assumptions used to measure the liability for future policy benefits to be updated at least annually and no longer allows a provision for adverse deviation. The remeasurement of the liability associated with the update of assumptions is required to be recognized in net income. Loss recognition testing is eliminated for traditional and limited-payment contracts. The update also requires the discount rate utilized in measuring the liability to be an upper-medium grade fixed-income instrument yield, which is to be updated at each reporting date. The change in liability due to changes in the discount rate is to be recognized in other comprehensive income. |
• |
The update simplifies the amortization of deferred acquisition costs and other balances amortized in proportion to premiums, gross profits, or gross margins, requiring such balances to be amortized on a constant level basis over the expected term of the contracts. Deferred costs are required to be written off for unexpected contract terminations but are not subject to impairment testing. |
• |
The update requires certain contract features meeting the definition of market risk benefits to be measured at fair value. Among the features included in this definition are the guaranteed lifetime withdrawal benefits (GLWB) and guaranteed minimum death benefit (GMDB) riders attached to the Company’s annuity products. The change in fair value of the market risk benefits is to be recognized in net income, excluding the portion attributable to changes in instrument-specific credit risk which is recognized in other comprehensive income. |
• |
The update also introduces disclosure requirements around the liability for future policy benefits, policyholder account balances, market risk benefits, separate account liabilities, and deferred acquisition costs. This includes disaggregated rollforwards of these balances and information about significant inputs, judgments, assumptions and methods used in their measurement. |
We will be required to adopt this update effective January 1, 2021. Certain provisions of the update are required to be adopted on a fully retrospective basis, while others may be adopted on a modified retrospective basis. Early adoption is permitted. 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)
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.
2. Investments
AFS Securities—Our AFS investment portfolio includes bonds, collateralized loan obligations (CLO), asset-backed securities (ABS), commercial mortgage-backed securities (CMBS), residential mortgage-backed securities (RMBS) and redeemable preferred stock. Our AFS investment portfolio includes related party investments that are primarily a result of investments over which Apollo Global Management, LLC (AGM and, together with its subsidiaries, Apollo) can exercise significant influence. These investments are presented as investments in related parties on the condensed consolidated balance sheets, and are separately disclosed below.
The following table represents the amortized cost, gross unrealized gains and losses, fair value and other than temporary impairments (OTTI) in accumulated other comprehensive income (AOCI) of our AFS investments by asset type:
March 31, 2019 |
|||||||||||||||||||
(In millions) |
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
OTTI
in AOCI
|
||||||||||||||
AFS securities |
|||||||||||||||||||
U.S. government and agencies |
$ |
48 |
$ |
2 |
$ |
— |
$ |
50 |
$ |
— |
|||||||||
U.S. state, municipal and political subdivisions |
1,209 |
161 |
(5 |
) |
1,365 |
— |
|||||||||||||
Foreign governments |
262 |
9 |
— |
271 |
— |
||||||||||||||
Corporate |
40,727 |
1,218 |
(534 |
) |
41,411 |
— |
|||||||||||||
CLO |
6,320 |
6 |
(184 |
) |
6,142 |
— |
|||||||||||||
ABS |
5,023 |
85 |
(33 |
) |
5,075 |
1 |
|||||||||||||
CMBS |
2,394 |
50 |
(20 |
) |
2,424 |
7 |
|||||||||||||
RMBS |
7,457 |
480 |
(20 |
) |
7,917 |
12 |
|||||||||||||
Total AFS securities |
63,440 |
2,011 |
(796 |
) |
64,655 |
20 |
|||||||||||||
AFS securities – related party |
|||||||||||||||||||
Corporate |
3 |
— |
— |
3 |
— |
||||||||||||||
CLO |
654 |
— |
(16 |
) |
638 |
— |
|||||||||||||
ABS |
1,039 |
11 |
(7 |
) |
1,043 |
— |
|||||||||||||
Total AFS securities – related party |
1,696 |
11 |
(23 |
) |
1,684 |
— |
|||||||||||||
Total AFS securities including related party |
$ |
65,136 |
$ |
2,022 |
$ |
(819 |
) |
$ |
66,339 |
$ |
20 |
17
ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)
December 31, 2018 |
|||||||||||||||||||
(In millions) |
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
OTTI
in AOCI
|
||||||||||||||
AFS securities |
|||||||||||||||||||
U.S. government and agencies |
$ |
57 |
$ |
— |
$ |
— |
$ |
57 |
$ |
— |
|||||||||
U.S. state, municipal and political subdivisions |
1,183 |
117 |
(7 |
) |
1,293 |
— |
|||||||||||||
Foreign governments |
162 |
2 |
(3 |
) |
161 |
— |
|||||||||||||
Corporate |
38,018 |
394 |
(1,315 |
) |
37,097 |
1 |
|||||||||||||
CLO |
5,658 |
2 |
(299 |
) |
5,361 |
— |
|||||||||||||
ABS |
4,915 |
53 |
(48 |
) |
4,920 |
— |
|||||||||||||
CMBS |
2,390 |
27 |
(60 |
) |
2,357 |
7 |
|||||||||||||
RMBS |
7,642 |
413 |
(36 |
) |
8,019 |
11 |
|||||||||||||
Total AFS securities |
60,025 |
1,008 |
(1,768 |
) |
59,265 |
19 |
|||||||||||||
AFS securities – related party |
|||||||||||||||||||
CLO |
587 |
— |
(25 |
) |
562 |
— |
|||||||||||||
ABS |
875 |
4 |
(4 |
) |
875 |
— |
|||||||||||||
Total AFS securities – related party |
1,462 |
4 |
(29 |
) |
1,437 |
— |
|||||||||||||
Total AFS securities including related party |
$ |
61,487 |
$ |
1,012 |
$ |
(1,797 |
) |
$ |
60,702 |
$ |
19 |
The amortized cost and fair value of AFS securities, including related party, are shown by contractual maturity below:
March 31, 2019 |
|||||||
(In millions) |
Amortized Cost |
Fair Value |
|||||
AFS securities |
|||||||
Due in one year or less |
$ |
1,081 |
$ |
1,082 |
|||
Due after one year through five years |
8,855 |
8,988 |
|||||
Due after five years through ten years |
11,209 |
11,339 |
|||||
Due after ten years |
21,101 |
21,688 |
|||||
CLO, ABS, CMBS and RMBS |
21,194 |
21,558 |
|||||
Total AFS securities |
63,440 |
64,655 |
|||||
AFS securities – related party |
|||||||
Due after five years through ten years |
3 |
3 |
|||||
CLO and ABS |
1,693 |
1,681 |
|||||
Total AFS securities – related party |
1,696 |
1,684 |
|||||
Total AFS securities including related party |
$ |
65,136 |
$ |
66,339 |
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.
18
ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)
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:
March 31, 2019 |
|||||||||||||||||||||||
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 |
|||||||||||||||||
AFS securities |
|||||||||||||||||||||||
U.S. government and agencies |
$ |
2 |
$ |
— |
$ |
7 |
$ |
— |
$ |
9 |
$ |
— |
|||||||||||
U.S. state, municipal and political subdivisions |
19 |
— |
75 |
(5 |
) |
94 |
(5 |
) |
|||||||||||||||
Foreign governments |
8 |
— |
19 |
— |
27 |
— |
|||||||||||||||||
Corporate |
4,840 |
(141 |
) |
8,191 |
(393 |
) |
13,031 |
(534 |
) |
||||||||||||||
CLO |
4,782 |
(179 |
) |
161 |
(5 |
) |
4,943 |
(184 |
) |
||||||||||||||
ABS |
719 |
(10 |
) |
562 |
(23 |
) |
1,281 |
(33 |
) |
||||||||||||||
CMBS |
439 |
(8 |
) |
463 |
(12 |
) |
902 |
(20 |
) |
||||||||||||||
RMBS |
942 |
(16 |
) |
138 |
(4 |
) |
1,080 |
(20 |
) |
||||||||||||||
Total AFS securities |
11,751 |
(354 |
) |
9,616 |
(442 |
) |
21,367 |
(796 |
) |
||||||||||||||
AFS securities – related party |
|||||||||||||||||||||||
Corporate |
— |
— |
3 |
— |
3 |
— |
|||||||||||||||||
CLO |
553 |
(16 |
) |
— |
— |
553 |
(16 |
) |
|||||||||||||||
ABS |
324 |
(6 |
) |
72 |
(1 |
) |
396 |
(7 |
) |
||||||||||||||
Total AFS securities – related party |
877 |
(22 |
) |
75 |
(1 |
) |
952 |
(23 |
) |
||||||||||||||
Total AFS securities including related party |
$ |
12,628 |
$ |
(376 |
) |
$ |
9,691 |
$ |
(443 |
) |
$ |
22,319 |
$ |
(819 |
) |
December 31, 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 |
|||||||||||||||||
AFS securities |
|||||||||||||||||||||||
U.S. government and agencies |
$ |
32 |
$ |
— |
$ |
2 |
$ |
— |
$ |
34 |
$ |
— |
|||||||||||
U.S. state, municipal and political subdivisions |
139 |
(2 |
) |
82 |
(5 |
) |
221 |
(7 |
) |
||||||||||||||
Foreign governments |
97 |
(2 |
) |
15 |
(1 |
) |
112 |
(3 |
) |
||||||||||||||
Corporate |
20,213 |
(942 |
) |
4,118 |
(373 |
) |
24,331 |
(1,315 |
) |
||||||||||||||
CLO |
5,054 |
(297 |
) |
90 |
(2 |
) |
5,144 |
(299 |
) |
||||||||||||||
ABS |
1,336 |
(23 |
) |
506 |
(25 |
) |
1,842 |
(48 |
) |
||||||||||||||
CMBS |
932 |
(27 |
) |
497 |
(33 |
) |
1,429 |
(60 |
) |
||||||||||||||
RMBS |
1,417 |
(31 |
) |
140 |
(5 |
) |
1,557 |
(36 |
) |
||||||||||||||
Total AFS securities |
29,220 |
(1,324 |
) |
5,450 |
(444 |
) |
34,670 |
(1,768 |
) |
||||||||||||||
AFS securities – related party |
|||||||||||||||||||||||
CLO |
534 |
(25 |
) |
— |
— |
534 |
(25 |
) |
|||||||||||||||
ABS |
306 |
(2 |
) |
116 |
(2 |
) |
422 |
(4 |
) |
||||||||||||||
Total AFS securities – related party |
840 |
(27 |
) |
116 |
(2 |
) |
956 |
(29 |
) |
||||||||||||||
Total AFS securities including related party |
$ |
30,060 |
$ |
(1,351 |
) |
$ |
5,566 |
$ |
(446 |
) |
$ |
35,626 |
$ |
(1,797 |
) |
As of March 31, 2019, we held 2,638 AFS securities that were in an unrealized loss position. Of this total, 1,377 were in an unrealized loss position 12 months or more. As of March 31, 2019, we held 38 related party AFS securities that were in an unrealized loss position. Of this total, six 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.
19
ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Other-Than-Temporary Impairments—For the three months ended March 31, 2019, we incurred $1 million of net OTTI, none of which related to intent-to-sell impairments. The 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 securities, for which a portion of the securities’ total OTTI was recognized in AOCI:
Three months ended March 31, |
|||||||
(In millions) |
2019 |
2018 |
|||||
Beginning balance |
$ |
10 |
$ |
14 |
|||
Initial impairments – credit loss OTTI recognized on securities not previously impaired |
— |
1 |
|||||
Additional impairments – credit loss OTTI recognized on securities previously impaired |
1 |
— |
|||||
Reduction in impairments from securities sold, matured or repaid |
— |
(8 |
) |
||||
Ending balance |
$ |
11 |
$ |
7 |
Net Investment Income—Net investment income by asset class consists of the following:
Three months ended March 31, |
|||||||
(In millions) |
2019 |
2018 |
|||||
AFS securities |
$ |
753 |
$ |
668 |
|||
Trading securities |
42 |
44 |
|||||
Equity securities |
3 |
2 |
|||||
Mortgage loans |
151 |
91 |
|||||
Investment funds |
10 |
65 |
|||||
Funds withheld at interest |
163 |
46 |
|||||
Other |
39 |
23 |
|||||
Investment revenue |
1,161 |
939 |
|||||
Investment expenses |
(95 |
) |
(84 |
) |
|||
Net investment income |
$ |
1,066 |
$ |
855 |
Investment Related Gains (Losses)—Investment related gains (losses) by asset class consists of the following:
Three months ended March 31, |
|||||||
(In millions) |
2019 |
2018 |
|||||
AFS securities |
|||||||
Gross realized gains on investment activity |
$ |
17 |
$ |
21 |
|||
Gross realized losses on investment activity |
(13 |
) |
(6 |
) |
|||
Net realized investment gains on AFS securities |
4 |
15 |
|||||
Net recognized investment gains (losses) on trading securities |
49 |
(89 |
) |
||||
Net recognized investment gains on equity securities |
18 |
1 |
|||||
Derivative gains (losses) |
1,692 |
(184 |
) |
||||
Other gains |
9 |
21 |
|||||
Investment related gains (losses) |
$ |
1,772 |
$ |
(236 |
) |
Proceeds from sales of AFS securities were $1,253 million and $1,547 million for the three months ended March 31, 2019 and 2018, respectively. Proceeds from sales of AFS securities for the three months ended March 31, 2018 have been revised for immaterial misstatements to be comparable to current year balances.
20
ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table summarizes the change in unrealized gains (losses) on trading and equity securities, including related party and consolidated VIEs, we still held as of the respective period end:
Three months ended March 31, |
|||||||
(In millions) |
2019 |
2018 |
|||||
Trading securities |
$ |
71 |
$ |
(69 |
) |
||
Trading securities – related party |
(3 |
) |
(2 |
) |
|||
VIE trading securities – related party |
1 |
— |
|||||
Equity securities |
18 |
— |
|||||
Equity securities – related party |
3 |
— |
|||||
VIE equity securities – related party |
— |
25 |
Purchased Credit Impaired (PCI) Investments—The following table summarizes our PCI investments:
Fixed maturity securities |
Mortgage loans |
||||||||||||||
(In millions) |
March 31, 2019 |
December 31, 2018 |
March 31, 2019 |
December 31, 2018 |
|||||||||||
Contractually required payments receivable |
$ |
7,931 |
$ |
8,179 |
$ |
2,870 |
$ |
2,675 |
|||||||
Less: Cash flows expected to be collected1
|
(6,968 |
) |
(7,195 |
) |
(2,829 |
) |
(2,628 |
) |
|||||||
Non-accretable difference |
$ |
963 |
$ |
984 |
$ |
41 |
$ |
47 |
|||||||
Cash flows expected to be collected1
|
$ |
6,968 |
$ |
7,195 |
$ |
2,829 |
$ |
2,628 |
|||||||
Less: Amortized cost |
(5,392 |
) |
(5,518 |
) |
(2,117 |
) |
(1,931 |
) |
|||||||
Accretable difference |
$ |
1,576 |
$ |
1,677 |
$ |
712 |
$ |
697 |
|||||||
Fair value |
$ |
5,774 |
$ |
5,828 |
$ |
2,138 |
$ |
1,933 |
|||||||
Outstanding balance |
6,619 |
6,773 |
2,395 |
2,210 |
|||||||||||
1 Represents the undiscounted principal and interest cash flows expected.
|
During the period, we acquired PCI investments with the following amounts at the time of purchase:
March 31, 2019 |
|||||||
(In millions) |
Fixed maturity securities |
Mortgage loans |
|||||
Contractually required payments receivable |
$ |
66 |
$ |
382 |
|||
Cash flows expected to be collected |
51 |
382 |
|||||
Fair value |
44 |
292 |
The following table summarizes the activity for the accretable yield on PCI investments:
Three months ended March 31, 2019 |
|||||||
(In millions) |
Fixed maturity securities |
Mortgage loans |
|||||
Beginning balance at January 1 |
$ |
1,677 |
$ |
697 |
|||
Purchases of PCI investments, net of sales |
8 |
40 |
|||||
Accretion |
(91 |
) |
(32 |
) |
|||
Net reclassification from (to) non-accretable difference |
(18 |
) |
7 |
||||
Ending balance at March 31 |
$ |
1,576 |
$ |
712 |
21
ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Mortgage Loans, including related party—Mortgage loans, net of allowances, consists of the following:
(In millions) |
March 31, 2019 |
December 31, 2018 |
|||||
Commercial mortgage loans |
$ |
7,693 |
$ |
7,217 |
|||
Commercial mortgage loans under development |
86 |
80 |
|||||
Total commercial mortgage loans |
7,779 |
7,297 |
|||||
Residential mortgage loans |
3,554 |
3,334 |
|||||
Mortgage loans, net of allowances |
$ |
11,333 |
$ |
10,631 |
We primarily invest in commercial mortgage loans on income producing properties including office and retail buildings, hotels, industrial properties and apartments. We diversify the commercial mortgage loan portfolio by geographic region and property type to reduce concentration risk. We evaluate mortgage loans based on relevant current information to confirm if properties are performing at a consistent and acceptable level to secure the related debt.
The distribution of commercial mortgage loans, including those under development, net of valuation allowances, by property type and geographic region, is as follows:
March 31, 2019 |
December 31, 2018 |
||||||||||||
(In millions, except for percentages) |
Net Carrying Value |
Percentage of Total |
Net Carrying Value |
Percentage of Total |
|||||||||
Property type |
|||||||||||||
Office building |
$ |
2,527 |
32.4 |
% |
$ |
2,221 |
30.5 |
% |
|||||
Retail |
1,797 |
23.1 |
% |
1,660 |
22.7 |
% |
|||||||
Hotels |
1,040 |
13.4 |
% |
1,040 |
14.3 |
% |
|||||||
Industrial |
1,232 |
15.8 |
% |
1,196 |
16.4 |
% |
|||||||
Apartment |
899 |
11.6 |
% |
791 |
10.8 |
% |
|||||||
Other commercial |
284 |
3.7 |
% |
389 |
5.3 |
% |
|||||||
Total commercial mortgage loans |
$ |
7,779 |
100.0 |
% |
$ |
7,297 |
100.0 |
% |
|||||
U.S. Region |
|||||||||||||
East North Central |
$ |
846 |
10.9 |
% |
$ |
855 |
11.7 |
% |
|||||
East South Central |
200 |
2.6 |
% |
295 |
4.0 |
% |
|||||||
Middle Atlantic |
1,434 |
18.4 |
% |
1,131 |
15.5 |
% |
|||||||
Mountain |
603 |
7.8 |
% |
616 |
8.4 |
% |
|||||||
New England |
373 |
4.8 |
% |
374 |
5.1 |
% |
|||||||
Pacific |
1,791 |
23.0 |
% |
1,540 |
21.1 |
% |
|||||||
South Atlantic |
1,518 |
19.5 |
% |
1,468 |
20.2 |
% |
|||||||
West North Central |
158 |
2.0 |
% |
173 |
2.4 |
% |
|||||||
West South Central |
856 |
11.0 |
% |
845 |
11.6 |
% |
|||||||
Total U.S. Region |
7,779 |
100.0 |
% |
7,297 |
100.0 |
% |
|||||||
Total commercial mortgage loans |
$ |
7,779 |
100.0 |
% |
$ |
7,297 |
100.0 |
% |
Our residential mortgage loan portfolio includes first lien residential mortgage loans collateralized by properties located in the U.S. and is summarized in the following table:
March 31, 2019 |
December 31, 2018 |
||||
California |
33.7 |
% |
30.3 |
% |
|
Florida |
15.7 |
% |
16.3 |
% |
|
New York |
7.2 |
% |
7.7 |
% |
|
Texas |
6.4 |
% |