Athene Holding Ltd. 7.250% Fixe Q4 FY2020 earnings call

Jim's Remarks - 2020 saw record $56 billion total inflows, organic inflows record with each channel first place market share, largest reinsurance transaction; blended underwritten return on new business 19%; continued top tier investment performance, yield on fixed income purchases 40 basis points higher net of fees than BBB corporate index; working with Apollo to source senior directly originated high-grade alpha credit investments; redeploying Jackson portfolio with $14 billion reinvested by January, raising yield by 130 basis points in 7 months; reducing cash balance from $5.25 billion to ~$2 billion; alternative investments performing well, AmeriHome sale to Western Alliance a great outcome, Venerable performing well. - Well capitalized with ~$16 billion aggregate regulatory capital, adjusted book value ~$57 per share, compounded book value 16% per year since 2009, assets over $200 billion for first time. ### Bill's Remarks - Organic growth engine performed strongly, record quarterly and annual inflows, net organic growth $21 billion in 2020 with rate 27%, multi-year average net organic growth rate 26%. - Retail: $8 billion inflows in 2020, 15% YOY growth, MYGA sales best year, 50% of retail annuity sales through bank and broker dealer channels in 2020. - PRT: Second best year, $5.5 billion transactions in 2020, ~20% of U.S. market activity, expected active in 2021. - Funding agreements: Inflows increased six-fold to over $8 billion in 2020, expansion to Canadian and European markets, optimistic for 2021. - Flow reinsurance: Record $6 billion inflows in 2020, expected strong inflows in 2021 but likely moderate from 2020 highs. ### Marty's Remarks - Fourth quarter GAAP net income $1.1 billion or $5.44 per diluted share, adjusted operating income available to common shareholders $558 million or $2.85 per share. - Fixed income NIER benefited from Jackson redeployment and higher call income, expected to drift toward prior level. - Cost of crediting expected to decline in 2021, other liability costs now ~80 basis points, platform costs G&A expense ratio increased but expected to decline later in the year, tax rate expected to normalize around 10% in 2021.

In 2020, Athene generated a record $56 billion of total inflows across diversified funding channels. Organic inflows were record-breaking with each channel earning expected first place market share. Retirement services adjusted operating income excluding notables was $452 million, resulting in an adjusted operating ROE excluding notables of 24% for the segment. Alternative investments currently comprise 5% of the portfolio, with a strong annualized return of 20% in the fourth quarter helping drive the full year return close to the long-term double-digit baseline forecast. In the fourth quarter, fixed income NIER was above expectations due to Jackson redeployment efforts and higher call income from bonds and mortgage loans. Cost of crediting is expected to decline in 2021, other liability costs are now approximately 80 basis points, and platform costs G&A expense ratio increased 4 basis points quarter-over-quarter but is expected to decline later in the year as scale increases.

• Expect organic inflows could total approximately $25 billion in 2021. - Expect ratings or outlook improvement from all three rating agencies in 2021. - Expect to continue to take advantage of the accelerating restructuring in the life insurance industry. - Expect to generate solid earnings and book value growth in 2021.

• Market competition could impact returns, with some competitors engaging in aggressive behavior in MYGA business which may not persist. - MYGA business has seen irrational pricing with some rates offered higher than investment rate achievables, potentially impacting parts of retail, flop, and flow reinsurance. - Policyholder behavior changes, such as potential increase in withdrawal rates, which needs to be modeled and stress tested.

Q: Comment on the lack of buyback in the quarter and thoughts going forward.

A: Jim Belardi said it was more due to focusing on franchise enhancing activities like organic and inorganic growth rather than stock buybacks, but stock repurchases are still a consideration as returns are compelling at current prices.

Q: Additional commentary on inorganic opportunities.

A: Bill Wheeler said there is a lot of activity with management teams restructuring businesses and freeing up capital, with more of the same kind of activity going on.

Q: Potential for rating upgrades and impact on business.

A: Jim Belardi said they expect ratings improvements and/or outlook upgrades from all three rating agencies this year, and it helps all businesses, including retail, funding agreements, pension, and reinsurance.

Q: Deposit outlook for 2021 and marketplace pricing.

A: Bill Wheeler said there is aggressive behavior in MYGA business with irrational pricing, but other parts like pension and funding agreements are expected to do well in 2021.

Q: M&A competitive environment and impact on return hurdles.

A: Bill Wheeler said they still have a significant competitive advantage with higher ratings, more available capital, strong organic distribution, being a solutions provider, and disciplined price, but it's a bit more competitive.

Q: Operating expense ratio and future trends.

A: Marty Klein said the operating expense ratio is expected to decline over time due to scale and lower incremental cost.

Q: Inorganic transactions pipeline and Venerable's role.

A: Bill Wheeler said there is a mix of transactions in the pipeline, and Venerable can be an asset sourcer for M&A opportunities.

Q: FASB's LDTI changes impact.

A: Bill Wheeler said it's factoring into M&A thinking and helping the business, Marty Klein said it's likely to have different impact on Athene than other companies.

Q: Frothy pricing on block transactions and competition.

A: Bill Wheeler said some frothy pricing in the second half, but they are disciplined about returns and most alternative asset managers will be more rational.

Q: FIA and structured annuity market standing.

A: Bill Wheeler said FIA sales are starting to recover, structured annuities (RILAs) need to be in the right channels for better sales.

Q: Cash dividend suggestion.

A: Jim Belardi said they think there are better uses for capital than dividends currently, but will focus on maximizing value in the stock price.