ATHS

Management Statement and Operational Highlights

• Organic Inflows: Originated $12 billion of organic inflows in Q3, a new quarterly record, surpassing 2020's total organic inflows.
• Market Share: Held leading market share positions in retail, funding agreements, and pension group annuity channels.
• Ratings: Received a ratings upgrade from Standard & Poor's and Fitch revised outlook to positive.
• Investments: Purchased nearly $17 billion of investments in Q3, with yield on fixed income purchases 55 basis points higher than BBB corporate bond index.
• Alternatives Portfolio: Posted fifth consecutive quarter of above-average performance, with an annualized net return of 16% in Q3.
• Acquisitions: Acquired Foundation Home Loans, a majority stake in Newfi, and will serve as lead investor in Wheels and Donlen merger.

Guidance

• Total Organic Inflows: Expect to approach $35 billion for 2021, exceeding the prior revised estimate of $30 billion.
• Fixed NIER: Expected to be approximately 3.5% in Q4.
• Alternatives NIER: Expected to be approximately 11% to 12% in Q4.
• Cost of Crediting: Full year 2021 cost of crediting expected to be approximately 173 basis points.
• Other Liability Costs (OLC): Baseline run rate expected to be approximately 70 basis points in Q4.

Segment Performance

• Retail: Generated $2.4 billion of inflows in Q3, second highest quarterly total to date. FIA sales reached a quarterly record, comprising roughly 84% of retail inflows.
• Pension Group Annuities: Generated $6.6 billion of inflows in Q3, best quarter ever, driven by transactions like a $4.9 billion deal with Lockheed Martin.
• Funding Agreements: Generated $2.3 billion of inflows in Q3, reached a new record level of issuance for Athene in a calendar year.
• Third-Party Flow Reinsurance: Activity picked up in Q3, with pricing dynamics for reinsuring MYGA flows becoming more favorable towards the end of the quarter.

Risks

• NAIC Scrutiny: NAIC is looking at PE owned insurance companies and affiliate transactions, but no expected impact on Athene's business model.
• Credit Environment: Monitoring casual dining, hotels, leisure industry, airlines; generally, portfolio is in good shape but watching for potential issues.
• LDTI Impact: LDTI will have a small impact on GAAP equity, with rider reserves providing a benefit.

Question and Answer

Q: Talk about organic and inorganic growth opportunities in Asia A: Bill Wheeler mentioned opportunities in Asia, including minority stakes in FWD and Challenger, block transactions in Japan due to changing capital rules and low interest rates, expecting more flow and block deals in Asia.

Q: Expectations for PGAAP and tax rate changes from merger A: Marty Klein referenced Apollo's S-4 proxy filing, pro forma financials, expected effective tax rate of ~18%, and use of ACRA for tax-efficient funding.

Q: Block transactions and pension risk transfer market A: Bill Wheeler discussed disciplined approach to block transactions, big blocks defined as north of $10 billion, PRT market expected to continue growing with potential for larger deals.

Q: NAIC scrutiny impact on business model A: Marty Klein stated no impact on Athene's business model, increased scrutiny a reaction to bad actors, but Athene has been transparent with regulators.

Q: Excess equity capital decline and credit environment A: Marty Klein explained capital deployment due to $12 billion volume, ACRA assistance, and Jim Belardi discussed monitoring casual dining, hotels, etc., with portfolio in good shape.

Q: LDTI impact and M&A catalyst A: Marty Klein said LDTI has negligible impact on Athene, with rider reserves providing a benefit, and potential for M&A due to LDTI impacts on other companies.

Q: VA pipeline and inorganic markets A: Bill Wheeler mentioned heavy pipeline for VA deals, new entrants in VA business, and Venerable being busy with VA transactions.