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Section 1: 10-Q (10-Q)

Document
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, 2018
 
 
 
 
 
 
 
 
 
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 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 ¨
 
 
 
 
 
 
 
 
 
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 ¨ (Do not check if a smaller reporting company)
 
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. ¨
 
 
 
 
 
 
 
 
 
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 16, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
Class A common shares
164,709,405

 
Class M-2 common shares
851,103

 
 
 
 
Class B common shares
25,483,250

 
Class M-3 common shares
1,006,110

 
 
 
 
Class M-1 common shares
3,388,890

 
Class M-4 common shares
4,376,946

 
 
 
 
 
 
 
 
 
 
 




TABLE OF CONTENTS


PART I—FINANCIAL INFORMATION



PART II—OTHER INFORMATION

 
 





Table of Contents



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, 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 consolidated results of operations, financial condition and liquidity 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 consolidated results of operations, financial condition and liquidity 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;

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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, LP
AAA
 
AP Alternative Assets, L.P.
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
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
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.
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.


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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
AUM
 
Assets under management
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
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 RBC 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 RBC, (2) with respect to ALRe, by reference to BSCR, and (3) with respect to our former German Group Companies, by reference to SCR
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
LIMRA
 
Life Insurance and Market Research Association

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Term or Acronym
 
Definition
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
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



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Item 1.    Financial Statements

Index to Condensed Consolidated Financial Statements (unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



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ATHENE HOLDING LTD.
Condensed Consolidated Balance Sheets (Unaudited)


(In millions)
March 31, 2018
 
December 31, 2017
Assets
 
 
 
Investments
 
 
 
Fixed maturity securities, at fair value
 
 
 
Available-for-sale securities (amortized cost: 2018 – $57,371 and 2017 – $58,506)
$
58,575

 
$
61,012

Trading securities
2,088

 
2,196

Equity securities, at fair value
160

 
790

Mortgage loans, net of allowances (portion at fair value: 2018 – $41 and 2017 – $41)
6,139

 
6,233

Investment funds (portion at fair value: 2018 – $131 and 2017 – $145)
647

 
699

Policy loans
510

 
530

Funds withheld at interest (portion at fair value: 2018 – $207 and 2017 – $312)
7,093

 
7,085

Derivative assets
2,031

 
2,551

Real estate (portion held for sale: 2018 – $0 and 2017 – $32)

 
624

Short-term investments, at fair value (cost: 2018 – $235 and 2017 – $201)
235

 
201

Other investments (portion at fair value: 2018 – $39 and 2017 – $0)
113

 
133

Total investments
77,591

 
82,054

Cash and cash equivalents
2,735

 
4,888

Restricted cash
87

 
105

Investments in related parties
 
 
 
Fixed maturity securities, at fair value
 
 
 
Available-for-sale securities (amortized cost: 2018 – $501 and 2017 – $399)
505

 
406

Trading securities
305

 
307

Investment funds (portion at fair value: 2018 – $153 and 2017 – $30)
1,499

 
1,310

Short-term investments, at fair value (cost: 2018 – $123 and 2017 – $52)
123

 
52

Other investments
238

 
238

Accrued investment income (related party: 2018 – $12 and 2017 – $10)
620

 
652

Reinsurance recoverable (portion at fair value: 2018 – $1,713 and 2017 – $1,824)
4,834

 
4,972

Deferred acquisition costs, deferred sales inducements and value of business acquired
3,142

 
2,930

Other assets
1,067

 
969

Assets of consolidated variable interest entities
 
 
 
Investments
 
 
 
Fixed maturity securities, trading, at fair value – related party
47

 
48

Equity securities, at fair value – related party
177

 
240

Investment funds – related party (portion at fair value: 2018 – $554 and 2017 – $549)
582

 
571

Cash and cash equivalents
3

 
4

Other assets
2

 
1

Total assets
$
93,557

 
$
99,747

(Continued)
See accompanying notes to the unaudited condensed consolidated financial statements

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ATHENE HOLDING LTD.
Condensed Consolidated Balance Sheets (Unaudited)


(In millions, except share and per share data)
March 31, 2018
 
December 31, 2017
Liabilities and Equity
 
 
 
Liabilities
 
 
 
Interest sensitive contract liabilities (portion at fair value: 2018 – $8,188 and 2017 – $8,929)
$
67,551

 
$
67,708

Future policy benefits (portion at fair value: 2018 – $2,305 and 2017 – $2,428)
13,059

 
17,507

Other policy claims and benefits
137

 
211

Dividends payable to policyholders
119

 
1,025

Long-term debt
992

 

Derivative liabilities
186

 
134

Payables for collateral on derivatives
1,145

 
2,323

Funds withheld liability (portion at fair value: 2018 – $11 and 2017 – $22)
395

 
407

Other liabilities (related party: 2018 – $89 and 2017 – $64)
1,277

 
1,222

Liabilities of consolidated variable interest entities
1

 
2

Total liabilities
84,862

 
90,539

Commitments and Contingencies (Note 12)
 
 
 
Equity
 
 
 
Common stock
 
 
 
Class A – par value $0.001 per share; authorized: 2018 and 2017 – 425,000,000 shares; issued and outstanding: 2018 – 164,722,131 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 – 25,483,250 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 – 1,006,110 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 – 4,398,646 and 2017 – 4,711,743 shares

 

Additional paid-in capital
3,485

 
3,472

Retained earnings
4,625

 
4,321

Accumulated other comprehensive income (related party: 2018 – $4 and 2017 – $48)
585

 
1,415

Total shareholders' equity
8,695

 
9,208

Total liabilities and equity
$
93,557

 
$
99,747

(Concluded)
See accompanying notes to the unaudited condensed consolidated financial statements


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ATHENE HOLDING LTD.
Condensed Consolidated Statements of Income (Unaudited)


 
Three months ended March 31,
(In millions, except per share data)
2018
 
2017
Revenues
 
 
 
Premiums
$
278

 
$
52

Product charges
96

 
81

Net investment income (related party investment income: 2018 – $76 and 2017 – $56; and related party investment expense: 2018 – $83 and 2017 – $78)
855

 
786

Investment related gains (losses) (related party: 2018 – $17 and 2017 – $(11))
(236
)
 
682

Other-than-temporary impairment investment losses
 
 
 
Other-than-temporary impairment losses
(3
)
 

Other-than-temporary impairment losses reclassified to (from) other comprehensive income

 
(1
)
Net other-than-temporary impairment losses
(3
)

(1
)
Other revenues
6

 
8

Revenues of consolidated variable interest entities
 
 
 
Net investment income (related party: 2018 – $10 and 2017 – $10)
10

 
10

Investment related gains (losses) (related party: 2018 – $5 and 2017 – $1)
5

 
1

Total revenues
1,011

 
1,619

Benefits and expenses
 
 
 
Interest sensitive contract benefits
19

 
692

Amortization of deferred sales inducements
20

 
18

Future policy and other policy benefits
401

 
214

Amortization of deferred acquisition costs and value of business acquired
89

 
104

Dividends to policyholders
13

 
32

Policy and other operating expenses (related party: 2018 – $2 and 2017 – $4)
142

 
153

Total benefits and expenses
684

 
1,213

Income before income taxes
327

 
406

Income tax expense
59

 
22

Net income
$
268

 
$
384

 
 
 
 
Earnings per share
 
 
 
Basic – Classes A, B, M-1, M-2, M-3 and M-41
$
1.36

 
$
2.00

Diluted – Class A
1.36

 
1.92

Diluted – Class B
1.36

 
2.00

Diluted – Class M-1
1.36

 
2.00

Diluted – Class M-2
1.34

 
0.08

Diluted – Class M-31
1.33

 
N/A

Diluted – Class M-41
0.94

 
N/A

 
 
 
 
N/A – Not applicable
1 Basic and diluted earnings per share for class M-3 and M-4 were not applicable for the period ended March 31, 2017. See Note 8  Earnings Per Share for further discussion.

See accompanying notes to the unaudited condensed consolidated financial statements


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ATHENE HOLDING LTD.
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)


 
Three months ended March 31,
(In millions)
2018
 
2017
Net income
$
268

 
$
384

Other comprehensive income (loss), before tax
 
 
 
Unrealized investment gains (losses) on available-for-sale securities
(910
)
 
419

Noncredit component of other-than-temporary impairment losses on available-for-sale securities

 
1

Unrealized gains (losses) on hedging instruments
(56
)
 
(5
)
Pension adjustments
3

 

Foreign currency translation adjustments
(8
)
 
2

Other comprehensive income (loss), before tax
(971
)
 
417

Income tax expense (benefit) related to other comprehensive income
(183
)
 
111

Other comprehensive income (loss)
(788
)
 
306

Comprehensive income (loss)
$
(520
)
 
$
690


See accompanying notes to the unaudited condensed consolidated financial statements


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ATHENE HOLDING LTD.
Condensed Consolidated Statements of Equity (Unaudited)


(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

 

 
384

 

 
384

 

 
384

Other comprehensive income

 

 

 
306

 
306

 

 
306

Stock-based compensation

 
15

 

 

 
15

 

 
15

Retirement or repurchase of shares

 

 
(2
)
 

 
(2
)
 

 
(2
)
Other changes in equity of noncontrolling interests

 

 

 

 

 
(1
)
 
(1
)
Balance at March 31, 2017
$

 
$
3,436

 
$
3,452

 
$
673

 
$
7,561

 
$

 
$
7,561

 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

 

 
268

 

 
268

 

 
268

Other comprehensive loss

 

 

 
(788
)
 
(788
)
 

 
(788
)
Issuance of shares, net of expenses

 
1

 

 

 
1

 

 
1

Stock-based compensation

 
12

 

 

 
12

 

 
12

Retirement or repurchase of shares

 

 
(3
)
 

 
(3
)
 

 
(3
)
Balance at March 31, 2018
$

 
$
3,485

 
$
4,625

 
$
585

 
$
8,695

 
$

 
$
8,695

 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

Table of Contents

ATHENE HOLDING LTD.
Condensed Consolidated Statements of Cash Flows (Unaudited)


 
Three months ended March 31,
(In millions)
2018
 
2017
Cash flows from operating activities
 
 
 
Net income
$
268

 
$
384

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Amortization of deferred acquisition costs and value of business acquired
89

 
104

Amortization of deferred sales inducements
20

 
18

Accretion of net investment premiums, discounts, and other
(45
)
 
(54
)
Stock-based compensation
7

 
13

Net investment income (related party: 2018 – $(43) and 2017 – $(27))
(29
)
 
(30
)
Net recognized (gains) losses on investments and derivatives (related party: 2018 – $(24) and 2017 – $10)
209

 
(547
)
Policy acquisition costs deferred
(122
)
 
(105
)
Changes in operating assets and liabilities:
 
 
 
Accrued investment income
(27
)
 
(21
)
Interest sensitive contract liabilities
(201
)
 
655

Future policy benefits, other policy claims and benefits, dividends payable to policyholders and reinsurance recoverable
333

 
(18
)
Funds withheld assets and liabilities
(7
)
 
(91
)
Other assets and liabilities
84

 
121

Consolidated variable interest entities related:
 
 
 
Net recognized (gains) losses on investments and derivatives (related party: 2018 – $(6) and 2017 – $(1))
(6
)
 
(1
)
Other operating activities, net

 
1

Net cash provided by operating activities
573

 
429

Cash flows from investing activities
 
 
 
Sales, maturities and repayments of:
 
 
 
Fixed maturity securities
 
 
 
Available-for-sale securities (related party: 2018 – $57 and 2017 – $7)
3,017

 
2,688

Trading securities (related party: 2018 – $1 and 2017 – $14)
31

 
42

Equity securities (related party: 2018 – $0 and 2017 – $22)
2

 
170

Mortgage loans
396

 
281

Investment funds (related party: 2018 – $52 and 2017 – $23)
83

 
52

Derivative instruments and other invested assets
551

 
360

Short-term investments
103

 
95

Purchases of:
 
 
 
Fixed maturity securities
 
 
 
Available-for-sale securities (related party: 2018 – $(158) and 2017 – $(25))
(5,914
)
 
(4,274
)
Trading securities
(25
)
 
(17
)
Equity securities
(9
)
 
(211
)
Mortgage loans
(463
)
 
(265
)
Investment funds (related party: 2018 – $(182) and 2017 – $(71))
(213
)
 
(94
)
Derivative instruments and other invested assets
(224
)
 
(189
)
Real estate

 
(7
)
Short-term investments (related party: 2018 – $(72) and 2017 – $(20))
(209
)
 
(93
)
Consolidated variable interest entities related:
 
 
 
Sales, maturities, and repayments of investments (related party: 2018 – $59 and 2017 – $0)
59

 

Purchases of investments (related party: 2018 – $0 and 2017 – $(21))

 
(21
)
Deconsolidation of AGER Bermuda Holding Ltd. and its subsidiaries
(296
)
 

Cash settlement of derivatives
(2
)
 
(8
)
Other investing activities, net
229

 
363

Net cash used in investing activities
(2,884
)
 
(1,128
)
 
 
 
(Continued)

See accompanying notes to the unaudited condensed consolidated financial statements
 
 
 

13

Table of Contents

ATHENE HOLDING LTD.
Condensed Consolidated Statements of Cash Flows (Unaudited)


 
Three months ended March 31,
(In millions)
2018
 
2017
Cash flows from financing activities
 
 
 
Capital contributions
$
1

 
$

Proceeds from long-term debt
998

 

Deposits on investment-type policies and contracts
1,774

 
1,925

Withdrawals on investment-type policies and contracts
(1,474
)
 
(1,399
)
Payments for coinsurance agreements on investment-type contracts, net
(10
)
 
(10
)
Net change in cash collateral posted for derivative transactions
(1,178
)
 
298

Repurchase of common stock
(3
)
 
(2
)
Other financing activities, net
31

 
5

Net cash provided by financing activities
139

 
817

Effect of exchange rate changes on cash and cash equivalents

 
4

Net (decrease) increase in cash and cash equivalents
(2,172
)
 
122

Cash and cash equivalents at beginning of year1
4,997

 
2,516

Cash and cash equivalents at end of period1
$
2,825

 
$
2,638

 
 
 
 
Supplementary information
 
 
 
Non-cash transactions
 
 
 
Deposits on investment-type policies and contracts through reinsurance agreements
$
108

 
$
169

Withdrawals on investment-type policies and contracts through reinsurance agreements
91

 
182

Investments received from settlements on reinsurance agreements

 
24

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

Table of Contents

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 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

Table of Contents

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

Leases (ASU 2018-1, ASU 2017-13 and ASU 2016-02)
These updates are intended to increase transparency and comparability for lease transactions. A lessee is required to recognize an asset and a liability for all lease arrangements longer than 12 months. Lessor accounting is largely unchanged. We will be required to adopt these updates on a modified retrospective basis effective January 1, 2019. 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

Table of Contents

ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)


2. Investments

Available-for-sale SecuritiesThe 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.
 
March 31, 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
$
25

 
$

 
$

 
$
25

 
$

U.S. state, municipal and political subdivisions
995

 
140

 
(3
)
 
1,132

 

Foreign governments
137

 
2

 
(3
)
 
136

 

Corporate
35,489

 
875

 
(497
)
 
35,867

 
1

CLO
5,617

 
36

 
(11
)
 
5,642

 

ABS
4,595

 
44

 
(32
)
 
4,607

 
1

CMBS
1,981

 
32

 
(34
)
 
1,979

 
1

RMBS
8,532

 
666

 
(11
)
 
9,187

 
10

Total AFS securities
57,371

 
1,795

 
(591
)
 
58,575

 
13

Available-for-sale securities – related party
 
 
 
 
 
 
 
 
 
CLO
456

 
4

 

 
460

 

ABS
45

 

 

 
45

 

Total AFS securities – related party
501

 
4

 

 
505

 

Total AFS securities, including related party
$
57,872

 
$
1,799

 
$
(591
)
 
$
59,080

 
$
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

Table of Contents

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:    
 
March 31, 2018
(In millions)
Amortized Cost
 
Fair Value
Due in one year or less
$
1,041

 
$
1,042

Due after one year through five years
8,291

 
8,337

Due after five years through ten years
10,732

 
10,721

Due after ten years
16,582

 
17,060

CLO, ABS, CMBS and RMBS
20,725

 
21,415

Total AFS fixed maturity securities
57,371

 
58,575

Fixed maturity securities – related party, CLO and ABS
501

 
505

Total AFS fixed maturity securities, including related party
$
57,872

 
$
59,080


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 SecuritiesThe 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, 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
$
23

 
$

 
$

 
$

 
$
23

 
$

U.S. state, municipal and political subdivisions
70

 
(1
)
 
46

 
(2
)
 
116

 
(3
)
Foreign governments
55

 
(2
)
 
20

 
(1
)
 
75

 
(3
)
Corporate
13,298

 
(296
)
 
2,630

 
(201
)
 
15,928

 
(497
)
CLO
1,508

 
(6
)
 
291

 
(5
)
 
1,799

 
(11
)
ABS
1,166

 
(13
)
 
541

 
(19
)
 
1,707

 
(32
)
CMBS
825

 
(19
)
 
168

 
(15
)
 
993

 
(34
)
RMBS
561

 
(8
)
 
138

 
(3
)
 
699

 
(11
)
Total AFS securities
17,506

 
(345
)
 
3,834

 
(246
)
 
21,340

 
(591
)
Available-for-sale securities – related party
 
 
 
 
 
 
 
 
 
 
 
CLO
10

 

 

 

 
10

 

ABS
41

 

 

 

 
41

 

Total AFS securities – related party
51

 

 

 

 
51

 

Total AFS securities, including related party
$
17,557

 
$
(345
)
 
$
3,834

 
$
(246
)
 
$
21,391

 
$
(591
)


18

Table of Contents

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 March 31, 2018, we held 2,662 AFS securities that were in an unrealized loss position. Of this total, 467 were in an unrealized loss position 12 months or more. As of March 31, 2018, we held three related party AFS securities that were in an unrealized loss position. Of this total, none 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 ImpairmentsFor the three months ended March 31, 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 March 31,
(In millions)
2018
 
2017
Beginning balance
7

 
$
16

Initial impairments – credit loss OTTI recognized on securities not previously impaired
1

 

Additional impairments – credit loss OTTI recognized on securities previously impaired

 

Reduction in impairments from securities sold, matured or repaid
(1
)
 

Reduction for credit loss that no longer has a portion of the OTTI loss recognized in AOCI

 

Ending balance
$
7

 
$
16



19

Table of Contents

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 March 31,
(In millions)
2018
 
2017
Fixed maturity securities
 
 
 
AFS securities
$
668

 
$
620

Trading securities
44

 
50

Equity securities
2

 
3

Mortgage loans
91

 
85

Investment funds
65

 
55

Funds withheld at interest
46

 
36

Other
23

 
17

Investment revenue
939

 
866

Investment expenses
(84
)
 
(80
)
Net investment income
$
855

 
$
786


Investment Related Gains (Losses)—Investment related gains (losses) by asset class consists of the following:
 
Three months ended March 31,
(In millions)
2018
 
2017
AFS securities
 
 
 
Gross realized gains on investment activity
$
21

 
$
28

Gross realized losses on investment activity
(6
)
 
(8
)
Net realized investment gains on AFS securities
15

 
20

Net realized investment losses on trading securities
(89
)
 
(14
)
Net realized investment gains on equity securities
1

 
18

Derivative gains (losses)
(184
)
 
654

Other gains
21

 
4

Investment related gains (losses)
$
(236
)
 
$
682


Proceeds from sales of AFS securities were $1,637 million and $1,531 million for the three months ended March 31, 2018 and 2017, respectively.

The following table summarizes the change in unrealized gains and losses on trading and equity securities, including related party, we still held as of the respective period end:
 
Three months ended March 31,
(In millions)
2018
 
2017
Trading securities
$
(69
)
 
$
11

Trading securities – related party
(2
)
 
(12
)
Equity securities

 
15


Purchased Credit Impaired (PCI) Investments—The following table summarizes our PCI investments:
 
March 31, 2018
 
December 31, 2017
 
March 31, 2018
 
December 31, 2017
(In millions)
Fixed maturity securities
 
Mortgage loans
Contractually required payments receivable
$
9,009

 
$
9,690

 
$
1,131

 
$
1,140

Less: Cash flows expected to be collected1
(7,996
)
 
(8,188
)
 
(1,098
)
 
(1,090
)
Non-accretable difference
$
1,013

 
$
1,502

 
$
33

 
$
50

 
 
 
 
 
 
 
 
Cash flows expected to be collected1
$
7,996

 
$
8,188

 
$
1,098

 
$
1,090

Less: Amortized cost
(6,084
)
 
(6,168
)
 
(807
)
 
(817
)
Accretable difference
$
1,912

 
$
2,020

 
$
291

 
$
273

 
 
 
 
 
 
 
 
Fair value
$
6,622

 
$
6,703

 
$
877

 
$
844

Outstanding balance
7,468

 
8,026

 
935

 
946

 
 
 
 
 
 
 
 
1 Represents the undiscounted principal and interest cash flows expected.

20

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ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)



During the period, we acquired PCI investments with the following amounts at the time of purchase:
 
March 31, 2018
(In millions)
Fixed maturity securities
 
Mortgage loans
Contractually required payments receivable
$
215

 
$

Cash flows expected to be collected
197

 

Fair value
166

 


The following table summarizes the activity for the accretable yield on PCI investments:
 
Three months ended March 31, 2018
(In millions)
Fixed maturity securities
 
Mortgage loans
Beginning balance at January 1
$
2,020

 
$
273

Purchases of PCI investments, net of sales
16

 
(2
)
Accretion
(100
)
 
(10
)
Net reclassification from (to) non-accretable difference
(24
)
 
30

Ending balance at March 31
$
1,912

 
$
291


Mortgage Loans—Mortgage loans, net of allowances, consists of the following:
(In millions)
March 31, 2018
 
December 31, 2017
Commercial mortgage loans
$
5,109

 
$
5,223

Commercial mortgage loans under development
24

 
24

Total commercial mortgage loans
5,133

 
5,247

Residential mortgage loans
1,006

 
986

Mortgage loans, net of allowances
$
6,139

 
$
6,233


We primarily invest in commercial mortgage loans on income producing properties including hotels, industrial properties and retail and office buildings. 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.


21

Table of Contents

ATHENE HOLDING LTD.
Notes to Condensed Consolidated Financial Statements (Unaudited)


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, 2018
 
December 31, 2017
(In millions, except for percentages)
Net Carrying Value
 
Percentage of Total
 
Net Carrying Value
 
Percentage of Total
Property type
 
 
 
 
 
 
 
Office building
$
1,389

 
27.1
%
 
$
1,187

 
22.6
%
Retail
1,167

 
22.7
%
 
1,223

 
23.3
%
Hotels
935

 
18.2
%
 
928

 
17.7
%
Industrial
789