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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 September 30, 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 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. ¨
 
 
 
 
 
 
 
 
 
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 September 30, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
Class A common shares
164,849,200

 
Class M-2 common shares
841,011

 
 
 
 
Class B common shares
25,483,107

 
Class M-3 common shares
1,001,110

 
 
 
 
Class M-1 common shares
3,359,345

 
Class M-4 common shares
4,224,071

 
 
 
 
 
 
 
 
 
 
 




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, anticipated future tax rates, objectives and expected operating results and the assumptions upon which those statements are based, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act).

You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “seek,” “assume,” “believe,” “may,” “will,” “should,” “could,” “would,” “likely” and other words and terms of similar meaning, including the negative of these or similar words and terms, in connection with any discussion of the timing or nature of future operating or financial performance or other events. However, not all forward-looking statements contain these identifying words. Forward-looking statements appear in a number of places throughout and give our current expectations and projections relating to our financial condition, results of operations, plans, strategies, objectives, future performance, business and other matters.

We caution you that forward-looking statements are not guarantees of future performance and that our actual financial condition, liquidity, results of operations and cash flows may differ materially from those made in or suggested by the forward-looking statements contained in this report. There can be no assurance that actual developments will be those anticipated by us. In addition, even if our financial condition, liquidity, results of operations and cash flows are consistent with the forward-looking statements contained in this report, those results or developments may not be indicative of results or developments in subsequent periods. A number of important factors could cause actual results or conditions to differ materially from those contained or implied by the forward-looking statements, including the risks discussed in Part II–Item 1A. Risk Factors included in this report and Part I–Item 1A. Risk Factors included in our Annual Report on Form 10-K for the year ended December 31, 2017 (2017 Annual Report). Factors that could cause actual results or conditions to differ from those reflected in the forward-looking statements contained in this report include:

the accuracy of management’s assumptions and estimates;
variability in the amount of statutory capital that our insurance and reinsurance subsidiaries have or are required to hold;
interest rate fluctuations;
our potential need for additional capital in the future and the potential unavailability of such capital to us on favorable terms or at all;
changes in relationships with important parties in our product distribution network;
the activities of our competitors and our ability to grow our retail business in a highly competitive environment;
the impact of general economic conditions on our ability to sell our products and the fair value of our investments;
our ability to successfully acquire new companies or businesses and/or integrate such acquisitions into our existing framework;
downgrades, potential downgrades or other negative actions by rating agencies;
our dependence on key executives and inability to attract qualified personnel, or the potential loss of Bermudian personnel as a result of Bermuda employment restrictions;
market and credit risks that could diminish the value of our investments;
foreign currency fluctuations;
the impact of changes to the creditworthiness of our reinsurance and derivative counterparties;
changes in consumer perception regarding the desirability of annuities as retirement savings products;
potential litigation (including class action litigation), enforcement investigations or regulatory scrutiny against us and our subsidiaries, which we may be required to defend against or respond to;
the impact of new accounting rules or changes to existing accounting rules on our business;
interruption or other operational failures in telecommunication and information technology and other operating systems, as well as our ability to maintain the security of those systems;
the termination by Athene Asset Management LLC (AAM) of its investment management agreements with us and limitations on our ability to terminate such arrangements;
AAM’s dependence on key executives and inability to attract qualified personnel;
increased regulation or scrutiny of alternative investment advisers and certain trading methods;
potential changes to regulations affecting, among other things, transactions with our affiliates, the ability of our subsidiaries to make dividend payments or distributions to us, acquisitions by or of us, minimum capitalization and statutory reserve requirements for insurance companies and fiduciary obligations on parties who distribute our products;
suspension or revocation of our subsidiaries’ insurance and reinsurance licenses;
increases in our tax liability resulting from the Base Erosion and Anti-Abuse Tax (BEAT) or unnecessary, inefficient, ineffective or counterproductive efforts undertaken to mitigate the cost of the BEAT;
improper interpretation or application of Public Law no. 115-97, the Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018 (Tax Act) or subsequent changes to, clarifications of or guidance under the Tax Act that is counter to our interpretation and has retroactive effect;
Athene Holding Ltd. (AHL) or its non-U.S. subsidiaries becoming subject to U.S. federal income taxation;
adverse changes in U.S. tax law;

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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, L.P.
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
AGM
 
Apollo Global Management, LLC
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, 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. 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
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 risk-based capital as defined by the model created by the National Association of Insurance Commissioners
ALM
 
Asset liability management
ALRe RBC
 
The risk-based capital ratio of ALRe, when applying the National Association of Insurance Commissioners risk-based capital factors
Alternative investments
 
Alternative investments, including investment funds, collateralized loan obligation equity positions and certain other debt instruments considered to be equity-like
Base of earnings
 
Earnings generated from our results of operations and the underlying profitability drivers of our business
BEAT
 
Base Erosion and Anti-Abuse Tax
Bermuda capital
 
The capital of ALRe calculated under U.S. statutory accounting principles, including that for policyholder reserve liabilities which are subjected to U.S. cash flow testing requirements, but excluding certain items that do not exist under our applicable Bermuda requirements, such as interest maintenance reserves
Block reinsurance
 
A transaction in which the ceding company cedes all or a portion of a block of previously issued annuity contracts through a reinsurance agreement
BMA
 
Bermuda Monetary Authority
BSCR
 
Bermuda Solvency Capital Requirement
CAL
 
Company action level risk-based capital as defined by the model created by the National Association of Insurance Commissioners
Capital ratio
 
Ratios calculated (1) with respect to our U.S. insurance subsidiaries, by reference to risk-based capital, (2) with respect to ALRe, by reference to BSCR, and (3) with respect to our former German Group Companies, by reference to solvency capital requirements
CLO
 
Collateralized loan obligation
CMBS
 
Commercial mortgage-backed securities
Cost of crediting
 
The interest credited to the policyholders on our fixed annuities, including, with respect to our fixed indexed annuities, option costs, presented on an annualized basis for interim periods
DAC
 
Deferred acquisition costs
Deferred annuities
 
Fixed indexed annuities, annual reset annuities and multi-year guaranteed annuities
DSI
 
Deferred sales inducement
Excess capital
 
Capital in excess of the level management believes is needed to support our current operating strategy
FIA
 
Fixed indexed annuity, which is an insurance contract that earns interest at a crediting rate based on a specified index on a tax-deferred basis
Fixed annuities
 
FIAs together with fixed rate annuities
Fixed rate annuity
 
An insurance contract that offers tax-deferred growth and the opportunity to produce a guaranteed stream of retirement income for the lifetime of its policyholder
Flow reinsurance
 
A transaction in which the ceding company cedes a portion of newly issued policies to the reinsurer
GAAP
 
Accounting principles generally accepted in the United States of America
GLWB
 
Guaranteed lifetime withdrawal benefit
GMDB
 
Guaranteed minimum death benefit
IMA
 
Investment management agreement
IMO
 
Independent marketing organization
Invested assets
 
The sum of (a) total investments on the consolidated balance sheet with AFS securities at amortized cost, excluding derivatives, (b) cash and cash equivalents and restricted cash, (c) investments in related parties, (d) accrued investment income, (e) consolidated variable interest entities’ assets, liabilities and noncontrolling interest and (f) policy loans ceded (which offset the direct policy loans in total investments). Invested assets includes investments supporting assumed funds withheld and modco agreements and excludes assets associated with funds withheld liabilities related to business exited through reinsurance agreements and derivative collateral (offsetting the related cash positions)
Investment margin
 
Investment margin applies to deferred annuities and is the excess of our net investment earned rate over the cost of crediting to our policyholders, presented on an annualized basis for interim periods
Liability outflows
 
The aggregate of withdrawals on our deferred annuities, maturities of our funding agreements, payments on payout annuities and pension risk benefit payments
LIMRA
 
Life Insurance and Market Research Association

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Term or Acronym
 
Definition
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, 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
Overall tax rate
 
Tax rate including corporate income taxes, the BEAT and excise taxes, in each case, to the extent applicable, as a percentage of adjusted operating income before tax
Payout annuities
 
Annuities with a current cash payment component, which consist primarily of SPIAs, supplemental contracts and structured settlements
Policy loan
 
A loan to a policyholder under the terms of, and which is secured by, a policyholder’s policy
PRT
 
Pension risk transfer
RBC
 
Risk-based capital
Reserve liabilities
 
The sum of (a) interest sensitive contract liabilities, (b) future policy benefits, (c) dividends payable to policyholders, and (d) other policy claims and benefits, offset by reinsurance recoverable, excluding policy loans ceded. Reserve liabilities also includes the reserves related to assumed modco agreements in order to appropriately match the costs incurred in the consolidated statements of income with the liabilities. Reserve liabilities is net of the ceded liabilities to third-party reinsurers as the costs of the liabilities are passed to such reinsurers and therefore we have no net economic exposure to such liabilities, assuming our reinsurance counterparties perform under our agreements
Rider reserves
 
Guaranteed lifetime withdrawal benefits and guaranteed minimum death benefits reserves
RMBS
 
Residential mortgage-backed securities
RML
 
Residential mortgage loan
Sales
 
All money paid into an individual annuity, including money paid into new contracts with initial purchase occurring in the specified period and existing contracts with initial purchase occurring prior to the specified period (excluding internal transfers)
SPIA
 
Single premium immediate annuity
Surplus assets
 
Assets in excess of policyholder obligations, determined in accordance with the applicable domiciliary jurisdiction’s statutory accounting principles
TAC
 
Total adjusted capital as defined by the model created by the NAIC
U.S. RBC Ratio
 
The CAL RBC ratio for AADE, our parent U.S. insurance company
VIE
 
Variable interest entity
VOBA
 
Value of business acquired
Voya reinsurance transactions
 
Collectively, the coinsurance and modified coinsurance agreements we entered into on June 1, 2018 with Voya Insurance and Annuity Company and ReliaStar Life Insurance Company



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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)
September 30, 2018
 
December 31, 2017
Assets
 
 
 
Investments
 
 
 
Fixed maturity securities, at fair value
 
 
 
Available-for-sale securities (amortized cost: 2018 – $59,744 and 2017 – $58,506)
$
59,882

 
$
61,012

Trading securities
1,977

 
2,196

Equity securities, at fair value
292

 
790

Mortgage loans, net of allowances (portion at fair value: 2018 – $37 and 2017 – $41)
8,982

 
6,233

Investment funds (portion at fair value: 2018 – $127 and 2017 – $145)
692

 
699

Policy loans
512

 
530

Funds withheld at interest (portion at fair value: 2018 – $151 and 2017 – $312)
7,841

 
7,085

Derivative assets
2,515

 
2,551

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

 
624

Short-term investments, at fair value (cost: 2018 – $234 and 2017 – $201)
234

 
201

Other investments (portion at fair value: 2018 – $43 and 2017 – $0)
114

 
133

Total investments
83,041

 
82,054

Cash and cash equivalents
3,723

 
4,888

Restricted cash
218

 
105

Investments in related parties
 
 
 
Fixed maturity securities, at fair value
 
 
 
Available-for-sale securities (amortized cost: 2018 – $1,250 and 2017 – $399)
1,243

 
406

Trading securities
259

 
307

Mortgage loans
389

 

Investment funds (portion at fair value: 2018 – $197 and 2017 – $30)
2,093

 
1,310

Funds withheld at interest (portion at fair value: 2018 – $91)
13,963

 

Short-term investments, at fair value (cost: 2018 – $10 and 2017 – $52)
10

 
52

Other investments
386

 
238

Accrued investment income (related party: 2018 – $23 and 2017 – $10)
686

 
652

Reinsurance recoverable (related party: 2018 – $8; portion at fair value: 2018 – $1,679 and 2017 – $1,824)
5,201

 
4,972

Deferred acquisition costs, deferred sales inducements and value of business acquired
4,972

 
2,930

Other assets
1,187

 
969

Assets of consolidated variable interest entities
 
 
 
Investments
 
 
 
Fixed maturity securities, trading, at fair value – related party
48

 
48

Equity securities, at fair value – related party
176

 
240

Investment funds (related party: 2018 – $564 and 2017 – $571; portion at fair value: 2018 – $564 and 2017 – $549)
605

 
571

Cash and cash equivalents
2

 
4

Other assets
2

 
1

Total assets
$
118,204

 
$
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)
September 30, 2018
 
December 31, 2017
Liabilities and Equity
 
 
 
Liabilities
 
 
 
Interest sensitive contract liabilities (related party: 2018 – $17,367; portion at fair value: 2018 – $9,557 and 2017 – $8,929)
$
88,903

 
$
67,708

Future policy benefits (related party: 2018 – $965; portion at fair value: 2018 – $2,233 and 2017 – $2,428)
14,771

 
17,507

Other policy claims and benefits (related party: 2018 – $3)
140

 
211

Dividends payable to policyholders
120

 
1,025

Long-term debt
991

 

Derivative liabilities
124

 
134

Payables for collateral on derivatives
2,315

 
2,323

Funds withheld liability (portion at fair value: 2018 – $3 and 2017 – $22)
389

 
407

Other liabilities (related party: 2018 – $99 and 2017 – $64)
1,380

 
1,222

Liabilities of consolidated variable interest entities
2

 
2

Total liabilities
109,135

 
90,539

Commitments and Contingencies (Note 13)
 
 
 
Equity
 
 
 
Common stock
 
 
 
Class A – par value $0.001 per share; authorized: 2018 and 2017 – 425,000,000 shares; issued and outstanding: 2018 – 164,849,200 and 2017 – 142,386,704 shares

 

Class B – par value $0.001 per share; convertible to Class A; authorized: 2018 and 2017 – 325,000,000 shares; issued and outstanding: 2018 – 25,483,107 and 2017 – 47,422,399 shares

 

Class M-1 – par value $0.001 per share; contingently convertible to Class A; authorized: 2018 and 2017 – 7,109,560 shares; issued and outstanding: 2018 – 3,359,345 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 – 841,011 and 2017 – 851,103 shares

 

Class M-3 – par value $0.001 per share; contingently convertible to Class A; authorized: 2018 and 2017 – 7,500,000 shares; issued and outstanding: 2018 – 1,001,110 and 2017 – 1,092,000 shares

 

Class M-4 – par value $0.001 per share; contingently convertible to Class A; authorized: 2018 and 2017 – 7,500,000 shares; issued and outstanding: 2018 – 4,224,071 and 2017 – 4,711,743 shares

 

Additional paid-in capital
3,499

 
3,472

Retained earnings
5,527

 
4,321

Accumulated other comprehensive income (related party: 2018 – $(7) and 2017 – $48)
43

 
1,415

Total shareholders' equity
9,069

 
9,208

Total liabilities and equity
$
118,204

 
$
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 September 30,
 
Nine months ended September 30,
(In millions, except per share data)
2018
 
2017
 
2018
 
2017
Revenues
 
 
 
 
 
 
 
Premiums (related party of $41 and $0 for the three months ended and $623 and $0 for the nine months ended September 30, 2018 and 2017, respectively)
$
531

 
$
72

 
$
1,535

 
$
503

Products charges (related party of $14 and $0 for the three months ended and $19 and $0 for the nine months ended September 30, 2018 and 2017, respectively)
119

 
86

 
321

 
252

Net investment income (related party investment income of $226 and $50 for the three months ended and $369 and $179 for the nine months ended September 30, 2018 and 2017, respectively, and related party investment expense of $88 and $81 for the three months ended and $257 and $235 for the nine months ended September 30, 2018 and 2017, respectively)
1,070

 
820

 
2,883

 
2,427

Investment related gains (losses) (related party of $(27) and $(2) for the three months ended and $(8) and $(10) for the nine months ended September 30, 2018 and 2017, respectively)
823

 
473

 
585

 
1,615

Other-than-temporary impairment investment losses
 
 
 
 
 
 
 
Other-than-temporary impairment losses
(7
)
 
(11
)
 
(10
)
 
(23
)
Other-than-temporary impairment losses reclassified to (from) other comprehensive income
4

 
(2
)
 
4

 
(2
)
Net other-than-temporary impairment losses
(3
)
 
(13
)
 
(6
)

(25
)
Other revenues
10

 
8

 
22

 
24

Revenues of consolidated variable interest entities
 
 
 
 
 
 
 
Net investment income (related party of $15 and $10 for the three months ended and $39 and $30 for the nine months ended September 30, 2018 and 2017, respectively)
15

 
10

 
39

 
30

Investment related gains (losses) (related party of $23 and $17 for the three months ended and $17 and $29 for the nine months ended September 30, 2018 and 2017, respectively)
23

 
17

 
17

 
29

Total revenues
2,588

 
1,473

 
5,396

 
4,855

Benefits and expenses
 
 
 
 
 
 
 
Interest sensitive contract benefits (related party of $135 and $0 for the three months ended and $155 and $0 for the nine months ended September 30, 2018 and 2017, respectively)
741

 
621

 
1,092

 
1,866

Amortization of deferred sales inducements
23

 
13

 
66

 
42

Future policy and other policy benefits (related party of $58 and $0 for the three months ended and $638 and $0 for the nine months ended September 30, 2018 and 2017, respectively)
920

 
259

 
2,178

 
1,051

Amortization of deferred acquisition costs and value of business acquired
30

 
80

 
211

 
251

Dividends to policyholders
10

 
48

 
32

 
129

Policy and other operating expenses (related party of $22 and $4 for the three months ended and $27 and $10 for the nine months ended September 30, 2018 and 2017, respectively)
158

 
158

 
453

 
479

Operating expenses of consolidated variable interest entities

 

 
1

 

Total benefits and expenses
1,882

 
1,179

 
4,033

 
3,818

Income before income taxes
706

 
294

 
1,363

 
1,037

Income tax expense
66

 
20

 
191

 
53

Net income
$
640

 
$
274

 
$
1,172

 
$
984

 
 
 
 
 
 
 
 
Earnings per share
 
 
 
 
 
 
 
Basic – Classes A, B, M-1, M-2, M-3 and M-4
$
3.24

 
$
1.40

 
$
5.94

 
$
5.05

Diluted – Class A
3.23

 
1.39

 
5.92

 
5.00

Diluted – Class B
3.24

 
1.40

 
5.94

 
5.05

Diluted – Class M-1
3.24

 
1.40

 
5.94

 
5.05

Diluted – Class M-2
3.24

 
1.39

 
5.90

 
3.26

Diluted – Class M-3
3.24

 
1.07

 
5.90

 
2.27

Diluted – Class M-4
2.49

 
0.79

 
4.42

 
1.91


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 September 30,
 
Nine months ended September 30,
(In millions)
2018
 
2017
 
2018
 
2017
Net income
$
640

 
$
274

 
$
1,172

 
$
984

Other comprehensive income (loss), before tax
 
 
 
 
 
 
 
Unrealized investment gains (losses) on available-for-sale securities
(103
)
 
171

 
(1,680
)
 
1,172

Noncredit component of other-than-temporary impairment losses on available-for-sale securities
(4
)
 
2

 
(4
)
 
2

Unrealized gains (losses) on hedging instruments
7

 
(31
)
 
52

 
(69
)
Pension adjustments

 
1

 
3

 

Foreign currency translation adjustments

 
4

 
(10
)
 
14

Other comprehensive income (loss), before tax
(100
)
 
147

 
(1,639
)
 
1,119

Income tax expense (benefit) related to other comprehensive income
(17
)
 
45

 
(309
)
 
324

Other comprehensive income (loss)
(83
)
 
102

 
(1,330
)
 
795

Comprehensive income (loss)
$
557

 
$
376

 
$
(158
)
 
$
1,779


See accompanying notes to the unaudited condensed consolidated financial statements


11

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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

 

 
984

 

 
984

 

 
984

Other comprehensive income

 

 

 
795

 
795

 

 
795

Stock-based compensation

 
40

 

 

 
40

 

 
40

Retirement or repurchase of shares

 

 
(8
)
 

 
(8
)
 

 
(8
)
Other changes in equity of noncontrolling interests

 

 

 

 

 
(1
)
 
(1
)
Balance at September 30, 2017
$

 
$
3,461

 
$
4,046

 
$
1,162

 
$
8,669

 
$

 
$
8,669

 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

 

 
1,172

 

 
1,172

 

 
1,172

Other comprehensive loss

 

 

 
(1,330
)
 
(1,330
)
 

 
(1,330
)
Issuance of shares, net of expenses

 
2

 

 

 
2

 

 
2

Stock-based compensation

 
25

 

 

 
25

 

 
25

Retirement or repurchase of shares

 

 
(5
)
 

 
(5
)
 

 
(5
)
Balance at September 30, 2018
$

 
$
3,499

 
$
5,527

 
$
43

 
$
9,069

 
$

 
$
9,069

 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

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


 
Nine months ended September 30,
(In millions)
2018
 
2017
Cash flows from operating activities
 
 
 
Net income
$
1,172

 
$
984

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Amortization of deferred acquisition costs and value of business acquired
211

 
251

Amortization of deferred sales inducements
66

 
42

Accretion of net investment premiums, discounts, and other
(143
)
 
(141
)
Payment at inception of reinsurance agreements, net (related party: 2018 – $(407))
(394
)
 

Stock-based compensation
20

 
40

Net investment income (related party: 2018 – $(77) and 2017 – $(66))
(61
)
 
(65
)
Net recognized (gains) losses on investments and derivatives (related party: 2018 – $(5) and 2017 – $2)
(559
)
 
(1,271
)
Policy acquisition costs deferred
(495
)
 
(371
)
Changes in operating assets and liabilities:
 
 
 
Accrued investment income (related party: 2018 – $(13) and 2017 – $0)
(70
)
 
(67
)
Interest sensitive contract liabilities (related party: 2018 – $136)
562

 
1,655

Future policy benefits, other policy claims and benefits, dividends payable to policyholders and reinsurance recoverable (related party: 2018 – $54)
1,080

 
460

Funds withheld assets and liabilities (related party: 2018 – $(119))
(239
)
 
(327
)
Other assets and liabilities
103

 
179

Consolidated variable interest entities related:
 
 
 
Net recognized (gains) losses on investments and derivatives (related party: 2018 – $(18) and 2017 – $(29))
(18
)
 
(28
)
Other operating activities, net

 
1

Net cash provided by operating activities
1,235

 
1,342

Cash flows from investing activities
 
 
 
Sales, maturities and repayments of:
 
 
 
Fixed maturity securities
 
 
 
Available-for-sale securities (related party: 2018 – $111 and 2017 – $126)
9,003

 
9,199

Trading securities (related party: 2018 – $30 and 2017 – $52)
327

 
120

Equity securities (related party: 2018 – $0 and 2017 – $22)
25

 
743

Mortgage loans
1,048

 
950

Investment funds (related party: 2018 – $197 and 2017 – $219)
330

 
300

Derivative instruments and other invested assets
1,548

 
1,083

Short-term investments (related party: 2018 – $162 and 2017 – $28)
430

 
289

Purchases of:
 
 
 
Fixed maturity securities
 
 
 
Available-for-sale securities (related party: 2018 – $(598) and 2017 – $(186))
(12,128
)
 
(13,668
)
Trading securities
(17
)
 
(79
)
Equity securities
(163
)
 
(655
)
Mortgage loans (related party: 2018 – $(389) and 2017 – $0)
(4,079
)
 
(1,925
)
Investment funds (related party: 2018 – $(894) and 2017 – $(244))
(1,073
)
 
(366
)
Derivative instruments and other invested assets (related party: 2018 – $(150) and 2017 – $0)
(973
)
 
(562
)
Real estate

 
(19
)
Short-term investments (related party: 2018 – $(121) and 2017 – $(37))
(421
)
 
(222
)
Consolidated variable interest entities related:
 
 
 
Sales, maturities and repayments of investments (related party: 2018 – $103 and 2017 – $40)
114

 
40

Purchases of investments (related party: 2018 – $(14) and 2017 – $(22))
(66
)
 
(22
)
Deconsolidation of AGER Bermuda Holding Ltd. and its subsidiaries
(296
)
 

Cash settlement of derivatives
5

 
(4
)
Other investing activities, net
240

 
339

Net cash used in investing activities
(6,146
)
 
(4,459
)
 
 
 
(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)


 
Nine months ended September 30,
(In millions)
2018
 
2017
Cash flows from financing activities
 
 
 
Capital contributions
2

 

Proceeds from short-term debt
183

 

Repayment of short-term debt
(183
)
 

Proceeds from long-term debt
998

 

Deposits on investment-type policies and contracts (related party: 2018 – $140)
7,011

 
7,521

Withdrawals on investment-type policies and contracts (related party: 2018 – $(143))
(4,254
)
 
(3,701
)
Payments from (for) coinsurance agreements on investment-type contracts, net
9

 
(17
)
Net change in cash collateral posted for derivative transactions
(8
)
 
513

Repurchase of common stock
(5
)
 
(8
)
Other financing activities, net
104

 
(29
)
Net cash provided by financing activities
3,857

 
4,279

Effect of exchange rate changes on cash and cash equivalents

 
30

Net (decrease) increase in cash and cash equivalents
(1,054
)
 
1,192

Cash and cash equivalents at beginning of year1
4,997

 
2,516

Cash and cash equivalents at end of period1
$
3,943

 
$
3,708

 
 
 
 
Supplementary information
 
 
 
Non-cash transactions
 
 
 
Deposits on investment-type policies and contracts through reinsurance agreements (related party: 2018 – $17,574)
$
18,508

 
$
511

Withdrawals on investment-type policies and contracts through reinsurance agreements (related party: 2018 – $604)
899

 
390

Investments received from settlements on reinsurance agreements
36

 
36

Investments exchanged for related party investments
95

 
26

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 (together with 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 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, 2017 has been derived from the audited financial statements, but does not include all of the information and footnotes required by GAAP for complete financial statements. Therefore, these condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2017. The preparation of financial statements requires the use of management estimates. Actual results may differ from estimates used in preparing the condensed consolidated financial statements.

Deconsolidation – AGER Bermuda Holding Ltd. and its subsidiaries, now known as Athora Holding Ltd. (Athora), was our consolidated subsidiary for the year ended December 31, 2017. In April 2017, in connection with a private offering, Athora entered into subscription agreements with AHL, certain affiliates of Apollo Global Management, LLC (AGM and, together with its subsidiaries, Apollo) and a number of other third-party investors pursuant to which Athora secured commitments from such parties to purchase new common shares in Athora (Athora Offering). In November 2017, the Athora board of directors approved resolutions authorizing the closing of the Athora Offering (Closing) to occur on January 1, 2018 and approving a capital call from all of the Athora investors, excluding us. In connection with the Closing and the issuance of shares in respect of the capital call, each of which occurred on January 1, 2018, our equity interest in Athora was exchanged for common shares of Athora. As a result, on January 1, 2018, we held 10% of the aggregate voting power of and less than 50% of the economic interest in Athora and, as such, it is thereafter held as a related party investment rather than a consolidated subsidiary. We did not recognize a material amount in the condensed consolidated statements of income upon deconsolidation in 2018.

Adopted Accounting Pronouncements

Revenue Recognition (ASU 2017-13, ASU 2016-20, ASU 2016-12, ASU 2016-11, ASU 2016-10, ASU 2016-08, ASU 2015-14 and ASU 2014-09)
These updates are based on the core principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. These updates replace all general and most industry-specific revenue recognition guidance, excluding insurance contracts, leases, financial instruments and guarantees, which have been scoped out of these updates. Since the guidance does not apply to revenue on contracts accounted for under the financial instruments or insurance contracts standards, only a portion of our revenues are impacted by this guidance. We adopted these updates on a modified retrospective basis effective January 1, 2018. The adoptions did not have a material effect on our consolidated financial statements.

Derivatives and Hedging – Targeted Improvements (ASU 2017-12)
The amendments in this update contain improvements to the financial reporting of hedging relationships that more closely reflect the economic results of an entity’s risk management activities in its financial statements. Additionally, the amendments in this update make certain targeted improvements to simplify the application of hedge accounting. We early adopted this update effective January 1, 2018, and the adoption did not have a material effect on our consolidated financial statements.

Gains and Losses from the Derecognition of Nonfinancial Assets (ASU 2017-05)
The amendments in this update clarify the scope of asset derecognition guidance and accounting for partial sales of nonfinancial assets. We adopted this update on a modified retrospective basis effective January 1, 2018. The adoption did not have a material effect on our consolidated financial statements.


15

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

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.

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 will be required to adopt this update prospectively for qualifying new or redesignated hedging relationships entered into on or after the date of adoption. This update is effective January 1, 2019. 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 amendment will be required to adopt prospectively or retrospectively. Early adoption is permitted for any removed or modified disclosure or for the entire update. We are currently evaluating the impact of this 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.

16

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


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 effective January 1, 2019. We are currently evaluating the impact of this guidance 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 will be required to adopt this update on a modified retrospective basis effective January 1, 2019. We do not expect the adoption of this update will have a material effect on our consolidated financial statements.

Leases (ASU 2018-11, ASU 2018-10, ASU 2018-01, ASU 2017-13 and ASU 2016-02)
These updates are intended to increase transparency and comparability for lease transactions. ASU 2016-02 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.

The updates are effective January 1, 2019. ASU 2016-02 required the adoption on a modified retrospective basis. However, with the issuance of ASU 2018-11, we have 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 provide optional practical expedients in transition. We expect to elect the ‘package of practical expedients’, which permits us to maintain our prior conclusions about lease identification, classification and initial direct costs.

We have reviewed our existing lease contracts and are now assessing the financial impact on our consolidated financial statements. Our efforts are primarily focused on quantifying the lease liability and right-of-use asset that will be recorded upon adoption related to office space, copiers, and reserved areas and equipment at data centers.

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.



17

Table of Contents

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


2. Investments

AFS SecuritiesOur 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 direct investments in affiliates of AGM 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.

The following table represents the amortized cost, gross unrealized gains and losses, fair value and other-than-temporary impairments (OTTI) in AOCI of our AFS investments by asset type:
 
September 30, 2018
(In millions)
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
 
OTTI
in AOCI
AFS securities
 
 
 
 
 
 
 
 
 
U.S. government and agencies
$
143

 
$

 
$
(1
)
 
$
142

 
$

U.S. state, municipal and political subdivisions
1,142

 
103

 
(8
)
 
1,237

 

Foreign governments
180

 
3

 
(3
)
 
180

 

Corporate
37,819

 
447

 
(947
)
 
37,319

 
1

CLO
5,325

 
15

 
(38
)
 
5,302

 

ABS
4,869

 
29

 
(43
)
 
4,855

 

CMBS
2,343

 
29

 
(48
)
 
2,324

 
7

RMBS
7,923

 
610

 
(10
)
 
8,523

 
9

Total AFS securities
59,744

 
1,236

 
(1,098
)
 
59,882

 
17

AFS securities – related party
 
 
 
 
 
 
 
 
 
CLO
612

 
1

 
(4
)
 
609

 

ABS
638

 
1

 
(5
)
 
634

 

Total AFS securities – related party
1,250

 
2

 
(9
)
 
1,243

 

Total AFS securities, including related party
$
60,994

 
$
1,238

 
$
(1,107
)
 
$
61,125

 
$
17


 
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

AFS 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.


18

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:    
 
September 30, 2018
(In millions)
Amortized Cost
 
Fair Value
Due in one year or less
$
1,164

 
$
1,164

Due after one year through five years
8,647

 
8,636

Due after five years through ten years
11,125

 
10,909

Due after ten years
18,348

 
18,169

CLO, ABS, CMBS and RMBS
20,460

 
21,004

Total AFS fixed maturity securities
59,744

 
59,882

Fixed maturity securities – related party, CLO and ABS
1,250

 
1,243

Total AFS fixed maturity securities, including related party
$
60,994

 
$
61,125


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:
 
September 30, 2018
 
Less than 12 months
 
12 months or more
 
Total
(In millions)
Fair Value
 
Gross
Unrealized
Losses
 
Fair Value
 
Gross
Unrealized
Losses
 
Fair Value
 
Gross
Unrealized
Losses
AFS securities
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agencies
$
136

 
$
(1
)
 
$
2

 
$

 
$
138

 
$
(1
)
U.S. state, municipal and political subdivisions
191

 
(4
)
 
82

 
(4
)
 
273

 
(8
)
Foreign governments
79

 
(2
)
 
15

 
(1
)
 
94

 
(3
)
Corporate
19,563

 
(650
)
 
3,765

 
(297
)
 
23,328

 
(947
)
CLO
3,049

 
(36
)
 
124

 
(2
)
 
3,173

 
(38
)
ABS
1,982

 
(22
)
 
551

 
(21
)
 
2,533

 
(43
)
CMBS
879

 
(16
)
 
544

 
(32
)
 
1,423

 
(48
)
RMBS
437

 
(5
)
 
186

 
(5
)
 
623

 
(10
)
Total AFS securities
26,316

 
(736
)
 
5,269

 
(362
)
 
31,585

 
(1,098
)
AFS securities – related party
 
 
 
 
 
 
 
 
 
 
 
CLO
306

 
(4
)
 

 

 
306

 
(4
)
ABS
137

 
(2
)
 
103

 
(3
)
 
240

 
(5
)
Total AFS securities – related party
443

 
(6
)
 
103

 
(3
)
 
546

 
(9
)
Total AFS securities, including related party
$
26,759

 
$
(742
)
 
$
5,372

 
$
(365
)
 
$
32,131

 
$
(1,107
)


19

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
)
AFS 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 September 30, 2018, we held 3,670 AFS securities that were in an unrealized loss position. Of this total, 855 were in an unrealized loss position 12 months or more. As of September 30, 2018, we held 27 related party AFS securities that were in an unrealized loss position. Of this total, five 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 nine months ended September 30, 2018, we incurred $6 million of net OTTI, of which $1 million related to intent-to-sell impairments. These securities were impaired to fair value as of the impairment date. The remaining net OTTI of $5 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 September 30,
 
Nine months ended September 30,
(In millions)
2018
 
2017
 
2018
 
2017
Beginning balance
$
7

 
$
16

 
$
7

 
$
16

Initial impairments – credit loss OTTI recognized on securities not previously impaired
3

 
4

 
4

 
10

Additional impairments – credit loss OTTI recognized on securities previously impaired
1

 

 
1

 

Reduction in impairments from securities sold, matured or repaid
(1
)
 
(2
)
 
(2
)
 
(8
)
Reduction for credit loss that no longer has a portion of the OTTI loss recognized in AOCI

 
(6
)
 

 
(6
)
Ending balance
$
10

 
$
12

 
$
10

 
$
12



20

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 September 30,
 
Nine months ended September 30,
(In millions)
2018
 
2017
 
2018
 
2017
Fixed maturity securities
 
 
 
 
 
 
 
AFS securities
$
730

 
$
646

 
$
2,117

 
$
1,901

Trading securities
52

 
49

 
150

 
152

Equity securities
4

 
4

 
8

 
9

Mortgage loans
120

 
98

 
315

 
273

Investment funds
56

 
55

 
179

 
175

Funds withheld at interest
169

 
35

 
301

 
105

Other
28

 
18

 
74

 
56

Investment revenue
1,159

 
905

 
3,144

 
2,671

Investment expenses
(89
)
 
(85
)