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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, 2019
 
 
 
 
 
 
 
 
 
OR
 
 
 
 
 
 
 
 
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
001-37963
 
 
 
(Commission file number)
 
 
 
 
 
 
 
 
 
ATHENE HOLDING LTD.
(Exact name of registrant as specified in its charter)
 
 
 
 
 
 
 
 
 
 
Bermuda
 
 
 
98-0630022
 
 
(State or other jurisdiction of
 
 
 
(I.R.S. Employer
 
 
incorporation or organization)
 
 
 
Identification Number)
 
 
 
 
 
 
 
 
 
 
96 Pitts Bay Road
Pembroke, HM08, Bermuda
(441) 279-8400
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
 
 
 
 
 
 
 
 
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
 
 
 
 
 
 
 
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
 
 
 
 
 
 
 
 
 
Large accelerated filer x
 
Accelerated filer ¨
 
 
Non-accelerated filer ¨
 
Smaller reporting company ¨
 
 
 
 
Emerging growth company ¨ 
 
 
 
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
 
 
 
 
 
 
 
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
 
 
 
 
 
 
 
 
 
 
Title of each class
Trading Symbol
 
Name of each exchange on which registered
 
 
 
 
Class A common shares
ATH
 
New York Stock Exchange
 
 
 
 
 
 
 
 
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
 
 
 
 
 
 
 
 
 
 
 
The number of shares of each class of our common stock outstanding is set forth in the table below, as of April 5, 2019:
 
 
 
 
 
 
 
 
 
 
 
 
Class A common shares
161,698,498

 
Class M-2 common shares
841,011

 
 
 
 
Class B common shares
25,433,465

 
Class M-3 common shares
1,001,110

 
 
 
 
Class M-1 common shares
3,339,890

 
Class M-4 common shares
4,074,026

 
 
 
 
 
 
 
 
 
 
 




TABLE OF CONTENTS


PART I—FINANCIAL INFORMATION



PART II—OTHER INFORMATION

 
 





Table of Contents



As used in this Quarterly Report on Form 10-Q (report), unless the context otherwise indicates, any reference to “Athene,” “our Company,” “the Company,” “us,” “we” and “our” refer to Athene Holding Ltd. together with its consolidated subsidiaries and any reference to “AHL” refers to Athene Holding Ltd. only.

Forward-Looking Statements

Certain statements in this report are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 (Securities Act), as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act). You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “seek,” “assume,” “believe,” “may,” “will,” “should,” “could,” “would,” “likely” and other words and terms of similar meaning, including the negative of these or similar words and terms, in connection with any discussion of the timing or nature of future operating or financial performance or other events. However, not all forward-looking statements contain these identifying words. Forward-looking statements appear in a number of places throughout and give our current expectations and projections relating to our business, financial condition, results of operations, plans, strategies, objectives, future performance and other matters.

We caution you that forward-looking statements are not guarantees of future performance and that our actual consolidated financial condition, results of operations, liquidity and cash flows may differ materially from those made in or suggested by the forward-looking statements contained in this report. A number of important factors could cause actual results or conditions to differ materially from those contained or implied by the forward-looking statements, including the risks discussed in Part I–Item 1A. Risk Factors included in our Annual Report on Form 10-K for the year ended December 31, 2018 (2018 Annual Report). Factors that could cause actual results or conditions to differ from those reflected in the forward-looking statements contained in this report include:

the accuracy of management’s assumptions and estimates;
variability in the amount of statutory capital that our insurance and reinsurance subsidiaries have or are required to hold;
interest rate and/or foreign currency fluctuations;
our potential need for additional capital in the future and the potential unavailability of such capital to us on favorable terms or at all;
changes in relationships with important parties in our product distribution network;
the activities of our competitors and our ability to grow our retail business in a highly competitive environment;
the impact of general economic conditions on our ability to sell our products and on the fair value of our investments;
our ability to successfully acquire new companies or businesses and/or integrate such acquisitions into our existing framework;
downgrades, potential downgrades or other negative actions by rating agencies;
our dependence on key executives and inability to attract qualified personnel, or the potential loss of Bermudian personnel as a result of Bermuda employment restrictions;
market and credit risks that could diminish the value of our investments;
the impact of changes to the creditworthiness of our reinsurance and derivative counterparties;
changes in consumer perception regarding the desirability of annuities as retirement savings products;
potential litigation (including class action litigation), enforcement investigations or regulatory scrutiny against us and our subsidiaries, which we may be required to defend against or respond to;
the impact of new accounting rules or changes to existing accounting rules on our business;
interruption or other operational failures in telecommunication and information technology and other operating systems, as well as our ability to maintain the security of those systems;
the termination by Athene Asset Management LLC (AAM) of its investment management agreements with us and limitations on our ability to terminate such arrangements;
AAM’s dependence on key executives and inability to attract qualified personnel;
increased regulation or scrutiny of alternative investment advisers and certain trading methods;
potential changes to regulations affecting, among other things, transactions with our affiliates, the ability of our subsidiaries to make dividend payments or distributions to AHL, acquisitions by or of us, minimum capitalization and statutory reserve requirements for insurance companies and fiduciary obligations on parties who distribute our products;
suspension or revocation of our subsidiaries’ insurance and reinsurance licenses or our inability to procure licenses associated with new products or services;
increases in our tax liability resulting from the Base Erosion and Anti-Abuse Tax (BEAT);
improper interpretation or application of Public Law no. 115-97, the Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018 (Tax Act) or subsequent changes to, clarifications of or guidance under the Tax Act that is counter to our interpretation and has retroactive effect;
AHL or any of its non-United States (U.S.) subsidiaries becoming subject to U.S. federal income taxation;
adverse changes in U.S. tax law;
our being subject to U.S. withholding tax under the Foreign Account Tax Compliance Act (FATCA);
our potential inability to pay dividends or distributions; and
other risks and factors discussed elsewhere in this report, Part I—Item 1A. Risk Factors included in our 2018 Annual Report and those discussed elsewhere in our 2018 Annual Report.


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We caution you that the important factors referenced above may not be exhaustive. In light of these risks, you should not place undue reliance upon any forward-looking statements contained in this report. The forward-looking statements included in this report are made only as of the date hereof. We undertake no obligation, except as may be required by law, to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise. Comparisons of results for current and any prior periods are not intended to express any future trends, or indications of future performance, unless expressed as such, and should only be viewed as historical data.


GLOSSARY OF SELECTED TERMS

Unless otherwise indicated in this report, the following terms have the meanings set forth below:

Entities
Term or Acronym
 
Definition
A-A Mortgage
 
A-A Mortgage Opportunities, L.P.
AAA Investor
 
AAA Guarantor – Athene, L.P.
AAIA
 
Athene Annuity and Life Company
AAM
 
Athene Asset Management LLC
AARe
 
Athene Annuity Re Ltd., a Bermuda reinsurance subsidiary
ACRA
 
Athene Co-Invest Reinsurance Affiliate 1A Ltd.
ADIP
 
Apollo/Athene Dedicated Investment Program
AGM
 
Apollo Global Management, LLC
AHL
 
Athene Holding Ltd.
ALRe
 
Athene Life Re Ltd., a Bermuda reinsurance subsidiary
AmeriHome
 
AmeriHome Mortgage Company, LLC
Apollo
 
Apollo Global Management, LLC, together with its subsidiaries
Apollo Group
 
(1) Apollo, (2) the AAA Investor, (3) any investment fund or other collective investment vehicle whose general partner or managing member is owned, directly or indirectly, by Apollo or one or more of Apollo’s subsidiaries, (4) BRH Holdings GP, Ltd. and its shareholders and (5) any affiliate of any of the foregoing (except that AHL and its subsidiaries and employees of AHL, its subsidiaries or AAM are not members of the Apollo Group)
Athene USA
 
Athene USA Corporation
Athora
 
Athora Holding Ltd., formerly known as AGER Bermuda Holding Ltd.
BMA
 
Bermuda Monetary Authority
CoInvest VI
 
AAA Investments (Co-Invest VI), L.P.
CoInvest VII
 
AAA Investments (Co-Invest VII), L.P.
LIMRA
 
Life Insurance and Market Research Association
MidCap
 
MidCap FinCo Limited
NAIC
 
National Association of Insurance Commissioners
NYSDFS
 
New York State Department of Financial Services
RLI
 
ReliaStar Life Insurance Company
Treasury
 
United States Department of the Treasury
Voya
 
Voya Financial, Inc.
VIAC
 
Voya Insurance and Annuity Company
Venerable
 
Venerable Holdings, Inc., together with its subsidiaries


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

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Table of Contents



Term or Acronym
 
Definition
MVA
 
Market value adjustment
MYGA
 
Multi-year guaranteed annuity
Net investment earned rate
 
Income from our invested assets divided by the average invested assets for the relevant period, presented on an annualized basis for interim periods
Net investment spread
 
Net investment spread measures our investment performance less the total cost of our liabilities, presented on an annualized basis for interim periods
Other liability costs
 
Other liability costs include DAC, DSI and VOBA amortization, rider reserves, institutional costs, the cost of liabilities on products other than deferred annuities including offsets for premiums, product charges and other revenues
OTTI
 
Other-than-temporary impairment
Payout annuities
 
Annuities with a current cash payment component, which consist primarily of single premium immediate annuities, supplemental contracts and structured settlements
Policy loan
 
A loan to a policyholder under the terms of, and which is secured by, a policyholder’s policy
PRT
 
Pension risk transfer
RBC
 
Risk-based capital
Reserve liabilities
 
The sum of (a) interest sensitive contract liabilities, (b) future policy benefits, (c) dividends payable to policyholders, and (d) other policy claims and benefits, offset by reinsurance recoverable, excluding policy loans ceded. Reserve liabilities also includes the reserves related to assumed modco agreements in order to appropriately match the costs incurred in the consolidated statements of income with the liabilities. Reserve liabilities is net of the ceded liabilities to third-party reinsurers as the costs of the liabilities are passed to such reinsurers and therefore we have no net economic exposure to such liabilities, assuming our reinsurance counterparties perform under our agreements
Rider reserves
 
Guaranteed lifetime withdrawal benefits and guaranteed minimum death benefits reserves
RMBS
 
Residential mortgage-backed securities
RML
 
Residential mortgage loan
Sales
 
All money paid into an individual annuity, including money paid into new contracts with initial purchase occurring in the specified period and existing contracts with initial purchase occurring prior to the specified period (excluding internal transfers)
SPIA
 
Single premium immediate annuity
Surplus assets
 
Assets in excess of policyholder obligations, determined in accordance with the applicable domiciliary jurisdiction’s statutory accounting principles
TAC
 
Total adjusted capital as defined by the model created by the NAIC
U.S. RBC Ratio
 
The CAL RBC ratio for AADE, our parent U.S. insurance company
VIE
 
Variable interest entity
VOBA
 
Value of business acquired



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Item 1.    Financial Statements


Index to Condensed Consolidated Financial Statements (unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



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Table of Contents

ATHENE HOLDING LTD.
Condensed Consolidated Balance Sheets (Unaudited)


(In millions)
March 31, 2019
 
December 31, 2018
Assets
 
 
 
Investments
 
 
 
Available-for-sale securities, at fair value (amortized cost: 2019 – $63,440 and 2018 – $60,025)
$
64,655

 
$
59,265

Trading securities, at fair value
2,256

 
1,949

Equity securities, at fair value
252

 
216

Mortgage loans, net of allowances (portion at fair value: 2019 – $32 and 2018 – $32)
11,042

 
10,340

Investment funds (portion at fair value: 2019 – $159 and 2018 – $182)
683

 
703

Policy loans
487

 
488

Funds withheld at interest (portion at fair value: 2019 – $446 and 2018 – $57)
15,241

 
15,023

Derivative assets
1,920

 
1,043

Short-term investments, at fair value
155

 
191

Other investments (portion at fair value: 2019 – $52 and 2018 – $52)
121

 
122

Total investments
96,812

 
89,340

Cash and cash equivalents
3,021

 
2,911

Restricted cash
497

 
492

Investments in related parties
 
 
 
Available-for-sale securities, at fair value (amortized cost: 2019 – $1,696 and 2018 – $1,462)
1,684

 
1,437

Trading securities, at fair value
239

 
249

Equity securities, at fair value
301

 
120

Mortgage loans
291

 
291

Investment funds (portion at fair value: 2019 – $232 and 2018 – $201)
2,290

 
2,232

Funds withheld at interest (portion at fair value: 2019 – $214 and 2018 – $(110))
13,683

 
13,577

Other investments
387

 
386

Accrued investment income (related party: 2019 – $22 and 2018 – $25)
751

 
682

Reinsurance recoverable (related party: 2019 – $334 and 2018 – $344; portion at fair value: 2019 – $1,737 and 2018 – $1,676)
5,647

 
5,534

Deferred acquisition costs, deferred sales inducements and value of business acquired
5,619

 
5,907

Other assets (related party: 2019 – $4 and 2018 – $357)
962

 
1,635

Assets of consolidated variable interest entities
 
 
 
Investments
 
 
 
Trading securities, at fair value – related party
34

 
35

Equity securities, at fair value – related party
6

 
50

Investment funds (related party: 2019 – $580 and 2018 – $583; portion at fair value: 2019 – $564 and 2018 – $567)
619

 
624

Cash and cash equivalents
2

 
2

Other assets
12

 
1

Total assets
$
132,857

 
$
125,505

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

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Table of Contents

ATHENE HOLDING LTD.
Condensed Consolidated Balance Sheets (Unaudited)


(In millions, except per share data)
March 31, 2019
 
December 31, 2018
Liabilities and Equity
 
 
 
Liabilities
 
 
 
Interest sensitive contract liabilities (related party: 2019 – $16,533 and 2018 – $16,850; portion at fair value: 2019 – $10,085 and 2018 – $8,901)
$
98,452

 
$
96,610

Future policy benefits (related party: 2019 – $1,347 and 2018 – $1,259; portion at fair value: 2019 – $2,226 and 2018 – $2,173)
19,016

 
16,704

Other policy claims and benefits (related party: 2019 – $15 and 2018 – $10)
162

 
142

Dividends payable to policyholders
118

 
118

Long-term debt
991

 
991

Derivative liabilities
85

 
85

Payables for collateral on derivatives
1,781

 
969

Funds withheld liability (related party: 2019 – $327 and 2018 – $337; portion at fair value: 2019 – $12 and 2018 – $(1))
724

 
721

Other liabilities (related party: 2019 – $51 and 2018 – $59)
1,410

 
888

Liabilities of consolidated variable interest entities
1

 
1

Total liabilities
122,740

 
117,229

Commitments and Contingencies (Note 9)
 
 
 
Equity
 
 
 
Common stock
 
 
 
Class A – par value $0.001 per share; authorized: 2019 and 2018 – 425.0 shares; issued and outstanding: 2019 – 161.5 and 2018 – 162.4 shares

 

Class B – par value $0.001 per share; convertible to Class A; authorized: 2019 and 2018 – 325.0 shares; issued and outstanding: 2019 – 25.4 and 2018 – 25.4 shares

 

Class M-1 – par value $0.001 per share; convertible to Class A; authorized: 2019 and 2018 – 7.1 shares; issued and outstanding: 2019 – 3.4 and 2018 – 3.4 shares

 

Class M-2 – par value $0.001 per share; convertible to Class A; authorized: 2019 and 2018 – 5.0 shares; issued and outstanding: 2019 – 0.8 and 2018 – 0.8 shares

 

Class M-3 – par value $0.001 per share; convertible to Class A; authorized: 2019 and 2018 – 7.5 shares; issued and outstanding: 2019 – 1.0 and 2018 – 1.0 shares

 

Class M-4 – par value $0.001 per share; convertible to Class A; authorized: 2019 and 2018 – 7.5 shares; issued and outstanding: 2019 – 4.1 and 2018 – 4.1 shares

 

Additional paid-in capital
3,448

 
3,462

Retained earnings
5,963

 
5,286

Accumulated other comprehensive income (loss) (related party: 2019 – $(12) and 2018 – $(25))
706

 
(472
)
Total shareholders’ equity
10,117

 
8,276

Total liabilities and equity
$
132,857

 
$
125,505

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


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


 
Three months ended March 31,
(In millions, except per share data)
2019
 
2018
Revenues
 
 
 
Premiums (related party: 2019 – $66 and 2018 – $0)
$
1,966

 
$
278

Product charges (related party: 2019 – $14 and 2018 – $0)
125

 
96

Net investment income (related party investment income: 2019 – $183 and 2018 – $76; and related party investment expense: 2019 – $92 and 2018 – $83)
1,066

 
855

Investment related gains (losses) (related party: 2019 – $317 and 2018 – $17)
1,772

 
(236
)
Other-than-temporary impairment investment losses
 
 
 
Other-than-temporary impairment losses
(2
)
 
(3
)
Other-than-temporary impairment losses reclassified to (from) other comprehensive income
1

 

Net other-than-temporary impairment losses
(1
)

(3
)
Other revenues
12

 
6

Revenues of consolidated variable interest entities
 
 
 
Net investment income (related party: 2019 – $16 and 2018 – $10)
16

 
10

Investment related gains (losses) (related party: 2019 – $4 and 2018 – $5)
5

 
5

Total revenues
4,961

 
1,011

Benefits and expenses
 
 
 
Interest sensitive contract benefits (related party: 2019 – $183 and 2018 – $0)
1,516

 
31

Amortization of deferred sales inducements
5

 
20

Future policy and other policy benefits (related party: 2019 – $106 and 2018 – $0)
2,295

 
401

Amortization of deferred acquisition costs and value of business acquired
231

 
82

Dividends to policyholders
9

 
13

Policy and other operating expenses (related party: 2019 – $8 and 2018 – $2)
165

 
142

Total benefits and expenses
4,221

 
689

Income before income taxes
740

 
322

Income tax expense
32

 
45

Net income
$
708

 
$
277

 
 
 
 
Earnings per share
 
 
 
Basic – Classes A, B, M-1, M-2, M-3 and M-4
$
3.65

 
$
1.40

Diluted – Class A
3.64

 
1.40

Diluted – Class B
3.65

 
1.40

Diluted – Class M-1
3.65

 
1.40

Diluted – Class M-2
3.65

 
1.39

Diluted – Class M-3
3.65

 
1.38

Diluted – Class M-4
3.15

 
0.97


See accompanying notes to the unaudited condensed consolidated financial statements


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


 
Three months ended March 31,
(In millions)
2019
 
2018
Net income
$
708

 
$
277

Other comprehensive income (loss), before tax
 
 
 
Unrealized investment gains (losses) on available-for-sale securities
1,478

 
(891
)
Noncredit component of other-than-temporary impairment losses on available-for-sale securities
(1
)
 

Unrealized gains (losses) on hedging instruments
(8
)
 
(56
)
Pension adjustments
(1
)
 
3

Foreign currency translation adjustments
1

 
(8
)
Other comprehensive income (loss), before tax
1,469

 
(952
)
Income tax expense (benefit) related to other comprehensive income (loss)
291

 
(179
)
Other comprehensive income (loss)
1,178

 
(773
)
Comprehensive income (loss)
$
1,886

 
$
(496
)

See accompanying notes to the unaudited condensed consolidated financial statements


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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 (loss)
 
Total shareholders’ equity
Balance at December 31, 2017
$

 
$
3,472

 
$
4,255

 
$
1,449

 
$
9,176

Adoption of accounting standards

 

 
39

 
(42
)
 
(3
)
Net income

 

 
277

 

 
277

Other comprehensive loss

 

 

 
(773
)
 
(773
)
Issuance of shares, net of expenses

 
1

 

 

 
1

Stock-based compensation

 
12

 

 

 
12

Retirement or repurchase of shares

 

 
(3
)
 

 
(3
)
Balance at March 31, 2018
$

 
$
3,485

 
$
4,568

 
$
634

 
$
8,687

 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
$

 
$
3,462

 
$
5,286

 
$
(472
)
 
$
8,276

Net income

 

 
708

 

 
708

Other comprehensive income

 

 

 
1,178

 
1,178

Issuance of shares, net of expenses

 
1

 

 

 
1

Stock-based compensation

 
5

 

 

 
5

Retirement or repurchase of shares

 
(20
)
 
(31
)
 

 
(51
)
Balance at March 31, 2019
$

 
$
3,448

 
$
5,963

 
$
706

 
$
10,117


See accompanying notes to the unaudited condensed consolidated financial statements


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


 
Three months ended March 31,
(In millions)
2019
 
2018
Cash flows from operating activities
 
 
 
Net income
$
708

 
$
277

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Amortization of deferred acquisition costs and value of business acquired
231

 
82

Amortization of deferred sales inducements
5

 
20

Accretion of net investment premiums, discounts and other
(33
)
 
(45
)
Net investment (income) loss (related party: 2019 – $18 and 2018 – $(43))
25

 
(29
)
Net recognized (gains) losses on investments and derivatives (related party: 2019 – $0 and 2018 – $(24))
(944
)
 
209

Policy acquisition costs deferred
(173
)
 
(122
)
Changes in operating assets and liabilities:
 
 
 
Accrued investment income (related party: 2019 – $3 and 2018 – $0)
(69
)
 
(27
)
Interest sensitive contract liabilities (related party: 2019 – $167 and 2018 – $0)
1,403

 
(189
)
Future policy benefits, other policy claims and benefits, dividends payable to policyholders and reinsurance recoverable (related party: 2019 – $95 and 2018 – $0)
653

 
333

Funds withheld assets and liabilities (related party: 2019 – $(500) and 2018 – $0)
(1,011
)
 
(7
)
Other assets and liabilities
220

 
77

Consolidated variable interest entities related:
 
 
 
Net recognized (gains) losses on investments and derivatives (related party: 2019 – $(5) and 2018 – $(6))
(6
)
 
(6
)
Net cash provided by operating activities
1,009

 
573

Cash flows from investing activities
 
 
 
Sales, maturities and repayments of:
 
 
 
Available-for-sale securities (related party: 2019 – $50 and 2018 – $57)
2,231

 
3,017

Trading securities (related party: 2019 – $0 and 2018 – $1)
31

 
24

Equity securities
10

 
2

Mortgage loans
354

 
396

Investment funds (related party: 2019 – $87 and 2018 – $52)
131

 
83

Derivative instruments and other invested assets
256

 
551

Short-term investments
104

 
103

Purchases of:
 
 
 
Available-for-sale securities (related party: 2019 – $(280) and 2018 – $(158))
(4,470
)
 
(5,907
)
Trading securities (related party: 2019 – $(3) and 2018 – $0)
(284
)
 
(25
)
Equity securities (related party: 2019 – $(177) and 2018 – $0)
(205
)
 
(9
)
Mortgage loans
(1,049
)
 
(463
)
Investment funds (related party: 2019 – $(152) and 2018 – $(182))
(185
)
 
(213
)
Derivative instruments and other invested assets
(287
)
 
(224
)
Short-term investments (related party: 2019 – $0 and 2018 – $(72))
(67
)
 
(209
)
Consolidated variable interest entities related:
 
 
 
Sales, maturities and repayments of investments (related party: 2019 – $51 and 2018 – $59)
53

 
59

Deconsolidation of Athora Holding Ltd.

 
(296
)
Other investing activities, net
601

 
227

Net cash used in investing activities
(2,776
)
 
(2,884
)
 
 
 
(Continued)

See accompanying notes to the unaudited condensed consolidated financial statements
 
 
 

13

Table of Contents

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


 
Three months ended March 31,
(In millions)
2019
 
2018
Cash flows from financing activities
 
 
 
Proceeds from long-term debt
$

 
$
998

Deposits on investment-type policies and contracts (related party: 2019 – $101 and 2018 – $0)
2,793

 
1,774

Withdrawals on investment-type policies and contracts (related party: 2019 – $(106) and 2018 – $0)
(1,638
)
 
(1,474
)
Payments for coinsurance agreements on investment-type contracts, net
(25
)
 
(10
)
Net change in cash collateral posted for derivative transactions
812

 
(1,178
)
Repurchase of common stock
(51
)
 
(3
)
Other financing activities, net
(9
)
 
32

Net cash provided by financing activities
1,882

 
139

Net increase (decrease) in cash and cash equivalents
115

 
(2,172
)
Cash and cash equivalents at beginning of year1
3,405

 
4,997

Cash and cash equivalents at end of period1
$
3,520

 
$
2,825

 
 
 
 
Supplementary information
 
 
 
Non-cash transactions
 
 
 
Deposits on investment-type policies and contracts through reinsurance agreements (related party: 2019 – $45 and 2018 – $0)
$
208

 
$
108

Withdrawals on investment-type policies and contracts through reinsurance agreements (related party: 2019 – $429 and 2018 – $0)
888

 
91

Investments received from settlements on reinsurance agreements
12

 

Investments received from pension risk transfer premiums
1,363

 

Investment in Athora Holding Ltd. received upon deconsolidation

 
108

 
 
 
 
1 Includes cash and cash equivalents, restricted cash, and cash and cash equivalents of consolidated variable interest entities.
(Concluded)
See accompanying notes to the unaudited condensed consolidated financial statements



14

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 United States (U.S.) states and the District of Columbia.

We conduct business primarily through the following consolidated subsidiaries:

Our non-U.S. reinsurance subsidiaries, to which AHL’s other insurance subsidiaries and third-party ceding companies directly and indirectly reinsure a portion of their liabilities, including Athene Life Re Ltd. (ALRe), a Bermuda exempted company; and
Athene USA Corporation, an Iowa corporation (together with its subsidiaries, Athene USA).

In addition, we consolidate certain variable interest entities (VIEs), for which we determined we are the primary beneficiary.

Basis of Presentation—We have prepared the accompanying condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and the United States Securities and Exchange Commission’s rules and regulations for Form 10-Q and Article 10 of Regulation S-X. The accompanying condensed consolidated financial statements are unaudited and reflect all adjustments, consisting only of normal recurring items, considered necessary for fair statement of the results for the interim periods presented. All significant intercompany accounts and transactions have been eliminated. Interim operating results are not necessarily indicative of the results expected for the entire year.

The condensed consolidated balance sheet as of December 31, 2018 has been derived from the audited financial statements, but does not include all of the information and footnotes required by GAAP for complete financial statements. Therefore, these condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018. The preparation of financial statements requires the use of management estimates. Actual results may differ from estimates used in preparing the condensed consolidated financial statements.

Adopted Accounting Pronouncements

Leases (ASU 2019-01, ASU 2018-20, ASU 2018-11, ASU 2018-10, ASU 2018-01, ASU 2017-13 and ASU 2016-02)
These updates increase transparency and comparability for lease transactions. ASU 2016-02 requires a lessee to recognize a right-of-use asset and lease liability on the balance sheet for all leases with an original term longer than twelve months and disclose key information about leasing arrangements. Lessor accounting is largely unchanged.

ASU 2016-02 requires the adoption on a modified retrospective basis. However, ASU 2018-11 provides the option to recognize the cumulative effect as an adjustment to the opening balance of retained earnings in the year of adoption, while continuing to present all prior periods under the previous lease guidance. These updates also provide optional practical expedients in transition.

We adopted these updates effective January 1, 2019 by recording a lease liability and right-of-use asset related to office space, copiers, reserved areas and equipment at data centers, and other agreements. We will continue to present all prior periods under the previous lease guidance. We elected the “package of practical expedients,” which permits us to maintain our prior conclusions about lease identification, classification and initial direct costs. We also elected the short-term lease exception, which allows us to exclude contracts with a lease term of 12 months or less, including any reasonably certain renewal options, from consideration under the new guidance. This update did not have a material effect on our consolidated financial statements.

Derivatives and Hedging (ASU 2018-16)
The amendments in this update allow entities to use the Overnight Index Swap rate based on the Secured Overnight Financing Rate as a U.S. benchmark interest rate for hedge accounting purposes, in addition to the previously acceptable rates. We adopted this update prospectively for qualifying new or redesignated hedging relationships entered into on or after January 1, 2019. This update did not have an effect on our consolidated financial statements.

Stock Compensation – Nonemployee Share-Based Payments (ASU 2018-07)
The amendments in this update simplify the accounting for share-based payments to nonemployees by aligning with the accounting for share-based payments to employees, with certain exceptions. We adopted this update on a modified retrospective basis effective January 1, 2019. This update did not have a material effect on our consolidated financial statements.


15

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


Recently Issued Accounting Pronouncements

Financial Instruments – Credit Losses (ASU 2019-04, ASU 2018-19 and ASU 2016-13)
This update is designed to reduce complexity by limiting the number of credit impairment models used for different assets. The model will result in accelerated credit loss recognition on assets held at amortized cost, which includes our commercial and residential mortgage investments. The identification of credit-deteriorated securities will include all assets that have experienced a more-than-insignificant deterioration in credit since origination. Additionally, any changes in the expected cash flows of credit-deteriorated securities will be recognized immediately in the income statement. Available-for-sale (AFS) securities are not in scope of the new credit loss model, but will undergo targeted improvements to the current reporting model including the establishment of a valuation allowance for credit losses versus the current direct write down approach. We will be required to adopt this update effective January 1, 2020. We are currently evaluating the impact of this guidance on our consolidated financial statements.

Collaborative Arrangements (ASU 2018-18)
The amendments in this update provide guidance on whether certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606, providing comparability in the presentation of revenue for certain transactions. The update is effective January 1, 2020. Early adoption is permitted. We are currently evaluating the impact of this guidance on our consolidated financial statements.

Consolidation (ASU 2018-17)
The amendments in this update expand certain discussions in the VIE guidance, including considerations necessary for determining when a decision-making fee is a variable interest. We will be required to adopt this update retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented. The update is effective January 1, 2020. Early adoption is permitted. We are currently evaluating the impact of this guidance on our consolidated financial statements.

Cloud Computing Arrangements (ASU 2018-15)
The amendments in this update align the requirements for capitalizing implementation costs incurred in a cloud computing service arrangement with the requirements for capitalizing implementation costs incurred for internal-use software. We will be required to adopt this update on January 1, 2020, and we can elect to adopt this update either prospectively or retrospectively. Early adoption is permitted. We are currently evaluating the impact of this guidance on our consolidated financial statements.

Fair Value Measurement – Disclosure Requirements (ASU 2018-13)
The amendments in this update modify the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. We will be required to adopt this update on January 1, 2020, and depending on the specific amendment will be required to adopt prospectively or retrospectively. We early adopted the removal and modification of certain disclosures as permitted. We are currently evaluating the impact of the remaining guidance on our consolidated financial statements.

Insurance – Targeted Improvements to the Accounting for Long-Duration Contracts (ASU 2018-12)
This update amends four key areas pertaining to the accounting and disclosures for long-duration insurance and investment contracts.
The update requires cash flow assumptions used to measure the liability for future policy benefits to be updated at least annually and no longer allows a provision for adverse deviation. The remeasurement of the liability associated with the update of assumptions is required to be recognized in net income. Loss recognition testing is eliminated for traditional and limited-payment contracts. The update also requires the discount rate utilized in measuring the liability to be an upper-medium grade fixed-income instrument yield, which is to be updated at each reporting date. The change in liability due to changes in the discount rate is to be recognized in other comprehensive income.
The update simplifies the amortization of deferred acquisition costs and other balances amortized in proportion to premiums, gross profits, or gross margins, requiring such balances to be amortized on a constant level basis over the expected term of the contracts. Deferred costs are required to be written off for unexpected contract terminations but are not subject to impairment testing.
The update requires certain contract features meeting the definition of market risk benefits to be measured at fair value. Among the features included in this definition are the guaranteed lifetime withdrawal benefits (GLWB) and guaranteed minimum death benefit (GMDB) riders attached to the Company’s annuity products. The change in fair value of the market risk benefits is to be recognized in net income, excluding the portion attributable to changes in instrument-specific credit risk which is recognized in other comprehensive income.
The update also introduces disclosure requirements around the liability for future policy benefits, policyholder account balances, market risk benefits, separate account liabilities, and deferred acquisition costs. This includes disaggregated rollforwards of these balances and information about significant inputs, judgments, assumptions and methods used in their measurement.

We will be required to adopt this update effective January 1, 2021. Certain provisions of the update are required to be adopted on a fully retrospective basis, while others may be adopted on a modified retrospective basis. Early adoption is permitted. We are currently evaluating the impact of this guidance on our consolidated financial statements.


16

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


Intangibles – Simplifying the Test for Goodwill Impairment (ASU 2017-04)
The amendments in this update simplify the subsequent measurement of goodwill by eliminating the comparison of the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill to determine the goodwill impairment loss. With the adoption of this guidance, a goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of the goodwill allocated to that reporting unit. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. We will be required to adopt this update prospectively effective January 1, 2020. Early adoption is permitted. We do not expect the adoption of this update will have a material effect on our consolidated financial statements.


2. Investments

AFS 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 related party investments that are primarily a result of investments over which Apollo Global Management, LLC (AGM and, together with its subsidiaries, Apollo) can exercise significant influence. These investments are presented as investments in related parties on the condensed consolidated balance sheets, and are separately disclosed below.

The following table represents the amortized cost, gross unrealized gains and losses, fair value and other than temporary impairments (OTTI) in accumulated other comprehensive income (AOCI) of our AFS investments by asset type:
 
March 31, 2019
(In millions)
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
 
OTTI
in AOCI
AFS securities
 
 
 
 
 
 
 
 
 
U.S. government and agencies
$
48

 
$
2

 
$

 
$
50

 
$

U.S. state, municipal and political subdivisions
1,209

 
161

 
(5
)
 
1,365

 

Foreign governments
262

 
9

 

 
271

 

Corporate
40,727

 
1,218

 
(534
)
 
41,411

 

CLO
6,320

 
6

 
(184
)
 
6,142

 

ABS
5,023

 
85

 
(33
)
 
5,075

 
1

CMBS
2,394

 
50

 
(20
)
 
2,424

 
7

RMBS
7,457

 
480

 
(20
)
 
7,917

 
12

Total AFS securities
63,440

 
2,011

 
(796
)
 
64,655

 
20

AFS securities – related party
 
 
 
 
 
 
 
 
 
Corporate
3

 

 

 
3

 

CLO
654

 

 
(16
)
 
638

 

ABS
1,039

 
11

 
(7
)
 
1,043

 

Total AFS securities – related party
1,696

 
11

 
(23
)
 
1,684

 

Total AFS securities including related party
$
65,136

 
$
2,022

 
$
(819
)
 
$
66,339

 
$
20



17

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


 
December 31, 2018
(In millions)
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
 
OTTI
in AOCI
AFS securities
 
 
 
 
 
 
 
 
 
U.S. government and agencies
$
57

 
$

 
$

 
$
57

 
$

U.S. state, municipal and political subdivisions
1,183

 
117

 
(7
)
 
1,293

 

Foreign governments
162

 
2

 
(3
)
 
161

 

Corporate
38,018

 
394

 
(1,315
)
 
37,097

 
1

CLO
5,658

 
2

 
(299
)
 
5,361

 

ABS
4,915

 
53

 
(48
)
 
4,920

 

CMBS
2,390

 
27

 
(60
)
 
2,357

 
7

RMBS
7,642

 
413

 
(36
)
 
8,019

 
11

Total AFS securities
60,025


1,008


(1,768
)

59,265


19

AFS securities – related party
 
 
 
 
 
 
 
 
 
CLO
587

 

 
(25
)
 
562

 

ABS
875

 
4

 
(4
)
 
875

 

Total AFS securities – related party
1,462

 
4

 
(29
)
 
1,437

 

Total AFS securities including related party
$
61,487

 
$
1,012

 
$
(1,797
)
 
$
60,702

 
$
19


The amortized cost and fair value of AFS securities, including related party, are shown by contractual maturity below:    
 
March 31, 2019
(In millions)
Amortized Cost
 
Fair Value
AFS securities
 
 
 
Due in one year or less
$
1,081

 
$
1,082

Due after one year through five years
8,855

 
8,988

Due after five years through ten years
11,209

 
11,339

Due after ten years
21,101

 
21,688

CLO, ABS, CMBS and RMBS
21,194

 
21,558

Total AFS securities
63,440

 
64,655

AFS securities – related party
 
 
 
Due after five years through ten years
3

 
3

CLO and ABS
1,693

 
1,681

Total AFS securities – related party
1,696

 
1,684

Total AFS securities including related party
$
65,136

 
$
66,339


Actual maturities can differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


18

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


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, 2019
 
Less than 12 months
 
12 months or more
 
Total
(In millions)
Fair Value
 
Gross
Unrealized
Losses
 
Fair Value
 
Gross
Unrealized
Losses
 
Fair Value
 
Gross
Unrealized
Losses
AFS securities
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agencies
$
2

 
$

 
$
7

 
$

 
$
9

 
$

U.S. state, municipal and political subdivisions
19

 

 
75

 
(5
)
 
94

 
(5
)
Foreign governments
8

 

 
19

 

 
27

 

Corporate
4,840

 
(141
)
 
8,191

 
(393
)
 
13,031

 
(534
)
CLO
4,782

 
(179
)
 
161

 
(5
)
 
4,943

 
(184
)
ABS
719

 
(10
)
 
562

 
(23
)
 
1,281

 
(33
)
CMBS
439

 
(8
)
 
463

 
(12
)
 
902

 
(20
)
RMBS
942

 
(16
)
 
138

 
(4
)
 
1,080

 
(20
)
Total AFS securities
11,751

 
(354
)
 
9,616

 
(442
)
 
21,367

 
(796
)
AFS securities – related party
 
 
 
 
 
 
 
 
 
 
 
Corporate

 

 
3

 

 
3

 

CLO
553

 
(16
)
 

 

 
553

 
(16
)
ABS
324

 
(6
)
 
72

 
(1
)
 
396

 
(7
)
Total AFS securities – related party
877

 
(22
)
 
75

 
(1
)
 
952

 
(23
)
Total AFS securities including related party
$
12,628

 
$
(376
)
 
$
9,691

 
$
(443
)
 
$
22,319

 
$
(819
)

 
December 31, 2018
 
Less than 12 months
 
12 months or more
 
Total
(In millions)
Fair Value
 
Gross
Unrealized
Losses
 
Fair Value
 
Gross Unrealized Losses
 
Fair Value
 
Gross Unrealized Losses
AFS securities
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agencies
$
32

 
$

 
$
2

 
$

 
$
34

 
$

U.S. state, municipal and political subdivisions
139

 
(2
)
 
82

 
(5
)
 
221

 
(7
)
Foreign governments
97

 
(2
)
 
15

 
(1
)
 
112

 
(3
)
Corporate
20,213

 
(942
)
 
4,118

 
(373
)
 
24,331

 
(1,315
)
CLO
5,054

 
(297
)
 
90

 
(2
)
 
5,144

 
(299
)
ABS
1,336

 
(23
)
 
506

 
(25
)
 
1,842

 
(48
)
CMBS
932

 
(27
)
 
497

 
(33
)
 
1,429

 
(60
)
RMBS
1,417

 
(31
)
 
140

 
(5
)
 
1,557

 
(36
)
Total AFS securities
29,220


(1,324
)

5,450


(444
)

34,670


(1,768
)
AFS securities – related party
 
 
 
 
 
 
 
 
 
 
 
CLO
534

 
(25
)
 

 

 
534

 
(25
)
ABS
306

 
(2
)
 
116

 
(2
)
 
422

 
(4
)
Total AFS securities – related party
840

 
(27
)
 
116

 
(2
)
 
956

 
(29
)
Total AFS securities including related party
$
30,060

 
$
(1,351
)
 
$
5,566

 
$
(446
)
 
$
35,626

 
$
(1,797
)

As of March 31, 2019, we held 2,638 AFS securities that were in an unrealized loss position. Of this total, 1,377 were in an unrealized loss position 12 months or more. As of March 31, 2019, we held 38 related party AFS securities that were in an unrealized loss position. Of this total, six were in an unrealized loss position 12 months or more. The unrealized losses on AFS securities can primarily be attributed to changes in market interest rates since acquisition. We did not recognize the unrealized losses in income as we intend to hold these securities and it is not more likely than not we will be required to sell a security before the recovery of its amortized cost.


19

Table of Contents

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


Other-Than-Temporary ImpairmentsFor the three months ended March 31, 2019, we incurred $1 million of net OTTI, none of which related to intent-to-sell impairments. The net OTTI of $1 million related to credit impairments where a portion was bifurcated in AOCI. Any credit loss impairments not bifurcated in AOCI are excluded from the rollforward below.

The following table represents a rollforward of the cumulative amounts recognized on the condensed consolidated statements of income for OTTI related to pre-tax credit loss impairments on AFS securities, for which a portion of the securities’ total OTTI was recognized in AOCI:
 
Three months ended March 31,
(In millions)
2019
 
2018
Beginning balance
$
10

 
$
14

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

 
1

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

 

Reduction in impairments from securities sold, matured or repaid

 
(8
)
Ending balance
$
11

 
$
7


Net Investment Income—Net investment income by asset class consists of the following:
 
Three months ended March 31,
(In millions)
2019
 
2018
AFS securities
$
753

 
$
668

Trading securities
42

 
44

Equity securities
3

 
2

Mortgage loans
151

 
91

Investment funds
10

 
65

Funds withheld at interest
163

 
46

Other
39

 
23

Investment revenue
1,161

 
939

Investment expenses
(95
)
 
(84
)
Net investment income
$
1,066

 
$
855


Investment Related Gains (Losses)—Investment related gains (losses) by asset class consists of the following:
 
Three months ended March 31,
(In millions)
2019
 
2018
AFS securities
 
 
 
Gross realized gains on investment activity
$
17

 
$
21

Gross realized losses on investment activity
(13
)
 
(6
)
Net realized investment gains on AFS securities
4

 
15

Net recognized investment gains (losses) on trading securities
49

 
(89
)
Net recognized investment gains on equity securities
18

 
1

Derivative gains (losses)
1,692

 
(184
)
Other gains
9

 
21

Investment related gains (losses)
$
1,772

 
$
(236
)

Proceeds from sales of AFS securities were $1,253 million and $1,547 million for the three months ended March 31, 2019 and 2018, respectively. Proceeds from sales of AFS securities for the three months ended March 31, 2018 have been revised for immaterial misstatements to be comparable to current year balances.


20

Table of Contents

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


The following table summarizes the change in unrealized gains (losses) on trading and equity securities, including related party and consolidated VIEs, we still held as of the respective period end:
 
Three months ended March 31,
(In millions)
2019
 
2018
Trading securities
$
71

 
$
(69
)
Trading securities – related party
(3
)
 
(2
)
VIE trading securities – related party
1

 

Equity securities
18

 

Equity securities – related party
3

 

VIE equity securities – related party

 
25


Purchased Credit Impaired (PCI) Investments—The following table summarizes our PCI investments:
 
Fixed maturity securities
 
Mortgage loans
(In millions)
March 31, 2019
 
December 31, 2018
 
March 31, 2019
 
December 31, 2018
Contractually required payments receivable
$
7,931

 
$
8,179

 
$
2,870

 
$
2,675

Less: Cash flows expected to be collected1
(6,968
)
 
(7,195
)
 
(2,829
)
 
(2,628
)
Non-accretable difference
$
963

 
$
984

 
$
41

 
$
47

 
 
 
 
 
 
 
 
Cash flows expected to be collected1
$
6,968

 
$
7,195

 
$
2,829

 
$
2,628

Less: Amortized cost
(5,392
)
 
(5,518
)
 
(2,117
)
 
(1,931
)
Accretable difference
$
1,576

 
$
1,677

 
$
712

 
$
697

 
 
 
 
 
 
 
 
Fair value
$
5,774

 
$
5,828

 
$
2,138

 
$
1,933

Outstanding balance
6,619

 
6,773

 
2,395

 
2,210

 
 
 
 
 
 
 
 
1 Represents the undiscounted principal and interest cash flows expected.

During the period, we acquired PCI investments with the following amounts at the time of purchase:
 
March 31, 2019
(In millions)
Fixed maturity securities
 
Mortgage loans
Contractually required payments receivable
$
66

 
$
382

Cash flows expected to be collected
51

 
382

Fair value
44

 
292


The following table summarizes the activity for the accretable yield on PCI investments:
 
Three months ended March 31, 2019
(In millions)
Fixed maturity securities
 
Mortgage loans
Beginning balance at January 1
$
1,677

 
$
697

Purchases of PCI investments, net of sales
8

 
40

Accretion
(91
)
 
(32
)
Net reclassification from (to) non-accretable difference
(18
)
 
7

Ending balance at March 31
$
1,576

 
$
712



21

Table of Contents

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


Mortgage Loans, including related party—Mortgage loans, net of allowances, consists of the following:
(In millions)
March 31, 2019
 
December 31, 2018
Commercial mortgage loans
$
7,693

 
$
7,217

Commercial mortgage loans under development
86

 
80

Total commercial mortgage loans
7,779

 
7,297

Residential mortgage loans
3,554

 
3,334

Mortgage loans, net of allowances
$
11,333

 
$
10,631


We primarily invest in commercial mortgage loans on income producing properties including office and retail buildings, hotels, industrial properties and apartments. We diversify the commercial mortgage loan portfolio by geographic region and property type to reduce concentration risk. We evaluate mortgage loans based on relevant current information to confirm if properties are performing at a consistent and acceptable level to secure the related debt.

The distribution of commercial mortgage loans, including those under development, net of valuation allowances, by property type and geographic region, is as follows:
 
March 31, 2019
 
December 31, 2018
(In millions, except for percentages)
Net Carrying Value
 
Percentage of Total
 
Net Carrying Value
 
Percentage of Total
Property type
 
 
 
 
 
 
 
Office building
$
2,527

 
32.4
%
 
$
2,221

 
30.5
%
Retail
1,797

 
23.1
%
 
1,660

 
22.7
%
Hotels
1,040

 
13.4
%
 
1,040

 
14.3
%
Industrial
1,232

 
15.8
%
 
1,196

 
16.4
%
Apartment
899

 
11.6
%
 
791

 
10.8
%
Other commercial
284

 
3.7
%
 
389

 
5.3
%
Total commercial mortgage loans
$
7,779

 
100.0
%
 
$
7,297

 
100.0
%
 
 
 
 
 
 
 
 
U.S. Region
 
 
 
 
 
 
 
East North Central
$
846

 
10.9
%
 
$
855

 
11.7
%
East South Central
200

 
2.6
%
 
295

 
4.0
%
Middle Atlantic
1,434

 
18.4
%
 
1,131

 
15.5
%
Mountain
603

 
7.8
%
 
616

 
8.4
%
New England
373

 
4.8
%
 
374

 
5.1
%
Pacific
1,791

 
23.0
%
 
1,540

 
21.1
%
South Atlantic
1,518

 
19.5
%
 
1,468

 
20.2
%
West North Central
158

 
2.0
%
 
173

 
2.4
%
West South Central
856

 
11.0
%
 
845

 
11.6
%
Total U.S. Region
7,779

 
100.0
%
 
7,297

 
100.0
%
Total commercial mortgage loans
$
7,779

 
100.0
%
 
$
7,297

 
100.0
%

Our residential mortgage loan portfolio includes first lien residential mortgage loans collateralized by properties located in the U.S. and is summarized in the following table:
 
March 31, 2019
 
December 31, 2018
California
33.7
%
 
30.3
%
Florida
15.7
%
 
16.3
%
New York
7.2
%
 
7.7
%
Texas
6.4
%
 
3.3
%
Other1
37.0