10-Q 1 athq22017.htm 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 June 30, 2017
 
 
 
 
 
 
 
 
 
OR
 
 
 
 
 
 
 
 
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
001-37963
 
 
 
(Commission file number)
 
 
 
 
 
 
 
 
 
ATHENE HOLDING LTD.
(Exact name of registrant as specified in its charter)
 
 
 
 
 
 
 
 
 
 
Bermuda
 
 
 
98-0630022
 
 
(State or other jurisdiction of
 
 
 
(I.R.S. Employer
 
 
incorporation or organization)
 
 
 
Identification Number)
 
 
 
 
 
 
 
 
 
 
96 Pitts Bay Road
Pembroke, HM08, Bermuda
(441) 279-8400
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
 
 
 
 
 
 
 
 
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
 
 
 
 
 
 
 
 
 
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 ¨
 
Accelerated filer ¨
 
 
Non-accelerated filer x (Do not check if a smaller reporting company)
 
Smaller reporting company ¨
 
 
 
 
 
 
Emerging growth company ¨
 
 
 
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
 
 
 
 
 
 
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
 
 
 
 
 
 
 
 
 
 
 
The number of shares of each class of our common stock outstanding is set forth in the table below, as of June 30, 2017:
 
 
 
 
 
 
 
 
 
 
 
 
Class A common shares
119,510,182

 
Class M-2 common shares
867,923

 
 
 
 
Class B common shares
70,092,560

 
Class M-3 common shares
1,267,000

 
 
 
 
Class M-1 common shares
3,388,890

 
Class M-4 common shares
4,941,705

 
 
 
 
 
 
 
 
 
 
 



TABLE OF CONTENTS


PART I—FINANCIAL INFORMATION



PART II—OTHER INFORMATION






As used in this Form 10-Q, unless the context otherwise indicates, any reference to "Athene," "our Company," "the Company," "us," "we" and "our" refer to Athene Holding Ltd. together with its consolidated subsidiaries and any reference to "AHL" refers to Athene Holding Ltd. only.

Forward-Looking Statements

Certain statements in this Quarterly Report on Form 10-Q (report), other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results and the assumptions upon which those statements are based, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

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

We caution you that forward-looking statements are not guarantees of future performance and that our actual consolidated results of operations, financial condition and liquidity may differ materially from those made in or suggested by the forward-looking statements contained in this report. There can be no assurance that actual developments will be those anticipated by us. In addition, even if our consolidated results of operations, financial condition and liquidity are consistent with the forward-looking statements contained in this report, those results or developments may not be indicative of results or developments in subsequent periods. A number of important factors could cause actual results or conditions to differ materially from those contained or implied by the forward-looking statements, including the risks discussed in Part II—Item 1A. Risk Factors included in this report and Part I—Item 1A. Risk Factors included in our Annual Report on Form 10-K for the year ended December 31, 2016 (2016 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;
introduction of the proposed European Union financial transaction tax;
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, L.P. (AAM) or Apollo Asset Management Europe, LLP (AAME) of its investment management or advisory agreements with us and limitations on our ability to terminate such arrangements;
AAM’s or AAME’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;
Athene Holding Ltd. (AHL) or Athene Life Re Ltd. (ALRe) becoming subject to U.S. federal income taxation;
adverse changes in U.S. tax law;
our being subject to U.S. withholding tax under Foreign Account Tax Compliance Act;
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 2016 Annual Report and elsewhere in this report and in our 2016 Annual Report.


3


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:

Athene Holding Ltd. and Related Entities
Term or Acronym
 
Definition
A-A Mortgage
 
A-A Mortgage Opportunities, LP
AAA
 
AP Alternative Assets, L.P.
AAA Investor
 
AAA Guarantor – Athene, L.P.
AADE
 
Athene Annuity & Life Assurance Company, formerly known as Liberty Life Insurance Company, the parent insurance company of our U.S. insurance subsidiaries
AAIA
 
Athene Annuity and Life Company, formerly known as Aviva Life and Annuity Company
AAM
 
Athene Asset Management, L.P.
AAME
 
Apollo Asset Management Europe, LLP (together with certain of its affiliates)
ADKG
 
Athene Deutschland Holding GmbH & Co. KG
AGER
 
AGER Bermuda Holding Ltd.
AHL
 
Athene Holding Ltd.
ALIC
 
Athene Life Insurance Company
ALRe
 
Athene Life Re Ltd.
ALV
 
Athene Lebensversicherung AG, formerly known as Delta Lloyd Lebensversicherung AG
AmeriHome
 
AmeriHome Mortgage Company, LLC
APK
 
Athene Pensionskasse AG, formerly known as Delta Lloyd Pensionskasse AG
Apollo
 
Apollo Global Management, LLC
Apollo Group
 
(1) Apollo, (2) the AAA Investor, (3) any investment fund or other collective investment vehicle whose general partner or managing member is owned, directly or indirectly, by Apollo or one or more of Apollo’s subsidiaries, (4) BRH Holdings GP, Ltd. and its shareholders and (5) any affiliate of any of the foregoing (except that AHL and its subsidiaries and employees of AHL, its subsidiaries or AAM are not members of the Apollo Group)
Athene USA
 
Athene USA Corporation, formerly known as Aviva USA Corporation
DLD
 
Delta Lloyd Deutschland AG, now known as Athene Deutschland GmbH
German Group Companies
 
Athene Deutschland GmbH, Athene Deutschland Holding GmbH & Co. KG, Athene Deutschland Verwaltungs GmbH, Athene Lebensversicherung AG and Athene Pensionskasse AG
MidCap
 
MidCap FinCo Limited


4


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
AUM
 
Assets under management
Alternative investments
 
Alternative investments, including investment funds, CLO equity positions and certain other debt instruments considered to be equity-like
Base of earnings
 
Earnings generated from our results of operations and the underlying profitability drivers of our business
Bermuda capital
 
The capital of ALRe calculated under U.S. statutory accounting principles, including that for policyholder reserve liabilities which are subjected to U.S. cash flow testing requirements, but excluding certain items that do not exist under our applicable Bermuda requirements, such as interest maintenance reserves
Block reinsurance
 
A transaction in which the ceding company cedes all or a portion of a block of previously issued annuity contracts through a reinsurance agreement
BMA
 
Bermuda Monetary Authority
BSCR
 
Bermuda Solvency Capital Requirement
CAL
 
Company action level RBC as defined by the model created by the National Association of Insurance Commissioners
CLO
 
Collateralized loan obligation
CMBS
 
Commercial mortgage-backed securities
Capital ratio
 
Ratios calculated (1) with respect to our U.S. insurance subsidiaries, by reference to RBC, (2) with respect to ALRe, by reference to BSCR, and (3) with respect to our German Group Companies, by reference to SCR
Cost of crediting
 
The interest credited to the policyholders on our fixed annuities, including, with respect to our FIAs, option costs, presented on an annualized basis for interim periods
DAC
 
Deferred acquisition costs
Deferred annuities
 
FIAs, annual reset annuities and MYGAs
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
 
Fixed rate annuity is 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
GLWB
 
Guaranteed living withdrawal benefits
GMDB
 
Guaranteed minimum death benefits
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 also 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
LIMRA
 
Life Insurance and Market Research Association
MCR
 
Minimum capital requirements
MMS
 
Minimum margin of solvency
Modco
 
Modified coinsurance
MVA
 
Market value adjustment
MYGA
 
Multi-year guaranteed annuity
NAIC
 
National Association of Insurance Commissioners

5


Term or Acronym
 
Definition
Net investment earned rate
 
Income from our invested assets divided by the average invested assets for the relevant period, presented on an annualized basis for interim periods
Other liability costs
 
Other liability costs include DAC, DSI and VOBA amortization and change in GLWB and GMDB reserves for all products, the cost of liabilities on products other than deferred annuities including offsets for premiums, product charges and other revenues
OTTI
 
Other-than-temporary impairment
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
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 recoverables, 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 living 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



6


Item 1.    Financial Statements

Index to Condensed Consolidated Financial Statements (unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

7


ATHENE HOLDING LTD.
Condensed Consolidated Balance Sheets (Unaudited)


(In millions)
June 30, 2017
 
December 31, 2016
Assets
 
 
 
Investments
 
 
 
Available-for-sale securities, at fair value
 
 
 
Fixed maturity securities (amortized cost: 2017 – $54,775 and 2016 – $51,110)
$
56,813

 
$
52,033

Equity securities (cost: 2017 – $379 and 2016 – $319)
429

 
353

Trading securities, at fair value
2,692

 
2,581

Mortgage loans, net of allowances (portion at fair value: 2017 – $43 and 2016 – $44)
6,024

 
5,470

Investment funds (portion at fair value: 2017 – $94 and 2016 – $99)
697

 
689

Policy loans
579

 
602

Funds withheld at interest (portion at fair value: 2017 – $279 and 2016 – $140)
6,834

 
6,538

Derivative assets
1,808

 
1,370

Real estate (portion held for sale: 2017 – $26 and 2016 – $23)
597

 
542

Short-term investments, at fair value (cost: 2017 – $106 and 2016 – $189)
106

 
189

Other investments
91

 
81

Total investments
76,670

 
70,448

Cash and cash equivalents
3,478

 
2,445

Restricted cash
105

 
57

Investments in related parties
 
 
 
Available-for-sale securities, at fair value
 
 
 
Fixed maturity securities (amortized cost: 2017 – $334 and 2016 – $341)
337

 
335

Equity securities (cost: 2017 – $0 and 2016 – $20)

 
20

Trading securities, at fair value
166

 
195

Investment funds (portion at fair value: 2017 – $22 and 2016 – $0)
1,260

 
1,198

Short-term investments, at fair value (cost: 2017 – $28 and 2016 – $0)
28

 

Other investments
238

 
237

Accrued investment income (related party: 2017 – $9 and 2016 – $9)
566

 
554

Reinsurance recoverable (portion at fair value: 2017 – $1,782 and 2016 – $1,692)
5,958

 
6,001

Deferred acquisition costs, deferred sales inducements and value of business acquired
2,886

 
2,940

Current income tax recoverable
29

 
107

Deferred tax assets
55

 
372

Other assets
824

 
869

Assets of consolidated variable interest entities
 
 
 
Investments
 
 
 
Available-for-sale securities, at fair value
 
 
 
Equity securities – related party (cost: 2017 – $143 and 2016 – $143)
206

 
161

Trading securities, at fair value – related party
185

 
167

Investment funds (related party: 2017 – $583 and 2016 – $562; portion at fair value: 2017 – $561 and 2016 – $562)
595

 
573

Cash and cash equivalents
2

 
14

Other assets
6

 
6

Total assets
$
93,594

 
$
86,699

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

8


ATHENE HOLDING LTD.
Condensed Consolidated Balance Sheets (Unaudited)


(In millions, except share and per share data)
June 30, 2017
 
December 31, 2016
Liabilities and Equity
 
 
 
Liabilities
 
 
 
Interest sensitive contract liabilities (portion at fair value: 2017 – $7,619 and 2016 – $6,574)
$
64,911

 
$
61,532

Future policy benefits (portion at fair value: 2017 – $2,433 and 2016 – $2,400)
15,481

 
14,592

Other policy claims and benefits
205

 
217

Dividends payable to policyholders
980

 
974

Derivative liabilities
63

 
40

Payables for collateral on derivatives
1,860

 
1,383

Funds withheld liability (portion at fair value: 2017 – $15 and 2016 – $6)
391

 
380

Other liabilities (related party: 2017 – $63 and 2016 – $56)
1,374

 
688

Liabilities of consolidated variable interest entities
45

 
34

Total liabilities
85,310

 
79,840

Equity
 
 
 
Common stock
 
 
 
Class A – par value $0.001 per share; authorized: 2017 and 2016 – 425,000,000 shares; issued and outstanding: 2017 – 119,510,182 and 2016 – 77,319,381 shares

 

Class B – par value $0.001 per share; convertible to Class A; authorized: 2017 and 2016 – 325,000,000 shares; issued and outstanding: 2017 – 70,092,560 and 2016 – 111,805,829 shares

 

Class M-1 – par value $0.001 per share; contingently convertible to Class A; authorized: 2017 and 2016 – 7,109,560 shares; issued and outstanding: 2017 – 3,388,890 and 2016 – 3,474,205 shares

 

Class M-2 – par value $0.001 per share; contingently convertible to Class A; authorized: 2017 and 2016 – 5,000,000 shares; issued and outstanding: 2017 – 867,923 and 2016 – 1,067,747 shares

 

Class M-3 – par value $0.001 per share; contingently convertible to Class A; authorized: 2017 and 2016 – 7,500,000 shares; issued and outstanding: 2017 – 1,267,000 and 2016 – 1,346,300 shares

 

Class M-4 – par value $0.001 per share; contingently convertible to Class A; authorized: 2017 and 2016 – 7,500,000 shares; issued and outstanding: 2017 – 4,941,705 and 2016 – 5,397,802 shares

 

Additional paid-in capital
3,452

 
3,421

Retained earnings
3,772

 
3,070

Accumulated other comprehensive income (related party: 2017 – $66 and 2016 – $12)
1,060

 
367

Total Athene Holding Ltd. shareholders' equity
8,284

 
6,858

Noncontrolling interest

 
1

Total equity
8,284

 
6,859

Total liabilities and equity
$
93,594

 
$
86,699

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

9


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


 
Three months ended June 30,
 
Six months ended June 30,
(In millions, except per share data)
2017
 
2016
 
2017
 
2016
Revenues
 
 
 
 
 
 
 
Premiums
$
379

 
$
60

 
$
431

 
$
120

Product charges
85

 
69

 
166

 
135

Net investment income (related party investment income of $73 and $57 for the three months ended and $129 and $102 for the six months ended June 30, 2017 and 2016, respectively, and related party investment expense of $76 and $72 for the three months ended and $154 and $153 for the six months ended June 30, 2017 and 2016, respectively)
821

 
700

 
1,607

 
1,394

Investment related gains (losses) (related party of $3 and $(9) for the three months ended and $(8) and $(30) for the six months ended June 30, 2017 and 2016, respectively)
460

 
227

 
1,142

 
143

Other-than-temporary impairment investment losses
 
 
 
 
 
 
 
Other-than-temporary impairment losses
(12
)
 
(2
)
 
(12
)
 
(24
)
Other-than-temporary impairment losses recognized in other comprehensive income
1

 
(9
)
 

 
3

Net other-than-temporary impairment losses
(11
)
 
(11
)
 
(12
)
 
(21
)
Other revenues
8

 
9

 
16

 
17

Revenues of consolidated variable interest entities
 
 
 
 
 
 
 
Net investment income (related party of $10 and $14 for the three months ended and $20 and $17 for the six months ended June 30, 2017 and 2016, respectively)
10

 
22

 
20

 
33

Investment related gains (losses) (related party of $11 and $(23) for the three months ended and $12 and $(37) for the six months ended June 30, 2017 and 2016, respectively)
11

 
(31
)
 
12

 
(54
)
Total revenues
1,763

 
1,045

 
3,382

 
1,767

Benefits and Expenses
 
 
 
 
 
 
 
Interest sensitive contract benefits
553

 
335

 
1,245

 
590

Amortization of deferred sales inducements
11

 
2

 
29

 
6

Future policy and other policy benefits
578

 
258

 
792

 
482

Amortization of deferred acquisition costs and value of business acquired
67

 
61

 
171

 
90

Dividends to policyholders
49

 
13

 
81

 
30

Policy and other operating expenses (related party of $2 and $8 for the three months ended and $6 and $8 for the six months ended June 30, 2017 and 2016, respectively)
168

 
163

 
321

 
267

Operating expenses of consolidated variable interest entities

 
5

 

 
9

Total benefits and expenses
1,426

 
837

 
2,639

 
1,474

Income before income taxes
337

 
208

 
743

 
293

Income tax expense
11

 
15

 
33

 
15

Net income
326

 
193

 
710

 
278

Less: Net income attributable to noncontrolling interests

 

 

 

Net income available to Athene Holding Ltd. shareholders
$
326

 
$
193

 
$
710

 
$
278

 
 
 
 
 
 
 
 
Earnings per share
 
 
 
 
 
 
 
Basic – Classes A, B, M-1, M-2, M-3 and M-41
$
1.66

 
$
1.04

 
$
3.66

 
$
1.50

Diluted – Class A
1.65

 
1.04

 
3.59

 
1.49

Diluted – Class B
1.66

 
1.04

 
3.66

 
1.50

Diluted – Class M-11
1.66

 
N/A

 
3.66

 
N/A

Diluted – Class M-21
1.64

 
N/A

 
1.80

 
N/A

Diluted – Class M-31
1.00

 
N/A

 
1.08

 
N/A

Diluted – Class M-41
0.76

 
N/A

 
0.98

 
N/A

 
 
 
 
 
 
 
 
N/A – Not applicable
1 Basic and diluted earnings per share for Class M-1, M-2, M-3 and M-4 were applicable only for the periods ended June 30, 2017. Refer to Note 9  Earnings Per Share for further discussion.

See accompanying notes to the unaudited condensed consolidated financial statements


10


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



Three months ended June 30,
 
Six months ended June 30,
(In millions)
2017
 
2016
 
2017

2016
Net income
$
326

 
$
193

 
$
710


$
278

Other comprehensive income, before tax
 
 
 
 
 
 
 
Change in unrealized investment gains on available for sale securities
582

 
903

 
1,001


1,206

Change in noncredit component of other-than-temporary impairment losses, available-for-sale
(1
)
 
9

 


(3
)
Comprehensive income (loss) on hedging instruments
(33
)
 
3

 
(38
)

(7
)
Comprehensive income (loss) on pension adjustments
(1
)
 

 
(1
)

(1
)
Comprehensive gain (loss) on foreign currency translation adjustments
8

 
(3
)
 
10

 

Other comprehensive income, before tax
555

 
912

 
972

 
1,195

Income tax expense related to other comprehensive income
168

 
291

 
279


389

Other comprehensive income, after tax
387

 
621

 
693

 
806

Comprehensive income
713

 
814

 
1,403

 
1,084

Less: comprehensive income attributable to noncontrolling interests

 

 

 

Comprehensive income available to Athene Holding Ltd. shareholders
$
713

 
$
814

 
$
1,403

 
$
1,084


See accompanying notes to the unaudited condensed consolidated financial statements


11


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 Athene Holding Ltd. shareholders' equity
 
Noncontrolling interest
 
Total equity
Balance at December 31, 2015
$

 
$
3,281

 
$
2,308

 
$
(237
)
 
$
5,352

 
$
1

 
$
5,353

Net income

 

 
278

 

 
278

 

 
278

Other comprehensive income

 

 

 
806

 
806

 

 
806

Issuance of shares, net of expenses

 
1

 

 

 
1

 

 
1

Stock-based compensation

 
8

 

 

 
8

 

 
8

Retirement or repurchase of shares

 
(14
)
 
(5
)
 

 
(19
)
 

 
(19
)
Balance at June 30, 2016
$

 
$
3,276

 
$
2,581

 
$
569

 
$
6,426

 
$
1

 
$
6,427

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2016
$

 
$
3,421

 
$
3,070

 
$
367

 
$
6,858

 
$
1

 
$
6,859

Net income

 

 
710

 

 
710

 

 
710

Other comprehensive income

 

 

 
693

 
693

 

 
693

Stock-based compensation

 
31

 

 

 
31

 

 
31

Retirement or repurchase of shares

 

 
(8
)
 

 
(8
)
 

 
(8
)
Other changes in equity of noncontrolling interests

 

 

 

 

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

 
$
3,452

 
$
3,772

 
$
1,060

 
$
8,284

 
$

 
$
8,284


See accompanying notes to the unaudited condensed consolidated financial statements


12


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


 
Six months ended June 30,
(In millions)
2017
 
2016
Cash flows from operating activities
 
 
 
Net income
$
710

 
$
278

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Amortization of deferred acquisition costs and value of business acquired
171

 
90

Amortization of deferred sales inducements
29

 
6

Amortization (accretion) of net investment premiums, discounts, and other
(101
)
 
(103
)
Stock-based compensation
29

 
14

Net investment income (related party: 2017 – $(43) and 2016 – $(12))
(43
)
 
14

Net recognized (gains) losses on investments and derivatives (related party: 2017 – $3 and 2016 – $25)
(882
)
 
13

Policy acquisition costs deferred
(248
)
 
(245
)
Deferred income tax expense
31

 
17

Changes in operating assets and liabilities:
 
 
 
Accrued investment income
(9
)
 
15

Interest sensitive contract liabilities
1,140

 
611

Future policy benefits, other policy claims and benefits, dividends payable to policyholders and reinsurance recoverable
387

 
(20
)
Current income tax recoverable
78

 
38

Funds withheld assets and liabilities
(222
)
 
(60
)
Other assets and liabilities
15

 
(19
)
Consolidated variable interest entities related:
 
 
 
Amortization (accretion) of net investment premiums, discounts, and other

 
2

Net recognized (gains) losses on investments and derivatives (related party: 2017 – $(12) and 2016 – $37)
(12
)
 
53

Net cash provided by operating activities
1,073

 
704

 
 
 
(Continued)

See accompanying notes to the unaudited condensed consolidated financial statements
 
 
 

13


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


 
Six months ended June 30,
(In millions)
2017
 
2016
Cash flows from investing activities
 
 
 
Sales, maturities, and repayments of:
 
 
 
Available-for-sale securities
 
 
 
Fixed maturity securities (related party: 2017 – $73 and 2016 – $10)
$
5,987

 
$
4,423

Equity securities (related party: 2017 – $22 and 2016 – $0)
331

 
280

Trading securities (related party: 2017 – $26 and 2016 – $24)
207

 
358

Mortgage loans
632

 
316

Investment funds (related party: 2017 – $172 and 2016 – $117)
221

 
151

Derivative instruments and other invested assets
713

 
119

Short-term investments (related party: 2017 – $0 and 2016 – $55)
226

 
307

Purchases of:
 
 
 
Available-for-sale securities
 
 
 
Fixed maturity securities (related party: 2017 – $(64) and 2016 – $0)
(9,111
)
 
(4,122
)
Equity securities
(352
)
 
(82
)
Trading securities (related party: 2017 – $0 and 2016 – $(33))
(206
)
 
(482
)
Mortgage loans
(1,184
)
 
(496
)
Investment funds (related party: 2017 – $(179) and 2016 – $(131))
(227
)
 
(170
)
Derivative instruments and other invested assets
(376
)
 
(322
)
Real estate
(13
)
 
(21
)
Short-term investments (related party: 2017 – $(28) and 2016 – $0)
(177
)
 
(462
)
Consolidated variable interest entities related:
 
 
 
Sales, maturities, and repayments of investments (related party: 2017 – $7 and 2016 – $4)
7

 
9

Purchases of investments (related party: 2017 – $(22) and 2016 – $(10))
(22
)
 
(10
)
Change in restricted cash

 
(9
)
Cash settlement of derivatives
4

 
19

Change in restricted cash
(48
)
 
38

Other investing activities, net
748

 
123

Net cash used in investing activities
(2,640
)
 
(33
)
Cash flows from financing activities
 
 
 
Capital contributions

 
1

Deposits on investment-type policies and contracts
4,727

 
2,059

Withdrawals on investment-type policies and contracts
(2,607
)
 
(2,293
)
Payments for coinsurance agreements on investment-type contracts, net
(15
)
 
(48
)
Net change in cash collateral posted for derivative transactions
477

 
(123
)
Repurchase of common stock
(8
)
 
(1
)
Other financing activities, net
(5
)
 
331

Net cash provided by (used in) financing activities
2,569

 
(74
)
Effect of exchange rate changes on cash and cash equivalents
19

 
(4
)
Net increase in cash and cash equivalents
1,021

 
593

Cash and cash equivalents at beginning of year1
2,459

 
2,720

Cash and cash equivalents at end of period1
$
3,480

 
$
3,313

 
 
 
 
Supplementary information
 
 
 
Non-cash transactions
 
 
 
Deposits on investment-type policies and contracts through reinsurance agreements
$
385

 
$
2,213

Withdrawals on investment-type policies and contracts through reinsurance agreements
285

 
166

Investments received from settlements on reinsurance agreements
36

 

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


14


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, the District of Columbia and Germany.

We conduct business primarily through the following consolidated subsidiaries:

Athene Life Re Ltd. (ALRe), a Bermuda exempted company to which AHL's other insurance subsidiaries and third party ceding companies directly and indirectly reinsure a portion of their liabilities;
Athene USA Corporation, an Iowa corporation and its subsidiaries (Athene USA); and
AGER Bermuda Holding Ltd. and its subsidiaries (AGER), which includes Athene Deutschland GmbH & Co. KG, a German partnership and its subsidiaries (ADKG).

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 except as described below, considered necessary for fair statement of the periods presented. All significant intercompany accounts and transactions have been eliminated. Interim operating results are not necessarily indicative of the results expected for the entire year.

The condensed consolidated balance sheet as of December 31, 2016 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 revised audited consolidated financial statements included as Exhibit 99.1 to our Current Report on Form 8-K, filed on June 13, 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.

During the quarter ended June 30, 2017, we recorded out-of-period adjustments that affected the condensed consolidated statements of income. These adjustments primarily related to DAC and VOBA amortization and actuarial reserves. As a result of these out-of-period adjustments, consolidated net income for the three and six months ended June 30, 2017 is overstated by $16 million and $15 million, respectively.

We evaluated these out-of-period adjustments and determined they were not material to the condensed consolidated financial statements for either the three or six months ended June 30, 2017, or any other previously reported period.

Revisions—As part of our continuing initiative to improve controls in our business processes and confirm the accuracy of our data relating to blocks of businesses acquired from Aviva USA as well as deposits since the acquisition, we identified an error in May 2017 relating to the impact of certain inputs used to calculate certain actuarial balances, which had the result of misstating our net investment earned rate used in the amortization calculation of deferred acquisition costs and the change in future policy benefits. We have revised our condensed consolidated financial statements and notes for the three and six months ended June 30, 2016 as a result of correcting this error and other immaterial errors. We assessed the materiality of these errors and concluded these errors are not material to the condensed consolidated financial statements as a whole. However, we elected to revise the condensed consolidated financial statements to increase their accuracy, as well as provide consistency and comparability with balances and activities to be reported in future periods.


15


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

The following is a summary of the revisions on the condensed consolidated statements of income:
 
Three months ended June 30, 2016
(In millions, except per share data)
As Previously Reported
 
Revisions
 
As Adjusted
Revenue
 
 
 
 
 
Net investment income
$
704

 
$
(4
)
 
$
700

Investment related gains (losses)
225

 
2

 
227

Total revenues
1,047

 
(2
)
 
1,045

Benefits and Expenses
 
 
 
 
 
Interest sensitive contract benefits
333

 
2

 
335

Future policy and other policy benefits
261

 
(3
)
 
258

Amortization of deferred acquisition costs and value of business acquired
62

 
(1
)
 
61

Total benefits and expenses
839

 
(2
)
 
837

Income before income taxes
208

 

 
208

Income tax expense
16

 
(1
)
 
15

Net income
192

 
1

 
193

Less: Net income attributable to noncontrolling interests

 

 

Net income available to Athene Holding Ltd. shareholders
$
192

 
$
1

 
$
193

 
 
 
 
 
 
Earnings per share on Class A and B shares
 
 
 
 
 
Basic
$
1.03

 
$
0.01

 
$
1.04

Diluted
1.03

 
0.01

 
1.04

 
 
 
 
 
 

 
Six months ended June 30, 2016
(In millions, except per share data)
As Previously Reported
 
Revisions
 
As Adjusted
Revenue
 
 
 
 
 
Net investment income
$
1,396

 
$
(2
)
 
$
1,394

Total revenues
1,769

 
(2
)
 
1,767

Benefits and Expenses
 
 
 
 
 
Interest sensitive contract benefits
586

 
4

 
590

Future policy and other policy benefits
485

 
(3
)
 
482

Total benefits and expenses
1,473

 
1

 
1,474

Income before income taxes
296

 
(3
)
 
293

Income tax expense
17

 
(2
)
 
15

Net income
279

 
(1
)
 
278

Less: Net income attributable to noncontrolling interests

 

 

Net income available to Athene Holding Ltd. shareholders
$
279

 
$
(1
)
 
$
278

 
 
 
 
 
 
Earnings per share on Class A and B shares
 
 
 
 
 
Basic – Classes A and B
$
1.50

 
$

 
$
1.50

Diluted – Class A
1.50

 
(0.01
)
 
1.49

Diluted – Class B
1.50

 

 
1.50

 
 
 
 
 
 

We revised the condensed consolidated statements of comprehensive income for the three and six months ended June 30, 2016 and the condensed consolidated statement of equity for the six months ended June 30, 2016 only for the changes to net income presented above.


16


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

The following is a summary of the revisions to the condensed consolidated statement of cash flows:
 
Six months ended June 30, 2016
(In millions)
As Previously Reported
 
Revisions
 
As Adjusted
Cash flows from operating activities
 
 
 
 
 
Net income
$
279

 
$
(1
)
 
$
278

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
Deferred income tax expense
19

 
(2
)
 
17

Changes in operating assets and liabilities:
 
 
 
 
 
Interest sensitive contract liabilities
607

 
4

 
611

Future policy benefits, other policy claims and benefits, dividends payable to policyholders and reinsurance recoverable1
(17
)
 
(3
)
 
(20
)
Other asset and liabilities
(17
)
 
(2
)
 
(19
)
Net cash provided by operating activities
708

 
(4
)
 
704

Cash flows from investing activities
 
 
 
 
 
Other investing activities, net
119

 
4

 
123

Net cash used in investing activities
(37
)
 
4

 
(33
)
Cash flows from financing activities
 
 
 
 
 
Net cash used in financing activities
(74
)
 

 
(74
)
Effect of exchange rate changes on cash and cash equivalents
(4
)
 

 
(4
)
Net increase in cash and cash equivalents
593

 

 
593

Cash and cash equivalents at beginning of year2
2,720

 

 
2,720

Cash and cash equivalents at end of period2
$
3,313

 
$

 
$
3,313

 
 
 
 
 
 
 
 
 
 
 
 
1 Financial statement line item renamed for the current period presentation
2 Includes cash and cash equivalents of consolidated variable interest entities

Adopted Accounting Pronouncements

Stock Compensation – Scope of Modification Accounting (ASU 2017-09)
The amendments in this update clarify and simplify when to apply modification accounting for a change to the terms or conditions of a share-based payment award. These amendments are required to be adopted prospectively to awards modified after the date of adoption. The amendments are effective January 1, 2018. Early adoption is permitted and we have elected to early adopt effective April 1, 2017. The adoption did not have an impact on our consolidated financial statements.

Receivables – Nonrefundable Fees and Other Costs (ASU 2017-08)
The amendments in this update shorten the amortization period for certain callable debt securities held at a premium to the earliest call date. These amendments are required to be adopted on a modified retrospective basis effective January 1, 2019. Early adoption is permitted and we have elected to early adopt effective January 1, 2017. The adoption did not have a material impact on our consolidated financial statements.

Business Combinations – Clarifying the Definition of a Business (ASU 2017-01)
The amendments in this update clarify the definition of a business with the objective of assisting entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill and consolidation. These amendments are required to be adopted prospectively to any transactions after the date of adoption. The amendments are effective January 1, 2018. Early adoption is permitted and we have elected to early adopt effective April 1, 2017. The adoption did not have an impact on our consolidated financial statements.

Consolidation – Interest Held through Related Parties under Common Control (ASU 2016-17)
This update amends the consolidation guidance to change how indirect interests in VIEs are evaluated by a reporting entity when determining whether or not it is the primary beneficiary of that VIE. The primary beneficiary of a VIE is the reporting entity that has a controlling financial interest in a VIE and, therefore, consolidates the VIE. A reporting entity has an indirect interest in a VIE if it has a direct interest in a related party that, in turn, has a direct interest in the VIE. Previously, if a single decision maker and its related parties were under common control, the single decision maker was required to consider indirect interests held through related parties to be the equivalent of direct interests in their entirety. The amendments change the evaluation of indirect interests to be considered on a proportionate basis. We adopted this standard effective January 1, 2017, and the adoption did not have a material effect on our consolidated financial statements.


17


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

Improvements to Employee Share-Based Payment Accounting (ASU 2016-09)
This update simplifies several aspects of the accounting for share-based payment award transactions, including income tax consequences, forfeitures and classification on the statement of cash flows. The standard requires entities to make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. We have elected to account for forfeitures when they occur. We adopted this standard effective January 1, 2017, and the adoption did not have a material effect on our consolidated financial statements.

Equity Method and Joint Ventures (ASU 2016-07)
This update eliminates the retroactive adjustments to an investment upon it qualifying for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence by the investor. We adopted this standard effective January 1, 2017, and the adoption did not have a material effect on our consolidated financial statements.

Derivatives and Hedging – Contingent Put and Call Options (ASU 2016-06)
This update is intended to clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to debt hosts. We adopted this standard effective January 1, 2017, and the adoption did not have a material effect on our consolidated financial statements.

Derivatives and Hedging – Effects of Derivative Contract Novation (ASU 2016-05)
This update is intended to clarify that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument does not, in and of itself, require a de-designation of that hedging relationship provided all other hedge accounting criteria continue to be met. We adopted this standard effective January 1, 2017, and the adoption did not have a material effect on our consolidated financial statements.

Recently Issued Accounting Pronouncements

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 will be required to adopt this standard on a retrospective or modified retrospective basis effective January 1, 2018. Early adoption is permitted. We are currently evaluating the impact of this guidance on our consolidated financial statements.

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

Revenue Recognition (ASU 2016-20, ASU 2016-12, ASU 2016-11, ASU 2016-10, ASU 2016-08, ASU 2015-14 and ASU 2014-09)
ASU 2014-09 indicates 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. ASU 2015-14 provided for a one-year deferral of the effective date, which will require us to adopt this standard effective January 1, 2018. ASU 2016-08 amends the principal-versus-agent implementation guidance and illustrations in ASU 2014-09. ASU 2016-10 clarifies the identification of performance obligations as well as licensing implementation guidance. ASU 2016-11 brings existing Securities and Exchange Commission (SEC) guidance into conformity with revenue recognition accounting guidance of ASU 2014-09 discussed above. ASU 2016-12 provides clarification on assessing collectability, presentation of sales tax, non-cash consideration and transition. ASU 2016-20 addresses necessary technical corrections and improvements to clarify codification amended by ASU 2014-09 within Topic 606. The revenue recognition 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 the update. 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. Our evaluation process includes, but is not limited to, identifying contracts within the scope of the guidance, reviewing and documenting our accounting for these contracts, identifying and determining the accounting for any related contract costs and assessing the impact of this guidance on our consolidated financial statements.

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 will be required to adopt this standard retrospectively for each period presented effective January 1, 2018. Early adoption is permitted. The adoption of this update will require us to change the presentation on the consolidated statements of cash flows for restricted cash or restricted cash equivalents; however, we do not expect the adoption of this update to have a material effect on our consolidated financial statements.

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. Currently, recognition of the income tax consequence was not recognized until the asset was sold to an outside party. We will be required to adopt this standard on a modified retrospective basis effective January 1, 2018. Early adoption is permitted. We are currently evaluating the impact of this guidance on our consolidated financial statements.

18


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


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 will be required to adopt this standard effective January 1, 2018. We do not expect the adoption of this update to 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. Available-for-sale 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 standard 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.

Leases (ASU 2016-02)
This update is intended to increase transparency and comparability for lease transactions. A lessee is required to recognize an asset and a liability for all lease arrangements longer than 12 months. Lessor accounting is largely unchanged. We will be required to adopt this standard on a modified retrospective basis effective January 1, 2019. Early adoption is permitted. Our implementation efforts are primarily focused on the review of existing lease contracts and assessing the impact of this guidance on our consolidated financial statements.

Financial Instruments – Recognition and Measurement (ASU 2016-01)
This update retains the current accounting for classifying and measuring investments in debt securities and loans, but 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. We currently recognize changes in fair value related to available-for-sale (AFS) equity securities in accumulated other comprehensive income (AOCI) on the consolidated balance sheets. We will be required to adopt this standard with a cumulative-effect adjustment to beginning retained earnings effective January 1, 2018. Refer to Note 2 – Investments for further information on the unrealized gains and losses of our AFS equity securities.



19


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

2. Investments

Available-for-sale SecuritiesOur AFS investment portfolio includes bonds, collateralized loan obligations (CLO), asset-backed securities (ABS), commercial mortgage-backed securities (CMBS), residential mortgage-backed securities (RMBS), redeemable preferred stock, and equity securities. Additionally, it includes direct investments in affiliates of Apollo Global Management, LLC (AGM and, together with its subsidiaries, Apollo) where Apollo can exercise significant influence over the affiliates. These investments are presented as investments in related parties on the condensed consolidated balance sheets and separately disclosed below.

The following table represents the cost or amortized cost, gross unrealized gains and losses, fair value and other-than-temporary impairments (OTTI) in AOCI of our AFS investments by asset type:
 
June 30, 2017
(In millions)
Cost or Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
 
OTTI
in AOCI
Fixed maturity securities
 
 
 
 
 
 
 
 
 
U.S. government and agencies
$
58

 
$

 
$
(1
)
 
$
57

 
$

U.S. state, municipal and political subdivisions
1,010

 
147

 
(1
)
 
1,156

 

Foreign governments
2,133

 
91

 
(11
)
 
2,213

 

Corporate
32,057

 
1,363

 
(200
)
 
33,220

 
5

CLO
5,161

 
38

 
(29
)
 
5,170

 

ABS
3,597

 
49

 
(42
)
 
3,604

 

CMBS
1,828

 
56

 
(19
)
 
1,865

 

RMBS
8,931

 
608

 
(11
)
 
9,528

 
12

Total fixed maturity securities
54,775

 
2,352

 
(314
)
 
56,813

 
17

Equity securities
379

 
51

 
(1
)
 
429

 

Total AFS securities
55,154

 
2,403

 
(315
)
 
57,242

 
17

Fixed maturity securities – related party
 
 
 
 
 
 
 
 
 
CLO
280

 
3

 

 
283

 

ABS
54

 

 

 
54

 

Total fixed maturity securities – related party
334

 
3

 

 
337

 

Total AFS securities including related party
$
55,488

 
$
2,406

 
$
(315
)
 
$
57,579

 
$
17


 
December 31, 2016
(In millions)
Cost or Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
 
OTTI
in AOCI
Fixed maturity securities
 
 
 
 
 
 
 
 
 
U.S. government and agencies
$
59

 
$
1

 
$

 
$
60

 
$

U.S. state, municipal and political subdivisions
1,024

 
117

 
(1
)
 
1,140

 

Foreign governments
2,098

 
143

 
(6
)
 
2,235

 

Corporate
29,433

 
901

 
(314
)
 
30,020

 
2

CLO
4,950

 
14

 
(142
)
 
4,822

 

ABS
2,980

 
25

 
(69
)
 
2,936

 

CMBS
1,835

 
38

 
(26
)
 
1,847

 

RMBS
8,731

 
313

 
(71
)
 
8,973

 
15

Total fixed maturity securities
51,110

 
1,552

 
(629
)
 
52,033

 
17

Equity securities
319

 
35

 
(1
)
 
353

 

Total AFS securities
51,429

 
1,587

 
(630
)
 
52,386

 
17

Fixed maturity securities – related party
 
 
 
 
 
 
 
 
 
CLO
284

 
1

 
(6
)
 
279

 

ABS
57

 

 
(1
)
 
56

 

Total fixed maturity securities – related party
341

 
1

 
(7
)
 
335

 

Equity securities – related party
20

 

 

 
20

 

Total AFS securities – related party
361

 
1

 
(7
)
 
355

 

Total AFS securities including related party
$
51,790

 
$
1,588

 
$
(637
)
 
$
52,741

 
$
17



20


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:    
 
June 30, 2017
(In millions)
Amortized Cost
 
Fair Value
Due in one year or less
$
779

 
$
785

Due after one year through five years
7,781

 
7,950

Due after five years through ten years
11,352

 
11,711

Due after ten years
15,346

 
16,200

CLO, ABS, CMBS and RMBS
19,517

 
20,167

Total AFS fixed maturity securities
54,775

 
56,813

Fixed maturity securities – related party, CLO and ABS
334

 
337

Total AFS fixed maturity securities including related party
$
55,109

 
$
57,150


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 cost or amortized cost:
 
June 30, 2017
 
Less than 12 months
 
12 months or greater
 
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
$
19

 
$
(1
)
 
$
11

 
$

 
$
30

 
$
(1
)
U.S. state, municipal and political subdivisions
66

 
(1
)
 
2

 

 
68

 
(1
)
Foreign governments
486

 
(11
)
 
12

 

 
498

 
(11
)
Corporate
4,893

 
(129
)
 
813

 
(71
)
 
5,706

 
(200
)
CLO
517

 
(3
)
 
1,107

 
(26
)
 
1,624

 
(29
)
ABS
494

 
(3
)
 
632

 
(39
)
 
1,126

 
(42
)
CMBS
383

 
(15
)
 
119

 
(4
)
 
502

 
(19
)
RMBS
421

 
(6
)
 
315

 
(5
)
 
736

 
(11
)
Total fixed maturity securities
7,279

 
(169
)
 
3,011

 
(145
)
 
10,290

 
(314
)
Equity securities
187

 
(1
)
 

 

 
187

 
(1
)
Total AFS securities
7,466

 
(170
)
 
3,011

 
(145
)
 
10,477

 
(315
)
Fixed maturity securities – related party
 
 
 
 
 
 
 
 
 
 
 
CLO
5

 

 
8

 

 
13

 

ABS

 

 
49

 

 
49

 

Total fixed maturity securities – related party
5

 

 
57

 

 
62

 

Total AFS securities including related party
$
7,471

 
$
(170
)
 
$
3,068

 
$
(145
)
 
$
10,539

 
$
(315
)


21


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

 
December 31, 2016
 
Less than 12 months
 
12 months or greater