Executive Summary / Key Takeaways

• Athene operates a differentiated spread-based business model, leveraging its partnership with Apollo for best-in-class asset management to generate attractive returns across diverse, long-duration liabilities sourced through retail, flow reinsurance, and institutional channels, complemented by opportunistic inorganic growth.
• The company demonstrated robust operational and financial performance in Q1 2025, marked by significant organic inflows, growth in net invested assets, and solid profitability, despite a decrease in GAAP net income driven by market volatility impacts on investments and derivatives.
• Athene's strategic focus on directly originated, high-grade alpha credit investments and differentiated alternative investments, powered by Apollo's sourcing capabilities, provides a competitive edge in yield generation and risk management, contributing meaningfully to net investment earnings.
• A strong capital position, including substantial deployable capital and access to capital vehicles like ACRA, positions Athene to capitalize on ongoing industry restructuring and pursue accretive organic and inorganic growth opportunities, particularly in the pension risk transfer market and international expansion in Asia.
• While facing competitive pressures in certain channels and market volatility risks, Athene's scale, operational efficiency (including its technology-enabled admin strategy), disciplined underwriting, and solutions-provider approach underpin its confidence in generating solid earnings and book value growth, supported by expectations for ratings improvements.

Manufacturing Spread and Unlocking Value in the Retirement Services Landscape

Athene Holding Ltd. is a leading financial services company specializing in retirement savings products, operating a distinct spread-based business model. At its core, Athene generates income by sourcing long-term, predictable liabilities – primarily through annuities and funding agreements – and strategically investing the associated assets. This model is fundamentally powered by its deep, long-standing partnership with Apollo Global Management, Inc. (APO), which provides Athene with differentiated asset management capabilities, enabling the company to source or originate assets with attractive risk-return profiles and capture incremental yield. This symbiotic relationship is central to Athene's ability to manufacture spread and drive profitable growth across various market environments.

The company operates within a competitive and evolving retirement services industry, characterized by an aging population seeking secure retirement income and a trend towards industry restructuring as traditional insurers look to shed capital-intensive blocks of business. Athene has strategically positioned itself as a preferred solutions provider in this landscape, leveraging its scale, capital flexibility, and execution expertise.

A key differentiator for Athene lies in its operational model, which includes a technology-enabled administration strategy. While specific details on proprietary technology platforms are not extensively disclosed with quantitative metrics, management commentary and competitive analysis highlight its impact. Athene's operational efficiency, partly enabled by outsourcing administration to leading pension administrators, contributes to having one of the lowest expense ratios in the industry. Competitive analysis estimates suggest this model, combined with proprietary risk management tools, enables 10-15% lower operating costs per unit and 15-20% greater efficiency in managing withdrawal options compared to some peers. This cost leadership is a significant competitive advantage, allowing Athene to underwrite business at attractive spreads even in challenging pricing environments. The company also invests in R&D, exploring areas like integrating Apollo funds into retail products and developing Registered Index-Linked Annuities (RILAs), although specific quantifiable targets for these initiatives are not provided. The strategic intent is to enhance product offerings and distribution capabilities.

Athene's historical journey, rooted in the SunAmerica model, has shaped its disciplined approach to growth and capital deployment. Since its incorporation in 2008, the company has consistently focused on compounding book value through profitable liability sourcing and active asset management, achieving a 16-17% compound annual growth rate in adjusted book value since inception.

The company sources liabilities through four primary channels: Retail, Flow Reinsurance, Institutional, and Inorganic transactions.

The Retail channel, focusing on individual annuities (FIAs, MYGAs, RILAs), remains a significant source of inflows. In Q1 2025, retail inflows were $9,482 million, slightly down from $9,663 million in Q1 2024. Management noted strong execution across bank, broker-dealer, and IMO channels, with disciplined pricing maintaining targeted returns despite competitive pressures in the MYGA market. Expansion in bank and broker-dealer channels and product enhancements are expected to support future growth.

Flow Reinsurance, where Athene reinsures newly issued policies from third parties, saw a substantial increase in Q1 2025, with inflows of $4,933 million compared to $2,390 million in Q1 2024. This growth was driven by strategic opportunities and expanding partnerships, particularly in Asia, demonstrating Athene's ability to pivot to opportunistic channels.

The Institutional channel, comprising Funding Agreements (FABNs, secured, FHLB) and Pension Group Annuities (PRT), also showed strong growth in funding agreements. Funding agreement inflows reached $11,144 million in Q1 2025, up from $8,041 million in Q1 2024, reflecting diversified activity and record FABN issuance. The PRT channel, while quiet in Q1 2025 with only $4 million in inflows (vs $0 million in Q1 2024), has been a significant growth area historically, with Athene closing 49 deals totaling $52.7 billion since 2017 and positioning itself as a market leader in this early-innings market with substantial future potential ($1T+ in well-funded plans).

Beyond organic growth, Inorganic transactions (acquisitions and block reinsurance) are a critical component of Athene's strategy. While not detailed as a separate inflow line in the recent Q1 2025 filing, management consistently highlights the active pipeline and opportunities in the market restructuring trend. Athene's deployable capital, estimated at $8.2 billion as of March 31, 2025 (including $1.6 billion excess equity, $3.2 billion untapped leverage, and $3.4 billion ACRA capital), translates to over $100 billion of liability purchasing power, positioning it as a leading buyer for large, complex deals. The company remains disciplined on pricing, opting to pass on deals if return targets are not met, even in a "frothy" market.

The success of Athene's spread-based model hinges on its asset management capabilities. Substantially all of Athene's $333.3 billion total investments (as of March 31, 2025) are managed by Apollo. The investment strategy emphasizes generating alpha by taking measured liquidity and complexity risk, rather than incremental credit risk, through active sourcing and underwriting. This includes a growing focus on directly originated, high-grade alpha credit investments and a differentiated approach to alternative investments (~5% of net invested assets). As of March 31, 2025, net invested assets totaled $262.4 billion, primarily in corporate securities, structured credit (CLOs, ABS, CMBS, RMBS), and mortgage loans. Related party investments, primarily managed by Apollo, totaled $49.4 billion (12.9% of total assets).

Financial performance in Q1 2025 reflected the impact of market conditions. GAAP Net Income available to AHL common stockholder decreased to $420 million from $1,147 million in Q1 2024. This was primarily driven by a $1.5 billion decrease in revenues, largely due to unfavorable investment-related gains/losses (specifically, the change in fair value of FIA hedging derivatives linked to equity markets and net foreign exchange impacts), partially offset by increased net investment income and favorable changes in the fair value of mortgage loans and reinsurance assets (driven by decreasing US Treasury rates). Benefits and expenses decreased by $687 million, mainly due to lower interest-sensitive contract benefits (driven by the change in FIA reserves), partially offset by increased market risk benefits remeasurement losses (linked to risk-free rates and equity markets) and higher operating expenses.

Despite the volatility in GAAP results, the underlying profitability drivers remained solid. Spread Related Earnings (SRE) decreased slightly to $804 million in Q1 2025 from $816 million in Q1 2024. This was influenced by a higher cost of funds (3.46% in Q1 2025 vs 3.10% in Q1 2024), driven by growth in business and higher rates on new issues, and increased interest and other financing costs. These were partially offset by higher net investment earnings (5.06% net investment earned rate in Q1 2025 vs 4.89% in Q1 2024), benefiting from growth in average net invested assets, higher rates on new deployment, and increased alternative investment income. Alternative investments generated a 10.08% annualized net investment earned rate in Q1 2025, up from 9.10% in Q1 2024, driven by favorable performance in strategic origination platforms and equity investments.

Athene maintains a strong liquidity position, managing cash flows to meet obligations without forced asset sales. Liquid assets totaled $129.8 billion (excluding modco/funds withheld) as of March 31, 2025, with additional liquidity available through credit and repurchase facilities. Policyholder withdrawal risk is mitigated by surrender charges and MVAs, with a significant portion of liabilities being non-surrenderable or subject to penalty. The holding company's liquidity relies on subsidiary dividends, subject to regulatory limits, but is supplemented by external funding capacity. Athene's capital position is robust, with regulatory capital significantly exceeding minimum requirements and substantial deployable capital available for growth.

The competitive landscape is dynamic. Athene competes with large diversified insurers like AIG (AIG), MetLife (MET), and Prudential (PRU), as well as other PE-backed platforms. While competitors like MetLife may have larger overall market share and potentially faster innovation cycles in certain areas (e.g., digital platforms), Athene differentiates itself through its cost efficiency (enabled by its operational model and technology), disciplined underwriting, solutions-provider approach (e.g., in PRT and complex inorganic deals), and unique asset sourcing capabilities via Apollo. Competitive pressures are evident in MYGA and flow reinsurance pricing, but Athene prioritizes returns over volume. The increasing number of PE entrants in the M&A market has led to some "frothy" pricing, but Athene believes its scale, capital, and expertise provide a significant competitive advantage, particularly for larger or more complex transactions. Regulatory scrutiny, such as the NAIC's focus on affiliated transactions, is viewed as potentially beneficial for Athene due to its emphasis on transparency.

Key risks include market volatility impacting investment values and derivative performance, interest rate fluctuations affecting portfolio yields and liability costs, competition impacting pricing and volume, regulatory changes (like LDTI, though expected impact is modest), counterparty credit risk, and potential credit losses in the investment portfolio.

Looking ahead, management is confident in Athene's ability to continue generating healthy organic growth, targeting mid-teen returns or better on new business. They expect the institutional channels, particularly PRT and funding agreements, to remain active, and see significant opportunities for inorganic growth in the ongoing industry restructuring, including international expansion in Asia. The company expects to benefit from ratings improvements, further enhancing its competitive position. While specific full-year quantitative guidance was not provided in the Q1 2025 filing, prior commentary indicated expectations for solid earnings and book value growth, supported by strong inflows and efficient capital deployment.

Conclusion

Athene's investment thesis is fundamentally rooted in its resilient spread-based business model, enhanced by the strategic advantages derived from its partnership with Apollo's asset management expertise and its own operational efficiencies. The company has demonstrated a consistent ability to generate profitable growth across diverse liability channels and capitalize on inorganic opportunities, even amidst challenging market conditions and increasing competition. While GAAP results can be influenced by market volatility, the underlying profitability drivers, as reflected in its net investment spread and strong alternative investment performance, remain compelling. With a robust capital position, significant deployable capital, and a strategic focus on high-grade alpha assets and solutions-oriented transactions, Athene is well-positioned to continue its growth trajectory and unlock further value in the consolidating retirement services landscape. Investors should monitor the company's ability to maintain pricing discipline in competitive markets, execute on its inorganic pipeline, and leverage its operational model and asset management capabilities to sustain attractive returns and compound book value growth.