Kristin Southey – Head-Investor Relations Jim Belardi – Chairman and Chief Executive Officer Bill Wheeler – President Marty Klein – Chief Financial Officer.

Seth Weiss – Bank of America Tom Gallagher – Evercore ISI Erik Bass – Autonomous Research Suneet Kamath – Citi Mark Hughes – SunTrust Ryan Krueger – KBW Jimmy Bhullar – JPMorgan Sean Dargan – Wells Fargo.

Thank you for joining us today for Athene's Conference Call. [Operator Instructions] I would like to remind everyone that today's call is being recorded. Please note that this call is the property of Athene, and that any unauthorized broadcast of this call in any form is strictly limited. An audio replay will be available on athene.com.

I will now turn the call over to Kristin Southey, Head of Investor Relations. Ms. Southey, you may begin..

Thank you very much, operator. Good morning, everyone, and welcome to Athene's conference call to discuss Q4 and full-year 2016 earnings. Our earnings release, presentation materials, and financial supplement, which we will be referring to during the call, can be found on our website at ir.athene.com.

Reconciliations of non-GAAP performance measures discussed on today's call can be found in those documents. Joining me today from the Athene management team are Jim Belardi, Chairman and CEO; Bill Wheeler, President; and Marty Klein, Chief Financial Officer.

I would like to highlight that some of the comments made during this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. We do not revise or update such statements to reflect new information, subsequent events, or changes in strategy.

There are a number of risks and uncertainties that could cause the actual results to differ materially from those expressed or implied. Factors that could cause the actual results to differ materially are discussed in detail in our Registration Statement on Form S-1, as amended, which can be found at the SEC's website, www.sec.gov.

An audio replay will be available on our website shortly after today's call. Also, please note that any comparisons made will be versus the prior-year period, unless otherwise noted, and any references to year to date is for the 12 months ending December 31, 2016. And now I would like to turn the call over to Jim Belardi..

Thank you, Kristin. Hello, everyone, and welcome to Athene's fourth-quarter and full-year 2016 conference call. It's great to talk with you. 2016 was a very important and exciting year for Athene. We executed on our growth initiatives, generated very strong financial results, and set the stage for long-term strategic growth.

In addition, on December 9 Athene began trading as a public company, one of the most important milestones in our Company's history. Our growth initiatives are based on sourcing attractively priced, long-term, and persistent liabilities, increasing our investment margin, and maintaining an efficient cost structure.

In the fourth quarter and for the full year significant liability growth and increased investment margin drove strong year-over-year returns in operating income, net income, and shareholders' equity. In 2016 we also further strengthened our already strong balance sheet, and ended the year extremely well capitalized.

On page 3 of the presentation, overall Q4 net income was $368 million, an increase of 52% over the prior year, and operating income net of tax was $284 million, an increase of 16% over the prior year.

For the full-year, net income grew to $805 million, up 43% over the prior year, and operating income net of tax increased to $760 million, which was up 12% over the prior year excluding the impact of unlocking and a deferred tax valuation release.

We have built a multi-channel distribution platform that allows us to source attractive liabilities across various market environments. In 2016 we generated a record $8.8 billion of new deposits, an increase of 127% over our strong growth in 2015. Along with this growth, we maintained our targeted returns by being disciplined in our pricing.

In 2017 we expect to continue to expand and further diversify our products and distribution. In the first quarter of 2017 we benefited from our high-quality credit profile and our public company status with the issuance of $650 million of Funding Agreement Backed Notes through our institutional channel.

These were our second and third FABN transactions. And we received a significant level of interest and demand, and we expect to be a consistent issuer in this market. In addition to funding agreements, this year we are also pursuing transactions in the pension risk transfer market, another new, large-scale, and untapped opportunity for us.

In 2016, the strong performance in our retirement business drove significant asset growth. As of 12/31/2016 total invested assets were $72 billion, an increase of $4.9 billion or 7% over the prior year. In addition to increasing our assets, we also increased our investment margin.

In our retirement services segment, we generated an investment margin of 2.96% in the fourth quarter, an increase of 37 basis points over the prior year. And an operating ROE excluding AOCI of 21.8%. At 12/31//2016 we had $6.5 billion of shareholders' equity excluding AOCI, an increase of 17% over the prior year.

We also had high risk-based capital ratios, no financial leverage, and more than $1.5 billion of excess equity capital. To cap off the year, on December 9 we began trading as a public company on the New York Stock Exchange under the ticker symbol ATH. And today our market cap is approximately $10 billion.

Our simple and straightforward business model is highlighted on page 4. We make more on our assets than we pay on our liabilities, with an investment margin target of 2% to 3%. We had controlled and low operating expenses based on our scalable infrastructure, which generates attractive target retirement services ROEs of mid-teens or better.

In 2016 our retirement services segment generated 137 basis points of operating earnings, and an operating ROE of 20.2%, excluding the unlocking of deferred tax valuation allowance release. In 2016 we performed very well in a challenging yield environment, and we are very well positioned to perform even better if interest rates are higher.

We have the capital and the track record to be opportunistic in any environment, organically and inorganically, and our investment portfolio is very high quality and continues to generate attractive returns.

We are a strong, growth-oriented, differentiated, and disciplined financial services company that has created significant shareholder value since our inception, and we're well positioned to capitalize on future opportunities. Now Bill will review our business objectives and growth drivers in more detail..

funding agreement backed notes and pension risk transfer. Funding agreement backed notes are a $59 billion market that Jim Belardi basically invented in the mid-1990s at SunAmerica. As Jim mentioned, in the first quarter of this year we have already issued two agreements totaling $650 million, including a $600 million five-year transaction.

The main issuance was considerably larger with significantly higher demand than our inaugural issuance, as the substantial amount of disclosure that comes with being a public company is viewed as a positive for these investors.

Funding agreement backed notes represent a very efficient source of liabilities, and we feel confident in our long-term potential in this market. In the pension risk transfer market in 2016, there were a healthy number of deals executed, and we feel that there's opportunity ahead in a variety of sizes.

In 2016 we focused on developing our capabilities to undertake pension risk transfer transactions. Over the next several years, approximately $15 billion to $20 billion of annual close-out activity is expected in the U.S.

In 2017, we are pursuing deals in this market opportunistically, having already received a positive response from various third-party pension advisors. We believe that we can leverage our expertise to underwrite these transactions, and maintain our focus on writing profitable new business over the long term.

In addition to organic growth, opportunistic acquisitions and block transactions are a key part of our strategy. Given our expertise and balance sheet strength, we are well positioned to take advantage of attractive market opportunities to generate shareholder value.

In 2017 our plan is to generate new deposits in line or better than the prior year, although total deposits and mix will ultimately be driven by the achievement of our return targets. Our diversified model allows us to focus on the lines of business that offer the most compelling returns.

Turning to our liability profile on Page 6, through all our channels, we target long-dated, attractively priced, persistent liabilities. In 2016 our reserve liabilities increased by approximately $5.7 billion to $71 billion overall.

Our reserve liabilities are mostly comprised of fixed indexed annuities and fixed rate annuities, with a weighted average life of 7.8 years, and less than 2% average cost of crediting.

We believe we are conservative in writing our liabilities, and they are generally persistent, given the surrender charge protections and market value adjustments we have in place.

As of December 31, 86% of our fixed and fixed indexed annuity policies included surrender charges, and 73% were subject to market value adjustments, both of which may increase the probability that a policy will remain in force from one period to the next, and protect our ability to meet our obligations to policyholders.

In addition, we have roughly 75 to 85 basis points of distance to guaranteed minimum crediting rates. Our persistent liability profile complements our asset management strategy, which looks to capitalize on complexity and liquidity risk, rather than only credit risk.

This allows Athene to target a 2% to 3% investment margin without taking on excessive asset risk, which Jim will talk about in just a moment. In summary, 2016 was a very important year for our Business.

And in 2017 we will continue to diversify and expand our distribution, as well as pursue opportunistic growth opportunities to enhance earnings on our current book of business. Today, Athene is well positioned for growth with the right people, infrastructure, scale, and financial resources.

Now I'm going to turn the call back to Jim who will review our investment portfolio in more detail..

MidCap, a middle market lender; and AmeriHome, a mortgage lender and servicer. Approximately 14% is in real estate and other real assets. Within our $71.8 billion of invested assets, German invested assets comprised $5.3 billion. This portfolio is predominantly invested in government debt, corporate fixed income securities, and real estate.

In 2016 we executed on our differentiated value-add investment strategy, underwriting liquidity and complexity risk, not just credit risk, resulting in a higher net investment earned rate while maintaining very high credit quality.

With respect to 2017, we are pleased to announce that in support of our efforts to achieve profitable growth, we have agreed with Apollo to reduce investment management fees and revise subadvisory fees subject to approval of certain changes to our bylaws by our shareholders.

Upon approval, the new investment management fee structure will be retroactive to January 1, 2017, and will continue until otherwise amended.

The new fee framework results in a lower level of fees for us, as we continue to expand our Business, and incentivizes both AAM and Apollo to make long-term investments in their capabilities and infrastructure to support our growth.

Currently, we pay investment management fees of about 40 basis points per year on North American assets, subject to certain rebate agreements. Under the new arrangement, we would pay investment management fees of 40 basis points per year for assets under management up to $65.8 billion, and 30 basis points per year for assets in excess of that.

The discount on organic deposits generated in 2016 above $5.1 billion will remain in place. In summary, our portfolio is performing very well, and will perform even better in a higher rate environment. Now, Marty will review our financial performance and strong balance sheet..

Thanks, Jim, and hello, everybody. This morning I'll focus my comments on our financial performance for the quarter and full-year 2016, and I'll close with some perspectives on our long-term growth strategy in 2017 and first-quarter drivers.

In the fourth quarter we delivered strong financial performance, and further strengthened our balance sheet and capital position. As shown on Page 8, in the fourth quarter net income increased 52% over the prior year to $368 million or $1.80 per operating diluted share.

Fourth-quarter operating income net of tax increased 16% over the prior year to $284 million or $1.46 per operating diluted share. In the fourth quarter we generated an operating ROE excluding AOCI of 17.9%.

The fundamentals in our Business were strong in the quarter, with both profitable deposit growth and favorable investment income increasing both net investment margin and operating income.

In our retirement services segment, strong performance in both fixed income and alternative investments drove investment income growth of $118 million or 17% over the prior year.

Investment income was driven by growth in invested assets, reflecting good performance in credit funds, as well as the removal of liquidity discounts used in the determination of the fair value of certain of the investments, which is now complete, and which for the quarter resulted in $28 million of investment income in 2016 compared to $3 million in 2015.

Offsetting some of the strong performance was an increase in other liability costs of $76 million over the prior year, primarily driven by an increase in writer reserves resulting from growth in the Business, and higher-than-expected persistency.

Additionally, in the fourth quarter of 2015 we had $26 million of favorable mortality gains and a $20 million favorable deferred tax valuation release.

Importantly, investment margin on deferred annuities, which is a key measurement of the health of our core spread business, continued to show strength and momentum in the quarter, as we managed this tightly from both sides of the balance sheet.

In the fourth quarter our investment margin on deferred annuities was 2.96%, an increase of 37 basis points over the fourth quarter of 2015, including 17 basis points from the removal of liquidity discounts that I mentioned earlier, compared to 2 basis points in the prior year.

The margin improvement was driven by favorable investment income, with a marginal increase in crediting rates year-over-year. For the quarter, the retirement services segment generated operating income net of tax of $246 million, resulting in an operating ROE excluding AOCI of 21.8%.

In corporate and other, during the quarter, operating income net of tax was $38 million, an increase over the prior year, mainly due to higher alternative investment income and an increase in German operating income net of tax of $10 million, reflecting a $7 million deferred tax valuation allowance release.

Net income in the fourth quarter increased $126 million over the prior year, primarily because of higher operating income and a favorable net change in fixed indexed annuity derivatives due to an increase in discount rates in the fourth quarter.

With respect to earnings per share, we currently have Class A, Class B, and Class M1 through M4 shares outstanding. Slide 16 in the presentation outlines the EPS calculations in detail. We present earnings per diluted share for our Class A shares, as they are the share class that all other classes would convert into.

Per GAAP, to calculate the number of shares, we use Class A shares and equity instruments that are dilutive to Class A shares. For the fourth quarter, all Class M shares, as well as certain LTIP incentive awards, were considered dilutive to Class A shares, and are included.

Class B Shares were anti-dilutive for the fourth quarter, and thus were excluded from the calculation.

For the fourth quarter, Class A shares represented 31% of the weighted average shares outstanding that were dividend-eligible, so 31% of total net income was allocated to the dilutive Class A shares, resulting in an earnings per diluted Class A share of $1.80.

For operating earnings per diluted Class A share, we assume conversion or settlement of all eligible shares and awards to Class A shares, which at the end of the quarter represented $194.2 million. The operating share count increased by 8 million shares over the prior year, and certain classes of shares were not dilutive prior to our IPO.

For the quarter we had operating income net of tax of $284 million, which resulted in operating earnings per diluted share of $1.46. Turning to page 9, for the full year, net income increased 43% over the prior year, and operating income net of tax increased $20 million over the prior year.

Excluding the non-cash impact of unlocking, and the deferred tax valuation allowance release, operating income net of tax increased 12% over the prior year. In our retirement services segment, we generated operating income net of tax of $809 million, an increase of $40 million over the prior year.

Excluding the unlocking and deferred tax valuation release, operating earnings increased 14%, with an operating ROE excluding AOCI of 20.2%. The increase was primarily driven by favorable fixed income and alternatives results, as well as the deferred tax valuation allowance release.

The increase in investment income was driven primarily by growth in invested assets, the reinvestment of Aviva investments, and $58 million of higher bond call income related to two large redemptions in the first two quarters of 2016.

Alternative investment income increased, primarily driven by higher credit fund income due to credit spreads tightening, as well as the favorable increase in the fair value of two of the segment's investment funds, reflecting the removal of liquidity discounts, as I mentioned earlier, which for the year resulted in $52 million of investment income in 2016 compared to $11 million in 2015, and which is now complete.

Partially offsetting this was an increase in liability costs driven by our annual unlocking of assumptions of $158 million in the third quarter, an increase in writer reserves resulting from growth in the Business and higher-than-expected persistency in our in-force blocks, increased amortization driven by higher gross profits and growth, as well as increased operating expenses as we invest in our growth initiatives.

In 2016, our investment margin on deferred annuities for retirement services was 2.77%, an increase of 32 basis points over 2015, which includes 8 basis points of bond call income related to the two large redemptions I mentioned, and 8 basis points from the removal of liquidity discounts for certain investments as compared to 2 basis points in the prior year.

Corporate and other operating loss net of tax was $49 million due mainly to a decline in the market value of two public equity positions. We inherited these positions as part of the successful contribution in 2012, which has been a very beneficial transaction from an economic and capital standpoint.

Going forward, we expect less volatility, as we no longer have exposure to one of the equities, and the other is now effectively held directly instead of within a fund.

Net income for the year increased $243 million over the prior year, driven primarily by higher operating income net of tax and a favorable net change in fixed indexed annuity derivatives due to equity market performance and a favorable change in assumed reinsurance-embedded derivatives related to credit spread tightening.

As a reminder, derivatives on assumed reinsurance represent third-party funds for modified coinsurance and funds that build business of $6.5 billion of assets at year-end 2016, in which the unrealized gains and losses on available-for-sale securities flow through our GAAP net income results.

While the economics of our assumed reinsurance are similar to what would be achieved if the business were written directly, the GAAP net income treatment is different, with changes in fair value and AFS assets on reinsurance flowing through net income, while such changes would flow through AOCI if the business were written directly.

Again, Slide 16 provides details behind the full-year figures of $4.21 of EPS per diluted Class A's and $3.93 of operating EPS per diluted Class A's. Our weighted average operating diluted share count at the end of the year of 193.4 million increased by 18 million shares over the prior year.

This is because shares issued in the 2015 capital raise were outstanding for the full year in 2016, compared to just part of the year in 2015, and certain shares were not dilutive prior to our IPO.

Turning to our strong capital position on page 10, at year-end 2016, shareholders' equity excluding AOCI increased 17% to $6.5 billion as compared to $5.6 billion for the prior year. We ended the year with more than $1.5 billion of excess equity capital, which we expect will continue to contribute to our growth and ratings improvement over time.

We have a track record of deploying our capital at attractive rates of return, and we're willing to be patient, opportunistic, and disciplined in our deployment. Turning to our capital ratios, even after our investment of capital to grow our retail channel, which increased sales significantly in 2016, our U.S.

risk-based capital ratio was strong at 478% and well above our 400% threshold. As of year end, our BSCR for our Bermuda platform was 228%, and its risk-based capital ratio was also strong at 529%. Our operating platforms taken together generated an increase in statutory capital and surplus of approximately $500 million in 2016.

Let me provide some additional perspectives on Bermuda capital. We finished the year with very strong ratios. While we manage capital in Bermuda using U.S. risk-based capital factors and statutory reserving standards, we also must measure capital using BSCR ratios. In 2016, Bermuda adopted Solvency II equivalency standards.

Capital ratios under these new standards are expected to be more volatile than our RBC ratios, given the mark-to-market approach used in the new Bermuda framework. That said, at 228% at year end, we had over double the minimum regulatory requirement given our significant capital base.

At the end of the quarter, we had no debt and we had four years remaining on our $1 billion five-year credit facility, which remains undrawn. To wrap up 2016, for the quarter and for the full year we delivered strong operating and financial results in what was a challenging environment for most of the year.

Looking ahead, we are excited about our near- and longer-term prospects, and our ability to produce growth and an attractive return on equity. As you know from our IPO prospectus, in 2017 we have a significant number of shares coming off lock-up.

We may choose to utilize secondary offerings as we continue to explore ways to increase liquidity for our shareholders, and smooth out the release of locked-up shares in the market. And note that at this point we do not have a registration statement on file, and so we are unable to comment on any potential or proposed offerings.

Let me now provide some perspectives on our long-term growth strategy and some expectations for 2017. I'll start with our long-term growth strategy on page 11. First, in terms of our in-force base business, we already have a significant and recurring earnings stream with $71 billion of reserves and an expected annual investment margin of 2% to 3%.

On top of that, we expect annual new organic deposits will significantly exceed withdrawals, which will generate new and recurring earnings. On the expense side, after making some initial investments to build out a scalable platform with multiple distribution channels, we expect to realize operating leverage as our businesses grow.

We also believe it’s possible to enhance our investment margins, excluding the high bond call income and alternatives discount we had in 2016, for example, by increasing our allocation to alternatives over time.

Finally, we have a very robust capital base to drive future growth in our various channels, as we enter new markets, launch new products, build out our fund agreement and pension risk transfer businesses, and acquire blocks and make acquisitions.

We have a straightforward growth model, which doesn’t rely on rising interest rates, ratings upgrades, or large-scale acquisitions to generate attractive returns, but any or all of those factors have the potential to further enhance our growth and earnings potential.

We believe our strong financial position and multiple growth opportunities, combined with our track record of execution, will continue to yield value creation for shareholders over the long-term. Now I’ll share some thoughts on 2017 and first-quarter drivers.

Overall we expect to generate mid-teen returns on organic sales, and mid-teens or higher returns on opportunistic inorganic growth. In 2017 our plan is to generate new deposits in line with, or better than, the deposits we generated in 2016, although total deposits and mix will be driven by the achievement of our target returns.

With regard to the first quarter, even with some of the market softness that Bill mentioned earlier, we expect first quarter deposits will be up year-over-year, driven in part by the demand we saw early in the first quarter as we issued $650 million in fund agreements.

With respect to our cost of crediting, in 2017 you may expect it to be relatively stable compared to 2016, as we continue to focus on pricing discipline. With respect to other liability costs in 2017, they currently are expected to be down versus the prior year due to the unlocking in the third quarter of 2016.

However, excluding the unlocking, other liability costs should increase due to a change in underlying assumptions in the unlocking process in the third quarter, which increases DAC amortization on our in-force, as well as higher amortization as a result of income and deposit growth.

In our investment portfolio, we target 5% to no more than 10% of our invested assets to be invested in alternatives, and during 2017 we expect to be at the low end of that range. We generally write our alternative investments to 10% plus returns over the multi-year life of the investment.

But in 2017 we expect that our total alternatives portfolio will return between 8% to 10% for the year. And, of course, these returns will vary quarter by quarter.

Overall, we expect our investment margins should come in between 2% to 3% for 2017, although we don’t expect it to be as high as in 2016, which benefited from a valuation adjustment and relatively high bond call income. In the first quarter of 2016 alone, we received $45 million of bond call income from a large redemption.

With respect to consolidated G&A operating expenses, in 2017 we expect they will be in line with 2016 as a percentage of average invested assets.

In the first quarter we now expect consolidated G&A operating expenses will be modestly higher than the prior year due to timing, as we have accelerated spending with regard to our entrance into the financial institutions and pension risk transfer markets, and also costs related to last year’s new retail product launches and continued DOL readiness spend.

In corporate and other, which includes Germany, we expect results to be slightly positive for 2017. Investment income should be significantly better in corporate and other, as the negative volatility from the public equity holdings in 2016 should not recur.

With respect to Germany, in 2017 we expect to restructure the German business in connection with our plans to contribute it as part of the capital raise with third-party investors to pursue opportunities in Europe. We expect to continue to consolidate Germany in our financial results through most or all of 2017.

We’re projecting a mid-teen operating ROE for our core retirement services segment. And our earnings results are impacted by interest-rate movements.

For every 25-basis-point rise and parallel shift in interest rates, we continue to estimate a $25 million increase in operating income net of tax, with higher investment income primarily on our floaters, offset somewhat by higher DAC amortization and tax impacts. This annual impact generally would be expected to be spread equally over the quarters.

With respect to share count, we expect the weighted average operating diluted share count of approximately 196 million to 190 million in 2017, and approximately 196 million for the first quarter. With respect to capital, we calculate excess capital using a 400% RBC ratio, and we expect earnings to fund expected organic growth.

In summary, over the past seven years we have built a large, strong, growing core business. In 2016, we completed a major milestone with our IPO, and continued to execute on our organic growth plans in the retail and flow reinsurance business.

We have significant excess capital to deploy in both organic and inorganic channels, we maintain a very strong financial position, and have an efficient and scalable model which we expect will continue to create shareholder value over the long-term. We are excited about our prospects, and look forward to updating you on our progress..

Thanks, Marty. Operator, we will now open it up for questions..

Thank you. [Operator Instructions] And your first question will come from Seth Weiss of Bank of America. Please go ahead..

Hi, good morning. Thank you for taking the question.

Marty, if I could just start on the interest rate sensitivity, $25 million for each 25 basis point move for a parallel shift, could you help us think through the various sensitivities to the long and short end of the curve if we assume non-parallel shifts in rates?.

Sure, Seth. Really, what drives the higher income is a few different things, a couple different things in our floaters – where they reset with respect to coupon and also how the discount at which we purchase the floaters is amortized into income over time. So, really, those two, I think, dynamics at work.

On the coupon reset, it typically is off of one-month or three-month LIBOR depending if it’s RMBS or CLOs. Obviously that’s off the short end of the curve looking at LIBOR.

But then amortization of the discount – for example, if we buy securities at $0.80 on the dollar, that $0.20 discount is amortized into investment income over the average life of the securities, which is, call it, five to seven years.

But the average life of those securities obviously is a function of interest rate movements but also the shape of the curve. So that amortization of discount is generally faster and higher earlier when the curve is steeper. So, the reset on the coupon really relates to the short end of the curve.

The amortization discount really relates to the short end of the curve. The amortization discount really relates to the shape of the entire curve, short end to, call it, the 10-year point, little bit longer. And the steeper that is the quicker income is allocated from that discount..

And then maybe just….

So, our sensitivity relates to a parallel shift. We really haven’t disclosed whether the curve’s flatter or steeper, and things like that. It’s a parallel shift sensitivity we’ve disclosed..

Okay. That was going to be my follow-up question, is if you could give a sensitivity if we assume the long end stays stable and the short end goes up by 25 basis points, and vice versa. I’m not sure if you are prepared to give that type of sensitivity..

I don’t really want to give you numbers on the phone. But, really, think in terms of the curve flattening scenario, that amortization of discount gets extended over a longer period of time but the coupon reset obviously is pretty easy to model in off of LIBOR..

Okay, thanks. And then if I could just one more follow-up on alts. I appreciate the disclosure on where you expect to be for 2017.

In terms of longer-term expectations on coming out to that 5% to 10% range, what really drives that? Is it a matter of opportunistically finding the right investments or are there other driving forces for where you want to be in that 5% to 10% total allocation?.

That’s right, Seth. We view the funding for our alts coming from our capital. So we have a lot of room to hit up to where our capital levels are. But we’d like to grow it, as Marty said, from 5% up to 6% or even up to maybe a 7% over time. These are not that easy to source because we’re pretty particular as to what we like to buy.

But, yes, it is opportunistic by nature. We make sure they are low volatility, more cash features, more fixed income-like, no traditional hedge funds and private equity. And we want them to have significant annual returns.

So, it’s a growth in our alternative portfolio is additional draws from already made commitments and new commitments on new alts that we find and then minus any kind of run off in the alt. So we are aggressively looking in the market and we would like to grow that allocation by a couple percent over time..

Great. Thank you..

The next question will come from Tom Gallagher of Evercore ISI. Please go ahead..

Good morning. Just a question on your outlook for M&A opportunities, specifically as it relates to the potential for corporate tax reform. Does that sort of looming in the balance cause you to take a pause? Or do you view there as being more risk associated with that? Is that being factored in to how you would price deal? That is my first question..

Hi, Tom. It’s Bill. I’d say the outcome for corporate tax reform is so uncertain now, that trying to kind of hedge it or incorporate different times of return standards is probably not a very productive exercise at the moment. And so, I would say in general, no, I don’t think it would have any impact on our M&A outlook and how we evaluate deals.

Deals are so opportunistic. You just have to – when they come before you, you’ve got to act on the knowledge you have at the moment, and that’s the way we have to deal with it..

Got it.

So Bill, by that response I take it to mean corporate tax reform is not – you don’t view that as a big risk factor right now for you in terms of your structure?.

Well, look it’s something we’re watching carefully and we’re trying to make sure we understand what the outcomes might be. But I think it’s so hazy. There’s really nothing written down about how it might impact not only financial institutions but also reinsurance activities. It’s just too uncertain to have any real reaction to it..

Got you. And then just a question on the fee concession that you’re getting from Apollo.

Is the plan – should we think about that as something that’s going to be priced into an M&A transaction or new business, meaning you’re unlikely to see an improvement in margins? Or should we think about that falling to the bottom line?.

Hey, Tom, it’s Marty. I think that we view that as probably a way to make us more competitive on deals in the market and help us grow our return targets, our mid teens IRR. And we think that’s pretty attractive returns in our industry so we don’t really feel the need to continue to beef up those margins.

We’d really rather try to use that to kind of help us compete in competitive markets organically, as well as do acquisitions. So, we would be using that advantage to kind of help us in pricing typically.

Obviously where we can we try to put business on the books at higher than mid teens where we can, but where we need to we’d use it to get the business on the books..

Got you. And then just one last one – we’ve been hearing rumblings in the market about elevated price competition for FIAs. Just curious what your perspective on that is.

Are you seeing that? And what does that mean to your sales outlook for that product in particular? And is the IMO exemption potentially helping to kind of re-stimulate sales or is that DOL and some uncertainty there still causing things to be slow?.

I’ll deal with DOL and IMO first. The IMO exemption I don’t think is going to have much impact because I think the terms are too onerous for IMOs to be able to use that as a way they become financial institutions. I think we still feel that most of major IMOs, certainly the ones we are partners, have broker-dealers today.

We think if the DOL goes through as planned – which is a big if – that they’ll be able to become financial institutions through another method. So, I don’t know if that’s going to be the issue so much.

The DOL generally, I think if you had to bet you’d say the rule is going to get substantially delayed and substantially rewritten, so it’s hard to speculate about the impact. The uncertainty around DOL and how much that’s affecting FIA, it’s clearly affecting it a little bit. Hard to say how much.

Yes, there are times our price aggressiveness in the FIA market – it’s a competitive market. And certainly the first quarter, which is for us in 2017, which is always seasonally the slowest quarter, started off a little slow.

But I actually think that we’re going to end up having a good year in FIA and certainly consistent with the expectations we set out in our plan..

Okay. Thanks, guys..

The next question will be from Erik Bass of Autonomous Research. Please go ahead..

Hi. Thank you.

Could you talk a little bit about what drove the increase in your estimate of excess capital now as compared to the time of the IPO?.

Sure, Eric. It’s Marty. Frankly, part of it is just we continue to perform very well and have a lot more earnings as we go, so that continues to add to our capital base. I think that’s probably really the biggest driver. So, we think that $1.5 billion is a pretty steady state number for the next year or two as far as excess capital.

And we think that, as I said in my remarks, as we’re putting business on organically over the course of 2017 we really think that, that will be funded by the earnings off of our in-force. So, we think that’s a pretty steady state number.

So, I think part of it just, over the last few months of the year 2016, we continued to do pretty well financially and have a lot more retained earnings that add to the capital base. We were saying over $1 billion before. We were actually well over $1 billion, so it’s really just a matter of kind of a bit of an update.

For the astute reader of our financial supplement, if you look at the capital allocated to corporate and other, you can see that it actually increased quarter-over-quarter by roughly $500 million. And that’s partly retained earnings.

A little bit of it’s coming from more efficiency and what we’re doing in alternatives, but most of it’s coming from retained earnings..

Got it. Thank you.

And then can you comment on the pipeline of potential spread base acquisitions in the market? Clearly there a couple of pretty public situations but are there other smaller opportunities that you expect that may come to the market too?.

Well. So just to be a little more specific, acquisitions versus block deals, look, I think 2016 was exceptionally quiet on both of those fronts, and we expect more activity in 2017.

Whether there’ll be a lot of true M&A acquisitions versus block, I can’t say, but we definitely think there’s going to be a lot more activity, especially with regard to block, which generally are smaller transaction than M&A deals are. And we’re seeing that the market already..

Okay. Thank you..

The next question will be from Suneet Kamath of Citi. Please go ahead..

Thanks and good morning. Marty, I just wanted to go back to your prepared remarks. At one point you’d made a comment about a secondary offering potentially in 2017 and I just wanted to get some more color behind that. It seemed like a new disclosure, a new comment from you guys..

Yes, Suneet, if you think about it, it’s not really new information, but with the IPO we have lockups expiring 225 days, 365 days, 450 days and two years out. If you think about the lockups that happened just this year alone in July and December, it’s about 45 million shares in each of those periods that roll off.

It was really just a call out to let people know that we’re thinking about ways to have that happen in an orderly basis to provide more liquidity. And certainly follow on offerings are one way to do that..

Okay.

And then on the alternative investment income in the quarter, can you help us think through how much of that was from marking to market those private investments that you talked about versus any other sources?.

Yes, it’s largely from two sources, Suneet. And if you look at the returns just in retirement services income segment, they are around 16%, which is certainly higher than we would typically expect. In fact, we said in our prepared remarks for the year 2017 in aggregate we expect 8% to 10% for 2017. So, obviously 14%, 15%, 16%, much higher typically.

That’s consistent with a couple things. Part of it was the release of the discount, which, for the quarter, in retirement services, was $28 million.

So, if you think about just retirement services alone, which had alternatives returns of I think a little over 16%, if you back that out that knocks off a little over 4% off of the returns so you get down to, call it, 12%.

12% still is probably better than what we’re typically expecting here in the near term, and that really is a function in the quarter of credit spread tightenings for our credit funds benefited from it. So, those are really the two big aspects of it. We’ve certainly called out the release of the discount as something that’s not going to recur.

In fact, we’ve fully released that discount. But alternatives are going to vary quarter-to-quarter. So, if you strip out, release that discount, we’re at 12% in retirement services, still probably a better number than we would typically expect but within a reasonable range of expectations on an upward bound.

And if you think on a more normalized basis, we think 8% to 10%. So, in aggregate, I think alternatives for the quarter, that 16% in retirement services versus maybe 8% to 10%, that’s probably $40 million, $45 million of excess. $28 million of it really is the release of discount..

Got it. And then just the last one on corporate and other disclosure on page 12 for 2017, the slide says you expect operating income to be slightly positive to 2016. And I thought in your prepared comments you said slightly positive in 2017.

So I just want to get a sense, if we’re benchmarking to the $49 million loss in 2016 I just want to get a sense of….

Yes, thanks for asking for the clarification. To be clear, it’s really we expect corporate and other, which includes Germany, to be slightly positive for the full year of 2017. For 2016 corporate, yes, it was negative but we expect to be slightly positive for the year in 2017. Germany for 2017 is going to be basically a breakeven business.

We had some negatives in 2016, as I mentioned, from a couple of those equity holdings, but they’re now not going to have any impact on earnings in corporate and other – going forward..

Great. Thanks..

Yes..

The next question will be from Mark Hughes of SunTrust. Please go ahead..

Yes, thank you. With the funding agreement of back notes, could you refresh us with what you’re seeing in the market now and having more success there, the duration of those assets, the spread and return expectations? Just curious to get an update..

Yes, sure. We’re benefiting from being a public company – the transparency, governance, et cetera, perceived impression of investors. So, we’re very pleased with the market recession we have and the two deals we did in the first quarter.

We did a five-year deal for $600 million and we reopened our original three-year deal for a small $50 million tranche, as well. And since we did those two deals, credit spreads for us on those deals have significantly tightened, which we think sets us up quite well for future issuance.

But, look, I think the sweet spot – this is a liability for us so it raises money for us and then we take the proceeds and invest in our fixed income portfolio – I think the sweet spot there is five to seven years, because that is really the sweet spot in our asset maturity scale, as well.

But we’re very flexible in what we bring in here in this liability as long as it continues to further our tighter spread ambitions. I think for the market as a whole for FA-backed notes most of the issuance is three to 10 years and we will be in those spectrums going forward..

And then your spread expectations on that?.

I won’t be specific about that but we expect to meet our mid teens return requirements on future issuance. So, we need to make sure that our funding spreads allow us to do that based on how we can invest the money. But we target mid-teens returns in each of our organic channels, and FA-backed note is no exception..

Thank you..

The next question will be from Ryan Krueger of KBW. Please go ahead..

Hi. Thanks. Good morning.

Following up on the $1.5 billion of excess capital, if a larger transaction were available, do you view all of the $1.5 billion as truly readily deployable at this point?.

Hey, Ryan, it’s Marty. Yes, essentially we do. I think that what we would probably likely do is, depending on the size of the deal, obviously, we would use most of that first and then we’d probably be open to using the debt market.

We do like to have some excess capital in our pocket for other opportunities, so I don’t know that we’d want to spend every single cent of it on a deal. We’d probably spend most of it, depending on the transaction, and then maybe go hit the debt market. We don’t have any debt on our books.

We probably have a little over $1.5 billion of debt capacity given our size. I think we’d use most of that in a transaction and then look for the debt market for the next rather than using every single penny. But, yes, that $1.5 billion is a pretty good number. We think we’re actually pretty significantly north of that right now.

And our growth organically in 2017 we do think will be funded by the earnings coming off the in-force..

Okay, thanks. And then on retirement, I think the adjusted operating ROE was 20% in 2016. I know alternatives and prepays were stronger than you expected. But even normalizing for that, it seems like it might put the normalized ROE maybe in the 18% range. You guided it to mid teens for 2017.

Are there any other headwinds that you can highlight that would bring you down closer to the mid teens? Or maybe the mid teens is a wide range?.

Mid teens is a wide range. It’s always nice to have a wide range. But I’d say also that, that assumes we don’t do any acquisition or major block deals this year. We’re obviously looking at all those things closely. We’d certainly like to be doing some things. But that assumes that we don’t. So, our equity base just continues to grow.

So, the ROE, if it happens that way, would get dragged down a bit from that..

Okay.

And then just last quick one – the other liability cost increasing, is that just on a dollar basis or do you expect them to increase as a percent of invested assets, as well?.

Yes, it’s probably a little bit above. As we went through the unlocking in the third quarter, what that means is that we’re going to have a higher DAC amortization rate than what we had before. Think of it as, call it, close to 35%. Some accountants call it K factors.

DAC amortization rate is probably up just a few points more than previously, so that alone would mean that we’re going to have higher liability costs as a percent. And then I think the other reason is just, as we put more business on the books, we’re going to have more DAC to amortize so the dollars will be going up, as well..

Okay. Great. Thanks a lot..

Your question will be from Jimmy Bhullar of JPMorgan. Please go ahead..

Hi, good morning. First, I had a question just on your views on the acquisition landscape. I think you had highlighted that – or you were assuming you could deploy about $1 billion towards deals by the beginning of 2018.

Are you still comfortable with that? And if you look at your potential opportunities, do you see yourself doing a large deal or do you think it’s more likely to be multiple smaller deals?.

Just to be clear, I don’t think we’ve ever said since we have been a public company that we anticipate putting $1 billion out in a deal by the beginning of 2018. That is not in our forecast, obviously. We have to be very opportunistic about what we do. In terms of whether it’s a big deal or a small deal, we’ll see.

We might be able to do a couple little ones, there might be a bigger one that comes along. You just have to take what the market gives you. For us, remember, a big deal, Marty has laid out the math, we have excess capital north of $1.5 billion, we have debt capacity of roughly $1.5 billion.

So, we have a lot of dry powder already in our capital structure with which to do what for us would be a pretty big deal. I’m not sure I can say much more than that..

Okay. And then on your annuity deposit, it seems like the outlook is little bit less upbeat than I would’ve expected it to be, because I think you’re implying deposits close to – or overall deposits – close to a little bit north of $2 billion per quarter. And you did more than that both in the third quarter and in the second quarter.

So, I’m not sure if those quarters were lifted because of either some front ending of sales or some catch up adjustments in the pipeline or something else..

I would say fourth quarter, the retail business was solid, probably at a run rate that we would consider normal. Reinsurance is clearly weaker, and that’s driven by, I think, a pretty soft MYGA market. And from what we can see so far in 2017, that MYGA market is still soft. So, that’s probably going to affect the reinsurance business quite a bit.

So, for those kinds of deposits, that’s probably the color I can give you. What we said on the call today is that we expect total deposit volumes organically to be consistent with last year, maybe better, but the mix may be different.

And what that means, I think, is, reinsurance might be a little softer, mainly because of MYGA, but institutional products will probably be bigger. So, we would expect our flows to be consistent year over year..

And then, lastly, the withdrawal rate ticked up a little bit. It was unusually low in the previous few quarters. And I think that might have been influenced by just some of the lapses on the legacy blocks.

But is this a more normal rate to assume or should it be where it was the previous few quarters as you are looking into 2017?.

Jimmy, it’s Marty. That’s going to bounce around a little bit just in line with the business that Aviva had written years and years ago, which was not steady-state every single year and every single quarter. It was really just a function of the business written years and years ago and how lumpy it was at the time.

So, I wouldn’t call the quarter anything. It’s probably a little bit higher than we expect. I think for 2017 what we’re trying to call out is that we expect not just our volume deposits, although the mix shift could be the same and hopefully better than what we did in 2016.

But also the net deposit growth and that reserve growth, which was $5.7 billion of income retirement overall, we expect to be able to do hopefully, as well, in 2017, maybe better..

Okay. Thank you..

The next question will be from Sean Dargan of Wells Fargo. Please go ahead..

Thank you and good morning. I have a question about your AM Best rating. I think at the time of the IPO, a theme was that you could grow your addressable market by getting into financial institutions if you had an A rating. And you’ve been under review for a little while now.

I’m just wondering if you’ve heard anything from them or what you would have to do to get that upgrade..

Hey Sean, it’s Marty. We had our annual review meetings with all the rating agencies and we’ve tried to put our best foot forward. As we talked about earlier on the call, we had, I think, a very good 2016 on a number of fronts. We really built out organic channels.

We really got a very good business platform – number 3 in fixed indexed annuities so for the year in 2016. Capital increased, all those things. And the IPO, I think, also is credit positive. So, we feel good about that. Obviously we’ll have to leave it for the rating agencies to give their views.

But it would obviously be helpful to our businesses if we got an upgrade, particularly in retail and flow reinsurance..

All right.

And a related question, if you were to raise debt at the holding company level, and that were to postpone a ratings upgrade, would that be an acceptable trade-off for you if you could put on business in a block acquisition or M&A at really accretive levels?.

It’s pretty hypothetical. I think certainly, again, with $1.5 billion of debt capacity, which is put on a full $1.5 billion of debt and use up all our equity capital, that’s $3 billion, which would be a very large series of transactions or one transaction.

I think if you think about, in the near term, if we did a few hundred million, I don’t think that’s a credit negative at all. In fact, it gives us more access to capital markets if we had just a few hundred million of debt and show them we have access to those markets. I think that would actually be a helpful thing.

It would probably help our fund agreement business, as well, to build out the curve. So, I don’t think a few hundred million of debt would be a credit negative, and certainly wouldn’t keep us from doing an attractive deal..

Hey Sean, this is Jim. Just to elaborate on what Marty said, we think we can continue our growth strategy and improve our ratings. We think we’re positioned to do that..

Thank you very much.

And just really quickly, Marty, what was it you were saying about the plans for Germany with outside investors over the course of this year?.

I’ll let Bill take that one since he is responsible for it..

We’ve disclosed in our IPO prospectus that we’re contemplating a restructuring of our German operations. Where we own 100% of a relatively small business today, and obviously the results of that business are consolidated on our financials, we potentially may raise outside capital to pursue transactions on the European continent.

And we continue to work on those plans. We don’t have anything to announce or talk about today but our expectation is that’s going to continue to move forward. And if they end up doing a transaction we may very well not own 100% of Germany anymore, so it will eventually become deconsolidated from our results..

The way it would work, Sean, is, if this capital rate continues on, as part of that we would contribute Germany as part of that capital raise. And then down the road, as that funds those other acquisitions it would be a capital draw from the investors. At that point we would deconsolidate Germany, it would roll off our balance sheet.

And then we would really self-participate in the opportunity economically but it would really be in the form of an alternative investment for us. In my comments I was saying we expect that through most if not all of 2017 we will be consolidating Germany. And then, if and when all that happens, we will deconsolidate..

Okay, thank you..

And, ladies and gentlemen this will conclude our question-and-answer session. I would like to hand the conference back over to Kristin Southey for any closing remarks..

Thank you, operator. That completes our call this morning. On behalf of everyone at Athene we want to thank you for your time and your consideration, and we look forward to our next update..

Thank you. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your line..