Paige Hart - IR Jim Belardi - Chairman and CEO Bill Wheeler - President Marty Klein - CFO.

Seth Weiss - Bank of America Erik Bass - Autonomous Research Sean Dargan - Wells Fargo Ryan Krueger - KBW Tom Gallagher - Evercore ISI Suneet Kamath - Citi Mark Hughes - SunTrust John Barnidge - Sandler O'Neill John Nadel - Credit Suisse.

Thank you for joining us today for Athene's conference call. [Operator Instructions] Please note that this call is being recorded and is the property of Athene, and that any unauthorized broadcast of this call in any form is prohibited. An audio replay will be available on athene.com. I will now turn the call over to Paige Hart. Ms. Hart, you may begin..

Thank you, operator. Good morning, everyone, and welcome to Athene's conference call to discuss Q2 2017 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 annual report on Form 10-K for the year ended December 31, 2016, 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. And please note that any comparisons made will be versus the same period of the prior year, unless otherwise noted. And now, I would like to turn the call over to Jim Belardi..

Thank you, Paige. Hello, everyone and welcome to Athene’s second quarter 2017 conference call. I'm very pleased to report that we generated another quarter of very strong earnings, we’re successfully expanding and scaling our business and are ideally positioned for continued long-term growth. Athene is running on all cylinders.

As you can see on page 3 of the presentation, in the second quarter, strong liability growth and increased investment margin drove significant year-over-year increases in operating income, net income and shareholders' equity. We also further strengthened our balance sheet and continued to be extremely well capitalized.

In the second quarter, net income was $326 million, an increase of 69% over the prior year and operating income, net of tax, was $280 million, an increase of 56% over the prior year. We have built a multichannel distribution platform that allows us to source attractively priced liabilities across market environments.

In the second quarter, we generated a record $3.2 billion of new deposits, an increase of 31% over our strong growth in the prior year, driven by strong retail sales and further expansion of our institutional channel. Along with this growth, we remain disciplined in our pricing and investing.

In the second quarter, retail sales increased significantly over the prior year and through our rapidly growing institutional channel, we issued $1.1 billion of funding agreements.

In the third quarter to date, we have already issued another 700 million of funding agreements at significantly tighter credit spreads and we expect to be a consistent issuer in this market.

I'm pleased to announce that during the second quarter, we executed our first pension risk transfer transaction in which we assumed approximately $320 million of pension obligations. Additionally, subsequent to quarter end, we signed a flow reinsurance partnership with Lincoln Financial effective August 1.

Strong performance in our retirement business drove significant asset growth in the second quarter. As of June 30, total invested assets were $76 billion, an increase of 6.4 billion or 9% 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 second quarter, an increase of 37 basis points over the prior year, driven by enhancements on both sides of the balance sheet. At 6/30, we had $7.2 billion of shareholders' equity, excluding AOCI, an increase of 23% over the prior year.

We also had a high risk based capital ratios, no financial leverage and more than 1.5 billion of excess equity capital. Our straightforward and scalable business model is highlighted on page 4.

We target an investment margin of 2% to 3%, subtracted, controlled and lowered operating expenses based on our scalable infrastructure and this generates attractive target retirement services operating ROEs of mid-teens or better.

In the second quarter, our retirement services segment generated 158 basis points of operating earnings and an operating ROE, excluding AOCI of 21.4%. We've had a great first half of the year, executing on our strategic plans and delivering large increases in operating income, net income and shareholders' equity.

Our strong financial position gives us the financial flexibility to fund future growth opportunities. In today's market, we believe there are macroeconomic, regulatory and rating agency factors, for example, low yields and capital and earnings shortfalls that will drive restructuring in the life industry.

We are actively looking and working hard to deploy some of our excess equity capital.

We are a strong, growing and disciplined financial services company that has the capital and the expertise to be opportunistic in any environment, organically and inorganically and our investment portfolio is very high quality and continues to generate attractive returns.

Also, I’d like to note that we have no plans to execute another secondary offering. Now, Bill will review our business objectives and growth drivers in more detail..

Thanks, Jim and welcome everyone. We continue to execute on our strategic plan to grow and diversify, building a strong foundation for future growth and continued earnings momentum. In addition, our strong capital position can support meaningful growth, given our scalable and efficient business model.

Our differentiated, multichannel distribution model gives us the flexibility to quickly take advantage of opportunities and market dislocations, given our ability to pivot between channels and increase penetration to achieve our targeted returns, as we have demonstrated this year with our funding agreement issuance and entrance into the pension risk transfer market.

In the second quarter, we generated record new deposits of 3.2 billion, an increase of 31% over the prior year. Our strong performance was driven by growth in our retail and institutional channels.

In our retail business, in the second quarter, we generated sales of approximately 1.6 billion, an increase of 43% over the prior year, making us one of the largest and fastest growing writers of fixed indexed annuities.

During the quarter, we expanded our distribution with the addition of new partners in both the bank and broker dealer channels, as we continue to build a strong reputation for competitive products and high service quality.

Additionally, given the strength of our equity markets and continued low interest rates, there has been a shift in focus in the indexed market towards accumulation products and our market leading Ascent Accumulator and Performance Elite fixed indexed annuities did very well in the second quarter.

With respect to the DOL, as of June 9, our distribution partners are now subject to the DOL rules best interest standard for sales to [indiscernible] and IRA account holders and are required to satisfy the streamlined exemptions that apply until January 1, 2018.

The DOLs in the process of receiving comments to the request for information it released on July 6, seeking additional feedback on the rule, the impact to consumers and the financial services industry and the possibility of a delay of the January 1 requirements.

In fact, just yesterday, the DOL submitted to the Office of Management Budget, a proposal to extend the January 1, 2018 applicability date to July 1, 2019. Details of the proposed delay will not be publicly available until the OMB’s review is complete and it is likely a formal notice and comment period will follow.

Further, we are encouraged that the NAIC and SEC appear to be considering concerns created by the DOL rule and the need for regulatory changes. We believe consumers in the marketplace will be best served by the harmonization of a workable standard across the various retirement products and sales platforms.

Although the outcome of the review being conducted by the DOL is uncertain, we will be prepared for the full requirements on January 1 if a delay does not ultimately materialize.

Looking ahead, we believe fixed annuities and fixed indexed annuities present a significant organic growth opportunity as consumer needs for retirement planning continue to grow.

Fixed and fixed indexed annuities offer people who are saving for retirement a product that is tax advantaged, has certain guarantees and provides protection against investment loss. Turning to our reinsurance business, in the second quarter, we generated 214 million of new flow deposits.

Although this was lower than prior year, we saw an improvement over last quarter. And as Jim mentioned, subsequent to quarter end, we signed a new flow reinsurance treaty with Lincoln Financial. Effective August 1, we are reinsuring traditional, fixed and fixed indexed annuities sold by Lincoln.

They followed a rigorous evaluation process before executing this agreement and we are excited to begin this new partnership with another high quality counterparty. Our flow reinsurance products help our partners improve their value proposition and expand their customer base and distribution reach.

We continue to look to add new partners and diversify our product portfolio, as we expect to maintain our leadership position in this channel. In our institutional channel, 2017 continues to be a seminal year, as we rapidly expand our reach and distribution.

As previously mentioned, we are pleased to announce that Athene entered into its first pension buyout agreement during the second quarter of 2017. The transaction is structured as a buyout arrangement in which Athene agrees to provide annuity benefits to more than 10,000 retirees, representing pension obligations of approximately 320 million.

We are currently in the middle of a successful implementation and are glad to see the work we did to develop our capabilities in this market are paying off. The pipeline for this channel remains strong and we continue to aggressively pursue more deals.

Turning to funding agreements, in the second quarter, we issued 1.1 billion of funding agreement and continue to receive a positive reception from high quality investors in this market. Additionally, we have issued 700 million of funding agreements to date in the third quarter.

Funding agreements represent a very efficient source of liabilities and we expect to be a consistent issuer in this market. In addition to organic growth, we continue to pursue opportunistic acquisitions and block transactions as they are a key part of our business model, given our expertise and balance sheet strength.

However, we remain disciplined in the transactions that we pursue to ensure they meet our return requirements. Turning to our liability profile on page six, through all our channels, we target long dated attractively priced persistent liabilities.

On the second quarter, our reserve liabilities increased by approximately 7 billion over the prior year to 75 billion. Our reserve liabilities are mostly comprised of fixed indexed annuities and fixed rate annuities with an average weighted life of 8.1 years and less than 2% average cost of crediting.

Our quarterly cost of crediting improved by approximately 10 basis points over the prior year due to rate actions we took and lower option costs, given the decline in market volatility. We continue to focus on pricing discipline, managing interest rates credited to policyholders as well as the cost of options to fund indexed credit on FIA products.

We believe we are conservative in writing our liabilities and they are generally persistent, which complements our unique asset management capabilities.

As of June 30, 86% of our fixed and fixed indexed annuity policies included surrender charges and 71% were subject to market value adjustment, both of which may increase the probability that a policy will remain in force from one period to the next.

In addition, on average, we have 80 to 90 basis points of distance to guaranteed minimum crediting rates on our deferred annuities.

Within our rapidly growing institutional channel, funding agreements are non-surrenderable and pension response for obligations have no optionality, features that enhance the persistency and predictability of our overall liability profile.

This stable liability profile compliments our asset management strategy, which looks to capitalize on complexity and liquidity risk, rather than only credit risk. This allows us to target a 2% to 3% investment margin without taking on excessive asset risk, which Jim will talk about in just a minute.

For the remainder of 2017, we expect to continue to diversify and expand our distribution as well as pursue opportunistic growth to enhance earnings on our current book of business. Today, we are 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..

Yeah. Thanks, Bill. Turning to page 7, our high quality investment portfolio continues to perform very well. We ended the second quarter with approximately $76 billion of total invested assets, a 9% increase over the prior year, driven by strong growth in new deposits.

In terms of yield, in our core Retirement Services segment, our annualized net investment earned rate in Q2 was 4.85%, an increase of 27 basis points over the prior year. The increase was driven by strong performance from our floating rate securities due to higher short term interest rates and strong performance within our alternatives portfolio.

The credit quality of our investment portfolio remains very high. As of June 30, approximately 93% of our available for sale fixed maturity securities was rated in the highest categories NAIC 1 or 2 with approximately 81% of our invested asset portfolio in fixed income securities.

For the second quarter, annualized OTTI, as a percentage of total average invested assets, was only six basis points. At 6/30, corporate bonds remained by far our largest holding, comprising 46% of invested assets. The second largest category was RMBS at 14%, which generated a strong annualized net investment earned rate of 5.96% for the quarter.

Our allocation to structured securities, where we focus on the most senior bonds, provides us with attractive returns and downside protection, while also being very capital efficient and highly rated.

At quarter end, 29% of our total invested assets were invested in floating rate securities and these securities perform better when interest rates are higher. At quarter end, we had $3.5 billion of alternative investments, representing about 5% of the portfolio.

Alternatives in our retirement services segment, which accounts for the vast majority of our holdings, performed very well, generating an annualized return of 12.3% in the second quarter.

Within our alternatives portfolio, about 51% is invested in credit funds and in our two asset originators, MidCap and AmeriHome, both of which had strong returns during the quarter. Approximately 15% of the alternative portfolio is in real estate and other real assets.

We expect to increase our investments in alternatives and make them a larger percentage of our invested assets. Alternatives are a key competitive advantage of ours in the source of our performance in the portfolio. We invest in fixed income like funds with cash flows as opposed to equity like funds that rely more on capital appreciation.

We also focus on downside protection versus a pure directional bet. Investing in traditional hedge funds and private equity is not part of our strategy. In this environment, where few assets are cheap, we continue to look for alternative asset investment opportunities that meet this criteria.

We think that equity investments in asset origination platforms such as MidCap, a middle market lender and AmeriHome, a mortgage lender and service produced attractive equity returns and sourced new assets for our balance sheet.

While this continues to be a challenging environment in which to invest, we remain disciplined in the deployment of our assets, while our investment volumes are at all-time highs. Credit spreads are very tight and have reached post financial crisis lows.

We continue to deploy into certain structured credit asset classes where risk adjusted returns look attractive. We are also seeing opportunities in private corporates where our team has been active in a strong new issue market and we expect this to continue.

Private Corporates continue to deliver to a yield premium to public corporates and typically have superior covenants with strong downside protection. In addition, we are increasing our activity in the mortgage space.

We originated approximately $300 million of first lien commercial mortgages in the first half of the year and expect to exceed that level in the second half of ‘17. Also, we've added over $500 million of residential mortgages in loan form, instead of QSIPS [ph] in the first half of the year.

Loans increased our available investment opportunities and are generally more capital efficient than QSIPS for the same risk. We are looking to add more residential loans by acquiring blocks in the secondary market and in new originations from our partnership with AmeriHome.

We continue to underwrite liquidity and complexity risk in addition to credit risk to identify attractive investments. In summary, our portfolio is very high quality, 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 good morning, everybody. This morning, I'll focus my comments on our financial performance for the second quarter of 2017 and I'll close with some perspective on drivers for the second half of the year.

For the second quarter, we again delivered strong growth and financial performance, while maintaining our strong balance sheet and capital position. As shown on page 8, in the second quarter, net income increased 69% over the prior year to $326 million or $1.65 per diluted share.

Second quarter operating income, net of tax, increased 56% over the prior year to 280 million or $1.43 per operating diluted share. In the second quarter, we generated an operating ROE, excluding AOCI of 15.9%.

For the quarter, the retirement services segment generated operating income, net of tax, of 267 million, resulting in an operating ROE, excluding AOCI, of 21.4% as compared to 18.8% in the prior year.

The fundamentals of our business continue to be very strong, driving increased net investment margin and operating income and writing record quarterly volumes, while maintaining target returns, despite tighter investment spreads.

We also benefited from favorable market dynamics, including strong equity market performance and higher short-term interest rates.

In our retirement services segment, strong performance in fixed income as well as in alternative investments drove investment income growth of 113 million or 16% over the prior year, resulting in an annualized net investment earned rate of 4.85%.

The majority of this increase is driven by invested asset growth of 6 billion, attributed to the increase in deposits over the prior 12 months as well as higher short-term interest rates, resulting in increased floating rate investment income. This was partially offset by higher bond call income in 2016 related to a large redemption.

We had strong performance in our alternatives portfolio, which yielded an annualized net investment earned rate of 12.28%, which is above our 2017 expectation of 8% to 10% and added approximately $16 million of investment income over the top end of that range.

The increase in alternative investment income was primarily due to the strong performance in AmeriHome, driven by increases in its overall balance sheet size, origination volumes and retained mortgage servicing rates.

Moving to our liability costs, cost of crediting increased $11 million, but declined 10 basis points to 1.89%, primarily driven by growth in the block of business offset by recent rate actions and lower option costs.

Other liability costs increased 31 million due to higher reserve -- writer reserve changes and DAC amortization attributed to the block growth and higher gross profit, partially offset by approximately $25 million of favorable impacts related to improved equity market performance and out of period actuarial adjustments compared to the prior period.

As we discussed last quarter, when equity markets outperform our expectations, our operating earnings can benefit in the period in a couple of ways.

First, as policy holders’ account values are higher than expected due to incremental indexed credits, more of the associated writer benefits are funded by their account values, which favorably impacts the change in writer reserves and second with a higher than expected account value, we recognize an increase in invested assets and related income, which slows down writer reserve changes and DAC amortization.

Our 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 very tightly from both sides of the balance sheet.

In the second quarter, our investment margin on deferred annuities was 2.96%, an increase of 37 basis points over the prior year.

The margin improvement was driven by a 27 basis point increase in our net investment earned rate, including 20 basis points from higher short-term interest rates, resulting in an increased floating rate investment income as well as the 10 basis point decrease in our cost of crediting.

In corporate and other, operating income, net of tax, was $13 million in the quarter as compared to a loss of $17 million in the prior year.

Operating income during the quarter was primarily driven by an increase in alternative investment income, which had a net investment earned rate of almost 14%, which is above our 8% to 10% expectation for 2017 and added $8 million of investment income over the top end of that range.

Additionally, in the prior year’s quarter, alternative investment income was lower due to a decline in the market value of the public equity positions in one of our funds. Partially offsetting this was lower Germany operating income this quarter as compared to the prior year.

Net income for the second quarter increased by $133 million or 69% over the prior year. The increase was driven by $101 million increase in operating income, net of tax and $33 million favorable change in the fair value of derivatives and embedded derivatives, primarily driven by the strong equity market performance.

Turning to our strong capital position on page 9, at quarter end, shareholders' equity, excluding AOCI increased 23% to $7.2 billion as compared to $5.9 billion for the prior year. We have more than 1.5 billion of excess equity capital, which we expect will contribute to our growth and ratings improvement overtime.

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, at quarter end, our Bermuda estimated RBC ratio was a strong 539% and our US estimated RBC ratio was also very strong at 458%.

Both figures are well above our 400% threshold. At quarter end, we had no debt and an approximate 3.5 years remaining on our $1 billion five year credit facility, which remains undrawn. So to wrap up, for the second quarter, we delivered very strong operating and financial results.

Looking ahead, we're excited about our near term and longer term prospects as well as our ability to produce growth at an attractive return on equity. With two successful follow-on offerings behind us, we have significantly increased the float and liquidity in our shares.

Given that, we have no plans to execute a follow on offering at this time, but we will re-evaluate if conditions change.

With respect to our long term growth strategy, we already have a significant and recurring earnings stream and we continue to expect that annual new organic deposits will exceed withdrawals, generating additional new and recurring earnings. In terms of our 2017 outlook, overall, we still expect to generate mid-teen returns on organic sales.

In 2017, we now expect to generate new organic deposits in excess of the deposits we generated in 2016. The total deposits in mix driven by the achievement of our target returns. For example, so far in 2017, we've shifted into our institutional channel with our issuance of the funding agreements and inaugural pension risk transfer transaction.

With respect to our liability costs, cost of crediting is expected to remain lower than prior year, due to recent rate actions and lower option costs. The future pattern of our other liability costs will be impacted by a number of factors, including the level of gross profits, equity performance, policyholder behavior and unlocking.

As a reminder, we typically conduct our annual review and unlocking of assumptions during the third quarter of each year. While potential impacts are not known at this time, it should be noted that the future pattern of other liability costs, such as DAC amortization is typically subject to review in this process.

In our investment portfolio, we expect that our total alternatives portfolio will return between 8% to 10% for the rest of 2017 and that returns are likely to vary from quarter-to-quarter. In the second quarter, our alternatives portfolio had very strong performance.

On a consolidated basis, alternatives is returning approximately 12.7%, while returning 10.4% for the six months ended June 30. In corporate and other, which currently includes our German operations, we still expect operating income, net of tax, to be modestly positive in 2017.

Earlier today, AGER, the top level holding company of our German operations, announced that it will require Aegon Ireland’s plc, a Dublin based insurer, which had approximately $6.1 billion of assets as of June 30 of this year. The transaction is expected to close in the first quarter of 2018, subject to regulatory approvals.

Immediately, prior to the closing, AGER will call a portion of the EUR2.2 billion [ph] of capital raised in April of this year, which will result in a deconsolidation of AGER from Athene. Subsequently, AGER will be held as an alternative investment by Athene.

Athene expects to be a long term strategic partner for AGER as it seeks to capitalize on opportunities in Europe. As part of the long term partnership, Athene is expected to be a preferred reinsurer for AGER’s spread liabilities and have representation on its board of directors.

Finally, with respect to share count, we still expect the weighted average diluted share count of approximately $196 million to $198 million in 2017 and approximately 196 million in the third quarter. In summary, we continue to execute our straightforward growth model to build out our efficient and scalable operating platform.

Our growth strategy does not 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. We're excited about our prospects and look forward to updating you on our progress..

Thanks, Marty. We will now begin the question-and-answer portion of the call. [Operator Instructions] Operator, we will now open up for questions..

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

A few questions on PRT in the inaugural transaction, would you classify this $300 million range? Is that kind of the sweet spot of where you're looking to operate or would you think more broadly in terms of size?.

Yeah. I think PRT is probably as close to the sweet spot, the size of the deal. We would consider growing a little smaller, but our strategy is not to pursue small deals, which are what some people do in the market. So really anything north of 200 to as large as these transactions get is sort of what we’re focused on..

And I know that there's a rigor in the underwriting process.

Can you discuss if there's operational constraints in terms of how often you can pursue these types of deals?.

Sure. So part of what has allowed us to get into this market quickly as we’ve chose the strategy of outsourcing the administration needs here, we've partnered with a company called Conduent, which some people might know is Xerox’s HR operations, which they spun off a year ago. Conduent is the second largest pension record keeper in the United States.

It has great capabilities. It’s only business and so it's constantly investing in this business to kind of keep up to speed. So we've think we've picked the absolute best partner and a partner with better capabilities than we would ever have internally. So now it's a matter of how many of these transactions can you onboard at once. And there is a limit.

I want to test that limit to see how many we can do. So we can't pursue every transaction out there, we can you know if we win two or three at a time we probably have to get those on boarded before we can pursue others.

But at the moment we have the capacity to pursue whatever we like because we only have one deal in house that we're currently working through the conversion of..

And then just one question on AGER. So following the deconsolidation, can you just remind us what the relationship is between AGER and Athene, specifically I'm talking about the preferred reinsurance relationship.

So I know that AGER will be an alternative holding, but I believe there is ongoing reinsurance that should come on depending on how often AGER transacts. So if you could just remind us what that relationship is and what that means for potential block reinsurance for Athene..

So part of the value proposition here, AGER is a Bermuda insurance company. So as it pursues transactions in the European market, part of the value proposition is reinsuring some portion of those balance sheets back to Bermuda to get the full tax efficiency benefit.

And any time that they do that at least initially we will - Athene Life Re, our reinsurer in Bermuda will receive 50% of whatever gets insured to Bermuda.

Now, the reinsurance strategies there are not the same as they are in the States, there is different regulatory rules in terms of what you can reinsure out of the country, there's rules about how transactions have to be structured and who's the credible counterparty. But we do expect to see volumes linked to acquisitions they do going forward.

And as Marty said, there's a full pipeline in Europe of transactions and so we do expect to see reinsurance coming out of the back end of those deal..

And next question will come from Erik Bass of Autonomous Research. Please go ahead..

I was hoping you could comment more on the Lincoln deal and how material that could be in terms of future reinsurance volumes. And I guess thinking about a bigger picture, I presume the arrangement will make Lincoln's products more competitive from accrediting rate perspective.

What are the implications you think for the broader competitive landscape and do you see other insurers needing to contemplate similar partnerships to be able to offer attractive products?.

Sure Erik, it’s Bill again. Look I think without getting too specific about the numbers on Lincoln, it's going to be an important deal for us.

All you have to do is what Lincoln - the business Lincoln is doing today in the fixed annuity market and assuming that they you know that the reinsurance deal will improve the competitive pricing of their product set, their sales should improve. I mean I think that's our expectation, our and Lincoln’s both expectation.

And we'll get our - obviously our percentage of the flow of that business. So it's an important deal. I think it's a good deal for Lincoln and I think they're excited. And obviously that means for Athene it's a very important deal.

In terms of what this sort of means, we obviously have these relationships with other annuity players in the market today, but nobody who had quite the stature of Lincoln.

And so I think what this sort of signals is, I would say the bigger traditional annuity players who are interested in entering are becoming bigger in the fixed market and that's where the trend is, right. VA sales are generally declining and their market share is being filled by indexed and traditional fixed annuities.

I think everybody is going to want to participate in that business and I think to be able to be successful in that business. And by successful I mean competitive product, but also attractive returns. I think you're going to have to have some kind of offshore solution.

It doesn't mean you have to be a Bermuda holding company yourself, but you better have a Bermuda reinsurance part. And because I think the most successful companies in this market are going to have that kind of a strategy. And so I don't think Lincoln will be the last of these deals done. I think there will be others.

And so we think there's going to be a lot more activity and we're excited about that because we're the biggest Bermuda reinsurer and we're very focused on these types of transactions..

And then if I could ask one for Marty, just we saw material improvement in retirement spreads this quarter even adjusting for the strong alternatives. Do you think the core fixed income yield and cost of crediting are sustainable at these level..

What really helped fixed income as we talked about for quite some time, we've been saying that with the amount that we have in floating rate assets which is 29% as interest rates go up, we’ll benefit from that. We’ve said that for a long time and now finally interest rates are going up and we're clearly benefiting from that.

So LIBOR in particular in the short end of the curve is up significantly year-over-year and even just quarter over quarter. And so a lot of coupon resets are benefiting a lot. And that's been the biggest driver I think both sequentially as well as year-over-year and how we're doing on the fixed income side..

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

I have another question about Lincoln. I think one of the thoughts when you got your A rating from A.M. Best was that you could sell your own product in the banks and broken dealers. I think Lincoln could put up some pretty impressive volumes in those channels right away.

Are you agnostic as to whether you're doing your own retail deposits in the bank and broker dealer channels or your reentering? Are the returns the same?.

The returns are the same and that's the way we manage our business here. We don't either give better assets or better pricing or capital treatment to one area of the business versus another. Everybody has to hit the same return criteria. So yeah, from a financial impact point of view we are in different.

Look it's - I think this question always comes up, are we somehow cannibalizing our own business and I think our market share in the retail fixed annuity business is, in the last quarter you know roughly 7% I mean. So it's a big world and also you know it’s - so I don't really think cannibalization is much of an issue.

The other thing that's obviously great about this is we want to be as diversified as possible. We not only want to obviously have a very strong and healthy retail business, but having other distribution outlets that are maybe touching pockets of the markets that we're not in, I mean that's the ideal situation and that's our goal here..

Has it been decided as to whether you will be reinsuring the Aegon deal that AGER has announced this morning?.

I don't think in Aegon there's going to be - there is an - there's a reinsurance opportunity. That really it's not a very material transaction and so I think the expectation is that those assets will stay in Europe and not be reinserted to Bermuda.

Aegon is really more about buying a platform, isn't going to have much material impact on us or even AGER..

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

First, I was hoping you could give an update on the level of transaction opportunities you're seeing in the market at this point. And also discuss how the competitive environment is going to impacting your view of your ability to deploy excess capital over time..

Bill Wheeler:.

S:.

And then for Marty, can you just give us a quick reminder of how I guess things like interest rates and equity markets for the index products have kind of performed relative to the actuarial assumptions changes you made last year..

Sure Ryan. I think that equity markets have done better than I think a lot of people expected and certainly better than we might have expected. We have kind of a - it's typical run rate of we assume I think between 5.5% and 6%s increase in S&P and most of our reserving assumptions on an annual basis, we’re doing better than that.

Interest rate when we had our third quarter unlocking last year and obviously that was on the heels of Brexit and kind of a trough we unlocked our assumptions [indiscernible] we've done a deep dive at the time as a private company that was ready to go public. And we made several adjustments such as I think we took a charge of $158 million.

So that's sort of where we are now, we feel pretty good about our interest rate assumptions and our equities assumptions when markets continue to do pretty well. We're looking at you know as we head into third quarter, we're going through our annual unlocking process again.

I don’t really have anything to report right, but we did a very deep dive last year. So at the moment I don't really anticipate any big changes but we'll see how the review plays out..

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

Just a quick question on when you mentioned no plans for a secondary offering. Is the way to think about that for the time being because I know there's another big unlock coming in December. And I took your comments to mean for now, no plan secondary, but then you’ll evaluate market conditions and I assume that's related to like future unlocks.

Is that the right way to think about it?.

We're very cognizant obviously of the unlocking that happens in December and in March, little over 30 million shares December, a little over 50 million in March. We really don't actually see much selling demand in part of our investors, but I guess that's a good thing.

So I think when we say we don't have any plans for a follow on that really means we don’t any plans not just now but really a longer term. Obviously we'll have to watch market conditions and how we do, how the market does and how our investors are thinking about it being.

But right now it's not our intent to do a follow on now or even later on necessarily. But we’ll obviously revisit that assumption after we get past third quarter results with respect to a follow on..

Just a follow up on M&A, can you just remind us the deal with AGER doesn’t – I think there is sort of a separation for where Athene will focus on M&A and I believe Athene has the US and the UK. I just want to confirm that and the rest of Europe would be AGER.

And just relatedly, and if I have that right, as you think about potential opportunities for Athene, would you say the UK is a market that would be of interest to you for deploying capital into potential M&A as well as the US or anyway if you could shed some light on that..

Sure. So you're right about the geographic split. AGER is continental Europe and Athene has the US and the UK. The UK market is interesting, there's obviously a lot of restructuring going on in that market as well and a lot of change.

But one thing that's not very attractive at the moment about the UK market is it's very difficult to reinsure business out of that country and especially reinsured to Bermuda. It’s not impossible, but it's difficult and the rules around that - the current rules make it not very attractive. And that's a big part of our competitive advantage obviously.

And so we're - so that makes it probably not as attractive market at the moment. Now I think these rules constantly are changing. And so our opinion about all that might change, but at the moment it’s probably not as attractive..

And if I could just slip in one follow up.

Marty, when we think about the DAC amortization in your third quarter review, do I have it right that when you think about your floating rate portfolio which is substantial, I think the guidance you've given is that the increases in interest rates, you've basically assumed that you would only keep half of that because the other half is largely offset by higher DAC amortization.

I think that's the guidance that was provided in your filings. But if I think about kind of what happens in that DAC review process and then what happens from that point forward.

And if interest rates in fact have gone higher I would think your estimate of future gross profit is going to go up not down which means less stack amortization not more DAC amortization. So I would think more of that floating rate benefit should be falling to the bottom line as it relates to DAC amortization.

But I don't know if I have that right, but I was just trying to figure out like what your guidance has suggested and then what a DAC review might change that..

I think if you look only at the interest rate piece that’s potentially right. But again when we did our review last year, we also looked at what the forward curve implied. So rates were very low at the time, the curve was flatter I think then it is at this point in time at least for [indiscernible] in the review.

But still there was view that interest rates would be going up. So it's a matter of our interest rates, what’s the perspective on rates and on spreads because it's really investment yields that matters versus kind of what we thought a year ago.

But if we were to unlock in a sense with respect to interest rates in a view that rates are going to be better than we thought I think you're right directionally that means it would be more expected gross profit. So the rate of amortization would go down if that were the case to review.

Now they're also looking at couple other things on the actuarial side best to put all those pieces together.

But I think, directionally, you're thinking about it right with respect to interest rates, but again you have to bear in mind what is the overall interest rate and spread outlook look like now versus where we were a year ago including kind of a forward curve outlook that we used at the time last year..

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

Just a question about your deposit mix, if we start to see more institutional related business come on the books, does that influence the 80/20 sort of split between what you offshore to Bermuda and what you keep onshore?.

Yeah I think over time that mix that 80/20 mix is going to shift. I mean, a year ago, most of what we did from a volume standpoint was in retail and it had a big year, but historically have been mostly retail. And you're right that 80% reinsured through modified co-insurance to Bermuda.

But you fast forward to where we are now, we've become pretty big in funding group of markets with $1.1 million of additional systems in the second quarter. And funding agreements are 100% reinsured to Bermuda and then I think about our flow reinsurance business, probably more than 80% of that in aggregate is over to Bermuda.

So I think over time that 80% ratio to Bermuda is probably shifting up, we’ll probably provide an update on that in future quarters as we provide you guys kind of an update on how we're thinking about volumes. But I think that 80% is tending to trend upwards..

And then with respect to PRT, are there any restrictions in terms of the ability to reinsure that block - those transactions to Bermuda..

No there's not, no..

And then one last one PRT, as we've talked to other players in the small case market, it seems like maybe there's a willingness to do transactions with active employees. I don't believe there were any related to the transaction that you just did, but how would you think about that is that something that you're open to..

Well let's be careful about the words or definitions here. So retirees, the block we did was 100% retiree block. And so they're all out, they’re in payout already. So it's very straightforward.

There's another group called deferred lives where they're not retirees, they probably not necessarily working at the company anymore, but they're probably still working somewhere and they haven't retired. So they have a little optionality about when they're going to choose to take payments, right. So there's a little more uncertainty about cash flows.

It all depends on how that particular pension plan works though in terms of whether that's really an issue. So we're clearly willing to take deferred lives and I would say given what I've seen so far in the market this year I think most of our competitors are willing to do that to.

Truly active lives, people who are still working at the company and continuing to build a plan and have quite a bit of optionality about what they're doing. I haven't seen any deals with truly active lives anymore or the people who are active. And I would think we'd have to think very hard about our willingness to do that.

And things might be different in a very small end of the market where the deals are really small, but I would say in the market we participate in it's really they're active I mean retirees are retirees with a small mix of deferreds..

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

Do you see any disruption in the second quarter in the independent channel around the kind of early implementation of the fiduciary rule, any delay or disruption in the independent channel? And at this point, what's the breakout of independent versus a bank broker dealer..

The short the sweet answer to is, was there any disruption, the answer seems to be no. We really couldn't detect anything or it was very modest.

The split between bank and broker dealer, it’s still pretty overwhelmingly IMOs but not banks and broker dealers, I’ll have to get back to you n the exact number but it's you know you would call it maybe you know less than 15% of our total volume would be back in broker dealers in the second quarter.

But we’ll think about - we’ll get a more precise number..

Although it is being growing?.

Yeah. I think the key is where a lot of growth has been..

Any comments on the tone so far in Q3?.

The market, he feels is still pretty good and we're pleased and that you know when a market tone is good, it's generally good for business. We did 700 million of agreements which closed at the very beginning of July. So we feel good about that. But we'll have more to talk about when we get to the third quarter call..

The next question will be from John Barnidge of Sandler O'Neill. Please go ahead. .

Thank you. Just a question about this DOL delay.

Do you think that kind of perpetual delays of the rule in the end could be more problematic than simply implementing the rule? And why or why not?.

The short answer is, I much prefer a delay to the original rule. The original rule had serious problems with it.

With regard to the buys, how the rule would be enforced, basically through which means basically it was going to be enforced through the courts and the rules themselves would be interpreted by judges about what really - what the Reg should mean. All that was very problematic and so I much prefer the delay.

I think the delay just means they're trying to get it right, they're going to take their time and try to get a right.

I think you're going to see some level of reform but you obviously you're already getting some level of reform in the market and I think you know if the rule - I think all and all if it's a good rule it’s going to be helpful to the annuity market and helpful to us and the consumers.

But if they get rid of what I would say the more obnoxious parts of the old Reg, but I think that will be important to do..

The next question will be from John Nadel of Credit Suisse. Please go ahead..

Just thinking about capital deployment and the deposit growth this quarter and then the quarter over quarter decline in the risk based capital ratio is modest, but it's a decline. Is that decline in the RBC mostly driven by organic growth or is there anything else driving that..

It's really, John, it's Marty. First of all I'd kind of note that it declined in the US but it increased in Bermuda. So net-net I think we ended at about the same spot from an excess capital position. So I think that's important to know, and obviously the Bermuda balance sheet is our biggest balance sheet and that actually increased.

But in both balance sheets, you have the same two factors, they just - the weightings of those things are a little bit different. So yeah, you're right that the really only reason for a decline of any significance in the US was the new business that we put on.

And that mix of business that we have in the US, 80% of which largely gets reinsured to Bermuda. Has a little bit more capital strained and maybe the next that Bermuda does directly with funding agreements and some other things. So that was added to the decline.

There was the benefit of ongoing statutory earnings on the imports and that helped RBC in the US but did not quite to the extent that offset the decrease in the business. In Bermuda similar dynamics but a little bit different outcome. The earnings in Bermuda more than offset that kind of new business strain, so RBC increased.

In aggregate, we're about the same spot from an excess capital as we were a quarter ago, which, as we've kind of said to folks, we expect that the earnings on an in-force will largely fund our new business origination and that was true in the [indiscernible] over 3 billion of volume origination..

And that's I guess where I was going is that new business volumes need to be, how much higher from here to actually net be a deployer of capital..

I think if we were clipping along, last year we did 8.8 billion, this year we expect to do more and we’re certainly on track for that. I think we're little over 5 billion, 5.1 billion half way through the year. I think we start writing on an annual basis roughly, this is a very rough math kind of 12 billion or more, 12 to 13, 14 billion a year.

I think then we begin to kind of use up some of that excess capital because of that point we'll be writing more business than in force. But at the [indiscernible] should be kind of holding steady by and large.

There's other dynamics to, we’re continuing to look at alternative investments and ways to ramp that up from what's now 5% to if and as we find opportunities to take that up a percent or two over time. So if we do that that will take obviously some excess capital as well but certainly would improve earnings even more..

And then my only other question for you is, thinking about the just the line item other liability costs.

Do you think the better way for us to think about modeling that is you know some growth rate you know that’s similar to the growth rate of overall reserves or do you think we should be looking at that more as you know percentage of reserves and maybe there's an opportunity for that to come down as a percentage of reserves over time as the earnings of the block of business gets bigger..

So, John, there are a couple things that ran through the liability cost. One is really just DAC amortization. So the dollars will increase obviously as our business grows and as our balance sheet grows, but the rate of that will stay relatively constant unless we do an unlocking.

Obviously quarter a quarter if we make more or less profit dollars will move around that rate gets applied to the overall kind of gross profits we make. But I would think about that it terms of a rate on kind of the DAC balances that we or already earnings that we have. So I think that's one dynamic.

The other thing that's in there is interest credited on things that are not deferred annuities. So funding agreements, deferred annuities, pension deals over time and we'll have to if those businesses get bigger funding agreements and PRT will have to think about ways to provide some transparency on that component of the liability cost.

But it's really largely those two things that are in that number..

And sorry I just add one more.

If you could remind us the sensitivity thinking about the floating rate portion of the portfolio if we just looked at ten or 20 or 25 basis point increase in LIBOR or a short term rates generally, can you just remind us the sensitivity to investment income?.

The sensitivity that we've talked about and we've looked at it again and it's still really the same, is essentially the same as or parallel shift to 25 basis points that's another $25 million dollars of GAAP operating income after tax.

And it still holds, obviously over time as our balance sheet grows and as our percentage of floaters changes increases or decreases that number will move around but that number is still basically holds. Obviously any increase in interest rates by and large is generally a positive thing for us.

People try to parcel what if the sorting goes up and the curve flattens and all these things. But any increase from where we are does help earnings generally either immediately or over time depending on the nature of it. That 20 million to 25 parallel shift still holds..

And this will conclude our question-and-answer session. I would like to hand the conference back over to Paige Hart for any closing remarks..

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

Thank you. Ladies and gentlemen, the conference has concluded. We thank you for attending this presentation. At this time you may disconnect your lines..