Paige Hart - Director-Investor Relations Jim Belardi - Chairman and Chief Executive Officer Bill Wheeler - President Marty Klein - Chief Financial Officer.

Tom Gallagher - Evercore Ryan Krueger - KBW Erik Bass - Autonomous Research John Nadel - UBS John Barnidge - Sandler O'Neill Jimmy Bhullar - JP Morgan Mark Hughes - SunTrust Suneet Kamath - Citi Alex Scott - Goldman Sachs Andrew Kligerman - Credit Suisse.

Good day, and welcome to the Athene Holding's Second Quarter 2018 Conference Call and Webcast. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Paige Hart of Investor Relations. Please go ahead. .

Thank you, Andrea. Good morning, everyone. And welcome to Athene's Conference Call to discuss Second Quarter 2018 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'd 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 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, 2017, our quarterly report on Form 10-Q for the three-months ended March 31, 2018, and our other SEC filings, which can be found at the SEC's website.

An audio replay will be available on our website shortly after today's call. Also, please note 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. And welcome to our second quarter 2018 earnings call, which will again highlight that Athene continued its track record of producing consistently growing earnings and high ROEs. In the second quarter, we produced $279 million of adjusted operating income, a 17% increase over Q2 ‘17 excluding notable items.

We generated a 19.1% adjusted operating ROE in our Retirement Services segment and grew our adjusted book value per share by 18% to $42.60. We sourced $2.7 billion of organic deposits driven by record retail sales of $2 billion and priced this business to mid-teens returns.

On June 1st, we closed the Voya reinsurance transaction, which added another $19 billion of assets to our portfolio. This brings our total invested asset portfolio to approximately $100 billion, a remarkable achievement for a nine year old company. We founded Athene to be a different, meaning better, financial services company.

We grew the company after the financial crisis when assets and liabilities were cheap. We completed our four primary acquisitions at an average price-to-book of 60%. This allowed us to lock in significant long-term profitability from which we continue to benefit today. We have very powerful growth engines.

On the organic side, we have a vibrant liability origination platform with three distinct channels that have grown production from 1.5 billion in 2013 to 11.5 billion in 2017. On the inorganic side, our pipeline is as robust as I've never seen.

As a reminder, we have completed 12 inorganic transactions, five acquisitions and seven block reinsurance deals to-date by utilizing our excess capital, scalable infrastructure and the most bespoke value generating investment strategies in the industry. Importantly, we will not deviate from our core net investment spread model.

Given our strong capital base, solid ratings, relationships with regulators and demonstrated track record of successful M&A, we are extraordinarily well positioned as a solution provider to the financial services industry as it accelerates its restructuring.

The Voya transaction is a prime example of this dynamic, and we expect it will serve as a template for future deals. My comments on inorganic growth naturally lead to how we think about capital deployment. We currently have $2 billion of excess equity capital and over $2 billion of unused debt capacity.

Throughout our history, we have demonstrated an ability to generate shareholder value on both sides of the balance sheet, through deploying excess capital. Our historical successes in deploying excess capital are tied together by one common thread, opportunism.

For this reason we continue to manage Athene with an excess capital buffer to exploit complexity, volatility and mispriced opportunities, the instant we identify them.

Similar to how we think about liability and asset opportunities as being mispriced, we think about our own stock as being mispriced relative to the value and the potential risk adjusted returns it offers.

Given that we believe our stock is trading far below its intrinsic value, we are aligned with many of you that a share repurchase should be considered.

However, even at being Athene’s current very low share price, we believe the highest and best use of our capital to create long-term shareholder value and continue on our ratings trajectory is to deploy in our internal growth areas. When our conclusion changes, we will repurchase shares in size.

With regard to tax reform, in Q3, we expect the combination of federal income tax, BEAT and excise tax will be booked at less than 11% rate. This rate will be effective retroactively to January 1, 2018. Now, I'd like to provide an update on our asset portfolio.

As I mentioned, we have approximately $100 billion of total invested assets, a 40% increase over the prior year excluding Germany. Our annualized net investment earned rate during the second quarter was 4.71%. Our Voya asset redeployment is proceeding very well, better than our forecast in terms of speed and yields achieved.

We do not achieve investment outperformance through taking outsized credit risk, and we’ve never stressed for yield. At quarter end, 94% of our available-for-sale fixed maturity portfolio was designated NAIC 1 or 2 and our annualized OTTI for the quarter was zero.

The main tenants of our asset management philosophy are downside protection and looking for profit to dislocations to create alpha and generate outsized returns. We underwrite illiquidity and complexity risk not just credit risk.

The combination of decades long low interest rates and a wave of passive money flooding the markets have compressed asset spreads and the ability to generate alpha in the public markets. A portfolio solely comprised of traditional fixed income investments no longer provides adequate yield.

Partly because of this, many insurers have struggled to perform. We regularly engage investment banks to analyze our asset performance compared to other insurers. Their analysis shows that since Athene’s inception we have significantly outperformed the insurance peer group.

Even in the low yield environment over the last few years, our fixed income portfolio has significantly outperformed. We will provide more details from these studies at our next meeting. During the second quarter, we made new investments of over $7 billion and made our inaugural investment in triple-net lease real estate.

Given the length of the underlying leases and the fact that most of the returns are generated by cash flows and not by appreciation, we view the investments as a fix income surrogate, which generates a significant yield pickup to comparably rated investment grade corporates.

Recently within our fixed maturity portfolio, there has been a slight shift in the mix of NAIC 1 and 2 securities. The largest driver of this shift is the decline in allocation to non-agency RMBS. Not only is the non-agency RMBS market shrinking, the opportunities that remain currently do not provide sufficient risk adjusted returns.

Instead, we’ve invested over $1 billion in residential mortgage loans, which are not designated as fixed maturity and have RML ratings, residential mortgage loan ratings, not NAIC ratings. In terms of credit quality and capital charges, our RML portfolio is NAIC 1 equivalent.

Looking at our broader portfolio, fixed maturity, securities and mortgage loans, you can see that the credit profile based on ratings has gotten even better. This is one example of how our surface review of our asset portfolio can lead to inaccurate conclusions.

I look forward to engaging with you in a deep analysis of our portfolio in order to confirm the very high credit quality and liquidity of our investments.

Our allocation to alternatives while in line with the industry is differentiated through its high degree of downside protection as we prioritize cash-flowing, pull-to-par, non-binary outcome investments. We have not invested in traditional hedge funds and private equity.

Within our Retirement Services segment, our alternatives portfolio returned 11.3% in the second quarter. MidCap and AmeriHome returned 14.5% and 12.1% respectively. As a reminder, at Athene, we believe that market instability benefits our business and we welcome it.

Periods of market volatility are our most active times of investing when we leverage our expertise to find areas of the market that offer compelling risk return profiles. We've proven our ability to perform in today's benign markets as well as in volatile markets.

We remain focused on maintaining ample capital and liquidity to allow us to achieve future outperformance when the market opportunities arise. Now, I’d like to turn the call over Bill to discuss our liability origination platform..

Thanks, Jim. Our performance in the second quarter and the first half of 2018 has demonstrated Athene’s competitive position in our core markets remains strong.

We continue to execute in our organic channels by introducing new products, providing exceptional customer service, establishing new business lines and expanding into new distribution relationships. Our efforts generated new organic deposits of $2.7 billion during the second quarter, driven by record retail deposits of $2 billion.

Importantly, we maintained our underwriting discipline of mid-teens return targets. This organic growth combined with the $19 billion of liabilities from the Voya transaction bought our total reserve liabilities to $96 billion at June 30, a 38% increase over the prior year.

During the first half of 2018, we believe our retail annuity businesses exhibited the strongest growth among all of the leading carriers. Retail annuity sales are up 22% year-to-date, largely driven by expanding our distribution relationships, particularly with financial institutions.

Year-to-date, we have signed 16 new relationships with banks and broker-dealers and total sales are triple to the first of 2017 in this segment of the market. In addition, we continue to be the largest issuer of indexed annuities within the IMO channel with sales growth of 5% during the first half of the year.

You may recall that in the first quarter we launched two return of premium products targeted at bank distribution, both of which have had early success and which have accelerated the singing of new selling agreements.

In June, we launched a new fixed indexed annuity product, Athene Agility, which has specific -- which was specifically designed to compete with the best-selling product in the market. Since its launch, Agility has become one of our top illustrative products and submitted applications are well ahead of our expectations.

Turning to Flow Reinsurance, the $473 million of volume generated in the quarter was driven by improved competitive positioning and the introduction of new products by our clients. We believe that continuation of those trends will help drive growth in the second half of the year.

In addition, we have recently been mandated by two well-known insurers for Flow Reinsurance agreements that we expect to announce in the third quarter as the treaties are executed. Regarding our institutional channel, market conditions have moderated new deposit volume in the first half of the year.

The public funding agreement market saw significantly less issuance than the prior year as spreads for insurance companies have widened out more of in the overall credit market. We remain disciplined regarding returns we're willing to accept and we’ll be back in the funding agreement backed note market when the economics improve.

The pension risk transfer market has had a slower start to the year than we anticipated with fewer large deals coming to market. However, there is a strong pipeline and we expect to see a pick-up in the second half of the year. Overall, Athene's organic business continues to perform well.

For the first half of this year, if you exclude opportunistic funding agreement issuance, our total organic volume is up 26% over the prior period. We believe that the 2017 tax reform for the life insurance industry has not impacted our powerful organic growth engine.

Finally, you all know we've successfully closed our reinsurance transaction with Voya on June 1st. We are very pleased with this transaction, both in terms of its expected financial return, which Marty will detail in a moment, and with the closing and integration of this deal, which has gone smoothly.

We believe the Voya deal will serve as a model for many of the transactions we expect to pursue in the future. When we look at the deal pipeline, we see a lot of opportunity, as the life insurance industry continues to restructure and shed non-core liabilities.

We are uniquely positioned to be the solutions provider of choice because of our expertise, our successful track record of closing complex deals, and our strong capital position. The deal environment makes us confident that we will be able to deploy our capital in opportunities that will create significant shareholder value.

We are patient and disciplined stewards of capital and our diversified organic funding model enables us to grow profitably, while we execute our inorganic strategy. Now, I'll turn the call over to Marty, who will discuss our financial results..

Thanks, Bill. And good morning, everybody. We continue to deliver strong financial performance and in the second quarter maintained our strong capital position with low financial leverage. The closing of the Voya transaction meaningfully scales our assets and will drive higher operating earnings for years to come.

For the second quarter, net income was $264 million or $1.33 per diluted share, while adjusted operating income was $290 million or a $1.48 per adjusted operating share generating an adjusted operating ROE of 14.2%.

Notable items included $13 million of favorable rider reserves and DAC amortization due to equity market performance compared with a $44 million benefit in the prior year’s quarter related to equity market performance and actuarial out of period adjustments.

Adjusting for notable items, adjusted operating income was $279 million and Retirement Services was $278 million, resulting in an adjusted operating ROE for the segment of 19.1%.

In our Retirement Services segment, adjusted operating income, excluding notable items, increased by $52 million or 23% from the prior year’s quarter, primarily due to invested asset growth of 27.6 billion, higher floating rate investment income of $26 million as well as one month of impact from the Voya transaction which closed on June 1st.

The net investment earned rate for the quarter was 4.74%, down 11 basis points from the prior year, mainly due to a 9 basis point drag from the on-boarding of the Voya portfolio as well as lower new -- as well as lower new money yields over much of the last year. This dynamic was partially offset by higher floating rate investment income.

I’d note that new money yields currently are close to our overall portfolio NIER and at these levels should not drag down our portfolio NIERs in future quarters.

The alternatives portfolio continued to perform well again this quarter, yielding an annualized net investment earned rate of 11.28% in Retirement Services, supported by the ongoing strong performance of MidCap and in AmeriHome. Alternative returns in the prior year benefited from outsized returns from AmeriHome with 24% in that quarter.

Our cost of crediting was 1.92%, up 3 basis points over the prior year’s quarter, primarily driven by a higher rate on the Voya reinsurance liabilities. We did see a modest increase in hedging costs over last year resulting from higher volatility in interest rates, but much of this was offset by in-force rate actions taken throughout 2017.

Our investment margin on deferred annuities continued to remain strong at 2.82% at the high end of our target 2% to 3% range. The tax rate in Retirement Services was 14.5% in line with our previous guidance. In Corporate and Other, adjusted operating income was $1 million in the quarter.

This is a decrease of $12 million from prior year’s quarter, primarily driven by lower alternative investment income related to a decline in the market value of public equity positions in one of our funds as well as lower credit fund income. Turning to our strong capital position.

At quarter end, adjusted shareholders’ equity increased 18% year-over-year to $8.4 billion. We continue to have approximately $2 billion of excess capital which we expect will contribute to our growth and ratings improvements over time. Our capital ratios remain very strong with an ALRe estimated RBC ratio 524% and the US estimated RBC ratio of 438%.

During the quarter, we put our excess capital to work to support our organic growth and also deployed approximately $1.1 billion of capital for the Voya transaction, which caused a slight decline in our RBC ratios.

We contributed approximately $900 million of debt proceeds to the operating companies to help replenish capital with the closing of the Voya transaction, and as a result, earnings on that capital will now be in Retirement Services rather than in Corporate and Other.

To conclude on second quarter results, we continued to deliver strong financial results and we believe there are great opportunities on the horizon. We have earnings momentum benefiting from closing of Voya transaction, redeployment of assets, floating rate investments and a strong capital position.

We are excited about both our near-term and longer-term prospects as well as our ability to produce growth at an attractive rate of return on equity both organically and inorganically.

Moving to our 2018 business outlook, now that the Voya transaction has closed, we expect it to generate mid-teens returns or higher which is 10 points or more over approximately 4.5% we had already been earning on excess capital which was deployed.

We continue to anticipate the Voya block will drive an increase in adjusted operating income of $20 million to $25 million per quarter in 2018. However, given the improved outlook for the transaction and our updated redeployment plan and higher investment yields, we are upwardly revising our expectations for the full year 2019 and 2020.

We now expect the block to generate adjusted operating income of approximately $130 million and $160 million for 2019 and 2020 respectively. Voya earnings were in line with our expectations for the month of June. Turning to our investment income.

We expect consolidated net investment income to increase by approximately $140 million and $175 million in the third and fourth quarters respectively, primarily driven by growth in invested assets and increased floating rate investment income as well as return of 9% to 10% for alternatives in Retirement Services.

We expect average invested assets of $100 billion and $102 billion for these quarters respectively, which reflects our current expectations for organic growth. For liabilities, we expect the quarterly cost of crediting to increase by 4 to 6 basis points by the end of 2018.

We expect other liability costs to be in the range of 1.25% to 1.35% of average invested assets ex-notable items for the second half of 2018. The updated guidance for both metrics reflects the impact of the Voya liabilities which have higher crediting rates but lower rates of other liability costs.

As we've previously stated, our overall tax rate year-to-date has been consistent with our earlier guidance following the implementation of the Tax Act. We have been evaluating strategies and implementing actions which we expect will lower our overall tax rate to now more than 11% including federal income tax, BEAT and excise tax.

We plan to complete these actions in the third quarter of 2018 which are expected to benefit our financial results retroactive to January 1st of this year. In summary, we continue to execute on our key operating and financial objectives.

We believe our strong financial position and multiple growth opportunities, combined with a track record of execution will continue to create significant value for shareholders over the long-term. We're excited about our prospects and look forward to updating you on our progress. Now, I'll turn it over to Jim for closing remarks. .

Yes. Thanks, Marty. Before concluding, I'd like to make two final announcements. First, we are continuing to enhance our visibility within the investment community and bolster our commitment to building shareholder value. Along those lines, Noah Gunn will be joining our team to lead our investor relations program affective August 9th.

Noah brings more than 13 years of experience across investor relations, sell-side equity research and public accounting to Athene. He joined us after five years at Apollo Global Management where he most recently served as the Investor Relations Manager.

We believe his background in financial services and his experience building and managing relationships with investment community represent a valuable addition to our team. Paige Hart will work closely with Noah.

Lastly, as you know, we’ve been a public company for a little more than 18 months and our growth in that short time has exceeded the high expectations in place at the time of our IPO. To help provide you with a transparent view of our business, we will be holding an Investor Day on Thursday September 20th in New York City.

This will also include a significant focus on our asset portfolio. We really hope that you can join us in person or via webcast. In summary, I hope it’s clear that Athene is a better financial services company, ideally positioned and focused on the growing retirement savings market.

We are confident that consistently growing earnings and book value and high ROEs will translate into significant shareholder value. We are proud of what we’ve accomplished to-date but firmly believe we will perform even better going forward. Now, we’d be happy to take your questions. .

Thanks, Jim. We’ll now begin the question-and-answer portion of the call. We ask that you please yourself to one question and one follow-up, then requeue for additional questions. Operator, we’ll now open it up. .

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from Tom Gallagher of Evercore. Please go ahead. .

Good morning. A few questions. First, just on the taxes, Marty.

So, if we’re getting 11% effective beginning of year, we’re going to get a catch up in 3Q, so effectively will there be a much lower tax rate in 3Q and then moving up to 11% in 4Q?.

That is actually right. It’s going to be no more than 11%. So it could be lower than that. But that’s right, there’ll be a catch up in the third quarter reflecting the fact that in the first and second quarter we paid something just north of 14%, so that’s right, Tom. .

Next question, just on the improved accretion guidance for Voya both for ‘19 and ’20, what’s driving that, is just -- is that portfolio repositioning?.

Yes. If you think about what’s happened in the market environment, really since we closed, interest rates have gone up, spreads have begun to widen a bit. And also as we’ve had an extensive look at the overall transaction, most of the upside is on the investment side, I think we have a little bit of upside on the liability side as well.

So, we think we can improve the spreads where it’d be effectively another incremental $25 million next year versus what we thought a while ago..

Thanks. And then the other liability cost coming down, it’s well below I guess what the guide was heading into 2Q, which I think was1.35% to 1.45% , now I think it came in at 1.36% this quarter.

But the 1.25% to 1.35% guide, what is sort of the -- I know you gave out the components of that, but what of those items what is driving that lower?.

The biggest driver of that Tom is on a go forward other liability costs for Voya are a bit lower than for our existing business. So Voya is a little bit different kind of block; the liabilities are very similar. But the overall cost of funds is a little bit different.

So if you look at Slide 13 of our earnings presentation, we've got a lot of different comparisons of Voya versus Athene without Voya, but the interest crediting cost of Voya is a little bit higher but the other liability cost in terms of rate is quite a bit lower.

So that will effectively serve to drive down in terms of basis points for the rest of this year our other liability costs. .

Our next question comes from Ryan Krueger of KBW. Please go ahead..

On the tax, is there any more detail that you can provide on what you changed structurally? And then -- I think certainly providing if you can.

But along those same lines, can you talk to your confidence in the sustainability of the tax rate and not being at risk from any sort of IRS interpretations around these or other factors?.

Yes, Ryan, and we're not going to get into a lot of detail on something we haven’t even executed. We don’t really think it kind of serves our best purposes here for competitive issues.

But I would say that earlier in the year we put in place structural changes to make sure that our tax rate was no worse than 14% or 15% no matter if the interpretation would be with gross or net.

Actually what we’re doing now is putting in place a business model change incrementally that will drive our tax rate down to no more than 11%, we've already got a tax opinion from a blue-chip firm, been through it with our auditors and other tax advisors, and now it's just a matter of implementing that strategy.

Obviously nothing is absolutely certain these days and the actual rules of tax reform are not finalized, but we feel pretty good about where we are. .

And then on potential inorganic transactions, I know Jim you’ve talked about -- you've mentioned long-term care, partnering on long-term care in a similar way that you did on variable annuities with Apollo could be an opportunity.

You mentioned along those lines that there could be a potential to actually extract some income directly from the spread piece of long-term care.

I just want to -- if you could maybe talk a little bit more about how that opportunity might work?.

Yes, look I think the point was that as we said many times the Voya transaction could form a template for future solutions in the restructuring of the insurance industry, so there could be more Voya type deals from sellers looking for variable annuity solutions and then the comments pertained to could we do something similar in another troubled area i.e.

is long-term care, no specifics, nothing eminent but that was the idea, can you take the technology that Apollo and Athene put together standing up Venerable was a variable annuity solutions for that Voya variable annuity block and do something similar with the more volatile parts of long-term care, only if Athene at the same time as in Voya got a significant amount of business that it wanted which would not be the long-term care piece just like the variable annuity piece wasn’t part of Athene’s plan.

So nothing more specific now than when I first talked about it. Bill you can comment if you want..

No, I think that's exactly right. We will -- we're not interested in doing long-term care deals just for the sake of long-term care deals. We want to make sure that there is the kind of spread earnings opportunities that we have in our base annuity business that we might get in the rest of -- that’s available to us in those kinds of transactions. .

I would just add, it’s Marty. I would just add, we would never have long-term care on Athene’s balance sheet. It would be on a different vehicle that Apollo would control on. So, we would participate in fixed liabilities that seller would have.

And maybe we’d find some way to take the asset liability risk without taking any of morbidity risk in long-term care, but we’ll never have the long-term care morbidity risks on Athene’s balance sheet..

Understood.

Is it fair to say that, would you say that you are most optimistic about heights of transactions that would be along the template of Voya, is that where you’re seeing the most opportunities right now?.

Well, yes. There is a lot going on in the market generally. But if you think about it, the Voya transaction -- Voya like transactions is very few companies that can execute those.

And so, the competitive situation is different, right, where you’ve got a complex problem that really nobody can either solve or get approved through a regulator or have the capital to provide the solution for. It’s a small group of people, and we’re one of them. So, I think that bodes well for us. .

Our next question comes from Erik Bass of Autonomous Research. Please go ahead. .

Hi. Thank you. Hoping first you can talk about your expense leverage going forward. And clearly adding Voya brings down the ratio of other liability cost to assets.

Just thinking is there additional room to improve this as you add assets either organically or inorganically or at some point do you sort of reach a floor level?.

Hey, Erik, it’s Marty. I think one of the great things about our platform is it’s very scalable. We have a pretty fully built up platform in Des Moines in the businesses that we’re currently in, fixed annuities, fixed index annuities, PRT, funding agreements.

And for doing additional businesses in those spaces or even some related spaces, we really don’t see the need to add incremental cost of any significance. We’ve put on, for example, Voya, $19 billion of liabilities for reinsurance, we will end up hiring four or five people that kind of manage that ongoing business. So, very little incrementalexpense.

So in terms of scale, with the Voya transaction, our operating expenses as a percent of invested assets will drop 4 to 5 basis points. And we think that type of thing will continue as we do more of these types of transactions..

Thank you. And then I guess a bigger picture question about the competitive environment. And just are you concerned at all about the prospect of more new entrants into the business trying to copy your business model, either in terms of your direct business or by creating entities similar to Venerable and Athora to see closed block transactions.

And I guess is this creating more competition for deal, or that’s just a type of investment assets that you’ve focused on historically?.

I think you have to understand we’re already in a highly competitive environment and we already have many imitators, whohave a very similar structure to us. And so where do we -- where is our real competitive advantage? Well, we’ve executed, we have a track record.

We’re the largest guy in terms of Bermuda-like companies; we’re the largest player out there. We’ve got higher ratings than most people and we have a lot of excess capital and we have the expertise frankly to execute these deals.

So, we -- are we concerned about more competitors? Honestly not very and that’s not because we don’t care about competitors, but we already have a lot of them. .

Our next question comes from John Nadel of UBS..

Jim, in your opening remarks you touched on capital deployment and talked about the attractiveness of Athene shares and the attractiveness of opportunities inorganically in the marketplace.

I think at least before the open this morning, and for some lengthy period of time up until today, there is an opportunity to buy Athene shares at respectively statutory book value.

Should we expect the deal opportunities that you're seeing today can be done at or below statutory book value?.

Hi, John. Yes, good question. Look, I think the point in my comments -- in our script was we look at this all the time and we are very aware of our stock price and the value It affords us.

But we also look at the inorganic -- look our earnings essentially fund our organic and inorganic opportunities as we talk about, very robust pipeline, very optimistic, we put those things on at returns that we’ve targeted. And executing on our growth business plan right now continues to be the best and highest use of our capital.

So the returns from buying back shares would have to be materially better than the returns we generate from executing on our business plan for us to do something different than were doing now. We're open to it. We're flexible on capital deployment and we are not tone deaf to investors’ concerns. But we still take our optimism on executing.

Yes, the returns are going to be very attractive on the inorganic things that we execute on and we don’t think it would be smart if we hit on one or two of these inorganic opportunities and we’ve used up all of our excess capital partly because we bought some shares back. We don’t think that would be a smart asset -- capital allocation.

So that's the way we look at it. It’s always under review, nothing is cast in concrete. We are flexible. But we think deploying into our growth opportunities now continues to make more sense. .

I just have two more quick ones. One with respect to the -- I think you characterized it as sort of business model adjustment and some of the structural changes you’ve put in place to achieve -- or at least to prepare yourself to be able to achieve this sort of lower tax rate.

Do you think that's going to prove to be proprietary or do you think that's going to prove to be to be something that others will follow and wouldn’t you prefer it be the latter?.

I suspect others will follow. What we have found is we do things that others look at what we do and they follow that playbook and so I suspect that’s going to the case here as well. We will try to do it here but being somewhat cryptic on it is to at least give ourselves more of a head start but I suspect the folks will follow on. .

And then one for Bill or maybe Marty, if you -- it sounds like the -- I mean the organic growth -- if I set aside some of the lumpiness on the institutional side, the organic growth looks really strong and the outlook sounds like it's improving further, obviously it may even get better if the rating agencies come onboard at some point.

How much of your earnings -- if you state on this trajectory of organic growth or even accelerate it somewhat from here, how much of your earnings are you using to fund that growth?.

Yes. John, it’s Marty. I think that the earnings that we’re generating really is kind of statutory earnings which is the main measure here that you’re thinking about.

We could probably grow -- we could probably put volume on organically kind of given our current liabilities profile and asset profile let’s call it 12 billion, 13 billion, 13.5 billion a year, if we grow -- if we have volume in excess of that we will probably start dipping into excess capital.

So, I think we still -- we’re in a position where our earnings by and large fund our growth and until we get really upwards of 13 billion of volume in a year, new origination I think that’ll continue to be the case, very crude math. But as we get bigger the earnings on our in-force get bigger and so that number grows that.

But in current terms 13 billion or so is kind of the rough inflection point give or take. .

Our next question comes from John Barnidge with Sandler O'Neill. Please go ahead. .

Thank you.

$2 billion of retail deposits on the quarter, could we consider that run-rate and possibly trend that’s forward?.

Well, it’s a seasonal business, right. So, first quarter is always the softest, fourth quarter is always supposed to be the best. Third is, because of August, it’s supposed to cool off a little bit and then pickup after Labor Day. I mean -- but it’s funny, that’s not sort of how the last year or so has gone in terms of our experience.

So, it’s hard for me to predict what will happen five or six quarters out, but I would say our momentum in the third quarter so far is -- hasn’t slowed down at all. And so, we’re going to end up with what looks like a good third quarter.

Fourth quarter, again rule of thumb is it’s supposed to be better, but this year maybe it will be different because guys sold a lot of business in the second quarter and third quarter. The market is clearly improving -- the overall market in terms of size. .

And then my follow up question, New York State, they seem to have taken a best interest regulation recently. What are your thoughts on that, maybe others so called blue state taking that mantle up and what can the industry due to push back? Thank you for your answers..

Well, there is a bill or I guess a regulation moving through the NAIC regarding best interest or sales practices and disclosures and I think that’s a bill or a regulation we fully support. Some states like New York generally don’t actually follow NAIC policy, they make their own. That’s pretty rare though outside of New York.

So, we expect that overall the -- and industry I think is working well with the NAIC to craft this regulation. And of course it will be -- it’s supposed to be aligned with whatever the SEC comes up with as well. So, I think you’re going to see a good common sense rule which I think the industry will embrace..

Our next question comes from Jimmy Bhullar of JP Morgan. Please go ahead. .

Hi. I had a couple of questions. First, just on the deal environment and your comments were pretty positive on the pipeline.

How is competition for deals? Because it seems like at least for the plain vanilla stock there are more companies interested as well and if that is the case should we assume that you would mostly win out on sort of esoteric deals that involve complex structures where there might be some fewer bidders or you think your chances of ending up with just normal fixed type liabilities are high as well?.

I think we have seen small more vanilla blocks trade, the pricing has been very aggressive and has not been a return hurdle in terms of way those blocks traded and I think that's a lot of small guys who are very hungry to printout their first deal, and there’s quite a few of those people.

So, I think that's just going on with the smaller end of the market. So my expectation is we continue to look at those deals, at the moment-- the pricing is too rich. What the -- you're absolutely right and this is sort of why we say that Voya is a model.

At larger transactions, they are not necessarily complex, they just might be larger where the competitive environment is different and it's a smaller group of companies and who I think are more disciplined about price. And so I think we're in the best position to kind of solve complex problems.

Obviously we do have partnership with Apollo and they are a great help to us. So I think that's where we're going to get the returns, and that's okay because those are bigger deals, they’re going to have a bigger impact on Athene. .

And then on the regulatory stuff, you settled with the New York Department of Financial Services. Any update on just the other states and on the business at Global Atlantic and what spending and then other than fine, do you think this will have an impact on your business at all? It doesn’t seem to have had thus far though..

Yes, it’s -- so there was an announcement that the settlement with New York State and it’s just worth repeating even though we said this at the time that the fines and the restitution to policyholders regarding that transaction, even though Athene’s name is involved because some of those policies are still on our paper, this is really an issue for Global Atlantic the reinsurer here and we’re a 100% identified for fines and restitution.

So we weren’t out of pocket in the New York situation. .

You wouldn’t be indemnified for any lost sales to the extent there was sort of a ban on your sales temporarily right, it's just more for fine?.

That's right, there though -- we wouldn’t have -- that's hard to prove about why we lost sales.

But I would say Jimmy just even though we've certainly gotten questions by the market about this and they want to understand it, when we tell them exactly what's going on they get very comfortable and you can see that in our sales and then certainly on the retail side and reinsurance this quarter but in other parts of the market it's not having an impact.

.

I think I would just add Jimmy that with the press releases and so forth, there is certainly escalated visibility to the investor community, even though it’s been in our disclosures. For our distribution for customers, it’s been out there for quite some time. So it's not like new news or a revelation , it's been out there for a while.

So that's why there’s not really incrementally much impact..

And then just lastly on the new distribution agreements that you’ve signed in the bank and broker-dealer channel, are you producing at a full level through those or that hasn’t flown through your results yet?.

It does, it just started. There is always a ramp up as the producers in those channels -- or in those institutions learn about our products and get comfortable with them. And so, we -- I don’t think we’re getting a lot of momentum through there already.

But bank and broker-dealer channel, that’s going to be a big source of growth for us in retail annuity business. .

Thank you. .

Let me just add before we go to our next question. Just to provide some clarity.

On earlier response to John Nadel’s question on earnings, funding organic growth, it’s kind of 13 billion number I talked about, it was really kind of a gross volume number, so that would be putting on 13 billion in new deposits in the year, net of kind of decrements that we typically see, just to be clear on that..

Our next question comes from Mark Hughes of SunTrust. Please go ahead. .

Yes. Thank you.

Related to that, the liability outflows, the 8% to 10%, do you think capital was freed up related to that?.

Yes. We do, absolutely. So, when those liabilities roll off that frees up capital. Absolutely, we don’t have to hold -- obviously capital behind liabilities that are no longer there.

In fact, we prefer when those liabilities are up, we prefer those to roll off because at that point they don’t really have surrender charges or things like that, so if they stayed on our book, the capital requirements actually go up. So it becomes less capital efficient.

So, we prefer a business that no longer has any kind of surrender chargers to kind of roll off and then replace it with business that is protected by surrender chargers and so forth. Lower capital is honestly left behind with more confidence for a long period of time..

So it’s 12 billion in organic that you get internally financed, is that sort of a net number, also thinking about capital freed up from the outflows?.

It’s probably 13 billion-ish of gross volume net of the kind of 8% to 10% decrements that we talked about, the earnings we fund currently..

And then finally, the -- I’m sorry I was going to ask the bank and broker-dealer channel. The -- if you hit any sort of inflection point it sounds like your organic prospects are very good. Is your production within existing clients, it is really ramping up.

Are you seeing something change more meaningfully there?.

Well, most of our business goes through the IMO channel which is where the indexed annuity products really started. And the -- we’re the leading provider in that channel. So we can -- we probably can still grow market share, but it’s -- but we’re already the biggest guy there.

The -- what’s going on in this market is there is a replacement where a lot of financial advisors and banks and broker-dealers used to sell variable annuity, they don’t anymore. And they’re transitioning to indexed annuities and that trend been going on for at least the last five years.

And so, for indexed annuity manufacturers like us, that’s where a lot of the big growth opportunity is and so that’s why we’re focused on that. I think the base business, IMO business will be steady, but most of the incremental growth is going to come through banks and broker-dealers. .

Our next question comes from Suneet Kamath of Citi. Please go ahead..

First for Bill on the new Flow Reinsurance agreements that you talked about for the second half, any sense of, once they are fully ramped up, how much incremental deposits you could get from those?.

Well, it’s -- yes, they do but it's not that significant, I guess I would say. They are nice deals but they were regard to one particular product, not to full array of fixed products that these companies manufacture.

The good news is as I think once we get in the door, improve our ourselves and show that we’re a good partner here I think the opportunity is to expand that relationship, that reinsurance relationship on the products. .

And then I guess for Marty, going back to the Voya accretion, I guess what explains the -- I guess incremental 30 million from ‘19 to ‘20, which is bigger than the benefit you get in '19.

I thought on the last quarter call you had talked about that business starting to run-off and maybe we’d see the impact that run-off in 2020 but instead the earnings seems to be getting better. .

No, I think it’s -- I think earnings will get better, we will have a redeployment plan that’s really over the next year to a year and a half. So you get -- we're still redeploying -- we’ll get lot of it done by the end of this year but we’ll still be improving the overall yield in 2019.

So it's certainly by towards the end of 2019 we’ll kind of feel the full effects of that redeployed portfolio, so there’s going to be kind of its earnings peak and we will feel the full effect of that in 2020.

And then the business may from 2021 and ‘22 -- the earnings off of it may kind of damp down by 5 million, 6 million, 7 million year after that next couple of years after but it peaks in 2020, that’s a kind of number we talked about, which really reflects kind of the fully redeployed portfolio for the full year 2020..

And then just the last one. Can you just remind us where we stand on the fee that you pay for asset management services? I know that was renegotiated at some point in the past and there were some different breakpoints.

So kind of where are we and then when is the next opportunity to renegotiate those fee?.

Yes. So just as far as the currency, 40 basis points from zero to 65.8 billion, 30 basis points on assets above the 65.8 is the base fee. The fee is always subject to negotiation, there is no real firm date as to when we relook at that.

But we do have and have always had an arrangement with Apollo, an understanding that asset management fees won’t stand in the way of appropriate Athene Holding growth, and that's not just talk, we've just then put into action several times, and we would expect that to continue. So it's always under review and -- but that's the current arrangement. .

Our next question comes from Alex Scott of Goldman Sachs. .

So the first question I had was on the annuitizations that you receive from the Venerable deal over time.

Could you -- I think you’ve kind of characterized it as 8 billion in the past, could give an update on your thinking now the transaction is closed and if you have any comments around the timing, I mean does Venerable have any plans to do anything that might accelerate some of that annuitization?.

So we’ve owned this block now for a month, so the transaction closed a month ago, in that first month we got about $25 million of deposits, which is a little -- we have talked about a run rate here of about 500 million or so, Obviously, 25 million times 12 is lower than that.

A little of what’s going on is in late 2017, Voya did a buyback if you will at some of their in-force and it’s -- and so I think that probably dampens annuitization demand a little bit. And -- but I think the -- my guess is we’ll probably see some higher volumes towards the end of this year than what we had in the first month.

I don’t -- so I think that’s sort of the numbers. In terms of what Venerable management might do, yes, I mean they may do things with the in-force block in terms of special buyout offers and stuff like that and it could have an impact, but nothing is planned.

But over time, I think they will be very proactive in terms of managing their in-force block and doing smart things. And that might help annuitization demand; it might strengthen a little bit. But that’s sort of momentum we see. .

Okay. Thanks, And maybe just on the timing of the reallocation of the Voya assets. I mean, can you provide any color on sort of what your view is? I mean would you just do it sort of consistently over time or we wait for more volatility in the market.

And what’s your thinking on the strategy there?.

Yes. So obviously we have part of the analysis of the block reinsurance deal was how quickly we redeploy the assets and at what yields. So, I mentioned in the script that we are ahead of pace, both on speed and on yields achieved. Most of that will be done before the end of this calendar year. All of it will be done within a year from close.

So -- but it’s pretty regular, I mean we’re only redeploying about a third of what we acquired, we’re keeping the rest. So it’s – a material redeployment, nothing close to what we did in the Aviva deal where it was $45 billion redeployment. So, but -- we’re two and a quarter months into it -- two and a half months into it -- two months into it.

Like I said, we’re ahead of pace. We feel good about it, optimistic it will go according to plan and probably continue to be a little bit better than planned. So, yes, it will be a regular deployment..

Our next question comes from Andrew Kligerman of Credit Suisse. Please go ahead..

Good morning. Interested in the economics of the funding agreement, backed note deposits versus pension risk transfer.

Could you give us a little color around the types of returns you’re seeing today in both areas?.

Well, let me reinterpret your question a little bit. Our pricing targets in both of those product categories is mid-teens. And so -- and we’re -- and even though we’re still fairly new into the PRT business, we’ve been able to achieve mid-teen.

And so -- and the same thing with the funding agreement business and the funding agreement business which, Jim, I think can claim to have invented the funding agreement business in the 90s at SunAmerica, sometimes the window closes, because of where relative spreads are and we’re sort of in one of those periods now. It will reopen. It always does.

It doesn’t last -- often times it doesn’t last that long and then we will be able to continue issuance. But the whole point is, we don’t sell funding agreement backed notes unless we can hit our return targets..

Yes, that's right. And I would just add, that's the benefit and beauty of a multi-channel distribution platform where we allocate capital to the highest return channel.

And given the widening and funding spreads for insurance industry in general and for us as well, FA backed notes we pulled back on because we're careful stewards of our capital -- of your capital, our capital and it didn’t achieve our return targets, but they will going forward at some point. .

And just to define that window, if you were to open the window, what type of return would you get on the funding?.

You mean What would be the returns today if we sold?.

If you would have -- yes, with the funding agreement backed note deposit..

It's low double-digit but it's not mid-teens I think is ballpark what we’d say..

And then just lastly, you talked about that expertise and the ability to do these special deals, what kind of activity are you seeing around product areas like the long-term care in particular, are there a lot of companies that are looking to sell long-term care blocks and are there a lot of players out there looking to provide a solution?.

Well, I can’t talk about the whole market, I can tell you there are some long-term care holders, liability insurers who are exploring transactions. The -- and in terms of the number of people who are willing to provide a solution of some sort, it's a very small number, right..

This concludes our question-and-answer session. I would like to turn the conference back over to Paige Hart for any closing remarks..

Thank you for joining us today. We look forward to talking to you next quarter as well as Investor Day on September 20th..

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