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

Erik Bass – Autonomous Research Tom Gallagher – Evercore ISI Ryan Krueger – KBW Suneet Kamath – Citi Mark Hughes – SunTrust John Barnidge – Sandler O'Neill.

Presentation:.

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 of this call 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 Fourth Quarter and Full Year 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'd like to mention a few changes to our fourth quarter materials.

To comply with recent SEC guidance on non-GAAP financial measures, we have changed our operating income, net of tax label to adjusted operating income in every manner in which it was previously presented. The calculation of this measure has not changed.

We'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 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, 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 that any comparisons will be made versus the same period of the prior year, unless otherwise noted. And now, I’d like to turn the call over to Jim Belardi..

Thank you, Paige and welcome to our fourth quarter and full year 2017 earnings call. 2017 was a milestone year for Athene.

In our first year as a public company, we executed all four of our distribution channels for the first time; generated record net income of $1.4 billion and adjusted operating income of $1.1 billion; posted full year ROEs for Athene of 18% and for Retirement Services of 22%; and continue to set the stage for long-term strategic growth.

We generated a record $11.5 billion of new organic deposits, including record retail deposits of $5.4 billion as we expanded both our product offerings and our distribution relationships. And within flow reinsurance, we signed Lincoln Financial as a new partner.

Of particular note in 2017 was our success in our institutional channel, which generated $5.3 billion of new deposits. This was comprised of $3 billion of funding agreements and $2.3 billion of pension risk transfer obligations, both sources of deposits we did not have in 2016.

In December, we announced a $19 billion reinsurance transaction of fixed and fixed index and liabilities from Voya Financial. This transaction demonstrates Athene and Apollo's expertise and financial capability to provide creative, customized solutions to take advantage of the ongoing restructuring of the life insurance industry.

This is the latest step in our plan to become a solutions provider to the overall financial services industry. The economics of the deal are even better now than at announcement, given the rise in yields.

Our invested assets will be approximately $100 billion after closing the transaction, and we are currently pursuing additional acquisition opportunities. In January, for the first time, we issued $1 billion of holding company debt to replenish our excess capital that would have been reduced to support the Voya transaction.

This reinforces our commitment to better ratings and confirms our optimism around prospects to execute additional transactions. Along with record deposits, we invested record volumes of $22 billion last year and generated an investment margin of 2.82%, an increase from 2016, in what continued to be a challenging asset spread environment.

Our efficient operating platform supported this significant growth, and we continue to decrease our operating expenses as a percentage of invested assets. With respect to tax reform, we expect that Athene's tax rate in 2018 will be approximately 14%, a small increase from our historical rate.

We expect that the company's tax-efficient structure will allow it to maintain a competitive advantage in the marketplace. Going forward, we are confident in our ability to successfully compete in all of our channels. By design, Athene is not a traditional insurance company. Our focus is on the retirement savings business.

Our operating structure, our asset management expertise, in conjunction with Apollo, our earnings, returns and growth are all different, and by that, we mean better. We embrace volatility at these locations because we have the capital to take advantage of those situations. Interest rates are rising, which helps all aspects of our company.

We are perfectly positioned for a great 2018 and remain very confident and optimistic about our growth prospects. Now, I'll turn it over to Bill to discuss our distribution channels..

continue to diversify our products, expand our distribution, increase penetration in our institutional channel and opportunistically grow through M&A and block Re transactions. We expect to generate higher levels of new deposits as compared with 2017, although total deposits and mix will ultimately be driven by the achievement of our return targets.

In our retail business in 2018, we will continue to expand our distribution and introduce new products. In 2017, we more than doubled sales from banks and broker-dealers, and we will build upon that momentum by continuing to launch new products.

In fact, earlier this month, we launched a new product that is commonly used in the bank channel, return to premium, that offers the consumer the feature of complete liquidity. In our reinsurance business, our objective remains to add new partners in addition to maintaining a high level of service for our current partners.

Interest in our reinsurance solutions has been steadily increasing, and we are optimistic that we will add new partners in the coming year. In our institutional channel, we spent the last year focusing on expanding where we have two very large market opportunities, funding agreements and pension risk transfer.

In 2017, we were very successful with our funding agreement issuance receiving a positive reception and a strong secondary performance, which we expect to carry into 2018. Funding agreements represent a very efficient source of liabilities and we feel confident in our long-term potential in this market.

In pension risk transfer, there is a robust pipeline of deals coming to market, and we are actively engaged in the diligence process. While the timing of deals can be hard to predict, I'll note that it is not typical for deals to close in the first couple of months of a new year.

In addition to organic growth, opportunistic acquisitions and block transactions remain a key part of our strategy. The deal environment is picking up as the restructuring trend in the reinsurance industry continues.

We will remain disciplined in the transactions that we pursue, as we demonstrated in 2017 with the deals we did and did not do, evaluating each opportunity and the scope of our strategic priorities.

Given our expertise and balance sheet strength, we are well positioned to take advantage of attractive market opportunities to generate shareholder value.

Our diversified model allows us to focus on the lines of business that offer the most compelling returns, and with our strong balance sheet, successful business model and conservative capital structure, we are confident in our ability to continue to effectively execute.

Now I'll turn the call back over to Jim, who will review our investment portfolio in more detail..

Yes, thanks, Bill. Athene's asset management is a key competitive advantage. Our investment philosophy takes advantage of our low-cost and stable liabilities, which enable us to underwrite complexity and liquidity risk in addition to credit risk and help us achieve 2% to 3% investment margin with significant downside protection.

Our high-quality investment portfolio performed very well during the year, and the yield on our floating rate securities, which are 29% of our portfolio as of January 1, is materially increasing with the large increases in LIBOR rates.

We ended 2017 with approximately $82 billion of total invested assets, a 15% increase over the prior year, driven by strong growth in new deposits. In terms of yield, in our Retirement Services segment, our annualized net investment earned rate in Q4 was 4.57%.

For the full year, we had a net investment earned rate of 4.70% in our Retirement Services segment. Our floating rate assets increased investment income by $64 million. The alternatives portfolio in this segment generated a return of 10.01% for the year, driven by higher income from AmeriHome and real estate.

The credit quality of our investment portfolio remains very high. At year-end, approximately 94% of our available for sale fixed maturity securities were NAIC 1 or 2, the two highest categories. In 2017, our annualized OTTI as a percentage of total average invested assets was only four basis points.

We invested a record volume of $22 billion in 2017, approximately 22% more than in 2016, in a very difficult environment. We remain disciplined and committed to our downside protection principles and an appropriate risk return philosophy.

Our investments in private corporates deliver a yield premium to public corporates and typically have superior covenants. We purchased just under $3 billion of corporate privates in 2017, diversified across a variety of borrowers. We expect a very strong 2018 in this sector.

Structured securities provide us with attractive yields and downside protection and are also highly rated and very capital efficient. While we see U.S. housing fundamentals as favorable, spreads in RMBS CUSIPs have tightened to post-crisis tights, making current prices on the majority of new assets unattractive.

Instead, within real estate, we are focusing on non-CUSIP lending with assets that have attractive capital charges. We purchased $1.8 billion of investment-grade, asset-backed securities during the year, focusing on aircraft and whole business securitizations. We expect to significantly increase volumes in this space in 2018.

Our alternatives portfolio, which is currently 5% of invested assets, is a source of outperformance. We invest in fixed income-like funds with cash flows as opposed to equity-like funds that rely more on capital appreciation. We have not purchased traditional hedge fund or private equity investments.

In the long-term, we expect a 5% to 10% allocation to alternatives with a bias towards the higher end.

However, in the near-term, given our substantial growth, including the on-boarding of $19 billion of assets from our reinsurance transaction with Voya, we anticipate maintaining a 5% to 6% allocation by meaningfully increasing the dollars invested in this space.

Athene continues to look for opportunities in asset originators where the value of the entity is cheaper than buying the underlying assets. Recently, we have been looking at real assets like royalties and real estate strategies that have shown cyclical resiliency.

We are also targeting strategic assets that can generate attractive assets for our balance sheet. We expect to control many asset originators that will consistently source assets for us in all different economic environments. We have made new fund commitments that, when fully funded, will materially increase the size of our alternatives portfolio.

We expect this bigger portfolio to continue to generate double-digit returns over the expected life of the investments. In summary, our investment portfolio is very high quality, performing very well and will perform even better in a higher interest rate environment. Now Marty will review our financial performance and strong balance sheet..

Thanks, Jim and good morning, everybody. As we did throughout 2017, in the fourth quarter, we again delivered strong growth and financial performance and further strengthened our balance sheet and capital position.

For the fourth quarter, net income increased 27% over the prior year to $464 million or $2.35 per diluted share, and adjusted operating income increased 19% over the prior year to $332 million or $1.69 per adjusted operating share, generating an adjusted operating ROE, excluding AOCI, of 17.4%.

In our Retirement Services segment, we generated adjusted operating income of $306 million resulting in an adjusted operating ROE, excluding AOCI, of 22.6%. adjusted operating income increased 26% over the prior year, driven by higher fixed and other investment income.

Fixed and other investment income increased due to invested asset growth of $9.4 billion as well as from higher short-term interest rates increasing floating rate investment income by 10 basis points or $18 million versus last year.

The alternatives portfolio yielded an annualized net investment earned rate of 7.92% in the quarter versus 16.25% in the prior year. Results in the prior year were driven by an increase in the fair value of two funds reflecting the removal of liquidity discounts related to marketability assumption used in the determination of the fair value.

Moving to our liability costs. Our cost of crediting was 1.87%, eight basis points lower than the prior year. Our cost of crediting continued to decline as a result of rate actions and lower option costs. Our investment margin on deferred annuities for the quarter was 2.70%, resulting from our diligent management on both sides of the balance sheet.

Other liability costs for the fourth quarter included a benefit of approximately $53 million related to lower writer reserves and debt amortization, primarily due to favorable equity market performance as well as an immaterial out-of-period actuarial adjustments. Turning to Corporate and Other.

Adjusted operating income was $26 million in the quarter as compared to $38 million in the prior year. The decrease was driven by lower alternative investment income as well as higher corporate operating expenses.

Our German subsidiary had adjusted operating income of $30 million, primarily driven by favorable policyholder dividends as a result of the unwind timing differences in recognition of participating income under U.S. GAAP compared to German GAAP.

As noted in the third quarter, Germany had an adjusted operating loss of – when Germany had an adjusted operating loss of $17 million, this is primarily driven by this timing difference. Net income for the fourth quarter was $464 million, an increase of $100 million or 27% over the prior year.

I’ll note that during the quarter, we had a $7 million tax benefit related to the decrease in our net deferred tax liabilities as a result of the reduction in our future income tax rate related to the U.S. tax reform bill. Turning to our full year results.

Net income increased 89% to $1.4 billion and adjusted operating income increased 52% to a record $1.1 billion. Excluding unlocking and the 2016 tax adjustment, adjusted operating income increased 44%.

In our Retirement Services segment, we increased adjusted operating income by 41% to $1.1 billion, resulting in an adjusted operating ROE, excluding AOCI, of 22%. Excluding unlocking and the 2016 tax adjustment, adjusted operating income increased 33%.

The increase is driven by higher investment income as a result of invested assets growing by 15% and higher short-term interest rates increasing floating rate investment income by approximately $64 million.

Other liability costs in 2017 were lower than prior year benefiting by approximately $100 million of lower writer reserves and debt amortization versus the prior year as a result of the favorable equity market performance and immaterial out-of-period actuarial adjustments. For 2017, we had a slight increase in operating expenses.

However, operating expenses as a percentage of average invested assets actually decreased, demonstrating our efficient and scalable operating platform's capacity to support meaningful growth. In 2017, our investment margin on deferred annuities was 2.82%, an increase of six basis points over the prior year. Corporate and Other.

Adjusted operating income was $17 million, an increase of $66 million compared to the prior year. This is mainly driven by higher alternative investment income, which is lower in the prior year due to a decline in market value of public equity positions in one of our funds. Turning to our strong capital position.

At year-end, shareholders equity excluding AOCI, increased 20% to $7.8 billion. We continue to have more than $1.5 billion of excess equity capital, which we expect will contribute to our growth and ratings improvements over time.

As noted in December, we expect to deploy about $1 billion of excess capital for the Voya fixed annuity reinsurance transaction, and in early January, we completed our inaugural debt financing of $1 billion. As a result, of this capital raise, excess capital is not expected to change materially following the close of the Voya transaction.

We see strong ratings as integral to our organic growth strategy and expect our excess capital position to contribute to ratings improvement over time. Turning to our capital ratios. At year-end, our Bermuda estimated RBC ratio was strong at 562%, and our U.S. RBC ratio was also very strong at 490%, both figures well above our 400% threshold.

As of year-end, our BSCR for our Bermuda platform was 354%. Our operating platform generated an increase in combined statutory capital and surplus of approximately $924 million in 2017. So to wrap up on 2017 results. We delivered very strong operating and financial results.

Looking ahead, we are excited about our near and longer-term prospects and our ability to produce growth and an attractive return on equity. Before turning to our outlook for 2018, I'd like to provide an update on our current perspectives around tax reform.

In December, on our business update call, I provided an early read on the impact to our tax rate from the final bill. As a reminder, the Tax Act reduced the corporate income tax to 21% beginning in January of this year.

The Act also imposes a new Global Minimum Tax, also referred to as the BEAT, or Base Erosion and Anti-abuse Tax, which would apply a 10% tax rate to modified taxable income, although that rate is 5% in 2018 and increases to 12.5% in 2026.

Modified taxable income is defined as the sum of regular taxable income plus deductible amounts paid to related foreign parties. As a result, the BEAT, which only applies to the extent it exceeds the regular tax, would subject payments to our Bermuda subsidiary from our U.S. companies through this tax.

Notably, the BEAT does not apply to income, which originates from our offshore entities, which currently represents about 15% to 20% of our pre-tax income. This income includes profits on flow reinsurance from third parties direct to ALRe and investment income on surplus assets in Bermuda.

We continue to believe the BEAT was intended to apply to the net reinsurance settlement payments made by our U.S. subsidiaries to our Bermuda subsidiary, which comprised of premiums and investment income, net of claims, reserve changes and expenses.

However, we acknowledge there are significant uncertainties around how the tax reform bill ultimately will be interpreted, including whether the BEAT applies to net or gross payments. Depending on the ultimate interpretation of the tax bill, we expect our overall tax rate, combining U.S.

income tax, the continuance of the excise tax and the BEAT, will be somewhere between 12% and 16%. Until there is more clarity on the tax code changes, we currently anticipate our quarterly reported results in 2018 will reflect an overall tax rate of 14% to 15%.

The tax rate changes had no material impact on our statutory capital and RBC ratios at year-end 2017. With respect to RBC ratios, depending on the actions ultimately taken by the NAIC, the change in the tax rate from 35% to 21% could result in a reduction in industry RBC ratios.

We currently estimate that if the corporate tax rate had been in effect as of December 31, 2017 and the RBC calculation employed the 21% tax rate, our overall NAIC RBC ratios would be approximately 10% to 15% lower. Our capital ratios under the various ratings entity models are not expected to be materially impacted by the change in tax rate.

And those models have been and continue to be the primary considerations in our views of appropriate capitals to run our business. As such, we are – while we are still assessing potential impacts, at this time, we do not currently believe the new tax code has impacted our views on our excess capital levels.

With regards to our expectations for 2018, as a growth company, we expect that our organic channels will generate new deposits in excess of the $11.5 billion produced in 2017.

As we've stated previously, we do not have volume requirements for our channels, and our new deposit mix will be a function of where we see the best opportunity to generate our target returns. As a result, sequential or annual comparisons of our deposit mix are not necessarily indicative of the strength of our businesses.

Turning to our investment portfolio. We expect consolidated fixed and other income mirrors to be slightly higher than in 2017, benefiting from the deconsolidation of $6 billion of German invested assets, offset by mid-year onboarding of lower year Voya assets.

With respect to our alternative investment, we expect to meaningfully increase our dollars invested to maintain a 5% to 6% allocation, including the Voya assets, which we will redeploy.

For 2018, we expect that alternatives on our Retirement Services segment will return approximately 10% for the year, and of course, those returns will vary likely quarter-by-quarter. We expect our cost of crediting to remain relatively stable and we will continue to target a 2% to 3% investment margin on deferred annuities in 2018.

Consolidated general and administrative expenses as a percentage of average invested assets are expected to decrease as we experience efficiencies from our operating platform as well as the mid-year closing of the Voya transaction, although liability costs within Retirement Services in 2018 are expected to be higher than in 2017, which benefited by 15 to 20 basis points from equity markets outperforming our expectations.

As we discussed previously, when equity markets outperform our expectations as in 2017, our operating earnings can benefit in the period in two ways.

First, as policyholders’ account values are higher than expected due to incremental indexed credits, more of the associated rider benefits are funded by their account values, which favorably impact the change in rider reserves.

And second, with a higher-than-expected account value, we recognize an increase in invested assets and related income, which slows down on rider reserve changes and DAC amortization. We continue to estimate an additional $25 million to $30 million of adjusted operating income for every 25 basis points change in interest rates.

For 2018, we expect the Retirement Services segment to generate mid to high-teen adjusted operating ROE. For our Corporate and Other segment, which starting in 2018 will include debt service costs, we expect adjusted operating income to be breakeven in 2018. Let me move to the topic of share lockups.

On March 3, 2018, we have approximately 49 million shares coming off lockup, of which approximately 25 million shares are held by AAA and the remainder by officers, directors and employees of Athene and Apollo. This will be our final share distribution to AAA.

We will continue to assess prudent courses of action to facilitate the orderly release of these shares based on market conditions, volume and share trading, investor sentiment and other considerations.

I'd note that in December of 2017, we had approximately 25 million shares come off lockup, essentially all held by AAA investors, and we did not see significant resulting volatility. In summary, we continue to execute our straightforward business model and build out our efficient and scalable operating platform.

We believe our strong financial position and multiple growth opportunities, combined with our 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..

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

Thank you. [Operator Instructions] The first question will come from Erik Bass of Autonomous Research. Please go ahead..

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Marty Klein:.

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

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Bill Wheeler:.

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Bell Wheeler:.

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

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Marty Klein:.

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

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

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Bill Wheeler:.

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

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And ladies and gentlemen, this will conclude our question-and-answer session. I would like to turn the conference back to Paige Hart for closing remarks..

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

Thank you. Ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation at this time, you may disconnect your lines..