Fitch Affirms Athene's 'A-' IFS Rating; Outlook Stable

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has affirmed the 'A-' Insurer Financial Strength (IFS) ratings of Athene Annuity & Life Assurance Company, Athene Annuity and Life Company, Athene Annuity & Life Assurance Company of New York, and Athene Life Re Ltd. (collectively referred to as AHL). Fitch has also affirmed the Long-Term Issuer Default Rating (IDR) of Athene Holding Ltd. at 'BBB'. The Rating Outlook is Stable. A complete list of rating actions is provided at the end of this release.

KEY RATING DRIVERS

The affirmation of AHL's ratings reflects the company's continued strong earnings, solid capital position, lack of financial leverage, and market leadership position in the fixed-indexed annuity market. Offsetting these positives are the company's very rapid acquisition-driven growth, relatively short operating history, narrow business profile, and somewhat aggressive investment portfolio.

AHL's operating earnings have been strong since inception. Fitch believes the favorable economics of the acquisitions it has completed coupled with favorable equity market conditions have allowed the company to earn returns in excess of traditional life insurance companies. Over the long term, AHL expects to earn a net investment spread of 1%-2% on the difference between an expected investment return on assets and its cost of funds. This translates into a long-term GAAP return on equity (ROE) target of 15% or higher, which is a level typical of more highly rated companies. In aggregate, AHL has thus far generally met these expectations.

As a result of the October 2013 acquisition of the U.S. annuity and life operations of Aviva PLC (Aviva USA), AHL is now among the top-five largest issuers of fixed-indexed annuities in the U.S. Although AHL has taken steps to diversify its revenue into institutional spread business and pension risk transfers, given AHL's focus on spread-based fixed annuities, the company currently lacks the diversification benefits of companies who offer a broader array of products. This could result in greater earnings volatility relative to other more diversified industry participants. Additionally, given AHL's relatively short operating history; the company's results are untested in a down equity market or rapidly rising interest rate environment.

The U.S. Department of Labor (DOL) announced new rules on April 6, 2016, that include AHL's primary retail product, fixed indexed annuities, in the Best Interest Contract Exemption (BICE). Fitch believes that when the new rules are implemented in 2017, they will increase the administrative burden for affected companies, require more disclosure, increase litigation risk, change the way affected products are sold and generally have an adverse effect on sales of FIAs. However, Fitch notes that the new DOL rules may increase the opportunity for the reinsurance of in-force blocks of FIA's, which has been a material source of business for AHL.

Fitch views AHL's risk-based capitalization (RBC) as solid for the rating category. AHL targets an RBC ratio of at least 400% across the organization. At Dec. 31, 2015, Athene's RBC ratio for the U.S. domiciled subsidiaries was 552%. Athene uses affiliated reinsurance and currently cedes 80% of its annuity business and 100% of its funding agreement business to Athene Life Re. At Dec. 31, 2015, Athene Life Re had Bermuda statutory capital of $5.7 billion, well in excess of statutory requirements. Favorably, AHL has no financial leverage and currently has no plans to introduce additional financial leverage in the near- to intermediate-term.

Fitch views AHL's investment portfolio as somewhat aggressive relative to traditional life insurance companies. AHL has an above-average exposure to structured securities, including non-agency RMBS that the company acquired beginning in 2009 at a steep discount. Historically, AHL was underweight in corporate bonds but as part of the redeployment of the Aviva USA investment portfolio the company has increased its exposure to this asset class. Fitch will continue to monitor the company's ability to continue to capture an adequate risk-adjusted spread.

AHL was formed in 2008 and has grown quickly primarily through acquisitions, but has also developed a competitive retail operation. While the company's operating history is relatively short, Fitch notes that AHL is led by a team with extensive industry experience in managing net investment spread businesses within life insurance companies. Additional senior executive level hires over the past couple of years has reduced key person risk.

RATING SENSITIVITIES

Key rating triggers that could result in a rating upgrade include:

--Additional seasoning of the company's acquired in-force book of business and demonstrated profitability of new sales;

--Strong, consistent operating performance as measured by an operating ROE of 15% or higher;

--Maintenance of operating leverage on a consolidated GAAP basis of 11x or less;

--No evidence of material decline in market position or operating performance resulting from new Department of Labor rules governing the sale of FIAs.

The key rating triggers that could result in a ratings downgrade include:

--Large acquisitions that are either outside of AHL's historical risk preference and expertise or add significantly to the company's operating or financial leverage;

--Deterioration in AHL's operating performance, resulting in run-rate operating losses for four consecutive quarters;

--An increase in operating leverage on a consolidated GAAP basis to over 20x;

--Significant changes in asset allocation, which may include an increase in limited partnership exposure to over 15% or a large increase in BIG exposure.

FULL LIST OF RATING ACTIONS

Fitch has affirmed the following ratings with a Stable Outlook:

Athene Holding Ltd.

--Long-Term IDR at 'BBB'.

Athene Annuity & Life Assurance Company

Athene Annuity and Life Company

Athene Annuity & Life Assurance Company of New York

Athene Life Re Ltd.

--IFS at 'A-'.

Athene Global Funding

--$250 million series 2015-1 2.875% fixed rate notes due Oct. 23, 2018 at 'A-'.

Additional information is available on www.fitchratings.com

Applicable Criteria

Insurance Rating Methodology (pub. 17 May 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=881564

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1005701

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1005701

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160607006682/en/

Fitch Ratings
Primary Analyst
Bradley S. Ellis, CFA
Director
+1-312-368-2089
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Douglas L. Meyer, CFA
Managing Director
+1-312-368-2061
or
Committee Chairperson
Brian C. Schneider, CPA
Senior Director
+1-312-606-2321
or
Media Relations:
Hannah James, +1-646-582-4947
[email protected]

Source: Fitch Ratings

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• BofA raises AMD target to $720, sees server CPU TAM tripling to $211B by 2030
• UBS upgrades Glencore as commodity gains boost earnings outlook
• Hyperscalers need $300 billion in annual AI revenue to break even: Goldman