Retirement services firm Athene has reported a 56% decline in third quarter net income, driven by an unfavorable change in FIA embedded derivatives due to the impact of unlocking, less favorable equity market performance and an unfavorable change in discount rates.
At $276 million, the slump represents a $347 million decrease from the prior year quarter.
Adjusted operating income was $243 million, a decrease of $128 million, or 35%, from the third quarter 2018.
Athene says this decrease from the prior year quarter was primarily driven by a higher cost of funds reflecting growth in the business including institutional, unfavourable unlocking of $48 million, as well as less favourable equity market performance.
Unfavourable unlocking for the third quarter 2019 was driven by a reduction in the long-term interest rate assumption, partially offset by a favourable impact from actuarial experience, primarily driven by favourable experience in certain legacy blocks of business.
Adjusted operating income was $305 million, a decrease of $43 million, or 12%, from the prior year. This decrease from the prior year quarter was primarily driven by a higher cost of funds reflecting growth in the business including institutional products.
“In the third quarter we delivered record organic growth underwritten to a blended unlevered return in excess of 20%, which drove our invested assets to new heights exceeding $120 billion. Athene remains uniquely positioned with a multi-channel distribution model that generates sustainable and opportunistic growth at attractive ROEs,” said Jim Belardi, CEO of Athene.
Flow reinsurance generated $609 million of new deposits in the quarter, in line with the prior year quarter though meaningfully lower than the strong activity in the second quarter.
The quarter-over-quarter decline was driven by adjustments to quota share levels in response to lower interest rates as Athene maintained pricing discipline.
“We are executing our business strategy and allocating capital to create value for shareholders,” added Belardi.
“To enhance our operating model, we are focused on building an array of asset sourcing capabilities and the pending transaction with PK AirFinance is supportive of this effort. By sourcing a greater quantity of alpha-generating securities while maintaining underwriting discipline, we will reinforce our competitive advantage of generating attractive levels of net spread and profitability.
“In addition, we continue to opportunistically repurchase our shares at high-teens returns, repurchasing a total of $927 million at an average price of less than 90% of adjusted book value per share.
“With our recent authorization increase of $600 million, our Board has authorized nearly $1.6 billion of share repurchases in less than twelve months.
“Finally, our recently announced strategic transaction with our longstanding partner, Apollo, will eliminate Athene’s multi-class share structure, enhance our index inclusion eligibility, and increase the appeal of our stock to a broader set of active and passive investors.”