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Athene IPO filing a 'major milestone' for growing life and annuity company

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Athene IPO filing a 'major milestone' for growing life and annuity company

Chairman, CEOand Chief Investment Officer James Belardi said he is "pleased and proud"with the recent filingof the registration statementfor an initial public offering by a life and annuity company that he believes ispoised for further expansion.

Speakingduring an investor call to discuss 2015 results on May 10, Belardi touted Athene'ssuccess in "achieving a major milestone for the company well before our targetdate of June 30" in reference to its statements in earlier investor communications regarding the timing of itssubmission of the IPO filing.

The filingappears to incorporate potential primary and secondary components of the forthcomingIPO, but it left blank the sections listing the amounts of class A common sharesto be offered by the company itself and by existing holders. Entities managed byor affiliated with Apollo Global ManagementLLC beneficially owned 73% of Athene's class A common shares and 100%of the company's class B stock. Athene said it planned to use net proceeds fromthe primary portion of the offering for general corporate purposes.

As itstands, Athene ended 2015 with "no debt and significant excess capital to investin growth opportunities," Executive Vice President and CFO Martin Klein saidduring the call. The company quantified its excess capital position in a accompanying the May10 call as being in excess of $1 billion.

It isprogressing toward an IPO with tailwinds provided by full-year 2015 results thatPresident William Wheeler described during the call as being "quite good."The company's net operating income declined to $755 million in 2015 from $793 millionin 2014, but its net income available to shareholders of $563 million marked anincrease from $468 million. Its operating return on equity excluding accumulatedother comprehensive income was 15.9% in 2015.

Athene'sretirement services segment generated $3.9 billion in organic deposits in 2015,which the company said represented a year-over-year increase of 35% in reflectionof the combination of more distribution in its reinsurance business and productexpansion.

The retailbusiness provides retirement-related products and services to customers primarilythrough 72 insurance marketing organizations, and Athene said in the IPO filingthat it plans to deepen its relationships with those organizations as well as expandthe number of organizations with which it does business. With a series of ratingsupgrades in 2015, the company said it believes it can also gain access to new distributionplatforms such as regional banks, broker/dealers and other financial institutions.

Wheeleralso discussed Athene's launch of the retail business's largest product initiativeto date, including the introduction of a new multiyear guaranteed annuity productand the enhancement of its existing accumulation-focused fixed indexed annuities.The initiative will allow Athene to compete in a much broader part of the overallretirement market, and Wheeler said that the company has been pleased with the market'sresponse to date. He also said that the ratings upgrades have provided the flowreinsurance business a boost, reporting that the company has seen "increasedvolume" and its pipeline of new relationships continues to grow.

Atheneis also well-known for its pursuit of acquisitions and block reinsurance deals,and Wheeler said those elements will remain "an important part of our overallgrowth strategy." The company has closed five strategic transactions sinceits formation, and Wheeler highlighted Athene's October 2015 purchase of Delta Lloyd Deutschland — its firstinternational deal — as evidence of the "geographic scalability of the business."

But thebusiness is not bereft of challenges.

The registrationstatement discusses at length the U.S. Department of Labor's April of its final Conflict of Interestrule, known as the fiduciary rule, cautioning that the new regulation "couldhave an adverse effect on our ability to write new business."

Belardisaid he believes Athene's products "are — and will continue to be — valuedby the increasing number of people preparing for retirement and that the featuresand protections provided by fixed and fixed indexed annuities will continue to bean important tool in retirement planning." At the same time, he said he wassurprised that the final version of the rule had "shifted fixed indexed annuitiesto the best interest contract exemption without giving the industry an opportunityto respond to this significant change from the proposed rule" — a perspectiveshared by others who are active in the indexed annuities space.

He saidthat it remains too early to determine the potential impact of the rule on Athene'sbusiness, but he described as "helpful" the phased implementation approachthe Labor Department adopted.

"Ourcompany will approach the new regulation in the same thoughtful manner we have alwaysdealt with change and challenges," Belardi said.

Wheelerpredicted that Athene's 2016 results "will be even better as we enter new marketsin our retail business, accelerate our momentum in the flow reinsurance businessand pursue other growth opportunities."

But successfor the company in 2016 may well be determined by the manner in which it executeswhat will be a closely watched IPO.