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Research Update:
Athene Holding Ltd. And Subsidiaries
Assigned Ratings; Outlook Stable
Primary Credit Analyst:
Peggy H Poon, CFA, New York (1) 212-438-8617; [email protected]
Secondary Contacts:
Matthew T Carroll, CFA, New York (1) 212-438-3112; [email protected]
Donald H Chu, CFA, Toronto (1) 416-507-2506; [email protected]
Table Of Contents
Overview
Rating Action
Rationale
Outlook
Related Criteria And Research
Ratings List
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Research Update:
Athene Holding Ltd. And Subsidiaries Assigned
Ratings; Outlook Stable
Overview
• We believe that AADE, AANY, and ALRe are core to the overall Athene group.
• We are assigning ratings to AADE, AANY, ALRe, and AHL, and revising our
outlook on all of the core companies in the Athene group to stable from
negative.
• The stable outlook reflects our prospective view of Athene's very strong
capital adequacy.
Rating Action
On Nov. 25, 2014, Standard & Poor's Ratings Services assigned its 'A-'
long-term counterparty and financial strength ratings to Athene Annuity & Life
Assurance Co. of New York (AANY), Athene Annuity & Life Assurance Co. (AADE),
and Athene Life Re Ltd. (ALRe). At the same time, we assigned our 'BBB'
long-term counterparty credit rating to Athene Holding Ltd. (AHL). The outlook
on the core companies of the Athene group (the aforementioned companies and
Athene Annuity and Life Co. (AAIA) is stable.
Rationale
We assigned our 'A-' ratings to AADE, AANY, and ALRe based on our belief that
all three entities are core to the overall group. ALRe is the Bermuda-based
reinsurer of the group, to which approximately 80% of the overall group's
onshore (U.S.) liabilities are ceded. We believe Athene would support ALRe
under essentially any conditions, as default of ALRe would result in its
assumed liabilities reverting to the onshore companies. The majority of the
profits within the group will accrue to this company. ALRe also writes
external reinsurance, but its current external business comprises less than
10% of its total reserves.
AADE is the Delaware-domiciled lead insurance operating company in Athene's
U.S. operations. The company is the direct owner of AAIA (the former Aviva
U.S. operating company). It also has significant internal reinsurance, with
more than 80% of its net reserves ceded via modified coinsurance to ALRe. It
is fully integrated with the rest of the group from an operational
perspective. We also consider AANY core to the overall group, as this company
is the sole writer of New York business for Athene. The separate legal
domicile is consistent with the 49-and-1 structure commonly used by U.S.
national life insurance companies.
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Research Update: Athene Holding Ltd. And Subsidiaries Assigned Ratings; Outlook Stable
We have also assigned our 'BBB' long-term counterparty credit rating to AHL,
the nonoperating Bermuda-based holding company. In the U.S., holding company
ratings are typically three notches lower than those on the operating company,
reflecting significant structural subordination. Because the majority of
profits (about 80%) will accrue to the Bermuda-based reinsurer, ALRe, we
expect structural subordination to be reduced for the Bermuda-based holding
company.
We revised our outlook on the Athene group to reflect our expectation that
capital redundancy will improve to, and remain at least, 'AA' beginning in
2015. Our forecast of capital adequacy includes the $1.1 billion of capital
commitments that remains undrawn, but which we expect the company to call by
April 2015. It also includes increases in required capital associated with the
change in investment-portfolio allocations as the company deploys its
yield-enhancement strategy, and net income that we expect the company to
retain. The company's very strong capitalization will mitigate the riskiness
of its investment portfolio, which we reflect in our revised assessment of the
company's moderate risk position. Athene has a less-traditional investment
strategy with a heavier weighting toward structured securities and alternative
investments than most of its life insurance peers. Our capital analysis
includes all of Athene's subsidiaries excluding ALIC, whose capital we
consider ring-fenced and not fungible to support needs within the group.
Outlook
The stable outlook reflects our prospective view of Athene's very strong
capital adequacy. We expect the company to generate and retain net income of
at least $700 million in 2015–2017 on a combined statutory basis including
both the U.S. statutory and the Bermuda statutory accounting regimes.
Downside scenario
We could lower the ratings if we expect capital adequacy to be insufficient to
support the moderate risk profile, due to weaker-than expected earnings or
dividends from the company.
Upside scenario
Although unlikely during the next two years, we could raise the ratings in the
long term if Athene successfully executes its current annuity strategy while
maintaining capital adequacy at 'AAA'. We could also raise the ratings if the
company lowered its investment risk profile to be more in line with
traditional life peers while maintaining capital adequacy of at least 'AA'.
Related Criteria And Research
• Group Rating Methodology, Nov. 19, 2013
• Insurers: Rating Methodology, May 7, 2013
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Research Update: Athene Holding Ltd. And Subsidiaries Assigned Ratings; Outlook Stable
• Enterprise Risk Management, May 7, 2013
• Methodology: Management And Governance Credit Factors For Corporate
Entities And Insurers, Nov. 13, 2012
• Refined Methodology And Assumptions For Analyzing Insurer Capital
Adequacy Using The Risk-Based Insurance Capital Model, June 7, 2010
• Use Of CreditWatch And Outlooks, Sept. 14, 2009
Ratings List
New Rating
Athene Annuity & Life Assurance Co.
Athene Life Re Ltd.
Athene Annuity & Life Assurance Co. of New York
Counterparty Credit Rating
Local Currency
A-/Stable/-Financial Strength Rating
Local Currency
A-/Stable/-Athene Holding Ltd.
Counterparty Credit Rating
Local Currency
BBB/Stable/--
Ratings Affirmed; Outlook Action
Athene Annuity and Life Co.
Counterparty Credit Rating
Local Currency
Financial Strength Rating
Local Currency
To
From
A-/Stable/--
A-/Negative/--
A-/Stable/--
A-/Negative/--
Complete ratings information is available to subscribers of RatingsDirect at
www.globalcreditportal.com and at www.spcapitaliq.com. All ratings affected by
this rating action can be found on Standard & Poor's public Web site at
www.standardandpoors.com. Use the Ratings search box located in the left
column.
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